Full Year 2020 NH Hotel Group SA Earnings Call Madrid Feb 26, 2021 (Thomson StreetEvents) — Edited Transcript of NH Hotel Group SA earnings conference call or presentation Thursday, February 25, 2021 at 12:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Javier Vega-Penichet NH Hotel Group, S.A. – SVP of Investments & IR * Luis Martinez Jurado NH Hotel Group, S.A. – CFO * Ramón Aragonés Marín NH Hotel Group, S.A. – CEO, MD & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Andre Juillard Deutsche Bank AG, Research Division – Research Analyst * Elizabeth Stapleton * Francisco José Rodríguez Sánchez Banco de Sabadell. S.A., Research Division – Research Analyst ================================================================================ Presentation ——————————————————————————– Operator [1] ——————————————————————————– Ladies and gentlemen, welcome to the NH Hotel Group 2020 Results Presentation. I now hand the call over to the speakers. Sir, please go ahead. ——————————————————————————– Javier Vega-Penichet, NH Hotel Group, S.A. – SVP of Investments & IR [2] ——————————————————————————– Good morning to all. This is Javier Vega-Penichet from Investor Relations. I hope all of you are staying safe and healthy. Our CEO, Ramón Aragonés, will start with a summary of this exceptional year, the global recovery expectations and additional continuity measures to be implemented in the midterm to improve profitability and the financial position of the group. Then our CFO, Luis Martinez, will provide a more detailed description of the results and will dive in the cash flow details, liquidity and financial position. At the end, a Q&A session will be opened to answer questions you may have. So let’s start with our CEO remarks. Please, Ramón. ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [3] ——————————————————————————– Thank you, Javier. Good morning, everyone, and thank you for joining us today. This is Ramón Aragonés. Before proceeding with the results presentation, I would like to express our solidarity with all those who have been affected by the serious consequences of the pandemic. In 2020, the hospitality sector has faced an unprecedented environment. Adequate operating and financial transformation achieved in previous years, together with the serious contingency measures implemented, has enabled the group against this extraordinary complex year and guarantee business sustainability. People are gradually receiving the vaccine, seeking again changes for a return to travel. That’s how we start to see the light at the end of the tunnel. Certainly, the worst is behind, and we have started to pursue some preliminary, interesting and positive data and activity in certain countries during the last 2 weeks. We foresee a recovery where occupancy increase month by month, and the average of hotels opened will follow the same pace. Leisure urban travel would gradually goes back from the mid of second quarter, whilst mobility restrictions are limited, first domestic and then intra-European cross-border demand. With regards to business travel, we are expecting corporate travel value business to progressively reactivate after the summer months. Large group meetings and events sector will take longer recovery, only until 2022. we believe in the hotel industry is that it will take years to return to previous pandemic levels, but looking it may happen sooner than expected. The group continues protecting the business with a strict control and efficiency measures. And recently, we have announced a collective initial procedure in our central and corporate services in Spain, being a further step for a global assignment. This is part of the rollout plan of EUR 60 million target worldwide to reduce structural cost, both payroll and other OpEx. This initiative will further increase our efficient operating model and will allow us to reach our level of profitability even with lower activity. In addition of this, we have internally defined additional targets or obtain further fixed-rate discounts for the first half of 2021, and negotiations with landlords are progressing adequately. Let me express my gratitude to all our landlords for their cooperation. The (inaudible) of partnership are stronger than ever. As occupancy increases, cash balance will decrease. And occupancy breakdown volume could be somewhere above 40%, 45%. And CapEx investment will continue minimizing during 2021. Additionally, the group will lever on the rolling asset base to reinforce liquidity in the short term and ultimately reduce debt in the midterm, as we have done in previous years. I have no problem to share with you that we are going to rotate a couple of assets this year, one before the summer and the other one before the end of the year. We expect to get about EUR 200 million net cash with this transaction. But please don’t ask me about the name of the asset because we are still exploring different alternatives. Our intention is reusing this extra cash to reduce debt once we consider we’ll have an operability to roll through this year. And now I will move to the results highlights, and we will follow