InterContinental Hotels Group PLC · LSE:IHG
InterContinental Hotels — FY2005 Earnings Presentation
77 slides from InterContinental Hotels's earnings presentation, Mar 2, 2006
Slide 1: IHG Full Year Results Presentation
IHG Full Year Results Presentation 2nd March 2006
Slide 2: Andrew Cosslett, Chief Executive
Andrew Cosslett Chief Executive
Slide 3: Agenda
Agenda Full Year Operating Headlines Q&A Results Review 3
Slide 4: Headlines
Headlines 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 – F
Slide 5: Agenda
Agenda Full Year Operating Headlines Q&A Results Review 5
Slide 6: Richard Solomons, Finance Director
Richard Solomons Finance Director
Slide 7: 2005 results and business update
2005 results and business update
Slide 8: Financial Highlights
Full Year Results 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 *Total gross revenue is defined as total room rev
Slide 9: Total Group results impacted by asset sales
Full Year Results Total Group results impacted by asset sales £m 12mths 12mths to 31 Dec 05 to 31 Dec 04 Change % Turnover 1,910 2,204 (13%) EBITDA* 469 519 (10%) Operating profit* 339 346 (2%) Hotels 269 269 0% Soft drinks 70 77 (9%) Interest* (33) (22) 50% Profit before tax* 306 324 (6%) Tax rate*
Slide 10: Strong growth in continuing business
Full Year Results Strong growth in continuing business £m 12mths 12mths Change % to 31 Dec 05 to 31 Dec 04 Turnover 852 731 17% EBITDA* 260 193 35% Operating Profit* 190 134 42% Margin 22% 18% Interest* (24) (22) 6% Profit before tax* 166 112 48% * Excludes special items Note: continuing business ex
Slide 11: Strong regional continuing operating profit growth
Full Year Results Strong regional continuing operating profit growth £m 12mths 12mths Change % to 31 Dec 05 to 31 Dec 04 Americas 187 150 25 EMEA 47 24 96 Asia Pacific 21 17 24 Central Overheads (65) (57) 14 Continuing Operating Profit* 190 134 42 Continuing EBITDA 260 193 35 * Excludes special inco
Slide 12: RevPAR growth across all key business areas
Full Year Results RevPAR growth across all key business areas 2005 RevPAR change, IHG estate v segment 14% 12% 10% 8% 6% 4% 2% 0% US upscale US midscale US extended UK China stay IHG Segment Note: blended segment Significant US upscale and midscale RevPAR premium maintained 12
Slide 13: Cost control driving profit margin increases
Full Year Results 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 w
Slide 14: Improving business mix
Full Year Results Improving business mix Business mix* • 88% of continuing EBIT now 100% high quality fee income 80% • Geographic EBIT: 60% % of EBIT 40% – 78% from the Americas 20% – Asia now up to 8% 0% 2003 2004 2005 Owned and leased** Franchised Managed * Pre regional and central overheads ** 20
Slide 15: Hotel franchising – high margin fee growth continues
Hotel franchising – Full Year Results high margin fee growth continues Total gross revenues £bn* (rooms only) Drivers of gross revenue change, % (3%) 2005 4.4 2005 vs 2004 103% 2004 4.0 2004 vs 2003 18% 77% 5% 2003 3.6 Avail. RevPAR Other Rooms Franchise fees £m Franchise EBIT £m (margin%) 2005 251
Slide 16: Hotel management - growth and margin enhancement
Hotel management - Full Year Results growth and margin enhancement Total gross revenue £bn* (total hotel) Drivers of gross revenue change, % (1%) 2005 2.4 2005 vs 2004 21% 9% 71% 2004 1.9 2004 vs 2003 27% 37% 30% 6% 2003 1.5 Transfers Avail. RevPAR F&B from owned Rooms Management fees £m Managed EBI
Slide 17: Retained owned and leased estate – growing margins
Retained* owned and leased estate – Full Year Results growing margins O&L revenues £m Drivers of revenue change, % 195 adjusted** 2005 182 2005 vs 2004 40% 24% 36% 2004 161 2004 vs 2003 11% 54% 44% 2003 116 Rate Occupancy F&B O&L EBITDA (pre overheads) £m O&L EBIT (pre overheads) £m (margin%) 54 adj
Slide 18: Total Group operating cash flow
Full Year Results Total Group operating cash flow £m 12mths 12mths to 31 Dec 05 to 31 Dec 04 Operating Profit* 339 346 Depreciation / Amortisation 130 173 Working capital (32) 38 Pension obligation (26) (58) Other 12 16 Cash flow from operations 423 515 Hotels 359 372 Soft Drinks 64 143 Net Cash/(De
