Meli Hotels Resuls

Meliá Hotels Reports 27.8 Percent Net Profit Increase for 2017

Meliá earns 128.7 million (27.8% more) and takes full advantage of positive travel trends

Meli Hotels

Business performance:

  • Net Profit: €128.7 M (+27.8%) 
  • Revenues: €1,885.2 M 
  • Global RevPAR: +5.6% (30 consecutive quarters growing above the industry average) 
  • Success of the digital strategy, with sales of €520 M 
  • EBITDA ex capital gains growth: +11% 
  • +18% RevPAR in Spanish city hotels, thanks to the successful repositioning process of business and "bleisure" hotels

Expansion strategy:

  • Strengthened leadership in the resort segment 
  • 30 hotels signed up in 2017 
  • 23 openings scheduled for 2018 
  • 67 hotels in the pipeline (+16,000 rooms to be added to portfolio during the next 2 years) 
  • 90% of new hotels under management and franchise agreements 
  • Powerful focus on Asia Pacific (33% of the pipeline)

Financial management:

  • Healthy Net Debt/EBITDA ratio (1.9X) for the second year in a row 
  • Lowering of average interest rate to 3.24% ( vs 3,46% in 2016)

2018 Forecasts:

  • Estimated mid single-digit increase (in constant currency basis) in global RevPAR 
  • Important contribution from the Caribbean, Spain and some recovering European markets 
  • Important schedule of openings and consolidation of recently opened or repositioned hotels 
  • Significant estimated improvement of margins

Gabriel Escarrer Jaume, Executive Vice President and CEO of Meliá Hotels International: "Meliá has achieved very positive results, benefiting from both the exceptional environment for global travel and the fruits of a consistent business strategy and profound digital and cultural transformation. Thanks to this strategic approach and our magnificent management and global teams, we ended 2017 slightly above market expectations in spite of some extraordinary factors that had a negative impact on the business such as the Caribbean hurricanes, the devaluation of the dollar and instability in Catalonia in the last quarter".

The results for Meliá Hotels International in 2017 continued to reap the benefits of a strategy based on brand excellence and differential positioning (accompanied by an ambitious hotel renovation and repositioning plan), as well as intense international expansion and a positive international environment for travel. The strong presence of the company in high-growth regions such as the Caribbean, Spain or Asia, and the recovery of markets such as Paris and London, also helped shield results from unexpected negative events such as Hurricanes Irma and María in the Caribbean, the loss of business in Catalonia during the 4th quarter, due to political instability, or the dollar-euro exchange rate.

Excluding capital gains, the company earned a profit of €128.7 M, an improvement of 27.8% over the previous year, and EBITDA of €310.3 M, an increase of 11%. Consolidated revenues rose to €1,885.2 M (+5%) while total revenues (including owned, leased and managed hotels) reached €2,672.67 M. The company also highlights an improvement in profitability after an increase of 89 basis points in EBITDA margins.

The company achieved its financial objectives for the year, maintaining the Net Debt/EBITDA ratio below x2 for the second year in a row, improving on its commitment to between x2 and x2.5 and ratifying its firm intention to maintain a healthy financial position. The company is particularly satisfied with the value generated for shareholders, having increased Earnings Per Share by 240% over the last four years. Financial results remained stable thanks to significant cost savings in debt servicing as a result of the reduction in the average interest rate to 3.24%, instead of 3.46% in 2016.

The positive performance of the hotel business is reflected in the key RevPAR indicator (Revenue Per Available Room), which improved by 5.6% ( 6,5% in constant currency basis), in line with initial estimates in spite of the extraordinary impact of events affecting results such as the intense hurricanes in Cuba and Puerto Rico, the situation created in Catalonia and the devaluation of the dollar. Following these positive business results, the company highlights a number of key drivers within the framework of its current strategic plan:

Cultural and digital transformation:

Digital strategy, applied not only to sales, but also to many key management processes, and increasingly, to improving the customer experience in hotels, has generated a 21%  improvement in direct online sales through (up to €520 M) and profit margins, as well as in the sales of the digital booking platform for travel agencies and other professional customers, MeliaPro, all that positively impacting indirectly on the value chain by improving customer, relationships, loyalty and profitability. Especially remarkable was the reported growth of mobile sales (+491%).

