InterContinental Hotels Group PLC (IHG) 2013 Q2 法說會逐字稿

Good afternoon ladies and gentlemen welcome to the InterContinental Hotels Group results conference call. My name is Fay and I will be your coordinator for today's conference.

(Operator Instructions)

I will now hand it over to your host, Catherine Dolton, to begin. Thank you.

Good morning everyone. This is Catherine Dolton, Head of Investor Relations at IHG. I am joined this morning by Richard Solomons, Chief Executive; and Paul Edgecliffe-Johnson, Chief Financial Officer.

Before I hand over to them for the discussion of our results, I need to remind you that in the following discussion the Company may make certain forward-looking statements as defined under US law. Please check this morning's press release and the Company's SEC filings for factors that could lead actual results to differ materially from any such forward-looking statements. I will now turn the call over to Richard Solomons.

Thank you, Catherine. Good morning everyone, thanks for joining us. In a moment Paul will take you through the financial results in detail but first let me just cover some highlights.

2013 marked IHG's 10th anniversary as a standalone company and with another year of strong performance for our business. Growing preference for our brands, combined with solid net rooms expansion fueled increasingly from developing markets, drove good growth in fees. Our focus on cost efficiencies, combined with our success in leveraging our scale, has allowed us to invest in the business whilst growing our margins, an achievement we have repeated now for a number of years.

We've once again demonstrated IHG's ability to drive powerful cash flows and to deliver against our commitment to reduce the capital intensity of the business. And I'm delighted today to announce the disposal of InterContinental Mark Hopkins, San Francisco for $120 million. This follows our agreement to dispose of 80% of our InterContinental in New York in December, with both deals highlighting the enduring appeal of the InterContinental brand.

IHG's ability to reliably recycle capital provides us with the flexibility to invest behind our brands and our technology platforms at the same time as being able to generate significant and consistent shareholder returns. The $638 million of capital we returned in 2013 via special dividend and share buyback, together with 9% growth in the 2013 total dividend announced today, demonstrates both an ongoing commitment to our long-standing strategy and the confidence we have in our ability to drive strong performance into the future. So, I'm going to hand you over to Paul now and then I will return later to discuss our strategy.

Thanks, Richard, and good morning, everyone. So, increases in RevPAR and rooms under our brand drove a 4.3% increase in fee revenue growth right across our business in 2013, which added $49 million in absolute terms to our income. That took total fees to nearly $1.2 billion. Comparable RevPAR grew 3.8% with rate up 1.8% and a 130 basis point increase in average occupancy, which is now at 67.1%, the highest we've seen since 2007.

We opened 35,000 new rooms in the year. We also removed 25,000 rooms. These were hotels which just weren't living up to our brand promise and had, on average, guest satisfaction scores more than five points lower than the estate as a whole and were almost twice as old. Looking forward, we will continue to manage the quality of our system for the long-term, removing hotels where necessary.

On an underlying basis, adjusting for the 4,000 rooms that exited in relation to 3 large liquidated damages receipts totaling $46 million in the year, net rooms increased 2.3%. Reported profit growth of 10% included these 3 large receipts. Without the benefit of these, and excluding results from managed leads hotels and the owned revenue from InterContinental London Park Lane, which we sold in May, we grew underlying profit by 8% on a constant currency basis.

As Richard mentioned, we have again delivered sustainable fee margin progression in 2013, with a higher-than-expected increase of 130 basis points. Continued growth in this key metric over the medium-term remains a focus for us. Some years will of course be better than others and in the last few we've seen above average margin growth. This will be at more normal levels in 2014 as we continue to invest in brand development and in local infrastructure in developing markets to drive long-term fee growth and market share.

Interest was $19 million higher at $73 million, reflecting increased average debt as we have executed on our capital returns program. Our effective tax rate increased by 2 percentage points to 29%. Our expectation remains that our tax rate will rise to the low 30%s in 2014. After these higher tax and interest costs and an 8% reduction in weighted average shares, earnings per share increased to $1.583, up 14% year on year.

