UDPATE 1-Sol Melia's H1 profit drops 41 pct, to miss target

Thu Aug 7, 2008 5:06am EDT

(Adds background, more details, share price)

By Ben Harding

MADRID Aug 7 (Reuters) - Spanish hotel chain Sol Melia SOL.MC will not meet its 2008 earnings targets it said on Thursday after posting a 41 percent drop in first-half profit, as a severe economic slowdown grips Spain and Britain.

"We are not sticking to our forecasts," a spokeswoman said, referring to a target to repeat last year's net profit of 161.9 million euros ($251 million).

It said the outlook for the end of the year would, in large part depend on the performance of business travel in markets including Spain. Summer bookings in Spain are expected to be down 5 percent in the third quarter. The economic downturn at home had had a greater impact than expected on bookings from Spain in recent weeks, it said.

"Demand for travel is expected to weaken a little this summer, although the impact will be deeper in Spain and the United Kingdom, two of our most important feeder markets," Spain's biggest hotel chain said in a statement.

Net profit for the first half fell to 36.7 million euros ($56.89 million) while sales were down 2.7 percent at 618.5 million euros. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 16.2 percent to 124.3 million.

"The net profit was well below our forecasts," said one trader in Madrid.

Sol Melia stock initially dropped 3.8 percent after results but recovered to trade 0.3 percent higher at 6.36 euros by 0834 GMT. The stock has fallen 38 percent in the year to date and underperformed the DJ Stoxx European travel and leisure sector .STXP by 22 percent as the market frets about tourist and business spending during the global slowdown and Spain's worst slump since 1993.

Spain's biggest hotel group, which specialises in the holiday sector in Europe and the Caribbean, said its positive performance was hit by the weak dollar and pound and the absence of capital gains from selling assets as well as the slowdown.

However, it added that the U.S. market was expected to "show a more positive trend, particularly in Caribbean destinations".

The company said it had trimmed its investment plans for this year to 200 million euros from 300 million originally, and said it did not rule out further capex cuts in the future if the economic environment continued to weaken.

It was due to update analysts on a conference call at 11 a.m. (0900 GMT).

Revenue per available room (RevPar) dropped 1.5 percent in the half, though this would have risen 1.6 percent were it not for the weak dollar, Sol said.

The firm, majority owned by Mallorca's Escarrer family, said the economic crisis was an opportunity to identify growth opportunities in emerging markets such as Eastern Europe and Brazil. (Editing by Sonya Dowsett, Greg Mahlich)

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