YEAR END RESULTS 2013

Transcription

1 YEAR END RESULTS 2013

2 meliahotelsinternational.com

3 YEAR END RESULTS figures were affected by several one-offs which had no impact on Cash Flow, highlighting: 76mn losses due to the mark to market of the convertible notes. Meliá took the decision to irrevocably waive the Company s right to satisfy the conversion of the Notes in cash, meaning that the P&L in coming years will not be impacted by this volatility. The Discontinuing Operations item includes 30mn losses reflecting the withdrawal of the activities in Puerto Rico, a market which is considered non-strategic for the Company. This last impact could be offset with a positive impact of 30 Mn included in the Financial Income line. Of note is 30.9 Mn Negative Consolidation Differences due to the Integration of Tradyso and Gran Meliá Palacio de Isora. The result from continuing operations reached Mn, which means Mn excluding the impact of the Convertible bond above mentioned. Business performance: Overall improvement of margins Total Revenues increased by 1.7% thanks to the positive performance of the hotel business. Meliá s leadership of the worldwide resort industry lead the Company to post a RevPAR increase of 5.2% after a good performance both in the resorts in LatAm& Caribbean and the Mediterranean. The revenue culture which saw sharp increase in melia.com let to a record of 212 million in sales through direct channels in 2013 (+25.4%)- and the focus on the margin maximizations (also helped by the cost control plan), has allowed the Company to achieve an improvement of EBITDA ex capital gains of 28.3%, improving results in all the business segments. Consolidated EBITDA Margins (ex capital gains) strengthened by 264 bps while the hotel business margins improved by 78 pbs Debt management Net debt has reached 1.158Mn partially impacted by the integration of Gran Meliá Palacio de Isora last December, while the average interest cost of debt maintained flat at 5.5%. The focus facing 2014 is to deleverage balance sheet, partially thanks to the asset rotation, the hotel business performance and possible conversion of the convertible bond. Development strategy The development momentum remains very strong, with the signature in 2013 of almost 8,000 new rooms and increasing the global development pipeline to nearly 16,000 rooms. In 2014 it is expected to continue with the same growth rate. In 2013 the Company entered the English-speaking Caribbean, a presence that will be further strengthened in 2014 with the addition of the Meliá Jamaica. Also of note is the positioning in Asia, a key market for the Company in which it has doubled its pipeline in the last two years. Meliá has also announced the signature of 2 additional hotels in Indonesia, the Innside Makassar and Innside Legian. In the region as a whole, the strategic alliance with Greenland will continue to bear fruit in the short term. Outlook has begun with positive figures and a RevPAR increase slightly above 7%, noting the performance of the resorts in LatAm and the Canary Islands. For the full year the Company expects mid-to-high single digit RevPAR growth, driven in more than 50% by price increases. 3

4 Gabriel Escarrer, Vice-President & CEO of Meliá Hotels International, After a fiscal year 2013 negatively impacted by certain exceptional items that did not involve any cash outflow; we understand that the good news is based on the strong underlying performance of the business, showing an improvement in EBITDA excluding capital gains of more than 28%. The positive performance of the underlying business was mainly linked to the positive evolution of the hotel business, which saw a RevPAR improvement of 5.2%, primarily due to: i) the Company globalisation process, combined with a regionalization strategy which has strengthened outbound sales, resulting in healthy revenue segmentation and greater customer diversification, with only 20% of total roomnights made by Spaniards; ii) in the same vein, there is an excellent performance from our direct sales channel melia.com, becoming the leading source of sales for Meliá after achieving 26% growth in sales in 2013 and maintaining this growth rate in the current year. In this regards, we must emphasize the important role of our Meliá Rewards loyalty program, which in 2013 contributed 66% of the sales made through melia.com. Regarding the financial results, after a year fully focused on restructuring our debt maturity schedule and the maintenance of the cost of debt, the focus of the Company is now on deleveraging the balance sheet partially supported on our asset rotation plan and the conversion of the convertible bonds. Given the more favourable environment -reflected in some macroeconomic data such as the improvement of the risk premium- and the relative normalisation in the financial markets, the Company expects to optimize liquidity levels in 2014, which after having adopted a conservative approach to debt management has remained at higher levels over recent years. Looking ahead, the Company remains committed to expansion through low capital-intensive formulas, as has been the case in 2013 with the signature of 28 additional hotels, a growth rate that Meliá will sustain in The latest additions to the Company portfolio have also become one of the key drivers for revenue generation, an example being the contribution of hotels added over recent times which are gradually reaching their cruiser speed, such as the Gran Meliá Rome, Gran Meliá Palacio de Isora, ME London, and especially the two Paradisus resorts in Playa del Carmen, which in their second year of operations have become the second largest contributors to EBITDA in the Company. Even more important to highlight is the very positive outlook for This year, after a strong first quarter which will see a RevPAR increase slightly above 7%, we expect a full-year growth of a mid-to high single digit, over 50% of which explained by prices and thus contributing to the progressive improvement of margins. 4

