Melia Hotels Intl Ord

Good morning and welcome to the Melia Hotels International First Half 2023 Earnings Conference Call. I'm Stefan Maus, Head of Investor Relations. 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. Before we begin, we would like to remind you that our discussion this morning will include forward-looking statements. Actual results could differ from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today. This morning, as usual, we have Gabrieles Carrer, our President and Chief Executive Officer, André Llegondo, our Chief Operating Officer, Sonia Jerez, our Chief Financial Officer, and Juan Ignacio Pardo, our Chief Real Estate Officer, and myself. As you may know, our senior executive team has been reorganized recently. Sonia Jerez has been appointed as new CFO. She will be present today for the first time. Additionally, after a long tenure as Chief Legal Officer, Juan Ignacio Pardo has been appointed new Chief Real Estate Officer. and has been working in this area since this appointment. Gabriel Escarrel will provide an overview of the current operating environment. Andre will then review our second quarter onwards. Following their remarks, we will be happy to answer your questions. You can find our earnings release on our investor relations website at meliahhotelsinternational.com. And now, I am pleased to turn the call over to Gabriel.

Thank you Stefan and good morning everyone and thank you for joining us today. Before starting my intervention today, I'd like to take a few words to recognize and thank the departing members of the Senior Executive Team. I want to thank Pilar Dols and Mark Hodinot for their decades of dedication and countless contributions to Melea. While I will personally miss these two excellent senior executives, I'm proud that we have such an incredibly deep management bench. The group's result in this first half continued with the ascending trend which began over a year ago. The return to normality, together with the strong willingness to travel, are fostering demand on a global level. Demand has continued strong for leisure and city leisure hotels, where Melilla continues to have a strong footprint, with our mix of customer nationalities returning to pre-pandemic ratios. We are happy to see that Asian customers are returning to travel inbound and abroad during the last months of the semester. In comparative terms against last year, Omicron impact must be considered as is affected 2022 first quarter. In this context, turning to results for the second quarter and half year, system-wide growth part during the second quarter of the year grew by 6.9% and 19.5% for the semester compared to 2022. For our own and Leeds Hotels, Red Park growth was of 15.4% for the second quarter and 30.1% in the first semester compared to the same period last year. Consolidated revenue excluding capital gains for the first half increased by plus 22.7% compared to the same period in 2022. Important to note that in the second quarter itself, revenues increased by plus 9.3% over an already strong second quarter in 2022. It is worth remembering that in the first half of 2022, the company accounted approximately 40 million euros from direct government aid to compensate for part of the losses during the pandemic, mainly from the German government positively impacting revenues and EBDA. Operating expenses increased by 17.9% with respect to the previous year and by 4.7% compared to 2019. Certain inflation related increases such as energy costs have moderated and also inflation impacts continue to be relevant. The increase has slowed down in recent months. Additionally, rental expenses have increased in the semester by 10.5 million euros due to the change from fixed to variable leases of certain hotels. It is also worth mentioning the effect of depreciation of the Mexican peso appreciated against the US dollar. Second quarter EBDA margins improved by 139 basis points compared to 2019, standing at 27.4%. This implies a positive evolution compared with first quarter margins by more than 770 basis points. First semester EBDA, excluding capital gains, increased by 33.8% compared with same period last year, reaching 218.5 million euros. Net financial result decreased by 4.5 million euros compared to 2022, mainly due to the increase in interest rates that stood at an average of 4.75% compared to 2.68% last year. As 44% of our debt is under fixed rates and the European Central Bank and the Federal Reserve will have reached the maximum rate, we do not expect a further increase in our average interest rates for the coming months. On the other hand, We've seen a stabilization of the euro compared to US dollar exchange rate, improving exchange rate differences by 10.1 million euros versus same period last year. And finally, net profit of the parent company increased by 14 times last year figures, reaching a positive 42.5 million euros. Turning to the balance sheet, regarding pre-IFRS 16 net debt during the second quarter, we have been able to reduce it by 29.4 million euros thanks to operating cash flow. We ended June with net debt of 2,739 million euros. At the end of June, the liquidity situation amounts to 361.4 million euros. Enough liquidity to cover the next debt commitments. To close this chapter, the company is strongly committed to reduce the existing debt, mainly through operational cash flow, but also including other strategies such as asset rotation. We have a clear roadmap set for this. Also, during the first half of the year, our real estate team has been completely focused on transactions regarding some specific joint ventures, such as the incorporation of Avia, Abu Dhabi Investment Authority, and Banca Mark in our KVs. The team's priorities for the coming months is strongly driven by the asset rotation strategy. Of course, we will keep the market duly updated as soon as any of these transactions is fully crystallized. I will now turn the call over to André to talk about our operational performance during the second quarter and forward in more detail. André, please.

