The China Opportunity Keith Barr Hotel Indigo, Shanghai on the Bund 1
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Greater China in the context of IHG 9mth 2012 Operating profit* Q3 12 open rooms Q3 12 pipeline rooms 9% 9% 31% 91% 91% 69% Greater China Rest of IHG * 9 month 2012 operating profit at constant currency and before central overheads 3
China s hotel market is expected to overtake the U.S. by 2025 Projected industry room supply for China Million rooms 10 9 8 7 6.1 7.5 9.1 7.8 China USA 6 5 4 4.9 6.7 By 2039 China s room supply will be: 3 4x the size it is today 2 1 2.3 Almost 2x the size of the US market today 0 12.1% CAGR 4.9% CAGR Source: NBS; United Nations World Travel Organization (UNWTO); IHG 4
Luxury / upper upscale / upscale is growing fast while midscale remains sizeable 2010 No. of rooms = 2.3m 2020 (likely) No. of rooms = 4.8m 2039 (likely) No. of rooms = 9.1m Luxury / Upper Upscale / Upscale Midscale Economy Source: NBS; China Economy Hotel Survey, IHG 5
Significant opportunity for upscale / midscale branded players China branded¹ rooms share growth Other markets branded¹ rooms share Branded Unbranded 2010 2020 2030 20% 35% 48% US = 70% UK = 60% Continental Europe = 40% IHG share of China branded¹ rooms Q1 2012 10% IHG share China branded rooms All China branded rooms ¹ Branded market defined as operators with more than ten outlets(ihg research) or based on STR Global s classification scheme.. Source: China Statistical Yearbook; China Economy Hotel Survey; STR Global; IHG 6
IHG is well established as the leading international hotel operator IHG System Size and Pipeline by Brand, rooms ( 000) 120 110 100 90 80 Pipeline 70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q3'12 Source: IHG 7
IHG will continue to be the leading global hotel operator in China 120 Greater China system & pipeline 100 System Pipeline 80 No of rooms 000 60 40 20 0 IHG Wyndham Accor Starwood Marriott Shangri La Hyatt Hilton Source: IHG 30 September 2012; other data is STR Global 30 September 2012 8
Industry leading upscale & midscale distribution 100 No of rooms 000 80 60 40 Pipeline System 57% 86% 20 0 Source: IHG 30 September 2012 9
Our pipeline is not only large, but robust IHG Greater China pipeline by Construction Phase (total number of hotels) 37 75 160 48 Source: IHG 30 Sept 2012 Pre-Construction Under Construction Pre Opening Total 10
Sustainable growth strategy high quality growth Aligned with go west development plans Clear, focused development strategy Presence* in 100 cities including Targeting emerging middle class Tier 2 and Tier 3 cities Crowne Plaza Chongqing All four tier one cities 35 out of 38 tier two cities Holiday Inn Nanjing Aqua City Leveraging relationships with multi-unit owners Extend leadership in global cities Crowne Plaza Kunming InterContinental Shanghai Expo Brand defining resorts leverage halo impacts Deepening penetration in high barrier markets InterContinental Resort Sanya Hotel Indigo Hong Kong * Presence defined as hotel currently open or in the development pipeline 11
Unrivalled portfolio in Greater China - Open system Total System System Rooms System Hotels HARBIN SUIFENHE 9,517 23 MUDANJIANG TOTAL 20,553 57 20,579 63 9,154 36 312 2 60,115 181 YINCHUAN JIUZHAIGOU CHENGDU XI AN CHONGQING SHENYANG TANGSHAN DANDONG QINGHUANGDAO HOHHOT BEIJING DALIAN DATONG ORDOS TIANJIN SHIJIAZHUANG YANTAI JINAN QINGDAO ZHENGZHOU NANTONG HUANGSHAN NANJING SUZHOU CHANGSHU MAANSHAN CHANGZHOU WUXI SHANGHAI HEFEI WUHU XIANGFAN WUHAN HANGZHOU YICHANG NINGBO CHANGSHA NANCHANG SHAOXING LIJIANG KUNMING FOSHAN GUANGZHOU XIAMEN HUIZHOU DAYA BAY ZHONGSHAN ZHUHAI SHENZHEN TAIWAN HONGKONG/MACAU ZHANJIANG HAINAN Source: IHG 30 September 2012 12
Unrivalled portfolio in Greater China - development pipeline Pipeline Pipeline Rooms Pipeline Hotels DAQING HARBIN JILIN 10,182 18,784 23 51 CHANGCHUN CHANGBAISHAN SHENYANG ANSHAN 11,302 38 BEIJING PANJIN 6,524 4,134 31 528 5 12 TOTAL 51,454 160 LHASA BAOTOU TAIYUAN BAODING ORDOS WEIHAI TIANJIN ZHENGZHOUJINAN QINGDAO LUOYANG YANCHENG LANZHOU XUZHOU ZHENJIANG NANYANG NANJINGJIANGYIN XI AN NANTONG HUANGSHAN TAICANG CHANGZHOU WUXI CHENGDU HEFEI KUNSHAN SHANGHAI YANGZHOU DUJIANGYAN CHONGQING WUHANCHAOHU YICHANG HANGZHOU NINGBO ZHANGJIAJIE SHAOXING YIWU WENZHOU NANCHANG GUIYANG FUZHOU LONGYAN QUANZHOU PUTIAN LIJIANG GUANGZHOU ZHANGZHOU HUIZHOU SHUNDE KUNMING DONGGUANZHUHAI TENGCHONG NANNING FOSHAN TAIWAN XISHUANGBANNA HONGKONG/MACAU YANGJIANG HAINAN Source: IHG 30 September 2012 13
