InterContinental Hotels Group PLC (IHG) 2005 Q3 法說會逐字稿

Welcome to the InterContinental Hotels Group Q3 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. (OPERATOR INSTRUCTIONS). I must advise you that this conference is being recorded today, Tuesday the 22nd of November, the year 2005. This call may contain certain forward-looking statements as defined under U.S. law, Section 21-E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the fact that they do not relate to historical or current facts. Forward-looking statements often use words such as target, expect, intend, believe or the words of similar meaning.

By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Factors that could affect business in the financial results are described in risk factors in the InterContinental Hotels Group PLC annual report on form 20-F verified with the United States Securities and Exchange Commission. I would now like to hand the conference over to your speaker today, Mr. Andrew Cosslett.

Good afternoon, ladies and gentlemen. This is Andrew Cosslett, Chief Executive for InterContinental Hotels Group. I am joined this afternoon by our Finance Director, Richard Solomons. I'm sure you all had a chance by now to look at our statement so I will briefly highlight just a few key points and then Richard and I will be very happy to take your questions.

The Group had a strong third quarter in 2005 with solid trading and continued progress on our strategy of moving to a predominantly managed and franchised hotel business model. We saw encouraging growth in our rooms pipeline and are making early progress towards our 2008 stated goal of adding 50,000 to 60,000 net rooms organically to our system. In the (indiscernible) itself, the continuing business traded well with earnings per share profits and RevPAR all growing strongly.

Regionally, the Americas were strongest with RevPAR up 11%, whilst in Europe and Asia, the performance was still positive but more mixed. Amongst the trading highlights for the quarter we would include continuing hotels profit generally up 22% and RevPAR globally up 8.8%, brand outperformance in many key segments and geographies, in particular, we site InterContinental's performance in the USA, Holiday Inn in the U.K. and the USA and China for all our brands as a whole. We would also say that managing franchised profits were the highlights, which have grown strongly in the quarter at 18%.

Looking at the progress against our strategy, clearly the most significant action for us over the last few weeks has been the announcement that we have kicked off the IPO process for Britvic. The reaction to the news has been encouraging and we, of course, wish the management team well. We opened 8300 rooms in the quarter, which after disposals, led to a net roomcount growth of 1700 rooms. Year-to-date, this brings a total added to our systems side to 5200. We added more than 16,000 rooms to our pipeline in the quarter, which now stands at a record 95,000 rooms, up 12,000 rooms from the start of the year. This is the largest pipeline in the industry and certainly positions us well for future growth. We really are encouraged that, in looking at the pipeline, it is growing particularly well in key markets such as China where it actually grew 25% in the quarter.

Other strategy developments for the period would include continuing revenue delivery for our owners. Our loyalty scheme and reservation systems now deliver over half of all room nights booked in our hotels and we continue to work hard to drive this further up. Reservation channel revenue delivery is up 17% to $1.3 billion in the quarter, similarly 17% up year-to-date, $3.7 billion.

We are investing in the future. Overhead did rise in the quarter mainly as a result of investment in key growth areas of the business such as our development teams in the Americas and China. There has also been an increase in central cost. Nevertheless, we remain on track to be broadly flat year-on-year in total overheads at constant currency terms.

Finally, return of funds. IHG has now returned over 1.9 billion pounds to shareholders with 1.2 billion pounds in 2005 alone. A further 320 million pounds sterling is still to be returned via our ongoing share buyback program. We have, today, made a further commitment to return more funds but the timing of these will depend on the Britvic IPO, market conditions and progress with the intended sale of the European estate.

So overall, we have got a solid quarter with good progress against our stated goals and targets. We believe we're well-positioned for the rest of the year and indeed for the future. That really concludes my remarks. I would be very happy with Richard to now take your questions.

(OPERATOR INSTRUCTIONS). Guy Hardwick, Federated Investors.

Andrew, I sense that there maybe a slight backtracking on the central course from being flat to broadly flat. Are you investing a little bit more early than you perhaps expected? I know you gave some hits last quarter that you did want to invest in the business. Secondly, does there seem to be a lack of leverage in the franchised and management business in the U.S.? There seems to be pretty good revenue growth and not such strong profit growth. Am I looking at it incorrectly? Isn't there not much leverage on the management side? And finally, did you flag the Hong Kong InterContinental refurbishment because it seems to smack a little bit of the London InterContinental refurbishment, which took us by surprise at the beginning of the year? I know that region is very dependent on that particular hotel for operating profits.

Thanks, Guy. Let me try to take those in turn. I might have Richard help on one or two of the answers. In terms of central costs, no, I don't think we're backtracking. What we're saying here is that when we look at the overall cost profile of the Group, the overhead cost of the Group had we have central and region to consider, we expect to be broadly neutral at the end of the year, flat at the end of the year on a constant currency basis. That is very much in line with what has been said so far. Certainly, in my time here, I think those are the phrases that have been used by Richard and I'm looking at Richard now to confirm that.

Yes.

He seems to suggest that that is true (indiscernible) on the overall picture of overhead. We haven't really begun to put in significant costs in the central areas. Those will be costs as we go -- and it's a quarterly result of course so it's -- we have anomalies and ups and downs. But it does reflect some increased compliance costs and Sarbanes-Oxley additions and one or two other bits and pieces. But quite a few of these should reverse. But overall, the cost profile for the Group should be where we have been forecasting it over the last few months. As it relates to the leverage, I'm going to hand it to Richard now who's going to answer that for us.

