IHG sees revenue rise, acknowledges Chinese woes
 
IHG sees revenue rise, acknowledges Chinese woes
18 FEBRUARY 2020 9:24 AM

In reporting full-year 2019 performance, executives at InterContinental Hotels Group say the firm is well-positioned to withstand blips to trading due to the coronavirus outbreak and continued protests in Hong Kong.

DENHAM, England—Protests in Hong Kong hurt InterContinental Hotels Group’s full-year 2019 earnings, executives said, and the full impact of the coronavirus outbreak originating in Wuhan, China, has yet to hurt performance results.

As a result of the coronavirus outbreak, IHG and other hotel firms have closed hotels, but the likely losses from those actions—global revenue per available room in 2019 dipped by 0.3%—will not surface until first-quarter 2020 numbers are reported in May, executives said.

Speaking on a conference call announcing IHG’s full-year 2019 earnings results, CEO Keith Barr said the United Kingdom-based firm is well-positioned to weather the coronavirus crisis and continue its strong trajectory of net-system, fee-revenue and shareholder-dividend growth.

Corporate social-responsibility and efficiency programs and strong business fundamentals remain the bedrock of the firm, he said. An 8% rise in full-year revenue to $2.08 billion underlined Barr’s statement.

China, though, dominated analysts’ questions on the earnings call.

“I lived (in Greater China) for a number of years, and it is tough to see the impact it has had there on lives,” Barr said.

He added the situation is very difficult, especially at such hotels as the 485-room InterContinental Wuhan, which is in the epicenter of the virus and next to the Wuhan International Expo Center.

“There are some amazing things happening on the ground, with our hotels hosting medics and making meals for workers building new hospitals,” Barr said.

Of IHG’s 470 hotels in the Greater China area, 160 are “closed or partially closed,” he said.

“(Greater China) is an important part of our strategy, but it has only 15% of our open rooms and contributes 10% of our operations,” Barr said. Still, “we’re already seeing the effects of coronavirus as of late January.”

He said even in China, business is continuing.

“We have opened five or six hotels in China in 2020, so business is still moving,” Barr said. “Where we might see interruption is in (furniture, fixings and equipment) ability, with items simply not manufactured and delivered, and in staff, but I will stress again this is a delay, not a stop. The long-term strength of the business is extraordinary in China, and we’re very bullish.”

RevPAR for Greater China dropped 4.5% in 2019 compared with 2018, said CFO Paul Edgecliffe-Johnson.

In terms of outbound Chinese travel, IHG has seen no impact in Western markets from the virus, he said.

“Key demand drivers are domestic in most of our markets, so the effect from China inbound is on the margins,” he said.

Barr gave some more color on Chinese losses.

“A drop in RevPAR of 1% equates to $13 million in (earnings before interest, tax, depreciation and amortization). We are seeing significant reductions in occupancy in February across the entirety of the business. There is a $5-million impact on fees in February in China,” he said, noting that IHG expects trading problems in Hong Kong to continue into 2020.

RevPAR at IHG’s Hong Kong properties was down 27% in 2019, and down 63% just in Q4, Edgecliffe-Johnson said.

The trajectory of past outbreaks is encouraging for what could happen next with coronavirus, Barr said.

“There is some impact across (Asia/Pacific), some cancellations, but it is too hard to quantify as (business is) picking up and moving around the world,” he said. “As I said, I lived in the region during the (2019 H1N1 swine flu virus), and then we saw a sharp drop and then a sharp recovery.

“But remember the Chinese government’s ability to reignite the economy is second to none.”

Systems and dividends
Edgecliffe-Johnson said IHG’s net rooms increased 5.6% to approximately 884,000 rooms in 2019, despite 18,000 rooms being removed.

He said that included record signings in the Greater China and Europe, Middle East, Asia and Africa regions.

“Revenue increased 8% to $2.08 billion, operating profit increased 4% to $865 million and total dividend increased 10%,” Edgecliffe-Johnson noted in the results.

Elsewhere across the portfolio, Edgecliffe-Johnson said Brexit uncertainty and reduced British economic confidence did dent numbers in the U.K. RevPAR the U.K. increased by 1% and in London by 3%, but its properties in the provinces reported a 1% RevPAR decline.

“The challenging trading conditions resulted in a small operating loss in the U.K.,” Edgecliffe-Johnson said.

Barr said the strength of IHG’s brands and the market appetite for them remain at the core of its growth strategy.

Among its newer brands, Voco has signed 33 hotels in the past 18 months in 16 countries, with the brand on track for more than 200 hotels in the next 10 years, Barr said.

Atwell Suites has signed 10 hotels in 2019; 10 Avid hotels have opened and 200 signed since that brand’s launch; and Six Senses Resorts & Spas has 18 open hotels and 25 in the pipeline, with the expectation that more than 60 will open over the long term, he said.

“There is increasing demand for distinctive brands,” Barr said.

He added IHG’s Hotel Indigo brand had record signings growth in 2019 and five Kimpton Hotels & Restaurants assets opened in the last full trading year.

“We have also seen app revenue increase 18% year on year,” Edgecliffe-Johnson said.

“We realized total savings of $125 million across the year, and our fee margin is up 80 basis points despite being held back by an operating loss from Six Senses,” he said.

At press time, IHG stock was trading at $62.57 a share, down 8.9% year to date, on the New York Stock Exchange. The Baird/STR Hotel Stock Index was down 3.4% for the same period.

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