A few days ago, International Hotel Investments p.l.c. (IHI) published its Annual Report and Financial Statement as at 31 December 2021 (Report). Insider Plus met Corinthia CEO Mr Simon Naudi, who clarified a few points for us in his typical crisp and discerning manner.
Introducing Corinthia’s portfolio, the Report states: Our portfolio vision is to build Corinthia worldwide, not only within Europe and the Middle East but equally in the world’s main gateway cities and resorts. We wondered whether this aggressive statement was an embedded ambition or merely an optimistic rebound after the recent pandemic disturbances and damages to the hospitality industry.
Mr Naudi was very pragmatic. ‘This is not a wish but a business plan where we will continue to expand to new markets. We are already well on the way. Our business can already be described as a global business. Our customers come from all over the world, and we are selling our services and have a physical presence in Europe, Africa, the Middle East and the US. Our ambition is worldwide and would include other parts of the world, such as Asia, South America.’
At this stage, where the world is cautiously exiting the turmoil caused by the COVID Pandemic, we asked what Corinthia saw when looking at the end of the tunnel.
Mr Naudi smiled. ‘That’s an interesting question. One is tempted to paint a vastly different picture from the present. For Corinthia, the reality is that at the end of the tunnel, many things will still be the same: the spirit and ethos of the Company that drives the business will remain, just as much as its passion and determination to continue growing and fighting against all odds will remain constant. The recent experiences have made us wiser and even more appreciative of these attributes. Hopefully, the geography will be more comprehensive, and our reach will include other climates, other cities, countries, and cultures where we do business.
Whilst we have exciting prospects and challenges, certain specific attributes should not change as we grow older. We will employ several thousands of new colleagues in six or seven hotels. None of them has known Corinthia before. We must welcome them to the Company and imbue them with the Corinthia spirit. We have focused acutely on this challenging mission to retain the same internal dynamic.
The penny dropped. So was that the reason for announcing in the Report that a Chief Culture Officer has been appointed?
‘Spot on! Our Chairman, Mr Alfred Pisani, feels very strongly about this, and I agree. Our Corinthia spirit has kept us a closely-knit team at the top and down the line to fight all odds and grow the business. But though growth is a positive development, this means an increase in the distance from the top to the bottom, so it becomes more essential to keep this spirit or gel which unites. We have now tasked a study to establish how this culture in the organisation will remain and even improve despite growth.
Moving on to something else, we asked why Corinthia acquired the other 50% shareholding in Golden Sands despite its stringent cost-saving measures. How could one reconcile this?
‘That’s a good question, but we had no choice in reality. We owned 50%; the owner of the other 50% went into liquidation because of problems caused by the COVID pandemic. That meant that Golden Sands itself could have gone into liquidation, with the result being that the hotel’s jobs and business would have been compromised. So, in reality, we had no choice. It came at the worst possible time, but we acted fast to overcome this unexpected hurdle. It is never a good time to face a severe problem, but it’s never the wrong time to do your utmost to solve it.
We could not avoid asking how Corinthia viewed its interests and investments in Moscow and St Petersburg in these troubled moments.
‘Our overriding sentiment is sadness because we have been in St Petersburg for 20 years. We have come to know and love the city and its people, who are one of the best-educated and well-cultured people I have ever met.
We have a couple of overriding principles, which we follow strictly.
- To stay within the law, including the sanctions and regulations. So we have to be always careful in every step we take.
- In St Petersburg, we have a few hundred colleagues there. They are Corinthians like us. Our thoughts are with them.
On a purely factual basis, business in St Petersburg is precisely the same as within the time of the pandemic. The occupancy of this hotel has remained driven by the local population in the last two years. COVID regulations had completely stopped foreign travel. In a way, there is a continuation of the situation.
Our experience is less impactful in Moscow, where we have a 10% interest in the project. The design and permissions were completed earlier this year, and the project was about to start. The company in which we have a 10% interest will have to examine its next steps.’
And back to Malta. With the development of the Corinthia Oasis (Hal-Ferh), Corinthia will have six properties in Malta. In the Report, Chairman, Mr Alfred Pisani, rightly considers this “a clear manifestation of our belief in the tourist industry of Malta, guiding us to look at a future of upgrading all our properties.” But he then cautiously adds, “However, we will mark our time in parallel with the general upgrading of the Malta tourist product, so necessary for the future success of tourism for our island… The island has all the ingredients to attract tourists who would be prepared to pay higher rates, be it for our 3, 4 or 5-star hotels, though this will need an overall plan, over a period of 5 to 7 years, to uplift the general image and product on offer in Malta.” Does this mean that Corinthia will only move forward in its upgrading in tandem with Malta’s upgrading?
‘From our perspective, I would analyse any country, including Malta, from 2 angles:
- Brand. (Corinthia) and 2. Investment.
