InterContinental Hotels Group PLC · LSE:IHG
InterContinental Hotels — FY2006 Earnings Presentation
57 slides from InterContinental Hotels's earnings presentation, Feb 20, 2007
Slide 1: IHG Preliminary Results Presentation
IHG Preliminary Results Presentation 20th February 2007
Slide 2: Agenda
Agenda Financial Operating Overview Q&A Review Review 2
Slide 3: Strong performance in 2006
Overview Strong performance in 2006 z Total hotels gross revenue up 9% to £8.3 billion z 9.8% global RevPAR growth - outperformance in major markets z Continuing EBIT up 16% z Room count up 18,713 (13,776 excluding ANA hotels) z 102,774 rooms signed; pipeline 157,991 rooms, 1,241 hotels, up 46% z Ex
Slide 4: Industry drivers remain powerful
Overview Industry drivers remain powerful Interims 2005 Outlook z Strong GDP growth z 3.2% global GDP CAGR 2007-10 z Increased US travel & tourism spend z Doubling by 2015 z Growing household use of internet z 1.4bn internet users by 2010 z Low cost airlines z 38% growth by 2008* z China's outbound
Slide 5: Branded hotels leading the growth
Overview Branded hotels leading the growth z Branded vs unbranded US RevPAR gap increasing – 3.6% in 2003; 11.5% in 2006 z Shift to institutional owners who require a brand – Easier to obtain finance: easier to re-sell properties – 63% growth in hotel investment activity in 2006 to $72.5 billion z I
Slide 6: IHG Progress
Overview IHG Progress 2004-6 2007 onwards Create fact base Act on learnings Growth strategy Align the business Focus the business 3 year rooms target Quality growth 174 sold Asset disposals Reduce asset intensity 25 remaining 6
Slide 7: Reduction in asset intensity
Overview Reduction in asset intensity z We will only own hotels or invest further in hotel assets where it supports the execution of our brand strategy z 2007 - 25 hotels remain, £1 billion NBV – InterContinental Atlanta: now on the market – InterContinental Montreal: disposal underway z Disposals o
Slide 8: Agenda
Agenda Financial Operating Overview Q&A Review Review 8
Slide 9: Financial Highlights
Financial Review Financial Highlights z Total gross revenue* up 9% to £8.3 billion z Total EBIT of £258m. Total adjusted EBIT** of £231 million z Continuing EBIT** up 16% to £201 million z Total adjusted earnings per share 42.9p. z Adjusted continuing earnings per share** up 67% to 37.5p z Full year
Slide 10: Total Group results reflect impact of asset disposals
Financial Review Total Group results reflect impact of asset disposals 12 mths 12 mths £ million Change % to 31 Dec 06 to 31 Dec 05 Turnover 960 1,239 (23)% EBITDA* 295 354 (17)% Operating Profit* 231 269 (14)% Interest (11) (24) 54% Profit before tax* 220 245 (10)% Tax rate* 24% 29% -5%pts *Before
Slide 11: Growth in the continuing business
Financial Review Growth in the continuing business 12 mths 12 mths £ million Change % to 31 Dec 06 to 31 Dec 05 Turnover 805 713 13% EBITDA* 261 230 13% Operating Profit* 201 173 16% Operating Profit Margin 25% 24% +1%pt Excluding London & Boston 27% 25% +2%pts Interest (11) (24) 54% Profit before t
Slide 12: Strong regional performance
Financial Review Strong regional performance 12 mths 12 mths CER** £ million to 31 Dec 06 to 31 Dec 05 Change % Change % Americas 217 186 17% 17% EMEA 36 31 16% 15% Asia Pacific 29 21 38% 38% Central Overheads (81) (65) (25)% (23)% Continuing Operating Profit* 201 173 16% 17% Continuing EBITDA 261 2
Slide 13: RevPAR outperformance in all key profit drivers
Financial Review RevPAR outperformance in all key profit drivers 2006 RevPAR change, IHG key profit drivers vs. segment IHG Segment 16% 14% 12% 10% 8% 6% 4% 2% 0% InterContinental - US Crowne Plaza - US Holiday Inn - US Holiday Inn Express - Holiday Inn & Express InterContinental - All brands - Chin
Slide 14: Hotel franchising – High margin fee growth continues
Hotel franchising – Financial Review High margin fee growth continues Total gross revenue £bn* (rooms only) Drivers of gross revenue change, % FY'06 4.9 FY’06 vs FY’05 29% 71% FY’05 4.3 FY’05 vs FY’04 103% FY'04 4.0 (3%) Avail. Rooms RevPAR Franchise fees £m Franchise EBIT £m (margin%) FY'06 280 FY'
