Salaries and other operating costs of NH Group in 2012 amounted to €935.7 million, 0.1% higher than in the previous year, despite an average inflation rate of
between 1% and 2.5% in the countries where NH operates. Thanks to the cost containment measures applied in 2012, personnel expenses have been reduced
by 2.9% despite activity levels similar to the previous year, due to having reinforced the sales teams, and the effect of inflation. Other direct management
expenses have increased by 0.8% as a result of increases in extraordinary cost of systems (in line with the new systems plan being implemented in the
company) and the increase in commercial expenses (mainly fees due to the increase in sales concluded through intermediaries). Consumption, advertising,
laundry and other expenses, meanwhile, are reduced in comparison to the previous year. Costs from real-estate activities increased due to the change in the
mix of products sold: residential property rather than land.
NH Group will continue to focus its attention on personnel expenses both in Spain and Italy (which have a much higher personnel costs to sales ratio than
the other business units) as well as on rents in these same business units, with the goal of returning to 2013 EBITDA levels in these business units. In line with
the goal of reducing differences in personnel expenses in Spain and Italy compared to other more efficient business units (Benelux and Central Europe),
expenditure on compensation and provisions for personnel restructuring has increased, and represents the most significant non-recurrent expenses item.
Expenditure on leases and municipal taxes has remained at levels below those of the previous year: €293.8 million compared with €295.5 million the previous
year or 22.4% of income. This compensates for the opening of new hotels, increases originating in negotiations concluded in previous years, and CPI
revisions. Between 2011 and 2012, some 84 actions were carried out at leased hotels with negative EBITDA, and 8 contracts were terminated early. Further
rent reductions, in addition to those already obtained, are planned for 2013.
During 2012, the 2% decrease in economic activity in most of the markets where NH Hoteles operates not only led to a general drop in sales but also further
price reductions and reduced operating margins compared to 2011. In addition, 2011 EBITDA included €72.1 million in income for capital gains generated by
the sale of assets and from compensation for the termination of the investment agreement with the HNA Group. It also included €32.6 million in expenses,
essentially for personnel restructuring and various provisions. In 2012, EBITDA includes €1.5 and €36.6 million respectively in income and expenditure, which
together make up a difference of €74.6 million compared with non-recurrent EBITDA from the previous year. In total, the EBITDA of NH Group in 2012
amounted to €77.5 million compared to €202.4 million the previous year.
The Group has assessed the recoverability of the book value of its assets based on its business plan. Accordingly, and in line with the macroeconomic situation
in Spain and Italy, which is causing a greater-than-expected impairment in certain hotel and real-estate assets, the Group has increased its provision for
impairment to €268.3 million. This provision includes €51.7 million for real-estate activity. In terms of impact on net income, the total figure is reduced by the
estimated recovery through tax applied to this allowance, and for the part that corresponds to minority interest holders due to impairments in Italy.
Recurrent financial expenses totalled €54.8 million, up 6.9% on the €51.3 million posted in 2011 and which responds to the terms of refinancing the syndicated
loan taken out by NH Group (€715 million) and NH Italia Srl. ( €75 million), with increased margins in line with market trends, and not totally offset by the
reduction in the Euribor rate. However, in a context of loss of income in NH Hoteles and a strong increase in Spanish public and private risk margins, financial
expenses remain at 4% of sales and 5.8% (5.6% in 2011) of NH Group’s average net financial debt.
The change in fair value of financial instruments includes, as income, a €3.0 million reduction in the provision for the hedge covering the NH employee
share option plan incentive approved in 2007 which, as a result of the rising share price since the end of 2011(€2.18 to €2.61), is in the black. This provision is
reversible if share prices recover their value by the time the plan reaches maturity in 2013, and does not represent a cash outflow until that time.
NH Hoteles pre-tax result for 2012 is €-392.6 million which, after applying Corporate income Tax of €55.5 million due to the effect of activating the negative
tax bases obtained by the Group (fundamentally in the Spain Business Unit) and minority interests of €44 million, gives a net result of €-291.1 million.
During 2012, the operating cash flow of NH Hoteles SA, excluding CAPEX and changes in working capital, stood at a positive level of €27.3 million, albeit
down €121.6 million on the cash flow generated in 2011 (€149.0 million), as can be seen in the following table:
P&L ACCOUNT EXCLUDING CASH INFLOW OR OUTFLOW
12
M 2012
€ Million
Income from hotel activity
1,288.0
Income from real-estate activity
22.1
Non-recurrent activity
1.5
TOTAL INCOME
1,311.6
Costs of real-estate sales
(10.0)
Personnel costs
(465.8)
Direct management expenses
(423.3)
Other non-recurrent expenses
(36.6)
Leases and property tax (excl. reversal of provision for onerous agreements)
(293.8)
Financial expenses
(54.8)
TOTAL EXPENSES
(1,284.3)
TOTAL OPERATING CASH FLOW
27.3
Note: This Consolidated Cash Flow Statement was drawn up using hotel management criteria, which do not necessarily coincide with the accounting criteria used in drawing up the
Consolidated Cash Flow Statement of NH Hoteles, S.A. Group.
The cash outflow due to expenses, similar to that of last year (€1,279.3 thousand) and the steep decline in income of €116.7 million compared with
2011,
are the main reasons for loss of cash flow, on the basis of the profit and loss statement of NH Hoteles, S.A. Group.
12
CONSOLIDATED
MANAGEMENT REPORT