5 1. INFORM ON THE HOTEL OPERATIONS: EVOLUTION PER AREA Considering owned and leased hotels, RevPAR increased by 5.2% (2.2% ARR; 2.9% Occupancy) fully in line with the guidance given by the Company at the beginning of 2013, and achieving 14 consecutive quarters of growth. Regarding the score of the quality questionnaires, Meliá reached in 2013 an 82.5% score, showing improvements in almost all brands versus Also is of note the results of the Global Reputation Index for Meliá Hotels International (81,3%) and the Quality Penetration Index (97,3%) both above last year figures. AMERICA In America, RevPAR grew by 10.2% (13.2% in US dollars) due to improvements in both occupancy (5.0%) and average rate (5.0%). In line with the previous releases, the excellent performance of the region is partially explained by the contribution of the two resorts in Playa del Carmen, Paradisus La Perla and Paradisus La Esmeralda. The Company is proud to inform that during their second year of operations these resorts achieved an average of occupancy of almost 60%, while average rates increased in 2013 by more than 15% (US dollars) versus 2012, generating a total contribution at the EBITDA level of almost $24 million and becoming the second biggest contributor within the whole portfolio, only behind the Paradisus Palma Real (together with The Reserve at Paradisus Palma Real). Excluding the contribution of the Paradisus resorts in Playa del Carmen, America s RevPAR increased by 5.7%, mainly due to the evolution of the hotels in the Dominican Republic, and specifically due to the strong performance of Paradisus Palma Real and the Reserve at Paradisus Palma Real, which in 2013 achieved historical figures, maintaining its position as the top contributor to Meliá s P&L. Regarding the contribution of America to the Consolidated Statements and the recent concerns in the market about the exposure to different currencies in emerging markets, just a note to inform that the exposure of Meliá in Brazil and Argentina is limited to management contracts with a very low contribution to the Consolidate Statements. On the other hand, in Mexico and the Dominican Republic, most of the revenues are in US dollars, while more than 80% of the expenses are in local currency. Available rooms decreased by -5.9% due to a change in the regime of the ME Cancun. Regarding the evolution of RevPAR in the managed hotels, the slow evolution of the hotels in Argentina due to the political unrest in the country were compensated by the strong evolution of the hotels in Mexico, especially highlighting the performance of ME Cancun and ME Cabo. It is important to notice that last December 2013 the division added a new contract in Bahamas, the Meliá Nassau Beach, to its portfolio. EMEA In owned and leased hotels in EMEA RevPAR increased by 10.9%. As mentioned in the first half 2013 results, figures have been affected by a change in the scope of the EMEA region. Excluding the changes in the scope, EMEA RevPAR in owned and leased hotels increased by +0.2%. By region, the main highlights are the following: a) Germany: After a better fourth quarter in 13, the Company recorded positive figures for the full year (RevPAR +1.4%), even considering the impact of the absence of the most important bi annual trade fairs which had a strong impact on the hotels in Düsseldorf, Frankfurt and Munich. The incorporation of the Innside Düsseldorf Hafen in September 2013 also contributed to an improvement in the figures. 5

6 b) Paris maintained a positive trend in 2013 (RevPAR +4.4%) thanks to a strategy focused on optimised revenue management and customer segmentation. As a result, in 2013 the Company increased its exposure to the transient business, especially in international markets, highlighting the increase in roomnights from the Middle East and Russia. The positive results of the outbound strategy implemented by Meliá also contributed to diversification of the client base, especially benefited by the increase in business from the Americas. c) Positive figures in Italy were helped by the excellent performance of the Meliá Genova and more recently the contribution of the Gran Meliá Rome. d) Within the EMEA division, only the U.K. registered negative figures, given the difficulty of maintaining the price levels achieved in 2012 thanks to the celebration of the Olympic Games. Besides the reclassification between EMEA and Premium Europe, available rooms suffered minimal movements linked to the incorporation of GM Roma and the Innside Düsseldorf Hafen from Sept. 13. Regarding the RevPAR in the managed hotels, overall RevPAR registered positive results. Despite the underperforming contribution of the hotels in Egypt, the excellent contribution of the new contracts led to positive figures. Of particular note is the evolution of the Meliá Dubai (added in April 2012) with an increase of RevPAR above 80% and the Meliá Zanzibar with a near 40% increase. More recently, the division added a boutique hotel in Capri, the Meliá Villa Capri (July 13), which has also had good results. To end this chapter, highlight should be made of the contribution of the 3 hotels in Spain, Gran Meliá Colón, Meliá Sky Barcelona and Meliá Sancti Petri, which also registered positive figures. ME EUROPE RevPAR in Premium Europe increased by 33.7%, affected by the change in the reporting perimeter. Since June 13 leased and owned hotels in this category only include the ME brand, while the rest of the hotels previously included in Premium Europe become part of the EMEA region. If we look at the evolution of the ME brand, there has been an increase of 17.7%, thanks to the contribution of the ME London thanks to the evolution of the transient business and transient leisure. At this stage, the Company is proud to say that the hotel is becoming a major player in food and beverage events in London while also making progress with its positioning as a benchmark hotel in the market. In this regards, the Company specially highlights its contribution to the ME brand recognition allowing the Company to get additional management contracts. The outlook of this hotel is positive taken into consideration that 2014 will be its second year in operations. The performance of the ME London has been partially offset by the lower contribution of the ME Madrid, affected by the general decline in and partially caused by product renovation. The fall in the number of rooms is due to the reclassification of hotels between Premium Europe and EMEA, partially offset by the addition of ME London. Management contracts in the region, now includes the contribution of the 3 Innside hotels that opened in 13 in Madrid, the Innside Genova, Luchana and Madrid Suecia (the latter opened in December). These hotels are becoming flagships for the Innside brand outside Germany, and represent the first steps in the internationalization of the brand. MEDITERRANEAN RevPAR in Spanish resorts increased by 5.5% (-0.5% in ARR and +6.0 in Occupancy). It should be recalled that, generally speaking, in the Spanish resort industry the 13 summer season was really strong, mainly thanks to the strengthening of foreign demand, especially from the UK and, to a lesser extent, from Northern European countries and Eastern Europe. On the other hand, the domestic market saw an unfavourable trend, which in the case of Meliá was reflected in just 20% of roomnights being made by Spaniards. 6

