IHG Full Year Results Presentation 2 nd March 2006 Andrew Cosslett - - PowerPoint PPT Presentation

IHG Full Year Results Presentation

2nd March 2006

Andrew Cosslett

Chief Executive

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Agenda

Headlines Full Year Results Operating Review Q & A

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Headlines

• Business performing strongly:

– Total gross revenue up 9% to $14bn; EBIT up 42%; margin + 4pts – 2006 has started well with continued RevPAR growth

• IHG transformation – £2.8bn of hotels sold or on market:

– Conversion of O&L hotels to M&F – 144 sold/under contract to date – Full exit from Britvic, with total proceeds of £371m* – Return of funds continues – further £500m committed

• Strategy execution:

– Room count up 3,300; 35,000 rooms opened – Pipeline 108,500 rooms, up 31% – IHG system delivers $4.8bn (41% of total system room revenue), up 19% – Actions to drive future growth

Headlines

* Including additional dividends and IPO proceeds Note: Total gross revenue is defined as total room revenue from franchise hotels and total revenue from managed, owned and leased hotels. It is NOT revenue attributable to IHG, deriving as it does from hotels owned by 3rd parties. We highlight the metric as an indication of the scale and reach of our brands.

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Agenda

Full Year Results Q & A Headlines Operating Review

Richard Solomons

Finance Director

2005 results and business update

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Financial Highlights

• Total gross revenues* up 9% to £8bn ($14bn)
• Adjusted earnings per share** up 13% to 38.2p
• Final dividend up 7% to 10.7p per share; full year dividend 15.3p
• Further £500m dividend with share consolidation

Full Year Results

*Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands ** Before special items

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Total Group results impacted by asset sales

7% 10.0p 10.7p Final dividend

• 710

521 Weighted average shares (m) 13% 33.9p 38.2p Adjusted earnings per share*

• 17%

29% Tax rate* (6%) 324 306 Profit before tax* 50% (22) (33) Interest* (2%) 0% (9%) 346 269 77 339 269 70 Operating profit* Hotels Soft drinks (10%) 519 469 EBITDA* (13%) 2,204 1,910 Turnover Change % 12mths to 31 Dec 04 12mths to 31 Dec 05 £m

* Excludes special items

Full Year Results

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Strong growth in continuing business

48% 112 166 Profit before tax* 6% (22) (24) Interest* 18% 22% Margin 42% 134 190 Operating Profit* 35% 193 260 EBITDA* 17% 731 852 Turnover Change % 12mths to 31 Dec 04 12mths to 31 Dec 05 £m

* Excludes special items Note: continuing business excludes IHG’s predominantly midscale European portfolio as a decision to sell was made pre-year end

Full Year Results

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Strong regional continuing operating profit growth

* Excludes special income and expenses

35 193 260 Continuing EBITDA 42 134 190 Continuing Operating Profit* 14 (57) (65) Central Overheads 24 17 21 Asia Pacific 96 24 47 EMEA 25 150 187 Americas Change % 12mths to 31 Dec 04 12mths to 31 Dec 05 £m

Full Year Results

12 0% 2% 4% 6% 8% 10% 12% 14% US upscale US midscale US extended stay UK China IHG Segment

2005 RevPAR change, IHG estate v segment

Significant US upscale and midscale RevPAR premium maintained

Full Year Results

Note: blended segment

RevPAR growth across all key business areas

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Cost control driving profit margin increases

• Continuing revenues up 17%
• Inflation adjusted direct, regional and central overheads held flat:

– Regional overheads up £5m after investments in China

infrastructure, US development and technology

– Central overheads up £8m, £4m of which due to IFRS treatment of

share scheme costs

• Continuing operating profit margin up over 4% pts to 22%
• System funds (marketing, reservations and Priority Club

Rewards) up 17% to nearly $600m

Full Year Results

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Improving business mix

• 88% of continuing EBIT now

high quality fee income

• Geographic EBIT:

– 78% from the Americas – Asia now up to 8%

* Pre regional and central overheads ** 2005 O&L continuing only Note: based on constant USD:GBP translation rate of 1.83

Business mix*

0% 20% 40% 60% 80% 100% 2003 2004 2005

% of EBIT

Managed Franchised Owned and leased**

Full Year Results

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2003 2004 2005 2003 2004 2005

Total gross revenues £bn* (rooms only)

