Gabriel Escarrer, Vice Chairman and CEO of Meliá Hotels International:
“The results validate our strategy in recent years and our successful transition to a more internationally business model focused on the management of hotels for third parties. For our company, it is an enormous satisfaction to record progress in all business divisions and regions, and to be able to face the recovery from the crisis in a strong position and ready to make the most of all opportunities”.
The first quarter of 2014 has confirmed the positive trends in underlying EBITDA that Meliá Hotels International had been seeing since last year, and may prove to be a real turning point in the behaviour of Spanish domestic demand if it continues in future quarters. With impressive numbers which include net profits which are double the amount of the previous year, or a 10% increase in RevPAR, the company hotel confirms it has entered a new stage of growth and increased profitability
Meliá earned 8.2 million euros between January and March 2014 , representing an increase of 99 % over the same period in 2013. Revenues reached 316 million euros, up 12% on the previous year, and EBITDA not including capital gains from asset sales increased by 22%, leading to a significant improvement in profitability and an increase in hotel EBITDA margins of 136 basis points.
The evolution of the global business, with improvements in all regions, is consistent with the positive trends in international tourism, and particularly in Spain, where the exceptional progress seen in the resort hotels thanks to international demand now combines with an upturn after several years of negative numbers in domestic demand for Spanish city hotels, dependent on domestic, private and business consumption.
Meliá Hotels International attributes a large part of the results to the growth in its most important sales channel, melia.com, where on-the-books reservations are 40% ahead of the same period last year, and which points towards around +25% growth for the full year, and also the decision of the Company to purchase the remaining 50% of the Gran Meliá Palacio de Isora, an asset which is currently achieving record results, as it will be amongst the major contributors to the Company’s Ebitda, and the first in Spain.
Among the challenges, Meliá explains how its net debt rose by 84 m€ in the first quarter 2014; 1) the consolidation in accounts of the “Colón Verona”, the Company that owns the Gran Meliá Colón (Seville) according to the IFRS10 accounting standard, meant the addition of 29 million in debt, and 2) the continued devaluation of the Venezuelan Bolivar that had an impact of 20 million euros, added to the coincidence of the 3rd Quarter with the months in which cash generation is structurally lower. Company is committed to reducing its debt during the year via asset rotation, ( with a 100-120 m€ goal) by the possible conversion of the Convertible Bond – 200 m€- by December 2014, and of course, also via a better business performance.
Business performance by region
Americas: excellent first quarter in which RevPAR grew by 17.3%, primarily due to the business performance in Mexico (+25.3 % in RevPAR compared to the first quarter of 2013). The main contributors to the result were once again the Paradisus La Esmeralda and Paradisus La Perla resorts in Playa del Carmen which improved EBITDA by 20% over the previous year despite increases in value added tax. The resorts expect to end the year with a profit close to $28 million. Meliá also highlights the positive evolution of the Paradisus Cancun, one year after being its rebranding under the Paradisus brand.
The Dominican Republic achieved a 7.4% increase in RevPAR, with a positive performance from the resorts in Punta Cana and particularly the The Reserve boutique hotel, at the Paradisus Punta Cana (RevPAR +23%), as is the case with The Reserve at Paradisus Palma Real, which also saw a significant improvement .
The latest addition to the hotel portfolio in America, the MeliáNassauBeach, the company’s first hotel in the English-speaking Caribbean, has also achieved very positive figures and is strengthening its position in the market month after month. In December, the hotel will be renamed "Meliá at Baha Mar" as it is part of the largest tourism and leisure complex currently under construction, “Baha Mar” .
EMEA:the owned, leased and managed hotels in the EMEA division posted positive figures, with owned and leased hotels increasing RevPAR by 11.6%. This excellent global result stems from improvements in the hotels in Paris with a 9.7% RevPAR increase, hotels in Germany with a 6.1% increase thanks to the positive impact of the opening of the Innside Dusseldorf Hafen and the hosting of important trade fairs in Dusseldorf, and the UK, where RevPAR grew by 7.1% partly due to the sterling exchange rate versus the Euro. In pounds sterling the improvement in RevPAR would be 3.2%, largely thanks to improvements in individual travel, particularly amongst key accounts and transient programmes.
ME Europe:Meliá Hotels International reports its ME hotels in European cities or resort destinations and the three Innside Madrid hotels separately (the only hotels that are reported separately from the hotels in the EMEA or Spain regions).
Thus, the ME hotels in Europe, currently ME Madrid and ME London (to which will be added this summer the ME Mallorca and the ME Ibiza, as well as the ME Dubai and ME Milano in 2015) saw a dramatic rise in RevPAR of 48.8% thanks to the figures achieved by ME London, with the second highest RevPAR in the whole Company after an increase of 110% in the last quarter. ME Madrid also achieved positive figures thanks to the innovation regarding F&B offering and wellness experience.
