Q3 2014 RESULTS BRUSSELS, 24 OCTOBER 2014 WOLFGANG M. NEUMANN, PRESIDENT & CEO KNUT KLEIVEN, DEPUTY PRESIDENT & CFO Radisson Blu Hotel, Sheremetyevo Airport Moscow
Q3 results ahead of last year despite turbulent markets RevPAR +3.5% (L/L) L/L RevPAR growth of +3.5% in Q3 (YTD +3.4%) Rate improvement +2.1%, Occupancy +1.4% Radisson +3.0%, Park Inn +2.7% Drivers: UK & Ireland, Turkey, Baltics, South Africa, Saudi Arabia, Egypt & Tunisia MEUR 240.8 Revenue +5.9% 11.0% EBITDA Margin +1.0pp MEUR 17.3 EBIT +MEUR 2.2 Reported Revenue was up 5.9% or MEUR 13.4 (YTD +2.3%, MEUR 15.8) L/L Revenue increased by 2.5% (YTD +1.5%) Additional Revenue from 2 leases in Copenhagen Closure of a leased hotel in ROWE for renovation: MEUR 1.5 negative revenue impact in Q3 (YTD MEUR 6.2) Q3 margin increased to 11% (+1.0pp) Q3 EBITDA MEUR 26.4 (+15.8%) YTD EBITDA MEUR 56.5 (+2.9%) EBITDA from Emerging Markets continues to increase despite turbulences (Q3: +7.3%, MEUR 0.8) Q3 EBIT MEUR 17.3 (MEUR +2.2), pro-forma MEUR 18.1 (due to closure/renovation) YTD EBIT MEUR 30.2 (MEUR -1.1), pro-forma MEUR 34.3 Q3 EBIT margin 7.2% margin (+0.5pp), pro-forma 7.5% YTD EBIT margin 4.3% (-0.3pp), pro-forma 4.9% 2 I Q3-2014 Results
Norway Sweden Denmark UK France Germany Russia Lithuania Poland UAE Saudi Arabia South Africa % Change Q3 2014 vs. Q3 2013 Market development in Q3 shows mixed results NORDICS ROWE EASTERN EUROPE MEAO 40% 30% 20% 10% 0% -10% -20% -30% -40% 2.3% 2.1% 3.0% Occupancy ADR RevPAR 15.2% 1.6% 4.9% 0.7% -12.8% -33.0% -2.9% 19.8% 0.5% Europe (+8%): Northern Europe (+15.3%): Western Europe (+5.4%): Eastern Europe (-12.7%): Overall good Q3 performance driven by Northern Europe (mainly FX related) Stable positive performance with Denmark leading the way UK & Ireland performing exceptionally well, followed by Germany Russia Ukraine conflict impacts travel to region Middle East & Africa (+9.3%): Strong rebound in North Africa, Ramadan period impacts Middle East performance Note: European regions in EUR, Middle East & Africa in USD 3 I Q3-2014 Results SOURCE: Benchmark Alliance, STR Global
Rezidor RevPAR performance remains positive driven by room rates combined with an improvement in occupancy 10% L/L Occupancy L/L Average Room Rate L/L RevPAR 8% 6% 6.5% 5.6% 5.9% 4.6% 4.2% 5.7% 6.0% 5.9% 5.4% 5.0% 4% 2% 3.0% 3.2% 2.3% 2.7% 3.5% 0% -2% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2011 2012 2013 2014 NOTE: Like-for-like: same hotels in operation during same period last year compared at constant exchange rates Many markets are back at pre-crisis occupancy level Occupancy improvement driven by Middle East and Africa 4 th consecutive quarter with RevPAR improvement driven by rate increase 4 I Q3-2014 Results
Mature markets performing close to peak levels in terms of occupancy with rates catching up NORDICS ROWE L/L Occupancy L/L Average Room Rate L/L RevPAR L/L Occupancy L/L Average Room Rate L/L RevPAR 25% 25% 15% 5% 3.4% 0.7% 8.8% 3.8% 2.3% 4.4% -0.8% 3.9% 15% 5% 2.2% 1.2% 4.2% 4.8% 5.5% 4.5% 4.9% 4.8% -5% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014-5% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 Norway: Cost cutting in oil sector continues impacting rate Denmark: Strong occupancy increase having overcome oversupply situation Sweden: Growth driven by improvement in rate UK & Ireland: strong performance driven by rate improvement Germany: occupancy back to peak supporting rate improvement France: weak performance on backdrop of legislative tax changes 5 I Q3-2014 Results
