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OVERVIEW OF NH RISK POLICY
NH’s operations are mainly focused on the hotel industry and particularly on urban hotels, which are characterised by a relatively high level of operating
leverage that may require high levels of investment in fixed assets, especially real estate. These have a long economic cycle, which makes it necessary to
finance investments mainly through financial borrowing. The Group’s policy has always been to maintain financial orthodoxy by ensuring that solvency
ratios always remain high.
The management of the risks to which NH Hotel Group is exposed in the course of its operations is one of the basic pillars of its actions. Risk manage-
ment is aimed at preserving the value of assets and consequently the investment of the Group’s shareholders. Minimising risks and optimising manage-
ment of such risks by analysing the corresponding risk maps are among the objectives of the Group’s Management.
Financial risk management is centralised at the Corporate Finance Division. The necessary procedures have been set to monitor exposure to interest
and exchange rate variations and credit and liquidity risks on the basis of the Group’s financial position and structure and economic environment va-
riables.
The size of NH Hotel Group and its excellent penetration and brand recognition provide the Group with access to many expansion opportunities, al-
though these are selected more on the basis of rate of return and less on the need for investment, always attempting to minimise the risk inherent in
the industry in which the Group operates. The industry is characterised by economic cycles, and is therefore exposed to fluctuating prices, which the
Group has always managed to offset with occupancy.
The Group’s credit risk can mainly be attributed to commercial debts. The amounts are shown net of any provisions for insolvencies and the risk is low
since the customer portfolio is spread among a large number of agencies and companies.
Concerning interest rate risks, the Group is exposed to fluctuations in the interest rates of its financial assets and liabilities, which may have an adverse
effect on its results and cash flows. In order to mitigate this risk, the Group has established policies and has refinanced its debt at fixed interest rates
through the issuance of convertible bonds and guaranteed convertible senior notes.
The Group has subsidiaries in several countries with operating currencies other than the euro, the Group’s currency of reference. The operating results
and financial position of these subsidiaries (mainly located in Mexico and Argentina) are recognised in their corresponding currencies and converted
later at the applicable exchange rate for their inclusion in the financial statements of NH Hoteles.
Regarding liquidity risks, NH Hotel Group has a suitable debt maturity calendar, which is set out in Note 15 of the Consolidated Annual Report for 2015.
The Group is constantly evaluating the possibility of refinancing part or all of the existing financial debt.
Maintaining the operational sources of cash flow depends on adapting the NH Hotel Group business model to the evolution of the hotel business, and
also on the sale of non-strategic assets. These variables depend on the overall economic cycle and on the markets’ short-term supply and demand
situation. The Group’s business units have the capacity to generate regular and significant cash flow from their operations. Likewise, the Group regularly
makes cash and bank forecasts, which allow it to assess its liquidity needs and fulfil the payment obligations it has undertaken without the need to
obtain funds under onerous terms and conditions.
CONSOLIDATED MANAGEMENT REPORT
