Melia Hotels Intl Ord

Good morning and welcome to the Melia Hotels International 4th Quarter and Full Year 2020 Earnings Conference Call. All participants will be in the listen-only mode. After the presentation, anybody who is interested will have a chance to ask questions so we can resolve any additional doubts. Please note that this event is being recorded. I will now turn the call over to Stefan Baus, Head of Investor Relations. Please go ahead.

Thanks, Pep. Welcome to IMELEAN's first quarter and fall year 2020 earnings call. Before we begin, we would like to remind you that our discussion this morning will include forward-looking statements. As our results would differ from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. This morning, as usual, we have Gabriel Escarrer, our Vice President and Chief Executive Officer, Andre Gerondo, our Chief Operational Officer, Pilar Dols, our Chief Financial Officer, and Mark Olinos, our Chief Real Estate Officer. Gabriel Escarrer will provide an overview of the current operating environment. Andre will then review our fourth quarter onwards. Following their 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 any thinkers you might need. You can find our training series on our Investor Relations website at www.milliardhotelsinternational.com And now, I am pleased to turn the call over to Karina.

Thank you, Stefan, and good morning, everyone. We certainly appreciate you all joining us today, and I hope that you and all those close to you are safe. 2020 was unlike any other year. After the positive results achieved in 2019, in spite of certain difficulties in the Caribbean, the positive trends that continued in the first two months of the year were halted by the onset of the pandemic in March. Our reaction to the global collapse in demand was exemplary. Thirdly, we implemented a rigorous contingency plan to reinforce our resilience and protect our team, our customers, and our liquidity, while also supporting the social response to the pandemic. and at the same time reviewing our strategy to anticipate future trends and assess our strengths and prepare for the post-COVID business environment. As a result of these moves, we expect to recover from the pandemic as a stronger, higher-margin business that is even better positioned to deliver performance for our owners and for our shareholders. Despite significant losses, our 2020 results show how we have managed to mitigate the worst impact of the pandemic on our finances, our operations, and our people. Enhancing our strengths and maximizing our capacity to make the most of the strong recovery we are sure the property industry will see as soon as things get back to something approaching normal. something which we expect will happen soon. In this context, turning to results, for the fourth year and fourth quarter, consolidated revenues decreased by minus 70.7% compared to 2018, and for the fourth quarter itself, revenues fell by 76.2% compared to the same period last year. One of our greatest and most immediate concerns was cutting operation costs. We have been able to reduce €645 million during the pandemic period, excluding €21 million of asset internments. The reduction in costs compared to the same period of 2019 was minus 63.3%. This cut reduction has allowed us to compensate by 55% the drop in revenues suffered during this period. On a yearly basis, operating expenses decreased by 48.6%. And in the fourth quarter, savings amounted to 50.9% compared to the same period in the previous year. EVGA, excluding Capital Games, reached minus 130 million euros. Including the employment to asset value mentioned previously, this figure will be minus 151.5 million euros. The company has also negotiated and signed agreements with the owners of some LEED hotels with LEED agreements, reaching several types of agreements. moratoriums, waivers, etc. amounting 29 million euros. Considering that the company has chosen to not exercise the option to avail the practical experience, that's the option of considering some of these improvements in rentals as negative variable payments for the year, these have not had a positive impact on EBITDA for the year. Based on the evolution of the business, affected by the pandemic in the final quarter of the year and the opening months of 2021, the company deemed necessary to evaluate the provisions registered in the first half of the year, resulting in an additional deterioration of 5.7 million euros. and bringing the total employment for the year caused by the pandemic to €150 million. For all assets, the income statement therefore shows a negative impact of minus €80.3 million, of which €21 million is used to investment properties maintained at market value, the only ones affecting EBITDA. $41.5 million comes from the properties added most recently and $17.7 million comes from assets in companies valued by the equity method. Regarding the rights to use hotels, the hotels on the list agreements, The company has estimated a recoverable amount by determining the value based on an updated business plan for the period 2020-2030, resulting in an impairment of 70 million euros. It is important to emphasize that these impairments have an impact on our accounts but have no cash effect at all. We continue to rely on the strength of our asset portfolio in terms of its quality and underlying value. The net loss of the parent company reached minus 595.90 million euros, including the asset value in permits mentioned previously, which amounted to 150 million euros. On a financial level, Faced with the exceptional situation and difficulty in forecasting its duration, one of the company's top priorities has been to maintain enough liquidity to allow us to face the coming months with maximum confidence. To preserve our liquidity, we have focused on adjusting and controlling all costs, reducing the amount of capex scheduled for the year, cancelling dividend payments, Obtaining new financing and destroying debt maturity that would have become due during the year. We would also like to highlight that Melia does not have any debt with financial covenants. At the end of December, the liquidity situation amounts to 316 million euros. Additionally, I would like to highlight that all of the maturities due for the financial year 2021 have already been refinanced. It is also worth noting that our mortgage debt currently stands at less than €260 million, which represents an insignificant proportion of the value of the company's own properties. During the last quarter of the year, net debt increased by 178 million to 2,603 million at the end of December, impacted by the addition of a new Lynch Hotel, the inside Amsterdam. Over this same period, pre-IFRI 16, net financial debt increased by 130 million euros to 1,255 million. Monthly cash consumption in the last quarter was around 43 million. For the full year, the increase in net debt free IFRS 16 was 661 million, mainly impacted by the final payment of the pre-negotiated long lease of the Meliá White House. The Share Buy Back Program The Maintenance CapEx And the impact of COVID-19 on cash generation, mainly from the second quarter of the year onwards. To close this chapter, I would like to inform you that the company also continues to analyze other alternative means of reducing debt and increasing liquidity, as asset sales with the possibility of the long-term management back contract. I will now turn the call over to Andrei to talk about our operational performance during the fourth quarter and four wars. Andrei, please.

