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Sol Melia Earnings Rise by 19% in 2007;
Prepares Launch of its New Business Strategy

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Palma de Mallorca, Februrary 28, 2008 - Sol Meliá has announced company results for the financial year 2007 including a net profit of 161.9 million euros. Revenues increased by 7.2% to 1,347 million euros and EBITDA, although affected negatively by the devaluation of the dollar, rose to 349 million euros, a 7.1% increase over 2006.
  • A three-year period of consolidation and financial discipline comes to an end with the company in even better shape than the industry average to face the uncertainties of the economic cycle.
  • The hotel company has met market expectations for 22 consecutive quarters and is one of only three European hotel companies with an investment grade credit rating.     
  • The excellent results of recent years have allowed the company to build a solid base on which to found the qualitative change prepared up to 2010.  
With these results, the company ends an historical three year process, during which it has achieved the objectives of its 2004-2007 Strategic Plan; a reduction in company debt, an increased contribution from the Vacation Club business which now stands at 10% of group EBITDA, favourable asset disposal and acquisition policies, and an annual average increase of 5% in revenues per available room (RevPar). 

With the announcement of these results, Sol Meliá has now met market expectations for 22 consecutive quarters, in spite of the fact that the volatility affecting stock markets has meant that this has not always been reflected in the strength of the company’s share value.

The Strategic Plan 2004- 2007: the consolidation

In 2007 the company finalised the implementation of its previous Strategic Plan, with important achievements in both financial and business areas, achieving a reduction in debt levels of 350 million euros and an average increase in revenues per available room (RevPAR) of 5.3%. 

EBITDA margin increased by 280 base points meaning that there was a spectacular growth in ROCE of 490 base points over the period.

These favourable results are basically due to the performance of the Sol Meliá Vacation Club which contributed 10% of EBITDA for the period, and achievement of objectives with regard to asset rotation, particularly with regard to the favourable difference between the multiples of disposals and the acquisition of strategic assets (19.5 x against 8.5 x):
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Asset rotation 2004-2007: 
Volume
Multiple
Disposals 370 m€  19,5 X 
Acquisitions 175 m€  8,5 X 

With regard to the investment and divestment policies, Sol Meliá added superior quality rooms more in line with brand standards and removed from its portfolio rooms that did not come up to standards. Together with the new additions, the company made improvements in 95 hotels, investing 430 million euros, of which 225 were invested in renovating 40 owned hotels and 205 million in improvements to 55 hotels owned by third parties. 

In 2007, Sol Meliá exceeded its objective of raising an annual amount of 100 million euros in revenues through asset sales, and also focused new acquisitions on assets which conform to Brand Equity strategies, such as the German hotel chain Innside, with hotels that fit perfectly with the strategy for repositioning and enhancing the value of the Sol Meliá brands.

Mention should be made of the fact that in the final quarter of 2007, the company sold assets to a value of 53.5 million euros, as announced in November. The transactions affected three hotels in Spain (Meliá Cáceres Boutique Hotel, Meliá Trujillo Boutique Hotel and Meliá Mérida Boutique Hotel), and two in Europe, the Meliá Avenue Louise Boutique Hotel in Brussels and the Tryp Paris-Boulogne in the French capital.
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2007: Historic results 
Financial results 2007 (million euros) 
Key Figures
2007
2006
%
RevPAR 54.9 51.8 6.0%
Revenues 1,347.5   1,257.0   7.2%
EBITDA 349.1   326.0   7.1%
Net Profit 161.9   136.2   19%
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In 2007 the company achieved excellent results, basically due to the performance of its resort business (especially the Dominican Republic), growth in European cities, progress in business and congress travel (Meeting Sol Meliá) worldwide, and the positive evolution of the Sol Meliá Vacation Club. 

In the Canary Islands, after a third quarter which saw the end of a period of stagnation, the company began to recover positive trends thanks in part to the inauguration of low cost airline routes, expected to continue to grow in the future, and a commitment to tourism promotion by the local authorities.

In 2007 the company reduced debt by 67 million euros, a decrease of 7.1% for the fourth consecutive year, thus achieving the debt reduction objectives set out in the previous Strategic Plan. This conservative financial policy has allowed Sol Meliá to build up sufficient financial muscle to face the credit uncertainties of the near future, and has led the Moody’s credit ratings agency to renew the Sol Meliá classification as investment grade. 

2008: a year for preparation and progress 

Regarding the forecasts for 2008, the company expects to repeat the excellent results of 2007 in spite of the slowdown in real estate markets, tighter credit and the negative impact of the dollar exchange rate, accompanied by an increase in raw material and energy costs which will diminish the excellent results expected from both the hotel business and the Vacation Club. 

Alongside a reduction in consumption in some markets, Sol Meliá nevertheless sees positive factors that will create opportunities such as greater restraint in real estate prices and an adjustment to additional hotel supply which will put the brakes on the unsustainable growth seen in some areas.

With respect to hotel performance over the year, company projections forecast a positive business performance based on the negotiations already carried out with tour-operators and the growing importance in terms of diversification of eastern European feeder markets, less affected by the slowdown in the euro zone and the United States. With respect to commercialisation, sales have benefited from the emergence of more online tour operators which has compensated the slowdown in sales by some traditional intermediaries.

In any event, 2008 will be a year for planting the seeds which will allow excellent profits to be reaped in 2009 and 2010, and also for launching a number of major initiatives of fundamental importance to the future of the company, such as the new organisational and business models – currently being implemented – and a new Strategic Plan which will include actions and investment policies designed to produce a qualitative change in terms of organic growth and enhancement of brand equity.

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Contact:

Laura del Amo
Communication Manager
971 22 44 23
 

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Also See: Sol Meliá Hotels Studies How to Position and Differentiate its Meliá and Paradisus All-inclusive Resort Brands / March 2006
The 554 room Paradisus Palma Real Resort Opens; $120 million Resort is Sol Melia's 2nd Paradisus in Punta Cana, Dominican Republic / April 2006
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