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Interco. Hotels Grp (IHG)

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Tuesday 11 August, 2020

Interco. Hotels Grp

Half-year Report

RNS Number : 7134V
InterContinental Hotels Group PLC
11 August 2020
 

IHG PLC - Half Year Results to 30 June 2020

 

 

Reported

 

Underlying5

 

2020

2019

% Change

 

% Change

 

REPORTABLE SEGMENTS1

 

 

 

 

 

 

Revenue2

$488m

$1,012m

(52)%

 

(51)%

 

Revenue from fee business

$375m

$730m

(49)%

 

(48)%

 

Operating profit2

$74m

$410m

(82)%

 

(83)%

 

Fee margin3

26.1%

54.1%

(28.0)%pts

 

 

 

Adjusted EPS4

14.3¢

148.6¢

(90)%

 

KEY METRICS

 

 

 

 

 

 

 

GROUP RESULTS

 

 

 

 

· $6.6bn total gross revenue (down (52)%; (51)% at CER)

Total revenue

$1,248m

$2,280m

(45)%

 

Operating (loss)/profit

$(233)m

$442m

(153)%

 

· (51.7)% global H1 RevPAR

Basic EPS

(115.4)¢

167.2¢

(169)%

 

Total dividend per share

39.9¢

(100)%

 

· (74.7)% global Q2 RevPAR

Net debt

$2,515m

$2,847m

(12)%

 

1   Excludes System Fund results, hotel cost reimbursements and exceptional items. 2 Comprises the Group's fee business and owned, leased and managed lease hotels.
3
Excludes owned, leased and managed lease hotels, significant liquidated damages and the results of the Group's captive insurance company, with 2019 restated accordingly. 

4 Calculated using results from Reportable Segments and Adjusted Interest, and excluding changes in fair value of contingent consideration. 5 Reportable segment results excluding significant liquidated damages, current year disposals and stated at constant H1 2020 exchange rates (CER).

 

· H1 Comparable RevPAR: Global (52)%. Q2: Global (75)%; Americas (71)%; EMEAA (88)%; Greater China (59)%.

· Net system size growth of 3.2% YoY. In H1, 12k room additions and 12k removals, including 2k relating to a previously flagged portfolio of hotels in Germany. Global estate now 883k rooms, over 5,900 hotels.

· First half signings of 26k rooms (181 hotels). Total pipeline now stands at 288k rooms (1,932 hotels).

· Operating profit from reportable segments down 82% to $74m before System Fund result of $(52)m and operating exceptional items of $(255)m predominantly comprising non-cash impairments to owned and leased hotels and acquired management agreements, together with impairments of trade deposits and receivables.

· On track to reduce Fee Business costs by ~$150m in 2020; targeting around half this level to be sustainable into 2021.

· Q2 free cash flow broadly neutral, resulting from strong cash management; H1 outflow of $66m.

· Total available liquidity of $2.0bn at end of June and end of July.

· July comparable RevPAR expected to be ~(58)%; occupancy levels in comparable open hotels improved to ~45%. 317 hotels or 5% of the estate closed as at end of July; 3% of Americas, 16% of EMEAA and <1% of Greater China.

 

 

Keith Barr, Chief Executive Officer, IHG, said:

 

"Throughout the crisis we have continued to act responsibly, doing all we can to support our hotel colleagues and owners, and create a clean, safe stay experience that we know guests can trust. The teamwork, dedication and care that our colleagues and owners have shown to adapt our approach is central to meeting the evolving needs and expectations of guests, as well as the communities in which we operate. I would like to sincerely thank everyone for ensuring that our purpose of providing True Hospitality shines through, even in the toughest of times.

 

The impact of Covid-19 on our business has been substantial. Global RevPAR declined by 52% in the first half and was down 75% in the second quarter, when occupancy at comparable hotels fell to 25%. Despite this challenging environment, we delivered an operating profit of $74m. Small but steady improvements in occupancy and RevPAR through the second quarter continued into July, with an expected RevPAR decline of 58%, and occupancy rising to around 45%.

 

The support we have offered owners, such as fee relief and increased payment flexibility, was well received. Together with other measures we've taken to preserve cash, we have maintained substantial liquidity of around $2bn. Our ongoing actions to reduce costs include plans to make around half of the $150m of savings we will achieve this year sustainable into 2021, alongside continued investment in our growth initiatives. However, with limited visibility of the pace and scale of market recovery, we are not proposing an interim dividend.

 

As has been the case in previous downturns, domestic mainstream travel is proving to be the most resilient. Our weighting in this segment, led by our industry-leading Holiday Inn Brand Family, positions us well as demand returns in our key markets. In the US, our mainstream estate of almost 3,500 hotels is seeing lower levels of RevPAR decline than the industry, and is operating at occupancy levels of over 50%.

 

Reflecting our long-term growth prospects, and the strength of our brands and owner relationships, we opened more than 90 hotels in the half and strengthened our pipeline with an average of one new signing a day, including almost 100 for our Holiday Inn Brand Family. We have also taken voco, our upscale conversion brand, outside of EMEAA, with initial signings in the US and Greater China.

 

The impact of this crisis on our industry cannot be underestimated, but we are seeing some very early signs of improvement as restrictions ease and traveller confidence returns. Whilst the near-term outlook remains uncertain and the time period for market recovery is unknown, we are well positioned with preferred brands in the largest markets and segments, a leading loyalty platform and one of the most resilient business models in the industry. This gives us confidence in our ability to meet the needs of our guests and owners, and to emerge strongly when markets recover."

 

Our response to Covid-19

IHG has undertaken a rapid and comprehensive response in the immediacy of the Covid-19 crisis. We have taken decisive actions to protect the business and our stakeholders through the worst period of demand in the industry's history, balanced with ensuring we are positioning IHG to outperform through the recovery, whilst remaining true to our purpose and values. Our response has also benefited from experience and learnings across the breadth of our geographies.

 

Supporting our stakeholders as a responsible business

 

Colleagues

· Provided updates to operating procedures, new equipment and training programmes to protect our frontline hotel colleagues and enable them in turn to deliver clean and safe hotels for all our guests.

· Collaborated cross-industry to help colleagues find employment whilst hotels were temporarily closed.

· Launched new internal communications and Staying In Touch forums.

· Supported colleagues with tools and resources to aid flexible and remote working.

· Extended our Employee Assistance Programme to cover mental health and wellbeing, and financial advice.

· Provided a range of additional advice and assistance for those colleagues who have been unfortunately impacted by the need to be furloughed or work reduced hours, or by consultation and reorganisation processes.

 

Communities

· Worked with governments and organisations around the world, including #FirstRespondersFirst in the US, to provide accommodation to frontline workers, military personnel and vulnerable members of society, with around 430 of our hotels being repurposed at various times during the crisis for these and other essential activities.

· Supported our longstanding True Hospitality for Good charitable partners, including the British Red Cross through its Disaster Relief Alliance membership, CARE International to provide PPE in developing markets, and the China Red Cross.

· Extended our True Hospitality for Good programme to help support foodbanks and food provision charities in more than 70 countries.

· Enabled IHG Rewards Club members to donate loyalty points to be converted into cash donations to our charity partners, including the International Federation of Red Cross and Red Crescent Societies (IFRC).

 

Guests

· New Covid-19 health and safety operating procedures launched globally in our hotels to create a safer environment for all travellers as well as our frontline hotel colleagues as they deliver True Hospitality each and every day.

· Waived cancellation fees from the onset of the crisis and provided flexible rebooking options.

· Protected the membership status for our IHG Rewards Club loyalty programme members.

· Enhanced and extended our Book Now, Pay Later policies, to further increase guest confidence.

· Invited 1,500 corporate customers globally to Webex briefings to update them on our Covid-19 response.

· Launched our Meet with Confidence offer to provide corporate bookers the greater flexibility they need, together with our enhanced approach to health and safety.

· Guest Satisfaction Index has been net positive through the half, outperforming competitors, with sequential improvement each month.

 

Owners

· Offered advice and support to help our owners keep their hotels open, including how to flex operations and reduce costs, or how to temporarily close and re-open most efficiently and effectively.

· Coordinated Covid-related demand, such as government repurposing of hotels, with enhancements made to demand driver mapping, rate loading and centralised booking to manage urgent and bespoke needs.

· Rapidly devised new standard operating procedures including IHG's Way of Clean to enable safe operation.

· Moved quickly to collaborate with governments and secure support for the hospitality industry on our owners' behalf, and advised on how to access the various government support schemes subsequently made available.

· Our work with governments and collaboration with industry associations is ongoing to advocate for ways to safely encourage a resumption in travel domestically and internationally, and to secure further tax breaks, reliefs, reforms and other travel and hospitality-related incentives.

· Delayed the requirement of owners to undertake renovations, and relaxed brand standards to conserve owner funds.

· Provided fee relief and increased payment flexibility, supporting owners' ability to continue making payments.

· Offered temporary discounts on our technology fees, as well as significantly reducing payments due into the System Fund to match reductions in marketing and reservations activity undertaken on behalf of owners.

· Our procurement teams, having supported owners initially with sourcing PPE and other emergency supplies, continue to support supplier negotiations to leverage IHG's scale.

· We continue to assist our owners to develop more efficient operating models, in particular to provide ongoing support to new cleanliness and safety standards, whilst reducing costs in other areas.

 

 

Protected our financial position

 

Cost actions and cash preservation

· Immediate measures taken to reduce costs to protect profitability through reducing salary and incentives, including substantial decreases for Board and Executive committee members, and challenging all areas of discretionary spend.

· More than $50m of Fee Business cost reductions achieved in the half; on track to achieve ~$150m in the full year.

· Similar actions taken across the System Fund, in response to expected lower assessment fee receipts, particularly through reducing marketing spend.

· Cost containment action also taken across our owned, leased and managed lease hotels, contributing to the $130m of overall cost reduction in the half for this estate.

· Gross capital expenditure reduced to ~$85m in the half (H1 2019: $101m); continue to expect ~$150m for 2020, a saving of ~$100m versus 2019.

· Proactive management of working capital, including measures resulting in continued payments being received from our owners, contributing to an overall reduced level of working capital outflow in the half.

· The Board withdrew its recommendation of a final dividend in respect of 2019 of 85.9¢, preserving ~$150m of cash; an interim dividend in respect of 2020 will also not be paid, with the Board continuing to defer consideration of further dividends until visibility of the pace and scale of market recovery has improved.

· These cost and cash preservation actions resulted in broadly neutral free cash flow in Q2, and limited the first half free cash outflow to $66m (H1 2019: inflow of $141m).

· Cost and cash control measures remain in place.  Looking ahead to 2021, plans are in place to make around half of the cost savings sustainable through ongoing control of discretionary spend and a re-balancing of resources to meet expected demand, alongside continued investment in growth initiatives.

 

Liquidity

· Rapid action taken to strengthen the liquidity position, building on our conservative balance sheet approach and the measures taken to reduce costs and preserve cash.

· Secured covenant waivers to 31 December 2021 for our $1.35bn syndicated and bilateral revolving credit facilities (RCF), which are currently undrawn; the maturity of these was also extended by 18 months to September 2023.

· The waivers introduce a minimum liquidity covenant of $400m, tested at half year and full year.

· Increased total available liquidity through the issue of £600m (~$740m) of commercial paper under the UK Government's Covid Corporate Financing Facility (CCFF).

· Total available liquidity of $2.0bn at 30 June 2020, similarly maintained at the end of July, provides substantial headroom.

 

Positioning to outperform during the recovery

 

Cleanliness, health and safety

· Rapidly moving to prepare for the return of guests, and reflecting the longer-term shift in guest need for reassurance of cleanliness, we launched globally the IHG Clean Promise, using new science-led protocols and redefined service procedures, in partnership with industry-leading experts.

· Our IHG Way of Clean programme has been enhanced to include new training and equipment, increased guest communication and verification procedures to ensure our standards are adhered to.

· Since the launch of the IHG Clean Promise in May, we have seen an over 30% uplift in the number of positive third-party social review comments on cleanliness from guests.

 

Technology and loyalty developments

· Leveraging our prior investment in the cloud-based Concerto GRS platform which has been implemented across the entire global estate, we have been able to deploy remotely and rapidly further technological developments to support a safe and secure guest experience and reduce unnecessary contact.

· Mobile check-in & check-out has begun to be rolled-out across the entire estate, with over 2,000 hotels configured to date.

· Other mobile-enabled improvements include pilots for in-room dining orders and real-time Pay-With-Points.

· Real-time scorecard metrics, such as analysis of Guest Love measures, RevPAR, financial and operational performance, are now presented live on our Owner Engagement Portals, which will continually evolve to provide our global owner community with specific recommendations for action.

· Optimised our Revenue Management for Hire (RMH) services using machine learning technology, which offers enhanced capabilities to help owners protect pricing and returns during periods of volatile demand.

· IHG Rewards Club participation accounts for around half of guest stays, with enhancements to our loyalty marketing also supporting our most loyal members who showed higher resilience of demand through the second quarter.

· Dynamic pricing for Reward Nights is rolling out globally, with rates now set daily, enabling more than 80% of hotels globally to reduce their points pricing to deliver around 25% more value for guests outside of peak times and leading to increased penetration since launch.

 

 

Delivering system growth and leveraging the scale of our brands

IHG in recent years has focused on optimising our portfolio of brands for owners and guests. Our distinct and preferred brands serve what are typically the highest growth segments in the largest markets. In the current environment, where occupancy is recovering slowly and visibility is low, we anticipate that large global players with strong brands, such as IHG, will be positioned to outperform the rest of the market.

 

Our business is weighted to the Mainstream segment, representing more than 70% of our open rooms. The Upper Midscale segment within Mainstream, which accounts for ~65% of our rooms in the US, has historically recovered faster than other segments in previous economic downturns. Our business is also weighted towards non-urban markets that are less reliant on international inbound travel (~95% of our US business is domestic driven) and less reliant on large group meetings and events. These weightings, and our asset-light model, should provide resilience relative to the wider industry.

 

The large branded operators have also typically gained share during downturns, due to scale efficiencies and the ability to continue investing in their brands, technology and loyalty programmes. This also includes the potential for increased conversion activity, as well as sustaining a level of development activity, reflecting lenders' recognition of the strength and value of our brands and system. In addition, we anticipate that the current environment for travellers, with the increased importance of trust in areas such as booking flexibility and cleanliness standards, should favour the leading brands such as IHG.

 

Whilst Covid-19 has had an understandable impact on development activity in the period and a level of impact may well also continue for some time to come, the longer term trends and IHG's strong positioning in the market have supported continued opening and signing activity through the first half of the year:

 

· With 11,882 rooms (91 hotels) opened across the Group in the period, and a continued focus on a high-quality estate leading to planned removals of 12,081 rooms (76 hotels) including 2.1k relating to a previously flagged portfolio of hotels in Germany, net system size growth was broadly flat over the six-month period, and up 3.2% year-on-year.

