Minor Hotels Europe & Americas, S.A. (NHH) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Minor Hotels Europe & Americas H1 2024 Results Conference Call. At this time, all lines are only in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Javier Vega-Penichet. Please go ahead.

Good morning, everyone. Welcome to Minor Hotels Europe & Americas second quarter and first half '24 results conference call. This is Javier Vega-Penichet from IR. To start, our CEO, Ramon Aragones, will share the key drivers behind the positive operating trend explained by the persistent robust demand and the continuous improvement of our portfolio. Then our CFO, Ana Munoz, will provide a more detailed description of the results and the cash flow evolution that continues improving our financial position, although it was partially affected by a calendar timing effect at the end of the quarter. At the end, we will open a Q&A session to answer any questions you may have. And now I hand over the call to Ramon.

Good morning, and thank you for joining us today. This is Ramon Aragones speaking. The healthy and positive operating trend has continued during the second quarter as business and leisure demand remained strong, allowing to continue increasing price levels. Starting with the key metrics of the quarter, the commercial strategy permit ADR to clean to EUR 161 or plus 6% and contributed with 90% of the RevPAR growth of the company. With regards to occupancy, it reached 73% in the second quarter, which is 0.4 percentage points above the second quarter of last year and only 0.3 percentage points below like-for-like occupancy of Q2 2019. Remark that in Southern Europe countries, like-for-like occupancy was 3 percentage points above 2019. As a result, revenues reached EUR 685 million in Q2, representing an increase of EUR 65 million of plus 10.5% versus the same quarter of 2023. Remark that stronger performance in Spain and Central Europe during the second quarter. Reported EBITDA improved by EUR 20 million, reaching EUR 229 million in Q2, excluding IFRS 16. Recurring EBITDA reached EUR 161 million, also representing an increase of EUR 20 million and implying a 30% revenue conversion rate supported by the ADR strategy and the cost control. With regards figures of the first 6 months, the robust demand and pricing strategy allow revenue to increase by 11.5%, reaching EUR 1.15 billion, driven by a growth of 5.6% in the ADR and 1.4 percentage point improvement in occupancy. ADR contributed with 70% of the growth of 8% in RevPAR, which reached EUR 96 million in the first half of this year. Excluding IFRS 16, EBITDA in each one was EUR 163 million, representing a EUR 13 million or 22% increase and plus 1 percentage point of higher margin. Total net profit in the first 6 months was EUR 71 million, implying an increase of EUR 26 million or 57% versus the same period of last year. Net financial debt decreased by EUR 24 million in the first half of the year to EUR 241 million despite the seasonal weakness typical of the first quarter and capital expenditure of EUR 77 million in the first half. Liquidity continues strong with EUR 537 million as of the end of June. To conclude, after a record year in 2023, and the strong demand in the first 6 months of the year, the supportive dynamics of the business allow us to foresee continued delivering record results in 2024. Now Ana will give you more details on the results and balance sheet.

