IHG buoyed by mobile growth, occupancy gains, dividends
 
IHG buoyed by mobile growth, occupancy gains, dividends
21 FEBRUARY 2017 10:08 AM

In a conference call with analysts to discuss InterContinental Hotels Group’s full-year 2016 earnings, IHG executives spoke positively about the company’s development plans and addressed speculation of IHG considering mergers-and-acquisitions activity.

DENHAM, England—Richard Solomons, CEO of InterContinental Hotels Group, said the hotel firm is moving through 2017 with increased optimism, buoyed by quality brands, sustainable growth and the right owners.

“This is what is important to us and at the core of our business,” Solomons said during an analyst conference call following the release of IHG’s full-year 2016 results.

Dividends to shareholders, occupancy and mobile bookings all increased in year-over-year comparisons.

Solomons, joined by CFO Paul Edgecliffe-Johnson, said IHG’s latest earnings reiterate the power of large, time-tested brands, and that the company continues to innovate.

Solomons also waved away analyst questions on upcoming mergers and acquisitions activity, both for the industry in general and IHG specifically.

“Most growth in the industry has come organically,” Solomons said. But, he said, he would entertain brands that fit with IHG’s existing portfolio and were offered at sensible prices.

Solomons said that despite an unsettled 2016, IHG is in a strong position following its first year as a fully asset-light company. Among reasons for optimism were:

  • Annual dividends increased by 11% to 94 cents, resulting in $400 million to be returned to shareholders. Since 2003, $12.8 billion has been returned to shareholders, approximately $5 billion of which is from underlying operations (IHG reports in U.S. dollars);
  • Digital revenue for the year totalled $4.3 billion, with mobile digital revenue reaching $1.6 billion and for the first time constituting more than 50% of global digital traffic. In China, that number is 60%;
  • Capital expenditure for 2017 remains at the existing guidance level of approximately $350 million; and
  • Occupancy across IHG’s portfolio set a new record high, although the exact percentage number was not revealed.

Solomons said that despite an overall year-over-year revenue drop of 4.9% to $1.71 billion, revenue on an underlying basis rose 4.6% to $1.58 billion, underlying operating profit increased by 9.5% and underlying earnings per share increased by 23%.

Revenue per available room globally in 2016 rose 1.8% compared to 2015.

“Since 2013, we have been able to keep overheads flat,” Edgecliffe-Johnson said.

Sustainable innovation
Solomons said IHG’s steady performance has given owners increased confidence in its brands and growth.

In November 2016, IHG opened its first Kimpton Hotels & Restaurants asset outside of the U.S.—the Kimpton Seafire Resort & Spa in the Cayman Islands.

IHG also was putting into place its continued two-pronged restaurant strategy of celebrity chef establishments in upper tier restaurants and tailored products such as CHAR and Burger Theory in lower ones, according to Solomons.

Growth also is evident in individual markets, Edgecliffe-Johnson said, despite continuing pressure on oil-producing markets.

Notable full-year 2016 numbers in IHG’s global regions include:

  • The Americas—RevPAR increased 2.1%, although in oil-producing markets that metric saw a decline of 7.5%. Fee revenues increased 5.7%, while 37,000 rooms were signed in 2016 for a total Americas pipeline of 102,000 rooms.
  • Europe—RevPAR increased 4.5% in regional United Kingdom but fell 0.6% in London. In Europe, excluding those markets affected by security incidents and concerns, IHG reported 4% growth in RevPAR; and across all of Europe, fee revenues also improved by 0.6%.
  • China—Comparable RevPAR increased 2.2%, while fee revenues jumped 12.8%, aided, Solomons said, by IHG’s relatively new “franchise plus” model in the region. Holiday Inn Express is leading the Chinese push, with 20 assets signed in eight months of 2016, which brings the brand total in China to 47.

Net room growth also grew, by 3.1% across all geographies, which included an 8.8% rise in China, Solomons said. Also increasing was net debt, though, from $529 million to approximately $1.51 billion.

“Nearly all the rooms that exited were in the Americas, although we opened more rooms in the Americas in 2016 than we have for many years—since, I think, 2008. A lot of these have been new builds, which take longer to come through,” Edgecliffe-Johnson said.

Solomons added he has not seen any change in ownership confidence in the weeks since the 2016 U.S. elections.

“I’ve not seen a post-Trump effect. … There is financing available, especially for the stronger brands,” Solomons said.

As of press time, IHG’s stock was up 7.4% year to date on the London Stock Exchange. The Baird/STR Hotel Stock Index is up 17.7% over the same period.


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