Intercontinental Hotels Group Plc · LSE:IHG
Intercontinental Hotels — FY2004 Earnings Presentation
74 slides from Intercontinental Hotels's earnings presentation, Mar 10, 2005
Slide 1: InterContinental Hotels Group 2004 full year results
InterContinental Hotels Group 2004 full year results March 10th 2005 1
Slide 2: David Webster, Chairman
>) INTERCONTINENTAL. Ww HOTELS GROUP David Webster Chairman
Slide 3: Andrew Cosslett, Chief Executive
Andrew Cosslett Chief Executive 3
Slide 4: Richard Solomons, Finance Director
Richard Solomons Finance Director 4
Slide 5: 2004 results and business update
2004 results and business update 5
Slide 6: Financial Highlights
Financial Highlights z Adjusted earnings per share up 56% z Profit before tax up 27% to £309m z Hotel results show strong growth in operating profit for full year (up 26%) and for fourth quarter (up 27%) z Soft drinks grows turnover; profit down after investment z Final dividend raised by 6% to 10.0
Slide 7: Global overview
>) INTERCONTINENTAL. Ww HOTELS GROUP Global overview
Slide 8: IHG Group Profit & Loss Account
IHG Group Profit & Loss Account Proforma 12 mths to 12 mths to Change £m 31 Dec 04* 31 Dec 03* % Turnover 2,204 2,161 2.0 EBITDA 529 481 10.0 Operating Profit 331 283 17.0 Interest (22) (39) (43.6) Profit before Tax 309 244 26.6 Tax rate 16% 25% n/a Adjusted earnings per share 32.5p 20.8p 56.3 Divid
Slide 9: Results Overview 12 months to 31 December 2004
Results Overview 12 months to 31 December 2004 Proforma Change 12 mths to 12 mths to Change (constant £m 31 Dec 04 31 Dec 03 % currency) % Hotels Turnover 1,498 1,487 0.7 5.9 Operating Profit 251 200 25.5 36.1 Soft Drinks Turnover 706 674 4.7 Operating Profit 80 83 (3.6) 9 Note: IHG holds a 47.5% st
Slide 10: Hotels Operating Profit by region
Hotels Operating Profit 12 months to 31 December 2004 Proforma 12 mths to 12 mths to $m 31 Dec 04 31 Dec 03 % Americas 296 262 13.0 EMEA 216 149 45.0 Asia Pacific 39 19 105.3 Central Overheads (93) (105) (11.4) Total Operating Profit $m 458 325 40.9 Total Operating Profit £m 251 200 25.5 Total EBITD
Slide 11: Hotels Operating Profit by ownership type
Hotels Operating Profit 12 months to 31 December 2004 Proforma 12 mths to 12 mths to $m 31 Dec 04 31 Dec 03 % Group - Owned & Leased 247 175 41.1 - Managed 80 53 50.9 - Franchised 345 312 10.6 Total 672 540 24.4 Regional/central Overheads (214) (215) (0.5) Total Hotels Operating profit $m 458 325 40
Slide 12: High quality fee income business displayed impressive growth
High quality fee income business displayed impressive growth Managed & Franchised Operating Profit 2003 – 2004, $m 450 425 z Managed and Franchised Operating Profit up by 16%* 400 365 350 300 z Strong growth in fees: 250 200 Across all brands 150 Candlewood contribution 100 50 China recovery 0
Slide 13: System delivery strengthened, supporting the fee income business
System delivery strengthened, supporting the fee income business Reservation channel revenue, $bn Priority Club Rewards total revenue, $bn 4.2 4.3 4.0 4 3.8 3.8 3.2 3.3 3.6 2.7 2.8 3.4 3.3 2.3 3.2 1.8 3 1.3 2.8 0.8 2.6 0.3 2.4 -0.2 2003 2004 2003 2004 13 Note: Channel revenue and PCR rewards revenue
Slide 14: 2004 saw strong RevPAR growth across the board
2004 saw strong RevPAR growth across the board 2004 RevPAR change, IHG comparable estate v segment 25% IHG 62% 20% Segment 58% 15% 10% 5% 0% US IC US CP US HI US EX US SBS HIUK HIUK Hong London Regions Kong Outperformance in key upscale growth segments; 14 significant premium maintained in midscale
