Interim Results Announcement

Half Year Results to 30 June 2015

Strong first half results

¹All figures before exceptional items unless otherwise noted. ²Excluding Kimpton, owned asset disposals, significant liquidated damages, and results from managed lease hotels, at constant H1 2014 exchange rates (CER). Underlying adjusted EPS based on underlying EBIT, effective tax rate, and reported interest at actual exchange rates. ³Group revenue excluding impact of Kimpton, owned & leased hotels, managed leases and significant liquidated damages. ⁴After exceptional items. ⁵Underlying operating profit of $320m at actual H1 2015 exchange rates. 

Richard Solomons, Chief Executive of InterContinental Hotels Group PLC, commented: “We continued to make strong progress against our winning strategy in the first half, strengthening our brands, loyalty programme and owner proposition. We delivered our best first half for signings since 2008, underlying fee revenue growth of 9%, and underlying profit2 growth of 10%, giving us the confidence to increase the interim dividend by 10%.

Our preferred brands demonstrated their continued momentum as we signed the highest number of Holiday Inn rooms ever in the first half, including the two largest properties for the brand, and strengthened our leadership position in the fast growing boutique segment. Alongside this we continue to make great progress delivering against our technology objectives, introducing a number of new digital initiatives that have helped drive almost 50% growth in mobile revenue.

The completion of the sale of InterContinental Paris – Le Grand for €330m, and agreement to sell InterContinental Hong Kong for $938m, marks the successful finalisation of our major owned asset disposal programme, which has realised gross proceeds of $8bn.

Looking forward, based on current trading trends, we remain confident in the outlook for the rest of the year.”

Financial Highlights

• Strong fee revenue growth in all regions
  • Global comparable H1 RevPAR up 5.1%, with growth across all regions. Q2 comparable RevPAR growth of 4.4%.
  • $11.2bn total gross revenue from hotels in IHG’s system (up 1% year-on-year; 7% CER).
  • Underlying fee revenue up 9%, leveraging both RevPAR and room growth. Reported fee revenue up 4%, negatively impacted by foreign exchange translation.
• Focus on disciplined execution
  • Finalised major owned asset disposal programme with agreed sale of InterContinental Hong Kong for $938m.
  • Underlying operating profit² growth up 10% (reported up 9%) driven by our focus on efficient execution.
  • Group fee-based margin up 1.8%pts year on year to 46.8%, benefiting from scale growth. 
  • 10% increase in interim dividend to 27.5¢ demonstrating strong momentum behind the business.

Strategic Progress

• Enhancing our portfolio of preferred brands
  • Holiday Inn brand family continues to deliver global growth with highest ever number of first half room signings, eight years on from commencing the industry’s most successful brand relaunch.
  • Extended stay brands accelerating scale with highest number of openings and signings since 2010, and over 100 Staybridge Suites hotels in the pipeline.
  • Our boutique hotel brands continue to grow strongly. We have opened five new Kimpton hotels since its acquisition in what is expected to be the best year for additions in the brand’s history, and we opened Hotel Indigo in two new geographic markets.   
• Building and leveraging scale
  • Added 28k rooms (including Kimpton acquisition), increasing total system size to 724k rooms, representing year-on-year net system size growth of 4.5%.
  • 41k first half room signings, our most since 2008, delivered a closing pipeline of 214k rooms, with almost 100k rooms under construction, our highest ever.
  • 86% of open rooms and 90% of pipeline in our 10 priority markets.
  • 5% share of global industry supply, 13% share of active industry pipeline; well positioned to drive future growth.
• Driving digital capability and enhancing loyalty
  • Pioneering partnership with Amadeus to develop the industry’s first cloud-based Guest Reservation System.
  • Digital channel delivery tracking at over $4bn per annum, driving revenue at a low cost of sale to our owners.
  • Introduced more guest solutions for our #1 rated mobile app, driving over 50% growth in mobile app downloads and 48% growth in mobile revenue to over $1bn on an annualised basis.
  • Enhanced our loyalty offer through IHG Rewards Club, launching a new top tier, Spire Elite, and rolling out new in-hotel customer relationship management capability across the global estate.

Americas – Rate driven RevPAR growth and highest signings in seven years

Comparable H1 RevPAR increased 5.4%, driven by rate growth of 4.2%; second quarter RevPAR increased 4.7%.

In the US, RevPAR was up 5.6% in the first half and 4.8% in Q2, with a continued increase in demand and limited supply growth delivering record levels of occupancy across the estate. The Holiday Inn brand family continued to deliver more than a 6%pt RevPAR premium to its industry segment with H1 RevPAR up 5.7%. However, performance was impacted by the weighting of our distribution towards oil producing states where trading has been challenging.

