Half Year Results to 30 June 2014
|Interim dividend per share||25.0¢||23.0¢||9%||-||-||-|
Richard Solomons, Chief Executive of InterContinental Hotels Group PLC, said:
"We have achieved a strong first half performance, with our preferred brands continuing to drive good momentum through the second quarter. With underlying operating profit up 6% and solid net system growth, our long-term winning strategy is delivering results. This has given us the confidence to increase the interim dividend by 9%.
We have had our best half for signings4 in six years, underpinning our future growth prospects and demonstrating owners' preference for our brands. Openings included the first two EVEN Hotels in the US, a major milestone for this new brand, which satisfies a previously unmet guest need in the wellness segment.
We remain committed to reducing the asset intensity of the business, completing two asset disposals in the half, and good progress is being made with the strategic review of our remaining owned hotels. During the half we completed our $500m share buyback programme and in July we paid a $750 million special dividend, continuing our long track record of returning funds to shareholders.
Looking ahead, whilst several of our key markets continue to experience some political or economic uncertainty, we are encouraged by current trading trends.”
Driving Market Share
- Total gross revenue from hotels in IHG's system of $11.1bn, up 7% (7% CER)
- Operating profit up 6% on an underlying basis; down 8% on a reported basis
- Underlying profitability reflects adjustments for a net year on year operating profit impact of $(45)m, comprising: $(15)m from disposal of owned hotels; $(33)m from significant liquidated damages receipts, and $3m from managed leases.
- Global comparable RevPAR growth of 5.8% (rate up 2.3%)
- Americas 6.7% (US 6.6%); Europe 4.9%; AMEA 3.7%; Greater China 4.3%.
- Q2 comparable RevPAR up 5.7%: Americas 6.7% (US 6.7%); Europe 4.1%; AMEA 3.6%; Greater China 4.6%.
- Total system size of 693k rooms (4,732 hotels), 2.2% year on year growth
- 17k rooms (109 hotels) opened, led by 9k rooms in the Americas and 4k rooms in Greater China. 11k rooms removed in-line with our on-going commitment to quality.
- Pipeline of 187k rooms (1,175 hotels), over 45% under construction and over 50% in developing markets.
- Signings of 30k rooms (208 hotels), our best H1 for underlying4 signings since 2008, supported by continued improvements in the US financing environment.
- With 5% share of global industry supply, and 13% share of the active industry pipeline, we remain well positioned for sustainable high quality growth.
- Building preferred brands
- First two hotels opened for our new EVEN Hotels brand in June, with an excellent initial guest response.
- Holiday Inn and Crowne Plaza first half outperformance vs their US industry segments5.
- Holiday Inn ranked "Highest in Guest Satisfaction Among Mid-scale Full Service Hotel Chains" by J.D. Power and Associates for 4th year running.
- Best-in-class delivery
- Strong growth in mobile bookings: up 47% year on year.
- Strategic relationship with Amadeus formed as we continue to drive innovative solutions to enhance guest experiences across the Guest Journey.
- Fee based margin of 45.0%, up 1% point year on year
- Driven by cost efficiencies and scale benefits, with some impact from favourable cost phasing.
1 All figures are before exceptional items unless otherwise noted. Refer appendices for further financial information and definitions.
2 At constant exchange rates (CER) and excluding owned asset disposals, significant liquidated damages, and results from managed lease hotels. Underlying adjusted EPS is based on Underlying EBIT and uses effective tax rate and interest as reported at actual exchange rates.
Including exceptional items.
4 Adjusted for rooms on US Army bases: 2014: 2k signed, 2013: 4k signed and opened.
5 On a Total RevPAR basis.
Americas – Strong RevPAR growth and signings pace
Comparable RevPAR increased 6.7%, with 3.1% rate growth, and second quarter RevPAR also increased 6.7%. US comparable RevPAR was up 6.6% in the first half and 6.7% in the second quarter.
Reported revenue decreased 5% (CER (5)%) to $435m and reported operating profit decreased 5% (CER (5)%) to $268m, but on an underlying basis1, revenue increased 9% and operating profit increased 7%. This was driven primarily by our franchise business where royalties were up 7%. Underlying1 owned and leased hotel profits increased 80%, driven by 6.7% RevPAR growth at InterContinental Boston, and 30.5% RevPAR growth at Holiday Inn Aruba, which is benefiting from its recent refurbishment. Recent changes to the Venezuelan exchange rate had an unfavourable impact on managed operating profit of approximately $2m, with a further $2m impact expected in the second half.