Thank you, Gabriel, and good morning, everyone. Briefly, from an operational standpoint, The first half of the year continued with a strong upward trend, which already started over a year ago, adding to the general recovery of international markets, which began in 2022. We are now seeing positive indicators of Asian travelers for the upcoming months. Melia's footprint in top leisure and bless your destinations provided a solid position to capitalize on current demand momentum. We are happy to see an overall strong demand in all segments. With respect to business travel in urban destinations, the second quarter consolidated the path of recovery, and we are seeing solid indicators for the upcoming months. As already outlined, overall global REF PAR has increased in all regions except for Cuba. This has been achieved through a combination of ADR and growth occupancy levels. There is still upside, mainly related to annual occupancy rates to reach pre-pandemic levels up to 7%. 7 points, mostly in city hotels linked to corporate business travel and some relevant hotels still in ramp-up period, same as for the rates upside. Moving on to the regions. In Spain, the quarter started with Easter holidays where, for the first time since the pandemic, we were able to surpass 2019 occupancy figures while maintaining our strong pricing power. even increasing 2022 average room rates by almost 8% in April. The overall performance in both City and Leisure hotels was very positive, showing the appreciation for Leisure and Blessure locations. This trend continued during the quarter ending with an overall growth of 13.9 in Ref Bar versus 2022 and closing the gap in occupancy with 2019. achieving a 71.75% system-wide occupancy rate this quarter. As far as France and Italy, premium locations in countries like Italy and France also showed a strong quarter compared with 2022. Both countries benefited from an increase strong in average prices together with a recovery in occupancy rates driven by the positioning of our media collection brand and focus on qualitative ref bar. The combination of a balanced contribution in all segments and nationalities, specifically the US customers together with relevant event in both countries, allowed us to achieve increase in ref bar of over 20% in France and 22.7 in Italy second quarter versus 22 figures. The UK saw a global recovery after headwinds in the first quarter, with occupancy and average rates improving month-on-month. London capital city hotels have gradually regained international clientele, benefiting from major events such as the Royal Coronation. Overall in the country, REF PAR growth stood at 30.7 for the second quarter. Moving on to Germany, we could say there was still a double speed evolution. where, comparatively, leisure destinations like Berlin, Hamburg, and Aachen performed better than more corporate-related cities. Nevertheless, major events during the period performed well, increasing demand and prices. In America, Mexico witnessed a softer second quarter in terms of occupancy compared to pre-pandemic levels. However, average prices were plus 7.1% above 2022 figures, ending with an increase of 9.9% in REF FAR. It is worth mentioning the contribution of MICE events, which played a key role in the area, followed by our direct channel and tour operators. In Dominican Republic, we see REF FAR increase for the second quarter of 7.4, with a positive performance in all segments. In the US, our hotels in Orlando and New York have been performing strongly, achieving an increase of near 5% in REF PAR over an already strong second quarter in 2022. Cuba, on the other hand, has suffered from the contraction of local demand, being on the positive side of the increase of airline capacity and international connectivity. The devaluation of the Cuban peso together with the drop of internal demand cost prices to drop. This led to lower than expected red bar, paying this the only country not surpassing 2022 figures. However, minimal impact is expecting on the fee contribution as per the cost structure. Moving on to Asia, China presents a very positive comparison with 2022 as the country laid down its COVID restrictions at the end of last year. At the moment, OTAs, MICE and corporate segments have performed positively overall on both leisure and business travelers. In Southeast Asia, Indonesia and Thailand are capitalizing on international demand with both occupancy and average rates increased compared to 2022. As far as the outlook, after a second quarter that continued the positive trend, we are on the verge of a strong summer season where demand for travel remains solid. While post COVID economic effects persist, it has not weighed on travel demand to date. In fact, on book reservations are overall above all segments and regions. Forward bookings are solid and combining a mixed contribution of anticipated reservations and last minute bookings. At the moment, global on-the-book reservations are 20% above 2022 figures. For our leisure resorts, on-the-book reservations for the season are double-digit above the already very positive summer 2022 figures. We continue to see strong leisure trends for the third quarter, driven by increasing average prices and occupancy rates closer to pre-pandemic figures, positive indicators in our main feeder markets with an overall evolution of all partners mainly through operation. Heading into the end of the quarter, we are expecting a good start of the season where corporate and MICE are expected to have a positive performance. For our most relevant regions in the third quarter, the main messages are For Spanish resort hotels, we're expecting to match last year's occupancy rate with still increasing average prices compared to last season. Our city hotels in general are expected to perform better than last year. In America, there is a stabilization of demand from the US for Mexican Dominican properties, which is being transferred to European cities and Mediterranean resorts. Actually, the U.S. market is on the top three in several destinations, such as Rome, London, Paris, and Ibiza. Dominican Republic is expected to have an average price increase, capitalizing on the repositioning of our portfolio, mainly Paradisos Palma Real, which was recently refurbished. EMEA destinations will also experience a positive quarter, expecting to grow in red part fueled by the US market as already explained before. Different events in the cities will also attract and foster additional demand. Generally speaking, we're seeing positive leisure demand combined with unexpected solid start of the corporate season in September, with business travel and events expected to continue to rise until the end of the year. Turning to development, In line with capitalizing our leadership in the resort segment and our focus towards new markets, the company signed a total of 15 new hotels with more than 3,000 rooms that have been added to our pipeline. Additionally, up to date, we have opened a total of 18 new hotels, including openings in Albania, Vietnam, Cuba, and Tanzania, destinations where we are the leading hotel company. strengthening our leadership and its main pleasure destinations, consolidating Melia's Hotel International position as the leading international operator in these countries. We also recently started operating our new Zell Mallorca Hotel under the brand developed jointly with Rafael Nadal. We are glad to announce the future opening of the first hotel in Mexico, Zell Sayulita, starting the international development of the brand. As briefly mentioned, all the transactions include Aria has bought equity in wireless portfolio of 17 assets. The transaction is still pending of the definite approval of competence authorities, which is expected to be concluded during the course of the month of August. These assets were operated on the lease agreements up to date by Melia. Being this year 2023 so far, Under Viable Leases, we will retain the operation of the most relevant assets under new management contracts. Last but not least, I'd like to give a few highlights of our direct channels and the Milliard.com system, which continues to be one of our core strengths. During this semester, in a context of continued growth in all segments, more than 46% of sales were obtained through our direct channels. Turning to our loyalty program, Milliard Rewards continues to register customer growth. A total of 550,000 new customers register in Milliard Rewards during this semester, paying us of today more than 15 million customers registered. Milliard Rewards customers are important as they make up around 80% of our direct channel sales. I will now turn back the call over to Gabriel to summarize the main messages of the call.

