Intercontinental Hotels Group Plc · LSE:IHG
Intercontinental Hotels — FY2003 Earnings Presentation
47 slides from Intercontinental Hotels's earnings presentation, February 2004
Slide 1: InterContinental Hotels Group
INTERCONTINENTAL. HOTELS GROUP
Slide 2: David Webster, Chairman
(> INTERCONTINENTAL. Ww HOTELS GROUP David Webster Chairman
Slide 3: Richard Solomons, Finance Director
Richard Solomons Finance Director 3
Slide 4: Reporting
Reporting z Results presented are pro forma for the 12 months ended 31 December 2003 z Hotels reporting format has been updated to improve clarity of disclosure z The 15 month results are available in our stock exchange announcement z Ongoing quarterly reporting will continue 4
Slide 5: IHG Group Pro Forma Profit & Loss Account
IHG Group Pro Forma Profit & Loss Account 12 mths to 12 mths to Change Constant £m 31 Dec 03* 31 Dec 02* % Currency % Turnover 2,161 2,149 1 1 EBITDA 481 500 (4) - Operating Profit 283 307 (8) (4) Interest (39) (49) Profit before Tax 244 258 (5) Tax rate 25% 27% Earnings per share 20.8p 21.9p (5) Di
Slide 6: Pro Forma Results 12 Months To 31 December 2003
Pro Forma Results 12 Months To 31 December 2003 12 mths to 12 mths to Change Constant £m 31 Dec 03 31 Dec 02 % Currency % Hotels Turnover 1,487 1,538 (3) (3) Operating Profit 200 239 (16) (11) Soft Drinks Turnover 674 611 10 Operating Profit 83 68 22 6
Slide 7: Improved Reporting Format: Overheads
Improved Reporting Format Overheads z Overheads divided into Direct costs Regional overheads Central overheads z New classification for overheads Mirrors the way the business is managed Greater clarity 7
Slide 8: Hotels Operating Profit and EBITDA 12 months to 31 December 2003
Hotels Operating Profit and EBITDA 12 months to 31 December 2003 12 mths to 12 mths to $m 31 Dec 03 31 Dec 02 % Americas 262 260 1 EMEA 149 180 (17) Asia Pacific 19 39 (51) Central Overheads (105) (121) 13 Total Operating Profit $m 325 358 (9) Total Operating Profit £m 200 239 (16) Total EBITDA £m 3
Slide 9: Hotels Operating Profit and EBITDA 3 months to 31 December 2003
Hotels Operating Profit and EBITDA 3 months to 31 December 2003 3 mths to 3 mths to $m 31 Dec 03 31 Dec 02 % Americas 56 53 6 EMEA 38 34 12 Asia Pacific 11 16 (31) Central Overheads (25) (34) 26 Total Operating Profit $m 80 69 16 Total Operating Profit £m 49 44 11 Total EBITDA £m 88 84 5 9
Slide 10: Owned & Leased Estate RevPAR
Owned & Leased Estate RevPAR 12 months to 31 December 2003 v 2002 15.0% 10.0% 5.0% 0.0% Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 % Growth (5.0%) (10.0%) (15.0%) (20.0%) (25.0%) Americas O&L (30.0%) EMEA O&L (35.0%) Asia Pacific O&L 10
Slide 11: Americas Operating Profit 12 months to 31 December 2003
Americas Operating Profit 12 months to 31 December 2003 12 mths to 12 mths to $m 31 Dec 03 31 Dec 02 % Americas - Owned & Leased 32 38 (16) - Managed 7 11 (36) - Franchised 279 269 4 Total 318 318 - Regional Overheads (56) (58) 3 Total Americas operating profit 262 260 1 Total Americas operating pro
Slide 12: Americas InterContinental Owned & Leased RevPAR Performance
Americas InterContinental Owned & Leased RevPAR Performance 15.0% 10.0% 5.0% % Growth 0.0% Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 (5.0%) InterContinental O&L (10.0%) Upper Upscale (15.0%) 9 mths to 3 mths to 12 mths to RevPAR Movement 30 Sep 03 31 Dec 03
Slide 13: Americas - Managed Hotels
Americas - Managed Hotels RevPAR Movement 9 mths to 3 mths to 12 mths to RevPAR Movement 30 Sep 03 31 Dec 03 31 Dec 03 InterContinental (16.4%) 3.7% (10.0%) Crowne Plaza (8.3%) 3.0% (5.7%) 13 Operating profit down $4m to $7m
Slide 14: Americas - Franchised Hotels
Americas - Franchised Hotels RevPAR Movement 9 mths to 3 mths to 12 mths to RevPAR Movement 30 Sep 03 31 Dec 03 31 Dec 03 Holiday Inn (2.3%) 2.1% (1.2%) Express 1.0% 4.4% 1.7% 12 months to 31 Dec 03 Holiday Inn Express Increase in royalty rate 0.05% pts 0.01% pts Change in number of (2.2%) 7.6% room
Slide 15: Americas - Express Franchise RevPAR Performance
Americas - Express Franchise RevPAR Performance 8.0% 6.0% 4.0% % Growth 2.0% 0.0% Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 (2.0%) Express Brands (4.0%) Midscale without F&B (6.0%) 15
Slide 16: Americas - Holiday Inn Franchise RevPAR Performance
