IHG Results

IHG Reports Strong H1 Performance Across All Regions

  • H1 Comparable RevPAR: Americas = 3.2% (US = 2.7%); EMEAA = 3.0%, Greater China = 10.1%.
  • 22k room additions, up 11% excluding 3.5k rooms added in Makkah, Saudi Arabia in H1 2017. 10k rooms removed.
  • Regent Hotels & Resorts and UK portfolio deals agreed in H1 will complete in Q3, adding 4.2k rooms (1.1k pipeline).
  • Highest signings for 10 years; including 16.8k rooms in Greater China, up 71% YOY and our best ever performance.

Strong H1 performance across all regions and good progress against new strategic initiatives


Underlying 3
  2018 2017 %Change 2018 2017 %Change
Reportable Segments 1

Revenue $900m $838m 7% $875m $838m 4%
Revenue from fee business $719m $664m 8%




Operating profit $406m $370m 10% $398m $370m 8%
Fee margin 2 53.5%  52.7% 0.8%pts




Adjusted EPS 145.8¢ 113.8¢ 28% 142.1¢ 113.8¢ 25%
Group Results 4

Total revenue $2,113m $1,964m 8%      
Operating profit $394m $395m -      
Basic EPS 123.2¢ 126.5¢ (3)%      
Interim dividend per share 36.3¢


Net debt $1,802m $2,056m  (12)%      

Key Metrics

  • $13.3bn total gross revenue (up 9%)
  • 3.7% global H1 RevPAR (Q2 = 3.7%)
  • 4.1% net system growth to 810k rooms
  • 46k signings; 262k pipeline rooms

1Excludes System Fund results, hotel cost reimbursements and exceptional items.

2Also excludes owned, leased and managed lease hotels, and significant liquidated damages.

3Reportable segment results excluding owned asset disposals & significant liquidated damages and stated at constant H1 2017 exchange rates (CER).

4Includes System Fund results, hotel cost reimbursements and excludes exceptional items (except for Basic EPS).

Keith Barr, Chief Executive Officer, IHG, said:

"We’ve had a strong first half, delivering our best signings performance for a decade. RevPAR grew at 3.7%, which together with 4.1% net system size growth, drove underlying operating profit up 8% and underlying EPS up 25%. This underpins our decision to raise the interim dividend by 10%.

Each of our regions continue to deliver strong momentum. This is led by Greater China, where double digit growth in both RevPAR and net system size, as well as record signings, reflects the ongoing benefits of our long term strategic focus on this important market. Demand for our unique Chinese owner proposition “Franchise Plus” continues to be excellent and we now have more than 100 Holiday Inn Express hotels for this model either in the pipeline or open.

In February, we set out a series of new initiatives, funded by a comprehensive efficiency programme, that build on our well-established strategy to drive an acceleration in net rooms growth. Our new organisational structure has enabled us to move at pace; we’ve added three new brands in the last year, avid hotels last September, for which we’ve now signed 130 hotels, voco in June and Regent Hotels & Resorts in July. Our existing brands continue to strengthen, as demonstrated by the continued global expansion of Kimpton Hotels & Restaurants, with flagship hotels secured for four UK locations, including London, as part of a portfolio deal to rebrand and operate 12 high quality hotels in the UK.

Our plans to enhance revenue delivery are on track, with IHG Concerto featuring our innovative new Guest Reservation System now in over half of the estate, with complete roll-out by the end of 2018 / beginning of 2019.

The fundamentals for our industry are strong, we are confident in the outlook for the balance of the year and in our ability to deliver industry-leading net rooms growth over the medium term.”

Update on new strategic initiatives

Optimise our preferred portfolio of brands for owners and guests

  • Mainstream
    • avid hotels: 130 hotels signed to date (82 signed in H1), with the first on track to open in Q3’18.
    • Holiday Inn Express: continued roll out of new guest room designs across all regions and rapid deployment of new breakfast offering in the US.
  • Upscale
    • voco:  brand launched in June, primarily for conversion opportunities.  Four hotels will be added as part of the UK portfolio deal, plus a further three hotels have been signed to date (1.4k rooms in total).
  • Luxury
    • Regent Hotels & Resorts: 51% acquisition of the brand completed in July; adding 6 open and 3 pipeline hotels, and with several new sites under discussion in key gateway cities and resort locations around the world.
    • Kimpton Hotels & Restaurants: global expansion gathering pace with H1 signings in Frankfurt, Shanghai, and Mexico City; plus, four UK hotels in July as part of the portfolio deal, including the first for London.

Superior returns for shareholders and owners: focus on driving long term, sustainable growth.

