We delivered a 26% growth in operating profit before exceptional items and a five percentage point increase in operating margin over last year. These results were driven by the strength of our preferred brands, underpinned by our global systems and scale, resulting in 6.2% RevPAR growth, beating the industry in key markets such as the US and Greater China, and a 2% increase in hotel room count.
Revenue increased by 8.6% to $1,768m and operating profit before exceptional items increased by 25.9% to $559m during the 12 months ended 31 December 2011.
The 2011 results reflect continued revenue per available room (RevPAR) growth, with an overall RevPAR increase of 6.2%, including a 2.5% increase in average daily rate. The results also benefit from overall system size growth of 1.7% year on year to 658,348 rooms. RevPar growth remained strong throughout the year across the Group although there was some deterioration in Europe in the fourth quarter reflecting macroeconomic conditions.
Central overheads increased from $139m in 2010 to $147m in 2011, driven by increased investment to support growth in the business, offsetting non-recurring bonus costs.
As a result of growth in the business, together with strong cost control, operating profit margin was 40.6%, up 4.9 percentage points on 2010, after adjusting for owned and leased hotels, The Americas and Europe managed leases and significant liquidated damages received in 2011. This growth approximates to one percentage point after adjusting for a number of one-off benefits.
During 2011, the IHG global system increased by 43 hotels (11,187 rooms). Openings of 241 hotels (44,265 rooms) were driven by continued expansion in the US, in particular within the Holiday Inn brand family and Greater China. These openings offset the removal of 198 hotels (33,078 rooms). Removals in the US included 43 hotels (6,994 rooms) which were removed from the system as part of the renegotiation of the management contract with Hospitality Properties Trust, a major US owner group. Other openings included the Venetian and Palazzo resorts, under an InterContinental Alliance relationship, (6,986 rooms, included in franchised) as well as 25 hotels (4,796 rooms) managed on US army bases.
At the end of 2011, the pipeline totalled 1,144 hotels (180,484 rooms). The continued global demand for IHG brands is demonstrated by over 50% of pipeline rooms being outside of The Americas region, including 28% in Greater China.
Signings of 356 hotels (55,424 rooms) represented an increase in the number of hotels signed from 2010 levels (319 hotels). Momentum for the Hotel Indigo brand continued into 2011 with 19 signings, including entry into the Russian market, as well as the first Hotel Indigo resort in Phuket, Thailand.
During 2011, the opening of 44,265 rooms contributed to a net pipeline decline of 24,375 rooms. Active management out of the pipeline of deals that have become dormant or no longer viable, resulted in a further reduction of 35,534 rooms.
Revenue and operating profit before exceptional items increased by $23m (2.9%) to $830m and by $82m (22.2%) to $451m respectively.
Franchised revenue increased by $37m (8.0%) to $502m. Royalties growth of 8.5% was driven by RevPAR gains across the estate of 7.2%, including 7.9% for Holiday Inn Express, and was further boosted by continued improvement in the royalty rate achieved. Operating profit increased by $39m (9.9%) to $431m also benefiting from lower bad debt experience.
Managed revenue increased by $5m (4.2%) to $124m and operating profit increased by $31m (147.6%) to $52m. Excluding properties structured for legal reasons as operating leases but with the same characteristics as management contracts, as well as the benefit of a $10m liquidated damages receipt in 2011 and a $10m year-on-year benefit from the conclusion of a specific guarantee negotiation relating to one hotel, revenue grew by $7m. Growth was driven by a RevPAR increase of 8.8% across the estate. Although year-end system size was 6.0% lower than at the end of 2010, due to the phasing of removals towards the end of the year, rooms available during the year actually grew by 4.5%. Operating profit grew by $11m on the same basis, also benefiting from increased joint venture distributions.
Owned and leased revenue declined by $19m (8.5%) and operating profit grew by $4m (30.8%) to $17m. Excluding the year-on-year impact of hotel disposals, owned and leased revenue grew by $8m (4.2%) and operating profit by $7m (77.8%) reflecting RevPAR growth of 10.3%, including 11.2% at the InterContinental New York Barclay.
Revenue and operating profit before exceptional items increased by $79m (24.2%) to $405m and by $26m (33.3%) to $104m respectively.
Franchised revenue increased by $10m (13.2%) to $86m and operating profit by $10m (18.2%) to $65m. Growth was mainly driven by royalties growth of 11.4% reflecting RevPAR growth of 4.0%, together with an increase in system size. Revenues associated with new signings, relicensing and terminations increased by $2m.
