InterContinental Hotels Group PLC · LSE:IHG
InterContinental Hotels — Investor Day (November 2010)
55 slides from InterContinental Hotels's investor day presentation, Nov 23, 2010
Slide 1: The China Opportunity
The China Opportunity Keith Barr & Jerry Huang InterContinental, Nanjing 1
Slide 2: Greater China in the context of Asia Pacific
Greater China in the context of Asia Pacific Managed & Franchised EBIT¹ Total system (rooms)² Total pipeline (rooms)² 41% 55% 73% 27% 45% 59% Greater China Rest of Asia Pacific Source: IHG. ¹Managed & franchised EBIT = Sept 2010 YTD managed & franchised profit after all Asia Pacific regional overhea
Slide 3: Agenda
Agenda • China market update and forward trends • The China hotel market opportunity • Why IHG is winning in China • Our future growth strategy 3
Slide 4: China market update and forward trends
China market update and forward trends Crowne Plaza, Suzhou 4
Slide 5: China market update and forward trends
China market update and forward trends Strong Massive Favourable Government economic city nature support for fundamentals development of growth tourism 5
Slide 6: Robust GDP growth into the future
Strong economic Robust GDP growth into the future fundamentals Key drivers China Annual Real GDP Growth (%) 14 • Rapid urbanisation 13.4% • Massive infrastructure 12 investment • Increased private 10 9.6% consumption 9.2% 9.1% 8 7.9% 6 6.1% 4 2005 2010 2015 2020 2025 Source: McKinsey Global Institut
Slide 7: Continued urbanisation will drive sustainable economic development
Strong Continued urbanisation will drive economic sustainable economic development fundamentals China Real total GDP Trillion RMB1 100 97 • 300 million people 80 8.8% CAGR have moved to the 60 cities in the last 40 28 20 years Urban2 20 Rural 4 • By 2025, >350 million 0 additional people will 1990 2
Slide 8: Urban development will be highly concentrated by 2025
Massive Urban development will be highly city concentrated by 2025 development Beijing • 22 clusters (7% of land area) Cluster will account for 72% of GDP¹ in 2015 • Shanghai and Beijing clusters contribute most to GDP (21%) Shanghai in 2015 Cluster • Central / West China will experience higher grow
Slide 9: Fast infrastructure growth will create new markets and better link existing ones
Strong Fast infrastructure growth will create new economic markets and better link existing ones fundamentals +33% 120 Railway length 90 226 Transport „000 Km infrastructure 2010 2020 2010 growth Expressway 75 +54% 2010 - 2020 length 65 100 „000 Km 2010 2020 2010 +27% 3762 192 244 Airports Number 20
Slide 10: The emerging upper middle class will drive leisure demand
Favourable The emerging upper middle class will drive nature leisure demand of growth Urban households by income bracket1 Millions of households • In <15 yrs, China‟s urban wealthy and upper middle 214 363 100 class together will be >2x US Wealthy • China has much younger wealthy consumers: • 80% ar
Slide 11: Tourism will be developed as a strategic pillar of the economy
Government Tourism will be developed as a strategic support for pillar of the economy tourism China has four traditional pillar industries The importance of the pillar industries • Machinery & Electronics • Supported by the government • Petroleum & Chemical • Key to future economic plans • Construct
Slide 12: In 30 years time, China will have …
In 30 years time, China will have … 2040 (GDP RMB Tr1 / Urbanisation rate%) (205 tr / 73%) 2030 (127 tr / 65%) 2025 2023 (97 tr / 62%) 2010 2012 (85 tr / 60%) (30 tr / 47%) (36 tr / 49%) The longest The world’s 3rd More wealthy > 220 cities with Largest recipient Similar GDP as high-speed rail large
Slide 13: The China hotel market opportunity
The China hotel market opportunity Holiday Inn Hangzhou, Central Business District 13
Slide 14: The China hotel market opportunity
The China hotel market opportunity Large opportunity The China hotel Significant growth for branded market today in industry rooms upscale / midscale players 14
