Spanish 
English MESSAGE OF THE CHAIRMAN AND THE CEO
OUR VISION:
ONE DAY, WHENEVER ANYONE CONTEMPLATES A TRIP TO A CITY FOR AN OVERNIGHT STAY OR MEETING, FOR BUSINESS OR PLEASURE, THEY WILL ALWAYS ASK THEMSELVES: “IS THERE AN NH HOTEL AT MY DESTINATION?”
MESSAGE OF THE CHAIRMAN
June 21st, 2018
Dear shareholders,
I would like to take advantage of these lines to share with you NH Hotel Group's excellent results in the past year, emphasise its managerial capability in an increasingly competitive and global environment and reaffirm the Company's commitment to strong corporate governance.
In 2017, the Group took unmistakable steps in the direction of taking the right decisions for creating value for its shareholders and attracting the attention of guests and investors. Following a period of profound transformation, the Company is currently profitable, solvent and credible, as is evident in its business metrics and the market's interest in its potential.
When I became Chairman in 2016 I mentioned that the priorities for my mandate were to drive professionalism and transparency in our management and in our corporate governance rules and standards.
From the Board of Directors, we have sought to put those priorities into action. First we identified our Group's strengths and then we took the financial and business decisions deemed opportune for maximising those competitive advantages. And we decided to make those advantages sustainable by embedding them into a three-year business plan, designed to deliver faster growth over the 2017-2019 horizon than in the preceding decade.
I would like to highlight two milestones that I view as key to the level of success achieved in 2017. Firstly, the choice of Ramón Aragonés as CEO to lead and represent the entire organisation. He has proven a capable and seasoned manager and known how to lead and manage while responding to the requirement of maximising the return for our shareholders.
During the year, these three aspects of his management - leadership, representation and maximisation of shareholder returns - led to delivery of all the business targets set, as well as other important achievements. The increase in incomes, coupled with efficiency gains, translated into three-fold growth in recurring net profit and reduced leverage (including tangible reductions in average borrowing costs and in outstanding debt). The successive upgrades to our credit ratings suggest we are moving in the right direction.
The long-term incentive scheme approved at the Annual General Meeting, which aligns the interests of our shareholders with those of our executives, has proven equally effective. Aside from their quantitative scope, all of the improvements I have alluded to are enabling the second milestone I previously mentioned: the consolidation of a new corporate culture focused on the incremental generation of value. The reintroduction of the dividend is one of the distinguishing features of this new era in which the Group has made profitability and growth two of its differential values.
We started out by approving a gross dividend of five cents per share from 2016 profits. And we said at the time we were committed to paying a recurring and increasing dividend over the medium and long term. The resolution we are submitting at the 2018 Annual General Meeting lives up to that promise: we propose doubling the dividend to 10 cents per share.
All of these achievements on the business front were mirrored in how the Company's governance bodies worked during the year. 2017 was marked by the consolidation of a board structure with a majority of independent directors; all of the candidates, who were endorsed by prestigious external consultants, were selected and appointed transparently and free from bias with the entire process overseen by the Appointments, Remuneration and Corporate Governance Committee.
Our Code of Conduct has also been evolving as it has been put into practice, serving as a flexible tool for ensuring the correct and uniform application of all of the Group's principles and values. We similarly updated our criminal prevention protocols, emphasising the detection of and control over related risks and establishing conflict of interest management procedures.
By applying these strict corporate governance standards, we facilitated the work of the Board of Directors, which is committed to acting in the Company's best interests and focused unwaveringly on the interests of each and every one of its shareholders.
From the Company's highest governance body we had the occasion to apply those standards, placing the real value we are capable of generating for our shareholders as a whole with each decision above any other considerations.
Lastly, I would like to highlight the approval last year of the 2017-2019 Strategic Corporate Responsibility Plan which, under the Room 4 concept and articulated around People, the Planet and Responsible Business, complements the Group's overall business strategy. The Plan is expressly linked to the United Nations Sustainable Development Goals.
If the results in 2017 were excellent, the outlook for the years to come suggests that the best has yet to come. We provided you with our newest guidance during the Company's first Investor Day in September and at the time of writing these lines, we continue to deliver.
As good news continue to arrive, as Chairman of NH Hotel Group I would like to engage you in our success, thank you for your interest and support and encourage you to continue to play an active role in the decisions and initiatives channelled year after year through our General Shareholders’ Meetings.
Along with the excitement and enthusiasm of each of the millions of guests who come through our hotel doors every day, and together with our professionals and executives, your vote of confidence is the best guarantee of the Group's future.
