Orient-Express Hotels' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Orient-Express Hotels Ltd. (OEH)

Q2 2012 Earnings Call

August 01, 2012 10:00 pm ET

Executives

Amy Brandt - Director, IR

Philip Mengel - Interim CEO

Filip Boyen - VP & COO

Martin O’Grady - VP & CFO

Analysts

Josh Attie - Citi

Carlo Santarelli - Deutsche Bank

Joe Greff - JPMorgan

Steve Kent - Goldman Sachs

Presentation

Operator

Good day and welcome to the second quarter 2012 earnings conference call for Orient-Express Hotels. For your information, today’s call is being recorded. At this time I would like to turn the conference over to Amy Brandt, Director of Investor Relations. Please go ahead.

Amy Brandt

Thanks Martin. Good morning, everyone, and thank you for joining us today for the second quarter 2012 earnings conference call for Orient-Express Hotels.

We issued our earnings release last night. The release is available on our website at orient-expresshotelsltd.com as well as on the SEC website. On the call today are Philip Mengel, Chairman and Interim Chief Executive Officer; Filip Boyen, Chief Operating Officer; and Martin O’Grady, Chief Financial Officer.

Before we get started today, I would like to read out our usual cautionary statement under the Private Securities Litigation Reform Act of 1995 in the United States. In the course of remarks to you today by Orient-Express Hotels’ management and in answering your questions, they may make forward-looking statements concerning Orient-Express Hotels such as its earnings outlook, future investment plans and other matters that are not historic facts.

We caution that actual results of Orient-Express Hotels 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.

I’d now like to turn the call over to Philip.

Philip Mengel

Thank you, Amy. Good morning, Ladies and gentlemen, and thank you for joining us. Just a point of clarification. Amy gave me a promotion. I am a Board member, Director and Interim Chief Executive, but not Chairman. Just so there is no confusion.

As we highlighted in our press release, progress in operations and financial results during the second quarter were affected by the economic uncertainty in Europe, particularly the weakening exchange rate of the euro and other currencies against the US dollar.

Our revenue in Q2 was down 2% to $163.8 million compared with the same quarter of last year and adjusted EBITDA for the second quarter was $41.5 million or 3% below last year. The EBITDA adjustments now include adding back the FAS 123 costs of non cash share-based compensation and also reflect the elimination of properties that are subject to contracts for sale.

Despite the Eurozone issues, our quarter two operations remained positive and financial results advanced in local currencies. Out hotel room night sold in the second quarter were slightly ahead of last year with a 4% decline in Europe offset by positive comparisons in all other regions.

Our worldwide RevPAR in local currency was 3% ahead of last year. Revenue from trains & cruises of $27 million was 7% ahead of last year. In constant currency, total revenue and adjusted EBITDA were both 4% ahead of the same quarter of 2011. Our adjusted EBITDA margin was maintained at 25%, despite a 4% reduction in revenue.

Our adjusted net income for the second quarter benefited from a $4.7 million reduction in interest expense and advanced to $14.8 million compared to $10.2 million last year. Good progress was made during the quarter in our investment program in our strategy to redeploy capital from sale of non-core properties to enhance revenue and profit.

During 2012, to date we've completed five new spectacular suite additions to Hotel Splendido, completed a beautiful new lobby bar at the Grand Hotel, Europe. We have refurbished 50% of the room stock at The Inn at Perry Cabin and opened a new all-suite hotel Palacio Nazarenas in our Peru Joint venture.

The main building at Copacabana Palace is currently closed for renovation of a 121 rooms and suites and the creation of exciting new retail stores in the main hotel and at the beach. We will complete the refurbishment of public areas and additional rooms at La Samanna during the third quarter and we recently committed to room refurbishment for the Oasis wing at Mount Nelson Hotel in Cape Town as well as improvement to our safari camps in Botswana.

During August, a major renovation to the second floor ball room at the '21' Club in New York will be completed. Looking ahead, we're on schedule for the opening of El Encanto, the landmark hotel in Santa Barbara at California in March 2013 after a total rebuild.

These exciting investments are supported by the strategy of redeploying capital from property sales. We recently announced agreements to sell the Observatory Hotel in Sydney and The Westcliff in Johannesburg. The combined proceeds of $66 million will represent a valuation of over 30 times trailing 12 months EBITDA from these properties. These proceeds will be directed to debt reduction, cash reserves and revenue enhancing investments projects in our core properties. Our objective is to raise shareholder value through strengthening the balance sheet, improving return on assets and adding high margin incremental revenues.

At the end of the second quarter, the ratio of debt-to-trailing 12-month adjusted EBITDA was 4.5 times. After reflecting the adjustment for adding back non-cash cost to share-based compensation, our target for the leverage ratio by the end of 2013 is to be below 3.5 times.

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