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The Globe and Mail

InterContinental looks to China to drive growth

Pedestrians walk past ANA Intercontinental hotel in Japan.


World No 1. hotelier InterContinental Hotels is looking to emerging markets and especially China to drive future growth after a recovery in the United States and a string of new Chinese hotel openings helped push 2011 profits up 26 per cent.

The hotelier, home to Crowne Plaza and Holiday Inn as well as the InterContinental brand, said business was improving in the U.S, led by a healthier economy and job creation in a region which makes well over half the group's profit.

Greater China, which was reporting numbers as a separate region for the first time, saw the group's highest growth rate as it opened over 8,000 new rooms in the year, while over a quarter of the group's new global hotel pipeline is in China.

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Chief executive officer Richard Solomons said that despite the euro zone crisis he was upbeat about the future as people still wanted to travel for business and leisure, while emerging markets were growing strongly.

"We go where the travellers are. We see good momentum in the U.S. economy with economic data there quite positive while China is our fastest growing region and our business there has doubled in the last two years," he told a results briefing on Tuesday.

The group earns nearly 10 per cent of profit from its 167 Chinese hotels with a further 147 in the pipeline to open soon, and the hotelier plans to introduce another upmarket brand alongside InterContinental to meet the growing demand.

Growth in global revenue per available room (RevPAR), a key hotel industry measure, grew at 6.2 per cent in 2011 with the U.S. and China ahead 7.9 per cent and 10.7 per cent. While there was a fourth-quarter slowdown worldwide to 4.6 per cent, the January growth rate recovered to 6.0 per cent.

"We expect that a continuing strong performance in the U.S. and Asia will likely lead to 5 per cent plus upgrades to consensus 2012 forecasts," said analyst Ian Rennardson at brokers Jefferies, after he described the 2011 results as solid with a decent outlook statement.

The hotelier said it had a preferred bidder for its flagship InterContinental New York Barclay hotel which has been for sale for a year with a price tag estimated at $300-350 million, and analysts said a sale may prompt a share buyback or special dividend as it moves to be a management and franchise operator.

"We believe that the New York asset market has improved, and that any sale would be accompanied by a return of capital in some form," said analyst Simon Champion at Deutsche Bank.

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The British group, which operates more than 660,000 rooms in over 4,500 hotels worldwide posted a 26 per cent rise in 2011 operating profits to $559-million beating a $543-million Thomson Reuters consensus estimate, while annual revenue rose 9 per cent to $1.77-billion.

The group 2011 dividend rose 15 per cent to 55 cents (U.S.).

InterContinental, like other hoteliers in 2011 suffered from unrest in the Middle East and North Africa, the tsunami in Japan and the euro zone crisis, but recovery and growth elsewhere has helped to offset these negative factors, analysts said.

Europe, which accounts for 15 per cent of group profit, showed a small fall of 0.2 per cent in RevPAR in the fourth quartet due to a poor economic conditions, but Mr. Solomons said RevPAR had recovered to grow 3 per cent in January.

Earlier this month, Sheraton-owner Starwood posted higher-than-expected fourth quarter earnings but a flat Europe worried investors and its shares dipped, while Marriott reports its fourth quarter on February 15.

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