Intercontinental Group: First Half Results to 30 June 2006
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Intercontinental Group: First Half Results to 30 June 2006
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2006-08-23
Headlines
Continuing revenue up 16% from £340m to £394m, up 12% at constant exchange rates.
Continuing operating profit up 30% from £82m to £107m, up 25% at constant exchange rates.
Total operating profit, including discontinued operations, of £127m.
Franchised operating profit up 14% to £117m. Managed operating profit up 39% to £43m.
Adjusted continuing earnings per share up 132% from 8.2p to 19.0p.
Interim dividend up 11% from 4.6p to 5.1p.
Total gross revenue* from all hotels in IHG’s system up 14% to £4.1bn.
Global constant currency RevPAR growth of 11.2%.
Room count up by 3,469 rooms to 541,002. Full year 2006 forecast net room additions in the region of 10,000.
Development pipeline up by 21,588 rooms to 130,100 (1,028 hotels). 80% expected to open by end 2008.
* Total gross revenue is defined as total room revenue (i.e. excluding food and beverage) from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties. The metric is highlighted as an indicator of the scale and reach of IHG’s brands.
All figures and movements unless otherwise noted are at actual exchange rates and before other operating income and expenses.
See appendix 3 for analysis of financial headlines. Constant exchange rate comparatives shown in appendix 4
Commenting on the results and trading, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:
"This has been a good first half for IHG with excellent trading across each of our three operating regions, and RevPAR outperformance in all our key profit generators. We have made good progress on our asset disposal programme and remain fully focused on increasing the number of hotels that carry our brands. We continue to attract strong interest from owners and partners, both new and existing, and for the first time we now have over 1,000 new hotels in the development pipeline across the world. Current trading is healthy and our outlook for the rest of the year remains positive."
Americas: strong performance across all brands
Revenue performance
RevPAR increased 11.5% with rate generating most of the increase. InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express and Candlewood each outperformed their market segments, with RevPAR up 11.1%, 15.1%, 9.9%, 12.3% and 11.2% respectively. Staybridge Suites also showed continued good RevPAR growth, with a 9.4% increase.
Operating profit performance
Operating profit from continuing operations increased 21% from $164m to $199m. Continuing owned and leased operating profit improved from $12m to $15m. This improvement was driven by increased occupancy and rate at the InterContinental Atlanta, and increased rates at InterContinentals in New York, San Francisco and Montreal, but was impacted by $1.3m pre opening costs at InterContinental Boston, scheduled to open in November. Managed profit was up 42% to $27m, benefiting from improved trading in existing operations and retained management contracts on assets disposed. Franchised profit increased 14% to $185m driven by increased total gross revenue. Including discontinued operations, total operating profit increased from $181m to $202m.
EMEA: RevPAR growth accelerating
Revenue performance
RevPAR increased 11.5%, driven by increased occupancy and 8.5% rate growth. The Middle East continued to perform strongly, growing RevPAR by 23.1%. Continental Europe delivered a RevPAR increase of 7.2%, benefiting from continued improvement across the region, particularly in Germany, Holland and Spain. In the UK, Holiday Inn and Holiday Inn Express outperformed their segment, growing RevPAR by 4.1%.
Operating profit performance
Operating profit from continuing operations increased 6% from £16m to £17m. Continuing owned and leased operations generated a loss of £2m, a £1m improvement on the prior period, with the enhanced performance at InterContinental Le Grand Paris, where occupancy increased by 12.1%, outweighing the impact of the closure of InterContinental London Park Lane for refurbishment. The InterContinental London Park Lane is on track to reopen towards the end of 2006. Managed profit was up 31% from £13m to £17m, as a result of improved trading and retained management contracts on assets disposed. The current Middle East conflict may result in a slightly lower level of managed profitability in the second half. Franchised profit decreased 25% from £16m to £12m with an underlying trading improvement outweighed by the non recurrence of the £7m liquidated damages received in 2005. Including discontinued operations, total operating profit reduced from £73m to £36m.