Slide 15: Hotel management - Operating profit growth continues
Hotel management - Financial Review Operating profit growth continues Total gross revenue £bn* (total hotel) Drivers of gross revenue change, % FY'06 2.9 FY’06 vs FY’05 29% 13% 60% (2)% FY’05 2.4 FY’05 vs FY’04 21% 9% 71% FY'04 1.9 (1)% Avail. RevPAR Transfers F&B Rooms from Owned Management fees £m
Slide 16: Continuing owned and leased estate – Margins increasing
Continuing owned and leased estate – Financial Review Margins increasing O&L revenues £m Drivers of revenue change, % FY'06 272 adjusted* 275 FY’06 vs FY’05 47% 26% 27% 247 adjusted* FY'05 266 FY’05 vs FY’04 19% 46% 35% 207 adjusted* FY'04 240 Rate Occupancy F&B O&L EBITDA (pre overheads) £m O&L EBI
Slide 17: Improved performance from owned InterContinentals
Financial Review Improved performance from owned InterContinentals ROCE % Hotels NBV £m EBIT £m 2006 Hong Kong Atlanta 350 33 9.4% New York London – reopened 2006/2007 Paris – reopened 2004 478 (8) - Boston – opened 2006 Combined 828 25 3.0% 17
Slide 18: Total Group operating cash flow
Financial Review Total Group operating cash flow 12 mths 12 mths £ million to 31 Dec 06 to 31 Dec 05 Operating Profit* 231 269 Depreciation - Hotel depreciation 43 62 - Non hotel depreciation 21 23 Working capital (21) (9) Other 14 15 Cash flow from operations 288 360 Capital Expenditure 124 136 Net
Slide 19: Significant free cash flow generated
Financial Review Significant free cash flow generated 12 mths 12 mths £ million to 31 Dec 06 to 31 Dec 05 Continuing hotels EBITDA* 261 230 Maintenance Capital Expenditure - Hotel capex (16) (36) - Non hotel capex (18) (20) Free Cash Flow 227 174 * Before special items 19
Slide 20: 2006 capital expenditure
Financial Review 2006 capital expenditure z Maintenance & refurbishment capex £87 million – £34m maintenance of retained assets and operating systems – £53m refurbishment of retained owned and leased assets z £48m InterContinental London Park Lane z Expansion capex £37 million – £18m inducements and
Slide 21: Future uses of free cash flow
Financial Review Future uses of free cash flow z Maintenance capex in line with depreciation over time – 2007 estimated at c.£50m. – Majority on operating system z Free cash flow and proceeds from disposals – Invested for growth – Returned to shareholders where surplus z Criteria for investment – Cr
Slide 22: Investing behind our Brands – Joint ventures and inducements
Investing behind our Brands – Financial Review Joint ventures and inducements z 2003-06: total expansion capex £30m in 69 hotels – £10m joint ventures – £20m inducements – £10m income in 2006 from those hotels – Generating over 30% return z Case study: Crowne Plaza Blackfriars – £10m equity investme
Slide 23: Investing behind our Brands – Wholly owned hotels
Investing behind our Brands – Financial Review Wholly owned hotels z Staybridge Suites – $200m to build 18 Staybridge Suites in the US 1998-2002 – Capital recycled: sold for book value – Valuable contracts retained – Catalysed growth: brand now 97 strong, pipeline of 120 z InterContinental – $110m t
Slide 24: Agenda
Agenda Financial Operating Overview Q&A Review Review 24
Slide 25: IHG's growth strategy
Operating Review IHG's growth strategy 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 strongest • Brand performance operating system focused on • Excellent
Slide 26: Growth in room count gaining momentum
Operating Review Growth in room count gaining momentum Room count change during 2006 +19,000 (25) 43 +3.5% 556 538 Dec-05 Openings Exits Dec-06 Rooms ‘000 26
Slide 27: Signings growing on all brands
Operating Review Signings growing on all brands 120 100 80 Rooms signed '000 60 40 20 - 2002 2003 2004 2005 2006 Holiday Inn Holiday Inn Express InterContinental Crowne Plaza Candlewood Staybridge Suites Indigo 27
Slide 28: Pipeline growing around the world