Emerging markets with mixed RevPAR performance due to turbulences in some markets but supported by strong recovery in Northern Africa EASTERN EUROPE MIDDLE EAST & AFRICA L/L Occupancy L/L Average Room Rate L/L RevPAR L/L Occupancy L/L Average Room Rate L/L RevPAR 25% 25% 20.5% 15% 5% 5.7% 4.0% 1.2% 8.4% 6.2% 4.6% -2.1% -3.3% 15% 5% 7.9% 13.5% 7.8% 8.9% 6.4% 9.6% 9.5% -5% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014-5% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 Russia: crisis & sanctions impact occupancy Ukraine: challenging situation given low occupancy Baltics & Poland: good performance showing resilience to turbulences so far Turkey: strong improvement primarily based on occupancy Middle East: Ramadan impacted RevPAR negatively in UAE and positively in Saudi Arabia Northern Africa: strong rebound, especially in Tunisia and Egypt Southern Africa: South Africa strong, other Sub-Saharan African countries impacted by Ebola fear 6 I Q3-2014 Results
Pro-active asset management and strategic approach to optimize the portfolio help to drive profitability ASSET MANAGEMENT Restructuring of two leased contracts in ROWE in October 2014: - Restructuring of lease with an annual MEUR 2.3 EBITDA improvement as from 2014 onwards - Extension and restructuring of a lease resulting in MEUR 0.9 EBITDA improvement in 2014 and MEUR 0.7 thereafter - 2014 effect to be accounted for in Q4 YTD four leases restructured with a combined MEUR 4.6 EBITDA uplift in 2014+ PORTFOLIO OPTIMIZATION CONTINUED GROWTH OF ROOMS IN OPERATION 80,000 74,000 75,300 76,100 70,800 66,400 60,000 40,000 20,000 Exit of various properties to prune the portfolio: - YTD 13 hotels & 1,800 rooms exited the system - Mainly smaller properties with minor fee impact - Net growth YTD: 800 rooms 0 Leased Managed Franchised
YTD room signings ahead of last year Park Inn Residences Jumeirah Village, Dubai, UAE SIGNINGS Q3 2014 Q3 2013 YTD 2014 YTD 2013 Hotels 5 8 22 24 Rooms 1,300 1,400 4,500 4,300 Q3 Signings: 100% fee-based (Management Agreements) Geographic expansion: Belarus and Ghana Park Inn expansion in Dubai (Jumairah Village) Strategic Alliance Agreement with Al Hokair Group in Saudi Arabia for 30+ hotels: - Conversions of existing hotels & new built across Saudi Arabia (& UAE) - 7 agreements already signed Radisson Blu Hotel Accra Airport, Ghana 8 I Q3-2014 Results
YTD openings ahead of last year OPENINGS Q3 2014 Q3 2013 YTD 2014 YTD 2013 Hotels 2 2 13 10 Rooms 600 600 2,600 2,300 Radisson Blu Hotel Moscow Sheremetyevo Airport Q3 Openings: 2 new openings in Russia: Moscow Sheremetyevo Airport and Pulkovo Airport St. Petersburg Outlook: Strong 6-12 months ahead with key openings: - Middle East: Jeddah, Jizan, Sohar, Duqm, Sharm el Sheik, Riyadh, Dammamm - Africa: Gabon, Kigali, Nairobi, Abeokuta - Central & Eastern Europe: Belgrade, Turkey, Volgograd, Novosibirsk Park Inn by Radisson Pulkovo Airport St. Petersburg 9 I Q3-2014 Results
Underlying growth trends in Emerging Markets continue to be a key driver for tourism growth Europe: Euro area stagnating, modest recovery expected Emerging Europe (Turkey, Poland, Lithuania) growing faster Uneven prospects across the region Russia & CIS: Geopolitical tensions weaken growth in whole region Russia stagnating, Ukraine contracting Outlook uncertain, depending on escalation of tensions and tightening of sanctions Spillovers to other countries Middle East & Northern Africa: Mixed picture in oil importing economies given conflicts and socio-political tensions Solid growth in GCC economies driven by higher oil production and government spending Sub-Saharan Africa: Robust growth in most countries supported by strong external demand & investments Fundamental growth trends in these markets remain strong 10 I Q3-2014 Results Real GDP growth rates 2014-2016 EU 1.4 1.8 2.0 14 15 16 Russia & CIS Emerging Europe 2.5 2.7 2.8 3.3 1.6 0.8 14 15 16 14 15 16 Middles East & North Africa Sub-Saharan Africa 5.1 5.8 6.0 14 15 16 3.8 4.5 2.6 14 15 16 SOURCE: IMF World Economic Outlook Database
