IHG Interim Results Presentation 22 nd August 2006 Agenda Interim - - PowerPoint PPT Presentation

IHG Interim Results Presentation

22nd August 2006

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Agenda

Interim Results Q & A Overview Operating Review

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Strong performance in H1 2006

• Business performing strongly:

– Total gross revenue up 14% to £4.1bn – RevPAR outperformance in all key profit generators – 11.2% global RevPAR growth – Continuing revenue up 16%*: continuing EBIT up 30%* – Interim dividend increased by 11% to 5.1p per share

Overview

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. * Before other operating income and expenses

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Hotel industry remains buoyant

• Low supply growth, high demand growth

– US room night demand + 3.6% last 12 months – US room supply +0.5% last 12 months

• 2007 and 2008 industry forecasts suggest continued growth in US

– RevPAR +6% per annum. – Industry revenue + 8% per annum

• Long term drivers remain favourable

– 3.3% CAGR global GDP growth 2006-10 – Doubling of US travel and tourism spend forecast by 2015 – Increase in global internet users from 870m in 2005 to 1.4bn by 2010 – Growth in low cost airlines and new sources of travellers, including China

Overview

Source: Smith Travel Research; GTN; Deloittes

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Strong performance in H1 2006

• Business performing strongly:

– Total gross revenue up 14% – RevPAR outperformance in all key profit generators – 11.2% global RevPAR growth – Continuing revenue up 16%*: continuing EBIT up 30%* – Interim dividend increased by 11% to 5.1p per share

• Further asset disposals:

– Sales proceeds of £680m; £3.0bn of hotels now sold – 90% of hotels sold successfully converted to managed or franchised – Long term EBIT stream of over £30m per annum created

• Progress on growth strategy:

– Room count up 3,469 - up at least 10k by year end 2006 – 41k rooms signed; pipeline now 130k rooms, 1,028 hotels, up 20%

Overview

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. * Before other operating income and expenses

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Agenda

Interim Results Q & A Overview Operating Review

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Financial Highlights

• Total gross revenue* up 14% to £4.1bn
• Total EBIT** of £127m
• Continuing EBIT** up 30% to £107m
• Adjusted continuing earnings per share*** up 132% to 19.0p
• Interim dividend increased 11% to 5.1p per share

Interim 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 ** Up 25% at constant exchange rate *** Before other operating items and expenses

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Total Group results impacted by asset sales

11% 152% (9)% 93% (17)% (17)% (28)% Change % 4.6p 5.1p Interim dividend 607 421 Weighted average shares (m) 20.4p 51.5p Basic earnings per share* 29% 25% Tax rate* 138 126 Profit before tax* (15) (1) Interest 153 127 Operating Profit* 193 160 EBITDA* 690 499 Turnover 6mths to 30 Jun 05 6mths to 30 Jun 06 £m

Interim Results

*Before other operating items and expenses Excludes results of Britvic, disposed in December 2005.

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Excellent growth in the continuing business

58% 93% +3pts 30% 28% 16% Change % 67 106 Profit before tax* (15) (1) Interest 24% 27% Margin 82 107 Operating Profit* 107 137 EBITDA* 340 394 Turnover 6mths to 30 Jun 05 6mths to 30 Jun 06 £m

Interim Results

* Before other operating income and expenses

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Strong regional continuing operating profit growth

28% 30% (16%) 60% 6% 26% Change % 107 137 Continuing EBITDA 25% 82 107 Continuing Operating Profit* (32) (37) Central Overheads 45% 10 16 Asia Pacific 9% 16 17 EMEA 21% 88 111 Americas CER** Change % 6mths to 30 Jun 05 6mths to 30 Jun 06 £m

Interim Results

* Before other operating income and expenses ** CER is constant exchange rate, translated at constant H1 2005 exchange rates

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Improving business mix

• 88% of EBIT* now recurring fee

income

• Geographic EBIT*

– 70% from Americas – 11% from Asia – 19% from EMEA

Managed Franchised Owned and leased**

Interim Results

Operating Profit Contribution

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% H1'04 H1'05 H1'06

% of EBIT

* Pre regional and central overheads ** 2005 and 2006 owned and leased adjusted fro closure of InterContinental London Park Lane

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H1'04 H1'05 H1'06 H1'04 H1'05 H1'06

Total gross revenue £bn* (rooms only)

H1'04 H1'06

Drivers of gross revenue change, %

Hotel franchising – high margin fee growth continues

Franchise fees £m

135 117** 111

Franchise EBIT £m (margin%)

117 (87%) 100 (85%)** 92 (83%)

2.5 2.2 2.0

Interim Results

(1%)

83% 101%

H1’06 vs H1’05 H1’05 vs H1’04

Avail. Rooms RevPAR 17%

H1’05

Note: based on constant USD:GBP translation rate of 1.80 *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 **Adjusted for one-off £7m liquidated damages receipt in the first half of 2005

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H1'04 H1'05 H1'06 H1'04 H1'05 H1'06

Total gross revenue £bn* (total hotel)

