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“We want to get to the furthest reaches of the planet”

August 4, 2020 Hotel News No Comments Email Email

The company achieved a 43.3% reduction in costs (67% in the 2nd quarter) to help mitigate a 63.3% decrease in revenueThe company Contingency Plan has safeguarded the liquidity and viability of the company in the short term, while the adaptation of the Strategic Plan up to 2022 aims to maintain its leadership and leverage any opportunities in the medium and long term.

Gabriel Escarrer states that in the face of the unprecedented challenge posed by COVID-19, the success of travel companies in 2020 will be measured by their resilience: “This is not the time to be thinking about profits, but rather about long-term survival and strength, focusing on the basics and consolidating our competitiveness in the new era of post-COVID travel.”

Business performance:

    • The company’s approach to cost management saw a 43.3% reduction in costs in the semester, mitigating the decrease in revenue (-63.3%) due to the closure and slowdown of activity
    • EBITDA excluding capital gains stood at -€50.3M
    • Net attributable profit was -€358.6M due to the business environment caused by COVID-19 and the impairment in asset value of -€148M, a figure that is not expected to increase given that it already assumes a worsening macroeconomic outlook due to the pandemic
    • The Net Result excluding impairment stood at -€203M
    • Melia.com and MeliáPro.com generated 48% of company sales in the first half of the year, and together with high brand recognition allow the company to maintain its plans to open hotels in Spain in spite of the fall in the UK market. Since the revival of sales in June, both channels have generated 60% of all business
    • The company’s geographic diversification avoided having to close 100% of hotels at any time during the crisis
    • The company currently has 154 hotels open worldwide thanks to the flexibility and business intelligence applied to maximising the viability of openings according to the trends in demand

 

Financial management:

    • Financial management has focused with notable success on ensuring liquidity and maximising cost adjustments
    • At the end of June, the liquidity situation (liquid assets + undrawn credit lines) amounted to €553M
    • The monthly negative cash flow during the worst months of the crisis was less than €50M
    • Net debt stands at €2,323M, an increase of €294M compared to December 2019

Strategy:

    • Meliá has adapted its Strategic Plan up to 2022 and accelerated its transformation to become even more competitive, deepen its digital transformation and continue to make progress in ESG matters
    • The Plan combines a transformational medium-term vision with a short-term tactical plan, allowing the company to maximise business generation in the short term (new sales policy and “customer journey” adapted to the current context), manage hotel reopenings with flexibility, and persevere in the effective widespread implementation of health and safety protocols and standards.

Outlook:

  • In an uncertain summer season which is expected to be shorter than usual and dominated by “staycations”, the company is focusing on maximising the potential of the domestic market in each country and region, resort hotels – which are recovering faster than city hotels – and independent travellers, given the stagnation of the MICE business and lack of business travel.
    • The uncertainty surrounding the time it will take to get back to normal activity (depending on the availability of a vaccine and effective treatments) prevents any estimates for 2020​

Gabriel Escarrer, Executive Vice President and CEO of Meliá Hotels International“As we already mentioned in the results presented in May, in line with the tourism industry in general, the second quarter of 2020 was the worst in the history of our company due to the shutdown of the business caused by the COVID-19 pandemic. Faced with this historic challenge, we have focused on maintaining the fundamentals of the business through our contingency plan and on maximising our activity in this atypical summer season as we also prepare to re-emerge even stronger in the post-COVID environment.  I am proud to say that over recent months we have managed to combine intense financial oversight with the investments required to guarantee the safety of customers and employees, and to continue to make progress in operational excellence and efficiency.

Without being comparable to any other year in our history, the best news that these first-semester results for 2020 offer us is the resilience that the company has shown and its solid foundations, further strengthened by the adaptation of our strategy to the post-COVID context in a project that we have named “The Day After”. 

Meliá Hotels International has presented results for the first semester of 2020, in which the exceptional situation caused by COVID, particularly in the travel industry, led to a loss of 358.6 million euros, strongly affected by the impairment in asset value of 148 million euros which the company has calculated in the latest quarter, but which has had no impact on cash flow nor liquidity. Without impairment, Net Income would have been -203M€.  The company emphasises that it does not foresee any need to increase the adjustments given that they already assume the worsening of the macroeconomic outlook due to COVID-19.

The gradual closure of practically all the hotels in March led to a decrease in consolidated revenue from January to June (€319 M) of -63.3% compared to the first half of 2019, with a particularly intense impact in the second quarter, where revenue of €26.2 M (-94.5% compared to the same period in the previous year) came very close to a “zero revenue” scenario, distorting any possible comparison with previous years. Flexibility in cost management and the closure of hotels in the second quarter also allowed the company to mitigate the fall in revenue with a reduction of 43.3% in costs over the semester (and 67% from April to June).

The second quarter marked the high point of the crisis, with only 12% of rooms open compared to the same period in 2019. This situation distorts comparisons with the previous year, creating a “gap” of -96% in RevPAR (Revenue Per Available Room) taking into account the entire portfolio of rooms, a “gap” that would have stood at -63% in the calculation from January to June.

Despite the fact that the situation remains extremely difficult and uncertain, Meliá has maintained its commitment to open as many hotels as possible provided there is minimum financial viability in order to reactivate destinations and “rescue” employees whose contracts were suspended due to the pandemic. Up to now, the company has reopened 154 hotels worldwide, 62 of them in Spain and North Africa (Morocco), and 56 in EMEA, (Germany, Austria, Italy, France, United Kingdom, Portugal, Bulgaria, Luxembourg, Croatia, Montenegro, United Arab Emirates and Tanzania). In Asia Pacific, 20 hotels are open in China, Vietnam, Indonesia, Thailand, Malaysia and Myanmar. In America, where the evolution of COVID-19 has not yet reached its peak, 13 hotels have already opened in the United States, Mexico, Argentina, Brazil, Colombia, Peru and Venezuela. In Cuba two hotels have reopened.

