IHG Results

IHG Reports Global Comparable H1 2017 RevPAR Growth of 2.1%

3.7% net room growth year on year, with 23k room openings, up 31% year on year, which includes 3.5k rooms in Makkah, Saudi Arabia, signed in 2015.

IHG

Financial Highlights

  • Solid revenue growth driven by both RevPAR and rooms
    • Global comparable H1 RevPAR growth of 2.1%, led by occupancy up 0.9%pts. Q2 RevPAR up 1.5%, including a decline of -0.4% in the US, adversely impacted by the timing of Easter.
    • 3.7% net room growth year on year, with 23k room openings, up 31% year on year, which includes 3.5k rooms in Makkah, Saudi Arabia, signed in 2015.
  • High-quality business model, focused on disciplined execution, capital allocation and shareholder returns
    • Group fee margin of 51.0%, up 2.4%pts (1.5%pts CER); favourable cost phasing and efficiency improvements.
    • Focused investment and asset recycling led to net capital expenditure5 of $162m (gross: $186m).
    • $0.4bn returned to shareholders in May via a $2.025 per share special dividend with 45 for 47 share consolidation.
    • 10% increase in interim dividend to 33.0¢ reflects confidence in our long-term sustainable growth.

Interim Results to 30 June 2017

Financial summary1

Reported

Underlying2
  20172016 %Change 20172016%Change
Revenue $857m $838m 2% $788m $756m 4%
Fee revenue3 $686m $673m 2% $697m $673m 4%
Operating profit $370m $344m 8% $365m $340m 7%
Adjusted EPS 113.3¢ 89.0¢ 27% 111.7¢ 87.7¢ 27%
Basic EPS4 111.7¢ 87.7¢ 27%      
Interim dividend per share 33.0¢ 30.0¢ 10%      
Net debt $2,056m $1,829m        

1 All figures before exceptional items unless otherwise noted. 2Excluding owned asset disposals, managed leases and significant liquidated damages; at constant H1 2016 exchange rates (CER). Underlying adjusted EPS based on underlying EBIT, effective tax rate, and reported interest at actual exchange rates53Group revenue excluding owned & leased hotels, managed leases and significant liquidated damages. 4After exceptional items.

Keith Barr, Chief Executive of InterContinental Hotels Group PLC, said:

“We have had a good first half. RevPAR growth of 2.1% and net system size growth of 3.7% delivered a 7% increase in underlying operating profit and a 27% increase in underlying EPS, underpinning the Board’s decision to increase the interim dividend by 10%.

We continue to make good progress in executing our well-established strategy to deliver high quality sustainable growth, and during the half we passed the landmark of over 1 million open or pipeline rooms. In June, we announced a new, midscale brand to address a $20 billion underserved segment in the US. We believe this will become another brand of scale for IHG that will deliver superior returns to our owners. Other highlights include the continued roll-out of new design formats across our Holiday Inn Brand Family and the ongoing repositioning of Crowne Plaza. Leveraging our technological capabilities, we are on track to begin roll out of our next generation cloud-based Guest Reservation System in late 2017.

I feel privileged to be the new CEO of IHG and to have the opportunity to build on the strong performance we have delivered. My focus is on driving an acceleration in our growth rate, by increasing the resources dedicated behind the highest opportunity markets and segments, strengthening our brand portfolio, building on our leading loyalty proposition, and enhancing our competitive advantage through prioritising digital and technological innovation. We will continue to focus on enhancing our cost efficiency to generate funds for reinvestment. This, combined with our cash-generative business model and disciplined approach to capital allocation, will drive superior returns to shareholders.

While we will always face macro-economic and geopolitical uncertainties, we remain confident in the outlook for 2017.”

Strategic Progress

  • Strengthening our portfolio of preferred brands
    • Launch, in June, of a high quality midscale brand in the US, leveraging our expertise across the mainstream6 segment where we already have a 21% share of supply and 24% share of pipeline, to build another brand of scale for IHG. Early interest in the brand from our ~2,000 existing franchisees has been highly encouraging.
    • Continued to roll out innovative guest room and public area enhancements for the Holiday Inn Brand Family; new designs now in more than 400 hotels across US and Europe, driving mid-single digit increases in guest satisfaction.
    • Positive response to Crowne Plaza US Accelerate programme, with owner capital commitments of ~$190m in the last year in hotel purchases and major refurbishment in addition to ~30 hotels committing to renovating guest rooms.
    • Growing our boutique footprint, with the opening of our second Kimpton outside the US, in Amsterdam, and six more US openings planned this year; and our Hotel Indigo open and pipeline hotels reaching over 150 globally, with openings in Bali and Los Angeles and signings in Beijing and London’s Leicester Square.
  • Growing through targeted hotel distribution
    • Signed 32k rooms into the pipeline, taking it to 230k rooms. ~45% of the pipeline is under construction.
  • Driving revenue delivery through technology and loyalty
    • Innovative cloud-based Guest Reservation System on track for roll-out in 2017, with full deployment expected by late 2018/early 2019. Positive feedback on transformational user-interface.
    • Continued focus on driving direct bookings with the completion of the global roll out of ‘Your Rate by IHG Rewards Club’ following the Q1 launch in Greater China. Loyalty contribution up 0.4%pts YoY and enrolments up 12% YoY.

