InterContinental Hotels Group PLC (IHG) Q2 2015 Earnings Report, Transcript and Summary

Welcome to the InterContinental Hotels Interim Results 2015 Conference Call hosted by Richard Solomons, CEO. My name is Andrea and I will be your coordinator for today's conference [Operator Instructions]. I'm now handing you over to Mr. Solomons to begin today's conference. Please go ahead.

Okay, good morning, everyone and I am here with Paul Edgecliffe-Johnson, our CFO. So thanks for joining us, welcome to our 2015 interim results presentation which as you'll have noticed, we're holding by webcast this year which is designed to make life a little easier for you given the very busy schedule of results announcements that are going on today. So for those not logged in to view the presentation, just be aware that we will reference the slides a number of times to demonstrate some of our latest openings and innovations. So before I hand over to Paul, I'd just like to start with some of the highlights and our perspectives on the market. So we delivered strong underlying financial performance in the first half, driving global RevPAR growth of 5.1% and signing over 40,000 rooms, our best signings performance for seven years. The integration of Kimpton is progressing well and we continue to lead the industry with technology innovations and brand developments deeply rooted in our guest insight. July marks a significant milestone for us as we finalized our major owned asset disposal program with the agreement to sell InterContinental Hong Kong for $938 million. This is an excellent deal with a well-capitalized supportive owner. Once the transaction completes, over 95% of our operating profit will be generated through our fee business where the vast majority of earnings are tied to hotel revenues. And I'll talk later about how we're growing this revenue through our winning model, but first I'd like to step back and consider the broader market environment. As we've seen for some time, sector tailwinds remain very favorable with continued GDP growth driving the globalization of travel and a growing number of outbound travelers from emerging markets. International trips from China alone increased to 68 million in 2014 and are expected to reach approximately 100 million by 2023. Meanwhile in our largest market, the U.S., economic growth is leading to record levels of room night demand. I'll now hand over to Paul who'll talk in more detail about our financial performance so far this year and I'll return later to discuss execution against our broader strategy, particularly focusing on progress of our brands, building lifetime relationships with our guests and innovating through technology. Paul.