Thank you, Andre. To end, I would like to highlight the following messages. The second quarter performance has been very positive with all regions except Cuba surpassing 2022 report. I like to know that this increasing report still shows positive upside with occupancy rates still below pre-pandemic levels in minus 7.7% and therefore with room to improve specifically in city hotels. Despite this fact, revenues achieved in the second quarter have been strong. Regarding cost, some impacts such as inflation registered during the last 12 months, the increase of variable rentals together with the strong upward evolution of the Mexican peso put on additional pressure on margins. We are happy to see even though these events took place, EBDA margins for the semester have been in line with 2019, but for the second quarter we have been able to improve 2019 margins by 139 basis points. On the outlook, despite the high but moderating inflation together with interest rate hikes, a consistent booking pace remains facing a strong summer season. Also worth highlighting is the growth register in all segments such as tour operators and travel agencies, traditional partners of Meliá. This is complemented by our strong direct channel which accounted more than 46% of sales during the period. I am aware that there has been some delays in the asset sales. and we reinforce our commitment to reduce debt as one of the main priorities of the company through cash flow generation and asset rotation. Turning to development, I would like to highlight the fact that we signed 16 new hotels up to date, incorporating more than 3,000 rooms to our pipeline, all of them under asset-light formulas. And we continue with our commitment to sign at least 30 new hotels this year with more than 7,000 rooms. To end this chapter, as announced in the General Shareholder Meeting, I would like to remind you our commitment to reach an EBITDA excluding capital gains of at least 475 million euros in this year. For the details on our second quarter and half year can be found in the earnings release we issued last night. We hope we have been able to explain the situation to your satisfaction. We will now be happy to answer any questions you may have. Please let me remind you that I'm here with Andre Girandot, Sonia Jerez, Juan Ignacio Pardo, and Stefan Bausch.

previously mentioned, those interested in asking questions will have the opportunity to do so now. To do so, please dial Star 5 so we can assign you a turn to ask questions. Also, please remember to keep your microphone mute while others are speaking. Now we go to the questions. I think the first one is going to be Guillerme from CaixaBank. Hi, Guillerme.

Hello, good morning. Thank you for taking my question. So three family. The first one, we're getting Q4. Do you have any type of visibility at this stage? And how conservative were you when setting the 475 million GDP guidance low end for the year? The second on Melvia.com, could you comment on how has the profile of the typical client changed versus pre-pandemic? And third, could you update us on your expectations regarding us? It's so don't you hear them following the device that you've mentioned?