At the same time, the company has updated its service culture and announced a new corporate motto: "leisure at heart, business in mind", illustrating its vocation as a leader in resorts and urban leisure hotels, and its strong focus on service, an emotional connection with customers and the delivery of personalized experiences, jointly with its commitment with business excellence.

International growth with a management focus

Meliá Hotels International signed agreements to add 30 new hotels in 2017, 90% of them through management or franchise agreements. The hotels operated by Meliá under management agreements already generate a third of the company's EBITDA, ensuring more solid and stable growth compared to that of real estate cycles, and also allowing a more efficient return on capital, largely focused on the transformation and repositioning of key company assets in higher-quality segments and improving their resilience to economic cycles.

The company also appreciates its ability to generate value for shareholders based on growth under management agreements which require minimal investment and allow it to take advantage of its biggest strengths and the managerial know-how perfected over more than 60 years of operations. On the other hand, Meliá also reported that it will publish an updated valuation of the company's assets late in the second quarter of 2018.

Meliá highlights the importance of the Asia Pacific region, where it now has more than 40 hotels operating or due to open (representing 33% of the company's expansion pipeline). The company believes this is important due to both the growing proportion of tourist flows from Asian markets to its hotels around the world, as well as to the burgeoning domestic markets in these countries due to their growing prosperity and development. This is leading to higher numbers of Asian visitors to the main cities and resort destinations in which Meliá is positioning itself in countries such as Indonesia, Vietnam, Malaysia, Thailand, Myanmar and China.

As Gabriel Escarrer explains, "The Asian market is undoubtedly the one with the greatest potential for international travel, but it is also a very complex market for Western companies, which is why the learning curve Meliá has worked through in Asia over the last 32 years and our strong alliances with important financial and real estate groups in the region such as Greenland China, TCC-Land in Thailand or Aurelian Land SDN BHD in Malaysia, give us a fundamental competitive advantage to help us grow in this part of the world."

Brand and product renovation and repositioning: 

In 2017, Meliá Hotels International has reviewed its brand architecture, comprising its three luxury brands (Paradisus by Meliá, ME by Meliá and Gran Meliá) and two upscale or superior brands (Meliá and Innside by Meliá). In addition to the comprehensive transformation of its Sol by Meliá brand in 2015 and 2016, the company has thus now defined the new value proposition for each of its brands, aimed at increasingly diverse, global and demanding customers. In parallel, the company has continued with its extensive plan to reposition and rebrand hotels, in which it has already invested more than €600 M since 2011 in Spain alone, jointly with its partners. In 2018, the company estimates a combined investment in Spain (alone and with joint venture partners) of more than €100 M.

As Gabriel Escarrer explains, "these drivers are part of our "2020 Vision" which aims to strengthen our leadership in resorts and urban leisure hotels and also to be leaders in excellence, responsibility and sustainability". In 2017, Meliá Hotels International received important awards that show progress towards these objectives, such as retaining its leadership for the fifth year in a row for corporate reputation in the Spanish travel industry according to the MERCO monitor, an award for "Global leader in sustainability and corporate governance" and "Best hotel chain in the world in the leisure segment" from Global Traveler, among others.

Results by region

EMEA improved by 2.6%, driven mainly by the demand in the MICE segment and the recovery of cities affected by different extraordinary events in 2016 such as Paris and London. General highlights include a spectacular increase in sales through of 29% over the year. By country, Germany resisted the difficult comparison with 2016 (a year with far more trade fairs) and increased revenues by more than 6% in the fourth quarter thanks to a robust performance from key hotels such as Melia Berlin, Innside Frankfurt Niederrad and Innside Frankfurt Eurotheum, among others, and the consolidation of recently opened hotels such as Innside Leipzig, Innside Frankfurt Oostend and Innside Hamburg Hafen.