H1'04 H1'06

Drivers of gross revenue change, %

Hotel management -

• perating profit growth continues

Management fees £m

64 46 41

Managed EBIT £m (margin%)

39 (61%) 29 (63%) 23 (56%) 1.4 1.1 1.0

Interim Results

H1’05

24%

H1’06 vs H1’05 H1’05 vs H1’04

Avail. Rooms RevPAR F&B 10% 66% Transfers from owned 36% 14% 57%

(7%)

* 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, as it is derived from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands Note 1: Total Gross Revenue based on constant USD:GBP translation rate of 1.80 Note 2: Hotel management fees and EBIT exclude the results of leased properties

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H1'04 H1'05 H1'06

Continuing owned and leased estate – growing margins

31 25 20

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

Interim Results

36% 50%

H1’06 vs H1’05 H1’05 vs H1’04

Rate Occupancy F&B 44% 20% 38%

37 adjusted** H1'04 H1'05 H1'06 144 141 121 159 adjusted** 144 adjusted**

13%

29 adjusted** H1'04 H1'05 H1'06 22 adjusted** (14%) 15 (11%) 14 adjusted**(10%) 10 (7%) 6 (5%)

O&L revenues £m Drivers of revenue change, % O&L EBITDA (pre overheads) £m O&L EBIT (pre overheads) £m (margin%)

Note: based on constant USD:GBP translation rate of 1.80 ** Adjusted by substituting InterContinental London's H1 ’05 and H1’06 results for its H1’04 result , to reflect its closure for refurbishment in 2005

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Total Group operating cash flow

(5) (320) Net Cash/(Debt) (63) (46) Capital Expenditure 155 128 Cash flow from operations 5 5 Other (43) (37) Working capital 31 9 23 10 Depreciation

• Hotel depreciation
• Non hotel depreciation

153 127 Operating Profit* 6mths to 30 Jun 05 6mths to 30 Jun 06 £m

Interim Results

* Before other operating income and expenses and results of the Soft Drinks business, disposed in December 2005

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Significant free cash flow generated

74 115 Free Cash Flow 25 8 10 12 Maintenance Capital Expenditure

• Hotel capex
• Non hotel capex

107 137 Continuing hotels EBITDA* 6mths to 30 Jun 05 6mths to 30 Jun 06 £m

Interim Results

* Before other operating income and expenses

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Investment for future growth

• Total capital expenditure in first half of £46m
• Maintenance of retained assets and operating systems:

– £22m spent in the first half

• £4m continuing hotels, £6m sold hotels, £12m non hotel
• Refurbishment of retained owned and leased assets:

– £21m spent in the first half, £17m on InterContinental London Park Lane

• Expectations for the full year remain unchanged

– Maintenance and refurbishment £130m; growth investment £50m

• 2007 will see lower maintenance capital expenditure and near

elimination of refurbishment expenditure

Interim Results

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Asset disposal programme

In excess of £30m Estimated fee stream created 12x Post fee EBITDA exit multiple 90% (157 hotels; 32,334 rooms) Proportion kept under IHG's brands £3.0bn Proceeds received to date £2.9bn Net book value of hotels sold to date 175 hotels; 35,768 rooms Disposals to date

Interim Results

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Returns to shareholders on target

250

– First

497 Special dividend (June 06) 996 Capital return (July 05)

Still to be returned £m Returned to date £m

174 174 2,570 501 76 250 Total Special dividend (Dec 04)

– Third – Second

Share repurchase:

Interim Results

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Further returns of capital

• Net debt at half year of £320m
• £174m still to be returned to shareholders at 30 June 2006

– £68m remaining at 22 August 2006

• In excess of £400m further disposal proceeds this year
• Further returns will be made to shareholders

Interim Results

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Financial Highlights

• Total gross revenue* up 14% to £4.1bn
• Total EBIT of £127m
• Continuing EBIT up 30% to £107m
• Adjusted continuing earnings per share** up 132% to 19.0p
• Interim dividend up 11% to 5.1p per share

Interim 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

Interim Results Q & A Overview Operating Review

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RevPAR outperformance in all key profit generators

0% 2% 4% 6% 8% 10% 12% 14% 16%

InterContinental

• US

Crowne Plaza - US Holiday Inn - US Holiday Inn Express - US Holiday Inn & Express - UK InterContinental

• EMEA

All brands - China

IHG Segment

H1’06 RevPAR change, IHG key profit generators v segment

Source: Smith Travel Research; Deloittes

Operating review

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Growth in system contribution attracts owners

H1 2005 H1 2006

Operating review

42.6% 47.7%% Total Gross Revenue £4.1bn, +14%

Enhanced reservation channel and loyalty club room night delivery

32.1% 34.1% PCR PCR Channels Channels

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IHG Journey

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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Driving performance

Operating review

Organisation focused

• n common targets

and priorities Improved

• rganisational

structure Strengthened management capabilities Added more developers signing new deals Increased infrastructure in China Deepened brand analysis and insight Refocused sales and marketing activities Innovation in

• perating system

and IT

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538 17 (8) (6) 541 Start Open IHG exit Other exit H1

