U.S. Markets closed

Edited Transcript of REZT.ST earnings conference call or presentation 28-Apr-17 7:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Rezidor Hotel Group AB Earnings Call

Brussels May 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Rezidor Hotel Group AB earnings conference call or presentation Friday, April 28, 2017 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Knut Kleiven

Rezidor Hotel Group AB (publ) - CFO and Deputy President

* Wolfgang M. Neumann

Rezidor Hotel Group AB (publ) - CEO, President and Director

================================================================================

Conference Call Participants

================================================================================

* Ole-Andreas Krohn

DNB Markets, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Rezidor Hotel Group First Quarter 2017 Results Presentation. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr. Wolfgang Neumann, CEO and President of the Rezidor Hotel Group. Please go ahead, sir.

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [2]

--------------------------------------------------------------------------------

Good morning, and thank you, everybody, for joining our Q1 results presentation. Knut Kleiven, our CFO, and I will, as usual, give you together an update on our quarterly results.

We're actually in Stockholm today for our AGM and I want to start off with a picture of our latest opening in Brussels. You see an image of the new Park Inn by Radisson Brussels Airport. It's a conversion of an existing office building, which is close to our head office, and is a really good example of our new Park Inn concept, which shows the flexibility of the brand to adapt to different building structures.

As you know, Brussels Airport is now really back in full swing, and with Belgium market (inaudible) or recovering, we predict solid trading for this hotel in the future.

But before moving on to the quarterly results, let me give you an update on the most recent development in our shareholding structure. You all know, since December, Rezidor has a new majority shareholder, HNA Sweden Hospitality Management AB, which is a subsidiary of HNA Group. And HNA acquired Carlson Hotels, and with it, the 51.3 stake in Rezidor owned by Carlson. And with that transaction, our long-term partnership with the Carlson family came to an end.

During 22 years of corporation, Rezidor's portfolio grew at an exponential speed, from some 20 hotels to over 480, and putting Rezidor and Radisson Blu on the map and developing it to the largest upper-scale brand in Europe. Rezidor today is the leading international player, not only in the Nordics, but also in Russia CIS and has a leading pipeline on the African continent. And while Carlson Hotels remains the brand owner, we continue to operate under a master franchise agreement for EMEA. This is, of course, a big change for us. We really look forward to grow the business with our new majority shareholder in the future.

HNA Group is a global Fortune 500 company and focused on 3 core businesses, which are tourism, logistics and financial services. The foundation to this conglomerate was laid back in the '90s with Hainan Airlines, which is China's largest privately owned airline company and they transport today some 200 million passengers.

Tourism is certainly a core focus for HNA, this large Chinese conglomerate and for HNA Tourism Group in itself, which is a fully integrated global player with market-leading positions in aviation, hotels and travel services. HNA not only holds a significant stake in Rezidor, they also own 25% of Hilton, 29% in NH Hotel Group while having developed their own hotel brands and holding various other minority interests in the hospitality sector. They are the #1, #2 operator in China and have a big loyalty scheme with tens of millions of members. That's important in the overall outbound potential from China. And HNA, over the last 2 years, has been one of the major M&A players, with some $400 billion in acquisitions, including obviously Carlson and Rezidor.

So we are very pleased to partner with such a strong player. I very much look forward to growing the business together with HNA.

This slide gives you a little bit of an overview of the various steps following the acquisition of Carlson's, and with it, the 51% stake in Rezidor. HNA had to make a mandatory tender offer to the minority shareholders and that offer had an extension period which expired on the 7th of April and that was published on the 12th of April. And shareholders holding 19.15% of outstanding shares have accepted that offer. Upon settlement, this will make HNA a 70.41 shareholder in Rezidor. Settlement has been postponed through to 9th June, waiting for the approvals from the Chinese authorities to transfer funds out of China and that is in line with the ruling of SSC, which allows HNA up to 9 months postponement of the settlement. It's however, important to note that the offer is considered unconditional. And due to the postponement, shareholders who have tendered their shares are still allowed to withdraw, but no compensation is foreseen for such a delay in settlement. And in case a dividend is paid prior to the settlement, the shareholders will receive the dividend and the offer price will be reduced accordingly.

