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Belmond Ltd  (NYSE:BEL)
Q3 2018 Earnings Conference Call
Nov. 07, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to Third Quarter 2018 Earnings Conference Call for Belmond Limited.

I will now hand the conference over to your first speaker today, James Costin. You may go ahead.

James Costin -- Group Financial Controller and Director of Investor

Thank you, Angela. Good morning, everyone, and thank you for joining us today for Belmond Limited Third Quarter 2018 Earnings Conference Call. We issued our earnings release last night, which is available on our investor relations website at investor.belmond.com, as well as on the SEC website. On the call with me today are Roland Hernandez, Chairman of the Board of Directors; Roeland Vos, President and Chief Executive Officer; and Martin O'Grady, Chief Financial Officer.

Before we get started, I would like to read out our usual cautionary statement under the US Private Securities Litigation Reform Act of 1995. In the course of remarks made to you today by Belmond's management and in answering your questions, they may make forward-looking statements concerning Belmond, such as its earnings outlook, its growth strategy, including future investment plans and other matters that are not historic facts and therefore involve risks and uncertainties. We caution that actual results of Belmond may differ materially from these forward-looking statements. Information about factors that could cause actual results to differ is set out in yesterday's news release, the Company's latest Annual Report to shareholders and the filings of the Company with the Securities and Exchange Commission.

Management will be using certain non-GAAP financial measures today to analyze the third quarter performance of the Company. You can find reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures in the earnings release we issued last night.

I will now hand the call over to Mr. Hernandez.

Roland Hernandez -- Chairman

Thank you, James; and good morning. In a moment Roeland Vos and Martin O'Grady will be providing our quarterly operational update.

Before I ask management to begin their presentation, I wanted to commence the call with a brief status report on the strategic alternative review process we announced in August. As you will understand, we cannot provide too much detail with respect to the process. The review is ongoing and we remain fully engaged in conducting a thorough, thoughtful and rigorous process. We are encouraged by the interest third parties have shown as we conduct our review of strategic alternatives, which as previously communicated, includes a possible sale of the Company.

In order to conduct this process expeditiously, we have been working closely with our financial and legal advisors who are assisting the Board in its steadfast commitment to fully explore and evaluate all avenues for the delivery and maximization of shareholder value. We do not intend to comment further on this review until the Board concludes this ongoing process. In the meantime, Roeland and our capable management team remain focused on operating our business and driving profitability.

Let me now turn the call over to Roeland Vos.

Roeland Vos -- President and Chief Executive Officer

Thank you, Roland; and good morning, everyone. We're pleased to have you join us for the discussion of our third quarter results of 2018, as well as for our outlook for the remainder of the year and for 2019.

As always, throughout my remarks, I'll be speaking about our performance in constant currency, unless I indicate otherwise. Martin will then follow with the details of our third quarter results before taking you through our 2018 RevPAR and other guidance.

I believe that the third quarter of 2018 demonstrates the potential and the growing momentum of Belmond's business, as many of the investments that we have made in the Company over the past three years contributed to the strong growth that we have achieved. We recorded a 15% rise in adjusted EBITDA versus the prior year in this seasonally important period or an increase of 21% on a US dollar basis.

The peak summer season was particularly strong for Belmond Southern European properties despite it not being a Biennale in Venice, with notable performances from Belmond Hotel Caruso and Belmond Grand Hotel Timeo where adjusted EBITDA for the third quarter grew 12% and 14%, respectively. In fact, we achieved significant organic growth across all of our portfolio overall, attributable to the strategic capital reinvestments that we've made along with the improvements made to our commercial and marketing operations.

Meanwhile, Belmond's differentiating portfolio of trains and cruises delivered exceptional revenue growth for the fourth successive quarter here. Continuing its upward performance trajectory, the Venice Simplon-Orient-Express, reported a notable 100% increase in adjusted EBITDA when compared with the third quarter of 2017. This was propelled by the CapEx investments that we've made and the improved revenue management strategies that we've spoken about previously.

As announced in the release, our global portfolio of hotels achieved RevPAR growth at the top end of the guidance range that we provided to you in July. I'm incredibly proud of the performance of our team that the team has delivered in this quarter and actually also year-to-date. Our focus on achieving our full-year growth target has been unwavering and I'm confident that we will benefit further from the strategic strides that we have taken in the remaining quarter of this year, as well as in 2019.

