IHG Third Quarter Results to 30 September 2008
- Global RevPAR growth of 1.6% at constant currency.
- 10,081 net rooms added in the quarter. System size of 608,225 rooms (4,108 hotels), up 7% on third quarter 2007.
- 25,546 rooms signed (164 hotels), taking the pipeline to 243,509 rooms (1,773 hotels), 40% of the existing system size.
- Total gross revenue* from all hotels in IHG’s system of $5.1bn, up 8% at constant currency.
- Operating profit including discontinued operations of $153m up 8% at constant currency.
- Continuing revenue up 7% from $453m to $486m. Continuing operating profit up 14% from $132m to $150m. Revenue and operating profit include $11m benefit from two significant liquidated damages receipts.
- Excluding significant liquidated damages receipts, continuing revenue up 5% (4% at constant currency) and continuing operating profit up 5% (2% at constant currency).
- Adjusted continuing earnings per share (“EPS”) up 29% to 34.6¢. Adjusted total EPS of 35.3¢. Basic total EPS of 32.2¢.
Commenting on the results and trading, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said: “In the quarter we delivered RevPAR growth ahead of the industry. We also opened over 19,000 rooms, a new record for the business, and saw our net system size grow by 10,000 rooms.
“We expect the rate of new room openings to remain strong, reflecting the size and quality of our development pipeline which stands at nearly a quarter of a million rooms (1,773 hotels). Around 90,000 new rooms (540 hotels) are under construction, and over half of these are currently expected to open in 2009. A small number of hotels are experiencing construction delays but, at this stage, we are not seeing any material increase in the level of losses from the pipeline. We signed deals for over 160 hotels in the quarter (25,546 rooms), but the current financial conditions are now impacting the availability of debt finance and new signings are taking longer to finalise.
“In October we have seen a sharp deterioration in market conditions with preliminary data for the month showing a global RevPAR decline of 4.5% with a decline of 5.7% in the US. Throughout 2008 we have been controlling costs and capital spending tightly and we are taking the necessary steps to manage both to be below this year’s levels in 2009. Given the power of our brands, the size and resilience of our pipeline and our leading reservations systems, we are positioned well to continue to outperform the industry.”
Rooms: sustained system growth
- 25,546 rooms (164 hotels) were signed in the quarter (including 2,412 rooms under the Holiday Inn Club Vacations brand), taking the total signed this year to almost 74,000 rooms. Signings were up 68% in EMEA driven by strong signings in the Middle East (8 hotels) and up 42% in Asia Pacific with strong signings in China (11 hotels). Excluding the Holiday Inn Club Vacations rooms, Americas signings were down 42% (9,553 rooms) on the strong 2007 comparative.
- The pipeline now stands at 243,509 rooms (1,773 hotels), up 21% on third quarter 2007. Over one third of the pipeline is outside the Americas and almost two-thirds are midscale developments.
- 19,056 rooms (135 hotels) were opened, up 36%, including 10,623 rooms in the Americas. In line with IHG’s strategy of driving quality growth 8,975 rooms were removed, giving net room additions of 10,081 for the quarter, up 36% on 2007.
Americas: RevPAR outperformance across all brands
RevPAR increased 0.6%, driven by rate growth of 4.0% offset by an occupancy decline of 2.3%. RevPAR declined in the US in August and September, although all IHG’s brands continued to perform ahead of their industry segments. Continuing revenue grew 4% from $234m to $243m, driven by 11% growth in revenues from managed hotels and 4% growth in franchised hotel revenues.
Operating profit performance
Operating profit from continuing operations increased 5% to $126m. Continuing owned and leased hotel profit increased by $1m to $10m driven by 5.8% RevPAR growth at the InterContinental New York and 2.1% at the InterContinental Mark Hopkins, San Francisco. Managed hotel profit increased $3m to $12m driven by 19.1% RevPAR growth in Latin America. Franchised hotel profit increased $1m to $120m driven by 6% growth in royalty fees, partly offset by a reduction in fees received on new signings and changes in hotel ownership.
EMEA: strong performance in the Middle East
RevPAR increased 4.2%, driven by rate with a small drop in occupancy. The Middle East continued to perform strongly, growing RevPAR by 24.0%. Continental Europe grew RevPAR by 1.6%, including a 5.3% increase in Germany. In the UK, the Holiday Inn family of brands outperformed their market segment recording RevPAR growth of 2.4%. Continuing revenues increased 7% (6% CER). Excluding the $7m liquidated damages receipt from one franchise contract, continuing revenues grew 2% (1% CER).
Operating profit performance
Operating profit from continuing operations increased 15% (13% CER) to $46m. Excluding the $7m liquidated damages receipt, continuing operating profit decreased $1m to $39m. Continuing owned and leased hotels’ profit was flat at $14m, the increased contribution from InterContinental London Park Lane being offset by the impact of a weaker market on InterContinental Paris Le Grand. Managed hotel profit decreased from $21m to $19m with continued growth in fees across Europe and the Middle East being offset by a reduced contribution from a portfolio of managed hotels in the UK. Franchised hotel profit increased from $16m to $25m driven by the $7m liquidated damages receipt and a 17% increase in royalty fee income due to a 9% increase in the number of franchised rooms across EMEA.
Asia Pacific: continued rooms growth drives profits
RevPAR increased 2.7%. Greater China RevPAR grew 6.3%, with 32.6% growth in August due to the Beijing Olympics. RevPAR was negatively impacted on either side of the games by visa restrictions. In Japan RevPAR declined 4.4% in line with the industry. Across the rest of Asia RevPAR grew 4.3%. Continuing revenues grew 22% (18% at CER) to $73m driven by 19% growth in owned and leased revenues and 15% growth in managed revenues. Excluding the $4m liquidated damages receipt from one franchise contract, continuing revenues grew 15% (12% at CER).
Operating profit performance
Operating profit from continuing operations increased 29% from $14m to $18m. Excluding the $4m liquidated damages receipt, and before a $4m increase in regional overheads, operating profit increased $4m. Owned and leased hotel operating profit grew 17% from $6m to $7m driven by RevPAR growth of 17.7% at the InterContinental Hong Kong after completion of its rolling refurbishment in September 2007. Managed hotel profit increased $4m to $17m driven by the contribution from the increasing number of hotels under IHG management in the region.
Overheads, Interest, Tax and Exceptional items
In the third quarter total regional overheads increased $4m to $38m. This was driven by continued planned investment in marketing, support infrastructure and development in the Asia Pacific region. Central costs decreased $2m to $40m, flat at constant currency.
The tax charge on profit from continuing and discontinued operations, excluding the impact of exceptional items, has been calculated using an estimated effective annual tax rate of 25% (Q3 2007: 22%). The underlying rate before the impact of prior year items was 37%. The reported tax rate may continue to vary year-on-year in the foreseeable future due to prior year settlements and other developments, but in the longer term is expected to trend up over time. The interest charge for the period decreased by $5m to $28m due to a reduction in average net debt and average interest rates.
Exceptional operating charges of $33m in the quarter included $15m relating to the Holiday Inn brand relaunch.
Cash flow and net debt
$497m of cash was generated from operating activities in the nine months to 30 September, up $177m on 2007. In addition $91m of cash was generated from disposals including the sale in the quarter of the Holiday Inn Jamaica for $30m and of a 31% stake in the Crowne Plaza Christchurch for $24m.
Year to date capital expenditure of $70m was $76m below 2007 levels. No shares were repurchased during the third quarter. IHG’s net debt at the period end was $1,351m, including the $201m finance lease on the InterContinental Boston. In the second quarter IHG successfully refinanced $2.1bn of long term debt facilities.