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

Good morning, everyone, and welcome to Meliá Fourth Quarter and Full Year 2024 Earnings Conference Call and Presentation. I'm Stephane Baos, Head of Investor Relations. [Operator Instructions] Please note this event is being recorded. Before we begin, we would like to remind you that all 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 stated, our RevPAR, occupancy, average daily rate and P&L comments refer to year-over-year changes 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 picture for the company's performance. André will then review our fourth 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 the 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 at meliahotelsinternational.com. And now I'm pleased to turn the call over to Gabriel.

Thank you, Stephane, and good morning, everyone, and thanks for joining us today. 2024 has been a year where the economic environment has evolved. Inflation has started to ease, and in some cases, remains sticky. Monthly CPI measures continue to shape the narrative in the market, causing additional volatility. The recent changes after the different election processes that are taking place around the world pose risks and opportunities while also increasing uncertainty. In this environment, I'm pleased to present these results and to confirm that our main financial and operational objectives have been met. In 2024, Meliá capitalized on strong leisure and leisure consumer demand. Our strong brands, our premium location and our focus on elevating our product portfolio through repositioning of hotels played an important role in achieving these results. In 2024, our system-wide RevPAR increased by plus 10.7%, confirming the robust guidance we set a year ago. This performance was mainly driven by price increases, which accounted for approximately 75% of the RevPAR growth, exceeding our initial expectations. In this context, turning to results for the full year and fourth quarter. From a year-on-year perspective, consolidated revenues, excluding capital gains stood at EUR 2,013 million, representing an increase of plus 4.4%. Notably, owned and leased available rooms are likewise minus 4.3% compared to last year, still in part derived from the equity to [Foreign Language] portfolio changing from leased to management. Additionally, last year, we had 2 one-off impacts, EUR 11 million from the selling of a stake in a subsidiary and EUR 17 million from a positive conclusion of a trial in Brazil. Excluding all these aforementioned effects, the yearly increase of consolidated revenues, excluding capital gains will be of plus 10%. On a like-for-like basis, for the fourth quarter, consolidated revenues, excluding capital gains increased by plus 8.8%. I'd like to point out that management fees from third parties increased by plus 12.9%, showing the strength of our asset-light expansion approach. Operating expenses increased by plus 3% being the most relevant increase, personnel expenses by plus 4.7%. This is in part due to an overall extended season in our resort hotels together with salaries increase. On the other hand, our efficiency in cost management, together with the deceleration of inflation reduced the increase in other costs, enhancing EBITDA flow-through, which stood at 56%. As anticipated last year, I'm glad to announce that our objective to reach at least EUR 525 million of EBITDA, excluding capital gains has been surpassed as we reached a total of EUR 533.6 million. For the fourth quarter, excluding the one-off in 2023, EBITDA has increased in 30.6%. Yearly margins stood at 26.5%, implying a 129 basis points improvement. Turning into net financial results for the year, it worsened by EUR 3.5 million for the year. However, I'm pleased to report that we achieved a significant reduction in financial costs, decreasing by EUR 10.3 million. Even though reference rates were higher during the year, the acceleration of our deleveraging process driven by strong cash flow generation and our proactive asset rotation strategy have compensated for this increase. Additionally, you can see how our maturities have softened, having a more comfortable medium-term outlook. This process has also allowed us to reduce spreads over reference rates, demonstrating our lenders' confidence in our future performance. After this process, currently, 51% of debt is in a fixed financing cost, while financial cost for the year stood at 5.53%. Profit and loss from associates and JVs was of minus EUR 13.4 million, mainly due to the accrual of an impairment by amount of EUR 24.2 million. This impairment is related to a company that indirectly owns the operation rights from some hotels in Cuba. With all that, consolidated net profit increased by 24.5%, reaching a total of EUR 162 million, while net profit of the parent company reached a positive EUR 140.6 million that represents an increase of 19.4%. Lastly, earnings per share for the year stands at EUR 0.64. Turning to the balance sheet. I'm pleased to share the relevant progress we made on deleverage, which has been one of the main priorities of the company for the last years. We reduced net financial debt by approximately EUR 400 million, reaching and surpassing the leverage ratio objective set in the Annual Shareholder Meeting. This relevant debt reduction was attained using the following levers. Firstly, we have generated a strong operational free cash flow of approximately EUR 100 million after paying EUR 20.6 million in dividends. Secondly, our well-known strategic asset rotation approach allows us to generate approximately an additional EUR 300 million from proceeds of selling minority stakes in subsidiaries. The main transaction, as you already may know, was carried out by Banco Santander and the last transaction, which has been carried out in the fourth quarter with Banco Popular Dominicana. I'm confident in our long-term relationship with our partners exploring additional projects together in the future. Turning into the value of our assets, together with the presentation of our annual accounts, we have published a new asset appraisal evaluation carried out by Richard Ellis. This new valuation shows an increase in the total value of our assets by plus 13.8%, reaching a total value of EUR 5,285 million of owned assets and JVs. This is a clear sign of the crystallization of our renovation and repositioning processes in our strategy to address the upper and luxury segments. After this valuation, we registered a total amount of EUR 39.9 million as capital gains. In accordance with the applicable accounting standards, only the revaluation of assets classified under investment property is recorded. I will now turn the call over to André to talk about our operational performance during the fourth quarter and forwards in more detail. André, please.

