InterContinental Hotels Group PLC (IHG) 2005 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to the InterContinental Hotels Group interim results presentation. Just before I begin, the usual plea, could I ask you be [indiscernible] turn phones off and all bits and pieces otherwise we'll be fighting feedback for the next 40 minutes. Thank you.

I'm very pleased to be here today with our Finance Director, Richard Solomons, to describe the Company's progress. This is an important moment for this business as we open a new chapter and shift our focus to the future, and on to growth.

Our agenda this morning is very straightforward. First, I'm going to give a quick summary of the main points of the whole presentation. And Richard will then come up to take you through the half-year results themselves. I come back then to lay out for you the main parts of the business plan as we see it for the next few years, including the goals, strategy and our main priorities. I'll finish by outlining the future shape of our business and its improved financial profile, before then taking your questions.

First, the headlines. As Richard will be telling you, our business is performing well. The first-half numbers are good, even allowing for an IFRS adjustment that somewhat flatters the EBIT line. They show that the moves to address the historic lack of focus in this business are starting to pay of. Part of this focus has been the decision to dispose of the majority of our hotel assets. That process continues to go well.

Last week we announced the sale of our 10 Australasian hotels for £170m. That's 23% over book value. And reflecting the strength of our brands in that part of the world, we also secured long-term management agreements on those -- all 10 hotels, as part of the deal. Today, of course, we're announcing the sale of our second hotel, our second Intercontinental Hotel in Paris, for £214m or €315m, which again, 26% there over book.

We're also announcing today a further £250m share buy-back, which will commence once the current round of buy-backs in complete.

And in terms of asset ownership, we're confirming today that we intend to hold on to around a £1b worth of the hotels from our current owned and leased estates. This then signals our intention to sell again about £600m worth of asset -- hotel assets that remain.

I said this was an important moment for this company, I will therefore me spending most of the presentation talking about our future plans. With the bulk of the asset disposal done, our job now is to accelerate the growth of our core managed and franchised hotels business.

A growing pool of capital and investment funding is chasing hotel assets. What these investors want is returns. And they can get these from partners who have strong brands, who can drive the performance of their hotels and who have ultimately the best market knowledge and the best support network. By better meeting the needs of our owners, we will do more growth in the future and that is at the heart of our management agenda in future.

Putting some substance to this, we're spelling out for you today a clear target. That is, that by the end of 2008 we will have added a net 50,000 to 60,000 rooms to our current rooms count. Just to remind you, it's 536,000. And that's on an organic basis.

With this step-up in our rate of growth, and with a much smaller asset base, IHG presents an attractive financial profile going forward, and I'll return to this at the end my comments this morning.

Just before I pass over to Richard, just a word about the situation in the southern United States. We actually have 560 hotels in the affected Gulf State area. 50 of those have some degree of impact, but only 25 are currently closed, or partly closed.

Our 600 direct employees are all accounted for and are safe, as are the 5,000-plus employees who work in our franchised hotels for third-party owners. We are still trying to establish the whereabouts of all of the guests who were staying with us at the time. As you'll appreciate, that's quite a difficult process.

We're working very closely with the emergency services and the State authorities to do whatever we can to help. And, in a difficult situation, our people are doing the usual marvelous job, and we're proud of them. As we did at the time of the tsunami, we have a number of schemes internally set up to raise money for the relief effort. That's all I'll say about Katrina right now, but Richard will, perhaps, say a word or two more about it in his section as he reviews the half-year results, which he will now do. Richard.

Thank you, Andy. Good morning. I'm pleased to present another set of strong results and further progress on our rapidly changing business.

First, a few highlights. Trading remains strong, with profit increasing in both hotels and Britvic. The hotels profit grew by 33%, or 34% on a continuing basis. And Britvic profits were up by 5%.

Earnings per share are up 27% to £0.181p. We've increased our interim dividend by 7%, in line with policy, and well ahead of inflation. At the right point we will put a further £600m of assets on the market, but as Andy said, we intend to retain some £1b of our core hotel estate. And I'll talk more about this later.

Moving to the Group results, turnover for the half was 4% down on the same period last year. EBITDA of £257m was up 4%. Operating profit before special items was up 26%, to £192m. Our adjusted tax rate expected for the year is 29%. And we continue to expect that the tax rate thereafter will increase over the long term, towards the mid- to high-30% range, as the Group's taxable profits arise predominately in the U.S.

However, I think it's a little more informative to look at the hotels' results on a continuing basis, excluding all sold assets and any on the market. On this basis hotels turnover was up 12%, to £446m, with EBITDA up 24%, and operating profit up 34%, to £91m.

Looking at the hotels business by ownership type, all 3 grew profits in the half. Our owned and leases business continued to perform well with profits from our U.K. estate included until it was sold in May. Trading continues to improve at the InterContinental Le Grand Paris, and at key hotels in cities such as New York and Hong Kong.

Our managed business has delivered strong RevPAR and profit growth, with a meaningful contribution for the new management contracts with HBT and strategic hotel capital arising from our U.S. disposals earlier this year.

Adjusting for the contracts, and liquidated damages received last year, the underlying management business has seen approximately 30% profit growth.

The franchise business grew earnings at over 13%, including £7m of liquidated damages received on termination of our South African master franchise agreement. After adjusting for this, the franchise business grew profits by a healthy 5%.

Overheads have increased over prior year; however, we reiterate our guidance that full-year 2005 overheads will be flat in nominal terms at constant currency.

Our fee income business in total has shown strong growth across all our brands. Our combined managed and franchise business grew operating profit by 16%, and now represents 88% of hotels operating profit. This business delivers a resilient high-quality earnings stream with a strong cash flow.

Royalties and fees were driven a RevPAR up 9.2% and a higher level of room additions. RevPAR growth was driven by all segments performing well, particularly the corporate and meetings business. We added a net 22,500 rooms, of which 18,900 are from hotels previously owned by IHG.

Of the 3 principal leaders for growth in our business, RevPAR continues to be the main profit driver. This chart shows the RevPAR performance of the key parts of our business. We saw significant increases in RevPAR across all of our brands. With InterContinental and Candlewood in the U.S. and Holiday in the U.K. outperforming in their respective markets.

The U.K. Holiday Inn estate performed particularly well, benefiting from strong business travel, room refurbishments and targeted marketing campaigns. Both Holiday Inn and Express in the U.S. maintained a significant premium to their respective segments through the half, indicative of the strong positioning and preference they enjoy with owners and guests.

The U.S. Holiday Inn estate continues to gain share of rooms revenue in the mid-scale segment. And in the second quarter, Holiday Inn RevPAR and Grand Plaza rate growth outperformed their respective segments.

Our pipeline has continued to grow, with an increase of almost 7,000 rooms since the beginning of the year. With more than 75% in major growth markets of the U.S., U.K. and China, the pipeline remains dominated by Holiday Inn and Express properties.

