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INTERCONTINENTAL HOTELS GROUP  (NYSE:IHG)
Q4 2019 Earnings Call
Feb 18, 2020, 4:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to the IHG Preliminary Results Ended December 31, 2019 Call. My name is, Karen, and I'll be your operator. [Operator Instructions] I would now like to hand over to your host for today's call, Keith Barr, the Chief Executive Officer; Paul Edgecliffe-Johnson, Chief Financial Officer; Heather Wood, SVP, Group Financial Controller and Investor Relations. Please, go ahead.

Heather Wood -- Senior Vice President, Group Financial Controller and Investor Relations

Thank you, and good morning everyone. Welcome to IHG's 2019 Full Year Results Presentation. I am Heather Wood, Group Financial Controller and I'm joined this morning by Keith Barr, our Chief Executive Officer and Paul Edgecliffe-Johnson, our Chief Financial Officer.

As you can see, we are holding today's results presentation by webcast and we'll be taking you through some slides. You can find the link on our corporate website and on our stock exchange announcement. So if you haven't already, please do log on, so you can follow the slides. The replay of this presentation will be available on our website.

So, let me remind you that in the discussions today, the company may make certain forward-looking statements as defined under US law. Please refer to this morning's announcement and the company's SEC filings for factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements.

I will now hand the presentation over to Keith.

Keith Barr -- Chief Executive Officer

Thanks, Heather and good morning everyone. In a moment, I'll talk about how we are executing against our strategic initiatives and accelerating growth, and Paul will take you through our financial performance in 2019.

However, I'd like to start by addressing the evolving situation around the outbreak of the coronavirus. Having led the China business and lived there for a number of years, it's tough to see the impact this outbreak has had on so many people's lives. We are working closely with our hotel teams, local authorities and the government to provide our full support wherever we can, and our top priority remains the health and well-being of our guests, colleagues, and partners on the ground.

One thing I do want to say is how proud I am of our colleagues and how they have stepped up and reacted to this. Our people across the region are doing an incredible job in very difficult circumstances, including our InterContinental Hotel in Wuhan, where we are hosting medics and response teams. All of our hotels around the world have been provided with the support and guidance they need to respond and we have strong processes in place to help us manage this challenge.

From a Group perspective, Greater China is an important part of our future and we see a compelling growth story for the longer term with the region representing around 30% of our current global pipeline. However, today, it is a smaller part of our business overall, representing 15% of our open rooms and less than 10% of our operating profit. There will clearly be some impact on our business, which we started to see coming through in late January. We are still building a clear picture. But we are currently seeing less travel in the region, which is leading to reduced occupancy and around 160 hotels of our 470 hotels are closed or partially closed.

Paul and I will be happy to take follow-up questions when we get to Q&A, so let me now move on to our 2019 performance. In 2019, we made excellent progress against our plans to deliver industry-leading net rooms growth over the medium term. Our net system size growth of 5.6% was our strongest in over a decade, driven by a record number of room openings in the year. Global RevPAR declined 0.3%, reflecting the impact of ongoing unrest in the Hong Kong market, increased supply growth ahead of demand, particularly in the US Upper Midscale segment where we are weighted and uncertainties caused by geopolitical tensions with the US-China trade discussions and Brexit just two examples. Against this backdrop, our focus on accelerating net system size growth delivered an underlying operating profit increase of 6% and an adjusted EPS increase of 3%.

Our high-quality fee streams and disciplined use of capital continued to generate significant cash flow, allowing us to increase our total annual ordinary dividend by 10%. Our $125 million efficiency program is mostly complete with these savings being wholly reinvested back into our business, in line with our strategy to achieve industry-leading net rooms growth and drive stronger commercial performance and returns for our owners. To that end, we have made further progress during the year to evolve and expand our brand portfolio, sharpen our operations, loyalty and owner offer and ensure we put our global scale and resources to best use; all of which I'll talk more about later on.

For now, I'll hand over to Paul to take you through our full-year results.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thank you, Keith and good morning everyone. First, starting with our headline results from reportable segment. Revenue increased 8% to $2.1 billion and operating profit increased 4% to $865 million. On an underlying basis, so excluding current year acquisitions, individually significant liquidated damages and at constant currency, we grew revenue 6%. Underlying revenue from the fee business grew 2% and operating profit grew 5% driven by growth in our net system size and disciplined cost control. Fee margin was up 80 basis points. I will come back to the drivers of this shortly.

Adjusted interest, including charges relating to the System Fund increased by $18 million to $133 million, which is lower than my previous guidance of $150 million, principally due to the non-cash revaluation of contingent consideration from acquisitions, which we now exclude from our adjusted numbers given its volatile nature. As expected, our reported tax rate increased to 24%. In aggregate, this performance enabled us to increase our adjusted earnings per share by 3%.

Looking now at our levers of growth. We added 65,000 new rooms to the system, a record level of openings. At the same time, 18,000 rooms were removed as we continue to focus on the long-term health and quality of our established brands. These additions and removals brought net system size growth to 5.6% or 5% excluding the rooms added from the Sands partnership in the Macau market. We signed 98,000 rooms, taking our total pipeline to 283,000 rooms with 40% currently under construction.

RevPAR was slightly down for the year or flat excluding the disrupted Hong Kong market. This RevPAR performance combined with 5.6% net system size growth resulted in a 2% increase in underlying fee revenue. When looking at fee revenue, both year-on-year rooms growth and comparable RevPAR are good proxies to understand how growing our net system size and revenue per open room translates into incremental fee revenue over time. However, they do not reflect several factors that impact in-the-year fee growth; the phasing of openings and removals; changes in relative brand and geographic mix; and the ramp-up of newly opened hotels. Therefore, we've also shown total RevPAR growth and total rooms available on an underlying basis as these have a more linear relationship with fee revenue growth. More detail is in the appendix.

I will now take you through our 2019 regional performance in more detail. Starting with the Americas, RevPAR was down 0.1% with rate growth more than offset by occupancy declines. RevPAR in the US was down 0.2% with performance in line with the segments in which we compete. In the fourth quarter, the softness in small groups business, which I noted throughout the year, continued. This along with an increase in room supply in the Upper Midscale segment resulted in an occupancy-led RevPAR decline of 1.7%. I will come back to this shortly.

Underlying fee business revenue was flat or up 1% after adjusting the prior year for the $9 million of marketing assessments we previously disclosed. Underlying fee operating profit was up 4%, largely driven by growth in fee revenue from incremental rooms and a continued focus on maintaining an efficient cost base.

In our reported financials, we took a $50 million impairment charge relating to the Kimpton management agreements acquired in 2015. This non-cash charge reflects changes in market RevPAR assumption and the number of original hotels exiting the brand. The impairment test does not take into account the considerable value generated since the acquisition, including the 40 hotels we have signed, the near 30 hotels we have opened and the expansion of the brand to 14 new markets internationally. More details on this are in the appendix.

Turning to the investments we've been making in development resources to increase our signings and openings pace. During the year, we opened 26,000 rooms; our highest in eight years, with nearly two-thirds in the Holiday Inn brand family. With a continued focus on quality, we grew our overall Americas estate by 2.8%, a marked acceleration from 1.8% in 2016. At the same time, we signed a further 33,000 rooms into our pipeline, down from the previous year given the tighter signings environment and annualizing the pent-up demand we experienced in 2018 following the launch of avid.