Managed revenue increased by $48m to $118m (68.6%) and operating profit increased by $9m to $26m (52.9%) reflecting RevPAR growth of 5.5%, together with the year-on-year benefit of a $3m charge in 2010 with regard to guarantee obligations for one hotel. 2011 also included revenue of $46m and operating profit of $nil from two properties which were converted from management contracts to an operating lease structure with the same characteristics as management contracts.
In the owned and leased estate, revenue increased by $21m (11.7%) to $201m and operating profit increased by $11m (28.9%). RevPAR growth of 10.9% benefited from average daily rate growth of 10.3% across the year. The InterContinental London Park Lane and the InterContinental Paris Le Grand delivered strong year-on-year RevPAR growth of 7.3% and 14.5% respectively.
Revenue and operating profit before exceptional items increased by $3m (1.4%) to $216m and by $2m (2.4%) to $84m respectively. The region’s results were adversely impacted by the political instability throughout 2011 in the Middle East, together with the natural disasters in Japan and New Zealand.
Franchised revenue increased by $4m (26.7%) to $19m and operating profit by $4m (50.0%) to $12m. RevPAR in the franchised estate grew by 1.7%. Excluding Egypt, Bahrain and Japan, RevPAR grew by 4.4%.
Managed revenue decreased by $4m (2.6%) to $151m and operating profit decreased by $1m (1.1%) to $87m. The events of the Arab Spring together with the natural disasters in Japan and New Zealand had an estimated adverse impact of $11m on the results, whilst there was a further $4m adverse impact due to changes to certain management contract terms. Results did however benefit from a liquidated damages receipt of $6m during the year. RevPAR grew by 0.6% compared to 2010 and by 5.7% excluding Egypt, Bahrain and Japan.
In the owned and leased estate, revenue increased by $3m (7.0%) to $46m and operating profit increased by $1m (25.0%).
Greater China results
Revenue and operating profit before exceptional items increased by $27m (15.2%) to $205m and by $13m (24.1%) to $67m respectively.
Managed revenue increased by $17m (28.3%) to $77m and operating profit increased by $13m (43.3%) to $43m. Continued strong economic growth in the region helped to drive RevPAR growth of 10.3%. Excluding Shanghai, where RevPAR growth was tempered by strong comparatives due to the World Expo held in May to October 2010, comparable RevPAR grew by 17.4%. There was also continued significant system size growth for the managed estate in the region (14.2% rooms growth in 2011 and 12.6% in 2010).
Owned and leased revenue increased by $10m (8.6%) to $126m and operating profit increased by $4m (12.1%) to $37m. The InterContinental Hong Kong generated RevPAR growth of 13.4%.
During 2011, net central costs increased by $8m from $139m to $147m (5.8%). The movement was primarily driven by increased investment to support growth in the business. Central revenue mainly comprised technology fee income.
Other financial items
Exceptional operating items totalled a net gain of $35m. Exceptional gains included $37m from the disposal of hotels, including $29m profit on the sale of the Holiday Inn Burswood, a UK VAT refund of $9m, $20m net impairment reversals and a $28m pension curtailment gain in relation to the closure of the UK defined benefit pension scheme. Exceptional charges included a $22m litigation provision and $37m in respect of the settlement of a prior period commercial dispute in Europe.
Net financial expenses remained flat at $62m as costs relating to the new syndicated bank facility offset the impact of lower levels of net debt.
The effective rate of tax was 24% (2010 26%).
Basic earnings per ordinary share in 2011 was 159.2¢, compared with 101.7¢ in 2010. Adjusted earnings per ordinary share was 130.4¢, against 98.6¢ in 2010.
The Board has proposed a final dividend per ordinary share of 39.0¢ (24.7p). With the interim dividend per ordinary share of 16.0¢ (9.8p), the full-year dividend per ordinary share for 2011 will total 55.0¢ (34.5p).
Capital structure and liquidity management
During the year, $479m of cash was generated from operating activities, with the other key elements of the cash flow being proceeds from the disposal of hotels of $142m and capital expenditure of $194m. Overall, net debt decreased by $205m to $538m.
This Summary Financial Statement was approved by the Board on 13 February 2012 and signed on its behalf by Tom Singer. It does not contain sufficient information to provide as complete an understanding of the Group’s results and state of affairs as that provided in the Annual Report and Financial Statements 2011. That report may be obtained, free of charge, by writing to IHG or the Company’s Registrar, Equiniti.
The auditors have issued an unqualified report on the financial statements containing no statement under section 498(2) or 498(3) of the Companies Act 2006.