InterContinental Hotels Group PLC (IHG) 2012 Q1 法說會逐字稿

Good morning everyone, and thank you for joining us. Welcome to our 2012 full-year presentation.

My name is Patrick Cescau, and I've been the Chairman of IHG since the beginning of the year. I have to say I feel very good, very privileged about joining a great team. This Company has an impressive track record of delivering both strong financial results and also, as you know, excellent return to shareholders, and 2012, as you will have seen, is no exception.

So in my first couple of weeks with the business, I've been trying to get to know the business a bit better; I've been visiting operation, I've been talking to shareholders, to owners, to guests, to colleagues, and I've been impressed by what I've seen. And a few things have impressed me particularly.

IHG is a company with a very clear strategy, and a consistent record of implementation, as you know. But what was impressive for me is that there's a real focus across the whole organization of creating preferred brands, with our people and our guests at the heart. And there's a deep, really deep commitment to winning, whilst ensuring the business is run in a responsible manner across a whole set of values.

So I see huge potential to further leverage our leading position in many markets across the world, and I'm of course delighted to have the opportunity to help guide IHG to do this, build on what I believe is a very strong platform, and continue to deliver high-quality growth in the future. And I look forward to meeting many of you in due time, but now I'd like to pass over to Richard Solomons who will start the results presentation. Thank you.

Thanks, Patrick, and good morning everyone. So in a moment Tom will take you through the financial results in detail, but first let me just cover some of the highlights.

2012 was another very strong year for IHG with our preferred brands driving RevPAR up 5.2%. So together with 2.7% net rooms' growth, which is fuelled increasingly by our expansion in developing markets, this drove up fees almost 7%.

So we see significant opportunities to add to our already strong position in many parts of the world. We're making great progress developing our existing brands, and we extended our portfolio in the year by adding the innovative HUALUXE Hotels & Resorts and EVEN Hotel brands.

At the same time we continually look to be efficient, and our cost management, combined with our success in leveraging our scale, has allowed us to reinvest in the business and simultaneously grow our margins over a number of years.

We've once again demonstrated the ability of this business to drive powerful cash flows, providing us with the flexibility to invest in growth opportunities at the same time as being able to generate significant and consistent shareholder returns. The $1 billion return of capital we announced in August, combined with a 16% growth in the 2012 total dividend announced today, demonstrates our commitment to this long-standing strategy.

So I'll now hand over to Tom, who'll talk in more detail about the financial progress IHG's achieved in 2012, and I'll come back later to look a little into the future and to discuss our strategy and business development.

Thank you, Richard, and good morning everybody. It's nice to see so many familiar faces in the audience. Let me start by highlighting the key financial headlines where we're pleased to be able to report another good year of growth.

Revenue and operating profits were up 4% and 10% respectively, and on an underlying basis, operating profits were up by 13%. This is at constant currency, and excludes the impact of $16 million of significant liquidated damages received in 2011 and $3 million in 2012.

The interest charge at $54 million was less than the previous year, primarily due to lower average net debt levels. The effective tax rate increased by 3 percentage points to 27%, in line with our guidance, and is still expected to rise to the low 30%s from 2013, reflecting the geographic mix of our business.

Profits after tax grew 8% to $407 million, and adjusted earnings per share were up 9% to $1.415, helped in part by a slightly lower average share count.

And we had another good year of cash generation, with free cash flow of $463 million, up 10% on last year. And I'll go into more detail on this later on.

One of the most important metrics for an asset-light, cash-generative business is growth in fee revenues. I'm going to spend some time today talking about the key drivers of this; RevPAR, room growth, and royalty rates, and how the relationship between these is changing.

Strong RevPAR growth, combined with net rooms growth, drove up our fee revenues by 6.8% this year. This was led by Greater China, up 16% year on year, to $92 million, almost 3 times the level we reported in 2009, and demonstrates the benefit we're now seeing from the ramp up of the 23,000 rooms we've opened in the region over the past four years.

Before I move on to talk about RevPAR and rooms' growth in more detail, let me first just mention the third driver, royalty rates. As a longer-term driver of growth, we don't expect to see movement in royalty rate year on year. It is influenced by a number of factors, and reflects the strength of our brands, and the returns that they deliver for our owners.

So let me just turn back to the other two drivers in more detail, starting with RevPAR. We reported good growth across all regions, with gains in both occupancy and rate.

In the Americas, RevPAR grew by 6.1%, including the US up 6.3%, where trading stayed strong in the fourth quarter despite uncertainty around the presidential elections and the fiscal cliff. And demand in the US remains at record highs which, combined with the continued low-supply growth, drove absolute occupancy in the second half back up to previous peak levels.

In Europe, solid fourth quarter RevPAR growth of 1.2% rounded off a consistently robust performance for the year, up 1.7% overall. And we outperformed the industry on a total RevPAR basis in our key markets of the UK, Germany and France.

In AMEA, RevPAR growth of 4.9% shows a strong performance in South-East Asia and Japan, partly offset by tougher conditions in some parts of the Middle East.

Greater China RevPAR grew 5.4%, significantly outperforming the industry. We had an excellent start to the year, with strength in the north and east of the country. But in the second half, the once-in-a-decade change in political leadership impacted the whole industry, and growth levels pulled back. As a result of the leadership change, and the shift in timing of Chinese New Year, short-term visibility in this region is particularly limited.

And this will probably remain the case until at least March, when the changeover completes. However the long-term drivers in Greater China remain highly compelling, and our market-leading position leaves us extremely well placed.

Looking more closely at our performance in the US, you can see that we've outperformed the industry on total RevPAR, which is on the same basis as the Smith Travel Research data. Taking each of our brands in turn, they're all starting from different points, but all have shown good growth in the last year.

InterContinental had a great year, outperforming not only the upper upscale peer set shown here, but also the luxury segment, clearly benefiting from its strong brand positioning in key city locations.

Crowne Plaza continues to benefit from the work we're doing with the repositioning program, which Richard will talk about a little bit later on.

Hotel Indigo is a fantastic story for IHG, and we continue to see this brand gain share, as a result of the work that we've done to refine the proposition in the US.

