InterContinental Hotels, reported a 38 percent rise in first-quarter profits on Thursday as it said demand in the UK, U.S. and Asia was remained strong but the outlook for Continental Europe was unpredictable.
Key Highlights
• Hotels operating profit increased from £46m to £65m, despite the typically weak Easter trading period falling in March, versus April in 2004. This increase includes a £15m benefit from no depreciation being charged under IFRS on assets held for sale.
• Hotels managed and franchised profit increased 9% from £53m to £58m.
• Group operating profit increased from £51m to £76m.
• Adjusted earnings per share increased from 5.7p to 7.5p.
• RevPAR increased 6.8% across the group. Americas and Asia Pacific saw strongest, primarily rate-driven, growth.
• System size grew by 1,000 rooms with 8,500 rooms opened. 12,000 new rooms signed, taking pipeline to a record 85,300 rooms, 16% of current system size.
• Further progress on hotel assets disposals, including sale of Crowne Plaza United Nations for $34m announced yesterday. Sale of UK estate completed and £960m further cash proceeds received, taking sales completed to £1.8bn to date.
Commenting on the results, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:
"We have made a positive start to the year. Our asset disposal programme is progressing well and RevPAR in each of our regions is up year on year. We have seen many encouraging performances across our portfolio including Holiday Inn in the UK, and InterContinental, Staybridge and Candlewood Suites in the US. Priority Club Rewards, our loyalty scheme, continues to grow, as do bookings made through our reservations systems, increasing our delivery to our owners and franchisees. I believe we have many further opportunities to build the business on this solid base."
International Financial Reporting Standards (IFRS)
This is IHG's first accounting period under IFRS. Before significant non-trading items, IFRS earnings from continuing operations for the quarter do not materially differ from earnings under UK GAAP. However, under IFRS no depreciation is charged on assets held for sale. In the case of IHG's disposal programme this represents a £15m saving in depreciation in the quarter.
Americas
RevPAR grew 7.6% in a strong market, mainly driven by rate growth. Corporate group business was particularly strong. InterContinental and IHG's extended stay brands continued to outperform their market segments. The Holiday Inn brand family maintained a significant RevPAR premium to their market segments in the period.
Operating profit increased 35% from $62m to $84m, including an IFRS $7m depreciation benefit from assets held for sale. Improved profitability was driven by RevPAR and margin improvements across the business. InterContinental properties performed well, particularly those hotels in New York, Miami and Buckhead, Atlanta, which opened in November 2004 and is beating management expectations. Profit from managed hotels increased significantly, driven largely by the performance of InterContinental, Staybridge and Candlewood Suites. Franchised business profit saw gains through RevPAR increases and a higher level of fees from franchise sales, with 9,400 rooms signed in the quarter versus 5,200 rooms in Q1 2004.
EMEA
RevPAR grew 3.1%, with performances varying across different markets. In the UK, Holiday Inn RevPAR grew 5.2%, outperforming the market. Growth was driven by a higher level of business travel and a favourable guest response to recent management initiatives. RevPAR in Continental Europe was flat, although the InterContinental brand experienced some growth, led by InterContinental Le Grand Paris.
Operating profit increased 63% from £16m to £26m. This includes an IFRS £11m depreciation benefit from assets held for sale offset by the negative impacts, totalling approximately £5m, from the refurbishment disruption at the InterContinental London and the receipt of a lower level of liquidated damages than in Q1 2004.
Asia Pacific
RevPAR grew 8.0%, driven by rate. Strong demand in China and Hong Kong was a major driver of the growth.
Operating profit increased 33% from $12m to $16m, underpinned by the performance of the InterContinental Hong Kong. Profits also grew at managed properties in the region, driven by continued strength in China, Australia and New Zealand.
System and pipeline size
System size increased to 535,200 rooms from 534,200 at 31 December 2004. Net room additions were 3,200, but 2,200 room exits from disposals without flag (400 rooms) and hotels permanently damaged by hurricanes in 2004 (1,800 rooms) reduced the reported increase to 1,000 rooms. 8,500 rooms were added, and 5,300 rooms removed. Key openings in the quarter included InterContinental Aphrodite Hills Resort in Cyprus, InterContinental Abu-Soma Resort in Egypt, Crowne Plaza Helsinki and Crowne Plaza Acapulco.
A high level of pipeline activity was maintained with 12,000 room signings leading to a record pipeline size of 85,300. 75% of pipeline rooms are in IHG's key markets of US, UK and China.
Revenue delivery to IHG's hotel owners
Room nights booked through IHG's reservation channels increased from 35% to 37%, and those booked via Priority Club Rewards from 28% to 29%. Bookings through the Internet have increased over the past year from 12% to 14%, and the proportion of those through IHG's own websites from 74% to 81%. Priority Club Rewards membership increased by over a million members in the quarter, and now stands at 24.8 million, the largest loyalty scheme in the hotel industry.
Asset sales
Good progress has been made, with 123 hotel disposals announced, including the $34m sale of the Crowne Plaza United Nations announced yesterday morning. The UK estate disposal has been completed and £960m further cash proceeds received, taking to £1.8bn the proceeds since separation.
Britvic
Operating profit increased 22% to £11m, as a result of management action to improve manufacturing efficiency and reduce costs. Net revenue increased 1% and branded volume 3%. The Ben Shaws acquisition has been integrated, with the Pennine Spring water brand rolled out through Britvic's distribution channels. This acquisition gives Britvic its own spring water brand in this fast growing market segment. The soft drinks market remains competitive, especially in carbonates, though Pepsi has maintained market share in this challenging sector. Britvic's J2O brand continued to gain market share over the last twelve months.
Current trading
While the first quarter delivered satisfactory trading, seasonally it is the smallest quarter. Although bookings are ahead of the same time last year, booking lead times remain short. The US, UK and Asia continue to display strong demand, whereas the outlook for Continental Europe remains unpredictable with low visibility.
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