  • On track to deliver ~$125m in annual savings, including System Fund, by 2020 for reinvestment to drive growth.
    • $6m benefit to underlying profit in the first half due to timing differences between the realisation of savings and reinvestment in growth initiatives. We continue to expect savings to be fully reinvested on an annual basis.
    • H1 fee margin up 0.8%pts (1.7% at CER). Medium term annual fee margin progression is still expected to be broadly in line with the historic average of ~135bps.
  • Exceptional cash costs to achieve the savings remain unchanged at $200m; $48m in H1‘18 ($31m in 2017), with ~$70m now expected in H2’18 and the remainder in 2019.
  • IHG’s strategy for uses of cash is unchanged, including our commitment to return surplus funds to shareholders.

Americas – Improving US RevPAR performance; avid hotels’ momentum continues

Comparable RevPAR increased 3.2% (Q2: up 3.4%), driven by 2.2% rate growth. US RevPAR was up 2.7% in the first half, with 2.9% growth in the second quarter driven by corporate and group bookings and, as expected, some benefit from the earlier timing of Easter. Canada was up 7.5% in the first half with continued strength in urban markets, whilst Mexico was down 0.2% impacted by strong prior year comparables.

Reported revenue increased 5% (CER 5%) and reported operating profit increased 3% (CER 4%), whilst underlying1  revenue and operating profit were up 5% and 4%, respectively.

Underlying 1 fee business operating profit was up 3%, with incremental royalties from RevPAR and net rooms growth partly offset by (i) $9m combined impact from lower hotel termination fees and costs relating to legal disputes and (ii) a $1m net negative impact from previously disclosed items: Crowne Plaza Accelerate owner financial incentives, higher US healthcare costs and a payroll tax credit.

Underlying 1 owned, leased and managed lease operating profit increased 13% led by one Caribbean hotel where demand from hurricane reconstruction efforts continues to drive strong RevPAR growth.

We opened 9k rooms (91 hotels) in H1 2018, with more than two thirds driven by the Holiday Inn Brand Family. As we continue to focus on a high-quality estate, we removed 6k rooms (43 hotels). We signed 195 hotels (20k rooms), 82 of which were for avid hotels, where momentum continues to exceed expectations with 130 signings since launch, including four in Canada and one in Mexico. Our first property, in Oklahoma City, remains on track to open in the third quarter of 2018. 

US hotel demand drivers remain strong, which will support continued underlying RevPAR momentum in the second half. Reported figures will be impacted, however, by unfavourable calendar shifts and strong comparables driven by hurricane-related demand in 2017.

As previously disclosed: (i) the owner financial incentives relating to the Crowne Plaza Accelerate programme will reduce fees by $5m in 2018 (H1’18: $2.5m); (ii) we don’t expect our US healthcare programme to be in a surplus position in 2018, which will result in a $5m increase in fee business costs year on year; (H1’18: $2.5m).

1 Excluding owned asset disposals, significant liquidated damages, System Fund results and hotel cost reimbursements at constant H1 2017 exchange rates (CER). See the Business Review for definition of non-GAAP measures and reconciliation to GAAP measures.

EMEAA – Continued recovery in terror impacted markets; tough comparables in the UK

Comparable RevPAR increased 3.0% (Q2: up 3.0%) driven by rate up 1.9%. Continental Europe RevPAR was up 5.9% in the first half, with continued recovery in terror impacted markets. Germany was down 1.0% due to a weak trade fair calendar, and the UK was down 0.2% (London down 1.4%, provinces up 0.6%) impacted by strong prior year comparables. Elsewhere, Middle East was down 7.0% due to high supply growth, whilst Japan and Australia were both up 3.5%.

Total RevPAR growth of 0.4% reflects the increasing mix of new rooms opening in developing markets.

Reported revenue increased 8% (2% CER) and reported operating profit increased 21% (15% CER), including $3m of individually significant liquidated damages receipts, as previously disclosed.

On an underlying1 basis, revenue increased 1%, driven by rooms and RevPAR growth, partly offset by lower revenue from managed lease hotels, and operating profit grew 12%, including a $4m benefit from timing differences between the realisation of savings and their reinvestment in growth initiatives.

We opened 5k rooms (25 hotels) driving 5% net rooms growth, and signed 9k rooms (49 hotels), including more than 2k rooms across eight properties in key resort destinations in Thailand under the Holiday Inn, Holiday Inn Express and Staybridge Suites brands.

As previously disclosed, a $15m payment was received in the first quarter of 2018 in relation to the termination of a portfolio of hotels in Germany. This has been / will be recognised as individually significant liquidated damages receipts as follows: $2.8m in H1 2018, a further $3.9m in H2 2018, $7.7m in 2019 and $1.0m in 2020.