And Holiday Inn and Holiday Inn Express both outperformed the market, reflecting the ongoing benefits of the relaunch which continues to drive outstanding results.

Let me just drill down on these last two brands in a little bit more detail. We know that there's an important link between guest satisfaction and RevPAR. And the chart on the left-hand side shows the significant increase in RevPAR premium driven by the Holiday Inn relaunch, making the Holiday Inn brand family one of the most highly rated midscale brands.

And as our owners get improved returns, we're seeing the benefit in new hotel signings, which translates into strong net system growth, especially now that the number of rooms leaving the system as part of the relaunch program has come down.

Our third driver of profitable fee revenues is net system growth. Net system growth of 2.7% was at the top end of our guidance for the year, and a notable step-up compared to the previous two years. We opened 34,000 rooms, up almost 5% on 2011 on an underlying basis, and over one-third of these rooms are in our fast-growing AMEA and Greater China regions.

As I mentioned, room removals have reduced to a more normal level and, with our ongoing focus on the quality of rooms, we will continue to expect to exit around 2% to 3% of the system each year.

Signings of 54,000 rooms, or almost one hotel a day, show the demand for our brands, despite the difficult financial environment which still exists in many markets.

Our pipeline continues to be of the highest quality with 40% under construction, maintained through disciplined signings and active pipeline management. And we have a 12% share of the global active hotel pipeline, and are confident that the vast majority of this will convert into open rooms. So that's what's driving our fee revenue to day.

And I now want to spend a few minutes talking about the shape of our fee growth going forward, and the impact we're seeing as a result of our strong growth in developing countries, such as China, India, Indonesia, and Thailand.

The geographic mix of our business is changing, reflecting faster demand growth and our fantastic reach into these markets. By their nature, developing markets have strong future demand drivers, with expanding economies, increased travel, and growing awareness and preference for branded experiences and products.

Almost 30% of our openings in 2012 were in developing markets, taking the proportion of our system there to 19%. Looking forward, this trend is expected to continue as shown by the shape of our pipeline, half of which is located in these locations.

However, our strong growth in developing markets means that our hotels are often opening at the same time as the sources of demand for rooms are being developed. And this means that they are generally achieving lower-absolute RevPARs, particularly in the early years.

So the best way to think about this, when modeling, is that these hotels will have RevPARs around 30% of the level of an average mature hotel in that region.

Turning now to our financial performance in the year by business model. Our franchised business continues to achieve high absolute margin levels. It's the most scalable of our three models, and is dominated by our hotels in the US.

Our managed business reports good top-line growth, converting into strong growth in operating profits, as we leverage our leading position in markets such as China. The proportion of managed hotels now earning incentive fees has risen 2 percentage points, to 59%, with the highest levels at over 80% in Great China and AMEA.

Our owned and leased estate has performed very well, with strong RevPAR progression driven by 5.3% rate growth. And this in conjunction with careful cost management has led to a 20% increase in underlying EBIT.

By the way, I would like just to draw your attention to the fact that in 2013, there will be a $6 million year-on-year benefit to the owned and leased EBIT, as we'll no longer be charging depreciation on the InterContinental Park Lane now that it's being held for sale.

Increased scale, RevPAR growth and a focus on costs have allowed us to drive up margins, converting top-line growth into double-digit profit growth.

Our fee-based margin expansion was better than expected in 2012, up 2 percentage points to 42.6%, helped in part by some one-off items that are individually small but collectively added around 50 basis points to the margin.

As we deliver top-line growth, our increasing scale allows us to drive efficiencies and create capacity to reinvest in the business whilst still improving margins.

Areas of reinvestment to support long-term growth include brand innovations, such as the launch of EVEN and HUALUXE, and ongoing IT developments. This investment has been partly funded by savings made by off-shoring certain support roles and a company-wide discipline on costs.

We've reported strong margin progression over the last few years, particularly in China, and sustainable margin growth, over time, remains the key focus. However, in 2013, we are increasing the level of reinvestment, particularly in fast-developing markets, as well as supporting our brands to drive continued outperformance.

Furthermore, you will remember that in January, we announced eight FelCor hotels would be leaving our system and these generated about $9 million of fees in 2012, contributing 50 basis points to our fee-based margins.

Therefore, looking at the margin picture in the round, we don't expect underlying 2013 margins to grow at the same rate as in recent years.

Looking now to cash flow, EBITDA was up 8% to $708 million, translating into strong free cash flow, up 10% to $463 million. Capital expenditure was in line with our revised guidance given at Q3 and I'll talk more about that in a moment.

The triennial review of the pension scheme has now been finalized, with a deficit of GBP132 million. We paid an additional GBP45 million contribution in the fourth quarter, as previously indicated, and have an agreed schedule of further additional payments comprising GBP30 million in 2013 and GBP15 million in 2014.

Net debt of just over $1 billion includes $612 million of capital returns as we paid out the special dividend and commenced the share buyback program in the fourth quarter.

We also took the opportunity at the end of last year to extend our debt maturity and diversify our debt profile in strong markets, issuing a GBP400 million 10-year fixed rate bond in November. I'm glad to say, we managed to get a great deal at the time, with a low long-term interest rate of just under 4%.

This slide, which I know is familiar to you, summarizes how we use our capital to drive growth and maximize value for shareholders, which I'll now talk about in a little bit more detail.

The first of our three uses of cash is investing in the business and we continue to see significant opportunities to use recycled capital selectively to accelerate our growth.

We'll spend around $100 million to $200 million on growth CapEx each year into the medium term, with around half of this in 2013 spent on getting the EVEN brand up and running.

Other plans for 2013 include $30 million behind halo Crowne Plaza assets and $30 million in joint venture investments.

We will, of course, continue to apply strict, strategic and financial criteria to all CapEx projects and will look to recycle our investments after a few years.

2012 was actually a modest year for capital recycling, releasing $8 million from disposals, including our interest in the Holiday Inn Madrid. We invested $20 million of growth capital, with $5 million in joint venture investments, including a Hotel Indigo hotel in Manhattan.

As I've said before, growth CapEx is, by its nature, lumpy as we're often investing alongside third parties.

