Second-quarter earnings at InterContinental Hotels and Resorts were disappointing, falling 61 per cent after the company incurred greater tax charges and first half earnings before interest and tax were 111 million pounds.Rising costs in the hotel company’s U.S. and Asian contract businesses have been cited as the cause for the drop in revenues.

Yet revenue per available room - REVPAR—rose seven per cent in the first half of the hotel group’s financial year. Rising demand is also being predicted going forwards.

“Strong demand with relatively low levels of new supply is driving up room rates and our brands continue to outperform the market in most of our major regions and geographies,’’ chief executive Andrew Cosslett said in a statement. “Our outlook for the year is positive.’’

Full statement

Development pipeline up by 29,496 rooms to 187,487 (1,414 hotels). Total gross revenue is defined as total room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived mainly from hotels owned by third parties. The metric is highlighted as an indicator of the scale and reach of IHG’s brands. All figures and movements unless otherwise noted are at actual exchange rates and before other operating income and expenses.

Commenting on the results and trading, Andrew Cosslett, Chief Executive of InterContinental Hotels Group PLC said: ‘The company has had a good first half. Signings continue to run at record levels with almost 55,000 rooms signed into our development pipeline.

Increase in development pipeline and rooms open In the first half a record 54,246 rooms were signed and 7,430 net rooms added, with a closing pipeline of 187,487 rooms, giving IHG further confidence that it will exceed its target of 50,000-60,000 net organic room additions by the end of 2008 from the 30 June 2005 starting position.

* 54,246 rooms were signed in the first half; 32,220 in the Americas, 9,324 in EMEA and 12,702 in Asia Pacific.

* 187,487 rooms are now in the pipeline, up 29,496 (19%) since the start of the year, at 1,414 hotels.

* IHG’s development activity in EMEA gained pace, with 9,324 room signings (51 hotels) and 3,181 room openings.

* IHG’s development activity in Asia Pacific continues to be successful. In Greater China 32 hotels, 10,370 rooms, were signed in the first half, these were two InterContinentals, 15 Crowne Plazas, six Holiday Inns and nine Holiday Inn Expresses.

* IHG’s presence in the upscale segment was further enhanced with record signings. InterContinental signings maintained momentum from 2006 with 16 hotels signed (4,597 rooms) including nine in EMEA. The InterContinental pipeline of hotels to be opened now stands at 50. Crowne Plaza signed 39 hotels (12,117 rooms) in the first half, and maintains its position as the fastest growing upscale brand in Asia.

IHG maintains its focus on enhancing the quality of its portfolio, in conjunction with growth.

* 20,713 rooms opened; 14,727 in the Americas, 3,181 in EMEA and 2,805 in Asia Pacific.

* 13,283 rooms exited; 9,574 in the Americas, 2,672 in EMEA and 1,037 in Asia Pacific.

* The room count at the end of the period increased by 7,430 rooms to 563,676, more than double the net room additions in the first six months of 2006.

Americas: strong performance across all brands

Revenue performance RevPAR increased 6.3% with rate generating all of the increase. InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express each outperformed their market segments, with RevPAR up 9.5%, 7.4%, 4.9% and 7.8% respectively. Staybridge Suites and Candlewood Suites also showed continued growth, with RevPAR up 4.0% and 2.0% respectively.

Operating profit performance

Operating profit from continuing operations increased 12% from $197m to $220m. Continuing owned and leased hotel operating profit improved from $13m to $16m. The improvement was driven by increased occupancy and rate at the InterContinental New York, which benefited from robust market conditions and growth in market share. The InterContinental Boston made a small loss in the first half, as trading continues to improve post its November 2006 opening. Managed hotels profit fell $2m to $25m after a $3m impact from lower ancillary revenues and higher costs at one hotel, and increased revenue investment to support new signings and openings. Franchised hotels profit increased 13% to $209m reflecting RevPAR growth of 6.2%, net room count growth of 4.1%, and higher fees associated with changes in hotel and room count.

EMEA: solid RevPAR and profit growth

Revenue performance RevPAR increased 8.1%, driven by increased occupancy and 5.4% rate growth. The Middle East continued to perform strongly, growing RevPAR by 15.7%. Continental Europe delivered a RevPAR increase of 6.5%, with slower growth in Germany due to the benefit of the football World Cup last year. In the UK, Holiday Inn and Express by Holiday Inn outperformed their market segment, recording RevPAR growth of 7.9%.

Operating profit performance

Operating profit from continuing operations increased 33% from £18m to £24m. Continuing owned and leased hotel operations improved £2m to £1m after the impact of refurbishments.

The performance of the InterContinental Le Grand Paris continued to improve with a 17.8% RevPAR increase. The InterContinental London Park Lane is now fully operational and trading is encouraging.

Managed hotels profit was up 12% from £17m to £19m, benefiting from improved underlying trading and retained management contracts on assets disposed. Franchised hotels profit increased from £12m to £14m reflecting RevPAR growth of 6.8% and net room count growth of 4.9%.

Asia Pacific: outperformance in China

Revenue performance

IHG’s market leading positions in the region have led to further strong growth. RevPAR increased 9.1%, mainly driven by rate. InterContinental, Crowne Plaza and Holiday Inn all performed strongly, with RevPAR up 11.1%, 7.9% and 8.4% respectively.

Greater China

RevPAR increased 6.2%, driven by rate increases. Operating profit performance Operating profit from continuing operations was $27m. Owned and leased hotel operating profit increased 7% to $15m, after the impact of refurbishment activity at the InterContinental Hong Kong. Managed hotels profit was stable at $19m. The contribution from the increasing number of hotels under IHG management was offset by integration costs associated with the ANA joint venture in Japan and continued infrastructure investment in China.

Strengthening Operating System

IHG continues to demonstrate the strength of its revenue delivery to hotel owners through its reservation channels and loyalty programme, Priority Club Rewards:

* $3.2bn of rooms revenue booked through IHG’s reservation channels, up 21% and representing 46% of total rooms revenue.

* $2.5bn of rooms revenue from Priority Club Rewards members, up 15% and representing 35% of total rooms revenue.

* Internet revenues increased from 15.6% to 16.8% of total rooms revenue, 85% of which was from IHG’s own websites.

Overheads, Interest and Tax Total regional overheads increased £1m to £32m, wholly attributable to Asia Pacific after continued infrastructure investment in China. Central overheads increased 3% to £38m, in line with inflation. The net interest charge of £12m was significantly ahead of last year, driven by the InterContinental Boston finance lease charge and higher bank borrowings. The effective tax rate applied for the first half of 2007 is 23%. IHG’s tax rate may be more volatile in the immediate future due to changes in tax legislation, tax case law developments and possible settlements of prior year issues but in the longer term is expected, as previously indicated, to trend upwards.

Disposals and returns of funds

In the first half disposal proceeds of £58m were received. This included the sale of IHG’s 33.3% interest in Crowne Plaza London The City for £19m, and the disposal of Crowne Plaza Santiago for £11m. After the period end, IHG’s 74.11% interest in the InterContinental Montreal was sold for £17m. During the period 2.5m shares were repurchased under IHG’s ongoing buyback programme at a cost of £31m. There were 299m shares outstanding at the end of June, 306m on a fully diluted basis. IHG’s net debt at the period end was £872m including the $198m (£99m) finance lease on the InterContinental Boston. During the first half £709m was paid to shareholders by way of a special dividend with share consolidation and the third £250m share buyback was completed. A previously announced £150m share buyback programme will commence in the second half of this year.

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