We opened 9k rooms (74 hotels) in the half, including the first two properties for our new EVEN Hotels brand. Signings of 19k rooms (158 hotels) are up 25% year on year2, as the hotel debt financing environment continues to improve, and included over 100 hotels (12k rooms) for the Holiday Inn brand family. Maintaining the quality of our system by removing hotels that no longer meet the requirements of our brands remains a key focus, and we removed 7k rooms (54 hotels) in the first half. Excluding removals, gross rooms growth was 4%.
The refurbishment of InterContinental New York Barclay is due to commence in the third quarter, with the hotel closing for up to 18 months. IHG’s share of the second half loss associated with the hotel joint venture is still expected to be around $5m, which will be reflected in Americas managed results.
1 At CER & excluding owned asset disposals, significant liquidated damages and results from managed lease hotels. Year on year operating profit impact of $(31)m comprising (a) results from owned assets disposals of $(7)m ( H1'14: $(1)m; H1'13: $6m) (b) significant liquidated damages receipts of $(24)m (H1'14: $7m (franchised) of which $4m was previously announced; H1'13: $31m (managed)) and (c) results from managed lease hotels of $nil (H1'14: $1m, H1'13: $1m). Revenue impact set out in appendix 5
Excluding rooms on US Army bases: 2014: 2k signed, 2013: 4k signed and opened.
Europe – Strong trading performance in key markets
Comparable RevPAR increased 4.9%, with second quarter RevPAR up 4.1%. First half trading was particularly strong in the UK, up 8.7%, with high single digit growth in both London and the provinces, while Germany delivered another solid performance with RevPAR up 3.1%.
Reported revenue of $182m was down 12% (CER 16%) and reported operating profit of $38m decreased 28% (CER 32%), but on an underlying basis1, revenue was down 2% and operating profit down 3%. This reflects good operating profit growth in the managed and franchised business driven by mid-single digit RevPAR growth, offset by a $7m operating profit decline at our only remaining owned hotel in this region, InterContinental Paris – Le Grand (with $7m associated revenue decline). As previously guided, this was primarily due to the refurbishment of the historic Salon Opera ballroom and c.15% of the guest rooms at the hotel, with an additional small negative impact from the absence of the biannual Paris air show in 2014. No further impact is expected from the refurbishment for the full year.
We opened 3k rooms (18 hotels) in the half, including three Hotel Indigo hotels in the prime city locations of Rome, Madrid and St Petersburg. We signed 2k rooms (14 hotels) including two Holiday Inn hotels in Germany and three Holiday Inn Express hotels in the UK.
1 At CER & excluding owned asset disposals, significant liquidated damages and results from managed lease hotels. Year on year operating profit impact of $(16)m comprises (a) results from owned assets disposals of $(8)m ( H1'14: $nil; H1'13: $8m) (b) significant liquidated damages receipts of $(9)m (H1'14: $nil; H1'13: $9m (franchised)) and (c) results from managed lease hotels of $1m (H1'14: $nil, H1'13: $(1)m).
AMEA – Rate driven RevPAR growth and increasing contribution from developing markets
Comparable RevPAR increased 3.7% driven primarily by rate growth, with second quarter RevPAR up 3.6%. Excluding Thailand and Egypt where there has been ongoing political unrest, first half RevPAR increased 5.4%. Performance was led by Japan up 8.8% and South East Asia which, excluding Thailand, was up 7.2%. Australia and the Middle East continue to perform solidly with RevPAR growth of 6.0% and 4.1% respectively.
Total RevPAR grew 1.7%, reflecting an increasing mix of new rooms opening in lower RevPAR developing markets.
Reported revenue increased 15% (CER 19%) to $117m and operating profit decreased 7% (CER (7%)) to $38m. However, on an underlying basis1 revenue was flat, and operating profit decreased 12%. This reflects solid underlying growth in our managed business offset by a $2m increased investment to support future growth, a $3m negative impact from certain small one-off items, and $1m lower fees from our hotels in Thailand. The continuing political unrest in Thailand is expected to have a $2m impact on managed operating profit in the second half of the year. In addition, the managed hotel refurbishment programmes scheduled to take place in 2014, as previously disclosed, had no material impact on fees in the half, but are expected to have a $2m negative impact on fees in the second half of the year.