5For definition of non-GAAP measures and reconciliation to GAAP measures refer to the Interim Management Report. 6Mainstream includes STR midscale and upper midscale segments.

Americas – RevPAR growth slows in second quarter as Easter benefit reverses

Comparable RevPAR increased 1.1% (Q2: 0.1%), driven by 1.1% rate growth.

US RevPAR grew 0.7%, with a decline of -0.4% in Q2, adversely impacted by the shift in timing of Easter. Holiday Inn and Holiday Inn Express RevPAR grew 1.1% (Q2: 0.2%) and 0.6% (Q2: -0.1%) respectively. Combined these brands delivered a 6% absolute RevPAR premium to the upper midscale segment.

Outside of the US, RevPAR grew 4.6%. Canada’s 150th anniversary celebrations generated solid demand in urban markets with RevPAR growth of 4.3%, whilst growth in the Mexican economy, buoyed by a relatively weak Peso, contributed to RevPAR growth of 9.1%.

Reported revenue increased 2% (2% CER) and reported operating profit pre-exceptional items increased 3% (3% CER), whilst on an underlying1 basis both revenue and operating profit increased 3%.

On an underlying1 basis, franchised operating profit grew 1% as incremental royalties from RevPAR and net rooms growth were partly offset by lower revenues from hotel signings and the annualisation of our $7m investment in the Americas development team, $4m of which was incurred in H2 2016.

Underlying1 managed operating profit increased 7% benefitting from the continued ramp up of the InterContinental New York Barclay, following its refurbishment and lower costs associated with our 20% interest in the hotel.

Underlying1 owned revenue and operating profit increased 12% and 25% respectively as the Holiday Inn Aruba benefitted from increased North American inbound business.

We opened 11k rooms (95 hotels), including the 900 room InterContinental Los Angeles Downtown. 9k rooms (63 hotels) were removed primarily across the Holiday Inn, Holiday Inn Express and Crowne Plaza brands as we continue to focus on high quality brand representation.

We signed 16k rooms, including the first Kimpton in Mexico and more than 11k rooms (112 hotels) for the Holiday Inn Brand Family.

Europe – Strong trading drives double digit profit growth

Comparable RevPAR increased 6.2% (Q2: 5.5%), driven equally by rate and occupancy. UK RevPAR increased by 6.7%, with strong trading in both London (9.0%) and the provinces (5.4%). In Germany, RevPAR growth for the half was 2.3%, Q2 RevPAR declined -3.6% as the estate lapped very strong comparables relating to trade show activity in 2016 in Dusseldorf and Munich. Trading in Paris continues to recover with RevPAR up 11.6% in H1 driven by occupancy gains (8.0%pts).

Reported revenue increased 4% (8% CER) and reported operating profit was up 12% (12% CER).

On an underlying1 basis revenue increased 11% and operating profit increased 12%.

We opened 1k rooms (8 hotels) including the Kimpton De Witt in Amsterdam, our first Kimpton hotel in Europe, and signed 3k rooms (20 hotels) including a Hotel Indigo in London’s Leicester Square.

In Germany, we signed 10 hotels and opened three, taking the total open and pipeline hotels to 112.

AMEA – Solid trading in key markets offset by weakness in the Middle East

Comparable RevPAR increased 1.4% (Q2: 2.7%). Performance outside the Middle East continued to be strong, with 4.2% RevPAR growth. India was up 14.3%, whilst Japan, Australasia and South-East Asia were up low to mid-single digits.

In the Middle East, RevPAR declined -3.7% due to the ongoing impact of low oil prices and industry wide supply growth. RevPAR growth was flat in Q2, due to the favourable timing of Ramadan as well as improved royal business in Saudi Arabia. We expect trading conditions for the rest of the year to remain challenging.

The increasing mix of new rooms opening in developing markets meant that total RevPAR declined -1.9% in the half (Q2: -1.0%).

Reported revenue was flat (2% CER) and operating profit was up 5% (10% CER).

On an underlying1 basis, revenue was up 1% and operating profit increased 11% benefitting from the favourable phasing of costs. We still expect managed profit in 2017 to be broadly in line with 2016.

We opened 7k rooms (9 hotels) in the half, including the first Hotel Indigo resort, in Bali, the first Staybridge Suites in Saudi Arabia and 3.5k rooms in Makkah, Saudi Arabia. The rooms in Makkah relate to the remaining portion of the 5k room signing that we announced in 2015 and, on an annualised basis, are expected to generate ~$1m in fees.

