InterContinental Hotels Reports Profit Increase of 14 Percent

InterContinental Hotels Group reported financial results for the third quarter of 2010. The group reported total gross revenue from all hotels in IHG’s system of $5.1 billion, up 13 percent at constant currency, and global constant currency RevPAR growth of 8.1 percent, driven by occupancy growth of 4 percentage points and rate growth of 1.8 percent. Third-quarter operating profit increased 14 percent and year-to-date operating profit increased 19 percent, excluding the impact of performance-based long-term incentive costs.

A total of 7,149 rooms (51 hotels) were added during the quarter, and 5,856 rooms (47 hotels) removed, for a total system of 657,954 rooms (4,507 hotels), up 3 percent.

The relaunch of Holiday Inn is close to completion with 2,815 hotels operating under the new standards, 82 percent of the total estate. By the end of the program, around 750 new Holiday Inn brand family hotels will have opened, 635 underperforming hotels will have been removed and over 3,000 hotels will be operating to the new standards -- a complete refresh of the global Holiday Inn estate. The relaunched hotels are outperforming strongly -- in the U.S., third-quarter RevPAR for hotels relaunched for more than one year increased 8 percent, 6 percentage points higher than non-relaunched hotels.

The global roll-out of Hotel Indigo continues with six signings in the quarter and 20 in the year to date, including high-priority markets like Bangkok and Taipei. The first Hotel Indigo in Asia opens in Shanghai later this year. The total Hotel Indigo pipeline is now 59 hotels, 13 outside the Americas. The company is on track to open around 40,000 rooms this year and have 75,000 new rooms under construction. Year to date, 14,877 rooms have been removed. Total 2010 removals are expected to be in the region of 35,000 rooms as the Holiday Inn relaunch enters its final stages.

Revenue growth and efficiency have driven year-to-date operating margins in the fee business² up over 1 percentage point. The company reporter it’s on track to deliver the sustainable savings identified in 2009. Year-to-date regional and central costs of $182 million are in line with 2009 levels before the impact of performance-based incentive costs.

RevPAR in the Americas increased 6.7 percent in the third quarter, driven mainly by occupancy with rate improving by 0.8 percent. Revenues increased 4 percent to $215 million; excluding the impact of the disposal of InterContinental Buckhead Atlanta, revenues increased 8 percent.

Operating profit increased 28 percent from $82 million to $105 million. Franchised operating profit grew 9 percent, driven by RevPAR growth of 6.2 percent and room growth of 2.5 percent. In the managed business, operating profit of $2 million compares to a loss of $12 million in 2009, which included a $12 million charge for priority guarantee shortfalls. Owned and leased operating profit grew $1 million to $4 million, reflecting RevPAR growth of 7.3 percent partly offset by the loss of profits from InterContinental Buckhead Atlanta.

RevPAR in Europe, the Middle East and Asia increased 9.7 percent in the third quarter, with rate improving by 3.1 percent. Of the company’s major markets, performance was strongest in Germany, where RevPAR grew 22.2 percent and, despite continuing mixed trading conditions, RevPAR in the Middle East grew 5.4 percent. U.K. RevPAR growth of 6.7 percent, driven by a rate increase of 3.6 percent, marked a strong improvement on second-quarter RevPAR growth of 3.4 percent.

Revenues increased 4 percent to $105 million. Operating profit declined by $1 million to $35 million. Franchised operating profit grew 6 percent to $17 million, driven by a 10 percent increase in royalty fee revenue. Managed operating profit declined by $2 million to $13 million due to the timing of payments under guarantees. Owned and leased operating profit grew by $1 million to $13 million, driven by 13.7 percent RevPAR growth at InterContinental Park Lane and 8.8 percent growth at InterContinental Paris Le Grand.

RevPAR in Asia Pacific increased 12 percent in the third quarter, with 4.1 percent growth in rate. Greater China was the strongest performing region with RevPAR growth of 24.4 percent, boosted by the World Expo in Shanghai where RevPAR grew 88.6 percent. Revenues increased 19 percent to $74 million. Operating profit increased 18 percent to $20 million. Franchised operating profit declined by $1 million to $1 million. Managed operating profit grew 11 percent to $20 million, driven by 13.5 percent RevPAR growth and 10 percent room growth across the region. Operating profit at owned and leased hotels increased 20 percent to $6 million.

In Hong Kong, third-quarter regional and central costs of $74 million are up $35 million on 2009 levels due to performance-based incentive costs, including a $25 million year-on-year impact of re-assessments of likely payments under long-term incentive plans. The interest charge for the period increased $3 million to $16 million 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 £250 million bond in the fourth quarter of 2009.

Based on the position at the end of the third quarter, the tax charge has been calculated using an estimated annual tax rate of 26 percent (estimated annual tax rate at the third quarter of 2009 was 19 percent). Net debt of $801 million (including the $206 million finance lease on the InterContinental Boston) is down $291 million on the position at year-end 2009 due to higher operating profits, improved working capital, $135 million in receipts including $105 million from the disposal of the InterContinental Buckhead Atlanta and reduced capital expenditure of $69 million.