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Interview with Wolfgang M. Neumann, Chief Executive Officer, The Rezidor Hotel Group

Wolfgang M. Neumann joined Rezidor in May 2011 as Chief Operating Officer. He succeeded Kurt Ritter as President & CEO and pursued the implementation of Route 2015. This comprehensive program launched in December 2011 puts a strong focus on revenue generation including global strategic partnership activities with Carlson, cost-saving initiatives, accelerated asset management programs and further growth of the fee-based hotel portfolio – with a focus on new and emerging markets such as Russia/CIS and Africa. Wolfgang M. Neumann, 51, was born in Austria. He was educated at the Institute of Hotel and Tourism Management in Klessheim, Austria; and attended Senior Executive Management Courses at Insead Management School in France and Cornell University, Ithaca, NY. He spent more than 20 years with Hilton Hotels & Resorts and held various operational and corporate positions including: President, United Kingdom and Ireland; and President, Europe and Africa. Prior to joining Rezidor, Neumann served as the Chief Executive Officer for Arabella Hospitality Group in Munich, Germany.

Generally speaking, how do you evaluate the group's latest development since you took charge as its CEO?

I think we are on the right track and progress is very promising. We have some clearly defined targets around our "Route 2015" turnaround program, in particularly in emerging markets. We have made very good progress in Eastern Europe in Russia in particular, in the Middle East, and on the African continent. We have reorganized the company to decentralize it more, building on the fantastic foundation of a uni-culture all about 'yes, I can'.

Are you on track with your objectives for "Route 2015"?

We have been growing at a strong pace, reaching a fleet of 330 hotels in operation and 100 under development. Regarding the financial objectives of Route 2015, to increase our operating margin (EBITDA %) by 6 to 8 percentage points by 2015, we are on track to achieve this goal. Our gross margin grew by 2.1 percentage points in 2012, and the results of 2013 are very positive with an increase in EBITDA margins close to 2.8 percentage points over the first three quarters. We have exceeded our targets for this year. The main drivers of Route 2015 are: income generation, gaining market share; development, particularly in emerging markets; cost reduction, materializing savings; and the management of our hotel portfolio, with the Asset Light development of the group [note: without owning real estate, meaning the hotel asset], where we are in line with objectives.

Asset Light is a key part of the Route 2015 program. At a time other hotel groups have been reconsidering their strategy on this matter, is it still a key strategic focus for Rezidor?

Rezidor doesn't own any hotel assets, as we are a pure operating company. So it is very easy for us to be Asset Light. In our growth and business models, we maintain an Asset Light strategy. Why is that? Because we're very much focused on the emerging markets, and in emerging markets Asset Light is the right expansion model. Still, we are also ready as a company to use our balance sheet when it's necessary, supporting expansion in key cities. But the primary strategy for us remains Asset Light. Also, we still have some 60+ leases on our balance sheet and we are deleveraging the company through targeted asset management initiatives. 

What are your development targets over the coming years?

We have 100 hotels in development at the moment and those hotels are primarily in the emerging markets. I mean Russia/CIS, the Middle East, and the African continent, sub-Sahara in particular. All of this growth is in the Asset Light model. We are also signing franchise agreements, but this is about 20% of our portfolio. Russia, Saudi Arabia, Nigeria, and Turkey are getting particular attention from us, with very promising economic development and significant undersupply of international branded hotels.

You recently increased your room supply in the Middle East, notably in Saudi Arabia. What is your view on the MENA market?

The Middle East is very much a growth market. Due to political developments in some of the countries, the business climate has been affected, but in general it is very much emerging. Core focus countries are obviously the United Arab Emirates and Saudi Arabia, where we currently have 10 hotels in development and we are in the process of forming a joint venture with a local partner, focusing in particular on development in the mid-market with Park Inn by Radisson. In the Middle East, there are 30 hotels in operation, 20 under development.

You were amongst pioneers in Africa, developing hotels in countries that used to be regarded as unstable; are these risks paying off?

We have been present there for many years and we have over 25 hotels in operation and another 20 in development, which is the largest pipeline in sub-Saharan Africa. There is a significant opportunity for the Radisson Blu brand to position itself in the key cities in Africa, but we can also develop our presence with our Park Inn by Radisson brand in the domestic market in some countries such as Nigeria. So the opportunities in Africa are enormous. It's a continent which is developing fast, with natural resources and expanding infrastructure. Also, contrary to some other emerging markets like China, where development is a bet on the future, the returns in Africa today are basically immediate once a hotel is open. This is because there is an incredible demand for quality hotels there. In the countries where we operate, we have seen an enormous success. The financial returns are very positive for our owners. We do not invest in Africa ourselves; however, we have a development fund called Afrinord that enables us to inject equity in strategic locations for the development of hotels. In those very few instances where we have done so, the returns have also exceeded our expectations.

What is your strategic vision for the Park Inn by Radisson brand?

Park Inn by Radisson has grown very fast and we have over 150 hotels in operation in key countries. It is very much geared towards the next generation of customers, Generation X and Generation Y. We have done some significant research to better understand what these types of customers expect and how their needs are different than the older generations and the upper upscale segment. It's all about individualization and connectivity. We have redefined the Park Inn brand and we have already rolled out some of the new hotels such as Amsterdam Schiphol Airport, Brussels City Center, and various hotels in Russia.

In France specifically, you transformed leased hotels into managed hotels in 2012, mentioning a lack of profitability at the time; how do you evaluate the financial impact of this decision? And what about the group's strategy in France?

This is a good example of how we generate value through asset management. We exited seven Park Inn hotels last year, through which we generated over 2 million euro additional EBITDA per year for the company, and saved capital expenses in these hotels which would have had to be renovated. In France specifically, we are actually very proud of being the largest operator in the upper-upscale market with our Radisson Blu brand. We have 16 hotels in operation and have very strong brand recognition. We recently opened a new Radisson Blu unit in Nantes and will renovate our Radisson Blu unit in Lyon, so we are focused on the upper upscale segment through our Radisson Blu brand.

What are your development goals for the Missoni brand?

Missoni is and will remain a niche brand. We focus our activities on Radisson Blu and on Park Inn by Radisson.

In a lagging economic environment, are sustainable development policies still a key focus for the group? Could you give us real-life examples of their impact?

I think that sustainable development is not only a priority for us, but it has to be a priority for everyone operating in the hospitality sector. We are incredibly committed to playing our part as a responsible business, which has various components. There is the component of being active in the local market and giving back to the local community. There is the component of environmental protection and sustainability, where we have the responsibility to maintain the ability of our planet for future generations. And there is the energy component, where we have an industry-leading program called "Think Planet"; it's all about saving 25% energy over the next five years. We have consistently been voted as one of the world's most ethical companies for the past five years and have a clear roadmap.

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