Thank you, Gabriel, and good morning, everyone. COVID-19 has impacted our business to an extent we never imagined, making 2020 by far the most challenging year in our company's history. Full-year worldwide left bar declined 50%. with average occupancy of just over 35% compared to 65% for full year 2019. Available rooms were reduced by 45% compared with 2019. It is important to note that we were able to keep the drop in ADR under 12% year-round while still being flexible on all channels and segments. This was possible due to the strength of our distribution capabilities. Media.com represents 51% of our global sales. In Mediterranean resorts and the Caribbean, this number increased to over 65% during the strong months of the pandemic. In 2020, occupancy and year-over-year RETPAR changed to show steady improvement from April to December and into the early fall. However, with spikes in COVID cases, In the fourth quarter, many countries around the world bring to judiciary temporary limitations on traveling and gathering to combat rising virus cases. The restrictions caused by COVID-19 in all regionals have influenced the evolution of the final quarter and have forced us to operate in a context of travel and capacity restrictions at a global scale, affecting both source market and destinations. As a result, we have been highly flexible and agile in closing and reopening hotels according to variations in demand. Similar situation with VRM overall in the Caribbean and Mexico. China, however, has begun steady recovery since the second half of last year, not being the case for some Southeast Asia destinations like Indonesia, Thailand or Myanmar. We believe that to one degree or other, most people are conscious of last year's situation. I will focus on our vision for the immediate future. In terms of outlook, with the limited visibility we currently have, as we look to the year ahead, we recognize the similarities between Q4 2020 and Q1 2021. Europe will remain under lockdown for most part of the quarter. Canada as well until the end of April. In the U.S., our number one feeder market for the Caribbean and Mexico, we had a positive start of the year. However, the announcement of required antigen testing prior to returning to the U.S. clearly stopped the trend. The company was very agile in reacting and immediately offered antigen testing free of charge, as well as insurance for all guests. This means that even a two-week run in funeral hotels is covered. Along with the state's favorite media programs, a sense of trust and confidence in our company has allowed us to minimize the impact of cancellations. Having said this, the past few days have led us to remain optimistic, back cautious on our expectations for Q2 and more so for Q3. Our two top feeder markets, the recent UK announcement for travel to restart on May 17 and a positive impact in our last three days reservation case, up 53% from the previous week, and with our key partners confirming the trend and defining the time frame to restart operation. This gives the market a sense of charity when booking their holidays to the Mediterranean Resorts, made in Spain the most relevant. Our vision throughout this year limited intercontinental travel from Europe to Europe, America for America and Asia for Asia will remain the trend. The top-tier market for the Caribbean and Mexico resorts, the U.S., with its face-to-face vaccination process, over 1.5 million doses a day, has started to show signs of recovery. Flight searches show an increase of 43% for Mexico and 21% for Punta Cana in the past seven days. As of today, our centralized underbook sales show a year-over-year increase of 11% for these markets. In Europe, we will see a positive pace in the next few weeks, as obviously February last year, the pandemic had not shown its worst impact. As a general global trend, there is a slow pace for my business. Most of it came to stone. We show positive signs and a fair volume of RFPs for 2022. However, we see some demand for smaller leisure and incentive groups in our resorts, which we believe will be the trend for the following months. The company has preferred tailored programs to cater to this market. There are no signs to speak out for corporate business in the immediate future. We, however, expect to recuperate some pace between Q3 and Q4. The company has been exploring new opportunities, mainly in the workation segment. Relevant to mention that the company's portfolio is comprised of 60% resorts and 40% urban hotels. Within these 40%, over half are located in what we call luxury destinations, thus limiting our exposure to true corporate markets. We definitely believe that resort and leisure business will come back sooner than any other segment. may be as portfolio is very well distributed in this regard. Currently, over 55% of our hotels are open, excluding the closed seasonal hotels, and we expect the steady opening of an additional 100 hotels by the end of June. As previously mentioned, the company has protected its great integrity and will continue to do so, reinforcing the digital evolution of our distribution efforts. The company's strategy will continue to focus on delivering personalized experiences for our guests, strengthening our offering of high-end resorts with open spaces, wellness, and destination-based experiences, and the trust in our Stay Safe with Media program. And this is why our customers are telling us they love you. This will be the driver for recuperating red bar during the coming months, emphasizing our Media.com commercial strategy hand-in-hand with our commercial partners. As far as development, regarding international expansion, activity has also been affected by the pandemic, with work being delayed on some projects. Hotel openings have also been rescheduled. The company now estimates between 50 to 20 new openings in 2021. This partner is located in main leisure capitals in Europe, Middle East and Southeast Asia, which continues to represent an important part of our development. The most relevant opening of the year took place in Dubai, with the opening of one of the company's flagship hotels in the Middle East, the Meet Dubai, designed by the world-renowned architect Taha Hadid. I will now turn back the call over to Gabriel to summarize the main messages of the call.

