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Edited Transcript of NHH.MC earnings conference call or presentation 14-May-19 11:00am GMT

Q1 2019 NH Hotel Group SA Earnings Call

Madrid May 15, 2019 (Thomson StreetEvents) -- Edited Transcript of NH Hotel Group SA earnings conference call or presentation Tuesday, May 14, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Beatriz Puente Ferreras

NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director

* Javier Vega-Penichet

NH Hotel Group, S.A. - SVP of Investments & IR

* Ramón Aragonés Marín

NH Hotel Group, S.A. - CEO, MD & Executive Director

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Conference Call Participants

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* Francisco José Rodríguez Sánchez

Banco de Sabadell. S.A., Research Division - Research Analyst

* Miguel Medina-Sivilotti

JB Capital Markets, Sociedad de Valores, S.A., Research Division - Director

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Presentation

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Operator [1]

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Welcome to NH Hotel Group First Quarter 2019 Results presentation. I now hand over to the speaker.

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Javier Vega-Penichet, NH Hotel Group, S.A. - SVP of Investments & IR [2]

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Good morning to all. Welcome to NH Hotel Group Q1 2019 results conference call. This is Javier Vega-Penichet from Investor Relations.

Today with you, our CEO, Ramón Aragonés will share with you main guidelines of the strong operating and financial results released yesterday with a focus on the top line. He will also comment on the key integration initiatives with Minor Hotels. Then, our CFO, Beatriz Puente will follow with a more detailed evolution of the results and the strong financial position of the Group. She will explain IFRS 16 accounting impacts from 1st January this year, both in P&L and balance sheet. Finally, a Q&A session will be open to all of you.

So let's get started. Please, Ramon?

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [3]

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Thank you, Javier. Good morning, everyone, and thank you for joining us today. This is Ramón Aragonés speaking.

Before getting into the results, let me first share with you that both Minor International and NH teams are working together on the integration with regards the identify some synergies. These refer to the integration of Minor Hotels in Portugal and Brazil, access to us and customers which hike growth potential, loyalty program and cross-selling opportunities, improved pricing scheme with our commercial partners, leveraging on the largest size and entering the luxury segment with revenue opportunities and new openings. A good example is the recently signed an Anantara Villa Padierna resort in Spain.

Once this strategic plan goes through our growth approval, we will release to the market the key guidelines and targets for the period 2019-2023. We expect this to happen in the coming months. To be more precise, we expect to present the new 5 years plan to the market after the break summer, let's say, September or something similar.

Additionally, the Board of Directors of NH approved last 7th of February, our governance framework to establish relation between both groups. Preferred business geographical areas and the reciprocal Brands Master Licensing were settled. In short, NH will be in-charge of Europe and South America, not only in our current business, also to develop the Minor brands in both continents. And Minor will be in-charge of developing the NH brands in the other continents -- Asia, Australia and Africa.

In this same line of mechanics to reinforce the corporate governance of the Group, in the AGM that took place yesterday, a new Board composition was approved. Out of 9 members, Minor has 4 Proprietary Directors. Independent Board Members make up 30% of the Board. And lastly, 2 are executives; myself and CFO, Beatriz Puente.

This new Board composition implies that Minor does not maximize the number of Board members that would correspond. On top, current Chairman is an independent Board member. And lastly, both audit and nominating and compensation committees are chaired by independent Board members. And Minor has only 1 representative out of that. This [restructuring] reflect the full commitment of both teams to maintain a corporate governance as strong as possible.

Now moving to the results, and in line with the performance of last year the start of 2019 has remained strong. Main highlights on Page 3 of the presentation. And as you can see, the group's restaurants operating trend and business improvement continued in Q1 2019 with a combination of sound revenue growth of plus 4%, prices contributing 67% of the RevPAR growth and efficiency initiatives leading to an EBITDA margin improve of 1.3 percentage points due to the remarkable 42% conversion rate. EBITDA, excluding IFRS 16 adjustment by comparability reasons, reached EUR 21 million, implying a growth of EUR 5 million or 33%. Reported loses and net recurring level were reduced by EUR 6 million.