7 In this regard, as we have seen throughout the year, the evolution of the region was explained by the performance of the Balearic Islands and the resorts in mainland Spain, while in the fourth quarter 2013 the highlight was the performance of the Canary Islands, where the evolution of rates and occupancy levels has been above expectations. In the latter region, it is worth a mention that the negotiations with tour operators for the winter season were closed before the conflicts in Egypt began, so it has been a challenge for the Company to manage additional rate increases. Nevertheless, Meliá hotels in the Canary Islands are registering very strong figures and even achieving historical results. The slight fall in available Rooms (-1.0%) was affected by the change in regime of the Sol Katmandu Park & Resort and Sol S Argamassa in December 2012, and the Sol Trinidad, Sol Jamaica and Sol Guadalupe in June 2013, partially offset by the incorporation of the Meliá Atlántico Isla Canela during the first semester of Managed hotels also registered positive RevPAR due to the overall strong situation of the resorts in Spain, emphasizing the positive evolution of the Calviá Beach project, a commitment to innovation which in 2013 demonstrated its success generating a RevPAR increase by a 12% in RevPAR in the Sol Wave House Hotel. In 2014 the Beach House hotel will be relaunched as the new ME Mallorca, contributing to the complete renewal of the destination. Additionally, the performance of the Meliá Tortuga Beach Resort & Spa in Cape Verde and the hotels in Croatia and Bulgaria was also significant. All in all, RevPAR for the whole division in 2013 was near +10% above the peak of the cycle in SPAIN RevPAR declined by 2.0% linked to slowdowns both in Occup. levels (-0.8%) and rates (-1.2%), showing a slightly rebound versus 2012 when RevPAR fell by -2.8%. In 2013 the Company took advantage of its leadership in the resort industry to help skew revenue segmentation in the city hotel business towards the leisure traveller segment. During the 3Q city hotels in Spain thus registered a better performance in hybrid destinations with a better mix of guests between corporate and leisure, also benefiting from the fact that these destinations generally have a greater exposure to an international clientele. However, the 4Q which is more dependent on the performance of the business travel segment saw a weak performance of individual business travel throughout the country. The lack of business groups and layovers, as well as the loss of some crews also contributed negatively. On the positive side the ski resorts registered strong results. For the whole of 13, should be considered that more than 60% of the deviations versus last year in terms of EBITDA is linked with the slower evolution of the hotels in the neighbourhood of Barajas Airport (where total number of passengers decreased by 12% in 2013), due to its dependence on crews and lay overs. Available rooms showed a modest decrease (-1.6%) linked to: a) the loss of the Tryp Sondika, Tryp Albayzin, and Tryp Las Matas (August 2013) due to the disaffiliation of underperforming hotels which also didn t match with the brand standards, and; b) offset by the incorporation of the Tryp Bosque before Dec. 13 under a management contract. Within the framework of the future improvement of profitability, last December the Company also disaffiliated the Tryp Diana in Madrid, which over recent years contributed negative numbers at the EBITDA level and penalized the Tryp brand standards. The disaffiliation generated an extraordinary expense of 1 million.

