IHG Results

IHG Reports Full Year 2016 Dividend Per Share Increases 11 Percent

Global comparable RevPAR up 1.8% (Q4: 1.7%), led by rate up 1.2%, and record occupancy levels.


Financial Highlights

  • Strong underlying revenue growth driven by both RevPAR and rooms
    • Global comparable RevPAR up 1.8% (Q4: 1.7%), led by rate up 1.2%, and record occupancy levels.
    • Net room growth of 3.1%, including 8.8% in Greater China. 40k room openings, ~90% in our priority markets.
    • $24.5bn total gross revenue from hotels in IHG’s system (up 2% year-on-year; 4% CER).
  • High quality business model, continuing margin growth and low capital intensity drives operating cash flows
    • > 95% profit from the fee business; ~85% of fee revenue linked directly to hotel revenues.
    • Group fee margin of 48.8%, up 3.3%pts (2.5%pts CER); strong progression through efficiency improvements.
    • Net capital expenditure of $185m (gross $241m). Focused investments in brands and new Guest Reservation System, in which we will invest a further ~$90m in 2017 within existing capex guidance of up to $350m gross.
  • Commitment to efficient balance sheet and driving shareholder returns
    • $400m will be returned to shareholders via a special dividend with share consolidation, to be paid in Q2 2017.
    • Total returns since 2003 of $12.8bn, nearly $5bn of which is from underlying operations.
    • Year-end net debt:EBITDA of 1.9x, or 2.4x on a proforma basis assuming payment of the special dividend.
    • Proposed 11% increase in total dividend to 94.0¢ reflects confidence in our long-term sustainable future growth.

Strategic progress to enhance our long term competitive advantage

  • Strengthening our preferred brands
    • Expanded our luxury footprint and InterContinental Hotels & Resorts’ position as the largest luxury hotel brand with eight openings globally, including five in Greater China, and our highest room signings since 2008.
    • Strengthened our boutique portfolio, with six Kimpton openings including our first outside the US in Grand Cayman, three EVEN Hotels openings including two in New York and our first franchise, and opened our 75th Hotel Indigo.
    • Progressed the next phase of the Crowne Plaza refresh, announced in June, to accelerate growth in the Americas supported by $200m investment over 3 years (~$100m system funded, ~$100m within existing capex guidance).
    • Continued to roll out leading edge guest experiences for Holiday Inn Brand Family hotels; new public space designs now in 225 Holiday Inn Express hotels across US and Europe. New room designs driving guest satisfaction uplifts.
    • Signed 20 Holiday Inn Express hotels in Greater China in 8 months, under our new tailored franchising model, taking the total signed for the brand in the region to 47 hotels.
  • Growing through targeted hotel distribution
    • Signed 76k rooms into the pipeline, representing over 500 new hotels, the highest number of deals signed since 2008, demonstrating owner confidence in our brands.
    • 230k pipeline rooms, up 8%; ~ 45% under construction and ~90% in our ten priority markets.
  • Driving revenue delivery through technology and loyalty
    • Industry-leading cloud-based Guest Reservation System remains on track to begin roll-out in 2017.
    • Digital revenue of $4.3bn, up ~$0.3bn year-on-year, with mobile delivering over 50% of digital traffic and $1.6bn of gross revenues globally, and ~60% of direct bookings in Greater China.
    • Enhanced IHG Rewards Club with the launch of Your Rate, our preferential member pricing initiative, which has helped to increase loyalty contribution by 2%pts and driven enrolments up 16% year-on-year.

Preliminary Results for the year to 31 December 2016

20162015 %Change 20162015%Change
Revenue $1,715m $1,803m -4.9% $1,582m $1,513m 4.6%
Fee revenue3 $1,380m $1,349m 2.3% $1,409m $1,349m 4.4%
Operating profit $707m $680m 4.0% $702m $641m 9.5%
Adjusted EPS 203.3¢ 174.9¢ 16.2% 203.1¢ 165.0¢ 23.1%
Basic EPS4 195.3¢ 520.0¢ (62.4%)
Total dividend per share 94.0¢ 85.0¢ 11%
Net debt $1,506m $529m

1All figures before exceptional items unless otherwise noted. 2Excluding owned asset disposals, managed leases and significant liquidated damages at constant FY15 exchange rates (CER). Underlying adjusted EPS based on underlying EBIT, effective tax rate, and reported interest at actual exchange rates. 3Group revenue excluding owned & leased hotels, managed leases and significant liquidated damages. 4After exceptional items.

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

“Our results clearly demonstrate our strong operational performance and the success of IHG’s long-term strategy, which have delivered a 9.5% increase in underlying profit and a 23% increase in underlying EPS. Our cash generative business model underpins our decision to announce a $400 million special dividend and to propose an 11% increase in the total dividend for the year.

