InterContinental Hotels banking on a weaker pound to boost profits

 
Jake Cordell
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Holiday Inn-owner InterContinental could be a big winner from the pound's fall
Holiday Inn-owner InterContinental could be a big winner from the pound's fall (Source: Getty)

Worldwide hotel chain, InterContinental Hotels, which owns brands including the Holiday Inn and Crowne Plaza, said it will take a short-term hit from currency volatility but could win big if the pound stays weak following the EU referendum.

The figures

Profits before tax dropped 35 per cent from $458m (£347m) to $298m in the first six months of 2016. On an underlying basis, operating profits climbed by two per cent to $344m. Intercontinental said the numbers were skewed by the bumper $175m gain from the sale of a flagship Le Grand hotel in Paris last year.

Total income also slipped 8.4 per cent to $838m in the period, as revenues in both Europe and China took steep dives. In China, sales dropped by more than half to $55m, while in Europe they were down 24 per cent to $109m.

The number of hotels managed by the firm across the world climbed to 5,070 with a combined room-count of just under 750,000.

Revenue per available room, a key industry metric, climbed two per cent in the first half of the year.

Why it's interesting

Investors in InterContinental have been on a topsy-turvy ride this year, surging back and forth between £25 and £35 a pop. They kick things off today at £30.60.

Aside from the day-to-day business of running a global network of hotels, today's update was all about the currency.

The firm, which reports its earnings in dollars, not sterling, said it expects to take a $6m hit to its bottom line due to currency volatility in the first half of the year. However, in the statement issued this morning, Intercontinental said it "would even benefit at a profit level if the post-referendum sterling exchange rate is maintained."

It pointed out only five per cent of revenues come from the UK, but 50 per cent of its central overheads and 40 per cent of its Europe-wide regional overheads were based here. Moreover, 70 per cent of the hotelier's debt is denominated in sterling, meaning any currency fall should reduce the impact of servicing its $1.8bn stock of outstanding loans.

What InterContinental said

Richard Solomons, chief executive of InterContinental said:

"The fundamentals for our industry, and particularly for InterContinental Hotels Group as one of the largest branded players, remain compelling. This backdrop, combined with our winning strategy and the strength of our business model, will enable us to deliver sustainable growth into the future. Despite the uncertain environment in some markets, we remain confident in the outlook for the remainder of the year.

On the prospect for currency volatility to boost the group's bottom line, InterContinental said:

Favourable economic fundamentals and historically modest levels of new supply in the US continue to support growth in our largest region, where demand continues to be at an all-time high. With regard to the UK, and the June 2016 Brexit referendum in particular, we note firstly that only a small proportion of our business comes from the UK, and secondly that with a substantial proportion of our central costs denominated in sterling, we would even benefit at a profit level if the post-referendum sterling exchange rate is maintained.

More generally, whilst there continue to be political and economic uncertainties in some regions, our geographic diversity and resilient business model, together with current trading trends, leaves us confident in the outlook for the rest of the year.

In short

Another Brexit boost from a weaker pound for a FTSE 100 firm gives more clues as to why the bluechip index has powered higher in the aftermath of the UK referendum.

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