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Edited Transcript of NHH.MC earnings conference call or presentation 26-Feb-20 11:00am GMT

Full Year 2019 NH Hotel Group SA Earnings Call

Madrid Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of NH Hotel Group SA earnings conference call or presentation Wednesday, February 26, 2020 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

* Guilherme Macedo Sampaio

Banco Português de Investimento, S.A., Research Division - Analyst

* Isabel Carballo

BBVA Corporate and Investment Bank, Research Division - Chief Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the NH Hotel Group 2019 Results Presentation. I now hand over to the speaker. Sir, please go ahead.

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

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Hello. Good morning to all. Welcome to NH Hotel Group Fourth Quarter and Full Year 2019 Results Conference Call. This is Javier Vega-Penichet from Investor Relations. Our CEO, Ramon Aragones, will share with you main guidelines of the strong results released yesterday. These results have exceeded the guidance of the year due to the sustained

performance in the last part of the year. Then our CFO, Beatriz Puente will provide a more detailed evolution of the results by region, the robust financial structure of the group, and detailed accounting impacts arising from IFRS 16, both in P&L and in balance sheet.

Finally, a Q&A session will be open. So let's start with our CEO comments. 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 Ramon Aragones. Well, the group delivered a record performance again in 2019. It was an excellent year in which financial targets has been overachieved, reaching another record setting results. Therefore, it would be proposed to the AGM, the approval of a EUR 0.15 dividend per share for the financial year 2019 an alignment with the announced dividend policy.

On the contrary, we are monitoring the development of the coronavirus in Europe. But till last weekend, it was expected to have a limited impact in our group due to the low Asian travelers on our customer base. Due to the recent news coming from Italy we have started to define a strong contingency plan to try to mitigate as much as possible the potential impact in our results. So far, it's too early to quantify any impact. We will ensure that our hotels in Europe are prepared to take prevention and safety measures through circumstances indicate. Despite the current challenges, our priority will be to drive the business and take the action needed to continue improving our results.

Before getting into the results, let me share with you another milestone we have achieved in our integration process with Minor. After the Tivoli portfolio in Portugal and the first Anantara Villa Hotel in Dublin, in December 2019, NH reached an agreement with Covivio, one of the key European real estate players to operate a unique portfolio of safe, high-end hotels and 1,115 rooms formerly known as Boscolo, which, as you know, with prime location in Rome, Florence, Venice, Nice, Prague and Budapest. The hotel will be rebranded under the

Anantara and NH Collection brands and will be operated under sustainable long-term valuable lease contracts with minimum guarantee rents, including a shortfall gap mechanism with extension rights for NH. Both groups continue working together on additional synergies, further growth opportunities in the upscale and luxury segment with both new signage and rebranding opportunities. The idea of the company is to have at least 8 Anantara hotels operating in Europe by the end of 2020, drive demand between Asia and Europe through cross-selling distribution and the loyalty interface, and talent and learning opportunities with workforce mobility.

Moving to the result. And as you know, and as you can see in the highlights, on Page 3 of the presentation, the positive operating trend and business improvement has continued in 2019, with revenues growing by plus 6.1%, reaching EUR 1.7 billion. The combination of solid revenue growth, RevPAR evolution, entirely through prices and cost control measures have allowed the group to achieve in 2019 an EBITDA of EUR 294 million, an increase of EUR 31 million or 12%, with a margin improving of 0.9 percentage points, reaching 17.1%. This EUR 294 million of recurring EBITDA beats the guidance of the year of EUR 285 million, including IFRS 16 reported EBITDA reached EUR 551 million.

Net recurring income reached EUR 103 million, increasing by EUR 34 million versus reported 2019. The improvement is higher than the EBITDA growth due to the lower financial costs, and despite the IFRS 16 negative impact of EUR 10 million. Excluding IFRS 16, net recurring income reached EUR 130 million, exceeding the EUR 100 million target of the year. Total net income included nonrecurring activity amounted to EUR 90 million, down from EUR 102 million posted in 2018, reflecting the lower contribution of nonrecurring activity, minus EUR 45 million versus 2019. As you can remember in 2019, we had the Barbizon operation -- Barbizon Hotel in Amsterdam.

