Saturday, 16 May 2020

NH Hotel Group implements contingency plans, strengthens its liquidity up to €675 million and prepares for a progressive reopening with maximum health guarantees

NH Hotel Group implements contingency plans, strengthens its liquidity up to €675 million and prepares for a progressive reopening with maximum health guarantees.

The uncertainty generated by COVID-19 at the beginning of the year accelerated the implementation of strict contingency plans to minimize operating expenses through temporary adjustments of personnel, reduction of supply costs, suspension of investments in marketing and renegotiation of rents
In addition, NH Hotel Group has activated various measures aimed at preserving and strengthening its liquidity to meet operational needs in the coming months, most notably the reduction of investment in hotel maintenance and repositioning, the drawdown of credit lines, the cancellation of the proposed dividend from 2019 profits and the signing in May of a syndicated loan of €225 million with maturity in 2023. As a result, the Group has a liquidity of over €675 million
Since the beginning of May, the Group has reopened its sales channels and reservation systems, and plans a progressive reopening of hotels in the main cities, initially concentrating the demand of each destination in those establishments that allow the optimisation of resources and profitability
The Company has completely redesigned the customer experience to ensure that safety and social distancing requirements are met at its facilities and is collaborating with SGS in the implementation of a protocol of measures and assessments that will allow the reopening of hotels with maximum guarantees of hygiene and disinfection


- First-quarter 2020 evolution -

As a result of the unprecedented scenario that has forced the temporary closure of hotels in all geographies since March, revenues in the first quarter decreased by -20.8% to €279.4 million, thus interrupting the growth trend of the first two months of the year where they grew by +8%
Despite the implementation of contingency plans since March - the impact of which will be more visible during the second quarter - the Group’s reported recurring EBITDA(1) fell -€52.6 million to €30.9 million and the total net result stands at -€57.2 million, compared to -€14.7 million for the same period in 2019
The isolation around the world and particularly in Europe, which continues in the second quarter, has led the Company to temporarily close nearly 95% of its hotels, keeping a minimum portfolio open at the disposal of the authorities and making numerous donations to collaborate in the management of the health and social crisis
Since the beginning of the global pandemic by COVID-19, NH Hotel Group is implementing different measures and plans to adapt the business and ensure its sustainability, with the aim of minimizing costs during hotel closures, preserving liquidity to meet operational needs in the coming months and ensuring that the reactivation of hotel activity is carried out efficiently and under the premise of maximum guarantees in terms of health and safety.

Ramón Aragonés, CEO of NH Hotel Group, has highlighted that “COVID-19 represents the biggest challenge the hotel industry has ever faced worldwide and is measuring our strength. The timely operational and financial transformation we have carried out in the past, together with the efficiency measures we have now implemented and the available liquidity of €675 million, will allow us to overcome this situation, maintain leadership and be more competitive when normality returns”. Likewise, Aragonés has emphasized that “in the current context, our obsession is to give an agile response to the security needs of travelers and internal teams during the reopening of hotels, which is expected to be gradual and driven initially by domestic demand”.

- Measures implemented during the COVID-19 period -

Due to travel restrictions and enforced hotel closures in most of the countries where the Company is present, NH Hotel Group has promoted different contingency plans since the end of the first quarter. Thus, the Company has drastically reduced all non-priority expenses in the markets where it operates and in the business support functions.

To minimize the cost structure, the Company has adapted the size of its workforce in hotels and central offices to the existing activity, combining the implementation of temporary layoffs with time and salary reductions in those countries whose regulations do not allow the first alternative.

Likewise, since the beginning of March, all team travel was cancelled, non-priority third-party advisory expenses were suspended, and all marketing and advertising investments were significantly reduced. In addition, numerous negotiations have been carried out with suppliers to reduce procurement amounts, look for alternative products with lower costs and achieve better payment conditions. The Company has made an extraordinary adaptation to the environment of falling revenues, whose savings in variable and fixed costs will be reflected more strongly in the second quarter.

Since the beginning of the crisis, protecting liquidity has become the main objective of NH Hotel Group. In this regard, investments in hotel maintenance and refurbishment have also been reviewed, with most of them being postponed or cancelled, except for those in a very advanced state of execution, resulting in an 80 million reduction in the execution of planned refurbishments. At the same time, negotiations on hotels operated under lease agreements have been driven forward, underpinned by the health crisis environment and the mandates that have restricted the national and international mobility of our clients. Rent reduction agreements have been reached with a large number of owners and discussions are ongoing with the rest.

