IHG 2018 Interim Results Presentation

Transcription

1 IHG 2018 Interim Results Presentation Tuesday, 7 th August 2018 Transcript produced by Global Lingo London

2 Welcome Catherine Dolton Head of Investor Relations, IHG Good morning everyone and welcome to IHG s 2018 Interim Results Presentation. This is Catherine Dolton, Head of Investor Relations. I am joined this morning by Keith Barr, Chief Executive Officer and Paul Edgecliffe-Johnson, Chief Financial Officer. As you can see, we are holding today s results presentation by webcast and we will be taking you through some slides over the next 30 or so minutes. You can find the link on our corporate website and on our stock exchange announcement. If you have not already, please do log on so you can follow the slides. We will not be holding a separate call for US investors today but will be making the replay of this presentation available on our website. Before I hand over to Keith and Paul I need to remind you that in the discussions today the company may make certain forward-looking statements as defined under US law. Please refer to this morning s announcement and the company s SEC filings for factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. I will now turn the call over to Keith. H Highlights Keith Barr Chief Executive Officer, IHG Thank you for joining us today. In a moment Paul will talk you through our financial performance but let me first share some quick highlights. We have delivered a strong first-half performance with our best earnings for a decade. We are driving momentum across each of our regions, which have all performed well in the half, delivering 3.7% RevPAR growth at a Group level. Together with 4.1% net rooms growth, our best for eight years, this drove underlying operating profit up 8% and underlying earnings per share up 25%. You will see that we have taken the decision to increase our ordinary dividend by 10% reflecting the strong performance as well as our confident outlook for the rest of the year. It is just over 12 months since I became CEO and first spoke about my plans to make IHG s well-established strategic model work even harder to accelerate our growth and deliver continued strong returns for our owners and shareholders. It has been an incredibly busy year and in February we announced a series of new strategic initiatives that build on our existing strategy and positions IHG to deliver industry- leading, net rooms growth over the mediumterm. These initiatives represent a meaningful change in the way that we lead and run our business. They are funded by a comprehensive efficiency programme that will realise $125m of reinvestment by the end of We have already made good progress against each strategic initiative. Our new organisational structure is being embedded and we are starting to drive some meaningful results. You will have heard me say before that our brands are at the heart of everything we do and we have moved at pace over the last 12 months to add three more to our portfolio: avid hotels in the midscale segment; Regent Hotels & Resorts in the luxury segment; and most recently voco in 2

3 the upscale segment. Whilst it is still early days we are delivering against our new strategic initiatives and are continuing to drive strong performance from our existing business in each of our regions. Paul will now spend a few minutes taking you through the details of our half-year results. I will then spend a bit of time talking through the progress we are making with our brand portfolio before we open to Q&A. H Financial Review Paul Edgecliffe-Johnson Chief financial Officer, IHG Thank you Keith, and good morning everyone. We are pleased to report a solid financial performance for the first-half with growth in all our key metrics. Before I get into the details I should remind you that our commentary focuses on our results from reportable segments. These exclude the impact of hotel cost reimbursements and the System Fund which are now reported as part of our Group results following our adoption of IFRS 15 at the beginning of this year. We set out the impact of IFRS 15 and other reporting changes at an event in April. Further information, including the event presentation and recording can be found on our website. Looking now at our performance and starting with the column on the right of the slide. Reported revenue increased 7% to $900m and operating profit increased 10% to $406m. This number did benefit from $6m of timing differences between the realisation of savings relating to our Group efficiency programme and reinvestment in growth initiatives. We continue to expect the savings to be fully reinvested on an annual basis so this $6m will reverse in the second-half. On an underlying basis, excluding $7m of individually significant liquidated damages and at constant currency, we grew revenue by 4% which translated into 8% operating profit growth. This resulted in fee margin growth of 80bps year-on-year or 170bps at constant currency. Underlying interest increased by $7m reflecting the impact of a stronger GBP on the translation of our sterling interest expense and higher USD interest rates payable on bank borrowing. Our reported tax rate fell to 23% in line with guidance predominantly due to US tax reform. The weighted average number of shares decreased by 3% as a result of a cumulative effect of the share consolidations following the special dividend payment made in May In aggregate this performance enabled us to increase our underlying earnings per share by 25% and gave the Board confidence to raise the interim dividend by 10%. Looking now at our levers of growth, we added 22,000 rooms to the system in the half. At the same time as adding these new, high quality representations of our brand, we remained focussed on removing underperforming properties, exiting 10,000 rooms. Whilst these removals were lower than in the first half of 2017, we continue to expect these to be towards the top of our 2-3% range for the full-year 2018, before trending back down again to the low end of the range over the medium-term. These additions and removals resulted in net system size growth of 4.1%, building on the acceleration we saw in 2017, when coupled with RevPAR growth of 3.7% this drove total underlying fee revenue up 5.3%. The 4,000+ rooms from Regent Hotels & Resorts and our 3

