MELIÁ HOTELS INTERNATIONAL, # MELIÁ HOTELS INTERNATIONAL YEAR-END 2012 RESULTS February 27 th, 2013, 12:00 PM ET

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1 MELIÁ HOTELS INTERNATIONAL, # MELIÁ HOTELS INTERNATIONAL YEAR-END 2012 RESULTS February 27 th, 2013, 12:00 PM ET Gabriel Escarrer: Thanks Operator. Good evening everybody. We are releasing these 2012 Year End Results which verify that the positive underlying trend in the Meliá hotel business during the year has continued in the fourth quarter. We ll elaborate on that later on throughout this conference call, and apart from giving you an overview of the Year-End results, we ll also give you an update on the trading environment and what you should expect for In order to do so, we are here with, Onofre Servera (EVP Group Finance), Andre Gerondeau (EVP HOTELS), Mark Hoddinott (EVP Real Estate) and Carlos Lopez (VP Investor Relations) For any specific details, breakdown or data you may require, the Investor Relations team will be available, as always, following this conference call. Going into the 2012 Year End Results, Total Consolidated Revenues and EBITDA have gone up by +2.0% and +1.5% respectively, while Net Profit stands at 37.3 million Euros versus the 40.1 million Euros of one year ago. On a consolidated basis, the results are affected by the lower contribution of the Real Estate Division due to the differences in capital gains: 93 million Euros in 2012, which compares with 133 million Euros in The results are broadly explained by the overall positive evolution of the Hotel business in which EBITDA improved by 8.4 % and EBITDA margin increased by 48 basis points. At the financial level, the higher financial expenses are linked to the increase in the average interest rate of our debt going up to 5.4% versus the 4.5% of The evolution of the Financial Expense and the Associates and Joint Ventures items have been partially offset by the generation of additional financial revenues. This has enabled us to report 37.3 million Euros at the bottom line level, slightly above the market consensus. Meliá Hotels International Page 1 02/27/2013

2 Very quickly, let me give you an overview of the hotel business performance for 2012: In Latin America and the Caribbean, the strength of feeder markets such as the United States and Latin American markets which have grown by 47% - explains the 21% increase in RevPAR on a constant currency basis. o This has been achieved thanks to: a) The sales efforts focused on business groups in our Caribbean resorts which generated a 20% increase in group revenues in 2012 b) the e-commerce strategy in the United States by which sales through our direct sales channels have also increased around 20%, and c) the opening of the two Paradisus all inclusive resorts in Playa del Carmen (Mexico). These openings have been good examples of Paradisus brand positioning, and how a Company strategy which focuses on the premium segment contributes to improvements in margins and profitability. In this case, these properties have delivered 11 million dollars at the Ebitda level. In the European cities outside Spain, RevPAR grew by +4.8%. The positive trend in 2012 is explained by the strength of the main German cities, the change in segmentation of our hotels towards a more corporate / (slash) international clientele, especially in Paris, as well as events such as the Olympic Games in London. Meliá Hotels International Page 2 02/27/2013

3 In the Mediterranean Division, which basically includes the Spanish resorts, the positive trend in 2012 which saw RevPAR increase by +2.8% is largely due to: a) the increasing exposure to alternative feeder markets in Europe, stressing the exposure to Russia -as reflected in the number of roomnights which increased by 25% in 2012 in our Mediterranean resorts, b) the e-commerce strategy by which melia.com is now the number one account in a significant number of our resorts, along with c) the fact that Spain is one of the preferred leisure destinations worldwide as shown by the 57.7 million international tourists that visited Spain, an increase of +2.7%. This has allowed us to offset the 11% decrease in roomnights from Spanish guests (currently 24% of the customer base in Spanish resorts ) Lastly, the Spanish cities have been the segment most affected by the weakness in domestic demand, especially in secondary cities and lower category hotels. Within this framework, the Company has implemented a severe Contingency Plan with the aim of bringing down the cost per stay as much as possible, achieving in 2012 a -2.4% decrease on a same hotels comparison basis. At the same time, Meliá has seen positive results in its upscale and premium brands in Madrid and Barcelona where the exposure to an international clientele represents 62% of the total business. The combined effect has resulted in only a 0.2% RevPAR decrease in the Spanish cities when including the Premium Brands. All in all, RevPAR in the fourth quarter increased by +8.3% leading a RevPAR growth for the year by +7.9%, explained by the improvement in prices of 9.9% and, generally speaking, as we have been explaining throughout the quarterly reports, the positive evolution of the resorts in the Caribbean along with the European cities is largely behind the RevPAR trend. To finish the review, in spite of the contingency programs in some areas, I would like to point out also the improvement of the customer satisfaction that Company s quality questionnaires point out in all brands for We have achieved an 81.3% versus 80.7% last year. Going into the future, the overview continues to reflect two different scenarios, one inside and one outside Spain. We forecast a scenario of growth and maximization of profits and margins in the international arena, while in Spain we will continue to apply rigorous cost controls. Meliá Hotels International Page 3 02/27/2013