Mediterranean: RevPAR in the Spanish resorts increased between January and March by 24.3% thanks to the positive performance in both price (+11.3%) and occupancy (+11.7%). The key to this result was mainly the outstanding results in the Canary Islands, even though Easter did not come until April 2014.
Regarding the results of the Canary Islands, which exceeded all expectations, the Company attribute the numbers to the increasing attraction achieved by Meliá of alternative source markets that were not “traditional” in the Canary Island, such as the Scandinavian, the French and the Belgian, and also to the successful yield management policy through Melia.com, without forgetting
the conflicts in Egypt. Meliá remains confident that the situation will stabilize and that the Canary Islands and Spanish destinations in general will keep progressing on their own merits, thanks to their good performance and their competitive advantages.
Spanish cities:up to the end of April, thus eliminating the impact of Easter falling in April, the RevPAR of Spanish city hotels increased by 5%. Even without eliminating this bias, i.e., looking at results from January to March, RevPAR for city hotels in Spain, including the 7 upscale and luxury hotels in Spain which the Company reports in the EMEA region, increased by 1.6%, with positive numbers in most cities, Madrid included (although challenges remain in hotels next to Madrid Barajas airport, highly dependent on air crews and layovers).
Equally important is that Meliá has seen a gradual improvement in all the Spanish urban Hotels’ results month after month, with RevPAR falling by 07% in January, and already growing by 1% in February, and by 4% in March.
Strategy and outlook
The Meliá Hotels International Strategic Plan is based on two fundamental objectives: globalisation and new markets, and the reorientation of the business model to become a company with more managed hotels than owned hotels, the latter currently representing 23 % of the total. If we consider the current Meliá pipeline (60 hotels signed and in the process of incorporation along the next 2 years), the intense growth of the hotel company in recent years has focused 99 % outside Spain and 84% on management and franchise agreements, in addition to variable lease agreements.
In 2013, the Company added 28 hotels, with a new hotel signed every two weeks, and in the first quarter 2014 five more new hotels with 1,600 rooms were signed, in both mature markets such as the United States (Innside New York) and Italy (ME Milano) or in emerging countries such as Indonesia (Innside Makassar and Innside Legian) and Mongolia (Gran Meliá Ulaanbaatar).
Regarding the outlook for the second quarter, Meliá expects April to generate a significant improvement, not only attributable to the later celebration of Easter, but also the healthy growth in Spanish domestic demand, which is expected to continue to solidify. Once the impact of Easter falling in April in 2014 and in March in 2013 is eliminated, Spanish cities improved RevPAR by 5 %.
In Spanish city hotels the bookings already made for the second quarter suggest that the growth in demand and the slight improvement in rates will continue thanks to contributions from almost all segments. Of note is the improvement in business groups as it reflects the better performance of the economy and the improved expectations of companies in general. The improvement also comes from all sales channels, including OTAs and particularly melia.com, and almost the entire country, including Madrid, which has suffered a dramatic fall in domestic and international demand.
With regards to the summer season, and although it is still early to call given that some major markets such as Russia, Italy or Spain tend to book at the last moment, current trends point towards a summer season which will be slightly better than 2013, with a strong performance in the Canary Islands, Balearic Islands and Spanish mainland coast. Doubts remain about the Russian market, where bookings may be lower than the previous year due to the effect of both the devaluation of the rouble and the instability in the country. However, any potential fall is expected to be absorbed by an estimated improvement of 15% in Spanish domestic demand, and also by the positive impact expected on the UK’s demand due to the recent Appreciation of the Sterling Pound in front of the Euro. It is also expected that the Gran Meliá Palacio de Isora (Tenerife), now in its sixth year of operations, will achieve record results in 2014 and become the first Ebitda- contributor hotel in Spain.
Outside Spain, positive numbers are expected from European cities for the full year 2014. Germany will host a greater number of trade fairs, Italy will see the consolidation of the Gran Meliá Rome in its third year of operation, and results in Paris are expected to remain healthy. ME London faces its second year in operation successfully positioned as the 2nd hotel with the highest RevPAR and as a benchmark of hospitality and lifestyle in London. Meanwhile, the gorgeous Meliá Vienna, created by the acknowledged architect Dominique Perrault in the highest tower of Austria, has successfully passed the recent opening and responds to the expectations generated by this exceptional product.
For the entire portfolio, the Company maintains the outlook of a medium-high single digit RevPAR growth, more than 50% of which based on price increases.
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