For the financial year ending 31 December 2020
EVOLUTION OF BUSINESS AND GROUP’S SITUATION
NH Hotel Group is an international hotel operator and one of the leading urban hotel companies worldwide in terms of number of rooms. The Group operates 361 hotels and 55,371 rooms in 29 countries, and has a significant presence in Europe.
The centralised business model allows it to offer a consistent level of service to its customers in different hotels in different regions. The corporate headquarters and regional offices offer hotels a wide range of functions such as sales, reservations, marketing and systems.
Following the start of the Covid-19 pandemic in the first quarter of 2020, available economic data points to an unprecedented decline in global activity. Covid-19 has paralysed the world and tourism is one of the most affected economic sectors. In several regions of the world, borders remain closed to tourism and the Covid-19 pandemic continues to spread. Even when the worst seems to be over, the threat of further outbreaks is ever present.
Consumption and demand for services have declined sharply due to social distancing, lockdown, drastic loss of income and weakening consumer confidence. Mobility continues to be subdued and continues to be low in comparison to levels prior to the virus appearing.
Therefore, during 2020, due to the economic crisis caused by the Covid-19 pandemic, the global economy decreased -3.5%, compared to growth of +2.8% in the previous year (Data and estimates from the IMF’s “World Economic Outlook”, January 2021). The global economy is beginning to leave the minimums it fell into during the Great Lockdown in April behind. However, as the Covid-19 pandemic is continuing to spread, many countries have slowed down reopening and are once again imposing partial lockdowns to protect susceptible populations. Although China recovered more quickly than expected, the long road that must be taken by the global economy to pick up the levels of business prior to the pandemic is still susceptible to drawbacks.
Therefore, the European Union has estimated +5.5% growth of world economic activity in 2021. More specifically in the Eurozone, the provisional growth rate for 2020 was -7.2% (+1.3% in 2019) and growth is expected to be +4.2% in 2021. The rates in the four countries that bring the greatest proportion of the Group’s sales and profits show rates of decline in 2020: Spain (-11.1% in 2020 vs. +2.0% in 2019), Holland (-5.4% in 2020 vs. +1.7% 2019), Germany (-5.4% in 2020 vs. +0.6% in 2019), and Italy (-9.2% in 2020 vs. +0.3% in 2019). On the other hand, the decrease in Latin America was -7.4% in 2020 (vs. +0.2% in 2019) as all the economies as a whole have suffered the consequences created by Covid-19. Uncertainty about health and economic policy, aggravated by the moderate prices of raw materials, have given rise to a sharp fall in economic activity in 2020 and have also affected the prospect of a rapid rebound.
World tourism recorded its worst year in 2020, with a fall of 74% in international arrivals, according to the latest data from the World Tourism Organisation (UNWTO). In 2020, destinations all over the world received 1 billion fewer international arrivals than the previous year, due to an unprecedented crash in demand and the general restrictions on travel. By comparison, the decline recorded during the 2009 global economic crisis was 4%.
According to the latest World Tourism Barometer from the UNWTO, the crash in international travel represents estimated losses of 1.3 billion dollars in export income. This figure is more than eleven times the losses recorded during the 2009 global economic crisis. The crisis has put between 100 and 120 million direct tourism jobs at risk, many of them in small and medium enterprises.
In 2020, Spain recorded a decrease of 70% in the number of arrivals, in spite of a small, brief upturn in the summer of 2020. The region suffered the greatest drop in absolute terms, with a decrease of more than 500 million tourists in 2020. The Americas recorded a 69% drop in international arrivals, with slightly better results in the last quarter of the year.
Given the constant evolution of the pandemic, many countries have been reintroducing stricter restrictions on travel since the beginning of the year. The steps taken include compulsory tests, quarantines and, in some cases, complete border closure, all of which makes it difficult to resume international travel. At the same time, it is to be hoped that the gradual arrival of vaccines against Covid-19 help to reinstate consumer confidence, ease travel restrictions and that travel slowly gets back to normal during 2021.
It is worth noting the Company’s solid position with which to deal with the current situation after its operational and financial transformation in previous years. The excellent performance of the group in recent years is the result of a complete transformation within the group, particularly brand segmentation, portfolio optimisation, significant investment in repositioning and systems, the focus on efficiency and cost control, and the reduction of financial indebtedness.
The embodiment of an NH Hotel Group value proposition based on the improvement of quality, experience and brand architecture with the NH Collection, NH Hotel and nhow brands are a reality today in the Group. In this ongoing improvement of the customer experience, “Fastpass”, a combination of three innovative services (Check-in Online, Choose Your Room and Check-out Online) was launched in 2019, which gives customers full control over their stay. In this respect, NH Hotel Group has become the first European chain to offer these three services simultaneously. A new service, “City Connection”, has been launched where you can enjoy the city without limits. Under the slogan “Stay in one hotel, enjoy them all”, the NH Hotel Group offered a range of services that allow customers to enjoy them in any hotel in the city they are in, regardless of the hotel they are staying in for the duration of their stay.
