Room for Manoeuvre – Optimising Working Capital with Receivables Finance

With an eye on working capital efficiency, Meliá Hotels’ treasury team was looking to access faster and more flexible liquidity as a means of speeding up the cash conversion cycle. After careful consideration, treasury decided to implement a receivables finance programme with HSBC that would respond to the company’s current and future needs. Since then, the programme has gone from strength to strength, with the facility being extended to EUR 100m in 2017.

Turn the clock back to 2010: the year that a volcanic ash cloud halted European air traffic, 33 Chilean miners survived 69 days trapped underground, and Spain won the FIFA World Cup. It was also the year that Spanish-headquartered Meliá Hotels International (Meliá Hotels) decided to flip the script on its approach to working capital efficiency.

Operating more than 370 hotels in 43 countries across four continents, Meliá Hotels is one of the world’s largest hotel companies – and the market-leading hotel chain in Spain. Like any multinational corporation, working capital efficiency is a high priority for Meliá Hotels’ treasury team. Not only does treasury need to support the day-to-day running of the business, it must also help to position the company for ongoing growth – whilst responding to the growing needs of shareholders. This means demonstrating effective balance sheet management through key metrics such as Free Cash Flow (FCF), Days Sales Outstanding (DSO) and gearing.

Thinking outside the box

Up until 2010, Meliá Hotels had been addressing typical working capital challenges through various securitisation transactions carried out on commercial assets. As Gaspar Llabrés Credit & Insurance Senior Director, Meliá Hotels explains, however, “This type of operation is complex from a structural and legal perspective and incurs high administrative costs. Appropriate vehicles have to be set up and maintained and the bank has to operate with a conduit, specifically one that can operate in different currencies. We wanted a more user-friendly and cost-effective solution that would deliver greater control of commercial credits and improved monitoring of client solvency, in order to improve the average collection term.”