We opened 2k rooms (8 hotels) in the half, including the 442 room Holiday Inn Express Clarke Quay in Singapore and two Holiday Inn hotels in Japan. We signed 2k rooms (8 hotels) in the first half, including two new hotels in Abu Dhabi, which will mark the entry of a second InterContinental and second Holiday Inn property into the UAE capital.
1 At CER and excluding results from managed lease hotels. Year on year operating profit impact of $2m comprises results from managed lease hotels (H1’14: $2m, H1’13: $nil).
Greater China – Continued industry outperformance
Comparable RevPAR increased 4.3% driven by occupancy growth, with second quarter RevPAR up 4.6%. This performance was significantly ahead of the industry, which continues to experience a number of challenges including slower macro-economic conditions and austerity measures. Our industry outperformance reflects the strength of IHG’s brands in the region and the leading position we have built up over 30 years of operating in the Chinese market.
Total RevPAR for the region decreased 1.4% reflecting an increasing mix of new rooms opening in lower RevPAR developing markets as we increase our distribution across the country.
Reported (and CER) revenue and operating profit were in line with last year at $112m and $36m respectively. This reflects good growth in the managed business, where 16% net rooms growth drove strong incremental fees despite the total RevPAR declines. In addition, the on-going industry austerity measures have continued to impact our food and beverage revenues in the region, up 5% compared to rooms revenues up 9%. InterContinental Hong Kong, our only owned hotel in the region, reported a $3m decrease in revenue to $66m and a $3m decrease in operating profit to $19m due to the continuing impact from the significant redevelopment of the area adjacent to the hotel; this is expected to continue into the second half.
We opened 4k rooms (9 hotels) in the half, including five Crowne Plaza hotels, taking our system size for the brand in the region to 25k rooms. We signed 7k rooms (28 hotels) taking the pipeline to 55k rooms and reflecting the confidence owners have in IHG and the compelling long term growth opportunity for this region.
Sources and uses of cash
- Progress on asset disposals
- Strategic review of opportunities for further asset disposals is progressing well.
- Disposals of InterContinental Mark Hopkins San Francisco and an 80% interest in InterContinental New York Barclay completed with net cash proceeds of $346m.
- $13m proceeds received from recycled investments in the first half.
- Capital Expenditure
- $98m capital expenditure in the first half comprised: $52m maintenance capex and key money; $27m recyclable investments; and $19m system funded capital investments.
- Gross capex guidance remains unchanged at up to $350m per annum into the medium term.
- Continued return of funds to shareholders
- $763m1 returned to shareholders in July via $2.93 per share special dividend with 12 for 13 share consolidation.
$500m share buyback programme completed, including 3.4m shares repurchased for $110m in 2014.
- Ordinary interim dividend up 9% to 25¢ reflects confidence in IHG’s future prospects and our cash generative business model.
- $763m1 returned to shareholders in July via $2.93 per share special dividend with 12 for 13 share consolidation.
1 The difference from announced $750m is due to exchange rate movements.
Interest, tax, net debt, and exceptional items
- Interest: H1 charge of $39m (H1 2013: $36m) includes $1m impact from $/£ exchange rate movements. We expect higher interest charges year on year in the second half of 2014 following the payment of the special dividend in July.
- Tax: Based on the position at the end of the half, the tax charge has been calculated using an estimated annual tax rate of 33% (H1 2013: 31%). The full year tax rate is expected to be in the low 30s in 2014 and 2015.
- Net debt: $1,031m at the end of the half (including the $216m finance lease on the InterContinental Boston). This is up from $861m at 30 June 2013 as a result of the $350m special dividend paid in October 2013 and the completion of our $500m share buyback ($257m of which occurred in the 12 month period). Net debt is down on the year end position of $1,153m due to net cash inflow from disposals. The special dividend paid in July will increase net debt to approximately $1.8bn, equivalent to 2.5x last 12 months EBITDA.
- Exceptional items: net exceptional credit of $106m for the half comprised: $130m net gain on asset disposals, $14m charge relating to recent changes to the Venezuelan currency exchange rate mechanisms, and a $10m charge related to corporate restructuring.
Logos, product and company names mentioned are the property of their respective owners.