The key driver of our performance and an essential component of our future growth projections is, of course, the brand. In recent weeks, our highly distinctive brand has continued to stand Belmond apart from its competitive set, and that is both in the industrywide rankings, as well as in increased number of reader choices awards. To highlight just a couple of them: Belmond was ranked number one Most Excellent small hotel chain in the world in the 2018 TripAdvisor Certificate of Excellence Awards. In addition to that, and following a detailed seven-month analysis of the luxury hotel industry, Luxury Travel Intelligence, LTI, rated Belmond as one of the best luxury hotel brands in the world.

As awareness of the Belmond's bespoke luxury travel proposition grows, so has demand from our guests. In September, Belmond launched its latest global brand campaign, The Art of Gastronomy. We launched six short films were released in the markets worldwide, bringing to life a series of authentic food inspired journeys at the time when culinary travel is certainly on the rise.

The team remains focused on translating the heightened awareness and the expanding reach of the brand into topline growth, supported obviously by our enhanced digital marketing capabilities. In the third quarter alone, we saw a 14% rise in visitors to our website versus the same period last year, and in the year-to-date direct bookings via our website have driven online revenues up by 13%.

Then on the development front, we believe that our brand remains uniquely positioned to meet the demand from investors and third-party owners in the market for a nimble, agile luxury operator. In the last 18 months, we have invested in the establishment of a development platform. We have a highly talented team now in place with the experience to capture opportunities across the entire deal spectrum, and that goes from whole ownership to pure management.

Prior to the announcement of the strategic review, the team had generated impressive momentum with strategic capital partners. We had secured five LOIs giving us exclusivity in the advanced stages of negotiation, and in most instances, those type of LOIs would be expected to result in signed deals. Negotiations have been paused until the outcome of the strategic review is known, but the relationships with the specialized players within the global industry remain really strong.

The development industry today recognized that Belmond has a distinctive brand and a value platform offering, giving us access to a differentiated niche of the market. Our deal machine is actively being maintained. The opportunity for our brand to scale meaningfully and quickly remains a very exciting one.

Now with that, I would like to speak to our expectations for the final quarter of 2018 and our outlook for the year ahead. We have previously indicated that our full-year results will be largely shaped by the third quarter performance, because our reports show that the pace of bookings was accelerating throughout the second half of 2018.

Having hit our guidance for the third quarter and assisted by the improved tools and the analytics now at our disposal, we have great conviction in our ability to deliver on our full-year targets. Accordingly, we have reaffirmed our full-year guidance and confidently expect to finish the year with same-store RevPAR growth of between 2% and 6% and full-year adjusted EBITDA of $140 million and $150 million, representing 13% to 21% growth over last year. These results stand as one of the Company's strongest performance on record and provide a solid foundation on which we are confident that we can deliver our 2019 growth targets.

Indeed as we look ahead to next year, I would like to reiterate the benefit that we expect from the world-class operating platform that we have put in place. The combined investments that we have made to build our team to advance our technology systems to enhance our digital infrastructure, to evolve our brands have proven to be critical components behind our organic growth this year.

With the operational structure greatly improved, the revenue driving strategies that we have put in place over the course of last 12 to 18 months, including the EBITDA-enhancing investments that we've made in our trains and in our hotels are not only translating in healthy top and bottom line results, but are expecting to yield increasing returns.

We will maintain our focus on driving occupancy, driving ADR and Group sales; Group sales especially during the shoulder season. We will continue to show discipline in our cost control, and we also expect our own trains and cruises division to play a meaningful role in our future performance.

And I have not yet mentioned the impact of our new hotels, three of which will be opening in the coming months. Alongside Belmond Cap Juluca and Belmond La Samanna, Belmond Castello di Casole will enjoy its first full year of operations into 2019 and combined these three properties are expected to generate between $20 million and $25 million in annual EBITDA, once that they are stabilized. Meanwhile, the Belmond Cadogan Hotel here in London will give our brand a significant presence in an important flagship market when it opens in the first quarter of 2019.

