NH Hotels, the Spanish operator, says that lockdown measures taken to combat the coronavirus were “more intense than expected” and that problems persist. “Mobility remains low”, said Ramón Aragonés, the NH chief executive.
The comments came as the company said that revenues fell 94% from 469 million euros in the second quarter of the year to just 30 million euros – less than half the group’s earnings before tax in the second quarter of 2019. Losses before tax between April and June this year were 173 million euros.
“COVID-19 has tested our strength,” said Mr Aragonés, the NH chief executive, adding that operating and financial reforms in the run up to the crisis, coupled with measures taken during the slowdown: “allowed the group to overcome the severe lockdown months.”
Nearly 95% of NH hotels were closed during April and May. Said Mr Aragonés: “Q2 has been the most impacted quarter with an extremely low level of demand.” The group responded by minimising costs. In April and May, total non-rent overheads decreased by 70% in Q2 and 59% when rents are taken into account.
The group cancelled a capital expenditure programme totalling 80 million euros and saved another 59 million euros with a decision to stop paying dividends.
Among the company’s other emergency plans, temporary staff layoffs at its European hotels have been extended until the end of September and voluntary working time and salary reductions “remain active” in Latin America. All staff travel continues to be suspended while NH is negotiating with landlords about rent discounts in the second half.
NH is showing some signs of recovery in demand from what it called “sharp declines” in demand for hospitality. Occupancy rates in its European hotels which are open was running at 43% in July up from 10% in April though still below the 65% recorded in February.
The company said that 60% of its portfolio was trading at the end of June and it expected 70% of its properties to be operational by the end of this month with further re-openings slated for August and September.
NH shares fell as results were posted on 29 July. They halved in value in early March – in falls mirrored across the sector. As with many peers, NH stock staged a comeback. Now however, the price has fallen back again to levels not far from the March nadir.
Insight
NH Hotels is based in one of the world’s Covid epicentres, in Europe if not the world. Not only is Spain hard pressed, NH is also big into Italy, Germany and the Benelux countries. Occupancy and revenue went out the window in the second quarter and while improvements are coming through now, the outlook remains pretty bleak.
The company’s debt is the crucible in which operational problems burn. Net debt more than doubled, from 179 million euros at the end of December to 435 million euros at the end of June. It jumped by 181 million euros in the second quarter alone. Credit rating agencies Moody’s and Fitch have downgraded assessment for NH in recent months. Little surprise that the focus, says NH with perhaps a hint of understatement, is on “preserving liquidity.”
Liquidity is not the same as solvency, of course. NH has 600 million euros of liquidity and the prospect of insolvency is a distant threat. It has no debt repayment obligations in the short-term with bulky repayments not due until 2023. Lenders are also flexible on covenants: testing has been postponed until June next year.
Even so, it is a comfort to know that the Minor International hotel empire, of Thailand, is a 94.1% shareholder. The ownership structure gives stability and a reasonable prospect of a more patient approach that public market investors might tolerate. The shareholder brings financial heft: bigger is often better in times of stress.
NH Hotels has major problems. Its Minor advantage, however, could come in very handy.