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InterContinental Hotel Group: Preliminary Results - Full Year Results to 31 December 2010

InterContinental Hotel Group: Preliminary Results - Full Year Results to 31 December 2010

Category: Worldwide - Industry economy - Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2011-02-16


Brand delivery and scale advantage driving strong financial performance in an improving market


Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC, said:
“2010 was an excellent year for IHG. After a slow start to the year, the industry staged the sharpest recovery in its history, exceeding all expectations. By focusing on our brands and using our scale, we delivered 6% growth in revenue per available room (RevPAR). We signed more rooms into our pipeline than in 2009 and despite the planned exceptional number of removals to drive up quality, we grew the number of rooms in our system, led by a 12% increase in China.
“The $1bn Holiday Inn relaunch is almost complete, delivering RevPAR outperformance and improved guest satisfaction. We are now working with our hotel owners to refresh Crowne Plaza, already the fourth largest upscale hotel brand in the world, and one with great future potential.
“Our focus on efficiency has increased fee-based margins 1.1 percentage points. In line with our asset light strategy we have started the initial marketing for sale of the InterContinental New York Barclay today.
“The 21% growth in the final dividend reflects our confidence in IHG’s prospects. Our priority is to increase market share and improve margins in an industry set for strong growth over the next few years.”
Driving Market Share
Total gross revenue* from hotels in IHG’s system of $18.7bn, up 11%.
2010 global RevPAR growth of 6.2%, with 8.0% in the fourth quarter.
Total system size of 647,161 rooms (4,437 hotels), up 0.1% year on year.
35,744 rooms (259 hotels) added, with 35,262 rooms (260 hotels) removed.
Signings of 55,598 rooms (319 hotels), up on 2009 levels in all regions. Total pipeline of 204,859 rooms (1,275 hotels); half outside the Americas; 75,000 rooms currently under construction.
2011 net system growth is expected to be modest as remaining Holiday Inn relaunch exits are completed.
Post 2011, robust pipeline should drive medium term net system growth of 3% - 5% per annum.
Holiday Inn relaunch is substantially complete with refreshed hotels performing strongly.
3,002 hotels now operating under the new standards (91% of the estate). RevPAR growth for hotels relaunched for more than one year was c.6% points higher than non-relaunched hotels in the US and c.5% points higher globally.
Strong system delivery.
Record enrolments in Priority Club Rewards (PCR) took total membership to 56m (2009: 48m).
68% of rooms revenue delivered through IHG’s Channels or by PCR members direct to hotel (2009: 68%).
Growing Margins
Continued focus on costs.
Regional and central costs broadly in line with 2009 excluding the impact of performance based incentives.
Sustainable efficiencies drive fee-based margins* up 1.1%pts to 35.7%.
At constant currency, and reflecting the current trading outlook, total 2011 regional and central costs expected to be in the region of $250m to $260m compared to $258m in 2010.
Current trading update
January global RevPAR up 8.4%. Americas 8.2%; EMEA 7.0%; and Asia Pacific 10.9%.
$10m liquidated damages receipt in Americas managed revenue and operating profit in first quarter 2011.
Initial estimate of impact on 2011 from unrest in Egypt of $3m.
º All figures are before exceptional items unless otherwise noted. See appendices 3 and 4 for analysis of financial headlines
1 After exceptional items
2 CER = constant exchange rates
3 Restated for a change in presentation
* See appendix 6 for definition
Regional Highlights
Americas – strong brands drive new deals
RevPAR increased 4.9%; 7.7% in the fourth quarter when rate was up 1.4%. US RevPAR was up 4.3% in 2010, with 7.5% growth in the fourth quarter. 2010 RevPAR grew 8.1% at InterContinental New York Barclay.
Revenue increased 5% (4% at CER) to $807m and operating profit increased 28% (27% at CER) to $369m. After adjusting for the owned hotel disposals and the charge for priority guarantee shortfalls in 2009, revenue was up 7% and operating profit up 10%. Franchise royalties drove much of this growth, up 11%. This was offset by a 1% reduction in total system size due to exits associated with the Holiday Inn relaunch and a $10m increase in regional costs, including $4m in relation to our self-insured healthcare benefit plan.