The strong cash flow generation in the year allowed to maintain a low level of net financial debt, EUR 179 million, together with a solid cash position of EUR 289 million at the end of December 2019, despite the additional efforts in Capex investment amounting to EUR 170 million and the dividend paid in the period of EUR 59 million.

Coming back to the revenue evolution in Slide #6, total revenue grew plus 6.1% in 2019, reaching EUR 1.7 billion, as I mentioned before, implying an increase of EUR 98 million. I will highlight the like-for-like or comparable revenue growth at constant exchange rate, which has been plus 4.9%. Europe continued to show a strong growth of plus 3.9%, supported by the excellent performance in Spain, plus 8.3%; and a solid growth in Benelux, plus 4%; and Italy, plus 2.5%. If we include the refurbished hotels to the like-for-like perimeter, revenue also grew plus 4.9% at constant exchange rates.

Perimeter change contributed with EUR 41 million in revenues, mainly from Tivoli portfolio integration, EUR 24 million and additional hotel openings like Anantara Villa Padierna, Toulouse Airport, Madrid Gran Via and Venice Rio Novo among others.

Moving to Page 7. RevPAR growth in 2019 has been fully explained through ADR. Both RevPAR and ADR grew plus 4.9%, reaching an average daily rate of EUR 103. This represents an increase of EUR 5 compared to the EUR 98 of 2019. For a better understanding of the RevPAR trends by region, I will comment the like-for-like results that at our group has been plus 3.1%. Spain, plus 9%, continued recovery in Barcelona, plus 14%, and excellent performance of Madrid, plus 11%, with a very strong calendar of events.

In addition, solid evolution of secondary cities with plus 5% growth in RevPAR. Italy, plus 2%, a strong performance of Milan, plus 4%, with an excellent performance in the second half of the year and Rome, plus 1%. Benelux, plus 3% recovery continued in Brussels, plus 11%; and good performance on Amsterdam, plus 2% and conference centers hotels with plus 2%. Central Europe, plus 1%; mixed results with good performance on Hamburg, plus 3%; German secondary cities, plus 2%; and Austria, plus 6%. Negative evolution in Frankfurt, minus 6%; and Munich, minus 5%, affected by negative trade fair calendar, a higher supply in Frankfurt. LatAm, minus 6% RevPAR growth in euro terms with a mix evolution by country. These numbers convince the group revenue management ability to continue increasing market share supported by the higher quality of our hotels. This higher quality and improved customer experience are recognized by our customers through the improvement of the average scores in both TripAdvisor and Google reviews.

And now let me turn the call over to Beatriz who will give you more details by region and on the rest of the P&L and balance sheet.

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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 morning, everyone. As Ramon has already covered the solid revenue performance of the group, let me give you some highlights regarding the cost control measures that has been put in place and also are reflected in negative results. Looking at the cost evolution on Slide 10. The continuous focus on cost control allowed the group to report a sound conversion rate of 55% at GOP level. It's important to highlight that perimeter changes and repositioning hotels explain roughly 75% of the increase of the total operating expenses. More in detail, personnel cost rose by 6.3%, out of which 41% of the increase comes again from the perimeter changes, as we have explained in the presentation, and also the repositioning hotels that will contribute with higher EBITDA in the following years. The rest is mainly explained by the increase in the industry in the collective labor agreements in Spain, Germany and Benelux. Other direct operating expenses grew roughly 2.1%. Adjusted lease payments, excluding IFRS 16 accounting impact together with the property taxes has increased roughly EUR 23 million in the period. Perimeter changes, again, explain roughly 50% of that increase.