8 HOTEL STATISTICS OWNED & LEASED 13 / 12 (in Euros) HOTEL REVENUES SPLIT OWNED & LEASED 13 / 12 (Million Euros)

9 Management Model in Meliá Hotels International Given the focus of the Company on the asset-light model and the growing importance of Meliá s exposure to management formulas, the Company has changed the reporting method to include more detail on the profitability of the overall management model. The table below reflects the income generated by Meliá as a manager, including: At the revenues level: the management fees from third parties but also from Melia s hotels under owned & leased. Additionally, this item includes other revenues being mainly the sales commissions. At the expenses lines: mainly includes the sales, marketing, distribution expenses, etc. It is worth mention that the Management fees from third parties generated 50.0 million, a slightly decrease versus 2012 (- 2 million) mainly due to the slower performance of Brazil and Argentina. This management model is mainly possible thanks to the internationalization which is parallel with the reinforcement of the strategy of regionalization and the hubs in the Americas, EMEA, Spain, the Mediterranean and Asia. The rationale is to endow the regions, the location of the hotels, with the appropriate management resources and sales force, while also strengthening our direct channels strategy and the outbound sales process. This is accompanied by a reduction in the weighting of the corporate layer and sales force in Spain to refocus on the location of the business and feeder markets, generating an overall reduction of structural expenses. This trend is expected to be reinforced in the future. Million Euros 2013 Total Rev Fees Owned & Leased hotels 62.1 Management Fees Third Parties 50.0 FeesPAR 1,564 Other Rev Total Exp EBITDA 61.5 Business Segmentation on page 14 Other Hotel Revenues The item Other Hotel Business basically includes the contribution of casinos, golf and Sol Caribe Tours, tour operator based in LATAM. The better performance versus 2012 lies in the higher contribution of Sol Caribe Tours and the better evolution of the Golf business. Hotel Business Outlook Going into the current year, 1Q2014 is registering excellent results in the resorts in America, maintaining a double digit growth in RevPAR. In this regards, the Company is monitoring the evolution of the US dollar, the main currency in the area and the main challenge in maintaining similar growth rates. In Spain, the first quarter is also contributing with good news thanks to the strong growth in the resorts in the Canary Islands. The Company believes it will be able to maintain growth rates in this destination during the first semester of the year, although going forward its evolution will be linked to the recovery of tourist inflows in Egypt and the rest of North Africa. Regarding the remaining areas in the Mediterranean, despite the fact that it is early days given the late booking behaviour of the Spanish, Italian and Russian markets, current trends point to a summer season similar to 2013, with strong figures in the Balearic Islands and the resorts in mainland Spain. However, it is worth mentioning that at this stage the Company has only around 30% of total bookings already on the books, making it very early days to give official guidance to the market. 9

10 Regarding Spanish cities, the Company confirms the feelings of the last couple of months which point towards a stabilization of the situation. At this stage, the Company observes: a) some improvements on a global basis such as a higher number of events in specific cities and some optimism linked to a slight rebound in air traffic, and b) better news in the specific case of Meliá that facing the second quarter is seeing better figures in advance sales in the Meetings and Incentives segment. However, the Company is monitoring the situation to evaluate how such improvements are effectively reflected in the macro and microeconomic reality. In any case, it is worth to mention that the first quarter of 2014 will be impacted by the different calendar of the eastern season. Going into 2014, the Company will also see a better performance of hybrid destinations such as Barcelona, Bilbao or Palma de Mallorca, taking advantage of the expertise and leadership of Meliá in the resort travel business. Outside Spain, cities in Europe are also registering a positive first quarter 2014 and are expected to maintain healthy rates of growth for the whole year in the U.K, Germany -which in 2014 will host more Trade Fairs in some cities-, Paris and Italy. For the whole portfolio, after a strong first quarter 2014 which will show a RevPAR growth slightly above 7% with positive figures in all divisions (except Spanish cities), the Company expects mid-tohigh single digit growth in RevPAR for the full year 2014, more than 50% explained by price. Development Additions (10 hotels / 2,666 rooms. 82% under management and 18% under lease) In 2013 the Company added 10 hotels with 2,666 new rooms to its portfolio. As a result of Meliá s efforts to seek shared growth, last November Meliá and the Chairman of Baha Mar Ltd. signed an agreement for Meliá to operate the all-inclusive leisure development Meliá at Baha Mar in Nassau (Bahamas), under which Meliá took over the operation of the Meliá Nassau Beach Resort (694 rooms) in December 2013, becoming the first hotel for the Company in the English-speaking Caribbean. In addition to this opening, in the Americas the Company also added another contract at the Meliá Marina Varadero (529 rooms), extending Meliá s presence in Cuba. In EMEA the Company added 2 contracts, the Meliá Villa Capri, a boutique hotel under management in Capri (19 rooms), Italy, and the Innside Düsseldorf Hafen under a rental agreement in Germany. In Spain the Company opened 3 Innside hotels in Spain (all under management), which has been included within the Premium brands. These additions, the Innside Genova (65 rooms), Innside Luchana(44 rooms) and Inside Madrid Suecia(127 rooms), form part of an effort to make the Innside brand an urban benchmark in major cities worldwide. Another highlight was the incorporation of the Meliá Atlantico Isla Canela (358 rooms) in Huelva (Spain) that joined the Mediterranean division in May under a lease agreement, and the incorporation of two Tryp hotels, the Tryp Rincon de Pepe (147 rooms) in Murcia and the Tryp Airport Suites (549 rooms) in Madrid. Losses (6 hotels / 2,105 rooms) During the period, 6 hotels have been disaffiliated. The Sol Kipriotis (651 rooms) in Greece which was operated under a franchise agreement and was disaffiliated in June for failing to comply with brand standards. Another hotel under franchise in Portugal, the Meliá Aldeia dos Capuchos (198 rooms)and one hotel in Asia (685 rooms). Additionally, as part of the disaffiliation of contracts with underperforming results that didn t fit with the brand standards, the Company has removed from its portfolio the following contracts in Spain: Tryp las Matas (57 rooms), Meliá Olid (210 rooms) and Tryp Diana (304 rooms). Future incorporations YTD (58 hotels / 16,335 rooms) Americas: Meliá, international leader and benchmark in the resort segment is progressively expanding Company s footprint to all major vacation destinations. In this regards, during recent months the Company has entered in the 10