Additional development resources have allowed us to increase the rate of signing up new hotels. We are ahead of the signings in the same period last year by 27% and have already achieved 60% of last year's total signings. We continue to increase our penetration in the upscale market, with our upscale room signings up by 12%.

We've increased the number of rooms operating under our brands by 3,500 since the beginning of this year. We've opened 16,900 new rooms, half of these in quarter 2. The new rooms coming into the systems are 60% new build, improving the overall quality of the estate. And 1 quarter of the properties added this year will operate under our upscale brands.

By the end of the half, over 13,000 rooms had exited the system, with half of these instigated by us. Given that in most cases we will be delivering room nights into a given market, exiting under-performing hotels gives us the opportunity to replace them with better, or more appropriately sized properties. In a third of the locations were IHG enforced exits we have already signed contracts and received enquiries for replacement hotels.

Our master franchise agreement in South Africa has recently been terminated, resulting in a payment to us of £7m of liquidated damages in the half. This means that during the second half, 6,300 rooms, mainly branded Holiday Inn Garden Court, will exit the system. On the plus side, it opens up a market for us that had been restricted for some years.

Turning now to Britvic. Branded volume sold increased 5%, driving turnover up 1% to £370m. And profits up by 5% to £39m. The trading environment was highly competitive, with declining average prices seen across the market. Despite this, Britvic's brands performed well. J2O and Robinsons Fruit Shoot continued to increase volumes and to gain market share. Pepsi achieved 7% growth in volumes and also gained market share.

Turning back now to the Group as a whole. We continue to focus on cash generation and the cash generated from operations was £140m in the period. The hotels division generated £154m, down slightly on the same period last year due to disposals.

The movement in working capital related primarily to the soft drinks business. It includes increased soft drink trade debtors due to timing of the period end, and the payment of certain accruals and provisions, some elements of which will reverse in the full year.

Capital expenditure in the half was £90m, a decrease of £19m on the same period last year. £53m of this -- of this year's spend relates to the hotels business, the remainder being Britvic. Overall, hotels capital expenditure continues to trend downwards, due to our disposal program and tight controls on spending.

We continue to invest to improve our InterContinental estate. The InterContinental London renovation project is progressing well, with the hotel scheduled to close in October to commence the major public area works.

We now expect the full year profit impact of the renovation to be £12m in -- on 2004. As previously indicated, the hotel is planned to reopen in 2006, so there will be a similar level of impact to our profits next year.

Our net debt position at the end of June was only £5m, due to receipt of proceeds on the U.K. disposals of [LRG] several weeks earlier. Following the capital return however, net debt at the end of July was approximately £1b.

Continuing hotels free cash flow demonstrates strong year on year growth, showing the cash generation capability of the business.

Moving on now to disposals. Last night we exchanged contracts with GIC Real Estate on the InterContinental Paris for €315m, €65m ahead of net book value. This, along with the sale of the 10 assets in Australasia last week, brings our total assets sold or under contract since separation to £2.2b, roughly equal to net book value, before the significant value of the related management and franchise contracts that we have entered into.

There are more disposals to come, we still have 5 hotels on the market and we intend to bring the remaining European assets to the market when the time is right. Additionally, as previously announced, we intend to IPO Britvic by December 2008.

With our current estate, we anticipate retaining hotels with net book value of around £1b. This will primarily comprise of brand defining InterContinentals in London, New York, Hong Kong and Paris. Including planned incremental refurbishment spend. In addition to these, there are a limited number of other assets, including the InterContinental Buckhead, the InterContinental Boston, capitalized lease value and the prototype Holiday Inn [Guinette], all of which will help to redefine their brand in the North American market.

However, our investment in hotel assets will fluctuate over time, with ongoing disposals and expenditure on new or existing assets.

We continue with a balanced plan for utilization of the disposal proceeds and trading cash flow that the business is generating. So far we have returned £1.9b to shareholders, with £122m still to go on second buy-back.

Today we announced a further £250m buy-back, the third in the last 2 years, bringing the total return to £2.25b. The timing and amount of additional returns will be influenced by timing of further sales, gearing and investment opportunities.

Going forward, we will seek to maintain an appropriately leveraged balance sheet, whilst ensuring that we have the financial strength necessary to successfully implement our growth plan in the fee income business. As we sell further assets, our EBITDA will decline, which would imply a need to bring down our core debt level in the medium term.

Our primary focus is on driving organic growth on the back of our powerful brands. We would also look to invest in the business as we identify opportunities to deliver additional growth.

Trading continues to be good in the U.S., U.K., Middle East and Asia, with RevPAR growing through a mixture of rate and occupancy. However, our performance in continental Europe is still varied. Although we have grown revenues and gained share in many markets, trading in a number of our larger owned InterContinentals has been adversely affected by continuing specific events or local market issues, primarily in Cannes, Paris and Frankfurt.

So far we have seen relatively limited impact from the recent London bombings, with slightly higher than normal cancellations and lower growth in RevPAR in July.

Andy mentioned the U.S. hurricane earlier. We only have about 70 hotels in the directly effected areas, mainly franchise, which have suffered some degree of damage, with those in New Orleans closed completely. There may be knock-on implications for hotels in surrounding States as travel patterns are disrupted. In these circumstances it is too early to predict the trading impact for the remainder of the year.

So in conclusion, hotels trading is strong, with profits growing well in the half. Interim dividend has again been increased, ahead of inflation. £1.9b has been returned to shareholders, with over £370m of buy-backs to go.

Ladies and gentlemen, thank you. I will now hand you back to Andy Cosslett.

Thanks Richard. I've now completed my initial review of this business, and I'm really very optimistic about our prospects. And I'd like to now spend some time explaining why that's the case.

The hotel industry is enjoying a period of sustained growth with some pretty strong tail winds pushing it along. These tail winds have been created by a number of significant events that are changing the behavior of people all round the world.

Most significant of these would be -- include the adoption of the Internet, which is opening up the world of travel to a fundamentally wider cross-section of people than hitherto. So has the emergence of low-cost airlines in most developed markets, which again helps make travel something that everyone can enjoy, not just the privileged few. And the removal of travel restrictions to and from some of the world's biggest countries, most notably Russia and particularly China, is also going to have a big influence on our future. Add to this a world that's generally getting richer, and living longer, and we have a powerful set of demand drivers for the hotel industry as a whole.

The prospects look particularly good for hotel brands. Now the draw of brands has never been stronger. People increasingly define themselves by the brands they use, be that iPods, or airlines, holidays, cars or fashion, and hotels are no different.

And hotel owners are driving the brand trend too. Brands represent known quantities for owners, and they offer predictable return on an owner's investment. So as the ownership of hotels continues to consolidate, we can expect to see demand for brands rise in parallel. And in the middle of all this changing scene sits IHG.