We continued our focus on enhancing the long-term sustainability of our competitive advantage by evolving our brand portfolio and by driving innovation in our digital and loyalty offer. We rolled out new formats across our Holiday Inn Brand Family which deliver significant uplifts in guest satisfaction and improved returns for owners, built momentum for our HUALUXE and EVEN Hotels brands, and took Kimpton Hotels & Restaurants and Hotel Indigo into new markets. We also strengthened our loyalty proposition through initiatives including ‘Your Rate’ helping to drive a 16% increase in member enrolments.

The fundamentals for the hospitality industry remain compelling. Despite the uncertain environment in some markets, we remain confident in the outlook for the year ahead, as well as our ability to deliver sustainable growth into the future.”

Americas – Rate led US RevPAR increase driving strong profit growth

Comparable RevPAR increased 2.1% (Q4: up 1.5%), driven by 2.0% rate growth. US RevPAR was up 1.8%, led by Holiday Inn up 2.5% and Kimpton up 2.9%. Fourth quarter US RevPAR growth of 1.3% continued to be impacted by our concentration in oil producing markets, where RevPAR was down 6.1%; the remainder of the estate grew 2.2%.

Reported revenue increased 4% (up 5% at CER) and profit increased 6% (up 7% at CER).

On an underlying1 basis, revenue was up almost 6% and operating profit up almost 8%. Franchise profit increased 5%, driven by RevPAR up 1.9% and rooms growth of 2.0%, which more than funded additional investment in development resources. Managed profit includes an unusually high number of small liquidated damages receipts ($4m total in H2). This was offset by $8m related to our 20% interest in InterContinental New York Barclay and the ongoing impact of new supply on RevPAR growth in New York. We expect a high level of new supply to continue to impact trading in New York in 2017, and that we will continue to incur costs relating to the joint venture as the hotel ramps up post repositioning, although these will largely be offset by related management fees. Regional overheads declined by $11m on an underlying basis due to a $10m year-on-year decrease in US healthcare costs.

Opened 24k rooms (188 hotels), our highest level of openings in 5 years, with more than half driven by our Holiday Inn Brand Family. Our continued focus on maintaining a high-quality estate meant that we removed 15k rooms (103 hotels). We signed 37k rooms (332 hotels), including 9k rooms (93 hotels) for our extended stay brands, and 2k rooms (19 hotels) across our boutique brands, including a Kimpton in Grenada, our first entry into the country.

Europe – Market outperformance in priority markets and highest rooms signings for 9 years

Comparable RevPAR increased 1.7% (Q4: up 3.1%), driven by rate up 1.4%. UK RevPAR increased 2.6%, led by a robust fourth quarter (up 4.6%) which was boosted by a strong end to the year for tourist arrivals and leisure travel generally. In Germany, RevPAR growth of 6.8% benefitted from a favourable trade fair calendar. Across the rest of Europe, RevPAR declined by 0.5%, impacted by challenging trading conditions in France, Turkey and Belgium.

Reported revenue declined 14% (10% at CER) and reported operating profit was down 4% (flat at CER), both impacted by the sale of InterContinental Paris – Le Grand in 2015.

On an underlying1 basis, revenue was up 1% and operating profit was flat. Franchise profit grew 8%, driven by RevPAR up 2.0% and rooms growth of 2.8%. Managed profit declined by 22% due to difficult trading conditions for our hotels in Paris and the impact of three hotels in key cities as reported in our interim results.

Opened 4k rooms (24 hotels) including the 706 room Holiday Inn Kensington London. We signed almost 10k rooms (60 hotels) into our system, our highest rooms signings since 2007. This included a record 17 properties in Germany, a third consecutive record year for the country, where we now have more than 100 properties open or in the pipeline.

AMEA – Solid trading offset by oil markets

Comparable RevPAR decreased 0.2% (Q4: flat), with rate declines offset by occupancy gains. Performance outside the Middle East continued to be strong with 3.7% RevPAR growth overall. We continued to outperform the market in India, delivering RevPAR growth of 14.1%, driven by strong corporate business and inbound tourism. South East Asia (+2.0%), Australia (+2.9%), and Japan (+3.6%) saw good trading, the last against tough comparables. The Middle East continued to be impacted by declining oil prices, ending the year down 7.0%.

Total RevPAR was down 2.0% for the year (Q4: down 2.1%) impacted by the proportion of hotel openings in developing markets (2016: ~60%) where RevPARs are significantly lower than developed markets. We expect the proportion of hotels in developing markets to continue to grow (~65% pipeline vs ~45% system) as we execute our strategy to grow rapidly in markets where the long term demand drivers are favourable and where we see the largest opportunities for growth. This, combined with a number of other individually small items, means we expect managed profit in 2017 to be broadly in line with 2016.

Reported revenues declined 2% (down 3% at CER) with profit down 5% on both an actual and constant currency basis.

