- $13.6bn total gross revenue (up 2%; 5% at CER)
- 0.1% global H1 RevPAR (Q2 = (0.2)%)
- H1 Comparable RevPAR: Americas = 0.1% (US = 0.0%); EMEAA = 0.2%; Greater China = (0.3)%.
- Underlying operating profit up 2% (up 5% excluding the result from the UK portfolio transaction and adjusting for $6m of cost phasing benefit in H1 2018); underlying EPS up 2%; Interim dividend up 10%.
- Net system size growth of 5.7%, the highest in over a decade, with 30k room additions, up 38% YoY. Removed 10k rooms, in line with a continued focus on the long-term health of established brands, leaving 856k rooms across the global estate.
- First half signings of 48k rooms (up 3% YoY), highest in over a decade and includes record performance in Greater China. Total pipeline now stands at 282k rooms.
- Continued progress optimising our brand portfolio for future growth, with 5 signings for Six Senses Hotels Resorts Spas since acquisition in February, and the launch of our new upper midscale brand Atwell Suites in H1.
- Rollout of voco continuing at pace with 21 hotels signed to date (8k rooms); expected to reach ~30 signings (10k rooms) by the end of the year. Almost 200 avid hotels signed in less than 2 years with 3 open and more than a quarter under construction or with planning approved.
|Revenue from fee business||$730m||$719m||2%||3%|
|Interim dividend per share||39.9¢||36.3¢||10%|
1 Restated following the adoption of IFRS 16 ‘Leases’ from 1 January 2019.
2 Excludes System Fund results, hotel cost reimbursements and exceptional items.
3 Comprises the Group’s fee business and owned, leased, and managed lease hotels, and excludes exceptional items.
4 Also excludes owned, leased and managed lease hotels, and significant liquidated damages.
5 Reportable segment results excluding owned asset disposals, significant liquidated damages, current year acquisitions and stated at constant H1 2018 exchange rates (CER).
6 Includes System Fund results, hotel cost reimbursements and excludes exceptional items (except for Basic EPS).
Keith Barr, Chief Executive Officer, IHG, said:
“Eighteen months ago, we set out a series of strategic initiatives to drive an acceleration in growth to ambitious new levels. Our approach is built around strengthening our established brands, adding new brands in high opportunity segments and optimising our owner proposition. In a slower RevPAR growth environment, we’ve made significant progress, opening a record number of rooms in the first half which have delivered a 5.7% increase in net system size growth, our best performance in over a decade, with future growth underpinned by our highest level of signings over the same period.
In the first half alone, we launched transformational design prototypes for Staybridge Suites and Candlewood Suites and evolved our brand prototypes for Holiday Inn and Holiday Inn Express. We also developed six flagship properties for Crowne Plaza in the US, Europe and China and have continued to take Hotel Indigo and Kimpton Hotels & Restaurants to new markets. Our new avid and voco brands are performing well, we’ve already had over 50 expressions of interest for our newest brand, Atwell Suites, and we’re well placed to capitalise on strong growth in the luxury segment with our recently acquired Six Senses and Regent brands. As we focus on ensuring that we operate and grow our business in a responsible way, we’re proud to have committed to switching every IHG hotel to bulk-size bathroom amenities, in an effort to reduce waste and protect the environment.
Funded by our efficiency programme, the investments we are making behind our strategic initiatives are driving accelerated rooms growth and position us well to achieve industry leading, sustainable net system size growth over the medium-term. Whilst there are always macro-economic and geo-political uncertainties in some markets, our broad geographic spread and the resilient, cash-generative nature of our business gives us confidence in the outlook for the balance of the year.”
Update on strategic initiatives
We continue to make good progress in executing against our strategic model to deliver industry leading net rooms growth over the medium term
- Build and leverage scale
- Our focus on building scale positions in attractive markets and high opportunity segments has seen us grow our share of global branded industry signings over the last two years.
- Record H1 performance for openings and signings in China, with 13k rooms (36 hotels) opened and a further 22k rooms (90 hotels) signed into the pipeline. Combined system and pipeline now stands at >800 hotels.
- Strengthen loyalty programme
- Announced InterContinental Alliance Resorts partnership with Sands China in Macau, along with an extension of our alliance with The Venetian Resort Las Vegas, our most popular point redemption location, giving guests the opportunity to earn and redeem points in these highly desirable destinations.
- Strengthened our ability to offer unique experiences to IHG Rewards Club members through partnerships with the US Open Tennis Championships and the Cadillac Centre – a multi-purpose indoor arena in Beijing.