Looking now at the RevPAR performance of each of our regions in a little more detail, America's comparable RevPAR was up 4.3%, with average rate up 2.6% and a 110 basis point increase in average occupancy, which now stands at 66.4%, 30 basis points above the 2007 prior peak. We were pleased with the performance of each of our brands during the year and in particular with the 130 basis points RevPAR growth out performance that our higher price point hotels of Crowne Plaza and InterContinental both achieved against their industry competitors.

Holiday Inn and Holiday Inn Express maintained a sizable rate premium to their competitors but grew RevPAR slightly more slowly in 2013. This is unsurprising given their significantly superior RevPAR performance through the cycle, proving to be much more robust during the downturn and recovering back to prior peak levels almost 12 months sooner than the wider US industry.

In Europe, after a slow start with tough comparisons to Germany and increased supply growth in the UK, comparable RevPAR grew 1.7% across the year. In the fourth quarter we achieved 5% growth, although this benefited from the timing of certain exhibitions and events in the quarter, so is not fully representative of underlying economic conditions.

Moving now to Asia, Middle East and Africa. Having previously held the CFO role in this region, I know just how diverse it can be, with different dynamics driving each of our key markets. 6.1% comparable RevPAR growth was led by Southeast Asia and Japan, both up almost 10%. In the Middle East more modest growth reflected strong trading in the United Arab Emirates offset by continued geopolitical unrest elsewhere in the region.

In greater China, our ability to continue to grow RevPAR in 2013 while the industry was experiencing significant declines, reflects our scale and the strength of our competitive position. We have brands across multiple price points and hotels in 70 cities. This, in conjunction with our experienced team and our well-established operations and infrastructure, places us very well to trade resiliently in greater China. This also means we are not overly reliant on any one segment. In 2013 we took measures which drove transient business up 10% and our Holiday Inn Express brand drove RevPAR up almost 5%.

You will see in our announcement this morning that we have disclosed total RevPAR growth for our Asia, Middle East and Africa and greater China regions. This differs from comparable RevPAR in that it includes rooms which have opened or exited in the last two years and so reflects our change in mix, which means it has a more linear relationship with fee revenue growth.

Our key market strategy focuses our efforts on not just the largest markets, but also those which are the fastest growing. As we've said before, this often means that we are adding hotels at the same time as the demand drivers in developing markets are being built. Which inevitably means lower absolute levels of RevPAR, especially in the early years. The fees these hotels contribute are incremental to those we receive in established markets where, of course, we are still growing so we continue to be positive for IHG's top line.

Looking for a moment at our pipeline at a group level, which remains strong, with 65,000 rooms signed in the year, that's up 22% on 2012. This takes our total pipeline to 180,000 rooms, over 45% of which is under construction. Just to remind you, our pipeline only contains deals which have been signed and for which the appropriate fees have been paid.

Free cash flow generated by the business of $502 million was up 11% in the year, driven by a 10% increase in operating profit and strong cash conversion with two thirds of EBITDA converting to free cash flow. $444 million of cash released from asset sales more than funded our $129 million of growth CapEx in 2013. This spend included $72 million to acquire three owned EVEN hotels, just under half the amount we have committed to launch the brand.

Maintenance capital expenditure of $140 million was in line with prior guidance. Our medium-term CapEx guidance of up to $350 million a year is unchanged. This will be invested behind maintaining the strength of our technology platform to ensure we remain competitive in the evolving digital world, and strategic investments to drive the growth of our brands. We will continue to fund growth capital through asset recycling wherever possible. In addition to this, we will be contributing 20% of the cost of the $175 million refurbishment of the Barclay in line with our joint venture share, which we currently expect to be invested across 2014 and 2015.

In 2013 we continued our strong history of returning surplus funds to shareholders. For the second year in a row we distributed over $600 million in additional returns over and above the ordinary dividend. We are now four-fifths through our buyback program with just over $100 million of it still to be completed.