Thank you, everybody. To end the call, I would like to highlight the following messages. COVID-19 has impacted our business to an extent we never imagined making 2020 by far the most challenging year in our 65 years company history. In terms of outlook, as we look to the year ahead, we remain optimistic that accelerating vaccine distribution will lead to easing government restrictions and unlocks pent-up travel demand. We expect a more pronounced recovery from May driven by increased leisure demand. As leaders in resort hotels, we are in the best possible position to benefit from a rapid recovery in the industry. We would like to reiterate our strong commitment that one of the company's top priorities is to maintain sufficient liquidity to allow us to face the coming months with greater confidence. The company also continues to analyze other alternative means of reducing debt and increasing liquidity, as asset sales with the possibility of the long-term management bank contract. With our culture to reinvent ourselves, Meliá committed itself to use this operational lockdown to question everything as a matter of principle. Research the business model and adapt its strategy to the complex post-COVID environment, thus achieving a significant competitive advantage to benefit from the growth opportunities the future will bring to strong and recognized brands such as ours. Thanks to our loyal customer base, our direct sales channels and systems, I can assure you that we shall emerge from this pandemic as a stronger, higher-margin business that is even better positioned to deliver performance for our owners and for our shareholders. We also remain focused on our corporate responsibility and our commitment to ESG initiatives. We are proud to contribute to our communities and we are honored to be named as one of the global industry leaders in the corporate sustainability assessment based by Standard & Poor's Global for the third year in a row. which placed the company in the Silver Class category in its 2021 Sustainability Yearbook. Our strengths and brand strategy in recent years, combined with our optimized management systems, allow us to look forward to significant organic growth over the coming months, becoming a safe harbor for smaller hotel chains and independents which require Shell Support Digital Capacity Recognize Brands Efficient Systems A Major Base Of Loyal Customers And The Economies Of Skills Required To Face The Highly Competitive Post-Covid Environment Along these lines, Melia has relaunched its franchise model and created a new, affiliated by Melia, program to respond to the needs of the post-COVID business environment and support its selective and strategic expansion. All the details on fourth quarter and fourth year can be found in the earnings release we issued last night. We hope we've 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 André Girondeau, Pilar Rose, Mark Holinoff, and Stefan Baus. Operator, please.