Our business has experienced more than its fair share of turbulence and change over the past 6 years, but it has emerged from this in pretty good shape, and indeed it remains the number 1 hotel company in the world by number of rooms. The company has worked very hard to unlock value and to deal with its capital structure. It can now focus single-mindedly on the future, and I'd like to describe how I see that future.

I want to look first at our goal, which is to grow faster by making IHG brands the first choice for hotel guests, and in the future, more hotel owners. I'll then discuss the target of adding 50,000 to 60,000 net rooms, on an organic basis, to our current rooms count. I'll describe our strategy for hitting this target, which is to build the strongest operating system in the industry, and focus it on the biggest market segments where our scale can really count. And I'll then spend some time on the 4 main elements of the strategy and try to bring them to life for you.

Firstly then, our goal. Which now goes beyond an ambition solely to be the first choice for our hotel guests. We also want to be more consistently, in the future, the first choice for hotel owners. Third-party owners are the other half of the partnership in a managed and franchised business. They've always been an important part of IHG, but our recent moves mean that they are now more important than ever. In the past the hotel industry has tended to think exclusively about the needs of its guests, but if you are managing brands through owners, you have to have the owners' needs in mind as well as those of the guests.

Now for me with my background that's rather like thinking about Sainbury's needs when we're trying to sell a new chocolate bar, or thinking about the bottlers when you're managing soft drink brands. It's all about aligning the interests of a range of stakeholders. And in the future we want to improve that alignment. By doing this we will win more contracts, with more owners, and generate more growth.

Now as you know, and as Richard said, there are 3 main growth leaders you can pull in a managed and franchised business. RevPAR, the royalty rate you draw from that RevPAR, and the number of rooms carrying your flag. IHG compares pretty well with competitors on the first 2 of these, but on rooms growth we have not seen good enough performance. So it is on rooms growth that we are going to concentrate our efforts.

But today, as you know, we are setting out the clear target. That's 50,000 to 60,000 new rooms net and organic, which represents a significant change of pace for IHG. It's almost 3 times faster than we've managed in the last 3 years. It will take us from a room count today of 536,000 rooms to approaching 600,000 rooms by the end of the period -- sorry, it's 538,000 rooms -- by the end of the period. Now depending where on the range we finish, the target represents a 2.6% to 3.1% CAGR growth versus an organic recent history of less than 1.

Our strategy for achieving this improvement is set our here, and I'm going to spend a bit of time drilling down into some of the detail which supports this. I'm going to look first at the overall market and its various segments.

The hotel market is growing, and currently it's growing across the board. I sketched out earlier some of the big demand drivers that are pushing it along. Given our position, we believe we can capture more than our fair share of this growth going forward. If you look at the mid-scale segment, it's the biggest in the world in most major markets, and one we lead in most countries. In up-scale we are regionally less strong, but with our system strength we do see this as a big opportunity.

Whilst in the economy segment, which is also growing fast, we have no representation currently. And this again we see as a potential growth opportunity.

The other point to make is this, while the share of the hotel market that's taken by brand is rising, over 50% of the market remains unbranded today, and that's a lot to go for. I was on holiday recently with the family, and on a quieter night in, I counted in the L.A. tourist guide 540 hotels listed. 255 of those were classified as independent hotels and that's in L.A., one of the heartlands of branding in the world. So I think the opportunity does remain, for brands, extremely big.

That's are participation by segment and why we want to play in those segments, but our strategy also speaks the geographical market so a word or two about this. Having scale in a market has always been an important feature of this business, but as the world travel scene evolves, having scale across markets is going to increasingly become a differentiating competitive advantage. This is good for IHG, who actually have more leading positions that any of our competitors in the big hotel markets of the world. 12 countries account for 77% of the global hotel market and we hold top 3 position in 6 of them. We can make this global network work much harder for us in the future.

This map helps you understand why. There are currently over 3 billion stay nights taken internationally every year. The vast majority of those are taken in the top 12 markets, which I've discussed. Our leveraging our position along these travel flows can both drive existing business in the market, and help owners and ourselves make better choices about how and where to expand in the future.

And it really goes back to the roots of this business. InterContinental was one of the first brands to open up hotels in overseas markets, back in the 50s, to service flight crews from Pan Am, which was owned and set up by -- which owned and set up InterContinental at that time expressly for that purpose. We need go back to this original thought process and bring it right up to date.

Let me illustrate this is the context of China. The forecast is that China will produce an estimated 100m new tourists every year onto the world market, within the next 10 to 15 years. Where will all those travelers stay when they arrive in foreign cities for the first time? Well, my guess is that they'll want to stay in hotels with names that they recognize and trust from back home, just as you would if you were making your first trip to Guangzhou.

And that's why the fact of Holiday Inn being the brand leader in China is such a big deal. We can use the market scale that that brand and the Grand Plaza brand, have in China, to drive our business back here in Europe and America. And it's this that makes the concept of consumer flows -- customer flows so powerful, and explains what I mean in part about making our scale count.

Let me now go back to our strategy statement and talk about the operating system. The operating system is that unique combination of tools, processes and brands that deliver guests into hotels and then drive the returns for owners from those hotels. Ultimately, it's what an owner will sign up for when he or she chooses to partner with IHG.

Now here's our system, it's already very powerful. We have a distribution advantage with over 3,500 hotels providing 120m room nights every year. And our loyalty program leads the industry. Our websites are very popular, we have good reservation systems, and over 8,000 sales professionals around the world sell our brands on a daily basis. But I see a lot of scope for improvement here, and as the strength of our operating system ultimately determines our success and our growth, it is going to be the key focus for our management.

And we've 4 priority areas for action, and I mean to say a word now about each.

Let's start with the brands. A broad portfolio of brands is an important asset. For a start it allows us to respond to most hotel development opportunities that come along and that is -- that keeps us close to the owners.

Owners like variety. Increasingly they have multiple sites, each one of which will have a particular set of issues and opportunities around it. So it's important then that we can offer a variety of brands, and many if you like, in which the right brand can be selected to maximize the potential of any given development opportunity and site.

There's other reasons for variety too. It fits the emerging trend that we're seeing in the market place, of guests who now use a much wider repertoire of hotels than they used to in the past. Like someone choosing to stay in a Holiday Inn Express, near the airport, to catch an early morning flight for a business meeting that's going to be held at the Crown Plaza in Europe, and then taking a holiday at the InterContinental with a family. People are now much more comfortable moving up and down the brands ladder like that, and when they do we want to be able to keep them within our portfolio, otherwise it's a lost sale.

Having variety also allows us become a one-stop shop for the big corporate accounts, who increasingly buy their hotels globally. They require a range of hotel products for all the different ranks of their employees, from the directors, down to the sales reps. And crucially multiple brands allow us to ultimately build our system scale and drive efficiencies across the business.