Over the last ten years the strong free cash flow generated by a robust fee based business model, combined with $6.2 billion generated from disposals, has enabled us to return some $9.6 billion of funds to shareholders, whilst also selectively investing behind growing our business to optimally position it for the long-term. Looking forward, we continue to be committed to keeping an appropriately strong balance sheet and in investment-grade credit rating.

As Richard mentioned, 9% growth in the ordinary dividend reflects our confidence in our long-term strategic position, although we remain mindful of the short-term external headwinds still impacting some markets around the world. On that note, I'll hand back to Richard.

Thank you, Paul. At our educational event in November I talked about the major tailwinds that we believe will continue to drive up demand for hotel rooms over the next few decades, including growing GDP, globalization of trade, aging populations, and increased outbound trouble flows.

We've calculated that by 2020, 10 markets alone will account for more than three-quarters of industry growth, and this is where IHG is primarily focusing its efforts. We have the industry-leading system and pipeline position in these 10 markets today and they make up more than 85% of our combined open and pipeline rooms.

It's not straightforward to continuously win in an ever-changing marketplace but IHG has the right strategy to deliver high quality growth into the future. Our targeted portfolio, combined with our winning model, underpinned by disciplined execution, will continue to drive superior returns for our IHG's shareholders.

At the center of this strategy is our brands. Each year at IHG we look after some 34 million unique guests staying more than 160 million nights, from whom we receive regular feedback. Guest satisfaction is obviously hugely important and we know and can quantify that improvement in this metric drives both the guests' likelihood return and their likelihood to recommend our brands to others.

At the start of 2011 we introduced a new survey system across all of our brands and regions that we call guest Heartbeat and in 2013 we produced some good results, driving increased guest satisfaction at every single one of our brands. Also gaining significant amounts of external recognition for the great work we're doing, our brands, hotels and corporate offices, won more than 400 awards last year. That doesn't mean we're standing still.

We're evolving our brands to ensure they remain relevant to guests and their needs. We've undertaken major research studies which look at the universe of guest needs and occasions, and their relative groupings in the hotel market. This unique and deep insight allows us to better differentiate our hotel experiences and will be a key driver of our ability to continue to grow ahead of the market.

We've talked a lot recently about our two innovative new brands, EVEN Hotels and HUALUXE Hotels and Resorts, and we're making great progress with these and are looking forward to the first hotels opening. Today though I'd like to focus specifically on our established brands and how we're evolving them to drive increased preference amongst our current and future guests.

InterContinental Hotels and Resorts is of course our international luxury brand which we've grown to be more than twice the size of any other luxury brand, with the largest pipeline. In fact InterContinental today is almost three times the size of Four Seasons, and more than double the size of each of Ritz-Carlton, JW Marriott, Fairmont and Shangri-La.

We're focused on adding hotels in iconic locations and in 2013 we opened nine new hotels in key markets such as Shanghai, Osaka, Lagos, Marseilles, and Davos. We also signed a further 14 hotels into the pipeline, including the third for London and the second for both Washington DC and Sydney, Australia. In recognition of the changing travel habits of today's InterContinental guests, this year we'll rollout our first global menu for the brand for children, by our link-up with Annabel Karmel, one of the UK's most trusted experts on children and families.

Moving on now to Hotel Indigo, the industry's first global branded boutique. This combines the modern design and intimate service associated with a boutique hotel with the peace of mind and ease of staying with one of the world's largest hotel companies. Each Hotel Indigo reflects the local culture, character, and history of its surrounding neighborhood.

Since we took the brand global in 2008 we've seen great traction, with 55 hotels now open and a further 51 in our pipeline. 2013 was a great year for the brand. Six openings included the first Hotel Indigo properties in each of Israel, Spain, and Hong Kong really demonstrating our success in securing prime, urban locations. We've run some great consumer campaigns in 2013 to highlight Hotel Indigo's neighborhood focus. In Hong Kong in December we celebrated both the three-year anniversary of the brand in greater China, and the opening of the Hotel Indigo Hong Kong by branding two Hong Kong tram cars with the neighborhood stories from our five Hotel Indigo Properties open in the region.

