A reduced decrease in revenues and occupancy combine with financial results and a positive balance in crisis management to create a scenario of “prudence and optimism” in the Majorcan hotel chain
Palma – Sol Meliá today presented financial results for the first nine months of 2009, during which the company earned net profits of 47.5 million euros, 40.7% less than in the same period in 2008. Given the market conditions and the strong influence of unemployment and weak consumer demand on the tourism and travel industry, the results may be considered positive both in absolute terms and in comparison to other companies in the industry.
The hotel company presents its results at a time which it considers “slightly more favourable” on a global level than only three months ago, especially in the light of the estimations of the International Monetary Fund, with increases being made in GDP forecasts in some of the company’s most important source markets such as the United States, Great Britain or Germany, and the results being presented by major international companies in recent times which are generally better than previously expected.
Sol Meliá revenues between January and September reached 899.9 million euros, 9.3% less than in the first nine months of 2008, while EBITDA decreased by 16.0% with respect to the previous year, falling from 220.8 to 185.5 million euros.
The company highlights the strong reduction in the decrease in revenues – which fall by 16.1% rather than the previous 18.9%, – and other business indicators such as the average occupancy, which after falling by 12.1% in the second quarter, fell by only 6.6% in the third quarter. The company also highlights the more positive performance of resort hotels compared to city hotels in Spain, after resisting the slowdown in the British market due to the devaluation of the pound thanks to greater resistance in Spanish market for destinations in Spain. The evolution of the Influenza A (H1N1) virus has also been more positive than expected, not causing any increases in employee absenteeism to date (in fact, there was a slight decrease between January and October compared to the previous year) and thus avoiding any impact on costs or affecting the continuity of the business.
Together with an improvement of 28.2% in financial results thanks to favourable debt management and a decrease in interest rates, Sol Meliá also views very positively the recent factoring agreement related to ownership contracts at Sol Meliá Vacation Club, the timesharing area of the company. The agreement securitizes part of the SMVC worldwide customer portfolio and assists in further optimising liquidity levels at the company, while also generating a sign of confidence from the finance sector in the business diversification which Sol Meliá has defended for a number of years.
The company is cautious about the market performance in the coming months, although it does have internal indicators which suggest a certain optimism, such as an increasing interest in Spanish cities for business travel and groups, the improvement in European capitals such as London, Berlin, Paris or Rome, and the expected recovery in destinations in Latin America and the Caribbean thanks to the economic recovery underway in the North American giant.
Competitive strengths and crisis management
Given the current uncertainty, in which even medium term planning is difficult, Sol Meliá has been operating a crisis contingency plan for the last 14 months, focusing on revenue generation, cost optimisation, risk management and the balance sheet and cash flow.
- With regard to revenues, the series of revenue-generating measures adopted have led to an impact of 41.1 million euros over the first nine months of 2009. Along with cooperation with tour Operators and Travel Agencies, both traditional and on-line, promotional campaigns at solmelia.com, the further implementation of CRM (Customer Relationship Management) tools to personalise offers made to customers and direct incentives for Spanish travel agents, Sol Meliá has also successfully launched unique selling propositions for each of its brands, providing customers with value added packages instead of just offering discounts which erode brand equity and business results. One direct effect of this strategy is the better comparative performance in average room rates by Sol Meliá hotels compared to competitors in cities such as Madrid, Berlin, Milan or Paris.
- With respect to costs, the ambitious cost optimization programme in Corporate Offices (with half of the total savings) and also in the Hotel and Vacation club business units, has generated savings to September of 59.8 million euros, number that has allowed the Company to increment for the third consecutive quarter the global saving goal for the year. Highlight must also be made of the fact that surveys show that at the close of September 2009 the saving measures implemented over the year have not been seen to have reduced quality levels.
- The most significant advances in risk management include the maintenance of delinquency rates, bankruptcies and insolvencies at the same levels as before the crisis, as well as no significant changes in average collection periods, now standing at 64 days. In cooperation with Price Waterhouse Coopers the company is working on updating its Risk Map, at the same time ensuring its adaptation to current market conditions and practises.
- In the financial area, the objective of maintaining a healthy balance sheet and cash flow has led to high levels of liquidity, which after the factoring operation for Sol Meliá Vacation Club sales now stands at 353.2 million euros, while due debts for the 2010-2011 period are at 434,6 million euros. To ensure that the company is able to maintain this high degree of liquidity given the uncertainty that still reigns in financial markets, Sol Meliá continues to explore different ways of guaranteeing medium and long-term debt obligations.
Along with the positive results of the crisis contingency plan, Sol Meliá continues to focus on the competitive advantages that are its “structural” strengths: an unbeatable portfolio of assets in prime locations and in optimum condition, the majority of them renovated, a high degree of geographic and product diversification, a flexible cost structure, a potent sales and distribution network, and growing loyalty and brand awareness. The business model also combines four different formulas for running hotels, with the asset ownership and lease models joined by the less capital-intensive management or franchise agreements, formulas used for the majority of the new incorporations.
Strategic and long-term growth
Despite the focus on the four priorities in the contingency plan, the current market difficulties have not changed the company’s strategic vision, which continues to focus on the long term and on strengthening brand equity, improving customer loyalty and personalisation, innovation and improvements in competitiveness, and a growing focus on the company’s relationships with its stakeholders and those factors which directly affect the corporate reputation of the Spanish hotel leader, such as social and environmental responsibility.
Sol Meliá has recently joined the Corporate Reputation forum, a multi-sector group founded in 2002 by market-leading companies which aims to share and create awareness which assists in generating reputation on the basis of the impact that it has on generating value for companies.
The hotel company also continues to focus on growth and is currently working on adding 24 new hotels over the next two years, under low capital-intensive formulas such as management and franchise agreements (82% of the new hotels) or lease agreements (18%). The current growth plans for the next two years foresee the addition of a minimum of one new hotel every six weeks. Alongside with others, the new acquisitions will represent the entrance of Sol Melia’s flag in 4 new countries such as China, Denmark, Austria and Cabo Verde, a young and promising destination.
Sol Meliá detects signs of having reached bottom in the business cycle and does not foresee any new downturns in the business. The company confirms the excellent crisis management carried out by its executive team alongside the great efforts and involvement of a team of more than 34,000 people, together with the company’s structural and strategic strength which will allow Sol Meliá to make the most of any opportunities in a market which is in crisis but which also shows enormous potential for renovation and consolidation.
Picture: Carstino Delmonte/ Touristikpresse.net (Sol Melia – Tryp Hotel Barcelona Airport)