Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Intercontinental Hotels Group plc (NYSE:IHG)
Q2 2020 Earnings Call
Aug 11, 2020, 4:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, welcome to the IHG Half Year Results Call. My name is, Heidi, and I will be coordinating the call today. [Operator Instructions] I will now hand over to your host, Stuart Ford, to begin. Stuart, please go ahead.

Stuart Ford -- Vice President, Head of Investor Relations

Good morning everyone and welcome to IHG's 2020 half year results conference call. I'm Stuart Ford, Head of Investor Relations at IHG. And I'm joined this morning by Keith Barr, our Chief Executive Officer; and Paul Edgecliffe-Johnson, our Chief Financial Officer.

Just to remind listeners on the call that in the discussions today the Company may make certain forward-looking statements as defined on the 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. For those analysts or institutional investors who are listening on the webcast to follow the presentation, may I remind you that in order to ask a question, you will need to dial in using the details on Page 10 of the RNS or as supplied in your email invite. If you're dialed in over the phone, the presentation can be downloaded and the webcast can be viewed by ihgplc.com or click through from the linked on Page 10 of the RNS.

I'll now hand over the call to Keith.

Keith Barr -- Chief Executive Officer

Thanks, Stuart, and good morning everyone. The impact of COVID-19 continues to be felt across the global economy as the biggest challenge the travel and tourism industry has ever faced. As a company, we've acted quickly, effectively and responsibly to provide support to our people, to our owners and to our guests, focusing on what's needed both now and for the longer term. We know it's going to take time for things to recover, but as the world rediscovers travel and restrictions are lifted, we continue to work hard market by market to provide the reassurance and True Hospitality that guests need and the support that's so important to our owners right now.

Turning to how we navigated the crisis. Our global RevPAR declined 52% in the first half and 75% in the second quarter as hotel demand fell to the lowest levels we've ever seen on the back of government travel restrictions around the world. In most markets, these have now started to ease to varying degrees, and we currently have 95% of our estate open.

In July, we expect our RevPAR decline to have improved to around 58% with global occupancy hitting 45%, up from the low point of 20% back in April. The first half RevPAR declined led to an 83% fall in underlying operating profit. As we've talked about previously, we've taken decisive action to preserve cash throughout the crisis, which meant that our free cash flow was contained to a $66 million outflow in the half and was broadly neutral in the second quarter. This meant that we have been able to maintain the $2 billion of liquidity we disclosed back in May. However, with visibility still remaining limited as the pace and scale of market recovery, we are not proposing an interim dividend.

One of the measures we've taken to protect the business this year is to make up to a $150 million of cost reduction in the fee business. We now plan to make around half of this cost savings sustainable into 2021, which includes a rebalancing of our resources to meet expected demand, while still allowing us to focus on investing in our business and growth initiatives.

As ever, is the delicate balancing act and as with many companies, this necessary reduction in cost has sadly had to involve looking at headcount across the business. Our changes include a reduction in roles of around 10% at a corporate level, which we announced internally in July and we're doing all we can to support any impact to colleague through this really difficult time. Ultimately, making sure we are best positioned to outperform through this recovery remains at the core of our action.

And I'll talk more a little later about how we work closely with our owners, how we respond to consumer needs, and how we continue to progress in important areas such as system size growth, growing our brands in new markets and using investments in technology and loyalty to maximize our share of demand as it returns.

But first, let me hand over to Paul to take you through our first half financial performance.

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

Thank you, Keith, and good morning, everyone. Firstly, starting as usual with our headline results from reportable segments. Revenue decreased 52% to $488 million and operating profit decreased 82% to $74 million. On an underlying basis, so excluding current year disposals individually significant liquidated damages on a constant currency, revenue decreased 51%. Underlying revenue from the fee business decreased 48% and operating profit decreased 75% driven by the adverse mix effect of weaker performances in the managed business. As a result, fee margin decreased to 26.1%.

The operating profit performance reflects the decline in the fee business together with the impact of the owned, leased and managed lease estates which went from a $16 million profit in the first half of last year to a $23 million loss in the first half of this year. This reflected the majority of these hotels being closed throughout Q2 with those that remained open operating at very low occupancies. In terms of central operations and overhead, the net operating loss was held flat at $58 million with the impact from technology fee discounts offset by other cost saving measures.

Adjusted interest, including charges relating to the System Fund reduced by $4 million to $62 million. Our interim effective tax rate differs from our previous mid-to-low 20% guidance range. The significantly reduced level of profit before tax, combined with the impact of a tax credit on one-off items results in a somewhat anomalous rate of negative 127%. Excluding these items, our effective tax rate for the half would have been 45%. When considering half two expected movement, we estimate the effective tax rate for the full year to be around 45%, although forecasting in this area remains challenging given the sensitivities in the calculation and the uncertainties in the near-term outlook. In aggregate, this performance has resulted in an adjusted earnings per share of $0.143.

Before moving on, I wanted to take a moment to outline some of the more significant exceptional items we recognized in our reported financial statements. The impact of reductions to industry RevPAR forecast across key markets, in which we operate, has created a trigger event for impairment testing. We have therefore recognized a number of predominantly non-cash impairment charges across our asset base, including the intangible asset value ascribed to hotel management agreements relating to previous acquisitions.

There are also property, plant and equipment impairments in our owned, leased and managed lease estate together with the value of investments we held in associate. Other impairment charges include to trade deposits and loans together with related contract assets and a $22 million impairment of trade and other receivables to reflect the expected increase in credit losses as a result of COVID-19.

The other main category of exceptional items, I want to talk about, is the de-recognition of hotel leases which relate to our UK lease portfolio and two leased hotels in Germany. These are structured as variable leases with minimum guarantees in place and resulted in the recognition of lease liabilities and associated right-of-use assets on our balance sheet following the adoption of IFRS 16. These hotels have been closed for the large part of the year to date, prompting a reassessment of this treatment. As a result, the associated liabilities and right-of-use assets have been de-recognized. There has also been an adjustment to the fair value of contingent purchase consideration in relation to the UK lease portfolio. Further details of this and all the exceptional items we've recognized can be found in the appendix, along with the notes to our reported financial statements.

Looking now at our drivers of performance. Group RevPAR for the first half was down 52% on a comparable basis. Our RevPAR definition includes the adverse impact from hotels that were temporarily closed. The social distancing measures and travel restrictions in our key markets around the world contributed to an occupancy decline of just over 30 percentage points, with rates down 12%. Despite these incredibly tough trading positions, we have added 12,000 rooms to our system in the first half.

Our continued focus on the long-term health and quality of our established brands resulted in the planned for removal of 12,000 room, 2,000 of which related to a previously flagged portfolio of hotels in Germany. These additions and removals brought net system size growth on a year-on-year basis to 3.2%. Our usual summary of total RevPAR growth and total rooms available on an underlying basis can be found in the appendix.

Looking now at the shape of our performance over the first half and you can clearly see the variation in weekly RevPAR movements by region. Greater China saw a trough in early February with performance gradually improving through the second quarter. Both the Americas and EMEAA regions declined sharply toward the end of the first quarter, but has shown signs of improvement in recent months, although EMEAA has remained affected for longer by the government-mandated hotel closures.

I'll now take you through our first half regional performance in more detail. Starting with the Americas, RevPAR was down 48% for the half, with the US down 47%. In the second quarter, US RevPAR was down 69%, which represents relative outperformance against both the overall industry and even more so against the segments in which we compete. I'll come back to the main drivers of this shortly.