Holiday Inn continues to be an extremely successful brand and IHG's engine of growth. It's the largest hotel brand family in the world with the largest pipeline and it enjoys a significant RevPAR premium to its industry segment. The brand had another strong year in 2013, opening some 150 hotels including country debuts of the Holiday Inn core brand in Ecuador, the Cayman Islands, and Mauritius. We signed a further 280 hotels into the pipeline, which makes it our most successful year for brand family signings since 2008.

In 2014 we'll continue to innovate to enhance the proposition for our target guests across the brand family. And in the Americas, this includes the addition of more healthy items to our Holiday Inn Express breakfast offering.

We're on a journey to improve the quality and consistency of the Crowne Plaza brand, primarily in the US and we're really encouraged by the results so far. In 2013 the brand in the US meaningfully outperformed the upscale segment, and in North America we improved our JD Power Survey overall satisfaction mix by some 15 points, a big step up.

Crowne Plaza now has a clear, relevant brand proposition, which we call traveling for success. We've aligned the brand to the business productivity and building business interaction segments. These insights have led to a number of guest experience enhancements which we piloted during 2013 with encouraging results. In 2014, we'll commence the rollout of these, starting with our Americas and Europe regions.

Turning now to our Extended Stay brands and starting with Staybridge Suites, a brand which IHG used its own capital to launch back in 1997, and since which has been released in full. Today we have almost 200 hotels open with 80 in the pipeline. In 2013 we opened 7 Staybridge Suites hotels, including the first for Lebanon in Beirut and we signed a further 32 hotels into the pipeline including great new locations in Saudi Arabia and London.

Staybridge Suites has some very loyal guests and the highest guest satisfaction of all IHG's brands. We've been doing a lot to improve this further, the evening social is a key hallmark of the brand providing a welcoming environment where guests can interact. Our new food and beverage menus help to drive strong increases in attendance at these events, thereby driving deeper engagement with the brand.

Candlewood Suites is our second extended stay brand focus solely on the US and Canada. We acquired this brand in 2003 when it had a combined system size and pipeline of just 136 hotels, and we've grown this to almost three times that number today.

In 2013 in response to our guest insights we introduced the Lending Locker, a place where guests can borrow common household items during their stay. And this builds on the success of the Candlewood Cupboard, one of the brand's core hallmarks which operates an honor system. By expanding the notion of trust at the Lending Locker we're treating our guests like trusted members of the family and this links to the core values of the brand.

Everything I've talked about so far is important because brands are the promise that we make to customers, but all of these great brands need to be supported by strong delivery systems. We're focused on how we can best serve our guests in the changing landscape of 24/7 connectivity in order to build trust with them and strengthen our proposition to owners.

This is what led us to relaunch our loyalty program in July, 2013 with a new name, IHG Rewards Club. IHG Rewards Club clearly communicates to consumers that all of our brands are part of the same IHG brand family. We've also added new benefits, including being the first hotel company to offer free internet to all members in all our hotels globally.

Since the relaunch we've driven awareness of IHG as a brand family by 10 percentage points and we've seen early increases in the number of brands used by members. By making our loyalty program more effective in this way we will grow IHG's share of our guests' wallets, thereby driving up hotel revenues.

Direct web channels remain at the heart of IHG's distribution strategy and we continue to invest heavily in customer facing enhancements to improve the guest experience and attract more revenue to this low-cost channel. Today our websites across 13 languages support our strong online presence. These are being accessed by 90 million potential customers annually, and have driven up web revenue over 30% in just 3 years. Mobile has quickly become a dominant touch point. IHG's mobile revenues last year were over $600 million, up 85% from 2012 and they continue to grow strongly.

