Intercontinental Hotels Group Plc · LSE:IHG
Intercontinental Hotels — FY2011 Earnings Presentation
49 slides from Intercontinental Hotels's earnings presentation, Feb 14, 2012
Slide 1: Full Year Results Presentation
Full Year Results Presentation 14 February 2012
Slide 2: Strong results in 2011 - well positioned for next phase of growth
Strong results in 2011 - well positioned for next phase of growth • Preferred brands drive RevPAR up 6.2% • Strong financial performance – record EPS • Substantial growth opportunities globally • Focus on efficiency – ongoing margin progression • Powerful cash flows • Financial strength and flexibil
Slide 3: Financial Results
Financial Results Crowne Plaza, London - The City 3
Slide 4: Financial results
Financial results CER² Change 12 months 12 months $ million Change % % Excluding to 31 Dec 11 to 31 Dec 10 LDs³ Turnover 1,768 1,628 9% 6% Operating Profit¹ 559 444 26% 21% Interest (62) (62) -% Profit before tax¹ 497 382 30% Tax rate¹ 24% 26% (2)%pts Profit after tax¹ 377 284 33% Adjusted EPS¹ 130.
Slide 5: Financial results - broad geographic distribution
Financial results - broad geographic distribution Operating profit* Open rooms Pipeline rooms 10% 9% 9% 28% 11% 47% 15% 14% 65% 67% 16% 9% Americas Europe AMEA Greater China (US, Canada, (UK & Ireland, (Asia, (China, Hong Kong, Latin America Continental Middle East Macau, Taiwan) Caribbean) Europe)
Slide 6: The Americas – strong performance driven by franchise business
The Americas – strong performance driven by franchise business • RevPAR up 7.5% 19% – US up 7.9% 14% – Total US up 9.5% (industry 8.2%) • Revenue up 7%* 9% • Operating profit up 18%* 4% • 27,107 rooms opened – Net system growth +1% -1% Q1 '11 Q2 '11 Q3 '11 Q4 '11 • 30,109 rooms signed into the Occup
Slide 7: Europe – RevPAR growth drives 34% profit increase
Europe – RevPAR growth across much of the year drives 34% profit increase • RevPAR up 4.7% 19% – Q4 RevPAR down 0.2% 14% • Revenue up 10%* • Operating profit up 34%* 9% • 6,167 rooms opened 4% – Net system growth +2% • 5,779 rooms signed into the -1% pipeline Q1 '11 Q2 '11 Q3 '11 Q4 '11 Occupancy (%
Slide 8: Asia Middle East & Africa – good underlying growth in managed business
Asia Middle East & Africa – good underlying growth in the managed business • RevPAR up 0.9% 19% – Up 5.5% ex. Egypt, Bahrain, Japan 14% • Revenue up 4%* 9% • Operating profit up 9%* • 2,907 rooms opened 4% – Net system growth (1)% -1% • 7,424 rooms signed into the Q1 '11 Q2 '11 Q3 '11 Q4 '11 pipelin
Slide 9: Greater China – growing scale drives margin expansion
Greater China – growing scale drives margin expansion • RevPAR up 10.7% 19% – up 17.4% ex. Shanghai 14% • Total gross revenue* of $1.9bn – Almost doubled since 2009 9% • Revenue up 15% 4% • Operating profit up 24% – Managed up $13m to $43m -1% Q1 '11 Q2 '11 Q3 '11 Q4 '11 • 8,084 rooms opened Occupan
Slide 10: Hotel franchising + 12% growth in profits
Hotel franchising + 12% growth in profits Total gross revenue $bn¹ (rooms only) Group Royalty drivers 2011 vs. 2010 2011 11.3 -1.6% Average rooms 2010 10.5 RevPAR 6.5% 2009 9.6 Royalty fees 8% Franchise Fees $m Franchise EBIT $m (margin %) 2011 609 2011 511 (84%) 2010 558 2010 458 (82%) 2009 528 200
Slide 11: Hotel management - strong margin growth
Hotel management - strong margin growth Total gross revenue $bn1(total hotel) Management Fees² $m 2011 8.3 2011 349 2010 7.7 2010 333 2009 6.7 2009 263 Managed EBIT² $m (margin %) 2011 191 (55%) 2010 155 (47%) 2009 120 (46%)3 Based on actual USD ¹Total gross revenue is defined as total hotel revenue