The NH Hotel Group continues to be at the forefront of innovation. The Group’s Digital Transformation has allowed processes and systems to be made more efficient, increasing the capacity to be different from the competition, and continue improving the Company’s basic processes. One of the greatest achievements therefore has been to centralise all its properties and functions into a single integrated system. This allows the NH Hotel Group to have a fully-integrated digital platform: NH Digital Core Platform. A pioneering technological solution in the sector that has allowed all the Group’s hotel’s systems to be integrated which has become the basis for the NH Hotel Group to expand its customer knowledge, maximise its efficiency and innovate on a large scale in all its value areas.
In its use of quality indicators, the NH Hotel Group focuses on measuring quality using new sources of information and surveys with a significant increase in the volume of reviews and number of assessments received. Its average score on TripAdvisor in 2020 was 8.5, compared to 8.4 in December 2019. Additionally, its average Google Reviews score was 8.7, compared with 8.6 in December 2019. These average scores demonstrate the high levels of quality perceived by customers and the positive growth trend that the NH Hotel Group has had throughout the year.
The NH Rewards loyalty programme has also reached 9.8 million members (9.5 million in 2019) and is one of the most comprehensive rewards schemes worldwide.
On the other hand, in 2020, the Group started operating 11 new hotels in the following destinations: London, Amsterdam, Verona, Rome, Florence, Venice, Budapest, Prague and Tozeur. As a whole, all the openings in the year contribute 1,966 rooms and, as a result, the Group now has 361 hotels with 55,371 rooms at 31 December 2020.
These openings include the hotels in the agreement reached on 07 September 2020 with Covivio, one of the leading European real estate investors, to operate a unique portfolio of 8 high-end hotels previously belonging to the renowned Boscolo portfolio, located in privileged locations in Rome, Florence, Venice, Nice, Prague and Budapest. This portfolio will be operated by the NH Hotel Group under a sustainable variable rental contract with a guaranteed minimum that includes a loss protection mechanism and extension rights at NH’s option. Most of the hotels will be converted to the Anantara and NH Collection brands after carrying out an in-depth repositioning programme in all properties promoted by Covivio over the coming months.
The Group also signed-up 2 new hotels with 487 bedrooms in 2020. These sign ups were on a rental basis in Copenhagen and under management in Tozeur. The sign ups were under the NH Collection brand and the luxury brand Anantara, respectively.
Revenues in 2020 totalled 536.2 million euros, a drop of -68.6% (-1,172.0 million euros). The Profit for the year attributable to the Parent was -437.2 million euros compared with 90.0 million euros in 2019. This decrease is wholly explained by the impact of Covid-19 on business since March.
In this year gross borrowing increased from 455.6 million euros in December 2019 to 998.1 million euros in December 2020. At 31 December 2020, cash and cash equivalents amounted to 320.9 million euros (289.3 million euros at 31 December 2019). Additionally, this liquidity was complemented by credit lines at the end of the year amounting to 25.0 million euros, compared to 306.1 million euros at 31 December 2019, of which 250 million euros corresponded to a long-term syndicated credit line (fully drawn down at the close of the 2020 financial year).
During 2020, rating agencies updated their outlooks on companies in the sector after the impact of Covid-19. Moody’s set NH Hotel Group’s rating at ‘B3’ with a stable outlook from ‘B1’, reflecting the impact of the Coronavirus outbreak. Fitch lowered it from ‘B’ to ‘B-’ due to the impact of the pandemic on the sector and in line with applying its parent and subsidiary rating linkage criteria. It should be noted that both agencies have stated that NH has sufficient liquidity to deal with the current crisis.
As a result of the public offering on 31 October 2018, Minor currently owns 369,165,609 shares in NH Hotel Group, S.A. representing 94.13% of its share capital. Since then, both companies have begun to explore joint value creation opportunities for the coming years.
Minor Hotels and NH Hotel Group have integrated their brands under a single corporate umbrella present in more than 50 countries around the world. In this way, a portfolio of more than 500 hotels under eight brands is organised: NH Hotels, NH Collection, nhow, Tivoli, Anantara, Avani, Elewana and Oaks, which completes a wide and diverse spectrum of hotel proposals connected to the needs and desires of global travellers.
Both groups currently share their knowledge base and experience in the sector in order to materialise short-term opportunities, taking advantage of the complementarity of their hotel portfolios to define a global sales strategy, the implementation of economies of scale with a broader customer base, explore development pathways for all their brands in different geographical areas and access to shared talent.
Covid-19 impact and the measures implemented
After the start of the Covid-19 pandemic in the middle of March in Europe, demand for hotels dropped drastically due to lockdowns, travel restrictions and social distancing, which drastically affected mobility.
During the months of lockdown, isolation and intense confinement from March until the end of May, around 95% of our hotels were closed and those which remained open were for charitable purposes. As a result, the second quarter was the quarter most affected by an extremely low level of demand.
The hotels’ gradual reopening began at the end of May and was done progressively depending on recovery of demand and with a focus on optimising profitability. In June, around 60% of the hotel portfolio was open, 70% in July, and around 80% at the end of August and September.