Thank you, Richard and good morning, everyone. We're pleased to report another strong financial performance in the half year with solid growth in fee revenues across each of our four regions, as global demand for hotels operating under IHG's brands increased once again. As in previous years, the year-on-year comparability of our total revenue and operating profit are distorted by the impact of owned hotel sales, significant liquidated damages, the performance of managed leases and foreign exchange movements, details of these items are included on slides 36 and slide 37 of today's presentation. I will focus my attention this morning on our underlying performance using constant exchange rates to provide the best explanation of our financial performance. On that basis, we increased our fee revenue by 9% and underlying profit by 10% through careful cost management. Our fee-based margin for the half of 46.8% increased 180 basis points year-on-year reflecting the benefits of our global scale, but also that our costs this year will be weighted more towards the second half. Consequently, we expect our fee-based margin to normalize to reflect an approximate 100 basis points increase for the full year. Higher interest charges were offset by an 8% reduction in weighted average shares and in aggregate this enabled us to deliver 25% growth in underlying earnings per share, year on year. Our underlying 9% growth in fee revenue was a result of continued increases in both RevPAR and net system size, in each of our four regions which grew by 5.1% and 4.5% respectively. That 5.1% RevPAR growth is on a comparable basis, so excludes the impact of our new hotels that are still ramping up. Including those in lower RevPAR developing markets such as Asia, the Middle East and Africa and Greater China, our total RevPAR growth, including those non-comparable hotels, was 4.2%. Our net room count increased by 4.5% which includes our acquisition of Kimpton Hotels & Restaurants which closed in January. Excluding Kimpton we delivered 2.8% growth in net rooms, as we continue to focus on optimizing the long-term attractiveness of our brands. We maintain our disciplined approach to quality and expect our removal rate to remain in the range of 2% to 3% of system size in the near term. Each of our four regions increased their fee revenues, with strong performances across the Americas, Europe and Greater China. This reflects the quality of our earnings and our fee-based model where fee revenue growth is a product of the change in both RevPAR and rooms. Despite it having the lowest half-yearly increase in RevPAR of the regions in which we operate, as you can see from this chart, Greater China delivered us the greatest fee revenue growth at almost 11%. To give some more color as to where and how we drove this growth, I'll now talk through the performance of each of our regions in more detail. Starting with the Americas, where demand in the United States has been at record levels for 52 months. We have capitalized on this to drive all-time high occupancy across our Americas' portfolio which reached almost 68% at the end of June. Both our Holiday Inn and Holiday Inn Express brands are also operating at record occupancy levels. We're focused on optimizing our revenue management systems and effective yield management of this demand which allowed us to increase average rates in the U.S. by 4.2% and allowed the Holiday Inn brand family to maintain its $5 RevPAR premium to the segment. This generated comparable U.S. RevPAR growth of 5.6% in the half. From a competitive standpoint, our performance highlights our existing high levels of occupancy and the distribution of our portfolio towards the oil producing states, such as Texas, Oklahoma and North Dakota which were negatively impacted by lower oil prices and resulting industry spend. These three markets represent approximately 13% of our U.S. portfolio and together they delivered flat RevPAR for the half year. Excluding these markets, our U.S. RevPAR growth would have been 6.5%. Elsewhere in the Americas, RevPAR in Mexico was up 9.4% driven by double-digit growth in key cities, whilst RevPAR growth in Canada of 1% was also impacted by performance in Canadian oil producing areas. Underlying profit was up 8%, reflecting the performance of our franchised business which increased underlying profit by 10% and was partially offset by an increase in regional overheads impacted by an additional $3 million of charges in our U.S. healthcare schemes. Our net rooms growth of 4.6% or 2.1% excluding our acquisition of Kimpton, was our best in the region for five years and is the result of ongoing initiatives to increase openings and decrease removals across our brands. Our growth prospects for the Americas continue to look attractive; we signed 21,000 rooms, up significantly year on year. An increase for the fifth year running and almost double the number of rooms signed back in 2010. In the six months' period, signs for Holiday Inn Express grew by 9% and for Staybridge Suites increased 26%. This reflects the strength of our preferred brands and is supported by the continued improvement in the hotel debt financing environment. In line with our long-term strategy for growth in priority markets, 92% of our openings and all of our signings in the region were in the U.S., Canada and Mexico. Moving on now to Europe where our key markets continue to perform well. Growth was strong in the UK where RevPAR was up more than 6% driven by trading in the UK provinces up 8%. In London, RevPAR increased 2.4% with rates continuing to grow but occupancy somewhat impacted by an increase in new supply in the half. In our second largest market of Germany, RevPAR increased 5% with the Holiday Inn brand family continuing to outperform the industry. The trade fair calendar also contributed to the strong result and is expected to be slightly less favorable in the second half. In what is a relatively small part of our business, Russia and the CIS is expected to face continued uncertainty impacted by economic weakness and the devaluation of the ruble. Total underlying profit in Europe increased by 22% driven by strong RevPAR growth in our key markets and good growth in our franchise business which grew by 19% following the streamlining of our UK managed estate. We have successfully transitioned approximately 60 of our UK managed hotels to franchise agreements with around 20 of these hotels transferred last year and a further 40 or so changing over this half. We signed 3,000 rooms into our pipeline including six deals in Germany with our network of multi-development agreement partners and our fifth InterContinental Hotel in France in Lyon where we have successfully adopted a key city distribution approach for the brand. Moving now to our Asia, Middle East and Africa region where comparable RevPAR increased by 0.4% led by Japan which grew by almost 13%, as it continues to benefit from increased inbound travel from China. South East Asia was up around 8% following double-digit growth in both Thailand and Vietnam. The first six months benefitted from Ramadan starting earlier this year and a number of strong country specific performances, such as Thailand [indiscernible] which will not be repeated in the second half of the year. Total RevPAR ,which includes rooms that have opened or exited in the last two years, grew 4.4% highlighting our continued increase in mix of rooms from lower RevPAR developing markets. Underlying profit grew 17% reflecting solid like-for-like performances across our fee business and a focus on efficiency but also a number of small one-off benefits at the expense line. Our focused development strategy continues to deliver strong growth with our net system size increasing 3.1%. We signed 9,000 rooms, more than double the same period last year, including a more than 5000 room Holiday Inn in Mecca which will be the largest hotel for the brand worldwide. Moving on now to Greater China where we drove almost 11% fee revenue growth to new openings and almost 5 percentage points RevPAR industry outperformance despite the ongoing challenges from the austerity measures that are affecting the industry. This is testament to our strong brands and the market-leading position we have built over the last 30 years. Comparable RevPAR increased 1.5% reflecting our scale and our management strength in the region. Mainland China comparable RevPAR was strong up 4.8% but offset by ongoing challenging trading in Hong Kong and Macau where RevPAR declined by around 10%. Hong Kong continued to suffer from an industry-wide decline in inbound Chinese tourism and Macau was impacted by the austerity measures implemented in China. Total RevPAR decreased by 2.4% due to the mix impact of our openings in developing Tier 1 and Tier 3 cities where hotels achieve lower absolute levels of RevPAR than in Tier 1 markets. Underlying profit declined 6% reflecting our previously-flagged investment this year into our regional capabilities to position us for further outperformance and the significant number of hotels we've been adding and will continue to add to our system. We enhanced our market-leading position in the region delivering net rooms growth of almost 10% and once again opened more hotels than any of our competitors including our first two HUALUXE hotels and resorts. We signed 9,000 rooms, a 20% increase year on year, taking our pipeline in the region to more than 200 hotels for the first time. I'll now move on to talk about capital allocation. We have been clear that we're committed to an efficient balance sheet with an investment grade credit rating. This equates to a net debt to EBITDA ratio of roughly 2 times to 2.5 times and we're comfortable towards the top end of that range in the current economic environment. In 2014 we announced a strategic review of our remaining owned assets. The sale of InterContinental Paris Le Grand was announced in August of that year and was completed in May this year. It takes time to find the right long-term owners of assets who share our vision, however, as Richard mentioned, on July 10 we were pleased to announce the sale of the InterContinental Hong Kong for $938 million. The buyer has paid a 10% cash deposit with the remaining proceeds to be received on completion which is expected to take place in the second half. We will retain a long-term management contract on the hotel with management fees payable to us of approximately $8 million per annum, increasing following a significant refurbishment which is expected to commence in 2017. In line with our usual practice, only when funds have been received will we comment on their use and a decision on a return of funds to shareholders from these proceeds, alongside those received from the sale of InterContinental Paris Le Grand, will be announced at preliminary results in February 2016. This transaction finalizes the disposal of our major owned assets. Since our formation in 2003 we have sold almost 200 hotels for gross proceeds of approximately $8 billion. Over the same period, we have returned more than $10 billion to our shareholders. Our approach to capital allocation remains unchanged and we will continue to invest where it will enable us to position the business for long-term success. I have talked in detail over the past year on how I view our capital expenditure in the three distinctive categories of maintenance capital and key money, recyclable investments and system funded investments. I won't run through the categories in that level of detail again today but will highlight the change we made to our system funded capital investment in April following our announcement of our strategic partnership with Amadeus. At that time we flagged our system funded capital investments are expected to increase to around $100 million in 2015 ,up from approximately $60 million in 2014 reflecting our investment and evolving our own market-leading technology. Otherwise our reported CapEx numbers for the first half are in line with our guidance which remains unchanged in the medium term with gross capital expenditure of up to $350 million with our net investment much closer to our permanent maintenance capital and key money of around $150 million. To conclude then. I have summarized our half-yearly cash flow to reiterate our focus on executing our capital allocation strategy and maximizing returns to shareholders. We generate significant cash from operations which we then use to invest in the growth of the business. Our net CapEx was covered 2 times by our underlying operating cash flow. We have also announced today a 10% increase in our interim dividend for the half year to $0.275 cents. I will now pass over to Richard who will talk more about how we're driving our strategy.

