Statements in the Management Discussion and Analysis describing the Companysobjectives, projections, estimates and expectations may be forward lookingwithin the meaning of applicable laws and regulations. Actual results may differmaterially from those expressed or implied. In addition, this section uses adjustedprofitability numbers at a few places to discuss the financial performance in FY15. Thishelps readers of the report to appreciate like-for-like indicative performance. Hence,such numbers in the Discussion below are only indicative in nature and will not becomparable with the actual audited reported results for the year.
FY15 summary and outlook
Cox & Kings has evolved over the last three decades from being an Indianair-ticketing agent and destination management company into a diversified, multinationaltravel conglomerate with a focus on the new-age consumer. The company nurtures a deeplyentrepreneurial spirit. Embracing change is in our DNA.
Over the last few years we have grown at a very rapid rate, while simultaneouslyacquiring more complex, and durable, competencies that will hold us in good stead over thelong term. Over the last 11 years, our net revenues and EBITDA have grown at compoundedannualized growth rate (CAGR) of 51% and 61%, respectively. Today, we have establishedoperations across 23 countries in businesses which include packaged group tours, flexibleindividual holidays, experiential learning and hybrid hotels. We have high market share,excellent brand recall and deep domain expertise across the realm of our operations.
Fiscal 2014-15 was in summary a year of rejuvenation. We enhanced our market presencein existing geographies, forged new partnerships to drive future growth and strengthenedour Balance Sheet while remaing focused on core business performance. If the last fewyears were characterised by breath-taking change, FY15 was the year in which thetransformation was completed. We look to the future with confidence and enthusiasm.
Each of our four main focus areas, namely Leisure India, Leisure International, Education and Meininger (hybrid hotels) grew robustly in FY15, whileEBITDA margins were stable to higher.
On September 10, 2014, we closed the sale of our Camping business, which was capitalintensive in nature and which did not meet our internal parameters in terms of futuregrowth; we received gross proceeds of GBP89.2 million from the sale of this business. Webooked a net loss on sale of the Camping division to the tune of ~Rs.202 crores (Profit onsale of Rs.350 crores negated by a goodwill write-off of Rs.552 crores). We had acquiredHolidaybreak plc in 2011 mainly to gain control of its Education and Meininger businesses;however, the Camping business also fell within the transaction perimeter. Management didnot see Camping as a high-growth activity, and in an effort to streamline management focuson the growing portions of our business, i.e. Leisure-India, Education and Meininger, wedecided to sell off the Camping business.
Our consolidated net profit after tax was lower year-on-year by 76% at ~Rs.92 crores,mainly as a result of the net loss on sale of Camping. We also incurred a one-time chargeof Rs.102 crores in FY15 on cancellation of forward hedges on the acquisition debt whichwas partly prepaid out of the Camping sale proceeds.
On a normalized basis, i.e. excluding Camping business, net revenues grew 15% y-o-y toRs.2,271 crores, while earnings before interest, tax, depreciation and amortization(EBITDA) excluding gains or losses on foreign exchange fluctuations, grew 13% y-o-y toRs.867 crores. Profit before tax excluding foreign exchange gains or losses andexceptional items, and before minority interests, was up 24% y-o-y at Rs.542 crores.
In November 2014 we raised Rs.1000 crores through a qualified institutional placement(QIP) of fresh equity shares with marquee institutional investors based in India andaround the world. The QIP has strengthened the Balance Sheet considerably. Further, thepromoters have applied for a warrant issue to the tune of Rs.225 crores in January 2015,for which 25% has been deposited.
Our total gross debt fell by Rs.1,803 crores y-o-y, or 32%, to Rs.3,780 crores as ofMarch 31, 2015 as corporate actions taken by the company during the year resulted inprepayment of a substantial portion of the companys acquisition-related borrowings.Net debt too fell by Rs.1,830 crores y-o-y, or 44%, to Rs.2,375 crores as of March 31,2015. The reduction was primarily on account of (1) Qualified institutional placement ofequity shares worth gross Rs.1,000 crores in November 2014, (2) Sale proceeds from thesale of Camping business (gross consideration GBP 89.2 millon), (3) Warrant applicationmoney from promoters to the extent of Rs.56 crores, (4) Reduction in value of foreigncurrency debt in Rs.terms (Rs.161 crores) due to appreciation of rupee. Our net debt toShareholders funds ratio has reduced from 1.6x in FY14 to 0.7x in FY15.
