Meliá Hotels International, S.A. (MEL) Earnings Call Transcript & Summary

Hello, good morning, and welcome to the Meliá Hotels International First Half 2025 Earnings Conference Call. I'm Stephane Baos, Head of Investor Relations. [Operator Instructions]. Please note that this event is being recorded. Before we begin, we would like to remind you that our discussion this morning will include forward-looking statements. Actual results could differ from those indicated in the forward-looking statements. and forward-looking statements made today speak only to our expectations as of today. Unless otherwise state of RevPAR occupancy, average daily rates and P&L comments refers to year-over-year change for the comparable period. This morning, as usual, on the call with me today are Gabriel Escarrer, our President and Chief Executive Officer; André Gerondeau, our Chief Operating Officer; Angel Luis Rodriguez,, our Chief Financial Officer; and Juan Ignacio Pardo, our Chief Real Estate and Sustainability Officer. Our President and CEO will provide an overall overview for the company's performance. Andre will then review our second quarter onwards. Following today's remarks, we will be happy to take your questions. In any case, the Investor Relations team will be available following this conference call to give you a chance to clarify anything else you might need. You can find our earnings release on our Investor Relations website. And now I'm pleased to turn the call over to Gabriel.

Thank you, Stephane. Good morning, everyone, and thank you for being with us today. I'm pleased to share with you the results of Melia Hotels International for the first half of 2025. a period that confirms the strength and resilience of our business even in a context with greater safety and geopolitical tensions. In this environment, turning to results for the second quarter and half year System-wide RevPAR during the second quarter of the year grew by 5.8% and 4.7% for the semester. As half of the year has already gone by. We are delivering on our guidance. We are confident on achieving an overall year-on-year RevPAR increase in the mid-single-digit range with a balanced contribution of occupancy and price increases. This contribution not only reflects the strength of the tourism sector, but also the repositioning of our hotels that we have been carrying out in the last years. upgrading our products and services. Turning into the financials. Consolidated revenue, excluding capital gains for the first half of the year increased by plus and plus 4.9% in the second quarter alone which was particularly strong despite the negative impact of the U.S. dollar euro exchange rate during the second quarter of around minus 5%. and temporary challenges in some destinations such as Germany, Cuba and the closing for renovation purposes of our Paradisus Cancun. These results give us confidence in the potential for further improvement in the coming months. Turning to operating expenses. The increase was of 2.6% for the first half and 3.2% for the second quarter. This increase is in part due to the addition of new hotels under valuable lease contracts. First half EBITDA excluding capital gains reached EUR 243.5 million, up 2.5% increase compared to last year. It is worth nothing that second quarter EBITDA increased by 7.5% compared to last year. Regarding margins, we have continued to progress in our efficiency programs pertaining a 28% margin for the second quarter. While first semester margins stood stable versus last year at 24.7%. And I would like to highlight that these margins are being delivered despite the fact that some of our 100% asset-light regions are below our expectations. Mainly due to Cuba performance and the closure of Paradisus Bali. Also, I recall the restructuring costs that we presented in the first quarter which also affected margins at the beginning of the year. Net financial result has improved by EUR 22.3 million compared to the first half of 2024 after the significant deleverage progress carried out last year. This delivery progress allow us to prepay and refinance part of our debt with attractive financing conditions. Together with the decrease in reference interest rates, we have reduced our bank financing expenses by 40.2%. Profit from associates and JVs stood at EUR 22.6 million compared to EUR 3.5 million last year. This increase was due to a positive impact of [ EUR 23.9 million ] generated from capital gains from a sale in a joint venture partially offset by an impairment of minus EUR 7.6 million in associate. With all that, Group's net profit increased by 72.4% reaching EUR 88.5 million, with net profit attributable to the parent company also increased by 72.4% reaching EUR 75.4 million. Turning to the balance sheet. Net debt, excluding leases, decreased by EUR 17.5 million in the semester, reaching a total of EUR 755.2 million. This decrease nevertheless, was concentrated in the second quarter where operating cash flow surpassed EUR 70 million. This is an improvement compared to last year, so the cash flow generation remained very robust. It is worth nothing that we disclosed in our earnings release, we have a one-off cash out of approximately EUR 30 million from a cancellation of an operating -- out previously concerning the sale of 50% stake of a hotel located in Mexico, Puerto [ Vallarta ]. Due to the delay of administrative and technical issues, joining with our partner, we agreed to cancel the operation and return the total amount. Turning to maturities our current liquidity position allow us to comfortably met the short, medium-term debt repayment date. However, after the refinancing process carried out last year, part of our 2026 and 2027 debt was secured under favorable conditions. Even in today's market, these conditions are still attractive, and therefore, we are not planning to repay them in advance. After this deleverage and refinancing process and after returning to prepandemic level ratios or even below. We reaffirm our expectations to maintain a stable leverage ratio. We are flexible to pursue growth and repositioning opportunities that may arise in the future. In fact, subsequent to the end of the first half of the year, the group acquired from Victoria Hotels & Resource, the 50% ownership of the Paradisus Salinas hotel for EUR 36.5 million. We consider the expansion of the Paradisus brand in Europe as a strategic and the transaction allow us to reset the management contract for 30 more years while maintaining a majority stake in a fully repositioned hotel, yet with upside potential located in a key destination as the Canary Island. I will now turn the call over to Andre to talk about our operational performance during the second quarter and forward in more detail on replace.