Underlying fee business revenue was down 46% and underlying fee operating profit was down 49%, driven by greater levels of RevPAR decline in our US managed estate. Our managed estate is weighted toward luxury and upper upscale hotels in urban markets, and so have seen a greater level of hotel closures and RevPAR declines in our franchise. This impact was partially offset by the benefits of a $4 million litigation settlement relating to an individual hotel and a $4 million payroll tax credit of which we expect to recognize a further $7 million in the second half.

Our owned, leased and managed lease profit was down $31 million to a loss of $10 million due to the temporary closure of a number of hotels including the InterContinental in Boston. We now have all of our owned, leased and managed lease hotels back open albeit trading at very low levels of occupancy. Looking at our most recent trading across the Americas, July RevPAR is expected to be down around 54% with occupancy in our comparable open hotels improving to around 45%, just 3% of the estate remain closed at the end of the month.

Development activity has continued through the first half and we opened 5,000 rooms across the Americas with 2,500 of those in the second quarter, taking our net rooms growth to 1.7%. We signed a further 9,000 rooms, more than three-quarters of which were for our mainstream brand, taking our Americas pipeline to 116,000 rooms.

Our quarter two US RevPAR outperformed the industry, driven in part by our weighting to the upper mid-scale segment, which accounts for over 65% by hotels. I've said many times over the years, this segment has proved to be the most resilient as we saw through the financial crisis in 2008 and 2009. We also are seeing deeper levels of RevPAR decline this time around, the trends are similar with upper mid-scale RevPAR outperforming the upper upscale and luxury segments by around 20 percentage points through the second quarter.

The strength of our brands is also clearly evident. We are outperforming in the segments in which we compete and with Holiday Inn Express consistently outperforming the upper mid-scale segment. This is being helped by our hotels being well placed to capture available demand. This support is being able to keep around 90% of our US hotels open even at the trough, with that figure now up to 97% at the end of July. As you can see from the chart on the right of the slide, we've seen occupancy levels above 50% in more than half of our US estate throughout the month of July. This is being driven by our mainstream brands which are heavily weighted to non-urban drive-thru location.

Moving now to Europe, Middle East, Asia and Africa, where RevPAR was down almost 59% in the half, with the second quarter down 88%. In the UK, RevPAR was down 59% with a 90% decline in the second quarter during which most of our hotels have closed. Our German estates saw RevPAR decline 63% in the half and 93% in the second quarter.

Travel suspensions and curfews across the Middle East drove RevPAR decline to 72% in the second quarter and we're seeing lower levels of international travel across Southeast Asia and Australasia with RevPAR in Australia and Japan down 79% and 88%, respectively, in the second quarter. Underlying fee revenue was down 63% or $95 million, with underlying fee operating profit falling $91 million to a loss of $4 million.

This is driven in part by performance across our managed estate, which is weighted toward upscale and luxury hotels which generated $35 million lower incentive management fees. Hotel closures impacted our owned, leased and managed lease estate, which saw its operating loss increase by $8 million to $13 million. Whilst we expect our owned, leased and managed lease hotels to gradually reopen through the third quarter, we expect them to be trading at very low levels of occupancy as well as lower-than-usual non-rooms revenue.

Looking briefly at the development environment, we opened 3,000 rooms in the half and removed 5,000 rooms. We signed a further 4,000 rooms into our pipeline, including flagship properties across our InterContinental and Six Senses brands. Finally, looking at most recent trading, July RevPAR is expected to be down around 74% with 84% of the estate open and occupancy in our comparable open hotels improving to over 30%.

Turning now to Greater China where RevPAR was down 62% for the half and 59% in the second quarter. This has shown a trend of gradual improvement from February, which was down 89%. Tier 1 cities were down 66% for the second quarter, reflecting that greater weighting to upscale and luxury hotels and international inbound travel. Tier 2 to 4 cities saw RevPAR decline 50% in the second quarter, reflecting the greater mix of leisure and resort destination and the pickup in demand from domestic travel.

Underlying revenue was down 72% or $46 million and underlying operating profit was down $40 million to a loss of $5 million, impacted by $23 million of lower incentive management fee income. We opened 4,000 rooms in the half driving net system size growth of just under 10% and signed a further 13,000 rooms into our pipeline with 7,000 of these coming in the second quarter. In terms of the latest trading, July RevPAR is expected to be down around 36% with more than 99% of the estate open and occupancy in our comparable open hotels has risen to over 50%.

Moving on to look at the actions we've taken to manage our cost base across the business. We are on track to achieve our target of $150 million of fee business cost savings in 2020 as previously guided at the end of March. These savings are being driven by temporary scaled salary reductions across the entire organization along with cuts to travel and other discretionary spend. We have taken similar actions across the System Fund and have reduced marketing spend in order to help mitigate the impact of lower assessment income from hotels while protecting return on investment for our owners on our remaining activities. Across our owned, leased and managed lease estate, we reduced our overall cost base by $130 million in the first half, driven by significant cost containment actions.

We are also on track to reduce our gross capital expenditure by around $100 million over last year and I'll come on to talk about the drivers of that shortly. As we look ahead to 2021 like the rest of the industry, we have limited visibility. Our focus is therefore on ensuring we have a cost structure that is appropriate for a recovery-led demand environment while still being able to invest behind those growth initiatives that will drive our performance over the long term.

With that in mind, we are developing plans, which we currently estimate will result in around $75 million of fee business cost savings being sustainable into next year and beyond. We also took action to support our owners in managing their cost base and cash flows through the introduction of temporary fee discounts for technology and system fees and a small but meaningful discount on the prompt payments of franchise royalties. These actions have been well received and we are seeing good levels of cash collections across our state, albeit we recognize it is taking a little longer than usual for owners to pay us given the challenges they're facing.

As shown on the right hand side, looking at the Americas, as of the end of July, we had collected 95% of our February invoices which fell during March and we are currently seeing around 80% of billings paid within 90 days of being due.

Turning now to capex. We spent gross capex of $85 million and net capex of $39 million in the first half, a reduction of $16 million and $34 million, respectively. As I've mentioned, we expect our gross capex to be around $100 million lower than last year on a full year basis with reductions across all of our main buckets expense. As an asset light business, we have a relatively low level of capital intensity and we will continue to use our balance sheet to invest in growth opportunities including the strategic use of key money and growing our enterprise capability through System Fund investments.

Moving on now to cash flow. In the first half, our free cash flow saw an outflow of $66 million, which was down $207 million in the first half of last year. This outflow was almost entirely weighted to the first quarter with free cash flow broadly neutral for Q2. We have worked hard to proactively manage working capital, including extending payment terms with some of our largest suppliers, while still continuing to support our smaller suppliers, reassessing committed spend across the business and reducing discretionary spend through the cost saving measures I discussed earlier.

Our net cash outflow was more than offset by favorable exchange rate movements and the de-recognition of lease liabilities from our balance sheet leading to $150 million reduction to our net debt. As you know, we've always run the business on a conservative basis. And in addition to managing our cash flow, we've also taken steps to strengthen our liquidity position. These includes securing covenant waivers over our $1.35 billion syndicated and bilateral credit facilities until December 2021, and extending the maturity of these facilities until September 2023.

We also issued GBP600 million or around $740 million of commercial paper under the UK Government's Covid Corporate Financing Facility. We are confident that we have sufficient headroom to manage the business through a recovery environment. However, our visibility over the scale and pace of the recovery in our market remains limited. As Keith has already mentioned, we are therefore not proposing an interim dividend.