Slide 15: China hotel market today is dominated by the midscale and economy segments
China hotel market today is dominated by The China hotel market today the midscale and economy segments 2010 No. of rooms Million rooms = 2.3m 10 9.1 Dominated by 9 Luxury / international players: 8 Upper Upscale / 7.5 Upscale • IHG has the largest 7 8% 7.8 6.1 total branded share 6.7 6 4.9 5 USA 4
Slide 16: China's hotel market is expected to overtake the U.S. by 2025
China‟s hotel market is expected to Significant growth in industry rooms overtake the U.S. by 2025 Projected room supply for China Million rooms 10 9.1 9 China 7.5 8 USA 7 7.8 6.1 6.7 6 4.9 5 By 2039 China‟s room supply 4 will be: 3 • 4x the size it is today 2 2.3 • Almost 2x the size of the US 1 ma
Slide 17: Building from a very low per capita basis
This is building from a very low per capita Significant growth basis, which will still provide additional room in industry rooms for growth even beyond 2040 # of rooms Lodging spending Room revenue as per capita1 per capita1 % of real GDP room / person USD / person percent Year 0.015 475 1.03 2008 %
Slide 18: Demand growth has now caught up with supply
Demand growth has now caught up with Significant growth in industry rooms supply - driven by domestic, business guests Domestic vs International (industry nights sold) Business vs leisure (industry nights sold) 15% 27% 85% 73% Domestic International Business Leisure Source: Horwath Asia Pacific, Chi
Slide 19: Luxury / upper upscale / upscale is growing fast while midscale remains sizeable
Large opportunity Luxury / upper upscale / upscale is growing for branded upscale / midscale fast while midscale remains sizeable players 2010 2020 (likely) 2039 (likely) No. of rooms No. of rooms No. of rooms = 2.3m = 4.8m = 9.1m Luxury / Upper Upscale / 5% Upscale 4% Midscale Economy Source: NBS;
Slide 20: Significant opportunity for branded players
Large opportunity for branded upscale / midscale Significant opportunity for branded players players China branded¹ rooms share growth Other markets branded¹ rooms share 2010 2020 2030 Branded 20% US = 70% 35% 48% UK = 60% Unbranded Continental Europe = 40% IHG share of China branded¹ rooms Q3 2010
Slide 21: Brands are important for Chinese consumers as a signal of quality
Large opportunity Brands are important for Chinese consumers for branded upscale / midscale particularly as a signal of quality players Chinese consumers prefer famous brands They believe well-known brands signal quality % of strongly agree or agree % of strongly agree or agree “I always buy famous
Slide 22: International brands deliver highest returns to owners
Large opportunity International brands deliver highest returns for branded upscale / midscale to owners players 2009 RevPAR premium of branded hotels to unbranded 120 100 RevPAR premium (RMB) 80 60 = 39% = 25% 40 premium premium 20 = 4% premium 0 = 1% -20 discount 5* International Brand 5* Domestic
Slide 23: Why IHG is winning in China
Why IHG is winning in China • Well established as the leading international hotel operator • Broad portfolio of strong brands in key locations • Longest established loyalty programme • The deepest relationships with key strategic partners • The most focused development strategy • Only international
Slide 24: Why IHG is winning in China
Why IHG is winning in China Holiday Inn Express, Hangzhou Grand Canal 24
Slide 25: Well established as the leading international hotel operator
Well established as the leading international hotel operator IHG System Size and Pipeline by Brand, rooms („000) 100 90 80 70 Pipeline 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 Q3 2010 Source: IHG 25
Slide 26: Will continue to be the leading international hotel operator
Will continue to be the leading international hotel operator 100 System Pipeline 90 80 No of rooms „000 70 60 50 40 30 20 10 0 IHG Wyndham Accor Starwood Marriott Shangri La Hyatt Hilton Source: IHG Q3 2010; other data is STR Global September 2010 26
Slide 27: Industry leading upscale & midscale distribution