· Ground breaks continued in every month in each region, and currently around 40% of our global pipeline is under construction which is a similar proportion to a year earlier.

· Signings during the half totalled 26,236 rooms (181 hotels), with 20-40 hotels signed in each month, leading to a closing pipeline of 287,525 rooms (1,932 hotels).

· Of the openings in the period, ~20% were conversions with the balance being new builds. Of the signings, ~25% are conversions.

 

Mainstream - 5,022 hotels, 639k rooms; ~73% of IHG system

Holiday Inn: grew by 12 to 1,246 hotels, with a record performance for first half hotel signings in Greater China.

Holiday Inn Express: 2,888 hotels, with 44 openings and 74 signings in the half; the strength of our franchise model in China is also leading to an encouraging number of conversion opportunities.

Staybridge Suites & Candlewood Suites: with 12 signings and 18 openings, our extended stay portfolio grew to 726 hotels and saw relative strength and resilience of demand with ~50% occupancy in Q2.

avid hotels: since launch in 2017, there have been 222 signings and 14 openings; there were 15 signings and 7 openings in the first half of this year, including the first avid in Mexico, built in just 10 months. The lower cost to build, lean staffing model and attractive operating economics are expected to increasingly appeal to owners in a more constrained economic environment, and equally to guests who look for the basics done exceptionally well at a fair price.

Atwell Suites: our new all-suites upper midscale brand is also growing at pace with 19 signings to date since first offered in September 2019, seven of which were in the first half.

 

Upscale - 587 hotels, 144k rooms; ~16% of IHG system

Crowne Plaza: four openings in the half, including two properties in Greater China, taking the total estate to 428.

Hotel Indigo: after a record level of signings in 2019, good momentum for the brand has continued, now reaching 121 properties with another 102 in the pipeline to open in the next 3-5 years. Openings included a conversion property in Italy and the brand's first presence in Japan and Cyprus.

voco: has grown to 12 hotels in two years, with the brand's pipeline of a further 28 hotels taking it to 17 countries in EMEAA. We have now signed the first voco hotels in the Greater China and Americas regions. The voco brand remains ideally positioned for conversion opportunities that may increasingly emerge in a post-Covid environment.

HUALUXE: has increased to 11 hotels, with developments in the period including the rebranding to HUALUXE Shanghai Twelve at Hengshan, the opening of the historic HUALUXE Xi'an Tanghua and the signing conversion of Shanghai Changfeng Park.

EVEN: the first EVEN Hotel outside of the Americas opened in Greater China at Nanjing Yangtze River, marking the 15th to market of our wellness-focused offering, with almost 30 in the pipeline globally.

 

Luxury - 309 hotels, 100k rooms; ~11% of IHG system

Six Senses Hotels Resorts Spas: two new signings in Italy and Japan, increasing the global pipeline to 27.

Regent Hotels & Resorts: four signings since acquisition taking the pipeline to five properties. Recent opening and conversion of the Regent Shanghai Pudong completed in just 45 days, showcasing new brand hallmarks that position Regent in the top tier of luxury. Renovation is underway to rebrand the InterContinental Hong Kong back to Regent.

InterContinental Hotels & Resorts: reinforced its position as the largest global luxury hotel brand with eight signings. There are now 210 hotels in 64 countries, and a pipeline of 70 properties. The InterContinental Rome conversion signing marks the return of the brand to Italy, with two other key conversion signings being the prestigious Imperial Mae Ping Hotel in Chiang Mai and one of the most famous hotels in the Pacific, Fiji's Grand Pacific Hotel in Suva.

Kimpton Hotels & Restaurants: increased Kimpton representation by nine, taking the estate to 72, with a global pipeline of 34. The signing of Kimpton Shanghai New Bund is a key step to developing the brand in Greater China. Kimpton Miami Palomar South Beach opened in the period, while other major openings anticipated in the second half of the year include Bangkok and Tokyo.

 

 

 

Continuing our commitments to responsible business

 

 

As part of our long-standing commitment to doing business responsibly, we remain focused on ensuring our business recovers in a way that protects the environment and supports communities. This approach is also shaping our long-term Responsible Business strategy and commitments which we will publish in early 2021. Recent actions include:

· Initiated work to reduce our greenhouse gas emissions in line with our Science Based Target; and to implement the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

· Joined the 'Footprint Responsible Business Recovery Forum', a community of UK operators, brands and suppliers, to lead on responsible recovery through peer learning and collaboration.

· Joined the Council for Sustainable Business COP26 Business Leaders Meeting with our FTSE 100 peers, which encourages the business community to build a more green and resilient economy.

· Signed a joint letter with other business leaders, encouraging the UK government to align its Covid-19 response to the 2030 UN Sustainable Development Goals (SDGs), to drive responsible, sustainable change that tackles future global risks.

· Strengthened our focus on inclusion with the launch of commitments for Black colleagues and communities. Includes doubling the representation of ethnically diverse colleagues in Americas-based corporate leadership roles over next four years; roll-out of mandatory unconscious bias training in the US; developing an inclusion index to track perception of culture and behaviours; and supporting education, employability and empowerment in the community through enhanced partnerships.  

 

 

 

 

Regional performance

 

 

 

Americas

Comparable RevPAR decreased 47.6% (Q2: down 71.2%), driven by occupancy reducing to 41% (Q2: 28%). US RevPAR was down 46.8% for the half, down 69.3% in Q2, with our performance ahead of the industry in the second quarter. The decline in the US second quarter saw the franchised estate, which benefits from a weighting towards domestic demand-driven mainstream hotels, with a lower reliance on large group business and higher distribution in non-urban markets, decline by 66%. This compares to an 86% decline for the US managed estate, which is weighted to luxury and upscale hotels in urban markets. On a segment basis, the RevPAR decline in Q2 was most acute in luxury (down 93%) and upscale (down 83%), whereas the decline in mainstream, which represents 84% of our rooms in the US, declined by 64%.

 

Reported revenue1 of $262m was down 50% against the comparable period (decreased 49% at CER and underlying2) and reported operating profit1 of $153m decreased 56% (down 55% at CER and underlying2).

 

Underlying fee business revenue declined by 46% to $226m, whilst underlying fee business operating profit declined by 49% to $163m. The adverse mix impact from a higher proportion of temporary closures in the US managed estate than in the franchised estate, which also led to $5m lower recognition of incentive management fees, was partially offset by progress made towards reducing fee business costs, as well as the benefit of a $4m litigation settlement at one hotel, and the recognition of a $4m payroll tax credit, with a further ~$7m expected to be recognised in H2 2020.

 

Reported owned, leased and managed lease revenue was down 65% to $36m, with a reported operating loss of $10m compared to $21m profit in the comparable period. The mitigation of renovation-related losses by business interruption insurance at one hotel was more than offset by extended periods of closure and low occupancy across the entire estate, reflecting the greater dependency on international travellers to urban and resort locations.

 

For July, the comparable RevPAR decline in the Americas region is expected to be ~54%, representing an ~8%pt improvement on the 62% decline for June. Occupancy levels in comparable open hotels improved to ~45%. Given further re-opening progress during the month, the number of hotels that remained closed at the end of July reduced to 133, or ~3% of the Americas estate.

 

 

EMEAA

Comparable RevPAR decreased 58.9% (Q2: down 87.6%), driven by occupancy reducing to 34% (Q2: 14%). In the UK, RevPAR was down 59% for the half, with the second quarter decline of 90% particularly impacted by government-mandated hotel closures.

 

Continental Europe RevPAR was down 67%, with the closures and travel restrictions particularly impacting the second quarter, which was down 96%. Elsewhere, the Middle East was down 46% in the first half, with Australia and Japan down 48% and 64% respectively.

 

Reported revenue1 of $134m decreased 60% (down 60% at CER) and the reported operating loss1 was $16m, a reduction of $104m on the comparable period. Results include a previously disclosed $1m (H1 2019: $4m) benefit from an individually significant liquidated damages payment.

 

On an underlying2 basis, revenue decreased 59% to $131m and the operating loss was $20m compared to $81m profit in the comparable period. Underlying fee business revenue was down 63% to $56m, with an operating loss of $4m compared to a $87m profit in the comparable period. The adverse impact from hotel closures and subdued demand across the estate resulted in lower recognition of incentive management fees (down $35m versus the comparable period), which were partially offset by cost reduction measures.

 

Reported owned, leased and managed lease revenue was down 57% to $77m, whilst the operating loss reported in H1 2019 of $5m increased to a loss of $13m. This portfolio consists of 12 properties in the UK and a further six elsewhere in the region, most of which are only expected to gradually reopen through the third quarter, and once open we expect to experience low occupancies and lower than usual non-room revenues. The operating loss for the period includes the significant cost reduction measures undertaken across the estate, together with rent reductions received; there was also the benefit of a $3m gain from the sale of the lease on Holiday Inn Melbourne Airport for proceeds of $2m.

 

For July, the comparable RevPAR decline in the EMEAA region is expected to be ~74%, representing an ~11%pt improvement on the 85% decline for June. Occupancy levels in comparable open hotels improved to over 30%. Given further re-opening progress during the month, the number of hotels that remained closed at the end of July reduced to 180, or ~16% of the EMEAA estate.

 

 

Greater China

Comparable RevPAR decreased 61.7% (Q2: down 59.2%), in-line with the industry in the second quarter, with occupancy in comparable hotels of 27% (Q2: 32%). In Mainland China, RevPAR was down 59%. Tier 1 cities were down 67% (Q2: down 66%), impacted by their weighting toward international and group events and meetings demand. Tier 2-4 cities which are weighted more towards domestic and mainstream demand performed relatively better with a decline of 55% (Q2: down 50%).

 

RevPAR in Hong Kong SAR was down 86% for the half, and down 90% in Q2, impacted by the reliance on inbound travel and the uncertainty posed by the political disputes, whilst Macau SAR RevPAR was down 72% for the half.

 

Reported revenue1 of $18m decreased by 73% (decreased 72% at CER) and the reported operating loss was $5m compared to $36m profit in the comparable period.

 

On an underlying2 basis, revenue decreased by 72% to $18m, with an operating loss of $5m compared to an operating profit of $35m in the comparable period. The adverse impact from the current trading environment, including lower recognition of incentive management fees (down $23m versus the comparable period), were in part offset by cost reductions across the region.

 

For July, the comparable RevPAR decline in the Greater China region is expected to be ~36%, representing a ~13%pt improvement on the 49% decline for June. Occupancy levels in comparable open hotels improved to over 50%. Given further re-opening progress during the month, the number of hotels that remained closed at the end of July reduced to just four, or less than 1% of the Greater China estate.

 

 

 

 

 

Cash generation and capital allocation

 

 

 

Cash flow

IHG has taken actions to preserve cash as part of protecting our financial position, such that:

· Free cash flow3 was an outflow of $66m, down $207m year-on-year, driven by the adverse impact from hotel closures and subdued demand on trading, partially offset by lower levels of working capital outflow. Free cash flow was broadly neutral in Q2.

· Net capital expenditure3 of $39m (H1 2019: $73m) with $ 85 m gross (H1 2019: $101m). This comprised: $58m maintenance capex and key money; $ 2m gross recyclable investments; and $ 25m System Fund capital investments; offset by $18m net disposal proceeds and distributions from associates and joint ventures (up $13m against the comparable period) and $28m System Fund depreciation and amortisation. On track to reduce capex by ~$100m in FY 2020.

· Exceptional cash costs of $30m during the half.

· Net debt of $2,515m, down $150m on the 2019 close, predominantly due to exchange rate movements and the derecognition of lease liabilities from the balance sheet.

 

Liquidity and financing

IHG has taken steps to strengthen liquidity as part of maintaining a conservative balance sheet and leverage approach, including:

· Amended our existing $1.35bn syndicated and bilateral revolving credit facilities (RCF) to include a waiver of existing covenants until 31 December 20216. The interest cover and leverage ratio covenants have been replaced by a $400m minimum liquidity covenant (defined as unrestricted cash and undrawn facilities with a remaining term of 6 months) which was tested at 30 June 2020, and will be tested again at 31 December 2020 and 30 June 2021.

· Extended the maturity of the RCF for 18 months to September 20237.

· Issued £600m (~$740m) of commercial paper under the UK Government's Covid Corporate Financing Facility (CCFF), maturing on 16 March 2021.

These steps, together with our cost actions and cash preservation, have maintained our total available liquidity at 30 June 2020 at $2.0bn, comprising $611m of net cash balances8 and the undrawn RCF of $1,350m. At the end of July, total available liquidity was broadly unchanged at $2.0bn. In the Group's opinion, the available facilities are sufficient for the Group's present liquidity requirements. However, the Group continues to assess its liquidity position, financing options and covenant position, and will take further actions as necessary.

 

IHG has a staggered bond maturity profile, with the first maturity not due for repayment until November 20229.

 

Shareholder returns

On 20 March 2020, IHG's Board withdrew its recommendation of a final dividend in respect of 2019 of 85.9¢ per share, a payment of which would have resulted in a cash outflow of ~$150m in the first half of 2020.

 

An interim dividend in respect of 2020 will not be paid. The Board will continue to defer consideration of further dividends until visibility of the pace and scale of market recovery has improved.

 

 

 

 

Other financial measures

 

 

 

Fee margin

· H1 2020 fee margin10 of 26.1%, a reduction from 54.1% in the comparable period, impacted by the adverse trading conditions which were partially offset by cost reduction measures.

· Net central operating loss of $58m before exceptional items was flat year-on-year (increased $1m CER); a $14m decrease in central revenues, driven by temporary technology fee discounts, was offset by lower central overheads from our previously announced measures to reduce our Fee Business costs.

 

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 over the longer term.

 

In H1 2020 we recorded a System Fund income statement deficit of $52m, largely due to lower assessment fees reflecting the level of reduction in hotel revenues and fee reliefs given, partly offset by actions targeted to lower costs such as through a reduction in marketing spend. System Fund expenses included $22m of expected credit losses, of which $16m are considered to be attributable to Covid-19.

 

Interest

Net financial expenses were $58m. Adjusted3 interest expense of $62m, which adds back interest relating to the System Fund, was $4m lower than in H1 2019 mainly due to lower interest rates in 2020 on interest payable to the System Fund.