We expect future business growth to be driven mainly by Leisure India, Educationand Meininger. Each business has its own unique and secular growth drivers and we enjoy adominant position within each industry. Our Leisure International business isexpected to grow a modest pace in line with the growth of the world travel industry.
Our Leisure India business grew robustly during the year. Net revenues were up15% to Rs.481 crores, while EBITDA grew 14% to Rs.236 crores. EBITDA margins were stableat ~49%.
We continued to expand our franchisee network in Tier II and III cities. Today Cox& Kings operates through our powerful network of 12 own stores, 142 franchisees and 90preferred sales agents. We have leading market share in the organized space, which hasbeen growing steadily over the last few years. Our sheer size enables us to secure thebest possible deals from airlines, hotels and other vendors, which in turn enables us tooffer the best value proposition to the Indian traveller.
Our franchisee model has helped us grow at rates far ahead of the industry. Treatingour partners with fairness and rewarding them for performance is the cornerstone of ourcompetitive strategy. We believe the franchisee model is the ideal avenue for expansiongoing forward.
Outbound package holidays for both groups as well as individuals remain a favouriteamong Indians.
There is a discernible trend in consumer behaviour towards spending on experiencesrather than spending on goods. This is manifest in the performance of our Outbound packageholidays business, which has grown at a CAGR of 25% over the last five years. We expectthis trend to intensify as a progressive attitude and global outlook gets entrenchedwithin the Indian consumers mind-set.
Indias outbound travel market is growing at a rapid rate. Indian consumers havemore disposable income and a highly progressive outlook. Combined with our under-travelledpast, India is a highly underpenetrated market for outbound tourism. Only 16.6 millionpeople travelled overseas in 2013 as per the Government of Indias Bureau ofImmigration. A large proportion of these travellers include contract labourers goingoverseas, business travellers, students and Indians visiting friends and family abroadetc. The true holiday-travel market remains in a fledgling state, and we expect it to growrapidly to a substantial size over the medium term.
Outbound travel from India is in the midst of a rapid growth phase. We observe thatpeople across generations are increasingly confident about travelling outside India. Groupoverseas travel packages are popular for a variety of reasons; viz. time-and-costefficiency, a sense of security, language barriers, food preferences, and of course thepleasure of shared experiences.
In the near term, lower oil prices and reasonable air fares portend a strong year foroutbound leisure travel.
There are many reasons why Cox & Kings offers great value to customers our DuniyaDekho brand has very strong consumer recall. We try to ensure the best possible valuefor our customers by using our buying power with vendors to secure the best deals. We alsoprovide the security of the Cox & Kings global network of personnel on the ground aswell as our numerous vendors across the world who are ready to come to the aid of ourguests overseas in case of need. We provide complete end-to-end solutions and hassle-freetravel to our customers, which enable them to enjoy their holiday to the full extent. Wealso provide tailor-made solutions to suit the needs of particular communities, for e.g. AmhiTravelkar targeted at the Marathi community and Gaurav Yatra targeted at theJain community. With customers increasingly preferring to shift from the unorganized spaceto the organized space over the medium term, we are in pole position to benefit from thestrong macro environment in outbound travel.
Inbound travel, by contrast, has been a relatively slower-growing business recently.Cox & Kings operates in the premium end of the market here. Near-term challengesremain in the industry, as competitor countries in Asia are investing far more inattracting tourists to their shores. India will need to invest considerably in its softand hard infrastructure over the medium term to drive tourist arrival numbers to theirtrue potential.
Tourism is one of the worlds most important industries. Direct, indirect andinduced impacts of tourism generated US$7.6 trillion (9.8% of global GDP) in 2014 andgenerated 277 million jobs (1 in 11), of which 105 million were direct, according to theWorld Travel + Tourism Council (WTTC). Each tourism job almost triples upon itself by wayof knock - on effects.
Yet, currently, Indias total direct, indirect and induced impact from tourism isonly 6.7% of GDP, while the total number of people employed directly and indirectly in thesector stood at 37 million, according to WTTC. Clearly India can do much better. Even asmall country like Cambodia derives a comparable 29.9% of its GDP and 26.4% of itsemployment from tourism. Our inbound tourist numbers are relatively low at ~7.0 million in2014 (Singapore, for example, receives 10.6 million), according to WTTC. Overall receiptsfrom tourism are also at a relatively low US$20 billion per annum; this compared to US$40billion in Thailand, US$23 billion in tiny Malaysia and US$61 billion in China.
