CHAIRMAN AND
CHAIRMAN’S MESSAGE
We have just left a year in which the pandemic cancelled tourism for several months in practically the whole world. The health crisis has brought pain and suffering to many families who have had to bear the disease and the loss of loved ones in the most adverse circumstances. On behalf of the Board of Directors of NH Hotel Group, I would like to pay heartfelt homage to all those affected and convey our sympathy and best wishes to their families.
Of all economic sectors, tourism has been most affected by COVID-19. World tourism had its worst year on record in 2020, with a 74% drop in international arrivals and one billion fewer international arrivals than in the previous year, according to data from the World Tourism Organization. Despite a brief rebound in the summer, international arrivals in Europe fell by 70% over the year, and in the Americas by 69%. Activity in Spain also dropped to the bare minimum. According to the National Statistics Institute, last year 19 million foreigners traveled to Spain, which represents a drop of 77.3%. In the whole year only 1.4 million foreigners came to Spain on professional and business trips, down 74.9% from the previous year. With these sharp drops, total foreign tourist spending in the year totaled just 19.74 billion euros, one fifth of the normal figure.
Such a drastic and prolonged shutdown in such a strategic sector has been a real catastrophe. The businesses in the sector have had to give the best of ourselves to resist and ensure viability; firstly, the corporate viability and that of our professionals, and then that of an entire sector that is essential to the model of life and sustainable development of our country. Until now, the public aid provided has been insufficient, although the option assigned to Spain in the European Reconstruction Plan, named Next Generation EU, represents a historic opportunity for the Spanish economy, and especially for its tourism sector, which cannot be squandered.
Ambitious and transformative policies are needed to face the main structural challenges that have been affecting the competitiveness of the tourism sector for years. At the same time, they should be aligned with the great global challenges of digitalization and climate change. It is necessary to design a cross-cutting strategy for the transformation and gradual repositioning of the country’s tourism towards a de-seasonalized model, much more qualitative and based on a new governance of public-private collaboration. The desired goal should be to guarantee sustainable growth that ensures the greatest social and economic profitability, public support and the lowest environmental impact.
While these opportunities are being specified, the sector has sought to reinvent itself. In such a difficult context, to the extent of their possibilities and showing tireless responsibility, hotel professionals have made every effort to continue providing an attentive, safe and tremendously human service. In our hotels we have welcomed patients and health professionals during the worst moments of lockdown. We have activated hygiene protocols, safety systems and personal distancing in record time. While individualized service has always been important in our corporate culture, in 2020 we have also developed our more social profile in a specific and very committed way, undertaking charitable initiatives and providing support to the specific needs of the different public administrations.
For example, we have taken advantage of the closed kitchens of the NH Collection Eurobuilding and Anantara Villa Padierna hotels, two of our most emblematic assets, to collaborate in charity projects such as the World Central Kitchen, promoted by chef José Andrés. In them, we prepared part of the twenty thousand meals that were distributed every day to the most vulnerable families during lockdown. At the same time, our Group has implemented innovative solutions to redefine the guest experience while assuring maximum safety. Through Feel Safe at NH, we have redefined our health protocols to offer our guests a safe place and a unique experience capable of restoring their enthusiasm and desire to travel. We also completed pilot programmes to perform antigen tests on our premises for guests and staff as part of the Covid Safe Environment project.
During the year, the exceptional situation generated by the pandemic has forced the Board of Directors of NH Hotel Group to protect the safety of employees and guests as much as possible and stress the principles of good governance and social responsibility. We have supervised the shielding of the Company’s liquidity and viability, because these two attributes condense the mandatory commitment of any Board towards its different stakeholders. Based on this mandate, in April 2020 it was agreed that the proposed distribution of a gross dividend of 0.15 euros per share would be cancelled and that the 90 million euros obtained as consolidated profit in 2019 would be maintained as legal and voluntary reserves. This was a measure that was as necessary as it was urgent in order to preserve cash in the most uncertain situation of the lockdown.