2003 2004 2005

Drivers of gross revenue change, %

Hotel franchising – high margin fee growth continues

Franchise fees £m

251 225 202

Franchise EBIT £m (margin%)

214 (85%) 189 (84%) 170 (85%) 4.4 4.0 3.6

*Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands . Note: based on constant USD:GBP translation rate of 1.83

Full Year Results

(3%) 103% 18% 77% 5% 2005 vs 2004 2004 vs 2003 Avail. Rooms RevPAR Other

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2003 2004 2005 2003 2004 2005

Total gross revenue £bn* (total hotel)

2003 2004 2005

Drivers of gross revenue change, %

Hotel management - growth and margin enhancement

Management fees £m

106 79 64

Managed EBIT £m (margin%)

62 (58%) 43 (54%) 31 (48%) 2.4 1.9 1.5

Full Year Results

(1%) 21% 2005 vs 2004 2004 vs 2003 Avail. Rooms RevPAR F&B

Note: based on constant USD:GBP translation rate of 1.83 Note 2: Hotel management fees and EBIT exclude the results of leased properties * Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands

9% 71% Transfers from owned 27% 37% 30% 6%

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2003 2004 2005 2003 2004 2005

O&L revenues £m Drivers of revenue change, %

Retained* owned and leased estate – growing margins

O&L EBITDA (pre overheads) £m

41 40 15

O&L EBIT (pre overheads) £m (margin%)

20 (11%) 21 (12%) 1 (1%)

Full Year Results

24% 11% 54% 2005 vs 2004 2004 vs 2003 Rate Occupancy F&B

Note: based on constant USD:GBP translation rate of 1.83 * Retained estate comprises the £1bn of real estate IHG intends to maintain ownership of ** Adjusted by substituting InterContinental London's 2005 results for its 2004 result , to reflect its closure for refurbishment in 2005

40% 36% 44% 33 adjusted** (17%) 54 adjusted**

2003 2004 2005

182 161 116 195 adjusted**

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Total Group operating cash flow

(1,116) (88) Net Cash/(Debt) 143 64 Soft Drinks 372 359 Hotels 515 423 Cash flow from operations 16 12 Other (58) (26) Pension obligation 38 (32) Working capital 173 130 Depreciation / Amortisation 346 339 Operating Profit* 12mths to 31 Dec 04 12mths to 31 Dec 05 £m

* Excludes other operating income and expenses

Full Year Results

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Significant free cash flow generated

125 204 Free Cash Flow (68) (56) Maintenance Capital Expenditure 193 260 Continuing hotels EBITDA* 12mths to 31 Dec 04 12mths to 31 Dec 05 £m

* Excludes special income and expenses

Full Year Results

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Business transformation programme - hotels

Circa £1bn, currently including InterContinentals in London, Hong Kong, New York, Paris, Atlanta and Boston Retained hotels Circa £600m European portfolio Net asset value of hotels to be sold In excess of £20m Estimated fee stream 13x Post fee EBITDA exit multiple 88% (126 hotels; 24,900 rooms) Proportion kept under IHG's brands £2.3bn Proceeds received to date £2.8bn Net book value of hotels sold to date or to be sold 144 hotels; 28,300 rooms Disposals to date

Full Year Results

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Business transformation programme - Britvic

• Full exit from investment in Britvic via IPO
• Proceeds to the group:

£m Additional dividends 136 Sale of shares 235 Total 371

• Net debt deconsolidated*

£209m

Full Year Results

*Note: net debt deconsolidated as at last reported balance sheet 30/09/05

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Further return to shareholders announced today

250

– First

500 Special dividend (Q2 06) 996 Capital return (July 05)

Still to be returned £m Returned to date £m

789 250 39 1,958 501 211 Total Special dividend (Dec 04)

– Third – Second

Share repurchase:

£2.75bn of returns announced to date

Full Year Results

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Investment in the future

• Maintenance of retained assets and operating systems:

– c. £70m in 2006 – Majority is for the central systems that support managing

and franchising

• Refurbishment of retained owned and leased assets:

– c.£60m forecast for 2006, including InterContinental

London and InterContinental Boston fit out

• Growth investment:

– Inducements, loans and joint venture stakes – c.£50m forecast for 2006

Full Year Results

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Financial Highlights

• Total gross revenues* up 9% to £8bn ($13.9bn)
• Adjusted earnings per share** up 13% to 38.2p
• Final dividend up 7% to 10.7p per share; full year dividend 15.3p
• Further £500m dividend with share consolidation