The new government at the Centre is well aware of the salubrious impact of tourism onthe broader economy. As a first step, it has operationalized electronic visa on arrivalfor visitors from a large number of countries. This may provide a small fillip to ourinbound tourism market in the near term. However, in the medium to long term, moreconcrete steps towards boosting Indias soft and hard infrastructure will be neededin order to deliver the kind of tourist volumes that are befitting of a country of oursize and potential. In terms of soft infrastructure, security, sanitation, hygiene andcleanliness are some of the key focus areas which require work. In terms of hardinfrastructure, roads, railways, airports, ports and non-premium hotels need to be broughtup to global standards.
Indias touristic wealth is spread over a vast array of diverse offerings; ancientplaces of worship, buildings and settlements as old as civilisation itself, monuments andstructures that are testament to her glorious past, ancient ways of life, unmatchedculinary diversity, natural beauty, mountains, jungles, rivers and beaches. Few countriesin the world can boast of such richness. Regardless of the near-term outlook, we believeour India inbound business can potentially be a key growth driver over the coming decades.
Meetings, incentives, conferences and events (MICE) as a business has tremendous growthand profit potential and Cox & Kings is uniquely positioned to capitalize on theopportunities in this space. MICE tourists accounted for 18% of total Outbound touristsout of India, as per a 2010 study conducted by the National Council of Applied EconomicResearch on MICE tourism. Today, corporate customers are increasingly seeing MICE as partand parcel of business operations, versus earlier when it was seen as discretionaryspending. The change in attitude will see this segment continuing to grow robustly overthe medium to long term and we will look to further entrench our dominance. Corporatesprefer Cox & Kings for its end-to-end solutions, i.e. visas, travel insurance,tickets, hotels, transfers, tours, attractions, entertainment and hassle-free paymentoptions, among others.
Domestic travel business relates to Indians travelling on holiday within India to theirfavourite destinations in groups, as individuals or as part of MICE. We provide end-to-endsolutions including air tickets, rail tickets, bus tickets, transfers, hotels, tours,attractions, sightseeing, entertainment etc. Domestic travel has been among our fastestgrowing segments over the last few years, and in particular, has been an area where webelieve we have significantly outperformed competition. We see high potential for growthin Domestic Tourism over the medium term as Indians are increasingly curious to exploretheir own vast and glorious country. Indians are also much hardier travellers within Indiaand are not easily perturbed by the potential vagaries that may crop up from time to time.Short-haul and weekend trips in particular are becoming more popular, and such trips areincreasingly being taken off-season thanks to deft packaging and attractive offers. Our BharatDeko brand is a market leader and holds significant brand equity among the mid to massmarket.
Our business travel division provides travel and travel-related services to corporates.This encompasses domestic and international flight tickets, rail tickets, bus tickets,private car-hire or taxi services, as well as travel insurance and allied travel-relatedservices. This business is growing steadily along with the natural growth in corporatetravel in India. We have a well-entrenched position with our corporate customers.Corporates like us for our efficient service; implants on location make it easier tointerface and execute complex business itineraries in a customized and flexible manner. Wehave robust technology platforms to ensure maximum efficiency of service.
Our foreign exchange business encompasses all transactions with our customers whichinvolve the exchange of currency, mainly the conversion of rupees into foreign currency.This includes currency taken by our customers on foreign trips as well as the issue oftravel cards for purposes of safety and ease-of-use abroad. Our all-India presence,captive customer base and highly competitive rates give us an edge that will allow us togrow at a healthy pace in the future.
Awards (Leisure - India)
Mr. Peter Kerkar, Director, Cox & Kings Ltd was honoured by The BritishTravel and Hospitality Hall of Fame as one of the seven inductees into the Hall of Famethis year (won in April 2015).