11 English-speaking Caribbean, presence that will be strengthen by the future incorporation in 2014 of the Meliá Jamaica (226 rooms). Also in 2014, the Americas division will incorporate 3 additional management contracts (678 rooms), two of them in Brazil with the opening of the Tryp Belo Horizonte (151 rooms) and Meliá Paulista (397 rooms). From 2015 onwards, the region will add 16 hotels (4,263 rooms), all them under management agreements, including hotels in strategic markets such as Chile, Colombia, Costa Rica, Peru, etc. Asia: In Asia, another major focus in the Meliá global expansion strategy, the current pipeline stands at 11 hotels with almost 3,000 rooms (all them under management), of which 4 hotels will open in 2014, one of them, the Meliá Jinan (230 rooms) as part of the agreement with Greenland. The Company is proud to mention that it has more than doubled its portfolio in Asia Pacific in the last two years, being examples the recent signature of two hotels in Zhengzhou, China, and more recently, two Innside hotels, the Innside Makassar (130 rooms) and the Innside Legian (131 rooms) in Indonesia, which implied the entrance of the Innside brad in Asia. ME Europe: Last October the Company announced the signature of the ME Dubai, which is expected to become a flagship property for the ME brand in the Middle East. The Company recalls the re-branding of two ME hotels in 2014, strengthening the resort component of the brand: the Sol S Argamassa (Ibiza) being converted into the new ME Ibiza, and the Beach House in Mallorca becoming the new ME Mallorca. EMEA: In 2014 the Division will include the Innside Wolfburg (220) under rental agreement, while from 2015 onwards Meliá has 19 hotels and almost 4,000 rooms. Despite the fact that there are no new openings expected for 2014, the Company recently opened the Meliá Vienna (253 rooms) in Austria under a lease agreement. Mediterranean: The region has 5 hotels in the pipeline and around 3,700 rooms, all them under management and outside Spain, including hotels in Cape Verde, Croatia and Bulgaria. In 2014 the Company will open the Meliá Las Dunas in Cape Verde (1,248 rooms).

12 The Company takes this opportunity to reinforce that the aim of the Group in 2014 is to continue with the expansion plan with the signature of a minimum of 30 new hotels under low capital intensive formulas.

