Company Results

IHG Profit Up 10%

IHG Preliminary Results for the year to 31 December 2013

InterContinental

Richard Solomons, Chief Executive of InterContinental Hotels Group PLC, said:

"2013 marked IHG's tenth anniversary as a standalone company, and was another year of strong performance. We delivered good underlying growth in revenues and profits, further reduced the capital intensity of the business and continued to generate high returns.

Over the last 12 months we entered into agreements to dispose of three owned InterContinental hotels, with total gross proceeds of almost $830m. This includes InterContinental Mark Hopkins, San Francisco which we have announced today. At the same time we are continuing to invest behind our award-winning brands and technology platforms to meet changing consumer behaviours and sustain our industry-leading position.

We opened 237 hotels and signed a further 444 hotels into our pipeline, the highest number for five years, thereby reinforcing our already strong brand distribution platform and with it the promise of further high quality growth.

Our decision to increase our ordinary dividend by 9% reflects our confidence in our proven strategy to deliver high quality growth. Our preferred portfolio of brands, brought to life by talented people and best in class delivery systems, will enable us to continue to drive out-performance in an industry which has compelling long term prospects. Looking into 2014, although economic conditions in some markets remain uncertain, forward bookings data is encouraging and we are confident that we will deliver another year of growth.”

Financial summary1201320122Actual% Change YoY
CER4Underlying5
Revenue $1,903m $1,835m 4% 4% 4%
Fee revenue $1,176m $1,135m 4% 4% -
Operating profit $668m $605m 10% 10% 8%
Adjusted basic EPS 158.3¢ 139.0¢ 14% - -
Basic EPS3 140.9¢ 187.1¢ (25)% - -
Total dividend per share 70.0¢ 64.0¢ 9% - -
Net debt $1,153m $1,074m - - -

Delivering high quality, sustainable growth

  • $21.6bn of total gross revenue from hotels in IHG's system, up 2% (3% CER)
  • Global comparable RevPAR growth of 3.8%, with rate up 1.8% and occupancy up 1.3%pts
    • Americas 4.3% (US 4.2%); Europe 1.7%; AMEA 6.1%; Greater China 1.0%.
    • Q4 global comparable RevPAR growth of 4.4%: Americas 4.0%; Europe 4.9%; AMEA 6.4%; Greater China 2.4%.
  • System size of 687k rooms (4,697 hotels)
    • Net growth of 1.6%, 2.3% excluding 17 hotel removals for which significant liquidated damages totalling $46m were received.
    • 35k rooms (237 hotels) opened6, 25k rooms removed (142 hotels). 20k room openings and 18k room removals for the Holiday Inn brand family reflects our continued commitment to improving the quality of our largest brand.
    • 65k rooms (444 hotels) signed6, up 22% year on year.
    • Pipeline of 180k rooms (1,120 hotels) with over 45% under construction.
    • 5% global industry supply, 12% active industry pipeline; well positioned to deliver sustainable high quality growth.
  • Building preferred brands
    • Clear focus on the needs of target guests has driven increased guest satisfaction across each brand globally.
    • Good momentum for our new brands with 21 HUALUXE Hotels & Resorts and 5 EVEN Hotels in the pipeline.
    • IHG Rewards Club relaunch, including free internet for all members (an industry first), has driven a 10%pt increase in awareness of IHG as a brand family.
  • Growing margins
    • Group fee margin of 43.2%, up 1.3%pts2, with scale benefits and cost efficiencies more than offsetting increased investment for future growth. Continued focus on sustainable fee margin progression over the medium term.

Capital Expenditure

  • Growth capital expenditure of $129m includes our first three owned EVEN Hotels, and was more than funded by $444m net cash proceeds from disposals. Maintenance capital expenditure of $140m.
  • In 2014 we expect to remain at the top end of our previously guided $250m-350m capital expenditure range due to increased investment in brands and technology platforms. IHG's 20% share of InterContinental New York Barclay's c.$175m refurbishment cost will be in addition to this.

Progress on asset disposals

  • InterContinental London Park Lane disposal completed on 1 May with up to 60 year management contract.
  • Disposal of 80% interest in InterContinental New York Barclay agreed with a c.$175m refurbishment, repositioning and extension of the hotel and up to 50 year management contract. Deal completion expected in Q1'14.
  • InterContinental Mark Hopkins, San Francisco disposal announced today for gross cash proceeds of $120m.