Slide 15: We opened more than 24,000 rooms in 2004
We opened more than 24,000 rooms in 2004 New openings by brand and region, ‘000 rooms 12 z 25% in upscale segment 10 Asia Pacific 8 EMEA Americas z 70% of growth in Americas 6 4 z Strong growth in Express 2 brand in EMEA 0 n o s l d a s ta In ig es ite oo az en d pr Pl ay Su ew In tin Ex id ne dl ge
Slide 16: InterContinental grew in key locations around the world
InterContinental grew in key locations around the world 16 InterContinental, Cyprus* * Opens March 2005
Slide 17: Crowne Plaza opened 18 new hotels
Crowne Plaza opened 18 new hotels 17 Crowne Plaza, Lexington
Slide 18: Holiday Inn opened 41 hotels worldwide
Holiday Inn opened 41 hotels worldwide 18 Holiday Inn Prototype, Atlanta
Slide 19: 114 new Express hotels opened in 2004
114 new Express hotels opened in 2004 19 Express by Holiday Inn, Paris
Slide 20: First Hotel Indigo opened in Atlanta
First Hotel Indigo opened in Atlanta 20 Hotel Indigo, Atlanta
Slide 21: Extended stay product continues to grow
Extended stay product continues to grow Staybridge Suites, New Orleans and 21 Candlewood, Anaheim
Slide 22: New room signings grew strongly, almost 45,000 added in 2004
New room signings grew strongly, with almost 45,000 added in 2004 New signings by region, ‘000 rooms, 1999 - 2004 z Almost 45,000 new 60 rooms signed in 2004 50 z Highest level of 40 organic signings in last 5 years 30 z Over 70% of signings 20 Candlewood in the Americas Asia Pacific 10 EMEA z Stron
Slide 23: Strong pipeline growth in key focus markets
Strong pipeline growth in key focus markets Pipeline, ‘000 Rooms, 2000 - 2004 Pipeline by key market, ‘000 rooms 90 60 80 49 70 50 60 40 50 40 30 24 30 20 20 Asia Pacific EMEA 10 8 10 Americas 2 0 0 2000 2001 2002 2003 2004 US China UK All other 23 16% growth on 2003 to 83,000 rooms; 71% of pipeline
Slide 24: Focus on quality of our system and increased number of hotels
We continue to focus on the quality of our system and increased our number of hotels System size change, ‘000 rooms, 2004 570 z Total number of hotels 9 increases to 3,540 560 15 550 z Almost two thirds of 540 536 17 additions were new build 534 530 9 z Exits mainly from Holiday 520 Inn (12,000) and
Slide 25: Regional Overview
>) INTERCONTINENTAL. Ww HOTELS GROUP Regional Overview
Slide 26: Americas Operating Profit
Americas Operating Profit 12 months to 31 December 2004 12 mths to 12 mths to $m 31 Dec 04 31 Dec 03 % Americas - Owned & Leased 39 32 21.9 - Managed 12 7 71.4 - Franchised 304 279 9.0 Total 355 318 11.6 Regional Overheads (59) (56) 5.4 Total Americas Operating profit $m 296 262 13.0 Total Americas
Slide 27: Americas - Franchised Hotels
Americas - Franchised Hotels 3 mths to 12 mths to RevPAR Movement 31 Dec 04 31 Dec 04 Holiday Inn 6.0% 5.0% Express 9.0% 7.1% 12 months to 31 Dec 04 Holiday Inn Express Change in rooms available (1.2)% 4.5% 27
Slide 28: EMEA Operating Profit
EMEA Operating Profit 12 months to 31 December 2004 Proforma 12 mths to 12 mths to £m 31 Dec 04 31 Dec 03 % EMEA - Owned & Leased 97 77 26.0 - Managed 24 19 26.3 - Franchised 21 18 16.7 Total 142 114 24.6 Regional Overheads (23) (22) 4.5 Total EMEA £m 119 92 29.3 Total EMEA $m 216 149 45.0 28
Slide 29: Asia Pacific Operating Profit
Asia Pacific Operating Profit 12 months to 31 December 2004 12 mths to 12 mths to 12 mths to $m 31 Dec 04 31 Dec 03 31 Dec 02 % (04 v 02) Asia Pacific - Owned & Leased 31 18 27 14.8 - Managed 25 15 24 4.2 - Franchised 3 4 5 (40.0) Total 59 37 56 5.4 Regional Overheads (20) (18) (17) 17.6 Total Asia