Best Outbound Tour Operator awarded by 10th Hospitality India andExplore the World Annual International Awards 2014
Best Inbound Tour Operator awarded by India Travel Awards
Cox & Kings was chosen as one of the top agents at Emirates Airlines awards2014
Cox & Kings was awarded No. 1 position in promoting the Meeting &Incentive (M&I) groups to Hong Kong between 1 July 2014 and 31 December 2014 byMeetings & Exhibitions Hong Kong (MEHK) the MICE division of the HKTB, as partof Top Agent Awards Program (TAAP)
Cox & Kings Ltd. entered into an agreement with LFC E.L.I.T.E.S (Educationand Learning Initiative Training Entrepreneurs in Sport), which is the global educationand training partnership between Liverpool Football Club and London School of Business& Finance (LSBF). With this, Cox and Kings will be eligible to promote and sellcombined educational and football programmes across India and Dubai. Children and youngpeople aged 11-17 years can attend the campus in England for anything from one week toeight weeks. Each full programme is for two weeks and costs approximately 1170 (approx.Rs.1.20 lakh) per week. The fees will include English Language Tuition, ProfessionalCoaching from Liverpool Football Club Coaches, On-site accommodation, all meals each day,LFC certification and graduation, evening activities and weekend excursions, including anexclusive behind the scenes tour to LFCs home ground Anfield, as well asComplimentary LFC E.L.I.T.E.S football kit.
Launch of Grab Your Dream Season 2, wherein 12 people are chosen astravel ambassadors to travel and then share their adventures and experiences on blogs etc.
MTDC appointed Cox & Kings Ltd as its outsourced partner to operate theluxury train, Deccan Odyssey, from October 2014 onwards. The partnership covers fullmanagement of on-board and off board services, sales, marketing and operationalactivities. The agreement is for a period of 5 years with scope for extension for another5 years.
Cox & Kings Ltd. pioneered a unique cost saving concept in advance holidayplanning called Holidays 365 Plan that helps customers save almost Rs.50,000/-on up to three domestic holidays if they plan and book in advance. When a traveller bookshis holidays within the offer period, he/she gets the benefit of increased discounts, notjust on the current package, but also on preceding packages purchased from this offer. Theoffer ran till January 30th, 2015. Cox & Kings has developed a total of 50 itinerariesexclusively as part of this offer, including exciting packages for summer, monsoon andwinter. These include group departures as well as customized packages.
Leisure - International
Our Leisure International business grew steadily during the year. Net revenueswere up 6% to Rs.650 crores, while EBITDA grew 9% to Rs.236 crores; EBITDA margins roseslightly to ~36%. Growth was driven mainly by the U.K. and U.S. geographies. The outlookfor this business is positive due to higher tax-free withdrawals of annuities allowed forU.K. pensioners from April 2015, a stronger pound, and stability in U.K. politics. Overthe long term, we expect this business to continue to grow in line with the world travelmarket.
Our Leisure International business comprises of a plethora of award-winningbrands and products. Although this business has historically grown at a slower rate thanour other businesses, it occupies a niche position in several markets and produces asteady stream of cash flow. Leisure International also enjoys a substantial amountof repeat business.
Businesses denominated in U.K. pound sterling dominate the revenue line, amounting toas much as 60% of the overall net revenues. Our U.S., Australia and U.A.E. businessesaccount for about ~10% each, while Japan and others make up the rest. The diversifiednature of revenue streams by product lines and geographies makes this business animportant cog in the wheel.
WTTC estimates that the global travel market direct contribution to GDP is likely togrow by 3.9% p.a. over 2015e-2025f. In recent years, the global travel market has outpacedso called hot sectors such as financial services, healthcare and automotives,according to WTTC. Globally, there is a discernible trend towards travel as a means ofpersonal growth and enrichment. Global foreign visitor exports and foreign touristarrivals are forecast to grow by ~4.3% p.a. over 2015e-2015f.
More tourists than ever are crossing international borders every year, 1.14 billion in2014 alone, according to WTTC. Direct international receipts from tourism have reachedUS$1.38 trillion in 2014. This is expected to grow at 4.2% p.a. over 2015-25, according toWTTC, reaching US$2.14 trillion.
We are ideally positioned to capitalize on this growth potential. With brands such asCox & Kings targeted at the older, premium traveller, Superbreak targeted at those looking for short breaks in gateway cities, and Explore soft adventure holidays, among others, we are confident of steady growth and profitabilityin this business in the medium term.