13 2. OTHER BUSINESS REAL ESTATE As the Company announced last December, an agreement was reached for the sale of the company Bear S.A de CV, owner of the Meliá México Reforma (489 rooms), located in Mexico DF. The transaction amounted to $60 million dollars, generating capital gains at the EBITDA level of approximately 9.8 million Euros. The above mentioned transaction should be added to the 42.3 million capital gains generated in the first half of All in all, in 2013 the Company generated 50.9 million of capital gains, which compares with 93.5 million in Regarding the other real estate businesses, as Meliá stated in the release of the first semester results, in July 2013 the Company sold the rights to build over one property in Madrid, a transaction that generated 3 million Euros. Going into 2014 the Company reinforce its commitment to generate additional assets sales by a minimum of million. CLUB MELIÁ By the end of 2013 Club Meliá showed a slight increase in terms of revenues after a better second half, during which the Company registered an increase of weeks sold in Mexico due to the activity in Playa del Carmen resorts. Despite the fall in the number of weeks sold (-6.5%), this was offset by the increase in average prices (+8.4%). The average price increase was possible mainly due to: a) the different sales mix skewed towards the sale of bi-annual weeks, b) higher sales of premium products, c) increased generation of upgrades, and d) the improvement in the closing ratio. More significant was the improvement in costs due to reduced sales and marketing expenses and corporate cost reductions, allowing an EBITDA improvement versus last year by more than 12 million euros, while the EBITDA margin moved up from near 2% to the neighborhood of 19%. Also of note is the score in the quality questionnaires, which improved in more than 190 basis points versus last year. Going into 2014, the Club Meliá is registering results above 2013 and also above the Company s expectations, so the outlook for 2014 remains positive. Also of note is the commitment on the decrease in the delinquency rates. OVERHEAD DEPARTMENTS From now on this item only includes corporate expenses, highlighting the contribution of IT and Human Resources which are considered core aspects in Meliá s strategy. Regarding the IT contribution, it is worth mentioning the integration in June 2013 of Tradyso (from now on Idiso), Meliá s distribution platform, which has become a key driver for income generation in the Company. In this regards, Meliá has progressively strengthened the proportion of investments in IT focused on yield management tools and the improvement of the customer experience in melia.com, which could be directly linked with the increase in sales through this direct channel. Regarding Human Resources, during 2013 the Company has launched a Comprehensive Model of Talent, completely aligned with Melia strategy. In this regards, one of the main milestones has been the design of Melia s Talent Map, whose main objective is to ensure the competitiveness of Meliá at the international arena and keeping the leadership in the industry, while ensuring the current and future coverage of key positions through development programs. Additionally, is worth to mention the success in the launching of the Performance Review, a key tool to strengthen Meliá leadership model and enhancing the correct identification of the best talent. On the other hand, it has been developed a training model with global guidelines in order to enhance professional training programs, continuous professional updating and development. Finally, with the results of the employee satisfaction survey, the Company is working collaboratively with the different areas and business units to implement Actions Plans focused on enhance and strengthen the communication and teamwork within the whole organizational levels. 13

14 BUSINESS SEGMENTATION OF MELIÁ HOTELS INTERNATIONAL Year 2013 Year 2012

15 3. CORPORATE SOCIAL RESPONSIBILITY The consolidated company s energy efficiency program SAVE includes already 70% of its portfolio (in 20 countries), and through the initiative undertaken in 2013 it achieved savings of 3.5 million, reducing its water consumption by 7,9% m3 per stay, and its eco2 emissions per star in 7,3% in the period. MELIÁ already surpasses the emission reduction objective set for the Strategic Plan In 2013, the number of hotels certified in sustainable tourism represent more than 600 million of MELIÁ s aggregated revenues. MELIÁ has achieved the highest score in the Spanish hospitality industry in the latest CDP Iberia 125 report, scoring 83 points out of 100 in terms of disclosure and a Level B performance rating. With these results, MELIÁ features among the top four hotel chains in the world with the best positioning in this ranking. The 2013 results of the Merco Corporate Reputation Ranking revealed that MHI has improved its principal management indicators in the areas of finance, quality, personnel management, internationalisation and innovation. In this latest edition, the Majorca-based hotel company ranks 33 among Spanish companies and tops the list of businesses operating in the tourism industry. Focusing on strengthening links with its stakeholders, MELIÁ has introduced its first Code of Ethics. At the close of 2013, 90% of the managers and 75% of the hotels had participated in the Code of Ethics training sessions. Since the international launch of the Responsible Purchasing Project, 61% of the target suppliers for 2014 have already made our Sustainability Clause their own. MELIÁ is also increasing its purchases from suppliers considered to be Special Employment Centres +3%, with 3.95 million. Following three years of success, in which the alliance objectives were exceeded by 116%, MELIÁ has renewed until 2016 its commitment to the Protection of Children, with a Strategic Alliance with UNICEF International. As a result of its commitment to remove barriers, MELIÁ has developed the first corporate website to meet the Level AA Criteria for Universal Accessibility, in collaboration with Technosite, a technology company and Special Employment Centre. 15