4 deal to manage a portfolio of UK hotels are not included in our first-half numbers as these transactions have recently completed and will enter our system in the third quarter. On screen now is a slide that we introduced at our 2017 full-year results presentation in February to explain our underlying performance more clearly. As a reminder, this table shows rooms available and total RevPAR growth alongside our standard metrics of year-on-year rooms growth and comparable RevPAR growth. Year-on-year rooms growth and comparable RevPAR growth are good proxies to understand how growing our net system size and revenue per open room translates into incremental fee revenue over time. However, they do not reflect several factors that impact overall in the year fee growth: the phasing of openings and removals, changes in relative branded geographic mix and the ramp-up of newly opened hotels. We have therefore again provided rooms available and total RevPAR growth as these present a much more linear relationship with fee revenues. Rooms available measures the aggregate number of rooms that are available for sale throughout the year and so reflects the phasing of hotels coming in and out of our system. Total RevPAR includes rooms that have opened or exited in the last two years and therefore reflects our change in the mix. I will now take you through our first-half performance in each of our regions in more detail starting with the Americas, where RevPAR grew 3.2% and the US was up 2.7%. In the second quarter the US was up 2.9% driven by corporate and group bookings and, as expected, with some benefit from the earlier timing of Easter. We saw continued strength in the fundamentals of the US lodging industry with record demands in 86 of the last 88 months. Looking ahead, US hotel demand drivers remain strong and this will support continued underlying RevPAR momentum in the sec ond-half. Across the industry however, reported figures will be impacted by unfavourable calendar shifts and strong comparables driven by hurricane-related demand in Underlying profit in the Americas grew 4% with fee business profits up 3%. Growt h in fee revenue from incremental rooms and RevPAR was partly offset by the impact of lower levels of liquidated damages, higher than usual legal cost and a small negative impact from previously disclosed items. We opened 9,000 rooms in the half, more than two-thirds of which were for the Holiday Inn brand family, and signed a further 20,000 rooms into our pipeline. Moving now to our Europe, Middle East, Asia and Africa region where RevPAR was up 3% at the half. Continental Europe was up almost 6% as we continue to see recovery in terror-impacted markets, partly offset by an unfavourable trade fair calendar in Germany where RevPAR was down 1%. In the UK RevPAR was marginally down with growth in the provinces being offset by decreases in London, which continued to be impacted by very strong prior year comparables. Elsewhere high supply growth continues to create a challenging trading environment in the Middle East while Japan and Australia both saw RevPAR growth of 3.5% for the half, boosted by meetings business and Commonwealth Games demand respectively. Coupled with net rooms growth of 5% this performance translated into underlying revenue growth of 1%. Underlying profit growth of 12% benefitted from $4m of savings generated by our Group efficiency programme. We opened 5,000 rooms including our 1,000 th hotel in the region and 9,000 room signings including an eight-property portfolio deal in Thailand. Finally, moving to Greater China, where we continue to outperform the industry. RevPAR in Mainland China grew over 9% with strong performance across Tier-1 to Tier-4 cities, benefitting 4

5 in particular from high levels of corporate and meetings demand. A continued improvement in trading conditions in Hong Kong and Macau led to double-digit RevPAR growth in both cities. Combined with net rooms growth of 12%, this drove underlying fee revenue growth of almost 13%. Underlying profit grew at a similar level as we continue to leverage the scale of the operational platform we have built in Greater China. We opened 7,000 rooms and we signed a further 17,000 rooms into our pipeline, our best ever performance for the half. This included a further 32 Franchise Plus hotel signings for Holiday Inn Express. This underlines the strength of our position and owner offer in Greater China and I would like to spend a couple of minutes outlining why we see such great long-term potential for IHG in this region. Recent years have seen an evolution of the landscape in Greater China with increasing urbanisation, a growing middle class and greater levels of personal wealth driving solid demand for hotel rooms across the region. Looking back a few years and IHG was adding hotels in Tier 2, 3 and 4 cities in anticipation of that demand, resulting in what was at that time a short -term supply/demand imbalance. Today, as we predicted, the picture differs dramatically. Whilst a significant number of rooms are still being added in the region, especially in Tier 2 to Tier 4 cities, demand is now significantly outpacing supply allowing our brands to drive strong RevPAR growth. We are confident that the drivers are in place for this dynamic to be sustained over the long-term. Tourism is one of just a handful of strategic economic pillars in China s latest five-year plan which sets out a broader ambition to drive GDP growth through increased consumer spending. At a market level there are a number of government -led infrastructure projects in place such as the Belt and Road Initiative, the Greater Bay Area Development and the introduction of highspeed rail links between key cities, which will support hotel demand over the long-term. When partnered with stable increases in supply this will continue to provide an environment conducive to sustained RevPAR growth. Looking at where that demand will be, we see the most significant opportunity for further growth being the upper midscale segment, which has seen rooms revenue grow at more than twice the rate of total industry revenue over the past four years. With Holiday Inn and Holiday Inn Express we have the most preferred brands in that segment and now have over 400 properties in our system and pipeline across the region. We are focused on building relationships directly with owners rather than pursuing a master franchise agreement meaning that we keep 100% of the fees generated from these properties. We have consistently invested ahead of the curve in Greater China. We were early to identify the potential to expand outside of the Tier-1 cities and we will continue to add hotels in locations where we see the greatest potential for growth. Greater China has over 100 cities with a population over 1 million people. With three-quarters of our open hotels and 90% of our pipeline in Tier-2 to Tier-4 locations, this means we are well-positioned to capture future growth in these markets. Turning now to our Group efficiency programme which we announced at our 2017 full-year results. We are making good progress and remain on track to deliver $125m of annualised savings by 2020, which will be reinvested behind our growth initiatives. We continue to expect that, on an annual basis, the delivery of these savings should match the ramp-up of spend on 5