Slide 30: Management continued to control overheads
Management continued to control overheads z Regional and central overheads flat on 2003 at $214m z Despite: z Bonus payments (as disclosed at third quarter) z Inflationary pressure z New business 30 2004 total overheads flat on 2003 in constant currency
Slide 31: Key projects for 2005 include Boston, London and Beijing
Key projects for 2005 include Boston, London and Beijing 2005 projects London Boston Beijing JV Perth Munich Artists impression of InterContinental Boston, USA 31
Slide 32: Hotel Capital Expenditure remained tightly focused
Hotel Capital Expenditure remained tightly focused z 2004 spend £225m (£38m Hotels Capex Spend, £m, 2001 - deferred to 2005): 2005F 700 30% growth spend 600 £38m z 2005 spend £220m*: 500 deferred spend Approximately 50% 400 growth spend 300 15% of capital spend on 200 repositioning assets in L
Slide 33: Soft Drinks – share, volume and turnover gains during 2004
Soft Drinks – share, volume and turnover gains during 2004 z Volume up 1.5% to 1.4 billion litres z Turnover up 4.7% to £706m; headline profits declined z Share gains fruit drinks and adult soft drinks with particular strength in J2O and Fruit Shoot z Impact of exceptionally good 2003 summer compara
Slide 34: Soft drinks - underlying profit growth strong
Soft drinks - underlying profit growth strong Underlying Soft Drinks profit, 2002 z Operating profit for 2004 - 2004, £m down 3.6%: 85 83 83 80 80 78 z 2003 summer estimated to have added £5m to 2003 profits 75 70 68 68 z Implementation and depreciation costs of new systems added c. 65 £5m of increm
Slide 35: Soft Drinks - significant strategic activity
Soft Drinks - significant strategic activity z Ben Shaw’s water acquisition, filling portfolio gap z Key business processes and IT systems upgrade z Significant brand innovation to drive volume share: Robinsons and Tango initiatives z Tight cost control through 2005 z Raising debt and planning to
Slide 36: Operating Cash Flow
InterContinental Hotels Group Operating Cash Flow Proforma 12 mths to 12 mths to £m 31 Dec 04 31 Dec 03 Operating Profit 331 283 Depreciation/Amortisation 198 198 Working capital/other 57 30 Special pension contribution (71) 0 Capital expenditure (257) (354) Disposals 106 254 Operating cash flow 364
Slide 37: Exceptional Items
Exceptional Items 12 months to 31 December 2004 £m Operating exceptionals (19) Profit /(Loss) on disposal of assets 15 Provision against fixed asset investment (10) Provision for loss on disposal of operations (74) Net exceptional interest 6 Premium on early settlement of debt (17) Exceptional tax c
Slide 38: Majority of UK estate sold for £1bn and converted to management contracts
Majority of UK estate sold for £1bn and converted to management contracts z 30 year management contracts with expected fees of approximately £12m per annum in first full year: Maintains Holiday Inn distribution in key UK market with very little capital employed Incentive fee potential EBITDA m
Slide 39: Progress on conversion of O&L assets to management contracts
Progress to date on conversion of O&L assets to management contracts Date Hotels Value, £m Total hotels on market or sold to date 137 2,113 Staybridge Suites - HPT 7/03 16 113 InterContinental Mayfair 9/03 1 113 InterContinental Central Park 4/04 1 34 US portfolio – HPT 12/04 13 232 InterContinental
Slide 40: Sales and conversions to date have been a success
