IHG has reported on its strong performance with its Half Year Results to 30 June 2014, including particularly strong trading in the UK, up 8.7%, with high single digit growth in both London and the provinces. Richard Solomons, Chief Executive of InterContinental Hotels Group PLC, commented:
“We have achieved a strong first half performance, with our preferred brands continuing to drive good momentum through the second quarter. With underlying operating profit up 6% and solid net system growth, our long-term winning strategy is delivering results. This has given us the confidence to increase the interim dividend by 9%.
“We have had our best half for signings in six years, underpinning our future growth prospects and demonstrating owners’ preference for our brands. Openings included the first two EVEN Hotels in the US, a major milestone for this new brand, which satisfies a previously unmet guest need in the wellness segment.
“We remain committed to reducing the asset intensity of the business, completing two asset disposals in the half, and good progress is being made with the strategic review of our remaining owned hotels. During the half we completed our $500m share buyback programme and in July we paid a $750 million special dividend, continuing our long track record of returning funds to shareholders.
“Looking ahead, whilst several of our key markets continue to experience some political or economic uncertainty, we are encouraged by current trading trends.”
Financial Summary
| Reported | Underlying2 | |||||
| H1 2014 |
H1 2013 |
% Change |
H1 2014 |
H1 2013 |
% Change |
|
| Revenue | $908m | $936m | (3)% | $788m | $757m | 4% |
| Fee Revenue | $600m | $562m | 7% | $597m | $562m | 6% |
| Operating profit | $310m | $338m | (8)% | $301m | $284m | 6% |
| Adjusted EPS | 70.7¢ | 78.2¢ | (10)% | 68.8¢ | 64.3¢ | 7% |
| Basic EPS3 | 93.0¢ | 127.8¢ | (27)% | – | – | – |
| Interim dividend per share | 25.0¢ | 23.0¢ | 9% | – | – | – |
| Net debt | $1,031m | $861m | – | – | – | – |
Driving Market Share
- Total gross revenue from hotels in IHG’s system of $11.1bn, up 7% (7% CER)
- Operating profit up 6% on an underlying basis; down 8% on a reported basis
o Underlying profitability reflects adjustments for a net year on year operating profit impact of $(45)m, comprising: $(15)m from disposal of owned hotels; $(33)m from significant liquidated damages receipts, and $3m from managed leases.
- Global comparable RevPAR growth of 5.8% (rate up 2.3%)
o Americas 6.7% (US 6.6%); Europe 4.9%; AMEA 3.7%; Greater China 4.3%.
o Q2 comparable RevPAR up 5.7%: Americas 6.7% (US 6.7%); Europe 4.1%; AMEA 3.6%; Greater China 4.6%.
- Total system size of 693k rooms (4,732 hotels), 2.2% year on year growth
o 17k rooms (109 hotels) opened, led by 9k rooms in the Americas and 4k rooms in Greater China. 11k rooms removed in-line with our on-going commitment to quality.
o Pipeline of 187k rooms (1,175 hotels), over 45% under construction and over 50% in developing markets.
o Signings of 30k rooms (208 hotels), our best H1 for underlying4 signings since 2008, supported by continued improvements in the US financing environment.
o With 5% share of global industry supply, and 13% share of the active industry pipeline, we remain well positioned for sustainable high quality growth.
- Building preferred brands
o First two hotels opened for our new EVEN Hotels brand in June, with an excellent initial guest response.
o Holiday Inn and Crowne Plaza first half outperformance vs their US industry segments5.
o Holiday Inn ranked “Highest in Guest Satisfaction Among Mid-scale Full Service Hotel Chains” by J.D. Power and Associates for 4th year running.
- Best-in-class delivery
o Strong growth in mobile bookings: up 47% year on year.
o Strategic relationship with Amadeus formed as we continue to drive innovative solutions to enhance guest experiences across the Guest Journey.
- Fee based margin of 45.0%, up 1% point year on year
o Driven by cost efficiencies and scale benefits, with some impact from favourable cost phasing.
Americas – strong RevPAR growth and signings pace
Comparable RevPAR increased 6.7%, with 3.1% rate growth, and second quarter RevPAR also increased 6.7%. US comparable RevPAR was up 6.6% in the first half and 6.7% in the second quarter.
Reported revenue decreased 5% (CER (5)%) to $435m and reported operating profit decreased 5% (CER (5)%) to $268m, but on an underlying basis, revenue increased 9% and operating profit increased 7%. This was driven primarily by our franchise business where royalties were up 7%. Underlying owned and leased hotel profits increased 80%, driven by 6.7% RevPAR growth at InterContinental Boston, and 30.5% RevPAR growth at Holiday Inn Aruba, which is benefiting from its recent refurbishment. Recent changes to the Venezuelan exchange rate had an unfavourable impact on managed operating profit of approximately $2m, with a further $2m impact expected in the second half.