Today, we hold our 2016 AGM in Stockholm, as I mentioned, and you'll find all the details of the proposed resolutions on our website. AGM will vote amongst others on the allocation of the company's results and the payment of a dividend and also on the changes of the Board of Directors composition following the HNA majority shareholder shift including expansion of the board to 8 members including the additional company representative and the proposed new board member.

So with that shareholding update, let me now turn to our quarterly results, and start by giving you a visual overview of the EMEA market and the RevPAR development, which overall for EMEA was positive. In Europe, market RevPAR grew by 6.5%. Northern Europe was particularly strong with 7.1% increase, which was driven by rate in all key countries: Norway up 11.7%; Sweden up 10.7%; and Denmark, 10.2%; Finland, 8.4%. Western Europe grew also very positively with 4.8% in all key countries: Germany and U.K., strong quarter with 8.4% growth; Belgium and France also showing signs of recovery, which is important to note following the terrorist attacks. Strong RevPAR growth of 9.6% in Eastern Europe, also across all key countries. And the trading in the Middle East and African area continues to be negatively impacted by the political turmoil and the low oil price, which was down 1.9%. And gains in Northern Africa with some 46%, and Southern Africa with over 5%, were offset by challenges in the Middle East by a decline of 8%.

Now an overview of our financial results, which Knut will later on go into more detail. RevPAR grew by 6.8%, like-for-like revenue up by some EUR 20 million and reported revenue by EUR 15.5 million. Positive development is mainly due to the good RevPAR growth and improved M&E business, supported by the reopening of 2 hotels after renovation despite the exit of 4 hotels compared to previous quarter.

EBITDA increased by EUR 11.7 million, the EUR 2.5 million helped by good top line growth and improved conversion. And EBITDA margin improved by 5.5 % to 1.1% for the quarter.

EBIT increased by EUR 16.8 million, mainly due to the increased EBITDA. Last year, it was also impacted by one-off costs and gains on sales of shares in subsidiaries.

And the net loss for the period amounts to EUR 7.6 million, which is EUR 21.6 million -- versus EUR 21.6 million in 2016 and that certainly is a significant improvement versus last year.

Our signings and openings are also on track, with over 3,000 rooms signed in the first quarter and 900 rooms opened. As you know, the first quarter is typically the weakest quarter in our business, but we are very pleased with this positive result.

And as a matter of fact, quarter 1 2017 was the best first quarter since 2007 and I think this is certainly evidence of our turnaround traction. The result may -- certainly underline the various initiatives that we have been driven over the last years. RevPAR and revenue have never been higher despite the various lease exits we have seen over the last years. In terms of EBITDA, we had the best first quarter since our IPO, and on EBIT basis, since 2008. The results have certainly also been positively impacted by the late Easter this year, the revenue impacted by an estimated EUR 4 million. And these positive results are certainly a very solid sign for the remainder of the year.

I'll now give you an overview of RevPAR, starting, as usual, first with big picture. You see here the 6.8% growth in quarter 1 that I mentioned. The Easter shift from March to April was a positive impact to note. RevPAR on a like-for-like basis was driven by occupancy growth of 5.2%, especially in the Nordics and Eastern Europe. And all 4 areas have seen positive RevPAR growth, but the key challenges remain in Saudi Arabia and UAE, and I will come to that.

As usual, going a little bit more into detail in our 4 operating areas, starting with the Nordics. RevPAR increased by 12% with all 3 countries above last year. Denmark improved by 18.6%, equally driven by occupancy and rate, due to the increased retail and business, leisure individual volumes that was offsetting a decline in business groups. Norway up 14%, mainly linked to occupancy growth for all key segments, especially higher-yielding retail. And Sweden grew by 6.1% from rate and occupancy, primarily business and leisure individual. So a good quarter for the Nordics.

