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Continuing operating profit was up at 22% from £54m to £66m, up 31% at constant exchange rates for InterContinental Hotels Group with total gross revenue* from all hotels in IHG’s system to be up 13% at constant exchange rates to $4.6bn.
Global constant currency RevPAR growth of 6.1%; strongest growth in Asia Pacific, up 8.6%, driven by rate increases. Franchised operating profit up 8% to £68m, up 16% at constant exchange rates. Managed operating profit up 5% to £21m, up 15% at constant exchange rates.
Adjusted continuing earnings per share (“EPS”) up 15% to 13.5p. Adjusted total EPS of 14.1p. Basic total EPS of 21.2p. Room count up by 7,395 rooms to 571,071 (3,863 hotels). Signings of 29,379 rooms (225 hotels), 18% higher than last year. Development pipeline of 201,776 rooms (1,533 hotels), equivalent to 35% of IHG’s existing hotel room count.
*Total gross revenue is total room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG as it is derived mainly from hotels owned by third parties. The metric is highlighted as an indicator of the scale and reach of IHG’s brands. All figures and movements unless otherwise noted are at actual exchange rates and before exceptional items.
Commenting on the results and trading, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said: “IHG has had a good third quarter, with strong performances across all our brands and the continuation of a record signings pace, which is seeing us sign two new hotels a day and keeping us on track to beat our net room additions target. Last month’s announcement of the global relaunch of Holiday Inn has been well received by our hotel owners and we look forward to opening our first rebranded hotel in spring next year. Our outlook for the rest of the year remains positive.”
Increase in development pipeline
- 29,379 rooms were signed; 22,769 in the Americas, 2,097 in EMEA and 4,513 in Asia Pacific.
- 201,776 rooms are now in the pipeline, up 43,785 (+28%) since the start of the year, at 1,533 hotels.
- IHG’s development activity in Asia Pacific continues to be successful. In Greater China 12 hotels, 3,653 rooms, were signed in the quarter comprising five Crowne Plazas, five Holiday Inns and two Holiday Inn Expresses.
- Five new hotels were signed into the InterContinental pipeline, which now stands at a record 53 hotels.
- The pipeline of Crowne Plaza hotels grew by 3,144 rooms (11 hotels) in the quarter, with 5,837 rooms (18 hotels) signed.
- The pipeline of Holiday Inn and Holiday Inn Express hotels grew by 6,573 rooms (62 hotels) in the quarter.
- Candlewood Suites and Staybridge Suites added 3,219 rooms (32 hotels) to their pipeline and Hotel Indigo added 1,238 rooms (11 hotels)
Strong growth in net room count
IHG maintains its focus on enhancing the quality of its portfolio, in conjunction with growth. In the quarter:
- 14,035 rooms (87 hotels) opened; 8,791 (71) in the Americas, 2,549 (12) in EMEA and 2,695 (4) in Asia Pacific.
- 6,640 rooms exited; 5,563 in the Americas and 1,209 in EMEA . There were no removals in Asia Pacific.
- The room count at the end of the period increased by 7,395 rooms to 571,071. Since the June 2005 starting position, 33,396 net rooms have been added towards the target of 50,000-60,000 additions by the end of 2008.
Americas: solid performance
Revenue performance
RevPAR increased 5.6% with rate generating all of the increase. InterContinental and Crowne Plaza outperformed their market segments. Holiday Inn and Holiday Inn Express grew rate faster than their segments and delivered RevPAR premiums to their segments of 15% and 13% respectively.
Operating profit performance
Operating profit from continuing operations increased 11% to $120m. Continuing owned and leased hotel operating profit of $9m includes a $2m profit from the InterContinental Boston where trading continues to improve post its November 2006 opening. The underlying improvement was primarily driven by growth in RevPAR and operating margin at the InterContinental New York.
Managed hotels performed well with RevPAR up 7% in the quarter, however profit was down from $13m to $9m after increased revenue investment to support growth in contract signings, the impact of fewer hotels under management following the restructure of the FelCor contract last year, and the non-recurrence of income from a minority interest now sold and business interruption insurance. Franchised hotels profit increased 12% to $119m reflecting RevPAR growth of 5% and net room count growth of 4%.
EMEA: strong performance in the Middle East
Revenue performance
RevPAR increased 6.7%, driven by 6.0% rate growth. The Middle East continued to perform strongly, growing RevPAR by 18.0%. Continental Europe delivered a RevPAR increase of 6.4%, comprising a 10.5% increase in France but also a 3.1% fall in Germany, where RevPAR was boosted this time last year by the football world cup. Year to date in the UK, Holiday Inn and Express by Holiday Inn both outperformed their market segment recording RevPAR growth of 6.6%.
Operating profit performance
Operating profit from continuing operations increased 82% from £11m to £20m. Continuing owned and leased hotel operating profit increased from £0m to £7m, £5m of which was from the InterContinental London Park Lane following the completion of its refurbishment. InterContinental Le Grand Paris delivered a 7.5% RevPAR increase and a £1m profit increase. Managed hotels profit increased 22% from £9m to £11m reflecting a full period contribution from assets disposed in September 2006 and strong fee growth in the UK and Middle East managed portfolios. Franchised hotels profit increased from £6m to £8m reflecting RevPAR growth of 4.9% and net room count growth of 6%.
Asia Pacific: further growth across all brands
Revenue performance
RevPAR increased 8.6%, mainly driven by rate. All brands performed strongly, InterContinental RevPAR increased 12.0%, Crowne Plaza 4.5%, Holiday Inn 8.6% and Express 12.2%. Greater China RevPAR increased 5.1% driven by rate increases, year to date RevPAR growth of 5.9% is significantly ahead of the market as strong demand for IHG brands continues.
Operating profit performance
Operating profit from continuing operations increased from $8m to $14m. Owned and leased hotel operating profit increased by $2m to $6m due to RevPAR and operating margin growth at the InterContinental Hong Kong. Managed hotels profit increased 44% to $13m, driven by the increasing number of hotels under IHG management.
Overheads and Tax
In the third quarter aggregated regional overheads increased £2m to £17m. Regional overheads in the Americas increased $2m to $17m and in EMEA by £2m to £6m due to the non-recurrence of a rate rebate received in the same period last year. Overheads in Asia Pacific were flat. Central overheads increased £2m to £21m. As previously disclosed, IHG expects that in 2007 central overheads will increase in line with inflation.
Based on the position at the end of the quarter, the tax charge on profit from continuing and discontinued operations, excluding the impact of exceptional items, has been calculated using an estimated effective annual tax rate of 22% (Q3 2006: 24%). IHG’s tax rate may be more volatile in the immediate future due to changes in tax legislation, tax case law developments and possible settlements of prior year issues but in the longer term is expected, as previously indicated, to show an upward trend. After the period end, IHG announced its intention to make a non-recurring revenue investment of up to £30m to accelerate implementation of the global relaunch of Holiday Inn and Holiday Inn Express brands. This cost is anticipated to be taken as an exceptional item. IHG expects to generate a strong return on this investment through RevPAR increases across the Holiday Inn brand family following completion of the relaunch.
Disposals and returns of funds
IHG’s net debt at the period end was £811m, including the $200m (£98m) finance lease on the InterContinental Boston. During the quarter IHG’s 74.11% interest in the InterContinental Montreal was sold for £17m, and 15% investment in the InterContinental Miami was sold for £5m. The profit on disposal of these properties is included in exceptional items. 2.4m shares were repurchased under IHG’s buyback programme during the third quarter, at a cost of £23m, leaving £127m of the current buyback programme to be completed.