Using available industry data, it is clear that we have grown our share of signings in the US Upper Midscale segment through 2019 by over 200 basis points, extending our leadership position in this fast-growth segment.

Coming back now to the RevPAR environment in the fourth quarter. We continued to be impacted by the reduced level of demand in small groups business, which Holiday Inn and Crowne Plaza have a higher weighting to, with Group-driven revenues for those brands down some 5% in the fourth quarter and around 3% for the full year. In part, this is driven by demand weakness in certain sectors of the economy that are contracting such as automotive. Meanwhile, others such as professional services performed well, mirroring trends in overall US economic activity.

Increasing preference from owners, lenders and guests for upper midscale hotels means that Holiday Inn and Holiday Inn Express are competing in a segment, where supply growth is now over 3%. This highlights the attractiveness of our market-leading position in this high-return segment, but led to an occupancy-driven RevPAR decline as supply growth slightly outweighed demand growth. This will stabilize in time as new supply is absorbed and demand continues to reach new highs.

Moving now to Europe, Middle East, Asia and Africa, where RevPAR was up 0.3% for the year. In the UK, RevPAR was up 1% with 3% growth in London, and a 1% decline in the provinces. In the fourth quarter, we saw a 2% RevPAR decline in the capital. High supply growth and political unrest continued to weigh on demand in the Middle East, where RevPAR was down 3% for the year. This RevPAR growth coupled with strong net rooms growth of 5.8% drove underlying fee revenue up 2% and underlying fee operating profit up 5%. Owned, leased and managed lease operating profit increased $11 million, driven by solid trading at a number of hotels outside the UK and the benefit from partial usage of the IFRS 16 lease liability for our German leased hotels, which I previously guided to.

For the UK leased portfolio, trading conditions were increasingly challenging through the second half of the year. The Brexit uncertainty and reduced UK consumer confidence meant the fourth quarter in particular was well below our expectation. This had a minimal impact on our reported results as the $17 million of lease top-up payments we made on the estate under IFRS 16 are charged against the balance sheet liability. They are similar in nature to payments made under guarantee arrangement and are able to be clawed back over time dependent on portfolio performance. Based on this weakened outturn, we took a non-cash $81 million impairment relating to the UK portfolio deal.

On completion of the deal to acquire the leased business, we were required to establish its fair value and recognize on the balance sheet goodwill, property, plant and equipment, leased assets arising from adoption of IFRS 16 and the fair value of contingent consideration payable. Since the deal, industry growth forecasts have reduced and we have reevaluated our projections, resulting in this charge. As the same forecasts are used to value the contingent consideration, we recorded an offsetting $38 million exceptional credit as part of a fair value adjustment on this liability. More details on this can be found in the appendix. Adding these 12 hotels to our UK portfolio has, as hoped, been a catalyst for the launch of the voco brand in EMEA and Kimpton's international growth. We now have 12 voco hotels open and a further 21 in the pipeline with some of our most valuable deals, such as Dubai directly linked to the showcasing of the brand to the UK portfolio. The Kimpton, being able to demonstrate to owners, the product in the London market, has helped us in signing up numerous high-value hotels we now have in the pipeline outside of the US.

Finally, moving to Greater China, where we continued to outperform the industry. RevPAR across the region was down 4.5% for the year or broadly flat excluding the Hong Kong market, where trading conditions have been challenging. Underlying revenue was up 2% and underlying profit up 16%, which included the $5 million fee income loss from the Hong Kong market, which we guided to in October. This is more than offset by new business and disciplined cost control. We opened 24,000 rooms, including over 50 Holiday Inn Express hotels. A further 36,000 rooms entered our pipeline providing a clear runway for future growth. This is our best performance on record and included 76 franchise hotel signings for Holiday Inn Express.

Turning now to fee margin and our Group efficiency program. As we have talked about before, we identified $125 million efficiency savings delivered through simplifying our organizational structure, making it leaner and flatter, outsourcing more non-core activities and introducing increased levels of automation. These savings have provided additional capacity for reinvestment into our strategic initiatives. This will drive industry-leading net system size growth, fueling future revenue growth and future margin accretion.

Fee margin for the year was up 80 basis points despite being held back by an operating loss from the acquisition of Six Senses in February last year. Excluding this and the one-off impact relating to marketing assessments in 2018. Fee margin was up 160 basis points.

Moving on now to cash flow. Our cash-generative business has enabled us over the past five years to generate on average over $500 million of free cash flow per year. For 2019, free cash flow of $509 million was down on last year, primarily the result of a $75 million increase in cash tax as 2018 benefited from a US tax refund.

In the year, we paid over $700 million in dividends to shareholders; $500 million of which we announced in 2018. After the acquisition of Six Senses, net debt finished the year at $2.7 billion.

Turning to capex. We spent gross capex of $265 million and net capex of $211 million. Our medium-term guidance remains unchanged at up to $350 million gross per annum. We expect our recyclable investment and System Fund capital investment to net to zero over the medium term, resulting in net capex of $150 million per annum.

As well as using cash to reinvest behind our long-term growth, we continue to generate sufficient funds to support growth in our ordinary dividend. We have announced today that the 2019 total dividend will increase by 10%.

Looking ahead, our long-term funding sources are secure. We have a staggered maturity profile with our first bond not due until 2022. We also have access to a $1.4 billion revolving credit facility for additional cash requirements. Altogether, our financial capacity remains strong and we are well placed to withstand any market uncertainties.

Turning now to our strategy, the uses of cash, which remains unchanged. Our first focus is to reinvest capital to drive growth. Secondly, we want to generate sufficient funds to support growth in the ordinary dividend, which is well covered. Lastly, while there is further cash available, which is truly surplus, we will return this to shareholders as we have demonstrated over the past 16 years. Our efficiency program is enabling us to reinvest and drive long-term sustainable growth and we remain committed to returning surplus funds to shareholders.

Thank you, and I'll now hand you back to Keith.

Keith Barr -- Chief Executive Officer

Thanks, Paul. I'd like to first spend some time looking at the fundamentals of our industry. It's a fast-changing dynamic sector that continues to see growing demand with industry revenues up 5% over the last three years. Within this, we are seeing a shift to scale brands. The Top 3 branded global players, of which IHG is one, now have 17% of the open rooms globally and notably 44% of the active pipeline. That's an incredibly strong position to be in, and it means we will collectively continue to take share and increase our relative scale against the rest of the industry.

In terms of the key drivers, we know that hotels on attractive asset class and owners want to partner with the big branded players. With our scale and continued investment behind our brands, such as lower build costs for our new prototypes, we are helping our owners to maintain their high returns even with rising cost pressures.

Consumer trends are also shifting with increasingly more demand for brands, which can offer a mix of consistency and distinctive high quality experiences. The innovations we're rolling out across our existing brands continue to resonate with guests and each one of our newer brands target an underserved segment from both an owner and guest perspective.