Thank you, Gabriel, and good morning, everyone. During the first half and second quarter of 2025, the hotel sector has continued to demonstrate resilience in a global environment where uncertainty has increased. However, our destinations continue to benefit from a stable mix of nationalities, segments and products. which support the upward trend we have been recently witnessing. Our booking page remains consistent. While on the book reservations for the third quarter are positive compared to last year in our resort hotels so far by over 5%. As already said, system-wide RevPAR has increased by 4.7% in the first half and by 5.8% in the second quarter. The booking pattern has remained stable and solid. This performance has been driven by the dynamism of both international and local tourism, along with the growing preference for differentiated experiences and higher value-added offerings, clearly defined in our luxury and premium properties. Let me remind you that luxury represents approximately 20% of the room inventory and contributes nearly 40% of the revenues. There are as well certain areas that still show room for improvement. We are confident that as this recovery, our operational metrics will continue to improve. I will further detail by regions. Spain continues to lead our performance with strong results in both resort and urban destinations. [ Vallari ] and Canary Islands benefit from robust demand from both direct clients and through operators. While our urban hotels in Madrid and Savill saw positive momentum, supported by recent openings and renovations in the premium and luxury segments. In EMA, performance is overall quite positive with still some challenges in Germany due to the absence of major events like last year's Europa and relevant music festivals and concerts which were a nationwide event attracting a relevant group base with lower price sensitivity. This quarter, we managed to maintain occupancy. France showed a strong rebound, especially in the mice and leisure segments compared to last year. The preparation works in infrastructure ahead of the Olympic Games affected last year's second quarter performance as many segments avoided the city, especially in June. In Italy, Milan performed well timed for strong lives and corporate demand. Gran Meliá Palacio [ Gorducio ], as previously explained regarding Luxury strategy, continue to gain market share and strengthen its positioning as well as Melia Milano -- In Rome, we also saw solid growth, supported by group bookings and events linked to the Papa transition. Lastly, in the United Kingdom, London delivered strong results, thanks to recurring events and new corporate demand while performance in other cities was mixed. North U.K. keeps a positive pace. In America, performance improved across most hotels with corporate and tour operations driving growth. In Mexico, the temporary closure of Paradisus Cancun impacted available rooms affecting the country's revenues. The rest of the hotels performed well, with still mine being impacted on U.S. companies as they are delaying some events. In the Dominican Republic, strong history demand and better air connectivity supported rate growth despite continued weakness in the mines segment. The lack of mines allowed us to increase rates while decreasing occupancy. In Asia, China showed limited progress with weak corporate demand and pricing pressure. However, Southeast Asia, specifically Vietnam delivered strong growth, thanks to improved connectivity and regional demand. Lastly, our operations in Cuba continued with limited growth due to the combination of external and internal factors. While tourist facilities are equipped with backup power systems, international perception has negatively affected and amplified by social media campaigns. Connectivity with feeder markets has decreased affecting the rival of tourists. As far as the outlook, looking ahead, for the summer season, it remains positive. Particularly in our resort hotels, where, as mentioned on the book reservations are trending above last year, more than 5%. We expect continued growth in RevPAR supported both by the rate increase in occupancy. Premium room sales and experiences remain a key level, showing strong momentum. As we anticipated, we are in an environment of a healthy demand normalization and stabilization. Different entities and data providers are showing consistent increases in expected overall tourism volume. Our approach, which we have been following in the last years is to concentrate in quality. We are confident that we have the tools to further capitalize on demand across all segments. Briefly going into regions Spain leads the way with strong demand in the Vallari and Canary Islands and strong performance also in main urban destinations. Italy is still quite solid France trends are positive in spite of the comparison to the Olympic celebrated last year. And the U.K. as well shows positive trends with London leading growth. Germany, on the other hand, faces a tougher comparison base due to the impact of what we just had mentioned. In the Americas, on a like-for-like basis due to the refurbishment process of Paradisus Cancun, which will become one of the best properties in Cancun with no exception. And in the Dominican Republic, they are expected to grow. Mine segment is still lagging. Overall, the increased connectivity with newer countries provides for a diversification. The U.S., as feeder market is performing very strong towards euro, this so in the Caribbean, specifically Dominican Republic. Asia continues to recover with Vietnam and Thailand showing the most fronts. Turning to development. In line with capitalizing our leadership in the resource segment and our focus towards new markets, the company signed a total of 20 new hotels until July with more than 3,000 rooms with an increased objective to reach close to 35 year signatures on a yearly basis and around 8,000 rooms to be added to our pipeline during the year. All our openings are done under our asset-light model, and we are encouraged to see our system growing in the coming years. For 2025, we are expecting a 3.5% unit growth for the year. Not considering the exceptional desaturation of 2 properties in Cuba, if so, close to a 3% net unit growth. I will now turn back the call over to Gabriel to summarize the main messages of the call.

