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IHG shows 'immaterial' effects of accounting changes
InterContinental Hotels said new accounting standards had negligible effect on its underlying results, but shares in the Holiday Inn owner ticked up as revenue for 2017 was shown to more than double.
IHG restated its issues financial statements for 2016 and 2017 to show the effect of changes under the IFRS 15 accounting rules, including grouping together its businesses in new regional structures, 'fee business' lines and managed lease segments. However, cash flows are unaffected by all the changes.
The hotel operator's revenue in 2017 was restated at $4.08bn versus the original $1.78bn, while in 2016 was just 7% higher at $1.74bn versus $1.6bn.
This is partially as managed and franchised hotel cost reimbursements are now recognised on IHG's income statement on a gross basis, with revenue and a matching cost. Operating profit and cash flows are unaffected, likewise from underlying results. Application and re-licensing are also spread over the life of the contract under IFRS 15, having previously been recognised as revenue when billed.
Amounts paid to hotel owners to secure management contracts and franchise agreements were previously capitalised as intangible assets and amortised over the contract life but under IFRS 15 are now reclassified and deducted from revenue, with a matching reduction in amortisation. Also, when hotels were sold and the company retains a management contract, intangible assets are now derecognised and the associated amortisation charge eliminated, resulting in higher operating profit, when the fair value of the management contract had previously been recognised as an intangible asset, which was then amortised over the contract life.
Operating profit was 5% lower for 2017 at $724m versus $759m, while remaining almost exactly the same in 2016, while adjusted earnings per share were exactly the same in 2017 at 244.6 cents, or 1% higher in 2016 at 246.6¢ versus 245.1¢.
The ratio of net debt to EBITDA was lifted very slightly to 2.2 times from 2.1x.