Now with all of these strategic building blocks now in place, we expect to realize further margin expansion across our portfolio next year and beyond. We are midway through our 2019 budget cycle, but current pace report show that we have more than $100 million in revenues on the books from our same-store portfolio, which includes our trains and cruises division, putting us 32% ahead versus the same time last year.

The leisure transient bookings are up by $12 million or 24%, and the all-important group bookings are up with 50% more on books from this segment than we did have the same time last year. In addition, it's a Biennale year in Venice, and we're seeing signs of stabilization in Brazil. Cape Town water levels which hampered that property in meeting our expectations this year, are recovering. So all of that seems to be coming our way.

Overall, Belmond has a market share premium of around 30% versus our core competitive set, and I'm pleased to report that we've improved our position by a further 2.6% this year in the year-to-date numbers, and we expect this trend to continue throughout the next year as well. So we look forward to sharing our full-year 2019 adjusted EBITDA guidance when we report out our full-year 2018 results in February.

To sum it all up, our financial and operational performance in the third quarter of 2018 has been strong, and we are optimally positioned to achieve our performance targets for the full-year. As we generate increasing returns from our strategic initiatives, we expect to accelerate our rate of growth, as well as our market share in the fourth quarter and further still throughout 2019.

As Roland explained, we announced in August that our Board would be conducting a review of the full range of strategic alternatives available to Belmond, in order to maximize shareholder value. While this process is under way, our global team's each function, every division remains committed to unlocking the significant value that is embedded in our Company. We're poised to capitalize on the momentum that we have generated, and we will be working hard to finish 2018 consistent with our full-year guidance.

And with that, I would like to turn the call over to Martin to provide some more details on our third quarter 2018 results and our guidance. And after Martin's speech, we'll be happy to answer your questions during Q&A. With that, Martin, all yours.

Martin O'Grady -- Executive Vice President, Chief Financial Officer

Thank you, Roeland; and good morning, everyone. I'll now take you through our third quarter results and our outlook for the fourth quarter and the full-year. As always, unless I state otherwise, all figures I provide will be on a constant-currency basis.

As anticipated, our multiple revenue driving initiatives produced a very healthy third quarter. Same-store RevPAR was up 6% in both US dollars and constant currency. Revenue from owned trains and cruises was up 11% in dollars and 8% in constant currency. Cost control and retention was also strong, leading to adjusted EBITDA increasing by 21% in US dollars and 15% in constant currency.

In Europe, we were pleased with the results coming out of our Italian portfolio with the inclusion this year of Belmond Castello di Casole also helping to lift the region. Despite this being a non-Biennale year in Venice, revenue from the Italian portfolio increased by 10%. We saw particularly strong results at Belmond Hotel Splendido and Belmond Grand Hotel Timeo, both of which hit new heights in ADR and RevPAR. Just to give you an idea, the ADRs at these hotels in August were around $2,200 and $1,100 respectively. This reflects a well-executed new approach in our revenue management strategies, as well as strong demand.

In fact, I'm pleased to confirm that Belmond Grand Hotel Timeo in Taormina, Sicily will now remain open throughout the fourth quarter for the first time to continue to build on this performance. Elsewhere in Europe, Belmond Le Manoir aux Quat'Saisons posted a particularly strong performance boosted by the unusually long period of good weather experienced throughout the UK this summer.

The resultant rise in staycations did result in a slight softening of the UK urban (ph) market which affected Belmond La Residencia and Belmond Reid's Palace as did a relatively weak sterling. However, the team at Belmond Grand Hotel Europe capitalized well on the rise in tourism to St. Petersburg related to the World Cup, and overall revenues for this region was up $10 million or 10% over the prior-year period.

Our North America adjusted EBITDA result benefited from the closure of Belmond Cap Juluca and Belmond La Samanna, which together reported off-season adjusted EBITDA losses of $2.7 million in the third quarter of last year. Prior to Hurricane Florence, Belmond Charleston Place was shaping up for a very strong third quarter and was forecasting over $6 million of adjusted EBITDA for the period. Although not directly impacted in the end, as a precaution, the city was evacuated and the hotel experienced uninsured losses of $1.2 million. These have been added back to our reported adjusted EBITDA total. We expect to receive business interruption proceeds of approximately $600,000 in the fourth quarter.

