Melia Hotels Intl Ord

Good morning, everyone, and welcome to Meliá 2025 Full Year and Q&A Conference Call. I'm Stefan Baus, Head of Investor Relations. As you may know, this year we made an update in our approach to our results presentation. Yesterday, together with the release of our results, we made available a webcast presented by our President and Chief Executive Officer, Gabriel Escarrez, and our Chief Operating Officer Andrés Llegondo. It provides an overview of the key operational trends in 2025 and outlines the companies outlook for the year ahead. We hope you have had the opportunity to review and that this has been to your satisfaction. In today's live sessions, we will begin with a brief introduction summarizing the most prevalent points of the year. Afterwards, we will be open the Q&A session. This morning, as usual, on the call with me today are Gabriel Escarrer, our President and Chief Executive Officer, André Llegondo, our Chief Operational Officer, Angel Luis Rodríguez, our Chief Financial Officer, and Juan Ignacio Pardo, our Chief Real Estate and Sustainability Officer. Please note that all participants are currently in listen-only mute. When selected to ask questions, your microphone will be activated automatically as you are introduced. Additionally, we would like to remind you everyone that the discussion from the company may include forward-looking statements. These comments reflect our expectations as of today only. An actual result may differ from those presented or implied. I am pleased to turn the call over to Gabriel.

Thank you Stefan and good morning everyone. Before opening the line for questions, let me briefly summarize our 2025 performance. We deliver solid REF PARC growth with a strong pricing discipline, resilient demand and a well-balanced geographic footprint. We are once again leading the market in REF PARC growth. EBDA, excluding capital gains, increased by plus 2.1% compared to 2024, even with major refurbishment on the way at flagship hotels and the effect of the depreciation of the US dollar versus euros. Net profit exceeded 200 million euros, up 23.6%, supported by operational momentum and lower financing costs. Our increasing free cash flow allows us to fund our investments ending the year with a stable net financial debt to EBITDA ratio in line with our expectations. In February, we signed a new syndicated loan which reinforces our financial discipline and significantly improves our maturity profile without increasing leverage. We also benefit from lower spreads without requiring any collateral guarantees. Looking ahead to 2026, we have a positive on the books position despite a more uncertain environment in late February after some events in Mexico. Our diversified portfolio and upcoming re-openings put us on track for another year of disciplined growth. As a result, we are expecting a red part increase in the low to mid single digit for 2026. And now, let us open the line for the first question.

Thanks, Gabriel. Those interested in asking questions, we have the opportunity to do so now. Please dial star 5 so we can assign you a turn to ask questions. Allow us a brief moment to compile the questions and assign turns. Hi, the first question is for Ricardo Benevides from Santander. Please Ricardo, go ahead.

Good morning all, thank you. Three questions from Mayen. Firstly, regarding this week's tensions in Mexico, I was wondering if you're seeing any volatility in terms of bookings, pricing, more for the midterm, no? Second question, for your top-line growth, considering the normalized rest part outlook, would you potentially be also considering some net unit growth in your only segments? And last question regarding capital allocation. Is your decision right now to not pursue any asset rotations more tactical in nature or more strategic? And in the event if there are no relevant, let's say, additional projects for you to allocate capital towards, what would you prefer, extraordinary dividends or a share-by-back program? Thank you.

Good morning, Ricardo. This is Andres Gerardo. Thank you for your questions. Relating Mexico, we have seen, you know, it's been three days already. First couple of days, we did have a negative pickup, but I'm happy to announce that yesterday's pickup was already balanced between emission and cancellation. So hopefully, this is a situation that will reverse very soon. Important to note that all of our partners have started operations again into Mexico. All airports are open. Flights to Vallarta have been restarted. So we see that this might be a situation that hopefully has minimum impact. However, we need to wait and see for the next few days. Again, I think that when we go into Refbar and Topline, what we've said is that We have a strong vision for winter given the positive trends we've had so far in the Caribbean, far positive than last year, besides the situation in Mexico, obviously. Very strong performance in the Canary Islands and a strong performance in the ski season as well. Our advanced bookings plus mice on the books make it very positive for us to foresee the mid-term business. Obviously, all the books is higher than our low to mid single REF PAR vision, given the advanced booking and demise that we've said, and things will balance out. If we look at the trends for some of our competitors, which are in very low single-digit REF PAR, this is where we have our confidence from. I will pass the third question to my colleagues to answer.