- Enhancing value of points to members through trials of variable point pricing and the ability to pay with points during hotel stays.
- Enhance revenue delivery
- Developing updated arrivals platform within IHG Concerto, which will allow for an improved check-in experience for guests through features such as mobile pre-check in and room ready notifications.
- Now piloting our proprietary price optimisation software for Groups business in IHG Concerto.
- Evolve owner proposition
- Continued strong traction for our franchise offer in Greater China with 40 hotels signed for Holiday Inn Express in the half, taking the total to 187 signed and 43 opened since launch in 2016. We have also signed 10 franchise deals across our Holiday Inn and Crowne Plaza brands in Greater China in H1 2019, taking total franchise signings to over 200 since launch.
- Optimise our portfolio of brands for owners and guests
- Mainstream – ($115bn global segment with $65bn growth potential to 2025)
- Holiday Inn Express: Continued to evolve our ‘Formula Blue’ guestroom and public space designs; on track for adoption in two-thirds of the US estate by the end of 2020.
- Holiday Inn: Updated room and public space designs launched in the Americas, with >150 hotels open or committed. Currently running largest marketing campaign in over a decade for Holiday Inn Brand Family.
- Staybridge Suites & Candlewood Suites: Launched transformational new room and public space design prototypes for our extended stay brands to enhance guest experience and drive owner ROI.
- avid hotels: Almost 200 hotels (18k rooms) signed since launch (27 hotels (3k rooms) signed in H1 2019), and 3 hotels now open. With over 60 more under construction or with planning approved, we expect to have ~10 properties open by the end of the year.
- Atwell Suites: Launched new all-suites upper midscale brand, targeting an $18bn industry segment, to owners and investors earlier this year. Over 50 written expressions of owner interest ahead of the registration of franchise documents later this year.
- Upscale – ($40bn global segment with $20bn growth potential to 2025)
- Crowne Plaza: Achieved our best H1 signings performance in over a decade, with 4.5k rooms added to the pipeline. Developing flagship properties which will showcase new room and public space designs in key cities around the world.
- Hotel Indigo: Growing momentum for the brand with highest ever number of signings in the first half; now have deals signed into the pipeline that will take Hotel Indigo to 16 new countries.
- voco: Twenty-one hotels signed to date across 10 countries in EMEAA (8k rooms in total), including a 4k room property in Makkah. Anticipate growing voco portfolio to ~30 signed hotels by the end of the year.
- Luxury – ($60bn global segment with $35bn growth potential to 2025)
- InterContinental Hotels & Resorts: Reinforcing position as largest global luxury hotel brand with the openings of the InterContinental Hayman Island in Australia and the InterContinental Lyon – Hotel Dieu in France. A number of our more iconic properties are also currently under or soon to enter refurbishment, demonstrating our owners’ long-term commitment to the InterContinental brand.
- Kimpton Hotels & Restaurants: Global expansion continues with the opening of two further properties in the UK and 5 signings in H1, including landmark properties in Beijing and Hong Kong.
- Six Senses Hotels Resorts Spas: Five new signings since February 2019 acquisition, including properties in Iceland and the Loire Valley.
- Regent Hotels & Resorts: Signed two properties in the half in Chengdu and Bali, and are piloting new brand hallmarks which will help define Regent’s position in the top tier of luxury.
Americas – US RevPAR performance in line with the segments in which we compete
Comparable RevPAR increased 0.1% (Q2: down 0.5%), driven by 0.8% rate growth, with occupancy impacted by tough comparables from hurricane related demand in H1 2018. US RevPAR was flat for the half with performance in line with the segments in which we compete. The 0.7% decline in the second quarter was impacted by the shift in the timing of Easter and the lapping of hurricane related demand at the start of the quarter. Canada was flat (Q2: down 1%), with growth in British Columbia offset by softness in Ontario. Latin America and the Caribbean were up 7% (Q2: up 6%), with strong performances in Brazil and Colombia. Mexico RevPAR was down 2% (Q2: down 2%).
Reported revenue1 of $520m increased 1% (CER 2%) and reported operating profit1 of $344m increased 3% (CER 4%).
Underlying2 revenue and operating profit were in line with reported growth rates, with fee business operating profit up 4%. Growth in fee revenue from net rooms growth and higher levels of termination fees more than offset the net negative impact of previously flagged items, including equity investment income, a payroll tax credit and legal costs.