 

Tax

Effective rate5for H1 2020 was (127)% (H1 2019: 21%), reflecting the recognition of a tax credit of $19m on one-off items, predominantly in connection with adjustments to deferred taxes following an internal group restructuring, UK law change and prior year items. Excluding these one-off items, the effective tax rate would be 45% due to the distortive impact of unrelieved foreign taxes and other non-tax deductible expenses against the low profit base. When considering H2 expected movements, approximately 45% is our best current estimate for the full year 2020 effective tax rate, although forecasting in this area remains challenging given the uncertainties in the near-term outlook.

 

Exceptional items

Exceptional items predominantly comprise impairment charges, with Covid-19 considered as a trigger for impairment testing for substantially all non-current assets. Cash flow projections used for impairment testing were based on the latest financial forecasts for 2020 and assume that RevPAR recovers to 2019 levels over a five-year period from 2021.

 

Operating exceptionals total a net charge of $255m, driven by the following items:

· impairment of financial assets, comprising trade deposits and loans ($41m) which are now not expected to be recoverable, together with a related impairment of contract assets ($37m), and trade and other receivables ($22m) to reflect the expected increase in credit losses;

· non-cash impairment of other non-current assets, including property, plant and equipment of owned and leased hotels ($85m), the recoverable amounts of acquired management agreements ($47m) and the net impact on our investment in associates ($21m); these impairments reflect forecasts for individual hotels, with no impairments to goodwill or the value of indefinite-life brands;

· a $22m gain arising from the net effect of the derecognition of right-of-use assets ($49m) and lease liabilities ($71m), resulting from a change in accounting estimate in relation to the UK leased portfolio and two German leases whereby the leases will now be accounted for as fully variable, together with an associated provision for onerous contractual expenditure ($10m).

 

In addition, a $21m exceptional fair value gain on contingent purchase consideration has been recognised, arising from a reduction in expected future rents payable on the UK leased portfolio.

 

Foreign exchange

The impact of the movement in average USD exchange rates for H1 2020 against a number of currencies (particularly Sterling, Euro and Renminbi) netted to a $4m negative impact on reported profit4. If the 30 June 2020 spot rate had existed throughout H2 2019, H2 2019 reported profit would have been $3m lower.

 

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

 

 

 

 

 

 

 

 

1 Comprises the Group's fee business and owned, leased and managed lease hotels from reportable segments. This excludes exceptional items, System Fund results and hotel cost reimbursements.

2 Results from reportable segments excluding significant liquidated damages and current year acquisitions and disposals at constant H1 2020 exchange rates (CER). Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the Interim Management Report contains reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

3 Definitions for Non-GAAP measures including free cash flow, net capital expenditure and adjusted interest can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the Interim Management Report contains reconciliations of these measures to the most directly comparable line items within the Group Financial Statements.

4 Based on monthly average exchange rates each year.

5 Excludes exceptional items and System Fund results.

6 The RCF has customary covenants in respect of interest cover and leverage ratio, tested at half year and full year on a trailing twelve-month basis. Three tests of these covenants were waived, with the next test occurring on 31 December 2021. The interest cover covenant requires a ratio of EBITDA to net interest payable above 3.5:1 and the leverage ratio requires Net Debt:EBITDA of below 3.5:1 on a "frozen GAAP" basis pre-IFRS 16.

7 The term of the $1.35bn syndicated and bilateral revolving credit facilities (RCF) has been extended to September 2023. The interest margin payable on borrowings under the facility is linked to IHG's Net Debt:EBITDA ratio. The margin can now vary between LIBOR + 0.90% and LIBOR + 2.75%.

8 Cash and cash equivalents, net of overdrafts and restricted cash.

9 The Group currently has $1,870m of sterling and euro bonds outstanding.  The first bond matures in November 2022 (£400m) and subsequent bonds mature in August 2025 (£300m), August 2026 (£350m) and May 2027(€500m). The Group currently has a senior unsecured long-term credit rating of BBB- from Standard and Poor's. In the event this rating was downgraded below BBB- there would be an additional step up coupon of 125bps payable on the bonds which would result in an additional interest cost of approximately $24m per year.

10 Excludes owned, leased and managed lease hotels, significant liquidated damages and the results of the Group's captive insurance company.

 

     

 

 

 

Appendix 1: RevPAR Movement Summary

 

 

 

Half Year 2020

Q2 2020

Monthly RevPAR

 

RevPAR

Rate

Occ.

RevPAR

Rate

Occ.

April

May

June

 

Group

(51.7)%

(12.1)%

(30.6)%pts

(74.7)%

(27.5)%

(47.0)%pts

(81.9)%

(75.6)%

(67.4)%

 

Americas

(47.6)%

(12.5)%

(27.6)%pts

(71.2)%

(25.9)%

(44.7)%pts

(80.1)%

(72.5)%

(62.0)%

 

EMEAA

(58.9)%

(13.1)%

(37.6)%pts

(87.6)%

(31.8)%

(61.0)%pts

(89.3)%

(88.5)%

(85.3)%

 

G. China

(61.7)%

(17.1)%

(31.3)%pts

(59.2)%

(20.6)%

(30.5)%pts

(71.2)%

(57.1)%

(48.6)%

 

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

 

 

 

Half Year 2020

Q2 2020

 

CER

AER

Difference

CER

AER

Difference

 

Group

(51.7)%

(52.1)%

(0.4)%pts

(74.7)%

(74.9)%

(0.2)%pts

 

Americas

(47.6)%

(47.8)%

(0.2)%pts

(71.2)%

(71.3)%

(0.1)%pts

 

EMEAA

(58.9)%

(59.5)%

(0.6)%pts

(87.6)%

(87.9)%

(0.3)%pts

 

G. China

(61.7)%

(62.8)%

(1.1)%pts

(59.2)%

(60.6)%

(1.3)%pts

 

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

 

System

Pipeline

Openings

Removals

Net

Total

YoY%

Signings

Total

Group

11,882

(12,081)

(199)

883,364

3.2%

26,236

287,525

Americas

4,990

(6,139)

(1,149)

523,498

1.7%

9,148

115,940

EMEAA

2,530

(4,708)

(2,178)

221,192

2.9%

4,372

79,998

G. China

4,362

(1,234)

3,128

138,674

9.9%

12,716

91,587

 

Appendix 4: Half Year financial headlines

 

 

GROUP

REPORTABLE SEGMENTS

 

 

Total

Americas

EMEAA

G. China

Central

 

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

 

Revenue ($m)

 

 

 

 

 

 

 

 

 

 

 

Revenue from reportable segments

488

1,012

262

520

134

338

18

66

74

88

 

System Fund

385

675

-

-

-

-

-

-

-

-

 

Hotel Cost Reimbursements

375

593

-

-

-

-

-

-

-

-

 

Group Revenue

1,248

2,280

262

520

134

338

18

66

74

88

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit ($m)

 

 

 

 

 

 

 

 

 

 

 

Fee Business excluding central overheads

155

452

163

323

(3)

93

(5)

36

-

-

 

Owned, leased & managed lease

(23)

16

(10)

21

(13)

(5)

-

-

-

-

 

Central

(58)

(58)

-

-

-

-

-

-

(58)

(58)

 

Operating (loss)/profit from reportable segments

74

410

153

344

(16)

88

(5)

36

(58)

(58)

 

System Fund result

(52)

47

-

-

-

-

-

-

-

-

 

Operating (loss)/profit before exceptionals

22

457

153

344

(16)

88

(5)

36

(58)

(58)

 

Operating exceptional items

(255)

(15)

(148)

(2)

(99)

(2)

(7)

-

(1)

(11)

 

Operating (loss)/profit after exceptionals

(233)

442

5

342

(115)

86

(12)

36

(59)

(69)

                                               

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)

(82)%

(82)%

(56)%

(55)%

(118)%

(119)%

(114)%

(114)%

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

 

Total***

Americas

EMEAA

G. China

Growth / (decline)

(83)%

(55)%

(125)%

(114)%

 

Exchange rates:

USD:GBP

USD:EUR

* US dollar actual currency

H1 2020

0.79

0.91

** Translated at constant H1 2020 exchange rates

H1 2019

0.77

0.89

*** After central overheads

 

 

 

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

 

 

 

Appendix 7: Definitions

CER: constant exchange rates with H1 2020 exchange rates applied to H1 2019.

Comparable RevPAR: revenue per available room for hotels that have traded for all of 2019 and 2020, reported at CER. Comparable RevPAR includes the adverse impact of hotels temporarily closed as a result of Covid-19.

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, significant liquidated damages, and the results of the Group's captive insurance company.

Guest Satisfaction Index (GSI): is an IHG metric that uses third party aggregated social review data to benchmark IHG guest satisfaction performance against that of our competitors.

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

Significant liquidated damages: $1m in H1 2020 ($1m in EMEAA fee business); $4m in H1 2019 ($4m in EMEAA 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 2019 or 2020, reported at CER.

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


 

For further information, please contact:

Investor Relations (Stuart Ford, 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 (London time) on 11 August 2020 on the web address:

 

https://www.investis-live.com/ihg/5f17013527577e10000ac663/jefs

 

For those wishing to ask questions, please use the dial-in details below which will have a Q&A facility:

 

UK Local:

0203 936 2999

UK:

0800 640 6441

US:

+1 646 664 1960

 

+1 855 9796 654

International dial-in:

+44 20 3936 2999

Passcode:

84 25 69

 

 

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: www.ihgplc.com/en/investors/results-and-presentations .

 

A replay will also be available following the event using the following details:

 

UK:

0203 936 3001

US:

+1 845 709 8569

International dial-in:

+44 (0) 203 936 3001

Passcode:

72 23 89

 

Website:

The full release and supplementary data will be available on our website from 7:00am (London time) on 11 August. The web address is www.ihgplc.com/en/investors/results-and-presentations.

 

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 ® Hotels & Resorts , Holiday Inn Express ® , Holiday Inn Club Vacations ® , avid™ hotels , Staybridge Suites ® , Atwell Suites™ , and Candlewood Suites ® .

 

IHG franchises, leases, manages or owns more than 5,900 hotels and approximately 883,000 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. Approximately 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: https://www.ihgplc.com/en/news-and-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 provides a commentary on the performance of InterContinental Hotels Group PLC

(the Group or IHG) for the six months ended 30 June 2020.

 

Group Performance

 

  6 months ended 30 June

Group results

 

 

 

 

2020

2019

%

 

$m

$m

change

Revenue a

 

 

 

Americas

262

520

(49.6)

EMEAA

134

  338

(60.4)

Greater China

18

66

(72.7)

Central

74

88

(15.9)

 

____

____

____

Revenue from reportable segments

488

1,012

(51.8)

 

 

 

 

System Fund revenues

385

675

(43.0)

Reimbursement of costs

375

593

(36.8)

 

____

____

____

Total revenue

1,248

2,280

(45.3)

 

____

____

____

Operating profit a

 

 

 

Americas

153

344

(55.5)

EMEAA

(16)

88

(118.2)

Greater China

(5)

36

(113.9)

Central

(58)

(58)

-

 

____

____

____

Operating profit from reportable segments

74

410

(82.0)

System Fund result

(52)

47

(210.6)

 

____

____

____

Operating profit before exceptional items

22

457

(95.2)

Operating exceptional items

(255)

(15)

1,600.0

 

____

____

____

Operating (loss)/profit

(233)

442

(152.7)

Net financial expenses

(58)

(57)

1.8

Fair value gains/(losses) on contingent purchase consideration

16

(10)

(260.0)

 

____

____

____

(Loss)/profit before tax

(275)

375

(173.3)

 

____

____

____

(Loss)/earnings per ordinary share

 

 

 

 

Basic

(115.4)¢

167.2¢

(169.0)

 

Adjustedb

14.3¢

148.6¢

(90.4)

 

 

 

 

 

Average US dollar to sterling exchange rate

$1: £0.79

$1: £0.77

 

 

 

 

 

Group results

Covid-19 significantly impacted IHG's financial performance in the first half of 2020, resulting in significant RevPAR declines in China from February, followed by large declines across EMEAA and then the Americas from March, as governments across the globe imposed significant and wide-reaching restrictions on mobility between and within countries. The peak impact was witnessed in the month of April as 'lockdowns' or 'shelter-in-place' orders were in place throughout much of the US and Europe, across which 79% of IHG's hotels are located, resulting in closure of ~15% of the global estate by the end of April. Performance steadily improved through the second quarter, driven by increases in domestic travel demand in countries that have lifted restrictions, including the US, where our performance has been ahead of the industry through the initial stages of the recovery.

At the end of June, the number of hotels remaining temporarily closed had reduced to ~10% of our global estate. Overall, Group comparable RevPARc declined 25% in the first quarter, 75% in the second quarter, and 52 % in the first half, all compared to the prior year.

During the six months ended 30 June 2020, total revenue decreased by $1,032m (45.3%) to $1,248m, whilst revenue from reportable segmentsa decreased by $524m (51.8%) to $488m, due to the impacts of Covid-19 on both fee revenue and revenues from owned, leased and managed lease hotels, only partially offset by growth in IHG's System size which increased year-on-year by 3.2%.

Operating profit decreased by $675m (152.7%) to a loss of $(233)m and profit before tax decreased by $650m (173.3%) to a loss of $(275)m, driven predominantly by materially lower fee revenues, as well as losses in the owned, leased and managed lease estate, coupled with a $99m movement in System Fund contribution to a $(52)m deficit and a $240m net increase in operating exceptional charges. These reductions in revenue and increase in charges were partially offset by rapid and decisive action by management to mitigate against the scale and speed of trading disruption through limiting discretionary spend, reducing salaries and incentives, and other targeted cost reductions. The $255m operating exceptional charge was driven principally by $195m of non-cash impairment charges including $47m in relation to acquired management agreements and $85m recognised in relation to property, plant and equipment of owned and leased hotel assets. Additionally, a $63m impairment was recognised in relation to trade deposits and receivables, see Other Financial Information for further detail.

Operating profit from reportable segmentsa decreased by $336m (82.0%) to $74m.

Underlying d revenue and underlying d operating profit decreased by $505m (51.0%) and $331m (82.5%), respectively.

Basic earnings per ordinary share decreased by 169.0% to a loss per ordinary share of (115.4)¢, whilst adjusted earnings per ordinary shareb decreased by 90.4% to 14.3¢.

In the six months ended 30 June 2020, IHG opened 11,882 rooms (91 hotels) and a continued focus on a high-quality estate led to planned removals of 12,081 rooms (76 hotels), including 2.1k relating to a previously flagged portfolio of hotels in Germany, resulting in a closing global estate of 883,364 rooms (5,918 hotels).

In the six months ended 30 June 2020, IHG signed 26,236 rooms (181 hotels), leading to a closing pipeline of 287,525 rooms (1,932 hotels).