As at the end of June, we had over $600 million net cash on deposit and undrawn credit facilities of $1.35 billion, taking our total available liquidity to $2 billion. Over the last month, our net cash position has remained broadly neutral, meaning that our liquidity position is unchanged as at the end of July. The majority of our debt is held in bonds, which have a staggered maturity profile with the first maturity of GBP400 million due in late 2022 and then nothing further until mid-2025. We are well capitalized. We've have taken swift and decisive actions to scale our cost base so that it is appropriate for the current environment, while still allowing us to invest behind the strategic initiatives that will drive our growth as and when the market recovers.

Thank you. And with that, I'll hand back to Keith.

Keith Barr -- Chief Executive Officer

Thanks, Paul. So you can see the impact the crisis has had on our trading. We can't control the broader macroeconomic environment but we are doing everything we can to help soften the impact that has on our business and our owners, while still focusing on the broader role we are able to play in the relief and recovery efforts around the world. I want to spend a few moments talking through how we've been doing just that. And I'll start with people, because this crisis affects all of us in different ways. Front and center of everything we do are our colleagues. Our hotels have new operating procedures in place to make sure that our people remain safe at all times, whether that be personal protective equipment, enhanced screening protocols, or installing screens at front desks.

At a corporate level, outside of Greater China, we are effectively operating the entire business remotely today, working from home, and we focused a lot on providing training and resources of our colleagues deal with the challenges, pressures and differences that entails. We've also continued to work with our humanitarian aid partners to fund disaster relief efforts and get vital supply to those most in need during the crisis. We've encouraged our IHG Rewards Club loyalty members to support our NGO partners such as the International Federation of Red Cross and Red Crescent Societies, and our members have generously donated millions of points to those causes.

Looking in more detail at our response for owners, firstly, it's important to recognize that most of them are small business owners. And so this crisis has been unimaginably challenging. Some of them have had to temporarily close their doors and those that remained open have still have to deal with the lowest levels of occupancy they've ever seen.

Being part of a branded system has meant that we've been able to capture and essentially coordinate COVID-19 related demand for hotels whether that's medical staff, family members who are quarantining or delivery drivers needing accomodation. We've been capturing that business for our hotels. Our scale has also been important when it comes to helping owners with their cash flow. We have offered fee relief options, pass through all cost reductions we've achieved on their behalf with suppliers, temporarily relaxed brand standards and offer advice on how to flex operations in order to reduce costs and stay open. We've also moved quickly to adapt our operating models so that our hotels can adhere to new cleanliness and safety standards also at the same time reducing costs in other areas.

Having our cloud-based platform, IHG Concerto has also meant that we've been able to rapidly deploy new training to our owners and hotel teams so they can further automate front desk operations. Alongside this, whether at the White House or Number 10, we've been working on behalf of all of our owners at the highest level of government. In key markets globally, we have helped secure invaluable stimulus packages for the hospitality industry that will further protect our owners and jobs, and we continue to focus on that alongside supporting a safe reopening of domestic and international travel.

Turning now to our guests. Understandably, their confidence in when to travel has been impacted. As the crisis began to unfold, we immediately waived cancellation fees and made it very easy for our guests to cancel their stay. We follow this up with a Book Now, Pay Later offer for the rest of 2020 which makes planning commitment free and cancellation possible after 24 hours before a stay for direct bookings.

For our value IHG Rewards Club members we've extended member status out to January 2022, reduced the lead qualification requirements by 25% and paused points expiry until the end of the year. For our corporate guests, we've launched a new global Meet with Confidence offer which gives our corporate brokers discounts and greater flexibility on cancellations. Our scale position has also meant we've been able to bring our largest corporate planners and travel managers together virtually to hear from our leadership teams on our enhanced cleaning standards and operating protocols in order to give them the confidence to book with us. All of these actions have meant that our guest satisfaction index has seen improvement every single month this year and it's outperforming our competitors.

I want to focus now on cleaning. Health and safety is top of mind for our guests and for everyone, no matter what industry. So, let me explain how we responded. Our hotels are already working to best practice COVID-specific training and procedures. While we've gone one step further for our guests and colleagues by strengthening our IHG Way Of Clean program. To do this, our newly formed Global Cleanliness Board has been working with the Cleveland Clinic, Ecolab and Diversey to develop new science-led protocols and service measures that can sustainably -- be sustainably implemented in our hotels. For our guests, this is meant providing them with safety assurance throughout their stay. For example, sanitizer stations, social distancing floor markers and contactless room services. At the same time, guests receive regular information on when areas where last cleaned and when items are ready to use.

We're also exploring different ways we can use technology to minimize physical interactions when it comes to things like check-in or paying for items, we're working with our scientific advisors on the latest cleaning technologies to pilot. I mentioned earlier, the steps we're taking to keep colleagues safe and our hotels too and that also includes making sure they have the training and certification to protect both themselves and our guests. Having clear standards, protocols and verification procedures in place means that wherever in the world the guest stays with us, they can rely on our IHG Clean Promise is a reassurance that their room meets industry-leading levels of cleanliness. Since we've launched this promise, we've seen a 30% uplift in positive comments on cleanliness from guests on social media reviews.

Even during a crisis of this nature, colleagues, guests, owners, suppliers, investors and partners, all expect companies to make responsible and sustainable choices. As we look toward a recovery and beyond, it's important that this continue and we emerge from this period in a better more sustainable position both for people and our planet. Supporting our communities is core to our purpose of providing True Hospitality for everyone. This has become even more important during the crisis.

Our hotels have contributed in many ways including providing rooms for front-line medical workers and some of the most vulnerable in society. We've extended our True Hospitality for good program to support food banks and food provision charities across more than 70 countries, providing vital funds, training and resources for those in our communities who need it most.

We are further evolving our community approach and I look forward to taking you through this and our wider long-term responsible business commitments early next year. This will also include pushing ahead with our environmental agenda. Work is under way on developing a roadmap to achieve our 2030 Science Based Target, which we published in February and we recently kicked off our project to report against the requirements of the task force for climate-related financial disclosure, which will allow us to improve the climate resilience of our business over the long term.

More broadly, our teams are working with other companies and governments to ensure that we collaborate in the right way for sustainable recovery. Finally, as we look to our people, we've taken several important actions to build a more diverse and inclusive culture at IHG. This includes some new commitments for our Americas region and a new ethnic diversity network in Europe. As Chair of our Diversity and Inclusion Board, I will continue to lead our efforts to help develop IHG's longer-term ambitions in this space.

As we look ahead to the recovery, it's vital that we continue to invest in key strategic areas such as loyalty and technology, which will drive competitive advantage for us as travel demand picks back up. Our IHG Rewards Club loyalty program is critical to driving more revenue into our hotels. We've already seen that our most loyal members were the first to return as markets reopen. I've mentioned before the rollout of dynamic pricing for Reward Nights which means members can use less points to book stays outside of peak times. Since launch, we've seen the proportion of reward nights booked by leisure significantly increase which is extremely encouraging for us and for our owners.

We also meant to leverage our cloud-based IHG Concerto platform to rapidly deploy new guest experiences, features such as contactless check-in. Linked to our IHG Concerto, our new owner engagement portal is also being rolled out globally too right now. This gives our owners real-time data on how their hotel is performing on a variety of different measures, but most importantly, to suggest actions to improve performance. As we focus on maximizing returns in every way we can, we are also enhancing our revenue management for higher program with new machine learning technology that will ensure owners able to optimize pricing for their hotels.

