Meliá Hotels International, S.A.

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.