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RNS

Half-year Report

Released 07:00 06-Aug-2019

RNS Number : 9739H
InterContinental Hotels Group PLC
06 August 2019
 

IHG PLC - Half Year Results to 30 June 2019

 

 

Reported

 

Underlying5

 

2019

2018 Restated1

% Change

 

% Change

 

REPORTABLE SEGMENTS2

 

 

 

 

 

 

Revenue3

$1,012m

$900m

12%

 

13%

 

Revenue from fee business

$730m

$719m

2%

 

3%

 

Operating profit3

$410m

$413m

(1)%

 

2%

 

Fee margin4

53.7%

53.9%

(0.2)%pts

 

0.3%pts

 

Adjusted EPS

143.2¢

145.3¢

(1)%

 

2%

 

 

 

 

 

 

 

 

GROUP RESULTS6

 

 

 

 

 

 

Total revenue

$2,280m

$2,113m

8%

 

KEY METRICS

 

Operating profit

$457m

$401m

14%

 

· $13.6bn total gross revenue (up 2%; 5% at CER)

Basic EPS

167.2¢

122.6¢

36%

 

Interim dividend per share

39.9¢

36.3¢

10%

 

· 0.1% global H1 RevPAR (Q2 = (0.2)%)

Net debt

$2,847m

$2,198m

30%

 

1 Restated following the adoption of IFRS 16 'Leases' from 1 January 2019. 2 Excludes System Fund results, hotel cost reimbursements and exceptional items. Comprises the Group's fee business and owned, leased, and managed lease hotels, and excludes exceptional items. 4 Also excludes owned, leased and managed lease hotels, and significant liquidated damages. 5 Reportable segment results excluding owned asset disposals, significant liquidated damages, current year acquisitions and stated at constant H1 2018 exchange rates (CER). 6  Includes System Fund results, hotel cost reimbursements and excludes exceptional items (except for Basic EPS).

 

·      H1 Comparable RevPAR: Americas = 0.1% (US = 0.0%); EMEAA = 0.2%; Greater China = (0.3)%.

 

 

·      Underlying operating profit up 2% (up 5% excluding the result from the UK portfolio transaction and adjusting for $6m of cost phasing benefit in H1 2018); underlying EPS up 2%; Interim dividend up 10%.

 

·     Net system size growth of 5.7%, the highest in over a decade, with 30k room additions, up 38% YoY. Removed 10k rooms, in line with a continued focus on the long-term health of established brands, leaving 856k rooms across the global estate.

 

·     First half signings of 48k rooms (up 3% YoY), highest in over a decade and includes record performance in Greater China. Total pipeline now stands at 282k rooms.

 

·    Continued progress optimising our brand portfolio for future growth, with 5 signings for Six Senses Hotels Resorts Spas since acquisition in February, and the launch of our new upper midscale brand Atwell Suites in H1.

 

·      Rollout of voco continuing at pace with 21 hotels signed to date (8k rooms); expected to reach ~30 signings (10k rooms) by the end of the year. Almost 200 avid hotels signed in less than 2 years with 3 open and more than a quarter under construction or with planning approved.

 

 

Keith Barr, Chief Executive Officer, IHG, said:

 

"Eighteen months ago, we set out a series of strategic initiatives to drive an acceleration in growth to ambitious new levels.  Our approach is built around strengthening our established brands, adding new brands in high opportunity segments and optimising our owner proposition.   In a slower RevPAR growth environment, we've made significant progress, opening a record number of rooms in the first half which have delivered a 5.7% increase in net system size growth, our best performance in over a decade, with future growth underpinned by our highest level of signings over the same period.  

 

In the first half alone, we launched transformational design prototypes for Staybridge Suites and Candlewood Suites and evolved our brand prototypes for Holiday Inn and Holiday Inn Express.  We also developed six flagship properties for Crowne Plaza in the US, Europe and China and have continued to take Hotel Indigo and Kimpton Hotels & Restaurants to new markets.  Our new avid and voco brands are performing well, we've already had over 50 expressions of interest for our newest brand, Atwell Suites, and we're well placed to capitalise on strong growth in the luxury segment with our recently acquired Six Senses and Regent brands. As we focus on ensuring that we operate and grow our business in a responsible way, we're proud to have committed to switching every IHG hotel to bulk-size bathroom amenities, in an effort to reduce waste and protect the environment.

 

Funded by our efficiency programme, the investments we are making behind our strategic initiatives are driving accelerated rooms growth and position us well to achieve industry leading, sustainable net system size growth over the medium-term. Whilst there are always macro-economic and geo-political uncertainties in some markets, our broad geographic spread and the resilient, cash-generative nature of our business gives us confidence in the outlook for the balance of the year."

 

Update on strategic initiatives

We continue to make good progress in executing against our strategic model to deliver industry leading net rooms growth over the medium term

·      Build and leverage scale

-      Our focus on building scale positions in attractive markets and high opportunity segments has seen us grow our share of global branded industry signings over the last two years.

-    Record H1 performance for openings and signings in China, with 13k rooms (36 hotels) opened and a further 22k rooms (90 hotels) signed into the pipeline. Combined system and pipeline now stands at >800 hotels.

 

·      Strengthen loyalty programme

-    Announced InterContinental Alliance Resorts partnership with Sands China in Macau, along with an extension of our alliance with The Venetian Resort Las Vegas, our most popular point redemption location, giving guests the opportunity to earn and redeem points in these highly desirable destinations.

-      Strengthened our ability to offer unique experiences to IHG Rewards Club members through partnerships with the US Open Tennis Championships and the Cadillac Centre - a multi-purpose indoor arena in Beijing.

-     Enhancing value of points to members through trials of variable point pricing and the ability to pay with points during hotel stays.

 

·      Enhance revenue delivery

-    Developing updated arrivals platform within IHG Concerto, which will allow for an improved check-in experience for guests through features such as mobile pre-check in and room ready notifications.

-        Now piloting our proprietary price optimisation software for Groups business in IHG Concerto.

 

·      Evolve owner proposition

-     Continued strong traction for our franchise offer in Greater China with 40 hotels signed for Holiday Inn Express in the half, taking the total to 187 signed and 43 opened since launch in 2016. We have also signed 10 franchise deals across our Holiday Inn and Crowne Plaza brands in Greater China in H1 2019, taking total franchise signings to over 200 since launch.

 

·      Optimise our portfolio of brands for owners and guests

 

-        Mainstream - ($115bn global segment with $65bn growth potential to 2025)

-     Holiday Inn Express: Continued to evolve our 'Formula Blue' guestroom and public space designs; on track for adoption in two-thirds of the US estate by the end of 2020.

-        Holiday Inn: Updated room and public space designs launched in the Americas, with >150 hotels open or committed. Currently running largest marketing campaign in over a decade for Holiday Inn Brand Family.

-       Staybridge Suites & Candlewood Suites: Launched transformational new room and public space design prototypes for our extended stay brands to enhance guest experience and drive owner ROI.

-       avid hotels: Almost 200 hotels (18k rooms) signed since launch (27 hotels (3k rooms) signed in H1 2019), and 3 hotels now open. With over 60 more under construction or with planning approved, we expect to have ~10 properties open by the end of the year.

-     Atwell Suites: Launched new all-suites upper midscale brand, targeting an $18bn industry segment, to owners and investors earlier this year. Over 50 written expressions of owner interest ahead of the registration of franchise documents later this year.

 

-        Upscale - ($40bn global segment with $20bn growth potential to 2025)

-      Crowne Plaza: Achieved our best H1 signings performance in over a decade, with 4.5k rooms added to the pipeline. Developing flagship properties which will showcase new room and public space designs in key cities around the world.

-       Hotel Indigo: Growing momentum for the brand with highest ever number of signings in the first half; now have deals signed into the pipeline that will take Hotel Indigo to 16 new countries.

-      voco: Twenty-one hotels signed to date across 10 countries in EMEAA (8k rooms in total), including a 4k room property in Makkah. Anticipate growing voco portfolio to ~30 signed hotels by the end of the year.

 

-         Luxury - ($60bn global segment with $35bn growth potential to 2025)

-     InterContinental Hotels & Resorts: Reinforcing position as largest global luxury hotel brand with the openings of the InterContinental Hayman Island in Australia and the InterContinental Lyon - Hotel Dieu in France. A number of our more iconic properties are also currently under or soon to enter refurbishment, demonstrating our owners' long-term commitment to the InterContinental brand.

-        Kimpton Hotels & Restaurants: Global expansion continues with the opening of two further properties in the UK and 5 signings in H1, including landmark properties in Beijing and Hong Kong.

-      Six Senses Hotels Resorts Spas: Five new signings since February 2019 acquisition, including properties in Iceland and the Loire Valley.

-     Regent Hotels & Resorts: Signed two properties in the half in Chengdu and Bali, and are piloting new brand hallmarks which will help define Regent's position in the top tier of luxury.

 

 

 

Americas - US RevPAR performance in line with the segments in which we compete

 

 

 

Comparable RevPAR increased 0.1% (Q2: down 0.5%), driven by 0.8% rate growth, with occupancy impacted by tough comparables from hurricane related demand in H1 2018. US RevPAR was flat for the half with performance in line with the segments in which we compete. The 0.7% decline in the second quarter was impacted by the shift in the timing of Easter and the lapping of hurricane related demand at the start of the quarter. Canada was flat (Q2: down 1%), with growth in British Columbia offset by softness in Ontario. Latin America and the Caribbean were up 7% (Q2: up 6%), with strong performances in Brazil and Colombia. Mexico RevPAR was down 2% (Q2: down 2%).

 

Reported revenue1 of $520m increased 1% (CER 2%) and reported operating profit1 of $344m increased 3% (CER 4%).

 

Underlying2 revenue and operating profit were in line with reported growth rates, with fee business operating profit up 4%. Growth in fee revenue from net rooms growth and higher levels of termination fees more than offset the net negative impact of previously flagged items, including equity investment income, a payroll tax credit and legal costs.

 

We opened 11k rooms (96 hotels) during the half, with continued strong pace for our Holiday Inn Brand Family, and we also opened our second and third avid hotels. We continue to focus on a high-quality estate and removed 6k rooms (46 hotels). Together, this drove a 2.7% increase in our net system size. 

 

We signed 135 hotels (14k rooms), including a further 6 for the Hotel Indigo brand. We also signed 3 Kimpton properties, including hotels in North Carolina and Colorado, and have announced that we will be debuting the brand in Mexico with 2 properties scheduled to open in 2020.

 

 

 

EMEAA - Strong signings and openings pace; voco momentum continues

 

 

 

Comparable RevPAR increased 0.2% (Q2: up 0.7%) driven by occupancy up 0.5%pts. UK RevPAR was up 2% for the half with London up 5% and the Provinces up 1%. Second quarter RevPAR in the UK was up 2% with strong international demand driving RevPAR in London up 4%, whilst the Provinces were up 1%, benefitting from the Cricket World Cup.

 

Continental Europe RevPAR was up 3% in the half (Q2: up 4%). In France, RevPAR was down 1% with performance impacted by social unrest in Paris, with 1% growth in the second quarter driven by the FIFA Women's World Cup and the Paris Air Show. Germany grew RevPAR 4% in the half and 5% in the second quarter helped by a favourable trade fair calendar.

 

Trading conditions in the Middle East remained challenging, with RevPAR down 5% in the half due to increased supply and political unrest weighing on demand. Australia RevPAR was down 2% (Q2: down 3%) impacted by supply growth and the lapping of the Commonwealth Games. Japan RevPAR grew 3% in the half (Q2: up 5%) with strong rate growth.

 

The first half includes the results of the UK portfolio transaction, which completed in July 2018. This resulted in a $91m increase in Owned, Leased and Managed Lease revenue, and, as previously flagged, a $7m decrease in operating profit for the half due to seasonality, which we expect to more than reverse in the second half.

 

Reported revenue1 of $338m increased 45% (52% CER) and reported operating profit1 of $88m decreased 7% (3% CER). On an underlying basis2, revenue increased 43% and operating profit decreased 2% (up 4% excluding the UK portfolio deal). Underlying fee business revenue and operating profit were both up 3%.

 

We opened 6k rooms (49 hotels), driving 6.5% net rooms growth, including an expansion of our Luxury brands with 2 InterContinental and 2 Kimpton openings in the half.

 

We signed 11k rooms (82 hotels) in the half including >1k rooms for Crowne Plaza, and 1k rooms for voco.

 

 

 

Greater China - Record room signings; continued industry outperformance

 

 

 

Comparable RevPAR decreased 0.3% (Q2: down 0.5%), impacted by the strong comparables from H1 2018. In Mainland China, RevPAR was down 1%, with market outperformance throughout the first half. Tier 1 and 2 cities were flat (Q2 also flat) and Tier 3 and 4 cities were down 3% (Q2: down 2%). Whilst corporate and meetings business was softer against strong prior year demand, domestic leisure business remains resilient.

 

RevPAR in Hong Kong SAR was marginally down in H1, with some impact from the ongoing political disputes, whilst Macau SAR RevPAR was up 5% for the half.

 

Reported revenue of $66m decreased by 4% (CER increased 1%), and reported operating profit of $36m increased by 13% (CER 16%).

 

On an underlying2 basis, revenue increased by 8% and operating profit increased by 32%, driven by double-digit net rooms growth and some benefit from cost phasing in the first half. 

 

We opened a record 13k rooms (36 hotels), driving 18% net rooms growth. This takes the total number of open rooms to over 126k (422 hotels) and includes the opening of our 150th Holiday Inn Express in the region. Signings totalled 22k rooms (90 hotels), our highest ever for the region, and included 5k rooms from our InterContinental Alliance Resorts partnership with Sands.

 

 

 

Highly cash generative business with disciplined approach to cost control and capital allocation

 

 

 

Driving fee margin through strategic cost management

·     Remain on track to deliver ~$125m in annual savings, including System Fund, by 2020 for reinvestment in growth.

·     Savings being fully reinvested in growth initiatives, with ~80% to be realised by end of 2019.

·    H1 2019 fee margin was down 20bps (down 30bps at CER), held back by the acquisition of Six Senses, which made a small operating loss in the half, and by $6m of cost phasing benefit in H1 2018. Excluding these impacts, fee margin increased 130bps (up 110bps at CER).

·   Net central operating loss before exceptional items increased by $10m, ($11m CER); an increase in central revenues was offset by continued investments in growth initiatives. Central overheads include the reinvestment of a substantial proportion of growth investment funded by savings elsewhere in the business.