Just stepping back for a moment to look across our portfolio of over 5,900 hotels. The picture has improved since we last spoke in May. 317 hotels or 5% of our estate is currently closed compared to around 1,000 hotels at the end of April. Occupancy levels are also slowly starting to increase reaching around 45% in the Americas and over 50% in Greater China. But it's important to emphasize, this has been not linear that the pace and scale of this recovery still remains unclear. Across the different chain scales while we are seeing very limited improvements in upscale and luxury and many of our hotels in these segments remain closed, you can see that mainstream has the greatest improvement in occupancy. And this is where we are weighted to and where we have a market leading position.

As an asset light business, most of our revenues are tied to hotel revenues not profits. The strength of this model combined with the mix of our business should leave us well placed to withstand the pressure from COVID-19 and benefit from any demand in recovery. First, as I mentioned, we are heavily weighted to have a market-leading position within the mainstream segment which continues to outpace overall industry RevPAR. For example, in the US more than 30% of all branded rooms sold last week by the industry were in the upper mid-scale segment of mainstream, which was more than upscale, upper upscale and luxury combined.

Second, our broad geographical distribution is weighted toward domestic demand. And third, it is mostly in non-urban markets, both of which are leading the recovery in our industry. And fourth, we're skewed toward transient business and leisure demand as opposed to large group bookings, which are more impacted by social distancing measures and reduced travel budgets.

Moving now to looking at our brand portfolio. During the half, our owners were able to keep open the vast majority of our mainstream hotels due to support they receive from IHG as well as local governments. In particular, our extended stay brand saw occupancy levels of around 50% in Q2, which was about 20 percentage point ahead of the rest of mainstream. We also continue to grow our estate. While we opened 91 hotels in the half, we also signed double that number, equivalent to one hotel a day with signings for each of our brands, including nearly 100 across the Holiday Inn and Holiday Inn Express brand family.

Recognizing the benefits of being part of a branded system, we are starting to see an increase in conversion activity from owners as well with an uplift in conversion signings during the half. When it comes to our new brands we've talked before about the strategic approach we take when assessing the opportunities out there. And we see momentum across these brands during the half.

Let me start with avid. We've now signed over 200 hotels since launch, nearly three years ago. And we continue to see strong interest from owners. There are 14 avid hotels now open which are gaining great guest reviews and seven openings were achieved in the half despite the challenging backdrop. The lower cost to build, staffing model and operating economics are appealing to owners in a more constrained macro environment, but also to guests to look for the basics done exceptionally well. With around 90 hotels under construction or planning improved, we expect further openings throughout the rest of the year.

Turning to our new all-suites brand Atwell Suites, which launched the franchise sales last September. We continue to see interest from both existing and new owners with 19 franchise agreements signed or approved since launch. The first hotels are expected to break ground this year and will open in 2021 in markets such as Charlotte, Miami and Denver.

Moving to upscale where we've seen strong interest in our conversion brand voco. We signed 40 properties including locations like The Hague, Paris and Melbourne since its launch in June 2018. And after a strong start in EMEAA, we're now -- we've now expanded into more markets globally launching in the Americas and Greater China in the half with signings in New York, Florida, and Hangzhou. There were some very strong luxury signings in the half too, including for InterContinental in Fiji and Italy, both of which were conversion deals. For Kimpton, the signing of the Shanghai New Bund is a key step for developing the brand in the region and we've also opened a Regent property in Shanghai which showcases a redefined design, hallmark and service ethos that will position Regent at the top tier of luxury. The Regent Shanghai Pudong was converted and opened in just 45 days. We've also begun the renovation of the InterContinental Hong Kong which will rebrand to Regent as it was when it first opened in 1980.

Finally, for Six Senses, which we acquired last year, we signed two properties in the half in Kyoto and Rome, increasing the global pipeline to 27, and just this last month, a further property in Italy, the Antognolla in Umbria. So, as you can see, while we've been dealing with our response to COVID-19, we remain focused on our future growth as travel returns.

To recap, we achieved 77 signings in Q2, opened 47 hotels, broke ground on 47 more, construction is now resumed on 80% of the projects that were paused due to COVID. And while there is inevitably a delay in some openings, we expect a level of catch-up as government restrictions continue to ease.

It's worth bearing in mind that while development activity will likely slow, our owners look at investments for the long term, based on the strength of our industry. Global brands with scale like IHG also provide value to our overall system with these factors reflected by those providing finance to owners. We continue to open and sign hotels on a weekly basis and in some markets we're discussing more deals than ever before. The conversion opportunity is also a compelling one and we see strong opportunities across our brand portfolio.

So, to sum it up, our top priority remains the health and safety of our colleagues and guests. We will continue to do it right for all our stakeholders, while ensuring we are well placed to capitalize on the recovery. In the last few months, we've seen an improvement in demand and it is clear that albeit with bumps in the road, domestic mainstream is returning first with groups and international travel likely taking longer.

The near-term outlook remains uncertain. The time period for a market recovery is unknown. But as and when travel restrictions further ease and customer confidence improves, our industry-leading mainstream presence and largely domestic focused business position us well to drive demand back to our hotels. Our industry continues to have secular growth characteristics that we strongly believe are undimmed by COVID. And within those long-term attractive market dynamics, we are confident in our cash generative, resilient fee-based model will enable us to continue meeting the needs of guests and owners and ensure that we emerge strongly when markets recover.

With that, Paul and I are happy to take your questions. So, Heidi, if you could open it up for questions, please.

Questions and Answers:

Operator

Of course. [Operator Instructions] Our first question comes from Monique Pollard from Citi. Monique, your line is open. Please go ahead.

Monique Pollard -- Citi -- Analyst

Good morning, everyone. A few questions from me, if I can. The first one was just on room openings, because when I look at the room openings for the 1H, it's clear that the 2Q will sort of pickup in terms of openings from the levels that we see -- at the lowest point in March. I'm wondering if we should be expecting the openings pace to accelerate into the second half, particularly given Keith's comments that some development actions you've been putting off will be sort of caught up in the second half of the year.

And secondly, I just wanted to understand on conversions, obviously, really strong numbers there, 25% of the pipeline signings were conversion. That sounds very strong. Just wanted to know what that is in a typical period, pre-COVID and the distress that that's been causing.

And then the final question was just on fee rate. So, would you be able to give an update on the fee rates you're charging to owners now. I know you have been giving that healthy discounts that had been then reversed. But on an individual basis, are there still asset owners that are getting fee reduction?

Keith Barr -- Chief Executive Officer

Great. Thanks, Monique. It's Keith. And Paul and I are actually not in the same location. So, bear with us as we'll be trying to field questions remotely from one another. So, I think, it's appropriate for Paul to take the fee rate and potentially, Paul, if you could refer to, I can have conversions and room openings and then we'll go from there.

So, in terms of room openings, are they going to accelerate moving forward? Again, clearly, we saw construction activity close in most of the markets around the world. So, you would expect to see an acceleration now coming out of it. The real question though is, how long does that activity continue at this pace? Are there going to be any future potential shutdowns of market activity and so forth too?

So, I would suggest to you that our visibility is limited. We know though that owners who have properties under construction are very focused on getting those hotels open. We are still breaking ground on new projects as we noted. It's really going to be driven by the availability of labor and the restrictions from market to market. And hopefully that we will see ability to catch up some of this in the second half of the year but clearly the industry is not going to grow as fast in 2020 as it was expecting to.