Greater China – Continued industry outperformance; record room signings and openings

Comparable RevPAR increased 10.1% (Q2: up 9.3%), significantly outperforming the market. In Mainland China RevPAR was up 9.1% for the half, with tier 1 cities up 10.0% and tier 2-4 cities up 8.4%, driven by continued strength in corporate and meeting demand. RevPAR in Hong Kong SAR and Macau SAR was up 13.1% and 19.5% respectively.

Our continued acceleration in net rooms growth in the region, and our increasing penetration in higher growth, lower RevPAR, cities, resulted in H1 2018 total RevPAR growth of 4.5%.

Reported revenue increased by 25% (CER 18%), and reported operating profit increased by 33% (CER 25%), including $4m of individually significant liquidated damages receipts.

On an underlying1 basis, revenue increased by 13% and operating profit increased by 13%, driven by the strong trading across the region and 12% net rooms growth.

We opened a record 7k rooms (28 hotels), driving 12% net rooms growth. Signings totalled 17k rooms (78 hotels), our highest ever first half for the region, including 5 hotels for the InterContinental brand, and 32 for Holiday Inn Express Franchise Plus. We now have 15 open and >90 pipeline hotels for the brand under this innovative new model.

Highly cash generative business with disciplined approach to cost control and capital allocation

Strong free cash flow generation fuelling investment

  • Free cash flow2 of $261m was up $57m year on year, with $45m lower cash tax offset by $48m of exceptional cash costs incurred in relation to the group wide efficiency programme.
  • Net capital expenditure2 of $111m (H1 2017: $162m) with $129m gross (H1 2017: $186m). This comprised: $47m maintenance capex and key money; $32m gross recyclable investments; and $50m system funded capital investments; offset by $2m net proceeds from asset recycling and $16m System Fund depreciation and amortisation. Capex guidance unchanged at up to $350m gross, and $150m net, per annum.
  • Exceptional cash costs of $55m in the half, including $48m relating to the group wide efficiency programme ($16m in relation to the System Fund).

Efficient balance sheet provides flexibility

  • Financial position remains robust, with an on-going commitment to an investment grade credit rating.
  • Net debt of $1,802m (including $233m finance lease on InterContinental Boston), down $49m on the 2017 close.

10% interim dividend growth to 36.3¢ demonstrates confidence in future growth prospects

Foreign exchange

Average USD exchange rates for H1 2018 against a number of currencies (particularly Sterling, Euro and Renminbi) were lower than in H1 2017, with a net favourable impact on reported profit of $2m3.

If the 30 June 2018 spot rate had existed throughout H2 2017, H2 2017 reported profit would have decreased by $2m.

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



System Fund:

Under IFRS 15, Fund revenues and costs are now recognised on a gross basis with the in-year surplus or deficit recorded in the Group income statement, but excluded from underlying results and adjusted EPS, as the Fund is operated for the benefit of the hotels in the IHG System such that the Group does not make a gain or loss from operating the Fund.

The Fund surplus of ~$160m, which had built up following the introduction of the IHG Rewards Club expiry policy and the renegotiation of long term partnership agreements, was derecognised from the Group balance sheet at the start of the year on the adoption of IFRS 15.  In 2018, we continue to expect to spend the majority of the surplus on marketing, loyalty and technology initiatives, and costs associated with IHG’s efficiency programme.  This resulted in the recording of a $12m Fund income statement deficit in the first half.


Net financial expenses of $38m includes interest income relating to the System Fund of $9m (H1 2017 $6m). Excluding this, H1 2018 underlying2 interest expense of $47m was higher than in H1 2017 ($40m), reflecting the impact of a stronger pound on translation of sterling interest expense and higher US dollar interest rates payable on bank borrowings and balances with the System Fund.


  • Effective rate4 for H1 2018 was 23% (H1 2017: 32%) with the reduction predominantly as a result of a lower US tax rate following tax reform. We continue to expect that our full year 2018 effective tax rate will be in the mid to low 20s percentage point range.
  • In H1 2018 there was a net cash tax outflow of $5m (H1 2017: $50m). This is lower owing to the receipt of refunds of $36m in respect of earlier tax periods. The full year cash tax rate is expected to be in the high single digit percentage point range in the full year as previously guided. There may continue to be some short-term volatility in the underlying cash tax rate, but we continue to expect the longer-term rate to more closely align with the Group P&L effective tax rate.

Exceptional operating items:

Before tax exceptional items total $53m charge and comprise: $32m costs incurred in relation to the group wide efficiency programme; $6m of acquisition costs; and a $15m one-off cost relating to the buy-out of the US pension liability.

A further $30m of costs related to the group wide efficiency programme were incurred by the System Fund and are included within System Fund expenses in the group income statement.

3Based on monthly average exchange rates each year with an additional adjustment removing the results from three properties in Venezuela.

4Excludes exceptional items and System Fund results

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