Thanks, Gabriel, and good morning, everyone. Complementing previous remarks, after a solid summer season fueled by the celebration of major events like the Olympics in Paris and the Euro Cup in Germany, the fourth quarter continued with the upward trend seen throughout the year. On a yearly basis, we have seen a positive performance in all regions quarter-by-quarter, except for Cuba. Our premium locations, together with the strong repositioning process we made in the upper scale and luxury segments allowed us to capitalize on the strong market momentum, achieving a yearly growth in system-wide RevPAR of 10.7% with a 75% increase coming through pricing strategy. In the fourth quarter alone, system-wide RevPAR increase was of 7.3%. Going into more detail, our hotels located in Spain present once again a positive quarter, where our city hotels benefited from a positive leisure time during the festivities, combined with notable events such as sporting competitions and business fairs. Our resort hotels show likewise a positive performance with price increases running 9%, together with increasing occupancies. It is worth noting that the trend shown at the end of the year allowed us to once again extend the season in some of our hotels. Turning into EMEA. We see a positive end of the year overall. MICE together with business transient and leisure clients have behaved well. We have nevertheless seen a double speed behavior within countries since France and Germany are facing some political uncertainty causing some instability, thus showing a single-digit increase in RevPAR. Other destinations like the U.K. and Italy performed better, showing a double-digit increase in RevPAR. In America, the fourth quarter was particularly affected by the uncertainty due to the U.S. presidential election, causing some price adjustments in order to maintain market share. The positive note overall comes from the fact that the reservation and occupancy figures surged after the U.S. election ended, showing a clear recovery. This can also be seen on the performance of our Black Friday campaign, which was very successful. This campaign as a whole generated an increase of around 26% in sales with a 5% price increase compared to last year on a general basis. In Asia, China is still recovering from the weaker performance shown throughout the year. The market remains mainly domestic driven since the international influence has not yet recovered. Nevertheless, RevPAR decrease has stabilized in Q4. Southeast Station is seeing a greater performance of international clientele with greater direct air connectivity to the high-profile markets. Thanks to the positive evolution in RevPAR, yearly management fees generated in the region increased by 18%. Lastly, operations in Cuba have been challenging where power outages and the effects of adverse meteorological events affected demand. For the foreseeable future, trends in the country will depend on how the energy and overall supply chain availability evolves. Our general performance during the year has been strong. In terms of development, I'd like to close this chapter with our development and expansion strategy. This year, we opened 19 hotels, adding 3,000 rooms to our system. Net unit growth for the year reached over 2%. Regarding new projects added to the pipeline, we signed 34 new hotels, adding more than 5,000 rooms to our pipeline. For 2025, we will continue to reinforce our strategy focused on 3 pillars: consolidating our leadership in the luxury segment, expanding our presence in key vacation destinations and entering new markets such as the Maldives, Seychelles and Türkiye. We remain committed to signing at least 25 new hotels yearly and open 20 properties during next year. Our midterm goal is to surpass the 100,000 rooms in our operating portfolio. Let us talk now about our 2025 expectations. While geopolitical risks and economic uncertainties present challenges in some countries, overall conditions for the global hospitality industry remains favorable for continued growth. This positive outlook is supported by stable labor markets, strong business activities and economic growth, which have been benefited from easing inflationary pressures and the shift in the interest rate cycle over the past 12 months. Market research and consumer surveys indicate a continued prioritization of spending on travel, while business surveys suggest increasing corporate travel budgets in 2025. With demand fully recovered, Oxford Economics estimates that global hotel room nights exceeded 2019 levels in 2023 and have continued to grow in 2024, forecasting a compound annual growth rate of 3.6% through 2034. Demand is showing signs of positive and healthy stabilization with both leisure and corporate clients still presenting positive on-the-book reservations, which are up by high single digits compared to last year. We anticipate a positive first quarter, especially in the Canary Islands and Spanish city hotels. By segments, all of them still show a positive performance. And even though this year, some of the one-off events like the Olympics or the Euro Cup will not take place, this should not cause a significant effect. Feeder markets overall remain to be unchanged with historical records, and we see no signs of a slowdown so far for our top European clients. We also like to remember that in part, thanks to our repositioning process, we are increasing market share contribution from nationalities like the U.S. and the United Arab Emirates who have one of the highest ADR contributions to the company. We understand that the strong U.S. dollar evolution should be a tailwind in terms of our operations, and the future evolution of reservation, specifically in Europe. With all this, we are expecting that RevPAR for 2025 should increase in the mid-single-digit range with a balanced contribution from occupancy and price increases. I will now turn back the call over to Gabriel to summarize the main messages of the call.