The task of the Board and its Committees has focused more on financial oversight and risk analysis, taking the utmost care at all times to respect good practice and the best corporate governance standards. The pertinent appointments were also completed: the renewal of Ramón Aragonés as CEO, ratified at the Annual General Meeting, and the appointment by co-optation of Rufino Pérez as a new Executive Director, following the required favourable report by the Nominations, Remuneration and Corporate Governance Committee. We have assumed control and supervision of management objectives and budgets, the financial and investment policy, decision on dividends and corporate social responsibility, in coordination and alignment with the management team and all the Group’s professionals. In the face of such adverse conditions, commitment, collaboration, and dedication have been more necessary than ever, and have presided over the work of the entire organization day after day without respite.
We have also stayed true to the Company’s guiding principles of environmental commitment and to gender equality. We have been included again in the Bloomberg Gender Equality Index 2021, with top scores in women’s leadership and talent pool, equal pay and gender parity, and anti-sexual harassment policies.
It is worth noting that the sustainable investment agency SAM, recently acquired by S&P Global, has recognized us as one of the three most sustainable hotel chains in the world. The commitments in this area and the improvement we have shown this year have led us to obtain the Bronze Class award in the Sustainability Yearbook 2021, as well as the recognition of “Industry Mover”, thanks to the improvement in our assessment compared to the previous year.
In what has probably been the most complex year of its history, this brief overview of the Company’s governance activity proves that we have not let our guard down for a single day. The Board has been and will be firmly committed to assuring the best future for its professionals, shareholders and customers. A future that, logically, involves guaranteeing corporate viability and the best positioning of our brands. Ours is a sector in permanent movement. Right now, it is defining a profound change in both leisure tourism and in the business, conventions and events segment. Rest assured that, with the effort and collaboration of all of us, NH Hotel Group will once again be a relevant player in the increasingly imminent rebirth of tourism.
On behalf of the Board of Directors of NH Hotel Group, thank you very much.
Alfredo Fernández Agras
Chairman NH Hotel Group
CEO’S MESSAGE
In 2020, NH professionals have once again demonstrated an extraordinary capacity for commitment, dedication, responsibility and efficiency. This is not the first time we have gone through exceptional situations. Ten years ago, following the severe worldwide economic crisis, we had to reinvent ourselves in the most adverse context. Year by year, with everyone’s efforts, we managed to turn that catharsis into a success story, completing an ambitious strategic plan, consolidating our positions as leaders and posting the best results in our history. Then came the worst worldwide health crisis in the last hundred years and it has left the entire tourism sector on the brink of disaster. From the very first day though, our entire organisation has been doing its best to reinvent itself. We have not given up and we never will until we return NH to the privileged future and to the brand recognition that has made us identifiable and appreciated in the market.
I sincerely believe that our Group has risen to the challenge. COVID-19 and its successive waves have constituted a devastating worldwide tragedy that has affected us all. On behalf of NH Hotel Group, I would like to convey our sympathy to all those who have suffered the illness or loss of loved ones during this time. Life has changed for all of us very quickly over these months. Health safety, hygienic measures and personal distancing have been embedded in our routines. Going forward, they will be vital in our everyday life, also in tourism. Many times, history has evolved as a result of the coordinated response to a hitherto unseen problem. In all crises, we have tried to preserve the social and cultural traits that best define our lifestyle. I believe that tourism is one of these great values, and that we will only recover normality when we can travel again as we continue to dream of doing.
We in the management team of NH Hotel Group, have resolved to keep the Company in the best conditions for when that time comes. Assuring corporate viability has been and will continue to be the main goal and I believe we have taken the right steps to achieve it. Even so, this has been an extremely difficult year, and today the situation is still very complicated despite the hope that the vaccines offer us. The strict lockdown and successive restrictions forced us to implement immediate measures with a twofold objective: preserving corporate liquidity and at the same time strengthening our customers’ confidence. Our entire organization rallied to preserve the health of guests and employees. Almost immediately, we offered safe environments in which we could continue to offer a service that exceeds guests’ expectations. In a few weeks, we managed to redefine the guest experience. We have taken responsibility for each moment of their stay; from the time they access our website and consider booking until their stay is over and they leave the hotel.
