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

Good morning, everyone, and welcome to Meliá 2025 Full Year and Q&A Conference Call. I'm Stephane Baos, Head of Investor Relations. As you may know, this year, we made an update in our approach to our results presentation. Yesterday, together with the release of our results, we made available a webcast presented by our President and Chief Executive Officer, Gabriel Escarrer; and our Chief Operating Officer, André Gerondeau. It provides an overview of the key operational trends in 2025 and outline the company's outlook for the year ahead. We hope you have had the opportunity to review and that it has been to your satisfaction. In today's live session, we will begin with a brief introduction summarizing the most prevalent points of the year. Afterwards, we will be open the Q&A session. This morning, as usual, on the call with me today are Gabriel Escarrer, our President and Chief Executive Officer; André Gerondeau, our Chief Operational Officer; Angel Luis Rodriguez, our Chief Financial Officer; and Juan Ignacio Pardo, our Chief Real Estate and Sustainability Officer. [Operator Instructions]. Additionally, we would like to remind you, everyone, that the discussion from the company might include forward-looking statements. These comments reflect our expectation as of today only and actual results may differ from those as presented or implied. I am pleased to turn the call to over Gabriel.

Thank you, Stephane, and good morning, everyone. Before opening the line for questions, let me briefly summarize our 2025 performance. We delivered solid RevPAR growth with a strong pricing discipline, resilient demand and a well-balanced geographic footprint. We are once again leading the market in RevPAR growth. EBITDA, excluding capital gains, increased by plus 2.1% compared to 2024, even with major refurbishment underway at flagship hotels and the effect of the depreciation of the U.S. dollar versus euros. Net profit exceeded EUR 200 million, up 23.6%, supported by operational momentum and lower financing costs. Our increasing free cash flow allow us to fund our investment ending the year with a stable net financial debt-to-EBITDA ratio in line with our expectations. In February, we signed a new syndicated loan, which reinforces our financial discipline and significantly improves our maturity profile without increasing leverage. We also benefit from lower spreads without requiring any collateral guarantees. Looking ahead to 2026, we have a positive on-the-books position despite a more uncertain environment in late February after some events in Mexico. Our diversified portfolio and upcoming reopenings put us on track for another year of disciplined growth. As a result, we are expecting a RevPAR increase in the low to mid-single digit for 2026. And now let us open the line for the first question.

[Operator Instructions]. The first question is for Ricardo Benevides from Santander.

Three questions from my end. Firstly, regarding this week's tensions in Mexico, I was wondering if you're seeing any volatility in terms of bookings, pricing more for the midterm note. Second question, for your top line growth, considering the normalized RevPAR outlook, would you potentially be also considering some net unit growth in your own and lease segment? And last question regarding capital allocation. Is your decision right now to not pursue any asset rotation is more tactical in nature or more strategic? And in the event if there are no relevant, let's say, additional projects for you to allocate capital towards, what would you prefer, extraordinary dividends or a share buyback program?

Thank you for your questions. Relating Mexico, we have seen -- it's been 3 days already. First couple of days, we did have a negative pickup, but I'm happy to announce that yesterday's pickup was already balanced between admission and cancellation. So hopefully, this is a situation that will reverse very soon. Important to note that all of our partners have started operations again into Mexico. All airports are open. Flights to [ Vallarta ] have been restarted. So we see that this might be a situation that hopefully has minimum impact. However, we need to wait and see for the next few days. Again, I think that when we go into RevPAR and top line, what we've said is that we have a strong vision for winter given the positive trends we've had so far in the Caribbean, far positive than last year besides the situation in Mexico, obviously. Very strong performance in the Canary Islands and a strong performance in the ski season as well. Our advanced bookings plus MICE on-the-books make it very positive for us to foresee the midterm business. Obviously, on-the-books is higher than our low to mid-single RevPAR vision, given the advanced booking and the MICE that we've said, and things will balance out. If we look at the trends for some of our competitors, which are in very low single-digit RevPAR, this is where we have our confidence from. I will pass the third question to my colleagues to answer.

