Rezidor Cutting Costs to Cope With Tough European Environment

Brussels-based Rezidor Hotel Group has unveiled as series of cost-cutting measures in an attempt to deal with what it says is still a fragile operating environment.

The company, which is 50.3 percent owned by Carlson Hotels and operates brands such as Radisson Blu, wants to save $10.9 million (€10 million) a year from 2017 onwards.

Planned targets include the renegotiation of procurement contracts and re-organizing its head office.

Included in its third quarter results is $4.4 million (€4 million) of restructuring costs related mainly to redundancy payments for 10 full-time employees.

Rezidor is hoping that its self-described “containment plan” will help it deal with an uncertain market.

During the three-month period to the end of September, the company suffered from poor trading in key destinations and took a hit from exchange rate fluctuations.

The likes of Belgium, France and Turkey – all of which have suffered terrorist attacks in the past year – struggled. There were, however, positive signs in some parts of Scandinavia, Russia and Germany.

Overall reported revenue was down 3.9 percent to $273.7 million (€251.3 million) with the reduction blamed on the strengthening of the Euro and the exit of four leases in the Nordics. Net profit fell by 16.8 percent to $16.2 million (€14.9 million).

Revenue per available room or RevPAR -- a key metric in the hotel industry – decreased by 2.2 percent on a reported basis.

"Market conditions continue to be fragile, especially in France and Belgium where the terrorist attacks are still affecting trading, with results in Brussels, Paris and Nice negatively impacting EBIT [earnings before interest and taxes] for the quarter by $4.8 million [€4.4 million]. Also Turkey and Saudi Arabia continue to suffer from unrest and the depressed oil price,” said Wolfgang Neumann, President and CEO.

“We are carefully monitoring these countries and are concentrating on operational efficiency.

“In response to the ongoing challenges in some key markets, we have launched a cost containment plan targeting a total saving of $10.9 million [€10 million].”

Rezidor isn’t the only company to suffering in the hotel sector. Accor recently revised down its full-year profit estimates, citing softness in France, while  InterContinental Hotels Group also cited security concerns in its own update.

Area of opportunity

One area where Rezidor is hoping it can turn things around is in Africa where the company has big expansion plans.

It already operates around 8,200 rooms and has 7,500 rooms in the pipeline

“We know there are some headwinds related to commodity prices or safety and security however we really believe in Africa as a growth market and are fully aware that this is a long-term play,” said Neumann on a conference call with analysts.