Thank you, Ramon. This is Ana Munoz speaking, and good afternoon, everyone. Going to the details of the results on Page 4. Reported revenue in the first half of 2024 reached EUR 1.15 billion compared to EUR 1 billion reported in the same period of last year. This evolution implies a growth of EUR 118 million or plus 11.5%. Of this revenue growth, like-for-like perimeter grew plus 9.2% and refurbishment and portfolio changes contributed with EUR 26 million and EUR 24 million, respectively. Moving to Page 5. RevPAR was EUR 96 in the first half, plus 7.9% above the figure of last year, EUR 90. On a comparable perimeter, like-for-like RevPAR grew plus 8% versus the same period of 2023. ADR contributed with 70% of the RevPAR growth, reaching EUR 143 in the first half, implying an increase of 6% versus last year, while occupancy reached 68% in half 1, plus 1.4 percentage points versus half 1 2023. Compared to 2019, like-for-like occupancy is 1 percentage point lower. Moving to Page 6. We have seen a strong operating trend across all regions in the first 6 months, particularly highlighting Spain and Central Europe. In Spain, like-for-like revenues increased by 14% compared to half 1 2023 with a very solid performance in all regions, being Madrid, the city with the highest growth. In Italy, compared to half 1 2023, like-for-like revenues increased by plus 4%, with higher growth in Venice and secondary cities and lower progress in Milan and Rome due to very strong performance in 2023. In the Benelux, like-for-like revenues increased by plus 6% compared to half 1 2023 with higher growth in conference centers, hotels, secondary cities and Brussels compared to Amsterdam that remain stable versus 2023. In Central Europe, compared to half 1 2023, like-for-like revenues increased by 9%, with a strong evolution, both in key and secondary cities. Lastly, in LatAm, with real exchange rates, like-for-like revenues in the region grew by 10% compared to half 1 2023 with higher growth in Mexico and Colombia compared to other countries. Moving to Page 7. Both payroll and operating expenses increased plus 16% and 10%, respectively, in the first half due to the higher activity and despite operating cost [indiscernible] to contain inflationary pressure. Remark that revenue growth, coupled with cost containment efforts allow us to report a [GOP] or EBITDA of EUR 407 million in the first half of the year, an increase of 9% versus last year. Reported lease payments and property taxes grew by EUR 4 million or 4%, mainly due to perimeter changes, the new entries. Reported EBITDA improved by EUR 30 million or 11% in the first half of the year, reaching EUR 298 million compared with EUR 268 million in H1 2023. Excluding IFRS 16, recurring EBITDA in the first semester reached EUR 163 million, an improvement of EUR 30 million or 22% compared to 2023, supported by the pricing strategy and cost control. Net recurring profit reached EUR 66 million in the first half of the year, with an improvement of EUR 27 million or 71% compared with EUR 39 million reported in half 1 2023. Non-recurring items reached EUR 5 million, mainly explained by the net impact of the compensation from the exit of 2 leased hotels and the disposal of core assets. With all this, total net profit improved by EUR 26 million or 57% to EUR 71 million in the first half compared with EUR 45 million reported in half 1 2023. Moving to the cash flow evolution on Page 8. The financial position has continued to improve with a net financial debt reduction of EUR 24 million, reaching EUR 241 million in the first half of the year versus EUR 264 million in December 2023 despite the seasonality of the first quarter and the CapEx invested in the period of EUR 77 million. Moving to details. Operating cash flow, including working capital, VAT and corporate income tax was EUR 99 million in the semester. The working capital has a negative effect, mainly explained by weekend end of term as in effect with collections in line and the higher weighted of credit sales due to the sustained reactivation of the B2B segment. The positive VAT contribution is explained by the positive phasing effect of VAT and other local taxes. CapEx reached EUR 77 million in the first half of the year. Asset rotation brought EUR 15 million from the disposal of the non-core assets and the termination of 2 lease contracts. Moving to Slide 9. The group closed June with an available liquidity of EUR 1,237 million, out of which EUR 229 million is cash and EUR 308 million are undrawn credit lines. Recall that in April, Fitch upgraded to BB- from B our corporate rating with a stable outlook, implying a 2-notch upgrade, reflecting the performance reported in 2023, the strong deleveraging and cash flow generation. And now after covering the results of the first half of the year, the team would be very happy to answer any questions you may have.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from Laura Homsy from MFS.

Can you maybe comment on sort of the more recent weeks and maybe months in terms of what you're seeing in terms of operating trends and also whether you've seen any weakness or any impact from the anti-tourism protests, I should maybe call them in that were sort of widespread in Spain. That would be helpful.