·    Growth initiatives, and a continuation of our disciplined cost management and strong efficiency focus, expected to maintain future fee margin progression broadly in line with the historic average.

 

Strong free cash flow generation fuelling investment

·     Free cash flow3 of $141m was down $120m year on year after $62m higher levels of cash tax, and an outflow of working capital which should largely reverse in the second half.

·    Net capital expenditure3 of $71m (H1 2018: $112m) with $101m gross (H1 2018: $132m). This comprised: $45m maintenance capex and key money; $14m gross recyclable investments; and $42m System Fund capital investments; offset by $5m net proceeds from asset recycling and $25m System Fund depreciation and amortisation.  Capex guidance unchanged at up to $350m gross, and $150m net, per annum into the medium term.

·   Exceptional cash costs of $30m during the half, including $24m relating to the group wide efficiency programme ($13m in relation to the System Fund).

 

Efficient balance sheet provides flexibility

·    Financial position remains robust, with an on-going commitment to an investment grade credit rating; the best proxy for which is 2.5-3.0x net debt/EBITDA following the adoption of IFRS 16 (equivalent to 2.0-2.5x net debt/EBITDA under the previous accounting standard).

·   Net debt of $2,847m, up $882m on the 2018 close, after payment of the $500m special dividend and $300m acquisition of Six Senses.

 

Cash generative business driving shareholder returns

·      Proposed 10% increase in the interim dividend to 39.9¢.

 

 

 

Foreign exchange

 

 

 

The impact of the movement in average USD exchange rates for H1 2019 against a number of currencies (particularly Sterling, Euro and Renminbi) netted to a $6m negative impact on reported profit4. If the 28 June 2019 spot rate had existed throughout H2 2018, H2 2018 reported profit would have been unchanged.

 

A full breakdown of constant currency vs. actual currency RevPAR by region is set out in Appendix 2.

 

 

 

Other

 

 

 

System Fund:

System Fund revenues and costs are recognised on a gross basis with the in-year surplus or deficit recorded in the Group income statement, but excluded from results from reportable segments, underlying results and adjusted EPS, as the Fund is operated for the benefit of the hotels in the IHG System such that the Group does not make a gain or loss from operating the Fund.

 

In H1 2019 we recorded a System Fund income statement surplus of $47m, largely due to favourable adjustments due to changes in breakage estimates and the seasonality in timing of marketing spend, which we expect to reverse for the full year.

 

 

Interest:

Net financial expenses were $67m. Underlying5 interest expense of $76m, which adds back interest relating to the System Fund, was $20m higher than in 2018, reflecting higher levels of net debt and finance charges related to deferred and contingent consideration on acquisitions.

 

Following the €500m bond issued in November 2018, the finance charges relating to deferred and contingent consideration on acquisitions and the adoption of IFRS 16, we continue to expect the underlying5 interest charge to be ~$150m for the full year.

 

Tax:

Effective rate6 for H1 2019 was 21% (H1 2018: 22%). We expect our full year 2019 effective tax rate will be in the mid to low 20s percentage point range. 

 

Exceptional operating items:

Before tax exceptional items total $15m charge and comprise: $10m costs incurred in relation to the group wide efficiency programme and $5m of acquisition and integration costs. A further $13m of costs related to the group wide efficiency programme were incurred by the System Fund and are included within System Fund expenses in the Group income statement.

 

 

 

2019 items

 

 

 

Americas: 

·      $4m benefit from payroll tax credit received in H1 2018 will not repeat in 2019.

·      $5m of equity investment income received in H1 2018 will not repeat in 2019.

 

EMEAA:  A previously disclosed $15m cash payment was received in Q1 2018 in relation to the termination of a portfolio of hotels. This has been / will be recognised as individually significant liquidated damages as follows: $6.7m in 2018, $7.7m in 2019 and $1.0m in 2020.

 

Greater China: $6m of individually significant liquidated damages received in 2018 will not repeat in 2019.

 

 

 

 

 

 

 

1 Comprises the Group's fee business and owned, leased, and managed lease hotels from reportable segments and excludes exceptional items.

2 Excluding owned asset disposals, significant liquidated damages, current year acquisitions, System Fund results, hotel cost reimbursements and exceptional items at constant H1 2018 exchange rates (CER).

See the Interim Management Report for definition of non-GAAP measures and reconciliation to GAAP measures.

3 For definition of non-GAAP measures and reconciliation to GAAP measures see the Interim Management Report.

4 Based on monthly average exchange rates each year.

5 For definition of non-GAAP measures and reconciliation to GAAP measures see the Interim Management Report.

6 Excludes exceptional items and System Fund results.

 

     

 

 

Appendix 1: RevPAR Movement Summary

 

 

 

Half Year 2019

Q2 2019

 

RevPAR

Rate

Occ.

RevPAR

Rate

Occ.

 

Group

0.1%

0.4%

(0.2)%pts

(0.2)%

0.3%

(0.4)%pts

 

Americas

0.1%

0.8%

(0.5)%pts

(0.5)%

0.6%

(0.8)%pts

 

EMEAA

0.2%

(0.4)%

0.5%pts

0.7%

0.1%

0.4%pts

 

G. China

(0.3)%

(0.5)%

0.2%pts

(0.5)%

(1.2)%

0.5%pts

 

Appendix 2: Comparable RevPAR movement at constant exchange rates (CER) vs. actual exchange rates (AER)

 

 

 

Half Year 2019

Q2 2019

 

CER

AER

Difference

CER

AER

Difference

 

Group

0.1%

(2.0)%

(2.1)%pts

(0.2)%

(2.0)%

(1.8)%pts

 

Americas

0.1%

(0.4)%

(0.5)%pts

(0.5)%

(0.8)%

(0.3)%pts

 

EMEAA

0.2%

(4.7)%

(5.0)%pts

0.7%

(3.7)%

(4.4)%pts

 

G. China

(0.3)%

(5.5)%

(5.2)%pts

(0.5)%

(6.1)%

(5.6)%pts

 

Appendix 3: Half Year System & Pipeline Summary (rooms)

 

System

Pipeline

Openings

Removals

Net

Total

YoY%

Signings

Total

Group

29,660

(10,286)

19,374

855,915

5.7%

47,796

281,845

Americas

10,994

(6,414)

4,580

514,709

2.7%

14,030

118,530

EMEAA

5,880

(1,961)

3,919

215,018

6.5%

11,347

78,017

G. China

12,786

(1,911)

10,875

126,188

18.2%

22,419

85,298

 

Appendix 4: Half Year financial headlines

 

 

GROUP

REPORTABLE SEGMENTS

 

 

Total

Americas

EMEAA

G. China

Central

 

2019

2018*

2019

2018*

2019

2018*

2019

2018*

2019

2018*

 

Revenue ($m)

 

 

 

 

 

 

 

 

 

 

 

Revenue from reportable segments

1,012

900

520

514

338

233

66

69

88

84

 

System Fund result

675

618

-

-

-

-

-

-

-

-

 

Hotel Cost Reimbursements

593

595

-

-

-

-

-

-

-

-

 

Group Revenue

2,280

2,113

520

514

338

233

66

69

88

84

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit ($m)

 

 

 

 

 

 

 

 

 

 

 

Fee Business

452

439

323

312

93

95

36

32

-

-

 

Owned, leased & managed lease

16

22

21

22

(5)

-

-

-

-

-

 

Central overheads

(58)

(48)

-

-

-

-

-

-

(58)

(48)

 

Operating profit from reportable segments before exceptionals

410

413

344

334

88

95

36

32

(58)

(48)

 

System Fund result

47

(12)

-

-

-

-

-

-

-

-

 

Operating profit before exceptionals

457

401

344

334

88

95

36

32

(58)

(48)

 

Exceptional items

(15)

(53)

(2)

(15)

(2)

(5)

-

-

(11)

(33)

 

Operating Profit after exceptionals

442

348

342

319

86

90

36

32

(69)

(81)

                                     

*Restated following the adoption of IFRS 16 'Leases'

Appendix 5: Reported operating profit before exceptional items from reportable segments at actual & constant exchange rates

 

Total***

Americas

EMEAA

G. China

Reported

Actual*

CER**

Actual*

CER**

Actual*

CER**

Actual*

CER**

Growth / (decline)

(1)%

1%

3%

4%

(7)%

(3)%

13%

16%

Appendix 6: Underlying**** operating profit movement before exceptional items

 

Total***

Americas

EMEAA

G. China

Growth / (decline)

2%

4%

(2)%

32%

 

Exchange rates:

USD:GBP

USD:EUR

* US dollar actual currency

H1 2019

0.77

0.89

** Translated at constant H1 2018 exchange rates

H1 2018

0.73

0.83

*** After central overheads

 

 

 

**** At CER and excluding: owned asset disposals, significant liquidated damages, current year acquisitions, System Fund results and hotel cost reimbursements

 

 

Appendix 7: Definitions

CER: constant exchange rates with H1 2018 exchange rates applied to H1 2019.

Comparable RevPAR: revenue per available room for hotels that have traded for all of 2018 and 2019, reported at CER.

Fee revenue: group revenue from reportable segments excluding owned, leased and managed lease hotels, and significant liquidated damages.

Fee margin: adjusted to exclude owned, leased and managed lease hotels, and significant liquidated damages.

Reportable segments: group results excluding System Fund results, hotel cost reimbursements and exceptional items.

Significant liquidated damages: $4m in H1 2019 ($4m EMEAA fee business); $7m in H1 2018 ($3m in EMEAA fee business and $4m in Greater China fee business).

Total gross revenue: total rooms revenue from franchised hotels and total hotel revenue from managed, owned, leased and managed lease hotels. Other than owned, leased and managed lease hotels, it is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties.

Total RevPAR: Revenue per available room including hotels that have opened or exited in either 2018 or 2019, reported at CER.

Underlying Interest: adds back interest relating to the System Fund.


 

Appendix 8: Investor information for 2019 Interim dividend

Ex-dividend date:

29 August 2019

Record date:

30 August 2019 

Payment date:

3 October 2019

Dividend payment:

ADRs: 39.9 cents per ADR; the corresponding amount in Pence Sterling per ordinary share will be announced on 18 September 2019, calculated based on the average of the market exchange rates for the three working days commencing 13 September. A DRIP is available, allowing shareholders of ordinary shares to elect to reinvest their cash dividend by purchasing additional ordinary shares.

For further information, please contact:

 

Investor Relations (Heather Wood, Matthew Kay, Rakesh Patel):

+44 (0)1895 512 176

+44 (0)7527 419 431

 

Media Relations (Yasmin Diamond; Mark Debenham):

+44 (0)1895 512 097

+44 (0)7527 424 046

 

 

 

 

 

Presentation for Analysts and Shareholders:

A conference call and webcast presented by Keith Barr, Chief Executive Officer and Paul Edgecliffe-Johnson, Chief Financial Officer will commence at 9.30am on 6 August 2019 on the web address www.ihgplc.com/interims2019. For those wishing to ask questions please use the dial in details below which will have a Q&A facility.

 

https://www.investis-live.com/ihg/5d24a3499add6d1100612f38/hyri

 

The archived webcast of the presentation is expected to be on this website later on the day of the results and will remain on it for the foreseeable future.

 

 

               

 

There will also be a live listen only dial-in facility, details are below:

 

UK

+44 (0) 203 936 2999

US

+1 646 664 1960

All other locations:

+44 (0) 203 936 2999

Participant Access Code:

72 80 10

 

A replay will be available following the event, details are below:

UK:        

+44 (0) 203 936 3001

US:        

+1 845 709 8569

All other locations:

+44 (0) 203 936 3001

Replay pin

41 17 72

 

Website:

The full release and supplementary data will be available on our website from 7:00am (London time) on 6th August.  The web address is www.ihgplc.com/interims2019.

 

Notes to Editors:

IHG® (InterContinental Hotels Group) [LON:IHG, NYSE:IHG (ADRs)] is a global organisation with a broad portfolio of hotel brands, including Six Senses Hotels Resorts Spas, Regent Hotels & Resorts, InterContinental® Hotels & Resorts, Kimpton® Hotels & Restaurants, Hotel Indigo®, EVEN® Hotels, HUALUXE® Hotels and Resorts, Crowne Plaza® Hotels & Resorts, voco™, Holiday Inn®, Holiday Inn Express®, Holiday Inn Club Vacations®, Holiday Inn Resort®, avid™ hotels, Staybridge Suites®, Atwell Suites™,and Candlewood Suites®.

 

IHG franchises, leases, manages or owns more than 5,700 hotels and nearly 856,000 guest rooms in more than 100 countries, with over 1,900 hotels in its development pipeline. IHG also manages IHG® Rewards Club, our global loyalty programme, which has more than 100 million enrolled members.  

 

InterContinental Hotels Group PLC is the Group's holding company and is incorporated in Great Britain and registered in England and Wales. More than 400,000 people work across IHG's hotels and corporate offices globally.

 

Visit www.ihg.com for hotel information and reservations and www.ihgrewardsclub.com for more on IHG Rewards Club. For our latest news, visit: www.ihgplc.com/media and follow us on social media at: https://twitter.com/ihgcorporate, www.facebook.com/ihgcorporate and www.linkedin.com/company/intercontinental-hotels-group.

 

 

Cautionary note regarding forward-looking statements:

This announcement contains certain forward-looking statements as defined under United States law (Section 21E of the Securities Exchange Act of 1934) and otherwise.  These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts.  Forward-looking statements often use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or other words of similar meaning.  These statements are based on assumptions and assessments made by InterContinental Hotels Group PLC's management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.  By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty.  There are 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.  The main factors that could affect the business and the financial results are described in the 'Risk Factors' section in the current InterContinental Hotels Group PLC's Annual report and Form 20-F filed with the United States Securities and Exchange Commission.

 

 

 

 

 

INTERIM MANAGEMENT REPORT

 

This Interim Management Report discusses the performance of InterContinental Hotels Group PLC (the Group or IHG) for the six months ended 30 June 2019. The 2018 comparatives have been restated to reflect the adoption of IFRS 16 'Leases'.