So we're keen to make more of all our brands, and certainly we see no compelling logic to disposing of any of them right now.

Here's my snapshot of where I see the brands themselves. We really do have some clear strengths already. We have 2 global icons in InterContinental and Holiday Inn, and I'll talk more about these in a minute. Our brands are growing and they resonate well around the world, particularly in emerging markets, which is so important, obviously, for our future growth. They deliver industry-leading returns now to owners, and I say that over the last 2 or 3 years, we've acquired something of a reputation for innovation. But we do have clear opportunities to develop these brands further in the future, and this is what we're calling our future focus.

Although the brand strategies that we have are not as complete, or as grounded, as I think they should be. There are opportunities to bring more consistency to our brand standards, and we need to get to grips with these. In my view, we have yet to fully exploit the value locked up in our biggest brands. And it's also true that Crown Plaza and InterContinental in particular, would benefit from greater numerical scales, notably in the U.S.A. So as we move forward we're going to be focused on these areas for development and we'll also be looking for -- to identify opportunities to round out the portfolio where possible.

There's a big prize available if we can manage our brands up to a higher level of performance. This industry has not been one that's been traditionally focused on what I would call brand management and development of its brands. It's therefore not yet embraced many of the techniques and processes that are commonplace in other consumer-facing industries.

IHG is better than the industry generally in this area, but not decisively so. We've pockets of excellence around the Group, but it's not consistent. And we now need to systemize our approach in this critical area and really start to raise our game. By doing this we can then do a better job of driving the conversion of guests and potential guests from being just brand aware through the ladder on the right of the screen here, to being brand loyal, which is where you ultimately want them to be.

The aim, clearly, is for stronger brands, which enjoy higher loyalty with more people which strengthens our operating system and which drives earning returns.

Now this process takes time. Building brands really is a journey. But we've made a start and I wanted to give you an early progress report this morning. Given our time constraints, I'm going to have to limit my remarks to a couple of the brands in our portfolio, but they are the 2 biggest. So let me look now at Holiday Inn and InterContinental.

Holiday Inn is the worlds' favorite hotel brand. It generates $10b of business every year, which, to give you some perspective, is twice the size of Cadbury's worldwide business. It accounts for 68% of our global revenue, and it's grown by 25% in the last 5 years. The brand strikes a chord with the majority of everyday hotel users, which is why, every night, more people check into a Holiday Inn than into any other hotel brand.

And I see Holiday Inn as one brand, singular, not plural. What do I mean by that? What I mean is that, whilst it has an extended family, for certain, with brands like Express, these are really just different product formats. The power stems from the strength and the values of the Holiday Inn brand equity. That's rather like Tesco Express linking back to Tesco.

As with any global brand Holiday -- as with any global brand, Holiday Inn though needs to be attended to continuously, and continuously kept up to date, and this is what we're doing.

First, we have an opportunity to develop a more coherent Holiday Inn brand identity around the world. Not just in the U.S. but all around the world.

Second, we need to work on keeping the brand contemporary and relevant, through improving the standards and ramping up innovation.

And third, we need to increase development of the brand outside the States where faster grew - faster growth is possible.

A quick word on each of these. This is how the Holiday Inn family is currently seen by the world. It's a bit of a jumble of sub-brands, of graphics. We need to sort this out and build a clearer brand architecture, which we can work with, which we can apply around the world and from which we can derive and see if there are any obvious gaps in our offer.

We are continuing with the quality improvement in our U.S. estate. Now this is a task, I know, you have heard plenty about in the past, but I make no excuse for talking about it again this morning. It remains an important priority for us.

What you might not have been exposed to recently or in the past is the progress we've made over the last few years, and you can really see this in this chart. Over the past 10 years the average of the Holiday Inn family has actually fallen from 16 years to 12 years. The estate in that time has grown from 1,500 hotels to over 2,000. Mainly, of course, through the growth of Holiday Inn Express. So as a percentage of the total Holiday Inn brand estate, the number of 20-year plus hotels has come down from 45% to 20%. And crucially the number of hotels under 10 years old, now represents over 70% of the whole of the Holiday Inn hotel population.

May of the older hotels have now left the system, 600 in all, since 1995. And new building technology actually now makes other options possible on problem properties rather than having to remove them. The following are a couple of shots of the same Holiday Inn, in Charleston, in America, and you can see the change. With the support of the owner, this building has been completely re-skinned, driving quality scores back up and keeping a valuable hotel in the system.

As a brand, Holiday Inn, following all its work, now sits in the middle of the average range of hotel -- of age of hotel estates.

And importantly, it's only 1 of 2 brands in the United States that has seen a net reduction in the average age of its products over the last 10 years. Our quality focus is clearly supporting well the brand image.

Again, in the U.S.A., Holiday Inn preference remains very high, second only to Marriott with business users, and actually top in the preference for leisure users. It might be a surprise for people in this room. And if you drill down below that, you'd actually find that the younger the guest, the higher the preference. I'm showing here an average score of 44 for Holiday Inn. If you go to anyone who's born from 1980 onwards, it goes up to 52. So, this is, of course, crucial as we look to the future strength and the future brand prospects.

Outside the States, the profile of the brand is less developed and this is a significant opportunity. In the U.K. we've seen what the brand can do with a string of wins that demonstrate the value that owners really see in the brand. The most recent of which has been the conversion of the QMH estate.

Now, in 2005 we won't see that much progress in the overall room count for Holiday Inn, as all our gains will be offset by that termination of the master franchise in South Africa with Southern Sun. But we do have 16,000 Holiday Inn rooms in our pipeline outside the U.S.A. right now. And we will see good progress in openings in 2006 and beyond.

We're working on a new Holiday Inn prototype for Europe, which will support this push and we expect to get this launched early next year. We're starting to join up our marketing teams internationally to help drive convergence of the brand identity, to harmonize our standards, and to start leveraging our innovation better. This really is a global brand and we need to treat it like one.

Moving on to InterContinental, the InterContinental brand anchors the top end of the IHG portfolio. The size of the estate has remained pretty static over the last few years at around 135 units. But again, the average quality of that -- of the estate has improved. Over the past 5 years, 28 hotels have been removed with much better ones coming in to replace them.

The pipeline is growing and we're starting to see a steady rise in the level of interest from developers all around the world. We've also got clear plans underway for the InterContinental brand. There is a lot of activity happening.

We want to continue to build the quality and the variety of the InterContinental brand estate. By the middle of next year our flagship properties in New York, Paris, Hong Kong and London will all have been substantially renovated and in great shape. To these and other hotels we are adding new features such as bigger spas, signature restaurants and better electronic access.