Furthermore, consumers are increasingly looking for a seamless technology experience have [Phonetic] a growing preference for sustainable practices; both key focus areas in our strategy It's considerations like these that are informing all the actions we're taking to enhance our offer right across both the guest journey and the lifecycle of a hotel. Remember that two years ago, we set out our strategy to make our model work harder and ensure we remain an industry leader for years to come.

Whilst we still have much to achieve, we have already made important progress and are now a very different company. Our teams are deployed against key growth initiatives, such as repositioning our portfolio, strengthening our loyalty program and moving to a cloud-based hotel technology solution. Key to all of this has been the significant restructuring of our organization, which has allowed us to free up capacity and drive efficiencies that can be reinvested in our future growth. These investments coupled with strong industry drivers leave us very well placed to capitalize for the long term.

We are on track to achieve our ambition of industry-leading net rooms growth over the medium term. Over the last three years, we've accelerated our rate of growth from around 3% to 5.6%. This has come almost entirely from our established brands, led by our Holiday Inn brand family, which delivered a record year of openings in 2019. Also driving this performance has been our investments in hotel lifecycle management, which we [Phonetic] accelerated the pace hotels can move from signings to openings and then ramp up; all of which help maximize owner returns and our attractiveness as a partner.

As ever, while we are focused on growing our system, it's important to highlight our commitment to protecting the high quality nature of our entire estate, and so we continue to remove underperforming hotels to protect the reputation of our brands globally.

Our five newer brands avid, Atwell Suites, voco, Regent and Six Senses, all enhance our future growth prospects, each one tapped into a deep pool of demand that will allow us to create scale position with a differentiated guest and owner offer.

You'll recognize our model on this slide, and it's by making this work harder through our strategic investments that we can drive growth and deliver financial performance. Before taking each part in turn, I want to touch on our commitment to operate a responsible business, which underpins the model and sits at the core of our company. How we operate responsibly on a daily basis and take decisions to grow in ways that are considered of the world around us is a topic of discussion with an increasingly broad set of stakeholders.

Colleagues, guests, owners, suppliers, investors and partners, all expect companies to make responsible and sustainable choices, using their scale as a force for good, and that's how we see it for IHG too. Our commitment to responsible business underpins our entire strategy and company culture and we continue to focus on ways to bring that to life across our hotel estate and thousands of communities worldwide.

We've made further important progress. Last July, we were the first global hotel company to announce that our entire portfolio would switch to bulk-size bathroom amenities in 2021 and we're now seeing this great initiative being adopted by some of our peers. Today, we've announced two more commitments. The first being to reduce our carbon emission through a 2030 Science Based Target. And the second is that we've also made a formal commitment to implement the recommendations of the task force on climate related financial disclosure and we will be developing a roadmap for the coming years. We've also made a number of important pledges, becoming a signatory of the CEO Water Mandate marking our commitment to the CEO action for diversity and inclusion and becoming a member of The Valuable 500.

Our responsible business agenda is something that we will continue to push and challenge ourselves on and I look forward to talking you through our plans beyond our current targets later this year.

Turning to the other elements of our strategic model. We continue to strengthen our IHG Rewards Club loyalty program, which contributed around 46% of room nights in 2019. Looking at loyalty contribution on a room night basis rather than a room revenue basis, better represents the full value of our loyalty program, capturing revenue delivery to our hotels from both qualified and redeemed stays. Ensuring we continue to build lifetime relationships with our most valuable members is a big focus, and in 2019, we added a number of world-class partnerships to our offer, alongside progressing important trials that will enhance the value of the program for both guests and owners. When it comes to enhancing revenue delivery, we're making significant investments in our digital and technological capabilities that deliver lower-cost revenue to our owners and help engage customers along the guest journey.

In 2019, we began piloting new functionality for our Guest Reservation System, which will continue this year. Using the investments our owners have made in our seamless Wi-Fi solution IHG Connect, we launched IHG Studio, which allows guests to stream content directly to their TVs or pay for services with their loyalty points.

Our award-winning mobile app is delivering more revenue year-on-year to our hotels and we're helping drive further meaningful uplift through our Revenue Management for Hire program, which is now in more than 3,500 properties. Outside of our direct channels, we use our scale position to renegotiate more favorable OTA terms on behalf of our owners, allowing them to drive lower cost revenue into their businesses.

You'll recognize our enhanced brand portfolio on this slide. Let me talk about what we're doing with some of them in a little more detail. Our Holiday Inn brand family is the growth engine of our business. We've made significant investments to ensure it remains preferred choice for our guests and owners. The roll-out of our Formula Blue hotel design for Holiday Inn Express has continued at pace. Over 1,600 open and pipeline hotels in the US and Canada have either adopted or committed to the new room and public space designs and we're already seeing uplift in guest satisfaction and owner returns.

We're also taking some of these designs to Europe and the successes have helped form a blueprint for enhancements to our other brands too. For example, last year, we launched our new prototype for Holiday Inn, which brings fresh and modern designs to our new hotels across the Americas. With a 15% reduction in the building size, the concept brings our successful Open Lobby public space and guest room designs together in a more efficient and flexible way helping create better returns for our owners. We've talked before about the success of Open Lobby in Europe and it's now being adopted in more than 90% of the estate, generating meaningful uplift in guest satisfaction and increased food and beverage revenue for our owners. Combined, these types of investments led to a record year of openings in 2019, and notably to our share of openings in the US, increasing by 3 percentage points over the last three years.

Our extensive expertise in mainstream segment has enabled us to successfully launch two new brands in the high opportunity growth areas. Since September 2017, we have signed more than 200 avid hotels with more than 80 under construction or with planning approved and 10 open, achieving strong guest satisfaction scores.

Last September, we also launched franchise sales for Atwell Suites with 10 properties signed in 2019 and a further 11 applications approved. The first hotels are expected to break ground this year and will open in 2021 in markets such as Charlotte, Phoenix, Denver and the San Francisco Bay Area.

Turning now to the upscale segment and Crowne Plaza, we signed 29 hotels in 2019, our highest figure in a decade and opened six flagship properties around the globe, showcasing our new room and public space designs. In the Americas, we are committed to improving the quality of our estate and have removed 23 hotels over the past three years. At the same time, our owners are making significant investments into public space and guest rooms, which is critical to the brand's success.

Those that have completed their renovations, such as our hotel in Atlanta, which you can see here are growing RevPAR double the industry rate with meaningful guest satisfaction uplift. This investment alongside more modern service enhancements are crucial to unlocking Crowne Plaza's full potential in the region, while help bring the estate closer in line with the excellent performance in EMEA and in Greater China, where the brand is ranked top for guest satisfaction within its segment.

The acceleration of our boutique Hotel Indigo brand continues at pace with our best ever year for signings for the brand and with 16 new countries now secured into its pipeline. Over the next five years, the estate is set to almost double in size.

Staying in upscale, we're seeing strong interest in voco since launching the brand back in June 2018, signing 33 properties, including locations like Cypress, Bangkok and Johannesburg. After a strong start in EMEA, we plan to continue accelerating the brand's expansion into more markets globally with an expectation to grow to more than 200 hotels over the next decade.