 

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

  operating profit before exceptional items from fee business.

b Adjusted earnings per ordinary share for 2019 has been restated for consistency with the 2019 Annual Report and Form 20-F to exclude the change in fair value of contingent purchase consideration.

c Comparable RevPAR includes the adverse impact of hotels temporarily closed as a result of Covid-19.

d Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the

  Interim Management Report contains reconciliations of these measures to the most directly comparable line items with the Group Financial Statements.

 

 

 

  Hotels

 

  Rooms

 

Global hotel and room count

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  15

  (3)

 

  1,083

  (365)

Regent

  7

  1

 

  2,190

  187

 

InterContinental

  210

  (2)

 

  70,812

  (169)

 

Kimpton

  72

  6

 

  13,303

  257

 

HUALUXE

  11

  2

 

  3,263

  553

 

Crowne Plaza

  428

  (3)

 

  119,672

  (910)

Hotel Indigo 

  121

  3

 

  14,781

  207

 

EVEN Hotels

  15

  2

 

  2,208

  259

 

voco

  12

  - 

 

  4,293

  - 

 

Holiday Inn1

  1,274

  (10)

 

  237,361

  (2,533)

 

Holiday Inn Express

  2,888

  13

 

  300,846

  1,612

avid hotels

  14

  7

 

  1,259

  624

 

Staybridge Suites

  311

  11

 

  33,992

  1,359

 

Candlewood Suites

  415

  5

 

  38,710

  378

 

Other

  125

  (17)

 

  39,591

  (1,658)

 

 

 ____

 ____

 

 ______

 _____

Total

  5,918

  15

 

  883,364

  (199)

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  4,887

  17

 

  614,478

  (496)

 

Managed

  1,006

  (1)

 

  262,762

  509

 

Owned, leased and managed lease

  25

  (1) 

 

  6,124

  (212)

 

 

 ____

 ____

 

 ______

 _____

Total

  5,918

  15

 

  883,364

  (199)

 

 

 ____

 ____

 

 ______

 _____

 

1 Includes 47 Holiday Inn Resort properties (11,721 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms). (2019: 46 Holiday Inn Resort properties (11,502 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms)).

 

 

 

 

 

  Hotels

 

  Rooms

 

Global Pipeline

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  27

  2

 

  1,922

  152

Regent

  5

  - 

 

  1,141

  197

 

InterContinental

  70

  5

 

  18,425

  1,407

 

Kimpton

  34

  1

 

  6,839

  636

 

HUALUXE

  23

  1

 

  6,487

  307

 

Crowne Plaza

  91

  3

 

  25,091

  585

Hotel Indigo

  102

  1

 

  15,449

  301

 

EVEN Hotels

  29

  3

 

  4,681

  339

 

voco1

  21

  4

 

  6,752

  532

 

Holiday Inn2

  278

  3

 

  53,758

  849

 

Holiday Inn Express

  755

  1

 

  95,941

  67

avid hotels

  208

  1

 

  19,097

  29

 

Staybridge Suites

  168

  (14)

 

  19,050

  (1,684)

 

Candlewood Suites

  83

  (8)

 

  7,471

  (715)

 

Atwell Suites

  17

  7

 

  1,667

  667

 

Other

  21

  4

 

  3,754

  813

 

 

 ____

 ____

 

 ______

 _____

Total

  1,932

  14

 

  287,525

  4,482

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  1,420

  9

 

  169,874

  3,233

 

Managed

  511

  5

 

  117,496

  1,249

Owned, leased and managed lease

  1

  - 

 

  155

  - 

 

 

 ____

 ____

 

 ______

 _____

Total

  1,932

  14

 

  287,525

  4,482

 

 

 ____

 ____

 

 ______

 _____

 

1 Does not include three open and one pipeline hotel that will be re-branded to voco.

2 Includes 29 Holiday Inn Resort properties (6,273 rooms) and 1 Holiday Inn Club Vacations properties (105 rooms). (2019: 29 Holiday Inn Resort properties (6,335 rooms) and 1 Holiday Inn Club Vacations properties (110 rooms)).

 

 

 

 

 

AMERICAS

 

 

 

  6 months ended 30 June

Americas Results

 

 

 

 

2020

2019

%

 

$m

$m

change

Revenue from the reportable segmenta

 

 

 

 

Fee business

226

418

(45.9)

 

Owned, leased and managed lease

36

102

(64.7)

 

____

____

____

Total

 

262

520

(49.6)

 

____

____

____

Operating profit from the reportable segmenta

 

 

 

 

Fee business

163

323

(49.5)

 

Owned, leased and managed lease

(10)

21

(147.6)

 

____

____

____

 

 

153

344

(55.5)

Operating exceptional items

 

(148)

(2)

7300.0

 

____

____

____

Operating profit

5

342

(98.5)

 

____

____

____

 

 

 

 

           

 

 

 

Americas Comparable RevPARb movement on previous year

6 months ended

30 June 2020

Fee business

 

 

 

InterContinental

 

(60)%

 

Kimpton

 

(63)%

 

Crowne Plaza

 

(56)%

 

Hotel Indigo

 

(56)%

 

EVEN Hotels

 

(62)%

 

Holiday Inn

 

(51)%

 

Holiday Inn Express

 

(44)%

 

Staybridge Suites

 

(38)%

 

Candlewood Suites

 

(28)%

 

All brands

 

(48)%

 

 

 

 

Owned, leased and managed lease

 

 

 

EVEN Hotels

 

(55)%

 

Holiday Inn

 

(51)%

 

All brands

 

(52)%

 

Americas results

 

Following solid trading in the first two months of 2020, Covid-19 rapidly impacted the Americas region from March leading to sharp declines in RevPAR across the region. Occupancy levels dropped to historic lows in April, as social distancing measures and travel restrictions came into effect across the region, with ~10% of hotels closed by the end of April. In the US where 66% of the Group's hotels are located, occupancyb was ~20% at the lowest point with ~10% of hotels temporarily closed.

 

By the end of June, the majority of hotels had reopened with just ~3% of US hotels closed. The recovery has been led by the US franchised estate, which benefits from a weighting towards domestic demand-driven mainstream hotels, with a lower reliance on large group business and higher distribution in non-urban markets. Comparable RevPARb in the Americas declined 48% in the first half of 2020, declining 19% in the first quarter and 71% in the second quarter. In the US the RevPAR decline has reduced steadily through the second quarter and by June occupancyb was ~42%.

 

Revenue from the reportable segmenta decreased by $258m (49.6%) to $262m, due to the impacts of Covid-19, only very partially offset by 1.7% net rooms growth. Operating profit decreased by $337m (98.5%) to $5m, driven by the reduction in revenue and a $146m net increase in operating exceptional charges, partially offset by cost savings introduced through the second quarter. Operating profit from the reportable segmenta   decreased by $191m (55.5%) to $153m. On an underlyingc basis, revenue decreased by $256m (49.4%), whilst underlyingc operating profit decreased by $189m (55.3%).

 

 

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

Fee business revenuec decreased by $192m (45.9%) to $226m, driven by the significant impact of Covid-19 from March onwards on RevPAR and consequently fee revenues, and was also partly impacted by adverse foreign exchanged ($2m), whilst fee business operating profit decreased by $160m (49.5%) to $163m, also partly impacted by adverse foreign exchanged ($2m). Planned cost savings commenced in the second quarter which partially offset the decline in fee income. Fee business operating profit also benefited from a $4m litigation settlement relating to one hotel, and the recognition of a $4m payroll tax credit.

 

Owned, leased and managed lease revenuec decreased by $66m (64.7%) to $36m, as the majority of hotels were closed during much of the second quarter, whilst owned, leased and managed lease operating profitc decreased by $31m (147.6%) to a loss of $(10)m, driven by the impact of lower occupancy and closures, partially offset by the implementation of cost savings and the benefit of $4m business interruption insurance at one hotel. There was no material impact of foreign exchanged on either revenue or operating profit.

 

a Americas reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenues and expenses and reimbursement of costs, for both fee business and

  owned, leased and managed lease hotels.

b Comparable RevPAR and occupancy include the adverse impact of hotels temporarily closed as a result of Covid-19.

c Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the

  Interim Management Report contains reconciliations of these measures to the most directly comparable line items with the Group Financial Statements.

d The impact of movements between the previous year's actual exchange rates and average rates in 2020.

 

 

  Hotels

 

  Rooms

 

Americas hotel and room count

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

InterContinental

  50

  (1)

 

  17,769

  (127)

 

Kimpton

  65

  4

 

  11,858

  (139)

 

Crowne Plaza

  147

  (2)

 

  39,350

  (525)

Hotel Indigo

  64

  - 

 

  8,274

  7

 

EVEN Hotels

  14

  1

 

  2,036

  87

 

Holiday Inn1

  774

  (9)

 

  133,458

  (1,828)

 

Holiday Inn Express

  2,379

  11

 

  216,154

  1,161

avid hotels

  14

  7

 

  1,259

  624

 

Staybridge Suites

  294

  11

 

  31,416

  1,172

 

Candlewood Suites

  415

  5

 

  38,710

  378

 

Other

  101

  (17)

 

  23,214

  (1,959)

 

 

 ____

 ____

 

 ______

 _____

Total

  4,317

  10

 

  523,498

  (1,149)

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  4,025

  17

 

  465,249

  (16)

 

Managed

  285

  (7)

 

  56,032

  (1,128)

Owned, leased and managed lease

  7

  - 

 

  2,217

  (5)

 

 

 ____

 ____

 

 ______

 _____

Total

  4,317

  10

 

  523,498

  (1,149)

 

 

 ____

 ____

 

 ______

 _____

 

1 Includes 22 Holiday Inn Resort properties (6,003 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms). (2019: 22 Holiday Inn Resort properties (6,003 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms)).

 

 

 

 

 

 

  Hotels

 

  Rooms

 

Americas Pipeline

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  5

  - 

 

  422

  - 

 

InterContinental

  8

  1

 

  1,895

  346

 

Kimpton

  21

  - 

 

  3,593

  134

 

Crowne Plaza

  6

  1

 

  1,250

  157

Hotel Indigo 

  36

  (1)

 

  4,923

  (249)

 

EVEN Hotels

  17

  2

 

  2,096

  230

 

voco

  1

  1

 

  50

  50

 

Holiday Inn1

  97

  (1)

 

  12,585

  79

 

Holiday Inn Express

  441

  (7)

 

  42,615

  (488)

avid hotels

  207

  1

 

  18,882

  29

 

Staybridge Suites

  149

  (13)

 

  15,512

  (1,362)

 

Candlewood Suites

  83

  (8)

 

  7,471

  (715)

 

Atwell Suites

  17

  7

 

  1,667

  667

 

Other

  18

  2

 

  2,979

  200

 

 

 ____

 ____

 

 ______

 _____

Total

  1,106

  (15)

 

  115,940

  (922)

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  1,061

  (16)

 

  108,799

  (1,187)

 

Managed

  45

  1

 

  7,141

  265

 

 

 ____

 ____

 

______

 _____

Total

  1,106

  (15)

 

  115,940

  (922)

 

 

 ____

 ____

 

 ______

 _____

 

 

1 Includes three Holiday Inn Resort properties (490 rooms) and one Holiday Inn Club Vacations property (105 rooms). (2019: three Holiday Inn Resort properties (490 rooms) and one Holiday Inn Club Vacations property (110 rooms)).

 

 

 

 

 

EMEAA

 

 

 

  6 months ended 30 June

EMEAA results

 

 

 

 

2020

2019

%

 

$m

$m

change

Revenue from the reportable segmenta

 

 

 

 

Fee business

57

158

(63.9)

 

Owned, leased and managed lease

77

180

(57.2)

 

____

____

____

Total

 

134

338

(60.4)

 

____

____

____

Operating (loss)/profit from the reportable segmenta

 

 

 

 

Fee business

(3)

93

(103.2)

 

Owned, leased and managed lease

(13)

(5)

160.0

 

____

____

____

 

 

(16)

88

(118.2)

Operating exceptional items

 

(99)

(2)

4,850.0

 

 

____

____

____

Operating (loss)/profit

(115)

86

(233.7)

 

____

____

____

           

 

 

 

 

 

 

EMEAA comparable RevPARb movement on previous year

6 months ended

30 June 2020

Fee business

 

 

InterContinental

 

(59)%

 

Crowne Plaza

 

(59)%

 

Hotel Indigo

 

(65)%

 

Holiday Inn

 

(58)%

 

Holiday Inn Express

 

(60)%

 

Staybridge Suites

 

(46)%

 

All brands

 

(59)%

 

 

 

 

Owned, leased and managed leases

 

 

 

InterContinental

 

(59)%

 

All brands

(64)%

 

 

EMEAA results

 

Covid-19 impacted EMEAA from the second half of February onwards as government mandated international and domestic travel restrictions progressed across the region, culminating in ~50% of IHG's hotels in the region being closed by April, with occupancyb dropping to ~11% in the month. Comparable RevPARb declined 26% in the first quarter, 88% in the second quarter, and 59% overall in the first half. By the end of June ~70% of hotels were open, with returning business driven largely by domestic travel.

 

Revenue from the reportable segmenta decreased by $204m (60.4%) to $134m as Covid-19 resulted in a significant reduction in fees as well as temporary closure of many owned, leased and managed lease hotels, only partially offset by 2.9% net rooms growth. Operating profit decreased by $201m (233.7%) to an operating loss of $115m, driven by the reduction in revenue and a $97m net increase in operating exceptional charges, partially offset by planned cost savings introduced through the second quarter. Operating profit from the reportable segmenta decreased by $104m (118.2%) to a loss of $(16)m. On an underlyingc basis, revenue decreased by $190m (59.2%) and underlyingc operating profit decreased by $101m (124.7%).

 

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

Fee business revenuec decreased by $101m (63.9%) to $57m, driven by the significant impact of Covid-19 on RevPAR and consequently fee revenues, and was also partly impacted by adverse foreign exchanged ($3m). Fee business operating profitc decreased by $96m (103.2%) to a loss of $(3)m, driven by lower fee revenue including incentive management fees, partially offset by cost savings commencing in the second quarter, and partly impacted by adverse foreign exchanged ($2m).

 

Owned, leased and managed lease revenuec decreased by $103m (57.2%) to $77m, as occupancy dropped rapidly through March and the majority of hotels were closed during the second quarter, including all of the UK managed lease estate. Foreign exchanged also had an adverse impact on revenues ($4m). Owned, leased and managed lease operating lossc increased by $8m (160.0%) to a loss of $(13)m, (foreign exchanged impact $nil), driven by the impact of lower occupancy and closures, partially offset by the implementation of cost reduction measures undertaken across the estate, together with rent reductions received; there was also the benefit of a $3m gain from the sale of the Holiday Inn Melbourne Airport.