Americas – Good performance driven by solid RevPAR growth

Comparable RevPAR increased 4.3%, with 2.6% rate growth; fourth quarter RevPAR increased 4.0%. US RevPAR was up 4.2%, with 3.0% growth in the fourth quarter, despite weaker trading conditions in October during the US government shut down.

Reported revenue increased 9% (10% at CER) to $916m and operating profit increased 13% (13% at CER) to $550m. On an underlying5 basis, revenue and operating profit were both up 7%. This was driven predominantly by the franchise business where royalties were up 5% and fees associated with the initial franchising, relicensing and termination of hotels increased $6m. This was partly offset by an $8m decrease in fees received due to the hotels that exited in Q1 for which $31m of liquidated damages were received. Owned profits increased 25%, driven by RevPAR growth of 10.0% and 9.0% respectively at our InterContinental hotels in Boston and San Francisco.

We opened 20k6 rooms (173 hotels), including 12k rooms for the Holiday Inn brand family. Removals of 18k rooms (112 hotels) resulted from our on-going focus on high quality growth and included 2.5k rooms (8 hotels) related to the significant liquidated damages receipt in Q1. We signed 34k6 rooms (305 hotels) up 33% year on year. Signings included four hotels for the new EVEN Hotels brand, with the first of these due to open H1 2014, and 21k rooms for the Holiday Inn brand family.

2014:

In the first half of 2014 we expect to receive one $4m significant liquidated damages payment in our Americas franchise business. In 2013 the owned operating profit from the InterContinental New York Barclay was $14m and was $6m from InterContinental Mark Hopkins, San Francisco. The refurbishment of InterContinental New York Barclay is expected to have a $5m negative impact on Americas managed operating profit in 2014.

Europe – Solid growth led by priority markets

Comparable RevPAR increased 1.7% led by a 1.5%pt increase in occupancy. In the first nine months RevPAR grew 0.7%, then accelerated sharply in the fourth quarter to 4.9%. RevPAR growth was resilient in our priority markets, despite tough comparatives, with an increase of 3.0% in the UK and 0.8% in Germany. In France RevPAR grew 2.6%, with 5.3% growth at our owned InterContinental hotel in Paris.

Reported revenue decreased 8% (10% at CER) to $400m and operating profit decreased 6% (8% at CER) to $105m. On an underlying5 basis, revenue increased 3% and operating profit increased 10%, driven by a 7% increase in franchise royalty fees and a $3m property tax recovery at InterContinental Paris Le Grand.

Openings of 4k rooms (21 hotels) included two iconic InterContinental hotels, one in Marseille, France and the other in Davos, Switzerland. We also opened three new properties for the Hotel Indigo brand, in prime locations in Tel Aviv, Barcelona and Dusseldorf. We signed 8k rooms (50 hotels) of which seven hotels were in London, including InterContinental London The O2, our third hotel for the InterContinental brand in the city. We also signed seven hotels under multiple development agreements in Germany and Russia, covering several of our brands.

2014:

Our flagship owned InterContinental Paris Le Grand will commence an $8m refurbishment programme to enhance the historic Salon Opera ballroom and c.15% of the guest rooms; this is expected to have a $5m negative profit impact in 2014.

AMEA – Strong trading in key markets with increasing developing markets contribution

Comparable RevPAR increased 6.1%, with 6.4% growth in the fourth quarter. Strong trading in South East Asia and Japan led the performance with RevPAR up 9.9% and 9.6% respectively. Trading was solid in Australasia, up 4.5% and the Middle East, up 2.9%, despite geopolitical unrest continuing to impact our business in Egypt and Lebanon. An increasing mix of new rooms opening in developing markets means that total RevPAR grew 2.8%.

Reported revenue increased 6% (12% CER) to $230m and operating profit decreased 2% (increased 1% at CER) to $86m, including one $6m significant liquidated damages receipt in the second half. On an underlying5 basis, revenue was down 3% and operating profit down 8%. This reflects good underlying growth in our continuing managed business offset by a $10m fee reduction; $6m from long standing contracts renewed onto standard market terms, as previously disclosed, and $4m from some older hotels that we have removed from the system.