Let me now focus on luxury and the opportunities we see in this fast-growing segment. Through targeted acquisitions, we've expanded our luxury portfolio to four brands, each one serving a different, but complementary part of this segment and well positioned to help us increase our share of the growth opportunity. A fuller, more rounded luxury portfolio is enabling us to have more conversations with owners around multi-hotel development and luxury residential deals. It also creates halo benefits like a stronger loyalty proposition and the ability to offer more differentiated guest stays.

Taking each brand in turn. Starting with Kimpton, where we signed our highest number of properties in the US since acquiring the brand five years ago. And outside of the US, we opened three hotels and signed two more into the pipeline, as we continue to expand the brand into key luxury destinations internationally. In 2020, we have openings lined up in Tokyo, Barcelona, Bangkok and Bali to name a few.

It was also a busy year for our InterContinental brand. We opened nine hotels, including properties in Lyon, Hayman Island and the Maldives. In demonstrating the long-term commitment of our owners, there continues to be significant amount of capital invested into the existing estate with a number of hotels currently undergoing or due to undergo refurbishment alongside a really strong development pipeline.

Turning to Regent now. Since acquiring the brand, we've been focused on combining its deep heritage with a redefined design, hallmarks and service ethos in order to reposition Regent within the top tier of luxury. Three properties have been signed since acquisition remain on track to grow the portfolio to more than 40 hotels over the long term.

Finally, turning to Six Senses. A key reason for acquiring this brand was its strong pipeline and the potential for IHG to use our scale and expertise to accelerate its growth in key markets globally. We're already seeing that come to life, delivering the brand's highest ever number of signings in a year, including properties in London, the Galapagos Islands and Loire Valley. We continue to see strong potential to grow the brand to more than 60 hotels over the next decade.

So to sum it up. We are successfully executing against the key growth initiatives we set out two years ago. By making our strategic model work harder, we are strengthening our business, accelerating net rooms growth and driving financial results. We are focusing on the parts of our business where it matters most, expanding and repositioning our brand portfolio, sharpening our operations and ensuring we put our scale to best use. Our business model continues to drive high-quality, sustainable growth in free cash flow and remain committed to returning surplus cash to our shareholders.

Whilst the coronavirus is impacting our business in Greater China, our priority remains the health and safety of the people on the ground. We remain committed to the compelling long-term market fundamentals.

The fundamentals of our industry remains strong. We are confident that our cash-generative, resilient fee-based model, which is underpinned by our commitment to operate a responsible business positions us well to continue making the strategic investments that will drive our long-term growth.

With that Paul and I are happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Richard Clarke of AB Bernstein. Richard, your line is now open. Please go ahead.

Richard Clarke -- AB Bernstein -- Analyst

Good morning. So three questions from me. I guess the first one is the obvious one, what specifically are you seeing on coronavirus in terms of the impact on the Chinese hotels? What are you seeing in terms of the occupancy declines there? And then any impact, given you have a big Chinese footprint on the sort of wider APAC and wider market and maybe expectations based on what you're seeing so far for the full-year?

Second question, we've seen luxury do extremely well in the US in the fourth quarter, but InterContinental doesn't seem to follow that. So just wondering whether you could sort of help us on that bridge as to why InterContinental is underperforming there?

And then lastly, Hilton suggested a small sort of tentative optimism that some of that small group travel that's been impacting you so much was beginning to pick up based on their booking numbers. Is that something you're also seeing something, maybe we can get a little bit optimistic about for 2020?

Keith Barr -- Chief Executive Officer

Thanks Richard. I'll take the first, and try to cover coronavirus kind of in a broad comprehensive answer, how it's impacting the business. So again, first, our focus has been on taking care of our customers and our colleagues. There are some amazing things happening on the ground. Our hotels in Wuhan, as I noted, are actually hosting the medics. One of our hotels is making the meals for the workers that were assembled in the hospital. So we're highly engaged across Greater China looking after that.

So taking a step back and just give you context about Group RevPAR and the impact on profit, and then how that clicks into China, I think as you well know, about 1% in Group RevPAR is about $13 million of EBIT on a full-year basis. And this is an evolving situation in China and across the business. So it's pretty hard for us to predict where it will go. It's -- China today is less than 10% of our Group operating profit. We right now have about 160 hotels closed or close to arrival. And not surprisingly, we are seeing significant reductions in occupancy in the month of February across the entirety of the business.

So to try and put some numbers to that, based upon the current level of disruption, year-on-year, we're seeing about a $5 million fee impact for the month of February in the China business -- in the Mainland China business. Our fee revenue for the full-year is around $100 million for Mainland China. That kind of phases, Q1 is one of the lower quarters and it gets progressively more as the year goes on with Q4 being one of the strongest quarters in terms of fee realization as well. So again, we're seeing $5 million in the month of February from a fee impact. Additionally, as you remember, we quantified the $5 million fee income impact from the disruption in Hong Kong, and that clearly has not improved and that's going to carry over into 2020 as well too.

So looking beyond China, we're seeing some impact across Asia Pacific, some conference and events shifting dates from Q1 into later on in the year. There has been some cancellations. Again it's really too hard to quantify it, because things are picking up and moving around the world and some things are being canceled overall. And the real question in front of us is what is this going to look like in terms of a decline and then a recovery. And we've looked at what happened during SARS. I lived there during H1N1 and SARS was clearly a sharp drop, and then a sharp recovery. And then what I saw during H1N1 and other times of China, the key thing to remember is the Chinese government's ability to stimulate economic growth and activity is unlike any other country. And so we can't tell you today, is this an one-month impact, two-month impact, a quarter, a half, because that we assume by the virus. What I can say is, it's a highly resilient fee model we have and the ability for the Chinese government to stimulate demand in the second half could cause a significant uptick in performance in the second half of the year or when this normalizes overall too. So I think that gives you bit of context about performance in the month, the performance in Hong Kong and how the full-year could play out depending upon the length of impact.

Paul, do you want to talk about...

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Absolutely. So we, InterContinental, in the Americas market, it is -- it's not fully penetrated into that market, so it's not in every single one of the micro markets there, if you think that we've got about 50-odd InterContinentals across the Americas as a whole. Quite a lot of those are down in the Central and Latin America, so that it becomes very micro [Phonetic] market by micro market dependent. So it's hard to take a straight apples-to-apples comparison there and I think really that's what's going on rather than anything more brand specific.

In terms of Hilton's comments on their first quarter, well, obviously we don't give guidance. So that's the first thing, so we wouldn't comment on what perhaps they've seen in a couple of weeks. They are also obviously more penetrated into the group market, the large group market, so they have that additional forward visibility there. We're more into the smaller groups market, which tends not to give us quite so much booking pace information. But that said, there's nothing structurally different between Hilton's business and our business. So if there were any pickup, then we'd expect that it would be relatively linear, but nothing I can add on that today.

Richard Clarke -- AB Bernstein -- Analyst

Maybe just a quick follow-up. I mean, we've had a couple of the other companies talking about some delays in construction in China. Is that something you would also mirror with regarding 2020?