Sales and conversions to date have been a success z Hotels sold 121 z Contracts retained 106 (88%) z Net asset value £1.77bn z Proceeds £1.75bn z 2004 EBITDA foregone c. £160m z 2004 EBIT foregone c. £100m z Fee stream £15-20m (estimate) z Post-fee EBITDA multiple 13x z Cash tax £50m (3% of proceeds
Slide 41: Remainder of asset sale programme progressing well
Remainder of asset sale programme progressing well z Good progress on InterContinental Paris and other hotels on market z Residual US sales (remaining c.£85m of book value) could take up to 12 months z European market not yet ready for further sales: 41 On market: £360m (large proportion is InterCon
Slide 42: Announce today a further £1bn return to shareholders
Announce today a further £1bn return to shareholders Current Progress and Highlights: z First £250m buyback completed at an average price of 548p per share z £501m special dividend paid in December 2004 z £16.5m of second £250m buyback complete z Further return of £1bn with associated share consolid
Slide 43: In conclusion - highlights of today's announcement
In conclusion - highlights of today’s announcement z Strong results with Hotels operating profit up 26% in the year and 27% in the fourth quarter z Strengthening of brand proposition to franchisees and owners with RevPAR outperformance, system delivery and pipeline growth z Focus on management and f
Slide 44: International Financial Reporting Standards
International Financial Reporting Standards 44
Slide 45: IFRS – overview of IHG approach
IFRS – overview of IHG approach z Effective from Q1 2005 results z Does not change the economics of our business z No cash effect z Accounting policies and reconciliations to UK GAAP included in Announcement z Restated quarterly for 2004 45
Slide 46: Key IFRS changes for IHG
Key IFRS changes for IHG z Share based payments z Goodwill amortisation z Pension accounting z Deferred tax accounting z Held for sale assets and discontinued operations z Recognition of intangible assets on the exchange (sale) of assets 46
Slide 47: Impact on key 2004 performance measures from IFRS
Impact on key 2004 performance measures from IFRS UK GAAP IFRS Pre exceptional £331m £346m operating profit EPS - adjusted 32.5p 33.9p Effective tax rate 16% 18% EBITDA £529m £519m Net assets £1,977m £1,840m 47
Slide 48: Pre-exceptional 2004 and 2005 operating profit adjusted for IFRS
Pre-exceptional 2004 and 2005 operating profit adjusted for IFRS £m £m 2004 2005 UK GAAP pre-exceptional operating profit 331 - Cost of share based payments (4) (9) Removal of goodwill amortisation 10 10 Pension accounting (6) (9) Depreciation on assets held for sale 15 - Pre-exceptional operating p
Slide 49: Current Trading
>) INTERCONTINENTAL. Ww HOTELS GROUP Current Trading
Slide 50: Encouraging start to 2005 but January a small trading month
Encouraging start to 2005 but January a small trading month z Pleasing performance in US: Express and Holiday Inn showing rate growth Crowne Plaza RevPAR moving ahead driven by strong meeting segment performance InterContinental strong in key cities (e.g. New York) z UK and London showing stro
Slide 51: InterContinental Hotels Group 2004 full year results
InterContinental Hotels Group 2004 full year results March 10th 2005 51
Slide 52: Supplementary Information
Supplementary Information 31 December 2004 (Revised)
Slide 53: Index
Index z RevPAR - 3 months to 31 December 2004 z Owned/Leased Comparable & Managed z Franchised & Total System z RevPAR - 12 months to 31 December 2004 z Owned/Leased Comparable & Total z Franchised & Total System z Current Trading z RevPAR z Occupancy z Average Daily Rate z System Size z Total Syste
Slide 54: Explanatory Notes