Slide 12: Owned & Leased - rate drives good margin growth
Owned & Leased - rate drives good margin growth O&L revenue $m O&L EBIT $m (margin %) 2011 567 2011 106 (19%) 2010 525 2010 83 (16%) 2009 500 2009 66 (13%) O&L EBITDA $m 2011 148 2010 131 2009 114 Based on actual USD. *All charts exclude results from disposed assets: InterContinental Buckhead, Atlan
Slide 13: High quality growth - progressive growth in fee-based margins
High quality growth - progressive growth in fee-based margins • Fee-based operating margin¹ up 4.9%pts, c.1%pt underlying Fee based¹ operating profit margin 34.6% 35.7% 40.6% 2009 2010 2011 • Scale efficiencies fund reinvestment behind brand growth – New brand launches – China infrastructure – Brand
Slide 14: Growing market share - net system growth
Growing market share - net system growth • 2011: 2% net room growth – 44k rooms added – 33k rooms removed • 16k Holiday Inn brand family • 7k HPT contract renegotiation – Net growth led by Greater China • 2012: 2 – 3 % net room growth – Lower level of removals – Growth will continue to be led by Gre
Slide 15: Growing market share - high quality pipeline
Growing market share - High quality pipeline • 180k room, high quality pipeline – 55k rooms signed in 2011 – Active pipeline management to drive pipeline quality – > 50% of pipeline outside the Americas – 40% of pipeline under construction, c. 70% financed – Leading active* global hotel pipeline sha
Slide 16: Strong free cash flow generation
Strong free cash flow generation 12 months 12 months $ million to 31 Dec 11 to 31 Dec 10 EBITDA 658 552 Working capital/ system fund movements 35 107 Interest (55) (57) Tax (89) (64) Maintenance capital expenditure (101) (57) Other (26) (49) Free cash flow 422 432 Net cash inflow (outflow) 226 349 C
Slide 17: Harnessing the power of free cash flow
Harnessing the power of free cash flow Free cash flow Asset disposals Investment grade credit rating Growth investment Sustainable ordinary Capital returns dividend 17
Slide 18: Growth investment - invest for growth, recycle capital
Growth investment - Invest for growth, recycle capital • Capital recycling funds growth in 2011 – $93m growth capital expenditure – $142m cash from asset disposals • 22% premium to book • Track record of building brands through growth investment 2011 Investment Gross Open Pipeline revenues hotels $1
Slide 19: Growth investment - driving brand growth into the future
Growth investment - driving brand growth into the future • Targeted spend – strict methodology to assess opportunities – Strategic criteria determining investment priorities – Financial returns – above risk adjusted WACC by year three • Medium term growth capital expenditure $100m - $200m per annum
Slide 20: Sustainable ordinary dividend growth
Sustainable ordinary dividend growth - reinforces cash generative model • 15% growth to 55.0¢ • Dividend maintained through the downturn • >$1bn paid in ordinary dividends since 2003 Ordinary dividend payments Final 39.0¢ Interim 35.2¢ 12.8¢ 16.0¢ 2010 2011 Cash cost ($m) 121 159 Cover 2.1 2.4 DPS g
Slide 21: Capital returns - prioritising growth and flexibility
Capital returns - prioritising growth and flexibility • In the near term prioritising growth and flexibility – Rigorous approach to assessing growth investment/ shareholder returns • Good track record of returning value to shareholders – $6bn of returns since demerger • Optimal capital structure - i
Slide 22: Current trading and outlook
