InterContinental Hotels Group PLC (IHG) 2011 Q1 法說會逐字稿

Good morning, good afternoon. Thank you all for standing by. During today's conference all participant lines will be in a listen only mode. At the end of the presentation we will conduct a question and answer session. (Operator Instructions).

Today's conference is also being recorded. I will now hand the call over to Heather Wood. Please go ahead. Thank you.

Hi, good morning everyone. It is Heather Wood here, Head of Investor Relations. I am joined this morning by Richard Solomons, Chief Financial Officer and Head of Commercial Development.

Before I hand over to him for the discussion of our results I need to remind you that in the following discussion we may make certain forward-looking statements as defined under US law. So please check this morning's press release and the Company's SEC filings for factors that could lead actual results to differ materially from any such forward-looking statements.

With that I will now turn the call over to Richard Solomons.

Thanks, Heather. Good morning everybody and thank you for joining us. As Heather said, it is Richard Solomons here, Chief Financial Officer and Head of Commercial Development at IHG. So I will start by just making a few remarks on our results and the trading environment as we see it, and then open up the call for your questions.

So overall we are very encouraged by our performance throughout the first quarter, with results coming in ahead of expectations. Global RevPAR growth of 6.9%, including new nearly 2% growth in rates, converted into operating profit growth of 23%, reflecting good use of our scale and the efficiency of our business model.

We signed more deals into our pipeline in the first quarter of this year than last year. And we made good progress on recycling capital to drive growth.

Our business overall remained resilient, despite the tragic events in Japan and New Zealand and the turmoil in North Africa and the Middle East. Our colleagues on the front line in these regions have done an outstanding job. The benefits of our scale and expertise were clear in terms of our readiness to respond. The quality of our management teams on the ground meant that our branded hotels stayed open when many competitors shut their doors. And our reputation in cities like Cairo and Tokyo has been strengthened considerably.

Looking at the results in more detail and taking RevPAR first, headline RevPAR results were inevitably adversely impacted by the unrest in the Middle East and the earthquake and tsunami in Japan. Group RevPAR growth would have been 7.6% if we exclude the results for Egypt, Bahrain and Japan.

The trends we saw in the second half of 2010 continued through the first quarter of 2011. Growth in global GDP, improving consumer spending, and corporate profitability, and reducing, albeit still high, unemployment is driving strong demand from both business and leisure travelers.

In the last 12 months ending March, global room demand for the industry has exceeded 2008 pre-recession levels. Coupled with slowing supply growth in most major markets, global industry occupancy rates have increased now for each of the last 16 months and rate gains are beginning to take hold.

Asia Pacific continues to be our strongest region, with RevPAR growth of 9.9% or 13.6%, excluding our 33 hotels in Japan. China leads the way as the standout performer with 18.8% RevPAR growth, including almost 10% rate growth.

RevPAR in our Europe, Middle East and Africa region grew 3%, or 4.2% excluding Egypt and Bahrain, where we have 12 hotels. Other key Middle East markets were resilient, with RevPAR up 7.5% in Saudi Arabia and 2.4% in the UAE.

Our first-quarter performance in the US was very encouraging, with comparable RevPAR growth of 8.4%, the strongest we have seen since the second quarter of 2006.

On a total RevPAR basis, which includes new hotels ramping up in the first year of opening, and it is the same way that Smith Travel market age is calculated, our US RevPAR grew 10.3%, over 1 percentage point better than the industry.

Holiday Inn and Holiday Inn Express total RevPAR grew 10.2% and 9%, respectively, compared to 8.6% growth in the upper midscale segment. The relaunch continues to drive market outperformance and share gains for IHG and its owners and franchisees.

Turning now to our financial performance in the quarter. On a constant currency basis, and excluding $10 million of material liquidated damages previously disclosed, total Group revenues grew 6% and operating profits grew 23%.

Franchised hotel revenue grew 11% and operating profit grew 13%. 6.5% RevPAR growth, and an increase in the effective royalty rate were only partly offset by a 1% reduction in franchise rooms to drive growth in franchise royalties of 10%.

Additional franchise fee grew $3 million, in line with an increased number of signings in the Americas and EMEA. Continued tight cost control improved margins by 1 percentage point.

Managed hotel revenue grew 4%, and operating profit grew 12%, excluding the $10 million liquidated damages received in the Americas that I mentioned earlier.