6 new initiatives but as expected, there is some noise at the half-year with a $6m benefit from timing differences. This boosted our fee margin at the half, which was up 170bps at constant currency. We continue to expect medium-term fee margin progression to be broadly in line with our historic average of around 135bps per annum. The exceptional cash costs to achieve our savings programmes is unchanged at $200m and todate we have incurred almost $80m. We previously expected the majority of the remaining amount to be spent in 2018, but we now expect around $50m of it to be incurred in Moving on now to cash flow. Our business model continues to generate significant amounts of cash with underlying free cash flow in the first half of 2018 of $261m. This was up $57m yearon-year with $48m of exceptional cash costs in relation to the Group-wide efficiency programme offset by a significant reduction in cash tax due to a refund in respect of prior periods. In 2017 we started to spend down the surplus that had built up on the System Fund, predominantly following the introduction of the IHG Rewards Club expiry policy and the renegotiation of longterm partnership agreements. The surplus totalled $160m at year-end 2017 and has since been de-recognised under IFRS 15, but we will continue to spend down the majority of the balance for the benefit of owners in In the Group income statement for the first-half this resulted in a $12m System Fund deficit after $30m of cost relating to our Group efficiency programme. On this cash flow slide we present the System Fund results before this cost, resulting in an $18m inflow. Our gross CAPEX was covered 2.4x by our underlying operating cash flow, whilst our permanently invested and maintenance CAPEX and key money was covered 6.5x. I have talked on many occasions about our priorities for uses of cash. Our first focus is to reinvest capital to drive growth. The capital expenditure needs of the business have not changed. We continue to execute against the approach that we set out previously with gross CAPEX of $129m and net CAPEX of $111m during the first half of Maintenance and key money capital expenditure totalled $47m. Recyclable investments of $32m were marginally offset by disposal proceeds of $2m. Gross System Fund capital expenditure totalled $50m, but after $16m of System Fund depreciation and amortisation the net cash flow impact was $34m. Our medium-term guidance remains unchanged at up to $350m gross per annum and we expect our recyclable investments to even out over the medium-term, resulting in net CAPEX of $150m per annum In the short-term this type of expenditure will continue to be lumpy. Lastly, where there is further cash available which is deemed truly surplus we will return this to shareholders, as we have demonstrated over the past 15 years. This is all in the context of our commitment to an investment-grade credit rating. The best external proxy for which is net debt to EBITDA of 2.0x-2.5x. The efficiency programme we are undertaking is freeing up capacity to reinvest to drive sustained growth and we remain committed to returning surplus funds to shareholders in the future. Thank you, and I ll now hand back to Keith. 6