Current trading and outlook • January RevPAR up 6.0% with rate up 3.5% – Americas +7.7%; Europe +3.0%; AMEA +4.2%% – Greater China +1.2% ; impacted by shift in Chinese New Year • IHG outlook – Booking pace up across most markets – 2012 corporate rates: expect mid-single digit growth – Visibility rem
Slide 23: Strategic Review
Strategic Review Crowne Plaza, Lijiang 23
Slide 24: IHG is optimally positioned
IHG is optimally positioned • Significant opportunity for the branded hotel industry – Consumer /demographic trends will drive long term demand • Consistently strong performance since 2003 • IHG’s priorities for high quality growth 24
Slide 25: A significant opportunity - long term hotel demand drivers
A significant opportunity - long term hotel demand drivers 1. Growing global middle class 2. Increasing airline capacity 3. Ageing developed world population 4. New sources of international travel 5. Growing internet penetration 6. Preference for recognised brands 25
Slide 26: Demand driver #1 - growing global middle class
Demand driver #1 - growing global middle class 2010 -2030 middle class population growth by economy type COUNTRY CAGR (‘10-30) 1.4bn Developed 1% 1.1bn BRIC 7% Emerging 4% 682m 2010 2020 2030 Source: Oxford Economics Market Strength Index Database 2011 26
Slide 27: Demand driver #2 - growing airline capacity and demand
Demand driver #2 - growing airline capacity and demand 2006 - 2016 airline people capacity and people carried Airline Capacity Airline Demand +4% CAGR +2% CAGR 5.6bn 4.7bn 4.2bn 4.1bn 3.1bn 3.4bn 2006 2011 2016 Source: EuroMonitor Passport Data 2011 27
Slide 28: Demand driver #3 - ageing developed world population
Demand driver #3 - ageing developed world population Developing World Developed 30 29% 28% 27% 25% 25 % Population > 65 20 15 10 5 0 2011 2014 2017 2020 Source: UN World Population Database 2011 28
Slide 29: Demand driver #4 - new sources of international tourist travel
Demand driver #4 - new sources of international tourist travel International Tourist Arrivals (1950-2020) 1,400 1,300 Actual Forecast 1,200 1,100 1,000 900 million 800 700 600 500 400 300 200 100 0 1960 1970 1980 1990 2000 2010 2020 South Asia Middle East Africa East Asia/Pacific Americas Europe Sou
Slide 30: Demand driver #5 - growing internet penetration
Demand driver #5 - growing internet penetration Internet Access >80% of population 60-80% of population 40-60-% of population 20-40% of population < 20% of population 2011: 2.1bn users 2020: 3.0bn users Source: Internet World Stats Note: July 2011 data 30
Slide 31: Demand driver #6 - branded hotel share will grow
Demand driver #6 - branded hotel share will grow Increase in global rooms supply and branded share 35,000 Unbranded Branded 30,000 Global industry room supply (‘000) 25,000 20,000 15,000 10,000 50% 45% 5,000 38% 0 2010 2020 2030 Source: STR, IHG analysis 31
Slide 32: Strong performance to date - IHG's journey
Strong performance to date - IHG’s journey 2003-2007 2008-2010 2011 onwards Restructuring Recession & High quality recovery growth • Asset sales • Proved resilience • Organisation change • Holiday Inn relaunch • Cut costs • Maintained dividend • Exceeded rooms target 32
Slide 33: IHG's priorities for high quality growth
IHG’ priorities for high quality growth “Delivering Great Hotels Guests Love” Priorities for high quality growth BEST IN PREFERRED TALENTED CLASS BRANDS PEOPLE DELIVERY RESPONSIBLE BUSINESS PRACTICE INVEST IN GROWTH GROW MARKET SHARE SUSTAINABLE MARGIN GROWTH 33
Slide 34: Preferred brands - what makes a great brand?
