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11 August 2020

IHG Ploughs Ahead

Ben Staniforth, Investment Analyst, Redmayne Bentley
 
Given the COVID-19 pandemic you would excuse a hotel company for halting its expansion plans, not IHG though.

The group posted results that were significantly affected by the pandemic, as international air travel and domestic trips from both holidaymakers and businesses alike decreased. The Holiday Inn owner posted a net loss of US$275m in its latest half-year results, down significantly from a profit of US$375m during the same period last year. This was largely due to a significant fall in occupancy rates which at the height of the pandemic, fell to only 25%.

Despite poor results, however, the firm stated that its expansion efforts were still on track, opening 90 hotels during the period, despite the ongoing pandemic. The group’s portfolio of 883,000 rooms, coupled with a pipeline of a further 288,000 rooms set to open in the near future, show the management’s confidence in a post-pandemic pickup as budding travellers start to venture abroad once again. Recent data would seem to support this, with July occupancy rates rising to 45%, showing that, as with the high street, consumers are slowly but surely returning to their usual habits.

Effective cost-cutting has also helped the firm weather the storm. Management’s experience with regards to economic downturns and their effect on the hospitality industry allows the firm to sustainably cut costs in order to decrease losses, while still providing its customers with a quality service. This comes alongside its growth ambitions, allowing the firm to reduce costs and increase its footprint at the same time as other hotel operators are reeling back expansion plans. This is likely to help the firm in the long run, as it utilises its significant cash position to seek to gain an advantage over its rivals.

Please note that investments and income arising from them can fall as well as rise in value. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
IHG Ploughs Ahead
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