Telegraph Ultras Awards to Cox & Kings Travel Ltd, for "Best LuxuryTour Operator - runner-up" presented 19 May 2014
SAVEUR Culinary Travel Awards to Cox & Kings (Worldwide) for"Outstanding Tour Operator" presented 7 October 2014
British Travel Awards to Cox & Kings Travel Ltd, for "Best LuxuryHoliday Company - Small: Winner" 26 November 2014
British Travel Awards to Cox & Kings Travel Ltd, for "Best EscortedTours Holiday Company: Silver Award" 26 November 2014
British Travel Awards to Cox & Kings Travel Ltd, for "Best HolidayCompany to Central & South America
Small: Silver Award" 26 November 2014
British Travel Awards to Cox & Kings Travel Ltd, for Best HolidayCompany to Southern Asia Small: Silver Award" 26 November 2014
British Travel Awards to Cox & Kings Travel Ltd, for "Best HolidayCompany to Middle East Small: Silver Award" 26 November 2014
British Travel Awards to Cox & Kings Travel Ltd, for "Best HolidayCompany to East & Southeast Europe Small: Bronze Award" 26 November2014
AI Business Excellence Awards 2015 to Cox & Kings Travel Ltd for"Excellence in Quality Group Tour Operation UK" - 23 March 2015
British Travel & Hospitality Hall of Fame membership to Peter Kerkar 13 April 2015
Corporate Livewire Innovation & Excellence Awards 2015 to Cox & KingsTravel Ltd for "Most Outstanding Travel Company - UK" 16 April 2015
Cox and Kings is today a leader in experiential learning. We are market leaders in theU.K. which has among the most developed education systems in the world. We run a number ofexperimental learning businesses, and their attendant brands, catering to both primaryschool students as well as secondary school students. Our brands such as PGL and NST arefive decades old and are household names in the UK. The Education business is now thecompanys biggest EBITDA contributor (before minority interests) and will be amongour fastest growing business divisions in the future.
Our PGL business, which accounts for ~2/3rd of the net revenues of theEducation business, runs residential, outdoor, experiential learning programs for primaryand secondary school students during the school term. We run 25 campuses in the UK,France, Spain and Australia providing outdoor activities which include raft-building,feild maths, survival skills, environmental studies, trapeze, quad biking, archery, horseriding, rappelling etc. Children typically stay at our centres in the UK for about 3-4days (average revenue per bed night of ~GBP66) and partake in a range of activities. Weare market leaders in this business; state-funded school students account for the bulk ofour net revenues, with private school students accounting for the rest.
We own 19 centres (spread over >1,260 acres) out of our 25 centres; the rest areleased or hired. Capacity utilization was ~33% in aggregate (excluding Australia) in FY15as compared to ~31% in FY14. Capacity utilization is optically low due to seasonalfactors. More particularly, in the peak winter (Nov-Feb) there is insufficient sunlight toconduct many of our activities for children. Also, during the UK summer holiday months ofmid-July-to-end-August we naturally see a drop-off in the number of school guests. Onweekends too we have lower capacity utilization throughout the year. We are aiming todrive higher capacity utilization at our campuses through a host of measures, particularlyduring the summer-holiday period and the weekends. We are also attempting to driveutilization during the shoulder periods of winter to maximise revenue. To this end, someof the programs we conduct include residential programs for Brownies and Scouts,English-as-a-foreign-language programs for foreign students, National Citizenship Serviceprograms for youngsters, soccer camps, dance camps, netball camps, and facilities forparents to drop off their kids for short periods. It will be our constant endeavour toincrease capacity utilization and derive higher margins in the future.
We also intend to add beds and dining halls in our existing centres which areattractively located in fast-growing markets. We are also always on the look-out forattractive new campuses to buy or lease. There is plenty of room for us to grow ourorganic bed base in the UK as well as to expand the brand overseas.
PGLs net revenues grew by ~16% in constant currency terms in FY15.
PGL has relationships with the teachers and staff of more than 5,000 schools in the UK.The business runs on negative working capital, i.e. the activities are paid for before thechildren arrive, and thereby enjoys a high rate of return on capital employed.
The outlook is robust over the medium term for a number of reasons, not least of allbecause of a mini baby boom in the UK. The Department for Education sees a 12% increase inthe pupil population over the period 2014-2023f; pupil populations are forecast to reachlevels last seen in the late 1970s. PGL is also gaining market share, mainly at theexpense of the campuses run by local educational authorities (about 193 in number), whichhave been facing budget cuts. PGL is targeting more state-funded schools to gain marketshare and enhance capacity utilization at its campuses.
