InterContinental Hotels Group PLC (IHG or the Company) today provides a trading update and guidance in its first announcement since separation…
InterContinental Hotels Group PLC (IHG or the Company) today provides a trading update and guidance in its first announcement since separation. The threat of and subsequent war in Iraq and the sustained weakness of the global economy have continued to have an adverse effect on global travel and with it IHG`s revenue in the three months to 31 March 2003. These factors have led to the erosion of the encouraging trading trends seen in the three months to 31 December 2002 and have particularly affected our hotels in EMEA. This difficult trading environment was further exacerbated by the occurrence of the SARS virus in the last two weeks of the period.
In addition, the Company experienced pressure on hotel margins, largely due to the fact that growth in revenue was occupancy led. As a result of all these influences profits in the period, as in the previous 3 months, were substantially lower than last year.
Richard North, Chief Executive Officer of IHG said Despite having to contend with some of the worst conditions the industry has ever encountered, the benefits of our wide range of business models and broad geographical distribution are clear. While EMEA is finding the environment tough, our Americas business is relatively resilient. Meanwhile we are making good progress with our two key initiatives – to reduce both costs and asset intensity.
In the Americas, InterContinental hotels continued to outperform their relative markets reflecting the benefits of our refurbishment programme and the completion of the InterContinental Houston`s phased reopening.
InterContinental`s midscale franchise business performed relatively well with Holiday Inn Express continuing to outperform, and Holiday Inn performing in line with their relative markets.
In EMEA, trading in InterContinental`s owned and leased upscale hotels continued to be adversely impacted by the reduction in the number of US guests. Holiday Inn UK continued to outperform its relative market, benefiting from the increased revenue investment which has taken place. Overall however, in EMEA, the economic environment and geo-political factors described earlier, combined with the increased revenue investment, has meant that profits are still substantially down on the equivalent period last year.
Performance in the Asia Pacific region remained strong until the emergence of the SARS virus which has severely affected occupancy particularly in the InterContinental Hong Kong.
Soft drinks
Turnover in Britvic Soft Drinks rose by over 5 per cent in the 16 weeks to 12 April 2003. Britvic`s leading brands have continued to perform well, with Pepsi, Robinsons and Tango in particular growing market share in the same period.
Update on cost reduction programme
InterContinental is making good progress on the reduction of at least $100m of annual on-going overheads against the budgeted cost base for the fiscal year to 30 September 2003. InterContinental is on target to achieve an annualised run rate of savings of at least $75m by the end of calendar 2003, and actual savings of at least $40m in the year to 31 December 2003.
In excess of 50 per cent of the savings will be achieved through headcount reductions. We estimate that there will be up to 800 redundancies from a global corporate staff of 2,600. These redundancies span all levels of seniority with approximately 30% of senior management roles being removed. Over 150 employees have already left our business. In addition, over 200 have been notified that their roles will be made redundant.
As we announced, the Six Continents Group`s London head office will close in September 2003. IHG`s corporate headquarters will be consolidated with the EMEA regional offices in Windsor, which will achieve a cost saving of approximately $9m per annum. A number of other small satellite offices will also be closed during the next few months.
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