Thank you, Paul. So our winning model remains at the core of our success and continues to deliver high quality growth. Preferred brands, a leading loyalty program and effective channel management are key components of the model and form the basis of our commercial strategy which I introduced to you this time last year. Effective commercial execution ensures a superior guest experience and we've made significant progress across all three of our focus areas, as well as continuing to innovate with our digital solutions and developing a market-leading guest reservation system or GRS. Before I talk more about technology I'll touch on the progress we're continuing to make with our brands. I'll start with Holiday Inn and Holiday Inn Express, the world's only truly global mainstream brands which we relaunched eight years ago and have made significant strategic progress since then. The brand refresh remains the world's largest ever achieved with the $1 billion investment program continuing to provide a platform for market outperformance and accelerated global growth. Since the refresh started we've relaunched 3,300 hotels, opened a further 1,500 and removed over 1,000, reducing the average age of the estate to lower than all of our major competitors. The positive outcome from these actions and our emphasis on quality has driven guest satisfaction levels to an all-time high and this has been recognized across the industry with Holiday Inn winning the prestigious J D Power award for guest satisfaction in mid-scale full service, four years in a row. Our focus on guest experience has driven market-leading financial returns to our owners and since the refresh launch we've driven consistent industry outperformance, growing the brands' RevPAR premium by more than 5 percentage points in the U.S. It is this delivery which makes the brand family so attractive to guests and owners, driving 10% annual growth in signings in the last four years and over 500 new hotel openings in the last three. This growth has established the Holiday Inn brand family as the leading global hotel brand. Holiday Inn has over 100,000 rooms outside of the U.S., more than four times that of its nearest competitor and we have more than doubled the non-U.S. presence of Holiday Inn Express since 2007, adding more rooms than all three of its closest competitors combined. Together with driving scale we continue to drive innovation across the brand family and I'll talk briefly about three initiatives which are all deeply rooted in our guest insight and tailored to local needs. The Holiday Inn open lobby creates a next generation public space where guests can both work productively and enjoy leisure time. And the solution is already in place in nearly 30 hotels in the Americas and is live at 17 properties across Europe, where it's driving an 8 point increase in guest satisfaction. Our next generation bedroom design for Holiday Inn Express has been developed in conjunction with our guests and owners to deliver a natural and contemporary look which provides an efficient place to sleep. As I've already mentioned, tailoring is important so whilst the new design principles are universal, in the Americas there's a real focus on innovative storage solutions, whilst in Europe a key element of the room is flexible workspace. Elements of the new design are already implemented in 42 U.S. properties and the first trial in Europe was recently launched. Holiday Inn Club Vacations is a great example of how we've leveraged the momentum behind the brand family to develop a new offering which perfectly meets our guests' need for family time. Our asset-light timeshare or vacation ownership business was launched in 2008 in partnership with Orange Lake Resorts which is owned by the family of Kemmons Wilson, the founder of Holiday Inn. Our vacation ownership portfolio has grown quickly to over 4,000 villas across 12 resorts in the U.S., ranging from Florida to Vegas. And due to the long-term investment involved with timeshare, it builds a deep relationship with the owners and lasting loyalty to the Holiday Inn brand. And on average each club vacation guest spends over 70% more per year across our hotels than an average guest. On this slide there are just a few examples of these brand innovations as well as some signings and openings from the last six months. Boutique is the fastest growing industry segment and with Kimpton, the world's leading boutique business and Hotel Indigo, one of the first global branded boutiques, IHG is uniquely positioned to benefit from this increase in demand. Our boutique portfolio already has 120 open properties and 79 in the pipeline. Nearly 80% of the estate is currently in the U.S. but we've tripled the presence of Hotel Indigo elsewhere in just over three years. Alongside this, we've already received a number of Kimpton development enquiries from outside the U.S. where we have over 50% of the Hotel Indigo pipeline. And this gives us great confidence in our ability to expand our global boutique footprint in the next three to five years. At an operational and commercial level, the Kimpton transition into IHG is well advanced. The brand continues to be loved by its guests and we're committed to building on its success which is people driven. So I'm therefore pleased that we've retained key Kimpton talent as well as its San Francisco headquarters. On the commercial side we've linked Kimpton into our digital channels and corporate sales networks. We're also working closely across IHG to integrate support functions, all the time ensuring we preserve the qualities that make Kimpton so unique. We have already opened five new Kimpton hotels since January and these were complemented by three Hotel Indigo additions, including our first properties in Helsinki and Bangkok. We signed 12 boutique hotels in the half, including the landmark Hotel Indigo Los Angeles. This 350 room 18 story property is located downtown and acts as the flagship hotel in the $1 billion mixed use Metropolis building being developed by Greenland U.S.A. And the Greenland Group already owns eight IHG properties in China, but it marks the first time we've partnered with them in the U.S., demonstrating the benefit of our global reputation. Our boutique growth will be somewhat offset by higher than normal removal from 2015 due to the exit of seven Kimpton San Francisco properties in July. These were driven by specific issue and will not impact broader growth plans in the U.S. or overseas. Here are just a few of our recent boutique openings and signings from the last six months, highlighting the unique nature of each property. Crowne Plaza is another of our brands which has significantly increased its presence outside the U.S., more than doubling scale in the last 10 years and adding more rooms than any other brand in its segment. More recently, around a-third of its growth has been driven by rebrands as owners seek the benefits of wider global distribution. The demand for Crowne Plaza is particularly evident in Greater China where we have nearly 40,000 rooms, either open or in the pipeline, the highest of any of our brands in the region. And this growth is complemented by a number of new initiatives as we continue the multiyear refresh program with an emphasis on delivering a great guest experience and making business travel work. We've adapted the brand to meet changing consumer needs, rolling out complimentary Wi-Fi to our hotels in Americas and Europe, enhancing the 24-hour business center and launching a selection of energy-focused food offerings. Later in the year we'll begin piloting our unique next generation WorkLife room as we continue introducing new innovations which support business productivity. We're also improving the underlying quality of our estate with 7,000 underperforming rooms removed in the last three years and over half of our