Recurring EBITDA, excluding IFRS 16 impact has reached EUR 294 million in the year, which implies an increase of EUR 31 million. And also, the company has improved its margin, EBITDA margin, roughly 0.9 percentage points, reaching 17.1%. With a 31% commission rate or flow-through rate from incremental revenues to EBITDA. As Ramon has mentioned, the recurring EBITDA, excluding IFRS 16 has reached a record level of EUR 294 million, including Tivoli contribution of roughly EUR 5 million in the period. That has really beat the expectations of the target that we have for the year that was EUR 285 million. Including IFRS 16 for you to track the accounting impact by which you are familiar with fixed rent commitments are considered as a financial liability in the balance sheet. Recurring EBITDA reached EUR 551 million due to a positive adjustment in the leases. Below EBITDA, in Page 11, the amortization expense related to the right of use, amount to EUR 180 million -- EUR 181 million, and also, the net interest expense related to IFRS 16 for you to have the breakdown amounted to EUR 89.2 million.

Total net recurring of the company reached EUR 103 million, explained by the continuous business improvement, the lower financial expenses and also despite the impact of IFRS 16 that we have quantified, we have EUR 10 million net of taxes, negative, of course, negative, EUR 10 million net of taxes. Recurrent -- therefore, recurrent net income pre IFRS 16 for the period has reached EUR 130 million. That, again, beats the target that we set for the year of roughly EUR 100 million of net recurrent income.

Total net income has reached EUR 90 million in the year, that is EUR 11.6 million below last year. But that's mainly due to the lower contribution that we have this year in '19 from the asset rotation strategy, as Ramon mentioned, last year, we carried out a very good transaction for the group mainly the sale and leaseback of Barbizon Hotel. And this year, we have, as I said, lower contribution from this nonrecurring activity of roughly EUR 45 million.

Moving to Page 12 of the presentation, I would say that it really highlights NH solid financial position, mainly due to the operating performance of the company and the disciplined financial policy that we have put in place. Regarding the figures for year numbers, net financial debt reached negative EUR 179 million, with a very strong cash position at year-end, EUR 289 million of cash and the CapEx that we have paid during 2019 amounted to EUR 170 million, out of which EUR 100 million are related to repositioning CapEx, as I said, to improve the quality of our hotels that will have a payback in the following years.

It's worth mentioning that apart from the strong cash position of the company, EUR 289 million as I mentioned the group has also available credit lines that we have not withdraw, roughly EUR 304 million, out of which EUR 250 million is a long-term credit facility. Therefore, with these numbers, the net financial debt ratio to recurring EBITDA, we closed the year with 0.6x quite below, of course, the ratio that we have 3 years ago, as I said, based on the financial position. If we include the liability that we have because of the impact of IFRS 16 the adjusted leverage ratio will be 4x. As we also have announced regarding 2019 dividend policy, the proposal to be submitted for the AGM approval is aligned with the announced dividend policy, EUR 0.15 per outstanding share that will imply an estimated amount of roughly EUR 59 million. To conclude, and before starting the Q&A session, I will highlight that this very solid results contain a very good performance for the group during 2019 that has allowed the group to beat the guidance that we provided to the market. And also Ramon mentioned, despite the current challenges that we face at the beginning of the year our priority will continue to be to drive the business and take all the actions needed to continue improving our results. So now thank you very much for attending this call. And the team will be happy to answer any questions that you may have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a first question Francisco Rodriguez 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. First of all, its perimeter, regarding perimeter, how much could that impact in your 2020 numbers? I believe Tivoli would still impact. And then you've got this Covivio, so could you more or less tell us how much could that impact? And the second one, obviously, coronavirus has -- was making everything difficult to give us visibility for 2020, but let's say that before all this going on, could we say that would probably explain we've seen a peak in the cycle, probably now, I don't know, the rest of Europe. And then, obviously, let us see what all the coronavirus issue tell us. But looking at prices and occupation levels, I don't know if you could tell us a little bit on what you -- what are you feeling there?

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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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Francisco, regarding the perimeter changes and to give you some numbers, the ones that -- as you said, the 2 transactions that will have significant impact on the contribution for 2020. One, we have already announced the numbers, Tivoli transaction as you are aware of, we are running the 3 hotels under lease with significant contribution to EBITDA and the rest under management. We announced -- when we released the transaction data on a yearly basis for -- we foresee that, that contribution will be roughly in the range of EUR 12 million. As I said that in the year 19, Tivoli has contributed with EUR 5 million. Therefore, the increase on 2020 roughly will be the difference between both the amounts. Regarding Covivio transaction that is a very good transaction for the group and will allow the group to run the luxury hotels with very iconic locations in Europe.