And in terms of conversion signings, we had around 24% in the first half of this year and last year it was around 17%. So, it is a step up with some great assets like the region in Shanghai, which is an A location. The Kimpton in Shanghai is going to be a conversion. The InterContinental, as we mentioned in Rome and Fiji were conversions and we're looking at a number of vocal projects, which of course conversions too. So, high level, again expect to see projects go back under construction, limited visibility of what growth will look like on the full-year basis because of uncertainties in what will happen in the markets, but we are leaning more to conversions.

Paul, do you want to talk about fee rate?

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

Thanks, Keith, and thanks, Monique. So, what we put in place a few months ago was the package of measures designed to help the owners. And that's' went from reducing some of the things they had to do in the hotels and we could scale back the costs of what was effectively passed through to them. It's also included reducing our tech fees, reducing system fees. And then we offered a reduction for owners who paid their franchise fees on time.

I suspect you're most interested in what we're doing with the franchise fee and the technology fee given that that quarter can impact the P&L for the second half and beyond. And those discounts have now run their course. So people are now back on their full fees, but we are still continuing to do everything we can to help owners with cash flows and that will remain as long as it's needed. Thanks, Monique.

Monique Pollard -- Citi -- Analyst

Understood. Thank you.

Operator

Our next question comes from Vicki Stern from Barclays. Vicki, your line is open. Please go ahead.

Vicki Stern -- Barclays -- Analyst

Thank you. Good morning. Just firstly on the RevPAR. Just how would you characterize the sequential RevPAR improvement that you've been seeing in recent months? First, to what extent do you think in July, let's say, that's been led by seasonality or as one of your peers was suggesting the other day, would you expect -- at this stage albeit visibility clearly limited, but would you expect to see a sequential improvement as we move into the autumn, even though the mix becomes a bit more skewed to business travel.

And secondly, I think, Keith, you're on an interview this morning discussing the opportunities for consolidation. Just keen to hear your thoughts about that a little bit more deeply, what sort of opportunities would you see presenting themselves and sort of picture, where does it sort of leave you in terms of thinking about net unit growth, not this year but certainly over the next few years? Again, appreciate, obviously visibility is not particularly high.

And then just finally on sort of geographic differences. I guess that's sort of been the interesting feature the last couple of months, how different markets are sort of progressing through this quite differently. Just from a net system growth standpoint, both sort of any difference that you can call out in terms of that conversion activity or the health of the existing owners from a geographical perspective, what you're seeing market by market? Thanks.

Keith Barr -- Chief Executive Officer

Great, thanks, Vicki. I hope you're doing well. Paul, do you want to talk about the RevPAR and then I'll talk about kind of a broader view on the industry issues and the geographic ones?

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

Yeah, absolutely. So hey, Vicki. So it is quite pleasing progression that we're seeing over the last few months. Each month, 9 percentage point increases. And given that we are largely domestic mainstream business, there is a fair way that it can grow back before we run up against the upper hurdles of the international traveler who I don't think any of us think as coming back in the very near term. Our business isn't particularly seasonal in terms of the mix business, leisure and in terms of, say, group. So there's not that much seasonality that would come into effect. It's all going to be down to how confident people feel about travel and what restrictions are placed on them. But what we've seen from markets such as China, which have recovered earlier, is that when people can, they will get back to their typical travel habits as quickly as they're allowed to. And certainly, the China data is pretty encouraging from that regard.

Keith Barr -- Chief Executive Officer

Thanks, Paul. So in terms of the industry more broadly, Vicki, I think that one's going to have to assume, with this level of economic impact, that not every company, every player out there is going to be able to get through unscathed or get through this [Indecipherable]. And so when I talk to -- and put them in different buckets, there are going to be property portfolios out there now which are going to be quite challenged to perform with the existing branding and management. And then they may look to rebrand or trade effectively. And so I think that, that will happen. There will be some smaller regional players who don't have the liquidity, the depth that the big international players have, who may not be viable going forward and may have to either look to partner and/or potentially consolidate. And then additionally, I think that there'll be some other companies out there, just in terms of global small brands, where they're saying, is this the right opportunity for me and the right structure for me moving forward?

So I think it's going to happen. I don't think it's going to happen tomorrow, though, because there's enough government support out there across a wide variety of mechanisms that are keeping companies afloat. And I was having a conversation the other day with somebody in the US in the government. They have to move on from keeping everybody afloat to making sure that the right companies stay afloat at the end of the day. And so -- and that will happen at some point, and that will mean that there will be a level of consolidation of small companies and then also partnerships forming up, too. So it's hard to predict it exactly.

Right now, clearly, what we're focused on, to build on what Paul said, is being positioned to take advantage of the longer-term opportunities that present themselves if they do, but making sure that we're really focused on operational delivery, execution today, delivering a great clean stay and making sure we can kind of weather through what was the most challenging period of time.

And the geographic businesses, I think what we're seeing already is the mature market -- China, for example, they've quickly gotten back into the pipeline being under construction. The US is getting under construction. Clearly, with the markets that have struggled to reopen, clearly, construction is lagging a little bit as well. And that will be across Europe, Middle East, Africa and then parts of Asia, too. And so kind of the two big bookends, you're seeing construction get back on track. It's been a little bit slower in the rest of the markets because the lockdowns were steeper, deeper or in some cases, are still continuing on.

Vicki Stern -- Barclays -- Analyst

Thank you. And just that vision on the conversion opportunities, would there be any obvious geographic differences in what you see there? Thanks.

Keith Barr -- Chief Executive Officer

In conversion, definitely. It seems to be across the board, to be very honest. I mean we're signing things in New York with voco, now with China and voco. I think from a brand perspective, though, what we will look at is what brand of ours is very capable. So really Six Senses, InterContinental, Kimpton, Hotel Indigo and voco without question give us five brands across multiple segments that can convert. And there's no real obvious geographic difference there to date. We'll have to wait and see how much momentum is built up in kind of this latter half of this year and beginning of next year.

Vicki Stern -- Barclays -- Analyst

Very helpful. Thanks very much.

Operator

Our next question comes from Jarrod Castle from UBS. Jarrod, your line is open. Please go ahead.

Jarrod Castle -- UBS -- Analyst

Thank you very much and good morning, gentlemen. Three for me as well, more around kind of medium term. But some of the hoteliers and airlines have spoken about 2023, 2024 kind of getting back to 2019 levels in terms of RevPAR volumes. So I'd be interested in your thoughts on that. And related to that, if you think there's any reason why the fee margin couldn't get back to previous levels around the mid-50.

Secondly, and you spoke a little bit about M&A, but anything more specific? One of your competitors, for instance, has spoken about Travelodge, so would be interested to get your thinking around that, given your exposure, Holiday Inn Express, for instance.

And then just kind of also medium term, are you thinking differently about the design of new hotels? I mean -- and I'm thinking more not necessarily maybe material, but just changes in thinking linked to the implication from COVID or indeed another crisis later down the line? Thanks.

Keith Barr -- Chief Executive Officer

Thanks, Jarrod. Paul, do you want to talk about kind of the recovery curve and the views that we've formed and margin, and I'll pick up M&A and design?

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

Absolutely. So in trying to work out what might happen in a number of years' time, it's obviously a guessing game. Our booking windows are incredibly short at the moment. I guess what I can say is that when we think about what the shape of growth into 2019 looks like, you had strong recovery in RevPAR. And then in 2017, we were really pretty close to the 2019 level of growth. So it heated out as it has got up to that peak level.