Asia-Pacific was particularly strong, with double-digit RevPAR growth and the contribution from 9% rooms growth. This was offset slightly by EMEA, where there was a small decline in RevPAR due to the unrest in the Middle East where almost 90% of our rooms are managed.

In our owned hotels, excluding the impact of hotel disposals last year, revenues grew 9% and operating profit grew 60% to $16 million, driving up margins by 4 percentage points. This was driven by 11.8% RevPAR growth, just over half of which was rate growth.

Regional and central costs were up just $2 million at constant currency. For the full year we still expect these costs to be between $250 million and $260 million at constant currency.

So looking now at the pipeline, financing for new hotel construction remains constrained in some of our biggest markets, and we don't anticipate much change in the short term. That said, the strength of our system and our brands continues to bring new owners and more deals to IHG. We signed 63 hotels, almost 8,400 rooms, into our development pipeline in the quarter, which was up on 2010 levels.

Our signings mix of conversions from other brands rose once again. They were half of all of our signings in the quarter, reflecting the trend that where finance is available it is being channeled towards existing hotels rather than new construction.

Our signings also demonstrate the wider benefits of the Holiday Inn relaunch. We almost doubled the number of core brand Holiday Inn hotels signed into the pipeline in the Americas, compared to the same period in both 2009 and 2010.

This included four Holiday Inns, which are returning to us after exiting last year. The impact on their revenues in being unplugged from our delivery system means they have now changed their minds, are investing in the relaunch, and have signed up with us again.

We have the industry-leading pipeline with 18% of the active global pipeline according to Smith Travel, and our nearest competitor has just 13%. And that pipeline is high-quality. Around 70,000 rooms, close to 40%, are under construction in Greater China, since 70% of the projects are under construction, and across EMEA this figure is around 60%. It does drop to around 20% in the Americas where the figure is typically lower due to the shorter time from signing to opening for midscale hotels.

We continue to drive up the overall quality of the hotels in our system. We opened 53 hotels or just over 15,000 rooms in the quarter, and removed almost 10,000 rooms. Included in the openings figure of the Las Vegas Sands, Venetian and Palazzo InterContinental Alliance Resorts, which together contributed almost 7,000 rooms.

As previously disclosed, we expect modest net system growth this year as we exit the remainder of the hotels that are to be removed as part of the Holiday Inn relaunch.

We remain confident with our 3% to 5% net system growth guidance for next year into the medium term, as the level of removals reverts to more historic norms.

So turning now to the balance sheet, net debt at the end of March stand at $846 million. This is around $100 million up on year-end due to seasonal working capital movements, which we expect to reverse for the full year.

I talked at our preliminary results about our strategy to invest behind the growth of our brands, funding this through recycled capital where possible, consistent with our commitment to a asset light model.

Post quarter end we saw the Staybridge Suites Denver Cherry Creek and the Holiday Inn Atlanta-Gwinnett Place, two Summit Hotel Properties with whom we formed a strategic relationship earlier this year.

We sold these hotels for $17 million, 27% above book value. They will continue to operate as IHG branded properties. And Summit will be investing some $2.5 million to renovate them over the next few years.

We expect further news on asset sales later in the year. The marketing of the InterContinental New York, The Barclay is progressing, and we will update the market at the appropriate point.

In addition, two further investments with a combined net book value of almost $90 million are now classified as held for sale. One during quarter one and the other post quarter end.

One example of how we will look to recycle capital is the joint venture we entered with Duet India hotels during the quarter. Our $30 million multiyear investment will launch the Holiday Inn Express brand into this important market. And 19 hotels are planned to open by the end of 2016. We are looking at other similar initiatives to reinvest capital behind growth in our brands.

Then, finally, some comments on the outlook, where we remain confident. RevPAR trends continued into April with global RevPAR growth of 6.1%, excluding Japan, Egypt and Bahrain, 4.9% growth on a reported basis. US RevPAR grew 7.2%, and China RevPAR grew 14.6%.

Looking further forward, our recorded RevPAR figures will clearly be impacted to some extent by Japan and the Middle East, particularly in the second quarter. April RevPAR in Japan was down 26%. Moving through the year, we would also face progressively tougher comparators, particularly for our Shanghai hotels due to the World Expo last year.

Overall booking pace looks good, with increases in both demand and rate. Future travel intentions data collected from guests staying in our hotels is positive. And specifically as we head into the key summer leisure season, leisure travel intentions are also up. We have not seen any impact from the rise in the oil price, although clearly this remains a risk if the price spikes further.