Thank you. If you wish to ask a question, please press star 1 on your telephone keypad. To withdraw your question, please press star 2, and please ensure that your line is not muted locally. The first question comes from Simon Lekipa from People. Please go ahead.

Hi. Good morning, all. Thanks for taking my questions. 3. If I may, first of all, looking to the summer season and assuming travel restrictions are lifted and we actually see a strong demand coming back on the later side, how should we think about your pricing strategy and your potential pricing power? Could we assume that prices would be back to the level of 2019? And secondly, in terms of your strategy regarding liquidity and debt reduction, You mentioned you are not only looking at potential asset disposals. Can you discuss this topic a little bit more? What sort of asset could you potentially sell? And what do you think in terms of appetite from the market for this kind of asset? And lastly, looking to the cost cutting you have done during the crisis, how much of this savings do you expect could be permanent? And otherwise, do you expect it to drive margins over the mid-term above the pre-crisis level? Thank you.

Good morning, and to your first question regarding pricing, I'm not certain we will see the levels of 2019 immediately in summer 2021. What we will see is a reduction or holding the ADR, and for summer season, some of our resorts will have, I would say high-end resorts will have the same pricing level than 2019. For the rest of the resorts, there will be fierce competition, so we will hold the ADR as much as possible. So we'll recuperate some of the pricing, but I don't think that before 2022 we will achieve the 2019 pricing, to be fair. As you realize, in 2020, we had a drop of less than 12% in the ADR. So even we had this huge decrease in red bar, we were able to sustain quality grass bars through sustaining rates. This will be the case this summer as well.

Timon, good morning. Mark Padinot speaking. Regarding your question on active disposals, active disposal is one of the alternatives that we are looking at in terms of improving debt levels. In terms of the possible nature of those probably the possible amount would be something between 150 to 200 million euros and the assets would probably be Spanish assets and assets that have the ability to have upside from renovations to be done as well which would be part of the value proposition for any operation.

In terms of the third question, we foresee at least between 200 and 250 basic points to remain as part of our strategy as we have launched a new organizational model throughout the company as well as all of our back-office transactional and digital strategy which should support our system fee as well throughout. So 200 to 250 basic points should remain once stabilized.

Okay, thank you.

We hope this has answered your questions, Simon.

Yeah, sure. Thanks a lot.

Our next question comes from Andrei Goya from Deutsche Heer. Please go ahead.

Good morning. Thank you for taking my question. First question is related to the one of the initial ones on the cost cutting plan and the cash burn. You've mentioned that the cash burn on Q4 on the monthly basis was $43 million. What do you expect on Q1 and the beginning of 2021? First question. second question on the asset disposal you mentioned that you are expecting to sell for 150 to 200 million assets but could you quantify if possible the potential capital gain you are expecting from such a disposal and is this amount a maximum or could you consider some more disposal and at last considering that you are mentioning that asset disposal was one possibility to reduce debt it implies that you could be ready to consider some alternative mentioning right issue or convertible bonds thank you

Andre regarding the cash burn as we say that the operation is going to be similar than the Q4 2020 the cash burn is going to be around 43 45 million euros per month okay okay thank you and the idea is in the second quarter to improve and then to start improving the second quarter. Then we go ahead with your question about the app.