Explanatory Notes • We have disclosed Owned and Leased RevPAR on a comparable basis. • Owned and Leased comparable RevPAR reflects performance this year compared to the same period last year for Owned and Leased hotels that have traded in both years. This excludes new builds, brand changes, properti
Slide 55: RevPAR – 3 Months to 31 December 2004 Owned/Leased Comparable & Managed
RevPAR – 3 Months to 31 December 2004 Owned/Leased Comparable & Managed Owned & Leased Comparable Managed Occ % ADR RevPAR Occ % ADR RevPAR 2004 Pts 2004 Growth 2004 Growth 2004 Pts 2004 Growth 2004 Growth InterContinental 67.6% 0.4% 181.93 4.5% 122.98 5.1% 61.1% 8.7% 122.80 7.3% 75.04 25.0% Crowne
Slide 56: RevPAR – 3 Months to 31 December 2004 Franchised & Total
RevPAR – 3 Months to 31 December 2004 Franchised & Total Franchised Total Occ % ADR RevPAR Occ % ADR RevPAR 2004 Pts 2004 Growth 2004 Growth 2004 Pts 2004 Growth 2004 Growth InterContinental 56.0% 4.9% 103.05 (6.8%) 57.71 2.0% 60.6% 4.1% 134.87 (0.6%) 81.70 6.6% Crowne Plaza 58.5% 0.4% 92.44 4.4% 54
Slide 57: RevPAR – 12 Months to 31 December 2004 Owned/Leased Comparable & Managed
RevPAR – 12 Months to 31 December 2004 Owned/Leased Comparable & Managed Owned & Leased Comparable Managed Occ % ADR RevPAR Occ % ADR RevPAR 2004 Pts 2004 Growth 2004 Growth 2004 Pts 2004 Growth 2004 Growth InterContinental 69.5% 2.0% 168.66 5.1% 117.15 8.1% 56.3% 7.8% 119.77 3.2% 67.40 19.7% Crowne
Slide 58: RevPAR – 12 Months to 31 December 2004 Franchised & Total
RevPAR – 12 Months to 31 December 2004 Franchised & Total Franchised Total Occ % ADR RevPAR Occ % ADR RevPAR 2004 Pts 2004 Growth 2004 Growth 2004 Pts 2004 Growth 2004 Growth InterContinental 58.0% 5.7% 101.97 (5.1%) 59.15 5.3% 60.4% 5.1% 129.83 (0.1%) 78.47 9.2% Crowne Plaza 62.3% 1.8% 91.28 1.5% 5
Slide 59: Current Trading – RevPAR
Current Trading – RevPAR CURRENT TRADING 2004 Oct Nov Dec Q4 YTD Jan REVPAR % change December 2005 AMERICAS IC O&L Comparable 6.2% 1.4% 8.0% 5.1% 8.1% 7.7% NA Total Crowne Plaza 10.6% 5.3% 6.1% 7.5% 7.9% 6.2% NA Total Holiday Inn 6.5% 5.1% 5.4% 5.8% 5.3% 6.6% NA Total Express 8.3% 10.8% 8.1% 9.1% 7.
Slide 60: Current Trading – Occupancy
Current Trading – Occupancy CURRENT TRADING 2004 Oct Nov Dec Q4 YTD Jan Occupancy %pts change December 2005 AMERICAS IC O&L Comparable 2.0% (1.9%) 0.9% 0.4% 2.0% 1.3% NA Total Crowne Plaza 3.7% 0.1% (0.2%) 1.2% 3.2% (0.9%) NA Total Holiday Inn 1.8% 0.7% 0.5% 1.0% 1.6% 0.6% NA Total Express 1.8% 2.8%
Slide 61: Current Trading – Average Daily rate
Current Trading – Average Daily rate CURRENT TRADING 2004 Oct Nov Dec Q4 YTD Jan ADR % change December 2005 AMERICAS IC O&L Comparable 3.4% 4.1% 6.3% 4.5% 5.1% 5.3% NA Total Crowne Plaza 4.9% 5.1% 6.4% 5.4% 2.7% 7.9% NA Total Holiday Inn 3.6% 3.7% 4.3% 3.8% 2.6% 5.2% NA Total Express 5.4% 5.6% 5.6%
Slide 62: System Size – Total at 31 December 2004
System Size – Total at 31 December 2004 Owned & Leased Managed Franchised Total Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms InterContinental 10 4,489 16 5,375 18 5,224 44 15,088 Crowne Plaza 6 2,284 18 6,299 92 25,062 116 33,645 Holiday Inn 8 2,577 53 17,045 1,013 185,878 1,074 205,500 Expre
Slide 63: Pipeline – Total at 31 December 2004
Pipeline – Total at 31 December 2004 Owned & Leased Managed Franchised Total Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms InterContinental 1 420 3 1,444 - - 4 1,864 Crowne Plaza - - 1 250 17 3,691 18 3,941 Holiday Inn - - 3 502 101 12,821 104 13,323 Express - - - - 318 26,587 318 26,587 Stayb
Slide 64: IFRS