Keith Barr -- Chief Executive Officer

So it's a great question, Richard, and it's [Indecipherable]. We've actually already opened I think five or six hotels already this year and we signed a number of hotels. So, the business is still moving ahead. There clearly could be the potential for some disruption in two fronts, one is FF&E availability, so if they can't be manufactured and delivered. Secondly, if some of the workers are not able to return to the sites. But this is a delay and not a stop, remember that. So effectively, there could be a slide from December into January next year or Q4 into Q1 next year, but the long-term strength of the business is extraordinary in Greater China and continues to reflect just the pace and acceleration of signings and openings and growth. I mean, so we're long term very, very bullish on China and this is a short-term impact that will recover as it has previously.

Richard Clarke -- AB Bernstein -- Analyst

Great. Thank you very much.

Operator

Our next question comes from Vicki Stern, Barclays. Vicki, your line is now open.

Vicki Stern -- Barclays -- Analyst

Hi, good morning. Just one more on coronavirus, and then couple of others. You touched on the sort of impact outside of China, in Asia, more broadly, and I appreciate it's pretty difficult to tell with lots of things moving around. But just are you seeing anything outside of Asia in terms of the European or US business being touched, not just from sort of Chinese outbound tourism element, but just is Asia tourism outbound overall reduced right now?

Second question on margin growth, again just trying to strip out the impact of coronavirus, if we weren't sort of dealing with that this year, would you generally be expecting this could be another year of sort of 80 bps to 120 bps of margin growth performance?

And on cash returns, obviously, given the uncertainty of coronavirus, it's certainly not a surprise that you haven't announced anything today on cash returns. But again to try and sort of look forward to when that might be behind us, would you still [Indecipherable] will be happy operating in the upper part of that 2.5 times to 3.0 times leverage range at this point in the cycle? And are there any sort of acquisitions or further investments that might require any significant sums of cash? Thanks.

Keith Barr -- Chief Executive Officer

Thanks, Vicki. I'll take the first one and then I'll let Paul handle the second two questions. I guess I'll go from West to East, no impact on the US. And again remember that the thing about IHG is, while we are in 100 countries and territories, we're principally domestic businesses. So the key drivers are domestic travel. And so -- and the shape of our portfolio in the US is again principally in the mainstream. So we're not seeing any impact. There is clearly going to be some level of international inbound impact to the US, but it would be on the margin for IHG. So no impact on the US market.

Similarly in Europe, I mean, again, we're principally domestic markets there. There'll be some impact, but we haven't seen anything significant at all that we can even quantify. So you're really looking much more into Greater China and then into the Asia Pacific market and the countries that are adjacent there, and those are all being driven principally by either outbound travel from China or travel restrictions in the region and those will really be driven by how long coronavirus is sort of in this kind of -- when is it considered to be contained. But again, it's all manageable. The strength of our model, as you know is -- I'll come back on this, China is an example we were talking about today.

If you think about the China results for the last year, you saw a minus 4.5% RevPAR in Greater China, but you saw us grow 2% in revenue and 16% in profit underlying. So I mean, I think that just speaks to our focus as an executive team in the last few years of leaning into adding new brands, accelerating growth, recognizing in a muted RevPAR environment or even in macro events like this, we can still grow the business, grow revenue and grow profits and that's the key focus. And so I think it's really paying dividends for us. But again, more broadly I expected not to see significant impact outside of that region.

I'll let Paul talk about margin and cash.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Yeah, thanks, Vicki. So our focus remains the same. We're very focused on costs in the business as we have been for multiple years ensuring that we make the most of what we have. We invest where it helps drive the growth, and you've seen us do that and that's paid off significantly in terms of more signings and more openings. But broadly, we have the sort of cost base that we need in each of our regions and that cost base is very scalable. So as we add more hotels, as we have a high level of openings, it's able to support those hotels and that's what's allowed us over the long term to drive this very high level of margin accretion. I would expect that over time it will continue to be 80 basis points to 120 basis points. It may oscillate. I've said that before, so you may see it be a little bit less one year, a little bit more one year.

In 2019, on an underlying basis, we saw 160 basis points of growth. And certainly, I don't aspire to do that every year because we need to make sure we're investing behind the strong growth that we're seeing in the business. But broadly over time, still comfortable would be 80 bps to 120 bps.

And then look in terms of the cash returns, hopefully, our philosophy and our actions over the many years shows our intent that no change to that. Still happy to be in the top end of the range. Yes, I mean, if you look at the global economy, the global economy remains strong, very low interest rates around the world, lower for longer. So happy to be toward the top-end of that range.

And M&A opportunities or further investments, our capex was -- permanent capex around $150 million mark is about the right level still, so no change to that. In terms of M&A, when we bought a number of things in recent years and there's a lot of work that we want to do with those to allow them to fulfill that potential, so likely to be more focused on that than any opportunities that may come up. They're relatively limited in the industry at the moment. So I think we've actually managed to take down some of the best brand opportunities that are out there and our focus is on growing those organically. Thanks, Vicki.

Vicki Stern -- Barclays -- Analyst

Perfect. Thanks very much.

Operator

Our next question comes from Jamie Rollo from Morgan Stanley. Jamie, your line is now open.

Jamie Rollo -- Morgan Stanley -- Analyst

Yeah, thanks. Good morning, everyone. First question is just on sort of benefits you saw in the second half of the year, it looks like there was the healthy income, sort of $10 million insurance proceeds. But also some of the margin growth in America and China looks very high. I mean, it looks like costs fell by about 10% in those two regions. So I'm just wondering whether some of those reverse in 2020, whether you are reinvesting the savings, and whether you can continue to grow profits this year?

And then on the other question, just on signings, which were sort of down year-on-year for the last three quarters and the pipeline, I think it was the first drop in about a decade. So really wondering what's caused that. Clearly the openings are good, but is there any sort of nervousness among owner lenders? Thank you.

Keith Barr -- Chief Executive Officer

Thanks, Jamie. Yeah. There is a little bit of noise and we called this out at the third quarter, just to try and explain some of the things we're creating there. In terms of the insurance proceeds that you referred to, really that's just our business interruption insurance making good on profit, we would have otherwise received at a hotel that's offline effectively. So it doesn't impact the continuity of fee income, just to make sure that's something that would otherwise not have been there. The cost savings that we have taken out through our $125 million restructuring plan are all being reinvested back into the business and that's really important for us that we do that, continue to drive growth. So, although you will sometimes see an element of cost may move one year from a regional cost base to a central cost base and that can explain some of these variances, there's nothing that's fundamental there. There's -- we haven't been cutting costs that we need to put back in in 2020, if that was -- which I think was the thrust of the question.

And then in terms of signings, actually very pleased with the 98,000 rooms that we signed. We did see in 2018 a super-charged avid performance. We only allowed the brand to be signed up right at the end of '17, so there was a pent-up demand there and so we saw a huge number of avid signings. If you normalize for the avid signings and take them out year-on-year, then it's -- signings in 2019 actually up 7%. So we're really pleased with that. And obviously we saw a high level of openings in, particularly the fourth quarter of 2019, and that's what's impacting on the pipeline. As more rooms get opened, and if the openings are higher than the signings into the pipeline, then you naturally see that just come off a little bit.

