Louis may separate hotels from core operations

Eyes leisure diversification

 

Louis plc, the diversified international leisure group, is considering to release a significant part of the real estate value of Louis Hotels either through a “sale and lease–back/ manage-back” plan for most of its properties within this year or through a three-year program of selected sales of hotels which have a low return in relation to their real estate value.

The group is also looking to expand into new leisure and tourism sectors that would make a perfect fit with its main cruising and hotels activities, while it also aims to operate its first resort hotel in Egypt’s Sharm El Sheikh, the 5-star Louis Tiran Sharm in April 2008. Property development is also high on the agenda of Louis since the Group owns significant number of assets both in Greece and in Cyprus.

Dr. Stelios Kiliaris, Louis Group Executive Director, told the Financial Mirror in an exclusive interview that the group is looking at the possibility of separating the hotel properties into a company wholly-owned by the Group that at a later stage could be spun-off to increase shareholder value.

Joining the consortium bidding for management of the Larnaca port and marina also forms part of the new strategy of the Louis Group to diversify further its product line and broaden its revenue base, but always remaining close to its two core activities of cruising and hotels.

 

Cruising

 

The Louis Group has become a household name in the cruising industry and conducts cruises across the globe, either under its own brand or by chartering its vessels to third parties. The group owns 13 vessels. It operates two ships out of Cyprus, where it is based, four out of Piraeus, and two out of Genoa and Marseille.

It also has another five vessels under long term charter agreements, four with Thomson Cruises of TUI and one with Transocean. The group also charters ships to agencies, governments and tour operators for specific needs or to be used as floating hotels, such as the G8 summit and major international sports events.

The group’s cruising capability accounts for approximately 13.000 berths.

Kiliaris said the own brand operations contribute around 50% of cruising revenue while chartering contributes the rest. The Louis Group wants to expand its presence in markets where it already active such as Greece, France and other European countries.  Emphasis is being given to cruising during the winter period, with the Sapphire operating its first winter season in the Red Sea.

Louis has also concluded a franchise agreement with Stelios Hadji-Ioannou’s easyCruise business, to operate low-cost cruises in the Greek islands.

 

Hotels

 

The Louis Group’s second main activity is the hotels division. The group either owns or manages 25 tourist hotels in Greece, Cyprus and son in Egypt, in addition to the pair of Hilton hotels in Nicosia, with a total capacity of 14.000 beds.

The 25 beach hotels and Hilton Park in Nicosia operate under Louis Hotels, a 99,6% group subsidiary, while the flagship Hilton Cyprus, also in Nicosia, is  under Cyprus Tourism Development Public Co., which is 76% owned by the group.

Louis Hotels is probably the biggest chain of hotels in Greece and Cyprus, with operations in Greece contributing about 50% of the company’s revenue. Kiliaris said the objective of the Louis Group is to maintain its leadership in Greece and Cyprus and expand further into neighbouring markets such as the Middle East and the Balkans.

“Our focus remains on 4– and 5-star hotels that have a capacity of at least 200 rooms,” said Kiliaris, adding that further expansion will be made through rental and management agreements, rather than owning the hotel properties.

“We wish to increase shareholder value, and for this reason we are seriously considering a number of alternatives aimed at releasing a significant part of the real estate value of the group”, he said.

“The contribution of hotel profitability to total group results is low, considering the asset weight and resources taken up by the hotels division, which is why we wish to come up with ways to unlock hidden value,” said Kiliaris, adding that the group will maintain its policy of selling surplus assets.

 

Attract institutionals

 

Louis Pcl is the fourth largest company on the Cyprus Stock Exchange with a market cap of around EUR 250 mln. Group turnover for the 9M06 period was up 18,5% YoY to EUR 265,2 mln from EUR 225 mln in 9M05.

EBIDTAR was up 26% to EUR 76 mln and profit from operations were up 36% YoY at EUR 45,3 mln. Net profit after minority interest was up 62% YoY at EUR 33,4 mln from EUR 20,8 mln in the same 9M05 period. EPS amounted to 7,91 euro cents per share from 4,93 euro cents a year earlier. Net Assets at September 2006 amounted to EUR 291,46 mln, up 12,6% from EUR 259 mln before. Total assets end of September amounted to EUR 828 mln, total bank liabilities EUR 212 mln and finance leases were EUR 142 mln, while cash balances stood at EUR 36,4 mln.

The group will report its preliminary 2006 results before the end of February.

Costas Hadjimarkos, Group Investors Relations Manager said the cruises division is forecast to contribute 64% of total EUR 316 mln revenue for 2006, Louis Hotels 32% and CTDC 4%.

Kiliaris admitted that with Chairman Costakis Loizou, the majority owner of the Louis Group, holding approximately 65% of the share capital, the stock is hampered by its low float, an issue that may discourage higher institutional interest.

“It’s a delicate situation. To get institutional interest you need a wider ownership base, yet that may create other problems as recently being experienced by other major Cyprus companies.”

Kiliaris however promised that “one way or another, we intend to find a solution to this problem,” without elaborating further.