Slide 19: Significant free cash flow generated
Full Year Results Significant free cash flow generated £m 12mths to 12mths to 31 Dec 05 31 Dec 04 Continuing hotels EBITDA* 260 193 Maintenance Capital Expenditure (56) (68) Free Cash Flow 204 125 * Excludes special income and expenses 19
Slide 20: Business transformation programme - hotels
Full Year Results Business transformation programme - hotels Disposals to date 144 hotels; 28,300 rooms Net book value of hotels sold to date or to £2.8bn be sold Proceeds received to date £2.3bn Proportion kept under IHG's brands 88% (126 hotels; 24,900 rooms) Post fee EBITDA exit multiple 13x Esti
Slide 21: Business transformation programme - Britvic
Full Year Results 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 *Note: net debt deconsolidated as at last reported balance sheet 30/09/05 21
Slide 22: Further return to shareholders announced today
Full Year Results Further return to shareholders announced today Returned to date Still to be returned £m £m Share repurchase: – First 250 0 – Second 211 39 – Third 0 250 Special dividend (Dec 04) 501 0 Capital return (July 05) 996 0 Special dividend (Q2 06) 0 500 Total 1,958 789 £2.75bn of returns
Slide 23: Investment in the future
Full Year Results 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
Slide 24: Financial Highlights
Full Year Results 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 *Total gross revenue is defined as total room r
Slide 25: Agenda
Agenda Full Year Operating Headlines Q&A Results Review 25
Slide 26: Buoyant hotel industry
Operating review 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% i
Slide 27: 2005 – strong balanced growth
Operating review 2005 – strong balanced growth Growth in Total Gross Revenue, 05/04 (Total = $14bn) Share of total gross revenue 05/04 Asia Pacific 14% 12% Americas 9% 60% EMEA 5% 28% Note: Total gross revenue is defined as total room revenue from franchise hotels and total revenue from managed, own
Slide 28: 2005 – a year of transition for IHG
Headlines 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 – Ch
Slide 29: Selling assets has unlocked IHG future
Operating review 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 st
Slide 30: A sharper focus on growth
Operating review A sharper focus on growth Goal Target Faster growth by By end 2008: making IHG’s brands Net, organic growth of the first-choice for 50,000 - 60,000 rooms guests and hotel owners Strategy Priorities Build the industry’s • Brand performance strongest operating system • Excellent hotel
Slide 31: $14bn hotel revenue supported by IHG system
Operating review $14bn hotel revenue supported by IHG system Hotel distribution Brand portfolio Loyalty programme System room revenue $11.8bn, +9% System funds Web presence IHG delivery $4.8bn, +19% Reservations Market coverage Field sales force systems 31
Slide 32: Target: 50,000-60,000 net organic rooms by end 2008
Operating review Target By end 2008: Net, organic growth of 50,000 - 60,000 rooms (base 538,000)
Slide 33: Roomcount increases driven by four key variables
Operating review Roomcount increases driven by four key variables Signings Pipeline Openings Exits 33
Slide 34: Signings accelerating fast
Operating review Signings accelerating fast Signings, 2003-2005, ‘000 rooms 43 70,000 signings in 2005 27 23 22 22 19 H1 2003 H2 2003 H1 2004 H2 2004 H1 2005 H2 2005 Note: 2003 signings excludes Candlewood 2006 sees momentum continue with 11,100 rooms signed to end February vs 3,200 in same period i
Slide 35: Major wins across the globe in 2005
Operating review Major wins across the globe in 2005 InterContinental, Penang QMH conversions in UK InterContinental, San Francisco 35
Slide 36: Pipeline at record high – 108,500 rooms; 884 hotels
Operating review Pipeline at record high – 108,500 rooms; 884 hotels • Two thirds of rooms open Pipeline of signed deals, 2003-2005, ‘000 rooms within 2 years of signing 108 • Approximately 80% of current 83 pipeline likely to open by 2008 71 • 38% under construction • New hotel opening process 2003
Slide 37: 35,000 rooms opened in 2005; 3,300 added net