In Page 5 of the presentation, total revenue grew plus 3.7% in Q1 2018, reaching EUR 353 million, implying an increase of EUR 12 million. This growth takes into account the revenue loss from 2019 reforms totally minus EUR 4 million that were offset by the growth of hotels renovated in 2018. Currency evolution in Lat Am [subtracted] at minus EUR 7 million. Excluding currency impact, revenue would have grown plus 5.7%.

Europe continue to show solid like-for-like revenue growth of 2.6%, boosted by Spain plus 5.4% and Central Europe plus 2.7%. Benelux plus 0.8% impacted by lower corporate events in the congress center hotels. And Italy plus 0.6%, affected by Milan negative trade fair calendar in Q1 2019.

In Page 6 of the presentation, you can see that RevPAR growth in Q1 has been plus 3.6%, 67% through ADR, which grew plus 2.4% and reached EUR 93. Remarkable ADR growth in Spain of plus 7.3% and Central Europe plus 4.7%. Occupancy level increased plus 0.8 percentage points, reaching 66%. For a better understanding of RevPAR trend, it is worth highlighting the plus 3.7% growth in the like-for-like of comparable perimeter in the quarter.

Details by region are: Spain, plus 8% with a strong recovery in Barcelona plus 15%; solid performance of Madrid, plus 9% and secondary cities plus 3%. Italy, minus 1% with good evolution of Rome, plus 5%, while Milan minus 5% was affected by a negative trade fair calendar in the first quarter compared to last year.

Benelux, plus 2%, with outstanding growth in Brussels plus 11%; good performance of Amsterdam, plus 3% and Dutch secondary cities, plus 2%. Congress centers hotels where -- as you know we have more than 1,000 rooms, had a negative evolution due to lower corporative events that will recover during the following quarters. Central Europe, plus 5%, with a positive trade fair calendar in cities like Munich, plus 31% and Austria, plus 13%. Lat Am plus 1%, with an ADR increase of plus 2.4%. These numbers contain the Group revenue management competence to constantly increase market share ahead of competition, supported by the higher quality of our hotels.

In Page 7, average RevPAR growth versus competitors has outperformed with a relative increase of plus 0.8 percentage point, mainly on higher occupancy with a slightly lower relative ADR.

So let me now turn the call over to Beatriz, who will give you more details by region, rest of the P&L, IFRS 16 impacts and targets reiterated for the year. Beatriz?

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [4]

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Thank you, Ramón. This is Beatriz Puente speaking, and good afternoon, everyone. Going through the revenue performance by region on Page 8 of the presentation and also emphasizing the like-for-like growth of comparable perimeter. Spain has shown like-for-life growth of 5.4%. It's explained by the strong recovery in Barcelona with the growth above 15% that began last quarter -- last year, the last quarter for last year and has continued outstanding evolution with also Madrid outperforming a growth of 9%. Also I might say that -- I would highlight that last year we had the contribution of EUR 1.7 million of management fees for Hersperia that we don't having anymore and excluding this effect Spain like-for-like growth would have been 8%, so very solid and sound growth.

So regarding Italy, the growth in the like-for-like portfolio has been 0.6% with a solid performance in Rome with a growth of 3% and Milan with a decline of 3% has suffered, I would say, from a negative sales calendar in Q1 when we compare that with last quarter last year.

Benelux performance with a like-for-like growth -- revenue growth of 0.8% and now with a very current growth in Brussels 12%; Amsterdam, plus 1% and secondary cities is also with the same growth, 1%. The Congress centers will have 2 in Amsterdam, very significant ones. As explained the decrease due to corporate events that -- as mentioned we foresee that there will be a recovery on Q2.

Regarding Central Europe like-for-like revenue growth of 2.7% with a mixed trade fair calendar in key cities -- Munich outstanding growth of 25%; Berlin, decline of 4%, and Frankfurt a decline of 5%. Also we'll have to highlight that Central Europe -- the secondary cities is impacted by Easter calendar.

Moving to Latin America, the results are impacted by the FX, Mexico revenues fall 2% at constant FX and including the positive currency evolution of 5%, reported revenues increased by 3%.

