IHI achieved record profits in 2017. Joint CEOs Joseph Fenech and Simon Naudi talk about the factors underpinning this performance.
Last year IHI once again registered a record performance. What are the drivers of this achievement?
JF. In 2017 we saw improved profits in every single one of our business operations and in particular in our hotels. We are looking at growth from increased operating profits, on average, of around 13 percent to 15 percent in each hotel compared to 2016. As a business we are getting better at marketing our hotels globally, and we are getting better at filling them up with the right customers, paying the right rates. We are also retaining a tight focus on our cost base, making sure it does not grow out of proportion. This combination – increased revenues and the discipline on our cost base – means we have achieved growth in profits over and above the general growth of the market. If you look at the combined Gross Operating Profit of the hotels we own and the hotels we operate, in 2017 we were almost hitting the €100 million mark. In 2014 that was €50 million; that figure has of course increased not just through incremental growth, but because we have added new hotels and other businesses to the portfolio.
SN. We have had some heavy negative economic factors to battle with in the run up to 2017 – notably in Libya, where obviously for some time there had been limited activity, and in respect to our Russian operations – the significant fall in the Rouble/Euro exchange rate from 2014/15 onwards. That saw revenue from St Petersburg reduce greatly when measured in Euro. To use something of a cliche, I believe 2017 revealed the green shoots of spring. We were facing some serious challenges – our two most profitable hotels – before we opened in London – were Tripoli and St Petersburg, so with revenues from both those properties decimated, to have continually increased profits and grown the business since, year on year, tells a story.
JF. 2017 is the beginning of a phase where IHI will see a healthy net profit year-in year-out. We have increased our revenues whilst keeping costs in check. We’ve successfully digested the Island Hotels Group in all its diversity. We are building new hotels in Brussels and Dubai, designing another in Doha, so I would look at 2017 as a year where the fruit of a lot of work that was put in by many people over the years, is beginning to be seen tangibly in the bottom line of IHI.
“2017 is the beginning of a phase where IHI will see a healthy net profit year-in, year-out. We’ve increased our revenues whilst keeping costs in check.”
What part has increasing room rates played in delivering greater revenue?
SN. The setting of rates is as much of a science as it is an art. Rates are set by room type, by day, and in our case, the driver is the hotel General Manager, supported by our Director of Revenue. It is important to remember that there are many different rates for different kinds of bookings. There are corporate rates (via agreements with businesses), MICE (Meetings, incentives, Conferences and Exhibitions) rates, and there are retail rates (selling to the customer direct). Looking at our revenue segmentation in 2017, it differs according to each hotel. In the Sudan it is 90 percent corporate, 10 percent retail. In London it is 55 percent retail and 45 percent other rates. In Malta at our St George’s Bay hotel, revenue from retail is about 65 percent, and that is a mark of success of the brand. Five years ago that would have been a much lower percentage, and someone else was making the extra money off our rooms through mark-ups. The reason why our profits have grown significantly is that we as a company continue to evolve and stay abreast of the market. We built a marketing team, a website, and went to the market and started selling directly to customers. What we see now is the result of the multi-faceted strategy we adopted. We got off the drip and reached out directly to our customers.
Key to identifying any hotel’s commercial performance is of course ‘RevPar’ – revenue per available room, – the formula that tracks room rate with occupancy. How did IHI’s hotels fare in 2017 when measured against this indicator?
JF. Compared to 2016, RevPar in our owned and operated hotels increased by about 11 percent in 2017, which continues the upward trend in recent years. Since 2014 our RevPar has increased by over 30 percent, in some hotels significantly more. Today I am confident we have a system for rates that absolutely maximises revenue. It is based upon being savvy and nimble enough to be able to take decisions in real time, in order to maximise our rates. The problem with many of the big hotel companies is their systems are often very centralised. We on the contrary have adopted a policy to allow the guys in the battlefield – the GMs, to take these decisions on a daily basis in collaboration with our Director of Revenue.
Where does the company go from here to consolidate its achievements?
SN. There are two areas of focus for us in the coming year and beyond: the first is quality, because we are now at a point where the rates we are charging in our luxury hotels are at the upper end of the market, so to charge higher rates this has to come as a result of something extra we offer; we have to get better in our operations and the services we provide. We have achieved this in our London operation, and the challenge now is to establish that level of service in all our luxury hotels. It is on the basis of that service, and minor improvements in products and infrastructure, that we will grow further. Otherwise we will be at a plateau, and that is not where we want to be. That is why we are making a tremendous investment in human resources in the fields of operations and training, We have recruited Stefan Killinger as Chief Operating Officer, Walter Hess, as Director of Rooms & Quality, Rachel Begbie as Director, Learning, Development & Wellbeing, and we are recruiting an International Director in HR, covering recruitment, HR and benefits.. These appointments, together with others on the marketing front, reflect is a huge investment in payroll, with the dividend being improvement in the quality of our operations.
“The reason why our profits have grown significantly is that we as a company continue to evolve and stay abreast of the market.”
There are big plans for a redesign of the corinthia.com website. Why is this needed, and what can we expect from the new site?
JF. The relevance of a hotel operating company in today’s world is very much dependent on its presence online. The attention that needs to go into the website is equal to the attention we put into building a new hotel; it is another piece of our real estate. It is what tens of millions of people will ever see about Corinthia, and more than half our guests are booking on the basis of what they see on that website. We last did this five years ago and it is now time to invest again in our online presence. So we will be bringing in experts to help us, and part of the exercise will be crystalise the narrative that underpins the website. Thus far our website’s narrative is about the principle of craftsmanship – our employees as craftspeople in their own right. It’s a message which works well pictorially, but we think it is time to press the re-set button and start afresh. When someone comes to our site, the questions we need to ask are, what is the imagery, the emotion we want them to feel? That is the conversation we need to have. A lot of the investment planned will be in photography, and it is our intention that the new corinthia.com site will be up and running within twelve months.
At the beginning of 2018 what’s your message to the Corinthia family?
SN. Our message is simple: let us stay true to the values that have made this company successful. Let us continue what we have always done: work hard, and be savvy. That is what makes us different.