Operating review 35,000 rooms opened in 2005; 3,300 added net Roomcount change, 2004/2005, ‘000 35 13 534 6 1 538 2 9 it t n sh a it ls its ar ex ic pe ex sa ni ex St fr O G po Fi er A ne IH th h is ut a O D ric So ur H 11,800 net rooms added before South African master franchise and hurricane exits
Slide 38: Exits replaced with higher quality rooms
Operating review Exits replaced with higher quality rooms • Net new rooms in 70% of exit % of locations with net room growth locations in US in last 2 years over pre-exit levels over time 80% • These new hotels are: Opened Signed 70% – 7-8 pts better on quality score 60% – Smaller but more efficient
Slide 39: Priorities
Operating review Priorities • Brand performance • Excellent hotel returns • Market scale/knowledge • Aligned organisation
Slide 40: All brands grew revenue in 2005
Operating review All brands grew revenue in 2005 Growth in Total Gross Revenue, $m, 05/04 Share of total gross (Total increase = $1.1bn) revenue 2005 Holiday Inn 500 62% InterContinental 300 19% Crowne Plaza 200 15% Extended Stay 100 4% & Indigo Note: Total gross revenue is defined as total room rev
Slide 41: 71 Holiday Inn and 135 Express opened in 2005
Operating review 71 Holiday Inn and 135 Express opened in 2005 Moscow, Russia New York, USA Yuma, USA 41
Slide 42: Holiday Inn growing in all parts of business
Operating review • Growing in all parts of business Total gross revenue growth, 05/04 China 16% Global 7% US 6% UK 6% Holiday Inn the most stayed at international hotel brand in China 42
Slide 43: Holiday Inn: driving quality in Americas
Operating review • Growing in all parts of business Americas Holiday Inn quality enhancements, 2005, # hotels • Driving quality in Americas: – 11 full service prototypes Capital 688 opened and 90 in the pipeline plans – 320 new hotels signed – 21,000 rooms removed Deals 320 signed Hotels opened 157
Slide 44: Holiday Inn: product changes and innovation
Operating review • Growing in all parts of business • Driving quality in Americas: – 11 full service prototypes opened 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
Slide 45: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Resort Berchtesgaden, Germany 45
Slide 46: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Aphrodite Hills Resort, Cyprus 46
Slide 47: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Presidente Merida, Mexico 47
Slide 48: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Abu Soma, Egypt 48
Slide 49: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Aqaba Resort, Jordan 49
Slide 50: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Dusseldorf, Germany 50
Slide 51: InterContinental adds 7 hotels in 2005 (4 in 2004)
Operating review InterContinental adds 7 hotels in 2005 (4 in 2004) InterContinental Financial Street – Beijing, China 51
Slide 52: InterContinental: system and pipeline growth
Operating review • System at 137 (2004: 132); InterContinental rooms signed, pipeline of 27 (2004:21) 2003- 2005 5,500 • Asset quality development: – US wins – Resort expansion – New build prototypes 2,300 2,100 – China growth – 5 now open – London repositioning • 17 signed in 2005 (2004: 7) 2003 20
Slide 53: InterContinental: new brand positioning
Operating review • 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 53
Slide 54: Glasgow, Pudong, Acapulco
Operating review Glasgow, Scotland Pudong, China Acapulco, Mexico 54
Slide 55: Crowne Plaza: distribution growing fast
Operating review • Distribution growing fast: Crowne Plaza rooms signed, 2003- 2005 – Highest signings rate (43) 11,500 – 235 hotels open (2004: 215) – 54 in pipeline (2004: 37) 6,700 5,500 2003 2004 2005 55
Slide 56: Crowne Plaza: building brand position
Operating review • 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 so
Slide 57: Staybridge and Candlewood
Operating review • Staybridge: Sioux Falls, USA – 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 Jefferson City, USA – Renovations to
Slide 58: Hotel Indigo
Operating review • Three hotels open: Chicago Gold Coast, USA – 8 signed in pipeline • Unique brand positioning • 50% revenue delivery by IHG Nashville, USA • $127 average rate achieved: – Atlanta: 120% uplift on conversion • Brand and development team in place 58