4 Going into the expected evolution, I would like to just point out a few highlights: In Latin America and the Caribbean, in the first quarter of 2013 the positive trend seen last year is continuing, particularly taking into consideration that requests for proposals and bookings, especially in the groups segment, are showing significant strength, not only important in itself, but also because it allows the Company with a longer timeframe to correctly implement better yield management. This improvement will be also supported by the contribution of the resorts Paradisus La Perla and La Esmeralda and the change of rebranding to Paradisus of one of our resorts in Cancun. For instance, the two resorts in Playa del Carmen are expected to double their Ebitda contribution in In Europe, in 2013 we see a consistent performance in the main capital cities, although given the macroeconomic situation of the Euro zone and U.K., we maintain a cautious note especially in southern countries. In the region, the Company will focus the strategy on extending and developing the client account base in our properties in London, Paris and the main German cities. Within this region, the opening of the ME London and the progressive consolidation of the Gran Meliá Rome are expected to have a positive impact on: o a) boosting our premium brands internationally, o b) strengthening the Company s group base, o c) attracting new feeder markets and o d) reaffirming the support of preferred partners. Regarding the Spanish resorts, although it is still early days, with the booking pace we currently have and the feedback obtained recently in the FITUR Tourism Trade Fair, the Company expects a comfortable summer season given that, broadly speaking, the expected slowdown in the domestic market is likely to be offset again by international travellers. Finally, regarding the Spanish cities, we continue to see a lack of corporate demand especially in secondary cities, but maintain positive expectations in cities like Barcelona. Therefore, the strategy of the Company will continue to be focused on increasing Melia s exposure to international business travel while strengthening the leisure component. To this end, the optimization of our e-commerce strategy and the strength of our loyalty programme become key. o In this regards, the Company recently relaunched its Meliá Rewards loyalty programme, which aims to enhance our customer confidence and satisfaction. The programme has Meliá Hotels International Page 4 02/27/2013

5 40 international partners and has become a key source of company revenue, with the 3 million members generating up to 50% of the sales at melia.com and spending 12% more than non-members. o Regarding the optimization of our e-commerce, is worth noting that in 2013 it is expected that Meliá directly owned sales channels will generate around 200 million Euros. Putting all these things together, Meliá Hotels International forecasts a RevPAR growth reaching a mid single digit growth, mostly explained by pricing. The fact that currently more than 80% of the operating profit is generated outside Spain while progressive growing the contribution from LatAm, Asia and European Gateway cities is largely behind the guidance. To support these 2013 estimates, I would like to point out the 7.9% RevPAR increase in the month of January. The expectation that we have for the first quarter of the year, currently around a 6% increase in RevPAR terms, also underpins the year end 2013 estimates. Regarding the Expansion of the Group, during 2012 the Company has added to its pipeline a new hotel almost every 3 weeks, expecting to keep up, or even accelerate, this rate of growth in Regarding how the Company will grow in the near future, the roll out of our business model will be confined within an asset light model, which has implications not only for the existing portfolio but also for how the Company will grow in the future, primarily, as you may know, through a model based on management contracts and variable leases or through joint ventures when capital may be required. At this stage, year to date we have a pipeline that represents 41 hotels with more than 12,000 rooms of which 90% will be added internationally and 91% will be added in the upscale and premium segment, keeping the Company s balance between resorts and cities. Within Melia s internalization process, emerging markets, especially Latin America and the Asia Pacific area will continue to be major priorities. In the Asia region, Meliá has intensified its growth, managing to double the signed portfolio in just two years. In this regard, the recent agreement with Greenland, one of the largest real estate groups in China, together with the alliance with Jin Jiang, will help to leverage Meliá positioning in the region. In the short term, the agreement with Greenland will imply the opening of 2 new Meliá hotels, the Meliá Jinan and the Meliá Tianjin which will be added to Melia s portfolio in 2013 and 2014 respectively. Also in the Asia Pacific region, the Company highlights the addition in 2013 of the Meliá Danang in Vietnam. Regarding the pipeline in Latin America, of note are the addition of the Paradisus Papagayo Bay in Costa Rica in 2014 or the recently signed Tryp Itaboraí located Meliá Hotels International Page 5 02/27/2013