Asia Pacific: strong growth
Revenue performance
RevPAR increased 9.3%, mainly driven by rate. InterContinental, Crowne Plaza and Holiday Inn all performed strongly, with RevPAR up 10.5%, 9.8% and 7.9% respectively. Greater China RevPAR increased 12.8%, driven by rate increases as strong demand for IHG’s brands continues.
Operating profit performance
Operating profit from continuing operations increased 42% from $19m to $27m. Owned and leased operating profit increased 56% from $9m to $14m as a result of excellent trading at InterContinental Hong Kong, driven by a 19.1% average rate increase. The final phase of refurbishment of the InterContinental Hong Kong will take place in the second half. Managed hotels profit increased 19% to $19m, driven by improved trading and retained management contracts on asset disposals.
Strengthening Operating System
IHG continues to demonstrate the strength of its revenue delivery to hotel owners through its reservation channels and loyalty programme, Priority Club Rewards.
$3.0bn of rooms revenue booked through IHG's reservation channels, 48% of total rooms revenue, up from 43% in H1 2005.
$2.1bn of rooms revenue from Priority Club Rewards members, 34% of total rooms revenue, up from 32% in H1 2005.
Internet revenues increased from 15% to 17% of total rooms revenue: 86% from IHG's own websites.
Overheads and Tax
As previously disclosed, IHG expects that in 2006 regional and central overheads will increase ahead of inflation at constant exchange rates. In the first half, aggregated regional overheads were up £2m to £31m after continued infrastructure investment in China. Central overheads increased by £5m to £37m. This included investment in new global research designed to enable higher quality brand development and enhancing IHG’s franchise capability going forward. Further investment in these projects will be made in the second half of 2006.
Based on the first half, IHG’s tax rate is now expected to be approximately 25% for 2006. IHG’s tax rate is likely to be volatile over the next few years but in the long term is expected, as previously indicated, to trend upwards.
Increase in development pipeline size and rooms open
IHG continues to increase its development pipeline, in pursuit of the target of 50,000-60,000 net organic room additions in the period to the end of 2008 from a 30 June 2005 starting position of 537,675.
40,994 rooms were signed in the first half; 28,574 in the Americas, 2,535 in EMEA and 9,885 in Asia Pacific.
130,100 rooms are now in the pipeline, up 21,588 since the start of the year. This represents 1,028 hotels.
IHG’s development activity in China continues to be successful. 16 hotels, 8,240 rooms, were signed in the first half, including four InterContinentals, one Crowne Plaza, seven Holiday Inns and four Holiday Inn Expresses.
IHG maintains its focus on enhancing the quality of its portfolio, in tandem with growth.
17,371 rooms opened; 13,681 in the Americas, 2,131 in EMEA and 1,559 in Asia Pacific.
13,902 rooms exited;10,565 in the Americas, 2,405 in EMEA and 932 in Asia Pacific. The majority were at IHG’s instigation.
The room count at the end of the period increased by 3,469 rooms to 541,002. 2006 year end room count expected to have increased in the region of 10,000.
Disposals and returns of funds
The disposal of 24 hotels in Continental Europe was announced during the first half, with a 15 year franchise agreement, for which £240m proceeds have been received. The sale of seven InterContinental branded hotels in Continental Europe placed on the market during the first half was announced in July 2006 with management contracts of up to 50 years, with £440m proceeds expected to be received during the third quarter of 2006. The sale of IHG’s shares in FelCor Lodging Trust Incorporated (“Felcor”) was also completed in the first half for a total of $191m, generating a gain of $44m, following the successful renegotiation of IHG’s hotel management agreement with Felcor.
IHG’s returns of funds to shareholders continued in the quarter, with the second £250m share buyback now completed, the third £250m share buyback well underway, and £497m returned to shareholders on 22 June 2006 via a special dividend. Upon completion of the third share buyback, IHG will have returned £2.74bn to its shareholders since Separation from Six Continents in April 2003. £174m of share repurchases remained to be completed at the half year.
IHG's net debt at the period end was £320m. Disposal proceeds in excess of £400m will be received in the second half. Further returns of funds will be made to shareholders in due course. An announcement on timing and quantum of further returns will be made not later than IHG's preliminary results in February 2007.
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