Ricardo, on your question on capital allocation, I think, first of all, our policy is going to be very consistent with the financial discipline. So the framework will always be that our debt ratio to EBITDA will be between 2% and 2.5%. So we'll be doing little adjustments in our participations, portfolio management that we've been carrying out over the last 12 years. We've been looking for little adjustments. There's nothing really major identified. But I think that we see ourselves allocating the capital in growth and improving our assets rather than increasing or changing our dividends policy. So we don't see ourselves giving away extraordinary dividends and less the share buyback, which we have discussed that in depth with you one-to-one, being the little free float that we have now, one of the main circumstances that we think is dragging our quotation. We don't see ourselves in the short term doing a share buyback.

Of course, we remain open to structures that may unlock value while preserving brand control and operating flexibility. Any structure must improve capital efficiency, reduce risk, as Luis has said, maintain balance of the 2.2 debt ratio and be executed at attractive pricing. We are evaluating alternatives case by case on asset type, geography and investor appetite as we've done in a similar way as we've done during the 2025 exercise.

Now the turn for Artem from UBS.

My first question on net unit growth. Pipeline for 2026 as a percent of system size is 4.7% now. Last year, it was at 3.3%. Nevertheless, guidance for net unit growth in 2026 is lower than it was a year ago, 2% to 3% now for 2026 versus, I think, 4% a year ago for 2025. How should we think about it? Do you expect an increase in the pace of disaffiliations? My second question, how do you see 2026 RevPAR growth by main geographies? Which geographies do you expect to be stronger, which ones weaker? And lastly, can you share any initial thoughts or indications on cost inflation for 2026?

Listen, we feel comfortable on the 2% or 3% net unit growth. We're not foreseeing any specific disaffiliation program. We do recognize, however, that we're sensitive to the situation in Cuba, which might have an impact. Other than that, we are clearly on line to follow last year's business and growth strategy as well. So nothing disaffiliation that should be higher than what I just mentioned. When it comes to RevPAR, we've seen a very positive increase of RevPAR in the Caribbean, mainly Dominican Republic, obviously, Mexico, given the circumstances in the short term. Please bear in mind that in Europe, in general, U.K. is performing very positive for us, so is France. And certainly, Italy for the past few weeks has had an extraordinary performance given the, Milano Cortina Games. When it comes to Spain, I think it's important for us to note that we've been upgrading our product portfolio, and we've been increasing our footprint in the main regions, whether it's the Canary Islands, certainly in Andalusia, as we have announced with the opening of ME Málaga, the refurbishment of Gran Meliá Don Pepe. We've taken over the former Kempinski hotel in Estepona, and we've taken over Holiday World, which is an 800 unit resort. So even though it's a stabilization year, we see opportunity for our brands and our products specifically as our portfolio develops. I'll pass on the cost inflation question to Stephane.

Regarding the last question, you said about the cost inflation. In the average worldwide, I will say that it's going to be between 2%, 3% increase, but it's going to depend on the location. That depending on the geographical location, you will see some differences. But in general terms, for the full company, I think around 2%, 3% is going to be the level that we are going to have. It's okay, Artem, about the answer we gave you?

Yes. Great, thank you very much.

Now the third question is coming from Guilherme from CaixaBank.

The first one is regarding RevPAR. If you're seeing some difference in terms of the RevPAR outlook for owned and leased hotels alone and owned, leased, and managed hotels in general for the whole portfolio. And also related to RevPAR, if you could provide us a figure of like-for-like performance since there are important change in the perimeter that could distort a bit the guidance provided. So the second question is in terms of margins. What are your expectations for 2026? Of course, we know there's some impact from FX that could be relevant, but just so that you know that aside from this, you see margins going up on underlying terms. And the third question is regarding free cash flow generation expectations, both on the pre-M&A basis. And if you could share with us potential size of investments that you might do that we should have to have free cash flow generation post M&A to input in our model.

Listen, in terms of RevPAR, no, there's -- our RevPAR where we have both owned and leased and managed hotels in the same destinations is very similar, where obviously, the difference comes is in those destinations that we only do management like it would be Middle East, Southeast Asia. But other than that, our brand strategy calls for a very sustainable RevPAR growth in all destinations and brands.