U.S. portfolio now either new or renovated since the start of 2010. Here are just a few examples of recent openings, including the Crowne Plaza Potsdamer Platz and Crowne Plaza Battersea which were both rebrands. Moving on now to look at IHG Rewards Club which drives 40% of bookings in our hotels. I've talked before about the growth in personalization and extensive research has highlighted just how much value our members place on individual and rewarding experiences. To enable this during the guest stay we've implemented new customer relationship management capabilities at all our hotels, allowing the front desk to access extensive guest information and offer a more personalized experience based on member profile and history. We'll continue to roll out further CRM capabilities over time, including the ability for our members to manage their personal preferences during the booking process. These enhancements ensure IHG Rewards Club continues to be preferred amongst guests and the brand has already won 16 major awards in the two years since it was relaunched. The attractiveness of the program is further emphasized by over 4 million new enrollments in the first half which is more than 25% up on last year. We ensure that all of our members are treated uniquely but in-depth research has revealed that really frequent travelers want that little bit more. They want to feel part of a special club and be given an extra level of reward in return for their continued loyalty and the introduction of a new top tier to IHG Rewards Club called Spire Elite will do just that. Spire Elite status will be available to those who earn 75,000 points or stay with us over 75 nights a year. Their reward for reaching this status includes earning 100% extra bonus points on qualifying nights, the richest points incentive in the hotel industry. But most importantly we'll use our new CRM capabilities to deliver a unique and tailored stay experience, ensuring these guests feel truly recognized and special. As well as the introduction of this new top tier, we've also restructured IHG Rewards Club so it's easier for our loyal members to reach gold and platinum status. We want to build a lifetime bond with as many of our guests as possible and this move ensures more of them will receive that extra bit of recognition which makes a difference in building a relationship. The CRM capability I just mentioned is just one example of how we leveraged technology to enhance the guest experience. Earlier this year I spoke about how the consumer landscape is changing and to meet these needs we must have market leading technology to adapt. Within this context we'll maintain control of intellectual property and customer data that delivers the unique guest experience but partner or outsource where we can leverage third-party expertize. Our pioneering relationship with Amadeus demonstrates how we're utilizing this approach to lead the industry and deliver the first cloud-based guest reservation system. Amadeus is a proven expert in travel reservation, having already developed a community model used by over 100 airlines. As exclusive launch partner to our guest reservation community model we have a unique opportunity to input on the design and functionality as well as being the first to roll it out across our hotels in 2017. And in a short time we've already made good progress with what will be an industry-changing initiative. Our recently announced collaboration with stay.com is another example of how we'll partner with third parties to enhance the guest journey. Stay.com offers IHG guests the functionality to research trips to over 50 destinations based on insights from hundreds of local influences around the world. Guests can then create personalized travel guides, download them to a mobile device and share with friends and family. And this will enhance the travel experience and deepen the relationship with our brands, particularly in the dream, plan and stay phase of the guest journey. Our initiatives are continuing the momentum behind our direct channels driving year-on-year digital revenue growth of over $200 million, well ahead of any other channel. Recent in-house developments include the relaunch of our Crowne Plaza, Hotel Indigo and extended stay websites. The new pages are content-rich, convey the uniqueness of each of our brands that are optimized with the responsive design for easy viewing across any device. Meanwhile in Europe we've rolled out an IHG Rewards Club lowest price promise for Holiday Inn Express UK. We already have an Internet best price guarantee which provides the first night of a stay free if a guest can find one of our rooms cheaper through a different website. However, due to the extravagant promises often made by intermediaries, the benefits of booking direct were not always clear to consumers. Our lowest price promise is exclusive to IHG Rewards Club members and offers more than price matching, it promises a price at up to 10% lower than is available anywhere else and we're so confident in this promise that we've included a unique price comparison tool on our website for the UK Holiday Inn Express estate. As you'll see on the screen, this gives guests complete confidence they're booking in the right place and gives a clear incentive to enroll in our IHG Rewards Club and book direct. We're already seeing great results with a 50% increase in the number of guests who are confident they get the best price on our website, a doubling of online loyalty enrollments and a double-digit increase in our digital channel share of weekend online bookings. Within our digital channels, mobile continues to be the strongest driver of growth contributing over 40% of our website business in the first half, up 7 percentage points on last year. And we continue to innovate in this area to enhance all stages of the guest journey with a particular focus on the stay experience. Our IHG translator app is now available for Apple Watch, making it even easier for our guests to make the most of their experience with 13 languages easily translated by speaking directly into the watch. We're also enhancing mobile checkout with the additional of Mobile Folio, a service allowing guests to view their bill real time on their device at any point during a stay. Although our technology and innovation is predominantly about driving a superior guest experience, IHG guest request equally improves operational efficiency for our owners. We're trialing this new tool which enables in-hotel requests to be made instantly through the IHG app. These requests are then logged, assigned and tracked, making task management easier for hotel staff and improving the guest experience through faster issue resolution. These innovations for our number one rated app have driven downloads up more than 50% year on year and we now have more than 4 million app users in total which is helping to drive year-on-year total mobile revenue growth of around 50%. So to recap, we've had a strong half with continued momentum behind all our preferred brands which makes IHG well positioned in an industry that has compelling tailwinds. The Holiday Inn brand family is extending its leading position as the only global mainstream brand and our boutique presence makes us the number one player in the fastest growing industry segment. Alongside this we're making great progress delivering against our technology roadmap, enhancing our digital channels and loyalty program to deliver more industry first which builds deeper relationships with our guests and superior returns to our owners. The finalization of our asset-light transition delivers high quality earnings and based on current trading trends we remain confident in the outlook for the rest of the year. So thank you for listening and with that Paul and I will be happy to take your questions. So Andrea, over to questions please.