Rest of Western Europe, like-for-like RevPAR up 5.8%. Key countries there to note, U.K., Ireland, which continues to be strong with 11.4% growth in all key segments. Germany again was strong with 7.3% growth, mainly due to beneficial peer cycle. Netherlands was again flat as occupancy growth equalized rate decline. The high-yielding congress-related volumes were replaced with other segments that are somewhat lower rate. Switzerland up 1.6% from improved occupancy while rate continues to decline. France still somewhat weaker, with a decline of 1.9%, challenged by occupancy and of 3.3% decline while rate slightly improved. And Belgium's pro forma negative by 3.9% with the occupancy decline, and that comes primarily from the decline in leisure individual.

Moving to our 2 emerging markets, starting with Eastern Europe, which improved by 11%. Key markets there to mention is Russia, which grew by 11.5%, mostly from occupancy related to business groups. Ukraine improved by 20%, driven by, really, all segments. Baltic States improved by 15.8%, mainly linked to occupancy growth in Estonia and Lithuania and rate growth in Latvia via a majority of key segments and an increased business group volume. Poland, up 6.9%, mostly rate growth in all segments. And Turkey was overall positive of 2.5% with growth from occupancy, which is good to see that, that market is coming back.

Middle East and Africa performance was slightly positive with 1.6% RevPAR growth. There to mention is the UAE, it continues to be a challenging market, down RevPAR 6.9%, really continued impact of the supply increase, which puts pressure on the rate and retail volume. Saudi Arabia continues to decline with some 23% lower RevPAR due to the continuing struggle related to the price in oil and the related business cut from government. Egypt and Tunisia have seen positive development. And South Africa is the main positive for us and is the area with some 7% RevPAR growth from rate via the majority of key segments.

So that was our RevPAR development, now over to our signings, which was also a good quarter for us. We continued to see really good momentum. In Q1, we signed 8 hotels with 3,200 rooms, which is 60% increase compared to the same quarter last year.

We continue our growth journey in the emerging market with an additional 3 Park Inn hotels in Saudi Arabia, 2 signings in Poland and 2 conversions, with Park Inn Istanbul opening quarter 2 '17 and the Quorvus Collection in Kampala, which will open quarter 3 this year. And we signed a lease for the first time again since 2009 in Geneva. We will enter Geneva with a Radisson Blu and we're very excited about that because that is a key market in Europe with one of the highest RevPAR. All the other signings were asset-light in line with our strategy.

Openings in quarter 1 were in line with last year. We are delivering on our pipeline in emerging markets, which is about 80% of our openings. We're very pleased with our African additions, the Park Inn in Polokwane, South Africa and the Radisson Blu in Cape Town and an extension of the Radisson Blu Okoume Palace in Libreville. We also added 2 hotels to our serviced apartments portfolio in Saudi Arabia and in Turkey. And year-to-date, we actually opened double the amount of quarter 1. Since the end of March, 5 additional hotels were already opened and we expect quarter 2 to be a very strong quarter for opening.

And with that, I want to hand it over to Knut to give you more details on the financials.

--------------------------------------------------------------------------------

Knut Kleiven, Rezidor Hotel Group AB (publ) - CFO and Deputy President [3]

--------------------------------------------------------------------------------

Thank you, Wolfgang. Let's just start with a more complete P&L statement on the first slide in this section. We easily see that despite the fact that we are extremely pleased with the performance of the quarter compared to last year, the absolute numbers when it comes down to EBITDA and EBIT are relatively small. And EBITDA margin in the quarter of 1.1% is far below, as you all know, the target we have. But that has to do with seasonality of the business. EBIT has grown by EUR 17 million compared to last year. Most of that was -- EUR 40 million, to be exact, comes from the leased business and the rest come from the fee business, and I will come back to that a little bit later.