On the margins, I would say, and we have discussed that as well several times. This is the obsession of the company. So we have a target to get 30% EBITDA margin in 2027. So we are working on that. And there are 3 lines. One is the operating performance of the hotels, and we are optimizing the operations and trying to squeeze the assets as much as we can. The second line is the corporate expenses, where we have also streamlined and optimized the structure that we have here in HQ, but also in all the regional offices. And the third line is the asset-light expansion, which, as you know, in terms of margins will improve the picture. So we are working on that. It's the obsession. We've launched internally a program called 30% margin and it is day-to-day -- it's on our day-to-day. Obviously, we'll have the FX effect, as you mentioned. But as we have always said, it's just an accounting effect since we don't cross currencies effectively. Sorry, I forgot on the free cash flow thing, I was thinking that Stephane will reconcile. I'm sure they have already the 2025 figures. So we've ended up with EUR 200 million of cash flow from activities, and we expect a bit higher number for 2026.

Just want to understand a bit what type of investments should we need to take into consideration that could have implications in the actual cash flow generation generated?

For the moment for 2026, as you may know, we have the Paradisus Cancún that we are going to open it again in May 2026. That could represent around EUR 25 million. And additionally to that, we have the Gran Meliá Don Pepe that is going to be opened at the end of the year, and we are going to invest around EUR 40 million. Then between these 2 big refurbishment that we have, it's EUR 65 million. This is the two major thing that we have on mind right now. Also to keep on mind that we used to have around EUR 15 million that we used to have in key monies and growth opportunity that we could have for the year that we have for this year.

And just on margins, just a small follow-up. How should we think about the phasing to the 30% margins between 2026 and 2027?

If I may, Guilherme, adding on to what Angel Luis has just said, I think it's important to note that we also have a very strong strategy in terms of revenue generation, upselling and increasing other revenues. So an important percentage of the 30% is coming from the top line as well. We have just rolled out a number of strategies and IT technologies for increased experiences in the hotels for other revenues in terms of upselling. And please bear in mind that most of our openings over 65% of our business coming in right now, it's between premium and luxury hotels. So I think we are counting on a very large percentage of the margin 30% to come from the top line as well with much better flow-throughs when we look at RevPAR growth, mainly through ADR. And that's why we've been updating and upgrading our portfolio and our expansion strategy. I don't know if that supports the question.

Now the turn is for Fernando Abril from Alantra.

Just only one question. I missed some of the prior questions. So maybe you've already answered this. But I don't know if you're aware, but your -- one of your main peers, Minor Hotels, the owner of NH, said he was looking to create a separate REIT. I don't know if this is something you would be also open to discuss internally and separate PropCo and OpCo within your company.

Look, this is something we have discussed several times. So I would say almost every time we get together. I don't see that happening in the short term. I think one of the reasons is that we think that the operating business has to grow a little bit more for us to start contemplating that. But as we have always said, we hear the market. We listen to the market. We hear you and we always analyze opportunities, but I don't see that happening in the short term.

Now let's turn to Andre Juillard from Deutsche Bank.

First one about the operational trend. Could you remind us the weight of Cuba in terms of revenues and EBITDA contribution? And on the operating side as well, could you give us some more color about the trend you are seeing on the MICE segment, especially in the Caribbean? Second question about asset management. Could you confirm that the 2 main projects that you have at the moment are only the Paradisus Cancún and the Gran Meliá Don Pepe, but do you have some more project of refurbishment for this year? And thirdly, about the capital allocation, could you remind us the policy in terms of dividend and what we can expect for this dividend?

Thank you for your questions. Basically, you know that Cuba has been struggling for the past couple of years. So the impact for this year in terms of fees and overall performance is around EUR 10 million in fees and obviously, whatever comes down on the EBITDA. So we've considered that already. The trend for MICE has been very positive since we've increased our strategy in Europe and in the U.S. So our on-the-books business is very solid, mainly for winter in the Caribbean and then spring time in Europe. So the trend continues to be positive, and there's a sense of confidence in the market business has been picking up. Besides Paradisus Cancún and Gran Meliá Don Pepe, other than our traditional maintenance CapEx and upgrading CapEx, there's no other project at this time. So those are those 3 points on our side.

