2002 First Half Results

Transcription

1 2002 First Half Results Financial Summary Total Revenues, EBITDAR and EBITDA have decreased by 3.3%, 15.1% and 23.1% respectively. These percentage decreases are primarily due to the stagnation of the lodging, travel and tourism industry derived from the general economic slowdown, especially in Germany which, as one of our major feeder markets, has had an important impact in the Balearic and Canary islands. The slowdown in the European economy in the second quarter has had an unexpected impact on business hotels. Additionally, the effects of 11-S, specially regarding US clientele, has seriously affected Latin America. Also North Africa which is perceived as a focus of instability.the impact in the two mentioned areas has been particularly adverse and represents 27% of the Group s EBITDA. Negative exchange rate differences of 8.5 (non-cash outflow) as well as the increase in the tax rate derived from the losses of some of the companies of the perimeter of consolidation has meant a reduction in net profit of 85.6%. Despite decreasing by such percentage at the bottom line level, funds from operations have decreased by 22.9% helped by the reduction in the net interest expense of 5.7% Operations Total RevPar has decreased by 7.3%. By division, in European Resorts RevPar has decreased by 4% after a significant fall in our hotels in Tunisia (44.4% RevPar decrease). RevPar in Spanish resorts increased by 0.4% with a particularly good performance of the hotels in mainland Spain based on the loyalty of our Spanish clientele given our leading position and brand recognition in our domestic market. RevPar in the European City Division has decreased by 12% partly due to the dilution of the A.D.R of our hotels in Germany in the mid-market segment which were not consolidated last year. Without this effect, RevPar would have decreased by 5.5%. In Spanish cities, the comparable hotels report a 3.1% RevPar decrease explained by the 5.5% RevPar decrease in Madrid, partially offset by the 1.5% RevPar decrease in the rest of the Spanish cities. The delay in the celebration of Congresses and Conventions in fourth quarter 2001 that took place in the first quarter 2002 together with the unexpected cancellation of some Congresses in June explains the better performance of Spanish cities in the first quarter in comparison with the second despite the fact that Madrid has shown a slight recovery. Regarding the Americas Division, RevPar has decreased by 16.1%. The Company has perceived little sign of recovery in those areas with high dependency on US travellers, specially Cancun in Mexico. The poor evolution of the Gran Meliá Caracas due to the political instability in Venezuela (15% of owned rooms of the Division), reflected in a 34.2% RevPar decrease in Q2 has negatively offset the relatively good performance of the Dominican Republic due to a change in segmentation over the past year towards more US travellers. Main Variables (Million Euro) Jun - 02 Jun- 01 % REVPAR (Euro) % REVENUE % EBITDA % EBITDAR % EBITDAR MARGIN 28.4% 32.4% -4.0% NET PROFIT (Before min.) % NET PROFIT PARENT CO % FUNDS FROM OP. 71,3 92,5-22,9% Recent Achievements In July 2002, Sol Meliá inaugurated the Gran Meliá Fénix Hotel in Plaza Colón (Madrid) after a process of refurbishment that affected all of the hotel s guestrooms (216) and public areas. During the course of the quarter, Sol Meliá has opened 10 new hotels with 1,824 additional rooms, of which we would like to point out the 2 lease agreements in Madrid and Barcelona: Tryp Las Matas (57) and Tryp Barcelona Aeropuerto (205). After the incorporation of these establishments, Sol Meliá operates 103 hotels / 16,675 rooms in the Spanish city segment, plus 9 hotels / 1,215 rooms in the pipeline Prospects Sol Meliá, as the rest of the sector, is not exempt from the process of stagnation that we are witnessing in the European economy in recent months and the correspondent impact on the Lodging, Travel & Tourism industry. Nevertheless, the diversification of the Group together with the resilience of Sol Meliá in its core markets makes the Company forecast positive growth at the EBITDA level ( 0% / + 4% ), reducing, on the other hand, the initially forecasted 15% EBITDA growth. Regarding the summer season, July and August show that the performance of our resorts in mainland Spain is better than last year. On the other hand, the slowdown of the German economy together with the negative effect of the Ecotax in the Balearics are affecting negatively the evolution of the Spanish islands. Sol Meliá Performance As of December (*) H02 Net Profit (M. Euros) EPS CFPS (*) Assuming half of the 13.2 million shares issued in the Tryp acquisition Stock Performance Jan 2nd, 02 to Aug 5th, 02 Average Daily Volume: 2,971,408 Period High, March 12 th Period Low, August 5 th Market Capitalisation August 5th ,925,847 SOL MELIA Gremio Toneleros, Palma de Majorca Tel: (34-71) Fax: (34-71) arancha.sanchez-flor@solmelia.com carlos.lopez.garcia@solmelia.com Enrique.ochoa@solmelia.com Jonas.linares@solmelia.com