 

a EMEAA reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenues and expenses and reimbursement of costs, for both fee business and

  owned, leased and managed lease hotels.

b Comparable RevPAR and occupancy include the adverse impact of hotels temporarily closed as a result of Covid-19.

c Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the

  Interim Management Report contains reconciliations of these measures to the most directly comparable line items with the Group Financial Statements.

d The impact of movements between the previous year's actual exchange rates and average rates in 2020.

 

 

  Hotels

 

  Rooms

 

EMEAA hotel and room count

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  14

  (3)

 

  961

  (365)

Regent

  3

  - 

 

  771

  - 

 

InterContinental

  111

  (2)

 

  33,030

  (485)

 

Kimpton

  6

  2

 

  1,316

  396

 

Crowne Plaza

  184

  (2)

 

  45,851

  (560)

Hotel Indigo 

  44

  3

 

  4,639

  200

 

voco

  12

  - 

 

  4,293

  - 

 

Holiday Inn1

  393

  (1)

 

  73,552

  120

 

Holiday Inn Express

  315

  (9)

 

  45,053

  (1,401)

 

Staybridge Suites

  17

  - 

 

  2,576

  187

 

Other

  14

  (1)

 

  9,150

  (270)

 

 

 ____

 ____

 

 ______

 _____

Total

  1,113

  (13)

 

  221,192

  (2,178)

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  762

  (11)

 

  124,258

  (2,197)

 

Managed

  333

  (1)

 

  93,027

  226

Owned, leased and managed lease

  18

  (1) 

 

  3,907

  (207)

 

 

 ____

 ____

 

 ______

 _____

Total

  1,113

  (13)

 

  221,192

  (2,178)

 

 

 ____

 ____

 

 ______

 _____

 

1 Includes 17 Holiday Inn Resort properties (3,604 rooms) . (2019: 17 Holiday Inn Resort properties (3,604 rooms)).

 

 

 

 

 

  Hotels

 

  Rooms

 

EMEAA Pipeline

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  19

  2

 

  1,331

  152

Regent

  4

  - 

 

  861

  197

 

InterContinental

  33

  2

 

  8,166

  659

 

Kimpton

  7

  - 

 

  1,592

  345

 

Crowne Plaza

  34

  (1)

 

  9,102

  (313)

Hotel Indigo

  38

  (2)

 

  5,596

  (56)

 

voco1

  18

  1

 

  6,257

  37

 

Holiday Inn2

  114

  (5)

 

  24,929

  (1,007)

 

Holiday Inn Express

  105

  (7)

 

  17,636

  (1,413)

avid hotels

  1

  - 

 

  215

  - 

 

Staybridge Suites

  19

  (1)

 

  3,538

  (322)

 

Other

  3

  2

 

  775

  613

 

 

 ____

 ____

 

 ______

 _____

Total

  395

  (9)

 

  79,998

  (1,108)

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  159

  (6)

 

  26,624

  (707)

 

Managed

  235

  (3)

 

  53,219

  (401)

Owned, leased and managed lease

  1

  - 

 

  155

  - 

 

 

 ____

 ____

 

 ______

 ____

Total

  395

  (9)

 

  79,998

  (1,108)

 

 

 ____

 ____

 

 ______

 _____

 

 

1 Does not include three open and one pipeline hotel that will be re-branded to voco.

2 Includes 16 Holiday Inn Resort properties (3,218 rooms). (2019: 18 Holiday Inn Resort properties (3,662 rooms)).

 

 

GREATER CHINA

 

 

  6 months ended 30 June

 

 

 

 

Greater China results

2020

2019

%

 

$m

$m

Change

 

 

 

 

Revenue from the reportable segmenta

 

 

 

 

Fee business

18

66

(72.7)

 

 

____

____

____

Total

 

18

66

(72.7)

 

____

____

____

Operating (loss)/profit from the reportable segmenta

 

 

 

 

Fee business

(5)

36

(113.9)

 

____

____

____

 

 

(5)

36

(113.9)

Operating exceptional items

 

(7)

-

-

 

 

____

____

____

Operating (loss)/profit

 

(12)

36

(133.3)

 

 

  ____

  ____

____

           

 

 

 

 

 

 

 

Greater China comparable RevPARb movement on previous year

6 months ended

30 June 2020

Fee business

 

 

 

InterContinental

 

(61)%

 

HUALUXE

 

(45)%

 

Crowne Plaza

 

(61)%

 

Hotel Indigo

 

(65)%

 

Holiday Inn

 

(65)%

 

Holiday Inn Express

 

(60)%

 

All brands

 

(62)%

 

Greater China results

 

Covid-19 impacted Greater China earliest as government measures were introduced rapidly from the end of January to contain the spread of the virus. At the lockdown period trough, 40% of the region's hotels were temporarily closed whilst occupancyb dropped to single digits. Comparable RevPARb declined by 89% in February at the lowest point, 64% in the first quarter, 59% in the second quarter and by 62% over the first half of 2020 as travel restrictions slowly began to ease. June comparable RevPARb declined by 49%, and by the end of June only 1% of hotels remained closed, with demand recovery being driven predominantly by domestic business. Hong Kong SAR continued to be impacted by uncertainty posed by political disputes, as well as by Covid-19.

 

Revenue from the reportable segmenta decreased by $48m (72.7%) to $18m, driven by the impact of Covid-19 on fee revenues, partially offset by 9.9% net rooms growth. Operating profit decreased by $48m (133.3%) to an operating loss of $(12)m as revenue reductions, including lower incentive management fees, and a $7m net increase in operating exceptional charges were partially offset by planned cost savings. Operating profit from the reportable segmenta decreased by $41m (113.9%) to a loss of $(5)m. Underlyingc revenue decreased by $46m (71.9%) and underlyingc operating profit decreased by $40m (114.3%) to a loss of $(5)m.

 

 

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 Comparable RevPAR and occupancy include the adverse impact of hotels temporarily closed as a result of Covid-19.

c Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the

  Interim Management Report contains reconciliations of these measures to the most directly comparable line items with the Group Financial Statements.

 

 

 

 

 

  Hotels

 

  Rooms

 

Greater China hotel and room count

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  1

  - 

 

  122

  - 

Regent

  4

  1

 

  1,419

  187

 

InterContinental

  49

  1

 

  20,013

  443

 

Kimpton

  1

  - 

 

  129

  - 

 

HUALUXE

  11

  2

 

  3,263

  553

 

Crowne Plaza

  97

  1

 

  34,471

  175

Hotel Indigo 

  13

  - 

 

  1,868

  - 

 

EVEN Hotels

  1

  1

 

  172

  172

 

Holiday Inn1

  107

  - 

 

  30,351

  (825)

 

Holiday Inn Express

  194

  11

 

  39,639

  1,852

 

Other

  10

  1

 

  7,227

  571

 

 

 ____

 ____

 

 ______

 _____

Total

  488

  18

 

  138,674

  3,128

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  100

  11

 

  24,971

  1,717

 

Managed

  388

  7

 

  113,703

  1,411

 

 

 ____

 ____

 

 ______

 _____

Total

  488

  18

 

  138,674

  3,128

 

 

 ____

 ____

 

 ______

 _____

 

1 Includes eight Holiday Inn Resort properties (2,114 rooms )).  (2019: seven Holiday Inn Resort properties (1,895 rooms)).

 

 

  Hotels

 

  Rooms

 

Greater China Pipeline

 

Change over

 

 

Change over

 

2020

2019

 

2020

2019

 

  30 June

31 December

 

30 June

31 December

Analysed by brand

 

 

 

 

 

 

Six Senses

  3

  - 

 

  169

  - 

Regent

  1

  - 

 

  280

  - 

 

InterContinental

  29

  2

 

  8,364

  402

 

Kimpton

  6

  1

 

  1,654

  157

 

HUALUXE

  23

  1

 

  6,487

  307

 

Crowne Plaza

  51

  3

 

  14,739

  741

Hotel Indigo 

  28

  4

 

  4,930

  606

 

EVEN Hotels

  12

  1

 

  2,585

  109

 

voco

  2

  2

 

  445

  445

 

Holiday Inn1

  67

  9

 

  16,244

  1,777

 

Holiday Inn Express

  209

  15

 

  35,690

  1,968

 

 

 ____

 ____

 

 ______

 _____

Total

  431

  38

 

  91,587

  6,512

 

 

 ____

 ____

 

 ______

 _____

Analysed by ownership type

 

 

 

 

 

 

Franchised

  200

  31

 

  34,451

  5,127

 

Managed

  231

  7

 

  57,136

  1,385

 

 

 ____

 ____

 

 ______

 _____

Total

  431

  38

 

  91,587

  6,512

 

 

 ____

 ____

 

 ______

 _____

 

1 Includes 10 Holiday Inn Resort properties (2,565 rooms) . (2019: eight Holiday Inn Resort properties (2,183 rooms)).

 

 

 

Central

 

6 months ended 30 June

 

 

 

 

 

 

2020

2019

%

Central results

$m

$m

change

 

 

 

 

Revenue

74

88

(15.9)

Gross costs

(132)

(146)

(9.6)

 

____

____

____

 

 

(58)

(58)

-

Operating exceptional items

 

(1)

(11)

(90.9)

 

____

____

____

Operating loss

(59)

(69)

(14.5)

 

____

____

____

 

Central results

The net operating loss decreased by $10m (14.5%), driven by a $10m (90.9%) net decrease in operating exceptional charges. Central revenue, which mainly comprises technology fee income, decreased by $14m (15.9%) to $74m, driven by the impacts of Covid-19 and temporary fee discounts on technology fees, along with adverse impacts on other revenues such as training fees, due to social distancing measures impacting normal levels of activity. Revenue was also partly impacted by adverse foreign exchangea ($1m).

 

Gross costs decreased by $14m (9.6%), driven by planned cost savings introduced through the second quarter. Gross costs also partly benefited from the impact of foreign exchangea ($2m).

 

The net operating loss before exceptional items remained flat at $58m, partly benefiting from the impact of foreign exchangea ($1m).

 

a The impact of movements between the previous year's actual exchange rates and average rates in 2020.

 

 

 

OTHER FINANCIAL INFORMATION

 

System Fund

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, IHG Rewards Club. 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 over the longer term, 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.

 

In the six months ended 30 June 2020, System Fund revenue decreased by $290m (43.0%) to $385m, largely due to lower assessment fees reflecting the level of reduction in hotel revenues resulting from Covid-19, as well as fee reliefs given, and lower loyalty revenue due to lower redemption activity. A System Fund income statement deficit of $52m was recorded over the same period, resulting from lower revenues, partly offset by actions targeted to lower costs including a reduction in marketing spend. System Fund expenses included $22m of expected credit losses on trade and other receivables, of which $16m are considered to be attributable to Covid-19.

 

Reimbursement of costs

In the six months ended 30 June 2020, reimbursable revenue decreased by $218m (36.8%) to $375m. The reduction reflects the significant impact from Covid-19 on our hotels including hotel closures and staff furloughs, meaning the overall scale of reimbursements fell.

 

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 are treated as exceptional by reason of their size, nature or incidence and are excluded from the calculation of adjusted earnings per ordinary share as well as other Non-GAAP measures (see Use of Non-GAAP measures) in order to provide a more meaningful comparison of performance and can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and restructuring costs.

 

Pre-tax exceptional items totalled a net charge of $234m (2019: $15m charge) and includes:

 

-  $22m net gain relating to derecognition of lease assets and liabilities;

-  $10m provision for onerous contractual expenditure relating to the UK portfolio;

-  $4m reorganisation costs (2019: $10m);

-  $3m acquisition and integration costs primarily due to the Six Senses acquisition (2019: $5m);

-  $2m provision for guarantees of third-party debt;

-  $63m impairment of financial assets;

-  $195m impairment charges of non-current assets; and

-  $21m fair value gain on contingent purchase consideration relating to the UK portfolio.

 

Derecognition of lease assets and liabilities

Relates to the UK portfolio lease and two German hotel leases.  The estimate of the fixed element of the leases has been reassessed as there is no floor to the rent reductions applicable under these leases, and the circumstances in which no rent would be payable are no longer considered to be remote.  The lease liabilities and right-of-use assets associated with these leases have therefore been derecognised, as they are now considered to be fully variable.

 

Provision for onerous contractual expenditure

Under the terms of the UK portfolio leases, the Group is committed to certain items of contractual expenditure.  A provision has been recognised to the extent the costs of the remaining contractual expenditure exceed the future economic benefits expected to be received under the leases.

 

Reorganisation costs

In 2020, relates to reorganisation costs in respect of the UK portfolio.  In 2019, the $10m charge related to a comprehensive efficiency programme to fund a series of new strategic initiatives to drive an acceleration in IHG's future growth. The programme was completed in 2019 and no further restructuring costs related to this programme were incurred in 2020.  An additional $13m was charged to the System Fund in 2019.

 

Impairment

Impairment of financial assets comprises $22m in relation to trade and other receivables and $41m in relation to trade deposits and loans. 

 

Impairment of trade deposits and loans primarily relates to a deposit of $66m made to a hotel owner in connection with a portfolio of management agreements.  The deposit, which was held at a discounted value of $33m, is no longer expected to be recoverable and was impaired in full.  The difference between the deposit value and discounted value ($33m) is recorded as a contract asset which was also fully impaired.

 

Other impairment charges of $195m include $85m relating to property, plant and equipment (of which $50m relates to the UK portfolio and $35m to owned properties in the Americas region), $47m relating to management agreements, $37m relating to contract assets (including $33m relating to the portfolio deposit - see above), $21m relating to investments in associates (net of a $13m fair value gain on a put option relating to the Barclay associate) and $5m relating to right-of-use assets.

 

The impact of the impairment arising on the UK portfolio is partially offset by the fair value gain of $21m on contingent purchase consideration.  See note 9 to the financial statements for a summary of exceptional items relating to the UK portfolio.

 

 

Net financial expenses

Net financial expenses increased by $1m to $58m and adjusted interest (see Use of Non-GAAP measures) decreased by $4m to $62m. The decrease in adjusted interest is primarily due to the impact of lower interest rates in 2020 on interest payable to the System Fund.

 

Financial expenses included $31m (2019: $32m) of interest costs on the public bonds, which are fixed rate debt. Interest expense on lease liabilities was $19m (2019: $20m).

 

Fair value gains / losses on contingent purchase consideration

Contingent purchase consideration arose on the acquisitions of Regent, the UK portfolio and Six Senses. The net gain of $16m (2019: loss of $10m) comprises an exceptional gain of $21m in respect of the UK portfolio (see Impairment above), offset by a loss of $5m in respect of Regent driven by a reduction in US corporate bond rates. The total contingent purchase consideration liability at 30 June 2020 is $76m.