Americas - Holiday Inn Franchise RevPAR Performance 6.0% 4.0% 2.0% 0.0% % Growth Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 (2.0%) (4.0%) (6.0%) Holiday Inn Brands (8.0%) Midscale with F&B (10.0%) 16
Slide 17: EMEA Operating Profit 12 months to 31 December 2003
EMEA Operating Profit 12 months to 31 December 2003 12 mths to 12 mths to £m 31 Dec 03 31 Dec 02 % EMEA - Owned & Leased 77 115 (33) - Managed 19 21 (10) - Franchised 18 14 29 Total 114 150 (24) Regional Overheads (22) (30) 27 Total EMEA 92 120 (23) Total EMEA $m 149 180 (17) 17
Slide 18: EMEA - Owned & Leased
EMEA - Owned & Leased RevPAR Movement 9 mths to 3 mths to 12 mths to RevPAR Movement 30 Sep 03 31 Dec 03 31 Dec 03 InterContinental (8.9%) (5.1%) (8.0%) Crowne Plaza (3.9%) (1.9%) (3.4%) Holiday Inn (1.8%) 2.9% (0.3%) 18 Operating profit down £38m to £77m
Slide 19: EMEA - Holiday Inn UK RevPAR Performance
EMEA - Holiday Inn UK RevPAR Performance 15.0% 10.0% 5.0% 0.0% % Growth Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 (5.0%) (10.0%) (15.0%) Regions Regions HotelBenchmark (20.0%) London London HotelBenchmark (25.0%) 19
Slide 20: EMEA - Managed & Franchised Hotels RevPAR Movement
EMEA - Managed & Franchised Hotels RevPAR Movement 9 mths to 3 mths to 12 mths to RevPAR Movement 30 Sep 03 31 Dec 03 31 Dec 03 InterContinental Managed (5.4%) Flat (4.0%) Holiday Inn Franchised (0.3%) 8.2% 1.8% Express Franchised (3.8%) 0.7% (2.7%) 20
Slide 21: Asia Pacific Operating Profit 12 months to 31 December 2003
Asia Pacific Operating Profit 12 months to 31 December 2003 12 mths to 12 mths to $m 31 Dec 03 31 Dec 02 % Asia Pacific - Owned & Leased 18 27 (33) - Managed 15 24 (38) - Franchised 4 5 (20) Total 37 56 (34) Regional Overheads (18) (17) (6) Total Asia Pacific 19 39 (51) Total Asia Pacific £m 12 26 (
Slide 22: Asia Pacific RevPAR Movement
Asia Pacific RevPAR Movement 9 mths to 3 mths to 12 mths to RevPAR Movement 30 Sep 03 31 Dec 03 31 Dec 03 IC Hong Kong (37.9%) (10.0%) (28.6%) Managed (10.3%) 1.0% (6.8%) 22
Slide 23: Gross Overheads 2003 and 2002
Gross Overheads 2003 and 2002 $m 12 months pro forma 2003 2002 Americas 56 58 EMEA 36 44 Asia Pacific 18 17 Central 171 183 Total Central & Regional Overhead 281 302 Direct Costs 119 141 Total overheads 400 443 23
Slide 24: Soft Drinks
Soft Drinks Results for the 52 weeks to 20 Dec 03 z Volume up 7.6% z Turnover up 10.3% to £674m z Profit margins increased z Operating Profit up 22.1% to £83m 24
Slide 25: IHG Group Pro Forma Cash Flow
IHG Group Pro Forma Cash Flow 12 mths to £m 31 Dec 03 Operating Profit 283 Depreciation/Amortisation 198 Working capital/Other 30 Capital expenditure (354) Cash flow before disposals 157 Disposals 254 Operating cash flow 411 25
Slide 26: Exceptional Items
Exceptional Items 15 Months to 31 December 2003 £m Continuing Operations Operating: Impairment of tangible fixed assets 51 Non-operating: Reorganisation costs 67 Separation and bid defence costs 51 Provisions against fixed asset investments 56 Premium on early settlement of debt 136 Profit on dispos
Slide 27: IHG Group Balance Sheet
IHG Group Balance Sheet £m 31 Dec 03 Tangible assets 4,123 Intangible assets 158 Working capital (67) Long-term liabilities (176) Net operating assets 4,038 Net debt (569) Other non-operating liabilities (915) Net assets 2,554 27
Slide 28: Return of Capital
Return of Capital z Importance of maintaining investment grade debt rating z Discussion with ratings agencies z Rating is driven by multiple factors industry and company risk commitment to maintaining credit ratios performance vs range of ratios the way the company is financed 28
Slide 29: Key Agency Ratio
Key Agency Ratio £m 2003 Retained Funds From Operations Actual net debt 569 Adjusted net debt* 1,150 Adjusted RFFO 320 Current RFFO as % adjusted debt 28% Interest Cover x7 * For rents, pension deficit etc 29
Slide 30: Return of Capital: £250m Share Buy Back
Return of Capital z Commitment to return surplus funds z Balance needs of debt and equity providers £250m Share Buy Back 30
Slide 31: Summary
Summary z Hotel results showing signs of improvement z Improved disclosure for hotels and Quarterly reporting z Soft drinks continues to produce excellent results z Aggressive financial management and improved net debt position z £250m share buy back 31