6 in Itaboraí, a city in the state of Rio de Janeiro to be added in 2015 and becoming the 17th hotel for Meliá Hotels International in Brazil, where the Company has almost 4,000 rooms. On the other hand, in Europe Meliá will continue to strengthen its presence in main capital cities with the priority in United Kingdom, Germany, France and also in Italy. Within this framework, Meliá will also see in the short term new important additions to its portfolio such as the ME Vienna (in Austria), the Innside Düsseldorf Hafen (in Germany), the Meliá La Defense (in France) and the Innside Manchester (in U.K.). Lastly, in Spain, the Company will continue to focus on selective growth, focused on innovative products which will add greater value to the company s hotel portfolio, such as the Sol Wave House, Beach House or new Sol Kathmandu Park and Resort, all in the Calviá Beach Resort, with great expectations for this summer season, or the recently incorporated Innside hotel in Madrid, the Innside Madrid Genova, the first hotel for the Innside brand in Spain, which will be followed by the close opening of the Innside Madrid Luchana. Regarding the financials, the first thing that I would like to mention is that Meliá has been able to meet its bank covenants linked to the syndicated loans. The net debt figure has reached million Euros. The main reason of the flat evolution of the net debt figure is: the finalization of the 2 Paradisus resorts in Mexico as well as the Me London, which implied 40 million Euros cash disbursement in 2012, At this stage, it is important to stress that Meliá does not have a strong expansionary investment budget for the next two years Looking into 2013, the course of action will be focused on: a) the restructuring of debt maturities due in 2013 and 2014 and b) the progressive deleveraging of the balance sheet. On the restructuring side, the Company s aim is to lengthen by 5 to 7 years part of debt maturities due in 2013 and 2014 reaching 377 and 447 million Euros respectively when excluding credit lines, primarily by obtaining funding in the capital debt markets. The first objective is to refinance the covenant-bearing syndicated loans amounting to 312 million Euros in maturities for 2013 (209 million Euros) and 2014 (103 million Euros). Meliá Hotels International Page 6 02/27/2013

7 In this regard, Meliá is actively exploring the debt markets taking into consideration not only their current strength but also our aim to balance our capital structure between bank and bond funding towards a more 50/50 scenario. The same applies in relation to our aim to increase the exposure of the debt structure to US dollars considering Meliá Hotels International s cash flow generation in Latin America. Additionally, when it comes to debt restructuring, the unencumbered asset base in the Company should be considered, which at this stage implies 46 hotels with a market value of approximately 1.5 billion Euros. In this regards, in December the Company signed a 70 million dollars mortgage on one of our assets in the Dominican Republic. Regarding the progressive debt reduction, the Company s aim is to deploy the cash generation and income from asset sales for the period to reduce financial leverage, taking into consideration that within our asset rotation policy, the Company intends to dispose of assets worth a minimum of 100 million Euros per annum over the period. To end the financial chapter, I would also like to emphasize Meliá Hotels International s commitment at all levels to the strengthening of the financial situation considering both the debt restructuring and the debt reduction within the framework of the 2014 Strategic Plan. That is pretty much it; we hope we ve been able to explain the situation to you to your satisfaction. Now, we re happy to respond to any questions you might have. We remind you that we are here with [] Thank you very much for your attention and your time. We hope that we ve been helpful here. Please do not hesitate to contact our Investor Relations Department for any further questions you might have. Thank you Thank you. If you d like to ask a question on today s call, please press the star, followed by the one on your phone. Once again, if you have a question, it is star, one on your phone. If you would like to withdraw your question, please press the star, followed by the two. Just a moment. We do have a question from the line Helen Rodriguez (ph). Please go ahead. Helen Rodriguez: Yes, hi. When you re talking about your proposed debt, could you give us a bit more detail about the structure of this debt? Would this be just a straight Bond, or are you talking about some kind of structured real estatetype structure? Meliá Hotels International Page 7 02/27/2013