Jamie Rollo -- Morgan Stanley -- Analyst

Just on the first question. I suppose what I'm trying to ask is, I mean, your fee income looks like it grew by about 1% in the second half of the year, underlying 1% total fee revenue, but your fee profit looks like it was up 6%. So I was wondering can that sort of -- that disconnect continue really?

Keith Barr -- Chief Executive Officer

Well, half-on-half, then there will always be some variation. You may see some things during one half and then nothing in another, and some income that comes into one half and it doesn't come into another. I think if you look at the underlying trend over the years, nothing particular that pull out -- nothing that I think would impact on -- other than what we've talked about previously around some of the IFRS 16 benefit we got in the German lease, the liquidated damage we received. But I think that's all out in the market. There is nothing else that I'd call out today.

Jamie Rollo -- Morgan Stanley -- Analyst

Okay. Thank you.

Keith Barr -- Chief Executive Officer

Thanks, Jamie.

Operator

Our next question comes from Jaafar Mestari from BNP Paribas. Jaafar, your line is now open.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Good morning. Three questions, please. The first one, just going back on the virus impact on the net openings, it sounded pretty dismissive of any impact on your openings. I think you mentioned, well, maybe worst case, few of the openings move from Q4 to Q1 next year. Just to be clear on that, if there is a potential for, I think a third of your hotels are closed, if there is potential for property to open and then to be in the middle of disruption, you still think you're going to go ahead with most of the openings? And just to clarify, if there is a risk to one quarter in '20 in terms of openings in China, do you think Q4 or do you think it's actually, Q1, Q2 everything freezes and the openings don't happen. But then they'll catch up in H2?

And that's first question. And then just on the net openings, it's very honest of you to flag the benefit of some of the large portfolio deals or partnerships. Just wondering over the medium term, are you going to be looking to do more of those? There is an area where my own estimate is you haven't necessarily had very large market share, which is with very large REITs doing portfolio deals. Now that the brand portfolio is more complex, more comprehensive, do you think structurally you're going to do a couple of the very large 5,000-room deals every single year?

And then just last question. You've talked a lot about the top three brands and a lot about the very recent launches. Maybe just a word, is there anything on Staybridge, Candlewood, EVEN, HUALUXE that you can do to accelerate the signings there similar to what you did with the very large brands in the last two years?

Keith Barr -- Chief Executive Officer

Great. Yeah, thanks very much. And I didn't wanted to be dismissive, but it was more about our view is today, based upon what we know, it's short-term delays. So again, we were talking -- our teams every single day right now in Greater China are contacting the owners, working through to the pipeline. Interestingly enough, China has the highest percentage of hotel rooms under construction, 60% of the pipeline is under construction, and so the hotels that are under construction are going to open. It's a question of from month to month, quarter to quarter depending upon this event. So there may be a short-term dip in terms of system size openings in China, but these are just short-term delays and should normalize itself. Because the government will be as highly invested in seeing the tourism industry grow in China, these properties continue to open too. So again, everything we're hearing on the ground is that there is -- these are just to be short-term delays that may materialize.

Paul, do you want to talk about kind of our thoughts about partnership?

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Absolutely. In terms of the openings -- in terms of the net system size growth, we're really pleased with that 5.6%, but we did call out that that benefits from the Las Vegas Sands deal that we did back in the second quarter, which added a lot of room. I think if you look at progression over the years, we've moved from our net system size growth being in the mid-3s, now on an underlying basis to being 5%, and we've talked about our ambition to be industry-leading. And if you look at what we're doing with signings, scale of our pipeline, then I think we're certainly on track for that. And that's after taking out a higher level of rooms than our competitors in the industry are doing.

Over the recent years, it's averaged about 2.2% and that's significantly more than others are. This quality is so important to us and making sure that we are taking out the lower performance, so that we can ensure that the guest experience is consistent and is very high. In terms of the ability to mass convert and other portfolios, again, it comes down to the question of quality. If the hotels are good enough to be under our brand and we'll certainly consider it, but we wouldn't want to take in hotels that will average down the quality. So that's the key determinant really, Jaafar. If the portfolio is right, then we'll certainly consider it. And Keith, back to you.

Keith Barr -- Chief Executive Officer

On the other brands. So I mentioned in my comments, how we are taking the learning from the new brands avid and Atwell Suites, and how we're taking the kind of the customer insight and doing that in product design to be able to move faster. And so we have now -- that team has done an extraordinary job with those brands. Now we're leveraging that. So we just launched a new prototype for Candlewood and new prototype for Staybridge, more efficient build cost, much more contemporary design, helped continue to accelerate growth. But Staybridge opened its 300th hotel last year. Candlewood opened its 400th hotel last year. Staybridge saw about 44 hotels being signed, Candlewood 22. So we expect with the new prototype, the continued great performance in the segments that we can hopefully see those brands accelerate growth going forward. They're just exceptional brands.

EVEN had a great year last year. We signed 11 hotels. We really are seeing some fantastic performance in the existing estate. We are focusing on how can we refine that execution to drive even stronger returns for owners to accelerate growth going forward. And HUALUXE had a really positive year of signings as well too with the number of events, I think kind of a flagship opened up in Xi'an too. So we're very focused, but we've been really prioritizing, launching new brands to get -- capture the segment of those markets, strengthening our existing brands and now working through the rest of the portfolio. So it's natural for us to lean into Staybridge and Candlewood and EVEN, and HUALUXE going forward to maximize performance.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Thank you very much. And maybe just going back to the portfolio comments. Again, very honest of you, saying on a completely adjusted basis, let's say, room openings are 5%. But you already flagged one-offs in 2017, and yet on the reported number is, you did see an acceleration. So is there any reason why we should say, well actually, the underlying net openings are 5%, so for full-year '20, let's think about an acceleration from 5%, or is it realistic that you accelerate from the 5.6%, reaching 6%? When you say industry leading, it sounds like it's between 6% and 7%, on what the industry leading peers have been doing.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

So the reason for calling out that it is 5%, excluding Sands is that I think that it would be fair to expect progression from the 5%, but the 2019 number did benefit from that Sands, which we may find other opportunities to do deals like that, but we can't guarantee that. So I would expect to see progression from that. In terms of what's industry leading, I think that if you look at Marriott, they're little shy of 5% now and Hilton are doing six-and-a-bit, but that of course includes the master franchise with Plateno, which is slightly different -- in China, which is a slightly different sort of arrangement. So if you normalize for that, it's high-5s.

So yeah, mid-to-high 5s is probably industry-leading. And look, as Keith has talked about before, there is potential for some shift either quarter four, I guess, of 2020 and just quarter one of 2021 in terms of openings. So that may have some sort of an impact. We'll keep that under review. But certainly expect there is further potential from our 5% in terms of our net system size growth in future.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

All right. Thank you.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thanks, Jaafar.

Operator

Our next question comes from Alex Brignall of Redburn. Alex, please go ahead.

Alex Brignall -- Redburn -- Analyst

Good morning. Thank you for taking the questions. Just a couple mainly on RevPAR and pricing, I guess. So Q3, I think Paul, you called out the weakness in the US is probably the -- maybe an early indicator that the US economy might be a bit weak and that hasn't kind of transpired, but RevPAR has been a little weaker. And some of that's coming in small group bookings, which the OTAs are saying that they're seeing a little bit more of. So I guess the question kind of manifests in, what do you think is causing the overall weakness to RevPAR, not for yourselves, but for the industry data that we see for big hotels?