Well, talking about Q3, for this summer on the [indiscernible] mid to high single digits above 2023 and mainly through higher ADR. We are not seeing a trend change in the coming months or for the next month, especially this summer because our presence in leisure destination is not too big, as you know. And we are optimistic for the rest of the year and maybe for the last quarter. I'm talking about this process happening in different cities against the tourists. I think this is because of the lack of legislative management from the different administrations in Spain. I have explained many times about this. This is because the total lack of legislation regarding the tourist apartments. Now many leisure destinations are precluding and this is creating a real conflict because of the normal life of the citizens and the tourists. So once again, this is because -- and as I mentioned before, the lack of management legislation or legislative management, sorry. Now it's too late because the damage is done, but I expect that in the coming months, the different administration will take the right decision in order to protect one of the main industries of this country, which is the tourism. In our case, we are not suffering big time because as you know, we are mainly urban company, we have tourist present but not in Spain, in different areas of Portugal and other countries. But we are a little bit concerned about the future of the main cities like Barcelona, if the authorities don't take the right decision to abort this overcrowded situation.

If I may, one follow-up, please. Just in terms of your debt maturities, especially the semi-secured notes due 2026. Are there any plans to address them this year or will you likely wait until the coal price drops to par next year?

The plan is to continue monitoring the market during the second part of the year as the group has almost 3 years of maturity. Also during the coming months, we will have more visibility on the size of the financing base as well as future [indiscernible].

[Operator Instructions] Your next question is from Miguel Medina of Mirabaud.

Just 2 questions. The first one is a follow-up on, a follow-on on the comment that the CEO just made about the tourist apartment legislation in Spain, which it seems we don't know when, but at least in some cities, it's going to change, specifically, Barcelona, Just to see, a, whether you think this is going to happen in the end, whether this is going to become a reality? And second, if you can give us some context in terms of what tourist apartments could represent in terms of capacity in cities like Madrid and Barcelona. That's the first question. And then the second question is another sector topic, which is booking and the competition investigations in some jurisdictions, specifically in Spain, in which it has been ongoing, I believe, for 2 years, and it seems that we are going close to a final resolution. Do you think that this is going to change market practice and could that have a positive impact in NH and other hotel operators if booking is forced to be less restrictive?

Regarding the apartment, it's true that now the different administration are taking decision -- not taking decision, starting working in future decisions, which is quite relevant because at the end of the day, it's not only a problem of competitiveness. It's a problem of the kind of tourists that we want to have in this country because it's impossible to aspire to have quality tourism at the meantime, we are offering crowded cities. So it's not compatible. So this country has to take a decision, which kind of tourists they want to have. If they want to have quality tourists, we need to control tourists apartments. And regarding the number of tourist apartments, nobody knows because there are so many illegal tourist apartment that is impossible to control. But if you go to the main areas of the main cities here in Madrid, if you go to [indiscernible] in Barcelona its so crowded, it is impossible to go. So that is something that goes against the aspiration of having a quality tourists in Madrid because once again, I insist this is not compatible with the aspiration of the clients. The clients not only book rooms, they book experience and the city is part of the experience, enabling the hotel and the city is crowded that goes against the quality tourists. So they have to do something because if not, we will pay for it. And now we are paying for it, not exactly Minor NH. But there are leisure companies that they are suffering now because the situation in certain leisure destination is not so good that it was the previous year, and this is because this phenomenon. So let's hope that in the coming months, all the different authorities take the right decision to stop this issue. Regarding bookings, we don't have enough information to give you a final opinion about what is going on. It would be positive or not because at the end of the day, parity is one of the things that control the market. In our case, we are aspired to increase our direct sales as much as possible. So whatever that could help us to have more control of our distribution is more than welcome. But honestly, I prefer to give you my personal opinion about this issue because [indiscernible] come to any conclusion.

[Operator Instructions] There are no further questions at this time. Please proceed.

Okay. Thank you, everyone for attending the call. We will do a lively summer holiday and IR team remains at your disposal for any further questions you may have. Thank you. Bye.

Thank you. Bye.

Thank you. Bye.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.