Continuing operating profit up 19% from £200m to £237m
Headlines
• System size increase of 5%, 28,848 net rooms, taking total to 585,094 (3,949 hotels).
• Global constant currency RevPAR growth of 7%.
• Total gross revenue* from all hotels in IHG's system of $18bn, up 14% in constant currency.
• Continuing revenue up 12% from £786m to £883m, up 20% at constant currency.
• Continuing operating profit up 19% from £200m to £237m, up 30% at constant currency.
• Operating profit including discontinued operations up 6% from £231m to £245m.
• Adjusted continuing earnings per share up 23% from 38.0p to 46.9p. Total basic earnings per share of 72.2p.
• Final dividend up 12% to 14.9p. Total dividend of 20.6p, up 12%. £3.5bn returned to shareholders since March 2004.
• 2007 signings up 22% to 125,533 rooms (873 hotels). Fourth quarter signings of 41,908 rooms, taking pipeline to 225,872.
• January 2008 global constant currency RevPAR growth of 5.4%
Commenting on the results and trading, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:
"IHG delivered a strong performance in 2007 reporting continuing revenue growth of 20% in constant currency. The number of rooms in our system grew by a record 5% and global RevPAR increased 7%, with all our brands out-performing in their major markets across the world. We signed almost 900 hotels into our development pipeline during the year, more than three times the number signed in 2003, our first year as an independent company.
"We are continuing to strengthen our brands, and to expand their geographic reach. The 2005 relaunch of the InterContinental brand is now delivering major benefits, with significant RevPAR outperformance and a further 33 new hotels signed in the year. During the year we announced the relaunch of our biggest brand, Holiday Inn, and the response from our owner community has been very positive. Following continued success in the US, Hotel Indigo and Staybridge Suites will be opening in the UK in 2008, and we have plans for their wider geographic roll-out.
"We have the biggest development pipeline in the industry and this will deliver another high level of hotel openings in 2008. With our broadly based portfolio of brands and our resilient fee based business model we are positioned well for future growth in what is now a less predictable economic environment."
Rooms - record signings and openings
• 125,533 rooms were signed in 2007, with excellent growth across all brands and all regions. In Greater China, where we are the largest non-domestic hotel operator, 70 hotels, 25,590 rooms, were signed in the year. In the Middle East 19 hotels, 5,307 rooms, were signed, doubling the pipeline in that region. 33 InterContinental hotels were signed, and in January 2008 IHG signed a 40 year agreement to manage an InterContinental branded hotel in the Times Square area of New York which is expected to open in mid 2010.
• 52,846 rooms were added to the system including 3,542 rooms (15 hotels) through the IHG ANA joint venture. In line with our strategy of driving quality growth 23,998 rooms were exited, giving net room additions of 28,848 rooms. IHG has now added 47,419 rooms towards its three year target of adding 50,000 to 60,000 net rooms by the end of 2008.
• The pipeline of hotels now stands at 1,674 (225,872 rooms). The global pipeline of Holiday Inn brand family hotels grew by 204 hotels (26,793 rooms) to 1,077 hotels (127,087 rooms), and represents a 30% share of future pipeline supply in the US midscale segment. The InterContinental pipeline stands at a record 62 hotels, representing 39% of its current rooms open.
Strengthening Operating System
Strong revenue delivery to hotel owners through reservation channels and loyalty programme, Priority Club Rewards:
• $6.8bn of rooms revenue booked through IHG's reservation channels, up 19% and representing 45% of total rooms revenue.
• $5.2bn of rooms revenue from Priority Club Rewards members, up 16% and representing 35% of total rooms revenue.
• Internet revenues increased from 16% to 17% of total rooms revenue, 85% from IHG's own websites.
Disposals and returns of funds
In 2007 disposal proceeds of £106m were received. This included the sale of IHG's 33.3% interest in Crowne Plaza London The City for £19m, the disposal of Crowne Plaza Santiago for £11m and Holiday Inn Disney, Paris for £14m, and the sale of IHG's 74.11% interest in the InterContinental Montreal for £17m.