In 2012 IHG was one of the first hotel companies to launch guest ratings and reviews on our branded websites. Over 320,000 guest reviews are now live globally with an average hotel rating of 4.2 out of 5 stars. In fact, in 2013 we collected more reviews on our sites for hotels than TripAdvisor has for all IHG hotels.

We've been leaders in many areas of the digital revolution. This is a difficult area in which to measure success so we're pleased that our hard work has been widely recognized externally. IHG has the highest rated mobile apps in the industry and in the US in 2013 the digital think tank L2 rated IHG as having the highest average digital IQ in the US industry, beating all of our major competitors.

So, to sum up, this is an industry that has compelling, long-term demand drivers in which IHG is well-positioned to outperform. We have a clearly defined strategy which will deliver industry out performance and high-quality growth into the future. At the heart of this is our brands which are some of the biggest and best in the world.

InterContinental Hotels and Resorts and the Holiday Inn brand family are by far and away the largest brands in their price segments and they are set for strong future growth, with 2013 marking the best year for signings for both brands since 2008. We're continuing to strengthen and add to our brands through our industry-leading insights, and this is clearly working, driving up guest satisfaction scores and winning us over 400 industry awards. We're not standing still though. We're continuing to innovate to ensure our brands remain fresh and preferred into the future.

IHG has a history of technology firsts in the industry, including the first ever reservations website, and being the first to have mobile apps across all platforms. This pioneering approach has meant we have best in class revenue delivery systems, providing the highest quality revenues to IHG hotels at the lowest possible cost.

We will continue to invest behind our brands and technology. It's vital that we innovate as we've done in the past to meet changing consumer behaviors and sustain our industry-leading position. We've once again demonstrated our commitment to returning funds to shareholders and we're focused on continuing to do so into the future.

Looking into 2014, although economic conditions in some markets remain uncertain, forward bookings data is encouraging and we're confident that we will deliver another year of growth. So, thank you. And with that, Paul and I will be happy to take your questions.

(Operator Instructions)

Steven Kent, Goldman Sachs.

Just a couple questions. One, can you just broadly review the higher CapEx for 2014? And how we should start to think about your CapEx program as you move more and more towards asset light?

Second, can you talk about the ability for developers in North America to get financing to build properties? And then third, I know this is hard for you to do given the dynamics of your business, but are there any forward indicators you're looking at to give you confidence on some of that mid market consumer demand?

Yes, thanks, Steve, it's Richard. I'll take the last question then I'll ask Paul to take the first two. Just in terms of forward-looking, as you said, we don't give guidance. But I think we look at a number of things, groups and meetings, although it is smaller for us than the peers, bookings are up about 15% year-out, that obviously covers the larger Holiday Inns as well as Crowne Plaza and InterContinental.

The other thing that we look at when we get regular feedback is intention to travel. And when we look at that, which is a part of the guest survey, that remained strong and our December data showed that more than 60% of our guest, that's business and leisure, expect to travel more or the same amount in the next 12 months. In fact, that's 60% is the business number and the leisure number is nearer to 80%. So as we look at that, we look at the momentum in the US, and obviously we can't legislate for any changes or problems with the debt ceiling or anything else over there, but there does seem to be some momentum and the intention to travel and booking pace is up.

So Richard just to finish up -- to finish up on that, how has that looked, let's say 12 months ago, 24 months ago? Can you give us a sense that 80% and 60% number that you just talked about?

I think they are a little bit higher. We certainly were looking above 50% 12 months ago. I think they've edged up a bit.

Okay.

It's not that scientific. It's part of the survey but just from a feeling I think I'd say it feels a little bit better I'm not sure I could quantify that. Paul, do you want to pick up the other two?

Sure, thanks Richard. Steve, your first question around CapEx. In 2013 we spent $140 million on our maintenance CapEx, which splits out about one-third hotels, about two-thirds non-hotels, and then $127 million on growth CapEx, of which is $72 million was behind the three EVEN hotels that we bought. And that's about roughly half what we are going to put behind that brand launch in total.

