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IHG Interim Results Presentation

IHG Interim Results Presentation. 22 nd August 2006. Agenda. Operating Review. Interim Results. Overview. Q & A. Strong performance in H1 2006. Overview. Business performing strongly: Total gross revenue up 14% to £4.1bn RevPAR outperformance in all key profit generators

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IHG Interim Results Presentation

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  1. IHGInterim Results Presentation 22nd August 2006

  2. Agenda Operating Review InterimResults Overview Q & A

  3. Strong performance in H1 2006 Overview • Business performing strongly: • Total gross revenue up 14% to £4.1bn • RevPAR outperformance in all key profit generators • 11.2% global RevPAR growth • Continuing revenue up 16%*: continuing EBIT up 30%* • Interim dividend increased by 11% to 5.1p per share Note: Total gross revenue is defined as total room revenue from franchise hotels and total revenue from managed, owned and leased hotels. It is NOT revenue attributable to IHG, deriving as it does from hotels owned by 3rd parties. We highlight the metric as an indication of the scale and reach of our brands. * Before other operating income and expenses

  4. Hotel industry remains buoyant Overview • Low supply growth, high demand growth • US room night demand + 3.6% last 12 months • US room supply +0.5% last 12 months • 2007 and 2008 industry forecasts suggest continued growth in US • RevPAR +6% per annum. • Industry revenue + 8% per annum • Long term drivers remain favourable • 3.3% CAGR global GDP growth 2006-10 • Doubling of US travel and tourism spend forecast by 2015 • Increase in global internet users from 870m in 2005 to 1.4bn by 2010 • Growth in low cost airlines and new sources of travellers, including China Source: Smith Travel Research; GTN; Deloittes

  5. Overview Strong performance in H1 2006 • Business performing strongly: • Total gross revenue up 14% • RevPAR outperformance in all key profit generators • 11.2% global RevPAR growth • Continuing revenue up 16%*: continuing EBIT up 30%* • Interim dividend increased by 11% to 5.1p per share • Further asset disposals: • Sales proceeds of £680m; £3.0bn of hotels now sold • 90% of hotels sold successfully converted to managed or franchised • Long term EBIT stream of over £30m per annum created • Progress on growth strategy: • Room count up 3,469 - up at least 10k by year end 2006 • 41k rooms signed; pipeline now 130k rooms, 1,028 hotels, up 20% Note: Total gross revenue is defined as total room revenue from franchise hotels and total revenue from managed, owned and leased hotels. It is NOT revenue attributable to IHG, deriving as it does from hotels owned by 3rd parties. We highlight the metric as an indication of the scale and reach of our brands. * Before other operating income and expenses

  6. Agenda Operating Review InterimResults Overview Q & A

  7. Interim Results Financial Highlights • Total gross revenue* up 14% to £4.1bn • Total EBIT** of £127m • Continuing EBIT** up 30% to £107m • Adjusted continuing earnings per share*** up 132% to 19.0p • Interim dividend increased 11% to 5.1p per share *Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands ** Up 25% at constant exchange rate *** Before other operating items and expenses

  8. Interim Results Total Group results impacted by asset sales *Before other operating items and expenses Excludes results of Britvic, disposed in December 2005.

  9. Interim Results Excellent growth in the continuing business * Before other operating income and expenses

  10. Interim Results Strong regional continuing operating profit growth * Before other operating income and expenses ** CER is constant exchange rate, translated at constant H1 2005 exchange rates

  11. 88% of EBIT* now recurring fee income Geographic EBIT* 70% from Americas 11% from Asia 19% from EMEA Interim Results Owned and leased** Franchised Managed Improving business mix * Pre regional and central overheads ** 2005 and 2006 owned and leased adjusted fro closure of InterContinental London Park Lane

