Comments about financial statements

Comments about the real and future situation of  Melia Hoteles Internationals, S.A

  

We could start analysing Melia Hoteles Internationals, S.A looking at how is the firm doing in the stock exchange. Melia Hoteles Internationals, S.A has a market capital of 1.491,15€ million  which really shows how this company has a huge size. The following diagram, graph 1.1, shows the changes of the share price for the last five years which will allow us to start analysing  Melia Hoteles Internationals, S.A.

The share price is constantly fluctuating for the last years. Its lowest trough was in march 2009 if we look at the information from the last five years. If we just have a glance at the information in 2013, we can appreciate how the lowest share price was obtained in march. Then since that month, the share price has been constantly increasing leading to a price that is close to one of the highests peaks for the share price of Melia Hoteles Internationals, S.A in the last years with a price of 8.07€. Therefore according to this information we can say that this firm is improving its performance in the stock exchange and will probably keep on having a positive percentage change in the share price  and will become closer to a historical maximum price per share of 19€.

Comments referring to the Income Statement 2011-2012 and first semester of 2013 

From 2011 to 2012 we can see how there has been an increase in the total revenues by 27€ million. It is always good news to increase revenues, as it shows that probably the firm is being well managed and more people are being attracted by Melia Hoteles Internationals, S.A for it’s holidays. As well the operating expenses have increased due to several reasons. Melia Hoteles Internationals, S.A has incorporated two new resorts and obviusly expenses have to raise in this case. If revenues also increase, which will probably happen, progresively this expenses would be outperformed by future revenues. A great problem that affects many business, is the appreciation of the US dollar, which is also one of the causes of this increase in operating expenses although in some cases could act in favour of businesses.

As a final result, the net profit increased a 3.8% from 2011 to 2012 and therefore reflected a situation of economic growth. It is not a great increase, but is better to have a low net profit than recording losses. Some of the main causes of this increase could be the decrease on the exchange expenses because of the appreciation of the dollar or higher interest expenses due to a increase in the average cost of debt.

So the past situation of the company appears to be all right. It seems Melia Hoteles Internationals, S.A has growth as one of its main objectives after incorporating new resorts. This really makes sense as it is a sector where there are really big changes in few periods of time, and companies must be prepared to achieve the great demands of customers in several periods of the year and there is not a better way than introducing new hotels and resorts.

Now we can start talking about the income statement for the first semester of 2013 that records the revenues and expenses of a company. This will give us a better idea of the current situation of the company. Melia Hoteles Internationals, S.A has grown its revenues by 3.9% as a consequence to the increase in revenues made by the company. This is always positive for a company, because the increase in revenues can give security to a business and even more during the economic crisis we are now living. But we should also say that expenses increased, even though operating expenses decreases by -2.2% some other expenses raised as the one due to the improvement in the occupancy levels in the hotels business of 2.8% and another great increase of 9.3% of the rental expenses. As an overall result, the net profit decreases dramatically a 67.7% due to an increase of 9.1€ million in financial costs because of an increase in debt and in the spreads after refinancing debt and some credit lines.

To conclude the comments about the financial statement it is clear that even though the revenues increased the raise in expenses is greater. As well there was a decrease of -7.6€ million in financial income as to the result of the sale in 2012 of the share in an hotel. Likewise, Melia Hoteles Internationals, S.A is suffering a great problem as the dollar has rised against the peso compared to 2012 and lead to a increase in losses of 7.3€ million. So to sum up, the result of the income statement on the first semester of 2013 ended with a loss of 59.7€ million.

It is clear that having losses is never a good option for a company. Such a big company with so big losses should really consider how complicated the situation is, and how bad it could turn if the following results continue having losses. At the moment we can say they are in a difficult point where Melia Hoteles Internationals, S.A should work out a way to decrease its costs or its losses could keep on increasing. We should state clear that the best semester for this sector normally consites with the period of summer months, where the activity in the hotels industry increases astonishingly. Although this could give some kind of reassure to the stockholders of Melia Hoteles Internationals, S.A, the company can't go on with the activity in the same way, or in the long-run problems of liquidity could clearly appear to this firm.

The future situation of a company is never clear, it is really complicated to predict the economy, although economists try to predict its movements. If we just take into account the income statement we can easily say that Melia Hoteles Internationals, S.A is not going through its best moment with such a big loss. Revenues should increase to guarantee a decrease of losses, if expenses are kept constant and there is a increase in sales. Even though the situation in the stock exchange is improving leading to an increase in the share price, the future situation of this company could become unsusteinable.

Comments referring to Balance Sheet 2011-2012 and first semester of 2013

The Balance sheet shows the assets, liabilities and equity of a firm for a certain year. It is closely influenced by the income statement as the net income, result of the income statement, is one of the components of the equity. It is seen that from 2011 to 2012 there has been a notorious reduction in the tangible assets even though in constrast there is a higher assets value because of the incorporation of the two new resorts I explained above.