[Operator Instructions]. The first question comes from the line of Jamie Rollo from Morgan Stanley. Please go ahead.

I have three questions, first. First, on Kimpton, you've lost a few hotels, you've given us modernization guidance, through the synergies you've mentioned, lots of moving parts, could you just help us give a range of annualized run rates of EBIT, at the end of this year, please? The H1 contribution was quite big, because of the LDs. Secondly, I may have missed it, because I jumped on late, but the - your OTA mix, I think when you last reported you said that your direct channels were starting to take a bit of share. Could you give us an update on those numbers, please? And finally, just the inevitable question on industry consolidation; do you have any comments you could specifically with regards to Starwood? And do you have any specific interest in either Fairmont, Raffles or Interstate? Thank you.

Why don't I take the last two and Paul will pick up the first one. So just in terms of industry consolidation, we never comment on speculation, of which over the years there has been lots, as you well know. But I do think on consolidation, the thing is that the focus for us and actually for many of our competitors, has been on effectively organic consolidation. And if you think about the fact that we have 5% of the world's rooms, 13% of the future pipeline, we're driving considerable organic share. And the level of signings that we've seen in the first half, higher than we've seen for seven years, I think demonstrates that we've got enormous growth prospects as a standalone business. As far as OTA mix goes, I think I did reference, we've focused a lot on driving our direct channel business, because I think that works for a lot of guests and it certainly works for owners, in terms of returns. And the results have been very strong. I mentioned the pilot for what we've been doing in the UK which is about driving value for guests and helping them understand what they get direct. So we absolutely have continued to see that our direct channel growth has been exceeding our OTA growth. But having said that, I think our view about OTAs, is they are an important channel, relatively small for us, but an important channel and where the business is incremental and profitable to owners, we're very happy to have it. But clearly for a lot of our guests, booking direct is the most effective way. And clearly the relationships that we're building up through our various innovations, including through Rewards Club, creates very sustainable, very valuable guests. So we'll continue to push that, but continue to work all of the channels. Paul, do you want to pick up on the Kimpton question?

Yes sure. So, Jamie, there are a few moving parts in this and we tried to pull them out in this release. And there is a liquidated damages receipt and the amortization is starting to come through now. If you look at the half year, less the liquidated damage receipt and you were to annualize that, for the full year, then you're going to come to about the right number. There's a few moving parts in that, but overall it wouldn't take you to anything that was materially out.

And, Richard, just back on your comment about consolidation, does the focus on organic mean that you would not be interested in a bigger transaction were one to come around?

Look, I said, I don't want to be drawn on speculation. We obviously acquired Kimpton earlier in the year and I think if we talk about strategic gaps in the portfolio, we'll look at different ways of filling it. But certainly our focus is on organic.

Presumably bolt-on deals are therefore judged to be more organic?

Well, Kimpton was a bolt-on deal, so I think we're always looking to grow the business, we're always looking to service the guests through a portfolio of brands. But I don't think anything more specific I'd say on that.

Perhaps you could remind us where the brand gaps might be, if other brands came up for sale or where your key focus--?

There is nothing standing out. I think if you look, we've seen good revenue growth and good signings and system growth really, around the world. So I think we're not in super luxury, we're not in economy, we're where all the revenues are. So I think in a way, anything that enhances the overall portfolio is what makes sense to us. And ,obviously, the insights that we have in the marketplace, led to us to launch HUALUXE and to launch EVEN and Kimpton was a very effective add-on to our existing boutique business. So I think we look at it - we look at anything in the way we look at growing our business where our customers are.

The next question comes from the line of Tim Ramskill from Credit Suisse. Please go ahead.