Thank you, Andre. As a summary, I would like to like the following messages. Our first semester results are strong as our operations remain solid. Excluding capital gains, EBITDA for the semester increased by 2.5%, with margins remaining stable compared to last year. The second quarter ended on an upward trend with EBITDA increasing by 7.2% with margins reaching 28%, an improvement of 59 basis points. This has been achieved despite some headwinds, which are mainly the following: the negative evolution of the U.S. dollar compared to the year affects our revenues in the Caribbean due to the accounting conversion. We have room for improvement in some destinations like Cuba, the Dominican Republic and Germany. And we closed Paradisus Cancun renovation purposes affecting revenues in Mexico. Additionally, some of hotels recently opened are still in ramp-up period and therefore, not still showing their full potential. Now looking into the near future for the full year 2025, we expect the following: the summer season, which is currently underway, is showing good results and a positive outlook with on the book reservations for -- hotels plus 5% ahead of last year. We are reaffirming our full year guidance to increase RevPAR in the mid-single-digit range with a balanced contribution between prices and occupancy. This positive evolution allow us to expect an EBITDA margin improvement for 2025 of 100 basis points compared to 2024. In terms of development, up to date, we have signed 20 new -- all of them under asset-light formulas. We are increasing our objective to see during the full year, at least 35 new properties adding more than 8,000 rooms to our pipeline. Regarding unit growth for the year, we are expecting a 3.5% increase, not considering the desperation of 2 properties in Cuba. The debt level and leverage ratios have improved significantly in the last year. This is reflected in the reduction of banking expenses but also in the improvement of our credit profile. We are certain that our robust cash generation and liquidity available as our medium long-term repayment schedule well covered. We will remain at a stable leverage ratio compared to a year, having flexibility to pursue growth or repositioning opportunities. Further details on our second quarter and half year can be found in the earnings release we issued last night. We hope we have been able to explain the situation to your satisfaction. We will now be happy to answer any questions you may have. Please let me remind you that I'm here with Andre Gerondeau and Angel Luis Rodriguez, Juan Ignacio Pardo and Stephane Baos. Stephane?

[Operator Instructions]. Now I pass the turn to Artem from UBS.

I have 3, please. So first question, EBITDA margin in the first half has been stable versus last year. and improvement in the second quarter was 59 basis points, as you mentioned. Could you elaborate what gives you confidence that margin will expand by 100 basis points for the full year? And do you refer to EBITDA ex capital gains or including? Second question, I think in the previous call, you gave an estimate of 3% to 4% growth in costs for full 2025. However, in the first half of the year cost by 2.6% or 2.7%. What are your expectations for the second half and perhaps next year? And finally, question number 3. So we saw from [ Ayena ] results recently that while the international traffic rose 6.5% in the first half, the domestic traffic was broadly flat. What do you make of that? And do you see any impact on media?

Thank you. Actually speaking. Look, on the first 2 questions, EBITDA margin, I have to recall that first quarter was worse compared to last year due to some restructuring costs, which we commented. So what we are saying is that the second quarter, we have an upward trend. So the margin has been better and compensated the worst effect of the first quarter. And so this upward trend gives us the confidence with some measures that we are setting in the company to control margins at all levels, both in hotels and the corporate uses. So we keep we are fully confident that we will achieve the target. In relation to the cost, very recently, the main effect that has been slightly worse than expected is collected by the agreement in the Vallaris and the Canary, which has been closed a 2 weeks ago with an agreed over the next 3 years which is slightly worse than expected, but gives us steadily and for the next 3 years, and we are confident that we will be able to absorb that as well. So basically, yes, I mean this management measures that we are taking at our level gives us the confidence that we will be able to achieve target.