Over the medium term, we expect maintenance CapEx to be around $150 million per annum, with $113 million spent in 2012. And around two-thirds of our maintenance CapEx in 2013 will be invested in our global infrastructure, including IT, and around one-third on our owned assets.

As Richard mentioned, we have a strong record of returning funds to shareholders, both through our ordinary dividend, which grew by 16% in 2012 and through additional capital returns. We've returned just over $600 million of the $1 billion we announced at interim results last year.

This reflects our ongoing commitment to an efficient balance sheet, whilst maintaining an investment grade credit rating.

I'm sure you'll have all seen the change to our quarterly reporting disclosure that we announced in our release this morning. Having consulted with many different stakeholders, we'll no longer be producing full quarterly financial statements for Q1 and Q3 results as of Q1 this year.

We will, instead, provide a trading update, supported by our usual supplementary data for RevPAR and system size. So you'll still be able to track our quarterly performance and we'll still continue to hold the conference call with time for questions at the end.

I think this move will help us focus attention more on the longer-term picture and brings us more into line with standard UK practice.

I'll hand back to Richard in a moment, but first, some comments on current trading and outlook.

Our preferred brands, high quality pipeline and resilient business model position us well as we start the current year. Although we can only look out around a month with any certainty, forward indicators of lead times and travel intentions are encouraging. Supply in developed markets remains historically low, whilst global demand continues to be at record levels.

In the US, the range of third party US industry forecasts for 2013 has converged to around 6%.

Let me now look at January RevPAR, remember that this is only one small month for hotel revenues, so it's important not to infer too much from this data.

Group RevPAR grew 6.6% in January, driven by both rate, up 2.1%, and occupancy, up 2.3 percentage points. RevPAR growth of 7% in the Americas reflects improved business confidence and includes the US, up 7.4%.

In Greater China, RevPAR increased by 21%, a strong improvement year on year, principally due to the shift in timing of Chinese New Year, which was in January last year, but in February this year. We would, therefore, expect to see some reversal of this in the February data.

AMEA was up 6% in the month, an improvement on Q4 trends, but also helped by the timing of Chinese New Year. And last but not least, in Europe, RevPAR held steady in challenging economic markets.

So with that, let me hand back to Richard.

Thanks, Tom. So, in April of this year, IHG will celebrate its 10th anniversary as a standalone Company and looking back over that time, I think it's fair to say that we have consistently delivered against a clearly defined strategy.

So our focus is on high quality growth and that drive has led us to remove over 260,000 rooms, which alone would represent the ninth largest hotel company in the world today. We have, in that same 10-year timeframe, opened a remarkable 425,000 rooms, giving us one of the highest-quality, freshest portfolio of hotels in the business.

So our share of the hotel -- of the global room supply is currently around 5% and, as Tom told you, our share of the active hotel pipeline is 12%, which means that we will continue to grow our share of total hotel room supply.

Now we've created this advantaged position through the great work that we've been doing to strengthen our existing brands and create new ones, as well as the unique partnership that we enjoy with our owners and especially through the IHG Owners Association.

We've all but completed our move to an asset-light business model, disposing of 190 hotels for some $5.7 billion in proceeds. In more recent years, we demonstrated the resilience of our business through the recession, successfully relaunching Holiday Inn and maintaining our dividend, whilst continuing to invest in growth. And in the process, we proved that IHG has one of the highest quality income streams in the industry.

We, of course, remain committed to continuing to reduce the capital intensity of IHG and committed to our asset-light strategy, which has helped us drive up return on capital employed from 7% in 2003 to some 44% last year.

We've delivered significant value to shareholders over that time, returning around $9 billion, almost twice the market cap of the Group when we listed as a standalone Company.

We've grown the ordinary dividend by 11% compound since 2003; and all of this has resulted in total shareholder returns in the last 10 years higher than any of our major competitors and we're very proud of that.

So the question on your minds and definitely on ours is how we continue this track record for the next 10 years and beyond, and the answer is more of the same.

Looking at what's driven our success, we call this our virtuous circle for high quality growth and it describes the way in which our business operates based around five levers.

We deliver preferred experiences for guests through our highly targeted brand propositions, consistently delivered by talented people across the organization.

We establish and build on scale positions in specific markets and leverage these to create revenue and cost synergies.

We have a strong portfolio of brands and an industry-leading loyalty program, which allows us to maximize cross-selling opportunities and capture a greater share of our guests' wallets.

Having an effective strategy which optimizes our delivery channels based on our guests and our brands is a key way in which we deliver profitable revenue into hotels and, of course, provides a superior proposition for our owners, which is vital, and I'll come back to that later.

The output of this great model for IHG is growing cash flow and a high return on investment. That's the theory, and it works, but we have to ensure we operationalize it by making it into something that colleagues at every level of the organization can buy into and understand their role in.

I've talked on several occasions about generating steady, sustainable growth in market share through driving RevPAR, adding the right hotels in the right locations, with the right owners. We're making this happen through our very -- three clearly-stated priorities of brands, people and delivery, underpinned by responsible business practices.

Taking each of these in turn and giving you a progress update on where we are today, let's start with our brands. We've been putting in place a new way of managing our brands, which we call brand leadership marketing. It makes sure that everyone involved in managing our brands is clear on their role, and it's helped us accelerate the work that we're doing and engage the whole business in our brands' journey.

This is important as preferred brands are at the center of our success and they drive everything they do. Now this work's been led by Larry Light, our Chief Brands Officer, who's worked with us since I took over as Chief Executive. It will be enhanced when Keith Barr takes up his role as Chief Commercial Officer later this year. Keith is one of our most experienced operators and leaders and he will really help us deliver defined guest experiences more effectively at the front line.

Our brands already deliver superior and consistent experiences, which drive RevPAR premiums and deliver better return on investment for us and for our owners. But we can never stand still, and we therefore talk about always wanting to make our brands bigger, better and stronger.

Size matters; there is a competitive advantage to being big through the economies of scale we can drive. It also gives us the power to try new things and develop areas of specialist expertise. For example, with South-East Asia as an important leisure destination, we've situated our global resorts team in Bangkok, to further develop our resort strategy.

