DENHAM, England—Richard Solomons, CEO of InterContinental Hotels Group, said during an earnings call that he is pleased with how the company performed during 2014.
2014 was a year in which it made “excellent strategic progress” focusing on its core brands and executing the strongest new system size growth since 2009, he said during the call, which was webcast. IHG’s strength in the U.S. underlined its 2014 performance, and this growth likely would continue, Solomons said during an earnings call, which was webcast.
“We have 13% of (global) active pipeline, while we only have 5% of supply, which bodes well,” he said.
Headwinds do remain, however: weakening macroeconomic conditions outside of the U.S. and the potential for a hung parliament in the United Kingdom, naming two.
Presenting IHG’s preliminary full-year results to 31 December 2014, the highlight of which was a 10% increase in operating profit on an underlying basis fueled by a 7.4% revenue-per-available-room spurt in the Americas, Solomons added 2015 looked on track to be another strong year.
“Our focus is on investing in our core brands,” Solomons said. He used the example of Holiday Inn opening its first hotels in Nicaragua, Puerto Rico and Russia.
Solomons and Paul Edgecliffe-Johnson, IHG’s CFO, were buoyant, while no analyst on the call raised any alarms.
“Tailwinds in the sector remain very favorable,” Solomons said.
In 2014, IHG purchased Kimpton Hotels & Restaurants and opened its first Even Hotels property in the U.S., while January 2015 saw its first Hualuxe property debut in Yangjiang, China, Solomons added.
“The acquisition of Kimpton allowed us to fill some of our white space,” he said, “while we have 24 Hualuxe hotels in the pipeline.”
During 2014, IHG saw reported revenues drop 2% to $1.86 billion from $1.9 billion, although if the numbers were analyzed on an underlying basis from 2013, revenues increased 6% to $1.67 billion from $1.57 billion.
Fees revenue to the company increased by 7% if reported in either manner.
IHG franchises, leases, manages or owns 710,295 rooms and has 193,772 rooms in its development pipeline, with the largest number representing its Holiday Inn Express brand (62,954 rooms in the pipeline).
Calmly, we go on
Edgecliffe-Johnson, in an answer to an analyst question, said IHG would continue to show a “disciplined approach to expansion and a low-capital-intensity business model to increase profit margins.”
He also expected to see proceeds of its sale of the Le Grand InterContinental Paris get on IHG’s balance sheet soon.
As for pipeline growth, the U.S. is high on the list, but so is China, Solomons and Edgecliffe-Johnson said.
“Ninety percent of U.S. pipeline is to open in the next three years. There has been a lot of focus on supply in the U.S., as it has been so low,” Solomons said.
Edgecliffe-Johnson said they were much encouraged by the 3.4% net room growth achieved in 2014.
“And we’re right in the middle of our target of 2% to 3% removals, and if we can maintain this, we will see continued strong progress,” Edgecliffe-Johnson added.
China
While IHG officials were excited by adding to its portfolio Kimpton—which Solomons referred to as the “largest independent boutique brand in the fastest-growing industry segment”—executives also had their sights fixed on China.
“Our first Hualuxe is in Yangjiang, with a population of 3 million. That it is not a tier-one city underlines that the brand has a domestic focus, not an international one,” Solomons said.
He added Hualuxe’s pipeline consisted of 100 cities during the next 15 to 20 years, and that it also would target key international destinations such as London, Paris and New York City.
Solomons said he has a polarized view of China in that it would have hotel chain winners and losers.
“We have been there a while, we feel in a strong position,” he said, “and China for us will be a great hotel market.”
China in 2014 posted a 9.5% increase in fee revenue growth and a 1.6% increase in RevPAR growth led by occupancy.
“Owners there take very long-term views and are very sophisticated now compared with 10 years ago. They are not standalone owners. They want to make money,” Solomons added.