 

Group

 

6 months ended 30 June

 

Group results

 

2018

 

 

2019

Restated

%

 

$m

$m

change

Revenuea

 

 

 

 

 

 

 

Americas

520

514

1.2

EMEAA

338

233

45.1

Greater China

66

69

(4.3)

Central

88

84

4.8

 

____

____

____

Revenue from reportable segments

1,012

900

12.4

 

 

 

 

System Fund revenues

675

618

9.2

Reimbursement of costs

593

595

(0.3)

 

____

____

____

Total revenue

2,280

2,113

7.9

 

____

____

____

Operating profita

 

 

 

 

 

 

 

Americas

344

334

3.0

EMEAA

88

95

(7.4)

Greater China

36

32

12.5

Central

(58)

(48)

(20.8)

 

____

____

____

Operating profit from reportable segments

410

413

(0.7)

System Fund result

47

(12)

491.7

 

____

____

____

Operating profit before exceptional items

457

401

14.0

Exceptional items

(15)

(53)

71.7

 

____

____

____

Operating profit

442

348

27.0

Net financial expenses

(67)

(47)

(42.6)

 

____

____

____

Profit before tax

375

301

24.6

 

____

____

____

 

 

 

 

Earnings per ordinary share

 

 

 

 

Basic

167.2¢

122.6¢

36.4

 

Adjusted

143.2¢

145.3¢

(1.4)

 

 

 

 

 

Average US dollar to sterling exchange rate

$1 : £0.77

$1 : £0.73

5.5

 

During the six months ended 30 June 2019, total revenue increased by $167m (7.9%) to $2,280m and operating profit increased by $94m (27.0%) to $442m due to the System Fund moving from a $12m in-year deficit to a $47m in-year surplus and a $38m decrease in exceptional costs.

 

Revenue from reportable segmentsa increased by $112m (12.4%) to $1,012m and operating profit from reportable segmentsa decreased by $3m (0.7%) to $410m. Underlyingb Group revenue and underlyingb Group operating profit increased by $118m (13.2%) and $8m (2.0%) respectively.

 

Basic earnings per ordinary share increased by 36.4% to 167.2¢, whilst adjusted earnings per ordinary share decreased by 1.4% to 143.2¢.

 

 

a Americas, EMEAA and Greater China include revenue and operating profit before exceptional items from both fee business and owned, leased and managed lease hotels.

b Underlying revenue and underlying operating profit both exclude System Fund revenue and expenses, reimbursement of costs, the impact of owned asset disposals, significant liquidated damages, current year acquisitions, all translated at constant currency using prior year exchange rates. Underlying operating profit excludes the impact of exceptional items. The presentation of these performance measures allows a better understanding of comparable year-on-year trading and enables an assessment of the underlying trends in the Group's financial performance.

 

 

Hotels

Rooms

Global hotel and room count

 

 Change over

 

Change over

 

 

2019

30 June

2018

31 December

2019

30 June

2018

31 December

Analysed by brand

 

 

 

 

 

Six Senses

18

18

1,448

1,448

 

Regent

6

-

2,003

(2)

 

InterContinental

205

1

 69,436

155

 

Kimpton

69

3

 13,470

555

 

HUALUXE

9

1

 2,632

297

 

Crowne Plaza

426

(3)

 119,494

(674)

 

voco

5

3

1,252

721

 

Hotel Indigo

109

7

 13,310

561

 

EVEN Hotels

10

-

 1,551

-

 

Holiday Inn1

1,269

18

236,507

2,655

 

Holiday Inn Express

2,776

50

286,486

6,970

 

avid hotels

3

2

261

174

 

Staybridge Suites

292

16

31,816

1,599

 

Candlewood Suites

401

5

37,578

368

 

Other

125

(1)

38,671

4,547

 

 

____

____

______

_____

Total

5,723

120

855,915

19,374

 

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

4,715

100

 594,165

17,186

 

Managed

982

17

255,413

1,847

 

Owned, leased and managed lease

26

3

 6,337

341

 

 

____

____

______

_____

Total

5,723

120

855,915

19,374

 

 

____

____

______

_____

                 

                  1Includes 45 Holiday Inn Resort properties (11,388 rooms) and 27 Holiday Inn Club Vacations properties (7,927 rooms)

  (2018: 46 Holiday Inn Resort properties (11,644 rooms) and 26 Holiday Inn Club Vacations properties (7,676 rooms)).

 

 

Hotels

Rooms

Global pipeline

 

Change over

 

Change over

 

 

2019

30 June

2018

31 December

2019

30 June

2018

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

19

19

1,466

1,466

 

Regent

5

2

944

430

 

InterContinental

 61

1

 15,976

181

 

Kimpton

 30

3

 5,294

820

 

HUALUXE

 21

-

 6,051

(48)

 

Crowne Plaza

 89

10

 25,225

3,091

 

voco

10

2

1,898

388

 

Hotel Indigo

 103

11

 15,268

2,190

 

EVEN Hotels

 23

5

 4,112

928

 

Holiday Inn1

282

(6)

55,378

(273)

 

Holiday Inn Express

790

6

99,452

1,028

 

avid hotels

195

24

18,049

2,238

 

Staybridge Suites

185

3

21,239

390

 

Candlewood Suites

94

(8)

8,457

(664)

 

Other

18

(6)

3,036

(1,268)

 

 

____

____

______

_____

Total

1,925

66

281,845

10,897

 

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

1,417

19

 165,440

4,097

 

Managed

507

47

116,250

6,800

 

Owned, leased and managed lease

1

-

 155

-

 

 

____

____

______

_____

Total

1,925

66

281,845

10,897

 

 

____

____

______

_____

               

 

1Includes 21 Holiday Inn Resort properties (5,309 rooms) (2018: 17 Holiday Inn Resort properties (4,658 rooms)).

 

 

 

THE AMERICAS

 

6 months ended 30 June

Americas Results

 

2018

 

 

2019

Restated

%

 

$m

$m

change

Revenue from the reportable segmenta

 

 

 

 

Fee business

418

413

1.2

 

Owned, leased and managed lease

102

101

1.0

 

____

____

____

Total

 

520

514

1.2

 

____

____

____

Operating profit from the reportable segmenta

 

 

 

 

Fee business

323

312

3.5

 

Owned, leased and managed lease

21

22

(4.5)

 

____

____

____

 

 

344

334

3.0

Exceptional items

 

(2)

(15)

86.7

 

____

____

____

Operating profit

342

319

7.2

 

____

____

____

 

 

 

 

           

 

Americas Comparable RevPAR movement on previous year

6 months ended

30 June 2019

Fee business

 

 

InterContinental

1.8%

 

Kimpton

3.8%

 

Crowne Plaza

(1.3)%

 

Hotel Indigo

1.5%

 

EVEN Hotels

(2.2)%

 

Holiday Inn

(0.9)%

 

Holiday Inn Express

0.1%

 

Staybridge Suites

0.6%

 

Candlewood Suites

(1.1)%

 

All brands

0.0%

 

 

 

Owned, leased and managed lease

 

 

InterContinental

8.3%

 

EVEN Hotels

0.1%

 

Holiday Inn

5.6%

 

All brands

5.6%

Revenue from the reportable segmenta increased by $6m (1.2%) to $520m, whilst operating profit increased by $23m (7.2%) to $342m. Operating profit from the reportable segmenta increased by $10m (3.0%) to $344m. On an underlyingb basis, revenue increased by $8m (1.6%), whilst operating profit increased by $12m (3.6%).

 

Revenue and operating profit from the reportable segmenta are further analysed by fee business and owned, leased and managed lease hotels.

 

Fee business revenue increased by $5m (1.2%) to $418m and operating profit increased by $11m (3.5%) to $323m, partly impacted by adverse foreign exchangec (revenue $1m, and operating profit $2m), as net rooms growth and higher levels of termination fees more than offset the net negative impact of previously flagged profit items, including equity investment income, a payroll tax credit and legal costs.

 

Owned, leased and managed lease revenue increased by $1m (1.0%) to $102m, partly impacted by adverse foreign exchangec ($1m), whilst operating profit decreased by $1m (4.5%) to $21m, with no impact from foreign exchangec, due to renovations at one hotel.

 

a Americas reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenue and expenses and reimbursement of costs, for both fee business and owned, leased and managed lease hotels.

b Underlying revenue and underlying operating profit both exclude System Fund revenue and expenses, reimbursement of costs, the impact of owned asset disposals, significant liquidated damages, current year acquisitions, all translated at constant currency using prior year exchange rates. Underlying operating profit excludes the impact of exceptional items. The presentation of these performance measures allows a better understanding of comparable year-on-year trading and enables an assessment of the underlying trends in the Group's financial performance.

c The impact of movements between the previous year's average exchange rates and actual average rates in 2019.

 

 

 

 

Americas hotel and room count

     

Hotels

 

Rooms

 

 

 

 

2019

30 June

Change over 2018

31 December

2019

30 June

Change over 2018

31 December

Analysed by brand

 

 

 

 

 

InterContinental

 51

-

 17,893

140

 

Kimpton

 64

-

 12,421

114

 

Crowne Plaza

 151

(5)

 40,456

(1,043)

 

Hotel Indigo

 60

3

 7,786

291

 

EVEN Hotels

 10

-

 1,551

-

 

Holiday Inn1

 782

8

134,949

457

 

Holiday Inn Express

 2,312

23

 209,223

2,603

 

avid hotels

3

2

261

174

 

Staybridge Suites

 275

14

 29,427

1,395

 

Candlewood Suites

 401

5

 37,578

368

 

Other

102

-

23,164

81

 

____

____

______

_____

Total

4,211

50

514,709

4,580

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

3,909

56

 455,159

5,057

 

Managed

295

(6)

 57,327

(477)

 

Owned, leased and managed lease

7

-

2,223

-

 

____

____

______

_____

Total

4,211

50

514,709

4,580

 

____

____

______

_____

 

1Includes 22 Holiday Inn Resort properties (6,003 rooms) and 27 Holiday Inn Club Vacations (7,927 rooms)

  (2018: 23 Holiday Inn Resort properties (6,188 rooms) and 26 Holiday Inn Club Vacations (7,676 rooms)).

 

 

 

 

            Hotels

          Rooms

 

Americas pipeline

 

Change over

 

Change over

 

 

2019

30 June

2018

31 December

2019

30 June

2018

31 December

Analysed by brand

 

 

 

 

 

Six Senses

5

5

462

462

 

InterContinental

 5

(1)

 1,158

(319)

 

Kimpton

 18

2

 2,557

222

 

Crowne Plaza

 5

(1)

 1,113

(150)

 

Hotel Indigo

 38

3

 5,248

725

 

EVEN Hotels

 11

1

 1,441

145

 

Holiday Inn1

 106

(20)

 13,593

(2,459)

 

Holiday Inn Express

 485

(14)

 46,412

(1,208)

 

avid hotels

194

23

17,834

2,023

 

Staybridge Suites

 166

3

 17,221

319

 

Candlewood Suites

 94

(8)

 8,457

(664)

 

Other

18

(4)

3,034

(848)

 

____

____

______

_____

Total

1,145

(11)

118,530

(1,752)

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

1,099

(16)

 111,663

(1,994)

 

Managed

46

5

 6,867

242

 

____

____

______

_____

Total

1,145

(11)

118,530

(1,752)

 

____

____

______

_____

 

1Includes one Holiday Inn Resort property (165 rooms) (2018: one Holiday Inn Resort property (165 rooms)).

 

 

 

EMEAA

 

6 months ended 30 June

 

 

EMEAA results

 

2018

 

 

2019

Restated

%

 

$m

$m

change

Revenue from the reportable segmenta

 

 

 

 

Fee business

158

153

3.3

 

Owned, leased and managed lease

180

80

125.0

 

____

____

____

Total

 

338

233

45.1

 

____

____

____

Operating profit from the reportable segmenta

 

 

 

 

Fee business

93

95

(2.1)

 

Owned, leased and managed lease

(5)

-

-

 

____

____

____

 

 

88

95

(7.4)

Exceptional items

 

(2)

(5)

60.0

 

 

____

____

____

Operating profit

86

90

(4.4)

 

____

____

____

 

 

 

 

           

 

 

EMEAA comparable RevPAR movement on previous year

 

6 months ended

30 June 2019

 

 

Fee business

 

 

InterContinental

1.1%

 

Crowne Plaza

(1.1)%

 

Hotel Indigo

1.9%

 

Holiday Inn

(0.8)%

 

Holiday Inn Express

2.3%

 

Staybridge Suites

1.8%

 

All brands

0.2%

 

 

 

Owned, leased and managed lease

 

 

InterContinental

1.2%

 

Holiday Inn

2.4%

 

All brands

1.4%

         

Revenue from the reportable segmenta increased by $105m (45.1%) to $338m due to the addition of a portfolio of hotels in the UK in July 2018, whilst operating profit decreased by $4m (4.4%) to $86m, due to the seasonality of profit delivery from the UK portfolio. Operating profit from the reportable segmenta decreased by $7m (7.4%) to $88m.

Revenue and operating profit from the reportable segmenta are further analysed by fee business and owned, leased and managed lease hotels.

Fee business revenue increased by $5m (3.3%) to $158m, whilst operating profit decreased by $2m (2.1%) to $93m, partly impacted by adverse foreign exchangeb (revenue $8m, and operating profit $5m).

Owned, leased and managed lease revenue increased by $100m (125.0%) to $180m, partly impacted by adverse foreign exchangeb ($9m), whilst operating profit decreased by $5m, partly benefiting from the impact of foreign exchangeb ($1m). Both revenue and operating profit include the impact of the UK portfolio transaction.

 

a EMEAA reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenue and expenses and reimbursement of costs, for both fee business and owned, leased and managed lease hotels.

b The impact of movements between the previous year's average exchange rates and actual average rates in 2019.

 

 

 

 

 

 

 

 

         Hotels

 

       Rooms

EMEAA hotel and room count

 

 

 

Change over

 

 

Change over

 

 

2019

30 June

2018

31 December

2019

30 June

2018

31 December

Analysed by brand

 

 

 

 

 

Six Senses

17

17

1,326

1,326

 

Regent

3

-

771

2

 

InterContinental

 108

2

 32,657

358

 

Kimpton

 4

2

 920

312

 

Crowne Plaza

 182

-

 46,001

(258)

 

voco

5

3

1,252

721

 

Hotel Indigo

 39

4

 4,019

271

 

Holiday Inn1

 388

3

 72,054

701

 

Holiday Inn Express

 313

9

 44,778

1,046

 

Staybridge Suites

 17

2

 2,389

204

 

Other

 14

(3)

 8,851

(764)

 

____

____

______

_____

Total

1,090

39

215,018

3,919

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

747

21

 120,993

2,871

 

Managed

324

15

 89,911

707

 

Owned, leased and managed lease

19

3

 4,114

341

 

____

____

______

_____

Total

1,090

39

215,018

3,919

 

____

____

______

_____

 

1Includes 16 Holiday Inn Resort properties (3,390 rooms) (2018: 16 Holiday Inn Resort properties (3,381 rooms)).

