Palma de Mallorca—Meliá Hotels International presented financial results for the first quarter 2012, with the following highlights:
- Hotels saw revenue growth of 7.6%, offsetting lower capital gains over the same period in 2011
- Revenue per available room (RevPAR) increased by 7.2%, strongly supported by the positive evolution of average room rates which grew by 10.2%
- Market diversification meant that the dynamism of North and South America and major European capitals offset the slowdown in Italy and Spain
- Management fees for hotels in Cuba, Brazil and Asia increased by 17.8% to €13.3 million
- The company is committed to reducing net debt below €900 million by year end
- The first quarter results exceeded market expectations and the company is confident of meeting growth targets for 2012
- Excluding capital gains, EBITDA margin improved 65 basis points
- Despite the crisis in some markets, quality and customer satisfaction levels improved from 2011 to 81.1%
Differing hotel business trends depending on markets:
The intense market diversification the company has pursued for decades now allows it to be present in 35 countries and with an increasing focus on emerging markets, considered both as tourism destinations and increasingly as feeder markets. Meliá Hotels International has thus avoided over-dependence on any one country or region, and thus presents its results by region for the Americas, EMEA, Premium Brands Europe and Spanish cities and resorts:
1) Americas: all together, the market in the Americas reported a RevPAR increase of 20%. The healthy development of the U.S. economy (especially noticeable in the MICE segment) and the rise in the number of travellers from Latin American countries such as Brazil or Argentina, coincided with an increase in arrivals to the Caribbean from Europe due to adjustments in flight schedules by Tour Operators.
In Latin America, one of the highlights was the performance of the resorts in the Dominican Republic, particularly Paradisus Palma Real, thanks to the growth in business groups and incentives and the success of the "Royal Service" after the improvements made to this superior quality product. The positive performance of the Gran Meliá Cancun and ME Cancun, together with the new Paradisus Playa del Carmen which has exceeded expectations in its first months of operation, also meant that Mexico contributed to the positive results. The company expects Paradisus Playa del Carmen to become one of the major contributors to company profits in the coming years.
The company's second hotel in the USA, the Meliá Orlando has also seen excellent results, helping to lay the groundwork for future expansion.
2) EMEA: the EMEA region, excluding Spain, also saw RevPAR increase by 3.1%. By country, France recorded the highest rise in revenue per available room (+15.6%) partly due to efforts made by the company to reduce exposure to price-sensitive segments and simultaneously strengthen the more profitable business travel segment, allowing for an increase in average rate.
Germany, a country in which Meliá Hotels International currently operates 25 hotels, improved its revenue per available room by 3.3%, affected by the momentum of major biennial exhibitions and events held in the country which are expected to drive growth during the second quarter. Meanwhile, the UK contributed positively thanks to the good performance of the Meliá White House and the effect of exchange rate differences. A strong third quarter is also expected due to the hosting of the Olympics and the opening of the new ME London hotel, a flagship property that will add to our successful presence in London.
Less brilliant was the performance in markets such as Greece and Italy which have suffered from the effects of the political and debt crisis, and also the pressure of demand due to increased hotel supply in Italy. Meliá believes that the recent opening of the magnificent Gran Meliá Rome, thanks to its location, characteristics and target segment, is a very safe bet to make a positive contribution to the results of the company in Italy.
3) Spain: first quarter results in Spain suffered from the rise in unemployment in the first quarter due to stagnation in consumption and also the impact of Easter being held 15 days later than in 2011, added in the resort business to a certain normalization of the situation in the Middle East and North Africa.
Reservations to date point towards a positive summer season given that future sales to the Spanish resorts in markets like UK and Central Europe, as well as in melia.com, are above the results for the same period in 2011. RevPAR in city hotels declined in the period, as the positive evolution of Madrid and Barcelona combined (+2.6%) failed to offset the drop in MICE activity in second-tier cities (- 8%).
In the financial area, Meliá is not encountering any difficulties in refinancing maturing debt or the limits of its credit facilities, all of which have been fully renewed thanks to the confidence that the business model and solid balance sheet provide to financial institutions, even in the current context.
The company's debt stood at EUR 1,085 million, up 2% over the same period last year due to the completion of the two Paradisus Playa del Carmen resorts (Mexico). No new investments are foreseen for expansion in 2012, given that company strategy expects strong growth through low capital-intensive formulas. This strategy and the objective of reducing the debt below EUR 900 million by the end of 2012, means that Meliá will consider the possibility of new asset sales in the current year amounting to at least EUR 100 million.
To conclude this section, Meliá is currently analysing several alternatives to address the issue of preference shares in 2012.
The Meliá commitment to international development will continue in 2012, a year in which emerging economies will continue to lead growth, and in which the hotel industry will benefit from the continued growth in international travel.
In the first quarter of 2012, the company added 6 new hotels to a pipeline of 34 hotels with 10,959 rooms, 87% of them outside Spain and 56% in emerging markets. 87% of the hotels in the process of incorporation belong to the upscale hotel segment.
The Meliá focus on a business model based on management agreements is apparent in the latest deals. 100% of the hotels in the pipeline will be added under management or franchise contracts (80%) or variable leases (20%). Meliá does not foresee any new Capex investments for expansion in 2012 after completion of the Paradisus Resorts in Playa del Carmen, Mexico.
The growing importance of hotels under management is also seen un the almost 18% growth in management fees.
Contingency Plan in Spain:
The strong rate of growth Meliá will continue to seek in markets such as America (north and south) or Asia Pacific, and the implementation of a new Strategic Plan in these and other dynamic markets such as European capitals and the Middle East, will maximise growth and profitability through initiatives in revenue management, customer relationship management, asset management, and optimizing added value for owners and investors.
This drive will contrast, however, with a contingency approach to the Spanish market, which will focus in 2012 on generating savings and efficiencies at the corporate level. The growing proportion of international hotels - which in 2011 accounted for almost 80% of operating income – will be accompanied by a more decentralized corporate structure, employing resources where they are most needed and seeking greater proximity between support services and business units.
The company expects an average one digit percentage growth in RevPAR for 2012, based more on increasing prices than on improvements in occupancy.
This estimate is based on the demand in major source markets and in improving flight availability from Europe and Canada to destinations in the Caribbean. It is also based on the current situation of reservations for the future mentioned above, and the growth trend in markets such as Russia, with double digit growth, or Asia, which is particularly benefiting European hotels included in the Meliá alliance with the leading hotel group in China, Jin Jiang, now reaching its first anniversary.
It is still too early to predict the outcome of domestic demand for Spanish holiday destinations, but the company points out in its report that the third quarter represents 50% of total revenues for the year.
2012 will see the inauguration of strategic projects that will contribute not only to the future performance of the company but also to its prestige and the international positioning of its brands, such as the ME London, the hotel designed by Foster & Partners in the heart of the "City". The portfolio of projects currently under consideration and negotiation will also bear fruit over the year with new agreements and hotel additions in cities and key markets.
Finally, the company is proud to announce the imminent opening of the first phase of the Calvia Beach Resort project, an initiative to reform an area with enormous potential and beauty on the southwest coast of Mallorca, whose decline in recent years threatened the profitability of the company's numerous hotels in the region and the sustainability of the destination.
In early June the company will open two totally refurbished hotels, the Hotel Beach House and the Sol Wave House, which, along with other already renovated hotels and the incorporation of the most prestigious international beach club (Nikki Beach) and the first artificial surf centre in Europe (Wave House), will drive a total repositioning of the resort as well as economic recovery and employment in the area. The project has been declared of Autonomous Interest by the Balearic Government which has given priority and maximum support at all levels of government.