Hi Ricardo, on your question on the capital allocation. I think first of all, our policy is going to be very consistent with the financial discipline. So the framework will always be that our debt ratio to EBITDA will be between 2% and 2.5%. So we'll be doing little adjustments in our participations, you know, portfolio management that we've been carrying out over the last 12 years. We've been looking for little adjustments. There's nothing really major identified, but, you know, I think that we see ourselves allocating the capital in growth and improving our assets rather than increasing or changing our dividend policy. So we don't see ourselves, you know, giving away a strategy dividends and less, you know, the share buyback, which, you know, we have discussed that in depth with you one to one. Being the little free flow that we have now, one of the main circumstances that we think is dragging our quotation. We don't see ourselves in the short term doing a share buyback.

Of course, we remain open to structures that may unlock value while preserving brand control and operating flexibility. Any structure must improve capital efficiency, reduce risk, maintain balance of the 2.2 debt ratio, and be executed at attractive pricing. We are evaluating alternatives case by case on asset type, geography, and investor appetite as we've done in the similar way as we've done during the 2025 exercise.

Is okay, Ricardo? Yes, perfect. Thank you all.

Thank you, Ricardo.

Now the turn for Artem from UBS. Please go ahead, Artem.

Good morning everyone. Thank you for taking my three questions. My first question on net unit growth pipeline for 2026 as percent of system size is 4.7% now. Last year it was at 3.3%. Nevertheless guidance for net unit growth in 2026 is lower than it was a year ago. Two to 3% now for 2026 versus I think 4% a year ago for 2025. How should we think about it? Do you expect an increase in the pace of these affiliations? My second question, how do you see 2026 ref power growth by main geographies? Which geographies do you expect to be stronger? Which ones weaker? And lastly, can you share any initial thoughts or indications on cost inflation for 2026? Thank you.

Hello again. Thank you for your questions. Listen, we feel comfortable on the 2 or 3% net unit growth. We're not foreseeing any specific desalination program. We do recognize, however, that we're sensitive to the situation in Cuba, which might have an impact. Other than that, we are clearly on Online to follow last year's business and growth strategy as well. So nothing in this affiliation that should be higher than what I just mentioned. When it comes to red bar, we've seen a very positive increase of red bar in the Caribbean, mainly Dominican Republic, obviously Mexico given the circumstances in the short term. Please bear in mind that in Europe in general UK is performing very positive for us. So is France and certainly Italy for the past few weeks has had an extraordinary performance given the the Milano Cortina games when it comes to Spain I think it's important for us to know that we've been upgrading our product portfolio and And we've been increasing our footprint in the main regions, whether it's the Canary Islands, certainly in Andalusia, as we have announced, with the opening of Mi Málaga, the refurbishment of Gran Melilla Don Pepe. We've taken over the former Kempinski Hotel in Estepona. And we've taken over Hollywood World, which is an $800 hotel. you need to resort so so even though it's in a stabilization year we see opportunity for our brands and our products specifically as our portfolio develops i'll pass on the cost inflation question to stefan yeah regarding the last question you said about the the cost inflation uh in in the average worldwide i would say that it's going to be between two three percent increase

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Hello, thank you for taking my questions. So three, if I may. The first one is regarding RevBar. If you're seeing some difference in terms of the RevBar outlook for all Medellin's hotels alone and all Medellin's hotels in general for the whole portfolio. and also related to have bar. If you could provide us a figure of lack for lack performance since they are important changing the parameters that could distort a bit the guidance provided. So the second question is in terms of margins. What are your expectations for 2026? Of course, we know there's some impacts from FX that could be relevant, but just so that you know that aside from this, you see margins going up on underlying terms. And the third question is regarding free cash flow generation expectations, both on the pre-M&A basis, and if you could share with us Potential size of investments that you might to that we should add to add to have a free cash flow regulation for seminar and it's been put in our model. Thank you.

Hello Guillerme, Andrea again, good morning.

Listen, in terms of REF PAR, no, there's our REF PAR where we have both owned and leased and managed hotels in the same destinations is very similar, where obviously the difference comes is in those destinations that we only do management, like it would be Middle East, Southeast Asia. But other than that, our brand strategy calls for a very sustainable REF PAR growth in all destinations and brands.