From a brand perspective, the only way to look at any country, including Malta, is: what level of business is there for a luxury hotel named Corinthia in that country? So whether we own 6 or 60 hotels is irrelevant. The relevance is whether the same brand can be replicated in two or three hotels in our home market. As long as we differentiate between a Resort, City centre and corporate-based hotel, the answer is yes.
From this perspective, the fact that we own several more hotels – marketed by their unique names or even 3rd party brands – in Malta is purely one of investment returns. We believe in Malta. If all the hotels in Malta belonged to one company, they would still be needed.
What is sure is – and rightly emphasised by the Chairman – is that there is a limitation to growth in Malta which is simply physical. There is no point in going down the route of a mass market. It’s a dead end. We cannot compete with countries which can outrun us easily because they have superior volumes. Why is Malta selling rooms at such relatively low rates per night when one can assess comparable locations with history and culture? ‘This is purely a mindset, and our message is: We can do it; we have the product. Valletta, Mdina, the Three Cities, Gozo, our people, the sea, the climate, the proximity to Europe, and many more are winning points. We can be a significant destination where tourists are prepared to pay for the product we are offering.
Positioning and marketing are a big part of it. So how Malta markets itself plays a significant role.
We all know the weaknesses of Malta; they are easily visible and doable. As I said, it’s a mindset and the need for the country to rally around a strategy that ultimately will lead to a better quality of life for the local population.’
We pointed out to Mr Naudi that in the Report, both he and the Chairman referred to Corinthia’s long-standing focus on developing a 5-star brand but added that they both see the need to also provide hotel management services for 4-star properties, which naturally abound more than 5-star. With this in mind, Corinthia is reported as studying a new 4-star service. Is this a slackening of the original 5-star focus or a concurrent commercial aim to enhance revenue? If it is the latter, could this affect the former’s image?
‘You have hit the nail on the head. This is purely business and is separate from the Corinthia brand. So we insist that we do not look at this as an extension of Corinthia but as an entirely new business, with a new team, new people running it, new operation, new name. This happens all over the world in many cases.
We own some 4-star hotels that are not Corinthia and are managed under a different name.
Because of our knowledge of the industry, we can do this successfully. There is a much bigger market in 4-star than in 5-Star. So, you are right. The platform exists, but we cannot mix the two.
Looking at the 2021 revenue, we noted that in 2021 this totalled €129.3 million, which is just under half of the revenue in 2019, which was itself a record year. This is almost precisely as Corinthia had forecasted at the start of the year despite very fluid circumstances. Additionally, Corinthia set itself a target to achieve a Group operating result before depreciation and fair value higher than its overall interest costs. You have managed to reach both targets. What were the main steps taken to achieve these goals?
As usual, his answer was very perceptive.
‘The year 2021 is a combination of 2 facets:
- Cost side, where we continued with all the cuts in payrolls, operating expenses and the like; and
- The resurgence of revenue.
From a cash point of view, the two sides generated a break-even scenario. This was our objective at the start of the year.
As I said in my report, we had no crystal ball, but establishing a target focuses your mind and guides your decisions. So when you are examining whether to spend or not, the target, which has to be constantly kept alive in your mind, guides and directs you.
The year 2022 is a different story. It is a rebuilding scenario. So, especially on the human resources and management side, where we lost personnel who left the Company for other industries or even relocated to their home countries, 2022 is about rebuilding our capabilities to operate the hotel. By 2023, we will start opening several hotels in the pipeline. So, 2022 is an air of optimism, an open arm to welcome growth.’
This led us to another point in the CEO Report which states: “Overall manning measured in full-time equivalents and casual labour across the Group, in both owned and managed businesses, have plummeted from a high of 4,642 in February 2020 to a low of 2,367 midway in 2021 in consequence of deep cuts, redundancies and voluntary relocations back to home countries of many of our expatriate colleagues. We are now up to almost 3,000 in full-time equivalent numbers, a sure sign of a gradual recovery in our hotel operations across several countries.” You have, however, cautioned that there will not be a return to previous figures and that a tight leash on recruitment and salaries will be retained. Yet, at the same time, Corinthia’s drive to develop further and grow is a recurrent aim. How could these two aims be reconciled?
‘These are two moving targets. We believe that if there were efficiencies during the pandemic period that can be maintained, we should retain them, naturally without compromising our service to our customers.
At the same time, we are growing so we will be employing thousands of new colleagues in the next couple of years. It is necessary and logical.
The first target is about efficiency, so let us maintain it. The second is growth. Part of growth involves more colleagues and the ability to offer additional services in more countries.’
It was evident from Mr Naudi’s words that growth in Corinthia is a natural inclination and a deeply rooted aim. It is definitely part of a business plan, but we could sense that it was not as simple as that. Business plans change and react to circumstances and often mirror a more profound reality than just a plan. In Corinthia, growth is second-nature and part of its DNA; it is a mindset; a natural impulse but a carefully nurtured, sharpened and well-managed process. In these exciting times, where a resurgence and revitalisation of the Company is brewing, growth becomes one of the main characters in the hands of the scriptwriters who write and formulate the history of this great company – Corinthia.