Emerging Market business model is purely fee-based which combined with a wide geographic spread helps to protect earnings & margins 40,000 30,000 20,000 10,000 Rooms in Operation 24,000 26,900 29,900 31,600 33,500 Emerging Market portfolio accounts for 44% of our rooms in operation - 9% CAGR since 2010 - >95% managed 39 countries (out of 57 operating countries) are in Emerging Markets 0 2010 2011 2012 2013 2014 YtD Eastern Europe Middle East & Africa EBITDA performance 36% EBITDA contribution (before central costs) 67% EBITDA margin due to asset-light business model 50,000 40,000 30,000 20,000 10,000 0 100% 80% 60% 40% 20% 0% 2010 2011 2012 2013 2014 YtD EE MEAO margin margin Emerging Markets: Purely fee-based (Management & Franchise Agreements) Typically high RevPAR markets Relatively stable income through fee revenue High EBITDA margin as marginal direct costs (no central cost allocation) 11 I Q3-2014 Results
FINANCIAL UPDATE KNUT KLEIVEN, DEPUTY PRESIDENT & CFO Radisson Blu Hotel Arlandia, Stockholm Arlanda Airport
Continued progress in Q3 with EBITDA margin improvement to 11% IN MEUR Q3 2014 vs LY LFL RevPAR (L&M) 75.7 73.1 Revenue 240.8 13.4 EBITDAR 87.7 6.0 EBITDAR Margin % 36.4% 0.5pp EBITDA 26.4 3.6 EBITDA Margin % 11.0% 1.0pp EBIT 17.3 2.2 EBIT Margin % 7.2% 0.5pp LFL RevPAR increased by 3.5% Revenue improved by 5.9% due to 2 more leased hotels and the RevPAR growth Good flow-through to EBITDAR New hotels and restructuring of leases have positive impact on results Lease cost as percentage of leased hotels revenue decreased from 30.1% to 29.2% EBITDA up MEUR 3.6 (16%) EBIT up MEUR 2.2 (15%) Net Income was MEUR 11.3 NET INCOME 11.3 1.6 13 I Q3-2014 Results
YTD results broadly in line with last year; results impacted by closure of one hotel and disposal of Casino operation IN MEUR YTD Sept. 2014 vs LY LFL RevPAR (L&M) 73.0 70.7 Revenue 699.3 15.8 EBITDAR 242.4 5.0 EBITDAR Margin % 34.7% 0.0pp EBITDA 56.5 1.6 EBITDA Margin % 8.1% 0.1pp EBIT 30.2-1.1 EBIT Margin % 4.3% -0.3pp LFL RevPAR is up 3.4% Revenue increased by 2.3% Margins broadly in line with last year Rent costs as percentage of leased hotels revenue decreased from 30.3% to 29.7% EBITDA up MEUR 1.6 (3%) EBIT down MEUR 1.1 due to depreciation and write downs of fixed assets The disposal of a 50% shareholding in Casino Copenhagen has a negative impact of 0.3pp on EBITDA and EBIT margins NET INCOME 15.1-0.8 14 I Q3-2014 Results
Closure of a leased hotel for renovation has a negative impact of 0.6pp on YTD EBIT margin Third Quarter Jan-Sep Reported Impact Proforma Reported Impact Proforma Revenue 240.8 1.5 242.3 699.3 6.2 705.5 EBITDA 26.4 0.4 26.8 56.5 2.4 58.9 EBITDA margin 11.0% 11.1% 8.1% 8.3% EBIT 17.3 0.8 18.1 30.2 4.1 34.3 EBIT margin 7.2% 7.5% 4.3% 4.9% Hotel closed as from 1 January 2014 Initially scheduled to reopen early 2015 but delayed 1 year due to technical problems Impact on Rezidor limited to costs related to payroll & rent from delayed opening 15 I Q3-2014 Results
Good flow through in the quarter, new hotels have solid impact on earnings Flow-through Q3 2014 vs Q3 2013 Q3-2014 vs Q3-2013 Reported Change FX Exits New Hotels Variance Write Downs 2013-14 Impact of lease restructurings L/L Revenue 13.4-1.7-3.7 13.1 - - 5.7 EBITDAR 6.0-1.0-1.6 5.2 - - 3.4 EBITDA 3.6-0.6-1.5 2.0-1.4 2.3 EBIT 2.2-0.5-1.5 2.0-0.2 1.4 1.0 New hotels have significant positive impact on profitability and enhance margins Lease restructurings done last year and earlier this year contribute to improved results FX has less negative impact than in previous quarters Exits and mainly the closure of one hotel in ROWE have negative impact on earnings 16 I Q3-2014 Results