Yeah, on the margins, I would say, and we have discussed this as well several times, this is the obsession of the company. So we have a target to get 30% EBTA margin in 2027. So we're working on that. And there are three lines. One is the operating performance of the hotels, and we are, you know, optimizing the operations and trying to squeeze the assets as much as we can. Corporate Expenses Asset Line Expansion which, you know, as you know, in terms of margins, will improve the picture. So we are working on that. It's an obsession. We've launched internally a program called 30% Margin, and it is on our day-to-day. obviously will have the FX the FX effect because as you mentioned but as we have always said is yes an accounting effect since we don't cross currencies effectively but yeah yeah I'm sorry I forgot on the on the free cash floating I was thinking of Stefan will reconcile I'm sure they have already the 25 figures. So we've ended up with 200 million euros of of cash flow from activities. And we expect a bit, you know, a higher number for 2026.

Yeah, man, it's okay with the author.

What type of investments should we take into consideration that could have implications in the actual cash flow generation generated?

For the moment, for 2025, you may know we have the Paradisus Cancun that we are going to open it again in May 2026. Grand Melilla Don Pepe Grand Melilla Don Pepe I think that we have on mind right now. Also to keep on mind that we used to have around 15, 1.5 million euros that we used to have in key monies and growth opportunities that we could have for the year, that we have for this year. It's okay?

Okay, perfect. This is a margin, this is a small follow-up. How should you think about the trading to the 30% margins between 2026 and 2027?

If I may, Guillerme, adding on to what Angel Luis has just said, I think it's important to note that we also have a very strong strategy in terms of revenue generation, upselling, and increasing other revenues. So an important percentage of the 30% is coming from the top line as well. We have just rolled out a number of strategies and IT technologies for increased experiences in the hotels for other revenues. In terms of upselling, please bear in mind that most of our openings, over 65% of our business coming in right now, it's between premium and luxury hotels. So I think we're counting on a very large percentage of the margin 30 to come from the top line as well. with much better flow-throughs when we look at web part growth mainly through ADR. And that's why we've been updating and upgrading our portfolio and our expansion strategy. I don't know if that supports the question.

Thank you.

Thank you, Guillerme. Now the turn is for Fernando Abril from Alantra. Hi, Fernando.

Hi. Just only one question. I missed some of the prior questions, so maybe you've already answered this. But I don't know if you're aware, but one of your main peers, Miner Hotels, the owner of NHM, said he was looking to create a separate REIT. I don't know if this is something you would be also open to discuss internally and separate PropCo and OpCo. within your company. Thank you.

Hi, Fernando Angelu speaking. Look, this is something we have discussed several times, so I would say almost every time we get together. I don't see that happening in the short term. I think, you know, one of the reasons is that we think that the operating business has to grow a little bit more. for us to start contemplating that. But as we have always said, you know, we hear the market, we listen to the market, we hear you, and we always analyze opportunities, but I don't see that happening in the short term.

Okay. Thank you very much, Ángel.

Thank you, Fernando. Now, the turn to Andre Julliard from Dutch Bank.

Hi, Andre. Good morning, thank you for taking my question. First one about the operational trend. Could you remind us the weight of Cuba in terms of revenues and EBTA contribution? And on the operating side as well, could you give us some more color about the trend you are seeing on the my segment, especially in the Caribbean? Second question about asset management. Could you confirm that the two main projects that you have at the moment are only the Paradisus Cancun and the Grand Mediat and Pepe, but do you have some more projects of refurbishment for this year? And thirdly, about the capital allocation could you remind us the policy in terms of dividend and what we can expect for this dividend thank you very much

Thank you for your questions Basically, you know that Cuba has been struggling for the past couple of years So the impact for this year in terms of fees and overall performance is around 10 million Euros in fees and obviously whatever comes down on the VDA. So we've considered that already the trend for mice has been very positive since we've increased the Our strategy in Europe and in the U.S. So our on the books business is very solid, mainly for winter in the Caribbean and then springtime in Europe. So the trend continues to be positive and there's a sense of confidence in the market. Business has been picking up. Visas, Paradisus, Cancun, and Gran Meliado Pepe, other than our traditional maintenance CapEx and upgrading CapEx, there's no other project at this time. So those are those three points on our side.