We opened 4k rooms (20 hotels) including five hotels in India and two hotels in Indonesia as well as our first InterContinental hotels in Osaka, Japan and Lagos, Nigeria, both flagships for the brand in those countries. We signed 9k rooms (36 hotels) in the region, 75% of which were for the Holiday Inn brand family and included a 1.2k room Holiday Inn in Makkah. We also signed an iconic InterContinental hotel in Sydney which is expected to open in the second half of 2014 following a comprehensive refurbishment.

2014:

Given the favourable long-term outlook in several of our markets in AMEA, there are a number of significant refurbishment programmes scheduled to take place in 2014 which we expect to have a $4m negative impact on IHG's fee income in the year.

Greater China – scale and premium position drove resilient performance despite challenging conditions

Comparable RevPAR increased 1.0% with 2.4% growth in the fourth quarter. IHG's scale and strength in the region drove significant outperformance compared to the industry throughout 2013. This reflects the resilience of our business despite the ongoing industry-wide challenges, including the impact of the China-Japan territorial island dispute, natural disasters in some regions and the slower macroeconomic conditions. An increasing mix of new rooms openings in developing markets means that total RevPAR was down 1.3% in 2013.

Reported revenue increased 3% (3% CER) to $236m and operating profit was up 1% (2% CER) to $82m. Managed profit was flat at $51m, reflecting 12% net room growth offset by the challenging trading conditions and our increased investment to drive future growth. Operating profit at our owned InterContinental hotel in Hong Kong increased by 4% with strong profit conversion and an 11% increase in food & beverage profits, despite flat RevPAR growth principally due to reduced Japanese business.

We opened 8k rooms in the year in Greater China, taking our system size in the region up 11% to 69k rooms (208 hotels), our 8th consecutive year of double digit room growth. Almost 90% of our signings in the year were outside primary cities, reflecting the alignment of our development strategy to future industry growth drivers. Openings included six hotels each for our InterContinental and Crowne Plaza brands, and two for Hotel Indigo, including the first for the brand in Hong Kong. Almost half of our 15k room signings were for the Holiday Inn brand family. 2k rooms signed for HUALUXE Hotels & Resorts in the year taking the pipeline for this brand to 21 hotels (7k rooms).

1 All figures are before exceptional items unless otherwise noted.

2 2012 restated for adoption of IAS 19R.

3 After exceptional items.

4 CER =constant exchange rates.

5 At CER & excluding owned asset disposals, results from managed lease hotels & significant liquidated damages

6 Openings & signings include 4k rooms on US Army bases in H1 2013

See appendix 3 for financial headlines and appendix 5 for definitions

Sources and uses of cash – strong free cash flow generation

  • Cash generation: Free cash flow of $502m up 11% year on year (2012: $454m). $444m net cash inflow from asset disposals.
  • Ordinary dividend: up 9% to 70 cents, 11% compound annual growth since 2003.
  • Good progress with return of funds to shareholders: $355m special dividend without share consolidation paid in October 2013. The $500m share buyback programme is 78% complete with 13.9m shares repurchased to date for $390m, with 9.8m shares repurchased during 2013 for $283m.

Interest, debt, tax, pension and exceptional items

  • Interest: 2013 charge of $73m (2012: $54m) reflects the increase in average net debt year on year, and the issuance of a £400m bond in November 2012.
  • Net debt: $1,153m at the end of the period (including the $215m finance lease on the InterContinental Boston). This is up $79m on the 2012 position of $1,074m as a result of the return of funds to shareholders in the year partly offset by the cash inflow from the disposal of the InterContinental London Park Lane.
  • Tax: Effective rate for 2013 is 29% (2012: 27%). 2014 tax rate expected to be in low 30s, as previously guided.
  • Pension: In August 2013 the trustees of IHG's UK pension plan completed a buy-in of the Group's UK funded defined benefit obligations with the insurer Rothesay Life as an initial step towards the full buy-out of the liabilities. As part of IHG's wider strategy to de-risk the balance sheet, this move removes the need for any further cash contributions by IHG in respect of these obligations.
  • Exceptional operating items: Net exceptional credit before tax of $5m (2012: $4m net charge). This includes an exceptional accounting charge of $147m related to the UK pension plan buy-in and a net credit of $166m related to the gain on disposal of the InterContinental London Park Lane.
  • Adoption of IAS 19 (Revised) Employee Benefits: adoption of this new accounting policy from 1 January 2013 has resulted in an additional $9m charge to operating profit for 2012, as reflected in the restated 2012 accounts.

