MANAGEMENT
Following the start of the COVID-19 pandemic in Europe towards mid- March, hotel demand has fallen drastically due to lockdowns, travel restrictions and social distancing, which have had a drastic effect on mobility.
During the months of restrictions, isolation and strict lockdown from March to the end of May, around 95% of our hotels were closed and those that stayed open did so for charitable purposes. As a result, the second quarter of the year was the most severely affected quarter with an extraordinary low level of demand.
The gradual reopening of hotels started at the end of May and was done progressively in line with the recovery of demand and with the focus on optimising profitability. In June close to 60% of the hotel portfolio was open, 70% in July and almost 80% at the end of August and September.
The agile reopening of hotels from June onwards, following the closure of the portfolio in the month of March due to the strict lockdown measures, allowed the Company to capture the demand from domestic guests in the third quarter. This reopening, despite the low level of demand due to mobility restrictions was possible thanks to the flexible cost structure.
As a result of the impact of the second wave of the epidemic in Europe at the end of the third quarter, the additional reopenings planned for the closing months of 2020 were delayed, and some hotels had to be closed again so at the end of December 2020, around 60% of the portfolio was open. The impact of this second wave and the stricter restrictions on mobility during the last months of the year have resulted in a lower level of activity compared to the third quarter.
Despite the low demand, the commercial strength and the flexible operational and financial structure of the Group has allowed it to overcome the major challenges of 2020. And although these challenges are still present in the first months of 2021, the Group will benefit from its brand recognition, excellent locations and strong market positioning once recovery in Europe.
CONTINGENCY PLAN
As a consequence of the exceptional circumstances taking place due to the global pandemic (COVID-19) which is affecting all the countries where NH Group is present, the Group implemented a number of different measures and plans to adapt its business and assure its sustainability with the aim of minimizing costs during hotel closures, preserving liquidity to cover operational needs and ensuring an efficient reactivation of the hotel activity based on the premise of maximum guarantees with regards to health and safety.
Given the lack of visibility as to the speed of the recovery of the business, the following cost disciplinary and control measures were implemented, and continue in place, to ensure the minimization of operational expenses and the preservation of liquidity:
• Personnel: The Group carried out adjustments, suspensions and temporary reductions in working hours and salary both at hotels and central offices based on causes of force majeure or production reasons. These processes have continued during the second half of 2020 to reduce the workforce on a temporary basis and will be extended during the first part of 2021 in several countries. More information is provided in the Chapter NH ROOM4 People: Employees.
• Operational costs: – Negotiations with suppliers to reduce procurement costs, seek alternative products with a lower price and improve payment terms.
– Suspension, since the beginning of March, of all travel by Group personnel.
– Suspension of non-priority third-party advisory services.
– Significant reduction in marketing and advertising costs despite the need to incentivize revenues.
• Leases: Temporary reduction of fixed leases since the second quarter based on the health crisis environment and on the restrictions approved by all governments and their corresponding impact on essential elements of the business such as mobility, trade fairs and congresses, meetings, etc. These negotiations continue for the first half of 2021.
• CapEx: A major part of the investments were paused, except those required by law or that were at a very advanced stage. Execution of Capex 2020 (maintenance, refurbishments, systems and new openings) was reduced by about €100M, 50% down compared to the original plan for 2020.
• Withdrawal of the proposed 2019 gross dividend of €0.15 per share, which would have involved an estimated pay-out of around €59M euros.
The recovery of demand will take place once the spread of the moderates and vaccination of the population is extended. The Group will then take advantage of its strong market positioning in European countries with excellent locations and a high brand recognition, as well as the significant weight of domestic demand.
The recovery phase will be driven initially by domestic European leisure demand, as international mobility will continue to be low in the first phase. The business and corporate segment will take longer to recover due to the macroeconomic situation and social distancing which restrict the size of events.
COVID-19 has brought forward many of the strategic initiatives aimed at efficiency. In 2021, once the company has more visibility of the recovery in demand, the rest of the initiatives of a new strategic plan will be redefined.
FEEL SAFE AT NH
In 2020, NH Hotel Group implemented in all its properties “Feel Safe at NH”, a new plan of measures endorsed by experts to deal with the health crisis caused the SARSCoV-2 coronavirus. In order to ensure the safety of guests and employees, NH has implemented different initiatives and adapted almost 700 standards, completely redesigning its guest experience cycle.
In drawing up this plan, NH Hotel Group has had the help of SGS (Société Générale de Surveillance), world leader in inspection, analysis and certification. Furthermore, we have followed the recommendations of the World Health Organization (WHO), the Center for Disease Control and Prevention (CDC), and those of the health authorities of each of the countries in which we operate.
To develop “Feel Safe at NH”, the entire way our hotels operate has been reviewed, grouping the implemented initiatives under 10 lines of action that respond to our guests’ needs in the new reality. The plan encompasses all the necessary aspects to allow our hotels to operate with maximum safety guarantees for guests and employees: from the cleaning and sanitization processes for each hotel space, to new digital solutions, protocols for managing F&B services, safety distancing regulations, personal protection protocols and equipment, and air and water purification control, among others.
Specifically, for our hotels in Spain, this package of measures has been adapted in order to comply with domestic legislation, resulting in a Contingency Plan drawn up by the NH Hotel Group Prevention Service. This adapted plan is based on the Spanish Tourism Quality Institute’s “Measures for the reduction of SARS CoV-2 coronavirus contagion” (a unique health protocol against COVID-19 to prepare the reopening of the tourist sector in Spain); the “Operating Procedure for Occupational Risk Prevention Services in relation to exposure to SARS CoV-2” of the Ministry of Health, the Biological Risk Assessment carried out by NH Hotel Group’s own Prevention Service, and on the specific Occupational Risk Prevention legislation that was already applicable before the current situation.
The Company has also set up a committee to manage the risk of COVID-19. Made up of the best experts in each area, its goal is to deal with the necessary adaptations and modifications, and to ensure the correct implementation of the plan in our hotels.
Furthermore, a health and safety officer has been appointed at each of our establishments. They are responsible for their hotel’s compliance with the Contingency Plan and the “Feel Safe at NH” standards, and for centralizing, distributing and managing all the health and safety information related to COVID-19.
All our staff have been adequately trained in all duties and matters related to the risks deriving from the presence of COVID-19, including protection measures against such risks and the new standards and operating procedures included in the “Feel Safe at NH” protocol.
NH RESPONSE
Aware of the significant impact that COVID-19 is having throughout the world, NH Hotel Group managed to adapt to the “new” situation, knowing that hospitality and solidarity are more necessary than ever. A challenge that has been faced whilst guaranteeing the health and safety of all the members of the team and beneficiaries.
Due to the exceptional situation in which the Company finds itself, a series of initiatives were initially identified to help governments, health authorities and social organizations deal with the crisis.
In this sense, NH Hotel Group offered hotels to the authorities so that they could be medicalized to help relieve the strain on hospitals. In total, 3,373 patients were accommodated in the chosen NH properties. Hotels were also designated as special accommodation for 2,720 healthcare professionals.
Furthermore, the Company decided to donate the perishable food in stock at those hotels that had to close to associations and foundations with which we had collaborated on previous occasions, contributing with a total of 12,400 kg of food.
More information on the initiatives launched under NH Response can be found in the Chapter NH ROOM4 People: Community