IHG Releases Q2 Results

InterContinental, CairoHighlights

*    Total gross revenue³ from all hotels in IHG’s system of $8.9 billion, up 9 percent at constant currency.
*    Global constant currency first half RevPAR growth of 3.9 percent driven by occupancy.
*    Global constant currency second quarter RevPAR growth of 7.4 percent, including a rate decline of 0.5 percent.
*    19,003 rooms (148 hotels) added, 9,982 (65 hotels) on a net basis. Total system of 656,661 rooms (4,503 hotels), up 4 percent.
*    19,126 rooms (130 hotels) signed, taking the pipeline to 197,431 rooms (1,302 hotels).
*    Interim dividend up 5 percent to 12.8 cents, equivalent to 8.0p at the closing exchange rate on 6 August 2010.
*    InterContinental Buckhead, Atlanta sold on 1 July for $105 million, in line with strategy to reduce capital intensity.
*    July global constant currency RevPAR of 8.1%; 6.4% Americas, 10.0% EMEA and 15.0% Asia Pacific.

Business Update

*    Powerful and distinct brands: The $1 billion relaunch of Holiday Inn remains on track. 2,585 hotels are now operating under the new Holiday Inn standards, 76 percent of the total estate. Relaunched hotels are performing at the top end of the company's expected range. The company continues to drive up the overall quality of the estate with 75,000 new rooms under construction of which c.140 hotels (21,000 rooms) are expected to open in the remainder of this year. 9,021 rooms (83 hotels) were removed from the system in the first half. Total room removals are still expected to be in the region of 40,000 in 2010.
*    Leadership position in Greater China: with 132 hotels open and 148 in the development pipeline the company continue to build the company's position in the region. Over 50 percent of the company's pipeline comprises the company's upscale brands, illustrating the potential speed of revenue growth from this rapidly expanding market.
*    System delivery: this continued to improve with 68 percent of rooms revenue booked through IHG’s channels or by Priority Club Rewards members direct to hotel (2009: 66 percent). Priority Club Rewards members now total almost 52 million (2009: 44 million).
*    Focus on efficiency: First half regional and central costs of $108 million increased $9 million at constant exchange rates ($12 million at reported rates) due to higher performance based short term incentive costs.

Commenting on the results, Andrew Cosslett, chief executive of InterContinental Hotels Group PLC said: "Trading strengthened as the first half progressed with global Revenue per Available Room (RevPAR) up 3.9 percent overall and 7.4 percent in the second quarter. Asia is leading the recovery with Greater China reporting RevPAR up 29.4 percent in the half. As anticipated, occupancy drove RevPAR increases, with business travellers returning in greater numbers. Rates are now stabilising across the world, with most markets seeing rate growth towards the end of the first half. The economic environment does remain uncertain, however, with short booking windows and limited visibility.

"During the downturn we worked closely with our owners to reduce costs, drive revenue and build the strength of our system and brands," he contined. "In the first half we signed 130 hotels and opened 148, despite the tough financing environment. The quality of these new hotels is exceptionally high, particularly in China where both our pipeline and system of open hotels are skewed towards more upscale developments. We have now completed the relaunch of nearly 2,600 Holiday Inn hotels worldwide out of a total of 3,400, and the performance of these hotels continues to meet or beat our expectations. These efforts put us in great shape to increase share in what is now a rising market. Having maintained the dividend through the recession and balancing the improvement in trading with the continued economic uncertainty, the Board is announcing an increase in the dividend of 5 percent."


RevPAR increased 2.2 percent in the first half, with second quarter growth of 5.8 percent. In the U.S., Holiday Inn and Holiday Inn Express outperformed their segments by 1.4 and 0.4 percentage points respectively, reporting RevPAR growth of 0.1 percent at Holiday Inn (including 3.2 percent for Q2) and 0.4 percent at Holiday Inn Express (including 3.6 percent for Q2). Revenues increased 5 percent to $393 million.

Operating profit increased 20 percent from $149 million to $179 million. Franchised hotels’ operating profit grew 6 percent driven by a royalty fee revenue increase of 8 percent. In the managed business, operating profit of $13 million compares to a loss of $9 million in 2009 which included a $19 million charge for priority guarantee shortfalls. Owned and leased hotels’ operating profit of $4 million was flat on 2009 reflecting RevPAR growth of 5.9 percent offset by a $3 million reinstatement of depreciation on hotels classified as held for sale in the first half of 2009.


RevPAR increased 4.0 percent in the first half, with second quarter growth of 7.2 percent. Performance was strongest in Germany where RevPAR grew 16.5 percent whilst mixed trading conditions across the Middle East led to a 4.8 percent RevPAR decline in that region. RevPAR growth of just 1.2 percent in the UK was due primarily to previously contracted lower rate business. Revenues increased 3 percent to $192 million (4 percent CER). Excluding one liquidated damages receipt of $3m in 2009, revenues increased 5 percent to $192 million (5 percent CER).

Excluding the impact of the $3 million liquidated damages receipt in 2009, operating profit grew 5 percent to $58 million (9 percent CER). On this same basis franchised hotels’ operating profit grew $1 million to $28 million driven by a 4 percent increase in room count offset by a $2m reduction in initial franchising, relicensing and termination fees. Managed hotels’ operating profit declined by $1m to $32m, with growth in Europe being offset by difficult trading in certain parts of the Middle East. Owned and leased hotels’ operating profit grew $5 million to $15 million driven by 15 percent RevPAR growth at InterContinental Park Lane and 13.1 percent growth at InterContinental Paris Le Grand.

Asia Pacific

RevPAR increased 13 percent in the first half, with second quarter growth of 16.1 percent. Greater China was the strongest performing region with RevPAR growth of 29.4 percent, boosted by the Global Expo in Shanghai where RevPAR grew 48.4 percent. Revenues increased 29 percent to $137 million (25 percent CER).

Operating profit increased 106 percent to $35 million (94 percent CER). Franchised hotels’ operating profit increased $1 million to $3 million. Managed hotels’ operating profit grew 76 percent to $30 million (65 percent CER) primarily driven by 31.2 percent RevPAR growth across IHG’s managed operations in Greater China and 12 percent rooms growth across the region. Operating profit at owned and leased hotels increased 27 percent to $14m reflecting RevPAR growth of 16.5 percent at InterContinental Hong Kong.

Interest and Tax

The interest charge for the period increased $3 million to $31 million 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 half, the tax charge has been calculated using an estimated annual tax rate of 28 percent (Estimated annual tax rate at H1 2009: 22 percent).

Cash Flow and Net Debt

IHG’s balance sheet has been strengthened with net debt down to $1.0 billion (including the $205m finance lease on the InterContinental Boston) from $1.3bn as at 30 June 2009. Post period end, the InterContinental Buckhead, Atlanta was sold on 1 July 2010 for $105 million, $23 million above net book value. Proceeds have been used to reduce debt.

Following the 2009 actuarial review of the UK Pension Plan, the Company has agreed with the Plan Trustees to make additional contributions up to a total of £100 million by 31 March 2017. The agreement includes three additional annual contributions of £10 million payable over the period 2010-2012, a 7.5 percent share of net proceeds from the disposal of hotels and a top-up in 2017 to the £100m total if required. The scheme is formally valued every three years and any future valuations could lead to changes in the amounts payable.

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