Appendix 1: RevPAR Movement Summary

  Full Year 2013Q4 2013
RevPARRateOcc.RevPARRateOcc.
Group 3.8% 1.8% 1.3pts 4.4% 1.8% 1.6pts
Americas 4.3% 2.6% 1.1pts 4.0% 2.1% 1.1pts
Europe 1.7% (0.4)% 1.5pts 4.9% 1.1% 2.5pts
AMEA 6.1% 3.0% 2.1pts 6.4% 3.9% 1.8pts
G. China 1.0% (1.7)% 1.6pts 2.4% (2.4)% 3.0pts

 

Appendix 2: Full Year System & Pipeline Summary (rooms)

  SystemPipeline
  OpeningsRemovalsNetTotalYoY%SigningsTotal
Group 35,467 (24,576) 10,891 686,873 1.6% 65,461 180,461
Americas 19,775 (17,968) 1,807 451,424 0.4% 33,884 76,018
Europe 3,528 (3,489) 39 102,066 0.0% 7,542 17,779
AMEA 4,495 (2,394) 2,101 64,838 3.3% 8,687 32,074
G. China 7,669 (725) 6,944 68,545 11.3% 15,348 54,590

 

Appendix 3: Full Year financial headlines

Operating Profit $mTotalAmericasEuropeAMEAG. ChinaCentral
20132012120132012201320121201320122013201220132012
1 2012 restated for the adoption on IAS 19R
Franchised 595 547 499 466 79 65 12 12 5 4 - -
Managed 247 221 74 48 30 32 92 90 51 51 - -
Owned & leased 111 125 30 24 30 50 4 6 47 45 - -
Regional overheads (130) (126) (53) (52) (34) (35) (22) (20) (21) (19) - -
Profit pre central overheads 823 767 550 486 105 112 86 88 82 81 - -
Central overheads (155) (162) - - - - - - - - (155) (162)
Group Operating profit 668 605 550 486 105 112 86 88 82 81 (155) (162)

 

Appendix 4: Constant exchange rate (CER) and underlying operating profit movement before exceptional items

  Total***AmericasEuropeAMEAG. China
Reported Actual* CER** Actual* CER** Actual* CER** Actual* CER** Actual* CER**
Growth/ (decline) 10% 10% 13% 13% (6)% (8)% (2)% 1% 1% 2%
                     
Underlying**** Total*** Americas Europe AMEA G. China
Growth/ (decline) 8% 7% 10% (8)% 2%
Exchange rates: GBP:USD EUR:USD
2013 0.64 0.75
2012 0.63 0.78

 

* US dollar actual currency

** Translated at constant 2012 exhange rates

*** After central overheads

**** At CER and excluding: owned asset disposals, results from managed lease hotels and significant liquidated damages (see below for definitions)

Appendix 5: Definitions

Total gross revenue: total room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties. The metric is highlighted as an indicator of the scale and reach of IHG's brands.

Owned asset disposals: InterContinental London was sold on 1 May 2013. It accounted for $89m revenue and $33m profit in 2012 and $22m revenue and $8m profit in 2013 as an owned hotel.

Significant liquidated damages: total $46m in 2013 ($31m Americas managed in Q1, $9m Europe franchised in Q2, $6m AMEA managed in Q4) and $3m 2012 (Americas managed in Q4).

Comparable RevPAR: Revenue per available room for hotels that have traded for a full 12 months in both years, reported at CER.

Total RevPAR: Revenue per available room including results from hotels that have opened or exited in either year, reported at CER.

Fee revenue: Group revenue excluding owned & leased hotels, managed leases and significant liquidated damages.

Fee margin: adjusted for owned and leased hotels, managed leases and significant liquidated damages receipts.

Managed lease hotels: properties structured for legal reasons as operating leases but with the same characteristics as management contracts Americas: Revenue 2013 $34m; 2012 $34m; EBIT 2013 nil, 2012 nil. Europe: Revenue 2013 $89m; 2012 $80m; EBIT 2013 $2m, 2012 $2m. AMEA: Revenue 2013 $21m; 2012 nil; EBIT 2013 $1m, 2012 nil.

Appendix 6: Investor Information for 2013 final dividend

Ex-dividend date: 19 March 2014
Record date: 21 March 2014
Payment date: 9 May 2014
Dividend payment: Ordinary shares = 28.1 pence per share

ADRs = 47.0 cents per ADR



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