8 Helen Rodriguez: When it comes to the issuing the capital markets, (inaudible), our current positioning, we are we haven t ruled out any option. We might go for either a secure or unsecured Bond issue. We re exploring both issues, and whenever we are in a position to go to the market, we ll see what is the market situation is, and according to the, you know, forecasters spreads, we ll decide whether to go towards on secure or unsecured high yield Bond. But, it s not Thanks very much. Yes, okay. Thanks. Thank you. Once again, if you d like to ask a question on today s call, it is star, one on your phone. We do have a question from the line of Joao Safara (ph). Please go ahead. Joao Safara: Joao Safara: Joao Safara: Joao Safara: Hi. Thanks for taking my questions. Well, my question is basically on the net that evolution. Considering your target was well, in previous releases of net debt, below 900 million, I just wanted to understand in the second half of the year what deviated from your previous estimate, so that you ve reached 1 billion in the year-end? Regarding the evolution of the debt throughout the year, it was our intention to reduce that throughout to less than 12 (ph). The reason by which we haven t kind of reduced our debt is pretty much due to the finalization of the works in the Paradisus resorts in Mexico, as well as the investment in the ME London Hotel. These two combined projects represent 40 million. Additionally, the investment in joint ventures and the associate giving given that the Calvia Beach Resort and the Sol Katmandu Park and Resort implied an additional investment of 17.2 million. What we re trying to stress in these conference calls is that, going to the future, these are the two last projects that have represented an additional that have represented investment on Sol Meliá going into the future. There is no--an expense or a budget in regarding the 41 hotels that we have in the pipeline. Okay, thank you. So, from Paradisus Resort in Mexico, should we expect further investments going forward, or is that No. Completely the end? The investment has been made, along with the ME London and the project in southern Rio (ph). Okay. Thank you very much. Meliá Hotels International Page 8 02/27/2013

9 Helen Rodriguez: Helen Rodriguez: Thank you. Thank you. Our next question is a follow-up question from the line of Helen Rodriguez. Please go ahead. Yes. Hi. Sorry, I should have asked before. Would you consider a convert another convert? The Company, whenever the time comes, will consider any option in the debt market that adds value for the Company, taking into consideration what is the, you know Okay, thanks. Best option for the Company in every single moment, so we do not rule out a convert. Thank you. Our next question is from the line of Guilluame Raseoussier (ph). Please go ahead. Guilluame Raseoussier: Yes, good evening. I ve got two questions, actually, on capex and loans (inaudible). Can you quantify how much you re committed to your pipeline of 41 projects? Even on long-term, that I understand it s going to be less than 14 in 2013 and 2014, but can you give us some more detail about your commitments on that front? Second question; can you actually help us to understand what could be the EBITDA for 2013 with your guidance for mid-single-digit REVPAR, excluding capital gains? In that question, can you explain to us what you expect from the rentals, because they ve been up last year, so what we can what can we expect on that front for 2013, please? Regarding sorry keep you regarding the investment of joint ventures through 2013, related with the 41 hotels, there is no commitment in terms of capex for the Company, so you shouldn t expect expensionary (ph) capex regarding the 41 projects. Regarding the Guilluame Raseoussier: Sorry to interrupt, but you mean no capex and no loans to such degrees (ph), as well; no cash out linked to these projects for 2013? Sorry to keep you. Regarding the expansionary capex, the capex is zero. Regarding the funding of those joint ventures, those hotels we re in joint ventures are kind of launching in this space. We reckon that throughout 2013 we should be putting a cap (ph) of about 15 million during This is about our best shot at these stakes. Regarding the what you should expect as far as the EBITDA is concerned for 2015, the commitment the guidance of the Company is Meliá Hotels International Page 9 02/27/2013