Thanks. Good morning, Guillermo. This is under and thank you for your questions. Um, It's in the pace for Q4. You know, there is plenty of last business, last minute business. And if everything goes well, we should continue with the positive trend as we're seeing some demand. You know that we've got the beginning of the corporate season and autumn is quite strong in Europe. There's some demand on the my segments. and we see also some demand for the beginning of the winter season in the Caribbean. So things should be moving forward as we can complete our commitment of the 475 million euros as stated by Gabriel. Secondly, Meliá.com regarding pre-pandemic levels, we've seen an important increase. Please bear in mind that we were between 35 to 40% pre-pandemic levels during pandemic. This was the strongest channel for our revenues and it continues to be so. So 46% is above what the industry generates. So we continue to see positive trends on Melia.com. And as far as we continue to evolve our mobile capabilities, and our contact center, we will see this improve, consolidate. As far as the asset sales, I'll pass on to Juan Ignacio for his answer.

Juan Ignacio Pardo speaking. As mentioned by our president and CEO, the first half of the year, the real estate team has been mainly focused on transactions regarding some specific asset rotations and joint ventures. replacing and assisting our existing partners to the exit while introducing our new ones to the existing joint ventures structure. Detailed terms of the final agreements are covered by confidentiality provisions, but all those changes are mainly focused on easing certain commercial restrictions or commitments that we have and extending the terms of the operation of the different units. As mentioned also by our president, there is a clear roadmap for the end of the year on the asset rotation phase. So mainly focus on partial disposals, either directly or through JVs, or introducing partners to assets for the forthcoming period. Okay, Guillerme, it's okay?

Guillerme?

Yes, thanks.

Then we pass the call to João Santander. João, please go ahead.

Yes, hi, good morning. João Santander from Banco Santander. Three questions also from my side. The first one just regarding cash flow generation and assuming you reach your EBITDA target for the year, what kind of final year cash flow generation you expect so just to understand a bit what is the capex expected also for the second half of the year and if you expect a recovery in terms of working capital if you could give us just some color on the cash flow generation front and then the second question I just wanted to understand a bit what how we should look into the Caribbean going forward. You mentioned some slowdown in your release with US tourists moving to alternative destinations. You also mentioned some impact of the sargassum seaweed. What is your view there for the second half of the year? Are are the rest bar is the left the rest are flattening is that will is that it's going to be that also going to be the same in in the Dominican Republic just just some some color on that also would be helpful and then and then the last question just on the I mean how should we think about the potential long-term relationship with with idea is there a is there any commitment I'm not referring to the equity portfolio but more thinking about the Calvia Bridge portfolio if there's if Adia is likely to be the buyer of your remaining stake in that portfolio is Adia willing to to have more property from Melia just to understand if there is any any long-term relationship here, other than obviously the relationship that you already defined with the equity and mergers portfolio. Thank you.

Hi, Jo, how are you? This is Sonia Jerez. Nice to meet you for the first time. So regarding your first question about cash flow generation, I think you're your question is more about how we'll be able to use our net debt so step-by-step so our cash generation expected for second house is going to be around 85 million euros and if we include as Fanny mentioned our pipeline that we have for the asset sales our expectation is will be to reduce by 100 million euros our net debt.

Okay, then we go through to the second question.

If I may just, as far as the Caribbean, no, basically what we're saying is that business is stabilizing and business will continue to be strong. We don't see for the winter season, as you well know, the Caribbean is the number one destination for the U.S. market and for Latin America, and there's no other destinations where to go to. It's true that during the summer period, the U.S. market moved to Europe as it had been contained. So stabilization number one. Sargasso is a situation that right now it's under control. Obviously, there are some challenges, but this is nature. So far, we've been able to establish the systems between protection and cleaning the areas. And we see a positive trend for the REF PAR moving forward, especially as we have ramp-up opportunities in our properties, whether it's Mi Cabo or Paradisos Palma Real. So business will continue to be strong in the Caribbean. There is so much demand that we will see, so we should expect a winter season moving forward, obviously in November, December, the rest of 2024. As far as our relationship with Adia, I would just share a couple of messages. One, there's no intention at this point to do anything different of what we've done in Calviat, meaning the partnership and the joint venture that we have. But it is true that Avia has an appetite to grow and our commitment together is to look for opportunities out there in the market, not necessarily related, actually not related to our own portfolio. But now that we've established such a strong relationship between the Avenue portfolio and equity, we have a clear intention to move forward and look for other opportunities in the market in Europe. and eventually in other parts of the world. And the commitment is there and the discussions are ongoing. I hope this answers your couple of questions, Joao.