Three questions from me, please. The first is just around exits. I guess a couple of things. The pace of exits in the first half does seem quite significant. I wasn't quite sure whether the Kimpton - the seven Kimpton disposals you've talked about, were in that number or not. And then more broadly, I guess we were probably led to believe that exits were going to reduce. Thinking back a couple of years, when there were a lot of things exiting Holiday Inn, that now seems to have stepped back up to a 2% to 3% consistent expectation. I just wonder if you could comment on what changed in your thinking over that couple of year period? Secondly, I'm going to also ask a question about consolidation; maybe you could share with us your thoughts as to how there may be revenue synergies from combining two larger players. In particular, as to whether having full representation across all segments is helpful. Do you see that as a potential source of upside for those who don't have that? And then the final question was just in terms of the overall U.S. RevPAR performance. I know you've had a little bit of exposure to some of the oil and gas states that have been quite effective, but I'm struggling to see who's reporting numbers out there, that are as good as the STR at the moment, for Q2. So, I just wondered if you had any thoughts on the differential between your 4.8% and the STR numbers of 6.5%.

Tim, look, on consolidation, say, I don't think there's anything really to talk about. I think I covered that all in my conversation with Jamie. Paul, do you want to pick up the other two questions?

Yes, sure. So, Tim, in terms of the exits, I think what we've seen in the first half is similar to what we saw last year, in that you'll see that a few more of the exits in the first half and a bit more of the openings coming through in the second half. So, yes, we called that out particularly last year, because it was a bit more unevenly weighted. But it will be more weighted to the first and the second half again this year, not quite to the same extent. In terms of our position on quality, I don't think that's really changed over the years. We try and give you guidance and say, look, it'll vary a bit year on year, as when hotels come up to the end of their contract and we decide whether or not to keep them. But 2% to 3% is a decent range to work to. In this current environment, when we're signing so many hotels, it does give us the opportunity to up-weight the overall quality of the estate. And you think that we signed 41,000 signings in the first half, our largest number since 2008 and we've got 214,000 rooms waiting to come on stream, then it does give us a little bit more confidence to take out some rooms, knowing that they're going to be replaced, because we want to have the highest possible brand portfolio that will drive up long-term guest love. In terms of the U.S. RevPAR performance; yes, I commented on the mix of our business. About 13% of our hotels are in those oil-producing states which is more than the industry which is about 10%. So we're a little bit overweight there. In terms of who is beating the average, I guess, what you've got at this point in the cycle is some of the economy brands and I guess some of the unbranded operators, who may have low occupancy and low RevPAR and are perhaps not guests' first choice. But with occupancy of our brand so high, maybe sometimes guests are having to go to their fourth, fifth, choice brand. So I think that's what we're seeing, it's consistent to what we saw at the first quarter.

And so were those - on Kimpton, were those exits in the first half or were they--?

I'm sorry, Tim. No, that's not in the first half numbers.

And can you expand on what that issue was, because it's losing 10% of the business you just acquired, it doesn't sound like that was part of the plan. So what's caused that to happen?

When we bought the business, there were some properties that we took a perspective on as to whether or not they'd stay with us longer term which is what you'd expect in an acquisition like that. And these are some of those that we identified as might decide not to stay with us. And so they've moved on for a location-specific issue that has nothing to do with the brand, has nothing to do with IHG really. So it is localized. And it's specific to that one circumstance, so nothing really more to say on it, Tim.

But they were profitable, but you wanted to get rid of them or--?

I think it's a situation that is local to those hotels. And it's not representative of the broader business. So nothing more I can really say on that.

The next question comes from the line of Tim Barrett from Nomura. Please go ahead.

Can I start on RevPAR, please? Thinking of that America's 4.7% in Q2, some of your competitors, I think, have been talking about Q3 being slower, citing things like city wides and Jewish holidays. Is that your expectation as well? Or does that apply to you guys? And then, I guess, in terms of the closure of the Hong Kong deal, do you think it will take as long as the nine months that Paris took? And if an opportunity to spend the money came up before then, would you temporarily stretch your leverage target? Thank you.

We're less distributed, as we've talked about before, into some of the big group cities, so New York and some of the others where some of our competitors have very large group boxes. And they do tend to then get impacted a little bit more by some of the holiday movements. So, I wouldn't expect us to be impacted in quite the same way there, no. And in terms of Hong Kong, we've said that we expect it to close in the second half. The Paris closure was particularly long because of the regulatory process you have to go through in France and consultation with works councils, etc. which is abnormal. And if you look at our normal pattern of disposals, it's normally much quicker. So I wouldn't expect that it's going to be another nine months' delay.

And in terms of how you might apply the funds if you needed to before the end of the second half?

We never really comment on what we might do with funds before we've received them. I think that's just - that's not our policy. So we've said that when it comes round to prelims we'll say more then.

The next question comes from the line of Nick Edelman from Goldman Sachs. Your line is open.

A few questions, please, firstly just again coming on to the outlook for U.S. RevPAR. Obviously, as well as the points before, the growth rate last year steps up quite significantly as we move into the second half. Are you broadly anticipating a slowing RevPAR trend to continue here? Second question is around the pilot of the price promise in the UK. In terms of the 10% lower price your members have, is that still a pilot stage? Are you testing that and seeing where the right level is? Or is that a confirmed lever and then you'll look at whether you roll that out more broadly? And thirdly on CapEx, even taking into account the system fund CapEx being $100 million and key money being weighted for the second half, it still looks like you'll be lower than your $350 million gross CapEx guidance. Is that fair? Or is there just more CapEx to come through second half versus first? Thank you.