We have estimated the full-year impact of the events in the Middle East and Japan at between $15 million and $20 million, and at this stage we expect much of this will be offset by positives elsewhere.

The situation in each market is, however, clearly fluid. And our visibility is limited with extremely short-term booking activity. Our estimates are based on no return to normality until at least the fourth quarter of this year.

In Japan all of our hotels are operational. Hotels in Tokyo are currently operating at some 35% to 40% occupancy. But cancellation activity has ceased, and booking pace is starting to show a gradual pickup.

Overall the frequency and intensity of aftershocks and the negative publicity around the Fukushima reactor, is starting to reduce. So we are seeing a gradual return of international business as travel warnings are revised.

It is worth highlighting here that more than half of the revenue in our hotels in Japan comes from food and beverage, which relies heavily on local demand. General sentiment is still one of constraint, or restraint I should say, with consumer expenditure down year-on-year and not expected to recover until the fourth quarter.

In the Middle East the key impacted markets are Egypt and Bahrain. And although we are starting to see some recovery in the outskirts of Cairo and the Red Sea resorts, we would not expect any return to normality until there is stability in government. It is worth noting that of our 75 hotels in the Middle East, 40 are located in Saudi Arabia and the UAE, which have demonstrated solid, underlying demand growth. Overall, these two regions represented less than 5% of our revenues in 2010. And based on experience once stability returns, demand should recover quickly.

Elsewhere business confidence and corporate profitability are driving growth in demand for travel. With our global RevPAR still 6% below the quarter one 2008 peak, and 9% below the peak in the US, and with the supply growth forecast continuing to slow, we are positive about the outlook, barring any more upsets to the global economic recovery.

And the brand revitalization and quality journey we are on positions us well to outperform the competition and drive a rising share of overall industry revenues.

Our strategic focus remains the same. We will continue to build the strength of our brands and our system in the largest and fastest growing markets of the world, and look to invest behind our growth from cash generated by our asset light business model. This strategy will share drive our share of revenues and our margins on a sustainable basis, generating positive growing cash flows into the future.

Cash not needed for investment in the business will be returned to shareholders. And we will determine the appropriate method of any cash return at that time.

With that, I will now take your questions. So, operator, we will open up to questions. Thank you.

(Operator Instructions). Patrick Scholes.

Can you give us any more update or color on your thoughts for new brands in China and in the United States? I know in the past this has been something that has been mentioned or speculated. Anything you can [attest] on that?

Well, as far as China is concerned, yes, we talked at some length about that at our preliminary announcement in February. These things do take a little time, but we are certainly in the throes of developing a new brand there.

Obviously, we have to get into talking to owners, more importantly, consumer research and get all of our ducks in a row. Interestingly, we actually have signed a number of Letters of Intent with owners who are keen to do a new brand with us, even though we haven't yet defined what it is. So news on that sort of down the road, but we're working on it.

I think in the US we are a little way behind where we are in China. Obviously, we are still seeing significant growth in signings and momentum behind the existing brands we've got. But there is no question over time we see the opportunity for us certainly as the Holiday Inn brand get to a very large size for another brand.

So, again, more of that in the future, but it is something we're very seriously working on.

In the US that the idea for a brand would be something at a little bit lower price point than Express or Holiday Inn, is that correct?

I wouldn't say that. I think a midscale product. We will see how that works. But with both of these things I think we -- obviously it is about working with existing owners and potentially new owners on franchise and management stakes, who are willing to invest behind these brands as and when we get them up. So what the consumer needs are and where the owners are interested to invest is what will dictate where those brands sit. That is a little bit early to say.

Okay, good. Thank you. Then one more question. Concerning your current trading update for April, it looks like EMEA came in at 0.5. Is it possible you can break out how Europe performed -- just Europe for April for you?

Let me ask Heather just to pick that up.

Yes, Patrick, we have quoted a figure for the Europe, Middle East and Africa region, excluding Bahrain, Egypt and Lebanon, which are the three markets in the Middle East that we are seeing the biggest impact. That number is plus 5.4%. So that gives you an idea basically of outside of those impacted markets where the growth is like.

Okay, very good. I appreciate the color. Thank you.

(Operator Instructions).

Okay. So if there's no more questions, thank you very much. Appreciate you listening in and look forward to speaking to you again soon. Thank you, everybody. Thank you, operator.

Thank you. Thank you all for participating in today's conference. All lines will be disconnected shortly.