Q3 Leased business Improvement in revenues and profits Leased Revenue MEUR Nordics: Revenue positively impacted from 2 new leases in Denmark EBITDA flat due to soft RevPAR development in Norway (most important Nordic country for Rezidor) 250 200 150 100 50 Q3 2014 Q3 2013 0 NO RoWE Total Rest of Western Europe: Strong RevPAR growth (4.8 %) Temporary closure of one hotel had negative impact on revenue and earnings Restructuring of lease agreements had positive impact on EBIT 8 7 6 5 4 3 2 1 0 Leased EBIT MEUR NO RoWE Total Q3 2014 Q3 2013 17 I Q3-2014 Results
Q3 Fee Business Despite turbulences in some key markets, revenues and EBIT improved vs last year by MEUR 0.1 and MEUR 0.4 respectively Nordic: Revenue and profits were reduced due to the conversion of 2 managed hotels to leases and the opening of one managed hotel (with guarantee) 35 30 25 20 Fee Revenue MEUR Q3 2014 Rest of Western Europe: Revenue increased mainly due to the good RevPAR growth in key markets like the UK The improvement in EBIT was further helped by the exit of a loss-making hotel at the end of last year 15 10 5 0 NO RoWE EE MEAO Total Q3 2013 Eastern Europe: Despite drop in RevPAR, revenue is in line with last year due to opening of ca. 2,600 rooms since the end of Q3 2013 EBIT is MEUR 0.5 above last year Middle East, Africa & Others: Strong growth in L/L RevPAR (+9.5 %) Reported revenue growth subdued because of reduced operations at one keyhotel in Africa 20 15 10 5 0 Fee EBIT MEUR NO RoWE EE MEAO Total Q3 2014 Q3 2013 18 I Q3-2014 Results
Cash Flow and Balance Sheet 2014 vs 2013 Jan-Sep 2014 Jan-Sep 2013 Cash flow before changes in Working Capital 42.5 39.1 Change in Working Capital -19.4-13.1 Cash flow from operations 23.1 26.0 Investments -30.7-34.4 Free Cash Flow -7.6-8.4 MEUR Sep 30, 2014 Dec 31, 2013 Balance sheet total 453.8 381.7 Net working capital -31.6-48.4 Net cash (debt) 41.4-10.5 Equity 227.7 155.0 Free cash flow improved slightly from the same period last year Both Cash and Equity positively impacted from the Rights Issue Extension and increase of credit facilities in October (from MEUR 110 to MEUR 200) 19 I Q3-2014 Results
Update on deployment of proceeds from MEUR 60 Rights Issue CAPEX Increase investment in renovation & maintenance of leased hotels MEUR 30.7 Capex investments YTD: Nordics MEUR 12.7, ROWE MEUR 18 Majority (MEUR 18) spent on guest rooms & improvement of guest experience Ca. 2,000 guest rooms (>10% of our leased portfolio) will be fully refurbished this year: Nordics 850 rooms, ROWE 1,150 rooms ASSET MANAGE- MENT Accelerate exits from and renegotiation of loss making leases No capital spent yet; all Asset Management deals so far have been based on contract renegotiations Further deals with exit costs expected, negotiations can take time to optimize result GROWTH Accelerate growth with capital investments / contributions, particularly in key focus countries Selective approach for strategic projects Various projects identified and under discussion, no capital spent yet 20 I Q3-2014 Results
Roadmap Key priorities FOCUS AREAS EBITDA MARGIN UPLIFT FINANCIAL TARGETS Rezidor s Initiatives Revenue initiatives Profitability Target EBITDA margin of 12% over a business cycle Fee based room growth Cost savings 6-8% Balance Sheet Small positive average net cash position Asset Management / deleveraging CapEx Dividend Policy Approximately one third of annual after-tax income to be distributed to shareholders Assumes RevPAR growth covers inflation 21 I Q3-2014 Results
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