Gabriel Escarrer, Vice Chairman and CEO of Meliá Hotels International: "The best news of the year was the positive development of the hotel business in a historic year in which we added 30 hotels, while also restructuring Company debt and preparing for even more intense international growth in the coming years. In this sense, accounting considerations of the market valuation of the convertible bond which do not affect cash flow and is an option which has now been eliminated - should not distort the true picture of the recurring Meliá business".
Non recurrent financial impacts
• Regardless of the result of the recurrent business, accounting rules require the balance sheet to reflect an impact of €76 million, corresponding to the mark to market of a derivative that has no impact on cash-flow. Its accounting impact generated losses of €73.2 million on the accountancy level
• The decision to irrevocably waive the Company’s right to satisfy the conversion of the Notes in cash, will allow the company to significantly reduce net debt by the end of 2014
Positive business performance
• The Group’s Ebitda Ex- Capital gains grew at a 28,3%, highlighting the record in sales (€212 million) on direct channels (+26 % growth on melia.com)
• Business improved in all areas except Spanish cities, largely due to weak demand in Madrid. 14 consecutive quarters of RevPAR increases.
• The most recent signature hotels added by Meliá (the Paradisus resorts in Playa del Carmen, the Gran Meliá Palacio de Isora, Gran Meliá Rome and ME London) have all become major revenue generators
Objective: sign 30 hotels in 2014
• The Company will open more than 58 hotels from 2014 to 2015, and remains focused on destinations in the Caribbean, the Americas, the Middle East and Asia, where it aims to intensify growth through strategic alliances with major investors
• Business model: globalisation and a growing base of managed hotels (58% of total hotel rooms) to lead to exponential growth in profitability
• Meliá expects RevPAR will increase by 8% in the first quarter.
• The growth in sales, new hotel openings and expectations from the most dynamic markets lead the Company to forecast a good performance in 2014
• Excellent outlook for international tourism, which grew by 5% in 2013.
Meliá Hotels International presented results for 2013 showing an increase of 5.2% in revenue per available room (RevPAR). Meliá achieved revenues of €1,352 million during the year, generating an EBITDA of €241.7 million. Excluding the Capital gains, the Group’s EBITDA increased by 28.3%. The result of ongoing operations before deducting the impact of the market valuation of the Convertible Bond issue (€76 million) amounted to €39.3 million, also reflecting lower capital gains from asset sales compared to 2012 (-€43 million). At the level of discontinued operations, the Company highlights the impact of the Bond’s mark to market (€76 million) and the provision of €30 million in anticipation of its departure from Puerto Rico.
The results are mainly attributed to the strength of the hotel business, which thanks to a strategic focus on improving revenue, diversifying segments and source markets, and earning customer loyalty, achieved an increase in sales through melia.com of 26% and record of sales in all the direct channels, and an increase in overall RevPAR above its competitive set, with 14 consecutive quarters of RevPAR growth. This allowed Meliá to record a 10.8% improvement in EBITDA in the hotel division, which together with the rationalization of costs improved EBITDA margins in the hotel business by 78 Basic Points.
In spite of this evolution, regarding financial results, the Company explained how the need to mark to market the Convertible Bonds, after a share value increase of 67% in 2013, has generated an accounting impact without impact on cash flow - of €76 million, with a significant negative impact on the P&L. To avoid this distortion, Meliá highlights the results of continuing operations (see chart above) which more clearly reflect the positive evolution of the "recurring" business.
Healthy business performance
The report explains the improvement across all areas of the business except in Spanish cities, where the weak demand in Madrid undermined improved results in Barcelona and other "hybrid" cities that combine both leisure and business segments thanks to the Company’s commercial strength and expertise in leisure sales.
The Company recorded an increase in RevPAR (revenue per available room) of 10.2% in the Americas and 10.9 % in EMEA (Europe, Middle East & Africa), with an outstanding performance from hotels such as the Meliá Dubai, Meliá Zanzibar, or the new "boutique" Meliá Villa Capri. Germany (+1.4%) Paris (+4.4%) and Italy, especially with Meliá Genova and Gran Meliá Rome, also contributed to growth. Some hotels in the "Premium" segment in Spain, such as the Gran Meliá Colon (Seville), Meliá Sancti Petri or Meliá Barcelona Sky returned an outstanding performance which was even more exceptional in the case of the ME hotels in Europe, the ME London and ME Madrid, where RevPAR increased by 17.7%. The Company highlights that the ME London has become a benchmark for F&B events in London, and a major player in the market.