We announced the transaction is foreseen to have a closing during the second quarter of the year. And as still, it's difficult to foresee what month it will be. And as we announced, there are significant CapEx to be invested by the new owner, which will improve the quality of the hotels. Once the transaction is closed we'll provide the numbers that you are asking for. In the end, what will be kind of the contribution on a run rate basis, and then will be the potential contribution on 2020. For the time being, we are expecting for the transaction to be closed and then we'll announce the figures.

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

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Well, regarding the coronavirus, listen it's too soon to come to any conclusion. Honestly, it's impossible to foresee what is going to happen in the coming months. What we have done is to start with a very strong contingency plan and trying to reduce the impact that, for sure, we should expect. But the only, let's say, between brackets, positive things, this is happening in what we can, let's say that it's our low season, but between brackets. Don't forget that 60% of our EBITDA, we produced the 60% in the second half of the year.

So if this crisis is over before this summer that we expect for sure, that means that we will have enough time to recover the potential losses. And in addition to that, of course, we have, yes started with this contingency plan trying to reduce the impact. But let me tell you something, we have worked very hard the last 5 years to create a strong company. And believe me, we are ready to face this challenge. It's going to be a big challenge, but be sure that we are ready to face it.

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Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division - Research Analyst [5]

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Okay. But just -- sorry, but I really wanted to ask about how do you feel -- where do you feel we are in the cycle at the moment? Let's say, obviously, with the coronavirus on top of the table, we don't know what's going to happen in 2020. But looking at prices and occupancy levels in 2019, could you please -- like, give us a bit of or give us some color on where you think we are in the cycle in Europe and in Spain because probably in Spain it's difficult to get a better year now, I don't know if you could give us some color on that?

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [6]

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Francisco, regarding, of course, it's difficult to foresee if we are at the end of -- you're saying, asking for a peak, what we can tell you is that, still, and you see that within the numbers we are maintaining in occupancy levels, we'll still have room to increase prices, it's on regions, it's not across the board, of course, on the markets where the supply and the situation will allow us to increase prices more. That means in a few countries, and like we have the case of Brussels, Benelux, there are other countries like Germany that which it will be more difficult to do so.

The beauty for NH, I will say, of course, without taking into account what the impact of the current situation of coronavirus will be in the case of NH. And that's related to the other question that you raised is that apart from a company that is cyclical and will grow with GDP, and of course, you also already have GDP forecast up for Europe. And of course, it's a slowdown.

The group has other sources of revenue growth. The ones related to the perimeter that you mentioned. And on top of that, the ones related to the repositioning of the hotels that we have been doing for the last year. So there's significant growth left in this company because of those 2 activities.

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Operator [7]

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Next question from Guilherme Sampaio from CaixaBank BPI.

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Guilherme Macedo Sampaio, Banco Português de Investimento, S.A., Research Division - Analyst [8]

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The first one is a bit -- trying to get a bit more color on what has been said regarding 2020. How should we think about the performance during this year. I know that there's a lot of uncertainty, but if you can guide us on how this uncertainty can move? And what's your underlying expectations for each of the markets would be great? Then in terms of the coronavirus, even though you are in the low season I probably assume that some of the bookings are made in advance in terms of events, if you've seen some postponement of such an event or event cancellations, something like that? And third, regarding the new business plan, if you still expect this to be presented to the market during the first half of 2020?

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [9]

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Okay. And listen, as I said before, that it's impossible now to foresee what's going to happen with the coronavirus. Honestly, we don't have enough clarity as a matter of time. It's true, as you mentioned, that there are many cancellations, but at the same time, there are many, many groups, especially convention, et cetera, they are postponing into the second half of the year. So now it's complicated to have the final figures of the year. Let me tell you something before the coronavirus, we were quite optimistic about 2020. But now the situation has totally changed, dramatically changed. And listen it's impossible to know. This is week after week, we will see the evolution in the coming weeks, there are some good signs coming from China right now. I don't know. I don't know, honestly. We expect that the situation will change in the coming months, and we are ready to take advantage of this evolution. And on the other hand, as I mentioned before, we are now just starting with very, very strong contingency plan because we don't know what's going to happen. And we want to be ready to try to reduce the impact as much as possible. This is what I can tell you. Regarding the guidance, it's impossible to give our guidance right now, because we don't know what is going to happen that is the reason. I think in some ways, we will have more clarity about the future. But for the moment, it's impossible, absolutely impossible to say anything.