16 4. INCOME STATEMENTS In 2013 the Company changed the accounting method in consolidated accounts regarding the consideration of the conversion option linked to the convertible bond issued in 2009 as an equity instrument, despite the cash settlement option. Therefore, since January 1, 2013, the conversion option has been registered as a liability as a financial derivative instrument, separable from the liability component of the bond issue in 2009, with the accumulated impact of previous years considered non material. For the sole purpose of improving comparability, certain non-material adjustments have been made to 2012 figures, including, among others, this change in the accounting method. Revenues Total revenues increased by 1.7%. Hotel revenues increased by 3.8% thanks to a +5.2% improvement in RevPAR, while Club Meliá also reported good figures (+1.4%). On the other hand, Real Estate contributed -43Mn in lower capital gains. Other Company businesses also reported better figures due to the contribution of Sol Caribe Tours, a tour operation business in Cuba. Operating Expenses Raw materials shows an increase of 7.1% ( 11.4 Mn) mainly due to higher occupancy levels in the hotel business. Personnel costs decreased by -0.9% ( -3.3 Mn). However, the Restructuring one-off below the EBITDA level should be taken into consideration, after reaching 3.9 Mn due to costs associated to the restructuring of the corporate team as part of the cost contingency plans. Other operating expenses increased by 3.4% ( 15Mn), mainly due to the integration of Idiso, and higher taxes. Rental expenses fell by -0.5% (- 0.5 Mn). At this level, the Company offset the higher rental expenses due to new incorporations with the re-negotiation of rental expenses with owners of existing hotels, generating savings for the Company. All the above mentioned allowed Meliá to register an improvement in EBITDA excluding capital gains of 28.9% (+ 42Mn). Also of note is the impact of the integration of the companies Tradyso and Inversiones Hoteleras La Jaquita within the Meliá Hotels International consolidated group, which generated 30.9Mn in negative consolidation differences. At the Profit / (loss) from Associates and JV level, the better results of Altavista Hotelera, owner of Meliá Sky Barcelona, Evertmel (Calvia Beach), and Inversiones Hoteleras la Jaquita, owner of the Gran Meliá Palacio Isora, softened the contribution of Adprotel, owner of the ME London, which despite strong operating results, generated financial charges which led to this item reaching 17.8 Mn of losses. Regarding taxes, the difference versus 2012 mainly comes from the impact of the sale of a hotel in Mexico (ME Cancun) in To end this chapter, of note is the impact of the Discontinuing Operations item, which registered 34.3 Mn losses. This item includes the profit and loss account generated by the assets in Puerto Rico, reduced by the loss of asset value in the country. At this stage, taking into consideration principles of prudence, and anticipating the possible withdrawal from the entire business in Puerto Rico in 2014, the Company has included in the 2013 income statement a negative impact of 30 Mn. 16

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18 5. BALANCE SHEET Assets The increase in the Other intangible assets item of 43.7 Mn corresponds to the fair value of the integrated software applications after the change in the integration method for Tradyso. The decrease in Tangible Assets of 200 Mn is mainly linked to: The book value of the assets sold in 2013 ( - 64mn) The reclassification of the book value of assets in Puerto Rico to non-current assets and held for sale and discontinued operations of - 70 Mn. The amortisation and depreciation for the period of - 91mn De-recognition of the assets held under a finance lease ( - 130mn ) Integration of the hotel Gran Meliá Palacio de Isora ( +171 Mn ) Inclusion of the item Non current assets held for sale and discontinued operations which is related to the value of the assets in Puerto Rico. Decrease in Trade and other receivables of 48.9Mn which corresponds to the improvement of the average payment period, together with the integration of Inversiones Hoteleras la Jaquita. 18

19 Liabilities Strengthening of the Total Net Equity, partially due to the inclusion of the Other Equity Instruments ( Mn), which corresponds with the value of the conversion option in December 2012, when the Company irrevocably waived the cash settlement. Removal of the item Finance lease creditors ( - 160mn), caused by the agreement with Equity Inmuebles S.L. On 30 December 2013, Meliá Hotels International reached an agreement with the company Equity Inmuebles S.L. to modify the lease term of 17 hotels owned by Equity Inmuebles S.L. and managed under lease agreements by Meliá Hotels International. As a result of this new agreement, the rentals which previously expired on 31 October 2074, will now expire on 29 December

20 6. FINANCIAL RESULTS AND DEBT Regarding the evolution of the Total Financial Profit/Loss item in the P&L, the main one-offs in both years were the following: Convertible bond non cash one-off: Higher financial expenses of 76mn due to the mark to market of the embedded derivative linked to the issue of the convertible notes. It is important to mention that last December Meliá took the decision to irrevocably waive the Company s right to satisfy in cash (cash settlement election) the conversion of the Notes. Thanks to this decision, the P&L in the coming years will not be impacted by this volatility. Note that this extraordinary expense will not have any impact on Meliá cash. Higher losses from Negative Exchange Differences mainly due to the sale of the company Bear S.A de CV, owner of Meliá Mexico Reforma, which generated negative exchange differences of 14mn. This impact didn t impact in the Cash Flow. In the Financial Income item, and related to the agreement signed last December 2013 with Equity Inmuebles S.L. by which the Company shortened the maturity period of the 17 hotels leased to Equity Inmuebles, the main impact at the accounting level has been a change in the accounting method for these rentals, which have changed from financial leases to be considered operating leases, generating a financial income of 30Mn as a result of the difference in value of the assets and liabilities derecognised. It should be considered that, going into 2014 and later on, the item Other financial expenses that included the financial expenses linked to these leases will disappear, being included under the rental expenses item. Also in the financial Income item, the difficult comparables should be considered, given that in 2012 the Company recognized: a) the revaluation of a minority stake in a resort in Los Cabos (Mexico) generating financial capital gains of 7.4Mn b) 5.3Mn capital gains linked to the issue of ordinary bonds and simultaneous offer of exchange for the Preferred Shares. (thousands euros) Exchange differences (24,137) (7,490) Borrowings (110,733) (92,445) Interest Capital Markets (44,588) (27,109) Interest bank loans and others (66,145) (65,336) Other financial expenses (10,935) (12,549) Other financial income 34,722 26,275 Change value of embedded derivatives (76,167) 8,500 Net Financial Income (187,250) (77,709) If we do not consider the extraordinary items mentioned above, the evolution of Total financial profit/loss versus 2012 would have increased by almost 28 Mn (see chart below) mainly due to: a) The reassessment of liability and effective interest rates related to the convertible bonds issued in 2009 and 2013 of 11Mn, which did not have impact in Meliá Cash. b) Financial income reduced by 8 Mn due to impact of the hyperinflation in Venezuela. Also without impact in the Cash Flow Statements. 20