We opened 11k rooms (96 hotels) during the half, with continued strong pace for our Holiday Inn Brand Family, and we also opened our second and third avid hotels. We continue to focus on a high-quality estate and removed 6k rooms (46 hotels). Together, this drove a 2.7% increase in our net system size.
We signed 135 hotels (14k rooms), including a further 6 for the Hotel Indigo brand. We also signed 3 Kimpton properties, including hotels in North Carolina and Colorado, and have announced that we will be debuting the brand in Mexico with 2 properties scheduled to open in 2020.
EMEAA – Strong signings and openings pace; voco momentum continues
Comparable RevPAR increased 0.2% (Q2: up 0.7%) driven by occupancy up 0.5%pts. UK RevPAR was up 2% for the half with London up 5% and the Provinces up 1%. Second quarter RevPAR in the UK was up 2% with strong international demand driving RevPAR in London up 4%, whilst the Provinces were up 1%, benefitting from the Cricket World Cup.
Continental Europe RevPAR was up 3% in the half (Q2: up 4%). In France, RevPAR was down 1% with performance impacted by social unrest in Paris, with 1% growth in the second quarter driven by the FIFA Women’s World Cup and the Paris Air Show. Germany grew RevPAR 4% in the half and 5% in the second quarter helped by a favourable trade fair calendar.
Trading conditions in the Middle East remained challenging, with RevPAR down 5% in the half due to increased supply and political unrest weighing on demand. Australia RevPAR was down 2% (Q2: down 3%) impacted by supply growth and the lapping of the Commonwealth Games. Japan RevPAR grew 3% in the half (Q2: up 5%) with strong rate growth.
The first half includes the results of the UK portfolio transaction, which completed in July 2018. This resulted in a $91m increase in Owned, Leased and Managed Lease revenue, and, as previously flagged, a $7m decrease in operating profit for the half due to seasonality, which we expect to more than reverse in the second half.
Reported revenue1 of $338m increased 45% (52% CER) and reported operating profit1 of $88m decreased 7% (3% CER). On an underlying basis2, revenue increased 43% and operating profit decreased 2% (up 4% excluding the UK portfolio deal). Underlying fee business revenue and operating profit were both up 3%.
We opened 6k rooms (49 hotels), driving 6.5% net rooms growth, including an expansion of our Luxury brands with 2 InterContinental and 2 Kimpton openings in the half.
We signed 11k rooms (82 hotels) in the half including >1k rooms for Crowne Plaza, and 1k rooms for voco.
1 Comprises the Group’s fee business and owned, leased, and managed lease hotels from reportable segments and excludes exceptional items.
2 Excluding owned asset disposals, significant liquidated damages, current year acquisitions, System Fund results, hotel cost reimbursements and exceptional items at constant H1 2018 exchange rates (CER).
See the Interim Management Report for definition of non-GAAP measures and reconciliation to GAAP measures.
Greater China – Record room signings; continued industry outperformance
Comparable RevPAR decreased 0.3% (Q2: down 0.5%), impacted by the strong comparables from H1 2018. In Mainland China, RevPAR was down 1%, with market outperformance throughout the first half. Tier 1 and 2 cities were flat (Q2 also flat) and Tier 3 and 4 cities were down 3% (Q2: down 2%). Whilst corporate and meetings business was softer against strong prior year demand, domestic leisure business remains resilient.
RevPAR in Hong Kong SAR was marginally down in H1, with some impact from the ongoing political disputes, whilst Macau SAR RevPAR was up 5% for the half.
Reported revenue of $66m decreased by 4% (CER increased 1%), and reported operating profit of $36m increased by 13% (CER 16%).
On an underlying2 basis, revenue increased by 8% and operating profit increased by 32%, driven by double-digit net rooms growth and some benefit from cost phasing in the first half.
We opened a record 13k rooms (36 hotels), driving 18% net rooms growth. This takes the total number of open rooms to over 126k (422 hotels) and includes the opening of our 150th Holiday Inn Express in the region. Signings totalled 22k rooms (90 hotels), our highest ever for the region, and included 5k rooms from our InterContinental Alliance Resorts partnership with Sands.
Highly cash generative business with disciplined approach to cost control and capital allocation
Driving fee margin through strategic cost management
- Remain on track to deliver ~$125m in annual savings, including System Fund, by 2020 for reinvestment in growth.
- Savings being fully reinvested in growth initiatives, with ~80% to be realised by end of 2019.
- H1 2019 fee margin was down 20bps (down 30bps at CER), held back by the acquisition of Six Senses, which made a small operating loss in the half, and by $6m of cost phasing benefit in H1 2018. Excluding these impacts, fee margin increased 130bps (up 110bps at CER).