Elsewhere, Mexico RevPAR was up 9.4% driven by double digit growth in key cities, whilst RevPAR growth in Canada increased by 1.0%, also impacted by performance in oil producing areas.

Underlying¹ revenue and profit were up 10% and 8%, respectively, driven by our franchise business which increased underlying¹ profit by 10%. This was partially offset by a number of one-offs in the half: a higher charge associated with our US healthcare schemes, up $3m due to adverse claims; a $3m impact from difficult trading in Latin America, driven by further economic issues in Venezuela; and the continued refurbishment of InterContinental New York Barclay, which is due to open in the second quarter of 2016 and will take a period of time to ramp up trading performance.

Reported revenue increased 8% to $471m and operating profit increased 10% to $295m following the consolidation of Kimpton, partially offset by the sale of owned assets and a $4m reduction in significant liquidated damages (2015: $3m, 2014: $7m).

We opened 10k rooms (96 hotels) in the first half across the Americas, of which nearly half were Holiday Inn Express, and removed 55 properties, in line with 2014, as we continue to focus on the quality of our estate. We signed 21k rooms (166 hotels), an increase for the fifth year running and more than double the level in 2010. Highlights include the 596 room Holiday Inn Express Honolulu Waikiki Beach, the largest property for the brand in the Americas, and Hotel Indigo Los Angeles, where we are working in partnership with one of our largest owners in China, Greenland Group.

Kimpton
We completed the acquisition of Kimpton in the first quarter, and since then the integration has progressed well, with first half revenue of $33m and operating profit of $14m, including $3m of significant liquidated damages.

We believe Kimpton has great growth potential both in the US and internationally, with 2015 expected to be the best year for openings and signings in the brand’s history. We have secured five new signings already, and are in discussions to sign the first hotels for the brand outside the US, where demand from existing IHG owners is exceptionally strong. During July, seven Kimpton hotels in San Francisco, representing annual fee revenue of $6m, were removed from the system due to a specific issue.

Europe – Continued trading and signings momentum

Comparable H1 RevPAR increased 5.1% led by rate growth; second quarter RevPAR was up 4.4%. UK trading continues to be positive with growth of 6.1% driven by a strong performance in the provinces, up 8.0%, and to a lesser extent London, which was impacted by supply growth and a less favourable events calendar in the period. Germany, our second largest market, was up 5.0% as our Holiday Inn brand family continues to outperform the industry. Most key cities across the rest of southern and central Europe exhibited solid increases, but there was limited growth in France, and trading remains challenging in Russia.

On an underlying basis¹, revenue was up 10% and operating profit up 22%, driven by good growth in the franchise business, up 19% at CER, following the transition of approximately 60 UK managed hotels to franchise contracts, and strong RevPAR growth across major markets.

Significant foreign exchange translation movements in the UK and the Eurozone, and challenging trading at InterContinental Paris – Le Grand, impacted reported revenue, which decreased by 21% (5% CER) to $144m and operating profit, which decreased 5% (13% growth at CER) to $36m.

Openings of 2k rooms (13 hotels) included the Holiday Inn Frankfurt, one of 17 properties utilising our innovative Open Lobby concept, and Hotel Indigo Helsinki, another new country entry for the brand which now has a presence across eight European markets. We signed 3k rooms (15 hotels) into our pipeline, including six deals in Germany with our network of multi-development agreement partners, and the InterContinental Lyon – Hotel Dieu which will mark the fifth hotel for the InterContinental brand in France.

AMEA – Solid growth led by performance in Japan and South East Asia

First half comparable RevPAR was up 5.4% and second quarter RevPAR increased 4.5%, both driven by growth in rate and occupancy. Performance was led by Japan which grew 12.8%, benefiting from increased inbound travel from China. Performance across the Middle East was mixed with 9.9% growth in Saudi Arabia somewhat offset by soft trading in the UAE. South East Asia was up 7.8% due to double digit growth in Thailand and Vietnam, the former continuing to recover strongly following challenging trading conditions in 2014. India exhibited robust growth with double digit increases in Q2 as the economic sentiment improves.

On an underlying basis¹, revenue was up 4% and operating profit up 17%, with growth in like-for-like performance across the majority of the fee business and a continued focus on efficiency. Reported operating profit increased 5% to $40m, negatively impacted by foreign exchange translation, particularly in Japan and Australia. 

We opened 2k rooms (11 hotels) including the Holiday Inn Express Seoul, one of two new country entries for the brand, and two conversion properties in India, one of our focus markets. Signings of 9k rooms (19 hotels) were double that of the same period last year, and include the 5,154 room Holiday Inn Makkah, the largest for the brand in the world.

