Download Complete PDF - Informe Anual 2012

CONSOLIDATED
MANAGEMENT REPORT
For the financial year ending 31 december 2012
EVOLUTION OF BUSINESS AND GROUP’S SITUATION
The 2012 financial year saw the world economy grow slightly slower (3.2%) than in 2011 (3.9%). Economic growth rates also remained at similar levels,
slightly lower than in on the previous year in the euro area, the United States, the United Kingdom and the Latin American countries in which the Group
operates its 391 hotels. However, comparing the year-on-year economic growth rates for the four countries that account for the largest proportion of the
Group’s sales and income: Germany (0.9% compared to 3.1%), the Netherlands (-0.9 vs 2.2%), Spain (0.4 vs -1.4%) and Italy (0.4 compared to -2.1%), we
see that these economies have fallen by around 2 to 3 percentage points. With the exception of Germany, all of these economies moved from growth
to contraction.
The same is true if we compare the latest reports of the World Travel & Tourism Council, which include the 2012 growth estimates in travel and tourism
GDP for all world regions. Asia and Latin America present growth of 6% in 2012 compared to a contraction of 0.5% in Europe. The move towards negative
growth has also occurred in the hotel sector in Europe, but not in air traffic or transport. According to data as of November, occupancy (-0.1%) and prices
(-4.5%) fell only in European hotels.
As such, the growth of the Group’s sales in 2011 has been interrupted, even in a macroeconomic context of weak growth. In 2012, despite the decreasing
demand, the Group managed to maintain occupancy at similar levels to 2011 (-0.3%), with a slight fall in average prices (-1.0%).
In 2012, commercial initiatives were designed to reinforce web sales channels, as well as certain local offices. Efforts to render the Group more efficient
reduced operating expenses by -0.3% in absolute terms, thereby offsetting inflation. As announced in the last report, the Group will continue to focus its
attention on both personnel expenses in Spain and Italy (where personnel costs compared to sales are much higher than in other business units) and on
leases in the same business units. This year, a number of measures aimed at reducing operating losses and their resultant impact on cash remain in force:
Freezing of investments: The bulk of investments are focused on maintenance and on expenditure required by legal undertakings made
to public bodies. This year, some investment has been allocated to modernising and improving the services of some of our main company-owned
hotels, given their high returns in terms of revenue and profit per room. In accordance with our strategy of moving towards an “asset-light” model
involving management/franchise contracts that do not require investment commitments, all hotels opened and new contracts signed in 2012 were
under a management arrangement. Total investment in 2012 amounted to €47 million, 16.3% less than in 2011.
Staff flexibility: Thanks to the cost containment measures applied in 2012, personnel expenses have fallen by -2.9% in spite of activity levels
similar to the previous year, reinforcing the sales teams, and the effect of inflation.
Reduction of operating costs: Maintaining savings and cost-control plans has allowed us to cut costs for the third year in succession,
including cutting personnel expenses by €14.1 million.
Withdrawal from unprofitable hotels: Termination of lease agreements and franchises with negative EBITDA, showing no signs of
recovery. As part of our streamlining policy, 10 hotels with a total of 1,105 rooms have been removed from the NH Hoteles portfolio. Seven of these
were located in Spain and Italy. The withdrawal of these hotels was offset by the addition of 5 new management contracts, contributing with 906
rooms in the Czech Republic, the Netherlands, Haiti, Spain and the Dominican Republic. Of these, those in Prague, Punta Cana and Ourense were
already in operation in 2012, and along with the three management contracts signed in 2011, provided NH Group with a total of 992 operational
rooms.
Negotiating and refinancing hotel rental agreements through reductions in rental installments and freezing rent rises. The Group
has managed to stabilise lease expenditure in 2012 (down by 0.6%), offsetting the opening of hotels, increases resulting from negotiations in previous
years, and CPI revisions. Between 2011 and 2012, 84 actions were carried out at leased hotels with negative EBITDA, and 8 agreements were
terminated early. Rent reductions are planned for 2013 in addition to those already obtained.
End customers, who are even more demanding in tourist destinations with an oversupply of hotel rooms, did not report any negative effect on quality
as a result of direct action taken on operating costs. In 2012, NH Group focused its efforts on providing the Group with a system for measuring and
monitoring customer satisfaction, which has enabled it to make decisions, respond and implement prompt action plans wherever necessary. NH has
managed to include more than 200,000 customer assessments and more than 130,000 comments from all its hotels in a single tool known as “Quality
Focus On Line”. This tool analyses results either for individual hotels or from an aggregate perspective, and allows the Group to closely monitor its direct
competitors. Likewise, the Board of Directors of the Parent Company decided that NH employees would have 15% of their variable target directly linked
to the satisfaction results obtained in 2012, reinforcing the idea that quality is one of the mainstays of NH Hoteles.
The outcome of these policies is reflected in an improvement in overall customer assessment of NH during 2012, from 8.0 out of 10 in 2011, to 8.1 in 2012.
According to these results, the most appreciated aspects of the chain, in addition to location, are service and cleanliness, which scored above 8.3; both
aspects are directly related to the work of employees, showing the importance of customer-centred approach for NH Hoteles Group.
8 CONSOLIDATED MANAGEMENT REPORT