The smooth reopening of the hotels since June, after the portfolio was closed in March due to the intense lockdown, enabled the attraction of national customers during the third quarter. The reopening, in spite of the low level of demand due to mobility restrictions, was possible because of the flexible cost structure.
In 2020 NH Hotel Group put “Feel Safe at NH” into place in all its hotels. This is a new plan, with measures approved by experts, to face up to the health crisis caused by the SARS-CoV-2 coronavirus. The Company has reviewed all its procedures and made nearly 700 adaptations to its operating standards to preserve the health and safety of travellers and employees worldwide. Grouped into 10 main lines of action and backed by specialists in different fields, the measures implemented cover the digitisation of hotel services, adapting sanitation processes, including social distancing regulations in operations and the application of personal protective equipment, among others. We also reached a collaboration agreement with SGS, the world leader in inspection, analysis and certification, which allows us to follow up on the measurement and diagnostics protocol established to verify that the Group’s hotels are clean and safe environments.
As a result of the impact of the second wave of infections in Europe at end of the third quarter, apart from delaying additional reopenings that had been planned for the last months of 2020, hotels were closed once again and, at the end of December 2020, around 60% of the portfolio was open. The impact of the second wave and the stricter restrictions on mobility during the last months of the year resulted in a lower level of business when compared to the third quarter.
In spite of the low level of demand, its flexible operational and financial structure has enabled the Group to overcome the major challenges in 2020. Although the challenges will continue in the first months of 2021, the Group will benefit in the first stage of recovery from brand recognition, excellent locations and strong market positioning, once recovery is spearheaded in Europe.
Contingency Plan
As a result of the exceptional circumstances that occurred after the start of the global pandemic (Covid-19) that is affecting all the countries where the NH Hotel Group operates, the Group implemented different measures and plans to adapt the business and ensure its sustainability with the aim of minimising costs whilst hotels are closed, preserving the Company’s liquidity to meet operational needs and ensure that the recovery of the hotel activity is carried out efficiently and under maximum guarantees in terms of health and safety.
Given the lack of visibility on the speed of business’s recovery, the following discipline and cost control measures were implemented, and continue to be implemented, to minimise operational expenses and preserve liquidity:
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- Personnel: The Group carried out adjustments, temporary lay-offs and reductions in hours and wages in hotels and central offices caused by force majeure or production reasons. These processes continued during the second half of 2020, to reduce the work force temporarily, and will continue during the first part of 2021 in various countries.
- Operational costs:
– Negotiations with suppliers to reduce purchase costs, seek alternative, cheaper products and attain improvements to payment terms.
– All Group staff travel suspended since early March.
– Suspension of non-priority third party advisory services.
– Significant reduction in marketing and advertising costs despite the need to boost income.
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- Leases: Temporary reduction in fixed leases from the second quarter based on the health crisis scenario and the restrictions approved by all the governments that impact on essential elements of the business. These negotiations will continue in the first part of 2021.
- Capex: The greater part of investments were stopped, except those that are legally required or in a very advanced stage. Implementation of 2020 Capex (maintenance, refurbishment, systems and new openings) was reduced by around €100m which is a 50% decrease on the original plan for 2020.
- Strengthening liquidity:
– €275 million of credit lines were drawn down in March.
– The 2019 dividend proposal of €0.15 per share was withdrawn, as this would have involved an estimated pay out of around 59 million euros.
– Signing in May of a 3-year syndicated financing agreement for €250 million guaranteed by the ICO.
– In October the extension of the syndicated credit line maturity date to March 2023 was agreed. It originally matured on September 2021, with a €236 million limit.
– In addition to the waiver obtained in June 2020 for compliance with the financial covenants included in the syndicated credit line for the months of June and December 2020, unanimous approval from the loan institutions was also obtained by the NH Hotel Group to extend the waiver until June 2021. This waiver until June 2021 also extends to the syndicated loan with the ICO guarantee for €250 million.
Recovery of demand will occur once spread of the virus is tempered and vaccination is extended in the population. The Group will take advantage of its strong positioning in Europe, with excellent locations and high brand recognition, alongside the high weight of domestic demand.
The recovery stage will initially be driven by European domestic demand for leisure, as international mobility will continue to be low in the first stage. The business and corporate segment will take longer to recover, due to the macroeconomic environment and social distancing that restrict the size of events.
Covid-19 has brought forward a large part of the strategic strategies aimed at efficiency. During 2021, once the company has a better view of how demand recovers, the remainder of the initiatives will be defined in a new strategic plan.
ETHICS
Compliance System
Since 2014, NH Hotel Group has deployed a Compliance unit whose scope includes the following key areas:
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- Code of Conduct.
- Criminal Risk Prevention Plan.
- Internal Rules of Conduct.
- Procedure for Conflicts of Interest.
Code of conduct
In line with its ethical commitment and the best practices of corporate governance, NH Hotel Group has carried out communication, awareness and training campaigns on Compliance since the last update to the Code of Conduct in 2015. The Group’s Board of Directors is responsible for approving the Code of Conduct.
This document affects everybody working at the NH Hotel Group, applicable to employees, managers and members of the Board of Directors of both the Company and its group of companies, and also in certain cases to other stakeholders such as customers, suppliers, competitors and shareholders, and to the communities where NH operates its hotels.