We signed 3k rooms (15 hotels) including three deals in Australia and 1.3k rooms for the Holiday Inn Brand Family.

1Excluding owned asset disposals, managed leases, significant liquidated damages at constant H1 16 exchange rates (CER). See the Interim Management Report for definition of non-GAAP measures and reconciliation to GAAP measures.

Greater China – Strong mainland trading and 9% rooms growth drive 15% profit growth

Comparable RevPAR increased 4.1% (Q2: 4.4%), with growth of 5.1% in mainland China. RevPAR growth in Hong Kong was flat whilst Macau increased 2.1%. Mainland tier 1 cities continued to trade well, with RevPAR up 5.4% in the half driven by strong meeting and corporate demand, particularly in Shanghai. Tier 2-4 cities also benefitted from solid meeting demand, leisure groups and the benefit of hotels still ramping up, with occupancy gains driving RevPAR growth of 5.2%.

Our strategy to maximise our long-term growth potential by using our mainstream brands to penetrate less developed cities impacted total RevPAR, which declined -0.3% for the region.

Reported revenue and operating profit increased by 6% (11% CER) and 15% (15% CER) respectively.

Underlying1 revenue increased 11% and underlying operating profit grew 15%, driven by strong trading in mainland China, 9% rooms growth and increased revenues from signing and opening hotels.

We opened 4k rooms (16 hotels) in the half, including our 300th hotel (the 340 room HUALUXE Zhangjiakou), our 40th InterContinental in the region (the 370 room InterContinental Jinan City Centre), and the first two Holiday Inn Express Franchise Plus properties.

Signings for the half totalled 10k rooms, or 46 hotels, the highest number on record. This included the 420 room InterContinental Guangzhou Downtown and the 255 room InterContinental Zhengzhou, and 34 Holiday Inn Express hotels, including 24 on Franchise Plus contracts.

Highly cash generative business with disciplined approach to capital allocation

  • Consistent fee margin growth
    • Reported central overheads declined $9m, or $4m on a constant currency basis, benefiting from a $4m increase in central revenues and efficiency improvements.
    • Group fee margin of 51.0%, up 2.4%pts (1.5%pts CER), benefiting from efficiency improvements and favourable cost phasing. Full year margin growth currently expected to be in the region of the long-term average of ~135bps.
  • Significant free cash flow from operations
    • Free cash flow2 of $204m compares to $241m in H1 2016 (excluding the $95m benefit from renegotiation of long term partnership agreements), impacted by movement in system fund balances.
  • Investing for growth
    • $186m gross capital expenditure in first half: $44m maintenance capex2 and key money; $80m recyclable investments2 (including $43m in relation to associates and joint ventures); and $62m system funded capital investments. $7m proceeds received from asset recycling and $17m system fund depreciation released from the system fund surplus, resulting in $162m of net capital expenditure.
    • Gross capex guidance remains unchanged at up to $350m p.a. into the medium term.
  • Shareholder returns
    • 10% increase in the interim dividend to 33.0¢.
    • $0.4bn returned to shareholders in May via a $2.025 per share special dividend, in conjunction with a 45 for 47 share consolidation.
  • Efficient balance sheet provides flexibility
    • Robust financial position, with on-going commitment to an efficient balance sheet and investment grade credit rating.
    • Net debt2 of $2,056m (including $228m finance lease on InterContinental Boston), up $0.6bn on the 2016 close following the payment of the $0.4bn special dividend in May. Net debt to EBITDA now stands at 2.5x (LTM).

Foreign exchange – minimal impact on reported profit

Revenue impacts of the strong dollar against a number of currencies were offset by cost benefits from the devaluation of sterling against the dollar compared to H1 2016, increasing reported profit by $1m. If the closing June 2017 exchange rates had existed through H2 2016, there would have been no impact on reported operating profit for that period.

A full breakdown of constant currency vs. actual currency RevPAR by region is set out in Appendix 2.

Interest, tax, and exceptional items

Interest: Net financial expenses reduced by $1m to $40m due to a reduction in the cost of debt following the bond refinancing in 2016 and the favourable impact of a weaker pound on translation of sterling interest expense, offset by higher average net debt levels following the payment of the 2016 $1.5bn special dividend.

Tax: Based on the position at the end of the half, the tax charge has been calculated using an interim effective tax rate of 33% (H1 2016: 33%). We continue to expect the full year 2017 tax rate to be in the low 30s (%).

Exceptional operating items: $4m exceptional operating charge (2016: $5m charge) relating to the Kimpton integration.

1 Excluding owned asset disposals, managed leases and significant liquidated damages; at constant H1 16 exchange rates (CER).

2 For definition of non-GAAP measures and reconciliation to GAAP measures see the Interim Management Report.

Download the Appendices of the Interim Results to 30 June 2017PDF 0.44MB



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