InterContinental Hotels revenue growth hit by FX in Q3

In a trading update, revenue per available room for the third quarter grew 1.3%, when compared to the previous quarter, and was up 1.8% for the year-to-date.

The dollar continued to strengthen throughout the third quarter which reduced group revenue per available room to zero when reported at actual exchange rates and the company expects foreign exchange to have an impact on 2016 reported profit.

UK comprises around 5% of the company’s revenues, about 50% of gross central overhead and 40% of Europe regional overhead are in sterling. At 30 June exchange rates, about 70% of the firm´s debt was denominated in sterling.

During the quarter IHG opened 7,000 rooms, increasing the net system size by 3.8% year-on-year to 754,000.

The company is building and leveraging scale as 19,000 rooms were signed, the highest for a third quarter since 2008, including 6,000 rooms in China, taking the total to 230,000 rooms in the pipeline.

In Europe, revenue per available room remained flat and up 1.2% year-to-date. In the UK, revenue per available room grew 2.5% due to “solid trading in the provinces partially offset by flat performance in London, where industry-wide supply increases continue to have an impact”.

Revenue per available room in China was up 0.9% and 1.8% year-to-date, with growth of 2.2% in mainland China which was led by tier-one cities, for which revenues were up nearly 6%. This was the best ever third quarter performance for China.

In the Americas, revenue per available room was up 1.9% and rose 2.2% year to date, in the US alone revenue per available room climbed 1.4% and was up 1.9% year-to-date over the first nine months.

Performance was affected by the company's concentration in oil producing markets, where revenue per available room was down 7.3%, compared to 2.5% growth in the rest of the estate.

For Asia, Middle East and Africa revenue per available room was down 0.1% and down 0.2% year-to-date, while the performance in the region outside the Middle East was strong, with 3.9% revenue growth overall.

In August the company partnered with Alipay, a Chinese online payment solutions company, to give Chinese guests the ability to pay via Alipay, while the company’s cloud-based guest reservation system remains on track for phased roll out in late 2017.

During that same month InterContinental issued a £350m, 10-year bond at a 2.125% coupon rate, the lowest funding rate ever the company has achieved in the sterling bond market.

Chief executive Richard Solomons said: “Looking ahead, while industry revenue per available room growth has slowed, the fundamentals for the sector, and particularly for IHG, remain compelling. This, combined with our winning strategy and the strength of our cash generative business model, will enable us to drive sustainable growth into the future.

"Despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “There’s nothing inherently ugly in today’s results, they’re just a little disappointing. That’s the problem with being a successful and rapidly growing company, people start to have expectations.

“Exposure to North American oil producing regions continues to hurt, despite the fact that the group should now be seeing easier comparatives here as we pass the point where lower oil prices kicked in last year. Oil also seems to be playing a part elsewhere, with a poor performance in the Middle East weighing down the whole Asia, Middle East and Africa region.

He said it was not all bad news as 50% of group and 40% of European central costs in sterling, as well as 70% of group debt, the lower pound should prove a benefit, even if the company, as a dollar reporter, a strong dollar undermines revenue growth.