2 INDEX Page 1. Letter from the E.V.P. Communication 1 2. Information on Operations 3 3. Consolidated Income Statement 6 4. Consolidated Balance Sheet 8 5. Expansion 12

3 1. Letter from the E. V. P. Communication Dear friend, Sol Meliá has seen an EBITDA decrease derived from the slow performance of the regions more severely affected in recent quarters, particularly Latin America, Tunisia, Paris, London and Madrid, compared with a very positive first semester Due to the economic slowdown that we have seen in the second quarter in Europe as well as the reduction of travel activity from the US market, the hotel sector has been affected by declining RevPar. We have not been immune to the circumstances and, even though the Company shows resilience in our core markets in comparison with its peers, given the lower growth prospects announced for the European economy and the instability of Latin America, we do not foresee a major improvement in the second half of the year as anticipated. There has been a lot of media attention with regards to declining tourist arrivals to Spain for the summer season. We believe this will affect principally the Canary and Balearic Islands and not so mainland Spain. Our leading position and brand awareness has enabled us to perform better than the market and we have been able to minimize the decline from North European markets and substitute them with domestic clientele. We do not see a situation as dramatic as the media is reporting even though we see a slowdown in comparison with last year as mentioned above. However, we remain pessimistic on any improvement in our Tunisian operations for the near future. For summer 2003, the Company has negotiated price increases in the range 0% to + 3% over the contracts of 2002 which together with the segmentation, other channels of distribution used in our resort hotels and a better commercialisation that will reduce the number of offers, lead us to expect a better performance for next year. In North America, the reduced leisure, business and convention travel outside the US due to perceived insecurity, will have a greater impact on our operations in Latin America and the Caribbean than anticipated. Political and economic unrest in South America, principally in Argentina, Venezuela and Brazil, will also affect local hotel performance. This is true not only of economic activity in North America, but also in Europe, where the economic slowdown is affecting business, travel and Convention activities in our city hotels. We do not foresee a change in this trend in the second semester and therefore one of our major threats in our growth target is materialising itself and therefore is affecting our outlook for year-end. Given the above, Sol Meliá reduces the initial forecast of 15% growth to 0% / +4% at the EBITDA level. In relation to the Results, despite decreasing by 85.6% at the Group Profit level, such percentage is distorted by non-cash items and extraordinary results. At the funds from operations level the decrease represent 22.9%, helped by a reduction in interest expenses. With regards to our cost reduction programme, we are in line with expectations and to June, the Company has achieved 19 Mn and thus we maintain the 30 million estimated for yearend. As mentioned in our last quarterly report, we continue to reduce our debt levels and as of June 2002 the Company has decreased the net debt by million to 1,082. which, together with the positive evolution of interest rates, has reduced the Company s interest expense by 3.9 million. For the year-end, the company expects 14 million of extraordinary expenses in concept of provision for the potential decline in value of the long-term investments that represent the 1

4 6.17% stake in AOL-Avant. We will take this measure of prudence in light of the current situation of the businesses directly related with the Internet. At the strategic level, Sol Meliá continues to focus on its internal operations in order to improve return on investments. We are not considering additional investments in new hotel properties. During the semester we have opened 14 establishments that represent 2,405 additional rooms, mainly through lease (29%) and management (50%) contracts. On the other hand, the Company continues with the process of disaffiliation in non-strategic or troubled regions as well as for the sake of brand consistency which represent 10 establishments and 1,308 rooms. During the second half of 2002, the Company will drop from the portfolio 9 additional establishments that represent 1,000 rooms. Regards, Jaime Puig de la Bellacasa E.V.P. of Communication & Institutionnel Relations 2

