CEO statement

Rezidor continues to grow: I am proud to report that 2010 was our third consecutive record year in terms of room openings. We have also seen strong recovery in most markets after the global downturn in 2009 and are now well equipped to take on the new opportunities that lie ahead.

A significant but also relative rebound

2010 has been a positive year for us with a faster and stronger recovery than we had expected. After a turbulent 2009, in which the whole industry witnessed an unprecedented RevPAR drop, the recession bottomed out towards the end of that year. When we entered 2010 we saw the first green shoots of recovery. This manifested itself as an improvement in occupancy followed by an increase in room rates in the third quarter, for the first time in two years.

Western Europe is the region that led the recovery throughout the year, and we saw significant RevPAR growth in key markets such as Germany, France, Benelux and Sweden, whereas other countries, especially in the emerging markets, have shown a more mixed development.

But despite the positive news, I should also mention the fact that absolute RevPAR is still at a very low base – and we are still well below the levels we enjoyed in 2007/2008. Several macroeconomic uncertainties also remain – government spending cuts, private and public debt, unemployment and inflation.

Strong revenue growth and improved margins

Revenue started to pick up again in 2010, reflecting the market recovery. Margins also improved, primarily as a result of the positive market development, tight cost control and the fixed-lease structure in Rest of Western Europe (RoWE). The combination of strong revenue growth and improved margins resulted in a substantial increase in cash flow.

During 2009 and 2010 we focused on preserving cash by reducing costs, improving working capital and deferring some investments. We are now ready to increase the maintenance of leased hotels over the next two to three years to ensure that our portfolio keeps its competitive advantage.

A record year of room opening

Rezidor has continued to pursue its growth strategy during the crisis. Despite still difficult conditions, 2010 was yet another record year of openings for us, which I think is a fantastic result. We added 7,200 new rooms to our system, including flagships such as the Radisson Blu Waterfront Hotel Stockholm; and 2,400 of those rooms relate to a portfolio deal to manage the largest hotel chain in the Baltics. 50% of the new rooms opened in 2010 were conversions of existing hotels, which are an increasingly important part of our business and generate immediate cash flow. We also signed 8,100 rooms during the year, all of which were under high-margin fee-based contracts. Our pipeline of 20,000+ is ever-expanding and continue to be one of the largest in the industry. Radisson Blu and Park Inn by Radisson feature the largest European pipelines in their respective market segments.

Thanks to our strong business development team and fast decision-making process, frontline people can react quickly, and we have therefore maintained our momentum and pace of growth throughout the downturn. While many of our peers preferred to concentrate on consolidating their business, we continued to make ours grow, with an impressive 18,000 new rooms opened between Q2–2008 and Q3–2010. Another key to our fast expansion is building relations with strategic partners – this has always been one of our strengths and a growing number of multi-property owners are evidence of this success.

Asset light growth in emerging markets

Since our public listing in November 2006 we have been walking the talk and have focused on profitable asset-light growth mainly in the emerging markets of Russia/CIS and Africa, which is also reflected in our impressive pipeline. These new and dynamic markets present highly attractive development opportunities because of their strong economic growth fuelled by undersupply or old inventory combined with high room demand and low operating costs. We are happy to see that our strategy is paying off, with a significant EBITDA contribution from these up-and-coming markets in 2010. 

Boosting brand awareness

We are strongly focused on the development of our two core brands, Radisson Blu and Park Inn by Radisson. In line with this strategy, and together with Carlson, we sold the Regent luxury brand in mid–2010 to the Taiwan-based operator Formosa.

A key priority is to improve awareness of our two main brands as a means to increase the RevPAR penetration. One initiative during 2010 was the announcement of the new name for Park Inn: Park Inn by Radisson. I am convinced that the link with Radisson’s strength and reputation will allow Park Inn to grow even faster, and will further increase awareness of both brands. The name change will be supported by a major new marketing and sales campaign for Park Inn in 2011, mainly in the UK. 

Another strategic step that will help enhance our brand awareness and brand values is Rezidor’s and Carlson’s closer co-operation and common aim to globally align its brands. Carlson announced an ambitious strategy for Radisson at the beginning of the year: The company, together with its hotel owners, launched an investment program of up to USD 1.5 billion, focused on establishing flagship hotels in key US destinations and on upgrading the existing portfolio. This is good news for us at Rezidor as this will help drive more US travellers to our properties in EMEA.

Also our fashionable lifestyle brand Hotel Missoni will further increase its brand awareness: Q1 2011 saw the opening of Hotel Missoni Kuwait – a unique addition to our Middle East portfolio.

One of our remaining major challenges is to improve profitability in RoWE. This will be done through both top-line growth initiatives and cost-management programmes. The refurbishment of several Park Inn hotels in the UK in recent years and the creation of a dedicated Park Inn sales force in 2010 under a new experiences leadership are examples of activities aimed at boosting profitability in one of our key markets.

Our strategy remains unchanged

Our long-term strategy of further profitable growth stands unchanged. We are a truepeople business with an industry-leading employee satisfaction score and are committed to expanding responsibly, living up to our recognition as one of the World’s Most Ethical Companies in 2010. The financial targets also remain and we will continue to focus on tight cost control, cash and margin improvement. Moving forward, we should enjoy more synergies from the size of our business as we continue to grow: our current pipeline will add 2 to 2.5 pts to the EBITDA margin when the hotels under development actually open, supporting our 12% Group target.

I feel encouraged by the positive developments throughout 2010. Visibility, however, is still limited; it is difficult to forecast how the market in 2011 will develop and when the absolute RevPAR will reach the high levels we enjoyed in 2007/2008. Our well-defined brand strategies, profitable business model and focus on cost control put us in a very strong position to vigorously pursue our ambitious expansion plans for 2011.

Kurt Ritter, President & CEO