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NH Hotel Group reports Net Profit of €100 million, underpined by business growth, enhanced efficiency, deleveraging and the asset rotation strategy

Period highlights: earnings growth, EBITDA expansion and solid cash flow generation


WEBWIRE

-9M18 results*-

  • Group revenue increased by 3.6% (+5.5% in constant currency terms) to €1.2 billion, driven by business momentum in Europe, which more than offset the impacts of adverse currency evolution in Latin America and the hotels under refurbishment in 2018
  • Outperformance relative to its competitors in the main destinations where the Group operates fuelled growth in revenue per available room (RevPAR) of 2.0%, shaped mainly by growth in the ADR of 1.5%
  • The effective combination of revenue growth and cost control drove EBITDA(1) to €187 million, up €17 million from the first nine months of 2017, implying a revenue growth-to-EBITDA(1) conversion ratio of 41% 
  • The reduction in interest expense on the back of the deleveraging effort led to significant growth in recurring net profit to €51 million, year-on-year growth of nearly 100%, such that bottom-line expansion considerably outpaced EBITDA(1) growth
  • Reported net profit came in at a record €100 million, up €75 million year-on-year, underpinned by business momentum, improved efficiency and the contribution of the asset rotation initiatives undertaken in 2018
  • Solid operating cash flow generation left the Group with a cash balance of €273 million, reducing net debt to €208 million


-Positive guidance for 2018*-

  • Thanks to the favourable trend in the hotel business so far this year, combined with the positive outlook, the Company is in a position to reiterate its guidance for EBITDA(1) of €260 million this year and for a significant reduction in net financial debt leverage to 0.8-1.0x by year-end (initial objective announced at the beginning of the year: 1.0-1.2x)


-Minor International-

  • The acceptance period for the public tender offer presented by Minor International closed with the latter holding 94.1% of the Company’s share capital. Minor International is already working with NH Hotel Group on defining the new business plan and identifying synergies derived from the complementary nature of the two businesses with the aim of maximising shareholder value


NH Hotel Group presented its earnings results for the first nine months of 2018. The results extend the Company’s healthy performance in the first half of the year, and show a solid revenue growth, outperformance relative to its direct competitors in its main destinations, efficient cost control and the fruits of the efforts made to boost the Group’s financial solvency.

NH Hotel Group’s CEO, Ramón Aragonés, said “Quarter after quarter we continue to beat the profitability and deleveraging guidance we had committed to, thus making the most of the improved business momentum and enhanced financial liquidity and evidencing our efficient business management. The solidity of our business model coupled with the potential for synergies via our new shareholder Minor International will allow us to face the upcoming years with greater guarantees of success.”

-9M18 results*-

Consolidated revenue grew once again in the first nine months of the year, by 3.6% (+5.5% in constant currency terms), to €1.2 billion.

The year-on-year topline growth of €41 million was underpinned by strong hotel business momentum in Europe, with Benelux, Italy and Central Europe standing out, where like-for-like revenue growth was 7.0%, 4.4% and 3.1%, respectively. Spain reported revenue growth of 0.7%, despite a tough comp shaped by an exceptional performance last year on the back of one-off conferences in Madrid and market weakness in Barcelona this year. Excluding the latter effect, like-for-like revenue growth in Spain would have been 2.0%. Lastly, Latin America was affected by exchange rate effects, albeit registering like-for-like revenue growth of 16.1% in constant currency terms.

The price management strategy deployed year-to-date has translated into growth in revenue per available room (RevPAR) of 2.0%, driven mainly by price growth of 1.5% and by an increase in occupancy of 0.5%.

The Company once again outperformed its direct competitors in its main destinations as a whole, specifically posting growth in its RevPAR that was 1.7 percentage points higher than that of its competitors.

New destinations, asset quality and service innovation

In addition to opening nine hotels in Europe and Latin America under the NH Collection and NH Hotels brands, nhow was also reinforced during the reporting period by the inauguration of its first hotel in France (nhow Marseille) and the selection of Rome and Brussels as its next destinations. Those two new destinations join this avant-garde hotel concept’s rich pipeline, which also includes establishments under development in London, Amsterdam, Frankfurt, Santiago de Chile and Lima.

In parallel, the Company continued to raise the quality of its asset portfolio during the period with the refurbishment of 16 hotels located in Germany, Austria, Spain, the Netherlands, Italy, the US and Colombia.

The NH Collection brand, with its 78 hotels and 12,344 rooms (21% of the portfolio) continues to demonstrate its full potential in terms of guest satisfaction and premium pricing (40% higher than the ADR obtained by the NH Hotels brand).

Elsewhere, the Company once again embraced pioneering technology in the hotel sector when it became the first European urban hotel chain to offer the combination of three innovative services - Check-in Online, Choose Your Room and Check-out Online - under its newly launched FASTPASS proposal.

The series of measures designed to improve its hotels and the services the Company provides, have translated into a continued high level of perceived quality, as is evident in the trend in the feedback left by guests on the various review sites (average score on Trip Advisor and Google Reviews: 8.4).

Efficient operating management and significant growth in profits

Thanks to the combination of growth in revenue and efficient management of operating expenses, the Company delivered EBITDA(1) of €187 million, growth of €17 million or 10% year-on-year and implying a margin of 15.7%. As a result, the ratio of incremental revenue-to-EBITDA(1) stood at 41%.