Full Year Results

*Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands . ** Before special items

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Agenda

Full Year Results Q & A Headlines Operating Review

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Buoyant hotel industry

• RevPAR growth:

– 8.4% in US – record 1bn roomnights sold – 13.1% in China – 3.3% in UK, despite terrorist attacks – Continental Europe mixed but signs of recovery

• International travel drives market:

– Air travel revenue passenger kilometres up 7.6% – 18% increase in low cost capacity in last 12 months – More people on the move – international arrivals up 5.5% to 808m – China arrivals up 13%

Operating review

Source: WTO, YTD November data, IATA

Market remains below 2000/1 peak

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2005 – strong balanced growth

Note: Total gross revenue is defined as total room revenue from franchise hotels and total revenue from managed, owned and leased hotels. It is NOT revenue attributable to IHG, deriving as it does from hotels owned by 3rd parties. We highlight the metric as an indication of the scale and reach of our brands.

Growth in Total Gross Revenue, 05/04 (Total = $14bn) Share of total gross revenue 05/04 5% 9% 14% EMEA Americas Asia Pacific

60% 28% 12%

Operating review

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2005 – a year of transition for IHG

• Asset disposals on track
• Return of funds programme continues to plan
• Strengthened leadership team, with key roles filled
• Organisation changes:

– Dedicated InterContinental teams created – Developer teams expanded and refocused – 15 new hires – China infrastructure – Centralised key functions

Headlines

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Selling assets has unlocked IHG future

• Organisation symmetry – common managed & franchised focus
• Organisation alignment – common goals/processes
• Closer to owners – created partners from competitors
• Financially attractive model – less capital, predictable returns
• Revised strategy to deliver growth – stretching target

Operating review

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A sharper focus on growth

Goal Target Strategy Priorities

Faster growth by making IHG’s brands the first-choice for guests and hotel owners By end 2008: Net, organic growth of 50,000 - 60,000 rooms Build the industry’s strongest operating system focused on the biggest markets and segments where scale really counts

• Brand performance
• Excellent hotel returns
• Market scale/knowledge
• Aligned organisation

Operating review

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$14bn hotel revenue supported by IHG system

System room revenue $11.8bn, +9% IHG delivery $4.8bn, +19% Web presence System funds Field sales force Reservations systems Market coverage Loyalty programme Hotel distribution Brand portfolio

Operating review

Target

By end 2008: Net, organic growth of 50,000 - 60,000 rooms (base 538,000)

Operating review

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Roomcount increases driven by four key variables

Signings Pipeline Openings Exits

Operating review

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43 27 23 22 19 22 H1 2003 H2 2003 H1 2004 H2 2004 H1 2005 H2 2005 Signings, 2003-2005, ‘000 rooms

Signings accelerating fast

Note: 2003 signings excludes Candlewood

2006 sees momentum continue with 11,100 rooms signed to end February vs 3,200 in same period in 2005

Operating review

70,000 signings in 2005

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InterContinental, San Francisco

Major wins across the globe in 2005

QMH conversions in UK InterContinental, Penang

Operating review

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Pipeline at record high – 108,500 rooms; 884 hotels

• Two thirds of rooms open

within 2 years of signing

• Approximately 80% of current

pipeline likely to open by 2008

• 38% under construction
• New hotel opening process

Largest pipeline in the industry

108 71 83 2003 2004 2005

Pipeline of signed deals, 2003-2005, ‘000 rooms

Operating review

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35,000 rooms opened in 2005; 3,300 added net

11,800 net rooms added before South African master franchise and hurricane exits; 60% of exits driven by IHG

538 534 35 13 6 1 2 9 S t a r t O p e n I H G e x i t S

• u

t h A f r i c a D i s p

• s

a l s H u r r i c a n e e x i t s O t h e r e x i t F i n i s h

Roomcount change, 2004/2005, ‘000

Operating review

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Exits replaced with higher quality rooms

• Net new rooms in 70% of exit

locations in US in last 2 years

• These new hotels are:

– 7-8 pts better on quality score – Smaller but more efficient – 20% higher ADR versus previous

hotel presence

– 69% new build

• Quality-led exits to remain around

underlying 2005 rate until 2008

% of locations with net room growth

• ver pre-exit levels over time

0% 10% 20% 30% 40% 50% 60% 70% 80% 1 year after 2 years after

Opened Signed

Operating review

Priorities

• Brand performance
• Excellent hotel returns
• Market scale/knowledge
• Aligned organisation