There is also a great increase on the investments in associates as there were some investments linked to the joint ventures that were signed last December and will allow the management of some resorts. This shows, as I said before, the constant willingness of Melia Hoteles Internationals, S.A to keep on growing in order to achieve a greater market share and therefore be able to reach more and more customers. If we have a glance at the liabilities we can see how there is a shift form long-term liabilities to short-term liabilities due to the debt maturities schedule. Melia Hoteles Internationals, S.A went through a reclassification which is a shift from long-term debt to short-term debt, and explains why the short-term bank debt increases whilst the long-term bank debt was reduced.

There is a really high result for the net debt, up to 1,003€ million which is again explained by the incorporation of the new resorts and all the works in other hotels that required some changes. A great disbursment was required in 2012 to achieve these changes. But after this, it comes the time to see if that changes really worth and will not cause severe problems to the company with the increases in expenses. 

In the first semester of 2013 there was a increase of 44€ million due to the consolidation of the company Tradyso. This helps to increase the power of Melia Hoteles Internationals, S.A in the economy. As well tangible assets have decreased due to the sale of three hotels in June. In contrast to the increase from 2011 to 2012 in investments in associates, in the first semester of 2013, there was a decrease of 29€ million due for example to the negative result of Adprotel. So finally total assets have increased a 1%, which is a positive sign but could be even better.

In 2013 there were convertible bonds issued and caused a 159€ million increase of non current liabilities that was, however, outperformed by an incredible reduction in the non current bank debt due to the reclassification which lead to a -0.2% decrease in non current liablities. The increase of  11€ million in "Other non-current financial liabilities" is because of the recording of the convertibility option for bonds issued in 2009 and 2013. On the other hand, current bank debt has increased and therefore there has been an increase in current liabilities of a 7.7%.

So non-current assets, current assets and current liabilities have increased whilst equity and non-current liabilities have decreased. The balance sheet also shows the movement from long-term debt to current debt, and that explains the decrease of non-current liabilities and the increase in current liabilities. This will make the firm have to be even more focused and concentrated on its debt as they have to keep on being able to pay it. They are probably giving a greater importance to solving the short-term situation in order to grow in the future.  

Comments referring to the Cash Flow Statement 2012 and first semester 2013

  

The cash flow statement shows the money going in and out of the company. The cash flow from operating activities shows a really high value (151.1€ million) which means that there has been an incoming amount of cash equal to that amount from operating activities, activities which are directly related with the operations of Melia Hoteles Internationals, S.A. however the cash flow from investment activities has a negative value (-49.2€ million) and is explained by the investments made in fixed assets and property. It is normal that after making really big investments as the incorporation of new resorts, the cash flow from investing activities is negative. What is positive for Melia Hoteles Internationals, S.A is the great amount of cash incoming from operating activities. This firm should work hard on maintaining this, as it compensated the negative values in the investing and financing cash flows.

In the first semester of 2013, the cash flow from operating activities is by the way 26.6€ million, a much lower value than the year before, but is normal as it is just for one semester and not for a complete year. The cash flow from investing activities has a greater decrease however equal to -73.8€ million. The last cash flow from financing activities is 13.4€ million and once we have the value for the three cash flows we can see how the situation at the moment is becoming worst. This is because the amount of cash going out of Melia Hoteles Internationals, S.A is greater than the amount of cash going in.

I must repeat that the best period of the year normally in this sector is the second semester, and maybe, once we have the cash flow statement for the whole year, we can see how it has compensated a little bit more. However at the moment  Melia Hoteles Internationals, S.A is in a complicated point regarding the cash flow statement, and should make a big effort to increase the cash flow from operating activities.

Comments referring to the Statement of Changes on Equity 2010-2011-2012

The amount of capital has remained constant throughout these years and shows some stability that is positive for the future situation of a company. The share premium has decreased from 2010 to 2012 and is the excess amount received by a firm over the par value of its shares. This amount forms a part of the non-distributable reserves of the firm which usually can be used only for purposes specified under corporate legislation so the greater, the better for a company. The other reserves have been increasing and is a really positive sign.

Likewise, retained earnings have increased through the period and is good news for the company as the retained earnings is the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. So the greater the better. The net income of the parent company has been constantly decreasing and is a negative consequence as it meands that expenses are greater than revenues in the parent company. Finally a good result in total net equity as it has been increasing up to 2012.

So if we think about the results of the company in its changes of equity, we can say that it is positive that the total net equity has been growing, as it is a sign that illustrates the growth of the company. It is not as good the fact that the parent company has negative net income results and that is a problem that should be treated. In general it is a positive statement, although it could be better if the company had greater values for the share premium for example. Melia Hoteles Internationals, S.A will probably keep on growing in the future if it is able to outperform the enormous expenses it has to deal with. To fullfil this objective, this firm should take care of the debt, in the short-term and in the long-term, as this could be done with the retained earnings, that by the way have been increasing. It should also concentrate on maintaining such big revenues, which reflect how probably the service developed by the firm is going in the correct path.