Moving on to the following slide, which deals with an analysis of the improvements compared to last year. It says here in the heading that the main reason for our growth of EUR 12 million of EBITDA, that is, has to do with the like-for-like development. But also the change in the portfolio, as you can see here, has had an important impact on the improvement. FX, which we talked a lot about last year, has very little impact today, a little bit still from the pound, the weakening of the pound. But because of our loss-making business in Q1 in the U.K., it has a positive impact on the result.

New hotels give us positive numbers and it includes also the opening of the Radisson RED in Brussels and the reopening of the Radisson Blu in Lyon, which we talked quite a lot about over the last few years.

On the right side here, you will see the like-for-like performance, EUR 19 million better revenue than last year and an EBITDA of EUR 12 million better result. Almost 70% of the revenue increase has flowed to profit, which we are extremely pleased with that.

If you then look at each of the business segments or contract segments, if you like, and start with the leased business. Overall leased revenue grew by EUR 10 million and they have grown both in Rest of Western Europe and in the Nordic. And the Nordic number is very strong because, as you know, we had exited quite a number of leased hotels in that market. So having a revenue growth there is very, very good for us. When it comes to the profitability or EBIT for the leased segment, both Rest of Western Europe has improved and the Nordic. But the Nordics, you need to remember, and we have stated here on the slide, that we had one-off net cost last year of around EUR 6 million, which obviously could avoid this year, but improvements both in Rest of Western Europe and the Nordics is very important. Overall, it's EUR 14 million. As I said, better EBIT in 2017 than we had in 2016.

Moving on to the fee business, which is then a combination of our management fee business and our franchise business. Total fee revenue went up EUR 5 million or 20% compared to the same period last year. And EBIT or EBITDA, which is the same in this segment, grew by EUR 4 million, reflecting the fact that the margin in this business is much, much higher than in the leased business.

Looking at each geography. The most important improvement came in Eastern Europe and Rest of Western Europe, as you can see at the bottom of this slide, and that comes from stronger RevPAR than we have had in 2016, but also due to opening of new hotels in those markets.

When it comes to the cash flow and balance sheet on the following page, the cash flow improved obviously as a result of the better performance in operation. Investments, as you can see here, were low, EUR 9 million we invested in the first quarter of 2017. Our guidance we have given you before on the total investment for the year remains, however, the same. We will use also for 2017 more than the 5% that we have said that we will use in average -- 5% of leased hotels revenue. So we will also this year go above that in order to catch up with our backlog in some of these hotels.

One thing which I would like to highlight on this page and that is the cash position, which is negative by EUR 27 million. You'll recall from our Q4 release that we had a situation with our banks at the end of the year or after the completion of the HNA transaction, that our banks could trigger or cancel our credit facilities because, as in most of the banking agreements, there are change of control clauses and that is also the case with us, something that we have published or communicated, both in our quarterly reports and our annual reports in the past. So in connection with the completion by HNA, the banks could (inaudible) out, and in Q4 -- in the Q4 report, we wrote to you that we had negotiations with the banks about that. And as we have now in the report that we released this morning, those negotiations or discussions have been concluded and both banks we have a contract with have waived those change of control opportunities that they have. So we are basically back to the same relationship with our banks as we had before the completion by HNA.

And by that, I will open up for -- or we will open up for questions and answers.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We will now take our first question from Ole-Andreas Krohn of DNB Markets.

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

A couple of questions, first the housekeeping item, actually. The 2 leased hotels entering the portfolio now in first quarter, what contribution did they give to the top line?

--------------------------------------------------------------------------------

Knut Kleiven, Rezidor Hotel Group AB (publ) - CFO and Deputy President [3]

--------------------------------------------------------------------------------

In the quarter, Ole-Andreas?