Operating review

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All brands grew revenue in 2005

62%

100 200 300 500 Extended Stay & Indigo Crowne Plaza InterContinental Holiday Inn

19% 15% 4%

Note: Total gross revenue is defined as total room revenue from franchise hotels and total revenue from managed, owned and leased hotels. It is NOT revenue attributable to IHG, deriving as it does from hotels owned by 3rd parties. We highlight the metric as an indication of the scale and reach of our brands. Rounded to nearest $100m

Growth in Total Gross Revenue, $m, 05/04 (Total increase = $1.1bn) Share of total gross revenue 2005

Operating review

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71 Holiday Inn and 135 Express opened in 2005

Yuma, USA New York, USA Moscow, Russia

Operating review

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Holiday Inn the most stayed at international hotel brand in China

6% 6% 7% 16%

UK US Global China

• Growing in all parts of business

Total gross revenue growth, 05/04

Operating review

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542 Holiday Inn hotels now in pipeline

Exits Hotels

• pened

Deals signed Capital plans

• Growing in all parts of business
• Driving quality in Americas:

– 11 full service prototypes

• pened and 90 in the pipeline

– 320 new hotels signed – 21,000 rooms removed

Americas Holiday Inn quality enhancements, 2005, # hotels

688 320 157 136

Operating review

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• Growing in all parts of business
• Driving quality in Americas:

– 11 full service prototypes

• pened and 90 in the pipeline

– 320 new hotels signed – 21,000 rooms removed

• Product changes and innovation:

– “People notice”; “ehost” – Express shower and bedding – Express royalty up to 6% – Review of all marketing elements

• Global research underway

Holiday Inn brand Q4 RevPAR up 13%

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Resort Berchtesgaden, Germany

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Aphrodite Hills Resort, Cyprus

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Presidente Merida, Mexico

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Abu Soma, Egypt

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Aqaba Resort, Jordan

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Dusseldorf, Germany

Operating review

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InterContinental adds 7 hotels in 2005 (4 in 2004)

InterContinental Financial Street – Beijing, China

Operating review

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• System at 137 (2004: 132);

pipeline of 27 (2004:21)

• Asset quality development:

– US wins – Resort expansion – New build prototypes – China growth – 5 now open – London repositioning

• 17 signed in 2005 (2004: 7)

3 more signed since year end. On track for 15-25 net openings by end 2008

InterContinental rooms signed, 2003- 2005 2,300 2,100 5,500

2003 2004 2005

Operating review

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• New brand positioning:

– Upweighted media – Campaign has highest travel

product recall

– Rolling out to 40,000 staff – Phase 2 product initiatives

• Dedicated teams in place:

– Development – Operations structure

• Strengthened owner relations

Operating review

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Glasgow, Scotland Pudong, China Acapulco, Mexico

Operating review

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• Distribution growing fast:

– Highest signings rate (43) – 235 hotels open (2004: 215) – 54 in pipeline (2004: 37)

Crowne Plaza rooms signed, 2003- 2005

5,500 6,700 11,500

2003 2004 2005

Operating review

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• Distribution growing fast
• Building brand position:

– “Place to meet” sees group

demand up 16% in US

– Propensity to try almost

doubled in last 12 months

– EMEA roll-out of US sleep

advantage programme

– Top 3 position in China and

fastest growing Total Crowne Plaza roomnights sold up 4% in 2005

Operating review

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• Staybridge:

– Pipeline up 50% to 79 hotels – 100th under construction – System delivery up 30% – UK launch – new management contract

• Candlewood:

– 83 now in pipeline – Leading customer service scores in

extended stay segment

– Renovations to maintain performance

Total extended stay roomnights sold up 6% in 2005 Sioux Falls, USA Jefferson City, USA

Operating review

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• Three hotels open:

– 8 signed in pipeline

• Unique brand positioning
• 50% revenue delivery by IHG
• $127 average rate achieved:

– Atlanta: 120% uplift on conversion

• Brand and development team in place

Chicago Gold Coast, USA Nashville, USA

Operating review

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Priorities

• Brand performance
• Excellent hotel returns
• Market scale/knowledge
• Aligned organisation

Operating review

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Top line delivery Top line delivery

