InterContinental looks to emerging markets as Europe fades

Hotels group InterContinental Hotels Group (IHG) is increasingly looking to emerging markets to generate profits growth as things start to look a bit sticky in Europe.

The company saw solid growth in revenues, earnings and margins in 2011, though the crucial metric of revenue per available room (RevPAR) saw an easing off in the annual growth rate to 4.6%; for 2011 as a whole IHG saw global RevPAR growth of 6.9%.

"We have continued to outperform the industry in key markets such as the US and Greater China where RevPAR was up 7.9% and 10.7% respectively," noted Richard Solomons, Chief Executive of the Holiday Inns and Crowne Plaza chains owner.

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January global RevPAR was up 6.0%, however, with room rates up 3.5%. The Americas saw 7.7% growth in RevPar in January; Asia, Middle East and Africa (AMEA) saw 4.2% growth while even crisis-torn Europe witnessed growth of 3.0%. RevPAR growth of just 1.2% in Greater China reflected the shift of the Chinese New Year into January in 2012 from February in 2011.

Group revenue in 2011 was $1,769m, up 9%, or 7% on a constant exchange rates (CER) basis, from 2010's $1,628m. The figure topped market expectations of revenue of $1,761m.

Operating profit climbed 26% (CER:25%) to $559m from $444m the year before, while profit before tax rose 34.0% to $532m from $397m the year before.

Adjusted earnings per share surged 32.3% to 130.4 cents from 98.6 cents in 2010, underpinning a 15% increase in the full year dividend to 55 cents (34.5p) from 48 cents in 2010. Broker Panmure Gordon had predicted a 2011 pay-out of 50.4 cents.

"Looking ahead, in spite of considerable uncertainty in the Eurozone, IHG is well positioned globally to benefit from positive long term industry trends and, in particular, growing demand in emerging markets," Solomons claimed, adding that the bump up in the dividend payment reflected "the confidence we have in our ability to deliver high quality growth through market share and margin gains."

Net debt at 31st December 2011 was $538m, a decrease over the year of $205m, but well above the $442m expected by Panmure Gordon. Net debt included $209m in respect of the finance lease obligations for the InterContinental Boston and $29m in respect of currency swaps related to the group's sterling bond.

The group said strong cost management and scale benefits continue to drive operating profit margin growth, which rose by one percentage point on an underlying basis to 40.6%.

RevPAR and room rate break-down (year-on-year changes)

January 2012

For the group as a whole, RevPar rose 6.0%. Growth rates for Europe, AMEA and Greater China were 7.7%, 3.0%, 4.2% and 1.2% respectively.

Room rates rose 3.5% (Americas 4.0%; Europe 0.2%; AMEA 2.5%; Greater China 9.2%).

Occupancy levels rose 1.3 percentage points overall, and by 1.8, 1.5 and 1.1 in the Americas, Europe and AMEA respectively. The timing of the Chinese new year meant occupancy levels in China fell 3.6 percentage points.

Fourth quarter 2011

For the group as a whole, RevPar rose 4.6%. Growth rates for Europe, AMEA and Greater China were 6.6%, -0.2%, 1.6% and 7.7% respectively.

Room rates rose 2.8% (Americas 3.7%; Europe 0.8%; AMEA 3.2%; Greater China 3.9%).

Occupancy levels rose 1.1 percentage points (pp) overall, and by 1.6 and 2.3 percentage points in the Americas and Greater China, respectively. Europe saw a 0.6 pp decline while AMEA saw a 1.2 pp fall off as the region suffered more than its fair share of natural disasters.

Full year 2011

For the group as a whole, RevPar rose 6.2%. Growth rates for Europe, AMEA and Greater China were 7.5%, 4.7%, 0.9% and 10.7% respectively.

Room rates rose 2.5% (Americas 2.8%; Europe 2.9%; AMEA 1.3%; Greater China 5.9%).

Occupancy levels rose 2.3 percentage points (pp) overall, and by 2.8 pp in both the Americas and Greater China. Occupancy levels rose 1.2 pp in Europe but fell 0.2 pp in AMEA.