The Code of Conduct summarises the professional behaviour expected of employees, senior management and Board Members of the NH Hotel Group and its group of companies, who commit to acting with integrity, honesty, respect and professionalism in the performance of their work.
The NH Group is committed to compliance with the laws and regulations of the countries and jurisdictions where it operates. This includes, amongst other things, laws and regulations on health and safety, discrimination, taxation, data privacy, competition, prevention of corruption and money laundering, and commitment to the environment.
The Code of Conduct is published in six languages on the official website of the NH Hotel Group, available to all stakeholders. Also, since 2017, NH employees can use the “My NH” app to access the code of conduct from their mobile devices. The staff at centres operating under NH Hotel Group brands also have a handbook and an FAQs document.
The head of Internal Audit manages the Confidential Channel for Complaints and Queries relating to the Code of Conduct. The procedure for managing complaints received via the complaints channel are specified in detail in the Code of Conduct. This procedure guarantees confidentiality and respect in every phase, and protects against retaliation.
Over the course of 2020, there were 38 reports of alleged breaches of the Code of Conduct, all of which were investigated, with appropriate disciplinary measures being taken in 30 cases.
Compliance Committee
In 2014 the NH Hotel Group created a Compliance Committee consisting of certain members of the Management Committee and senior directors. This body is empowered to supervise compliance with the Group’s Internal Rules of Conduct, Procedure for Conflicts of Interest, Code of Conduct and Criminal Risk Prevention Plan.
The Compliance Committee supervises the management of the Compliance Office and is empowered to impose disciplinary measures on employees in matters within its scope.
In the course of 2020, there were three meetings of the Compliance Committee.
The Company has decided to roll out its crime prevention model to other countries (Germany, Holland, Belgium, United Kingdom, Colombia, Mexico and Argentina), having constituted local Compliance Committees in the Business Units covering the aforementioned countries.
Compliance Office
The Compliance Office, led by the Group’s head of Compliance, is responsible for disseminating and supervising compliance with the Code of Conduct and for drafting the Criminal Risk Prevention Plan. The Compliance Office reports directly to the Compliance Committee.
Anti-Corruption and Fraud Policy
NH Hotel Group has an anti-corruption and fraud policy which was initially approved by the Board of Directors in January 2018 and amended in May 2019. The general principles of the Anti-Corruption and Fraud Policy are:
• Zero tolerance of bribery and corruption in the private and public sectors
• Behaviour must be appropriate and legal
• Transparency, integrity and accuracy in financial information
• Regular internal control
• Local legislation shall take precedence if stricter
Drawing up of the anti-money laundering policy
NH’s Code of Conduct reflects a commitment to respect the applicable regulations on anti-money laundering policy, with special attention to diligence and care in the processes of evaluating and selecting suppliers, and in payments and collections in cash. Therefore, the Compliance Committee meeting of 19 December 2018 approved a policy that reinforces NH Hotel Group’s commitment to anti-money laundering and combating the financing of terrorism, with the aim of detecting and preventing NH Hotel Group, S.A. and its group companies from being used in money laundering or terrorist financing operations. Said Policy was approved by the Board on 13 May 2019.
The aforementioned Policies have been duly communicated to all Group employees and the corresponding online training has been made available to ensure their disclosure and understanding.
RISK MANAGEMENT
Risk management governance
The Company’s Board of Directors is responsible for overseeing the risk management system, in line with the provisions of Article 5 of the Regulation of the Board of Directors. As regulated by Section 3 of article 25 b) of the Regulation of the Company’s Board of Directors, the Audit and Control Committee supports the Board of Directors in supervising the effectiveness of the internal control, internal audit and the risk management systems, including tax risks. In this regard, carried out during the various meetings held in 2020 were control and monitoring of the Company’s main risks, their evolution in recent years and the main mitigation and response measures.
On the other hand, amongst other functions, the Company’s Management Committee manages and controls risks based on risk tolerance, assigns ownership of the main risks, periodically monitors their evolution, identifies mitigation actions as well as defining response plans. For these purposes, the Executive Risk Committee, made up from members of the Management Committee and Senior Executives, supports the Management Committee in such oversight, as well as promoting a culture of risks in the Company. For them, the Company has an internal risk management manual that details the principles, processes and controls in place.
Risk Management, integrated into the Internal Audit department, is responsible for ensuring the risk management and control system in the Company functions properly and is linked to the strategic objectives. To ensure that there are no conflicts of independence and that the NH risk management and control system works as set out in the Corporate Risk Management Policy, an independent third party has reviewed its operation annually for the last two years.
As an additional guarantee of independence, Risk Management is independent of the Business Units and, as with Internal Audit, it maintains a functional reporting line to the Audit and Control Committee.
In line with the above, NH follows the Three Lines model published in July 2020 by the Global IIA:
a. First line: carried out by each function (business and corporate units) that owns the risk and its management (Operations, Commercial, Marketing, etc.).
b. Second line: performed by the functions responsible for risk supervision (Risk Management, Compliance, Data Protection, Internal Control, etc.)
c. Third line: carried out by Internal Audit that affords independent assurance.
