InterContinental Hotels Group PLC (IHG) 2007 Q2 法說會逐字稿

Thank you for standing by. Welcome to the IHG interim results conference call. (OPERATOR INSTRUCTIONS). I must advise you that this conference is being recorded today on the 14th of August 2007. This announcement contains certain forward-looking statements as defined under U.S. law Section 21E 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, tend, believes, or other words of similar meaning. By their nature forward-looking statements are inherently predictive, speculative and involve risk and uncertainty.

There a number of factors that could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements. Factors that could affect the business and the financial results are described in risk factors in the InterContinental Hotels Group PLC annual report on Form 20-S filed with the United States Securities and Exchange Commission.

I would now like to hand the conference over to your speaker today, Mr. Richard Solomons. Please go ahead.

Good morning ladies and gentlemen. This is Richard Solomons, Finance Director of InterContinental Hotels Group. And I'm joined by our Head of Investor Relations, Paul Edgecliffe-Johnson. I will just briefly highlight a few key points from our interim result, then Paul and I will be very happy to take your questions.

The Group had a good first half with healthy trading around the world. The results at half, however, have been impacted by the weaker dollar, so I will refer to constant currency growth to highlight the underlying performance of the Group.

The highlights are as follows. Total gross revenues increased 12% on a constant currency basis to $8.3 billion. We grew our RevPAR faster than the market in all our key business units and geographies and by 7% overall. Continuing revenue grew 12% to GBP422 million, up 20% in constant currency. Continuing operating profit increased 5% to GBP111 million, but was up 17% at constant currency. Continuing earnings per share increased 16% to GBP0.223.

Once again we had record signings in the period, up 32% on last year. Our development pipeline now stands at almost 190,000 rooms, equivalent to one-third of our existing hotel room count. Our net room count grew by 7,430 rooms, more than double the rooms we added in the same period last year.

Looking at RevPAR in more detail, in the America's RevPAR grew 6.3%, and all our major brands outperformed their segments. In the EMEA, Europe, Middle East & Africa region RevPAR grew by 8.1%. Strong performance across the region, including 16% growth in the Middle East, was impacted by slower growth in Germany as we lapped the Football World Cup last year.

In Asia-Pacific RevPAR growth of 9.1% included a strong performance in China, where RevPAR grew more than 3 times the rate of the market.

We saw a strong performance from our franchise business. In constant currency franchise fees grew 19%, and franchise operating profit grew 13% after revenue investment to support the record rate of signings and openings in the Americas. Managed operating profits increased 2% at constant currency. They were up 8% after excluding the impact of a single hotel in the Americas.

During the half improvements in trading and the contribution from the increasing number of hotels under IHG management was partially offset by the integration costs of our new joint venture with ANA in Japan.

We also saw an improvement in performance in our continuing owned and leased hotels, with operating profits up over 36% on a constant currency basis. In Europe profits were boosted by the strong performance from the InterContinental Le Grand on the back of 18% RevPAR growth. The InterContinental London is also now fully operational, following a major refurbishment last year, and early trading is encouraging.

In the U.S. the InterContinental in New York benefited from robust market conditions and growth in market share. InterContinental Boston made a small loss in the half, but its trading continues to improve post its opening in November last year.

Brand equity is a priority for the Group. And each of our brands has reacted strongly as we continue to sharpen and improve brand profiles and value to customers. We will soon be launching a refreshed Holiday Inn brand positioning effort to build on the quality program later this year. We will update you if this comes through.

(Inaudible) strength is a key differentiator for IHG. And we are a leader in delivering room nights to owners in the most efficient and effective way. Overall, we estimate that we now deliver over 60% of room revenues to our owners through our own systems.

Perhaps the best guide to the health of our business is the number of deals we sign on new hotels. During the half we signed a record 55,000 rooms, and ended the half, as I said, with a record pipeline of 190,000 rooms. We continue to see the benefit of a stronger InterContinental brand, with 16 signings in the half, bringing the global pipeline to a record 50 hotels.