 

 

     Hotels

 

       Rooms

EMEAA pipeline

 

Change over

 

Change over

 

 

2019

30 June

2018

31 December

2019

30 June

2018

31 December

Analysed by brand

 

 

 

 

 

Six Senses

12

12

875

875

 

Regent

4

1

664

150

 

InterContinental

 30

1

 7,130

211

 

Kimpton

 7

-

 1,240

-

 

Crowne Plaza

 37

3

 9,824

808

 

voco

10

2

1,898

388

 

Hotel Indigo

 42

2

 6,247

486

 

EVEN Hotels

1

-

200

-

 

Holiday Inn1

 118

12

 26,548

2,209

 

Holiday Inn Express

 112

(2)

 19,156

2

 

avid hotels

1

1

215

215

 

Staybridge Suites

 19

-

 4,018

71

 

Other

 -

(1)

 2

(141)

 

____

____

______

_____

Total

393

31

78,017

5,274

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

164

5

 27,122

1,441

 

Managed

228

26

 50,740

3,833

      Owned, leased and managed lease

1

-

155

-

 

____

____

______

_____

Total

393

  31

78,017

5,274

 

____

____

______

_____

 

 

1Includes 13 Holiday Inn Resort properties (2,921 rooms) (2018: 10 Holiday Inn Resort properties (2,365 rooms)).

 

 

 

GREATER CHINA

 

                6 months ended 30 June

 

Greater China results

 

2018

 

 

2019

Restated

%

 

$m

$m

change

Revenue from the reportable segmenta

 

 

 

 

Fee business

66

69

(4.3)

 

 

____

____

____

Total

 

66

69

(4.3)

 

____

____

____

Operating profit from the reportable segmenta

 

 

 

 

Fee business

36

32

12.5

 

 

____

____

____

 

 

36

32

12.5

Exceptional items

 

-

-

-

 

____

____

____

 

36

32

12.5

Operating profit

____

____

____

             

 

 

Greater China comparable RevPAR movement on previous year

6 months ended

30 June 2019

 

 

Fee business

 

 

InterContinental

1.4%

 

HUALUXE

6.5%

 

Crowne Plaza

(2.2)%

 

Hotel Indigo

(2.6)%

 

Holiday Inn

(0.5)%

 

Holiday Inn Express

0.5%

 

All brands

(0.3)%

 

Revenue from the reportable segmenta decreased by $3m (4.3%) to $66m, whilst both operating profit and operating profit from the reportable segment increased by $4m (12.5%) to $36m, all partly impacted by adverse foreign exchangeb  (revenue $4m, and operating profit $1m) and impacted by a reduction in significant liquidated damages recorded (2019: $nil, 2018: $4m). On an underlyingc basis, revenue increased by $5m (7.7%) and operating profit increased by $9m (32.1%), driven by 18% net system size growth and cost phasing benefiting the first half.

 

 

a Greater China reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenue and expenses and reimbursement of costs, for both fee business and owned, leased and managed lease hotels.

b The impact of movements between the previous year's average exchange rates and actual average rates in 2019.

c Underlying revenue and underlying operating profit both exclude System Fund revenue and expenses, reimbursement of costs, the impact of owned asset disposals, significant liquidated damages, current year acquisitions, all translated at constant currency using prior year exchange rates. Underlying operating profit excludes the impact of exceptional items. The presentation of these performance measures allows a better understanding of comparable year-on-year trading and enables an assessment of the underlying trends in the Group's financial performance.

 

 

 

 

   Hotels

 

     Rooms

 

Greater China hotel and room count

 

 

2019

Change

over 2018

 

2019

Change

over 2018

 

30 June

31 December

30 June

31 December

Analysed by brand

 

 

 

 

 

Six Senses

1

1

122

122

 

Regent

3

-

1,232

(4)

 

InterContinental

 46

(1)

 18,886

(343)

 

Kimpton

1

1

129

129

 

HUALUXE

 9

1

 2,632

297

 

Crowne Plaza

 93

2

 33,037

627

 

Hotel Indigo

 10

-

 1,505

(1)

 

Holiday Inn1

 99

7

 29,504

1,497

 

Holiday Inn Express

 151

18

 32,485

3,321

 

Other

 9

2

 6,656

5,230

 

 

____

____

______

_____

Total

422

31

126,188

10,875

 

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

59

23

 18,013

9,258

 

Managed

363

8

 108,175

1,617

 

 

____

____

______

_____

Total

422

31

126,188

10,875

 

 

____

____

______

_____

             

 

1Includes seven Holiday Inn Resort properties (1,995 rooms) (2018: seven Holiday Inn Resort properties (2,075 rooms))

 

 

 

 

Hotels

Rooms

 

Greater China pipeline

 

 

2019

Change

over 2018

 

2019

Change

over 2018

 

30 June

31 December

30 June

31 December

Analysed by brand

 

 

 

 

 

Six Senses

2

2

129

129

 

Regent

1

1

280

280

 

InterContinental

 26

1

 7,688

289

 

Kimpton

 5

1

 1,497

598

 

HUALUXE

 21

-

 6,051

(48)

 

Crowne Plaza

 47

8

 14,288

2,433

 

Hotel Indigo

 23

6

 3,773

979

 

EVEN Hotels

 11

4

 2,471

783

 

Holiday Inn1

 58

2

 15,237

(23)

 

Holiday Inn Express

 193

22

 33,884

2,234

 

Other

 -

(1)

 -

(279)

 

 

____

____

______

_____

Total

387

46

85,298

7,375

 

 

____

____

______

_____

Analysed by ownership type

 

 

 

 

 

Franchised

154

30

26,655

4,650

 

Managed

233

16

58,643

2,725

 

 

____

____

______

_____

Total

387

46

85,298

7,375

 

 

____

____

______

_____

             

 

1Includes seven Holiday Inn Resort properties (2,223 rooms) (2018: six Holiday Inn Resort properties (2,128 rooms))

 

Central

 

6 months ended 30 June

 

 

 

2018

 

 

2019

Restated

%

Central results

$m

$m

change

 

 

 

 

Revenue

88

84

4.8

Gross costs

(146)

(132)

(10.6)

 

____

____

____

 

 

(58)

(48)

(20.8)

Exceptional items

 

(11)

(33)

66.7

 

 

____

____

____

Operating loss

(69)

(81)

14.8

 

____

____

____

 

 

The net operating loss decreased by $12m (14.8%) compared to 2018. Central revenue, which mainly comprises technology fee income, increased by $4m (4.8%) to $88m (an increase of $6m (7.1%) at constant currencya), driven by increases in IHG System size in the first half of 2019. Gross costs increased by $14m (10.6%) compared to 2018 (an increase of $17m (12.9%) at constant currency), as central overheads include the reinvestment of a substantial portion of growth investment funded by savings elsewhere in the business. Net operating loss before exceptional items increased by $10m (20.8%) to $58m (an $11m or 22.9% increase to $59m at constant currency).

 

OTHER FINANCIAL INFORMATION

System Fund

During the six months ended 30 June 2019, System Fund revenue increased by 9.2% from $618m to $675m. The key drivers for this are an underlying growth in assessment fees reflecting System size growth, increased revenue relating to the sales of points to third parties and favourable adjustments due to changes in breakage estimates.

The Group operates a System Fund to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, the guest reservation systems and hotel loyalty programme. The Fund also receives proceeds from the sale of loyalty points under third-party co-branding arrangements. The Fund is not managed to generate a profit or loss for IHG, although an in-year surplus or deficit can arise, but is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels.

Reimbursement of costs

During the six months ended 30 June 2019, reimbursable revenue decreased 0.3% from $595m to $593m.

Cost reimbursements revenue represents reimbursements of costs incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where we are the employer. As we record cost reimbursements based upon costs incurred with no added mark up, this revenue and related expenses has no impact on either our operating profit or net income. 

Exceptional items

 

Pre-tax exceptional items totalled a net charge of $15m (2018: $53m charge) and includes $10m relating to reorganisation costs (see below) and $5m of acquisition and integration costs primarily due to the Six Senses acquisition.

 

Reorganisation costs

 

In September 2017, the Group launched a comprehensive efficiency programme which will fund a series of new strategic initiatives to drive an acceleration in IHG's future growth. The programme is centred around strengthening the Group's organisational structure to redeploy resources to leverage scale in the highest opportunity markets and segments. The programme is expected to be completed in 2019. Included in the $10m cost are consultancy fees of $5m and severance costs of $3m. An additional $13m has been charged to the System Fund.

 

a   The impact of movements between the previous year's average exchange rates and actual average rates in 2019.

 

 

Net financial expenses

Net financial expenses increased by $20m to $67m for the six months ended 30 June 2019. The increase of $20m primarily reflects the interest on the €500m bond issued in November 2018 and the unwind of $10m interest on the deferred and contingent consideration relating to the acquisitions of Regent and the UK portfolio completed in 2018.

 

Taxation 

 

The tax charge on profit before tax, excluding the impact of exceptional items and System Fund, has been calculated using an interim effective tax rate of 21%. Excluding the effect of prior-year items, the equivalent effective tax rate would be approximately 25%. This rate is higher than the average UK statutory rate for the year of 19% due mainly to certain overseas profits (particularly in the US) being subject to statutory rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.

 

Taxation within exceptional items totalled a credit of $3m representing tax impacts on the accounting exceptional items.

 

Net tax paid in the six months ended 30 June 2019 totalled $67m.

 

Dividends

 

The Board has proposed an interim dividend per ordinary share of 39.9¢, representing growth of 10% on the 2018 interim dividend.

 

Capital structure and liquidity management

 

During the six months ended 30 June 2019, $194m of cash was generated from operating activities (2018: $306m). Net cash outflows from investing activities totalled $378m (2018: $105m) including $299m relating to acquisitions. Net cash used in financing activities totalled $299m (2018: $86m) including the $510m special dividend paid.

 

Net debt at 30 June 2019 was $2,847m ($1,965m at 31 December 2018) and included $697m in respect of lease liabilities ($670m at 31 December 2018).

 

The Group had net liabilities of $1,424m at 30 June 2019 ($1,131m at 31 December 2018) reflecting that its internally generated brands are not recorded on the balance sheet, in accordance with accounting standards.

 

 

USE OF NON-GAAP MEASURES

 

In addition to performance measures directly observable in the Interim Financial Statements (IFRS measures), additional measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures and should be viewed as complementary to, and not as a substitute for, the measures prescribed by GAAP.

 

Further information can be found on page 36 of the IHG Annual Report and Form 20-F 2018 (which is available at www.ihgplc.com).

Total gross revenue in IHG's System

 

Total gross revenue provides a measure of the overall strength of the Group's brands. It comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned, leased and managed lease hotels. Other than owned, leased and managed lease hotels, total gross revenue is not revenue attributable to IHG as it is derived from hotels owned by third parties.

Revenue and operating profit measures

 

In each of the following measures, System Fund results are excluded as the System Fund is not managed to a profit or loss for IHG, although an in-year surplus or deficit can arise. Revenues related to the reimbursement of costs, and the related costs, are excluded as operating profit is unaffected and an increase in these does not indicate growth for the business. Exceptional items are also excluded as they can be significantly skewed by one off events, for example reorganisation costs.

 

Operating profit measures are, by their nature, before interest and tax. A pre-interest and pre-tax measure excludes the impact of the Group's financing and external factors such as legislative changes, respectively. A pre-interest and pre-tax measure is considered more reflective of the Group's success in executing against its strategy.

 

Revenue from reportable segments and operating profit from reportable segments - comprises the Group's fee business and owned, leased and managed lease hotels.

 

Underlying revenue and underlying operating profit - adjusts the above to exclude the impact of owned asset disposals, significant liquidated damages, current year acquisitions, all translated at constant currency using prior year exchange rates. The presentation of these performance measures allows a better understanding of comparable year-on-year trading and enables an assessment of the underlying trends in the Group's financial performance.

 

Underlying fee revenue and fee margin - further analyses the above for the Group's fee business only, reflecting the Group's core fee-based business model. Underlying fee revenue is at constant currency using prior year exchange rates, fee margin is at actual exchange rates.

 

Underlying interest

 

This measure includes the interest payable to the System Fund on the outstanding cash balance relating to the IHG Rewards Club programme. In addition, the Group's financial expenses are presented net of System Fund capitalised interest, this interest is related to the assets attributable to the System Fund. These are adjusted as the System Fund is not managed to a profit or loss for IHG therefore removing these provides a better view of the Group's underlying interest expense.

Adjusted earnings per ordinary share, Underlying earnings per ordinary share

 

Adjusted earnings per ordinary share excludes System Fund revenue and expenses, any interest and tax relating to the System Fund, exceptional items, and their related tax impacts. Adjusted earnings per ordinary share provides a per share measure that is not skewed by the result of the System Fund or exceptional items.

 

Underlying earnings per ordinary share is calculated by dividing underlying profit for the period available for IHG equity holders by the weighted average number of ordinary shares in issue during the period, excluding investment in own shares. The presentation of underlying earnings per ordinary share allows a better understanding of comparable year-on-year trading and thereby allows an assessment of the underlying trends in the Group's financial performance.

Net debt, Net capital expenditure, Free cash flow

 

Net debt is used in the monitoring of the Group's liquidity and capital structure, and is used to calculate the key ratios attached to the Group's bank covenants. Net debt comprises loans and other borrowings, derivatives hedging debt values, less cash and cash equivalents.

 

Net capital expenditure is defined as cash flow from investing activities less contract acquisition costs, excluding the acquisition of businesses net of cash acquired, tax paid on disposals and adjusted for System Fund depreciation and amortisation (recovery of previous System Fund capital expenditure). For internal management reporting, capital expenditure is reported as either maintenance, recyclable, or System Fund. The disaggregation of net capital expenditure provides useful information as it enables users to distinguish between System Fund capital investments and recyclable investments (such as investments in associates and joint ventures), which are intended to be recoverable in the medium term, compared with maintenance capital expenditure (including key money paid), which represents a permanent cash outflow.

 

Free cash flow is defined as cash flow from operating activities (after interest and tax paid) and excluding contract acquisition costs net of repayments, less purchase of shares by employee share trusts and maintenance capital expenditure (including key money paid). Free cash flow is a useful measure for investors, as it represents the cash available to invest back into the business to drive growth, pay the ordinary dividend, with any surplus being available for additional returns to shareholders.