The NH Hotel Group’s Corporate Risk Management Policy (approved by the Board of Directors in 2015), as well as the internal manual that implements it, aim to define the basic principles and the general framework of action to identify and control all types of risks that may affect the companies over which the NH Hotel Group has effective control, as well as ensuring alignment with the Company’s strategy.
Risk management model
NH Hotel Group’s risk management system, rolled out at Group level, aims to identify events that may negatively affect achievement of the objectives of the Company’s Strategic Plan, providing the maximum level of assurance to shareholders and stakeholders and protecting the group’s revenue and reputation.
The risk management model is based on the integrated COSO IV ERM (Enterprise Risk Management) framework, and includes a set of methodologies, procedures and support tools that allow the NH Hotel Group:
1. To adopt adequate governance in relation to the Company’s risk management, as well as promoting an appropriate risk management culture.
2. To ensure that the Company’s defined objectives are aligned with its strategy and risk profile.
3. To identify, evaluate and prioritise the most significant risks that could affect achievement of strategic objectives to identify measures to mitigate these risks, as well as establish action plans based on the Company’s tolerance to risk.
4. To follow-up on the action plans established for the main risks, within a continuous improvement model framework.
The Group’s Risk Map is updated annually and approved by the Board of Directors once reviewed and validated by the Audit and Control Committee. The Company updated its Risk Map in 2020 through a process in which 22 Senior Executives identified and assessed the main risks faced by the Company. This Map was approved by the Board of Directors at its meeting on 29 July 2020.
Each of the main risks on the Company’s Risk Map is assigned a Risk Owner who, in turn, is a member of the Management Committee. Each risk owner is responsible for mitigation measures, either existing or in progress, for their risks and the implementation status of action plans.
Each year, coinciding with the update of the Risk Map, Risk Management is responsible for reassessing the risk catalogue, both financial and non-financial. The final catalogue is validated with the Senior Executives who take part in the process, as well as with the bodies involved in its validation (Management Committee, Executive Risk Committee and Audit and Control Committee) and approval (Board of Directors). Additionally, Risk Owners can report/suggest a new risk to the Risk Office during the year.
In general, the risks to which the Group is exposed can be classified into the following categories.
a. Financial Risks: events that affect financial variables (interest rates, exchange rates, inflation, liquidity, debt, credit, etc.).
b. Compliance Risks: arising from possible regulatory changes as well as non-compliance with internal and external regulations.
c. Business Risks: generated by inadequate management of procedures and resources, whether human, material or technological.
d. Risks from External Factors: arising from natural disasters, political instability or terrorist attacks.
e. Systems Risks: events that could affect the integrity, availability or reliability of operational and financial information.
f. Strategic Risks: produced by difficulty accessing markets and difficulties in asset disinvestment.
Apart from this classification, the Company has identified emerging risks and ESG risks that it particularly monitors (described in the annual non-financial information report).
New data protection plan
Due to the mandatory application of the General Data Protection Regulation (GDPR) in the European Union from May 2018, NH Hotel Group has launched a plan to guarantee compliance with the regulation, included in and aligned with the Transformation Plan.
This new plan includes general privacy measures by default, so that all the company’s activities, applications, processes, and projects will take privacy matters into account. The plan includes key initiatives such as the effective management of personal data infringements, the data subject’s consent to the gathering and use of their data, and a policy for the destruction of physical or virtual data. The plan also provides for the creation of a Data Protection Officer within the NH Hotel Group.
NH ROOM 4 SUSTAINABLE BUSINESS PILLARS AND COMMITMENT
The NH Hotel Group performs its hotel activity with the ambition of leading responsible behaviours, and creating shared value at an economic, social and environmental level wherever it operates. With this philosophy, in 2020 the Company continued with its strategy, in which one of the pillars is NH ROOM4 Sustainable Business; a key part of the Company’s global strategy.
The strategic vision of NH ROOM4 Sustainable Business is, in turn, based on three fundamental management levers: NH ROOM4 People, NH ROOM4 Planet and NH ROOM4 Responsible Shared Success, all of which are framed under the same premise of sustainable and ethical principles, responsible culture and spirit of citizenship.
Convinced it is moving in the right direction to achieve the next sustainability challenges, the Company is aligned with the Sustainable Development Goals (SDGs) to which it can contribute and undertakes to continue creating long-term and global value within the framework of the 2030 Agenda.
A noteworthy milestone for NH Hotel Group in 2020 was participating, for the second time and voluntarily, in the Corporate Sustainability Assessment (CSA) carried out by the sustainable investment agency SAM, gaining 3rd place in the ranking for companies on the Dow Jones Sustainability Index, and standing out as one of the most sustainable leaders in the sector. This result consolidated NH Hotel Group as one of the benchmark companies for sustainability in the industry worldwide, and backs up NH Hotel Group’s strength in social, environmental and economic performance. This improvement demonstrated by the Company this year has led it to achieve the Bronze Class recognition in “The Sustainability Yearbook 2021” published by S&P Global, as well as the Industry Mover distinction for registering the greatest improvement in the sector in the last year.