We are keen to invest in more PGL campuses as we believe this brand has tremendouslongevity and market recognition. We can take the model and our skills to many othermarkets in the world over time, including India. We are now running two owned campuses inAustralia which we believe is a very attractive market for the medium term. Theperformance of the Australia division, now in its second year of operation, has been inline with internal expectations.
Our other brands within Education NST, EST, StudyLink and TravelWorks which together account for ~1/3rd of the net revenues of the Education businessperformed very well in FY15. These businesses saw net revenues growing by ~18% in constantcurrency terms in FY15. Business performance received a leg up in FY15 by the occurrenceof two Easter holiday periods within the same financial year.
NST is a 49-year-old brand which conducts experiential learning tours mainly forsecondary school children (average group size of ~36 students) in the UK. We conduct morethan 60 types of trips with detailed itineraries decided in consultation with theteachers. The tours may be within the country or international, and may include air fare,bus fare, rail fare, accommodation, tickets to museums/attractions, sightseeing, lab fees,lectures etc. The gross average billing per student works out to >GBP400.
EST and StudyLink take UK higher-secondary school students and university students,respectively, on study visits and excursions (both within-country as well as outside) withthe aim of enhancing their understanding of their core subject matter. The tours mayinclude conferences, trade fairs, speeches from renowned experts etc.
Our TravelWorks brand is involved with work, volunteer and internship placements abroadtargeted mainly at German youth, including gap-year placements.
We are pioneers in the education travel sector. We believe the future of educationinvolves far greater emphasis on experiential learning and applied thought, as againstlearning through textbooks in the past. We have a tremendous opportunity before us toapply our experience of delivering NST/EST/StudyLink/TravelWorks in the UK and Germany byintroducing such programs in other parts of the world.
We believe Meininger represents the future of lodging. Europe is the worldslargest lodging market and we expect Meininger to play a pivotal role in the renaissanceof travel experience in Europe. Meiningers unique selling proposition is to delivera clean, safe stay for as little as EUR15 per night. Our hybrid hotels are a unique fitbetween a 3-star hotel and a hostel. We offer twin-bed rooms, 3-bed rooms, 4-bed rooms,8-bed rooms or dorm-style accommodation at our 16 hotels in Europe, mainly concentrated inGermany and Austria. It is a tremendous value proposition for our guests, which helped usto drive bed occupancy of 75% in FY15. We believe profit growth in this business islimited only by the speed at which we can set up new hotels. We are following anasset-light strategy, wherein we focus purely on running the hotel; the land and buildingare owned by a landlord to whom we pay an annual lease rental. Landlords hold us in highregard, because we have been paying our rent even during lean years and during period oflow occupancy. We typically lease a hotel from the landlord for 15-20 years.
Meininger saw its net revenues grow by ~4% in GBP terms in FY15 (reporting currency).Bed occupancy rates rose by 420bps y-o-y to 75.0% in FY15.
The Meininger brand occupies a position of primacy among school and college tourgroups. About 20% of Meiningers overall revenues are driven by school and college tourgroups. Our properties are generally located at city centres and/ or close to railwaystations and airports. We sell our beds/rooms through various channels, i.e. onlinethrough our own Web site, through online travel agents, through travel agents, by emailand directly over the phone.
Guests at our hotels have the unique advantage of a full-fledged guest kitchen, wherethey can cook their own meals or warm up food brought from out. They even have access tolaundry facilities on the premises. Since we target younger guests, wifi comes free withthe stay. Breakfast is outsourced and is charged to guests at a competitive rate. Familiesthat stay at our Meininger hotels enjoy the four-bed-with-bathroom-en-suite configuration.Businessmen like our central locations and our clean, no-fuss offering. Individualtravellers also enjoy our convivial atmosphere and easy access to tourist hotspots.
Meiningers low capital intensity and high occupancy make it a business that isuniquely high on parameters such as return on capital invested. Many of our hotels are oldhotels which have been renovated, refurbished, re-fitted and converted into a Meiningerhotel. Our main capital investment is only in the soft furnishings at the hotel, includingthe beds.
We believe Meininger will be a significant growth driver for the company over themedium to long term. There is a large vacuum in the branded hotel rooms market in Europe.A large proportion of the hotel room inventory in Europe belongs to mom &pop establishments where service levels are low and declining. The hybrid hotelsector is attracting growth capital as investors increasingly see the size of the extantopportunity; the business has proved to be resilient even in the face of the Europeanrecession.
In order to spearhead our asset-l