We have a culture of continuous improvement in IHG and it's no different with our brands. So we're always looking at what we can do better at delivering the intended guest experience consistently, and addressing guest complaints and understanding their needs. We never stop refining the brands and driving operational improvements.

We want our brands to always be first choice for guests, owners, and employees. Strong brands have a huge advantage; as preference goes up, price sensitivity goes down. Brand enthusiasts pay a premium for their first choice brand and they're more loyal.

In order to make our brands bigger, better and stronger, we have to keep them contemporary and relevant, and meet changing guest needs. We've recently enhanced our understanding of our guests, through an industry-leading piece of research.

The hotel industry is relatively unsophisticated in this area and continues to focus on industry classification price points, which mean absolutely nothing to our guests. Definitions such as upper upscale or midscale are categories that guests just don't buy or think about. I've never gone home and said to my wife, darling, let's go away for the weekend to a midscale hotel. Even better, it's a limited-service midscale hotel. It's just not how consumers think or behave.

Guest needs vary enormously. Do they have family with them? Are they on a business trip? Are they on a short stopover or a longer break? IHG is at the forefront of understanding its guests and our recent work in this area has helped us improve our knowledge.

Our research has allowed us to identify the choices guests make as a function of who they are, the occasion they're travelling for, and the need when travelling. This detailed segmentation analysis we've produced is now integral to all of our brand management processes, including the proposition for our two new brands, and it's been fundamental to our plans for Crowne Plaza.

I'll share some of the details on Crowne Plaza now, and we'll be providing more insight on the work we've been doing on our other brands at an analyst and investor educational event we've planned, and would like to invite you to for Q4 of this year.

I've talked at some length before about the work we're doing to reposition Crowne Plaza. Crowne Plaza is a well-established brand and it's been a big success for us. It has a very solid foundation for future growth, with almost 400 hotels open around the world and nearly 100 in the pipeline. And it contributes almost 20% of IHG's gross revenues.

There is a significant opportunity for us to close the performance gap that exists between the brand in the Americas and the Rest of the World, and we've got a plan to achieve this. We've made good progress against Phase I of this plan, improving the overall quality of the estate. We've exited 18 substandard hotels, with around another 22 to leave over the next couple of years.

All quality action plans are scheduled to be complete in the Americas by the end of quarter 2, and we've rolled out our One Step Ahead guest service training program into all regions. This will ensure that all hotel colleagues fully understand the brand and deliver a consistent service experience, which is right for Crowne Plaza and its target guests.

As Tom mentioned, we'll use IHG's capital if necessary, to make sure we add and retain representative Crowne Plaza hotels in the right locations, to build brand awareness and showcase the brand properly. And we're on track to complete the rollout of the new brand hallmarks by the end of 2015.

In developing these new hallmarks, we've leveraged our guest segmentation work, to help us better meet the needs of our target guest. For Crowne Plaza's target guest, business productivity is their primary need; they never fully relax, they're very demanding, and they see productivity and business success as defining them. That probably characterizes most of you in this room today.

As a result, we've designed hallmarks that will enhance four key areas of the guest experience; arrival, food and beverage, guest room, and fitness and recreation. The team have done a great job. The hallmarks are being tested and piloted now and we'll start to roll them out later in the year. We'll talk about them in more detail once we've communicated with our owners and the rollout has commenced.

Moving now onto Holiday Inn. Tom has already told you about the continued strong results the relaunch is driving, both for us and for owners. Our market segmentation work has helped us clarify the positioning for each of the four brands within the global Holiday Inn brand family.

This recognizes that whilst they share the same DNA, each one is distinctive and appeals to different guest needs on different travel occasions. Providing greater clarity between these brands will enable us to continue to strengthen and grow them into the future.

Our efforts to drive awareness for this brand family continue to pay off, with Holiday Inn being named the J.D. Power award winner for best guest satisfaction in the midscale, full service category for the second consecutive year.

Holiday Inn has enjoyed a fantastic 2012, celebrating its 60th anniversary and being official hotel provider for the London Olympics. Looking forward into 2013, we won't be standing still, as we'll be launching a new advertising campaign for Holiday Inn across several media channels.

As you know, the Holiday Inn brand family is core to the success and profitability of IHG. As testament to its power and longevity, we can report that according to Smith Travel, it was the fastest-growing brand in its segment in the world last year, with more rooms added than any other brand family.

That's pretty impressive for a brand whose origins are now 60 years old, and evidence of the quality of the work we've done to relaunch the brand and keep it relevant to today's guests and hotel owners.

Hotel Indigo demonstrates the success we've had in tailoring a brand to specific guest needs. We've refined the brand proposition along the way, and in recent years have deliberately managed development in the US, to ensure we're getting distribution in optimal top tier markets. This managed development can take a little longer, as we turn a lot of opportunities down, but it will ensure that the brand has a sustainable long-term future.

We celebrated the brand's 50th open hotel during the year. With a further 47 hotels in the pipeline, the largest of any branded boutique in the world, its distribution is set to double over the next three to five years, to around 100 hotels.

Hotel Indigo's gaining pace; it was the fastest-growing branded boutique in the world last year. In Europe, we've now opened 10 hotels since we launched here in 2009. Our hotels continue to win accolades, such as Hotel Indigo on the Bund, being named the best boutique hotel in Asia Pacific.

Our two new brands tap into the growing global demand for hotel rooms, and the rising consumer trend for greater segmentation and differentiation. We signed 15 HUALUXE Hotels in Greater China in the year, and have a further 15 letters of intent in place; a great result for a brand that's not even a year old.

We're also making good progress with our EVEN Hotels' brand in the US, with one in the pipeline and several more close to signing.

Moving onto our second priority, our people; people play an absolutely key role in our business by delivering our brand experiences to guests. Over the years, we've proven a strong correlation between employee engagement, guest satisfaction, and hence RevPAR. Every 5 point increase in engagement adds, on average, about $0.70 to RevPAR, which is a material difference.

Employment engagement is an essential area of focus for us, and we improved this measure by 3 percentage points in 2012. We've now rolled the engagement survey out to our franchisees, who are starting to see the benefits already. The efforts we've made to drive a winning culture at IHG continue to be recognized externally, with awards in several countries, including the UK, India, and China.

