Sol Melia Increases Net Profits to 136 Million Euros in 2006

Spanish hotel company Sol Meliá celebrated its fiftieth anniversary in 2006 with a 7.9% increase in revenues, a 13.2% increase in EBITDA, and an increase in net profits of 51.2%. The results have been influenced by the positive performance of the company’s three hotel divisions and Sol Meliá Vacation Club (SMVC), together with improvements in financial ratios. 

The results of the 4th quarter also reflect this positive trend. EBITDA grew by 13.9%, reaching 60.7 million euros while net profits increased by 113.6% (16.1 million euros). 

In addition, and as confirmation of the positive performance of the company, the outlook for the future, the reduction in debt of 333 million euros that Sol Meliá has achieved between 2004 and 2006, along with improvements to its credit rating, the Moody’s credit rating agency has classified the hotel chain as investment grade Baa3 with stable outlook.

The recovery in the performance of Spanish city hotels in 2006 and the positive trends seen in company resort hotels, particularly in Spain and the Dominican Republic, boosted results in the three hotel divisions, with overall RevPAR increasing by 7.5%. Sol Meliá Vacation Club has also increased the number of weeks it has sold by 70%, generating an increase in revenues of 51%. Sol Meliá has also improved its financial results over the year by 20%.

The hotel company report on each business division includes the following:

The performance in European Resorts reflects positive market conditions in Spain, a leading world tourism destination which has seen a 4.5% increase in visitor numbers to 58.4 million in 2006 according to the UNWTO. RevPAR for the European Resorts division grew by +4.5%. The outlook for the company for the coming summer indicates similar or even better results thanks to the strong growth of direct sales, the recovery in the German market, and the positive negotiations with European tour operators.

Net sales through solmelia.com in 2006 reached 103 million euros, an increase of 48% and representing 13% of sales. At close of year the company had a total of 1.7 million subscribers to its special offers newsletter, a figure which it claims is increasing at a rate of 1,500 per day.

With regards to the European City division, the company confirms growth in Spain with no signs of a downturn in the medium term. In 2006 RevPAR grew by 9.1% in the domestic market, led by an increase in demand from business travellers and incentive, congress and convention groups, together with a positive macroeconomic context. Further growth is expected in 2007. City hotels throughout Europe show similar characteristics.

Also in 2006 the hotel chain announced the renovation of its brand image and attributes, particularly in relation to the emblematic Meliá Hotels brand. The plan includes the renovation and implementation of new brand standards and concepts in 30 hotels over a 3 year period in which the company expects to invest 300 million euros. Part of the strategy includes the introduction of the new Yhi Spa concept, a new brand for the hotel company’s wellbeing product.

The Americas division has seen RevPAR increase by 8.3%, boosted by the favourable development of incentive groups and leisure travel in the Dominican Republic, and by the Paradisus Palma Real, the company’s most recent addition in the country. This year Sol Meliá also foresees a positive outlook for the Dominican Republic.

With regard to asset management, Sol Meliá made asset disposals to a value of 96 million euros at an EBITDA multiple of 18.5x, including the sale of 50% of the Meliá Colón (218 rooms in Seville, Spain) for a total price of 40 million euros at an EBITDA multiple of 21.4x. Sol Meliá retained the other 50% stake and also a 35-year management contract.

On the acquisitions side, the company has announced the purchase of 475 hectares of land in Salvador de Bahía, Brazil, on which it plans to build a leisure facility to include a hotel, Sol Meliá Vacation Club units, residential areas and shopping facilities following the model developed with great success in Punta Cana. The project is scheduled to be completed at the end of 2008.

Sol Meliá Vacation Club has increased the number of weeks sold by 70% in its ten properties (Cancun, Puerto Vallarta, Punta Cana, Puerto Rico, Central America and the Canary Islands). Sales grew by 51% to 86.9 million euros. Sol Meliá Vacation Club will continue to expand in both the Caribbean and the Canary Islands in parallel with positive market trends in the vacation ownership market. 

In addition, in January 2007 Ailemlos, S.L. (previous owners of Tryp Hotels) sold its 6.5% stake in Sol Meliá (approximately 12 million shares). The operation also allowed the company to increase the free float of SOL shares, while liquidity rose from 8 million euros per day (3 months before the operation) to 27,5 million euros at the time.

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