InterContinental Hotels Group PLC (IHG) 2006 Q1 法說會逐字稿

Thank you for standing by, and welcome to the InterContinental Hotels Group Q1 resorts 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 16th of May, 2006. I would now like to hand the conference over to your speaker today, Andy Coslett. Please go ahead, sir.

Thanks. Good morning, everyone. This is Andy Coslett, Chief Executive of InterContinental Hotels Group and I am joined here by Richard Solomons, our Finance director. Given these are quarterly results I intend to be fairly brief in my comments. But then Richard and I would be very happy to take any questions that you might have. I'd just remind you this quarter is our first which is not included in the result of Britvic Soft Drinks, which hopefully will make our numbers somewhat easier to understand and look through.

The group had an excellent first quarter in 2006 with good trading around the world. We also achieved further encouraging growth in our rooms pipeline which we think positions us well to achieve our goal which is to add 50,000 to 60,000 net rooms on an organic basis to our room count by the end of 2008.

There were a number of particular highlights in the quarter. Global RevPAR increased 11.6% on a constant currency basis. This flowed from a 9% increase in gross revenues from all hotels in IHG's system. Continuing operating profit increased 40% to 42 million pounds whilst earnings per share increased 13% to 7.7 pence.

By region the Americas were strongest where RevPAR went up 13%. Asia-Pacific continued to deliver good growth, up 8.8% whilst Europe, Middle East and Africa also performed well at 8.7% growth. Encouragingly, all the brands performed well. And in those markets where competition is fiercest, too. So in the U.S., for example, each of our intercontinental Holiday Inn and Candlewood brands all outperformed their respective segments.

We saw a strong performance in both our franchised and managed businesses with operating profit of 25% and 36%, respectively. And we were pleased, too, to see an improved performance from our continuing owned and leased hotels, which as you all know is a key part of our business that has been receiving a lot of attention.

The Intercontinental London is currently closed for refurbishment. The hotel is now expected to reopen toward the end of this year. This is a few months behind our original plan. Because the contractor responsible for the rooms elements of the project went into administrative receivership in the quarter. A new contractor has since been appointed, and things are proceeding well.

We have previously indicated that this refurbishment would impact earnings in 2006 by between 12 and 15 million pounds, as compared with 2004 full year profits from the hotel. We now expect to be at the top end of this range. Strong performances from our other owned hotels will help to mitigate the situation. In the quarter the InterContinental Paris saw occupancy rise to 70%. As it continues to be rebuild demand after its extensive renovation. The InterContinental New York has continued to drive strong rate growth. The InterContinental Buckhead in Atlanta is outperforming its competitors in that market while the InterContinental Hong Kong saw quite exceptional trading in the quarter.

We opened 8,343 rooms in the quarter but removed almost as many as we continued to focus hard on room quality, particularly on Holiday Inn, particularly in the United States. We signed 18,131 rooms into our pipeline, which after openings leaves our pipeline now standing at 117,000 rooms, up 8,500 rooms net in the quarter. This is the largest in the industry and positions us well for future growth.

We continue to expand our pipeline in key markets such as China where in the quarter we signed 11 hotels giving us 6,470 rooms in the pipeline which includes two InterContinentals and what will be the world's largest Holiday Inn Express. As forecast, overheads did rise in the quarter. This was mainly as a result of the investments we have made and are making in the business to drive growth. This includes further investments in our capabilities in China. Central overheads increased by 3 million pounds partly as a result of costs associated with a set of new global research projects which are aimed at gaining a much deeper insight into brand perceptions around the lodging sector as a whole and in the developments of our franchising capability around the world. These projects we expect to run for most of the rest of this year.

Over 2 billion pounds has now been returned to shareholders with a further 500 million pounds special dividend due to be paid on the 22nd of June, and 230 million pounds of share repurchases still to be completed. Overall, this has been a very solid quarter for the business with good progress made towards our stated goals and targets. We think we are well positioned to achieve our goals and have a positive outlook on the remainder of this year.

That's it for now. Richard and I will now be very happy to take any questions that you might have.

(OPERATOR INSTRUCTIONS) Bill Lerner, Prudential.

Just a quick one, and I don't believe I've seen this. Can you just talk about the mix of brands in the pipeline just to give us a better feel?

We give this out as supplementary information. What we are looking at the moment is the pipeline today pretty much reflects the profile of our actual current structure. If anything, we're getting slightly more upscale signings with the InterContinental particularly doing well. We got 30 InterContinentals now in our pipeline. So if I just look at it by brand you will see that we have 117,000 rooms in the pipeline total. If I just break that down you will see that 34,000 of those, roughly are Holiday Inn with food and beverage, 41,000 Express, 10,000 nearly 11,000 actually of InterContinental, 12,000 Crowne Plaza and then we got 16,000 in our extended stay brands Candlewood and Staybridge. And encouragingly 1400 rooms now for our new brand, Indigo, that is 12 hotels which we now have confirmed in the pipeline, so good progress in Indigo. Understand that pretty much conforms to the profile of the current portfolio shape.