Ensuring our people deliver consistent brand experiences to our guests, irrespective of ownership model, requires significant effort and innovation and engagement of our third party hotel owners. Our unique suite of people tools helps our owners to hire, train, involve, and recognize the right employees for their brands. In 2012, we launched Hotel Solutions, an access point for all the tools that IHG provides, which is also a forum for collaboration and sharing of best practices.

We'll be creating some 90,000 jobs over the next few years, as we expand our system of hotels around the world. This means it's vital that we can further boost recruitment and retention, and one way we'll do this is through our global network of academy programs, which I'll come onto talk about a bit later.

With our sheer people scale, we're turning the work we're doing in this area into a differentiator for IHG and a tremendous competitive advantage, which brings me to the third and final priority for delivering high-quality growth.

We continue to leverage our global scale, and the power of our systems, to drive a greater share of industry demand into our hotels. We do this by ensuring our distribution channels are aligned with the needs of our guests, while driving the most profitable revenues for our owners. In 2012, 69% of total rooms' revenue was booked through IHG's channels and direct to our hotels, by our Priority Club Rewards members.

Our system includes our global sales programs, online and consumer marketing strategies, reservations -- reservation channels, revenue management tools, and, of course, the loyalty program.

We deploy these systems and platforms in a coordinated way around four fundamental strategies; creating, converting, yielding, and retaining demand. So taking each of these in turn.

We need to ensure that our brands are top of mind when potential guests search for a hotel. We do this through mass-marketing campaigns such as those run for our Intercontinental and Crowne Plaza brands in Greater China last year. These drove great results, helping us to more than double brand awareness and preference scores in the space of a year.

More than 80% of guests start their hotel search on the web, making online marketing a key way of reaching and steering guests to our brands. In 2012, we generated $1.4 billion of revenue through these activities, purchasing or managing more than 8 million keywords, another example of what we can do due to our scale. We also drive a significant share of non-paid traffic to our sites, through our powerful search engine optimization strategy.

Our targeted marketing activities ensure we take a bigger share of wallet from our existing customers. We're now able to directly reach a significant number of guests. In 2012 alone, we had 51 million unique guest stays, and not just Priority Club members. Last year, we ran over 1,300 cost-effective targeted campaigns, which generated significant incremental revenues.

Social media is becoming an increasingly important way for us to connect with guests. And in 2012, our brands generated over 1 billion impressions within social space. Now like many companies, we're still experimenting with how we best create value from this, but early signs are very encouraging.

We also have powerful tools that allow our hotels to collect comments and reviews of their properties from all social channels and websites; a very valuable form of feedback.

In the area of sales, IHG leads the way for innovation, with our focus remaining on growing our overall share of corporate business, through our successful dynamic pricing initiative. We now have 43% of our centrally negotiated rates on this system, and we're seeing significant success. In 2012, these accounts achieved nearly double the growth in revenue of our traditional accounts, and hence, meaningful share gain.

Consumers are comparing and shopping like never before. So we have clear strategies to convert more browsers into buyers. In 2012, our websites experienced more than 0.25 billion visits, and generated $3.4 billion of revenue, which would put IHG among the top 10 Internet retailers in the US.

We've underscored the value of our brand websites, with the launch of our own guest ratings and review. In many cases, these can be more powerful than third party review sites, due to the knowledgeable brand-loyal guests who tend to comment.

Our mobile strategy is at the forefront of the industry. We were the first to have apps across all major platforms. And in just three years, we've grown bookings made through our mobile websites and apps from $3 million to $330 million.

When our consumers prefer to deal with someone in person, they can speak to highly-trained reservation agents at one of our 10 global call centers. Last year, we answered around 23 million inbound contacts, generating almost $2 billion in revenue.

We continue to innovate, to maximize bookings through our direct channels, the cheapest and most effective way. Not only do we have our powerful best price guarantee, we're also a founding member of roomkey.com, the first industry-owned hotel search engine, launched last year.

Another industry first is our collaboration with China's biggest ecommerce platform, Taobao Travel, which will enable us to reach many more Chinese guests.

Effective pricing is essential to maximize owner returns. Our industry-leading price optimization tool supports hotels to make the best pricing decisions, based on sophisticated algorithms that consider a combination of historic demand, pricing and economic indicators. The system is in place in over 3,000 hotels, and delivers an average RevPAR uplift of 4.3%.

Now, all tools are only as good as the people who use them. So we provide a variety of training options, to ensure hotel employees get the most out of our revenue management systems. And for hotels that don't have onsite revenue management capability, we provide this facility remotely. This is a very popular service, especially for our smaller hotels, and generates a meaningful RevPAR uplift.

Our Priority Cover Rewards program cultivates our guests into loyal, repeat customers, and advocates of our brands. We offer members a vast array of point redemption and recognition opportunities. This great customer value proposition means we now have 71 million members around the world who deliver 41% of revenues to our hotels.

PCR members are amongst our most valuable guests. They generate more revenue per stay than the average guest, as they're loyal to our brands. They generally stay more with us, and they also cost less. They're more likely to book through lower-cost channels, and they're easy to target.

And Priority Club Rewards continues to be heralded as best by industry advocates, winning several prestigious awards.

We'll continue to innovate this powerful tool, to maximize the revenues we can generate from the whole IHG brand portfolio.

I strongly believe that every business has to play its part in the communities in which it operates, and to behave responsibly. So I'll share with you today two initiatives which are core to IHG's approach to corporate responsibility.

Green Engage is our industry-leading online sustainability management program. It enables our hotels to manage their environmental impact through every stage in their life, from advice on choosing lighting, to daily monitoring of energy, waste and water consumption. This can lead to energy savings of up to 25%, which is significant, given that this is the second largest cost on a hotel P&L.

As importantly, being able to demonstrate green credentials helps attract guests and corporate accounts that require a greener hotel stay. Nearly half of our hotels use Green Engage today, and we're targeting many more to sign up in the year to come.

IHG academies are partnerships between our hotels and local educational community organizations that provide real world hospitality work training to local people.

We already have over 150 IHG academies in place across some 37 countries, with a further 117 in the pipeline. And over 10,000 students have participated to date, creating a pipeline of potential employees, and increasing the reputation of our hotels in their communities.