5 2. Information on Operations 2.1. PROPERTY BUSINESS RevPar in the Property Business including Sol Meliá s owned and leased hotels has decreased by 7.3% partly due to the effect of including the leased hotels in Germany with a RevPar significantly lower than the average of the Company and the new incorporations in the urban mid-segment. Excluding these newest additions total RevPar would have decreased by 5.7%. Regarding the European Resort Division, the decrease of 4.0% in RevPar is partly explained by the poor performance of hotels in Tunisia which have reported a 44.4% decrease, offset by the positive performance of the resorts in Spain, specially on the mainland, reflected in a 0.4% RevPar increase. In relation to the European City Division, the 12.0% RevPar decrease is basically explained by the consolidation of the German hotels with an A.D.R. 40% below the average of the Division. The newest incorporations under the Tryp brand (Alcalá 611 in Madrid, Jerez, Barcelona Aeropuerto, Las Matas, Recoletos and Verona) also explain also this effect. On a like-for-like basis, RevPar in the division would have decreased by 5.6%, negatively affected by the negative evolution of Paris during the second quarter. In Spanish cities, RevPar of comparable hotels decrease by 3.1%. During the second quarter, the hotels in Madrid, have shown an improvement reflected in the accumulated 5.5% RevPar decrease versus the decrease by 7.8% reported in the first quarter. Additional supply of 1,500 rooms in Madrid during 2002 together with the dependency on the leisure clientele from the US in the establishments of the Gran Via area explains the negative evolution of the city. On the other hand, Barcelona, Seville and Palma de Majorca have stated a worse performance in Q2 in comparison with Q1 derived from the celebration of delayed Congresses and Conventions due to 11-S in the beginning of 2002 together with the cancellation of important Congresses in June. Regarding the Americas Division, RevPar has decreased by 16.1%, negatively impacted by the poor evolution of the Gran Meliá Caracas due to the instability in Venezuela reflected in a 34.2% RevPar decrease in Q2. On the other hand, the good performance of the Dominican Republic (33% of owned the rooms in the Division) due to the increasing importance of the country as a Leisure/Business destination, together with the efforts made on the Marketing & Sales side, the quality of the product and the Sol Melia s strategy in opening the country to the US market, offset the major slowdown in Venezuela. There are positive signs for the region as the fact that American Airlines has added two new destinations in the Dominican Republic: Santiago and Punta Cana, where Sol Meliá owns 1,500 rooms. The airline will serve four additional return flights per week from New York to each of those destinations. Furthermore, this company has established a daily flight from Miami to Santiago. These additions are the result of the increasing interest of US tourism in the Dominican Republic. 3

6 Table 1: Hotel statistics 02/01 (RevPar & A.D.R. in Euros) Owned & Leased Hotels Jun-02/01 % Occupancy RevPar A.D.R. EUROPEAN RESORT % %o/ % -4.0% 6.5% % EUROPEAN CITY % %o/ % -12.0% -4.5% % AMERICAS % %o/ % -16.1% -9.3% % TOTAL % %o/ % -7.3% 2.2% % Please find below a breakdown of the components of growth in room revenues at the hotel level for owned and leased hotels taking into account the company as a whole. The increases in available rooms in the European City Division are explained by our hotels in Germany (11 Tryp hotels with 1,303 rooms), in Italy (Meliá Milano, 288 and Tryp Verona, 203 rooms) and Spain (Tryp Alcalá 611 and Tryp Las Matas in Madrid, Tryp Jerez, Tryp Barcelona- Aeropuerto and Meliá Trujillo). The decrease in available rooms in the European Resort Division is explained by the loss from the portfolio of the leased Sol Tropical in Majorca and the delayed openings of some seasonal hotels. Table 2: Breakdown of total room revenues owned/leased hotels 02/01 % Increase Jun 02/01 EUROPEAN RESORT EUROPEAN CITY AMERICAS TOTAL RevPar -4.0% -12.0% -16.1% -7.3% Available Rooms -3.9% 25.5% 0.8% 8.1% Room Revenues -7.8% 10.5% -15.4% 0.2% In light of the evolution of RevPar as of June 2002, the only increase in revenues has taken place in European City due to the addition of new available rooms. Table 3: Hotel revenues split 02/01 for owned/leased hotels Jun-02/01 E.RESORT E.CITY AMERICAS TOTAL (million Euro) 02 %o/ %o/ %o/ %o/01 01 ROOMS % % % % 257 F&B % % % % 138 OTHER REVENUES 6-4.5% % % % 29 TOTAL REVENUES % % % % 424 4