Operating Review Pipeline growing around the world 160 140 Pipeline rooms ‘000 120 100 80 60 40 20 - Dec'02 Jun'03 Dec'03 Jun'04 Dec'04 Jun'05 Dec'05 June'06 Dec '06 Americas Asia Pacific EMEA 28
Slide 29: Leading our competitors
Operating Review Leading our competitors Share of U.S. Pipeline Rooms Under Construction & Final Planning 17.8% 18.1% 15.2% 7.8% 6.0% 5.2% 2.4% Hyatt Wyndham Starwood Choice Marriott Hilton IHG 29
Slide 30: Leading our competitors
Operating Review Leading our competitors Global reported pipeline and net movement in pipeline Pipeline -December 2006 Net Movement in Pipeline - 2006 180 60 160 50 140 120 40 Rooms (000s) Rooms (000s) 100 30 80 20 60 40 10 20 0 Marriott Hilton Starwood IHG 0 Starwood Marriott Hilton IHG Rooms (000s
Slide 31: Delivering against our targets
Operating Review Delivering against our targets Starting Target by end position 31 Dec 06 2008 30 Jun 05 Net rooms growth 538k +19k +50k-60k New InterContinentals 136 +12 +15-25 Hotels open in China 47 +18 +78 31
Slide 32: Major research to direct profitable growth
Operating Review Major research to direct profitable growth Insight Global Brands Guest needs in key markets Research Franchising Owners needs Best Practice Franchising process Operating system synergies Booking Channels Future trends Informed resource allocation Market Economics Maximise profitable
Slide 33: Greater insight leads to greater focus
Operating Review Greater insight leads to greater focus Managing finite resources - Capital - Revenue - System funds Fact base Highest opportunity Advantaged Upgrading segments and brand operating system markets strategies 33
Slide 34: Highest opportunity segments and markets
Operating Review Highest opportunity segments and markets z 1 million additional rooms required by 2012. z Two thirds midscale, majority branded Midscale Upscale z US - biggest opportunity z Major cities e.g. Moscow, Los Angeles, Tokyo, Saigon, z China and Japan Beijing z UK – Strengthen existing po
Slide 35: Upgrading operating system – a reminder
Upgrading operating system Operating Review ……a reminder Hotel distribution System funds Loyalty programme Total Gross Revenue Brand portfolio Web presence £8.3 billion, +9% Reservations systems Field sales force & Regional infrastructure owner relations 35
Slide 36: Upgrading operating system – why it is important
Upgrading operating system Operating Review …….why it is important z Fully integrated delivery platform supporting IHG brand portfolio – Delivers over 60% of room nights to owners, £3.1bn, +23% z Significant benefits of scale – Drives development in existing brands e.g. Candlewood pipeline from 7 to
Slide 37: System funds grow as rooms grow
Upgrading operating system Operating Review ……….system funds grow as rooms grow z 2006 system funds c. $700m; funded by "assessments" on owners z Firepower will widen performance gap between strong and weak branded/unbranded hotels 2002-2006 800 CAGR of 17.3% 700 600 500 $m 400 300 200 100 0 2002 20
Slide 38: System funds behind our brands
Upgrading operating system Operating Review ……….system funds behind our brands z Stronger advertising campaigns – 26% increase: Holiday Inn is a good hotel for business travel* – 34% increase: Holiday Inn is an up to date hotel brand* z Sponsorship to build loyalty – 58% NASCAR fans "more likely to
Slide 39: System funds behind our brands
Upgrading operating system Operating Review ……….system funds behind our brands z Stronger advertising campaigns – 26% increase: Holiday Inn is a good hotel for business travel* – 34% increase: Holiday Inn is an up to date hotel brand* z Sponsorship to build loyalty – 58% NASCAR fans "more likely to
Slide 40: System funds for innovation
Upgrading operating system Operating Review ……….system funds for innovation z Reservation channel innovation – Macros*: 29 call divert centres established – Customised websites: personal event website launched - 5,000 created – Businesschoice: customised websites for corporate clients - 800 created
Slide 41: Advantaged brand strategies