On the dividends, as you know, this is something that the Board of Directors proposed to the General Shareholders' Meeting. And I think it will be March when the directors of the company will take a decision. As you know, we went back to dividends 2 years ago, and we started with a payout dividend of 17.5%. Last year, we increased to 22.5%. And very shortly, we'll have the clue of the dividend policy. We want to absolutely preserve the financial discipline, but we understand that the shareholders need to be -- and the dividend policies need to be consistent. We'll confirm very shortly.

The last question that we have for the moment is from Ivan San Félix from Renta 4.

Most of them have already been answered, but maybe if you could give us an update on the new developments that you've been carrying out in the last few quarters, mainly Albania, Malta, Saudi Arabia, how they are going? And then a financial question. After the EUR 800 million syndicate refinancing, should we expect the cost of debt to be lower than that of 2025, the 4.2%?

In terms of development, I think positive overall. On one hand, we continue to grow and consolidate our footprint in Albania, Montenegro and Croatia with different opportunities. Malta, as you know, we keep opening properties after the success of the ME Malta, and we have several properties underway. We've announced in Saudi Arabia, an important project of 3 hotels in Qiddiya, the first one under construction. We have a few opportunities in Riyadh that we will announce very soon, and we have something else coming in, in Jeddah. I do have to say that the reopening or the opening of Paradisus Bali in Southeast Asia has been very positive. So I would -- we would perceive that there will be a growth on the Paradisus brand, both in the Middle East and Southeast Asia. We continue the footprint in Vietnam, very strong, and we have a few more opportunities both in Indonesia and Thailand. So we feel that overall, Southeast Asia and Middle East will continue to grow. We are chasing several opportunities in the south of Italy, Greece and Portugal. So that footprint on the Mediterranean will continue to grow. And I'm sure that we will announce very soon 2 or 3 projects more in the overall Emirates as well. I don't know if that answers your question. I don't know if that answers your question, Ivan.

If I may add, André, I just want to mention, Ivan, that most of the openings that took place last year, the 29 and the 30 that will take place at least this year are taking place in where we believe we have competitive advantage. This is mainly the Caribbean, Mediterranean and Southeast Asia. And this is where you should expect to see the new openings in the areas where we believe we have critical mass in order to maximize the profitability and the margins of the fees generated. There are some strategic new places that, in my opinion, are the ones that we should focus as well and are mainly the Middle East and as well places like Maldives, Seychelles, et cetera. So this will be the only exceptions, but most of the openings and can be applied as well for the new -- the pipeline, the new signings will take place mainly in the Mediterranean, in Caribbean and Southeast Asia.

On the new facility, look, the main goal of this facility was to really improve the maturities profile of the company. Some of you had already started asking questions about that, even if we were not concerned. Again, we listen to the market, we hear you, and we thought there was momentum to approach our lenders, which we did in September. And the result is -- you can't compare now the maturity profile of the company. But moreover, as you know, this kind of syndication normally are more expensive than bilateral loans because we approached the lenders in September, and I have to thank them for their understanding. We've managed to reduce the spread of the 19 facilities that we have canceled with the proceeds of this new syndication. So we've reduced by 20 basis points the average spread. And we fixed half of this at a very good rate last Tuesday, where we took advantage of the rates coming down and we closed the fix and the swap at 2.32%. So there has not been underwriting commission. There has not been market flash. So the kind of costs that are normally affecting this kind of structures and loans, we haven't suffered. But again, the main goal was to stabilize our debt, to have a clear and not to be concerned of the maturities profile until 4 years from now.

If there is no more questions, then thank you once again for joining us today and for your continued interest in Meliá Hotels International. Please do not hesitate to contact our Investor Relations department for any further questions you might have. Thank you, and have a beautiful and good day. Bye-bye.

Thank you.

Thank you, everyone.

Thank you.