The company’s direct sales channels for end consumers (melia.com) and travel professionals (meliapro.com) generated 48% of total sales between January and June, which combined with greater efficiency and profitability in the sales strategy to allow the company to resist the impact of the crisis on travel distribution and maintain a level of bookings and occupancy well above the average in its destinations.

Regarding international expansion, activity has also been greatly affected by the pandemic, with work being delayed on some ongoing projects and changes made to the initiation of hotel management agreements. Hotel openings have also been rescheduled, with the company now estimating 7 new openings in 2020 compared to the initial plan to open 23 hotels (9 in APAC, 11 in EMEA, 2 in America and 1 in Spain). Of the 7 planned openings, 2 are in Asia Pacific, 3 in EMEA, 1 in the Americas, 1 in Cuba and 1 in Morocco.

The most important opening of the year happened before the pandemic and is one of the company’s flagships hotels in the Middle East, the ME Dubai hotel designed by the sadly deceased great architect, Zaha Hadid.  The other openings originally planned for 2020 will be carried over to the 2021 financial year, in which the company plans to open 26 new hotels, 13 of them in EMEA, 3 in Spain, and 1 in Asia Pacific. The company reports that it maintains all of its planned projects without any exception.

Financial management and liquidity

Given the paralysis in the industry and uncertainty about the time it will take to get back to normal, one of the company’s priorities has been to maintain sufficient liquidity to face the coming months with a certain degree of financial calm. The company has thus focused on adjusting and controlling each and every one of its costs and also reduced Capex planned for the year, limiting the cash outflow only to what is strictly essential.

During the first quarter, the company also focused on obtaining new financing (without any type of mortgage guarantees or financial covenants), and in the second quarter negotiated extensions to debt maturities to ensure even greater financial comfort. At the end of June, the liquidity situation (liquid assets plus undrawn credit lines) amounted to €553 million.

Due to the crisis caused by the pandemic, the company also recorded an impairment in the book value of its assets of €148 million in different parts of the income statement, but with no impact on cash flow nor the liquidity of the company. The company does not plan to increase these adjustments, given that they already assume the worsening of the macroeconomic outlook as a consequence of COVID-19.

Competitive advantages for “the day after”

Within the framework of its contingency plan, and in addition to the priority of ensuring liquidity, Meliá continues to focus on the drivers that have been fundamental to its resilience: safeguarding the health and safety of customers and employees, protecting employment and retaining talent, and ensure the continuity of the business and its digital transformation.

Meliá highlights the strengths and competitive advantages with which the company has faced recent months and which will also drive its performance in the post-COVID recovery period:

  • Leadership in urban leisure (bleisure) and resort hotels, which represent 76.9% of all rooms and which have historically proven to be more resilient than city hotels and which, as was seen in the crisis of 2009, are expected to recover earlier than city hotels
  • An almost entirely renovated hotel portfolio after the investment of more than 750 million euros since 2015
  • The direct sales channels melia.com and meliapro.com which currently generate 48% of total sales with a trend towards further growth led by the increasing digitalisation of consumers. Since the reactivation of activities after lockdowns, sales through direct channels represent 60% of the total.
  • loyalty programme with more than 12 million members, providing a high-value customer base and many repeat stays
  • A consolidated hotel management system with internationally recognised brands and economies of scale that place the company in an excellent position to add independent hotels and small chains in search of greater scale and sales capacity
  • The strategic focus of the company on sustainability and social responsibility, which saw it named the Most Sustainable Hotel Company in the World in 2019 in the Corporate Sustainability Index prepared by the sustainable investment agency SAM, a subsidiary of Standard & Poors.

Given the changing scenario in the travel industry, affecting both demand and supply, a scenario that many are already calling “the new age of tourism and travel”, MHI decided to take advantage of the lockdown of the business while managing the emergency to “reset” and review its strategy and operating model, and also accelerate the ongoing transformation to ensure it is the most agile, efficient, digital, responsible and competitive company required by the new age.

The main milestones in this transformation during the pandemic were:

  • Investment of an additional €20 million in the transformation of company systems and processes, promoting training in digital skills and teleworking
  • Launch of key projects in the BeDigital360 programme (the framework for the digital transformation of the company), with the review and adaptation of some critical business processes such as the Procurement Model or the creation of a Shared Services Centre called Meliá Hospitality Services that initially encompasses the F&B area.
  • Strengthening of analytical capacity, with a clear focus on operations through a new reporting package to support decision making
  • Reinforcement of the digital experience of our employees through the incorporation of new solutions or evolution of existing solutions, such as RPA (Robotic Process Automation), which is increasingly being used in the day-to-day activity of the business.
  • The implementation of a new digitalised operating model that guarantees the efficiency and professionalism of the services offered to our business units.

Gabriel Escarrer Jaume: “The importance of this transformational process, which builds on our efforts in recent years in terms of the renovation of obsolete hotels and destinations, digitalisation (especially the focus on melia.com and meliapro.com), our commitment to talent, and the transition towards a more diversified business model, will be crucial for the future of our company, where the resizing of the market after the crisis will bring a more competitive business environment and a more than likely process of consolidation.” 

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