  12. Interim Results Hotel franchising –high margin fee growth continues Total gross revenue £bn* (rooms only) Drivers of gross revenue change, % 2.5 H1’06 vs H1’05 83% 17% 2.2 H1’05 (1%) H1’05 vs H1’04 101% 2.0 Avail. Rooms RevPAR Franchise fees £m Franchise EBIT £m (margin%) 135 117 (87%) 117** 100 (85%)** 111 92 (83%) Note: based on constant USD:GBP translation rate of 1.80 *Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands **Adjusted for one-off £7m liquidated damages receipt in the first half of 2005

  13. Interim Results Hotel management -operating profit growth continues Total gross revenue £bn* (total hotel) Drivers of gross revenue change, % 1.4 10% 24% 66% H1’06 vs H1’05 1.1 H1’05 (7%) 36% 14% 57% H1’05 vs H1’04 1.0 Transfers from owned Avail. Rooms RevPAR F&B Managed EBIT £m (margin%) Management fees £m 39 (61%) 64 46 29 (63%) 41 23 (56%) * Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands Note 1: Total Gross Revenue based on constant USD:GBP translation rate of 1.80 Note 2: Hotel management fees and EBIT exclude the results of leased properties

  14. Interim Results Continuing owned and leased estate –growing margins O&L revenues £m Drivers of revenue change, % 159 adjusted** 144 44% 36% 20% H1’06 vs H1’05 144 adjusted** 141 H1’05 vs H1’04 50% 13% 38% 121 Rate Occupancy F&B O&L EBITDA (pre overheads) £m O&L EBIT (pre overheads) £m (margin%) 22 adjusted** (14%) 37 adjusted** 31 20 (11%) 15 (11%) 29 adjusted** 14 adjusted**(10%) 21 (12%) 10 (7%) 25 6 (5%) 20 1 (1%) Note: based on constant USD:GBP translation rate of 1.80 ** Adjusted by substituting InterContinental London's H1 ’05 and H1’06 results for its H1’04 result , to reflect its closure for refurbishment in 2005

  15. Interim Results Total Group operating cash flow * Before other operating income and expenses and results of the Soft Drinks business, disposed in December 2005

  16. Interim Results Significant free cash flow generated * Before other operating income and expenses

  17. Interim Results Investment for future growth • Total capital expenditure in first half of £46m • Maintenance of retained assets and operating systems: • £22m spent in the first half • £4m continuing hotels, £6m sold hotels, £12m non hotel • Refurbishment of retained owned and leased assets: • £21m spent in the first half, £17m on InterContinental London Park Lane • Expectations for the full year remain unchanged • Maintenance and refurbishment £130m; growth investment £50m • 2007 will see lower maintenance capital expenditure and near elimination of refurbishment expenditure

  18. Interim Results Asset disposal programme

  19. Interim Results Returns to shareholders on target

  20. Interim Results Further returns of capital • Net debt at half year of £320m • £174m still to be returned to shareholders at 30 June 2006 • £68m remaining at 22 August 2006 • In excess of £400m further disposal proceeds this year • Further returns will be made to shareholders

  21. Interim Results Financial Highlights • Total gross revenue* up 14% to £4.1bn • Total EBIT of £127m • Continuing EBIT up 30% to £107m • Adjusted continuing earnings per share** up 132% to 19.0p • Interim dividend up 11% to 5.1p per share *Total gross revenue is defined as total room revenue from franchise hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, derived as it is from hotels owned by third parties. We highlight the metric as an indicator of the scale and reach of our brands ** Before special items

  22. Agenda Operating Review InterimResults Overview Q & A

  23. Operating review RevPAR outperformance in all key profit generators H1’06 RevPAR change, IHG key profit generators v segment Source: Smith Travel Research; Deloittes

  24. Operating review Growth in system contribution attracts owners Total Gross Revenue £4.1bn, +14% Enhanced reservation channel and loyalty club room night delivery 47.7%% 42.6% 34.1% 32.1% Channels Channels PCR PCR

  25. Operating review Goal Target Strategy Priorities IHG Journey Faster growth bymaking IHG’s brandsthe first-choice forguests and hotel owners By end 2008: Net, organic growth of 50,000 - 60,000 rooms Build the industry’s strongest operating system focused on the biggest markets and segments where scale really counts • Brand performance • Excellent hotel returns • Market scale/knowledge • Aligned organisation