On an underlying1 basis, revenue was down 4% and operating profit decreased 4%. Managed profit increased 8%, excluding the $7m reduction flagged at the half year results relating to three long-standing contracts being renewed onto standard market terms and one equity stake disposal.

We opened 4k rooms (17 hotels) including two hotels in Singapore, our first Hotel Indigo and a 451-room Holiday Inn Express, our largest for the brand in the region. Openings also included our first Holiday Inn Express in Australia, the first of a larger portfolio development across Australasia. We signed 11k rooms (42 hotels), and entered into an agreement to develop a portfolio of EVEN Hotels in Australia and New Zealand.

Greater China – Market outperformance and rooms growth drive strong fee revenue increase

Comparable RevPAR increased by 2.2%, with growth of 3.9% in mainland China offset by declines in Hong Kong and Macau. Fourth quarter RevPAR grew by 3.2% benefitting from 2.8% growth in Hong Kong, the first positive quarter there since late 2014. Full year growth was particularly strong in mainland tier 1 cities, up 6.3%, driven by strong corporate demand, with the rest of the mainland up 2.2%. As we continued to increase our penetration in less developed cities, full year total RevPAR declined 3.1%.

Reported revenue and operating profit declined by 43% (41% at CER) and 36% (33% at CER) respectively, both affected by the disposal of InterContinental Hong Kong in 2015.

Underlying1 revenue was up 13% driven by trading outperformance in key cities and nearly 9% net system growth. Underlying1 operating profit increased 15%, with ongoing investment in growth initiatives more than offset by scale efficiencies and strategic cost management.

Opened 8k rooms (29 hotels). We opened five InterContinental Hotels & Resorts properties including our third in Beijing and our fifth in Shanghai, now the most in any city globally. We also opened our fourth HUALUXE hotel. Signed 19k rooms (82 hotels), including 20 franchised Holiday Inn Express hotels since launching the new China franchise model in May.

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

  • Fee margin growth through strategic cost management
    • Continued focus on strategic cost management. Reported central overheads declined $23m, or $12m on a constant currency basis, benefitting from a $9m increase in central revenues and efficiency improvements.
    • Group fee margin of 48.8%, increased 3.3%pts (2.5%pts CER). In 2017, we will leverage scale and control costs to drive fee margin progression, but at a slower rate than 2016 after 560pts of margin expansion in the last 3 years.
  • Strong free cash flow generation fuelling investment
    • Free cash flow of $646m, up 39% year on year (2015: $466m), including a $95m cash receipt on behalf of the system fund from the renegotiation of long term partnership agreements.
    • $241m gross capital expenditure in 2016 (2015: $264m) comprised of: $96m maintenance capex and key money; $40m recyclable investments; and $105m system funded capital investments, offset by $25m proceeds from asset recycling and $31m system fund depreciation received via working capital, resulting in $185m of net capex.
    • Gross capex guidance unchanged at up to $350m per annum into the medium term.
  • Efficient balance sheet provides flexibility
    • Financial position remains robust, with an on-going commitment to an investment grade credit rating by maintaining our net debt:EBITDA ratio at 2.0x to 2.5x.
    • Issued a £350m, 10-year bond in August 2016, at a 2.125% coupon rate, the lowest funding rate IHG has achieved in the Sterling bond market.
    • Year-end net debt of $1,506m (including $227m finance lease on InterContinental Boston), up $977m on 2015 due to the $1.5bn special dividend paid in May 2016. Closing net debt is $205m lower due to the impact of exchange rates.
  • Shareholder returns demonstrating confidence in future growth prospects
    • Proposed 11% increase in the final dividend to 64.0¢, taking the total dividend for the year up 11% to 94.0¢, reflecting our confident outlook on our ability to continue delivering sustainable growth into the future.
    • Proposed $400m special dividend with share consolidation, equating to 202.5¢ per share.

Foreign exchange – volatile currency markets impact reported revenues and profit

Cost benefits from the devaluation of sterling against the dollar were broadly offset by revenue impacts of the strong dollar against a number of currencies, reducing reported profit by $1m.

If the closing December 2016 exchange rates had existed through the first half of 2016, reported operating profit for that period would have reduced by $1m.

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

Interest, tax and exceptional items

Interest: Net financial expenses remained flat at $87m principally due to the devaluation of sterling against the dollar offsetting interest related to the £350m bond raised in August 2016. Annualised bond interest costs will reduce in 2017 following the expiry of the £250m, 6.0% coupon rate bond in December 2016.

Tax: Effective rate for 2016 was 30% (2015: 30%). 2017 tax rate expected to be low 30s.

Exceptional operating items: Exceptional operating items of $29m include $13m related to the Kimpton integration and $16m of impairment charges related to the Barclay associate which owns InterContinental New York Barclay.

1 Excluding owned asset disposals, managed leases and significant liquidated damages at constant FY15 exchange rates (CER).

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