7 Update on Strategic Initiatives Keith Barr Chief Executive Officer, IHG Thanks Paul. In February I talked about how we would make our strategy work harder to deliver industry-leading net rooms growth. You will recognise our model on this slide, which we have evolved and fine-tuned and which maps across each of our strategic initiatives. Taking each of these briefly in turn, I will spend a little time this morning talking about how we are redeploying resources to better leverage our scale. Our loyalty programme, IHG Rewards Club, is core to our owner value proposition and we are working to build on this strong position to create a more personalised and differentiated offering. The roll-out of our cloud-based technology programme, IHG Concerto, featuring our innovative new guest reservation system is on track. We now have more than 50% of our hotels on the system and it is up and running in all brands and regions. We are planning an investor and analyst event in December to showcase the platform. Demand for our unique owner proposition, Franchise Plus, in Greater China continues to be excellent. More than 100 Holiday Inn Express hotels have signed up to this model with 15 already open. Where I want to focus most of my attention today however, is on the fifth element of the wheel, the work we have been doing to strengthen our preferred portfolio of brands. Before that though I would like to spend a couple of minutes talking through some of the structural changes we have made to make sure that the shape of the business better supports our growth plans while freeing up capacity for reinvestment in our new initiatives. Back in September we announced several c hanges to our organisational design which became effective on 1 st January this year and which we have already started to benefit from. Firstly, we brought together two of our regional divisions, Europe and Asia, Middle East & Africa, whilst keeping the Americas and the Greater China regions largely unchanged. This structure is allowing us to focus on those markets that matter most whilst leveraging best practice and our scale to drive growth. It is already making a difference. We drove signings up 46% year-onyear in the half. These signings, combined with our existing pipeline, places us in a strong position to realise our medium-term net rooms growth ambition. We also created a new integrated commercial and technology organisation, bringing together our sales, channels, revenue management and technology capabilities. This more efficient structure is freeing-up funding capacity and is allowing us to bring new products to market more quickly. Our new global marketing organisation is strengthening our brand, loyalty and marketing capabilities to drive greater agility and efficiencies. They are also empowering our new global brand leadership team and enabling a shared service model that makes the most of our scale benefit. These changes are improving the efficiency of our marketing spend, increasing the impact of our marketing initiatives and allowing us to better leverage technology and data to drive even stronger performance. The changes that we have made have also enabled us to move quickly to conceptualise, develop and bring to market two new brands in the space of 12 months as well as buying a third. Under our new global marketing organisation structure we have consolidated decision-making authority within each of three brand categories: mainstream, upscale and luxury. Each brand 7

8 category now has one leader who is responsible for all aspects of brand performance, including positioning, pricing, investment priorities and driving continued innovation to accelerate growth. Today I will focus on recent developments for Holiday Inn Express and Kimpton. In the first half of 2018 we have made good progress with our ongoing programme to refresh Holiday Inn Express, rolling out our new guest room designs in the US, Canada, Europe and most recently in Greater China. As you can see from the picture on the screen now the difference this programme makes as we move from the old to the new designs. As at the end of June these new guest rooms were in more than 1,300 open and pipeline hotels. Breakfast is a key differentiator in the limited service space and our new Holiday Inn Express solution provides higher quality food options for our guests at a better cost for our owners. Building on the success we had in the UK last year when we rolled out our new breakfast offering across the entire estate, we are now making significant progress with the rollout of this new offering in the US. You can see the difference these changes are making as we move again from the old design to the new one. We are aiming for this new concept to be in place in around 70% of our Holiday Inn Express hotels by the end of the year. Moving on now to Kimpton Hotels & Restaurants will be a pivotal year for the global expansion of the brand. The deal to manage a portfolio of hotels in the UK that we announced in May and completed two weeks ago makes IHG the largest luxury operator in one of our most important markets and has secured Kimpton representation in London, Manchester, Edinburgh and Glasgow. We are also seeing strong traction for Kimpton in other markets with our first opening in Toronto, signings in Mexico City, Shanghai and Frankfurt and numerous deals in advanced stages of negotiation in other global gateway cities. Moving on now to our work to augment our portfolio with new brands. I have previously talked about the approach we take to assessing new brand opportunities. By focusing on high value markets where we can create scale positions and by developing a differentiated guest and owner offer we can determine the optimum positioning for a new brand. This highly-targeted, rigorous and insights-driven approach has guided our decision-making for avid, voco and Regent. Let s start with avid, launched just under one year ago and targeted at the US midscale segment, it is by no means an exaggeration to say that owner reaction to avid hotels has been phenomenal. We knew that there was a significant opportunity in the segment which is worth more than $20bn per annum but with 130 deals signed into our pipeline to-date, including 82 in the first half of this year, we are already far ahead of our initial expectations and are well on track for avid to be our next brand of scale. The strong signings pace achieved to-date has benefitted from the pent-up demand that we created for the brand in advance of its launch. It is likely that this will moderate somewhat as we begin to move to a more mature run rate. The first avid hotel is on track to open in Oklahoma City in a matter of weeks. If you go to the results section of our corporate website you can find a great time-lapse video that shows how this owner has been able to go from ground break to opening in less than 12 months. This remarkable pace is due in part to the owner s close involvement with the brand development process which has enabled him to bring his property to pre-opening far ahead of schedule. The next avid opening is planned for the second quarter of 2019 with more expected as the year progresses. 8