So why have I gone into what might have seemed like a lot of operational detail today? I wanted to make it clear how we've driven growth, and outperformed over the past 10 years; and to explain how we believe we can continue to drive the growth of IHG in the years to come.

We've built a strong business over the past decade; established a leading position and good momentum in a global industry that has compelling long-term future demand drivers. However, it's also a very competitive industry, which makes it vital to have a clearly defined strategy that will deliver results, not just for us, but very importantly, for our hotel owners too.

I referred earlier to our virtuous circle for high-quality growth, within which superior owner proposition is a key lever. At the heart of this is our brands, which are some of the biggest and best in the world.

Through our industry-leading consumer insight work, we're making our portfolio even stronger, refining propositions for our existing brands, as well as launching new ones to capture the growing demand for hotels around the world.

We're also leveraging the scale of our systems, along with the expertise of our people, to drive a greater share of demand into hotels, in the most cost-effective way.

Continued innovation and investment in this area is vital, in order to ensure we deliver value to our owners, and build on our competitive advantage. And remember that the sheer scale and expertise that we have here is a considerable barrier to entry too.

So we're taking a lot of actions to ensure we deliver high-quality growth into the future. And this requires investment in our brands, infrastructure, people and technology.

Developing markets is a key area of focus. This is especially so in China, where we need to further build our infrastructure to support our 187 open hotels, and the 160 hotels we will open and manage there; effectively, doubling the size of that business over the next few years.

As Tom touched upon, our fee-based margin growth will revert to more normal levels in 2013, as we strike the right balance between current profit, and investing for the longer-term future. We do, however, continue to remain very focused on driving long-term sustainable growth in margins.

The wider economy continues to be uncertain in many parts of the world, as you well know. But we remain confident in our outlook. We have an excellent record of driving superior returns for investors, and we're focused on continuing to do so into the future.

So thank you. With that, Tom and I will now be happy to take your questions. And for those of you listening on the webcast, you also have the opportunity to send your questions in online.

Okay. Tim, I think you were first.

Tim Ramskill, Credit Suisse. Two questions. Firstly, on the China comments -- the emerging markets comments, rather, you're making today.

Can you just give us a sense as to the incremental dollar value investment that you're planning to make? And is that a one-off? Is it one-off in nature, or is that a sustained level of raised investment? And what's, therefore, your expectation of an improvement, in terms of future growth, having made that extra investment?

Second one on the comments about the maturity profile, the 30% as a year one starting point. How does that phase through the period up to full maturity? And maybe you can make a comparison between the developed market dynamics there.

And then, the final third question is the $30 million of investment into Crowne Plaza. Given you don't own a Crowne Plaza hotel, how do you realize the benefits of that? Is it direct, as well as the indirect benefits of, obviously, the improvement and wider --?

Let me pick up the Crowne Plaza point, then Tom, maybe you could just talk a bit about the investments [at the ]margin.

So I think our model is, as you know, asset light, but on occasions we own hotels, also on occasions we invest in hotels, whether that's through sliver equity, or whatever it might be. So the investment we're talking about putting behind Crowne Plaza is unlikely to be owning one outright. But it certainly would be supporting hotels that maybe currently exist, that we think are great representations of the brand, or bringing new ones into the system.

So nothing out of the ordinary from the investment that we would do normally behind our brands. But as we're relaunching a brand like Crowne, it's important that we do make sure we've got the right hotels. And owners sometimes -- it says a lot to owners when you're changing a brand, when you're evolving a brand, that you're prepared to put some money behind it.

And you've seen us do it before with Holiday Inn, you've seen us do it with InterContinental, so very much continuing along the same lines. And I think -- Tom, do you just want to pick up the --?

Sure. In terms of your question about investments in emerging markets, I think the key phrase here is it's striking the right balance between investment today, but with a view to driving growth in the future. If you think about our business in Greater China, we've got 160 hotels in our pipeline that we need to open over the coming two to three years, so it's almost a doubling of the size of the China estate.

We've got the HUALUXE brand, where we've got 15 deals signed into the pipeline which will start to open in 2014 and beyond. And just to give you a sense of the scale of what we need to do in China, we need to recruit something like 30,000 people to staff up those managed hotels.

So there is a need to invest in the platform there, and it may be that for a year the margin doesn't progress at the same rate that it's progressed historically. But that's always a judgment that we've made with a view to ensuring that we take full advantage of the significant growth opportunities that we see ahead of us.

In terms of the comment about how long does it take for a new hotel to mature in those markets, what we've tried to give you is a steer as to the value at which you should bring on those new hotels when they open in emerging markets; 30% of the average absolute RevPAR for that region.

In terms of how long does it take to ramp up, well there's no precise rule of thumb I can give you. It depends very much on how the demand drivers mature in that particular locality over time. It'll probably be two to four years before you see that hotel achieving full RevPAR contribution for that particular location.

Okay, thanks Tom.

James Ainley, Citi. Two questions please. There's been some comments from your peers about the improvement in the financing environment in the US. Can you talk about that and what you think that means for net rooms' growth, both this year and the year ahead? Can we expect net rooms' growth to improve from the 2012 levels?

And then secondly, some comments in the press about banqueting activity in China. Obviously we don't see that coming through the RevPAR line, so can you talk about what that's doing to your business in China?

I think on the financing we've said marginal improvement, but the stronger brands, such as ours, have always had better access to capital than the weaker brands. So I think it really is marginal at this point. And of course, even the smallest hotel is several years in planning, and zoning, and opening. So I think it's going to have no impact on room supply. And I think the -- I don't see it having an impact in terms of kicking that up in the short term. So we'll have to see how it evolves.

On banqueting, yes I think the -- in China we've obviously seen the impact of the change in leadership, and we talked about it last year, and there isn't going to be full control taken by the new leadership until March this year, as Tom mentioned it in his words.

So some of our banqueting is big banquets; government is inextricably linked to business in China, so there's been a bit of a slowdown there. So if you think about it, it's similar to some of the RevPAR slowdown that we've seen. But obviously a lot of our business is more broadly based than that, and we think, post the new government coming in, that things will get back to some -- more semblance of normality there, as that's how business is done in China.