The fastest growth on last year was in our younger brands, Crowne Plaza, Candlewood, Staybridge and Indigo, which in aggregate doubled their signings. We opened 20,713 rooms in the half. With our focus on quality and brand consistency we also removed 13,283 rooms, increasing net room count by 7,430 rooms.

Looking at the pace of signings and the size of our development pipeline, we remain confident we will exceed our target of opening 50,000 to 60,000 net rooms by the end of 2008 from the June 2005 starting position.

We have now returned GBP3.45 billion to shareholders since March 2004. During the half we paid a GBP709 million special dividend, and repurchased 2.5 million shares at a cost of GBP31 million. We still have a GBP150 million share buyback to complete, which is likely to take the best part of the next 12 months. We've also today announced an interim dividend of GBP0.057 per share, up 12%, reflecting the Board's continued confidence in the outlook for the Group.

Overall this has been a very good half with further progress being made towards our targets. Business continues to benefit from the economic and corporate prosperity we are seeing around the world, with RevPAR driving most of our growth, as demand continues to exceed supply. Over time the material increase in our room signings will undoubtedly mean a much higher proportion of growth comes from new room additions, which position us to deliver strong growth through this cycle.

Paul and I will be now very happy to take any questions.

(OPERATOR INSTRUCTIONS). David Katz, CIBC World Markets.

I apologize. I jumped on a little bit late, so I don't know if you have discussed this already, but one of the issues we had on our minds is really the Holiday Inn system. And one of the dynamics we observe is the new units entering the system, particularly in the U.S. versus the older ones that are leaving the system. And hopefully that should provide a lift in RevPAR irrespective of whatever the fundamental environment is. If you could give us an update as to what inning that is in, or what the level of progress is with that, and some color on that would be very helpful.

Okay. As I mentioned in my little speech, and as we talked about before, we have had a very clear focus on improving the quality of the portfolio. I think it is fair to say that the Holiday Inn brand had not been cleaned up for many years. But since Steve Porter really took over the Americas into 2003, we pushed pretty hard on that.

Since the beginning of 2003 to date we have actually removed 636 Holiday Inn hotels in the U.S. This is obviously a big number. I think we have said before that we expect the current level of removals sort of 20,000 to 25,000 a year to continue for 2007 and 2008. And frankly, in a multiunit portfolio that we have it is never going to stop.

But I think the progress we have made on cleaning up the brand has been reflected in the RevPAR performance and the premium that we had maintained with the Holiday Inn brand. And indeed, so far this year we have signed deals for 222 Holiday Inn and Holiday Inn Express hotels. In fact, the Holiday Inn, the traditional green sign full-service hotel, we have 238 of those in the pipeline, of which the vast majority are new build prototypes.

What you've got is a cleanup of the portfolio combined with some improvements to the brand, primarily with the prototype. And if you think about how the pipeline will unwind, a few years down the road would have removed some more of the old hotels. A large number in proportion of the hotels that join will be new. It will really be a long way down the road. As I say, I don't expect the removals to stop happening, but certainly we would like to think over time that the number will temper.

Do you sort of divide the Holiday Inn U.S. system into buckets, right? Ones that if you could wave a wand you would change them into new ones today. Right? Maybe ones that obviously were recently done are out of there. But how big a bucket is it of hotels in the U.S., would you say, are ones that if you could, you would change them out today?

We are very happy overall with the vast majority of Holiday Inns in the system today. There are always some that aren't quite at the quality level either in terms of service or physical product. But those are the owners that we talk to that we try and work through and property improvement programs in and so on.

An as we -- as I mentioned, when we talk about refreshing the brand, and as we maybe redefine some aspects of it, then again it will give us an opportunity to work with owners and really improve the ones out there that are at the bottom end performance. So it is really a small proportion that I would say have to leave the system; not the majority at all.