y INTERCONTINENTAL. w HOTELS GROUF IFRS
Slide 65: Share based payments
Share based payments Current UK For share based performance awards an expense is GAAP reporting recognised based on the difference between exercise price and the market value at date of grant. The anticipated expense is recognised over the performance period of the scheme. An expense is only recogni
Slide 66: Goodwill amortisation
Goodwill amortisation Current UK Goodwill is amortised over a maximum period of 20 GAAP years. reporting IFRS reporting Goodwill is recognised as an asset and tested annually for impairment. Amortisation is not charged. Impact on 2004 £10m positive in 2004 – similar impact for 2005 operating profit
Slide 67: Pension accounting - Profit and loss account treatment
Pension accounting Profit and loss account treatment Current UK GAAP Defined benefit scheme: Under SSAP 24, the cost of benefits is based reporting upon a consistent percentage of employees pay as advised by an actuary. Variations in regular cost are amortised over the average service lives of curre
Slide 68: Pension accounting - Balance sheet treatment
Pension accounting Balance sheet treatment Current UK Defined benefit schemes: Differences between amounts GAAP reporting charged to the profit and loss account and cash payments made to the pension schemes are recognised in the balance sheet. Full Supplemental disclosures are given under FRS 17. IF
Slide 69: Deferred tax
Deferred tax Current UK FRS 19 does not require deferred tax liabilities to GAAP be recognised on revaluations, rolled over gains reporting and unremitted earnings of foreign trade investments. IFRS reporting IAS 12 requires full provision for all temporary differences. This increases deferred tax l
Slide 70: Assets classified as held for sale
Assets classified as held for sale Current UK Assets and liabilities relating to the disposal programme GAAP reporting are shown in the relevant balance sheet heading and depreciated as normal. IFRS reporting Assets and liabilities (including related deferred tax) are normally classified as held for
Slide 71: Discontinued Operations
Discontinued Operations Current UK Turnover, expenses and profits are classified as GAAP reporting discontinued when a sale occurs in the reporting period or before approval of the financial statements and the operation sold represents a significant part of the business. Discontinued results are sho
Slide 72: Exchange of Assets
Exchange of Assets Current UK On a sale of assets any profit or loss is calculated by GAAP reporting comparing cash proceeds to the net book value of the assets sold. No value is attributed to any other elements of a sale agreement IFRS Reports In the circumstance of a hotel or other asset being sol
Slide 73: 2004 Quarterly Operating Profit (£m) adjusted for IFRS
2004 Quarterly Operating Profit (£m) adjusted for IFRS £m CY 2004 Actuals Q1 (Jan - Mar) Q2 (Apr - Jun) Q3 (July - Sept) Q4 (Oct - Dec) YEAR (Jan - Dec) Turnover Profit Turnover Profit Turnover Profit Turnover P rofit Turnover Profit Americas Owned & leased 65 4 71 8 63 3 70 12 269 27 Managed 7 0 8
Slide 74: 2004 Quarterly Operating Profit ($m) adjusted for IFRS
2004 Quarterly Operating Profit ($m) adjusted for IFRS $m CY 2004 Actuals Q1 (Jan - Mar) Q2 (Apr - Jun) Q3 (July - Sept) Q4 (Oct - Dec) YEAR (Jan - Dec) Turnover Profit Turnover Profit Turnover Profit Turnover P rofit Turnover Profit Americas Owned & leased 119 6 129 16 113 6 129 21 490 49 Managed 1
InterContinental Hotels Group — FY2004 Earnings Presentation on 6ix