As soon as we learned of the worldwide health crisis, our Group also started to apply an exhaustive Contingency Plan to adapt the business and assure its sustainability. We focused on minimizing costs and preserving liquidity, with such urgent and painful measures as adapting the workforce to a minimal market, with temporary employment contract suspensions aligned with the measures introduced by the different Administrations. We have also reduced marketing expenses to a minimum, renegotiated rents and improved conditions with suppliers. We have reduced overall operating expenses to less than half, and halved total costs, including rent. In this way, we have been able to preserve our cash strength month after month. In the second quarter, in the midst of a generalized confinement in the markets where we operate, the monthly cash outflow reached 55 million euros. In this way we have managed to preserve our solid cash position. At the end of the year, available liquidity remained above 345 million euros.
Furthermore, to preserve and strengthen liquidity, the available credit lines were drawn down at the beginning of the year in the amount of 275 million euros. In May, a new syndicated loan of 250 million euros with ICO guarantee and a 3-year term was agreed. In October 2020, the Company entered into an agreement with Spanish and international lenders to extend the syndicated revolving credit facility, or RCF, for 236 million euros, originally maturing in 2021, until 2023, as well as waiving the measurement of financial covenants until December 2021 for both the RCF facility and the ICO loan. This means that the Group will not have to deal with any relevant debt repayments until 2023. Until then, we will maintain our firm strategy of preserving liquidity on the one hand and the Group’s significant competitive advantages on the other, both of which will be leveraged as soon as the new normality is consolidated. Each quarter that we overcome in under such adverse conditions brings us one step closer to this goal.
In fact, in the third quarter of 2020 we managed to reopen up to three quarters of our portfolio. We were then able to attract domestic demand in the European countries where we operate. We increased revenues almost fivefold compared to a second quarter at record low levels. Furthermore, we managed to achieve something that is, if anything, even more important: consolidate a very flexible structure, where every reopened hotel is able to achieve operational balance even with very low demand. It has been an important differentiating factor. It gives us strength, makes us very adaptable and resistant to such a volatile demand as the current one, and safeguards the differential character and efficiency of our offer for when the definitive reactivation of the sector arrives.
The excellent prior work carried out on innovation and technology has proved decisive in all these achievements. Going forward, technology and digitalisation will be as essential to what a hotel has to offer as its location or the quality of the rooms. The travel experience now always involves using a cell phone to personalise each stay. Alongside this, we have modified our restaurant service, without compromising the importance of gastronomy as an essential part of the guest experience. We will continue offering the best catalogue, with full confidence in our Michelin stars, and our cocktail and terrace services. The progress made through the combined strategy of profiting from the hotels opened, protecting liquidity and deferring debt maturities will also allow the Group to maintain the current structure of its portfolio, except for the periodic asset rotation that may occur, as is the usual practice year after year among large companies in the sector.
They say that every destination is just the beginning of the next stage. We have experienced this firsthand. It is true that the favourable evolution and financial strength achieved between 2016 and 2019 have made things easier for us, but even so, the challenge is still huge. The timely operational and financial transformation completed in previous years, together with the measures taken, will enable the Group to withstand the current environment and overcome the situation in the best possible conditions. That is where the resilience, commitment and dedication of NH’s professionals comes in, the key to ensuring that, when the pandemic is overcome, and it will be overcome, travellers who are considering their next trip will continue to visit our website and trust us to make their decision. I insist that we will only leave the crisis behind us when we can once again fully enjoy our hotels. At NH Hotel Group, we are working to the maximum to be prepared and to continue providing the best service when that day, which is getting closer and closer, finally arrives.
I would like to close this letter by highlighting our commitment to society and to the planet. Our future growth must be accompanied by a responsible management model that integrates all the areas of the Company and paves an irrevocable road towards an NH Hotel Group that is more sustainable, responsible, and respectful of the environment and the society in which we live. Additionally, as a member of the Spanish Network of the United Nations Global Compact, the Company is committed to continuing to show its contribution to the SDGs, focusing especially on those directly related to our activity through the different sections of the Report.
Thank you very much
Ramón Aragonés
CEO NH Hotel Group