Vicki Lee, Barclays. Just two questions. Firstly just on FelCor, just following the loss of the rooms to Wyndham, just curious to see if there's, more broadly, any concern about competitors just getting a bit more competitive when it comes to rates or guarantees that they're offering. Just any color around the US market, and that backdrop.

And then secondly on gearing, how should we be thinking? Is it 2 to 2.5 times still the level that you're indicating? And if I look out a year, even allowing for the CapEx that you talked about today, I think that drops to about 1.4 times for you. So how should we be thinking about the potential for future cash returns to shareholders?

Okay, I'll take the first one and then, Tom, you can talk about gearing.

Yes, I think that the FelCor situation was a one-off situation. There's always going to be people looking who -- trying to grow their business, maybe buying their business; and that's what happened in that situation. It was an incredibly generous offer from Wyndham to take over those hotels, which were quite old portfolio of hotels in our system. It just wasn't economically viable to match it, but clearly they've got different objectives in terms of growing their brand, where, as I mentioned, Holiday Inn's the fastest-growing brand in its segment in the world. So we have a different dynamic.

But you know these things happen. We took three Hampton Inns in the UK, and converted them to Holiday Inn Expresses, because of the system delivery that we can deliver, without any financial investment.

So I think that the strong brands are going to continue to grow, and going to continue to gain share because of what they can deliver. And some of the weaker brands are always going to take the opportunity to come along and buy a little bit of business to get a headline, or whatever it might be.

But I think if you see -- if you look at the scale at what we're doing in terms of signing hotels, we signed nearly one a day throughout 2012. We opened 226 hotels, which is like we opened one every 39 hours. So we've got an awful lot of activity within our brands and our share of supply. Our share of supply is -- 12% is significant.

So I think we're in a very good shape in terms of actually delivering value to owners, who are then prepared to pay for that.

Just on the signings point, there's no change then in any of the fee structure that you're seeing?

No, there really isn't. And I think that's something that's important that it does come back to value. So owners look for return on investment, and they can always go out and get a cheap brand. There's always people out there in some of the companies who are -- want to get into market, they'll basically give business away. But if they're not generating the revenues, and they're not generating the returns to owners, then they're always going to pick up a certain type of owner, whereas we're building a long-term, sustainable business here.

And we recently, for example, lengthened our contract in the US from 10 years in the franchise agreements to 20 years, which is really about creating these longer-term partnerships with serious owners who are prepared to invest behind the brands.

So, Tom --

To your second question, Vicki, you're quite right. The guidance we gave last year was that we were committed to maintaining the investment grade credit rating of the Group. And to help you with your modeling, we gave you the 2 to 2.5 times net debt to EBITDA as a benchmark as to the range of leverage that we would be comfortable with. And that still remains the medium-term commitment.

We are still in the process of returning the $1 billion. We still have about $400 million to go on the buyback program. And I'm sure we will complete that in due course.

And in terms of additional capital that we have available in the Group, as you know, our three calls on capital are firstly to invest in the business to grow growth, to drive growth; secondly, to pay a progressive dividend; and thirdly, if there is capital to be returned, then we'll do so.

And I like to think that, given our track record of returning $9 billion since we became an independent company, we have a little bit of trust from the investor community that we'll do the right thing.

Thanks.

Jamie Rollo, Morgan Stanley. First question, actually Tim asked it, what's the guidance for net system growth? And if it's going to similar to last year, why isn't it getting better if you're putting all the extra costs and capital in?

Secondly, the 69% of revenue delivered by you I think was similar to last year. Why isn't that -- why has that stopped getting better?

And then, thirdly, where are you on the asset disposal process of the two that are formally for sale, and thoughts on Paris and Hong Kong? Thanks.

In terms of net system size growth, I think we've talked around about 2% to 3% level with this level of economic activity and debt available. And I don't see that broadly moving.

Why hasn't it got better with investment? Well we've been investing consistently over the years, obviously. And the investment that we're talking about this year is just making sure that we absolutely can open the hotels that we've currently got in the pipeline. We talked about the numbers; I think 160 in China, 47 in India, and some of the other markets.

So it's what it takes to actually drive this business forward in these markets. And don't forget, Jamie, we're still talking about margin growth, so we're growing the business quite fast in a lot of different markets. So it does require some investment.

On the capital side of things, we're really -- it's not really going to affect system size directly, because you're talking about a handful of hotels. So with EVEN, it might end up being three, four, five hotels, depending on how we spread it. That doesn't affect system size. What it does do is enable us to make a statement about the brand, as we evolve the brand and make sure that it delivers to the consumers and then enables us to sell it to third -party owners where we don't need capital.

On the 69%, the 69% or the percentage of system delivery is a very good measure of the scale and strength of your delivery channels. It's not an absolute number that you're targeting to move every single year. It's an amalgam of things.

So at that level, that's a good level. I wouldn't mind it going up. I wouldn't necessarily mind if it was down a little bit, but the real point is how sticky is your business in terms of what you're driving to owners, how much do your brands drive, and can you drive them through the most profitable channels for owners? That's really -- so there's an equation which is not all about system delivery.

So it has been flat probably for the last couple of years, actually, give or take. But it's still obviously very, very high relative to pretty much anybody else and what it is doing is driving, as I say, the most profitable channels for owners. We've seen the fastest growth in web which, from their margin perspective, is the highest; so it's still a very impressive number.

Do you want to pick up on the other?

Yes, I think there was a question at the back end about asset sales. We continue to market the Barclay in New York and as we said at the interims last year, we're also now looking to market the Park Lane and that process has actually started this year.

There is no update in terms of where we've got to in those processes, but I can tell you that both hotels continue to trade well. Ultimately, we're not going to be rushed into doing a deal because our focus is on getting the best deal for shareholders and that might take a little bit more time.

In terms of Paris and Hong Kong, those aren't currently on the market. We have talked in the past about particular reasons around those assets, as to why we wouldn't want to sell them at this point in time.

As you know, Hong Kong is in the part of Hong Kong where there's a massive amount of urban regeneration and development and we want to really see that come through before thinking about possibly disposing of that asset.

But on the Barclay and Park Lane, that's where we are at this point.