7 2.2. MANAGEMENT BUSINESS Management fees have decreased by 15.7% due to the weak performance of the hotels and resorts in Latin America, Caribbean and Asia. In the European Resort Division, total fees have increased by 3.2%. The good performance of our resorts in Croatia (+ 14%) and our last incorporations: Gran Meliá Volcán Lanzarote (255 rooms), Meliá Benidorm (526 rooms), Sol Suncrest (457 rooms) offset the poor performance in North Africa and Middle East which fees decrease by 59.1% Regarding the European City Division, fees decreased by 0.3%. The reason is the fully consolidation of the hotels in Germany in the last quarter 2001 and the not contribution in management fees in June 2002 as they did in first semester Excluding this effect, management fees would have increased by 11.2%. In the Americas Division, the 15.3% decrease represents a small improvement regarding the first quarter. The delay in American travellers which choose close to home destinations instead long haul trips is affecting seriously our resorts in Mexico, mainly in the area of Los Cabos, with a total decrease in fees of 27.8%. Also, the political, but mainly, economic situation in the feeder markets in Latin America, such as Brazil, Argentina and Uruguay that makes their travellers difficult to go to destinations where they have to pay in US dollars, is also affecting the evolution of the area. In Brazil, fees have decreased by 36.4% - affected by the devaluation of the Real - and the situation is not expected to change until the political situation in the country become clearer. As expected, Cuba has been one of the most affected destinations in the Caribbean, reflected in a 34.7% decrease in management fees. The slowdown of the Canadian feeder market is strongly affecting the business, specially in the Varadero region. Nevertheless, the Company is witnessing an improvement in the Canadian market and expects a recovery of the region before the end of the year. In Asia, the reduction in fees is due to the weak performance of the hotels in Indonesia. Table 4: Management fee of hotels managed for third parties FEE REVENUES (million Euro) jun-02 Incr. 02/01 jun-01 EUROPEAN RESORT Basic % 2.7 Incentive % % 4.0 EUROPEAN CITY Basic % 3.1 Incentive % % 4.3 AMERICAS Basic % 2.1 Incentive % % 4.6 ASIA-PACIFIC Basic % 0.9 Incentive % % 1.7 CUBA Basic % 5.9 Incentive % % 7.6 Total Basic % 14.6 Total Incentive % 7.7 TOTAL %

8 3. Income Statement Revenues Total Revenues have decreased by 3.3%. Revenues have been principally affected by the drop in management fees, 15.7%, and the Other Revenues items, 33.3%, as a result of a sharp decrease in revenues from technical services and the fact that the Company has stopped the sales of Time-Share units in Cancun and Punta Cana. Operating Expenses Total Operating Expenses have increased by 4.3%, explained by the new hotels added to the Group portfolio. Excluding this effect, operating expenses remain at the same level as last year. Personnel expenses have increased by 3.3% due to the new hotel additions, decreasing by 0.6% in comparison with June 2001 on a like-for-like basis. Rental expenses have increased by 31.1% as a result of the new incorporations, mainly in Germany and a 20% increase in rental expenses of nine former Tryp hotels derived from the merger between Sol Meliá, S.A. and Tryp S.A. by which according to the Spanish Building Lease Law, the owners of the hotels are entitled to such increase. On a yearly basis, such increase would imply a maximum of 1.2 million Euros that are widely offset by the positive fiscal impact of the goodwill of 12.7 million Euros. The Company has started to materialize cost savings at the operating level, mainly in personnel expenses and cost of goods sold, estimated at 19 million Euros. EBITDA/R Total EBITDAR EBITDA excluding rentals- has decreased by 15.1% while EBITDA has decreased by 23.1% explained by the Rental Expenses of the newest incorporations, principally Germany. Net Profit Group Net Profit has decreased by 85.6% because of the slowdown of the industry together with the decrease in Extraordinary profit from 11.8 million to 0.9 million and the negative exchange rate differences generated in Financial Results increased by 6.8 million Euros explained by the 8.5 million loss in Exchange Rate Differences due to the devaluation of the Latin American currencies. The impact on the Financials does not affect the Cash-Flow generation of the Company and it only affects at the accounting level. Net interest expense has decreased by 1.9 million due to the positive evolution of the interest rates and the decrease in net debt. Depreciation and amortization has increased by 3.9 million Euros due to the increase in Assets after refurbishment and the five-year amortization period of the investments in e- transformation. 6