My expectation is that we will, over a few years, get back to close to 2019 and then getting right back up to the top there will again take some time. While you build the compression, you build the levels of demand, set a revenue managed hotel, reset rate with corporates, etc., etc. In terms of fee margin, I wouldn't see any reason why we wouldn't be able to get back up to where we were over time, no.

And Keith, back to you.

Keith Barr -- Chief Executive Officer

Great. Thanks, Paul. On M&A, we don't ever comment about specific M&A, but I mean -- OK, I mean, all the big players look at most of the opportunities that present themselves out there. And we take it from a very philosophical perspective of looking at would this make this Company stronger, the brand portfolio, the geographic distribution and so forth, too. So we can't comment about any specific M&A right now. We will constantly evaluate opportunities, but being very thoughtful and prudent about how we manage the balance sheet during a very uncertain time because, to build on what Paul said, anyone that can really predict what 2022, '23 and '24 looks like exactly has more insight than anybody on the planet because no one really knows. It will be directly tied to vaccine and scale and economic recovery. And so we all have our projections onto that, as Paul said.

On design, I think we're going to be building upon things that we've already been doing. So if you look at avid, and I mentioned avid hotels and consumer feedback, and I can -- I mean, I wouldn't share it, but I was reading a review the other day. It's literally an advertisement of why avid makes sense in a COVID environment. Hardwood floors, hard surfaces, super easy to clean, bright white bathrooms, it's -- with such a focus on cleanliness we were designing that brand. And we've been lifting and shifting that over to our extended-stay brands now. So I think we're going to continue to progress our designs, recognizing the importance of cleanliness, touched surfaces and so forth, what materials we'll use going forward. And we already had world-class operating procedures in place though beforehand.

Working with the Cleveland Clinic, we're actually asking them to advise us about what we should be thinking about going forward, looking at new technologies. So we are looking at electrostatic sprayers, we're looking at ultraviolet technologies, we're looking at the future of buffets. All those questions will come into play. The one thing I've urged the teams to do now, though, is not overreact in the short-term to -- until we understand what the longer-term trends are. Because when you're in the middle of a crisis, it's quite easy to believe that this is how things are going to operate going forward and that's never the case. There will be things that will change about this, about how we design and operate hotels, and what stays in a post-COVID world, we need to wait and see, but we'll make sure we design our hotels accordingly.

Jarrod Castle -- UBS -- Analyst

Okay. Thanks very much.

Operator

Our next question comes from Tim Barrett from Numis. Tim, your line is open. Please go ahead.

Tim Barrett -- Numis -- Analyst

Hi. Good morning everybody. Can I ask two things? Firstly, a bigger picture thing. You talked very helpfully about July. If we look at some of the weekly data that's coming out in the market, there's obviously some volatilities to expect, which I'm guessing has to do with state-by-state policies. So can you just help us around that and what you're looking at and where the sort of risks and upsides are?

And then just a quick question on the SVC portfolio. It's obviously been a bit of a saga and there's a note in the account. You said it's not material, but what will happen if you part ways with them? What's the cash implication in the second half? And does it have any implications for the extended-stay business? Thanks very much.

Keith Barr -- Chief Executive Officer

Paul, do you want to pick those up or -- I'm happy to pick up SVC. What would you like?

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

Yeah. No, actually, let me take those ones. In terms of the weekly versus monthly data, I mean, normally, as you know, we'll be talking quarterly RevPAR data rather than necessarily giving out month-by-month data and normally, we wouldn't give the July data. But we think it's helpful now given that there are some trends going on in respect of recovery. I think looking down into a week-by-week analysis can lead to some overanalysis, if I'm honest. So I think we just do need to step up a little bit and focus more on the month.

In terms of risks, risks are clearly around lockdown. So if you see a lockdown in a state, which has seen a heightened level of COVID cases, that will impact on demand there. Those are the key things.

In terms of the SVC portfolio, I think we've said that this is a fairly small portfolio from an earnings perspective. It's less than 0.5% of group earnings. It's about 100 hotels or so. And it's renamed HPT, so many of you who follow us a long time will remember the HPT portfolio. So we'll see what happens if we do part ways. But there's still a period of time to go before that would happen toward the end of the year. And in terms of cash, not a significant impact there. You will have seen in the balance sheet that we've written off, effectively the cash that we have as an owner's deposit. But that's not in our cash anyway. So I wouldn't really expect to see any further impact. [Indecipherable]

Tim Barrett -- Numis -- Analyst

Okay. No, obviously, I wasn't looking for a weekly commentary, but which are the big states that you're keeping an eye on? Is there anything there that's impacted in the second quarter?

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

Florida and Texas are big states. And obviously, they've seen a heightened level of corona. So -- and we're probably a little overweighted there. So those are ones that, in particular, we would want to keep a close eye on. Equally, if we saw a recovery in some of the key urban markets, then where we still have owned and managed hotels, that would have an impact on profitability. So it's not just one location, but Florida and Texas, in particular.

Tim Barrett -- Numis -- Analyst

That's helpful. Thanks a lot.

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

Thanks, Tim.

Operator

Our next question comes from Leo Carrington from Credit Suisse. Leo, your line is open. Please go ahead.

Leo Carrington -- Credit Suisse -- Analyst

Thank you. Good morning. Could you just elaborate on the timing of recovery of different elements of the fee structure? I sort of -- I really mean relative timing, and as you said, it's very hard to sort of forecast. But in -- to what extent would you expect the incentive fee-based revenues to recover compared to the franchise fee? And to what extent is the managed portfolio skewed toward upscale and luxury and your views on whether that pushes the recovery of incentive fee revenue out to the right?

And also just, again, thinking a bit further out, if you could comment, maybe a sort of follow-up on Monique's question, if there's a -- if you think the acceleration in conversion can actually offset a potential attrition in the kind of new build pipeline? Thank you.

Keith Barr -- Chief Executive Officer

Paul, do you want to pick the first one up, and I'll take the second one?

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

Yes, absolutely. So clearly, with the franchise income, that's just a share of revenue. So it's a -- it's direct correlation to the recovery we see in the business. In terms of the IMF sense, it will be more sensitive. So you'll need to see more of a recovery before we get back to the full level of IMF. On some contracts, it's a share of revenue and share of GOP, and on some contracts, you'll have an owner's priority return or, dependent on the margin that the hotel is generating, the GOP margin, you'll get different levels of IMF. So that's certainly more sensitive. And it tends to be on those larger upscale, upper upscale and luxury hotels, which I think as we look at the shape of the recovery, are going to take longer, more dependent on the international traveler and more dependent on group. So I would think that's the last bit of the earnings recovery that we'll see. Exactly when that is obviously [Indecipherable].

And Keith, over to you.

Keith Barr -- Chief Executive Officer

Thanks. So it's a bit on the conversion opportunity, it's an interesting one. So if you take a step back and think about the portfolio, the mainstream segment, the core of our business, is arguably the most resilient from a performance standpoint and a pipeline standpoint. And from a pipeline standpoint, usually resilient due to the ability to maintain financing because of where the financing is coming from. But financing is going to be the big question mark for the industry in the short term, understanding are banks willing to lend to new builds and so forth, things that aren't already under construction and so forth and at what time.

And what we did see is the biggest brands, strongest brands got financing first at the last recovery, and mainstream came through. A bit of luxury as well to the top end because of the residential component around it and the strength of the residential aspects. And then it was -- and conversions did come into play. The question is how -- will it offset parts of the pipeline that slowed down. It has the potential to do so, but it's really hard to read it directly across in the midterm because, again, you're going to see independent small hotels potentially want to come into a big branded player, which is what we've seen in the past. We now have more brands than we used to in the past, so we have more opportunity there.