During 2010 the InterContinental Times Square and the first Staybridge Suites opened in New York, taking IHG’s room count in the city to 6,570. We re-entered the important Hawaii market with the Holiday Inn Beachcomber Resort in Waikiki Beach and formed an InterContinental Alliance with Las Vegas Sands Corp to bring the 6,874 all suite Venetian and Palazzo resorts into the system. The wider benefits of the Holiday Inn relaunch were clear, with full service Holiday Inn signings up on 2009.
We have formed a strategic relationship with Summit Hotel Properties, Inc. (Summit), a US hotel real estate investment trust focused on premium-branded select service hotels in the upscale and midscale without food and beverage sectors. In connection with Summit’s initial public offering, which closed on 14 February 2011, IHG purchased 1,274,000 shares of Summit common stock, representing approximately 4.7%, for a purchase price of $11.6m. Of Summit’s 65 properties seven already carry IHG’s brands, and under a sourcing agreement we have also entered into with them, Summit will provide IHG an exclusive right for a period of five years, of first offer to franchise or manage any unbranded hotel bought by them which they want to brand.
EMEA – increase in signings
RevPAR increased 6.1%, with 6.5% growth in the fourth quarter. Germany was the strongest of our major markets with RevPAR growth of 18.4% in 2010. Mixed trading conditions in the Middle East resulted in RevPAR down 1.0% for the year. 2010 RevPAR grew 15.0% at InterContinental London Park Lane and 11.5% at InterContinental Paris Le Grand.
Revenue increased 4% (8% at CER) to $414m and operating profit decreased 2% (2% growth at CER) to $125m. Excluding the impact of a $3m liquidated damages receipt in 2009, revenue was up 5% (8% at CER) and operating profit up 1% (5% at CER). Much of this was driven by the owned and leased hotels, where positive RevPAR combined with strong cost control drove good profit growth. Managed profits were down by $3m to $62m, due to a combination of the unfavourable trading environment across much of the Middle East and a $3m provision for total estimated net future cash outflows expected under a guarantee in relation to one hotel. Franchised profits declined $1m to $59m, but excluding the $3m liquidated damages receipt in 2009 and at constant currency, profits increased 7% driven by RevPAR growth of 7.6%.
We signed 58 new deals in the year, up 11 on 2009. These included eight Hotel Indigo contracts in key locations such as Lisbon, Madrid and Berlin. We also signed six Crowne Plaza hotels including the strategic markets of Istanbul, St. Petersburg and Amsterdam. Signings across Europe as a whole were very strong, particularly in Germany and France where we signed nine and six hotels respectively. Key openings included the Hotel Indigo Tower Hill, London, Staybridge Suites St. Petersburg and Holiday Inn Berlin International Airport.
Asia Pacific – strong profit growth
RevPAR increased 12.4%, with 11.5% growth in the fourth quarter. Greater China was our strongest market with RevPAR up 25.8% for the year, including 55.9% in Shanghai which was boosted by the World Expo which took place between May and October. Asia Australasia RevPAR grew 5.6% and at InterContinental Hong Kong RevPAR was up 15.3%.
Revenue increased 24% (20% at CER) to $303m and operating profit increased 71% (67% at CER) to $89m. This was predominantly driven by RevPAR growth; the contribution from new managed rooms (2010: 9% growth; 2009: 10% growth) and a $4m benefit to managed operating profit due to the collection of bad debts which had previously been provided for.
We continue to build on our leading position in Greater China with 48,527 rooms (145 hotels) open (a 12% increase year on year) and 50,236 rooms (147 hotels) in the pipeline. We opened 24 hotels in 17 cities across China, including Asia Pacific’s first Hotel Indigo on the Bund and the InterContinental at the Expo site, both in Shanghai. In Asia Australasia, we signed six hotels in India, taking our pipeline there to 10,073 rooms. In Vietnam we signed two new Holiday Inn resorts in the prime beachfront locations of Cam Ranh Bay and Phu Quoc, and we signed the Crowne Plaza Lumpini Park in Bangkok which opened in December.
Interest, tax and cash flow
The interest charge for the period increased $8m to $62m as the impact of lower levels of average net debt was offset by a higher average cost of debt following the issuance of a seven year £250m bond in 2009.
The effective tax rate for 2010 is 26% (2009: 5%). The 2011 tax rate is expected to be in the high 20s.
Free cash flow of $432m (2009: $377m) due to excellent profit conversion and tight control over maintenance capital expenditure.



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