Slide 59: Priorities
Operating review Priorities • Brand performance • Excellent hotel returns • Market scale/knowledge • Aligned organisation 59
Slide 60: Excellent hotel returns – two key drivers: top line delivery
Operating review Excellent hotel returns – two key drivers Top Topline linedelivery delivery ••Internet Internetgrowth growth––86% 86%direct direct ••Priority PriorityClub ClubRewards Rewards--$3.8bn $3.8bn contribution, contribution,16% 16%up upin in2005 2005 ••Leveraging Leveragingscale scale––VCR
Slide 61: Excellent hotel returns – two key drivers: in-hotel efficiency
Operating review Excellent hotel returns – two key drivers In-hotel In-hotelefficiency efficiency •• New Newprototypes prototypesreduce reducebuild build cost costand andboost boostreturns returns •• Best Bestpractice practiceintegration integrationwith with IHG IHGsystems systems •• Standardised St
Slide 62: Driving hotel returns – core O&L assets
Operating review Driving hotel returns – core O&L assets London New York Boston Atlanta New York Hong Kong Atlanta Le Grand, Paris 62
Slide 63: Priorities
Operating review Priorities • Brand performance • Excellent hotel returns • Market scale/knowledge • Aligned organisation 63
Slide 64: Scale counts
Operating review 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 64
Slide 65: Building scale in priority markets
Operating review Building scale in priority markets Pipeline rooms by country, 2005, • Focus on scale markets: % of total – 90% pipeline in 12 top markets US 64% – Japan and Spain still small China 12% • Investing for growth: 90% 90%inin UK 2% scale – Development teams up 40% scale markets markets –
Slide 66: Working with major owners around the world
Operating review Working with major owners around the world Shanghai Greenland Group • Partnered with • Purchased 13 US • Signed 4 hotels with Lehman and Realstar hotels Dec 2005 IHG Feb 2006 • Purchased 79 hotels • One of the largest • 3rd biggest real estate in UK March 2005 REITs in US company in
Slide 67: Priorities
Operating review Priorities • Brand performance • Excellent hotel returns • Market scale/knowledge • Aligned organisation 67
Slide 68: 2005 – alignment and focus
Operating review 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
Slide 69: 2006 – investing for future performance
Operating review 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 kn
Slide 70: A new chapter for IHG . . .
Operating review A new chapter for IHG . . . • It’s all about growth • It’s all about profitable growth Target By end 2008: • The business is engaged Net, organic growth of 50,000 - 60,000 rooms • Margins are rising 588 – 598,000 room count • Investing for the future • Building operating system powe
Slide 71: China, end 2005 - 51 hotels and 17,000 rooms open
Operating review China, end 2005 - 51 hotels and 17,000 rooms open Harbin SHENYANG BEIJING HOTHOT TIANJIN JINAN QINGDAO ERDOS ZHENGZHOU SUZHOU NANJING JIUZHAIGOU HEFEI SHANGHAI WUHAN CHENGDU HANGZHOU CHONGQING GUANGZHOU SHENZHEN DAYA BAY XIAMEN TAIPEI ZHUHAI HONGKONG/MACAU ZHANJIANG HAINAN . . . 6,0
Slide 72: 4,500 rooms with Chengdu International Exhibition and Convention Group
4,500 rooms with Chengdu International Exhibition Operating review and Convention Group 72
Slide 73: 1,400 rooms with Shanghai Greenland Group
Operating review 1,400 rooms with Shanghai Greenland Group 73
Slide 74: China growing fast – almost 6,000 rooms signed
Operating review China growing fast – almost 6,000 rooms signed Holiday Inn, Chengdu InterContinental, Chengdu InterContinental, Express, Shanghai Jiuzhaigou 51 hotels open; 38 in pipeline at year end and 10 signed in 2006 74
Slide 75: InterContinental Nanjing – tallest hotel in the world
Operating review InterContinental Nanjing – tallest hotel in the world Under construction 75
Slide 76: Agenda
Agenda Full Year Operating Headlines Q&A Results Review 76
Slide 77: IHG Full Year Results Presentation
IHG Full Year Results Presentation 2nd March 2006
InterContinental Hotels Group — FY2005 Earnings Presentation on 6ix