Regarding Argentina heavily impacted by the hyperinflation in the country. Revenues -- local currency significant growth 82%, but including the strong currency devaluation of nearly 100% reported figure is minus 10%. Regarding Colombia and Chile revenues decreased, but will have a stable currency evolution.

Regarding efficiency measures the group continues the effort on cost control that has allowed the group to reach a healthy conversion rate of 58% at GOP level. In order to achieve the results, payroll cost despite the [CLA] agreement increase by 2.8% and operating expenses increased by 1.4%.

As we explained last year, when we released the annual accounts of the company, the group has implemented IFRS 16. And in order to facility the proper comparison of the figures we have provided, as you have seen, a detailed P&L excluding those impacts. I refer to figure that exclude IFRS 16 to make as I said those figures comparable

Adjusted lease payments excluding IFRS 16 together with property tax increased roughly EUR 2.1 million. Perimeter changes partially offset the higher lease payments once the 2018 reforms has started to contribute to the business.

And recurring EBITDA, excluding IFRS 16 reached EUR 21 million in the first quarter, implying an increase of roughly EUR 5 million or 33.1% and also very important, we continue despite being a low season, we continue to improve the EBITDA margins and a sum 42% conversion rate coming from incremental revenues to EBITDA.

Below EBITDA the amortization expense relate to the right to use increased by EUR 43.5 million and also the interest expense relate to the lease fund liability increased by EUR 22.4 million as we don't have those figures last year. It's important to highlight that the deleverage of the company is shown as the financial interest cost. You see the reduction in this period has been roughly EUR 5 million.

Being Q1 the seasonally, I say -- I'll say the weakest quarter of the year for this group, a good performance of the business on the deleverage of the group has allowed the reduction of the losses and net recurring income by EUR 6 million to negative EUR 17 million. But also as we have provided information IFRS 16 impact, excluding those impacts, is roughly EUR 2.7 million. The net recurring profit will have been negative EUR 14.7 million.

When we go to the bottom line of the company is heavily impacted as a comparison because of the non-recurring contribution that would have mainly from the disposal of Barbizon last year, so therefore the net capital gains that we have from asset rotation were recorded last year and amounted to EUR 55 million that we don't have it this year.

Moving to Page 11 on -- regarding the cash flow generation of the group continues to be during the first quarter. I will highlight that the cash flow generation plus the proceeds that we'll get from the asset disposal that we did last year has allowed the group to fully finance the CapEx for the period, roughly EUR 40 million.

The group has reached cash position at the end of March of EUR 274 million. Therefore, if we exclude the EUR 2.1 billion of operating lease liability because of IFRS implementation, the level of the net financial debt nearly stand at the same level as of last year closing of 2018 at EUR 169 million of net financial debt excluding the operating lease liability.

Also we highlight that the company also has available trade lines of more than EUR 300 million out of which EUR 250 million are long term and are due in 2021.

With regards to the main impact of IFRS 16, we have prepared one page that cover the impact on the balance sheet and also the impact on the P&L. As you have seen, our total assets has increased by EUR 1.8 million out of which EUR 1.7 million are related to the right of use and EUR 100 million to the sales tax.

On the liabilities side, the amount that we provided last year is the amount that we have accounted on the balance sheet, operating leases' liability increased by EUR 2.1 billion and as a consequence the difference with EUR 1 billion asset is recorded as an adjustment in the consolidated results on the opening balance sheet of 2019.

Important to say, also recall that IFRS 16 has no cash impact, therefore it doesn't affect our leverage capacity and that as well as all the covenants also that we have on the financial debt has excluded the carry out of IFRS 16 implementation.

Also remember the figures that we provide on the annual accounts last year are in line with the EUR 2.1 billion and also this figure is in line with the average calculation provided by rating agencies.

To conclude, the good start of the year and the current trading, as we have stated in the presentation, we've reached our guidance for 2019 EUR 285 billion EBITDA, excluding IFRS 16 and IAS 29. And of course, this number you read -- take into account that for this year we don't have the contribution of Hesperia that's roughly on a yearly basis -- last year was EUR 7.5 million and we maintained the guidance of EUR 285 million. And regarding recurring net income, the target as we provide continues to be EUR 100 million, excluding again accounting impact of IFRS 16 and IAS 29.