Greater China – Market outperformance delivers RevPAR growth

Comparable H1 RevPAR increased 1.5%, led by an improvement in occupancy, with second quarter RevPAR up 0.6%. Total RevPAR declined by 2.4% as newly opened hotels ramp up and we continue to grow our distribution in tier 2 and tier 3 cities. Our operational expertise and the preference for our brands enabled us to deliver industry outperformance of approximately 5%pts, driving comparable RevPAR growth in mainland China of 4.8%. This was led by strong performance in primary cities, in particular Shanghai up 13.7%. Secondary and tertiary cities experienced robust demand growth, but this was largely offset by increased supply. Trading remains challenging in Hong Kong and Macau, with the former affected by an industry-wide decline in inbound tourism, and the latter continuing to be impacted by the austerity measures of the Chinese government.

On both a reported and underlying basis, revenue increased 5% (5% CER) to $118m with our fee business up 11%, driven by growth in room count of 10% year-on-year and RevPAR outperformance. Operating profit declined 6% (6% CER) to $34m, impacted by our investment to enhance regional operational capabilities, and the performance at InterContinental Hong Kong, where profit declined 5% due to the challenging trading environment across the market. We anticipate the sale of this asset will complete during the second half of 2015, following which IHG will earn management fees of approximately $8m per annum.

We opened 2k rooms (8 hotels), including our first two HUALUXE Hotels and Resorts in Yangjiang and Nanchang, as we continue to leverage our market leading scale to add four more hotels than our nearest international competitor. Our pipeline passed 200 hotels for the first time, as room signings grew over 20% year-on-year to 9k rooms (31 hotels), securing the 1,300 room Holiday Inn Kunming in the second quarter.

Capital allocation – commitment to efficient balance sheet and investing for growth

• Successful completion of strategic review of owned assets
  • Completed the sale of InterContinental Paris – Le Grand for €330m in the second quarter.
  • Agreed to sell InterContinental Hong Kong for $938m, with proceeds expected to be received in the second half.

• Investing for growth
  • $125m gross capital expenditure in the first half comprised: $46m maintenance capex and key money; $49m recyclable investments; and $30m system funded capital investments. $6m proceeds received from other assets and $10m system fund depreciation received via working capital, resulting in $109m of net capital expenditure.
  • Gross capex guidance remains unchanged at up to $350m per annum into the medium term. In 2015 this includes system fund capital investments of up to $100m as we evolve our bespoke technology solutions.

• Continued ordinary dividend growth
  • Interim dividend increase proposed of 10% to 27.5¢, reflecting confidence in our outlook and the cash generative nature of our fee business model.

• Efficient balance sheet and shareholder returns
  • Following the announcement of the introduction of points expiry for IHG Rewards Club, there is a release of $156m from the programme’s future redemption liability. This has resulted in a corresponding increase in the System Fund surplus.
  • Half year net debt of $1,710m (including $220m finance lease on InterContinental Boston) is up $177m since the end of 2014, driven by the $430m acquisition of Kimpton. Half year borrowing position represents a net debt / EBITDA ratio of 2.2x.
  • As previously announced, a decision on return of funds to shareholders from asset sales completed in 2015 will be disclosed at preliminary results in February 2016.

Foreign exchange – Strength of USD continues to impact reported profit

The US dollar continued to strengthen throughout the first half, reducing group RevPAR growth to 0.5% when reported at actual rates, and impacting reported profit by $8m. Europe and AMEA are the two regions most affected, with foreign exchange reducing RevPAR growth by 15%pts and 7%pts respectively.

Based on current exchange rate movements, for every 1%pt difference in full year group RevPAR growth between constant and actual exchange rates, we expect a $4m impact on reported fee business operating profit.

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 increased by $4m to $43m reflecting an increase in average net debt levels following the acquisition of Kimpton. Financing costs include $10m in respect of the finance lease on InterContinental Boston.

Tax: Based on the position at the end of the half, the tax charge has been calculated using an interim effective tax rate of 30% (H1 2014: 33%). The full year tax rate is expected to be in the low to mid 30s as previously guided.

Exceptional operating items: Net exceptional gain of $164m for the half comprised: $175m net gain on asset disposals, $4m Kimpton integration costs, $4m charge relating to changes to the Venezuelan currency exchange rate; and $3m charge relating to restructuring of the Group’s corporate functions.

¹ Excluding Kimpton, owned asset disposals, significant liquidated damages, and results from managed lease hotels, at constant 2014 exchange rates (CER).
 

Download the Appendix for the Interim Results for Six months to 30 June 2015 PDF 0.45Mb