Since 2013, the NH Hotel Group has been listed on the FTSE4GOOD index and renews its presence year after year thanks to the responsible management of the business and the improvements implemented. The index was created by the London Stock Exchange to help investors include environmental, social and governance (ESG) factors into their decision making.
The NH Hotel Group has reported its commitment to and strategy against climate change to CDP Climate Change since 2010 and received a B in its annual ranking. With this rating, the NH Hotel Group once again recognises its vision of placing sustainability as a strategic value of the corporation, which has acted as a lever of transversal value for the Group for over a decade.
A demonstration of its commitment to gender equality, NH Hotel Group, for the second year running, was included on the Bloomberg GEI 2021 index, being the only Spanish hotelier in the 380 companies listed in the index.
NH Response
The NH Hotel Group is firmly committed to creating a positive impact where it operates, irrespective of the circumstances in which it finds itself. Due to the exceptional situation the Company finds itself in because of the impact of Covid-19, from the outset of the pandemic the Company identified a series of initiatives to help governments and health authorities and social organisations deal with the crisis.
In this regard, NH Hotel Group made hotels available to authorities so that they could be used to manage 3,373 patients and thereby help to alleviate hospitals. Hotels were also designated as special accommodation for 2,720 health professionals.
Due to the closure of the hotels, it was decided to donate food and staple goods to associations and foundations that NH Hotel Group has collaborated with in the past. Therefore, about 12,400 kg of food from the hotels closed were donated to food banks and soup kitchens, as well as 30,000 amenities kits, 7,000 gloves, 6,000 shower caps, 2,000 rubbish bags, 55 beds and 600 blankets to health centres.
The company joined the #chefsforspain movement launched by chef José Andrés to deliver two million meals through its World Central Kitchen initiative. The NH Hotel Group took part with the kitchens of the Anantara Villa Padierna (Marbella), NH Collection Eurobuilding (Madrid) and NH Collection Finisterre (A Coruña) hotels, where 138,759 meals were cooked to donate to the most vulnerable groups during the crisis.
Currently, the commitment to donating meals continues to run, raising 5,600 meals through the NH Runners initiative: 1km = 1 meal during the “Together with Love” corporate volunteering week.
Human Resources strategy
Throughout 2020, NH Hotel Group had to act to alleviate the severe consequences of Covid-19 on its business and profits. With this aim, the Company, always with the purpose of protecting employment in the long term as far as possible, launched a contingency plan to temporarily reduce its staff and, as a result, adjust its personnel costs to the reality of the business, with contract suspensions, reductions in working days and other temporary measures taken in accordance with employment legislation in each country.
As part of the NH Hotel Group’s Contingency Plan to adapt its operations and ensure business viability, the Company carried out temporary lay-offs and reductions in hours and wages in hotels and central offices due to force majeure or production reasons subject to different closure mandates. 62% of staff, at all levels, were affected by one of these measures. Men and women were equally affected. Even in such an adverse context, NH Hotel Group has sustained its corporate culture and commitment to its values, seeking coherence and fidelity in its current People strategy, convinced that it is what is needed to gain the credibility and trust of its team members, who are the Company’s greatest asset.
The initial aim during 2020 was to consolidate key policies and projects within the Company’s Human Resources Strategic Plan. However, the Covid-19 crisis involved an about turn for all the planned projects. Throughout the year NH Hotel Group still maintained the focus on its strategic pillars, but rethinking each action and initiative to give them sense and use within the complicated individual, social and corporate context that the pandemic involves:
- Global leadership and talent management: Continue promoting and transmitting leadership within the NH Hotel Group, focusing efforts and investment on internal talent that has the potential to make a difference in the Company’s strategy and to become models of our culture.
- Maximum performance and better workplaces: All employees are encouraged to develop and do their best, where high performance is differentiated, recognised and rewarded. Making our employees our best brand ambassadors.
- Transformation and reinvention: Searching for, assessing and leveraging opportunities to be more efficient (outsourcing, digitisation, etc.), evolving our working environment and acquiring advanced analytical and predictive skills.
With this working framework, NH Hotel Group launched a multitude of initiatives to care for its employees in these challenging times. “With You” stands out among them. It is an internal engagement project designed to give the teams tools, advice and training resources to use to strengthen key skills during this phase, not just at professional level, but also to improve their personal well-being. Using “With You”, and amongst other actions, NH employees have received content aimed at stress management, have accessed digital kiosks free-of-charge, have had language classes within reach, have been able to collect office material to improve their remote working experience, and have had access to two external, international e-learning platforms: Typsy and GoodHabitz. Both platforms include multiple training resources so that each employee can work on their personal development plan, gain new knowledge and, ultimately, continue investing in their professional growth.
The average number of people employed by the Parent Company and consolidated companies in 2020 is 11,112 employees. The corporate culture of the NH Hotel is also based on the cornerstones of diversity, equality and inclusion. Therefore, employees are 132 different nationalities and, at 31 December 2020, 51% of all staff were women.
Also, the average age of employees in 2020 was 39.7 years old, and their average time with the company is 9.4 years.