Industry leading upscale & midscale distribution 100 80 Pipeline No of rooms „000 55% 60 84% 40 System 20 0 Source: IHG Q3 2010 27
Slide 28: A managed model with minimal capital expenditure
A managed model with minimal capital expenditure • Management contract focus (98% of system and pipeline) – Ensures consistent delivery of guest experience – Imbeds operational capability – Preferred by owners with limited operating experience – Potential to franchise Holiday Inn Express given the m
Slide 29: Our pipeline is not only large, but robust
Our pipeline is not only large, but robust Pipeline by Construction Phase (# of total properties) 11 84 149 54 Pre-Construction Under Construction Pre Opening Total Source: IHG Q3 2010 29
Slide 30: Broad portfolio of strong brands in key locations
Broad portfolio of strong brands in key locations Video 30
Slide 31: Changing nature of owner relationships
Changing nature of owner relationships • Previously dominated by fragmented state-owned enterprises (SOEs) – Hotels not core to their business model – Funding came predominantly from government backed institutions • Major SOEs and real estate developers now more prevalent – Hotel ownership core to t
Slide 32: The most established relationships with key strategic partners
The most established relationships with key strategic partners • 26 years of building relationships in China • Strong connections to the government • Excellent partnerships formed with leading real estate developers • Almost half our hotels are with multi-unit owners • Signed more portfolio deals th
Slide 33: Our key strategic partners
Our key strategic partners Video 33
Slide 34: The most focused hotel development strategy
The most focused hotel development strategy Aligned with “go west” Targeting emerging development plans middle class – Tier 2 and Tier 3 cities Crowne Plaza Chongqing Holiday Inn Nanjing Aqua City Leveraging relationships Extend leadership in with multi-unit owners global cities Crowne Plaza Kunming
Slide 35: Further penetrate primary cities: Shanghai newest hotels
Further penetrate our presence in primary cities: Shanghai - our newest hotels InterContinental Shanghai Expo Holiday Inn Shanghai Jinxiu (Opened Mar 2010) (Opened Nov 2009) Hotel Indigo Shanghai on the Bund Holiday Inn Express Shanghai New Hongqiao (Open Nov 2010) (Opened October 2010) 35
Slide 36: Shanghai's hotel development has until now been in the city centre
Shanghai‟s hotel development has until now been in the city centre IHG‟s Shanghai distribution Q3 2010 2002 Open + pipeline = total 1 3 2 5 1 5 7 12 2 6 4 10 0 9 5 14 0 0 1 1 Total hotels: 4 23 19 42 2002 2010(Q3) Open 2010(Q3) Pipeline 2010 2020 • Population 17 million 25 million • Wealthy househol
Slide 37: Future development in Shanghai will spread to satellite cities
Future development in Shanghai will spread to satellite cities in the cluster as the government switches its focus • Satellite city industries will create demand for more hotels • Significant potential for IHG‟s brands auto, electronics, precision manufacturing Jiading Chengqiao shipbuilding City IT
Slide 38: Aligned with go west development plans – the Chongqing example
Aligned with “go west” development plans – the Chongqing example IHG‟s Chongqing distribution • Population = 8.4m 2002 Q3 2010 2020 Open + pipeline = total • 48k wealthy households - 1 - 1 2 - - 2 2 4 • GDP = RMB 399bn - 1 2 3 5 • 4th municipality directly - - 1 1 3 under the government - - - - 1 In
Slide 39: Leveraging relationships with multi-unit owners – the Kunming example
Leveraging relationships with multi-unit owners – the Kunming example IHG‟s Kunming distribution • Population = 3.7m 2002 Q3 2010 2020 Open + pipeline = total • 7k wealthy households - - 1 1 1 Crowne Plaza Kunming West (pipeline) • GDP = RMB 149bn - - 2 2 2 - - 1 1 2 • One of the most visited - - -
Slide 40: Our current system
Our current system HARBIN No. of No. of System Hotels Rooms SUIFENHE SHENYANG 18 8,150 DANDONG 37 14,013 HOHHOT QINGHUANGDAO BEIJING ERDOS DATONG DALIAN 52 16,541 YANTAI TIANJIN QINGDAO 30 8,752 JINAN ZHENGZHOU 137 47,456 XI’AN TOTAL NANJING CHANGZHOU JIUZHAIGOU HEFEI SHANGHAI CHENGDU WUHAN HANGZHOU
