Intercontinental Hotels : PDF 0.80MB

IHG PLC 2020 Full

Year Results

Tuesday, 23rd February 2021

Transcript produced by Global Lingo

London - 020 7870 7100www.global-lingo.com

Introduction

Stuart Ford

VP, Head of Investor Relations, IHG PLC

Good morning everyone and welcome to IHG's 2020 Full Year Results call. I am Stuart Ford, Head of Investor Relations at IHG and I am joined this morning by Keith Barr, our CEO and Paul Edgecliffe-Johnson, our CFO and Group Head of Strategy. Just to remind listeners on the call that in the discussions today the company may make some forward-looking statements as defined under US law. Do please refer to this morning's announcement and the company's SEC filings for factors that could lead actual results to differ materially from those expressed in, or implied by, any such forward looking statements.

For those analysts or institutional investors who are listening on the webcast to follow the presentation can I remind you that in order to ask questions you will need to dial in using the details on page 12 of the RNS or as supplied in your email invite. If you are dialled in over the phone the presentation can be downloaded, and the webcast can be viewed via ihgplc.com or through the link on page 12 of the RNS.

Opening Remarks

Keith Barr

Chief Executive Officer, IHG PLC

Good morning everyone. Before I get into our presentation, I wanted to first take a moment to recognise the very sad news of Marriott CEO, Arne Sorensen's passing last week. Anyone who knew him or had heard him speak will know how passionate he was about our industry and his company. He was an inspiring individual to so many people. It was a privilege to have known him and it goes without saying that he will be greatly missed. The thoughts of all of us here at IHG are with his wife, his children, and everyone at Marriott.

Over the last year, the Covid-19 pandemic has presented our business and indeed the entire travel and tourism industry with its biggest challenge ever. From the beginning our aim has been to act quickly, effectively and responsibly for all our stakeholders. We have taken steps to significantly reduce cost, preserve cash and maintain substantial liquidity to support our conservative balance sheet approach. We have implemented new safety and cleanliness procedures to protect colleagues and guests, increased resources and support for our teams working remotely, accommodated frontline workers in our hotels and helped the vulnerable in our communities. We have worked hard to support our owners and their cash flow with new operating standards, fee discounts and flexible payment terms. So much important work has been done and it has taken an incredible team effort in close collaboration with our owners, partners and colleagues to achieve it all.

The impact of travel restrictions and physical distancing measures around the world meant demand fell to the lowest levels we have ever seen, with global RevPAR down over 52% for the year. This led to a 75% fall in underlying operating profit. While the effect on our business has clearly been severe, we have also shown resilience, continuing to outperform in key markets and segments, driven by our business model, our weighting to domestic demand, portfolio mix and the strength of our brands.

The decisive actions we took to preserve cash throughout the crisis meant that our free cash flow was a $29 million inflow in the year with a $95-million inflow in the second half. This contributed to closing the year with $2.9 billion of total available liquidity, or $2.1 billion on a pro forma basis for the forthcoming repayment of the CCFF. However, with visibility still remaining limited as to the pace and scale of market recovery, we are not proposing a final dividend today.

Our focus remains on ensuring we are ready to grow strongly as demand returns. Through 2020 momentum for our brands continued with 285 openings and 360 signings, a quarter of which were from conversions.

Our strong positioning for recovery is underpinned by our evolved purpose and strategic priorities

As we reflect on what we have learnt in this period, and what is needed to succeed in this new environment, we entered 2021 with an evolved purpose and a set of clear strategic priorities that underpin our growth ambition. All of which I will talk more about later on. For now, let me hand over to Paul to take you through our full year results.

FY 2020 Financial Review

Paul Edgecliffe-Johnson

Chief Financial Officer & Group Head of Strategy, IHG PLC

Good morning everyone. Firstly, starting as usual with our headline results from reportable segments. Revenue decreased 52% to $992 million and operating profit decreased 75% to $219 million. Excluding the impact of System Fund recognition changes which we announced in December, revenue would have been $20 million lower and operating profit $21 million lower.