Tim Barrett, Nomura. A couple of questions on costs please. I think you said some of the additional cost investment will go through the COGS line. What bearing does that have on the $13 million to 1 point, the RevPAR profit guidance?

And secondly, the small restructuring exceptional of $16 million, what kind of payback time would you expect on that?

In terms of our investment in costs, some of that will flow through the regional and central cost lines and some of it will go through cost of sales.

Your question specifically on the sensitivity, that sensitivity that we give you of 1 point of RevPAR equating to $13 million of EBIT, that is really designed to help you just flex the RevPAR number and work out what the implications for EBIT would be, all other things held constant.

What it's not designed to do is to pick up the additional costs that we need to invest in the business in order to further our business plans and deliver the growth that we've talked about. So you have to factor that in over and above the EBIT sensitivity.

In terms of the exceptional restructuring charges, again, those relate to a number of different situations. The principal amount is in relation to moving some of our back office functions from the UK and the States into India. Typically, we would expect a payback on those costs in around 12 months to 18 months.

Is there any other reason to change the $13 million guidance, anything to do with incentive payments?

No, there's no reason to change that guidance. That's the best guidance that we have available right now in terms of flexing your RevPAR assumption.

Thanks a lot.

Simon Larkin, BofA Merrill Lynch. A few questions from me, please, around China. Just to be clear, do you expect fee-based margins in China to go backwards, 2013 over '12, given your investment plans?

Secondly, could you give us a timeframe? You talked about -- there's obviously a doubling in the size of the system open rooms in China. Can you talk a little bit generally about the business as a whole, to the timeframe of opening rooms? I think originally, three years, four years ago, it was three years, then you moved it to five years. Is it still five years or are we moving in or moving further out?

Next question is on your 30% of opened rooms RevPAR delta. Is that to do with ramp-up, or is that to do with the moving to more tertiary and secondary cities? Because you've been going double-digit in China for a while. I just want to understand what's changing to make it more relevant to this morning's discussion.

And finally, on operating costs in China, for the managed and franchised business, currently, they're running at $40 million to $50 million, quite a lot lower than Europe, quite a lot lower than AMEA and, obviously, North America. When you do double this China business, what will that cost base look like trajectory-wise? Does that get to $60 million, $70 million? Is that what you're saying here?

Wow, that's a lot of questions. Look, I think on -- the fee-based margin will go back slightly in 2013. I think in terms of the timeframe, we talk about three years to five years and five years comes about because these are very large buildings, 300 rooms, 400 rooms, 500 rooms, 1,000 rooms and we're talking averages here; often part of mixed-use developments, maybe the same building or multiple buildings. So they just take a long time to develop and for those of you who've been out there, you've seen these massive developments that go on.

So it's no longer than any other place; it's just literally the physical reality of building these hotels, so that does take time.

Do you want to talk about -- pick up the other two, Tom?

Yes. No, sure. It is true to say that an increasing part of our growth in China is coming out of secondary and tertiary cities and they typically have lower RevPARs than you see in the primary cities. So that mix effect has to be taken into account in the way that you model the value of the incremental rooms that we add to our system sites in China.

In terms of the 30% statistic, that is simply just to help you think about how quickly to factor in the value of those additional rooms over time; and again, we've talked about that in terms of phasing that in as the value of those rooms increases over a number of years.

In terms of operating costs, undoubtedly, our cost base in China will grow as a function of our growing system size there and the fact that we see significant growth opportunities ahead of us. But the important point, I think, is not to get too preoccupied on margin growth in one particular year or costs in a particular year, but rather to stand back and look at the way that we're growing the business over time and the balance we're trying to strike between the investment to fuel that growth and delivering that growth over the medium to longer term.

And a couple of things just to add -- thanks, Tom -- is clearly, as we grow in these developing markets, proportionately, it's become a higher level of growth and as we've had lower growth relatively in Europe and the US because of the economic situation, as we've grown that business, it's become a bigger proportion.

So these dynamics of the way RevPAR goes and the speed of opening and so on is a good thing because of the proportion of business that we have in these developing markets. So I think it's -- we wanted to highlight how that all works.

I think as you look at China, and it's true in some other markets as well, but particularly China, the hotels are getting built at the same time as the demand drivers. So it's one of the reasons why the ramp-up is what it is.

So you've got a long new supply coming in at the same time, but a lot of our development are in, effectively, new cities or very, very highly developed cities or being developed [incentively.]

So you've got the offices and the schools and the hospitals and the train stations and the airports all being built at the same time. So it's inevitable that it's going to just take much longer to build up.

But you want to be there early. As you know, we're the leading international hotel company in China by a mile, so we're always invited in early and you want to be there and you want to get the best location.

So it's just an inevitable consequence of the way the country is developing and it's not a bad thing, but it's just the way it is. I think you've seen that the way we've grown our fees in those markets, so again, that's, I think, the way to look at it. That's what drives our bottom line. So in China, we grew our fees by 16% in 2012 on, obviously, much lower RevPAR growth, which is the new rooms coming through. Is that okay?

Yes, just to follow up on all these questions on costs and these new rooms, maybe it would help if you can give us a -- just what the absolute cost base is going to go up year on year? You used to give us that guidance.

And maybe on the net rooms, what is 1% system growth to the Group in millions of dollars, like the RevPAR sensitivity?

I think it's just the wrong way to look at it. I think when we're managing a diverse business across the world, our focus is on margin growth and we've talked about that for some period of time.

Absolute costs are going to -- if you think of it, managing absolute cost is really not what we're focused on. What we're focused on is driving margin. We do think a lot about costs, Tom just talked about the exceptional items, so within the finance organization, we've done -- moved a lot offshore. We've driven a lot of centralization and so on. So that's very much a focus of the business. All those things you'd expect us to do.

But the real thing is that in that context of a very fast-growing business, in parts of the world, we have to manage our costs and driving margin seems to be the best way to do it because that's actually showing efficiency and showing scale benefit.

So that's why we talk about margin as opposed to absolute costs and in a dynamic world, that's what you've got to manage to.

Okay. Well, thank you very much. Appreciate your time and I look forward to catching up with you all in the coming minutes or days.