Yeah. Okay. Yeah. And speaking on the dividends, as you know, this is something that, you know, the board of directors proposed to the general shareholders meeting. And I think it will be March when, you know, the directors of a company will take a decision. As you know, we went back to dividends two years ago, and we started with a payout dividend of 17.5%. Last year, we increased to 22.5%. And, you know, very shortly, we'll have the clue of, you know, the dividend policy. We want to absolutely preserve the financial discipline, but we understand that, you know, the shareholders need to be, and the dividend policies need to be consistent. We'll confirm very shortly.

Okay, thank you very much.

Yeah, perfect. The last question that we have for the moment is from Ivan Sanfeliz from Renta Cuatro.

Hi, good morning to everyone, and thank you for taking my questions. Most of them have already been answered, but maybe if you could, give us an update on the new developments that we've been carrying out in the last few quarters, mainly Albania, Malta, Saudi Arabia, how they're going. And then a financial question. After the 800 million syndicate refinancing, should we expect Because of that to be lower than that of 2025 is 4.2%. Thank you very much.

Good morning. This is in terms of development, I think positive overall. On one hand, we continue to grow and consolidate our our footprint in Albania, Montenegro and Croatia with different opportunities. As you know, we keep Opening properties after the success of the Mi Manta and we have several properties on their way. We've announced in Saudi Arabia an important project of three hotels in Qidiyah, the first one under construction. We have a few opportunities in Riyadh that we will announce very soon, and we have something else coming in Jeddah. I do have to say that the reopening or the opening of Paradisus Bali in Southeast Asia has been very positive so I would we would perceive that there will be a growth on the Paradisus brand both in the Middle East and Southeast Asia we continue the footprint in Vietnam very strong and we have few more opportunities both in Indonesia and Thailand so we feel that overall Southeast Asia and Middle East will continue to grow We are chasing several opportunities in the south of Italy, Greece and Portugal, so that footprint on the Mediterranean will continue to grow, and I'm sure that we will announce very soon two or three projects more in the overall Emirates as well. I don't know if that answers your question, Ivan.

If I may add, André, I just want to mention, Ivan, that Most of the openings that took place last year, the 29 and the 30 that will take place at least this year, are taking place in where we believe we have competitive advantage. This is mainly the Caribbean, Mediterranean, and Southeast Asia. And this is where you should expect to see the new openings and in the areas where we believe we have critical mass in order to maximize The profitability and the margins of the fees generated. There are some strategic new places that in my opinion are the ones that we should focus as well and are mainly the Middle East and as well places like Maldives, Seychelles, etc. so so this will be the early exceptions but most of the openings and can be applied as well for the new uh the pipeline that the new signings of will take place mainly in the Mediterranean in the Caribbean and Southeast Asia um hello Ivana hello speaking on the on the uh new facility

Look the main goal of this Facility was to really improve the the maturities profile of the company Some of you had already started asking questions about that. Even if we were not concerned Again, you know, we listen to the market we hear you and we thought it was there was momentum to approach our lenders Which we did in September and and you know the result is you can compare now the material profile of the company but moreover as you know this kind of syndication normally are more expensive than you know bilateral loans because we approach the lenders in September and I have to thank them for you know their understanding We've managed to reduce the spread of the 19 facilities that we have cancelled with the process of this new syndication. So we've reduced by 20 basic coins the average spread. And we fixed half of this at a very good rate last Tuesday, where, you know, we took advantage of the rates coming down, and we closed the fix in the swap at 2.32%. There has not been underwriting commission. There has not been market flash. So the kind of costs that are normally affecting this kind of structures and loans, we haven't suffered. But again, the main goal was to, you know, to stabilize our debt, to have a clear and, you know, not to be concerned of the materials profile until, you know, four years from now.

Ivan, it's okay?

Oh, sure. Excellent comments. Thank you very much.

Okay, there is no more questions. Then thank you once again for joining us today and for your continued interest in media hotels international. Please do not hesitate to contact our investor relations department for any further question you might have. Thank you and have a beautiful and good day. Bye bye. Thank you.

Thank you everyone.