9 Moving now to our new upscale brand, voco. Meaning to invite or to come together in Latin, voco was launched in June and is designed to tap into the significant opportunity to attract owners of high quality upscale hotels that are not yet part of a major chain. We have had great feedback from our owners, particularly those who want high quality, low cost revenue generation but may find that they just cannot justify investing in a conversion to a more traditional upscale brand. For these owners voco is sympathetic to a wide range of asset types and designed to work with a higher percentage of leisure and locally-driven business than our other upscale brands. For guests, voco offers a reliably different hotel stay with the quality and reassurance of a big brand but the informality and spirit of an individual hotel. This brand promise is achieved through three specific guest moments. A welcome that creates a sense of place and highlights the individual identity of each property, a sleep experience that is both familiar and luxurious, and a food and beverage offering that creates a social hub within the hotel at all times of day. These service hallmarks bring consistency to the guest experience whilst allowing us to leverage the difference of each individual property. With four hotels added from the UK portfolio deal and a further three signed to-date, plus more than 20 active deals under discussion, we are really pleased that voco is off to such a strong start. We are confident that it can grow to more than 200 hotels over the next ten years. Moving on now to the luxury segment. In February I talked about the significant opportunity we see to round out our portfolio in the fast-growing luxury segment and add other brands at a slightly higher price point, building on our strong credentials in luxury with InterContinental Hotels & Resorts. A more comprehensive luxury proposition will provide numerous halo benefits, including strengthening our loyalty offer, attracting more B2B customers and broadening the owner base we can work with. In March we announced the acquisition of a majority stake in Regent Hotels & Resorts, which completed last month. Regent has an unrivalled heritage at the top-end of the luxury segment and was one of the pioneers in defining luxury hotels, both in Asia and around the world. Whilst the brand is now smaller than in its heyday, the six Regent Hotels that have now entered our system include some fantastic properties such as the Regent Taipei, the Regent Porto Montenegro and the Regent Chongqing. Regent is an excellent addition to our portfolio and we see a real opportunity to unlock the brand s enormous potential and grow it to more than 40 hotels over the long-term with multiple new sites already under discussion in key gateway cities and resorts. We have also announced the return of the InterContinental Hong Kong to the Regent brand in 2021 following a major renovation programme. As a former CEO of the Greater China region I have a real affection for this hotel. It originally opened as a Regent in 1980 and was one of the most iconic properties to ever carry the brand name. I have no doubt that its return to Regent will be a catalyst for the brand s growth in Greater China, Asia and around the world. So, to sum it up, we have had a strong first-half. We are seeing good momentum across each of our regions in terms of RevPAR and rooms growth. We have signed rooms into our pipeline at the fastest rate since We are executing our plans to implement and deliver on our strategic initiatives and our Group-wide efficiency programme is on track to deliver $125m of savings by 2020 to be reinvested to accelerate growth. We are confident that these changes 9

10 will allow us to deliver on our ambition to accelerate net rooms growth to industry-leading levels in the medium-term and we remain positive in the outlook for the sec ond half of With that, Paul and I are happy to take your questions. Q&A Jamie Rollo (Morgan Stanley): First, can we go back to slide 8 where you have helpfully broken down the components of the fee income growth? I can see the 1.2pp difference between comparable and total RevPAR and you explained that well. There is also a similar gap between the rooms growth contribution. Could you please explain a bit about that because in total there is still about a 2.5pp difference between the fee income growth and the sum of comparable RevPAR and net rooms growth? Secondly, could you please give us a feeling for when you think you will get to the 6%-ish level of industry net rooms growth because in the first-half your openings actually fell and you are guiding to higher removals in the year? Assuming you do not include Regent or Principal, could this year be nearer the 4% than the 5%+ level? Then finally on the outlook for slower RevPAR growth in the second-half. Is that just these calendar effects and hurricane benefit of last year or do you think the underlying picture is a bit slower as well? Thanks. Keith Barr: I will start with the RevPAR growth commentary. I think if you look at the US performance we saw an acceleration in Q2, the 2.9% based upon strengthening GDP growth, so a solid first-half. You have got solid fundamentals in the United States. When you look at GDP growth, muted supply growth, slightly under 2% or around 2%, the impact of the tax changes, record low unemployment, really strong fundamentals in the United States to drive that business forward. However, the industry does face tougher comparables in the secondhalf. You have got the shift of some holidays. You have got the religious observances falling at different times during the week and of course the hurricane impact in the second-half of the year where you had hundreds of thousands of people displaced in the Southern US which created abnormal demand too. Tough comparables for the industry in the second-half but we remain very confident in our performance going forward that we can continue to grow our business. Paul Edgecliffe-Johnson: Jamie, as you know, we started putting this information out because I think it is helpful for people to see what the underlying drivers are because we are opening up a lot of rooms in developing markets still where RevPARs are lower so you have got some mix impacts coming in. When you open up a room obviously it depends on what the contribution it is going to make is but hopefully this gives a closer proxy to the underlying growth. There are always some other factors that will come in and create a little bit of noise in how it translates through into the absolute fee growth. This year one of the things you would have to take into account is the Crowne Plaza Accelerate discount which we have talked about, which were there last year and you get them this year. The reduction in the Americas liquidated damages which are coming through as well. These are other factors that influence but hopefully you can see what is driving the totality there. In terms of the net rooms growth we are pleased with the step-up that we have seen, very much in line with what we are aspiring to in terms of getting to the industry-leading level of net 10