Finally, as part of the Company’s recovery strategy, Feel Safe at NH is a set of health and safety protocols, certified by safety experts, and implemented in all hotels to guarantee health, safety and social distancing for both guests and team members. Due to the involvement of Hotel Managers and Heads of Department, this situation moved forward and it was ensured that employees took on, followed and implemented the new Health and Safety standards in the hotels in all operations.
Environmental sustainability
For the NH Hotel Group, environmental sustainability drives innovation, seeking to surprise our guests as well as achieving efficiencies in the use of natural resources, particularly water and energy. In our responsible commitment to the Planet, we work to minimise our impact on Climate Change, increase the efficiency of resources and develop more sustainable services. All this minimises our environmental footprint with responsible consumption of natural resources.
The Company’s environmental strategy is driven by NH ROOM4 Planet, which defines the roadmap for complying with the commitments acquired in the fight against climate change and progress towards decarbonisation, efficient management and responsible consumption of resources and the circular economy, and developing more sustainable products, but also involving employees, suppliers, shareholders and customers as key players in achieving them.
In order to formalise the extension of these commitments to the entire operation and NH Hotel Group’s decision making process, in 2020, at a meeting of the Board of Directors held on 29 July, the new Environmental and Energy Policy was approved.
At NH Hotel Group the fight against climate change is a fundamental strategic value. This is way the Company was the first Spanish hotelier to establish targets for reducing emissions, scientifically validated by the Science Based Targets initiative (SBTi) last year. Therefore, NH Hotel Group formalised its commitment to reduce its carbon emissions by 20% throughout its value chain up to 2030, preventing the emission of more than 70,000 tonnes of CO2 into the atmosphere. This objective marks NH Hotel Group’s roadmap towards a significant reduction in its activity’s carbon footprint in the coming years, aligned with the purpose set in the Paris Agreement, and join the efforts that are being made globally towards the transition to a low carbon economy.
NH Hotel Group hotels have and ISO 14001 environmental management system and an ISO 50001 energy efficiency system, certified for accommodation, catering, meetings and events services. At the close of 2020, 47% of the hotels in Germany, Spain and Italy already had ISO 14001 or ISO 50001 certification. There are group hotels that also have other environmental certifications, such as: BREEAM, LEED, Green Key, Hoteles+Verdes. The aim is to have an increasingly large number of hotels with globally recognised environmental certifications that are specific to the tourism sector and approved by the Global Sustainable Tourism Council, the most important body of reference.
The exceptional and irregular operating conditions of the hotels since March and throughout the rest of the year do not reflect the continuity of the environmental achievements achieved since 2007. In absolute terms, the carbon footprint and energy consumption have reduced by 37% compared to 2019 and water extraction by 52%.
NH Hotel Group remains committed to renewable energy, which reduces its carbon footprint. This consumption of green energy, certified as renewable, is available in 100% of our hotels that are consolidated in Spain, Italy, the Netherlands, France and Luxembourg, covering 64% of the total electricity consumed in Europe.
SHARES AND SHAREHOLDERS
NH Hotel Group, S.A. share capital at the end of 2020 comprised 392,180,243 fully subscribed and paid up bearer shares with a par value of 2 euros each. All these shares carry identical voting and economic rights and are traded on the Continuous Market of the Spanish Stock Exchanges.
According to the latest notifications received by the Company and the notices given to the National Securities Market Commission before the end of every financial year, the most significant shareholdings at 31 December 2020 and 2019 were as follows:
The aforementioned (indirect) shareholding of MINT in NH Hotel Group, S.A. is the result of the IPO made by MHG Continental Holding (Singapore) Pte Ltd. on 11 June 2018 for 100% of the shares that were part of the share capital of NH Hotel Group, S.A., the result of which was that MINT acquired, through its wholly owned subsidiary MHG Continental Holding (Singapore) Pte. Ltd, shares representing 94.13% of the share capital of NH Hotel Group, S.A.
The average share price of NH Hotel Group, S.A. in 2020 was 3.58 euros per share (4.57 euros in 2019). The lowest share price of 2.10 euros per share (3.89 euros in January 2019) was recorded in October and the highest share price of 5.34 euros per share in January (5.28 euros in March 2019). The market capitalisation of the Group at the close of 2020 stood at 1,349.10 million euros.
At 31 December 2020, the Group had 103,947 own shares, compared to 374,464 own shares at 31 December 2019. The reduction in treasury shares over the period can be explained by the following movement:
- On 10 April 2019, the Group signed a liquidity contract to manage its treasury shares with Banco Santander, which entered into force on 11 April 2019. The total number of shares allocated to the securities account associated with the new Liquidity Contract at 31 December 2020 is 103,947 shares and the amount allocated to the cash account is 400,000 euros. At 31 December 2019, the number of shares assigned to the liquidity contract was 83,176 shares. The negative effect recorded in reserves for operations carried out in the 2020 financial year was 245 thousand euros.
- In the 2020 financial year, the first cycle of the second long-term incentive plan was settled (Note 25). For the settlement of this second cycle a purchase of 110,350 treasury shares was made. The second cycle was settled by the delivery of 401,638 shares. The total impact recorded in equity due to these movements was 1,525 thousand euros.