Yes, Andrea, thank you. Thank you very much. Very helpful.

Sure.

Next question is going for Jaina Mistry from Jefferies. Hi, Jaina.

Hi, thanks very much for taking my questions. Can I check that you can hear me? yes perfect and I've got three questions the first one is around net unit growth when we last spoke at full year results you guided to around seven to eight percent net unit growth for this year given that in h1 and you know net unit growth was five percent do you think something slightly lower this year will be more likely at this stage in h2 and then secondly I'm in really interested in the sustainability pricing in pricing held up very well you have any visibility on the pricing environment the next year in could you talk about the the moving part the pricing next year to you and and then lastly on your EBITDA I wanted if you could quantify any one of impact from and from the delay in moving to a managed contract best and the existing variable lease contract and how big that was as a driver in terms of the in terms of setting guidance and maybe the internal upgrade that you thank you

can I can I check that you could hear my questions perfect sorry two seconds Jaina we go ahead with the questions only two seconds

Hello, Jaina. Just making sure we all understood the same question from your side. Yes, we'll continue to expect a net unit rate growth at a similar pace as we keep on signing, as you've seen, close to already 3,000 rooms year-to-date and anywhere between seven and nine thousand for the year. So net growth will continue. There's no additional desk affiliation strategy at this moment other than the conversations we're having with equity. So to answer your third question, we had a fixed lease contract prior with equity for a number of years. right now it went into a viable lease based on revenues and as of September 1st most of the assets will go into a management contract so it would be different from the variable races from this year but would certainly be a great advantage towards the fixed leases we had for the past 20 years and these are management contracts according to our standards of fees and system-wide contributions. So we should have a positive impact and you will see those room count on the management side of the room count of the company.

If I may, Andrés, I'm Gabriel Carrer. If I would like to add that most of this growth took place during the first six months in places where we have already critical mass, like Cuba, like Vietnam, Albania, and Tanzania. so as you will see from now on most of this growth will take place in places as I said that we have already the critical mass so it will help us as well to improve our EBDA margins and that's very important and all of them has been through as a life formula either all of them through management or few of them through franchise in red please thank you Gabriel

Going to the sustainability of pricing, I think there's different components as you asked for the question. I mean, number one, we do focus on ref bar growth and there's still opportunity to grow volume. So to pre-pandemic levels, we will continue to push in different destinations, different segments. to reach the volume that there's opportunity for it. But there is also opportunity for pricing and I would say in two different ways. We've got a large number of properties in ramp up period. I could speak of the couple of hotels company owned by the way but I could speak about the couple of hotels we have in Paris about Milan being refurbished about White House just being refurbished about our properties in the Caribbean so there is room for improvement in pricing as company-owned hotels are in ramp up. At the same time, you've seen that our JV agreements with partners also consider the upgrade of a number of hotels. So there will be an upside in pricing for JV and managed hotels. And when we look at the potential of the luxury strategy of the company, we haven't touched the ceiling yet. It is true that individual pricing might be reaching stabilization. It doesn't mean that the right yield strategy won't allow us to continue to grow rates. So we shouldn't stop at the strategy of qualitative REF PAR growth. I don't know if that helps answer the question, Stan.

That's very clear. I mean, are you expecting pricing, pure pricing, not mixed, to grow next year? Do you have any indication around that?

It would be very difficult right now to give you an indication. We do expect pure price increases in all of the hotels that are in ramp-up period. None of those are stabilized.

Okay. And then just a clarification on net unit growth. You've signed 3,000 rooms, but then in H1, you've opened just over 1,000 rooms. The question more was around the number of rooms you expect to open this year. should we be expecting growth of 7% to 8% or something slightly lower?

Listen, we're going to be around 5,000 rooms opening for the period. It's our forecast. So yes, anywhere between 5% and 8%.

OK, thank you very much.

Thank you.

Thank you, Jaina. Now the next is going to be Gonzalo de Puerto from . Hola, Gonzalo.

Hi, good morning, and thank you for taking my questions. Actually, most of them have already been answered, but I still have one left. It's on your debt maturity. Looking at your cash flow, I see that you have already refinanced around 50 million euros in Q2. I wonder which was the all-in rate applied to the net debt issued. and also take it into consideration the almost 400 million euro debt material that you have left between this year and next year. And beyond the potential asset sales commented already, are you starting any other action to lower the incremental cost of refinancing? That's it, many thanks.

Hi Gonzalo, nice to meet you again. This is Sonia Jerez. Sorry, if I understood correctly your question, so you are asking us about our capability to pay the next, you know, maturities of debt? Sorry, I didn't understand you.

Yes, Sonia, the potential asset size already commented.