9 Table 5 : Sol Meliá Consolidated Income Statement. (Millions Euros) Jun 2002 Jun 2001 Hotel Revenues Management Fees Other revenues Total revenues % Raw Materials (60.8) (64.3) Personnel expenses (161.3) (156.1) Change in operating provisions (2.0) (1.5) Rental expenses (30.9) (23.5) Other operating expenses (117.9) (112.1) Total operating expenses (372.9) (357.5) 4.3% EBITDA % EBITDAR % Profit/(loss) from equity investments (2.3) (1.1) Net Interest Expense (30.8) (32.7) Exchange Rate Differences (8.5) 0.1 Total financial profit/(loss) (39.3) (32.5) 20.8% Depreciation and amortisation (51.4) (47.5) Consolidation Goodwill amortisation (1.4) (1.4) Profit/(loss) from ordinary activities % Extraordinary profit/(loss) % Profit before taxes and minorities % Taxes (3.3) (9.6) Group net profit/(loss) % Minorities (P)/L (4.3) (3.3) Profit/(loss) of the parent company % FUNDS FROM OPERATIONS % 7

10 4. Balance Sheet Assets The Cash item has decreased by 28.3 Mn mainly due to the maturity of a 25m short term bond issue on 14/06/2002. The reduction in Tangible Fixed Assets is explained by the distorting effect of the depreciation of the Mexican Peso and Venezuelan Bolivar. Liabilities & Shareholder s Equity Total Net Debt amounts to 1,086 Mn., 164m below the first quarter figure. This fall in Net Debt should be seen within the frame of the reduction of the debt levels and the strengthening of the Balance Sheet. The decrease in the item Differences in conversion of companies fully consolidated is also a result of the exchange rate movements in the subsidiaries of Mexico and Venezuela. 8

11 Table 6: Consolidated Balance Sheet (million Euros) ASSETS Jun 02 Mar 02 Cash on hand and banks C/A with equity affiliates Inventory Trade receivable Other receivable Allowance for doubtful accounts (24.2) (23.6) S/T securities portfolio Loans due from affiliates Other loans Prepaid expenses Holding of own shares TOTAL CURRENT ASSETS % Goodwill from co. Fully consolidated Goodwill from co. equity participated Intangible assets and rights Intangible assets provisions and amortisation (33.3) (35.4) Net intangible fixed assets % Land and buildings Technical installations and machinery Other fixed assets Tangible assets provision and depreciation (600.8) (635.2) Net tangible fixed assets 1,6950 1, % Equity Affiliates L/T loans due from affiliates L/T securities portfolio Other loans Provisions (1.5) (4.4) Financial investments FIXED ASSETS 2, , % Deferred expenses Start-up expenses TOTAL ASSETS 2, , % 9

12 Table 6 : Consolidated Balance Sheet (continued) LIABILITIES AND S/H'S EQUITY Jun 02 Mar 02 Debenture Bonds Payable S/T loans S/T loans due to affiliated companies Trade accounts payable Other payable Prepaid income Operating provisions TOTAL CURRENT LIABILITIES % Debenture Bonds Payable L/T loans L/T loans due to affiliated companies Other L/T Liabilities TOTAL L/T LIABILITIES 1, , % Share capital Share premium Distributable reserves Reserves in companies fully consolidated Reserves in companies equity participated Revaluation reserves Non-distributable reserves Profit/(loss) previous year Differences in conversion of co. fully consolidated (0.2) 44.6 Differences in conversion of co. equity participated (1.2) 0.2 Consolidated profit/(loss) Profit/(loss) attributable to external shareholders (4.3) (1.4) Interim dividend (1.9) 0.0 TOTAL SHAREHOLDERS' EQUITY 1, , % First consol. Reserves from co. fully consolidated First consol. Reserves from co. equity participated Deferred income Provisions for risks and expenses MINORITY INTERESTS TOTAL S/HS' FUNDS AND LIABILITIES 2, , % 10