On an underlying basis the revenue decrease was also 52%. Underlying revenue from the fee business decreased 45% and operating profit reduced 65% driven by the adverse mix effect of weaker performances in the managed business. As a result, fee margin decreased to 34.1%.

The operating profit performance reflects the decline in the fee business together with the impact of the owned, leased and managed lease estate which went from a $52 million profit in 2019 to a $59 million loss this year. This reflected the majority of these hotels being closed throughout 2020 with those that remained open operating at very low occupancies.

Operating profit on a reported basis included the System Fund in-year deficit of $102 million and operating exceptional items of $270 million. The exceptionals predominantly comprised the impairments already taken in the first half of the year. These are detailed in the Appendix.

Adjusted interest including charges relating to the System Fund reduced by $3 million to $130 million.

Our effective tax rate of 38% differs from our previous mid-20%s guidance range largely due to a significantly reduced level of profit before tax, which resulted in unrelieved foreign taxes and other non-tax deductible expenses.

We estimate our effective tax rate for 2021 to be similarly elevated although forecasting in this area remains challenging given the sensitivities in the calculation and the uncertainties in the near-term outlook.

In aggregate this performance has resulted in an adjusted earnings per share of 31.3 cents.

Looking now at our drivers of performance. Group RevPAR was down 53% on a comparable basis. Our RevPAR definition includes the adverse impact from hotels that were temporarily closed. The travel restrictions and physical distancing measures in our key markets around the world contributed to an occupancy decline of just under 30 percentage points with rate down 17%.

Despite these incredibly tough trading conditions we opened 39,000 rooms in the year, driven principally by our continued focus on the long-term health and quality of our brands and estate, 20,000 rooms exited the system. Towards the end of the year a further 17,000 rooms exited following the termination of management agreements with SVC. These additions and removals brought net system size growth to slightly above flat, or up 2.2% excluding the SVC impact. Our usual summary of total RevPAR growth and total rooms available on an underlying basis can be found in the Appendix.

Looking now at the shape of our performance over the year you can clearly see differing trends in weekly RevPAR movements by region. Greater China saw a trough in early February with performance gradually improving throughout the year. Both the Americas and EMEAA regions declined sharply towards the end of the first quarter. There was then a level of RevPAR recovery in these two regions over the course of Q2 and Q3 before stabilising in Q4, but with the Americas recovering faster and more strongly than EMEAA on account of the latter having a greater impact from government mandated hotel closures, particularly in Europe. I will now take you through our regional performance in more detail.

Starting with the Americas where RevPAR was down 49% for the year, with the US down 47%. In the fourth quarter, US RevPAR was also down 47% which represents relative outperformance against both the overall industry and the segments in which we compete. I will come back to the main drivers of this shortly. We continued to see a divergence in performance between our franchise and managed estate. Our franchise hotels, which are largely in the upper midscale segment and in non-urban locations, saw RevPAR fall 43%. This contrasts with our managed estate which is weighted towards luxury and upscale hotels in urban markets where demand was weaker, and a higher proportion of hotels were closed. RevPAR at managed hotels fell 79%.

We opened 17,000 rooms, over half of which were for the Holiday Inn brand family. This was more than offset by 27,000 rooms exiting including the 17,000 related to SVC. Excluding SVC net rooms growth would have been 1%. Underlying fee business revenue was down 46%, and underlying fee operating profit was down 51%, driven by greater levels of RevPAR decline in our US managed estate which led to incentive management fees being $8 million lower. This impact was offset by the benefit of a $4 million litigation settlement and an $8 million payroll tax credit.

Our owned, leased and manage lease profit was down $64 million to a loss of $27 million due to temporary closures. All six hotels in this portfolio are now back open, albeit trading at very low levels of occupancy.