I'll just take the one on the price promise and then Paul will pick up the other ones. Actually, what I said was up to 10%. So we've been piloting different things. The research is very interesting as to why consumers go to online travel agents or why they go direct. And there's obviously many aspects to it. One of the key aspects is they believe they get a better price on the online travel agents which is to do with, obviously, the billions of dollars that the online travel agents spend telling them they get a better price. The reality is they don't get a better price because of the price promise we already have. So what you're talking about is once consumers get confident that the price promise on our own website is real, then they believe it and they carry on booking with us. So you're talking about, depending on the circumstances, depending on the hotel, some better price. But if you think about the level of commission that the online travel agents charge for the hotel owners, it can still be much more profitable to offer a better price to a closed user group which is why it's done through - to actually Rewards Club members. So what this - this may have an impact on headline pricing, but it has actually a very positive impact on hotel profitability. So it's a very good thing overall. So I think what you get is, on the one hand if you believe that the price is as good as or lower, on the direct website, then you'll want to book there. The second thing is there's real value in the loyalty program. And with a combination of those two are very powerful in terms of delivering a proposition to customers who want value. And value is partly about price, but also about other things that they get. And so as I said, I think what we're seeing is a very, very, positive uplift on that UK pilot. The circumstances are different in other markets but the concept will be broadly the same. And I think, where there are customers who want something, in terms of an overall experience with the brand, it will work very well. So don't forget, the online travel agents are predominantly focused on price-sensitive leisure travel which is never going to be cost effective for us to try and bid for. But we can effectively target through the OTA. So I think what you're doing is stratifying your channel mix much more sharply which is obviously what's good for the brand and good for the owners. So I think it's an interesting pilot that's performed, probably ahead of our expectations and extremely well. Paul, do you want to pick up the other two?

Yes, sure. Nick, thanks, your comment on CapEx; I've talked before about the three individual buckets within which we spend our CapEx. And in terms of the permanent CapEx bucket of maintenance and key money, I think that will cycle through to around our guidance of $150 million for the year. Then we have the recyclable CapEx which goes behind joint ventures and things like our EVEN hotels that we're building and then we'll move on at some point. That can be a bit more variable year on year. And that may come in a little lower. We'll see what happens, where opportunities come up in the second half. And then we have the system-funded CapEx and I think that will be in line with our guidance. But I think you will always see more volatility in that recyclable CapEx line. Some years we'll get more in as we make some disposals; and some years we'll put more out there. In terms of U.S. RevPAR and yes, you'll have seen last year's numbers, obviously, so you can see that the RevPAR accelerated through the third and fourth quarter. We're really now in a point of the cycle in the U.S., where you've got record levels of occupancy, so you're trying to maximize rate growth which we do through our rate-optimization technology, so that we take the strong demand and then try to get the best possible rate for it. So, with the level of occupancy that we're seeing, yes, we can still push rates and summer is normally pretty good for us. But as you note, the second half last year was very strong, so we'll have to see how the numbers come out for the second half of this year. But no particular guidance that we can give, more than what I've said already.

The next question comes from the line of Patrick Coffey from Barclays. Please go ahead.

A few of my questions have been asked, but just a quick one. You talked about America's RevPAR and the exposure to oil and gas. Could you just quantify that, so what percentage is exposed to oil and gas states in any way? Thanks.

So, about 13% of our revenues are from oil and gas producing areas. And the industry as a whole is around 10%. So we're a little bit overweight to those areas. And they've been broadly flat in the first half which has been a little bit of a headwind on the performance which otherwise for the Americas would have been at - for the U.S. would have been at 6.5%. So we do try and pull that out just so people can see the underlying performance.

The next question comes from the line of Jarrod Castle from UBS. Please go ahead.

Three questions if I may, please. Just on the signings, obviously a very, very strong first half. And as you said, since 2008 you hadn't seen such strong signings. So two things; one is, do you think people are seeing that across the market; and secondly, does it say anything about the - where we're in terms of the cycle overall? Second question, can you just give a bit of color in terms of Greater China, the split between Hong Kong, Macau and Mainland, just in terms of the mix, if you can? And then, just to get some views in terms of - we've spoken a lot about OTAs, but just about the metasearch providers and just also in terms of instant booking that TripAdvisor's providing. A number of brands have joined it, some brands haven't. Can you give your views on that? Thanks.

Let me take your first and Paul will pick up and talk a bit about China. I think in terms of signing, effectively what you're seeing is people investing in the industry because they see long-term growth prospects. And financing is a little more available. I wouldn't say that the floodgates are in any way opened and so we've been seeing quite, consistently now, both in China and U.S. and other parts of the world, an uptick in signings. But I do think you're seeing some polarization here and you go back and look at my comment about the 5% as supply 13% of the pipeline and frankly, if you look at the other big players, we're all broadly in the same shape. So this polarization in the industry where capital is moving towards the big brands that can, not guarantee returns, but give you much higher surety of returns, is continued. And so the share gains that the big players are making will, I think, continue. And our view is that the - certainly from our perspective, the quality of the deals that we're signing now are higher than they were in - pre-Lehman and when money was so easily available that almost anybody could get money. So I think going forward with 200 and - over 200,000 rooms in the pipeline, 100,000 of them are under construction. So these are real deals happening. So I think it is somewhat brand-specific and we're certainly benefiting from the flight of capital to quality which is what we're seeing. Just your point on metasearch, instant booking and so on, it is a very complex arena, the online channels. It's just - there are so many players now. It's almost hard to keep up for the average punter which is one of the reasons why I think that the booking direct continues to be very, very attractive, particularly with the quality of our mobile channel and our number one app which we've talked about on many occasions. We continue to invest behind it for that reason. I think, without going into lots of detail on the call, something like TripAdvisor which obviously puts itself out there to customers as a review site, but it is really a travel agent. There's an interesting dynamic there, where this customer starts to realize it's more of a business than a consumer benefit. But we do a lot with TripAdvisor already, through what we call our performance marketing business, where effectively on behalf of hotels we buy keywords. Could be city words, could be hotel words, could be experiential words. And so we work with the metasearch engines which effectively TripAdvisor was, in that way. So whether you go direct or do it through keyword purchase and so on, is a matter of individual circumstance. So I think for us, because of the effectiveness of our performance marketing which is certainly without question the best in the industry, that's been very effective for us. So we'll see. I think we treat all of these intermediaries which are - they're non-value add, they're effectively just another route to market and an expensive route to market. And we look at them where they're driving bottom line to our owners, then we'll work with them and if not we won't. We're a very big player in there and obviously we continue to perform well in that sector as well as, as we talked about earlier, drive our direct bookings up. So I think if you just think about it as direct channels that's one thing. But I think about the dynamics in the marketplace where there's other players, obviously Google are in there as well; and clearly in terms of digital advertising, Facebook and other players are also big. So, the benefit for a big brand like us, with financial firepower, is we can pick and choose between these. And I think there's certainly no dominance of any of the players and you can see that in their scrabbling around for share that they're all going for which is actually quite beneficial for us, as effectively, customers. So Paul, do you want to pick up the China piece?