Yes. exactly so so I it was explained up to first half without the same situation at the end of the years after we go we will be able to commit and complete our face assets to fee be able to assume that that's that and the material that you have for the coming year

And can you also disclose which was the all-in rate applied to the net debt issued in Q2?

Sorry, Gonzalo. You said that I don't understand the question. Sorry.

If I look at your cash flow statement in Q2, you have refinanced around 50 million euros. I wonder which was the rate applied to this new debt issued.

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Gonzalo, it's okay?

Yes, it's okay. Thank you. Okay.

Thank you. Next one is going to be André Julliard. Bonjour, André.

Good morning and congratulations for these good results. First question was about profitability. When we look at the level of your profitability in 2019, we were still higher compared to the one we are at the moment. Do you expect with the new environment to be able to come back to the same kind of profitability in the next two years? Or do you consider that because of inflation, because of more variabilities, you will structurally have a slightly lower profitability? Second question to come back on the refinancing. Could you give us some more color about the way you think about refinancing? Because a large majority of your debt at the moment is on credit lines, if I'm right. So would you be able to consider some other alternatives or a large majority of the refinancing will take place through credit lines? and last one if I may Gabrielle you've been talking about potential opportunities for the past few years about eventually family groups in Spain or another country which could be potentially open for discussion on partnership or for sale Do you have any new feeling or new news on that side? Thank you.

Bonjour André, c'est André Philippe. Listen, yes, in terms of profitability, when we look at the way business is moving forward, and you will see on our Q3 results we are above 2019 performance so we have been committing for the past couple of years to increase ABDA margins if things go as expected we sustain this commitment we have done a number of strategies in the company as you've heard before whether it's the new organizational model whether it's the new purchasing strategy, obviously the increase on on red bar opportunities. So we should be able and we have committed to increase our RABDA margins for the future. So you should see a better performance of 2019 by all means next year and potentially this year as well. I will pass the refinance question to Sonia.

Hi, Andrea, nice to meet you. So regarding our refinancing, so it's going to be based on asset sales. We're going to continue with our banks. And we are analyzing other options to diversify a little bit our debt. Nevertheless, I will be able to give you more color in quarter three.

Yes, regarding the last question André, we feel comfortable with the organic growth and the 30 hotels that we are incorporating by year. Not only that, thanks to what we have signed this joint venture with Adia, with Banca Mark, with Victoria and some others, we believe there is still room for keep growing with them. through other properties from third parties managed by Belia. And trying to be more specific, if there is any corporate movement that in this specific time there is no specific target, you should expect from us or from the family to go through any consolidation process in the industry.

all that okay the what the on the on this one is going to be about and tell it from rent a quadro all I want yes that good morning I'm taking my questions up most didn't have been answered but I like to ask you on Cuban Vietnam is mentioned about the stuff the money in the second quarter any kind of the improvement coming up on those markets And then a question on the urban segment. How close to a full recovery to 2019 levels do you expect to be by the fourth quarter? Thank you very much.

Hello, Ivan. Andrea again. Thank you for your question. Would you mind repeating exactly the question on Cuba and Vietnam, please?

Yes, you mentioned that there was a stop demand in the second quarter in those two markets. Do you see any signs that things are improving there?

Well, listen, I think that if I understand correctly, it's in terms of business demand. And for us, Vietnam has had a very positive impact already so far, Q2 and Q3 moving forward. There are a number of Asian markets coming back, and obviously we have positive expectations for the Chinese market outbound to continue or to really start traveling on Q3. In any case, destinations like Korea, some of the European markets and Asia within Asia already have seen progress in Vietnam. There is also demand from the US market. So yes, after we took over the different portfolios in Vietnam, occupancy levels have been increasing. We continue to see demand for growth in terms of management contracts. So we should expect Vietnam to continue to consolidate. We don't think we're even halfway of where we can be.

The pent-up demand of this revenge travel that we've seen during the last year in all over Europe and the US is that we have seen during the last month in Southeast Asia, mainly coming from China, from Korea, from Japan and Australia. So you should expect at least the next nine months a very strong demand from these feeder markets to the hotels in Southeast Asia. and in the case of Cuba most of the restrictions from the Canada government to fly over due to pandemic took place this year so we should expect from this winter time and following year a normalized situation coming from the most important feeder market as it is the Canadian markets and we've seen already A good demand coming from Latin America to Cuba. So in these two markets, I believe that the war is over. And from now on, you should expect important growth in terms of breath power.