Thank you, André. And to end, I would like to highlight the following messages. I'm pleased to announce that the 3 main goals we set a year ago have been attained and surpassed. Yearly RevPAR increased by double digits, reaching a plus 10.7% increase for our system-wide hotels and plus 11.2% for our owned and leased portfolio. We reached an EBITDA, excluding capital gains of EUR 533.6 million, surpassing our goal of at least EUR 525 million. The strong operational cash flow and the proceeds from the strategic asset rotation operations with long-term partners allow us to reduce net financial debt by EUR 400 million, reducing our debt by 1/3 compared to last year figures. This allow us to return to pre-pandemic leverage ratios. We feel confident with this debt level ratios focusing now on a growth approach with regards to our capital allocation in this year. Meliá will continue to extend its footprint in top leisure and leisure destinations, and we expect to sign at least 25 hotels in 2025 and open not less than 20 properties. Turning into RevPAR guidance, we expect a mid-single-digit increase in RevPAR with an even contribution between prices and occupancy volumes. Lastly, and thanks to the positive evolution of our business and with the strengthened balance sheet, we are aiming to increase our dividend payout ratio for next year. Further details on our fourth quarter and full year can be found in the earnings release we issued early yesterday. We will now be happy to answer any questions you may have. Please let me remind you that I'm here with André Gerondeau, Ángel Luis Rodríguez, Juan Ignacio Pardo and Stephane Baos. Stephane?

[Operator Instructions] Our first question come from Jarrod of UBS.

Impressive results. Just want to ask maybe 3. I mean, firstly, obviously, the debt coming down nicely. Would there be any plans to bring the debt down even more aggressively, maybe through raising any capital to bring it down? Secondly, just the family shareholding, any thoughts on reducing the family's stake? And then just lastly, I mean, you slightly missed -- I think it was 4,000 rooms that you wanted to do in 2024. And you're now talking about 20 hotels in 2025. Can you give us an idea, firstly, if any of those 20 hotels includes any slippage from development of hotels in '24 into 2025? And then also based on 20 hotels, what kind of room counts are we talking about in 2025?

Jarrod, Ángel Luis speaking. Look, on the debt question, as we have recently discussed the position of the company is that in the midterm, the leverage ratio will be between 2 and 2.5x. So there is no plan of capital increase whatsoever. We feel comfortable now with the level of debt and we'll be disciplined to maintain in between this range.

Coming to the second question, Jarrod. It's Gabriel. The family has no intention at all to reduce our participation in the company. And on the contrary, myself, during the last 2 consecutive years, I bought some shares of the company, taking advantage of what I thought was a good opportunity in terms of valuation.

And Jarrod, If I may. This is André Gerondeau, regarding the development question. Listen, I think in general, every year, we have some delays in openings that go to next year on certain properties, but then happens the same for the following year. So anything we trail back is recovered. Our vision for 2025 is around a 4% increase in the net unit growth of the company. So this is where more or less those 20 properties should look like. I don't know if we've all answered your question, Jarrod.

Okay. Now the next question comes from Guilherme from Caixabank BPI.

Two, if I may. The first one, could you provide a bit more details on your performance expectations, specifically for the Caribbean area with a particular focus on Mexico? And second, in terms -- could you provide any cash flow target expectations or asset rotation plans for this year?

Guilherme, this is André. Listen, I don't know if I understand specifically your question on the Caribbean. But when it comes to performance, you know that the end of the year, given the situation in the U.S. with the election and different political processes, we've seen a minimum slowdown for the winter season that is coming back and pickups are coming back again. So the expectation for Mexico is that there is a slower demand than during the COVID times, but still strong. What we have been able to recover and we're focusing strongly is on the MICE segment, which we have positive news at the same time on certain consortiums, travel agencies and the upscale business. Now when we go into Dominican Republic, we would say 2 things. One is that the DR has shown increased demand and it's moving on a positive pace. Both Mexico and DR are better than last year's first quarter. And in the Dominican Republic, we also have a strong MICE demand and in terms of growth and development, I think that within the next few months, you're going to see a part of this development strategy for the year coming through Dominican Republic as well. So we are probably better positioned than Mexico. I don't know if this answered -- we'll go into the cash flow with Ángel Luis and then we'll come back.