with a more detailed description of the results and balance sheet. As you know, the flexible cost structure is one of the group’s competitive advantage. This has allowed reopening of more than 300 hotels since June, reaching 80% of the portfolio opened in August, as you can see on Page 5 of the presentation. Due to the impact of the second wave with strict commodity restriction after the summer, many hotels closed again. And the average of hotels opened at year-end drop to 60%. As a consequence, average occupancy in the hotels open was 25% in the fourth quarter compared to 40% in the third quarter. Moving to Page 6. Revenue declined minus 69% in the year to EUR 540 million due to the extremely low demand and historical low occupancy in all markets. In Q4, with additional lockdowns and mobility restriction, revenue fell minus 82% and reached EUR 82 million in the quarter. The high level of uncertainty required minimizing the fixed cost structure and adjusted operations since end of March. Tremendous effort efficiency and cost control has allowed to cover nearly all the variation costs before rents or EBITDA in the year. At EBITDA level, and excluding IFRS 16, recurring EBITDA was minus EUR 302 million in the year. And the conversion rate of the revenue loss was 51%, reflecting the strong effort made by the company to contain the cost base. Moreover, in the last 9 months, since April, total operating cost has decreased by minus 61%, and including rent, the decline has been minus 52% after achieving EUR 64 million in fixed rent savings. The main highlight that we are talking about is fixed rent. We are not considering the valuable rent that we will reduce at the moment that the revenue goes down. The previous decline has allowed to offset 60% of the revenue fall, and the net recurring income level implying — (inaudible) income level sorry, implying that EUR 1.2 billion drop or minus 69% in revenues has triggered a decline of minus EUR 474 million in the bottom line compared to 2019, reporting a net recurring loss of minus EUR 371 million in the year. Total net income reached minus EUR 437 million, including nonrecurring activity, mainly explained by the investment provision registered in the year. To conclude my intervention, I would like to remark our confidence in the future of the group. The pandemic is the biggest challenge we have in our face and is testing our strength. Although demand continues to be severally affected during the start of the year, the flexible operating structure and financial resilience continued during 2020 despite the confidence to overcome the certain challenge of the first month of 2021. The group will benefit from our strong bank and market position to drive recovery in the midterm. I can guarantee you that we will emerge stronger and more efficient than ever. Let me now turn the call over to Luis that will give you more details on the results and balance sheet. Luis? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [4] ——————————————————————————– Thank you, Ramón, and good morning, everyone. This is Luis Martinez speaking. Going to the details of the results on Page 7. Occupancy reached 25% in the year with an extremely low demand since March with the closure of 95% of the portfolio during April and May and the severe lockdown in all the other areas. In Q3, occupancy of the reopened hotels was around 40% and 31%, considering the total portfolio. In Q4, because of the second wave with additional mobility restrictions, occupancy of the reopened hotels was approximately 25% and 17%, considering the entire portfolio. As a result of the low level of activity and the lack of ADR driven events, rates were down 20% in the year. Due to the severe impact of the pandemic seen in the end of February, revenue declined 69% to EUR 540 million in 2020. The second quarter was the most affected period due to the lockdown and portfolio closure. In Q4, revenue declined 82%, reaching EUR 82 million due to the above mentioned second wave impact since September. As you will see in the following slides, the impact of market generation with historical low levels of occupancy has impacted all markets with similar drops of activity and performance. So I will not go through the detailed analysis by businesses units or geographies. Moving to the cost evolution on Slide 11. I will highlight the tremendous efforts since March that has continued throughout the year to minimize the cost base. In 2020, payroll costs have declined by 47% and operating expenses by 51%. Excluding perimeter changes, those declines are 48% and 53%, respectively. This cost reduction continued in the fourth quarter, when total nonrent costs were capped by 64%. In order to ensure minimizing the cost base, workforce continues adapting to the current situation with temporary values and time and salary reduction. With regards to rental costs, excluding IFRS 16 and change of perimeter, the decrease has been EUR 85 million or 25% in the year, explained by the fixed rent savings agreed and the lower variable rents. Q4 registered the highest savings in fixed rates, meaning that total