The FINANCIAL -- Commenting on the results, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said:
“2009 was a very challenging year for the industry. The fourth quarter did show some improvement in trends and occupancy has now stabilised. Rate however remains under pressure and we expect trading to stay tough until business travellers return in greater numbers.
“Through the year we took decisive action to reduce costs and improve efficiencies. Our margin performance, as a result, was good and our cash control enabled us to reduce our net debt from $1.3bn to $1.1bn.
“Our focus on strengthening the quality of our system did not waver. We opened a record 439 hotels in the year and signed 345 hotels into our pipeline, a good result given the challenging financing environment. We removed 187 hotels in the year and now have over 50% of the Holiday Inn estate operating under relaunched standards. We expect to complete this $1 billion programme on schedule and we are seeing better performance from relaunched hotels.
“Our business model has proved its resilience through this downturn and, with our global scale, powerful system and attractive brands, we expect to take full advantage of the upturn when it comes.”
Americas
Revenue performance
RevPAR declined 14.9% in 2009, with a fourth quarter decline of 12.5%. Revenues declined 20% to $772m. Excluding one $13m liquidated damages receipt in 2008, revenues declined 19%.
Operating profit performance
"Operating profit declined 38% from $465m to $288m, or 36% excluding the $13m liquidated damages receipt in 2008. Owned and leased hotels’ operating profit fell from $55m to $11m, driven by an overall RevPAR decline of 24.5% and a particularly challenging trading environment in New York. In the managed business, excluding the $13m liquidated damages receipt in 2008, operating profit declined $78m to a loss of $40m. This was driven by a RevPAR decline of 17.8% which resulted in IHG funding shortfalls in guaranteed owners’ priority returns on a number of hotels managed for one owner. At year end an exceptional charge of $91m was recognised comprising the write off of a cash deposit related to these hotels and a provision for the total estimated net cash outflows to this owner under the guarantee. Therefore future payments to this owner will be charged against the provision and will not impact operating results. Franchised hotels’ operating profit fell 15% to $364m driven by a royalty fee decline of 10% and a 46% reduction in initial franchising, relicensing and termination fees," IHG informs.
EMEA
Revenue performance
RevPAR declined 14.8% in 2009, with a fourth quarter decline of 10.4%. The UK performed best with a full year RevPAR decline of 9.8% and a 5.8% fourth quarter decline. Revenues declined 23% to $397m (17% at CER). Excluding one liquidated damages receipt of $3m in 2009 and two totalling $16m in 2008, revenues declined 22% (15% CER).
Operating profit performance
Operating profit declined 26% (23% CER) from $171m to $127m or 20% (17% at CER) excluding the net impact of the liquidated damages receipts. Owned and leased hotels’ operating profit was down $12m to $33m. InterContinental Park Lane, London delivered a strong relative performance with RevPAR down just 1.7% during the year. Managed hotels’ operating profit declined by $30m to $65m, or by $21m, excluding the impact of the liquidated damages receipt in 2008. This was driven primarily by challenging trading across the Continental European estate where RevPAR fell 19.6%. Excluding the net $4m liquidated damages receipt, franchised hotels’ operating profit declined $11m to $57m (9% at CER) driven by a RevPAR decline of 14.9%, partially offset by a 6% increase in room count.
Asia Pacific
Revenue performance
RevPAR declined 13.5%, with a fourth quarter decline of 4.6%. IHG’s brands outperformed the market in Greater China by 8.9 percentage points with a RevPAR decline of 16.9% and occupancy growth of 0.2%. Excluding one $4m liquidated damages receipt in 2008, revenues declined 14% (15% CER) to $245m.
Operating profit performance
Excluding the liquidated damages receipt received in 2008, operating profit declined 19% from $64m to $52m. Operating profit at owned and leased hotels fell $13m to $30m primarily reflecting a RevPAR decline of 22.2% at InterContinental Hong Kong. Managed hotels’ operating profit declined $11m to $44m (16% at CER) driven by a 12.5% RevPAR decline. Excluding the $4m liquidated damages receipt in 2008, franchised hotels’ operating profit increased $1m to $5m.
Interest, tax and exceptional items
The interest charge for the period fell $47m to $54m due to a reduction in interest rates and lower average net debt.
The effective tax rate for 2009 is 5% (2008: 23%) due to the release of certain prior year tax contingencies, primarily as a result of the final resolution of various tax audits. The underlying tax rate before the impact of prior year items is 42% (2008: 39%). The reported tax rate may continue to vary year-on-year but is expected to increase in the medium term.
The $373m exceptional operating charge includes (i) $197m of non-cash asset impairments; (ii) $91m charge related to a management contract in the US; (iii) $43m reorganisation and severance costs; (iv) $21m enhanced pensions transfer; and (v) $19m in respect of the Holiday Inn relaunch.
Cash flow & net debt
Growth capital expenditure of $91m included a $65m payment on completion of the Hotel Indigo San Diego. Maintenance capital expenditure of $57m was 42% below 2008 levels.
IHG’s balance sheet has been strengthened with net debt reduced to $1.1bn (including the $204m finance lease on the InterContinental Boston). IHG has extended its maturities and diversified its debt profile issuing a seven year £250m bond in the fourth quarter and refinancing $415m of the $500m term loan expiring in November 2010. In addition, IHG has a $1.6bn revolving credit facility expiring May 2013.
RevPAR Sensitivity
IHG now estimates that a 1% change in global RevPAR impacts Group EBIT by $13m, split as follows: $4m owned & leased; $4m managed (of which $1m relates to the Americas managed business); and $5m franchised.
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