Excellent hotel returns – two key drivers

Top line delivery Top line delivery

• Internet growth – 86% direct
• Priority Club Rewards - $3.8bn

contribution, 16% up in 2005

• Leveraging scale – VCRO and

MACRO reservations

• Internet growth – 86% direct
• Priority Club Rewards - $3.8bn

contribution, 16% up in 2005

• Leveraging scale – VCRO and

MACRO reservations

Operating review

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In-hotel efficiency In-hotel efficiency

Excellent hotel returns – two key drivers

In-hotel efficiency In-hotel efficiency

• New prototypes reduce build

cost and boost returns

• Best practice integration with

IHG systems

• Standardised processes

improving efficiency

• New prototypes reduce build

cost and boost returns

• Best practice integration with

IHG systems

• Standardised processes

improving efficiency

Operating review

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Driving hotel returns – core O&L assets

Atlanta New York New York Boston Hong Kong Atlanta Le Grand, Paris London

Operating review

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Priorities

• Brand performance
• Excellent hotel returns
• Market scale/knowledge
• Aligned organisation

Operating review

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Scale counts

• More scale in a market drives more delivery:

– UK: 64% system delivery – Spain: 30% system delivery

• Absolute scale gives more opportunity to drive performance:

– Buying power – Marketing spend – Brand premia

Operating review

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Building scale in priority markets

• Focus on scale markets:

– 90% pipeline in 12 top markets – Japan and Spain still small

• Investing for growth:

– Development teams up 40% – China infrastructure – Travel flows

• IHG share in top 12 markets: 4%

Operating review

Pipeline rooms by country, 2005, % of total

10% 12% 2% 12% 64%

All other Other scale markets UK China US

90% in scale markets 90% in scale markets

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Working with major owners around the world

Shanghai Greenland Group

• Partnered with

Lehman and Realstar

• Purchased 79 hotels

in UK March 2005

• Significant assets

under management

• Purchased 13 US

hotels Dec 2005

• One of the largest

REITs in US

• Converting Baltimore

InterContinental

• Signed 4 hotels with

IHG Feb 2006

• 3rd biggest real estate

company in China

• Significant landbank

for future growth

Operating review

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Priorities

• Brand performance
• Excellent hotel returns
• Market scale/knowledge
• Aligned organisation

Operating review

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2005 – alignment and focus

• Strategy and target set
• Key positions filled:

– CIO – Tom Conophy – HR – Tracy Robbins – Global Franchising – Steve Porter – CMO – Peter Gowers

• Global functions centralised:

– Finance, HR, IT

• Engaged organisation:

– Focus on target; focus on owners

Operating review

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2006 – investing for future performance

• Strengthen core capabilities to drive long-term profitable growth
• Investment in four key priorities – modest overhead increase:

– Brands: marketing roles, global research – Hotel returns: focused teams, IT development – Market scale and knowledge: China investment, global franchising – Organisation alignment: CIO, cost benchmarking, strategic planning

• Growth potential and rising margins

Operating review

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A new chapter for IHG . . .

• It’s all about growth
• It’s all about profitable growth
• The business is engaged
• Margins are rising
• Investing for the future
• Building operating system power
• Forging new relationships

Target

By end 2008: Net, organic growth of 50,000 - 60,000 rooms 588 – 598,000 room count

Operating review

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China, end 2005 - 51 hotels and 17,000 rooms open

QINGDAO SHANGHAI SHENZHEN GUANGZHOU CHENGDU HAINAN HONGKONG/MACAU XIAMEN WUHAN CHONGQING HANGZHOU TAIPEI ZHUHAI ZHANJIANG DAYA BAY SUZHOU NANJING HEFEI Harbin SHENYANG BEIJING TIANJIN HOTHOT JINAN ERDOS ZHENGZHOU JIUZHAIGOU

. . . 6,000 more rooms recently added

Operating review

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4,500 rooms with Chengdu International Exhibition and Convention Group

Operating review

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1,400 rooms with Shanghai Greenland Group

Operating review

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China growing fast – almost 6,000 rooms signed

51 hotels open; 38 in pipeline at year end and 10 signed in 2006 Holiday Inn, Chengdu Express, Shanghai InterContinental, Jiuzhaigou InterContinental, Chengdu

Operating review

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InterContinental Nanjing – tallest hotel in the world

Under construction

Operating review

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Agenda

Full Year Results Q & A Headlines Operating Review

IHG Full Year Results Presentation

2nd March 2006