13 Table 7. Liquidity Ratios Jun 02 Mar 02 A. SHORT TERM LIQUIDITY CURRENT RATIO Current Assets/Current Liabil x C.F. from operations/interest exp. 2.1x 2.3x B. LONG TERM LIQUIDITY GEARING RATIO Net debt/total Equity 91.8% 112.2% DEBT TO CAPITAL RATIO Net Debt / Net Debt +Shareholders Equity 47.9% 52.9% NET DEBT TO MARKET CAP. August 5th 111% 85.1 % As explained above, Sol Meliá is aiming to strength its financial structure. This goal has materialised in a decrease in net debt, that has impacted the gearing ratio, from 112.2% down to 91.8%. 11

14 5. Expansion The table below shows a description of the progress in the Sol Meliá hotel portfolio during 2002: Table 8. Expansion plan. PROPERTY & 01/01/02 ADDITIONS LOSSES CHANGES 30/06/02 SIGNED TOTAL H R H R H R H R H R H R H R EUROPEAN CITY 91 14, , , ,914 Owned Hotels 37 7, , ,476 Leased hotels 54 7, , , ,438 EUROPEAN RES , , , ,912 Owned Hotels 42 13, , , ,066 Leased hotels 19 4, , ,846 AMERICA 12 4, , ,060 TOTAL OWNED 91 24, , , ,602 TOTAL LEASED 73 11, , , ,284 TOTAL , , , ,886 MANAGEMENT 01/01/02 ADDITIONS LOSSES CHANGES 30/06/02 SIGNED TOTAL & FRANCHISE H R H R H R H R H R H R H R EUROPEAN CITY M 22 3, , ,344 F 21 2, , ,320 EUROPEAN M 58 20, , , ,106 F 15 4, , ,090 AMERICA M 30 6, , , ,541 F 10 1, , ,276 ASIA-PACIFIC M 10 3, , ,559 F CUBA M 22 8, , , ,067 SUBTOTAL M , , , , ,617 F 46 8, , ,686 TOTAL , , , , , ,303 TOTAL GROUP , , , , , ,189 M= Management; F= Franchise In the property business, the only addition corresponds to the recently refurbished Meliá White House s apartments (115). Regarding the leased hotels, the newest additions are the Tryp Jerez (98 rooms), Tryp Barcelona Aeropuerto (205) and, in Madrid, Tryp Alcalá (94) and Tryp Las Matas (57). In the European Resort Division the addition correspond to the Sol Pirámide Salou (230). The loss corresponds to the Tryp San Sebastián Playa (51) in Sitges. In relation to the management business, the Melia Las Claras Boutique Hotel (72) in Salamanca, plus 3 Tryp hotels in Spain that represent 313 rooms has been added to the European City Division. The only new incorporation in the Resort Division is the Sol Costa Daurada, a franchised hotel with 300 rooms by the leisure park Universal Mediterránea. The new additions in the Americas division corresponds to 3 urban establishments in Brazil. During the course of the first half, Sol Meliá has dropped 1 establishments in Brazil, 3 in Spain, 1 in the Lebanon, 2 in Morocco, 1 in Portugal and 1 in the Dominican Republic which represented 1,215 rooms under management contracts. These decisions are framed within the disaffiliation process that the company indicated it would pursue over recent months in order 12

15 to increase brand consistency. During the second half of 2002, the Company will drop from the portfolio 9 additional establishments that represent 1,000 rooms. The remaining differences in rooms number corresponds to changes in existing hotels. Total impact at the EBITDA level from the disaffiliations that will take place during 2002 represent around EUR 2 million. Table 9. Expansion summary HOTELS ROOMS 01/01/ ,554 ADDITIONS 14 2,405 LOSSES 10 1,308 30/06/ ,651 SIGNED 47 11,538 TOTAL ,189 Table 10. Signed projects of owned and leased hotels TOTAL Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms PROPERTY EUROPEAN CITY Spain LEASE 0 0 Spain ,053 Italy Tunisia Switzerland Germany Subtotal , ,895 PROPERTY EUROPEAN RESORT Spain 2 1, ,012 LEASE Spain Subtotal , ,492 AMERICA PROPERTY Puerto Rico Subtotal TOTAL , , ,887 13