21 Evolution of the financial expenses Million Euros Net financial Income 2012 (77.7) Mark to market of the embedded derivative linked to the convertible notes (84.7) Losses from Negative Exchange Differences due to the sale of Bear SA de CV (Meliá Mexico Reforma) (14.0) Financial expenses linked to the convertible notes (12.7) Change in the account method due to the agreement by which Meliá shortened the maturity period of 17 hotels leased 30.6 Impact of the hyperinflation in Venezuela compare with 2012 (8.3) One - off as financial income in 2012 with no cash impact (6.1) One - off as financial income in 2012 linked to the offer of exchange for the preferred shares (5.3) Other (9.0) Net financial Income 2013 (187.2) NON CASH IMPACT Regarding the evolution of the cost of debt, the restructuring process in 2013 has led the Company to maintain average interest rates for 2013 at 5.5%. Going into 2014 Meliá remains confident about the reduction of average interest rates. Regarding debt management, in 2013 the main financial focus was to advance in the refinancing process. In this regards, Meliá issued convertible notes for 250Mn with a 4.5% coupon (which represent near 4% effective interest rate after the issue of the TAP in September 2013), a 35% conversion premium, quarterly coupon and maturity in Thanks to the convertible bond inflow, the Company prepaid the existing covenant-bearing syndicated loans ( 312Mn), advancing in the lengthening of the debt maturity schedule while diversifying and internationalizing funding sources. The Company s net debt has increased compared with December 2012 by 163.6Mn (+16.5%) reaching 1.158Mn. This increase is largely explained by: a) the incorporation of 78mn debt previously held by Inversiones Hoteleras La Jaquita S.L after its consolidation last December 2013; b) the devaluation of the Bolívar in Venezuela in the first quarter of 2013, with an impact of 14 Mn; and c) the cancellation of the Preferred Shares in Puerto Rico for $32Mn. In 2014 the focus of the Company is the deleverage of the balance sheet partially supported on our asset rotation plan, the operating cash from flow the hotel and vacation club businesses together with the impact of the possible conversion of the Convertible Notes. 21

22 Regarding liquidity levels, up to December 2013, the Company includes 437 Mn in Cash and other Cash Equivalents plus 209Mn in available credit facilities, which led the Company to a comfortable situation. The maturity debt profile remains as following, excluding the credit facilities: Million Euros As far as the maturity debt profile for 2014 is concerned, the Company feels confortable taking into consideration that 2014 includes 425 Mn maturities, including 200 Mn convertible bonds, while the remaining is partially being refinanced. 22

23 7. CASH FLOW STATEMENT Cash flow from operating activities ( 120 Mn) includes ( 12.3 Mn) of gross capital gains generated through the asset rotation activity. Cash flow from investment activities ( Mn) is primarily explained by: a) the investments made in fixed assets and property investments (- 38.4Mn) linked to the maintenance capex, b) the payments to associates of (- 99 Mn) after compensating payments and proceeds from third parties, with the main items being: i) the purchase of a 50% stake in Inversiones Hoteleras La Jaquita (owner of the Gran Meliá Palacio de Isora) and ii) a loan to Adprotel ( 35Mn), owner of the ME London hotel for the finalization of construction. Regarding the cash flow from financing activities (- 16 Mn), of particular note is the advance in the refinancing process during In this regards, Meliá issued convertible notes for 250Mn, new mortgage loans for 150Mn, and the prepayment of the existing covenant-bearing syndicated loans ( 312Mn), among others. All this was partially offset by the book value derived from the disposals made during the year. The effect of exchange rate changes is mainly explained by the Venezuelan Bolivar devaluation ( 14Mn). 23

24 8. MELIÁ ON THE STOCK MARKET The stock price rose by +61.7% in 2013, up +10% and +40% on the Spanish IBEX Medium Cap and IBEX 35 and market performances, respectively. On May 13th, Banco Sabadell sold its 6% stake in Meliá. As a consequence, the free float of the Company reached 35%. The placement involved 38 quality investors and the volume of the transaction was equivalent to the liquidity seen over 60 days. Since then, average trading volume has more than doubled also reflecting the lower overhang risk. In March and September 2013(*), the Company issued convertibles notes for a total amount of 250Mn. Dividends were paid out on August 8th,