11 rooms growth. Our acquisitions of Regent and the Principal acquisition they closed just after the end of the second quarter so if you map those into first quarter where the work was really done that would take us up to 4.7% net rooms growth. Obviously they will come into third quarter so that will translate through but we are really pleased with both what we are seeing in terms of openings coming through but also, and really importantly, in terms of the number of signings that we are seeing, up 46% year-on-year at 46,000. That augers really well for our long-term growth because it is storing up a real bank of rooms that will open up over the next few years. Jamie Rollo: I get the point about the long-term growth but on this year specifically, I am sure you will not be including the two deals in these organic system growth. Is this going to be a year of step-up or is this a year that is going to be similar to last year, given removals are going to go up? Also on the Americas LDs I do not recall you separating those out last year. What exactly do those refer to? Which hotels have been lost please? Paul Edgecliffe-Johnson: In terms of the liquidated damages we do not pull out exactly which hotels. What it is, is that normally you will have some relatively small hotels in the Americas that will pay us. We have actually had a lower level than usual than we did last year in the Americas. In many ways it is a good thing. Those hotels are continuing to pay us fees but then you are not getting the liquidated damages coming through in the revenues. In terms of the net rooms growth, on an organic basis excluding any deals that we might choose to do, yes, we do expect to see a step-up. To exactly what level, let us wait and see, but certainly the momentum is good. There are a lot of rooms getting ready to open up and then there will be a boost from the Regent deal and the Principal deal so we would expect to see a step-up on Jarrod Castle (UBS): Good morning gentlemen, three as well. One, some good interim dividend growth, up 10%, but adjusted EPS up 25%. I was wondering if there could be some catch-up in the dividend growth at the end of the year, should EPS continue to grow at a rate higher than your pay-out. Two, in terms of signings clearly you are ramping up. Is there a level where you turn things away in terms of the ability of the organisation to cope in terms of how quickly you grow the pipeline? Then lastly on the GRS. Any update in terms of how the benefits are coming through. It seems to be halfway through now. Thanks. Keith Barr: In terms of GRS, we are really excited about the progress we are making. Over 50% of the estate now are on GRS, all brands, all markets. We look forward to completing GRS by the end of 2018, early 2019 and then sun setting Holidex. In the first phase of GRS we have seen benefits from the operational side. Owner feedback has been fantastic in terms of it being a more user-friendly, more intuitive system. We did not model any RevPAR benefits into version 1.0 because it is principally a like-for-like replacement with some enhanced functionality here or there versus Holidex. We see the real revenue benefit coming from the future updates in versions 2.0, 2.1, 2.2. Again, very pleased with where we are at and getting great feedback from our owners. 11

12 In terms of ramping up, one of our core focuses is how do we accelerate our growth as a business to industry-leading net system size growth? That is going to come from a couple of things. One was bringing in new brands, either launching them or acquiring brands intelligently to round out our portfolio. We have shown I think good progress against that in the last about 6-9 months. Your question about do we turn things away. I think we do turn some signings away. We always do because if it is not with the right brand, with the right owner, right location, right market, there is always more hotels we could sign. However, that is more a strategic decision than a capability decision. The efficiency programme we have created is freeing up capacity to reinvest to strengthen our enterprise so that is about launching new brands but it is also going into, how do we open hotels faster? How do we move quicker from signing to ground break? How do we again make the machine work harder to drive that growth? There is nothing holding us back from a capacity standpoint from the signings. It is much more of us being thoughtful about how we build out a brand portfolio that is sustainable for the long-term and not just making a dash for growth. Paul Edgecliffe-Johnson: Jarrod, in respect of the dividend we are not slavish in terms of saying if the earnings per share are up 25% then the dividend has to go up 25%. Hopefully an increase of 10% will be seen as appropriately generous given the growth in the business. Of course, we also have returns of funds to shareholders via special dividends which the strategy has not changed on. Obviously today we said at the prelims that we will not be paying one during 2018 but our strategy remains exactly the same. As and when we have surplus funds available then a special dividend will get declared and that will be returned to shareholders by that mechanic. Richard Clarke (AB Bernstein): Slide 39 you have broken down the fee margin by the different regions and there are some quite different trends there. It looks like Americas fee margin is actually down a little bit year-on-year whereas you have got a big growth in EMEAA, if I have got all the Es and As right there. Perhaps you could talk to why you are seeing such a variation trend there. Second one, Crowne Plaza with the fee holidays plus the money you put in the Accelerate programme you have thrown quite a lot of money at them over the last year. The pipeline in the US is still looking pretty small. I think it is nine hotels at the moment in the pipeline. Are you still confident that is money well-spent and you are going to see some acceleration there? Then lastly on the closures, you talk about closing some of the underperforming hotels. Could you give any sense of what benefit that has given to RevPAR? Your peers are still slightly outperforming you despite the fact you are closing a lot of these underperforming hotels. Would you expect that that strategy should result in outperformance in the long-term? Keith Barr: We talked about Crowne Plaza Accelerate being a long-term journey for us and we are pleased with the progress we have made. We have seen about a 90% adoption of the essentials, which are the core components of the programme, in the Americas portfolio. We have got new guest rooms being deployed. We have got some new public areas being deployed. We did focus on both utilisation of capital to retain key assets and have some fee discounts in order to incentivise owners to move down the journey, to reinvest into the hotels in the US. We have seen rising customer satisfaction. We have seen growing RevPAR in the US. The pipeline is growing but small. However, we have opened up some fantastic hotels, most 12