A lot of the big gaps we've got in our portfolio currently is the number of resort properties we have. Resorts offer an important added dimension to the brand experience. And they allow, of course, Priority Club members, our loyalty scheme, to use up their hard-earned points with the family typically within the IHG system. And that's obviously very important. So, we're driving very hard on our resort strategy right now. We've 11 currently in our pipeline all around the world.

In addition to resorts, we continue to seek out opportunities to develop the brand in key gateway cities. In 2006 we see the opening of the InterContinental Boston, shown here. And we're working on many other opportunities.

Next for InterContinental is to evolve the brand positioning and how it looks and feels to our guest. This is going to include some pretty interesting things, completely new brand graphics, new advertisings, and some very exciting changes in the customer experience, such as a complete updating in the world of the hotel concierge.

Now, on the screen here are examples of our new print-out using the line, Do you live an InterContinental life? Through this work we're trying to separate InterContinental from the pack of other upscale hotels who tend to use pretty generic communication, which offer pretty much the same functionality and the same experience to guests. This campaign breaks in October and we imagine it's going to be very successful for us.

Finally on InterContinental we are reconstructing our teams inside the business to recognize the specific needs of this brand. InterContinental fits very comfortably into the IHG portfolio. It uses the same spine of back-office processes and support functions as the other brands in the stable. But we have to recognize that the front-end delivery of this brand is different. So, to that end, we have recently created dedicated InterContinental hotel teams covering development, sales, operations and marketing.

These teams have 100% focus on the InterContinental brand, but they can still access all the synergies and power of the IHG system as part of the management structure. We believe this gives us the optimum combination of focus and efficiency. All in all, these plans will help us launch the InterContinental brand forward. And we're looking to have 25 to 30 new additions to our estate by 2008.

So, that's just a few words on brands and many more, I'm sure, will follow in due course. It's our first priority area. Now, I'll just have to say just a few words on the other three.

Driving excellent hotel returns for owners is our second priority. We do this by first driving guest delivery into the hotels. Now, this is an area where we're generally pretty strong already and where we've been seeing excellent growth year on year. But we are busy with improvements. We have recently rolled out 8 market focus reservation centers. holidayinn.com is now the number one ranked website in the industry. And our direct Internet channel now accounts for 85% of all the Internet bookings taken in IHG branded hotels. Our loyalty scheme continues to increase in popularity and we now have over 26m members including 0.5m in China. And they account for 32% of all the room nights booked in our system.

There's another element to driving hotel returns and that's the efficiency we can bring to the owners from new policies, new procedures and new standards that we can bring in. For example, we've got some at the moment being rolled out in Europe, which standardize the cleaning of rooms and a completely new way of checking people in.

Our agenda for driving returns will see us investing more in I.T., making more from our combined marketing efforts, and developing initiatives that will help converge best practice in hotel operations around the globe. We have already started to use our buying scale much more effectively with suppliers on behalf of our owner network. And our training support plans continue to improve.

I'd just like to make one final point on this issue of hotel returns, and it's this. We are very conscious that going forward while the focus of our strategy is on third party owners, our owned and leased estate that remains, remains a very important contributor to Group profit. So, we are putting, therefore, exactly the same focus on to the remaining owned and leased estates that we -- assets that we have as we are on our third party ownership network.

Our third major priority area is the application of our market scale and knowledge, and a word or two about this. As I said earlier, we have a unique position of strength in many of the world's hotel markets. We need to get hold of this position and leverage it harder, both in and across the markets. We are currently up-rating our development teams around the world and setting them the task of finding more opportunities to roll out more of our brands.

We are trying to be more creative with our balance sheet, so that we can win more upscale deals, which do tend to require a level of financial commitment from the brand owner, as the Americans describe it, having some skin in the game. And we will also pay more attention to the travel patterns of those guests who already know and use our brands frequently. Following their travel flows and making sure that our hotels are placed where they go is a significant opportunity for this business, and one we will pursue.

Let me turn back to China and that example. Today we have 47 hotels open in China with a further 28 in the pipeline. Our infrastructure in China is the best in the industry and the image of our brands is very good. We are the market leader by a distance. We've had a lot success to date in China, but we can leverage that position much harder in the future, which is why we're setting an aggressive target to have 125 hotels open in China by the end of 2008.

And here's why our scale there is so important. Over the next 10 years the central Chinese Government is planning to instigate the biggest road building program that we've ever seen on the planet, which is going to drive the economic development of China westwards into the heartland of China where most people won't have seen any of the economic miracle yet. Now, roads means hotels and we can leverage our wide brand portfolio and our significant network of contacts, built up over 20 years in China, to make sure we take advantage of that initiative as it rolls out.

It's already clear that China will be the number one destination for global travelers in the not too distant future, which, again, will support the domestic demand for our hotels. But the added leverage of being strong in China comes when you consider those outbound flows. As I said, forecasts suggest up to 100m new Chinese travelers every year will join the ranks by 2020 at the latest. Currently, it's around 10m a year, so, a tenfold increase. As I described earlier, we can only imagine that they'll want to stay in brands that they know and trust from home.

Here are two of the properties we've opened recently. That's the InterContinental Beijing Financial District on the left and the Crown Plaza Pudong District in Shanghai on the right. As you can see, these are very high quality properties and are really helping to build the image of our brands in this vital market, slowly building loyalty, brand preference from awareness.

The fourth and final area of focus is the organization itself. One of my biggest challenges, and I think one of our biggest opportunities, is to align this organization better. Up until now IHG has been a decentralized and completely devolved business with each business unit operating independently and with very few common processes.

In the future there will be a greater role for the center as we seek to align our teams more around this agenda and identify ways for them to work better together. We need to improve our capabilities in some of the critical areas that I've described this morning and we're prepared to invest in those. We also need to build an IHG culture. A culture that's focused on driving returns for our owners and on supporting each other in a much more collaborative way than is currently the case. Part of that culture will be about raising our commitment still further to helping the communities in which we operate.

As an organization, we aim over time to become industry leading in the area of CSR, not just because it helps drive the culture of the business, which it does, but also because in a war for talent a strong CSR position helps attract the most talented people to your business.

So, that then is our plan. Let me now move to the final part of our presentation to look at the financial profile of this business.

Going forward IHG has a much improved financial profile with a focus on the managed and franchise business it will generate good cash flow with high returns as we decrease the size of our capital base. The quality of our earnings is good with less cyclicality and less risk attached to them. We have good organic growth prospects on our core business and we require relatively low levels of capital to realize it. But we are keen to grow, as Richard said, and we will therefore remain open to further opportunities as, if and when they arise.

In terms of investment, this business has done a lot to take cost out over the past 2 years and we remain, as a management, very conscious of the need to manage our overheads. Having said that, there are things that I and the business need to get with on now, and this does require some investment. Over time we hope to pull back more cost from the back office and deliver to the front line functions where our growth really depends. But there are things, as I said, that we need to get on with now and we should do that.