I think if you come at it from the other way and say, well, Holiday Inn is a brand, irrespective of some of the poorer ones, that are still in the system, where is it coming from? And the size of the pipeline and the appeal with owners really demonstrate that.

As another stat, 75% of the mid scale with food and beverage pipeline in the U.S. is represented by Holiday Inns. So it is still an incredibly powerful brand that owners want to own. And, indeed, some of the poorer ones that we kick out ultimately will actually be replaced by the same owner building a new prototype. And that's sort of not a bad place to be.

I also think that what we're doing with Holiday Inn in terms of cleaning it up, refreshing it, keeping the brand relevant, and bringing new property is the right thing to do with any brand. And I do think with Holiday Inn we're going to be ahead of the game relative to a number of our other competitors, who have pretty much an aging estate, and they're going to have to deal with the problem that we have dealt with at some point in the future.

Now one of the things that has come up with investors a number of times is people are saying look, there's an onslaught of supply coming on, particularly in the U.S. The RevPAR growth is moderating. The fundamental story in the U.S. is played out. It is done. My presumption is it that you don't agree with that. We don't. But I would love to hear your perspective on that.

No, I don't agree with that. It is hard to predict in the future how the U.S. economy is going to perform, but certainly the hotel business is closely correlated with GDP performance and corporate profitability, both of which look relatively robust in the U.S.

I think clearly there's a lot of new supply, but there's also an expectation of a lot of demand growth. I think it was Deloitte recently put a full cost out which talked about nearly doubling of leisure travel in the U.S. by 2012. Whether or not that is right, I don't know. But there clearly is demand with people living longer, and with the propensity to travel growing up. The big brands that really deliver are gaining their supply share.

As I said, you can't necessarily talk about the market as a whole, but for us, certainly with Holiday Inn Express in that mid scale market, you can see we have more than our fair share of supply, and have been growing that share. I think we feel quite comfortable about that, about the demand being able to support the number of hotels.

Certainly as a franchiser as opposed to real estate owner, what is important to us is that our underlying revenue continues to drive itself up and that our supply share enables us to tap into that. There are inevitably going to be micromarkets where there's oversupply that come in, but across the piece it is not something we're losing sleep about.

Then finally, and I will give someone else a chance if they would like. You made some management changes and sort of moving Kirk into an international role, etc. What are you hoping to get out of that? We have always looked at your Asian businesses as being pretty good. What are we looking to add with those changes?

I think obviously following Patrick Imbardelli's resignation some weeks ago, we moved Peter Gowers out into Asia, who is currently our Chief Marketing Officer. And I think he will continue the very good work that Patrick did out in Asia and build on a very strong team and a very strong business out there.

Moving Kirk Kinsell into Europe, the best thing about it is that we have managed, as with Peter, to fill a very big internal -- play a very big role internally without having to go outside, which is good for us, developing one of our most senior executives who has done a fantastic job for us in the U.S., building that franchise business and building our pipeline.

Now Europe has had quite a good start. Well, quite a start. I mean, the last few years under Richard Hartman it has started to perform well. And being further behind in the economic cycle it has been slower, but actually the number of signings in Europe has also been growing. Clearly what Kirk will bring for us is I would say an incredible expertise and experience from the U.S., and will enable us to probably take our franchise business, and indeed our sort of development expertise in Europe to the next level. That is certainly what we're looking for, as well as obviously he is a good executive, who will no doubt run that region extremely well.

(OPERATOR INSTRUCTIONS).

Okay, well, if we've got no more questions, operator --.

There are no further questions.

I will just thank everybody very much. Thank everybody for listening in, and appreciate your time.

That does conclude our conference for today. For those of you wishing to review this conference the replay facility can be accessed by dialing the UK on country code plus 441-452-550000. For UK callers, 0845-245-5205. And the USA toll-free, 1-866-247-4222. The reservation number is 1020520 followed by the hash key. Thank you for participating. You may all disconnect.