Yeah, and in terms of the follow-on question regarding after-disposals, yes, and to reiterate, it is one of the alternatives that we're looking at. And therefore, I said at this time, you know, we're not able to be able to say or to know what the impact would be on Capital Gain and the range that we have been looking at is about 150, 200, 200 million. Ok, thank you Mark.

In terms of timing, can you give us an idea for the asset disposal?

in doing second quarter along the second quarter could be done it's not any time it's in time we are working on the way okay then about the other possibilities that we could face from the point of view to reduce the debt honestly right now we are doing only the possibility to see the sale of the app if we are not concentrating The right of use or only capital increase for this program.

Thank you. Maybe one follow-up question. We have seen that some governments in Europe were putting in place some help. I'm sure that you had some discussions with the Spanish government. Could you give us some more color about potential heads that have been decided or that are discussed at the moment?

I know that the president of the Spanish government announced two days ago that there was a plan for the tuition of 11 billion euros but no details have been given so They said that it will be given soon. I don't know if it's going to be in the next two weeks. But no, there is no details.

Okay, thank you very much. Our next question comes from Inigo Egetiza from Kepler. Please go ahead.

Hi, good morning, guys. Thanks for taking my questions. Most of them have been already answered, but just to follow up on the liquidity and net debt, I have just a question on what is more or less the level of net debt that you as a company, as a management, think is a good level to run the company because making making more or less the numbers and assuming that as Stefan was mentioning the cash barn is going to be in Q1 similar to Q4 this would put net debt end of March around 1.4 billion if I have done the numbers right I don't know what's the level that you have in mind I mean the other rotation obviously would help but I don't know if this level of debt is still a bit high.

Thank you. It's a tough question and as you can imagine, I'm sorry, this is Gabriel speaking. We believe that... The comfortable levels were the previous to pre-COVID-19. So our aim is to bring it back, this pre-IFRS 16 number to around the 600 million that we have in 2019. When this should happen depends not only on the after rotation but as well on the We all look for the business in the next coming two years or so. It's hard to do. But it's our aim to recover back these levels of what we have previously to COVID-19.

Okay.

Our next question comes from Fernando Azril from Elantra. Please go ahead.

Hello, good morning. Thank you for taking my questions. Just a follow-up on the hotel disposals. How are you seeing the Spanish market? There have been only a few transactions today, but I'd like to know your view on it and how our prices are evolving. And then, second question on the... I would like to know your views on potential M&A in the industry. There have been some of your peers talking about it, but I don't know your view on it and if you could act as a consolidator. Thank you very much.

Fernando, thanks for your question. Another fast question. Hotels Intl Ord Hotels Intl Ord we are seeing is that obviously owners of real estate will actually have waited to see as much as possible how quickly the recovery can occur and therefore have used alternative methods rather than sales and assets and therefore probably at the moment in the market we haven't seen many transactions because there's still a gap in expectations and owners We just want to see how the alternative measures and help can get them through. We think that it will be a very interesting semester to see in the next six months because especially in the resort sector where obviously the speed at which the resort properties can recover in line with obviously the sanitary advance, vaccinations, travel, available travel, then that's going to have a big impact on some of the resort hotel owners, I would say, going into the third and fourth quarter of this year.

then I will ask some follow up questions on the phone sorry okay so Fernando so coming back to your second question regarding the consolidation that hopefully will take place in the industry I'm sure the companies that have strong brands strong distribution systems strong communications and strong balance sheets are the ones that will benefit from this consolidation process and probably will lead consolidation process. I'm sure that there's going to be some movement in the resort segment maybe not only in Spain but also in the Mediterranean as you should take into account that the number of hotels affiliated to hotel chain in the resort world in Spain is less than 15%. So with the problem that the two operators and some intermediaries are facing nowadays I'm sure that there is plenty of opportunities for these independent hotels companies or medium hotels companies to join forces with big companies like Media and others that can help them to increase their mainly revenues. because probably the revenue won't come in the short term through operators so coming back to your question I'm sure there are going to be quite a few opportunities but not only for mergers and acquisitions but as well from organic growth Okay Thank you Gabriel Just a quick follow up so I guess from the first half