Thank you,
Alfredo Fernández Agras
Chairman of NH Hotel Group
MESSAGE OF THE CEO
June 21st, 2018
Dear shareholders,
NH Hotel Group performed excellently in 2017, exceeding all of the profit and deleveraging guidance to which we had committed. Our efficient management of the business, coupled with the effort made to strengthen our capital structure and create value for all of our shareholders, has put NH Hotel Group in an ideal position to face the most ambitious targets in the Company's history.
Although the macroeconomic climate and stability in our core markets contributed to shaping a favourable environment for the tourism companies in our operating markets last year, at NH Hotel Group we knew how to take exponential advantage of these conditions.
Placing our guests at the centre of everything we do, the positive business metrics are the result of the operational and financial transformation implemented throughout the organisation, changes that have already become part of the Group's corporate culture.
Better positioned
Having made sizeable investments in prior years, fully repositioning the main hotels and upgrading the fittings in all our rooms, the Company's positioning is currently oriented at the high end of the urban segment, led by the NH Collection brand. Accounting for nearly 20% of the Group's rooms today, NH Collection brand commands a notable price differential with respect to the core brand NH Hotels, underpinned by the considerably higher perceived quality of these premium establishments.
The Group's digital transformation, focused on getting to know our guests better and increasing efficiency, also made a significant contribution to the positive trend in our metrics. Among other initiatives, this investment in systems has paved the way for the implementation of a new price management tool which is helping us to better predict occupancy and so adjust prices dynamically in order to capture the entire demand curve. In addition, we continue to leverage technology in order to improve how we interact with our guests and their experience, with new services that will be launched soon such as 'check-in online', 'choose your room' and 'check-out express'.
The recent relaunch of the NH Rewards programme is another initiative designed to reinforce the relationship with our guest. With record membership of over 8 million guests and representing some 40% of the rooms sold by the Group, the new reward scheme recompenses our guests for their loyalty with a more personalised offering designed to enhance their experience each time they visit us.
In addition to completing our multi-year investments in repositioning and IT, in 2017 we reviewed our cost structure, an effort that made the Group more efficient and competitive. As well as streamlining our administrative functions, sales structure and other teams, last year we began to implement a new operating model by restructuring the corporate structure, merging the four business units in Europe into two and redefining our operating structure in Latin America.
We also made noteworthy progress on fine-tuning our portfolio and the Company's growth in 2017. On the one hand, we took advantage of the privileged positioning of the hotels owned by the Group by identifying opportunities to maximise the value of our portfolio, such as the sale and leaseback agreement of the building that houses the NH Collection Barbizon Palace in Amsterdam. Furthermore, we continued to analyse numerous organic growth transactions, signing up nearly 2,000 new rooms, on top of the close to 30 hotels in the pipeline for the years to come. Among the new projects signed last year, it is worth highlighting the new nhow hotel in Frankfurt and a hotel that is already open in Marseille which is being reconverted into what will be the first nhow in France very soon.
Earnings momentum
All of these managerial measures had a very favourable impact on the Group's results. The positive momentum in the Company's main hotel business indicators, particularly in Benelux and Spain, translated into significant growth in overall Group revenue. NH Hotel Group is already close to a revenue level of €1.6 billion, which is €300 million higher than in 2014-2017. We also managed to double the Company's recurring EBITDA during that period and triple its recurring net profit year-on-year.
The growth in business volumes also facilitated progress on another of our strategic priorities: optimisation of our capital structure and deleveraging. We reduced our borrowings significantly in 2017 so that the net debt to recurring EBITDA ratio was cut from 4.1 times at the end of 2016 to 2.8 times. A large part of that achievement was possible thanks to the early redemption and subsequent cancellation of all of our senior notes, which were initially due in 2019.
We have continued to execute our deleveraging commitments in the first half of 2018 with the above-mentioned sale and leaseback transaction in Amsterdam and the early conversion of the convertible bonds due November 2018.
On top of this, in September 2017 we presented the current 2017-2019 Business Plan during the Company's first Investor Day. At that event we mapped out our priorities until 2019, which are articulated around revenue management, efficiency and deleveraging, as well as tapping our current strengths to take advantage of incremental repositioning and organic growth opportunities.
This roadmap and NH Hotel Group’s current success is the result of the extraordinary hard work of the more than 20,000 professionals who put in a particularly brilliant year for the Company. The top priority of everyone comprising the Group is to maximise the value of NH Hotel Group while maintaining a firm commitment to doing business responsibly and sustainably and to giving back to the community, as shown in this report.
Every time a guest comes to any of our hotels, rest assured that it is the commitment and service shown by the people who work at the Company that makes them come back and trust NH Hotel Group. We enjoy what we do and we are convinced that you, and indeed all of the Company's shareholders and guests, deserve our full attention and dedication.
Thank you for your support,
Ramón Aragonés
Chief Executive Officer