rent, excluding changes of perimeter, decreased by EUR 31 million or 36%. Total cost base reduction in Q4, including rent savings, has been 55%, allowing to report a 45% conversion rate of incremental revenue to EBITDA in the quarter and 51% in the year. Reported recurring EBITDA reached positive EUR 5 million in the year with positive EUR 16 million in the fourth quarter. This is mainly explained by the fixed rent concessions, EUR 64 million in the year, of which EUR 27 million in Q4. Excluding IFRS 16, recurring EBITDA reached minus EUR 302 million in 2020 with minus EUR 86 million in Q4. Below EBITDA, and on Page 12, financial expenses increased EUR 11.5 million, explained by the higher gross financial debt, full drawdown of the RCF and short-term bilateral credit line in addition to the new and secured syndicated loan of EUR 250 million signed in May. The activation of tax losses in some countries have allowed to report a net recovering loss in the year of minus EUR 371 million, which means that the group has offset 60% of the revenue loss at this level. Total reported loss amounts to minus EUR 437 million, including nonrecurring items, mainly from impairment provision for each of the year. Moving to cash flow evolution on Page 13. Net financial debt increased from EUR 179 million at the end of 2019 to EUR 685 million as of 31st of December 2020. This implies an increase of more than 500 million. Excluding financial expenses and net investments, which refer to capital acquisitions and disposals, average operating cash borrowed per month has been EUR 28 million in the year. CapEx invested in 2020 amounted to EUR 103 million, most of it corresponding to CapEx executed at the end of 2019 and the beginning of the 2020 recovery months. This CapEx investment implies that more than EUR 100 million of investment has been canceled or postponed. CapEx investments will continue to minimize during 2021, and we will invest less than 50% of the CapEx invested in 2020. With regards to working capital, the severe revenue drop created a negative impact due to the lower advanced payments from clients and the refunds of prepayments during the second quarter. The negative VAT impact on cash flow is explained by the timing effect of a higher VAT paid to our suppliers than the VAT charged to our clients as a result of the revenue drop. Financial resilience during 2020 have improved with the liquidity protection and reinforcement strategy. As of 31st of December, available liquidity is EUR 346 million, of which EUR 321 million is cash and EUR 25 million is available to credit lines. The operating liability of the fixed leases under IFRS 16 amounts to EUR 2.1 billion in our balance sheet as of 31st of December 2020. Focusing on gross financial debt. And as you can see on Page 14, the increase is explained by the liquidity reinforcement strategy implemented during 2020, mainly based on the full drawdown of the syndicated RCF, the signing of the new EUR 250 million syndicated ICO loan and some other bilateral facilities. The 2-year maturity extension of the syndicated RCF signed in October allows to save loan growth and debt maturities until 2023, and the financial covenants are weighted until the next test in May on December 2021 for both the RCF and the syndicated ICO loans. This partial extension and the preemptive covenant waivers are proof of the support that NH has received from Spain during 2020. Additionally, and as Ramón stated before, the group will ensure financial sustainability through potential asset — potential transactions that could reinforce liquidity in the short term but will the ultimate goal of reducing debt in consistency with the deleveraging strategy, deleveraging strategy that we have followed in the years prior to the COVID crises. And now after covering the results of 2020, the team will be happy to answer any question you may have. Thank you very much for your time. ================================================================================ Questions and Answers ——————————————————————————– Operator [1] ——————————————————————————– (Operator Instructions) The first question from Andre Juillard from Deutsche Bank. ——————————————————————————– Andre Juillard, Deutsche Bank AG, Research Division – Research Analyst [2] ——————————————————————————– First question is on the operating trend. Do you have a little bit color on bookings and the way the recovery could start in H1? First question, so operating trend. Second question is about the balance sheet, considering that we have — you have a waiver until the end of the year, and you said that you are looking to postpone that waiver of 1 year. About asset disposal, can you give us some more elements and some more color about what you plan to do in time of the month, timing and so on? And that’s it. ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [3] ——————————————————————————– Thank you, Andre. Well, there — as you know, there’s a lot of uncertainty right now. It’s complicated to foresee what’s going to happen in the coming months. And — but it’s clear that international travel restriction will remain for a while. So we should focus on domestic. But let me tell you that this is going to be a great opportunity for NH because in 2019, 80% of our clients were domestic. And as you know, we are very strong in the countries where we have presence. So we have more than 50 hotels in Holland; more than 50 hotels in Italy, in Germany; more than 100 hotels in Spain. So we finally, after seeing the people decide to stay in their own countries, presumably, a great opportunity for us. But this is not anything they take the car and spend a weekend in a hotel in a city close where you are living. So honestly, I think this is going to happen in the coming weeks once the governments lift the current restrictions that we are suffering in other counties. Mobility is crucial for us. Once we have mobility, even only within their own countries, this is going to be great for us because we expect a huge demand. And this is all I can say right now because, obviously, as I mentioned before, the uncertainty is quite relevant. Regarding the asset disposal. As I mentioned before, we are thinking in rotate 2 assets, one before the end of the summer and the other one before the end of the year, in order to reduce debt because the people who know me, one of my priorities when I was promoted to CEO of this company was reducing debt. And so this, now we can survive because, imagine the situation, we have the debt that we had 4 years ago or 5 years ago. So the sooner the better. We will start reducing debt because this is the guarantee of the company survive for the future. Thank you. Luis? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [4] ——————————————————————————– And regarding the question on waiver, Andre, as of today, you know that we only have maintenance covenants in the bank loans. We don’t have maintenance covenants in the bonds. So we focus only on this waiver. Now waiving the maintenance covenants of bank loan. So you know that we have — we are explaining a full waiver for the whole 2020. So we don’t have to worry about testing anything as of closing of 2020. And back in October, when we signed the amendment extend of the RCF, we got the waiver for the testing of June 2021. That is for — both for the RCF and for the syndicated ICO loan, approximately EUR 500 million. And we do have to take again the covenant until December 2021. So we have a very comfortable outlook for 2021. We have time to work on that. And just for everyone to be aware, this is something that we are already discussing with the banks, and we don’t see any reason why we should have problems to get the covenants wait for December 2021 testing. ——————————————————————————– Andre Juillard, Deutsche Bank AG, Research Division – Research Analyst [5] ——————————————————————————– Okay. Maybe one follow-up question about your shareholder. I guess that you have a regular discussion with them. But any change in their perception or their view on the business? They want to keep the situation as it is? Hello? ——————————————————————————– Operator [6] ——————————————————————————– Yes. We can hear you, Mr. Juillard. Mr. Ramón Marín, can you have it? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [7] ——————————————————————————– Can you hear me? ——————————————————————————– Operator [8] ——————————————————————————– Yes. Go ahead. ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [9] ——————————————————————————– Okay. Sorry. Sorry. Well, I’m saying that I participate this morning in Minor meeting, explaining the results of the year. And by 2021, I can transmit to all of you that they really trust us. They really believe that the team is doing a great job. They realize especially our hardly the situation that we’re going through, and they don’t expect huge recovery in the coming months. But they expect to come back to the previous dividend we have in 2021 in the coming years. They are very happy with all the decisions that the company has taken in order to reduce costs and to protect the company for the future. So nothing has changed at all from a minor’s perspective. ——————————————————————————– Operator [10] ——————————————————————————– Next question is from [Tom Jose] from — sorry, (inaudible). ——————————————————————————– Unidentified Analyst, [11] ——————————————————————————– Luis, just a housekeeping request. I think last time we discussed about having — splitting out Q4 cash flows and Q4 P&L items individually. That would be very useful. It saves me from having to backtrack and back calculate region-wise what the uplift was. I think you’ve done that on Slide 17, 18, 19, to a certain degree. But I guess the cash flows also would be very useful, if you could, the next time around. That’s a housekeeping request. The second question was around the asset disposals. I know you had this plan for April and May. And I think given the vaccination schedule, at least here in the U.K., which is a significant part of tourism for Spain, we know for a fact that international travel won’t be back at least until May. The ban is still mid-May. So how are you doing on — and I imagine the other countries are far behind as well. But how are you doing on those asset disposals? It’s almost a given that it’s going to go ahead and — or has something else come up, which might help you preserve liquidity? So just the progress on those asset disposals. Hello? Hello? ——————————————————————————– Operator [12] ——————————————————————————– Yes. We’ve heard you. ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [13] ——————————————————————————– Okay. I’m sorry for delaying now. I told you that I can give you further information because we are in the middle of proceeds, and there are some confidentiality that we have to respect. We are progressing. I have no doubt that we will sell this asset because there’s a lot of appetite. And we are talking about sale and leaseback transaction with some investment funds that really trust us. So I don’t see any problem to complete this transaction and one before the summer, the other one before the end of the year. But we’re still comfortable with this process. But we need some time, and we will communicate to all of you as soon as possible. Thank you. ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [14] ——————————————————————————– So with regard to the split by geography on the loan results, no, you have all the geographical EBITDA. So on that loan report, you can access the full details from revenues to EBITDA by geography. ——————————————————————————– Unidentified Analyst, [15] ——————————————————————————– Sorry, where have you — which page you refer — I’m looking at the presentation that you put out yesterday. Are you… ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [16] ——————————————————————————– The presentation is more a summary with the highlights, but then you have also the report results where you have more details in, which I think and you have, I would say, more expanded P&L. ——————————————————————————– Unidentified Analyst, [17] ——————————————————————————– Okay. And just one more, if I squeeze in? Has MINT — over Q4, have your parent said anything to you? Or is it pretty much still can’t launch, and they’ve left it up to you to handle the balance sheet and capital structure? As in do they — is there any liquidity requirements on their end? I know they tried to do a tender last year, and the tender was pulled back, and obviously, the bonds recovered since then. Are there any plans to do that tender anymore? Or has it been all quiet from MINT on Q4? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [18] ——————————————————————————– Okay, Tom, so regarding the tenders, tender is that our shareholder is an independent company. I mean we have a 94%, obviously, stake by Minor. But we have a financing (inaudible) backlog because we have our own financing, and they have their own financing. And we receive no annuities from them. So it’s also independent in terms of financing. They decided to take — to launch a tender, but it was MINT that decided to launch a tender to take in some market opportunities and with a purely trading purpose. So it was not a part of any liability management process, but absolutely a decision of MINT to invest NH notes. And they decided to reserve the tender for their own reasons, market-related reasons, because of the volatility, Jose. And that’s what we know. We cannot speak on behalf of Minor. But I can tell you that there was no liability management strategy behind that. ——————————————————————————– Operator [19] ——————————————————————————– Next question from Elizabeth Stapleton from PGIM. ——————————————————————————– Elizabeth Stapleton, [20] ——————————————————————————– I’ve got a few. Firstly, just on the outlook. I mean I appreciate it is an impossible question, but I mean I guess just in the context of your own liquidity planning, how are you thinking about the pickup in volumes? Perhaps where could you be by the summer and then as you move into FY ’22? And how are you seeing that year versus FY ’19? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [21] ——————————————————————————– Well, as I said before, we think that international restriction will remain for a while. So we are normally focused on domestic in a huge part of the year. Doesn’t mean that maybe during the summer, we have some clients, one with international, those are opened. And maybe in the last quarter of the year, you can expect some mild events coming back. Especially I think there is a huge pent-up demand in weddings, for example, for the last part of the year. I mean — but honestly, right now, it’s too complicated. It’s very, very complicated to anticipate things. Everything can change in weeks depending on the late break vaccination. So there are many factors that could totally change the landscape that we are seeing right now. ——————————————————————————– Elizabeth Stapleton, [22] ——————————————————————————– Okay. Understood. I appreciate there’s lots of moving parts. And then I just had a couple of questions on the cost base as well. Could you just repeat — so you expect EUR 60 million of kind of medium-term cost base, is that correct? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [23] ——————————————————————————– Yes, and structural cost, structural cost worldwide. ——————————————————————————– Elizabeth Stapleton, [24] ——————————————————————————– Okay. And in terms of cost to implement that, what should we be expecting on the kind of exceptional line? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [25] ——————————————————————————– In some cases, there are negotiations, which is the case here in Spain, but in other cases, it’s dependent on the situation of the hotels. Not everything is going to go to payroll. There are a lot of things that are structural and rent in offices, for example, that we are reducing heavily. There are many negotiations with all the suppliers that we are put in place right now. So it’s a — it’s complicated to define right now then how we are going to finish. I guess we are just starting with this. We will give you more color in the coming months. ——————————————————————————– Elizabeth Stapleton, [26] ——————————————————————————– Okay. And then the next question is on rent. I also appreciate it’s a bit of a moving target, but just to get a sense for how you’ve been able to variabilize the rent even more? I think pre COVID, it was about only 10% variable in terms of the rent roll. But has that changed going forward? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [27] ——————————————————————————– Yes. Yes. Of course, it’s growing because the — in the last year, we have renegotiated a lot of fixed rent to variable rent. So it’s quite variable, but it is growing. But on the other hand, it is protecting right now the company. And also, as part of the negotiation that we are doing so far, includes an increasing of variable rents in the coming years. We did 30% of the negotiation because we only have 70% of real sales. But let me tell you something. I will be more than happy if I have to pay this variable, but that would means that we are beating the numbers that we got in 2019. So I’m not worried at all for this. ——————————————————————————– Elizabeth Stapleton, [28] ——————————————————————————– Okay. And it’s more just to get a perspective for of medium-term where you might land in terms of that fixed variable split. But perhaps it’s just something that’s fluid and ongoing? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [29] ——————————————————————————– I think I have already answered this question. Of course, it’s going to change the fixed and our idea is to move as much variable rent as possible in the future. So yes, of course, we will. ——————————————————————————– Elizabeth Stapleton, [30] ——————————————————————————– Okay. And then just 2 final ones on cash flow. So you said on CapEx, that it will be about 50% of the 2020 number. So it’s more like EUR 50 million to EUR 60 million for CapEx this year? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [31] ——————————————————————————– CapEx this year — cash used for CapEx this year will be less than EUR 50 million. ——————————————————————————– Elizabeth Stapleton, [32] ——————————————————————————– Less than EUR 50 million, okay. And then in terms of working capital, are there any kind of deferred items? Or should we actually expect that to be an inflow as kind of activity builds? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [33] ——————————————————————————– No. We don’t have — I mean we are paying our suppliers on reasonable terms. We have agreed extended payment terms with many suppliers. We are using actually some instruments like reverse factoring in Spain and some of it in Southern European countries in agreement with the supplier. So there is no, I would say, a big backlog of payments. We are in a normalized working capital and the same for CapEx. The only impact that you can see, the real coming — if you look at the cash flow, it’s minus EUR 14 million is very low. There is an impact, and I want to illustrate this because this is something that a company like us shouldn’t be suffering. This is something in which the government are not giving real support, is the VAT, a EUR 40 million effect in cash flow coming from VAT because we have to pay VAT on many things. Most of the things we pay, except for payroll. We pay VAT literally on everything. And obviously, we — it takes us a long time because we are charging VAT to our clients, but the weight is lower. So it’s taking us an average between 3 and 4 months, on average, to get the VAT refunded. So the real working capital investment is out of the hands of the company with VAT effect. ——————————————————————————– Operator [34] ——————————————————————————– Next question from (inaudible) from Banco Santander. ——————————————————————————– Unidentified Analyst, [35] ——————————————————————————– Yes. Just 2 questions from my side. The first one would be just to understand what’s the level of occupancy where you reach cash breakeven. I believe you mentioned — I’m sorry if I didn’t understand. This was 20% to 25%, but I imagine this would be EBITDA before leases. So if we’re talking about a recovery, and let’s assume things go — I mean there’s a fast recovery in the third quarter. You’ll have the cash breakeven. What would be the average occupancy rates that you would have to achieve? And then the second question, just to understand the drivers for the impairment this year. I believe this should be pre-linked to the lease assets. But if you could just confirm this, it would be helpful. ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [36] ——————————————————————————– Well, generally speaking, with 45% occupancy, considering that we are not going to invest in CapEx this year, we could reach the breakeven cash. Let me explain something that is going to depend of the business segmentation. Right now, 95% of the revenue that we are getting are coming from rooms because we don’t have a F&B. So obviously, with this segmentation, the conversion is higher. In the coming months, we expect recovery little by little of the F&B business, starting by banqueting, weddings, et cetera. So maybe it will change in the future. But right now, with 45% occupancy, we could have breakeven cash. Luis? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [37] ——————————————————————————– Yes. Regarding your question on impairment, I would say, 1/3 of the total impairment comes from leased hotels and 2/3 from own hotels. ——————————————————————————– Unidentified Analyst, [38] ——————————————————————————– And 2/3, Luis, sorry, from your own hotels, right? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [39] ——————————————————————————– Yes. From own hotels. ——————————————————————————– Operator [40] ——————————————————————————– Next question from [Miguel Medina] from (inaudible). ——————————————————————————– Unidentified Analyst, [41] ——————————————————————————– Yes. Just 3 questions. The first 2 is 2 clarifications because my line was not very good. It’s — the first one is on the asset disposal plan. Did you say that, that’s going to be a sale and leaseback transaction in both cases? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [42] ——————————————————————————– Yes. ——————————————————————————– Unidentified Analyst, [43] ——————————————————————————– Okay. Understood. Yes. The second one, the EUR 60 million cost savings, is the restructuring of head office that you announced last week part of those EUR 60 million? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [44] ——————————————————————————– Absolutely. ——————————————————————————– Unidentified Analyst, [45] ——————————————————————————– Okay. Third and final one, If I look at the expansion plan, the one that you reported yesterday, is around 25% lower than what you reported at the half year stage. Is that the end of it? Or do you see a scope to reduce that expansion plan further? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [46] ——————————————————————————– Well, we don’t have to change our expansion plan. We have some contract payment. And obviously, we expect to open all these hotels in the coming years. But let me clarify this point because something has changed. As you know, the hospitality industry landscape in Europe has changed. And because there are a lot — unfortunately, there are a lot of small and medium companies that they won’t be able to survive, and they are on sale. The buyers, most of the buyers are investor owned. Some of them are our current landlords. And they trust the company, and we are in touch with them because they are looking for companies ready to manage the hotel that they are buying. So we have a real possibility of growing, but always keeping in mind something important. We are not going to grow without thinking, first of all, in our current business. I mean we don’t want to take more hotel when we have enough inventory. I don’t want to come in by and criticize my current offer. But you see this will not have enough presence in some areas like leisure, for example. Why not? We are wide open to discuss with all of them, and we expect to sign some agreements in the coming months. And this is also a way to balance with current portfolio with, let’s say, less weight from leases and more weight from management contracts. ——————————————————————————– Unidentified Analyst, [47] ——————————————————————————– Okay. Sorry, if I may just one financial question? You have booked, I think, it’s a EUR 55 million tax credit. So far, that is a noncash item. This is basically the tax impact of the losses that you expect to offset in the future. It’s not that in some jurisdictions you have been able to claw back corporate tax that you paid the year before or 2 years ago. Is this correct? ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [48] ——————————————————————————– Out of the tax, there is a purely P&L tax credit, which is the effect you are referring. But we also have a cash positive EUR 8 million tax credit in the cash flow. ——————————————————————————– Operator [49] ——————————————————————————– (Operator Instructions) We have one more question for a moment from Francisco Rodriguez from Banco Santander. ——————————————————————————– Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division – Research Analyst [50] ——————————————————————————– Yes. I wanted to ask on your potential fixed-rate savings. I’m not sure if I understood correctly, but I think you wanted to say that those additional savings could be on top of the EUR 60 million on costs. And I would like to know if you could give us a figure or something on how much additional savings you could have coming from those fixed rents. And linked to your comment on occupancy rate, I would like to know if you think you will be able to be near this 45% occupancy rate, which you believe could make you big cash flow, let’s say, positive for at least in breakeven this year 2021? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [51] ——————————————————————————– I anticipate when we will reach the breakeven, we expect before the summer, could in June. But honestly, it’s quite, quite, quite complicated right now because there is uncertainties. But once again, believe me, everything could change in which — it’s going to depend on the vaccination. Today, Germany has announced a plan to vaccinate 10 million people per week. If that happens, believe me, this is going to change completely, completely the situation. And we have a strong presence in Germany, so that will be a great news for you. But let me clarify after the first wave when Germany opened the mobility to the country, we were incredible occupancies in Germany, about 80% in some cities, and most of them are business travel. So what is extremely important, have mobility in the different European countries. Regarding, savings and rents are different. One thing is that the structural plan of cost or reducing costs, and the other thing is the rent negotiation that we are starting with all the landlords according with the situation that we are living right now. So this is a different plan. We are still working on it. I can’t tell you the final figure because there are a lot of negotiations opened. But we have — we hope that we will reach a good agreement, especially in the first quarter and the second quarter. After the first half, it’s going to be quite complicated because, obviously, once the situation becomes, let’s say, normal, obviously, it’s going to be different. We have some agreements for the whole year, but generally speaking, we expect extra savings in the first half of 2021 in all the countries in this matter. ——————————————————————————– Francisco José Rodríguez Sánchez, Banco de Sabadell. S.A., Research Division – Research Analyst [52] ——————————————————————————– Okay. So just if I may, a follow-up? I’m not sure if I’ve understood properly, but should all these savings in fixed rents, once the situation is normalized, will come back to your P&L.? I mean those are only temporal savings. Is it correct? Or are they structural? Will they remain? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [53] ——————————————————————————– Maybe I’m sorry, maybe I didn’t explain very well, maybe it’s because the mask. It’s complicated to speak with it. Listen. No, all the savings are real savings. What I’m saying is the first half, we have the possibility to get good savings because, obviously, the situation is complicated, and the landlords understand. And as I mentioned before, with most of them, we have a real partnership. So we are sharing the pain. But what is going to happen after the first half, the situation becomes normal, it’s going to be extremely complicated to get additional savings from rents. But the rents that we are getting so far are net rents — the same, sorry. ——————————————————————————– Operator [54] ——————————————————————————– We don’t have any more question for the moment. (Operator Instructions) We have a new question from [Javier Gonzalez] from BNP Paribas. ——————————————————————————– Unidentified Analyst, [55] ——————————————————————————– Yes. One question, what is the global amount of rents you paid per year? ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [56] ——————————————————————————– It depends on the variable rents because if the business is going well, we pay more because they’re variable. If the business go worse that is happening this year, we pay less. But this is about EUR 300 million in a normal basis, let’s say. ——————————————————————————– Operator [57] ——————————————————————————– We don’t have any more questions. (Operator Instructions) We don’t have any more questions. Back to you for the conclusion. ——————————————————————————– Javier Vega-Penichet, NH Hotel Group, S.A. – SVP of Investments & IR [58] ——————————————————————————– Okay. Thanks a lot for your time and your interest in NH. Any follow-up question would be managed with the Investor Relations teams. And thanks again for your time, and have a good evening. ——————————————————————————– Ramón Aragonés Marín, NH Hotel Group, S.A. – CEO, MD & Executive Director [59] ——————————————————————————– Thank you, everybody, Stay safe. ——————————————————————————– Luis Martinez Jurado, NH Hotel Group, S.A. – CFO [60] ——————————————————————————– Thank you. ——————————————————————————– Operator [61] ——————————————————————————– Thank you. Ladies and gentlemen. This concludes today’s conference call. Thank you all for your participation. You may now disconnect your lines.
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