Yes, Guy, I think in looking at Americas, what you're looking at I'm assuming is the revenue growth, particularly in the managed within the quarter, the managed profits, which were effectively flat. The situation there actually is that it you really need to look at the nine months because of the way the quarter moves. The reason for the revenue growth in the managed profit performance is actually because of the San Juan hotel, which is one of our hotels that we sold to HPT. Effectively, the way we had to structure that transaction because the hotel has a casino in it is in effect we took a lease rather than a management contact, although the economics are exactly like a management contract. The only anomaly is we have to show the revenues, which appear in managed, which is why you see what looks like big growth in revenues and not big growth in profitability. That is really the rationale for that. The reality is that actually we do see a lot of leverage. Certainly you can see it more in the nine months and just the way the model works. You see a lot of leverage from revenue growth through to profit growth.

Thanks, Richard. And on the Hong Kong situation, it is our remembrance here that we actually did talk about Hong Kong back in September. But we will go back and check that and see what exactly we said. Certainly, we position Hong Kong as a rolling refurbishment for some time. The way we have been tackling the property is that we have been taking big chunks of rooms out of circulation during the lower and quieter periods of that hotel's season to ensure we didn't actually impact too much on the bottom line. But we will just go and check to make sure that we suggested that. I seem to remember answering questions on that issue in September but we just need to check. That's where it is. And that has been a big impact as you say. It is a very important hotel for us in the Asia-Pacific region. Other things have impacted the numbers too. It is not simply that. But that is one of them.

It's not just shocked. It's over three years, I think, isn't it? It's a rolling program.

It's about 25% of the rooms that have come out, 25, 30% of rooms, which have been kept closed for refurbishment. And there is a final slot to do next year.

Can I just ask a couple of more questions on a more positive front? You had a very good RevPAR performance, particularly in the U.S. with the InterContinental brand, Holiday Inn. Have you identified where you're outperforming in terms of -- is it largely rates driven? Have you identified what is differentiating you between the marketplace or was it just a quarter comparison issue?

I think we had a particularly good quarter. There's no doubt about that. But we started to see a trend on InterContinental, which is encouraging. I think it would be fair to say that in some of the biggest markets in which we operate, that brand (indiscernible) particularly went up to New York has been right at the head of the queue. Our performance in New York over the last few months with the InterContinental Barclay has been incredible reflecting the general condition of that market. But we have also seen strong performances out of Miami, Dallas and other big markets. Washington is a little bit soft. San Francisco is coming back strongly for the InterContinental Mark Hopkins.

I think it reflects a number of things. We have worked hard at the InterContinental system. We have been increasing the level advertising we put out. The sales groups are more coordinated and connected now. We have much more focused operations management than we have had in the past. I think just generally there is more focus on the brand internally as we look to grow more quickly going forward. And I think it is one of those things where once people get confidence in the brand, it actually seeps all the way down to guest preference and guest selection. So I think that would be it.

The other -- and it was an incredible quarter for us at InterContinental. Holiday Inn is very pleased. It stayed up at 10% and again that reflects a lot of work that the management team in America has been doing for more than a couple of years now as it has worked hard on the quality journey of Holiday Inn, taking out a lot of removals of the old tale of Holiday Inn brand, raising the average quality threshold, which we ask our hotels to operate to and then making some adjustments and getting greater leverage out of our system, the reservation channels, the priority club rewards scheme and bringing them all into alignment so that we get more leverage from them. Just a number of good things coming together and we should hope to see more of that in the months to come as we sharpen the brand definition and continue to see more innovation in the brand.

(OPERATOR INSTRUCTIONS). Todd Jordan, Cobalt Capital.

Just curious on where we stand on your refurbishments that were somewhat disruptive during the quarter. Thank you.

The refurbishments were particularly in Hong Kong, which we have talked about where we have lost up to one-third of the rooms for most of that time and that takes a big chunk of rooms out of a very important hotel for us. They will come back and then we'll move into the removal of the last third of the rooms for the final refurbishment in the spring next year, March/April.

The other big refurbishment that impacted us or is impacting us is the closure of the InterContinental Parlay (ph) in London, which closed officially on October 1st. Although it is outside of the reporting period, what obviously happened is, as you are winding down a hotel toward the closure, quite a lot of things happen. But it has a net effect of having a detrimental effect on the performance of the hotel. We are winding down the staff, number of customers leave, (indiscernible) their long-term accommodations. So the performance of the hotel goes down. So we have had those two major ones.

On the other side of the coin, the Le Grand Paris InterContinental, which came out of refurbishment about nine months ago, is now picking up, had a really good quarter, up 16% in the quarter, I think, it was on RevPAR as we talked about in New York, which (indiscernible) is also performing well. So those are the two main ones. The InterContinental London will be out of action for at least six months and we are not entirely sure when it is going to come back out because it depends on the final decisions on how we're going to treat the public spaces. But it will be sometime during the middle of next year. And that should help us reposition our hotel into the future and really give us a landmark InterContinental in London again.

And Todd, I think what we have indicated is that the profit impact on London will be about 12 million pounds in '05 versus '04 and about the same in '06.

(OPERATOR INSTRUCTIONS). There are no further questions at this time, sir.

Well, thank you very much, everybody for your attention this morning and look forward to catching up with you again very soon. Thank you, again.

Thank you.

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.