Stronger business momentum and lower finance costs on the back of lower indebtedness drove a significant increase of €23.7 million, or nearly 100%, in recurring net profit to €50.7 million, so that growth in the bottom line outpaced the increase in EBITDA(1).

Reported net profit amounted to a record €99.6 million, up €75.1 million from 9M17, boosted by higher after-tax gains on asset disposals in 9M18. Note that in the first quarter of this year, the Company closed an agreement for the sale and subsequent leaseback of the building that houses the NH Collection Barbizon Palace in Amsterdam.

NH Hotel Group’s consolidated income statement*

*The income statement figures exclude the impact of IAS 29 accounting standard (regarding the financial reporting in hyperinflationary economies):  The application of this standard impacts the Group’s results in Argentina since 1 January 2018. Factoring in the impact of this accounting standard, total Group revenue amounts to €1.19 billion, EBITDA to €185.3 million and total net profit to €106.5 million.

(1)Recurring EBITDA before the reversal of provisions for onerous contracts and gains from asset sales

(2)  From Q2 2018, rebates from procurement have been reclassified as less cost of procurement instead of an income in the total revenue figure (Q1 2018 and 2017 figures also reclassified for comparison purposes)

*Note: The income statement figures exclude the accounting impact of hyperinflation (IAS 29).

Reduction in net financial debt

Solid operating cash flow generation and the asset rotation strategy carried out in the period left the Group with a cash balance of €273 million. This, coupled with the early conversion of the Group’s €250 million of convertible bonds, enabled a significant reduction in net financial debt to €208 million, down €447 million from year-end 2017 (€655 million).

Due to the change of control at the Company as a result of the takeover bid presented by Minor International, in early November, NH Hotel Group offered the holders of €400 million of bonds the option to redeem their bonds at 101% of nominal amount. Holders of bonds with a face value of €3.2 million took tendered their bonds.

-Positive guidance for 2018*-

The Group’s healthy performance during the first nine months of the year combined with the positive outlook puts the Company in a position to reiterate its guidance for EBITDA(1) of €260 million in FY18 and for a significant reduction in net financial debt leverage to 0.8-1.0x by year-end (initial objective announced at the beginning of the year: 1.0-1.2x).

-Minor International takeover bid-

The period for accepting the public tender offer concluded on 22 October 2018, as a result of which Minor International currently owns 369.2 million NH Hotel Group shares, giving it an equity interest of 94.1%. Minor International has begun to work with NH Hotel Group on defining a new business plan and identifying synergies derived from the complementary nature of the two businesses with the aim of maximising shareholder value.

APPENDIX: Hotel business performance in 9M18 by market

RevPAR figures: like-for-like hotel data + hotels under refurbishment

EBITDA figures: recurring EBITDA before the reversal of provisions for onerous contracts and gains from asset sales

*Note: The income statement figures exclude the accounting impact of hyperinflation (IAS 29).

Spain reported revenue growth of 0.7%, despite a tough comp shaped by an exceptional performance last year and market weakness in Barcelona this year. Excluding the latter effect, like-for-like revenue growth in Spain would have been 2.0%. Note that revenue growth in Madrid was 0.8% notwithstanding the strong conference line-up in 2017. RevPAR in Spain contracted a slight 0.6% due to the drop in ADR (-1.0%) and  the increase in occupancy (+0.4%). As a result, EBITDA in Spain amounted to €45.5 million in 9M18.

Benelux was the best-performing unit in 9M18, posting exceptional growth in RevPAR in Brussels (+14.3%), Amsterdam (+7.0%) and the secondary cities (+7.9%), so that RevPAR across the region rose by 8.1% (growth in the ADR and occupancy rate of 4.6% and 3.3%, respectively). Like-for-like revenue, including that of properties under refurbishment, totalled €258.2 million in 9M18, up €16.7 million year-on-year. EBITDA in the region was 12.6% higher at €52.3 million.

Italy also performed extremely well, reporting RevPAR growth of 4.7%, fuelled by price expansion of 3.2% and growth in the occupancy rate of 1.5%. The performances in Rome, Milan and the secondary cities stand out. Like-for-like revenue in this market, plus revenue at the hotels under refurbishment, totalled €217.1 million, up €7.8 million year-on-year. EBITDA in Italy was €7.3 million higher year-on-year at €48.3 million.

In Central Europe, RevPAR was 2.5% higher, shaped by price growth of 2.4% and stable occupancy (0.1%). Like-for-like revenue in this region increased by 3.5% to €283.5 million. EBITDA in Central Europe was €20.4 million (+16,3 %), up €2.9 million from 9M17.

The trend in Latin America was positive in constant currency terms: like-for-like revenue growth of 16.1%. The adverse impact of currency effects in Argentina, Colombia and Mexico are entirely responsible for the 8.6% contraction in RevPAR in this region. EBITDA in Latin America was €17.9 million, growth of 0.8% from 9M17.

(1) Recurring EBITDA before the reversal of provisions for onerous contracts and gains from asset sales

*Note: The income statement figures exclude the accounting impact of hyperinflation (IAS 29).


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