NH HOTEL GROUP, S.A. -
Occupancy increased +1.5% in Q3, with a +8.0% increase in Spain, primarily on the good performance of Seville and secondary cities, +7.4% in Italy on the Milan Expo, and +4.9% in Benelux on the improved performance of conference centres. These increases were offset by a decline in Central Europe of -6.8% on the release of inventories (positive impact in Q4) and fewer visitors to fairs, and Latin America with a decline of -7.5%, where the depreciation of the Brazilian real is adversely affecting Mercosur countries.
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Revenues improved +8.3%, reaching €347.3M. The difference with the +12.3% increase in RevPar is explained by the +3.4% growth of other income that accounts for 29% of total revenues of the Group, on the outsourcing of restaurant centres (-€0.6M), the change of segment (120,000 rooms released in the quarter, primarily in Benelux and Central Europe, of low profitable rates which included breakfast and half board in some cases), and the 66,000 fewer rooms in the quarter due to renovations (-€3.3M in revenues). With all, revenue growth would have totalled +9.6%, or €+351.5M (€+30.9M).
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Cost evolution affected by increased activity, investments in marketing and IT systems under the strategic plan. Personnel costs without the activity increase rose +2.8% (consistent with the first semester of the year, +3.3%). Including increased activity, reported growth was +6.3%. Other operating expenses rose
+4.0% and, including the higher commissions (+€2.2M) associated with sales growth and increased spending on marketing (+€2.3M) and IT systems (€0.8M), reported growth was +9.2%.
In the third quarter, EBITDA reached €38.2M (+24.9%). Remarkable is the performance of the business units of Italy, Spain and Benelux with a combined growth of +€12.0M (+55.4%). Germany was adversely affected by a change in the execution of renovations (impact of -€3.2M). The revenue-to-GOP conversion ratio in the quarter was 52% and 45% at EBITDA level before the reversal of onerous provisions, excluding the impact of renovations in Germany and increased marketing and IT system spending.
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NH obtained a positive net recurring result in the third quarter of the year for the first time since 2008. This figure reached €4.4M and, including non-recurring activity, total net income is €3.6M compared to €0.4M during the same period in 2014.
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Net financial debt totalled €840.7M as of 30 September 2015 (including Hoteles Royal), due to the concentration of payments in the Capex implementation schedule and working capital investments. The generation of cash flow in the quarter partially offset the Capex disbursement of €47.4M in the same period increasing debt in the period by €24.5M.
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2015 Outlook: In terms of RevPar, and after a good performance of Q3, the estimation for the year remains at the high end of the target (+10%). Revenues remained stable with respect to the initial estimation due to lower growth in other income resulting from the change in segment, fewer rooms (renovations and exits) and the outsourcing of restaurants. In terms of EBITDA, after reversal of onerous provisions, the +25% target, including the addition of Hoteles Royal from March, remains unchanged. Excluding the reversal of onerous provisions, this increase would reach +35%.
2013- 2018 Strategic Plan UpdateAfter two years of plan implementation (launched in late 2013) and based on the results obtained from the various initiatives, the updated overview allows to indicate higher levels of sustainable EBITDA, around €250M and reduce leverage to 3.0-3.5x within the time horizon of the strategic plan (2017-2018):
EBITDA
NFD/EBITDA
Original Plan
€200M
3,0 - 4,0x
Plan Review 2015
€250M
3,0 -3,5x
- Asset sales:
In addition to the sale of non-strategic assets contained in the 5-year plan (9 hotels / approx. €45M net cash /
€4M annual impact on EBITDA) other divestments (approx. €60-100M net cash) are included within the company's asset rotation strategy over the course of the next 18 months in certain cities, with a limited impact on EBITDA (approx. €5-7M annually).
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Repositioning Plan:
For a better understanding of the expenditure of the Repositioning Capex repositioning, the cash criteria is shown below (estimated investment for the period):
2014
2015
2016
2017
Total
# Hotels refurbished
8
32
22
4
66
Investment €M (NH)*
52
83
61
41
237
# Hotels with minor
reforms
23
20
-
-
43
*VAT not included
Repositioning October 2015 (# hotels)
8
2014
2015 23
17 14
Completed In execution To start during Q4 2015 & H1 2016
Up to October 2015, 31 hotels have been renovated. Average RevPar growth in the first nine months of 2015 compared to the same period in 2013 (2014 year of renovation) was +20.8%. The hotels included in this sample are: NH Collection Eurobuilding, NH Collection Abascal, NH Alonso Martínez, NH Collection Aránzazu, NH Turcosa, NH Collection Gran Hotel, NH Berlin Mitte, NH München Messe, NH München-Dornach, NH Danube City, NH Collection Palazzo Barocci and NH Firenze.
Furthermore, during 2015, the company is going to invest a total of €45M of Maintenance Capex in maintenance, €26M in basics and €16M in the IT plan (not included in the Repositioning Capex).
In terms of signage, 179 hotels are completed. The target of rebranding 189 hotels by the end of 2015 remains and 91 hotels in 2016 with a total investment for 2015 of €6M. Furthermore, the signage of 19 Hoteles Royal has been changed.
- Brand: With 48 hotels as of the end of September (12% of the rooms in the portfolio) and 62 hotels as of the end of 2015, the NH Collection brand continues to show its strength in terms of both price and quality (with improvements extending to non-renovated hotels):
ADR increase in 2015 | Q1 | Q2 | Q3 |
NH Collection | 11.9% | 18.5% | 14.9% |
NH 4* | 5.9% | 9.3% | 10.0% |
In the third quarter, the average rating on TripAdvisor remained unchanged demonstrating that clients have accepted the price increases. Twenty-six percent of the group's portfolio ranks among the top 10 of its city (45% for the NH Collection) and 48% are in the top 30. Furthermore, at the end of June, NH Rewards passed the 5.0 million members.
ARI NH vs Comp. Set* | Q1 | Q2 | Q3 |
Spain | +5,5pp | +6,6pp | +1,8pp |
Benelux | +2,8pp | +4,2pp | +4,8pp |
Central Europe | +3,7pp | +3,8pp | +4,5pp |
Italy | +11,4pp | +8,1pp | +5,1pp |
Total | +5,9pp | +5,7pp | +4,1pp |
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Pricing & Revenue Management: The implementation of hotel indexation in the top 20 destinations and the redefinition of our competitive set were completed. In this context, Q3 ADR trends in our top destinations were 10.7% compared to 6.6% of our direct competitors, which
implies a 4.1pp increase in our relative prices (ARI). This increase is partially explained by the change in segment (primarily affecting Benelux and Central Europe) that resulted in the release of 120,000 rooms from tour operators, groups, and crew members in Q3 (300,000 in the year 2015). This strategy of more profitable rates creates more efficient segmentation, with a special positive impact during months of high activity.
* 128 NH hotels vs. direct competitors
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Portfolio optimisation: Of the 15 hotels expected to exit due to the lack of strategic fit/profitability, 7 have exited, 5 renegotiated, and another 3 are pending before the end of the year.
In the first nine months of 2015, 11 new projects were signed with 1,793 rooms, 4 of which are management contracts and 7 are leases (4 with variable components).
- Leases: As of September 2015, 78% of the year's target had been reached, with annualised savings of €5.5M, 65% of which have a long-term nature.
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