  26. Operating review Driving performance Improved organisational structure Strengthened management capabilities Innovation in operating system and IT Organisation focused on common targets and priorities Added more developers signing new deals Refocused sales and marketing activities Increased infrastructure in China Deepened brand analysis and insight

  27. Operating review Growth in room count gaining momentum Room count change during H1 2006, ‘000 548 2006 year end forecast

  28. Represents 1,028 hotels 85% of pipeline is "new build" 40% of pipeline already under construction c. 80% of current pipeline expected to open by end 2008 All brands and geographies well represented Operating review Pipeline now 130,100 rooms

  29. Operating review Americas Holiday Inn 25.000 20.000 15.000 Rooms 10.000 5.000 - Dec'02 Jun'03 Dec'03 Jun'04 Dec'04 Jun'05 Dec'05 June'06 Holiday Inn Holiday Inn Express InterContinental Crowne Plaza Candlewood Staybridge Suites Indigo All brands growing pipeline around the world Global IHG Pipeline Rooms

  30. Operating review Growing our market share Pipeline share US new build versus current market share * Source: STR/Dodge construction pipeline Note: Candlewood Suites and Staybridge Suites share of midscale and upscale extended stay respectively * Crowne Plaza has a 34% conversion market share

  31. Operating review Revenue growth 6% CAGR RevPAR growth 4% CAGR US industry revenue growth outstrips RevPAR Source: STR

  32. Operating review USA China Japan Other Industry growth across key markets and segments Current global room distribution by segment Forecast global room growth by segment, 2005-10 Rooms (Millions) Rooms ('000s) Source: IHG estimates Note: growth across top 20 global markets

  33. Operating review E-concierge Revised brand positioning for InterContinental • Previous demographic • Tended to be older (>55) • “Empty nesters” • Conservative and traditional • "In the know" demographic • Aged 35-54 • Young family; holiday at resorts • Seek authentic and enriching experiences

  34. Operating review CNN sponsorship Aston Martin racing sponsorship New marketing focus "In the know" campaign

  35. Operating review InterContinental Atlanta 18 Leadership Sessions 420 Management Sessions All 140 GMs Trained 1,800 Employee Sessions • Launched 2004 • 78% occupancy 2006 ytd • June 2006: highest RevPAR in market • 6 InterContinentals signed in US in 18 months post opening Atlanta 40,000 Hotel Employees Attending 24 Languages Delivering the brand experience

  36. Operating review 5 new InterContinentals opened around the world Mar Menor Bora Bora Kansas City Panama Baltimore

  37. Operating review InterContinental brand performance improving InterContinental Total Gross Revenue H1` 2006 EMEA +11% Asia Pacific +11% Americas +10% InterContinental System and Pipeline Hotels RevPAR growth outperformance versus global luxury segment 2005 +2.2% outperformance H1 2006 +3.4% outperformance System Pipeline

  38. Operating review

  39. Operating review New marketing approach

  40. Operating review New marketing approach

  41. Operating review New marketing approach

  42. Operating review Holiday Inn Prototype opened US Holiday Inn Prototype Americas Holiday Inn signings 2003-2006 Holiday Inn Prototype, opened 2004 Rooms • Launched 2004 • 13 Prototypes now open • Already at a 7% RevPAR premium* • 131 Prototypes under development * Premium to IHG's Holiday Inn estate

  43. Operating review Hotel indigo launched 2004

  44. Operating review Right brand positioning, right product Indigo Gold Coast Hotel Indigo, Houston

  45. Operating review Open (4) Pipeline – under construction (6) Pipeline (11) In final negotiation (11) Strong Development Pipeline Total of 21 hotels in less than two years

  46. Operating review Delivering against our targets

  47. Agenda Operating Review InterimResults Overview Q & A

  48. IHGInterim Results Presentation 22nd August 2006

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