 

These measures have limitations as they omit certain components of the overall cash flow statement. They are not intended to represent IHG's residual cash flow available for discretionary expenditures, nor do they reflect our future capital commitments. These measures are used by many companies, but there can be differences in how each company defines the terms, limiting their usefulness as a comparative measure. Therefore, it is important to view these measures only as a complement to the Group statement of cash flows.

 

Underlying revenue and underlying operating profit Non-GAAP reconciliations

 

The following tables:

·      Reconcile the GAAP measures included in the Interim Financial Statements to Group underlying revenue and underlying operating profit;

·      Show underlying revenue and underlying operating profit on both an actual and constant currency basisa;

·      Reconcile segmental underlying revenue and underlying operating profit to Group underlying revenue and operating profit; and

·      Show underlying Group fee revenue and Group fee margin both on an actual and constant currency basisa.

 

Highlights for the six months ended 30 June 2019

 

 

                             Revenue

 

Operating profit

 

 

 

 

 

 

 

2018

 

 

2019

            2018

%

2019

Restated

%

 

$m

              $m

change

$m

$m

change

 

 

 

 

 

 

 

Per Group income statement

2,280

2,113

7.9

442

348

27.0

 

Significant liquidated damages

(4)

(7)

42.9

(4)

(7)

42.9

 

Exceptional items

Acquisitions of businesses

-

(22)

-

-

-

-

15

2

53

-

(71.7)

-

 

System Fund

(675)

(618)

(9.2)

(47)

12

  (491.7)

 

Reimbursement of costs

(593)

(595)

0.3

-

-

-

 

 

_____

_____

_____

_____

_____

_____

 

Underlying at actual exchange rates

986

893

10.4

408

406

0.5

 

 

_____

_____

_____

_____

_____

_____

 

 

 

 

a IHG's method for calculating the constant currency amounts of entities reporting in currencies other than US dollars is to translate the current period results into US dollars using the prior period's exchange rate. For example, if a UK entity generated revenue of £100m in 2019 and 2018, the Interim Financial Statements would report revenue of $130m in 2019 and $137m in 2018, using the respective average exchange rates for the year of $1=£0.77 and $1=£0.73. For constant currency reporting, 2019 revenue would be translated at $1=£0.73 giving a US dollar value of $137m, thereby showing that underlying revenue was flat year-on-year.  An exception to this approach is made for currencies experiencing high volatility in order to remove the distorting effect on underlying results where the average daily rate broadly keeps pace with inflation. In 2019 and 2018 this exception has been applied to fees earned from hotels in Venezuela.

 

 

                  At actual exchange rates

 

                 At constant currency

 

2019

2018

%

2019

          2018

%

 

$m

$m

change

$m

$m

change

Underlying revenue

 

 

 

 

 

 

Americas

520

514

1.2

522

514

1.6

EMEAA

312

230

35.7

329

230

43.0

Greater China

66

65

1.5

70

65

7.7

Central

88

84

4.8

90

84

7.1

 

_____

_____

_____

_____

_____

_____

Underlying Group revenue

986

893

10.4

1,011

893

13.2

Owned, leased and managed lease revenue included above

 

(267)

 

(181)

 

(47.5)

 

(277)

 

(181)

 

(53.0)

 

_____

_____

_____

_____

_____

_____

Underlying Group fee revenue

719

712

1.0

734

712

3.1

 

_____

_____

_____

_____

_____

_____

 

 

 

 

 

 

 

 

 

 

              At actual exchange rates

           At constant currency

 

 

 

2018

 

 

2018

 

 

2019

Restated

%

2019

Restated

%

 

$m

$m

change

$m

$m

change

 

 

 

 

 

 

 

Underlying operating profit

 

 

 

 

 

 

Americas

344

334

3.0

346

334

3.6

EMEAA

86

92

(6.5)

90

92

(2.2)

Greater China

36

28

28.6

37

28

32.1

Central

(58)

(48)

(20.8)

(59)

(48)

(22.9)

 

_____

_____

_____

_____

_____

_____

Underlying Group operating profit

408

406

0.5

414

406

2.0

Owned, leased and managed lease operating profit included above

 

 

(17)

 

 

(22)

 

 

22.7

 

 

(16)

 

 

(22)

 

 

27.3

 

_____

_____

_____

_____

_____

_____

Underlying Group fee profit

391

384

1.8

398

384

3.6

 

_____

_____

_____

_____

_____

_____

Group fee margin

54.4%

53.9%

0.5ppts

54.2%

53.9%

0.3ppts

 

_____

_____

_____

_____

_____

_____

 

 

 

 

 

Underlying earnings per share

 

The following table reconciles basic earnings per ordinary share to underlying earnings per share:

 

 

6 months ended 30 June

 

 

 

2018

 

2019

Restated

 

$m

$m

 

 

 

Basic earnings per ordinary share

 

 

 

 

 

Profit available for equity holders

306

233

Basic weighted average number of ordinary shares (millions)

183

190

 

 

 

Basic earnings per ordinary share (cents)

167.2

122.6

 

_____

_____

Underlying earnings per ordinary share

 

 

Profit available for equity holders

306

233

Adjusted for:

 

 

Significant liquidated damages

(4)

(7)

Tax on significant liquidated damages

1

2

System Fund revenue and expenses

(47)

12

Interest attributable to the System Fund

(9)

(9)

Exceptional items before tax

15

53

Tax on exceptional items

Acquisition of businesses after tax

(3)

2

(13)

-

Currency effect

6

-

 

_____

_____

Underlying profit available for equity holders

267

271

 

_____

_____

 

 

 

Underlying earnings per ordinary share (cents)

145.8

142.6

 

_____

_____

 

 

Net capital expenditure

The following table reconciles net cash from investing activities to net capital expenditure:

 

 

           6 months ended 30 June

 

 

 

2018

 

2019

Restated

 

$m

$m

 

 

 

Net cash from investing activities

(378)

(105)

 

Adjusted for:

 

 

Contract acquisition costs

(17)

(25)

System Fund depreciation and amortisation

Acquisition of businesses, net of cash acquired

25

299

18

-

 

_____

_____

Net capital expenditure

(71)

(112)

 

 

 

Add back:

Disposal receipts

 

(5)

 

(2)

System Fund depreciation and amortisation

(25)

(18)

 

_____

_____

Gross capital expenditure

(101)

(132)

 

_____

_____

Analysed as:

 

 

    Capital expenditure: maintenance and key money

(45)

(50)

    Capital expenditure: recyclable investments

(14)

(32)

    Capital expenditure: System Fund investments

(42)

(50)

 

_____

_____

Gross capital expenditure

(101)

(132)

 

_____

_____

 

 

 

 

 

 

Free cash flow

 

The following table reconciles net cash from operating activities to free cash flow:

 

 

6 months ended 30 June

 

 

 

2018

 

2019

Restated

 

$m

$m

 

 

 

Net cash from operating activities

194

306

 

 

 

Adjusted for:

 

 

    Contract acquisition costs

17

25

 

 

 

Less:

 

 

    Purchase of shares by employee share trusts

(3)

(3)

    Capital expenditure: maintenance and key money

    Lease repayments

(45)

(22)

(50)

(17)

 

_____

_____

Free cash flow

141

261

 

_____

_____

 

 

Underlying interest

 

 

The following table reconciles net financial expenses to underlying interest:

 

 

 

6 months ended 30 June

 

 

 

2018

 

2019

Restated

 

$m

$m

Net financial expenses

 

 

 

 

 

Financial income

3

2

Financial expenses

(70)

(49)

 

_____

_____

Net financial expenses

(67)

(47)

 

Adjusted for:

 

 

Interest payable on balances with the System Fund

(7)

(6)

Capitalised interest relating to System Fund assets

(2)

(3)

 

_____

_____

Underlying interest

(76)

(56)

 

_____

_____

 

RELATED PARTY TRANSACTIONS

 

There were no material related party transactions during the six months to 30 June 2019.

 

PRINCIPAL Risks and Uncertainties

 

The principal risks and uncertainties that could substantially affect IHG's business and results in 2019 are set out on pages 26 to 30 of the IHG Annual Report and Form 20-F 2018 (the "Annual Report").  The nature and potential impact of those risks and uncertainties has not materially changed since the publication of the Annual Report, nor are any expected for the remaining half of the financial year. However, there may be unknown risks or risks currently believed to be inconsequential that emerge and could become material.  The following summarises the risks and uncertainties set out in the Annual Report:

 

·      Threats to cybersecurity and information governance could impact IHG's operations, leading to the loss of sensitive data that could impact IHG financially and reputationally;

·      Failure to deliver IHG's preferred brands and loyalty programme could impact IHG's competitive positioning, its growth ambitions and reputation with guests and owners;

·      Failure to effectively attract, develop and retain talent in key areas could impact IHG's ability to achieve its growth ambitions and execute effectively;

·      Failure to ensure legal, regulatory and ethical compliance would impact IHG operationally and reputationally;

·      Failure to capitalise on innovation in booking technology, and maintain and enhance IHG's functionality and resilience of its channel management and technology platforms could impact IHG's revenues and growth ambitions;

·      Risks in IHG's ongoing agenda to accelerate growth and strategic initiatives could include short-term disruption, reputational damage and longer-term breakdown of a commercial relationship;

·      The inability to realise value from IHG's programme and project delivery could result in failure to improve commercial performance, financial loss and undermine stakeholder confidence;

·      Macro external factors, such as political, economic, environmental and societal could have a mass impact on our ability to perform and grow;

·      Failure to maintain an effective safety and security system and ability to respond appropriately in the event of disruption or incidents affecting our operations more broadly could result in reputational and / or financial damage, and undermine stakeholder confidence; and

·      A material breakdown in financial management and control systems could lead to increased public scrutiny, regulatory investigation and litigation.

           

These principal risks and uncertainties are supported by a broader description of risk factors set out on pages 182 to 186 of the Annual Report.

 

 

GOING CONCERN

 

An overview of the business activities of IHG, including a review of the key business risks that the Group faces, is given in this Interim Management Report. Information on the Group's treasury management policies can be found in note 22 to the Group Financial Statements in the IHG Annual Report and Form 20-F 2018.

 

The Group has no significant debt maturities before 2022. At the end of June 2019, the Group was trading significantly within its banking covenants and debt facilities.

 

The Group's fee-based model and wide geographic spread means that it is well placed to manage through uncertain times, and our forecasts and sensitivity projections, based on a range of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities.

 

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this report. Accordingly, the financial statements continue to be prepared on going concern basis.

 

 

Directors' Responsibility Statement

 

The Directors confirm that to the best of their knowledge:

 

·      The condensed set of Financial Statements has been prepared in accordance with IAS 34;

·      The Interim Management Report includes a fair review of the important events during the first six months, and their impact on the financial statements and a description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR 4.2.7R; and

·      The Interim Management Report includes a fair review of related party transactions and changes therein, as required by DTR 4.2.8R.

 

On behalf of the Board

 

 

 

 

 

 

Keith Barr                                 Paul Edgecliffe-Johnson

Chief Executive Officer              Chief Financial Officer

 

6 August 2019                           6 August 2019

 

 

 

InterContinental Hotels Group PLC

GROUP INCOME STATEMENT

For the six months ended 30 June 2019

 

 

2019

6 months ended

30 June

 

$m

2018

6 months ended
30 June
Restated*
$m

Continuing operations

 

 

 

 

 

Revenue from fee business

730

719

Revenue from owned, leased and managed

lease hotels

 

282

 

181

System Fund revenues

675

618

Reimbursement of costs

593

595

 

____

____

Total revenue (notes 4 and 5)

2,280

2,113

 

 

 

Cost of sales

(391)

(298)

System Fund expenses

(628)

(630)

Reimbursed costs

(593)

(595)

Administrative expenses before exceptional items

(160)

(138)

Share of losses of associates and joint ventures

-

(3)

Other operating income

5

7

Depreciation and amortisation

(56)

(55)

 

____

____

Operating profit before exceptional items (note 4)

457

401

 

 

 

Exceptional items (note 6)

(15)

(53)

 

_____

_____

Operating profit (note 4)

442

348

Financial income

3

2

Financial expenses

(70)

(49)

 

_____

_____

Profit before tax

375

301

 

 

 

Tax (note 7)

(69)

(68)

 

_____

_____

Profit for the period from continuing operations

306

233

 

_____

_____

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

306

233

 

Non-controlling interest

-

-

 

 

_____

_____

 

 

306

233

 

_____

_____

 

 

 

Earnings per ordinary share (note 8)

 

 

Continuing and total operations:

 

 

 

Basic

167.2¢

122.6¢

 

Diluted

166.3¢

122.0¢

 

Adjusted

143.2¢

145.3¢

 

Adjusted diluted

142.4¢

144.5¢

 

_____

_____

 

 

 

* Restated for the adoption of IFRS 16 (see note 2).

 

 

 

 

 

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2019

 

 

2019

6 months ended

30 June

 

$m

2018

6 months ended

30 June

Restated*

$m

 

 

 

Profit for the period

306

233

 

 

 

Other comprehensive income

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

Gains on cash flow hedges, net of related tax charge of $2m (2018 $nil)

 

4

 

-

 

Costs of hedging

(2)

-

 

Hedging losses reclassified to financial expenses

4

-

 

Exchange gains on retranslation of foreign operations, including related tax credit of $1m (2018 $1m)

 

25

 

19

 

_____

_____

 

31

19

Items that will not be reclassified to profit or loss:

 

 

 

Gains/(losses) on equity instruments classified as fair value through other comprehensive income

 

6

 

(7)

 

Re-measurement (losses)/gains on defined benefit plans, net of related tax credit of $2m (2018 charge of $2m)

 

(6)

 

7

 

_____

_____

Total other comprehensive income for the period

31

19

 

_____

_____

Total comprehensive income for the period

337

252

 

_____

_____

Attributable to:

 

 

 

Equity holders of the parent

337

251

 

Non-controlling interest

-

1

 

_____

_____

 

337

252

 

_____

_____

 

* Restated for the adoption of IFRS 16 (see note 2).