Business Plan Operating Review Advantaged brand strategies z ‘Rifle shot’ branding approach – Sharper brand differentiation – Greater flexibility to exploit trends z Global/local balance – Common, revised global standards – Local tailoring 41
Slide 42: Advantaged brand strategies
Operating Review Advantaged brand strategies 42
Slide 43: Research confirms "In the Know" repositioning
Operating Review z Research confirms "In the Know" repositioning Customer Owner preference ROI Owner Focused Research Point of Difference Brand Manager Projects “IN THE KNOW” Owner input z Brand performance confirms guest support for the change – RevPAR + 12.9% globally; segment +9.4% – 10 ppt incre
Slide 44: InterContinental Hotels and Pipeline
Operating Review z Increasing appeal to owners InterContinental Hotels and Pipeline – 2006: record 26 signings (2004: 11) 2002 to 2006 – Over 100 owners – 19 new in 2006 200 z Significant opportunity to increase 190 System Size Pipeline distribution 180 – Additional distribution in existing cities 1
Slide 45: Quality of portfolio continues to rise
Operating Review 2006 Signings include: Americas z Quality of portfolio continues to rise • Milwaukee • Nashville Summit z InterContinental Los Angeles opened Jan 2007 • Phoenix Resort and Spa EMEA • Almaty • Davos Resort and Spa • Krems Resort and Spa • Moscow • Residential Suites Dubai Asia Pacifi
Slide 46: Advantaged brand strategies
Operating Review Advantaged brand strategies 46
Slide 47: World's favourite hotel brand
Operating Review z World's favourite hotel brand: – 3,081 hotels (including Express) – Industry's leading room nights 97.5m, + 3.4% 2003-06: Global Holiday Inn signings 1,377 signed 554 removed 350 Holiday Inn 300 Holiday Inn Express 250 Hotels 200 150 100 50 0 2003 2004 2005 2006 47
Slide 48: Holiday Inn prototypes
Operating Review z 16 prototypes open z 176 prototypes in pipeline - will be 23% of US Holiday Inns once open z Prototype at 11% RevPAR premium to same market Holiday Inns Holiday Inn Gwinnett Prototype 48
Slide 49: New design for European Holiday Inn
Operating Review New design for European Holiday Inn 49
Slide 50: Brand image and owner/staff engagement
Operating Review Brand image Brand review underway Holiday Inn/Express relationship Year 2 of sponsorship/creative Owner/staff engagement Segmentation of owner base Ramp up owner marketing capability Relationship with owner association Hotel quality and consistency Revised standards Additional quali
Slide 51: Advantaged brand strategies
Operating Review Advantaged brand strategies z Extended stay fastest growing segment in US – 33% rooms CAGR 2000-2006 vs. 1.6% industry rooms growth – 5.5% segment share of market z Research confirms emerging global opportunity z Consistent growth in North America – 115 in pipeline; 54 hotel signing
Slide 52: Advantaged brand strategies
Operating Review Advantaged brand strategies z Contemporary meetings focused upscale brand – Highest ratio pipeline:system across EMEA and Asia Pacific – 5,530 net rooms added in 2006 in Americas, 15% growth – Market's fastest growing US upscale brand – Crowne Plaza Times Square will set new standar
Slide 53: Indigo conversion potential
Operating Review Indigo conversion potential Before After z Conversion at $30,000 per room z Expected 56% RevPAR uplift 53
Slide 54: Total of 48 hotels in 30 months
Operating Review Open: 8 Pipeline – under construction: 2 Pipeline: 20 In final negotiation: 18 Total of 48 hotels in 30 months 54
Slide 55: Conclusions
Conclusions z We are on track to deliver our targets z We now have more facts to focus our resources better z The core of our business offers significant growth and is our priority z We will only own or invest in hotels to support our brands z We will invest to accelerate growth and build customer l
Slide 56: Agenda
Agenda Financial Operating Overview Q&A Review Review 56
Slide 57: IHG Preliminary Results Presentation
IHG Preliminary Results Presentation 20th February 2007
InterContinental Hotels Group — FY2006 Earnings Presentation on 6ix