InterContinental Hotels Quarterly Profit Doubles
First Quarter Results to 31 March 2010
Business headlines
- Global constant currency first quarter RevPAR growth of 0.2%, including growth of 4.1% in March.
- Asia Pacific was the strongest region reporting RevPAR growth of 10.0%, including a 22.2% increase in Greater China.
- 5,151 net rooms (38 hotels) added in the quarter, increasing total system size to 651,830 rooms (4,476 hotels).
- 9,872 rooms (82 hotels) added to the system, 4,721 rooms (44 hotels) removed in line with our quality growth strategy.
- 8,160 rooms (55 hotels) signed, taking the pipeline to 200,895 rooms (1,344 hotels).
- Net debt of $1.1bn, down $0.2bn on the position as at 31 March 2009 and held flat on the position as at 31 December 2009.
Recent trading
- April global constant currency RevPAR growth of 5.2%; 3.7% Americas, 5.0% EMEA and 13.0% Asia Pacific, including a 27.1% increase in Greater China.
- 2,646 rooms (22 hotels) signed in April. 4,248 rooms (25 hotels) added to the system, 2,129 rooms (18 hotels) removed.
Update on priorities
- Focus on efficiency. First quarter regional and central costs of $57m increased $2m on 2009 at constant exchange rates and $5m at reported rates. IHG is on track to maintain the c.$75m of sustainable savings achieved in 2009 in both regional and central costs and managed and franchised cost of sales.
- Support hotel performance. System delivery continued to improve with 68% of rooms revenue booked through IHG’s channels or by Priority Club Rewards (PCR) members direct to hotel (Q1 2009: 66%). PCR members total over 48m.
- Build quality distribution. 2,300 hotels are operating under the new Holiday Inn standards with 613 completed since the start of the year. IHG now has a 16% share of the global new build supply pipeline compared to 3% of existing supply. 75,000 rooms in the pipeline are under construction of which over 30,000 are expected to open in the remainder of the year. (9,872 rooms were opened in the first quarter). 2010 total room removals are still expected to be in the region of 40,000.
Commenting on the results, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:
"In the quarter Global Revenue Per Available Room (RevPAR) grew for the first time in 18 months driven by improving occupancy. Asia is leading the rebound and our dominant position in China underpinned an 80% rise in Asia Pacific profits.
"Business travel is returning although at this stage mainly to the luxury end of the market which was most affected by the recession. We expect the more resilient midscale sector to benefit from this trend as the year progresses and market norms are reset. We are encouraged by the return to growth but rates remain under pressure in many markets, booking windows are short and visibility is limited.
"The financing environment remains difficult but we signed 55 deals in the quarter and are on track to open around 300 hotels this year. The Holiday Inn relaunch continues to go very well. Over two-thirds of the hotels are now operating to the new standards and last week we launched the largest advertising campaign in the history of the brand. Performance in relaunched hotels continues to meet or beat expectations.
"During the difficult last 18 months we have continued to invest in the things that make a sustainable long term difference to our business performance - strengthening our brands, increasing our scale, investing in our system, developing our people and working closely with our hotel owners. With this strengthening of our core business and the early signs of recovery in the market we are feeling confident about the outlook and our ability to grow market share."
AmericasRevenue performance
RevPAR declined 1.9% in the quarter, with growth in occupancy of 1.7 percentage points offset by a decline in rate of 4.9%. March RevPAR grew by 3.0%. In the US Holiday Inn and Holiday Inn Express outperformed their segments by 2.3 and 1.3 percentage points respectively reporting RevPAR declines of 3.5% at Holiday Inn and 3.4% at Holiday Inn Express. Revenues were broadly flat at $178m.
Operating profit performance
Operating profit increased 14% to $72m. Franchised hotels’ operating profit grew 1% to $81m driven by a royalty fee increase of 3% partly offset by a $2m reduction in initial franchising, relicensing and termination fees. In the managed business operating profit of $7m compares to a loss of $4m in 2009 which included an $11m charge for priority guarantee shortfalls. The owned and leased hotels’ operating loss of $2m (2009: $1m loss) reflects RevPAR growth of 0.8% offset by a reinstatement of depreciation on hotels classified as held for sale in the prior year period.
EMEARevenue performance
RevPAR grew 0.5% in the quarter, driven by a 3.3 percentage point improvement in occupancy offset by a 4.9% decrease in rates. Germany and France performed best with RevPAR growth of 8.0% and 6.7% respectively. The RevPAR decline of 6.8% in the Middle East was driven by weakness in the United Arab Emirates while other parts of the region including Egypt and Saudi Arabia remain resilient. Revenues increased 3% to $90m (2% decline at CER). Excluding one liquidated damages receipt of $3m in 2009, revenues increased 7% (1% CER).
Operating profit performance
Excluding the impact of the $3m liquidated damages receipt in 2009 operating profit was flat at $21m. On this same basis franchised hotels’ operating profit declined $1m to $12m ($2m decline at CER). Managed hotels’ operating profit declined by $3m to $13m driven by a RevPAR decline of 3.8%. Owned and leased hotels’ operating profit increased from $1m to $5m driven by RevPAR growth of 13.9% and strong cost control.
Asia PacificRevenue performance
RevPAR grew 10.0% in the quarter, driven by a 7.7 percentage point improvement in occupancy offset by a 3.3% decline in rates. Greater China was the strongest performing region with first quarter RevPAR growth of 22.2%. Revenues increased 23% to $69m (16% CER).
Operating profit performance
Operating profit increased 80% to $18m (70% CER). Franchised hotels’ operating profit increased $1m to $2m. Managed hotels’ operating profit grew 75% to $14m (63% CER) primarily driven by 23.7% RevPAR growth across IHG’s managed operations in Greater China and 10% rooms growth across the region. Operating profit at owned and leased hotels increased 14% to $8m (14% CER) reflecting RevPAR growth of 9.9% at InterContinental Hong Kong and good cost control.
Interest and tax
The interest charge for the quarter increased $1m to $15m as the impact of lower levels of average net debt was offset by a higher average cost of debt.
Based on the position at the end of the quarter, the tax charge has been calculated using an estimated annual tax rate of 27% (Q1 2009: 24%).
Cash flow & net debt
IHG’s balance sheet has been strengthened with net debt reduced to $1.1bn (including the $205m finance lease on the InterContinental Boston) from $1.3bn as at 31 March 2009. During 2009 IHG extended the maturity and diversification of its debt profile issuing a seven year £250m bond in the fourth quarter using this to refinance $415m of the $500m term loan expiring in November 2010. In addition, IHG has a $1.6bn revolving credit facility expiring May 2013.
RevPAR Sensitivity
IHG estimates that a 1% change in global RevPAR impacts Group EBIT by $13m, split as follows: $4m owned & leased; $4m managed (of which $1m relates to the Americas managed business); and $5m franchised.