 

Taxation

The interim effective rate of tax, excluding the impact of exceptional items and System Fund, has been calculated at -127%. Within H1, the Group recognised a tax credit of $19m on one-off items, predominantly in connection with adjustments to deferred taxes following an internal group restructuring, UK law change and prior year items.  Excluding these one-off items, the effective tax rate would be 45%. This adjusted rate is higher than the UK statutory corporation tax rate of 19% due to higher taxed overseas profits (particularly in the US) and a distortive impact of unrelieved foreign taxes and other non-tax deductible expenses due to the low profit base.

 

Taxation within exceptional items totalled a credit of $51m representing deferred tax impacts on the accounting exceptional items.

 

Net tax paid in the six months ended 30 June 2020 totalled $3m, consisting of payments of $27m and refunds in respect of prior year periods of $24m.  As a result of the Covid-19 pandemic, many jurisdictions have enacted temporary legislation that has deferred the due date of corporate income taxes.  Absent this legislation, additional taxes of $10m would have been due for payment in H1, all of which are now due in H2 2020.

 

Dividends  

On 20 March 2020, the Board withdrew its recommendation of a final dividend in respect of 2019 of 85.9¢ per share (~$150m). An interim dividend in respect of 2020 will not be paid. The Board will continue to defer consideration of further dividends until visibility of the pace and scale of market recovery has improved.

 

Sources of liquidity

During the six months ended 30 June 2020, there was a net cash outflow of $14m from operating activities (2019: $194m inflow).  Net cash outflows from investing activities totalled $41m (2019: $378m including $295m relating to acquisitions). Net cash generated from financing activities totalled $593m, which included $738m relating to the issuance of commercial paper under the Bank of England's Corporate Covid Financing Facility (CCFF) (2019: outflow $299m including $649m of dividends).

 

Free cash flowa during the six months ended 30 June 2020 was a $66m outflow (2019: $141m inflow).  Gross capital expenditurea was $85m (2019: $101m) and net capital expenditurea was $39m (2019: $73m). 

 

Net debt at 30 June 2020 was $2,515m ($2,665m at 31 December 2019) and included $568m in respect of lease liabilities ($680m at 31 December 2019).  Net debt decreased by $150m, of which $112m was due to a decrease in lease liabilities.

 

The Group currently has $1,870m of sterling and euro bonds outstanding.  The first bond matures in November 2022 (£400m) and subsequent bonds mature in August 2025 (£300m), August 2026 (£350m) and May 2027 (€500m). 

 

The Group is further financed by a $1.275bn revolving syndicated bank facility (the Syndicated Facility) and a $75m revolving bilateral facility (the Bilateral Facility), both of which mature in September 2023.  The facilities were undrawn at 30 June 2020 (31 December 2019: $125m drawn). The Syndicated and Bilateral Facilities contain the same terms and two financial covenants; interest cover; and net debt divided by operating profit before exceptional items, depreciation and amortisation and System Fund revenue and expenses. In April 2020 the Group amended these facilities to include a waiver of existing covenants until December 2021.  The amendment introduced a minimum liquidity covenant of $400m, tested at 30 June 2020, 31 December 2020 and 30 June 2021.

 

In April 2020, the Group issued £600m of commercial paper under the CCFF.  The issuance matures on 16 March 2021.

 

As at 30 June 2020 the Group had total liquidity of $1,961m, comprising $1,350m of undrawn bank facilities and $611m of cash and cash equivalents (net of overdrafts and restricted cash).

 

In the Group's opinion, the available facilities are sufficient for the Group's present liquidity requirements.  However, the Group continues to assess its liquidity position, financing options and covenant position and will take further actions as necessary.

 

The Group had net liabilities of $1,604m at 30 June 2020 ($1,465m at 31 December 2019) reflecting that its internally generated brands are not recorded on the balance sheet, in accordance with accounting standards.

 

a Free cash flow, gross capital expenditure and net capital expenditure are Non-GAAP measures. Definitions for Non-GAAP measures can be found on pages 55-59 of the IHG Annual Report and

  Form 20-F 2019. The 'Use of Non-GAAP measures' section later in the Interim Management Report contains reconciliations of these measures to the most directly comparable line items with the

  Group Financial Statements.

 

 

 

USE OF NON-GAAP MEASURES

 

In addition to performance measures directly observable in the Interim Management Review (IFRS measures), certain financial measures are used when discussing the Group's performance which are not measures of financial performance or liquidity under International Financial Reporting Standards (IFRS). In management's view these measures provide investors and other users with an enhanced understanding of IHG's operating performance, profitability, financial strength and funding requirements. These measures do not have standardised meanings under IFRS, and companies do not necessarily calculate these in the same way.

 

Non-GAAP measures used to discuss the Group's performance include:

· Global revenue per available room (RevPAR) growth;

· Total gross revenue in IHG's System;

· Revenue from reportable segments;

· Operating profit from reportable segments;

· Underlying revenue;

· Underlying operating profit;

· Underlying fee revenue;

· Fee margin;

· Adjusted interest;

· Tax excluding the impact of exceptional items and System Fund;

· Adjusted earnings per ordinary share;

· Net debt;

· Gross capital expenditure;

· Net capital expenditure; and

· Free cash flow.

 

Further information on these measures including full definitions can be found on pages 55-59 of the IHG Annual Report and Form 20-F 2019 (which is available at www.ihgplc.com ).

 

 

Underlying revenue and underlying operating profit Non-GAAP reconciliations

 

 

 

Reportable segments

6 months ended 30 June

 

6 months ended 30 June

 

Revenue

 

Operating profit

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

%

 

2020

2019

%

 

$m

$m

change

 

$m

$m

change

 

 

 

 

 

 

 

 

Per Group income statement

1,248

2,280

(45.3)

 

(233)

442

(152.7)

System Fund

(385)

(675)

(43.0)

 

52

(47)

(210.6)

Reimbursement of costs

(375)

(593)

(36.8)

 

-

-

-

Operating exceptional items

-

-

-

 

255

15

1,600.0

 

_____

_____

_____

 

_____

_____

_____

Reportable segments

488

1,012

(51.8)

 

74

410

(82.0)

 

_____

_____

_____

 

_____

_____

_____

Reportable segments analysed as:

 

 

 

 

 

 

 

Fee business

375

730

(48.6)

 

97

394

(75.4)

Owned, leased and managed lease

113

282

(59.9)

 

(23)

16

(243.8)

 

_____

_____

_____

 

_____

_____

_____

 

488

1,012

(51.8)

 

74

410

(82.0)

 

 

 

 

Underlying revenue and underlying operating profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 months ended 30 June

 

6 months ended 30 June

 

 

Revenue

 

  Operating profit

 

 

 

 

 

 

 

 

 

 

2020

2019c

%

 

2020

2019c

%

 

 

$m

$m

change

 

$m

$m

change

 

 

 

 

 

 

 

 

 

 

Reportable segments (see above)

488

1,012

(51.8)

 

74

410

(82.0)

 

Significant liquidated damagesa

(1)

(4)

(75.0)

 

(1)

(4)

(75.0)

 

Owned asset disposalb

(2)

(6)

(66.7)

 

(3)

(1)

200.0

 

Currency impact

-

(12)

-

 

-

(4)

-

 

 

____

_____

_____

 

_____

_____

_____

 

Underlying revenue and underlying

operating profit

485

990

(51.0)

 

70

401

(82.5)

 

                               

 

 

a $1m recognised in 2020 ($4m in 2019) reflects the continued recognition of the significant liquidated damages related to the previously disclosed exit of a portfolio of 2.1k hotels in Germany.

b Revenue and operating profit relating to owned, leased and managed leased hotels that have been disposed is excluded from the year of disposal and the prior year. 

c Revenue and operating profit relating to acquisitions made in 2019 are not excluded when comparing 2020 and 2019 results as the results of acquisitions are only excluded in the year of acquisition

  when comparing to the prior year.

 

 

Underlying fee revenue

6 months ended 30 June  

 

Revenue

 

 

 

 

 

 

 

2020

2019

%

 

$m

$m

change

 

 

 

 

Reportable segments fee business 

(see above)

375

730

(48.6)

Significant liquidated damages

(1)

(4)

(75.0)

Currency impact

-

(8)

-

 

_____

_____

_____

Underlying fee revenue

374

718

(47.9)

 

 

Highlights by regions

 

 

Americas

6 months ended 30 June

 

6 months ended 30 June

 

Revenue

 

Operating profitd

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

%

 

2020

2019

%

 

$m

$m

change

 

$m

$m

change

 

 

 

 

 

 

 

 

Per Group financial statements, note 4

262

520

(49.6)

 

153

344

(55.5)

 

 

 

 

 

 

 

 

Reportable segments analysed as:

 

 

 

 

 

 

 

Fee business

226

418

(45.9)

 

163

323

(49.5)

Owned, leased and managed lease

36

102

(64.7)

 

(10)

21

(147.6)

 

_____

_____

_____

 

_____

_____

_____

 

262

520

(49.6)

 

153

344

(55.5)

 

 

 

 

 

 

 

 

Reportable segments (see above)

262

520

(49.6)

 

153

344

(55.5)

Currency impact

-

(2)

-

 

-

(2)

-

 

_____

_____

_____

 

_____

_____

_____

Underlying revenue and underlying

operating profit

262

518

(49.4)

 

153

342

(55.3)

 

 

 

 

 

 

 

 

Owned, leased and managed lease

included in the above

(36)

(102)

(64.7)

 

10

(21)

(147.6)

 

_____

_____

_____

 

_____

_____

_____

Underlying revenue and underlying operating profit related to the fee business

226

416

(45.7)

 

163

321

(49.2)

 

 

 

EMEAA

 

 

 

 

 

 

 

 

6 months ended 30 June

 

6 months ended 30 June

 

Revenue

 

Operating (loss)/profitd

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019c

%

 

2020

2019c

%

 

$m

$m

change

 

$m

$m

change

 

 

 

 

 

 

 

 

Per Group financial statements, note 4

134

338

(60.4)

 

(16)

88

(118.2)

 

 

 

 

 

 

 

 

Reportable segments analysed as:

 

 

 

 

 

 

 

Fee business

57

158

(63.9)

 

(3)

93

(103.2)

Owned, leased and managed lease

77

180

(57.2)

 

(13)

(5)

160.0

 

_____

_____

_____

 

_____

_____

_____

 

134

338

(60.4)

 

(16)

88

(118.2)

 

 

 

 

 

 

 

 

Reportable segments (see above)

134

338

(60.4)

 

(16)

88

(118.2)

Significant liquidated damagesa

(1)

(4)

(75.0)

 

(1)

(4)

(75.0)

Owned asset disposalb

(2)

(6)

(66.7)

 

(3)

(1)

200.0

Currency impact

-

(7)

-

 

-

(2)

-

 

_____

_____

_____

 

_____

_____

_____

Underlying revenue and underlying

operating (loss)/profit

131

321

(59.2)

 

(20)

81

(124.7)

 

 

 

 

 

 

 

 

Owned, leased and managed lease

included in the above

(75)

(170)

(55.9)

 

16

6

166.7

 

_____

_____

_____

 

_____

_____

_____

Underlying revenue and underlying operating (loss)/profit related to the fee business

56

151

(62.9)

 

(4)

87

(104.6)

 

 

 

Greater China

 

 

 

 

 

 

 

 

6 months ended 30 June

 

6 months ended 30 June

 

Revenue

 

Operating (loss)/profitd

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

%

 

2020

2019

%

 

$m

$m

change

 

$m

$m

change

 

 

 

 

 

 

 

 

Per Group financial statements, note 4

18

66

(72.7)

 

(5)

36

(113.9)

 

 

 

 

 

 

 

 

Reportable segments analysed as:

 

 

 

 

 

 

 

 

_____

_____

_____

 

____

_____

_____

Fee business

18

66

(72.7)

 

(5)

36

(113.9)

 

 

 

 

 

 

 

 

Reportable segments (see above)

18

66

(72.7)

 

(5)

36

(113.9)

Currency impact

-

(2)

-

 

-

(1)

-

 

_____

_____

_____

 

____

_____

_____

Underlying revenue and underlying

operating (loss)/profit

18

64

(71.9)

 

(5)

35

(114.3)

 

 

 

a $1m recognised in 2020 ($4m in 2019) reflects the continued recognition of the significant liquidated damages related to the previously disclosed exit of a portfolio of 2.1k hotels in Germany.

b Revenue and operating profit relating to owned, leased and managed leased hotels that have been disposed is excluded from the year of disposal and the prior year. 

c Revenue and operating profit relating to acquisitions made in 2019 are not excluded when comparing 2020 and 2019 results as the results of acquisitions are only excluded in the year of acquisition

  when comparing to the prior year.

d Before exceptional items.

 

 

 

Fee margin reconciliation

  6 months ended 30 June

 

 

2020

2019

Restatedb

 

$m

$m

 

 

 

Revenue

 

 

Reportable segments analysed as fee business (see above)

375

730

Significant liquidated damagesa

(1)

(4)

Captive insurance company

(10)

(7)

 

_____

_____

 

364

719

 

 

 

Operating profit

 

 

Reportable segments analysed as fee business (see above)

97

394

Significant liquidated damages

(1)

(4)

Captive insurance company

(1)

(1)

 

_____

_____

 

95

389

 

 

 

Fee margin

26.1%

54.1%

 

a $1m recognised in 2020 ($4m in 2019) reflects the continued recognition of the significant liquidated damages related to the previously disclosed exit of a portfolio of 2.1k hotels in Germany.

b The fee margin definition was amended as set out on page 57 of the 2019 IHG Annual Report and Form 20-F 2019 and the restatement of the 2019 interim measure has been reflected here in line

  with the amended definition.

 

 

 

Gross and net capital expenditure reconciliation

 

6 months ended 30 June

 

 

 

 

2020

2019

Restatedb

 

$m

$m

 

 

 

Net cash from investing activities

(41)

(378)

Adjusted for:

 

 

  Contract acquisition costs, net of $nil repayments

(26)

(17)

  System Fund depreciation and amortisationa

28

23

    Acquisition of businesses, net of cash acquired

-

295

  Payment of contingent purchase consideration

-

4

 

_____

_____

Net capital expenditure

(39)

(73)

Add back:

 

 

  Disposal receipts

(13)

(5)

  Distributions from associates and joint ventures

(5)

-

  System Fund depreciation and amortisationa

(28)

(23)

 

_____

_____

Gross capital expenditure

(85)

(101)

 

_____

_____

Analysed as:

 

 

Capital expenditure: maintenance

(including contract acquisition costs of $26m (2019: $17m))

(58)

(45)

Capital expenditure: recyclable investments

(2)

(14)

Capital expenditure: System Fund investments

(25)

(42)

 

_____

_____

Gross capital expenditure

(85)

(101)

 

_____

_____

 

a Excludes depreciation on right-of-use assets.

b The gross and net capital expenditure definitions were amended as set out on page 58 of the 2019 ARA to exclude the payment of deferred or contingent purchase consideration and the restatement

  of the 2019 interim measures is reflected here in line with the amended definitions.