Brand strength - IHG s new brand for Greater China HUALUXE Hotels & Resorts - upscale Consumer need for an international Chinese 5-star hotel IHG name reassurance over quality & consistency F&B key to the guest experience 12 signed into the pipeline, 14 letters of intent signed* First hotel expected to open early 2014 * As at 30 September 2012 14
Brand strength - InterContinental Hotels & Resorts The second largest international luxury hotel brand in China for both distribution and brand awareness Source: IHG 30 Sprtember 2012, Millward Brown Brand Tracker report, STR September 2012. Open Pipeline Total Hotels 23 23 46 Rooms 9,517 10,182 19,699 Competitive set includes: Westin, Hyatt, JW Marriott, Conrad, Shangri-La and Sofitel 15
Brand strength - Crowne Plaza Largest international upscale (five star) brand in Greater China Source: IHG 30 September 2012, STR September 2012 Open Pipeline Total Hotels 57 51 108 Rooms 20,553 18,784 39,337 Competitive set includes: Hilton, Marriott, Sheraton, Pullman and Renaissance 16
Brand strength - Hotel Indigo First international branded boutique hotel in mainland China (upscale) Source: IHG 30 September 2012 Open Pipeline Total Hotels 2 5 7 Rooms 312 528 840 Competitive set includes: Independent boutique hotels and W Hotels (Hong Kong) 17
Brand strength - Holiday Inn The most widely recognised international full service hotel brand in China (is four star rated) Source: IHG 30 September 2012, Millward Brown Brand Tracker report Open Pipeline Total Hotels 63 38 101 Rooms 20,579 11,302 31,881 Competitive set includes: Doubletree, Four Points by Sheraton, Courtyard and Novotel 18
Brand strength - Holiday Inn Express The most widely recognised international limited service hotel brand in China Source: IHG 30 September 2012, Millward Brown Brand Tracker report Open Pipeline Total Hotels 36 31 67 Rooms 9,154 6,524 15,678 Competitive set includes: Ibis 19
Why IHG is winning in China Well established as the leading international hotel operator Broad portfolio of strong brands in key locations Longest established loyalty programme The deepest relationships with key strategic partners The most focused development strategy Localisation of brands and business model Only international hotel company with dedicated, stand alone region reporting directly to the CEO Largest people infrastructure 20
A highly profitable business 2011 total gross revenues² of $1.9bn (from all hotels) Continued investment to support growth plans Fee revenue now driving margins 85% of managed hotels paying incentive fees in 2011 No capital expenditure requirements China financial results¹ $m 2007 2011 Revenue 35 79 Costs (27) (49) EBIT 8 30 Margin 23% 38% 1: Managed and Franchise business only 2: Total room revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels, It is not all attributable to IHG. 21
Our share potential China industry rooms growth IHG illustrative rooms potential Maintain c.10% of branded share China hotel rooms (m) 8 7 6 5 4 3 2 1 0 c.20% branded¹ 2.3m 0.5m 1.8m c.48% branded¹ 7.5m 3.6m 3.9m 2010 2030 Unbranded Branded IHG Greater China rooms( 000) 400 350 300 250 200 150 100 50 0 48.5k 360k 2010 2030 ¹Branded market defined as operators with >10 outlets Source: NBS; China Economic Hotel Survey; Global STR; IHG 22
Summary Rapid economic growth and urbanisation will drive hotel market Huge opportunity for growth in branded rooms IHG is the number one international hotel operator in China Most established relationships with key strategic partners The most focused development strategy Our insight is second to none 23
Q&A Crowne Plaza, Harbour City, Shanghai 24
A managed model with minimal capital expenditure Management contract focus (98% of system and pipeline) Ensures consistent delivery of guest experience Imbeds operational capability Preferred by owners with limited operating experience Potential to franchise Holiday Inn Express given the more standardised operating model Contract terms Base fee = 2% gross revenues Incentive fee = 6% - 8% of gross operating profit Length of contract: 10 15 years No fee discounting No requirements for guarantees Use of capex To date no capital expenditure requirements 25
The China Opportunity Keith Barr Hotel Indigo, Harbour View, Xiamen 26