13 recently in New York City, an incredible Crowne Plaza that is performing exceptionally well. I think every single one of those is a proof point about where Crowne Plaza is headed. Are we where we want to be today in the US? No, but we are making progress on the journey. We are seeing again great performance outside of the US with growing signings and great positioning in Greater China as well too. Again, we are seeing Holiday Inn signings continue to go up as well. It is a really solid performance across our brands. We are seeing Holiday Inn continue to grow. We are seeing Crowne Plaza continue to grow. New brand but it will be a journey for Crowne Plaza. It is our best signings in ten years. 4,000 rooms, about 3,500 of those are in Greater China. We are excited about that progress but we will be talking about the Crowne Plaza journey for the next few years. It is not done and so we are not trying to say anything other than we are making good progress. Paul Edgecliffe-Johnson: Similarly, we will continue to be talking about our journey on exits over the next few years. As you know, we do see potential to move the number of exits down from around the top-end of our 3% range down to around 2% over the coming years. In terms of what the competitors are doing, you may have seen last night the Marriott said they are going to be running at around 2% deletion so exits out of their system for similar reasons to us. I think this will actually normalise. I suspect that most competitors over the long run will realise that you need to take out on average hotels every 50 years. That is what 2% removals means. We continue to run at a very high level of gross openings and that gives us some capacity to take out hotels in locations where we think we can replace with a better product. In terms of what it does to your numbers, that is really hard to track through, if I am honest Richard. I would not try and do that and give you a specific margin or RevPAR benefit t racking through precisely to that. In terms of fee margins by region I said at the prelims this is going to get a bit noisy with the savings that we are making and a few of the other factors that we have pulled out. In the Americas you have got the Crowne Plaza Accelerate discounts and the lower level of liquidated damages which is impacting on your revenues. Then in terms of the costs you have got the impact of the US healthcare not being in surplus, which it was in 2017, and a higher level of legal costs. Those all impact. Then in Europe, Middle East and Africa you have got the timing of the savings coming through. What I would step back from in terms of all of that is say that over an extended period of time we have been able to increase our margins by on average 135bps a year and that is still my aspiration and expectation. This year in the first-half we are up 170bps at constant currency and whether we get to exactly 135bps for the full-year 2018, let us see. There is a lot of moving parts in that but I do not think the trend changes. Monique Pollard (Citi Group): Firstly, in terms of the US RevPAR growth, to understand the point that the 4Q comps get hard because of the hurricane, but are we seeing any underlying pickup in those oil regions anyway that could to some extent offset those tougher comps? Then on the voco signing you mentioned over 20 deals under discussion, in terms of your plans and what you had expected at this point are you happy? Are they going better than expected or in line with expectations there? Then finally on China, obviously you make the point that long-term trends are all good and we have seen very strong RevPAR growth from China in the first half of the year. In terms of 13