Last downturn, we did see a lot of the upscale, upper upscale, big-box projects slow down a bit into the pipeline attrition. So I think you'll see a bit of a slow and then a bit of an acceleration potentially, with conversions coming into play help smooth it. I'm not sure it can make up completely and it will really be a question about financing in the broader macroeconomic activity, which I'm not sure anyone has a clear line of sight on right now.

Leo Carrington -- Credit Suisse -- Analyst

Thank you. That's very helpful.

Operator

Our next question comes from Alex Brignall from Redburn. Alex, your line is open. Please go ahead.

Alex Brignall -- Redburn -- Analyst

Good morning. Thanks so much. I just got a couple please. I just got a couple, please. The first one is on mix, I guess, mix of customers, and you're seeing greater leisure mix. The OTAs boast on their call about a shift from business to leisure being very helpful for OTAs. They said that the hotels are engaging a lot more with them because they wanted the OTA to provide them with leisure gap, which would kind of seem obvious. But could you just tell us how a shift from business to leisure would affect your direct versus indirect mix?

And then a lot of your forward guidance on how RevPAR can recover seem pinned on the fact that business travel will recover to full levels of what it was before. A lot of companies have said that, that's not going to be the case. And sort of social issues or environmental issues suggest that, that could be challenging. So I guess if we were to just assume that, that didn't happen, how would that lead through into your recovery in terms of a -- like a maybe Accor-sized view on business travel decline, what would that do for RevPAR recovery and for the pipeline? Because clearly, pipeline is based on financing but also on view that full -- there's going to be a full recovery of demand. Thank you so much.

Keith Barr -- Chief Executive Officer

Great. Thanks, Alex, very much. So in terms of channel shift in OTA activity, it's really difficult to discern a trend right now. Because in the last three months of occupancy levels were so low. So it's -- and we haven't seen a significant shift. So we haven't seen OTAs double in volume, clearly move. And there is a bit of a mix effect going on because you got -- summer is a bit more leisure-oriented. You've got drive-to. It will leans up into OTAs. So it's really hard to say that we've seen a material shift in channels to OTAs because volumes are so down now in an occupancy standpoint. So there may be slight movements here or there, but it's hard to -- I mean, I think in a few months from now, as the recovery begins to continue, is there a different trend? But customers are really liking to book direct. Many of them had some very bad experiences in the downturn where they hadn't booked direct and had used third parties and had very difficult times getting refunds and cancellations through those third parties, too. So I think it's a bit of put and takes there overall.

And your second question, sorry, what was that again, Alex?

Alex Brignall -- Redburn -- Analyst

Your sort of expectations on business.

Keith Barr -- Chief Executive Officer

On business.

Alex Brignall -- Redburn -- Analyst

Yeah. Thank you.

Keith Barr -- Chief Executive Officer

Yea. Somebody may have seen me on the TV today. I said it's pretty hard to Zoom yourself on a holiday, family holiday. It's pretty hard to Teams yourself on a big convention or Teams yourself to a big first-time meeting with a client that you're going to do a huge deal with. So I don't think this is the death of business travel by any means. I think it will shift, but there are some long-term trends of fast forward, you're going to have still rising demand for travel, rising emerging markets, you've got -- those tailwinds are going to come back.

There had been, again, a growing shift to leisure. I think technology's letting people -- so probably more the leisure piece will come into play here. And you have to remember, there's a significant portion of business travel which is non -- which not -- non-discretionary, which is why I think you've seen us hold up quite well through this downturn is we still have a pretty significant amount of business travel on our hotels. And it's people who have to travel from point A to point B to do their job. They can't do it through technology. They have to be on-site. And it's -- and that's not your top-tier banker or things like that, but it's an individual who's driving from a Holiday Inn Express to a Holiday Inn Express to do a job. And so that's the core of what drives Holiday Inn, Holiday Inn Express and the mainstream segment, too. And so -- and that's here to stay.

I would be not accurate to say that it's not going to have some impact because I'm sure that it will. But I don't think it's like a material shift that business travel is going to be down 10%, 20%, 30% going forward. I don't think anyone has that real view on it yet. And again, you remember, after 9/11, I remember people said they would never get on planes again. We all know what happened, decades of travel from there, too. So I think it's just too early to call. And also, not all business travel is equal.

Alex Brignall -- Redburn -- Analyst

Okay. Thanks so much.

Operator

Our next question comes from Jamie Rollo from Morgan Stanley. Jamie, your line is open. Please go ahead.

Jamie Rollo -- Morgan Stanley -- Analyst

Thanks. I've got three questions, please. First one's just on the EBIT sensitivity to 1% on RevPAR. It looks like that was nearly $15 million in H1 if we adjust for the $50 million savings. So a little bit worse than your last update. Is that simply the temporary discount on fees? And should we expect that sensitivity to get better in the second half? I think you said that fee relief won't be carrying on.

Secondly, just on the unit growth, lots of questions obviously from other people there. But just to try and sort of short circuit the answer, when do you see unit growth actually bottoming for the Company? Is it more like next year, year after or could it be could it be Q2?

And then finally, on SVC, I appreciate it's not material to your fee income. But I'm sort of a bit confused about the -- I mean, in your annual report, you give the maximum payout under performance guarantees at $85 million. And in their report, they quote $217 million on guarantees just for the contract with you. So what's the disconnect there? And are there any other sort of off balance sheet type items like that? Thank you.

Keith Barr -- Chief Executive Officer

Paul, do you want to pick up EBIT sensitivity and the SVC guarantee and I'll pick up unit growth?

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

Yeah, sure. So in terms of EBIT sensitivity, we've historically talked about 1% movement in RevPAR, equating to approximately $13 million of EBIT. So that was at the beginning of the year. What we have seen, as we've been through this period, is the managed hotels, the owned and leased and managed lease and the franchise hotels have moved out of sequence. So they're not all in synchronization anymore. And each of them has a different impact on RevPAR. So it worked well to add those together and to get to the 13% historically, we assume that they are in synchronicity. But it allows us to think now in that you're seeing more of an impact from that owned and leased and from managed, etc. And that's why it's hard to just give a vanilla number like we were able to previously. It does triangulate to just under $15 million for the first half. And as you say, Jamie, with the fee discounts going away, it's possible that some of that will be a little lower in half two. But of course, it will depend on what happens to the franchise, to the managed and how that mix evolves.

In terms of SVC. It was HPT. Those of you with long memories will recall that in the financial crisis, we did actually have a guarantee there and then we restructured that contract. So there is no guarantee. There's an earnings deposit, which is what I was referring to earlier, which is now written off. Beyond that, the owner has a priority return effectively, which is not the same as guarantee because we are not obligated to pay that. Hence, the difference. It's not a financial guarantee.

Keith Barr -- Chief Executive Officer

Great. Thanks, Paul. Jamie, to be very open with you, I'm not sure anyone knows the answer to your question. I think clearly, we're going to see a slowing in development activity, particularly in new, new build while there's a level of uncertainty because owners are not sure about what sort of economic environment they would be opening into the next two to three years. So it's all going to be predicated upon the pace and the slope of the recovery and how much they feel confident in signing new build. That's going to vary from market to market. So you're seeing in China right now with an economic recovery and a continued growth there, standings are looking quite solid across the business overall. You're going to see muted activity in the more mature markets with that level of uncertainty.