Opened 9k rooms (74 hotels) in the half, including the first two properties for the new EVEN Hotels brand. Signings of 19k rooms (158 hotels) are up 25% year on year, as the hotel debt financing environment continues to improve, and included over 100 hotels (12k rooms) for the Holiday Inn brand family. Maintaining the quality of the system by removing hotels that no longer meet the requirements of our brands remains a key focus, and we removed 7k rooms (54 hotels) in the first half. Excluding removals, gross rooms growth was 4%.
Europe – strong trading performance in key markets
Comparable RevPAR increased 4.9%, with second quarter RevPAR up 4.1%. First half trading was particularly strong in the UK, up 8.7%, with high single digit growth in both London and the provinces, while Germany delivered another solid performance with RevPAR up 3.1%.
Reported revenue of $182m was down 12% (CER 16%) and reported operating profit of $38m decreased 28% (CER 32%), but on an underlying basis, revenue was down 2% and operating profit down 3%. This reflects good operating profit growth in the managed and franchised business driven by mid-single digit RevPAR growth, offset by a $7m operating profit decline at the only remaining owned hotel in this region, InterContinental Paris – Le Grand (with $7m associated revenue decline). As previously guided, this was primarily due to the refurbishment of the historic Salon Opera ballroom and c.15% of the guest rooms at the hotel, with an additional small negative impact from the absence of the biannual Paris air show in 2014. No further impact is expected from the refurbishment for the full year.
Opened 3k rooms (18 hotels) in the half, including three Hotel Indigo hotels in the prime city locations of Rome, Madrid and St Petersburg. Signed 2k rooms (14 hotels) including two Holiday Inn hotels in Germany and three Holiday Inn Express hotels in the UK.
AMEA – rate driven RevPAR growth and increasing contribution from developing markets
Comparable RevPAR increased 3.7% driven primarily by rate growth, with second quarter RevPAR up 3.6%. Excluding Thailand and Egypt where there has been ongoing political unrest, first half RevPAR increased 5.4%. Performance was led by Japan up 8.8% and South East Asia which, excluding Thailand, was up 7.2%. Australia and the Middle East continue to perform solidly with RevPAR growth of 6.0% and 4.1% respectively.
Total RevPAR grew 1.7%, reflecting an increasing mix of new rooms opening in lower RevPAR developing markets.
Reported revenue increased 15% (CER 19%) to $117m and operating profit decreased 7% (CER (7%)) to $38m. However, on an underlying basis revenue was flat, and operating profit decreased 12%. This reflects solid underlying growth in managed business offset by a $2m increased investment to support future growth, a $3m negative impact from certain small one-off items, and $1m lower fees from hotels in Thailand. The continuing political unrest in Thailand is expected to have a $2m impact on managed operating profit in the second half of the year. In addition, the managed hotel refurbishment programmes scheduled to take place in 2014, as previously disclosed, had no material impact on fees in the half, but are expected to have a $2m negative impact on fees in the second half of the year.
Opened 2k rooms (8 hotels) in the half, including the 442 room Holiday Inn Express Clarke Quay in Singapore and two Holiday Inn hotels in Japan. Signed 2k rooms (8 hotels) in the first half, including two new hotels in Abu Dhabi, which will mark the entry of a second InterContinental and second Holiday Inn property into the UAE capital.
Greater China – continued industry outperformance
Comparable RevPAR increased 4.3% driven by occupancy growth, with second quarter RevPAR up 4.6%. This performance was significantly ahead of the industry, which continues to experience a number of challenges including slower macro-economic conditions and austerity measures. Industry outperformance reflects the strength of IHG’s brands in the region and the leading position built up over 30 years of operating in the Chinese market.
Total RevPAR for the region decreased 1.4% reflecting an increasing mix of new rooms opening in lower RevPAR developing markets as increase distribution across the country.
Reported (and CER) revenue and operating profit were in line with last year at $112m and $36m respectively. This reflects good growth in the managed business, where 16% net rooms growth drove strong incremental fees despite the total RevPAR declines. In addition, the on-going industry austerity measures have continued to impact food and beverage revenues in the region, up 5% compared to rooms revenues up 9%. InterContinental Hong Kong, the only owned hotel in the region, reported a $3m decrease in revenue to $66m and a $3m decrease in operating profit to $19m due to the continuing impact from the significant redevelopment of the area adjacent to the hotel; this is expected to continue into the second half.
Opened 4k rooms (9 hotels) in the half, including five Crowne Plaza hotels, taking system size for the brand in the region to 25k rooms. Signed 7k rooms (28 hotels) taking the pipeline to 55k rooms and reflecting the confidence owners have in IHG and the compelling long term growth opportunity for this region.