Six Continents will split its interests in spring when the hotels and soft drinks divisions move away from…
Six Continents will split its interests in spring when the hotels and soft drinks divisions move away from the pubs, bars and restaurants side of the business.
The split will result in the creation of two separate listed companies – InterContinental Hotels Group (IHG), which will include the InterContinental, Crowne Plaza and Holiday Inn hotel operations alongside the group`s Britvic soft drinks operation.
The second company will take the retail side of Six Continents, which spans brands such as Harvester, Hollywood Bowl and All Bar One, this company will be called Mitchells & Butlers.
Bass PLC bought Holiday Inn in 1990, and the company became known as Bass Hotels & Resorts. Under Bass, the company launched Holiday Inn Express in 1991 and Crowne Plaza in 1994. The company bought the high end InterContinental chain in 1998, which has since become recognised as one of the leading global five star hotel chains.
The split of Six Continents and the change of name is unlikely to affect hotel guests in any way, other than perhaps those who are shareholders, as the company only changed names from Bass Hotels & Resorts to Six Continents, in an attempt to reflect its global reach, in 2001. As such the company did not have much time to build the strength of Six Continents as a recognised brand, and still today the brand names of the individual hotels are more recognised than the parent company.
Strategy and Priorities
IHG said its strategy will be to use the strength of its brand portfolio, the breadth of its distribution, the diversity of its business models and the benefits of its scale in order to drive growth and returns for shareholders.
The IHG management team intends to implement this strategy by concentrating on:
- developing high quality, strongly differentiated brands
- extending IHG`s network of hotels
- leveraging global system scale economies to drive superior RevPAR and GOP premiums
- optimising capital deployment in order to lift returns
- continuing to develop its people
The IHG management team`s primary objective is to drive significant improvements in returns and thereby enhance value for shareholders. Shortly after the announcement of the proposed Separation on 1 October 2002, the management team, led by Richard North, initiated action in four key areas to meet this objective:
- redesigning the organisation to align it behind the strategic priorities and speed up decision making;
- changing the management to ensure the right people are in the right jobs;
- reducing the cost base through eliminating unnecessary work and streamlining processes; and
- optimising capital deployment through a rigorous hotel-by-hotel review to determine appropriate levels of ownership and capital expenditure.
As a result of these actions, the IHG management team expects to reduce annual ongoing overheads (excluding costs in hotels) against its cost base for the financial year 2003 by at least $50 million by the end of 2004. This sum is in addition to the elimination of the incremental overhead cost inherited by IHG as a result of the Separation (which is estimated to be $15 million).
Change of Year End
It is intended that IHG will report to a calendar year end rather than the current 30 September accounting year end of Six Continents. It is believed that this will be more appropriate for a global hotel company as it:
- allows IHG to incorporate the effects of the major corporate contract
- brings IHG in line with the reporting timetable of the majority of comparable European and US hotel companies.
negotiations, which take place in the Autumn of each year, into the budget for the following financial year; and
IHG`s first accounting period end will, therefore, be for a fifteen month period ending on 31 December 2003.
In order to provide clarity through the transition to calendar year end reporting, IHG intends to report on a quarterly basis for the remainder of 2003 with the first quarterly report ending 30 June 2003. From 2004 it is intended that IHG will report results every six months.
Financing
Standard & Poor`s and Moody`s have each indicated that, on the basis of discussions which have taken place, they continue to expect IHG to have an investment grade credit rating on completion of the Separation. Standard & Poor`s confirmed their view on 15 January 2003, that the credit rating for IHG is expected be BBB. The specific credit rating to be given by both agencies will be confirmed in advance of listing following further discussions with the IHG management team in March.
The debt of IHG as at 30 September 2003 following the Separation is estimated to be around
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