You'll see a pivoting over to conversions, so forth, too. So it's really too early to call, Jamie, until we have more clarity about what the pace of the recovery looks like because if something bounces back quite quickly with strong economic growth, you can see it fairly smoothing out. If it's an extended downturn, which no one knows, you would see, again, a challenge in terms of longer-term growth, too. So we'll have more as things evolve. I mean we're only really partway through this in terms of a recovery standpoint in the crisis. And so I wish I could sit today and give you a firmer view on we're going to be at the bottom of growth at this point and then be in a recovery. I think it's just too early to call it.

Jamie Rollo -- Morgan Stanley -- Analyst

Can I just follow up on that? What percent of the pipeline is actually funded? Apologies if you said that already. And also the signings halved in the second quarter, was that -- I mean in the discussions you're having, do you see that coming back in the back half of the year?

Keith Barr -- Chief Executive Officer

Paul, do you want to talk about -- I mean, I'm not sure we have line of sight of funding. I know we have line of sight under construction.

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

Yes, in terms of the signing slowing, Jamie, I think that, as you can imagine, a lot of our owners, who would otherwise have been signing contracts with us in the second quarter, we're working on getting their hotels reopened. So that did slow things down somewhat. If you look in China, where we saw actually a good level of signings, and actually, in Southeast Asia, we saw quite a lot of activity there as well, that's where our owners were more quickly moving back into growth mode and sort of demonstrates what, hopefully, will happen when we see some sort of a new normal coming through there. The China signings were actually very strong.

In terms of the amount that's financed, we don't have a -- we don't have clear line of sight onto financing. What we know is that before owners want to sign up with us, they have a good understanding of their ability to attract finance in a normal environment. So there will likely be some contracts which the owner went into with best intentions, having spoken to a lender and thought that they would be able to get financing. In a new environment, they may not be able to. That's what we saw back in for 2009, 2010. But we'll have to keep an eye on that one.

Jamie Rollo -- Morgan Stanley -- Analyst

Okay. Thanks a lot.

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

Thanks, Jamie.

Operator

Our next question comes from Ivor Jones from Peel Hunt. Ivor, your line is open. Please go ahead.

Ivor Jones -- Peel Hunt -- Analyst

Good morning. Thank you. Could you help me think about the risk of bad debt, please? I guess I'm asking partly for a lesson in accounting, for which I apologize. I assume the first half revenue includes in revenue 100% of the fees that were expected to be invoiced. But you were telling us that 20% of invoices were not being collected within 90 days and that gets you back to May when, presumably, hotels had relatively good funds. So you clearly don't want me to assume that 20% of fees will not be collected. But how will that pressure show up? And what is the risk of some of those invoices turning bad?

And then the second question is you've mentioned the marketing spend has been cut because the assessment income is reduced. To what extent will the group want to pump prime marketing spend? And will that represent a cash outflow into System Funds from the group? And what would the scale be? So we have some sense of the risk there. Again, apologies for asking about the accounting within the group. Thank you.

Keith Barr -- Chief Executive Officer

Paul, do you want to pick up those points?

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

Yeah, I think those ones are definitely for me. So in terms of invoices, as you mentioned, Ivor, then -- we're actually pleased with what we're seeing. The communications we have with our owners, the way that we've approached it, reducing down their costs and doing everything we can to drive the maximum amount of revenues into their hotels has meant that, to the greatest extent, owners can pay us. And they are. There is a little delay in getting those fees in, in full.

From an accounting standpoint, when fees are more than 180 days in arrears, then we'll take a provision for that. If you look through the accounts, you'll see that we are making an exceptional charge for $22 million of expense credit losses, which is sort of a mathematical formula looking at what hasn't been paid by what date. So that's gone through the first half. We may see some more of that in the second half depending on what happened with the collection. That might then reverse out in future years and we do collect that money. What we've tended to see in the past is that when someone isn't paying us, that eventually, they will pay off. It may just take longer.

And then in terms of marketing spend...

Ivor Jones -- Peel Hunt -- Analyst

Sorry, Paul, could I just interrupt you before I forget what you just said?

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

Sure.

Ivor Jones -- Peel Hunt -- Analyst

I guess it would -- if we're not to be concerned by 20% of invoices not being paid within 90 days, is it normally at that level then?

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

We will always have some that are not paid by that date because there may be a discrepancy in the bill, they may be saying, well, I don't quite understand it. There will always be a small number of owners who don't have enough cash for one reason or another and are asking for a payment plan. And that's effectively what we do with owners. If they can't pay them, we put them on a payment plan, which is, OK, pay us this much by month. If they can't, then they potentially get into a point where they lose their franchise, which then typically means that they also lose their funding on their hotel. So that's a very draconian measure that we always try and avoid. So we're there to support the owners. It's a symbiotic relationship. And if they want to stay working with us, then we want to keep them as our owners.

Ivor Jones -- Peel Hunt -- Analyst

So it's a delay. It's not amounts of money that's a material amount of which is likely to go bad?

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

That's the expectation. As I say, we've taken a $22 million charge for the first half, which is our best estimate on what could be a credit loss. That's the same methodology as banks have to use, for example, if the -- expected credit loss accounting. And then we'll have to look at that at the full year as well.

In terms of marketing spend, we have cut back marketing spend. As you can imagine, in the second quarter, there weren't very many people traveling. So it didn't make a lot of sense to spend on marketing. We have promotional activity going on in our loyalty program, which isn't the cash cost, it's more of a points cost. And so we're trying to be very frugal. We'd use cash still to drive business into our owner's hotels wherever there is business to do that.

We have said that there will be a cash outflow from the System Fund in 2020. There was some in the first half, and there will be more in the second half. In aggregate, might be sort of $100 million, $110 million, something like that, that's sort of order of magnitude. And then over the longer term, we would then collect back that cash because, over the longer term, the System Fund runs net neutral.

Ivor Jones -- Peel Hunt -- Analyst

Great. Thank you very much.

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

Thanks, Ivor.

Operator

We have no further questions. [Operator Instructions] We have no further questions.

Keith Barr -- Chief Executive Officer

Great. Well, thanks, Heidi. Then I think that, Stuart, I think we -- and Paul, we'll probably try to bring this to a close. Just want to thank everyone for their attendance. Stuart, do you have any other tech advice before we close it down?

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

Only to remind that the details of the replay facility on Page 10 of the RNS and the next timetable event is our Q3 update on the 23rd of October. That's it, Keith.

Keith Barr -- Chief Executive Officer

Excellent, excellent. Well, thank you very much, Stuart. Thanks, everyone, for attending. We appreciate the quality of the questions and the engagement there. Again, I'm really proud of what the team has accomplished this year, managing through the biggest challenge this industry has ever faced, and that we're well-positioned for the future. And look forward to catching up with all of you later on. So take care and please stay safe. Heidi, that's the call.

Operator

[Operator Closing Remarks]

Duration: 82 minutes

Call participants:

Stuart Ford -- Vice President, Head of Investor Relations

Keith Barr -- Chief Executive Officer

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

Monique Pollard -- Citi -- Analyst

Vicki Stern -- Barclays -- Analyst

Jarrod Castle -- UBS -- Analyst

Tim Barrett -- Numis -- Analyst

Leo Carrington -- Credit Suisse -- Analyst

Alex Brignall -- Redburn -- Analyst

Jamie Rollo -- Morgan Stanley -- Analyst

Ivor Jones -- Peel Hunt -- Analyst

More IHG analysis

All earnings call transcripts

AlphaStreet Logo