 

 

Free cash flow reconciliation

 

 

 

6 months ended 30 June

 

 

 

2020

2019

Restateda

 

$m

$m

 

 

 

Net cash from operating activities

(14)

194

 

Less:

 

 

Principal element of lease payments

(20)

(22)

Purchase of shares by employee share trusts

-

(3)

Capital expenditure: maintenance (excluding contract acquisition costs)

(32)

(28)

 

_____

_____

Free cash flow

(66)

141

 

_____

_____

 

a The free cash flow definition was amended as set out on page 59 of the 2019 Annual Report and Form 20-F 2019 to exclude the payment of deferred or contingent purchase consideration from net

  cash from operating activities and the restatement of the 2019 interim measure has been reflected here in line with the amended definition.

 

 

 

 

Adjusted interest reconciliation

 

6 months ended 30 June

 

 

 

 

 

2020

2019

Restateda

 

 

$m

$m

 

Net financial expenses

 

 

 

 

 

 

 

Financial income

3

3

 

Financial expenses

(61)

(60)

 

 

_____

_____

 

 

(58)

(57)

 

 

 

 

 

 

Adjusted for:

 

 

 

Interest payable on balances with the System Fund

(4)

(7)

 

Capitalised interest relating to System Fund assets

-

(2)

 

 

_____

_____

 

 

(4)

(9)

 

 

 

 

 

 

_____

_____

 

Adjusted interest

(62)

(66)

 

 

_____

_____

 

 

 

a The adjusted interest definition is defined on page 57 of the 2019 Annual Report and Form 20-F 2019. The 2019 comparable was restated in line with the definition to exclude the change in fair value

  of contingent purchase consideration.

 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The principal and emerging risks and uncertainties that could substantially affect IHG's business and results are set out on pages 46 to 54 of the IHG Annual Report and Form 20-F 2019 (the "Annual Report").

 

Our Board and management team have reviewed regularly our risk profile, and risk management and internal control arrangements over the first half of 2020 to assess both the significant impacts we have experienced as a result of the Covid-19 pandemic and the mitigating measures and response plans which have been put in place.  This has ensured that we have been able to respond rapidly and appropriately to the very challenging impacts and heightened risk being felt in the short term to our performance, our colleagues, owners and guests.

 

While the Covid-19 crisis has not fundamentally changed the risks to our strategy execution, it has heightened the uncertainty we face over the remainder of 2020 and our longer-term ambitions. This is most obvious in relation to the continuing significance of the safety and security of our colleagues and guests, government interventions impacting domestic, national and international travel, consumer confidence, how we operate our hotels and the overall impact on our business resilience.

In the short term, the crisis has considerably constrained resources including financial and management time and tested our resilience, creating the potential for disruption and additional stress on our operations, for example as a result of closure of hotels and key locations and remote working arrangements. Management have therefore focused on the effectiveness of both our internal control and risk management arrangements and mitigating actions, and the actions taken in relation to our long-term sustainability and viability.

 

The crisis has reconfirmed that many of our risks are connected, with the impact of the pandemic increasing the risk profile across many of our principal risks. The response to the primary safety concerns of Covid-19 have also created several secondary impacts - a backdrop of continued scrutiny of social performance of major corporates may also lead to any incident or failure to manage risk receiving significant and rapid attention.

 

The following summarises the risks and uncertainties set out in the Annual Report, which continue to apply:

 

· Macro external factors, such as political and economic disruption or further outbreaks of infectious diseases could have an impact on IHG's ability to perform and grow; commercial performance, financial loss and undermine stakeholder confidence;

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

· Failure to deliver IHG's preferred brands and loyalty programme could impact IHG's competitive positioning, IHG's 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 contractual, 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 continuing agenda to accelerate growth and strategic initiatives could impact commercial performance and financial loss, and undermine stakeholder confidence;

· Environment and social mega-trends have the potential to impact performance and growth in key markets;

· 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.

 

The most prominent emerging risk we face is a sustained downturn caused by further waves of the pandemic and/or a slower than anticipated industry recovery. We will need to monitor indicators closely and plan for potential recovery pathways (eg with / without vaccine). This could create further volatility in our risk factors and also challenging conditions in the capital markets, making it more difficult to obtain additional funding if required and potentially impacting financial performance.

We have also noted rapidly emerging uncertainties resulting from heightened expectations of guests in relation to the cleanliness and hygiene standards of major brands. Reduced working hours, furlough arrangements and remote working create inherent risks of burnout, physical / mental health impacts and increased turnover of staff. The external environment also continues to evolve rapidly; we are also cognisant of the recent heightened expectations on corporate social performance, particularly in relation to the response to the pandemic and ongoing commitment to diversity and inclusion, and that this will require continued attention on the management of our workforce, our brands and our stakeholder relations.

The longer the uncertainty continues, there may also be additional stress placed on existing risk management and internal control arrangements. There may be unknown risks or risks currently believed to be inconsequential that emerge and could become material.

These principal and emerging risks and uncertainties are supported by a broader description of risk factors set out on pages 226 to 230 of the Annual Report.

 

RELATED PARTY TRANSACTIONS

 

There were no material related party transactions during the six months to 30 June 2020.

 

GOING CONCERN

 

The Group's fee-based model and wide geographic spread mean that it is well placed to manage through uncertain times.  However, during the Covid-19 crisis many of the Group's hotels were temporarily closed, while others are experiencing historically low levels of occupancy and room rates.  As at 30 June 2020, 10% of the global estate remained closed and the Group has reported a global year on year RevPAR decline of (75)% for the second quarter.

The Group has taken various actions to manage cash outflows, including a reduction in staff costs, professional fees, capital expenditure and the suspension of the ordinary dividend. 

The Group has taken steps to strengthen its liquidity, including a waiver of existing covenants on its syndicated and bilateral revolving credit facilities until 31 December 2021 and the issuance of £600m commercial paper under the UK's Covid Corporate Financing Facility ("CCFF"), maturing on 16 March 2021. The covenant waiver agreement introduces a minimum liquidity covenant of $400m tested at half year and full year until 30 June 2021.  The maturities of the Group's $1.275bn syndicated revolving credit facility and $75m bilateral revolving credit facility have also been extended for 18 months to September 2023. 

As at 30 June 2020 the Group had total liquidity of $1,961m, comprising $1,350m of undrawn bank facilities and $611m of cash and cash equivalents (net of overdrafts and restricted cash). 

There remains unusually limited visibility on the pace and scale of market recovery and therefore there are a wide range of possible planning scenarios over the going concern period. In adopting the going concern basis for preparing these condensed interim financial statements the Directors have considered a scenario which is based on a slow and steady recovery during 2020, with a further gradual improvement during 2021 consistent with the 5-year RevPAR recovery period used as the underlying assumption for our impairment assessment. Under this scenario, the Group is forecast to generate positive cash flows over the period to 30 September 2021.  The principal risks and uncertainties which could be applicable under this scenario have been considered and are all able to be absorbed within the $400m liquidity covenant.

The Directors also reviewed reverse stress test scenarios which concluded that the Group has sufficient headroom to operate within the $400m liquidity covenant for at least 15 months even in a theoretical 'zero occupancy' environment.  This assumes that the CCFF is either rolled over or refinanced, and that additional cost savings to operating and capital expenditure would be made in the event of a prolonged downturn.  Without refinancing or rolling over the CCFF, but still assuming additional cost savings, the revenue required to operate within the minimum liquidity covenant would be comparable to that earned during the second quarter of 2020.  The Group does not need to make significant structural changes in order to continue to operate as a going concern.

Having reviewed these scenarios, the Directors have a reasonable expectation that the Group has sufficient resources to continue operating for a period of at least twelve months from the date of approving the interim financial statements.  Accordingly, these condensed interim financial statements have been prepared on a 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

 

 

11 August 2020

11 August 2020

 

 

InterContinental Hotels Group PLC

GROUP INCOME STATEMENT

For the six months ended 30 June 2020

 

 

2020

6 months ended

30 June

$m

2019

6 months ended
30 June*
$m

Continuing operations

 

 

 

 

 

Revenue from fee business

375

730

Revenue from owned, leased and managed lease hotels

113

282

System Fund revenues

385

675

Reimbursement of costs

375

593

 

_____

_____

Total revenue (notes 4 and 5)

1,248

2,280

 

 

 

Cost of sales and administrative expenses

(347)

(559)

System Fund expenses

(437)

(628)

Reimbursed costs

(375)

(593)

Share of losses of associates and joint ventures

(6)

-

Other operating income

12

5

Depreciation and amortisation

(55)

(56)

Impairment loss on financial assets

(78)

(7)

Other impairment charges (note 7)

(195)

-

 

_____

_____

Operating (loss)/profit (note 4)

(233)

442

 

 

 

Operating (loss)/profit analysed as:

 

 

  Operating profit before System Fund and exceptional items

74

410

  System Fund

(52)

47

  Operating exceptional items (note 7)

(255)

(15)

 

_____

_____

 

(233)

442

 

 

 

Financial income

3

3

Financial expenses

(61)

(60)

Fair value gains/(losses) on contingent purchase consideration

16

(10)

 

_____

_____

(Loss)/profit before tax

(275)

375

 

 

 

Tax (note 10)

65

(69)

 

_____

_____

(Loss)/profit for the period from continuing operations

(210)

306

 

_____

_____

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

(210)

306

 

Non-controlling interest

-

-

 

 

_____

_____

 

 

(210)

306

 

_____

_____

(Loss)/earnings per ordinary share (note 11)

 

 

Continuing and total operations:

 

 

 

Basic

(115.4)¢

167.2¢

 

Diluted

(115.4)¢

166.3¢

 

Adjusted**

14.3¢

148.6¢

 

Adjusted diluted**

14.3¢

147.8¢

 

 

 

 

* Amended for presentational changes (see note 1).

** Adjusted earnings per ordinary share for 2019 has been restated for consistency with the 2019 Annual Report and Form 20-F and excludes the change in fair value of contingent purchase consideration.

 

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2020

 

 

2020

6 months ended

30 June

$m

2019

6 months ended

30 June

$m

 

 

 

(Loss)/profit for the period

(210)

306

 

 

 

Other comprehensive income

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss:

 

 

 

Gains on cash flow hedges, including related tax credit of $2m (2019 net of related tax charge of $2m)

 

28

 

4

 

Costs of hedging

(1)

(2)

 

Hedging (gains)/losses reclassified to financial expenses

(36)

4

 

Exchange gains on retranslation of foreign operations, including related tax credit of $1m (2019 $1m)

 

110

 

25

 

_____

_____

 

101

31

Items that will not be reclassified to profit or loss:

 

 

 

(Losses)/gains on equity instruments classified as fair value through other comprehensive income, net of related tax credit of $4m (2019 $nil)

 

 

(39)

 

 

6

 

Re-measurement losses on defined benefit plans, net of related tax credit of $2m (2019 $2m)

 

(5)

 

(6)

 

Tax related to pension contributions

2

-

 

 

_____

_____

 

 

(42)

-

 

_____

_____

Total other comprehensive income for the period

59

31

 

_____

_____

Total comprehensive (loss)/income for the period

(151)

337

 

_____

_____

Attributable to:

 

 

 

Equity holders of the parent

(151)

337

 

Non-controlling interest

-

-

 

_____

_____

 

(151)

337

 

_____

_____

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

 

 

6 months ended 30 June 2020

 

 

Equity share capital

Other reserves*

Retained earnings

Non-controlling interest

Total equity

 

$m

$m

$m

$m

$m

 

 

 

 

 

 

 

At beginning of the period

151

(2,433)

809

8

(1,465)

 

 

 

 

 

 

Total comprehensive loss for the period

-

62

(213)

-

(151)

Transfer of treasury shares to employee share trusts

 

-

 

(14)

 

14

 

-

 

-

Release of own shares by employee share trusts

 

-

 

18

 

(18)

 

-

 

-

Equity-settled share-based cost, net of $3m reclassification of cash-settled awards

 

-

 

-

 

12

 

-

 

12

Exchange adjustments

(11)

11

-

-

-

 

_____

_____

_____

_____

_____

At end of the period

140

(2,356)

604

8

(1,604)

 

_____

_____

_____

_____

_____

             

 

 

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

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)

 

_____

_____

_____

_____

_____

             

 

*

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 2020

 

2020

30 June

2019

31 December

Restated*

 

$m

$m

ASSETS

 

 

Goodwill and other intangible assets

1,321

1,376

Property, plant and equipment

219

309

Right-of-use assets

412

490

Investment in associates

75

110

Other financial assets

174

284

Derivative financial instruments

18

-

Deferred compensation plan investments

213

218

Non-current tax receivable

18

28

Deferred tax assets

94

66

Contract costs

68

67

Contract assets

286

311

 

______

______

Total non-current assets

2,898

3,259

 

______

______

Inventories

5

6

Trade and other receivables

507

666

Current tax receivable

14

16

Other financial assets

1

4

Derivative financial instruments

-

1

Cash and cash equivalents

688

195

Contract costs

4

5

Contract assets

23

23

 

______

______

Total current assets

1,242

916

Assets classified as held for sale

-

19

 

______

______

Total assets (note 4)

4,140

4,194

 

_____

_____

LIABILITIES

 

 

Loans and other borrowings

(790)

(87)

Lease liabilities

(64)

(65)

Trade and other payables

(371)

(568)

Deferred revenue

(341)

(555)

Provisions

(27)

(40)

Current tax payable

(37)

(50)

 

______

______

Total current liabilities

(1,630)

(1,365)

 

______

______

Loans and other borrowings

(1,870)

(2,078)

Lease liabilities

(504)

(595)

Derivative financial instruments

-

(20)

Retirement benefit obligations

(101)

(96)

Deferred compensation plan liabilities

(213)

(218)

Trade and other payables

(85)

(116)

Deferred revenue

(1,234)

(1,009)

Provisions

(33)

(22)

Deferred tax liabilities

(74)

(118)

 

______

______

Total non-current liabilities

(4,114)

(4,272)

Liabilities classified as held for sale

-

(22)

 

______

______

Total liabilities

(5,744)

(5,659)

 

_____

_____

Net liabilities

(1,604)

(1,465)

 

_____

_____

EQUITY

 

 

IHG shareholders' equity

(1,612)

(1,473)

Non-controlling interest

8

8

 

______

______

Total equity

(1,604)

(1,465)

 

_____

_____

* Restated for deferred compensation plan investments and liabilities (see note 1).