Okay. Thanks.

David Katz, CIBC World Markets.

Good morning, gentlemen. Two questions. One, and pardon me I was sort of jumped on a bit late, but I know there was some discussion on the overseas call this morning about sort of a brand positioning consultancy effort. And I'm not sure if you mentioned what the cost of that is and sort of how long that runs for.

We did talk about it. We are using [Elantis] a company based in Florida, who we have some experience of in the past, and they are doing a multicountry, multibrand piece of segmentation and positioning work, which is pretty scoping the landscape of lodging in all our major markets around the world. Think in total we are looking at 49 brands, not just our own obviously but also our competitors. We expect it to run for most of this year because it is picking up a lot of countries including China, and it is in the low millions, in dollars, but we actually think it is going to give us an absolutely fantastic fact-based foundation on which to start really making some strides in our brand front. And making sure that we're doing that in full line of sight of the differences in different countries which is something we have not done before. So it's going to inform our decision-making into 2007 and beyond, but it is an investment I felt that we needed to make.

Understood. And one more quick one. As I look at the Holiday Inn brand particularly in the U.S. and in your commentary you talked about improving the standards there and removing some rooms from the system. How should we think about that process? I mean what inning in the game would you say we are at, or is this just an ongoing process? You have a specific goal in mind as to how many more you could see coming out over the next year?

It is a process. One of the elements of a franchise business such as ours is that there's a fair amount of churn, and that churn is probably if anything slightly elevated over normal experience at the moment. Partly because -- well it definitely is -- partly because we are extremely active on managing the quality of the average Holiday Inn product, and we've been on that trail for about 2, 2.5 years with good results. If you look at the average age and quality of our Holiday Inn brand now in America its definitely rising and we think that is contributing to the good performance of Holiday Inn in the last few quarters. We don't see that process stopping anytime soon. I don't know what inning we are in, but we are certainly not in the ninth. I think we may be midway through. The number of rooms that have come out has been rising over the last two or three years. As we say we made a step change in 2004 and we've benn up around the 27 to 30,000 removals in the last period running rate. And I think we could imagine that continuing through the period as planned as we really get (indiscernible) with this issue. The key thing is that we are able to usually replace the ones we take out, even if there is a slight lag on time. If you look at our Holiday Inn signings rate right now, they are the highest they've been in 20 years particularly on the new prototype of which we've now got 100 in the pipeline which is great news. So there is still a great demand for Holiday Inn product and even though it is causing us a lot of focus and time to manage the churn and activity, the net benefit is that we're going to have a much better and refreshed Holiday Inn brand position by the time we get to say 2008 than we started the 2000's with and that is going to be great for this brand going forward. So it is a process; we are at a high level of exits but the good news is we got more than the previous -- much more than the previous levels of signngs to cover it.

Perfect. Thank you very much.

Harry Curtis, JPMorgan.

Good morning. Two quick questions, please. Following up with that the last train of thought, do you have any sense of the timing of when the net additions to your room count should begin expanding given the strength of that pipeline?

It is a bit of time yet we think. If you track back about -- let's think now -- about eight, nine months, ten months -- we started to see the signings pace of new signings into the pipeline increase sharply. And it is that rise in signings around the world that we are managing to maintain that gives us the sort of growth drive that we have built our case on and our and/or growth target. And we set out our 50 to 60,000 new target we were aware there was going to be lag between that increased pace of signings converging into an increased pace of openings. And what's happened since then is as I just said, we are actually seeing removals at somewhat of a higher rate than we were this time last year, and we haven't yet seen the new signings pace kicking into openings pace. We expect that. It usually takes nine months to a year before the first come out of the pipe first, new builds come out of the pipeline. We have some conversions coming out now, but really looking forward we'd start to say, as we turn to the second half of 2006 we'd like to start to see some movement on that. But we won't really pick up the full pace until we get to the end of this year and turn to '07 when we're going to be very busy opening a hotel a day around the world to hit these numbers. So it's not an insignificant task but it's well within our compass, and certainly the pipeline would suggest that we can get it done.

The second question is with respect to recent trends, are they a comparable to the demand trends that you saw in the first quarter?

In recent trends yes, we had a good April. Interestingly, we've got different points of strength around the world. U.S. overall just suffered a bit, if you think about our quarterly result in the U.S. we were at 12.3%. It went down to -- sorry -- 13%, it went down 0.8.1 in April. But we are comfortable that the overall business in April did well, came into May continuing to do well. We obviously had the Easter situation which kind of confused the figures a bit, but trading strong. And it is strong around the world at the moment. And we are optimistic for the rest of the year, although you can ever read these things particularly in continental Europe but overall I think the business is in good shape.

Excellent. Thank you.

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

Okay. Thanks very much for coming online this morning everybody. I look forward to seeing you again very soon and thanks for your interest in the group.

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