In terms of capital, our profile is in transition, clearly. Our current view is that we'll require between £60 and £80m per annum on annual maintenance of our existing properties -- remaining properties and systems. We'll then, of course, add to this capital for deployment against our growth targets.

IHG has worked hard to build a track record of good value-creating investment over the last 2 or 3 years. The acquisition of Candlewood Suites and the investment in the InterContinental Buckhead Atlanta are two good examples of this. We clearly recognize that an asset-light strategy requires strict capital discipline to be enforced and we will do this. We are simply not going to make rash decisions which will undo all the hard work that has been done. And we remain committed to improving the overall returns from this business.

With that said, I want also to be clear today that we will explore opportunities to grow faster and use capital where that makes sense, consciously, thoughtfully and intelligently, but we will explore those options.

So, that's our agenda for the next 3 years, the analysis. A clear goal, a stretching target, a strategy that builds on IHG's existing strengths and a focus and much better execution of 4 key priorities.

Before taking your questions, let me just finish by showing you one great example, I think, of our strategy in action. 15 months ago Patrick Imbardelli, who's the head of our Asia Pacific region, persuaded one of the key owners in Malaysia to convert this hotel, which was previously managed under another significant international chain beginning with H. This is now the Crown Plaza in Kuala Lumpur. What the IHG system has delivered since then is clearly seen in this quote shown here. The hotel performance is now running over 20% ahead of that achieved under the previous management. As a result of this performance, the owner asked us to take on the branding and management of the previously Pan Pacific Hotel in Kuala Lumpur as well, which he also owns, and which on October 1 reopens as a Holiday Inn resort.

And recently we've been asked by the same owner to work with him on the conversion of this property, which will become the InterContinental Hanoi in late 2006, and this property, which will become the InterContinental Penang in the early part of next year. 4 properties, 3 brands, 2 countries, all coming from our ability to get close to 1 owner and use our system to meet his needs better than the competition. Going forward I hope to share many more examples like this with you.

But for now, thank you very much for your attention this morning, and Richard and I'll be happy to take your questions.

There's one down there, [no] these guys. No. [Break in audio].

Of which you can certainly do with a third of them. Yes, let me just -- a couple of words, I think if you look at the three levers, as I said in the presentation, the one where we are not competitive at the moment in terms of the net rooms growth we've got. It's partly because of the number of disposals we had, but also because our top line growth, obviously this has not been good enough. And that's where we've got to put all our focus.

In terms of loyalty, that's something that in my experience you can change over time. If you have a compelling brand story, and if you are doing that conversion, that as I described, what owners find is that your brands increasingly offer them significant opportunities relative to what the competition's doing. That takes a bit longer, because as I also said, brand building is a bit of journey.

I think we can imagine loyalties increasing slowly over time, but it will take years. We actually have been increasing the loyalties we've been able to get for Holiday Inn Express this year, moving it from 5 to 6%, which it's only a percent increase. And we've been able to do that because of the power of the Holiday Inn Express, the brand, over the last few years. So, there's a good example of what you can do if you get your brand positioning sorted and make it compelling to owners.

In terms of RevPAR, I think again whilst we go up and down with the market, to a large degree, over time your brand competitiveness and the quality of your brand offer will enable you to close gaps and outperform the market on RevPAR. We're currently seeing that in the InterContinental estate in the U.S.A., 17% up in RevPAR, tremendous performance. I think it's a lot to do with the way we're managing our brand [around] the States.

In terms of the economy segment, what's apparent to me is that when you look at what really differentiates IHG, it's the power of its system. It's its scale that it has and its ability basically to plug and play, if you like, other things on to without a lot of difference. It's really scaleable, particularly in that mid-scale area. I don't think we'll ever really want to fish at the bottom of the pond in some of the very low economy segments. But there is an opportunity, we believe, at the top of the economy segment that we should be looking at.

What's happening, again over time is that, and if you think where Holiday Inn Express began, it's slowly increased its rate. It started similar to the position I described. And in many parts of the world it now actually commands the same rate as the Holiday Inn with food and beverage products. So, as consumers have got used to it, it's ridden up.

There now is this, I think, a very strong opportunity there. You don't need to own or lease in it. We have a very strong franchising managed system that we can plug that into, whatever it was that we end up deciding to do. We're looking at the moment, particularly in America where our system is strongest. But there's no news today that I really have to share with you other than we're looking at it, and I think it's particularly interesting.

Sorry, just on IFRS.

Yes, on IFRS [indiscernible] just because I wasn't clear. We haven't put the assets up for sale today. We've confirmed that those assets will be for sale. We've done the maths between what we'll keep and what we've already sold.

Under IFRS it's only when you formally put them on the market that you stop depreciating. And the policy we follow is in the next financial period. So, in one particular quarter if we announce it's going on the market, we'll stop depreciating in the following month. So, that hasn't happened yet.

Jamie? Can you put your hand up?

Hello.

Hello.

Jamie Wallace from Morgan Stanley. First question is just on the 50 to 60,000 net room additions, could you maybe please split that into the gross figure, because it seems to me working backwards from the pipeline you're expecting the exit rate to come down quite substantially. And I'm wondering what impact that might have on the quality of your Holiday Inn going forward.

Secondly, Andy, you talked a bit about returns to your owners. Could you give us a feeling for what you think your owners are making relative to your competitors and whether there's any catch-up potential there? And as part of the same question, what returns should we assume on the remaining £1b of assets that you intend to keep?

And finally on costs, what total costs increase should we expect next year from the initiatives today? And perhaps, as part of the same question, in the mix of that, marketing as a percentage of sales? Where is that going to -- roughly from and to?

Yes, now maybe you can [indiscernible]. 50,000 to 60,000 net rooms includes -- is, as you saw, about a three times increase than where we've previously been.

We don't expect our disposal rate, or our audit rate, to substantially decline. We think it might taper off towards the end of the period, but certainly it's our focus, as we say very clearly in there, to keep up our focus on quality, particularly in the mid-scale estate. So, we are going to continue working hard to manage out of the system those hotels that we just simply can't get where we want them to be.

So, we're not being precise about gross openings, because the disposal rate actually is determined by so many different factors, some at our instigation, as Richard said, some because owners chose to leave the system or change. So, 50,000 to 60,000 net is our commitment, an indication that we're not expecting major reductions in the rate of exit certainly in the next couple of years. So, you'll figure it out from there I guess.

Catch-up on owners' returns, I think we're quite competitive at the -- well, we are competitive at the moment, in terms of what owners take out from us and what we generate, because we have such a powerful delivery system at the moment. We deliver 42% of all the guests who walk in to an IHG branded hotel at the moment worldwide. 42% of them come from our system, either our reservation system, or web, or what have you. So, that's competitive and it's a strong sign that it's the strength of our system.