Growth in room count gaining momentum

Room count change during H1 2006, ‘000

Operating review

548

2006 year end forecast

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Pipeline now 130,100 rooms

• Represents 1,028 hotels
• 85% of pipeline is "new build"
• 40% of pipeline already

under construction

• c. 80% of current pipeline

expected to open by end 2008

• All brands and geographies

well represented

Pipeline of signed deals, 2003-H1 2006, ‘000 rooms

71 83 109 130

2003 2004 2005 H1 2006

Operating review

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All brands growing pipeline around the world

• 20.000

40.000 60.000 80.000 100.000 120.000 140.000 Dec'02 Jun'03 Dec'03 Jun'04 Dec'04 Jun'05 Dec'05 June'06

Operating review

Holiday Inn Holiday Inn Express InterContinental Crowne Plaza Candlewood Staybridge Suites Indigo

Global IHG Pipeline

Rooms

Americas Holiday Inn

Rooms

• 5.000

10.000 15.000 20.000 25.000 Dec'02 Jun'03 Dec'03 Jun'04 Dec'04 Jun'05 Dec'05 June'06

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14% 10% 8% 64% 51% 35% 23% 26% 0% 30% 17% 9%

0% 10% 20% 30% 40% 50% 60% 70%

Holiday Inn Candlew ood Suites InterContinental Holiday Inn Express Staybridge Suites Crow ne Plaza Share of Supply Share of Pipeline

Growing our market share

Operating review

Pipeline share US new build versus current market share

*

Source: STR/Dodge construction pipeline Note: Candlewood Suites and Staybridge Suites share of midscale and upscale extended stay respectively * Crowne Plaza has a 34% conversion market share

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US industry revenue growth outstrips RevPAR

Total US Industry Room Revenue Growth vs RevPAR Growth

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10% 12% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Room Revenue Growth RevPAR Growth

RevPAR growth lower due to increased room supply

Revenue growth 6% CAGR RevPAR growth 4% CAGR

Source: STR

Operating review

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50 100 150 200 250 300 350 400 450 500 550 600 650 700 Luxury Upscale Midscale Budget

Industry growth across key markets and segments

Source: IHG estimates Note: growth across top 20 global markets

1 2 3 4 5 6 Luxury Upscale Midscale Budget

Current global room distribution by segment Forecast global room growth by segment, 2005-10

USA China Japan Other

Rooms (Millions) Rooms ('000s)

Operating review

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Operating review

Revised brand positioning for InterContinental

E-concierge

Previous demographic

• Tended to be older (>55)
• “Empty nesters”
• Conservative and traditional

"In the know" demographic

• Aged 35-54
• Young family; holiday at resorts
• Seek authentic and enriching experiences

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New marketing focus

Operating review

"In the know" campaign Aston Martin racing sponsorship CNN sponsorship

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Operating review

Delivering the brand experience

• Launched 2004

– 78% occupancy 2006 ytd – June 2006: highest RevPAR in

market

• 6 InterContinentals signed in US in 18

months post opening Atlanta

InterContinental Atlanta

24 Languages All 140 GMs Trained 18 Leadership Sessions 420 Management Sessions 1,800 Employee Sessions 40,000 Hotel Employees Attending

36 Baltimore

5 new InterContinentals opened around the world

Operating review

Panama Mar Menor Kansas City Bora Bora

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Operating review

InterContinental brand performance improving

20 40 60 80 100 120 140 160 180

2004 2005 H1 2006

InterContinental Total Gross Revenue H1` 2006 EMEA +11% Asia Pacific +11% Americas +10% 2005 +2.2% outperformance H1 2006 +3.4% outperformance RevPAR growth outperformance versus global luxury segment

InterContinental System and Pipeline Hotels

Pipeline System

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Operating review

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New marketing approach

Operating review

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New marketing approach

Operating review

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New marketing approach

Operating review

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5000 10000 H2 2003 H1 2004 H2 2004 H1 2005 H2 2005 H1 2006

US Holiday Inn Prototype

Operating review

• Launched 2004
• 13 Prototypes now open

– Already at a 7% RevPAR

premium*

• 131 Prototypes under

development

Holiday Inn Prototype

• pened

Holiday Inn Prototype, opened 2004

* Premium to IHG's Holiday Inn estate

Americas Holiday Inn signings 2003-2006

Rooms

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Hotel indigo launched 2004

Operating review

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Right brand positioning, right product

Operating review

Indigo Gold Coast

Hotel Indigo, Houston

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Strong Development Pipeline

Open (4) Pipeline – under construction (6) Pipeline (11) In final negotiation (11)

Operating review

Total of 21 hotels in less than two years

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Operating review

Delivering against our targets

47 136 538k Starting position 30/06/2005 +78 +15-25 +50k-60k Target by end 2008 +20 +10 Hotels open in China +8 +6 InterContinentals +10k +3k Net rooms growth 2006 year end forecast 30/06/06

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Agenda

Interim Results Q & A Overview Operating Review

IHG Interim Results Presentation

22nd August 2006