10 Guilluame Rasoeussier: Thanks. pretty much related (ph) with this mid-single-digit growth as far as the REVPAR is concerned. Now, the taking into consideration the sensitivity of the Company and the fact that most of the EBITDA is going most of the REVPAR, sorry, is going to be explained by average room rates, we should expect that one percentage increase in REVPAR represents 2% increase in REVPAR (ph). So, if we took in about, let s say, 5% REVPAR increase, we should be expecting probably a 10% increase in underlying EBITDA in Now, when it comes to rentals, when it comes to additions in 2013, we expect we don t expect a major increase in the 103 million of rental expenses, taking into consideration that this year there will we will be incorporated about we have signed four hotels for a rental agreement that represents roughly 850 rooms, so we shouldn t expect a major increase here. Thank you. Thank you. As a reminder, if you would like to ask a question today, it is star, one on your phone; star, one, to ask a question. And, our next question is from the line of Pierre Causse. Please go ahead. Pierre-Emmanuel Causse: Yes, good afternoon, Pierre-Emmanuel from Exane. I have just a couple of questions. The first one is regarding the 30 million financial capital gains that relate to (inaudible), could you please, perhaps, elaborate to it a little bit about what has driven these gains, and if so (ph), which impact we should expect from the recent devaluation of the currency here? And, my second question is regarding the EBITDA underlying EBITDA margin, and in this year we had only a 48 bps of improvement, which sounds quite limited compared to the strong REVPAR growth. Could you just explain why we had not stronger improvement? And finally, perhaps, what will be the negative EBITDA impact of the combined disposals (ph) that were realized in 2012, please? When it comes to the if we look at the evolution of REVPAR and margin on an aggregated basis, there are a few items that affect the comparison. One is the capital gains; that is 93 versus 133 last year. Another one is the cost of disaffiliation and onerous contracts that represent the team Meliá (ph) in Europe last year, and there are various one-off effects as the consolidated level in 2012 and 2011, mostly provisions. When it s stricken out, this item the underlying Company EBITDA increased by 14%, representing 138 basis points of EBITDA margin. Meliá Hotels International Page 10 02/27/2013

11 When it comes to the Caracas (ph) devaluation, we expect that the overall impact in on a in our accounts to give into frustration (ph) the previous up to 212, which represent, at the EBITDA, about 2 million; and throughout 2013, we are expected to offset this figure on the back of the improvement of the business in the region. And, the third question, could you repeat that for me, please? Pierre-Emmanuel Causse: Yes, actually there now only were two questions. Regarding the you know, the 13 million financial capital gains, I understand that it relates to a balance sheet re-evaluation in (inaudible). Could you please perhaps elaborate a little bit more around this item, I yes, please? Yes. There are higher financial income related with the re-evaluation of minority stakes in one of our resorts in Los Cabos in 2012, generating financial capital gains by 7.4 million and there are an additional 5.3 million capital gains linked to the issue of ordinary Bonds, and is to move tens (ph) over to the exchange for the (inaudible) shares. So, basically, the pricing of the Bonds that we gave in exchange of the redeemed price of the preferring (ph) shares represent a financial capital gain by 5.3 million. Pierre-Emmanuel Causse: Thank you very much. I have no further questions. Thank you. Gabriel Escarrer: Thank you. Thank you and we have no further questions at this time. So, thank you very much for your attention and your time. We hope that we ve been helpful here. Please do not hesitate to contact our Investor Relations department for any further questions you may have. Thank you very much. Ladies and gentlemen, this concludes the Meliá Hotels International Year- End 2012 Results Conference Call. Thank you for your participation. You may now disconnect. END Meliá Hotels International Page 11 02/27/2013