The Mediterranean region (which also includes hotels in the Canary Islands) improved RevPAR by 5.5%, achieving levels which are 10% above the historical peak for RevPAR in 2007. Hotels in the Canary Islands also achieved historical results, which are expected to continue at least in the first half of 2014 thanks in part to events in North Africa.
Meliá also highlighted the performance of hotels in the "Calviŕ Beach" project in Magaluf (Mallorca) which in addition to improving their results (+25% growth in revenues) have also contributed to improving the general business environment in this mature travel destination, generating an increase of over 20% in the average rate for the area in peak season. The Sol Wave House increased its RevPAR by 12% in its second summer season thanks to improvements in rates, and 2014 will see the opening of the new ME Mallorca hotel after the rebranding and upgrading of the Beach House hotel opened in 2012. With 255 rooms in the luxury lifestyle segment, the ME Mallorca is expected to further enhance the quality and image of the destination.
Meliá has begun to reap the benefits of a globalisation strategy based on low capital-intensive growth formulas (mainly management contracts) and, as seen in 2013 results, the significant efforts in recent years to enhance and position its hotel brands internationally: hotels such as the ME London, that in addition to receiving numerous industry awards achieved average occupancy of 67% in its first year with average rates at the same level of its demanding competitive set of luxury London hotels, or the Gran Meliá Palacio de Isora, which in 2014 will be one of the largest net contributors to Company results. The performance of the two Paradisus resorts in Playa del Carmen (La Perla and La Esmeralda) is also of note, generating EBITDA of US$24 million in 2013, more than double that of their first year of operation, and the Meliá Barcelona Sky, reinvented after a successful rebranding process.
Special mention is also due to the evolution of the Paradisus resorts in Punta Cana, especially the Paradisus Palma Real and The Reserve at Palma Real, which continue to lead in revenue generation with historical results in 2013. Both hotels are fine examples of the strategy to upgrade products and adapt them to brand standards, having obtained an excellent response from customers to the exclusivity of the Reserve, and an investment that has created the largest convention centre in Punta Cana at the Paradisus Palma Real.
Regarding the growth model, of the 58 hotels included in the Meliá pipeline, 76% are under management contracts (as are the 58% of the total rooms). In response to this strong focus on the Company's “asset-light” business model, the report also highlights the evolution of management fee revenues which reached €50 million in 2013, contributing to the increasing profitability of the business model as the number of managed hotels continues to grow.
Along with growth through adding independent hotels or properties, the model also includes other areas of intensive growth through strategic partnerships with landowners or investors, attracted by the excellence and solvency of Meliá and the competitiveness of its hotel brands. Examples include the alliance with the Chinese real estate group Greenland - with which the Company continues to grow in China and other partners such as the Armas group in Chile.
2013 was a historic year for the growth of Meliá Hotels International as it signed 28 new hotels and added several new markets such as the English-speaking Caribbean (Meliá Nassau and Meliá Jamaica), Chile, Morocco, the Netherlands and Austria. The current pipeline includes 58 hotels with over 16.000 rooms which added to the 307 hotels already operated means the company now has 365 hotels, with presence in 40 countries and has ensured a big part of the objective hotels included in the Development Strategic Plan.
The Company has strengthened its regional expansion teams with excellent results. The current pipeline includes:
In the Americas, where Meliá is already a market leader in the resort segment in all major destinations, in 2014 the Company will open the Meliá Jamaica, Tryp Belo Horizonte and Meliá Paulista (both in Brazil), and from 2015 has scheduled 16 openings under management agreements with more than 4,200 rooms in strategic markets such as Chile, Colombia, Costa Rica and Peru.
Asia, meanwhile, has more than doubled its portfolio in the last two years, with even more significant growth expected. The current pipeline includes 11 hotels with nearly 3,000 rooms all under management agreements, 4 of them scheduled to open in 2014 (Gran Meliá Xian and Meliá Jinan in China, Meliá Danang in Vietnam, and Meliá Surabaya in Indonesia) and, according to the company, this pipeline could be significantly increased as it strengthens its alliance with the Chinese group Greenland.