In 2007 £709m was paid to shareholders by way of a special dividend with associated share consolidation and 7.7m shares were repurchased at a cost of £81m. This leaves £100m of a previously announced £150m share buyback programme to be completed and takes the total returned to shareholders since March 2004 to £3.5bn. There were 295m shares outstanding at the end of December, 291m after the deduction of shares in the ESOP and 299m on a fully diluted basis.
IHG's net debt at the period end was £825m including the $200m (£100m) finance lease on the InterContinental Boston.
Americas: strong revenue and profit growth
Revenue performance
RevPAR increased 6.1% with rate generating all of the increase. InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express each outperformed their market segments, with RevPAR up 10.1%, 7.5%, 4.9% and 6.7% respectively. In line with the industry, RevPAR growth moderated in the fourth quarter as a result of slight occupancy declines. Continuing revenue grew 16% from $778m to $902m driven by 34% growth in revenues from owned and leased hotels and 10% growth in managed and franchised revenues.
Operating profit performance
Operating profit from continuing operations increased 11% from $395m to $440m. Continuing owned and leased hotels profit increased from $22m to $40m, driven by 14% RevPAR growth at the InterContinental New York and an $11m increased contribution from the InterContinental Boston which opened in November 2006. While managed hotels revenues grew strongly, up 9%, after the impact of increased revenue investment to support new signings and openings and $6m of charges not related to underlying trading, profit fell $9m to $41m. Franchised hotels profit increased 11% to $425m reflecting RevPAR growth of 5.8% and net rooms growth of 4.0%.
EMEA: strong RevPAR and profit growth
Revenue performance
RevPAR increased 8.6%, driven by increased occupancy and 6.3% rate growth. The Middle East continued to perform strongly, raising RevPAR by 19.6%. Continental Europe grew RevPAR by 7.6%, with strong increases in France of 10.3% but slower growth in Germany due to the year on year impact of the football 2006 World Cup. In the UK, Holiday Inn and Holiday Inn Express outperformed their market segment with RevPAR growth of 6.3%.
Operating profit performance
Operating profit from continuing operations increased 81% from £37m to £67m. Continuing owned and leased hotel operations improved £21m to £17m. The InterContinental London Park Lane contributed £14m of the improvement following the completion of its refurbishment at the end of June 2007. The performance of the InterContinental Paris Le Grand continued to strengthen with a 14% RevPAR increase and improved profit margins. Managed hotels profit increased 16% from £37m to £43m benefiting from retained management contracts on assets sold in 2006. Franchised hotels profit increased 21% from £24m to £29m reflecting RevPAR growth of 7% and net rooms growth of 10%.
Asia Pacific: strong revenue and profit growth with growing contribution from China and Japan
Revenue performance
RevPAR increased 8.9%, mainly driven by rate. All brands performed strongly with InterContinental up 11.1%, Crowne Plaza up 6.5%, Holiday Inn up 8.7% and Holiday Inn Express up 11.0%. Greater China RevPAR increased 7.0%, driven by rate increases. Continuing revenues grew 27% from $204m to $260m, driven by 52% growth in managed revenues and the doubling of franchised revenues.
Operating profit performance
Operating profit from continuing operations grew 21% from $52m to $63m. Owned and leased hotels operating profit increased 16% to $36m. Managed hotels profit grew 18% to $46m. The contribution from the increasing number of hotels under IHG management was partly offset by the previously disclosed integration and ongoing costs associated with the ANA joint venture in Japan and continued infrastructure investment in China. Franchised hotels profit increased 20% to $6m driven by RevPAR growth of 15% and net room count growth of 13%, offset by the impact of higher costs associated with the ANA joint venture in Japan.
Overheads, Tax and Exceptional items
Total regional overheads increased £4m to £68m. Central overheads were flat at £81m.
The effective tax rate for 2007 is 22%, the underlying rate before the impact of prior year items is 36%. As previously disclosed the effective tax rate will be volatile in the immediate future and trend upwards over time. The effective tax rate in 2008 is expected to be in the mid to high 20's.
In 2007 IHG announced its intention to make a non-recurring revenue investment of up to £30m to accelerate implementation of the global relaunch of the Holiday Inn brands, which will be treated as an exceptional item in 2008. IHG expects to generate a strong return on this investment through RevPAR increases on completion of the relaunch.
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