Rezidor Hotel Group saw its second-quarter net profit fall from Eu17.2m in the same period last year, when it recorded a one-off gain of Eu14m, to Eu4.7m.
The company also saw margins hit by the Arab spring and commented that, despite "continued recovery" in the European hotel market, the overall macroeconomic conditions remained "uncertain". The group is, however, not letting political events deter it and is continuing to grow, with the emerging markets remaining a focus.
Kurt Ritter, president & CEO, told an analysts' call: "Although I am happy with the development with the underlying business, I am not happy with the bottom line."
Ritter said: "The political turbulence in North Africa and the Middle East had a bigger impact than in the previous quarter. A substantial drop in management fees from Bahrain, Egypt, Tunisia and Libya, together with a weak development in South Africa compared to the very strong summer during the 2010 World Cup had a negative impact on group margins."
He added: "Despite a solid growth in the topline, the quarter noted a weak flow through. Two-thirds of the revenue growth came from newly-opened leased hotels which, as foreseen, did not generate any profit being in their early ramp-up phase."
Ritter commented that, looking forwards, the company had no leases in its pipeline, which is currently at over 20,000 rooms. The group said it was also seeing an increase in conversion opportunities, driven in part by banks selling hotels. For the first time, the group said, it was also seeing conversion opportunities in the Middle East.
The group's results were also negatively affected due to one-off operating costs relating to the increased Park Inn marketing activities and an organisational restructuring. Ebitda fell 15% to Eu14.8m on higher higher rental expenses.
The company saw revpar growth of 4.5% for the first half of the year, but 3% for the second quarter. Occupancy increased in the second quarter, to reach 66.7%, up from the first-half total of 61.%. In the Middle East and Africa regions, the influence of the Arab spring was seen by a fall in revpar of 27.8%, as occupancy fell by 23.1%. This was in contrast to the Eastern Europe, the strongest-performing region, which saw revpar grow by 19.1%, on rate growth of 12% and occupancy growth of 6.3%.
The established Rest of Western Europe region, which excluded the Nordics, saw more temperate revpar growth of 10.7%, coming from both occupancy (6.8%) and rate (3.6%). Ritter said: "My feeling for the immediate future is positive. The only enemy I can see is the economy, so all in all I am confident."
HA Perspective: Rezidor's decision to place much of its expansion on markets which others would not dare to touch means that the group can find itself hit more than most by events such as the Arab spring, which cost it Eu1.5m in lost fee revenue.
The group is to continue to pursue such regions, using its less-capital intensive management model, limiting its risk. Puneet Chhtawal, executive VP and chief development officer, commented: "The emerging markets remain a good opportunity for asset-light growth, which is very profitable.
"In the emerging markets you can expect up to 15% of the market getting delayed and washed out and what we will continue to do is compensate with conversion opportunities in our mature markets."
One reading of an effective emerging markets strategy is that it is about optionality. If one country is out of sorts, superior returns available from the successful ones will counterbalance things.
There is a bigger problem if a regional issue erupts and impacts many of your options. This is clearly what has happened with the Arab spring.
Luckily for Rezidor it has the super-stable Nordic markets and stable West European markets to balance regional emerging market risk.