In EMEA the Company has just opened the Meliá Vienna in Austria’s tallest skyscraper and will also open in 2014 the Innside Wolfsburg and the Meliá La Defense in Paris. 18 new hotels with 4,000 rooms are scheduled to open from 2015 onwards. In the Mediterranean region, hotels will open in Cape Verde, such as the Meliá Dunas with 1,248 lavish rooms by the sea.
A brand with strong development is Innside by Meliá, acquired in 2007 when it had hotels only in Germany, and which is now becoming a global brand after successful exportation to cities such as Madrid (Innside Genova, Innside Luchana and Innside Suecia) the UK, Chile, Brazil and Indonesia, where Meliá recently announced the signing of two new hotels: Innside Makassar and Innside Legian, to add to the 6 hotels the Company already operates or is developing in Indonesia.
Positive outlook and a better environment for the industry
In 2013, tourism grew by 5% internationally, with 1.087 million International tourists, and even Spain registered historic visitor numbers thanks to international travellers, with 60.6 million arrivals and an expenditure increase of 9.6%. As the UNWTO explains, the 2013 numbers and the positive outlook for 2014, of about +4.5%, exceed the long-term projections for the Industry, showing the excellent moment that Tourism is getting through. Thanks to its international diversification, Meliá Hotels International has also benefited from improvements in prime destinations, and in major markets such as the U.S., U.K., Germany, Scandinavia and China, and after a RevPAR increase in the first quarter of between 7-8%, the outlook for Meliá for the full year points towards medium or high single-digit growth.
Meliá has registered a strong performance in the first quarter in its resorts in America (high season in the region) and in EMEA, which has improved at a double digit pace, and the Canary Islands, also in peak season, are performing positively in line with the first quarter of 2013. Mediterranean destinations are forecasting a summer season similar to 2013, which was very positive in the Balearic Islands and on the mainland Spanish coast. The Company expects the trend will remain, although at this time of year, only about 30% of total expected bookings for the year have already been made.
Regarding the Spanish market, which now represents only 20% of Meliá stays, Meliá confirms the feeling that the situation could start to become stable. Apart from general facts like the increase in the city events or the optimistic news about the Air Traffic, Meliá has recorded a sales improvement on the MICE segment sales. Forecasts are also based on data including the improvement in household consumption in some of the feeder markets for Spain, such as the United Kingdom (+2.2%), Germany (+1.4%) and France, and even the expectation of a 0.4 % improvement in business from Spain itself based on macroeconomic data.
However, the Company is monitoring the situation to evaluate how such improvements are effectively reflected in the macro and microeconomic reality. Regarding Madrid, Meliá will continue to focus on enhancing its "hybrid " sales model, enhancing both the business travel aspect of its cities as well as their potential for leisure getaways, etc. which has so far managed to revitalize hotels in cities such as Barcelona, Bilbao, Alicante, Palma de Mallorca, Sitges or Seville, among others.
As highlighted by Gabriel Escarrer,"the leadership and expertise of Meliá in resort hotels allow us to optimize the hybrid operating model for city hotels, obtaining advantages over competing hotels in major cities”. Moreover, the rationalization efforts carried out within the framework of the contingency plan has led to excellent results, with Escarrer stating that "the Company is better prepared than ever to take advantage of the start of the expected economic recovery in Spain, which we expect to occur during 2014 and 2015”.
About Meliá Hotels International
Founded in 1956 in Palma de Mallorca (Spain), Meliá Hotels International is one of the largest hotel companies worldwide as well as the absolute leader within the Spanish market. At present, it operates and distributes more than 365 hotels throughout 40 countries and 4 continents under the brands: Gran Meliá, Meliá Hotels & Resorts, Paradisus Resorts, ME by Meliá, Innside by Meliá, Tryp by Wyndham and Sol Hoteles. The strategic focus on international growth has allowed Meliá Hotels International to be the first Spanish hotel company with presence in key markets such as China, the Arabian Gulf or the US, as well as maintaining its leadership in traditional markets such as Europe, Latin America or the Caribbean. Its high degree of globalization, a diversified business model, the consistent growth plan supported by strategic alliances with major investors and its commitment to responsible tourism are the major strengths of Meliá Hotels International, being the Spanish Hotel leader in Corporate Reputation (Merco 2013).