Also, last April 28th, the Company’s Board of Directors agreed to withdraw the proposal to distribute a gross dividend of €0.15 per share from 2019 profits, which would have entailed a payout of approximately €59 million in 2020.

Following the drawdown of credit lines in March for an amount of €275 million (a revolving credit facility of  €250 million and short-term bilateral credit lines for an amount of €24.5 million), in the month of May, the Company has signed a syndicated loan for an amount of €225 million with maturity in 2023, which will allow the financing of the operational needs of the Company in the current global economic scenario. With all this, the available liquidity exceeds €675 million despite the low level of activity in April (nearly 95% of the portfolio closed).

-Gradual reopening with maximum safety conditions -

Since the beginning of May, the Group has reopened its sales channels and reservation systems, and is planning a progressive reopening of hotels in the main cities, initially concentrating the demand of each destination in those establishments that allow for the optimisation of resources and profitability. The first to gradually reactivate hotel activity is the Northern Europe business unit, which expects to have around 30 operational hotels throughout this month of May. On the other hand, in Southern Europe, the Company expects the first openings to take place between the end of this month and the beginning of June. Next will be the turn of the Americas business unit, which was the last one to be affected by the global blockade. In any case, the Company estimates that the recovery will be initially driven by domestic demand and will take advantage of its strong presence in the main European and Latin American destinations for the early stages of stabilization and recovery, with a focus on the B2C segment, which represents between 60% and 70% of the business.

Ensuring that safety, social distancing, sanitation and disinfection requirements are met in its establishments has become the Company’s top priority in the face of hotel reopening. In this context, NH Hotel Group has reviewed all the traditional operating processes, adapting nearly 700 of its standards with the aim of offering safe environments for guests and employees. Among other measures, in this transformation of the customer experience, the digitalisation of hotel services will gain relevance, as it will allow interactions between people and contact with surfaces to be reduced to the minimum possible.

On the other hand, all the sanitary protocols applicable to the operations of the Group’s hotels have been revised thanks to the collaboration agreement reached in May between NH Hotel Group and SGS, a world leader in inspection, verification, analysis and certification. The new processes entail the adaptation of all hygiene and disinfection protocols of the facilities, specific training for employees and control and tracking of the measures. The NH Collection Barbizon Palace hotel in Amsterdam and the NH Nacional in Madrid are the first hotels where these sanitary standards will be monitored.

- First-quarter 2020 evolution -

Government guidelines regarding the restriction of economic activities and mobility limitations in most countries led to the forced closure of hotels in March, which prevents an equitable comparison of this year’s first quarter results with the same period last year.

Revenues up to March 2020 reached €279 million, -20.8% lower than the first quarter of the previous year. In January and February revenues increased by +8.0%, but their growth was interrupted the following month by the halt in activity. In fact, if isolated, March reported a reduction of -65.8% compared to the same month in 2019. The lower level of activity in all regions is reflected in the decline of the occupancy rate, which fell -29.7% in the quarter to 46.3% (compared to 65.9% in Q1 2019), and accounts for a reduction in revenue per available room (RevPAR) of -27.1%, slightly offset by an average price increase of +3.6%.

Despite the implementation of the contingency plans since March, the impact of which will be more visible during the second quarter, the Group’s reported recurring EBITDA(1) shows a reduction of -€52.6 million to €30.9 million and total net profit stands at -€57.2 million, compared to -€14.7 million for the same period in 2019. At 31 March 2020, the Company maintains a level of Net Financial Debt of -€254 million, together with a strong cash position of €489 million and in spite of the consumption of operating cash flow in the quarter.

Isolation measures around the world and particularly in Europe have continued during the second quarter, which has led the Company to keep nearly its entire portfolio (95% of the hotels) temporarily closed, except for a small number of hotels which have been made available to the authorities. During this period, the Company has contributed to the management of the health crisis with medicalized hotels and hotels to accommodate health personnel and other essential groups. In addition, the Group has provided beds to “field” hospitals, collaborated with the NGO World Central Kitchen by making its kitchens available to prepare menus for vulnerable people, and made numerous donations including food, protective equipment, personal hygiene kits and blankets.

(1) Recurring EBITDA before reversal of provisions for onerous contracts and capital gains from asset sales. Includes impact of IFRS16

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