And then the second question. So I guess kind of comes back to that also. On brand, you've called out the increasing importance of brands, Keith, but some of your peers have said that they think brands are getting less important and obviously other industries definitely argue that that's the case. So I guess, I'm trying to reconcile your views on some specific brands with those that other people have said. Thank you very much.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

And so in terms of the quarter-by-quarter RevPAR in the US, we try and give the best indicators that we can as to what we're seeing in those calls. So, I talked in the third quarter about the weakness in the small groups market, and also the weakness in the industrial segment of the US economy, so particularly manufacturing and automotive, and that's down -- demand from those sectors is down, which is if you look at what's happening in the US economy, you will see that various segments are down and then the other segments like the new technology segments are seeing much higher growth. So there is a mix in the economic growth in the US and that then has an impact on hotel demand. And in the fourth quarter, we are seeing a continuation of those. I also called out that we're seeing an increase of supply in the upper midscale because it's such an attractive proposition for guests, owners, and as more demand comes in, then owners are building more hotels and opening up more hotels. So we're seeing around 3% growth with demand growth, about 50 bps shy of that, and that's having a little bit of an impact as well. That will get absorbed in due course. If you look at the forward projections, it's expected to come back into equilibrium. It may just cause a little bit of noise before we get back to the equilibrium.

And in terms of brands, Keith?

Keith Barr -- Chief Executive Officer

Yeah, great. Thanks. It's a fascinating question because when we talk about brands, we're probably talking something more than just about Holiday Inn or InterContinental. I think we're talking about the branded relationship of the key players. So going back to my comments, we've got 17% of existing supply, about 44% of the pipeline, so clearly the industry is shifting over to the biggest branded players for a variety of reasons, and I think it's underpinned by customers and by owners driving it both in that direction. So from an owner's perspective, the biggest branded players, A, can create the greatest value for owners versus the smaller companies independent. Additionally from a financing perspective, the biggest branded players are always going to get the most preferable financing treatment from a lender standpoint as well too.

And so, it's the power of scale, it's the power of our purchasing program, that's driving down [Indecipherable]. So there is the owner piece pushing it to branded. From a customer perspective, it's about the totality of what we deliver with our platforms and with our brands. And so it's going to be looking at the things of, A, the scale of the company, so we're in the locations where people want to be. So you can have a great brand, but if you're not everywhere, then it doesn't really work from a travel perspective and the scale that we have is critical, underpinned by a great branded experience. So each one of our brands is quite differentiated against its brothers and sisters in our portfolio, and they've gotten sharper and better, overall delivering better experiences and our customer satisfaction scores continue to go up. That's underpinned by the platform of loyalty and our technology platforms.

And so it's the combination of those experiences of being in the locations, it's having the right brand portfolio, the right technology and the loyalty, which is the totality of the brand experience, which creates value and loyalty with customers and then you layer on other things like credit cards and timeshares as well. So we're just much deeper ingrained into the lives of our customers than just in other industries where it can be commoditized quite easily.

Alex Brignall -- Redburn -- Analyst

Okay. Thanks. I guess, as a follow up to that, just in term -- I think it relates to both questions. The OTAs are seeing a lot more small hotels, which are now part of the STR data added to their system and those hotels are seeing kind of growth. So is there -- do you kind of look at it and think maybe outside of STR, the big hotels where brand is taking share, we're losing some traffic to some of those smaller properties or does that not kind of come into your thinking?

Keith Barr -- Chief Executive Officer

I don't really see it. We're seeing more and more like when we launched voco, the whole premise was that there are a number of high-quality independent hotels that are going to want to come into the scale platform of IHG and we have 33 already out of the gate too. So I see that being a key driver coming in into it overall. So I guess, we don't really see any impact from small independent hotels, but then we can also do unique partnerships too. So whereas with Mr & Mrs Smith, the loyalty expansion we've done from 500 of their hotels coming in as a partner for our platform. So in markets today where we don't have a hotel, they can earn and burn. We can also show the value proposition, the strength of our platform to those hotels, and who knows over time what may happen.

Alex Brignall -- Redburn -- Analyst

Fantastic. Thanks so much.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thanks, Alex.

Operator

Our next question comes from Monique Pollard from Citi. Monique, your line is now open.

Monique Pollard -- Citi -- Analyst

Hi. Morning, everyone. Just a couple for me, if I could. Firstly, just on the Macau-Sands partnership, just to be clear, that doesn't generate material incremental fee revenue for the group, does it? It's a partnership about redeeming loyalty, and getting loyalty members engaged.

And the second question. Given the impairments that we've seen in the UK portfolio, perhaps you can particularly address how we should expect that UK portfolio EBIT to progress in 2020? Is that going to be a year of negative EBIT?

And then finally, when we're thinking about the net rooms growth, and given the -- as we talked about before, that the pipeline isn't growing anymore. I understand the sort of 5% in acceleration from there. Are there any things that you're seeing on China? Clearly,growth is still good there, but that could concern you over the next year or at least in terms of the pace of signings given the level of disruption?

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Just hitting those. In terms of Macau, we called out at the time that this is a deal that it's more like a pay-for-performance type arrangement. So it can generate attractive income for us. It depends on how much business comes through our channels into the Las Vegas Sands complex there. So it's a lower financial take for us than our usual rooms arrangement because it's just a very different and complex arrangement. But it is very good for our loyalty program members and that's a key driver of that sale. In terms of impairment and the UK portfolio, the accounting under IFRS 16 is that that doesn't effectively hit the P&L. So I wouldn't expect to see any impact to the 2020 impact -- 2020 P&L.

And in terms of the net rooms growth, I mean, what we would quite like to see in a way is the pipeline reducing, because we are getting rooms moving through it as quickly as we possibly can, because we make money when we have hotels open. So we are signing at a very rapid rate. And ex-avid, the signings were up 7% in 2019. More rooms that we can get opened and the faster we can do it, then the more income that comes into the group. There is still lot of demand even in -- even currently we're signing a number of deals in China.

Keith Barr -- Chief Executive Officer

Yeah, I know. I'm just going to add on. I was just looking at the numbers. So you think about -- in China, we opened six hotels in January and signed 11 hotels. And in February, we already opened one hotel and signed three as of a week ago. And so, business is still moving ahead in China. And again, as Paul said earlier, we're talking about short-term delays, and again, it will depend upon the length of coronavirus and so forth. But the long-term fundamentals in China remain absolutely strong, means just the scale of what that industry will look like, the number of new rooms that will be added over the next decade or more is extraordinary. So this is again a short-term blip in China. Maybe we should have a long-term confidence in the scale and the value in that market and being a leader in that market.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thanks, Monique.

Monique Pollard -- Citi -- Analyst

Thank you.

Operator

Our next question comes from Stuart Gordon from Berenberg. Stuart, your line is now open.