And regarding the plan, you mentioned, not in the first half of the year because of the circumstances, maybe in the second half of the year, but it depends on the evolution, but everything has changed. The world has changed right now. It's impossible to have a vision about the future. Anyway, once again, I have to say, this is a very strong company. We have worked hard. We have diversified the business. Now we have the luxury segment there are -- the company is really better prepared than we were, I don't know, 10 years ago when the last crisis. Now we are ready to face this challenge. It's going to be hard, but we are ready. For sure.

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Operator [10]

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Next question from Isabel Carballo from BBVA.

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Isabel Carballo, BBVA Corporate and Investment Bank, Research Division - Chief Analyst [11]

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All my questions are already answered, thank you.

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Operator [12]

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Next question from (inaudible) Asset Management.

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Unidentified Analyst, [13]

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Just one question from my side. In regards to your EUR 350 million higher bond that is currently callable. Do you have an intention to call the bond anytime soon. What can you tell us about that?

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [14]

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It's a very good question, regarding -- if we are preparing other refinancing alternatives. Yes, we can tell you that we are analyzing all the alternatives that will improve the financial cost of the company.

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Operator [15]

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Next question from (inaudible).

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Unidentified Analyst, [16]

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Can you tell me about your cost reduction plan or any measures to reduce the impact from the coronavirus, will you delay the CapEx or any maintenance cost for this year?

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [17]

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Listen, I can't be too precise, but this year that we are going to do whatever is necessary to reduce the impact. And this company has a reputation to be very efficient. 4 years ago, we have started with an efficiency plan that has protected the company right now. Don't forget, in the other hand, that we have a lot of variable costs, that protect also the company. Even in terms of, for example, the rents, most of our rents are variable, that protects also the company in this case. We have worked hard to be prepared just in case of cycle change. I don't want to talk about cycle change because this is not my vision at all. I think we are living with something that's going to impact the company in the coming, I don't know, x months. But anyway, this year we will do whatever is necessary, whatever. My aspiration is to keep delivering good numbers for the company. And we will start with all the contingency plan necessary. We know how to do it.

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Unidentified Analyst, [18]

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Okay. So can you like tell us on the breakeven level for the occupancy or, I mean, the occupancy for the Spain or Italy locations, at least we can have a benchmark on this?

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [19]

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Yes, the point what we can tell you is that we don't foresee any, I don't know what number you're looking for because, of course, looking at the figures of the company and having an EBITDA figure of EUR 295 million. The breakeven, I don't get really the question for breakeven point on occupancy rate. What we can tell you is that the current occupancy rates of the company are sustainable. What we foresee is to maintain those occupancy rates and take into account the pricing history of the company and the improvement on the quality of the hotels. Our strategy will continue to be to drive pricing up if the markets will allow us to do so because we are improving the quality of the hotels, and also we're improving the category of the hotels.

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Operator [20]

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Thank you. We don't have any more questions. (Operator Instructions) We have no more questions. Back to you for the conclusion.

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Ramón Aragonés Marín, NH Hotel Group, S.A. - CEO, MD & Executive Director [21]

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Okay. Thank you very much. Can you post it. I'm sorry, because we don't have a clear vision about the future in the coming months, but be sure, the company will do the necessary to overcome the situation. Trust us. Thank you very much.

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Beatriz Puente Ferreras, NH Hotel Group, S.A. - CFO, Executive MD of Finance & Administration and Executive Director [22]

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Thank you very much. I'm happy to follow-up with any questions you might have. Thank you.

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Operator [23]

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Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation, and you may now disconnect your lines.