Looking out into 2014 we've said that although our guidance -- is generally it will be $250 million to $350 million, we said back in November that we're expecting 2014 to be at the top end of that range. And that in addition, we've got our 20% stake of the refurbishment cost of the Barclay to pay which will pay out over 2014 and 2015 as that work gets done. And in terms of how they'll going forward, we've given the guidance. We're not going to split that guidance out between maintenance and growth because it will just differ a little year-by-year.

But hopefully that gives you enough color to go on. And of course we will continue to recycle the capital that we put into the business, so for example, at EVEN, they may take some years, but once they are ramped up then we'll look at potentially recycling those so it's a story that I know isn't new to you.

In terms of development finance in the US, I guess one way of looking at this is we signed 350 -- we signed 305 hotels in the Americas in 2013, that's 34,000 rooms, up one-third year-on-year. And for the best brands, with the best owners then I think there is development finance available. I think are you getting back to where it was, I don't know 2006, 2007, not sure you are. But I think if they are good brands that will deliver well, I think the finance is available.

I guess it's better to say Paul, there's a lot of cash flowing hotels, existing hotels. Hence our ability to move that Mark Hopkins Hotel, and it's harder for new build, unless it's great brands.

Yes, good point.

Okay, thank you.

Thanks, Steve.

David Loeb, Baird.

I want to just to hit you again a little more on the CapEx. On slide 18 you talked about investment in technology platforms, is that likely to be more than it was last year or is this increase primarily for growth initiatives, other more kind of routine things?

I think we're talking about strategically where we put our capital over time and as our hotel portfolio gets less. Clearly the proportion of our technology investment will go up, but I think the important thing is, it's not technology investment for technology's sake. It's what is required today to deliver the breadth -- the guest experience right across the guest journey. Whether it's what we call the dreaming or the planning phase up front, in the hotel, as well of the sharing phase afterwards.

And we all know that, I mentioned, I talked about the 24/7 world, but in the digital world that's how consumers, not just young consumers, not just millennial's, but right across the piece, that's the way they're going. So we've got a history of firsts in technology, as you know we were the first inter-reservation system, the first to allow booking on the web. We were the first in mobile, first with the apps across every platform. And it really is important that we continue that fundamentally about the brand experience and the guest experience.

So it sounds like those dollars are on an upward trajectory just to keep pace with what guests need and to stay ahead of the industry?

Well, I think Paul talked about the quantum and we're not changing the quantum. I think it is just directing it to effectively the appropriate place and this is spend that will yield great value to us over time.

And on EVEN, do you think you'll do more on balance sheet beyond the ones that are underway, or do you think that really shifts to more third-party developer interest?

I think it's going to be a mix of both actually, David. We've got three that we've acquired, and in total we've got five signed up now and so, the three that we've acquired, we'll put some CapEx behind renovating them and getting them open. And then we will see how it goes. We said we would put $150 million in total behind the launch of the brand and we're well on the way, getting some really good interest and we've got these hotels in great locations, which is really important.

And how big do you think HUALUXE and EVEN can be over let's say 5 or 10 years?

I think as you know, you know as well as anybody David, the profile of growth in these hotel brands, it actually -- it's the first five or seven years even that proves the case until you get to critical mass. But as we look out HUALUXE Hotels in China, and that's before we talk about it going overseas, which it will, there's more than 100 cities in China that can easily support HUALUXE over the next, say 15 to 20 years. So how many we'll have in each of those cities, don't know yet, but the level of interest has been very high with 21 signed to date.

I think with EVEN, really not specific guidance, again it's early days. But there's a lot of interest in it, not just importantly from owners, which is clearly vital for us in our business model, but also from a lot of our corporate clients who are saying this is really important, we're very concerned about the wellness and the well-being of our employees on the road and when are you going to get the first ones open. So I think we -- don't forget they're very much grounded in the research that we've done in our guest insight understanding and we just know there is a very big demand for it. So I actually feel as we look at sustaining our system growth over time on top of the very large pipeline we've got today, I think they'll play an important role.