Slide 32: Richard North, Chief Executive
Richard North Chief Executive 32
Slide 33: Driving Returns and Free Cash Flow
Driving Returns and Free Cash Flow Driving revenue Improved ROCE and Reduced overhead costs Free Cash Flow Lower capital intensity 33
Slide 34: Driving Revenue – Levers to Pull
Driving Revenue – Levers to Pull Four main levers to pull: z Improving the proposition of our BRANDS z Strengthening our PRICING STRUCTURES z Building retention with our LOYALTY PROGRAMMES z Increasing the reach and efficiency of our SYSTEM DELIVERY 34
Slide 35: Driving Revenue – Highlights
Driving Revenue – Highlights z BRAND Investment Total Membership of Priority Club Rewards 19.2 z New PRICING STRUCTURES 15.6 z PRIORITY CLUB REWARDS up 23% to 19 million members PCR members spent $2.7 billion in our hotels in 2003 Dec 2002 Dec 2003 35
Slide 36: Driving Revenue – Highlights: System Delivery
Driving Revenue – Highlights Percentage of Total SYSTEM DELIVERY Bookings via IHG Web Sites z Up further 2.6 percentage 7.0% points z $1.3bn of business booked 4.5% through our 15 call centres z Call centre revenue up 5% on call volumes down 6% z Revenue via own websites up 50% to 7% of total bookin
Slide 37: Reducing Overhead Costs
Reducing Overhead Costs Comparison to Targets z Exceeded actual saving target in 2003 Target $40 million Actual Savings $76 million z Exceeded our target of annualised savings by 31 December 2003 Target $75 million Actual Savings $110 million z Now increasing overall savings target by 31 December 20
Slide 38: Overheads - 2004
Overheads - 2004 z Calendar 2004 costs will be impacted by various cost pressures, including: New business and initiatives Increased depreciation on our IT infrastructure Inflation and exchange rates Payment of bonuses z 2004 gross costs anticipated to be marginally down on 2003 at constant
Slide 39: Reducing Overhead Costs: 2004 Forecast versus 2002 Actual
Reducing Overhead Costs 2004 Forecast versus 2002 Actual z $65million less at constant exchange rates after z Incremental investment in IT, sales and marketing z New Business z Underlying inflation 39
Slide 40: Lower Capital Intensity: Owned & Leased Estate
Lower Capital Intensity Owned & Leased Estate No of HOTELS No of ROOMS NBV 1,000s £billion Americas 28 9.8 0.8 EMEA 129 26.3 2.5 Asia Pacific 14 3.2 0.4 Total 171 39.4 3.7 40
Slide 41: Significant Asset Disposal Process
Lower Capital intensity – Significant Asset Disposal Process z Decision criteria includes… Importance for brand representation Importance to build critical mass distribution within a market Future capital expenditure requirements Ability to earn superior returns State of the local market
Slide 42: Lower Capital Intensity - Asset Disposals
Lower Capital Intensity - Asset Disposals DISPOSALS COMPLETED DISPOSALS PLANNED 21 hotels sold with proceeds over Number of further opportunities £270m identified These include: These include: Sold outright to hotel operator IC Central Park South MayFair £113m IC George Edinburgh CP Manchest
Slide 43: Lower Capital Intensity: Capital Expenditure
Lower Capital Intensity Capital Expenditure 700 Hotels : Capital Expenditure 600 500 400 £m 300 200 100 0 YE Sept 2001 YE Dec 2002 * YE Dec 2003 YE Dec 2004 43 * 12 months
Slide 44: Britvic
Britvic z Successful renegotiation of the Exclusive Bottling Agreement with Pepsi For an additional 15 years z Opportunity for initial public offering between 1 January 2005 and 31 December 2008 44
Slide 45: Current Trading
Current Trading z Conditions steadily improving in Americas and the UK z Asia Pacific is substantially recovered since SARS scare z Continental Europe remains difficult exacerbated by the weakness of the US dollar 45
Slide 46: Driving Returns and Free Cash Flow
Driving Returns and Free Cash Flow Driving revenue z System delivery up 2.6%age points z Holiday Inn market share increasing in UK Improved ROCE and Reduced overhead costs Free Cash z Exceeded actual cost reduction targets by $36m Flow Lower capital intensity z Raised £270m from disposals z Announce
Slide 47: InterContinental Hotels Group
INTERCONTINENTAL. HOTELS GROUP
InterContinental Hotels Group — FY2003 Earnings Presentation on 6ix