Six Continents Trading Update

25th Feb 2002

Outlined here is a trading report from Six Continents. “Six Continents has performed substantially in line with expectations in the current financial year to date despite difficult trading conditions in the global hotel market. Successful marketing activity, supported by cost control, limited the reduction in Hotel profits in the first quarter. At the same time, we achieved strong profit growth in the ongoing Retail business, maintaining margins despite the regulatory cost increases. In Britvic, our soft drinks business, volumes and profits were again ahead of last year.
In Hotels the franchised businesses of Holiday Inn and Express performed very well in difficult market conditions, maintaining or increasing their RevPAR premium over their respective competitive sets. The owned and managed businesses, notably Inter-Continental, suffered the sharpest falls in RevPAR reflecting the city centre locations and guest characteristics of these hotels.
Inter-Continental and Crowne Plaza were hardest hit in North America with EMEA not far behind. Much less severe RevPAR falls were suffered by Holiday Inn and Express gains in EMEA and Asia Pacific.
Looking at the month by month performance of our hotel businesses from October through January, we see recovery trends in North America but more mixed patterns in EMEA.
Our response to the extraordinary decline in demand since the events of th September 2001 has been twofold. We have made major reductions in the running costs of our hotels, most particularly in staff costs. Concurrently we have invested in various initiatives to stimulate demand including substantial increases in the sales force, in marketing spend and in employee incentive schemes.
Overall hotel operating profits have improved since October when we reported a decline of £20m versus last year and are currently running at an average monthly decline (October through December) of £15m.
Our renovation of the ?Big 10? Inter-Continental hotels continues as scheduled. The Le Grand Inter-Continental in Paris closed in December and re-opens in Spring 2003. Work is under way on the South Tower in Chicago ile Madrid will be completed later this year.
Looking ahead is still difficult given the reduction in travel following the 11 September and the uncertainties surrounding the world economy. However, there are encouraging signs of recovery in internal US travel, principally affecting the midscale segments. In contrast, we have yet to see any significant recovery in transatlantic travel, particularly outbound from the United States, and thus any improvement in the performance of our upscale hotels in key gateway cities.
We said in our trading update at the end of September 2001 that a 1% change in RevPAR would impact full year operating profits in the Americas and EMEA by $9m and $15m respectively, before a reduction in associated costs. These relationships still apply. We also said that the net impact of the Inter-Continental refurbishment programme would be to decrease EMEA profits by $40m in the current financial year and this remains the case. On the positive side, we have first time contributions from the Posthouse hotels in the UK and Inter-Continental in Hong Kong and we continue to manage the cost base aggressively.
In Retail, our business is relatively resilient to any downturn in consumer spending. While our London business is still trading below last year?s levels, the outlook for the rest of the business remains reflecting the strength of our brand conversion programme.”


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