Thank you, if I may as well. On the other hand, please remind that Q3 is one of the strongest cues for the company, while performance will then increase our margin as well. As far as what Aena has presented in growth, we are seeing a much stronger base of U.S. market and other nationalities coming into our properties, both in the Vallari and in the Canary Islands. Please remind that we have rebranded a number of properties, which are having very good performance. And in terms of what Spain, I think the positioning of media is very strong in the benchmark. And we have not seen a flat movement in the Spanish market in our properties in the country. They continue to grow. So growth comes from a well-balanced mix of all nationalities, including bring Spain to most of our media properties because of the branding and the positioning of the company. I don't know if this answers your question, Rob.

Thank you, Artem. Now we have to turn to Ignacio Dominguez from GB Capital. Please go ahead, Ignacio.

Just one from my side. My question relates to the mid-single-digit increase in RevPAR guidance. What your dollar rate is assumed in this guidance? Thank you very much.

This is Andrea again, and thank you for your question. Yes, we see a very strong performance in our premium and luxury portfolio in summer in Spain going into end of September. We're expanding the seasonality because of the demand of some group business as well. the repositioning of some of our properties, including Paradisus brand, the Grand Milan, the new properties coming along has been strong. There is a strong demand in France for our collection products and the opening of some new properties. We believe also that Mexico will be recovering on its business and in the rest of Europe as well. So that's what allowed us to perceive that some of our properties will still have an opportunity to grow I don't know if this answers your question, Ignacio.

Thank you, Ignacio. Now we turn to Guilherme from CaixaBank.

The first one related to this balance between Caribbean in Spain, U.S. kit traffic redirection. Should we think about Q2 cost of currency RevPAR as a good reference for the second half expectations? I mean in terms of balance, you had the guidance for the year or should we think the structural actions that you're undertaking to improve performance in the Caribbean could balance some growth normalization in Spain. This is the first question. The second question is it simple. I would like to have some additional color on your cash flow expectations for the year in terms after these investments that you've been undertaking the third question, it's more related to capital allocation strategy following this guidance of maintaining leverage, stable going forward. Should we expect a new investment in these JVs or minority stake acquisition from or full year on to the position, how are you expecting to allocate capital in the next coming quarters and years? And in this context, let's know if there's any call option or any more informal expectation for any party for the repurchase of the autos within the Victoria JV?

It's Andre again. I want to make sure I understood your question, but I think it relates to the situation of the U.S. generating business. We have a dual vision of this. On the first hand, all revenues for the business generated from the U.S. today, it's going about 50% is coming to Europe and about 32% is coming to the Caribbean. So there are mixed signals right now for the summer. Europe, very, very strong. So people are traveling to Europe. The U.S. market is traveling to Europe. And at the same time, the positioning and the products that we have in different, either lesser herbal destinations like Rome, Milan, Paris, London or Spanish resorts, which are now having far more connectivity directly from the U.S. it's very, very strong. It is true that apparently, local business in the U.S. for what we've seen. In terms of RevPAR growth of the American companies within the U.S. has slowed down. However, for the Caribbean, we still have expectations that things will be picking up for the end of the year. And specifically, as we enter the winter season, which, as you know, is a strong season for us as of November. And we see now some demand going into the Caribbean increased demand and increased demand in the mice business. Our expectations for the U.S. market is that would be far stronger than it has been in summer for the winter season in the crib. I'm not sure if that answers your first question, but I will pass on to Angel Luis regarding cash flow on the second question.

On the cash flow, the strength of the business and the discipline and the reduction in financial expenses that we have mentioned and witnessed in this first semester and encourages us to target for around EUR 200 million of free cash flow at year-end.

As for the third question for, Ignacio Pardo, speaking -- continues to be committed to a model that combines hotel ownership with low capital intensive formulas. Graph to be develop should be done through synergies with an alliance with our existing top time partners -- to value our capabilities and management systems. That's our main objective while maximizing returns and preserving the balance sheet from excessive leverage. It's within this spring that the operation that you mentioned was conceived and executed the company closed 2 operations in the first half of 2025 and on the one hand, the strengthening of the JV that we have with Banca Mac, with 70% owned by them and 30% by us that the prior 2 important hotels in -- as in Palma and the [ Solbeit ] from other companies also owned by Melia so media for an amount of EUR 140 million that had a neutral impact on the company's cash. And on the other hand, the recent acquisition by Melia is international or the 50% of the company owning the Paradisus from the company, Italian hotels, in which many already has, as you may know, a minority stake of 77.5%. So also helping us expanding our management agreements for 30 years with a lockup for a long-term period. That's the kind of doing that we want to reach and agree with existing parts. Any possible investment should not stress our balance sheet and should take into account the full commitment for the company to keep our prevalent leverage ratio.