In the United Kingdom, the solid performance of the ME London and Innside Manchester hotels led to an increase of 9% in RevPAR. France showed the most important RevPAR increase in EMEA in the fourth quarter, with 12.2% growth signalling a strong market recovery and four hotels growing above 12% and the other two above 7%. The fourth quarter also saw growth in results for company hotels in Italy, especially the ME Milan il Duca and Meliá Milano, both in Milan, which grew by 32% and 23% respectively.

The hotels in the EMEA region include luxury hotels in Spain (belonging to brands such as Meliá, ME by Meliá and Gran Meliá). The overall performance of these hotels was affected by the complex situation in Catalonia, with the fourth quarter seeing an end to the positive trend that hotels in Barcelona had registered up to the third quarter due to a significant decrease in individual travellers and an even greater decrease in the MICE segment, where many last-minute cancellations and requests to redirect events to alternative destinations were recorded. Despite this, the remarkable performance of hotels in Madrid (Gran Meliá Fenix, Gran Meliá Palacio de los Duques and ME Madrid) led to RevPAR growth in urban luxury hotels of 3.2% overall. With regard to luxury resorts in Spain, the company highlights the contribution of the Gran Meliá Palacio de Isora in Tenerife and Gran Meliá Don Pepe in Marbella.

The Mediterranean region, which includes the Canary Islands and the Mediterranean coasts and islands, increased RevPAR by 8.3% in 2017, coming on top of spectacular growth achieved in 2016. This relative deceleration is due above all to a fourth quarter affected by important renovation work, the launch of new hotels and seasonal closures, together with the negative effect on some of the main destinations of the bankruptcies of popular airlines such as Air Berlin and Monarch. Hotels in Spain benefited from the increase in the number of international visitors, over 82 million for the year, highlighting the performance of the Balearic Islands. The Canary Islands suffered more from the impact of the closure of low-cost airlines and the work being done in key hotels such as Meliá Gorriones (Fuerteventura, which registered the highest occupancy rate in Spain), Meliá Salinas in Lanzarote, and Sol La Palma.

Spanish city hotels was the region that recorded the most positive performance, with RevPAR growth of 16.2% and an improvement in profitability of 300 basis points of EBITDA margin. The highlight was Madrid, with 20% higher revenues driven by improvements in occupancy and prices in the individual traveller and MICE segments, and also in the north (+12% in the fourth quarter) and south of Spain (+9%). Coruña, Gijón and León stood out for their performance in attracting domestic travellers, while Bilbao increased its number of international visitors.

Hotels in the Americas generally suffered a strong impact after hurricanes Maria and Irma in the fourth quarter, especially the hotels in Cuba, which, despite the rapid response of the Cuban government to repair the damages in just two months and restore normal operations, suffered an interruption in bookings in some key markets leading to a reduction in fee income of 76.1% in the final quarter. Mexico remained one of the preferred destinations for American travellers, while the Dominican Republic also recorded an improvement in the fourth quarter of the year. In Puerto Rico, the hotel is not expected to reopen until November 2018 due to the extent of the damage caused by the hurricanes.

The region expects performance to improve in the coming months due to positive market dynamics and the consolidation of recently opened or repositioned hotels such as Paradisus Los Cabos, estimating high single-digit growth (in dollar terms) for RevPAR. Brazil is experiencing a recovery in line with macroeconomic figures, and in spite of the difficult political and economic situation the country still faces, saw a 4.7% improvement in RevPAR over the year.

Finally, the Asia Pacific region suffered the negative impact of the eruption of the Agung volcano in the fourth quarter, affecting hotels in Indonesia and the launch period of some hotels opened in 2017 such as Sol House Bali Legian, Sol Beach House Phu Quoc, Meliá Shanghai Hongqiao and Innside Yogyakarta. Despite this, the company saw a 36% increase in sales through in 2017 and an improvement in EBITDA of 80% and profit margins of 20%. The company is seeing a progressive improvement in operational efficiency as it increases its critical mass of hotels in the region, which, in the words of its Vice President and CEO, will become as important to the overall result of the group as Cuba once was in its day. Hotels in China, Vietnam and Thailand saw a positive improvement in performance.

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