 

 

 

 

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2019

 

6 months ended 30 June 2019

 

 

Equity share capital

Other reserves*

Retained earnings

Non-controlling interest

 

Total equity

 

$m

$m

$m

$m

$m

At beginning of the period (as previously reported)

146

(2,397)

1,166

8

(1,077)

Impact of adopting IFRS 16 (note 2)

-

1

(55)

-

(54)

 

_____

_____

_____

_____

_____

At beginning of the period (restated)

146

(2,396)

1,111

8

(1,131)

 

 

 

 

 

 

Total comprehensive income for the period

-

37

300

-

337

Transfer of treasury shares to employee share trusts

 

-

 

(19)

 

19

 

-

 

-

Purchase of own shares by employee share trusts

 

-

 

(3)

 

-

 

-

 

(3)

Release of own shares by employee share trusts

 

-

 

23

 

(23)

 

-

 

-

Equity-settled share-based cost

-

-

20

-

20

Tax related to share schemes

-

-

3

-

3

Equity dividends paid

-

-

(649)

-

(649)

Transaction costs relating to shareholder returns

 

-

 

-

 

(1)

 

-

 

(1)

Exchange adjustments

(1)

1

-

-

-

 

_____

_____

_____

_____

_____

At end of the period

145

(2,357)

780

8

(1,424)

 

_____

_____

_____

_____

_____

 

 

6 months ended 30 June 2018

 

 

Equity share capital

Other reserves*

Retained earnings

Non-controlling interest

 

Total equity

 

$m

$m

$m

$m

$m

At beginning of the period (as previously reported)

 

154

 

(2,431)

 

969

 

7

 

(1,301)

Impact of adopting IFRS 16 (note 2)

-

-

(53)

-

(53)

 

_____

_____

_____

_____

_____

At beginning of period (restated)

154

(2,431)

916

7

(1,354)

 

 

 

 

 

 

Total comprehensive income for the period

-

11

240

1

252

Transfer of treasury shares to employee share trusts

 

-

 

(17)

 

17

 

-

 

-

Purchase of own shares by employee share trusts

 

-

 

(3)

 

-

 

-

 

(3)

Release of own shares by employee share trusts

 

-

 

24

 

(24)

 

-

 

-

Equity-settled share-based cost

-

-

19

-

19

Tax related to share schemes

-

-

2

-

2

Equity dividends paid

-

-

(130)

(1)

(131)

Exchange adjustments

(4)

4

-

-

-

 

_____

______

_____

_____

_____

At end of the period

150

(2,412)

1,040

7

(1,215)

 

_____

_____

_____

_____

_____

 

*

Other reserves comprise the capital redemption reserve, shares held by employee share trusts, other reserves, fair value reserve, cash flow hedging reserve and currency translation reserve.

All items above are shown net of tax.

 

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF FINANCIAL POSITION

30 June 2019

 

2019

30 June

2018

31 December

Restated*

 

$m

$m

ASSETS

 

 

Property, plant and equipment

284

273

Right-of-use assets

540

513

Goodwill and other intangible assets

1,461

1,143

Investment in associates and joint ventures

105

104

Other financial assets

268

260

Derivative financial instruments

16

7

Tax receivable

40

31

Deferred tax assets

65

63

Contract costs

60

55

Contract assets

274

270

 

_______

_______

Total non-current assets

3,113

2,719

 

_______

_______

Inventories

6

5

Trade and other receivables

772

610

Tax receivable

33

27

Other financial assets

4

1

Derivative financial instruments

-

1

Cash and cash equivalents

188

704

Contract costs

5

5

Contract assets

21

20

 

_______

_______

Total current assets

1,029

1,373

 

_______

_____

Total assets (note 4)

4,142

4,092

 

______

______

LIABILITIES

 

 

Loans and other borrowings

(58)

(104)

Lease liabilities

(63)

(55)

Trade and other payables

(494)

(616)

Deferred revenue

(607)

(572)

Provisions

(11)

(10)

Tax payable

(51)

(50)

 

______

______

Total current liabilities

(1,284)

(1,407)

 

______

______

Loans and other borrowings

(2,295)

(1,910)

Lease liabilities

(634)

(615)

Retirement benefit obligations

(98)

(91)

Trade and other payables

(148)

(125)

Deferred revenue

(949)

(934)

Provisions

(18)

(17)

Deferred tax liabilities

(140)

(124)

 

______

_______

Total non-current liabilities

(4,282)

(3,816)

 

______

_______

Total liabilities

(5,566)

(5,223)

 

______

_______

Net liabilities

(1,424)

(1,131)

 

______

_______

EQUITY

 

 

Equity share capital

145

146

Capital redemption reserve

10

10

Shares held by employee share trusts

(3)

(4)

Other reserves

(2,864)

(2,865)

Fair value reserve

53

47

Cash flow hedging reserve

2

(4)

Currency translation reserve

445

420

Retained earnings

780

1,111

 

______

_______

IHG shareholders' equity

(1,432)

(1,139)

Non-controlling interest

8

8

 

_______

_______

Total equity

(1,424)

(1,131)

 

______

______

* Restated for the adoption of IFRS 16 (see note 2).

 

 

 

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF CASH FLOWS

For the six months ended 30 June 2019

 

 

2019

6 months ended

30 June

2018

6 months ended

30 June

Restated*

 

$m

$m

 

 

 

Profit for the period

306

233

Adjustments reconciling profit for the period to cash flow from operations before contract acquisition costs (note 11)

 

3

 

123

 

_____

_____

Cash flow from operations before contract acquisition costs

309

356

Contract acquisition costs

(17)

(25)

 

_____

_____

Cash flow from operations

292

331

Interest paid

(33)

(21)

Interest received

2

1

Tax paid on operating activities

(67)

(5)

 

_____

_____

Net cash from operating activities

194

306

 

_____

_____

Cash flow from investing activities

 

 

Purchase of property, plant and equipment

(31)

(16)

Purchase of intangible assets

(46)

(56)

Investment in associates and joint ventures

-

(1)

Investment in other financial assets

(5)

(31)

Acquisition of businesses, net of cash acquired (note 10)

(299)

-

Capitalised interest paid

(2)

(3)

Repayments of other financial assets

5

2

 

_____

_____

Net cash from investing activities

(378)

(105)

 

_____

_____

Cash flow from financing activities

 

 

Purchase of own shares by employee share trusts

(3)

(3)

Dividends paid to shareholders

(649)

(130)

Dividends paid to non-controlling interest

-

(1)

Transaction costs relating to shareholder returns

(1)

-

Lease repayments

(22)

(17)

Increase in other borrowings

376

65

 

_____

_____

Net cash from financing activities

(299)

(86)

 

_____

_____

Net movement in cash and cash equivalents, net of overdrafts, in the period

 

(483)

 

115

 

 

 

Cash and cash equivalents, net of overdrafts, at beginning of the period

600

58

Exchange rate effects

13

(13)

 

_____

_____

Cash and cash equivalents, net of overdrafts, at end of the period

130

160

 

_____

_____

 

 

       

* Restated for the adoption of IFRS 16 (see note 2).

 

 

InterContinental Hotels Group plc

NOTES TO THE INTERIM FINANCIAL STATEMENTS

 

 

 

1.

Basis of preparation

 

 

These condensed interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and IAS 34 'Interim Financial Reporting'.  Other than the changes described in note 2 below, they have been prepared on a consistent basis using the same accounting policies and methods of computation set out in the InterContinental Hotels Group PLC (the Group or IHG) Annual Report and Form 20-F for the year ended 31 December 2018.

 

The Directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, being a period of not less than 12 months from the date of this report. Accordingly, the condensed interim financial statements have been prepared on a going concern basis.

 

These condensed interim financial statements are unaudited and do not constitute statutory accounts of the Group within the meaning of Section 435 of the Companies Act 2006. The auditors have carried out a review of the financial information in accordance with the guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board.

 

Other than line items which have been restated for IFRS 16, financial information for the year ended 31 December 2018 has been extracted from the Group's published financial statements for that year which were prepared in accordance with IFRSs as adopted by the European Union and which have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified with no reference to matters to which the auditor drew attention by way of emphasis and no statement under s498(2) or s498(3) of the Companies Act 2006.

 

2.

Adoption of new accounting standards

 

 

IFRS 16 'Leases'

 

 

IFRS 16 supersedes IAS 17 and sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.  The Group has a number of material property and equipment leases.

 

The Group has adopted IFRS 16 using the full retrospective method of adoption with the date of initial application being 1 January 2019.  The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 at the date of initial application.   The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option ('short-term leases'), lease contracts for which the underlying asset is of low value ('low-value assets'), and leases of intangible assets.

 

 

Before the adoption of IFRS 16, the Group classified each of its leases at the inception date as either a finance lease or an operating lease.   A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease.  Finance leases were capitalised at the commencement of the lease at the inception date fair value of the leased asset or, if lower, at the present value of the minimum lease payments.   Lease payments were apportioned between interest (recognised as finance cost) and reduction of the lease liability.  In an operating lease, the leased asset was not capitalised, and the lease payments were recognised as rent expense in the statement of profit or loss on a straight-line basis over the lease term.   Any prepaid rent and accrued rent were recognised under Prepayments and Trade and other payables, respectively.

 

Under IFRS 16, the Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use).  Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.  The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date, less any lease incentives received.  Unless the Group is reasonably certain to obtain ownership of the leased assets at the end of the lease term, the recognised right-of-use assets are depreciated over the shorter of its estimated useful life and lease term.  Right-of-use assets are subject to impairment testing.

 

 

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term.  The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.   Variable lease payments that do not depend on an index or a rate are recognised as expense in the period over which the event or condition that triggers the payment occurs.

 

The leases acquired with the UK portfolio acquisition (see note 10) include variable lease payments where rentals are linked to the performance of the hotels by way of reductions in rentals in the event that lower than target cash flows are generated by the hotels.   In the event that rent reductions are not applicable, the Group's exposure to this type of rental payment in excess of amounts reflected in the measurement of lease liabilities is £46m per annum over the remaining lease term of 25 years.   Additional rentals, which are uncapped, are also payable and are calculated as a percentage of the profit earned by the hotels.

 

 

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.   After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease payments made.   In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payment or a change in the assessment regarding the purchase of the underlying asset.

 

The Group applies the short-term lease recognition exemption to its short-term leases of equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option).  It also applies the lease of low-value assets recognition exemption to leases that are considered of low value.   Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

 

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17.  The Group is not party to any material leases where it acts as a lessor.

 

In accordance with the full retrospective method of adoption, the Group applied IFRS 16 at the date of initial application as if it had already been effective at the commencement date of existing lease contracts.  Accordingly, the comparative information in these interim condensed consolidated financial statements has been restated, as summarised and set out below.
 

 

For the six months ended 30 June 2018:

 

 

·      Depreciation expense increased by $17m relating to the depreciation of new right-of-use assets recognised.

·      Rent expense decreased by $24m relating to previous operating leases.

·      Finance costs increased by $9m relating to the interest expense on additional lease liabilities recognised.

·      Income tax expenses decreased by $1m relating to the tax effect of these changes.

·      Net cash inflows from operating activities increased by $20m and cash outflows from investing and financing activities increased by the same amount, representing the fixed lease payments of the recognised lease liabilities.

 

 

 

As at 31 December 2018:

 

 

·      Right-of-use assets of $513m were recognised and presented separately in the statement of financial position.   This includes $174m relating to leased assets previously recognised under finance leases  included within property, plant and equipment.

·      Lease liabilities of $670m were recognised and presented separately in the statement of financial position.   Finance lease liabilities of $235m previously included in loans and other borrowings are now included in lease liabilities.

·      Prepayments of $3m and trade and other payables of $35m related to leases previously classed as operating leases were derecognised.

·      Net deferred tax liabilities decreased by $10m because of the deferred tax impact of the changes in assets and liabilities.

·      The net effect of these adjustments increased the Group's net liabilities by $54m.

 

 

 

Impact of IFRS 16 on the Group income statement

For the six months ended 30 June 2018

 

 

As

reported

IFRS 16 adoption

As

restated

 

$m

$m

$m

 

 

 

 

Total revenue

2,113

-

2,113

 

 

 

 

Cost of sales

(305)

7

(298)

System Fund expenses

(630)

-

(630)

Reimbursed costs

(595)

-

(595)

Administrative expenses

(155)

17

(138)

Share of losses of associates and joint ventures

(3)

-

(3)

Other operating income

7

-

7

Depreciation and amortisation

(38)

(17)

(55)

 

_____

_____

_____

Operating profit before exceptional items

394

7

401

Exceptional items

(53)

-

(53)

 

_____

_____

_____

Operating profit

341

7

348

Financial income

2

-

2

Financial expenses

(40)

(9)

(49)

Tax

(69)

1

(68)

 

_____

_____

_____

Profit after tax

234

(1)

233

 

____

____

____

 

Impact of IFRS 16 on the Group statement of comprehensive income

For the six months ended 30 June 2018

 

 

As

reported

$m

IFRS 16 adoption

$m

As

 restated

$m

 

 

 

 

Profit for the period

234

(1)

233

Exchange gains on retranslation of foreign operations, including related tax credit of $1m

18

1

19

Losses on equity instruments classified as fair value through other comprehensive income, net of related tax of $nil

(7)

-

(7)

Re-measurement gains on defined benefit plans, net of related tax charge of $2m

7

-

7

 

____

____

____

Total comprehensive income for the period

252

-

252

 

____

____

____

 

 

Impact of IFRS 16 on the Group statement of financial position

31 December 2018
 

 

As

reported

$m

IFRS 16 adoption $m

As

restated

$m

 

 

 

 

Property, plant and equipment

447

(174)

273

Right-of-use assets

-

513

513

Deferred tax assets

60

3

63

Other non-current assets

1,870

-

1,870

 

_______

_______

_______

Total non-current assets

2,377

342

2,719

 

_______

_______

_______

Trade and other receivables

613

(3)

610

Other current assets

763

-

763

 

_______

_______

_______

Total current assets

1,376

(3)

1,373

 

_______

_______

_______

Total assets

3,753

339

4,092

 

_______

_______

_______

Loans and other borrowings

(120)

16

(104)

Lease liabilities

-

(55)

(55)

Trade and other payables

(618)

2

(616)

Other current liabilities

(632)

-

(632)

 

_______

_______

_______

Total current liabilities

(1,370)

(37)

(1,407)

 

_______

_______

_______

Loans and other borrowings

(2,129)

219

(1,910)

Lease liabilities

-

(615)

(615)

Trade and other payables

(158)

33

(125)

Deferred tax liabilities

(131)

7

(124)

Other non-current liabilities

(1,042)

-

(1,042)

 