Slide 41: Our current pipeline
Our current pipeline No. of No. of DAQING Pipeline ULAANBAATAR Hotels Rooms MUDANJIANG CHANGCHUN 20 8,372 SHENYANG ANSHAN 59 21,953 BEIJING BAOTOU TANGSHAN TIANJIN YANTAI 39 11,998 YINCHUAN TAIYUAN SHIJIAZHUANG JINAN QINGDAO LANZHOU 27 6,602 XUZHOU XI’AN NANYANG NANJING 4 619 HEFEI SUZHOU XIANGFAN S
Slide 42: Unrivalled portfolio in Greater China
Unrivalled portfolio in Greater China DAQING HARBIN SUIFENHE Total System No. of No. of ULAANBAATAR and Pipeline Hotels Rooms CHANGCHUN MUDANJIANG SHENYANG 38 16,522 ANSHAN TANGSHAN DANDONG HOHHOT 96 35,966 BAOTOU BEIJING DALIAN SHIJIAZHUANG 91 28,539 TAIYUAN TIANJIN YANTAI JINAN LANZHOU YINCHUAN QI
Slide 43: Our people
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Slide 44: The largest and most experienced people infrastructure
The largest and most experienced people infrastructure OPERATIONS GROWTH ENABLER Hotel F&B Human Development Operations Operations Resources Sales & Quality & Design & Legal Finance Strategy Marketing Compliance Engineering • Only international hotel company with a dedicated region reporting directl
Slide 45: Winning the war for talent
Winning the war for talent • Recruit >80,000 for our hotels in Greater China Over the next • Place > 250 hotel General Managers 3 years we will - 70% of all GMs need to be Chinese speaking - 45% of all GMs need to be local Chinese What we have done How we are winning today • 1st fast-track scheme fo
Slide 46: Winning the war for talent
Winning the war for talent IHG Academy,Tianjin Crowne Plaza Foshan InterContinental Shenzhen 46
Slide 47: Our people are highly engaged
Our people are highly engaged and we have built a strong reputation as a company 84% intend to stay 91% are proud to with the company work for us for the next 2 years 87% would recommend us as a place to work 88% feel happy to come to work at IHG 86% feel the job gives them a real 86% are willing to
Slide 48: Our future growth strategy
Our future growth strategy Hotel Indigo, Shanghai on the Bund 48
Slide 49: China profits have doubled since 2004
China profits have doubled since 2004 $m China financial results¹ 2007 2010 (forecast) Revenue 35 61 Costs (27) (40) EBIT 8 21 Margin 23% 34% • Continued investment ahead of the revenue curve • Fee revenues now driving margins • No capital expenditure requirements ¹ For the managed and franchised bu
Slide 50: We have a significant medium term opportunity
We have a significant medium term opportunity • Strong pipeline of hotels across five brands to open over the next 3 - 5 years September Current Management Future 2010 Pipeline Fees Average Rooms 18 20 $650k - $1,150k 400 37 59 $350k - $550k 350 52 39 $200k - $350k 300 30 27 $100k - $150k 150 0 4 $2
Slide 51: Our share potential
Our share potential China industry rooms growth IHG illustrative rooms potential c.20% Maintain 10% of branded share c.48% branded¹ branded¹ 400 8 IHG Greater China rooms(„000) 7.5m 350 7 China hotel rooms (m) 6 300 3.6m 5 250 4 200 360k 3 150 2.3m 2 0.5m 3.9m 100 1 1.8m 50 47k 0 0 2010 2030 2010 20
Slide 52: Driving growth in revenue share
Driving growth in revenue share • Investment opportunities to drive growth – New brands – Strengthen F&B offer which is fundamental to success in China – Tailoring global system to local requirements • Initial 2011 incremental investment of $6m – To be funded by group level efficiencies • Revenue gr
Slide 53: Summary
Summary • Rapid economic growth and urbanisation will drive hotel market • Huge opportunity for growth in branded rooms • IHG is the number one international hotel operator in China • Most established relationships with key strategic partners • The most focused development strategy • Best in class t
Slide 54: Q&A
Q&A Holiday Inn, Hong Kong Golden Mile 54
Slide 55: The China Opportunity
The China Opportunity Keith Barr & Jerry Huang InterContinental, Nanjing
InterContinental Hotels Group — Investor Day (November 2010) on 6ix