- Net central operating loss before exceptional items increased by $10m, ($11m CER); an increase in central revenues was offset by continued investments in growth initiatives. Central overheads include the reinvestment of a substantial proportion of growth investment funded by savings elsewhere in the business.
- Growth initiatives, and a continuation of our disciplined cost management and strong efficiency focus, expected to maintain future fee margin progression broadly in line with the historic average.
Strong free cash flow generation fuelling investment
- Free cash flow3of $141m was down $120m year on year after $62m higher levels of cash tax, and an outflow of working capital which should largely reverse in the second half.
- Net capital expenditure3of $71m (H1 2018: $112m) with $101m gross (H1 2018: $132m). This comprised: $45m maintenance capex and key money; $14m gross recyclable investments; and $42m System Fund capital investments; offset by $5m net proceeds from asset recycling and $25m System Fund depreciation and amortisation. Capex guidance unchanged at up to $350m gross, and $150m net, per annum into the medium term.
- Exceptional cash costs of $30m during the half, including $24m relating to the group wide efficiency programme ($13m in relation to the System Fund).
Efficient balance sheet provides flexibility
- Financial position remains robust, with an on-going commitment to an investment grade credit rating; the best proxy for which is 2.5-3.0x net debt/EBITDA following the adoption of IFRS 16 (equivalent to 2.0-2.5x net debt/EBITDA under the previous accounting standard).
- Net debt of $2,847m, up $882m on the 2018 close, after payment of the $500m special dividend and $300m acquisition of Six Senses.
Cash generative business driving shareholder returns
- Proposed 10% increase in the interim dividend to 39.9¢.
The impact of the movement in average USD exchange rates for H1 2019 against a number of currencies (particularly Sterling, Euro and Renminbi) netted to a $6m negative impact on reported profit4. If the 28 June 2019 spot rate had existed throughout H2 2018, H2 2018 reported profit would have been unchanged.
A full breakdown of constant currency vs. actual currency RevPAR by region is set out in Appendix 2.
System Fund revenues and costs are recognised on a gross basis with the in-year surplus or deficit recorded in the Group income statement, but excluded from results from reportable segments, underlying results and adjusted EPS, as the Fund is operated for the benefit of the hotels in the IHG System such that the Group does not make a gain or loss from operating the Fund.
In H1 2019 we recorded a System Fund income statement surplus of $47m, largely due to favourable adjustments due to changes in breakage estimates and the seasonality in timing of marketing spend, which we expect to reverse for the full year.
2 Excluding owned asset disposals, significant liquidated damages, current year acquisitions, System Fund results, hotel cost reimbursements and exceptional items at constant H1 2018 exchange rates (CER). See the Interim Management Report for definition of non-GAAP measures and reconciliation to GAAP measures.
3 For definition of non-GAAP measures and reconciliation to GAAP measures see the Interim Management Report.
4 Based on monthly average exchange rates each year.
Net financial expenses were $67m. Underlying5 interest expense of $76m, which adds back interest relating to the System Fund, was $20m higher than in 2018, reflecting higher levels of net debt and finance charges related to deferred and contingent consideration on acquisitions.
Following the €500m bond issued in November 2018, the finance charges relating to deferred and contingent consideration on acquisitions and the adoption of IFRS 16, we continue to expect the underlying5 interest charge to be ~$150m for the full year.
Effective rate6 for H1 2019 was 21% (H1 2018: 22%). We expect our full year 2019 effective tax rate will be in the mid to low 20s percentage point range.
Exceptional operating items:
Before tax exceptional items total $15m charge and comprise: $10m costs incurred in relation to the group wide efficiency programme and $5m of acquisition and integration costs. A further $13m of costs related to the group wide efficiency programme were incurred by the System Fund and are included within System Fund expenses in the Group income statement.
- $4m benefit from payroll tax credit received in H1 2018 will not repeat in 2019.
- $5m of equity investment income received in H1 2018 will not repeat in 2019.
EMEAA: A previously disclosed $15m cash payment was received in Q1 2018 in relation to the termination of a portfolio of hotels. This has been / will be recognised as individually significant liquidated damages as follows: $6.7m in 2018, $7.7m in 2019 and $1.0m in 2020.
Greater China: $6m of individually significant liquidated damages received in 2018 will not repeat in 2019.
5 For definition of non-GAAP measures and reconciliation to GAAP measures see the Interim Management Report.
6 Excludes exceptional items and System Fund results.