14 current trading how is that tracking because obviously we do get those stronger comps coming in in China for the second-half? Keith Barr: In terms of US RevPAR growth the second half of the year we talked about the industry has tougher comparables for all the reasons we have previously mentioned. We have seen some definite pickup in the oil markets. As you have seen, the oil prices move up, you see rig counts move. Those will definitely have the ability to offset some level of the impact of the hurricanes. There are so many puts and calls in the second half of the year around that timeframe so it is really difficult to pin it down and say when the hurricane effects will completely taper off and what will the rig counts move but it is a reasonable assumption that there is some positive impact from oil. However, it is really pretty hard to quantify it right now too. In terms of voco it is in line with expectations. We did a great event here in London, went out to the market with it and that was in May effectively. We are effectively selling it in June, getting out to the market, really talking to owners and already having three hotels sign. I spoke to the demand we have created. We have got a number of other properties in discussion, 20 right now, so that is a nice pace to have considering it is a new brand. We expect to have an increase in acceleration of signings as the year goes on and achieve the long-term positioning we said of a couple of hundred hotels too. Again, very confident with voco with where we are at and we will give you more updates in the full-year results. Paul Edgecliffe-Johnson: In terms of China, Monique, we are really pleased with how the China business is progressing. What we expected would come to pass in terms of the RevPAR, growth in terms of the signings, in terms of the net rooms growth all coming through very well. We have built now the level of infrastructure that we need over there so we are also now starting to see it coming through to the operating profit line over the last couple of years which again is very pleasing. In terms of current trading about 85% of our business in Greater China is mainland China so that is the tier-1 cities which is about 35%. The tier-2 to tier-4 is about 50%. Mainland tier-1 is a little stronger, around 10% but the tier-2 to tier-4 cities are around 8% as well. This is very strong demand, just enough supply coming through so that we can add more hotels but it is slowing down a little. Then in Hong Kong and Macau that is the icing on the cake, if you like. Macau almost 20%, a relatively small part of our business over there, only about 5%, but it does add in. Across the whole of the Greater China region we are seeing very strong demand for our preferred brands and continued very strong industry outperformance. Jaafar Mestari (Exane BNP Paribas): The first one is on avid hotels where it looks like you signed around 3,000 rooms in Q2, which is a bit below the 4,000 of each of the two previous quarters, so you are not signing one hotel every two days anymore. You talked about pent-up demand. Was there that much of a champagne effect in the very first two quarters and is the pace moderating already? Or is it just a wobble and can you make it to 15,000 or maybe 20,000 rooms in the pipeline by the end of the year? Then a more general question on new brands. voco is very clearly targeted at owners who you may not have interacted with before and are not part of a chain. The other new brands and concepts or models, avid, Regent, Holiday Inn Express Franchise Plus, I am curious where are these signings and potential signings coming from, from these new brands and models? Are you mostly adding properties with owners that you already talked to or have you unlocked completely new pools of owners with these new offers? 14

15 Keith Barr: In terms of avid, I do not think we could be more delighted with where we are at in terms of signings. If you had asked me when we launched the brand, would we have 130 signed to-date and 80+ in the first-half, I would have said I did not think we could do that. We did build up phenomenal demand. What we ended up doing was launching at our owners conference in the US and talking about what we were doing and that did create that pent-up demand which has come to fruition. We are going to see that normalise and what that normalise looks at we will see over time but we did not think we were going to be signing as many of these to-date and no one historically signs hotels at this pace. It is a record-breaking launch for a hotel brand. Again, we said that will normalise over time and I think you will see some solid results for the rest of this year. The other brands, when you talk about where they are coming from, voco targeting conversion of existing assets and so forth. avid hotels, 75% of the deals we have signed for avid are coming from existing owners so that is fantastic for us. It is strengthening our relationships. However, in markets mostly where we already have a Holiday Inn Express so it is not cannibalising Express. It shows the additive effect of a new product targeted at the right segment with our ownership base too. That is why we can get such traction and leverage. Regent is a mix, I would say. We are actually seeing owners who we have not worked with in the past because we have not had a product at that price point come to us, which is very exciting. We also have some of our existing owners who have not been able to work with us because they already had an InterContinental in that market who wanted to do a deal coming to us as well too. We are benefitting from both our existing base and a new set of owners overall too. Again, I think both of those show the importance of strategically underst anding your brand portfolio. When you get the product right how it leverages the existing relationships and strength within IHG too. I think we are well-positioned on all those brand launches to see us build a pipeline but thoughtfully around each one. Tim Barrett (Numis): I am interested in the $125m cost programme and your comments around synchronisation of that. Are you definitely going to spend that $6m in the second-half? In terms of potential to exceed the $125m, is there any potential and could you see some dropthrough of that? Second question, you have been very clear in terms of outlook for the second-half. Logically do those one-offs mean that 2019 could be better than the second half of this year? How are you feeling about next year? Thanks a lot. Paul Edgecliffe-Johnson: I said at the prelims back in February that it was going to be a bit noisy and I would have preferred to have spent the $6m that it banked, if you like, in the firsthalf behind growth projects. However, it is difficult to time the ramp-up of new investment spend and the money that we saved and get it exactly into the same quarter. If I can then we will get it out of the door in the second half of the year but only on projects obviously that have good returns to the shareholders. If those projects are not ready to be invested in then the money will not go out. There is certainly a scenario where there will be some benefit but again if those projects are well-developed so that would then not be a permanent saving we would then spend that money in What I will do if that is the case at the full-year is I will come back and identify it as I have at the half-year so it is really clear what is the underlying permanent EBIT and what we are going to continue to invest into the business to drive the long-term. 15