That's great, that's helpful. One more if I can, on the Paris Hotel, is this refresh essentially a first step before a sale or are you looking to broaden the brand presence in Paris before you consider that sale?

Let me let Paul pick that one up.

Sure, David. That hotel, I'm not sure if you managed to get there yet, but it's got a fantastic primary function room called Salon Opera. And that room is a national monument in France, and the roof needs some work done to it. We've now decided to do that this year. So we won't be able to take in some of the very large groups that sometimes we put in there. So we're taking the opportunity to refurbish some of the rooms at the same time while we'll have slightly lower occupancy. We've been running such high occupancies there some of those rooms we haven't been able to refresh for a few years, so it's no more than that.

So what are your thoughts about disposition? Are you going to go back to the basic statements that this and Paris and Hong Kong you really want to have further brand distribution in those markets? You have that now in Hong Kong, so what are your thoughts on those two?

David, it's Richard, I think the additional distribution is a nice to have and that's something we're continuing to look at. But other than that you heard Paul talk about the recycling of capital as something we'll continue to do, but just the timing on those is not imminent.

Great, thank you very much.

Thanks.

Chris Jones, Telsey.

Just a quick question on regional overhead expense, you did a good job in terms of controlling that expense in the Americas, but I guess in the other regions it was quite a bit more of a challenge. How should we think about that in 2014?

Hi, Chris. We will continue to invest behind our growth market where it's justified. We want to continue growing our margin but it's not going to be at the expense of holding back growth of the business, the primary focus for us is having a sustainable business that will grow and take as much market share as we can. So in terms of how that will look over the next few years, we don't give the guidance out on that.

I think you could see how it's moved in prior years and I wouldn't expect to see us, see anything materially different from that. We control the costs pretty tightly, but equally we are happy to invest where it drives growth. Over the last 10 years we've grown our fee margin by on average 110 basis points a year. So, you can see a good track record coming through that.

And just one more. Just on China, obviously F&B has been a disappointment for you and just the overall hotel industry. Has there been any rethinking of perhaps hotel design or just sort of the overall economics of hotels in China on how you structure the deal, given that it seems to be a bit of a rebalancing in that market?

Chris, it's Richard, I think it's slightly extreme positioning of it. I think what we've had is, the government austerity measures have clearly impacted government spend and it's not just in China that we've seen that. The reality though is, if you look across Asia, across the Middle East, it's a way of life to do business and to socialize in a certain way and hotels are at the core of that. So China is in no way unique, it's very much an Asian, Middle Eastern approach to business and life. So what we've seen in China is some reduction in government business, there's no question about that, but our transient business is up double-digits in 2013 in China. And what we've demonstrated I think is because of our large-scale in China, we've just celebrated our 30th anniversary literally last weekend in China.

So we've been there longer than anybody, we're much bigger than any of our major competitors because of what we have is an upscale and luxury business, as big as Starwood which is our midscale business on top of it. So with our scale, our systems -- our revenue systems, and our processes, and our people, we are really able to go and pick up the businesses there. And I think what we've done is taken a lot of business away from others, which is why we've out performed the market to the tune of about 5 percentage points in 2013.

So, I think as we look at our brands, over time it may be that there's a slight tweak to the way we think about the business. But as of today, 40% of our revenues in Middle East and Asia is non-rooms, so it's a very big piece of our business, obviously it's management contracts so we get decent fees on that. I think overall we remain very, very confident about the long-term trends in China for all the reasons that I'm sure we've talked about before. And we have to take a long-term view of it, albeit there clearly is an impact of the austerity activity.

Fair enough. Thank you.

Pleasure.

(Operator Instructions)

Thank you, operator, that's fine if there's no more questions. That's good, thank you everybody for your time. We look forward to catching up with all of you I'm sure over the coming months. Thank you very much. We're done now, operator.

Thank you for joining today's call. You may now replace your handsets.