As far as the urban environment, Ivan, in terms of the main pleasure destinations, we are already pre-pandemic levels. When it comes to Paris, when it comes to Milan, Rome, London, and on several destinations in Germany. When you come to look at our portfolio, we have about 60% resorts, 40% urban, and out of that 40% urban, half of it, another 20% is blessures. So the remaining business is coming back. We accept some fairs and events to start picking up again in Germany. So we would assume that within the next 12 months we should be able, or maybe sooner if we look at autumn 2024, we should be, if everything goes well, at pre-pandemic levels on that side of the business as well.

Okay, Ivan. It's okay?

That's great. Thank you very much.

That's perfect. Now we pass the call to Fernando Abril from Alantra. Please, Fernando. How are you?

Hello. Good morning. Thank you for taking my questions. I have three, please. First is with regards to CapEx. So correct me if I'm wrong, but you have invested around 60 million euros in H1. I don't know if you can comment a bit on this whether you are locating this capex geographically and also if you can break down between growth and maintenance capex by growth I mean key money or a full refurbishments or even tangibles second question is with regards profitability a follow-up so there has been a big difference between Q1 and Q2 performance I don't know if you can comment a bit on the different moving parts and also link to this the energy cost I don't know if we expect more energy cost pressure or we have already reached a peak and we can you expect to enjoy some tailwinds and last just follow up also on Sonia's comment about free cash flow So Sonia, you said that you expect 100 million net debt reduction. This is for the full year and after considering asset sales. Am I correct? Thank you.

Okay, Fernando. Regarding the first question, regarding the cap, I would say that it's true that we have had around 600, sorry, 600, my God, 60 million euros for the first half And I would say that fifty five zero million euros have been due to some refurbishment that have been taking place and some operation and ten million euros have been in key money for to have a longer management contracts that's that's for the first question. I don't I don't know if that's It's okay for you then I mean a slow Sorry, sorry, go ahead

No, geographically, Stefan, I invested more in America, Europe.

We have a myth. That means we have, at the end, the capital maintenance, the big part of them have been back capital maintenance and have been focused on some hotels in Spain. But also, remember that we have one hotel in Dominican Republic that is where... not fully working on right now it's closed this hotel and we need to do some refurbishment but first of all we need to improve the debt and once we we improve the debt the company is going to to try to think to rebuild the hotel but we have had some some impact on on that total but but the big part of the others have been some maintenance capets in in the different total that we have worldwide and then the 10 million euros on key money. That's the cap for the first half of the year. Then regarding the third question about the free cash flow, Sonia, do you mind? That means the company in the free cash flow that we must generate, the company must generate this year due to the increase in interest and everything, a free cash flow of 80 million euros. That's where we must be, around. Then if we have some disinvestment, some asset sales, then we must be able to reduce the debt in a higher amount of that. Okay.

okay okay then we go I don't know hi Fernando and Andrea again listen to begin with energy costs are going down we've been able to the team has been able to renegotiate most of the agreements in Europe and energy costs we should expect to be either decreasing or stabilizing so we don't foresee at this point anything differently In terms of profitability, the difference between Q1 and Q2, which is over 700 basic points, I think there's two very relevant factors. One is the Mexican peso appreciation versus the dollar, which has an important impact on Q1 as most of the business for the Caribbean goes in US dollars and in the Caribbean. And as well, please remember that Q1 business for Europe, whether it's urban or leisure, is very limited. So obviously, the moment we go to a stronger volume of occupancy and rates and consistent business, things improve. So you should continue to expect profitability margins to be one of our top priorities. I don't know if this answers you.

Not only that, if I may ask, André, What we have done during the last couple of months regarding the distribution system Melia.com is increase the percentage of revenue generated as a centralized system and as well what we have done with the new organizational model plus the new procurement tool called COPA We expect that the EBDA margins should be higher than pre-pandemic level, higher than what we have achieved in 2019. So it's our aim to keep improving these margins, and this is what you should expect for the end.

Okay, Fernando. Thank you very much. Thank you to you. Then we go to Inigo Uzquiza from Kepler. Hi, Inigo.

Hello. Hello, Stefan, Gabriel and Tim. Thanks for taking my questions. Yes, two follow-ups from my side, if I may. The first one on the NEPTED, sorry to come back again to this question, but I think Sonia mentioned that the free cash flow would be 85 million in H2, and then on top, asset rotation potentially amounting to 100 million euro. And I think, Stefan, you you mentioned a different figure on the free cash flow for the full year and not for the second semester so just a clarification on that numbers please this is the first question and the second question on the margin expansion I mean we have seen a strong margin in Q2 versus Q2 2019 the question is Andre you mentioned that the commitment to expand the margin stays and that's the goal and the idea but if I remember well the idea was to expand the margin by around I think it was 300 basic points I don't know if it's still the case or not thank you

The first question was, in Q2 we have been able to reduce the debt in around 30 million euros. But if you go to the full year, sorry, for the first half of the year, the net debt has increased in around 20 million euros. It's true that all the operational cash flow that the company is going to generate is going to be focused on second half of the year. And that's correct that I said 80 million euros, but at least for the full year, the reduction of the full year operational cash flow is going to be at least 80 million euros and Sonia said 85 million euros. That's correct. And additional to that, we need to add All the cash that we are going to collect from the asset sales that is going to be mainly used to reduce the debt. And it's going to be at least 100 million euros in asset sales. Then for the margins point of view, I think, Andre, you go ahead.