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [4]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Knut Kleiven, Rezidor Hotel Group AB (publ) - CFO and Deputy President [5]

--------------------------------------------------------------------------------

I don't have the number, the exact number, but I would say around EUR 5 million.

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [6]

--------------------------------------------------------------------------------

Okay. And you state you have some -- see some improving market in Turkey. Could you elaborate a bit on that? I mean, this is mainly business exposure you have there, isn't it?

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [7]

--------------------------------------------------------------------------------

Yes, it's both business and leisure. Turkey is an important market for us. Please remember that it's fully asset-light. We have no obligations whatsoever in Turkey. Following the coup and all the other terrorist attacks that you are familiar with, it's positive to see a small improvement, which is pointing in the right direction. I think, in general, the business climate in Turkey is still fragile. And from a leisure perspective, it is still suffering. But there's indications that the business is coming back, albeit at a lower rate.

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [8]

--------------------------------------------------------------------------------

And then going forward, HNA coming in here. Have you been discussing already with them? Or have you seen anything related to NH Hotels or Hilton, how they can contribute to improved occupancy?

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [9]

--------------------------------------------------------------------------------

We had very positive and constructive discussions with HNA already. Obviously, they have no relation to NH Hotels, if I understand your question correctly, but (inaudible).

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [10]

--------------------------------------------------------------------------------

Yes, just if you can learn anything from how they -- I mean, what they have done in the other engagements they have to improve occupancy for the companies they are involved in.

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [11]

--------------------------------------------------------------------------------

Ole-Andreas, we learn always from our competitors, not only NH, we monitor all our competitors. NH is no different. We continue to outperform our competitors with continued RevPAR growth for the fifth year. And how we position ourselves against our competitors is constantly under review.

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

But have HNA given any indications on how they can (inaudible) on this?

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [13]

--------------------------------------------------------------------------------

HNA is a very, very interesting conglomerate, HNA Tourism, in particular, standing on the 3 legs of aviation, travel services and hotels, is extremely knowledgeable about the sector. They are not only knowledgeable, but they're also ambitious. They have clear vision of how they want to drive their holdings forward. We had very interesting initial discussions with them. China outbound is obviously a key market for us, some 120 million Chinese travelers last year, projected to go up to some 180 million, 200 million in the next couple of years. With their presence in aviation, in online agent and tour operators, that is a very appealing proposition. But it's not only the outbound Chinese traveler, it's in general their vision and ambition to become a global player, combined with the financial muscle that they have, gives us every reason to look with a lot of optimism into the future under their new ownership.

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

Can you say anything about the -- to what degree do you have inbound traffic from China today? Do you have any view on that?

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [15]

--------------------------------------------------------------------------------

Inbound traffic in China is...

--------------------------------------------------------------------------------

Ole-Andreas Krohn, DNB Markets, Research Division - Research Analyst [16]

--------------------------------------------------------------------------------

Yes, from China into the hotels.

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [17]

--------------------------------------------------------------------------------

Yes, inbound from China in some hotels is extremely, extremely big. There are some hotels which have a lot; with others, we have less. It's geographically different. But in general, we have about 4% of our travelers coming from China. It's doubled over the last 2 years. But it's doubled over the last 2 years, so I think in general, Chinese outbound travelers are obviously increasing the pace of discovering the world outside China. And that is the opportunity. HNA carried some 200 million passengers last year on their airlines. So there is a great opportunity to capture that in the future.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

(Operator Instructions) There appears to be no further questions at this time. I'd like to turn the call back over to the presenters for any closing or additional remarks.

--------------------------------------------------------------------------------

Wolfgang M. Neumann, Rezidor Hotel Group AB (publ) - CEO, President and Director [19]

--------------------------------------------------------------------------------

Just to say thank you to everybody for joining us. Our quarter 2 results on the 26th of July. Have a good day, and a good weekend. Thank you.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.