Guilherme, look, on the cash flow side, we are not giving today any guidance on the EBITDA for 2025, but we expect that the business remains strong, and so we expect a better year than 2024. And that will obviously translate into cash flow generation. And there will be other factors such as the reduction of debt and the reduction of the reference rates and reduction of the spreads will make the financial expense go down. So all in all, we expect a higher cash flow generation compared to 2024. On the asset rotation side, I will pass the floor to my colleague, Juan Ignacio Pardo. But what I can anticipate is normally the company when we run the valuation now it's time to reflect on the portfolio and to think strategically so there will be no principal big asset rotations in the short-term in terms of disposal. Now we are analyzing but I will pass the floor to Juan Ignacio to explain.

Thank you, Ángel Luis. As for the asset strategy of the company will be a different size. The first one will be the repositioning of some strategic assets that we have in the Caribbean in line with our strategy to strengthen our presence on the leisure destination luxury segments. More specifically on the Paradisus Cancun, which is there is some investment that has been projected for this year. And we all know that maybe we cannot give specific detail as you may desire, but if some windows start to open on possible acquisition on specific flagships in strategic locations that we will plan under different formula, in partnership as we've done in recent investment operations. Always, for sure, keeping in mind that our debt ratios should be maintained under [indiscernible].

Then the next question come from Fernando Abril from Alantra.

Just a follow-up, if I may. So could you please provide us what's the level [indiscernible]. Two questions, please. First on the RevPAR evolution. So Q1 is going strong at high single digits. And Q2, I understand there will be a tailwind coming from Easter season and then you are guiding for mid-single digit for the full year with Americas, Mexico, in particular doing well. So my question is, are you guys being prudent or you see something in the market that leads you to be -- to expect a softer H2 -- much softer H2 than H1? And second question, you've mentioned some development, Paradisus Cancun and so on. Can you tell us what is the CapEx guidance for the year between maintenance and, let's say, development CapEx?

Fernando, this is André again. Thank you for your question. I think that basically, what we're trying to say is that we're seeing a stabilization in the market, both in prices and in volume. So it's not that we're being too conservative. It's that the reality is that we see a positive trend on the books business for Spain, Canary Islands has been strong. It is true that our on the books business for Spain and Europe in general are positive, but we still need to see the evolution both in Latin America in general, the Caribbean and then the rest of Europe. You know that Germany is going through some challenges at the time and some other countries in Europe. So I think we're just being sensitive to the reality. We are planning a growth of 2x inflation. So, we think it's realistic more than anything else. We believe we're going to see some stabilization in the market, which should be normal. Do remember, and I'm sure you all understand that last year was a record year for Spain.

Fernando, Ángel Luis speaking. I will start with the answer to the second question and probably pass the floor again to Juan Ignacio. What we've done recently is to improve a bit more specific on the policies of maintenance, risk and IT investment and that throws volume of maintenance, risk and IT CapEx in the EUR 60 million and that will be stabilized every year. And on the CapEx that with the return on investment, Cancun will definitely be the bulk of this year. It's a very significant property and will face a full refurbishment of the property, which is needed is, one of I would say one of our big vessels that still need that because with CapEx as you know recently, pretty much all our portfolio. And also we'll provide some allocation to -- for some money to support the strategy of the asset-light growth.

Next question came from Jaina Mistry.

I've got two. The first is around your openings. I saw that you're planning to open 20 new hotels in 2025. And is this a net number or a gross number? And I guess -- and if it's net, I guess -- sorry, if it's gross, I just wondered how many hotels you're planning to close this year as well? And second question is around OpEx inflation. Apologies if I missed this earlier on the call, but what level of OpEx inflation are you expecting for your hotel business this year?

Jaina, this is André. Regarding development, what we're saying is that we're planning to sign at least 25 properties for this year and to open 20 properties. Out of these 20 properties, we should be somewhere around close to 4,000 rooms on net unit growth. As far as the openings, we have a number of properties being opened in Spain, leisure and urban Spain. We're moving forward with several properties in the rest of Europe. And then we have some openings in Southeast Asia and Maldives and Seychelles as well. So I don't know if that answers your question regarding development.

Jaina, Stephane speaking. Regarding the inflation cost or OpEx that we expect for 2025, the expectation that we cut is between 3% to 4%, something like that.

[indiscernible] 4,000 rooms. Are you planning on shutting any hotels or shutting any rooms in the year?

Basically, as we've said, Paradisus Cancun is our top priority for this year. And yes, the intention is to shut the property at the end of this winter season to have it ready by the beginning of next year. These are about 700 units, Jaina.

There is no other questions, I think that concludes our question-and-answer session. We hope that we have been helpful here. Please do not hesitate to contact our Investor Relation Department for any follow up question you might have. Thank you and good day, everyone. Bye.