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in terms of the disposal for us it would be a mix maybe more lean towards leisure than to urban but it would be a mix and I think that the difference is that when you mentioned this in terms of the investment market and the difference between the city and the resort is that in the city there's probably a greater separation between ownership and operation and therefore maybe there's more of a financial investors in many of the properties whereas in the resort market there's only their owner operators and therefore that's when it becomes a more complex because there's both the issue of you know if it's an asset sales with a desire to retain the managers of the operation or whether they could be free free possession okay or so that's why I think in the resort market it was it's gonna take a bit more time because normally the assets are linked to the same the same operating company of the owner whereas I think that the in the city market it's more of a pure investment market and then I think you know we will see more she says pure investment decision not linked to a Good morning and thank you for checking my questions. I hope you and your family are doing well

I have a first question on the recovery by geographies in late second quarter and third quarters. I'm thinking maybe the Spanish resorts and Asia should be the markets that recover the fastest, maybe. I think that maybe the Caribbean is not peak season by May, June. Is that right? And then I had a question on ad sales, but they've been answered. But Gavit mentioned that the debt maturities for 2021 have been refinanced. Is that so the whole 150 million euros that mature this year have already been financed? It's just I'm trying to figure out, you know, how the cash flow generation will be for the year. Thank you very much.

Thank you, Ivan. I think that absolutely Spanish resorts will start to recover first. I think that what we're seeing is the trend of the Anglo-Saxon countries being advanced in vaccination process and recovering. So when you look at the UK, which is our number one feeder market for our Spanish resorts, there's an evolution there. Maybe summer will start a bit later. Last year, we only had six weeks of summer. obviously this year our expectation is to go between 12 and 16 and maybe in late summer will happen so there is stronger demand for Q3 mainly August, September and we think it's going to probably extend to at some point October at the same time in the US from the US market being the number one feeder market for Mexico and the Caribbean we would probably see an early winter So we expect that between Q3 and Q4 the ramp-up period will consolidate going into a stronger winter season for the Caribbean which is really the opportunities coming into the end of 2021-22 to have a regular winter season for next year in the Caribbean.

Okay. Ivan, this is Stefan speaking. Regarding the maturity that we have for this year 2021 Hotels Intl Ord Hotels Intl Ord Hotels Intl Ord Hotels Intl Ord Hotels Intl Ord

Our next question comes from Bruno de la Roche-Brichard from Brian Garnier. Please go ahead.

Yes. Good morning, everyone. Closer to that, regarding bookings, we are seeing strong increase in bookings due to many new UK borders opening. This is an increase of districts, some districts, but this is from, let's say, something close to zero will it be possible to quantify the amount say in terms of revenue for example and are you seeing something similar from other feeder markets thank you

thank you Bruno in terms of what we just mentioned regarding the increase of 53% this is specific to the UK market into the summer bookings for the past three days why do we say the past three days it's because this is when the UK government announced that as of May 17 restrictions will be listed so to give you a sense of number from an average of 3.5 to 5 million in terms of booking reservations. That's the number. Now, we will see how it continues to evolve. It's very early to say. So, we expect this to be the trend moving into the Q3. What we're seeing is that potentially, probably some of the, you know, Germany has Instead of considering Spain a high-risk destination, it's now a medium-risk destination, so we expect to see some sort of movement from the German market. But for us, in summer, please remember that between Spain, the local market, and the UK market, we generate over 60-65% of our businesses. And there's some trends from the Russian slash Ukrainian market moving forward as well. So this is why we have a cautious but optimistic outlook. Now, it's still too soon to tell. This is just recently for the past week.

Okay.

Thank you very much for your attention and your time. We hope that you have been helpful here. Please do not hesitate to contact our investor relations department for any further questions you may have. Thank you very much. Have a good day. Bye-bye.

This concludes today's conference call. Thank you all for dialing in and you may now disconnect your lines.