_______

_______

_______

Total non-current liabilities

(3,460)

(356)

(3,816)

 

_______

_______

_______

Total liabilities

(4,830)

(393)

(5,223)

 

_______

_______

_______

Net liabilities

(1,077)

(54)

(1,131)

 

_______

_______

_______

Equity share capital

146

-

146

Capital redemption reserve

10

-

10

Shares held by employee share trusts

(4)

-

(4)

Other reserves

(2,865)

-

(2,865)

Fair value reserve

47

-

47

Cash flow hedging reserve

(4)

-

(4)

Currency translation reserve

419

1

420

Retained earnings

1,166

(55)

1,111

 

_______

_______

________

IHG shareholders' equity

(1,085)

(54)

(1,139)

 

 

 

 

Non-controlling interest

8

-

8

 

_______

_______

________

Total equity

(1,077)

(54)

(1,131)

 

________

_______

________

 

 

 

 

 

 


Impact of IFRS 16 on the Group statement of cash flows

For the six months ended 30 June 2018

 

 

As

reported

$m

IFRS 16 adoption

$m

As

restated

$m

 

 

 

 

Profit for the period

234

(1)

233

Adjustments reconciling profit for the period to cash flow from operations before contract acquisition costs

93

30

123

 

_____

_____

_____

Cash flow from operations before contract acquisition costs

327

29

356

Contract acquisition costs

(25)

-

(25)

 

_____

_____

_____

Cash flow from operations

302

29

331

Interest paid

(12)

(9)

(21)

Interest received

1

-

1

Tax paid on operating activities

(5)

-

(5)

 

_____

_____

_____

Net cash from operating activities

286

20

306

 

_____

_____

_____

 

 

 

 

Landlord contributions to property, plant and equipment

3

(3)

-

Other cash flows from investing activities

(105)

-

(105)

 

_____

_____

_____

Net cash from investing activities

(102)

(3)

(105)

 

_____

_____

_____

 

 

 

 

Lease repayments

-

(17)

(17)

Other cash flows from financing activities

(69)

-

(69)

 

_____

_____

_____

Net cash from financing activities

(69)

(17)

(86)

 

_____

_____

_____

 

 

 

 

Net movement in cash and cash equivalents, net of overdrafts, in the period

115

-

115

 

 

 

 

Cash and cash equivalents, net of overdrafts, at beginning of the period

58

-

58

Exchange rate effects

(13)

-

(13)

 

_____

_____

_____

Cash and cash equivalents, net of overdrafts, at end of the period

160

-

160

 

_____

_____

_____

 

Impact of IFRS 16 on basic and diluted earnings per ordinary share

For the six months ended 30 June 2018

 

 

As

reported

cents

IFRS 16 adoption

cents

As

restated

cents

 

 

 

 

Basic earnings per ordinary share

123.2

(0.6)

122.6

Diluted earnings per ordinary share

122.5

(0.5)

122.0

 

 

Other Standards and Interpretations

 

With effect from 1 January 2019, the Group has also adopted the following amendments and interpretations, none of which has had a material impact on the consolidated financial statements of the Group.

 

·      Amendments to IFRS 9:  Prepayment Features with Negative Compensation

·      Amendments to IAS 19:  Plan Amendment, Curtailment or Settlement

·      Amendments to IAS 28:  Long-term interest in associates and joint ventures

·      IFRIC 23  Uncertainty over Income Tax Treatment

·      Annual improvements 2015-2017 cycle

 

3.

Exchange rates

 

 

The results of operations have been translated into US dollars at the average rates of exchange for the period. In the case of sterling, the translation rate is $1 = £0.77 (2018 $1 = £0.73). In the case of the euro, the translation rate is $1 = €0.89 (2018 $1 = €0.83).

 

Assets and liabilities have been translated into US dollars at the rates of exchange on the last day of the period. In the case of sterling, the translation rate is $1 = £0.79 (30 June 2018 $1 = £0.76; 31 December 2018 $1 = £0.78). In the case of the euro, the translation rate is $1 = €0.88 (30 June 2018 $1 = €0.86; 31 December 2018 $1 = €0.87).

 

4.       Segmental Information
 

 

Revenue

2019

6 months ended

30 June

2018

6 months ended

30 June

 

 

$m

$m

 

 

 

 

 

Americas 

520

514

 

EMEAA 

338

233

 

Greater China

66

69

 

Central

88

84

 

 

_____

_____

 

Revenue from reportable segments

1,012

900

 

System Fund revenues

675

618

 

Reimbursement of costs

593

595

 

 

_____

_____

 

Total revenue

2,280

2,113

 

 

_____

_____

 

 

 

 

Profit

2019

6 months ended

30 June

 

$m

2018

6 months ended

30 June

Restated

$m

 

 

 

 

 

Americas 

344

334

 

EMEAA

88

95

 

Greater China

36

32

 

Central

(58)

(48)

 

 

_____

_____

 

Operating profit from reportable segments

410

413

 

System Fund

47

(12)

 

 

____

____

 

Operating profit before exceptional items

457

401

 

Exceptional items (note 6)

(15)

(53)

 

 

_____

_____

 

Operating profit

442

348

 

Net finance costs

(67)

(47)

 

 

_____

_____

 

Profit before tax

375

301

 

 

_____

_____

 

All results relate to continuing operations.

 

 

Assets

2019

30 June

 

$m

2018

31 December

Restated

$m

 

 

 

 

 

Americas

1,844

1,656

 

EMEAA

1,055

738

 

Greater China

145

110

 

Central

756

755

 

 

_____

_____

 

Segment assets

3,800

3,259

 

 

 

 

 

Unallocated assets:

 

 

 

Derivative financial instruments

16

8

 

Tax receivable

73

58

 

Deferred tax assets

65

63

 

Cash and cash equivalents

188

704

 

 

_____

_____

 

Total assets

4,142

4,092

 

 

_____

_____


Comparatives have been restated for IFRS 16 (see note 2) to show segmental information on a consistent basis.

 

 

5.     Disaggregation of revenue

 

The following tables present Group revenues disaggregated by type of revenue stream and by reportable segment:

 

6 months ended 30 June 2019

 

 

 

 

 

 

Americas

 

$m

EMEAA

 

$m

Greater China

$m

Central

 

$m

 

 

 

 

 

 

Franchise and base management fees

411

117

42

-

570

Incentive management fees

7

41

24

-

72

Central revenues

-

-

-

88

88

 

_____

_____

_____

_____

_____

Revenue from fee business

418

158

66

88

730

Revenue from owned, leased and managed lease hotels

 

102

 

180

 

-

 

-

 

282

 

_____

_____

_____

_____

_____

 

520

338

66

88

1,012

 

_____

_____

_____

_____

 

System Fund revenues

 

 

 

 

675

Reimbursement of costs

 

 

 

 

593

 

 

 

 

 

_____

Total revenue

 

 

 

 

2,280

 

 

 

 

 

_____

 

6 months ended 30 June 2018

 

 

 

 

 

 

Americas

 

$m

EMEAA

 

$m

Greater China

$m

Central

 

$m

 

 

 

 

 

 

Franchise and base management fees

405

110

46

-

561

Incentive management fees

8

43

23

-

74

Central revenues

-

-

-

84

84

 

_____

_____

_____

_____

_____

Revenue from fee business

413

153

69

84

719

Revenue from owned, leased and managed lease hotels

101

80

-

-

181

 

_____

_____

_____

_____

_____

 

514

233

69

84

900

 

_____

_____

_____

_____

 

System Fund revenues

 

 

 

 

618

Reimbursement of costs

 

 

 

 

595

 

 

 

 

 

_____

Total revenue

 

 

 

 

2,113

 

 

 

 

 

_____

 

6.

Exceptional items

 

 

 

2019

6 months ended

30 June

$m

2018

6 months ended

30 June

$m

 

 

Exceptional items before tax

 

 

 

 

 

Administrative expenses:

 

 

 

 

 

Reorganisation costs (a)

(10)

(32)

 

 

 

Acquisition and integration costs (b)

(5)

(6)

 

 

 

Pension settlement cost (c)

-

(15)

 

 

 

 

_____

_____

 

 

 

(15)

(53)

 

 

 

_____

_____

 

 

Tax

 

 

 

 

 

Tax on exceptional items (d)

3

13

 

 

 

_____

_____

 

             

 

 

All items above relate to continuing operations. These items are treated as exceptional by reason of their size or nature.

 

 

a)

In September 2017, the Group launched a comprehensive efficiency programme which will fund a series of new strategic initiatives to drive an acceleration in IHG's future growth. The programme is centred around strengthening the Group's organisational structure to redeploy resources to leverage scale in the highest opportunity markets and segments. The programme is expected to be completed in 2019.   The cost includes consultancy fees of $5m (2018 $15m) and severance costs of $3m (2018 $11m).   An additional $13m (2018 $30m) has been charged to the System Fund.

 

b)

In 2019, primarily relates to the acquisition of Six Senses (see note 10) and, in 2018, related to the acquisitions of Regent and the UK portfolio.

 

c)

Arose from the termination of the US funded Inter-Continental Hotels Pension Plan which involved certain qualifying members receiving lump-sum cash-out payments with the remaining pension obligations subject to a buy-out by an insurance provider through the purchase of a group annuity contract.

 

d)

Relates to tax impacts on the above items.

 

 

 

 

7.

Tax

 

 

The tax charge on profit for the period from continuing operations, excluding the impact of the System Fund and exceptional items (see note 6), has been calculated using an interim effective tax rate of 21% (2018 22%) analysed as follows:

 

 

 

2019

2019

2019

2018

Restated

2018

Restated

2018

Restated

 

 

6 months ended 30 June

Profit

$m

Tax

$m

Tax

rate

Profit

$m

Tax

$m

Tax

rate

 

 

 

 

 

 

 

 

 

 

 

Before exceptional items and System Fund

 

343

 

(72)

 

21%

 

366

 

(81)

 

22%

 

 

System Fund

47

-

 

(12)

-

 

 

 

Exceptional items (note 6)

(15)

3

 

(53)

13

 

 

 

 

_____

_____

 

_____

_____

 

 

 

 

375

(69)

 

301

(68)

 

 

 

 

_____

_____

 

_____

_____

 

 

 

Analysed as:

 

 

 

 

 

 

 

 

 

UK tax

 

(10)

 

 

(6)

 

 

 

 

Foreign tax

 

(59)

 

 

(62)

 

 

 

 

 

_____

 

 

_____

 

 

 

 

 

(69)

 

 

(68)

 

 

 

 

 

_____

 

 

_____

 

 

 

 

 

                       

 

 

8.

Earnings per ordinary share

 

 

Basic earnings per ordinary share is calculated by dividing the profit for the period available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the period.

 

Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share awards outstanding during the period.

 

Adjusted earnings per ordinary share* is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful comparison of the Group's performance.  Additionally, earnings attributable to the System Fund are excluded from the calculation of adjusted earnings per ordinary share, as IHG has an agreement with the IHG Owners Association to spend Fund income for the benefit of hotels in the IHG System such that the Group does not make a gain or loss from operating the Fund. 

 

IHG also records an interest charge on the outstanding cash balance relating to the IHG Rewards Club programme. These interest payments are recognised as interest income for the Fund and interest expense for IHG. The Fund also benefits from the capitalisation of interest related to the development of the next-generation Guest Reservation System. As the Fund is included on the Group income statement, these amounts are included in the reported Group net financial expenses.  Given that all results related to the Fund are excluded from the calculation of adjusted earnings per ordinary share, these interest amounts are deducted from profit available for equity holders.

 

* See the Use of Non-GAAP measures section in the Interim Management Report.

 

 

 

Continuing and total operations

2019

6 months ended

 30 June

2018

6 months ended

30 June

Restated

 

 

 

 

 

Basic earnings per ordinary share

 

 

 

Profit available for equity holders ($m)

306

233

 

Basic weighted average number of ordinary shares (millions)

183

190

 

Basic earnings per ordinary share (cents)

167.2

122.6

 

 

_____

_____

 

Diluted earnings per ordinary share

 

 

 

Profit available for equity holders ($m)

306

233

 

Diluted weighted average number of ordinary shares (millions)

184

191

 

Diluted earnings per ordinary share (cents)

166.3

122.0

 

 

_____

_____

 

Adjusted earnings per ordinary share

 

 

 

Profit available for equity holders ($m)

306

233

 

Adjusting items ($m):

 

 

 

 

System Fund revenues and expenses

(47)

12

 

        

Interest attributable to the System Fund

(9)

(9)

 

 

Exceptional items before tax (note 6)

15

53

 

 

Tax on exceptional items (note 6)

(3)

(13)

 

 

_____

_____

 

Adjusted earnings ($m)

262

276

 

Basic weighted average number of ordinary shares (millions)

183

190

 

Adjusted earnings per ordinary share (cents)

143.2

145.3

 

 

_____

_____

 

Diluted weighted average number of ordinary shares (millions)

184

191

 

Adjusted diluted earnings per ordinary share (cents)

142.4

144.5

 

 

_____

_____

 

 

The diluted weighted average number of ordinary shares is calculated as:

 

 

2019

millions

2018

millions

 

Basic weighted average number of ordinary shares

183

190

 

Dilutive potential ordinary shares

1

1

 

 

_____

_____

 

 

184

191

 

 

_____

_____

 

9.

Dividends and shareholder returns

 

 

2019

cents per share

2018

cents per share

2019

$m

2018

$m

 

Paid during the period:

 

 

 

 

 

 

Final (declared for previous year)

78.1

71.0

139

130

 

 

Special

262.1

-

510

-

 

 

 

_____

_____

_____

_____

 

 

 

340.2

71.0

649

130

 

 

 

______

______

______

______

 

Proposed for the period:

 

 

 

 

 

 

Interim

39.9

36.3

73

69*

 

 

______

______

______

______

 

* Amount paid.
 

 

 

 

 

 

In October 2018, the Group announced a $500m return of funds to shareholders by way of a special dividend and share consolidation.  On 11 January 2019, shareholders approved the share consolidation on the basis of 19 new ordinary shares of 20 340/399p per share for every 20 existing ordinary shares of 19 17/21p, which became effective on 14 January 2019 and resulted in the consolidation of 10m shares.  The dividend was paid on 29 January 2019. The dividend and share consolidation had the same economic effect as a share repurchase at fair value, therefore previously reported earnings per share has not been restated.

 

The total number of shares held as treasury shares at 30 June 2019 was 5.7m.

 

  

10.