Preferred brands - what makes a great brand? Makes a Knows what it Makes you Makes itself promise and stands for love it famous keeps it IHG’S BRANDS – DRIVING MARKET SHARE GAINS 34
Slide 35: Preferred brands - insight behind the relaunch
Preferred brands - insight behind the relaunch Makes a Knows what it Makes you promise and stands for love it keeps it Emotional Differentiation Consistency Connection
Slide 36: Preferred brands - insight behind the relaunch
Preferred brands - insight behind the relaunch Emotional Differentiation Consistency Connection $1bn Holiday Inn relaunch 1. 2. 3. 4. 5. Remove Add High 100% Complete Install poorer Quality Quality Service Hallmarks hotels New Hotels Compliance Training
Slide 37: Preferred brands - continued momentum from relaunch
Preferred brands - Continued momentum from relaunch • JD Power award: best midscale full service guest satisfaction • Driving financial performance • Driving future system growth US Holiday Inn 12 month RevPAR index to US hotel signings pace accelerating upper midscale segment 95 86 104.9 42 104.2 3
Slide 38: Drive market share - Crowne Plaza repositioning
Drive market share - Crowne Plaza repositioning • $3.9bn brand (2010:$3.5bn), 5th largest global upscale brand - 387 hotels open, 108 hotels in pipeline • A brand with significant opportunity – performance gap between Americas and Rest of World 2011 Average Daily Rate ($) 2011 System and pipeline ro
Slide 39: Preferred brands - Crowne Plaza repositioning three phase strategy
Preferred brands - Crowne Plaza repositioning Three phase strategy 2011 2012 2013 2014 2015 1. Accelerated performance plan Quality improvement (c.40 hotel removals) 2. Invest capital to develop halo locations 3. Roll-out differentiated brand hallmarks Good progress to date - Accelerated performance
Slide 40: Preferred brands - IHG's new brands for 2012
Preferred brands - IHG’s new brands for 2012 New China upper upscale brand – Consumer need for an international ‘Chinese’ 5-star hotel – Environment to conduct business effectively – IHG name – reassurance over quality and consistency – Food & beverage key to the guest experience New US midscale bra
Slide 41: Preferred brands - investment methodology
Preferred brands - investment methodology Rigorous investment appraisal process – Returns above risk-adjusted WACC by year 3 Strategic Distribution priorities 1. Accelerates scale market growth - $10m: China JV (2006) Secures a hotel with significant - InterContinental Times Square New York 2. netwo
Slide 42: Talented people - delivering consistent brand experiences
Talented people - delivering consistent brand experiences Industry leading employee engagement – Proven link: engagement = guest satisfaction = RevPAR – 2% point improvement in engagement – One of “Fortune’s 100 Best Companies to Work for” Owner engagement and support – 90,000 more people over the n
Slide 43: Best in class delivery - the power of IHG's system
Best in class delivery - the power of IHG’s system Priority Club Scale Brand Portfolio Web/ mobile Rewards >4,400 hotels 7 preferred 11 languages 153m guests 63m members hotel brands 8 language apps annually Revenue Food & Management Beverage 69% room >$4.6bn of F&B World class revenue delivery reve
Slide 44: Best in class delivery - industry leading web/mobile strategy
Best in class delivery - industry leading web/ mobile strategy Web – $3bn of revenues in 2011 – top 10 online US retailer – 11 languages supported – Double digit rate premium – Industry leading “best price guarantee” launched Sept 2011 – Founding partner of Roomkey.com launched January 2012 Mobile –
Slide 45: Best in class delivery - growing share through sales innovations
Best in class delivery - growing share through sales innovations Dynamic pricing – 34% of negotiated corporate rates (2010: 21%) – Targeting >40% by end 2012 – 15%pt increase in revenue and rooms nights Strategic account management – Top 25 strategic accounts – 1%pt share gain = $34m in incremental
Slide 46: Best in class delivery - world class revenue management tools
Best in class delivery - world class revenue management tools Price Optimisation • Industry first, recognized by several awards Inventory • Automated rate calculations Yield Pricing Manage • Used in >2,600 hotels -ment • Average 4.3% RevPAR uplift 46
Slide 47: Well positioned for high quality growth
Well positioned for high quality growth • Confident outlook in uncertain macro environment • Positive outlook for the industry • Positioned to drive high quality growth into the future – Preferred brands – Talented people – Best in class delivery systems • Strong track record of driving superior ret
Slide 48: Q&A
Q&A Holiday Inn, London – M4, Junction 4 48
Slide 49: Full Year Results Presentation
Full Year Results Presentation 14 February 2012
InterContinental Hotels Group — FY2011 Earnings Presentation on 6ix