In light of this, we look forward to continue delivering very sound results. And as you know, yesterday the AGM of the group approved the payment of EUR 0.15 dividend per share or roughly ERU 60 million for the group.

And now after covering the key milestone highlights of Q1 results now the team will be happy to answer any questions that you might have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Francisco Rodríguez from Banco Sabadell.

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Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division - Research Analyst [2]

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I have 2 questions, please. The first one would be what would you expect as closing RevPAR for 2019?

And the second one would be if you could comment a little bit on how you want to get to those -- your target for EBITDA for this year compared to one you had in 2018. If you could give us a little bit more color on where that growth will come from?

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [3]

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Thank you, Francisco for your questions. Regarding the growth for '19, we maintain the target that provide, which in the end was low-single digit growth on revenues, so of course, it might be affected by FX. But as you see, with the forecast or kind of visibility that we have on the second quarter we have -- we feel confident with that number. Where the growth should come, it's a very well balanced in our case this year. I would say, it's shown growth in Spain -- it continues to be the recovery of Barcelona, we might see very good numbers. Take into account in our case, the more yield bound business, we are not affected by kind of the summer season and we see a very good May, very good June for Spain.

So in our case, this year, we don't have any kind of business unit or country that will provide with the highest growth then the others. It's very well balanced between -- maybe Southern Europe, Spain and Italy maybe bit higher, more kind of the top -- mid-single digit and Northern Europe more on the 3% growth. So, but it's still very well balanced growth in Europe.

Regarding EBITDA, it's the same as I said, maintaining EUR 285 million target despite we have lose EUR 7.5 million of fees because of the contract of Hesperia is the result of the like-for-like growth and also combination of the repositioning upside that we have because of the hotels that we renovated last year. And then also consideration of the top line, that is very -- foreseen to be open this year.

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [4]

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I would like to add that the year is going very well. And after this first Q numbers and with the current forecast that we have for the second Q, I can anticipate that we will finish the first half of the year above the budget. And also the summer forecast is positive, so it seems that we will end the year in a very positive way, which it is that way half of this year.

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Operator [5]

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(Operator Instructions) We have a question from Miguel Medina from JB Capital.

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Miguel Medina-Sivilotti, JB Capital Markets, Sociedad de Valores, S.A., Research Division - Director [6]

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Two questions, if I may. The first one is regarding the AGM yesterday. I was reading the Chairman's speech that you sent to [CMD] and it seems that he was thinking that the possibility of a more aggressive dividend policy in light of the very strong balance sheet that you have. Is there anything that you can comment on or you're going to wait for this until the -- a strategic planning in September?

And then the second question was on the Spain's -- on the Spanish business unit. RevPAR was very strong in the first quarter. Was there any sort of positive contribution from Easter in this RevPAR figure? And also linked to the Spanish business unit, I think that in the results you mentioned an increasing cost of a bit more than 6%. Is this mainly due to the minimum wage in Spain?

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [7]

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Okay. First question regarding the AGM yesterday, as you know, the idea of the company is to move to a progressive dividend. So there's nothing new. We expect to increase the dividend in the coming years. There is nothing that we should -- it should be approved by the Board members. But anyway, this is the idea of the company, but it's something that we will preside when we present the new 5 years plan after the summer.

Regarding the RevPAR in Spain and the contribution. Let me tell you that the Easter has been not as good as we expected because there were raining in Spain. But anyway, we have finished the month according to the budgets. But for the coming months, the forecast is extremely positive in Spain, especially in May and June, and also the summer seems really positive. So, I think we will finish the year with a very consistent growth in terms of RevPAR in Spain.

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [8]

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And then regarding your question of Spain, whether it's expensive to draw in 6%, for that we explained that it's a combination of the increasing occupancy that is roughly close to 3%. And then they also is related to -- despite that we have CLAs increase and a minimum wage increase. That is a combination of both.

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Operator [9]

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(Operator Instructions) There are no further questions in the conference call. I give you back the floor guys.

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [10]

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Thank you very much for attending the call. And any further questions that you may have, happy to follow up to our IR department. Thank you.

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [11]

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Thank you everyone. Bye.

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Operator [12]

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Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.