• The company has reported improved Hotel EBITDA for second consecutive quarter and increased operating margins by 263 basis points in the third quarter;
• RevPAR grew for the seventh consecutive month and increased by 10,1% in the third quarter;
• Sol Meliá expects to meet its covenant obligations;
• Growth under formulas such as management or franchise (82%) will permit the incorporation of 27 hotels (9.5% of its current portfolio).
Sol Meliá today presented results for the first 9 months of 2010 which show a profit of 71.7 million euros compared to the 47.5 million euros in the same period in 2009, meeting market expectations after generating revenues of 976.7 million euros compared to the 899.9 million in the previous year. EBITDA grew by 16.5 % to 216 .1 million euros compared to 185.5 in the same period in 2009.
In parallel to developments in the global macroeconomic environment, the tourism industry has also beat expectations, with the World Tourism Organisation now expecting a 7% increase in international arrivals compared to the 4% it was previously forecasting. The data supporting this industry trend is varied, but key factors include the recovery in consumption in the United States and the reactivation of both individual and group business travel.
For Sol Meliá the best news is found in its financial management – after the most prudent and efficient crisis management and the evolution of the hotel business which has seen quarter on quarter growth in RevPAR (Revenue per available room), 7.7 % up to September. This trend was even stronger in the third quarter with RevPAR in the most important Spanish and European cities growing by 17.4% and with Latin America and the Caribbean, after the negative trend in the first semester affected by the earthquake in January in Haiti (-6.3%), seeing an increase of 10.9%.
Within the first nine months of the year, the average cost per stay grew by 1.6%, and operational margins, under enormous pressure since the beginning of the recession, improving by 134 base points.
With regard to Spanish resort hotels, in summer Sol Meliá saw a significant recovery in RevPAR of 8.3%, far higher than the 1.5% increase achieved in the first semester, thanks in large part to the resorts in the Balearic Islands and price improvements.
Financial strength and diversification, the basis for growth
Sol Meliá expects to meet its covenants and continue to strengthen its balance sheet. In 2010 the company has renewed 100% of the amount of the credit lines which ran out in the first nine months of the year, and has signed four loans for 74 million euros to ensure future liquidity levels, in addition to the sale of certain assets such as the Sol Pelícanos Ocas Hotel in Benidorm. Liquidity now stands at 487.4 million, thus guaranteeing the amortisation of debt obligations up to December 2012 of 379.9 million.
Sol Meliá is also working on maintaining the current structure of its debt which is benefiting from the favourable interest rate situation to hold fixed interest rates on 60% of its loans.
This financial strength together with the international awareness of its hotel brands has allowed Sol Meliá to design an international growth strategy which, while focusing on growth through low capital-intensive formulas such as management and franchise agreements, also allows flexibility to benefit from significant opportunities to acquire strategic assets arising from the real estate crisis. Examples include the two most recent acquisitions, the cutting-edge ME Barcelona hotel and the future ME London Hotel, located in the financial heart of London and designed by the architectural firm Foster & Partners.
Sol Meliá currently has 27 hotels in the pipeline to add to the portfolio with 7,455 rooms. 82% of them will be added under management or franchise agreements with the focus in the coming years on increasing penetration of key European city markets and also Latin America and the Caribbean, where the company expects to develop plots of land it owns in México and, later, in Brazil.
In 2011, markets such as the United States and Asia-Pacific will also become grater priorities. In The United States Sol Meliá has already added a great business hotel in Atlanta, the “Capital of the South”, and thanks to the recent alliance with the Wyndham Hotel Group, the biggest American hotel group, has recently announced the opening of the “Tryp New York by Wyndham”, the first opening for the TRYP brand in North America (until now, TRYP has only been present in Europe and Latin America).
With regard to emerging Asian markets, in December Sol Meliá will celebrate the 25th anniversary of the Meliá Bali Hotel, the first international property the company ever opened. This coincides with the reorientation and reinforcement of its corporate and sales structure in Asia, reflecting the greater flow of capital and travellers to and within the region. Sol Meliá will return to focus on strategic growth opportunities in destinations such as Indonesia, Vietnam, Thailand and, of course, China.
Positive trends and outlook
The financial results confirm a number of trends which are behind the company’s moderate optimism, although caution is still advised given the continuing low visibility of the scope and speed of international recovery along with the high levels of unemployment, which continue to hamper the world’s leading economies, and the uncertainty related to measures to cut public spending implemented in some countries, such as UK and Germany.
With regard to the outlook for the future, the company expects the future to bring continued positive trends in the business, particularly with a recovery in room rates becoming increasingly relevant. The improvement in consumption in the United States point towards a positive first quarter for 2011, along with hotels in Latin America, the Caribbean and European cities, particularly thanks to the reactivation of individual and group business travel. With regard to Spain, both urban business and leisure travel are improving in Madrid and Barcelona, although the evolution is less predictable in other cities, while current negotiations with Tour Operators point towards increased bookings for winter 2011, and a slight increase in rates for next year.
Sol Meliá emphasised that its “moderate optimism” is largely based on the positive evolution of the business expected for 2011 – the company is projecting global RevPAR growth in the mid-single digits for the year providing that the recovery continues in the most important markets, which combined with the financial strength mentioned previously will allow the company to continue increasing its presence in key markets, in many cases through adding emblematic hotels.