• IHG eyes China to quell slowdown

IHG said that it would continue to look to China for growth, as it continued to make market share gains in the region.
The company, which was reporting its first-quarter figures, said that it would reveal details of its all-suites upper-midscale brand at its Americas Conference with its owners later this month.
CEO Keith Barr said: “Our strategic focus on driving industry leading net rooms growth is delivering strong results, with our net system size increasing 5.4% in the first quarter and our highest number of signings in 12 years. Global revpar increased 0.3% against strong prior year results, with good growth in the US where we outperformed the industry segments where we compete, and continued market share gains in China.
“The investments we are making to enable this acceleration in growth are funded through our efficiency programme, which is on track to deliver USD125m of annual savings by 2020. While macro-economic and geopolitical uncertainties remain in some markets, the strong fundamentals of our business give us confidence for the balance of the year.”
During the quarter the company opened 12,000 rooms, including 3,700 rooms in Greater China as it passed the milestone of 400 hotels opened in the region. IHG also removed 6,000 rooms from the system as it continued to purge underperforming hotels.
The group’s pipeline stood at 279,000 rooms. In Greater China, the Holiday Inn Express Franchise Plus product saw 21 signings in the quarter, taking the total to 164 signings since launch nearly three years ago. IHG also signed a further six franchised hotels for Holiday Inn and Crowne Plaza. Signings totalled 9,800 rooms, IHG’s best first quarter performance in 13 years, and included an InterContinental and Even hotel in Zhangjiakou and the Kimpton Beijing Dashilar.
CFO Paul Edgecliffe-Johnson told analysts that the Holiday Inn brand family continued to be “the engine of growth for our business”. In the first quarter IHG signed 10,000 Holiday Inn Brand Family rooms, or 69 hotels into the pipeline. He described Avid as “IHG’s next brand of scale”, signed more than 180 hotels since launch just over 18 months ago, including 12 in the last quarter. The company expected signings pace to average around 20 to 25 avid hotels per quarter.
In February the group acquired Six Senses and, in the past two months, opened two resorts in Bhutan and Cambodia, with eight under construction and more than 50 deals under active discussion.
The company saw mixed trading, with group revpar up 0.3%, against an increase of 3.5% for the same quarter last year. ADR in Q1 was up 0.6% and occupancy down 0.2 percentage points. In Europe, Middle East, Asia and Africa region, revpar was down 0.7%. In the UK, it was up 2% with over 4% growth in London principally due to strong corporate demand. The provinces were flat. Revpar in Continental Europe was up 1%, while Greater China was flat.
Edgecliffe-Johnson said he thought the second half “might be easier on a comparative basis in the US and in China. I think the Middle East is going to stay somewhat challenging”.
The performance in the UK was better than that reported by HVS London, AlixPartners and STR, which saw a 2.8% drop in revpar in the regions for the same period.
This was in contrast to the fortunes of London’s hotels, which saw like-for-like revpar up 3.6% against the previous year while occupancy reached 77%, up 1.7%, and average room rates rose 1.9% to GBP134.05.
In the regions hotel occupancy dropped 0.7% to 68% in Q1, with average room rate down 2.1% to GBP64.95 and revpar down 2.8% to GBP44.04, the first quarterly decline since 2012.
HVS chairman Russell Kett said: “London’s performance in the early months of 2019 was helped by the Six Nations rugby tournament and Passenger Terminal Expo at ExCel. Conversely outside London hotel performance was adversely affected by supply growth causing hotels to discount more aggressively in many locations. Ultimately this new supply should be absorbed but the effects of Brexit are also to blame for this.”

HA Perspective [by Katherine Doggrell]: IHG pulled Keith Barr in from Greater China, where he spent four years as the region’s CEO and when he was appointed to replace Richard Solomons it was no great surprise to those of us who can read CVs to see where the group might lean. Indeed, its Franchise Plus model has had many of the other operators taking a closer look at speculating on what they too might do to enjoy a little boost.
The group has been holding what it calls “owners workshops” in the region, looking to educate potential investors about its brands and the acquisition of both Regent and Six Senses were clearly made with China in its sights as it looks to round out its portfolio and maintains that forwards momentum that it sometimes seems to be lacking in other parts of the world.
In those other parts, analysts were very eager to talk about the impact of IHG’s agreement with Foncière des Régions last year which saw the UK-based company take hotels onto its balance sheet through managed leases, exposing it more than it was used to. The CFO was chipper about the opportunity it gave to bring Voco into the country, although acknowledged the financial hit. Barr is not thought to be allowed to dig too deep into the IHG purse, so expect to see more of these small deals in the future, rather than the large-scale M&A the likes of Marriott and Accor have enjoyed. As the UK falters, there may be opportunity, but to replicate its position in China, it will need something more striking.

Additional comment [by Andrew Sangster]: It is perhaps not the greatest timing to be talking up the prospects of China right now, giving the current tariff war between the US and China. If things take a nasty turn – unlikely but possible – then Western companies could find themselves in all sorts of problems in China.
China does matter to IHG. Last year it signed 142 hotels in Greater China and just 133 in the super region of Europe, Middle East, Africa and the rest of Asia (basically the whole world minus China and the Americas). In the Americas, 416 hotels were signed so China has a way to go to catch up with the importance of the US to IHG.
And China still lags when in comes to total profits: Americas represents USD662m; EMEAA is USD202m; and China just USD69m (all figures relate to the full year 2018).
Stripping out the acquisition of Regent and Six Senses gives IHG an organic net system growth of 5%. It has aspirations to see this organic system growth number growing.
If things do continue to get worse between China and the US, then these organic growth numbers could potentially struggle. How many Chinese owners are going to want to sign-up with a Western brand in such circumstances?
China is a big prize, and IHG is in a good position to exploit the opportunity, but there are significant risks too. A bit more geographic diversity might be a good thing.

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