Yeah, Inigo, thank you. Good morning. How are you? Yes, definitely we have sustained in the past that our goal is to achieve 300 base points we sustain that we we we had a hundred thirty nine basic points versus Q2 last versus 2019 and and the goal persists so we would expect this to happen in in a near future it won't be in 2023 but as things move forward we our goal is to get closer to that within a short period of time okay

Thank you.

Gracias. If you look at... No, por nada, Inigo. But just to remind you, if you look at how the variable leases this year might have had an impact as we moved from fixed lease to variable leases, that impacted on the equity side. It was very positive in terms of BDA. It just hit the margins. So we will continue to strengthen the profitability strategy.

Only in the H1 has been around 10 million euros more in variable leases than last year.

Okay, let's move to management that's going to switch around.

It's okay, Inigo.

Yes, very clear.

Thank you. Gracias.

Gracias a ti, Inigo. Then, next question going from Miguel Medina from Amadnet.

Hi, Miguel. Hi, good morning. Can you hear me? Yeah, perfectly. Perfect. Okay, just two questions. The first one is another question on data. If I recall correctly, and please tell me this is not right, in the past you mentioned that you had a target of reaching the year-end 2019 pre-IFRS date by the end of 2024. Is that target still in place? And then the second question is, you have touched on the real estate transactions that you have been very busy in the first half of this year, bringing in new real estate investors into the joint ventures. My question is, I guess the return expectations of these real estate investors are now significantly higher than they were two, three years ago. And I was wondering what the impact of that is on the returns for the operator, for Melia. Would you say that on average, It's basically the same, lower, or maybe higher because the pie is going to get bigger through refurbishment and incorporating new units. Those are my two questions. Thank you very much.

Hi Miguel, thanks for your questions. Regarding the debt, the idea is to come back not to probably to two times, probably between two to 2.5 times. And it's going to be in midterm, not in one year time. We used to say probably two years ago, that could probably be two years, but it's going to be in midterm. I don't know to say it's going to be three years or something like that.

Okay, regarding the... As for the transactions that took place in the first half of the year, in the change of the different partners that we have, the JVs, as I mentioned before, the main focus was the change, easing certain commercial commitments that we had, and also extending the terms of operation of the different units that were held under the different JVs. Now we have a different range of investors, from ADR to Banca Mart, that will also be helped, which are created and will be used as the impulse for future drills, as mentioned before, and also will be the instrument for those special disposals, either directly or introducing these partners to new assets. That's the focus that we are now aiming at in the last two half, second half of this year.

Okay, thank you.

Thank you.

Now the last question is going to be from Jaina Misty from Jefferies. Hi Jaina, again.

Thank you very much for taking my questions again. Just two very quick follow-ups. Number one, how confident are you in disposing of the assets in the second half of the year? And then number two, how do you see the health of the U.S. consumer and propensity to travel in the second half of the year?

As for the asset disposal, as mentioned in this conference call, our objective is to reach and overpass 100 million euros of asset sales until the end of the year through the different instruments that we already mentioned and the different ways of handling them. That amount will be fully dedicated to their production.

Hello again, Jaina. Regarding the US market and according to what we see on the books, the demand, the destinations, the US market is very strong for the company and it continues to strengthen its contribution to our market segmentation. It is true that during summer, as I had explained, They have moved part of their operations to other regions, whether it's Europe or Southeast Asia, which, again, the U.S. market is now number is top three in four or five of our destinations. As winter evolves, the U.S. market will go back and will continue to go to to the Caribbean. So stabilized and hopefully to continue to grow. Plus, it is true that we've seen a higher demand on the mice business, and the incentive business from the U.S. market goes mainly to the Caribbean in winter. So, so far, a very positive trend from the U.S. market abroad.

It's okay, Jaina.

That's perfect. Thank you.

Thank you very much.

Okay, so since there is no more questions, thank you very much for your attention and your time. We hope that we've been helpful. Please do not hesitate to contact our investor relations department for any further questions you may have. Thank you for your attention and enjoy the summer.

Bye-bye.