In our rest of world region, we are pleased to see that the droughts affecting Cape Town has no abated, and done levels are well above the same time last year. However, there was still some residual impact during the third quarter as group bookings, which have longer lead times, was softer than the previous year. As expected, the performance at Belmond Copacabana Palace has stabilized, and generated a result slightly ahead of last year. Encouragingly, elsewhere in that market Belmond Hotel das Cataratas had a very strong quarter, as the destination continued to receive strong constant PR exposure and benefit from a rise in domestic tourism.

Our star performer in the quarter was the Venice Simplon-Orient-Express train. Revenue in the quarter jumped 37% and with strong retention of 65%, the adjusted EBITDA more than doubled to over $4 million. We are, of course, delighted with this result, which reflects some sound investment decisions in products and technology to transform this operation.

Turning to our balance sheet. At the end of the quarter, we had total debt of $746 million and total cash of $150 million, resulting in net debt of $596 million, net leverage was 4.2 times, and we expect to stay well within our target of below 5 times at year-end. Our fixed-to-floating interest split was 51% fixed to 49% floating. Our weighted average interest rate was 4.35%, and our weighted average maturity was approximately five years.

As you may expect, in view of our review of strategic alternatives, we have suspended any significant development activities. Therefore, we hit the pause button on several acquisitions that we were negotiating and conducting diligence on. And you will not be surprised to hear that we also suspended our negotiations on the potential sale of El Encanto.

We have recurtail plans for project capital expenditure for this year and next, focusing on investments that will improve EBITDA most immediately plus any necessary defensive or mandatory CapEx, while maintaining preparations for longer term EBITDA-enhancing projects. We are now guiding project CapEx in the fourth quarter of $55 million to $60 million predominantly to complete the works at Belmond Cap Juluca and Belmond La Samanna. We expect to invest project CapEx of between $19 million and $23 million in 2019.

We are continuing to invest to complete the works at Belmond La Samanna and Belmond Cap Juluca and those capital needs are included in the numbers I just mentioned. We collected $15 million of insurance amounts in 2017, $7 million in Q2 and $10.5 million in Q3. We are still expecting to collect later this year an additional $2 million to $4 million in relation to a separate claim for the villas.

I should also mention operating losses for both these Caribbean hotels were a total of $4.4 million in the quarter. This total has been added back to our adjusted EBITDA number. A further $6 million to $9 million of losses are expected to be added back in the fourth quarter, bringing the total for the year to between $32 million and $35 million, including the one-time labor restructuring cost of $15 million recorded in the second quarter.

So let's turn now to our outlook for the period ahead. Briefly and noting this is a seasonally low quarter to Belmond, we have provided guidance for same-store worldwide RevPAR growth of 3% to 7% on a constant currency basis. In Europe, with an extended season in Sicily, we are expecting some upside in Italy, offset by a weaker fourth quarter at Belmond Reid's Palace for the same reasons noted earlier. North America will be lifted by some expected strong performances across the region. And note that although not in same-store RevPAR, Belmond Cap Juluca and Belmond La Samanna all due to come back on line toward the end of the year. In our rest of world region, we are anticipating healthy growth in our safari operation where two of the three largest have now been fully renovated and have been highly acclaimed. We are also hopeful of seeing some modest growth in Brazil, although this will be partially offset by some further weakness in Myanmar.

We are also expecting to see a solid quarter in our trains and cruises division once again driven by an anticipated strong performance by the Venice Simplon-Orient-Express train with notable contributions also from our UK train portfolio of including the Belmond British Pullman and the Belmond Royal Scotsman.

Turning to the full year 2018, following a solid third quarter and in anticipation of further growth in the final quarter, we are highly confident in our outlook for the full year and are reaffirming our RevPAR guidance of 2% to 6% in constant currency, we are also reaffirming our adjusted EBITDA guidance of at $140 million to $150 million. I'm sure you will agree that these results represent a strong performance found (ph) on this year despite certain headwinds and positions the Company well for continued growth next year and the years to come.

That concludes our prepared remarks. And before I hand you back to the operator for Q&A, we would like to request that you'd limit your questions to two per person. Operator?