Stuart Gordon -- Berenberg Bank -- Analyst

Good morning. A couple of questions. First one, just in 2020, in deletion, should we expect this to have a run rate similar to recent years? Secondly on avid, it's doing reasonably well, but you do still seem to be trailing quite a way behind sort of True's openings and signings. Is that a gap that you think can be closed and how could you go about that? And just on that UK portfolio again, it does appear as if that portfolio did miss targets by a fair bit even allowing for Brexit. Was there any sort of exceptional delays, anything that was happening there that should turnaround in 2020? Thanks.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

So in terms of exit from the system, we've talked about before that 2% to 3% is the right sort of level of removals for us to to do on a year-by-year basis to make sure that the brands stays as healthy as it can be. Actually, over the last three or four years, it's been around pretty consistent at 2.2%. And nothing that I can see in 2020 that would significantly move it outside that range. We may always see an opportunity to take out a few more hotels. And if we do and we think it's the right thing with the brand, then we'll do that. But nothing that I'd call out today on that. And in terms of the UK portfolio, when you bring on a new set of hotels and then you're converting them into your brands, which we did and so you're doing some refurbishments, doing some improvement, then it is always quite challenging and getting the hotel fully ready to come under voco brand, under the Kimpton brand, took on occasion a little bit longer.

We have very exacting standards and requirements before something can take on our brand. That slowed things down a bit. We saw some cost increases in the fourth quarter, energy costs and input costs, food costs, etc. And then just a lower level of demand with the uncertainty in the market that impacted as well, which hopefully now there is more clarity on Brexit, etc., that 2020, we'll be clearer on that. And look -- in terms of avid, we're really pleased with the performance there. It's hitting all our internal expectations. True obviously did launch before at the time there was a higher level of signings in the market. If you look at our market share of midscale and upper-midscale pipeline signings, we've increased that quite significantly. So we're very happy with what we're doing there.

Keith Barr -- Chief Executive Officer

Yeah, I would agree with what Paul said there. And just to put it into context, and I hate to ever give a compliment to a competitor, but remember, they were the only high quality game in town for that segment. And so, now there are two players for it. And so we're both taking up share in that segment overall, and there are overall fewer signings happening in the US.

Stuart Gordon -- Berenberg Bank -- Analyst

Okay, thank you.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thanks, Stuart.

Operator

Our next question comes from Julian Easthope from RBC. Julian, please go ahead.

Julian Easthope -- RBC Capital Markets -- Analyst

Yeah. Hi, good morning, everyone. I've got three questions as well. The first one concerns the fee structure for 2019. If we take a look at it, base fees increased by $18 million, incentive fees actually fell $9 million, and central fees rose $15 million. So do I take it from an incentive fee perspective, they fell about 6%. The IBFC of your managed hotels actually fell last year by around 6% and it was obviously made up for in central fee. So I just wonder if you could give some sort of further guidance as to how that's likely to go because it's obviously about 12% of your fee revenue now?

And the second question surrounds -- you've obviously got about 5% new rooms coming through. Can we assume therefore looking at the sensitivity that you would actually need 3-point to 4-point decline in RevPAR just to maintain profits? So, you would actually require a big RevPAR reduction to actually see a decline in profits year-on-year. And just as a point of clarification on the last bit. Your China business, are there any minimum guarantees in there that was likely to sort of significantly enhance the losses in this difficult period? Thank you.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thanks, Julian. So in terms of fee structures, we don't have a significant amount of incentive management fee income. Our business is much more orientated into revenue share, so it's franchise, contract. And then on the management contracts that we have, we always try to orientate that to take a share of the top line and then there is some share of the bottom line to be IMFs as well. What you may find sometimes is on a portfolio -- or the previous year, we've got over a certain threshold. So then we get almost a super incentive fee. And if we don't achieve that in the same way in the next year, then you'll see some variability. So it's not about the overall cash flow out of the portfolio and being able to read across on a more linear basis as I think you're trying to do there. It can -- just can be a little bit lumpy. There can be some noise in those numbers.

In terms of what level of RevPAR reduction you need to see to -- for EBIT to go backwards, there's always a blend in where rooms come in. So that 5% rooms addition won't add on a proportional basis, 5% growth in the revenues. So you're right, it's probably somewhere around that sort of 3%-ish depending on what we were able to do on costs decline that you'd need to see before you see EBIT go backwards. There are levers that we can pull as we've talked about before. But structurally having the benefit of multiple levers of growth is something that we're very focused on.

And in China, now our contracts are very simple really. It's franchises or it's management contracts. So the management contracts are pretty standard. So, I can't think of any that have got those sort of minimum guarantees on them. Thanks, Julian.

Julian Easthope -- RBC Capital Markets -- Analyst

Thank you.

Operator

Our next question comes from Ben Andrews from Goldman Sachs. Ben, please go ahead.

Ben Andrews -- Goldman Sachs -- Analyst

Hi, there. Thanks for taking my questions. So just one from me, please. The net capex for the year was about $60 million higher than medium-term guidance and about $45 million high year-on-year even though the gross capex is similar. Could you provide a bit more color on the year-on-year changes in capex, especially the high maintenance capex? And how we should think about the net capex figure in 2020? Thank you.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

So, in terms of the capex, we said we will spend up to around $350 million a year but on -- but our permanently invested capex will be around that $150 million mark, which is a combination of key money and then maintenance into hotels, into corporate IT systems, into offices and then into any remaining owned and leased hotels that we have. So there was a little bit more capex that went in around the principal estate of that UK portfolio that we've talked about to make sure that those hotels are the exemplars of the brand that we wanted to be. Remember, the whole point of doing this portfolio deal was to have the shop window, so we can demonstrate what our brands look like to owners. And as I mentioned earlier, that's been super successful for us in terms of driving demand from owners for voco and for Kimpton. And I wouldn't see any changes to that $150 million of our permanent capex going forward. There will always be a little bit of variability year by year, but nothing that's structurally changed there.

Ben Andrews -- Goldman Sachs -- Analyst

Thank you.

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Thanks, Ben.

Operator

[Operator Instructions]

Keith Barr -- Chief Executive Officer

Great. Well, thanks, everyone. Since there doesn't appear to be any more questions, I really appreciate you taking the time to join us today and I look forward to continuing to engage with you throughout the year. But it's been a really solid year last year and great momentum into this year, and we'll continue to work with our teams across the business to manage through the challenges in front of us. So thank you very much and have a great day.

Operator

[Operator Closing Remarks]

Duration: 79 minutes

Call participants:

Heather Wood -- Senior Vice President, Group Financial Controller and Investor Relations

Keith Barr -- Chief Executive Officer

Paul Edgecliffe-Johnson -- Chief Financial Officer & Group Head of Strategy

Richard Clarke -- AB Bernstein -- Analyst

Vicki Stern -- Barclays -- Analyst

Jamie Rollo -- Morgan Stanley -- Analyst

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Alex Brignall -- Redburn -- Analyst

Monique Pollard -- Citi -- Analyst

Stuart Gordon -- Berenberg Bank -- Analyst

Julian Easthope -- RBC Capital Markets -- Analyst

Ben Andrews -- Goldman Sachs -- Analyst

More IHG analysis

All earnings call transcripts

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