Liquidity contract for treasury shares management
On 10 April 2019, the NH Board of Directors entered into a liquidity contract to manage its treasury shares with Banco Santander, S.A. The Contract became effective on 11 April 2019.
This contract is in accordance with the liquidity contract model in Circular 1/2017 of 26 April from the National Securities Market Commission on liquidity contracts for the purpose of its acceptance as a market practice.
The total number of shares allocated to the securities account associated with the new Liquidity Contract is 103,947 shares and the amount allocated to the cash account is 400,000 euros.
The Liquidity Contract was agreed upon by the Board of Directors at the proposal of the Proprietary Directors on behalf of the shareholder Minor as a measure to encourage and favour the liquidity of the Company’s shares taking the current market conditions into account.
Average period for payment
Below is the information required by Additional Provision Three of Law 15/2010 of 5 July and modified according to the Resolution of 29 January 2016, of the Institute of Accounting and Auditing, on the information to be incorporated in the record of annual financial statements relating to the average period for payment to suppliers in commercial transactions of Spanish companies.
The above information on payments to suppliers of Spanish companies refer to those which by their nature are trade creditors due to debts with suppliers of goods and services. The table includes, therefore, the “Commercial Creditors and Other Accounts Payable” item in current liabilities of the consolidated balance sheet.
The average period for payment to suppliers has been calculated, as stated in the Resolution of 29 January 2016, of the Institute of Accounting and Auditing, using the weighted average of the two ratios explained below:
– Ratio of paid transactions: average payment period of transactions paid in each year weighted by the amount of each transaction.
– Ratio of transactions pending payment: average period between the invoice date and the end of the year weighted by the amount of each transaction.
During 2020, 24,706,896 shares in NH Hotel Group, S.A. were traded on the Continuous Market (11,383,314 shares in 2019) with average daily share trading on the Continuous Market of 96,511 shares (44,640 shares in 2019).
EVOLUCIÓN NH HOTEL GROUP vs. IBEX 35
1 JANUARY 2016-31 DECEMBER 2020
FUTURE OUTLOOK
Covid-19 has paralysed the world and tourism is one of the most affected economic sectors. In several regions of the world, borders remain closed to tourism and the Covid-19 pandemic continues to spread. The cost to human life, economic losses and social impact continue to increase. Even when the worst seems to be over, the threat of further outbreaks is ever present.
The Covid-19 pandemic impacted economic activity more negatively than expected in 2020 and, according to estimates, the recovery will be more gradual than previously predicted. The latest projections from the International Monetary Fund (IMF; World Economic Outlook) for January suggest an unprecedented decline in global activity due to the Covid-19 pandemic, and point to a fall in global economic growth of -3.5% in 2020.
The recent approval of vaccines has nurtured the hope that the pandemic reaches a turning point later in the year, but the new waves and strains of the virus create concerns about the outlook. In the middle of this exceptional uncertainty, it is projected that the global economy will grow by 5.5% in 2021 and 4.2% in 2022. The projections for 2021 had been revised up by 0.3 percentage points compared to the previous forecast, in the light of the expectations that business with strengthen later in the year due to the vaccines and the additional back up of the policies of some large economies.
The latest survey amongst the UNWTO’s group of experts shows different forecasts for 2021: almost half of those surveyed forecast a better panorama in 2021 than in 2020. The general forecasts of an upturn in 2021 seem to have worsened compared to the previous survey.
The UNWTO’s group of experts forecast an increase in demand for domestic tourism and “slow travel” experiences. In the longer term, the majority of the experts do not foresee a return to 2019 levels before 2023. The UNWTO extended scenarios for 2021-2024 indicate that international tourism could take between two and a half and four years to return to 2019 levels.
Non-financial Information Statement
The 2020 consolidated Non-Financial Information Statement, issued by the Board of Directors on 24 February 2021, contains all the non-financial information required by Law 11/2018 of 28 December 2018. This document is presented as a separate report, is part of this Consolidated Management Report and is available on the corporate website of the NH Group (https://www.nh-hoteles.es/corporate), within the section on Annual reports included in financial information in the shareholders and investors section and as an appendix of this document.
Annual corporate governance report
The company’s Annual Corporate Governance Report, issued pursuant to the provisions of Article 49.4 of the Spanish Code of Commerce can be found from the listing date of this annual report in the NH Group’s corporate web (https://www.nh-hoteles.es/corporate/en) and in the CNMV website (www.cnmv.es).
EVENTS AFTER THE REPORTING PERIOD
On 12 February 2021, the Group informed the workers of its central and corporate services in Spain of its intention to begin collective redundancies. The documentation that will make up the corresponding file will be transferred in a timely manner to both the labour authority and to the Committees that are set up for the negotiations. The conditions and the number of those affected will be subject to negotiation. All of this happens in accordance with the provisions of Article 51 of Royal Legislative Decree 2/2015, of 23 October which approves the Consolidated Text of the Workers’ Statute Law and Royal Decree 1483/2012, of 29 October that approves the Regulations for the Procedures for Collective Redundancy and Suspension of Contracts and Reduction of Working Hours.