In some areas we lag competitors, in others we lead. And Priority Club is an area where we clearly lead and we have more members of that than anybody else. So, I don't think it's -- it's not perfect. We're strong in some, not in others. Overall, when I meet owners what they say is that you're good at that. There's no issue in terms of what you're returning to us on the brand, otherwise we wouldn't have a pipeline that was growing the way it was. They just simply wouldn't be interested. So, to have a record pipeline tells you that we're doing something right with the brands at the moment.

But if the opportunity to claw back over time, I think, based on the RevPAR headroom that exists, which we can step into and do as we start to move our brands up that ladder, or down the ladder towards loyalty. So, I think on RevPAR we can see something on system growth and strength in the system. We'd like to see that 42% move up. And that, when it comes together, gives owners a lot in return.

In terms of cost increases, and perhaps you could deal with the asset return, Richard. What we're really saying today is that we've done a -- I think, a pretty good job as management keeping costs under control. A lot of people have left this business over the last 2 years. And in some cases it's my belief that we've actually gone too deep. We are very skinny on some areas where we really shouldn't be skinny, particularly on marketing capabilities, innovation, process development and I.T.

I need to get that fixed and we're going to sensibly set about -- and we are setting about that. We've increased the development teams around the world by about 40% in total, which isn't a huge number of people, but will have a significant impact on our ability to hit these growth rates. Next year we're saying there'll be a modest increase. I don't have a particular number. It's something we're doing as part of the current budgeting process, which is underway. It will not be a massive impact. It will just be something that we might see next year beyond -- above inflation next year, our overhead line. But the priority is to move on it.

Richard?

On return to the end of stay, Jamie, clearly we're not where we want to be on the returns on this. It's partly because of the nature of the asset in terms of some of them have been refurbished as you know Le Grand completely refurbished recent years, and Buckhead Hotel recently opened, London about to close. So -- but the numbers are a bit messy. But our focus remains on driving up the returns on those hotels and getting to an appropriate level for what are brand-defining assets.

Over there.

Yes, John Clarke, Brewin Dolphin. Two questions please. Following your review, do you think you -- and you're obviously very -- branding is really one -- the big issue. Do you think that you've got too many brands, or are you -- are there a number of hotels that don't clearly fit into what are quite one or quite the other. It's fair to say that rightly or wrongly, you've been criticized with a number of being -- I think, hesitate to say so here, but Crown Plaza has been a brand that a number of people have said unkind things about.

Secondly, with the moving to franchise and management contracts, what are your views on the length of period to which you commit with new owners or franchise arrangements? And has there been any change? And how well have your ideas gone down with the next level of management in that area?

A couple of questions in there. I think brands is an issue, but it's not necessarily the big issue. I think there are a number of issues that this Company has to get to grips with to get its growth moving, which is really what it hasn't managed to do in the last 2 or 3 years. Brands is certainly part of my background. It's something I hope I can bring a lot to.

But there are other things that we need to do. Fundamentally, the challenge for leadership, for me at the moment is to get this organization lined up and acting, and lined up behind one agenda. So, that's just a management challenge, I think, will give us a lot of opportunities for traction for growth going forward. I'm very positive and I've done it in previous organizations. If you have a management agenda that's clear and that everyone can lock step behind, it just has an incredible effect. And this business has never had that. So, I'm confident that we'll have a lot of gains just from that.

Brands is important. It's important now and it's important even more so in the future as the world turns to brands. As I said, we've got 50% of the market not in brands at the moment. And I think that's partly because some of the branding options aren't as tough, or as compelling, as they should be. And that's something we're going to try and work on.

You mentioned Crown Plaza, which I can't let just slip. I've looked hard at Crown Plaza. I've looked hard at each of the 7 brands we operate. It's my belief that each one of them, not only is growing, but actually has merits. Crown Plaza is the fastest growing brand in the upscale segment in parts of Asia. And our forward pipeline in Asia, if you look at the whole Asia Pacific region, 50% of our pipeline is Crown Plaza in Asia. And it's a rapidly growing pipeline. We're in one today, and I think you'll agree, we had 100% occupancy last night. It's a very compelling property. There are things we need to do in Crown Plaza.

In America the performance isn't where we think we can get it to. We're working hard to continue to define the brand proposition in the States. It's done well in the last 18 months to improve its position as the place to meet. And that's ringing bells with people. But it's a long journey.

Crown Plaza still quite a young brand in the American scene compared to some of the more established brands. But we are making progress. What we need to do with Crown Plaza in the U.S.A. is work on the standards, find a compelling brand proposition that builds on what we've already done, and get more open. We've got 170 open in America and we need more. So, that's Crown Plaza.

In terms of franchise to managing, it's a competitive world out there and it's a beauty parade of a lot of hotel companies. We have a lot to sell. We have a lot to talk about with our system. We haven't talked in detail about all of this clearly, because we couldn't. But on -- certainly on the brand stuff and on the system strength, all of this has been tested with owners who know us well, and who also have line of sight of our competitors. And I think they'd say that if we pull all this off, we'll be in pretty good shape.

The length of contract, we have varying length of contracts all around the world and it depends on the owner. It depends on the brand. It depends on the situation. Some of our contracts go out 25 or 30 years, some we've done in more recently on proxies that we wouldn't consider strategic. To get the value right, we've gone on revolving 10-year deals. But even the ones on 10 years we find that we are -- we keep. I think at the moment we're keeping 85% of the contracts that come up for renewal we hold on to. So, that's a pretty good number, alright?

The other Simon, Simon Champion from Deutsche Bank, just a couple of questions. Can you talk us through in terms of your owned assets? You're spending a lot on refurbishment spend on -- among the next couple of years. Is there any theory you can give us for when they might actually cover their cost of capital? And to what extent that they are so important to the brand going forward, that they're acting non-negotiable that you would never sell those assets, even if they remained self-costed capital?

The second question, Richard, can you just remind us, is it absolutely imperative for this Group going forward to remain pseudo investment grade?

Let me say a word and perhaps Richard could supplement this.

The refurbishment on the big InterContinental has been going on a while. It's substantially complete. As you know, we are refurbishing InterContinental London, £50m and that will be complete in 2006. And that really concludes the major refurbishments of our big assets.

We do have other things to do in some of the estate, even the ones that we're looking to sell, which is contained in the numbers that we put up on the chart. But I think the opportunity for us is that by the middle of next year, we will have our 4 flagship InterContinentals in the key markets of the world, and in really good tiptop shape, which has a really halo effect on the whole estate and your position in the market. So, we're expecting big things from them and we should see a gradual tapering off obviously on the actual requirements of capital that they have.