Acquisition of businesses

 

Six Senses

 

On 12 February 2019, the Group completed the acquisition of Six Senses Hotels Resorts Spas (Six Senses). Six Senses is a leading operator of top tier luxury hotels, resorts and spas with a world-renowned reputation for wellness and sustainability. Six Senses will sit at the top of IHG's luxury portfolio.

 

Six Senses contributed revenue of $15m and an operating loss of $1m for the period between the date of acquisition and the balance sheet date. The results of Six Senses are included in the EMEAA and Greater China business segments.  If the acquisition had taken place at 1 January 2019, there would have been no material difference to reported Group revenue and operating profit for the six months ended 30 June 2019.

 

The provisional fair values of the identifiable assets and liabilities acquired, and the purchase consideration, are as follows:

 

 

 

 

$m

 

Identifiable intangible assets:

 

 

     Brands

189

 

     Management contracts

54

 

Right-of-use assets

19

 

Other non-current assets

8

 

Trade and other receivables

12

 

Cash and cash equivalents

7

 

Other current assets

1

 

Trade and other payables

(14)

 

Lease liabilities

(19)

 

Other liabilities

(2)

 

Deferred tax liability

(3)

 

 

_____

 

Net identifiable assets acquired

252

 

Goodwill

 

52

 

 

_____

 

Total purchase consideration

304

 

 

_____

 

Comprising:

 

 

 

Cash paid on acquisition, including working capital settlement

299

 

Contingent consideration *

5

 

 

_____

 

 

304

 

 

_____

 

 

 

 

*    Payable upon certain conditions being met relating to a pipeline property. The range of possible outcomes is nil to $5m.

 

 

 

The goodwill is attributable to the global growth opportunities identified for the acquired business. The amount of goodwill that is expected to be deductible for income tax purposes is $50m.

 

At the date of acquisition, the fair value of trade receivables was $8m, with a corresponding carrying value of $10m. The difference between the fair value and the carrying amount reflects the expected credit loss. 

 

No contingent liabilities were recognised as a result of the acquisition.

 

If new information obtained within one year of the date of acquisition about the facts and circumstances that existed at the date of acquisition identifies adjustments to the fair value amounts, then the accounting for the acquisition will be revised.

 

 

UK portfolio - acquisition of additional hotels

 

On 14 February 2019, following on from the UK portfolio deal completed in 2018 to operate 10 UK hotels under long-term leases from Covivio, the Group added a further two hotels to the portfolio bringing the total hotels in the UK portfolio to 12 at 30 June 2019. 

 

The total consideration for the period was $11m, comprising purchase consideration of $1m and contingent consideration of $10m relating to the two additional hotels.

 

The contingent consideration comprises the present value of the above-market element of the expected lease payments over the 25 year lives of the hotel lease agreements. The undiscounted amount is $38m. The value of the contingent consideration has been assessed with the assistance of professional third-party advisors and is subject to periodic re-assessment as interest rates and expected lease payments change. The above-market assessment has been determined by comparing the expected lease payments as a percentage of forecast hotel operating profit (before depreciation and rent) with market metrics, on a lease by lease basis. There is no floor to the amount payable and no maximum amount.

 

The two additional hotels contributed revenue of $7m and an operating loss of $1m for the period between the date of acquisition and the balance sheet date.  The results of the hotels are included in the EMEAA business segment   If the acquisition had taken place at 1 January 2019, there would have been no material difference to reported Group revenue and operating profit for the six months ended 30 June 2019.

 

Assets acquired primarily comprise goodwill of $12m, of which nil is expected to be deductible for tax purposes.  The goodwill is attributable to the trading potential of the acquired hotel operations and growth opportunities.

 

UK portfolio - finalisation of 2018 purchase price allocation

 

The goodwill recognised on the 10 hotels acquired in 2018 was $48m at acquisition. This has subsequently increased by $4m relating to the finalisation of provisional fair values assigned to working capital balances.

 

$m

Cash flows relating to acquisitions:

 

 

Cash paid on acquisition, including working capital settlement

299

Contingent consideration paid

4

Settlement of stamp duty liability

3

Less:  cash and cash equivalents acquired

(7)

 

_____

 

299

 

_____

 

 

 

11.     Reconciliation of profit for the period to cash flow from operations before contract acquisition costs
 

 

2019

6 months ended

30 June

2018

6 months ended

30 June

Restated

 

$m

$m

 

 

 

Profit for the period

306

233

Adjustments for:

 

 

 

Net financial expenses

67

47

 

Income tax charge

69

68

 

Depreciation and amortisation

56

55

 

System Fund depreciation and amortisation

25

18

 

Exceptional items (including System Fund)

28

83

 

Equity-settled share-based cost

20

19

 

Dividends from associates and joint ventures

1

2

 

Increase in deferred revenue

47

100

 

Increase in contract costs

(5)

-

 

Retirement benefit contributions, net of costs

(1)

(12)

 

Utilisation of provisions, net of charge

2

-

 

Other changes in net working capital

(286)

(214)

 

Cash flows relating to exceptional items

(30)

(55)

 

Contract assets deduction in revenue

10

9

 

Other items

-

3

 

 

_____

_____

Total adjustments

3

123

 

_____

_____

Cash flow from operations before contract acquisition costs


309

 

356

 

_____

_____

 

 

12.

Net debt

 

 

 

2019

30 June

2018

31 December

Restated

 

 

$m

$m

 

 

 

 

 

Cash and cash equivalents

188

704

 

Loans and other borrowings - current

(58)

(104)

 

Loans and other borrowings - non-current

(2,295)

(1,910)

 

Lease liabilities - current

(63)

(55)

 

Lease liabilities - non-current

(634)

(615)

 

Derivatives hedging debt values

15

15

 

 

_____

_____

 

Net debt*

(2,847)

(1,965)

 

 

_____

_____

 


* See the Use of Non-GAAP measures section in the Interim Management Report.


 

 

13.

Movement in net debt

 

 

2019

6 months

 ended

30 June

2018

6 months ended

30 June

Restated

 

 

$m

$m

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents, net of overdrafts

(483)

115

 

Add back cash flows in respect of other components of net debt:

 

 

 

 

Lease repayments

22

17

 

 

Increase in other borrowings*

(376)

(65)

 

 

_____

_____

 

(Increase)/decrease in net debt arising from cash flows

(837)

67

 

 

 

 

 

Non-cash movements:

 

 

 

 

Lease obligations

(32)

(16)

 

 

Increase in accrued interest

(22)

(23)

 

 

Acquisitions

(19)

-

 

 

Exchange and other adjustments

28

27

 

 

_____

_____

 

(Increase)/decrease in net debt

(882)

55

 

 

 

 

 

Net debt at beginning of the period

(1,965)

(2,253)

 

 

_____

_____

 

Net debt at end of the period

(2,847)

(2,198)

 

 

_____

_____

 

* The increase in other borrowings relates to drawings under the Group's Syndicated and Bilateral facilities.
 

14.

Fair values

 

 

The table below compares carrying amounts and fair values of the Group's financial assets and liabilities at 30 June 2019:

 

 

2019

 30 June

Carrying value

$m

2019

30 June

Fair value


$m

2018

31 December

Carrying value

$m

2018

31 December

Fair value


$m

 

Financial assets

 

 

 

 

 

Financial assets measured at fair value:

 

 

 

 

 

Equity securities

125

125

116

116

 

Derivatives

16

16

8

8

 

Financial assets measured at amortised cost:

 

 

 

 

 

Other financial assets

147

147

145

145

 

 

_____

_____

_____

_____

 

 

288

288

269

269

 

 

_____

_____

_____

_____

 

Financial liabilities

 

 

 

 

 

Financial liabilities measured at fair value:

 

 

 

 

 

Deferred and contingent purchase consideration

 

(151)

 

(151)

 

(131)

 

(131)

 

Financial liabilities measured at amortised cost:

 

 

 

 

 

£400m 3.875% bonds 2022

(516)

(547)

(509)

(543)

 

£300m 3.75% bonds 2025

(390)

(414)

(385)

(399)

 

£350m 2.125% bonds 2026

(449)

(440)

(447)

(417)

 

€500m 2.125% bonds 2027

(566)

(608)

(569)

(566)

 

 

_____

_____

_____

_____

 

 

(2,072)

(2,160)

(2,041)

(2,056)

 

 

_____

_____

_____

_____

 

 

Cash and cash equivalents, trade and other receivables, bank borrowings, trade and other payables and provisions are excluded from the above tables as their fair value approximates book value. The fair value of financial assets measured at amortised cost approximates book value based on prevailing market rates. The fair value of the £400m, £300m, £350m and €500m bonds is based on their quoted market price.
 

Financial assets and liabilities measured at fair value through other comprehensive income are held in the Group statement of financial position at fair value as set out in the following table.

 

 

 

30 June 2019

 

Level 1

$m

Level 2

$m

Level 3

$m

Total

$m

 

Assets

 

 

 

 

 

Equity securities measured at fair value:

 

 

 

 

 

Quoted equity shares

9

-

-

9

 

Unquoted equity shares

-

-

116

116

 

Derivatives

-

16

-

16

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deferred and contingent purchase consideration

 

-

 

-

 

(151)

 

(151)

 

 

 

31 December 2018

 

 

Level 1

$m

 

Level 2

$m

 

Level 3

$m

 

Total

$m

 

Assets

 

 

 

 

 

Equity securities measured at fair value:

 

 

 

 

 

Quoted equity shares

8

-

-

8

 

Unquoted equity shares

-

-

108

108

 

Derivatives

-

8

-

8

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Deferred and contingent purchase consideration

-

-

(131)

(131)

 

 

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 

There were no transfers between Level 1 and Level 2 fair value measurements during the period and no transfers into and out of Level 3.

 

 

Derivatives are fair valued using discounted future cash flows, taking into consideration exchange rates prevailing on the last day of the reporting period and interest rates from observable swap curves. Currency swaps are measured at the present value of future cash flows estimated and discounted back based on quoted forward exchange rates and the applicable yield curves derived from quoted interest rates. Adjustments for credit risk use observable credit default swap spreads.

 

Deferred and contingent purchase consideration are fair valued using the present value of the expected future payments, discounted using a risk adjusted discount rate. A 10% decrease in the discount rate would result in a $8m increase in the fair value of the consideration payable.

 

 

 

The Level 3 equity securities relate to investments in unlisted shares which are valued either by applying an average price-earnings (P/E) ratio for a competitor group to the earnings generated by the investment, or by reference to share of net assets if the investment is currently loss-making or a recent property valuation is available.  The average P/E ratio for the period was 25.4 (31 December 2018 19.9) and a non-marketability factor of 30% (31 December 2018 30%) was applied. 

 

A 10% increase in the average P/E ratio would result in a $3m increase (31 December 2018 $2m) in the fair value of the investments and a 10% decrease in the average P/E ratio would result in a $3m decrease (31 December 2018 $2m) in the fair value of the investments. A 10% increase in net assets would result in a $8m increase (31 December 2018 $8m) in the fair value of investments and a 10% decrease in net assets would result in a $8m decrease (31 December 2018 $8m) in the fair value of the investments.

 

 

The following table reconciles the movements in the fair values of financial instruments classified as Level 3 during the period:

 

 

 

Equity

securities

 

$m

Deferred and contingent purchase consideration

$m

 

 

 

 

 

At 1 January 2019

108

131

 

Additions

3

-

 

Acquisitions

1

15

 

Disposals

(1)

-

 

Valuation gains recognised in other comprehensive income

5

-

 

Contingent consideration paid

-

(4)

 

Change in fair value recorded in financial expenses

-

10

 

Exchange adjustments

-

(1)

 

 

____

____

 

At 30 June 2019

116

151

 

 

_____

_____

 

15.

Commitments and guarantees

 

 

At 30 June 2019, the amount contracted for but not provided for in the financial statements for expenditure on property, plant and equipment and intangible assets was $197m (31 December 2018 $136m).  A loan facility of $5m (31 December 2018 $5m) has also been made available to a hotel owner which remained undrawn at 30 June 2019.

 

In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts. At 30 June 2019, the amount provided in the financial statements was $1m (31 December 2018 $3m) and the maximum unprovided exposure under such guarantees was $93m (31 December 2018 $42m). 

 

The Group may guarantee bank loans made to facilitate third-party ownership of hotels in which the Group has an equity interest.  At 30 June 2019, there were guarantees of $59m in place (31 December 2018 $43m).

 

 

16.

Contingencies

 

Security incidents

 

 

In 2016, the Group was notified of (a) a security incident at a number of Kimpton hotels that resulted in unauthorised access to guest payment card data, and (b) security incidents at a number of IHG branded hotels including the installation of malware on servers that processed payment cards used at restaurants and bars of 12 IHG managed properties, together the Security Incidents.   The Group has now reached agreement with the impacted card networks on the amount of assessments payable, $3m in total, the vast majority of which have been settled under the Group's insurance programmes, with the balance expected to be similarly recovered.

 

The Group may also be exposed to investigations regarding compliance with applicable State and Federal data security standards, and legal action from individuals and organisations impacted by the Security Incidents.  Due to the general nature of the regulatory enquiries received and class action filings to date, other than described below, it is not practicable to make a reliable estimate of the possible financial effects of any such claims on the Group at this time.   These contingent liabilities are potentially recoverable under the Group's insurance programmes, although specific agreement will need to be reached with the relevant insurance providers at the time any claim is made.

 

To date, four lawsuits had been filed against IHG entities relating to the Security Incidents.   One of these has been withdrawn and a final settlement of less than $2m has been agreed in respect of another lawsuit, although this is expected to be recovered from insurance.

 

Other

 

From time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation.  The Group has also given warranties in respect of the disposal of certain of its former subsidiaries.  It is the view of the Directors that, other than to the extent that liabilities have been provided for in these financial statements, it is not possible to quantify any loss to which these proceedings or claims under these warranties may give rise, however, as at the date of reporting, the Group does not believe that the outcome of these matters will have a material effect on the Group's financial position.

 

At 30 June 2019, the Group had no other contingent liabilities (31 December 2018 $nil).

 

 

 

 

 

 

 

 

INDEPENDENT REVIEW REPORT TO INTERCONTINENTAL HOTELS GROUP PLC

 

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 which comprises the Group income statement, Group statement of comprehensive income, Group statement of changes in equity, Group statement of financial position, Group statement of cash flows and the related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Ernst & Young LLP

London

5 August 2019

 

 


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Half-year Report - RNS