 

 

 

InterContinental Hotels Group PLC

GROUP STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

 

 

2020

6 months ended

30 June

2019

6 months ended

30 June

 

$m

$m

 

 

 

(Loss)/profit for the period

(210)

306

Adjustments reconciling (loss)/profit for the period to cash flow from operations before contract acquisition costs (note 13)

 

258

 

3

 

_____

_____

Cash flow from operations before contract acquisition costs

48

309

Contract acquisition costs

(26)

(17)

 

_____

_____

Cash flow from operations

22

292

Interest paid

(34)

(33)

Interest received

1

2

Tax paid on operating activities

(3)

(67)

 

_____

_____

Net cash from operating activities

(14)

194

 

_____

_____

Cash flow from investing activities

 

 

Purchase of property, plant and equipment

(21)

(31)

Purchase of intangible assets

(36)

(46)

Investment in other financial assets

(2)

(5)

Acquisition of businesses, net of cash acquired

-

(295)

Contingent purchase consideration paid

-

(4)

Capitalised interest paid

-

(2)

Distributions from associates and joint ventures

5

-

Disposal of hotel assets, net of costs and cash disposed

1

-

Repayments of other financial assets

12

5

 

_____

_____

Net cash from investing activities

(41)

(378)

 

_____

_____

Cash flow from financing activities

 

 

Purchase of own shares by employee share trusts

-

(3)

Dividends paid to shareholders

-

(649)

Transaction costs relating to shareholder returns

-

(1)

Principal element of lease repayments

(20)

(22)

Issue of commercial paper

738

-

(Decrease)/increase in other borrowings

(125)

376

 

_____

_____

Net cash from financing activities

593

(299)

 

_____

_____

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

 

538

 

(483)

 

 

 

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

 

108

 

600

Exchange rate effects

(14)

13

 

_____

_____

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

 

632

 

130

 

_____

_____

 

 

       

 

 

 

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 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 2019.

 

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 (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board.

 

With the exception of the accounting for a deferred compensation plan and the presentational change to the Group income statement as detailed below, financial information for the year ended 31 December 2019 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.

 

The Group operates a deferred compensation plan in the US which allows certain employees to make additional provision for retirement, through the deferral of salary with matching company contributions within a dedicated trust. The Group has re-assessed the accounting judgement for this plan which was previously not consolidated based on a control analysis as disclosed in the Group's prior year financial statements. The Group has revisited the judgement regarding the extent of its control over the plan by placing more weighting on some of the Group's legal rights and, giving consideration to both IFRS 10 and IAS 19, the Group has changed its accounting policy to recognise the related assets and liabilities on the balance sheet at their respective fair values. Due to the way in which the plan is managed, the assets and liabilities are for the same amount, with no net impact on profit or loss. The effect on the prior year financial statements is the recognition and presentation of deferred compensation plan investments of $218m (2018: $193m) and matching deferred compensation plan liabilities. There is no net impact on the comparative income statements, nor would there have been any net impact on the income statement in earlier periods.

 

The presentation of the Group income statement has been amended to include impairment loss on financial assets as a separate line item. Accordingly, the reconciliation of (loss)/profit for the period to cash flow from operations before contract acquisition costs has also been amended.

 

Going concern

 

The Group's fee-based model and wide geographic spread mean that it is well placed to manage through uncertain times.  However, during the Covid-19 crisis many of the Group's hotels were temporarily closed, while others are experiencing historically low levels of occupancy and room rates.  As at 30 June 2020, 10% of the global estate remained closed and the Group has reported a global year on year RevPAR decline of (75)% for the second quarter.

 

The Group has taken various actions to manage cash outflows, including a reduction in staff costs, professional fees, capital expenditure and the suspension of the ordinary dividend. 

 

The Group has taken steps to strengthen its liquidity, including a waiver of existing covenants on its syndicated and bilateral revolving credit facilities until 31 December 2021 and the issuance of £600m commercial paper under the UK Government's Covid Corporate Financing Facility ("CCFF"), maturing on 16 March 2021. The covenant waiver agreement introduces a minimum liquidity covenant of $400m tested at half year and full year until 30 June 2021.  The maturities of the Group's $1.275bn syndicated revolving credit facility and $75m bilateral revolving credit facility have also been extended for 18 months to September 2023. 

 

 

 

As at 30 June 2020 the Group had total liquidity of $1,961m, comprising $1,350m of undrawn bank facilities and $611m of cash and cash equivalents (net of overdrafts and restricted cash). 

 

There remains unusually limited visibility on the pace and scale of market recovery and therefore there are a wide range of possible planning scenarios over the going concern period.  In adopting the going concern basis for preparing these condensed interim financial statements the Directors have considered a scenario which is based on a slow and steady recovery during 2020, with a further gradual improvement during 2021 consistent with the five-year RevPAR recovery period used as the underlying assumption for our impairment assessment. Under this scenario, the Group is forecast to generate positive cash flows over the period to 30 September 2021.  The principal risks and uncertainties which could be applicable under this scenario have been considered and are all able to be absorbed within the $400m liquidity covenant.

 

The Directors also reviewed reverse stress test scenarios which concluded that the Group has sufficient headroom to operate within the $400m liquidity covenant for at least 15 months even in a theoretical 'zero occupancy' environment.  This assumes that the CCFF is either rolled over or refinanced, and that additional cost savings to operating and capital expenditure would be made in the event of a prolonged downturn.  Without refinancing or rolling over the CCFF, but still assuming additional cost savings, the revenue required to operate within the minimum liquidity covenant would be comparable to that earned during the second quarter of 2020.  The Group does not need to make significant structural changes in order to continue to operate as a going concern.

 

Having reviewed these scenarios, the Directors have a reasonable expectation that the Group has sufficient resources to continue operating for a period of at least twelve months from the date of approving the interim financial statements. Accordingly, these condensed interim financial statements have been prepared on a going concern basis.

 

2.

Impact of Covid-19 on critical accounting policies and the uses of judgements, estimates and assumptions

 

a)

 

Critical accounting policies and the uses of judgements, estimates and assumptions

 

These condensed interim financial statements may not be indicative of the full year performance due to the impact of Covid-19.

 

The ongoing financial impact of Covid-19 is highly dependent on the severity and duration of the pandemic.  In applying the Group's accounting policies, management are required to make judgements, estimates and assumptions. The critical judgement for the Group, as disclosed in the 2019 Annual Report and Form 20-F is in respect of the System Fund. No other critical judgements have been made in applying the Group's accounting policies.

 

The critical estimates and assumptions disclosed in the 2019 Annual Report and Form 20-F (measuring the deferred revenue relating to the loyalty programme and impairment testing of the UK portfolio), continue to be applicable. Impairment testing of Kimpton is no longer a critical estimate as the remaining carrying value is not significant. Reflecting the impact of Covid-19 m anagement have reassessed the areas of critical estimates and assumptions at 30 June 2020:

 

Impairment testing of non-current assets

 

On 11 March 2020, the World Health Organisation raised the public health emergency situation caused by the outbreak of Covid-19 to an international pandemic. As social distancing measures and travel restrictions came into effect around the world, occupancy levels dropped to historic lows and fell short of the Group's expectations of reasonably possible outcomes for the 2020 financial year which had been used to assess impairment as at 31 December 2019. Disruption to travel continues, with limited visibility on the pace and scale of market recovery.

 

The recoverable amounts of non-current assets have been determined from cash flow projections which reflect the impact of Covid-19. The key assumption is RevPAR growth, which is based on a slow and steady recovery during the second half of 2020, reflecting that global occupancy levels as at the end of July remain in the region of approximately 45%. The five-year recovery period from 2021 assumes that corporate travel recovers slowly as businesses control costs in the wake of the pandemic and that international travel and groups business takes longer to recover due to ongoing social distancing measures. See note 8.

 

 

 

 

Variable lease payments

 

The UK portfolio lease and two German hotel leases contain guarantees that the Group will fund any shortfalls in lease payments up to an annual and cumulative cap. Previously the minimum 'in-substance fixed' lease payments were estimated to be equal to the cumulative amount guaranteed under the lease agreements and therefore a right-of-use asset and corresponding lease liability equal to the guaranteed amount were recognised. The unprecedented impact of Covid-19 on the hospitality industry has caused the UK leased hotels to be closed for an extended period and is expected to result in historically low occupancies as the hotels reopen.  This has resulted in a reassessment of the estimate of 'in-substance fixed' lease payments, as there is no floor to the rent reductions applicable under these leases, and the circumstances in which no rent would be payable are no longer considered to be remote. See note 7.

 

Expected credit losses

 

The Group has undertaken a number of actions to support owners, including the waiver of certain fees, extended credit terms and, where appropriate, the use of payment plans. Although owners may, depending on factors including their geographical location, have access to government programmes designed to support businesses during this time, the Group is unable to assess the full impact of this support on the recoverability of outstanding trade receivables. Considering these factors, there is increased uncertainty in calculating expected credit losses. See note 8.

 

Loyalty programme

 

Significant estimation uncertainty exists in projecting members' future consumption activity and the number of points that will never be consumed ('breakage'), particularly in light of Covid-19 which may alter the behaviour of loyalty programme members. In response to Covid-19 the Group has extended its policies for points expiration and elite status which, together with the impact of a slow market recovery, will extend the period over which members consume points.  This is also subject to estimation uncertainty and has resulted in a greater portion of loyalty programme deferred revenue being classed as non-current. Based on the conditions existing at the balance sheet date, a one percentage point decrease/increase in the breakage estimate relating to earned points would increase/reduce the deferred revenue liability by $46m.

 

b)

Accounting policies

 

The Group's accounting policies are included in the 2019 Annual Report and Form 20-F. Given the exceptional items recorded in the six months ended 30 June 2020, the accounting policy used in determining exceptional items is included below.

 

In addition, during the period the Group has received government support in respect of its leased hotels; previously the Group has not disclosed an accounting policy in respect of government grants as the amounts received have not been material. The relevant accounting policy is set out below.

 

Exceptional items
 

The Group discloses certain financial information both including and excluding exceptional items. The presentation of information excluding exceptional items allows a better understanding of the underlying trading performance of the Group and provides consistency with the Group's internal management reporting. Exceptional items are identified by virtue of either their size, nature, or incidence so as to facilitate comparison with prior periods and to assess underlying trends in the financial performance of the Group and its regional operating segments. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors.

 

Examples of exceptional items that meet the above definition and which have been presented as exceptional items in prior years include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals and restructuring costs.

 

In the current year, the impact of Covid-19 relating to items which meet the criteria as set out above, are presented within exceptional items. Any subsequent reversal of these amounts will also be presented within exceptional items.

 

 

 

 

Government grants
 

Government support of $11m has been received in 2020 in relation to employee costs at certain of the Group's leased hotels.  Additionally, ongoing support has been received in the form of tax credits which have also been applicable  in prior years and which relate to the Group's corporate office presence in certain countries. In the Group income statement, total income of $16m has been matched against the payroll costs that the grants and credits are intended to compensate.  There are no unfulfilled conditions or other contingencies attaching to these grants.

 

 

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 = £0.79 (2019 $1 = £0.77). In the case of the euro, the translation rate is $1 = €0.91 (2019 $1 = €0.89).

 

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 = £0.82 (30 June 2019 $1 = £0.79; 31 December 2019 $1 = £0.76). In the case of the euro, the translation rate is $1 = €0.89 (30 June 2019 $1 = €0.88; 31 December 2019 $1 = €0.89).

 

4.    Segmental Information
 

 

Revenue

2020

6 months ended

30 June

2019

6 months ended

30 June

 

 

$m

$m

 

 

 

 

 

Americas 

262

520

 

EMEAA 

134

338

 

Greater China

18

66

 

Central

74

88

 

 

_____

_____

 

Revenue from reportable segments

488

1,012

 

System Fund revenues

385

675

 

Reimbursement of costs

375

593

 

 

_____

_____

 

Total revenue

1,248

2,280

 

 

_____

_____

 

 

 

(Loss)/profit

2020

6 months ended

30 June

$m

2019

6 months ended

30 June

$m

 

 

 

 

 

Americas 

153

344

 

EMEAA

(16)

88

 

Greater China

(5)

36

 

Central

(58)

(58)

 

 

_____

_____

 

Operating profit from reportable segments

74

410

 

System Fund

(52)

47

 

Operating exceptional items (note 7)

(255)

(15)

 

 

_____

_____

 

Operating (loss)/profit

(233)

442

 

Net finance costs

(58)

(57)

 

Fair value gains/(losses) on contingent purchase consideration

 

16

 

(10)

 

 

_____

_____

 

(Loss)/profit before tax

(275)

375

 

 

_____

_____

 

All results relate to continuing operations.


 

 

Assets

2020

30 June

 

$m

2019

31 December

Restated*

$m

 

 

 

 

 

Americas

1,698

2,002

 

EMEAA**

771

978

 

Greater China

105

136

 

Central

747

772

 

 

_____

_____

 

Segment assets

3,321

3,888

 

 

 

 

 

Unallocated assets:

 

 

 

Derivative financial instruments***

5

1

 

Tax receivable

32

44

 

Deferred tax assets

94

66

 

Cash and cash equivalents

688

195

 

 

_____

_____

 

Total assets

4,140

4,194

 

 

_____

_____

* Comparatives have been restated for deferred compensation plan investments (see note 1) to show segmental information on a consistent basis.

** Includes assets held for sale of $nil (31 December 2019 $19m).

*** $13m relating to put option (see note 8) included in Americas region. 


 

5.

Revenue

 

 

Disaggregation of revenue

 

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

 

 

6 months ended 30 June 2020

 

 

 

 

 

 

Americas

 

$m

EMEAA

 

$m

Greater China

$m

Central

 

$m

Total

 

$m

 

 

 

 

 

 

Franchise and base management fees

224

51

17

-

292

Incentive management fees

2

6

1

-

9

Central revenue

-

-

-

74

74

 

_____

_____

_____

_____

_____

Revenue from fee business

226

57

18

74

375

Revenue from owned, leased and managed lease hotels

 

36

 

77

 

-

 

-

 

113

 

_____

_____

_____

_____

_____

 

262

134

18

74

488

 

_____

_____

_____

_____

 

System Fund revenues

 

 

 

 

385

Reimbursement of costs

 

 

 

 

375

 

 

 

 

 

_____

Total revenue

 

 

 

 

1,248

 

 

 

 

 

_____

 

6 months ended 30 June 2019