In terms of their -- why we want to keep hold of them, I know the odd thing is I never say never, but right now they are critical to the brand definition of the InterContinental. And what we've done in Atlanta, I think, is a very good example of where we were finding it difficult to get traction in the weight of the brand in America. Clearly, buying and investing in the Atlanta Buckhead property, which is what we did, has made a substantial difference to the owner profile, and we're getting from InterCon. It's beating all our predictions. It's really going very well. We have a queue of owners who want to buy it off us at any time. And we can move that on at some point as and when we chose.

They are very important parts of the brand, even if you get a management contract on some of these properties, people fall out, contracts can be challenged and these are properties which right now we really couldn't call ourselves a world class top-end brand if we didn't have. And for the foreseeable future that's going to remain the case.

When we get to the point where we have 300 InterContinentals around the world, with fantastic properties in every gateway city and more than one, I think we'll probably say yes and now we have a look at whether we need to completely own, or joint venture this off. But until we see a lot more progress on the planned estate growth, and get that drive going behind the brand, I'd be very, very reluctant to see those go.

There was a question --

Yes, a question -- pseudo investment growth, a good way to put it actually. I don't think -- never say never, but it has to be necessarily the case for ever. I think there is -- today it's very much inline with our major competitors in the -- with a management franchise focus. And I've said it before, but it's really important I think that when we're out there negotiating 10, 20, 30, 40 and 50-year agreements with owners, that it is a partnership. They want to know we're going to be around and they want to know we're a financially strong company, focused on the strong future. And hence, having a balance sheet that is sufficiently strong is actually an important piece of winning business.

So, as of today, we're in line with the competition. As of today it makes sense for us. But I think in the future it may not be right [potentially].

Yes.

Good morning, it's Simon Larkin from ABN, a couple of quick questions. Of the 50 to 60,000 rooms, could you talk a little bit about sliver equity? You talked about it in the presentation. I think, Richard, you alluded to that being a pressure, owners requiring maybe a little bit of sliver equity. How much of that additional net rooms do you think may require some form of commitment from you as a brand owner?

Secondly, Andy, you talked about increasing central functions becoming more important within the Group. How does that link with the potential of reducing flexibility at the direct hotel level? And, will that limit their ability to control individual properties?

And finally, having kicked the bricks, Andy, I'd be intrigued to know, given your background of brands, and quite clearly the importance that you're attaching to brands going forward for the industry's growth, what your view is on industry brand consolidation.

Yes, we don't have a precise number ascribed to -- the growth is not -- we're not going to talk about it by brand, or by geography. What I can tell you is that obviously the vast majority of the rooms that we're looking to open both gross and net would not require any sliver equity. They're going to be Holiday Inns, Holiday Inn Expresses. Where we need to deploy sliver equity is when we're doing deals at the top end, particularly on InterContinental, in some markets more than others. And in the upper upscale area where the investment is so great that owners want, not unreasonably, to know that you've got the skin in the game.

So, we will continue to do that. We'll be more creative going forward about how we do deals. And the sliver equity is one way. We have inducements which we do. We can structure deals in a variety of different ways to fit the need. But, again, part of responding to owners' needs is how do they structure deals, and can we be more flexible than our competitors and how we respond to that. But I don't have a precise number on sliver equity for you right now. It will be kept, obviously, well in control.

In terms of the structure, we've -- I've thought about it long and hard. I spent 13 years at Cadbury going through their journey of being a very decentralized business. So, it is a bit deja vu for me this. And I used to be the other end of the instruction of the orders. So, I know how it feels to be a regional head, receiving the news that the center's going to be more involved.

I've been, therefore, very careful about thinking about how we do that. What I don't want to do is to disturb any of the clout and the power that the regions clearly have, and their ability to be responsive to owners' needs, because most owners are still local. So, we're not going to do that. We're going to keep our regions in place. What we are going to do though is work on things that we can process and systematize globally much more efficiently.

We don't have a global innovation process. Now, no hotel company, I think, has a global innovation process, but we really should have one. And it should be hooked up around the world, one way of doing it, one way of thinking, line of sight for all the regions to look into what we're doing, process. We don't have it. We don't have a brand manual of where -- how we're going to write down positioning statements, how we're going to do our advertising copy, how we're going to train our marketing people so that we could move them around the world. We don't have that.

We need some central oversight of those things to make ourselves more efficient, get our standards up, and start looking world class in some things, rather than just a bunch of tribes wandering about, which is sometimes what we look like. So, it's not about weighing in to get in the way of local accountability and empowerment. It's absolutely not that. And the local sales and marketing effort will remain exactly that.

But the things we can and need to do globally to make ourselves a really efficient, tight organization to hit these growth and to get us all moving in lock step, I think, have to be driven centrally. And that includes talent management as well, which again, is not currently a centrally managed process. So, there's a few areas.

I'm sorry the third question was -- is that it?

Yes, I think Richard might have a view. My view is as the new boy, we're the biggest in the world and we've got 3.5% of the world's beds. Clearly, there's going to be in the years to come some shake down and the situation's going to change. I think though what we're saying is there's plenty of room for a number of operators.

We've only got 50% of the market anyway, given that independents remain the rest. And just on that, independents -- 10 years ago independents were, and I'm going to get this wrong again, 78% of the global market was independent and 22% was branded. And today it's 60% independent -- just under 60% overall independent and we're 45% in brands. So, it is moving, but there's still a huge amount of area to go for. So, it's not a zero sum game. It's not of the -- it's not [indiscernible] or vice versa. I think it will though sensibly start to change in the years to come.

Right now, we're not focused on that. We're focused on our agenda. We've got a lot of organic growth we can get out of this business. And obviously our job is to make sure we get that done. I don't know if you have a view on this Richard [do you]?

No, the only thing I'd add is that consolidation also comes actually at the day-to-day revenue level. And what you're seeing is the big brands are gaining share. You see that most times we report and with some of the other big brand families. You're getting more of the hotels, more of the pipeline, and more of the daily revenue as opposed to having to go out necessarily and buy another brand, or buy another business.

And I think there's still -- we've got one last question here. Sorry, can we have the --

Thanks, it's Ian [Radson]. Richard, I wonder if you could give us some idea of the appropriate financial ratios in your view once all of the asset sales have been done, or what should we be looking at in terms of interest cover, net debt to EBITDA and that sort of thing.

I think with interest rates where they are I think interest cover is a bit misleading, because it's easy to have a high interest cover.

Our focus, and certainly those of most of the debt providers, is debt to EBITDA. And, as I said when I answered the earlier question, that as of today they describe it as pseudo investment grade. It is about the right place to be. We don't have specific targets, but I think in a U.K. plc 2.5 to 3 times debt to EBITDA is where the market is and that's probably a sensible range but, as I say, that's not a firm target for all time.

So, sorry, I'm going to have cut this short, but we do have some other things to do. Many, many thanks for your attention this morning and look forward to updating you on our progress. Thank you.

Thanks.