Questions and Answers:

Operator

(Operator Instructions) Okay, we have two question from the phone. The first one is coming from the line of David Katz. Your line is open. You may ask your question.

David Katz -- Telsey Advisory Group -- Analyst

Hi, good morning, everyone. Sorry about the background noise. But what I was hoping to get a little update on is some of the international marketing initiatives you talked about in the past, as I recall, Germany was a perhaps a target country and sort of broadening out the audience beyond the United States, please.

Roeland Vos -- President and Chief Executive Officer

Yeah, thanks, David. Good morning. I think that a lot of the activities that we have been doing are not specifically targeted to any specific market we have been talking about extending our reach in Germany, which we have done, where we have added salespeople in the force in order to make sure that we cover that country better and we've seen some pretty good upticks from there. But in general terms, I think, our focus has been on those areas that affect the overall portfolio and I think that there are the efforts have been going our revenue management systems and to our website. Whereas I mentioned, the year-over-year performance with double-digit performance has given us reason to believe that there is more upside to come. And the activities that we're driving in order to support that is coming out of the brand in a material way and we see that the uptake of some of our plans that we have put in place actually drive result of over $1 million just one activity. So I think it's not geared toward one specific market. it's geared toward the overall portfolio, and that includes our trains and cruises, as well as the hotels worldwide.

David Katz -- Telsey Advisory Group -- Analyst

Thank you for that. And if I can just follow that up, again, as you can tell, I'm moving around a bit, and I apologize if you touched on it, but with respect to online bookings, I know that that was one of the initiatives in place. How much progress have you made with that?

Roeland Vos -- President and Chief Executive Officer

Yeah, and we've seen some material uptick in the month of October where we picked up with over 20%, year-to-date we're up 13% over last year. And we expect to take that up further in November and December for the remainder of the year to end up with anywhere between 16% and 20% year-over-year growth on our website. And with more initiatives coming online, I think that that number can only go up.

David Katz -- Telsey Advisory Group -- Analyst

Understood. Good luck, everyone. Thank you for taking my questions.

Operator

And our next question comes from the line of Adam Trivison. Your line is open, you may ask your questions.

Adam Trivison -- Gabelli & Company -- Analyst

Hello. Thank you for taking my question. As the Board is working through the strategic review process and engaging third parties, how has thinking evolved on where the major sources of value are within the portfolio?

Roland Hernandez -- Chairman

So, this is Roland Hernandez. Let me start by saying that I think the -- I'm going to hand over to Roeland in a moment by saying that we are falling two paths here, one, the Board is engaged in a review of strategic alternatives, and as I mentioned to you, we are not going to comment further on that process, but it is ongoing and robust. From an operational perspective, the team remains focused intensely on operating this business and driving profitability. So I think that is, to the extent -- to some extent business as it has been, business as usual with steady focus on driving results for shareholders.

Roeland, do you want to comment?

Roeland Vos -- President and Chief Executive Officer

Yeah. Well, I think, if we look at the values, if we -- as we just mentioned, we expect to achieve solid results for 2018 as indicated by the reaffirmation of our EBITDA guidance. And I think that this year will show and demonstrate the significant momentum that we have built that we are embarking on toward our 2020 strategic plan. And I think we're well positioned to deliver additional value associated with that plan going forward. And that is why the board things that this is the right moment to think about all the alternatives available to us.

Adam Trivison -- Gabelli & Company -- Analyst

Okay. Thank you.

Roeland Vos -- President and Chief Executive Officer

Welcome.

Operator

We have no further question. (Operator Questions)

James Costin -- Group Financial Controller and Director of Investor

And I can see there no further questions on the system. So I'll say thank you very much, everyone, for joining us on the call today and we look forward to talking to you next quarter. Thank you.

Operator

And that does conclude our conference for today. Thank you all for participating. You may all disconnect.

Duration: 30 minutes

Call participants:

James Costin -- Group Financial Controller and Director of Investor

Roland Hernandez -- Chairman

Roeland Vos -- President and Chief Executive Officer

Martin O'Grady -- Executive Vice President, Chief Financial Officer

David Katz -- Telsey Advisory Group -- Analyst

Adam Trivison -- Gabelli & Company -- Analyst

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