We've talked before about how the China business for us is really split into the Tier 1 market, where you've got strong demand but supply is really slowing down. And then the Tier 2 and Tier 3 cities where there's all the supply coming through which a lot is us, demand's good as well but you just got that - the combination of supply and demand making it harder to push RevPAR. And we saw that again in the first half and through the second quarter. So, our comparable RevPAR across the Greater China region was up 1.5%; but the Mainland China business was up 4.8%; and the Hong Kong and Macau RevPAR was down 10%. And just to give you an idea of some proportionality, we've got about 6% of our rooms in the region in Hong Kong; and about 3% of those in Macau. But that does average us down. And as you look at those numbers, you will I'm sure pull out that they are a long way ahead of the industry which we've seen for some time now. So it's about a 5% RevPAR industry outperformance, based on the greater competency and the greater brand recognition that we have over there and built up over the years. And so that's one of the numbers we really focus on and the owners really focus on as well. So all goes well for our future growth there.

And maybe just one more quickly, if I may, just on digital channels. Any changed thinking in terms of shared accommodation and the threat to your business? There has been some changes in terms of Airbnb's listings have nearly doubled in the last 12 months. I see your previous CFO now is working at onefinestay. And secondly, some of your competitors have started to take investment in the space, namely Hyatt in that platform. But you're still quite relaxed about life and the potential disruption?

We're never relaxed about life. But look, I think it is an area we take a lot of interest in. We're very, very plugged in to what's going on and we know a lot of the players, if I just leave it at that. But the reality is that the misnamed sharing economy, because obviously it's a business, is here to stay. At the moment it's very, very small, it's very leisure focused. Airbnb are making a lot of noise, obviously, because of the Silicon Valley dollars, looking to have a successful IPO. Don't forget that HomeAway which has been around for a long time, is significantly bigger. Wyndham is very heavily in that business, has consolidated heavily and basically room rental or property rental. So this is not a new business, at all. At the moment, as I say, it's very small relative to us. I think if you think about the attributes to that business which is about having a clever, powerful reservation system, effective routes to market, big reach and the ability to handle a brand, that's what we do. So I think our approach to it is, again, keeping a close eye on it. If it's a business where we think our guests and our ability to deliver is valuable, then it's something we'll look at and we'd obviously be able to do very effectively. But as a source of competition it's small in a market that is growing heavily. I think if you look at, other than the need for accommodation, hospitality, we've got the hotel sector, we've got our heavily growing vacation ownership sector, we've got a fast-growing cruise sector in terms of vacations. So I think what you've got is, this is just a new dynamic and obviously because of the model, Airbnb are making an awful lot of noise, but it's not a new competitor. And of course, a large number of people for very many legitimate reasons, want hotels. There is a small cross-over at this point of people who actually want to be in an apartment. And, of course, the whole unregulated nature of that market is attracting the attention more and more of regulators. You'll have seen all the stuff around Uber. And I think it is important that consumers are protected and there is some real dangers, particularly with the Airbnb model, of a lack of regulation and a consumer misunderstanding which I think we're hearing governments talk more and more about. But it remains - that said, I think it remains an interesting business opportunity potentially, albeit at the margin right now.

The next question comes from the line of Geof Collyer from Deutsche Bank. Please go ahead.

Three completely unrelated questions, I normally only ask two. So I thought I was being quite good today. They're all quite - well two of them I think are quite short. Did you say that people that stay in your resorts in the U.S. spend 70% more than the average U.S. guest and have you been able to track how that works outside the U.S. or is it just too big a market? Secondly, on the price promise issue, how does this square with the OFT Statement of Objections back in 2012 to the tie-up you were doing with booking.com and Expedia. And then thirdly, more of an issue, I know supply is still growing broadly in line with the long-term growth in the U.S., but going into next year, supply in the midscale market and upper midscale and upscale in the Holiday Inn portfolio is growing two or three times the long-term average, how concerned are you about that in terms of occupancy and rate for the Holiday Inn business next year and going forward?

Yes, the vacation ownership, currently we only have that business in the U.S.. And what I was really referencing is that it's true, actually, for a lot of leisure businesses, it's true for resort customers generally, they have a much - they have a very strong affiliation to the brand because it's about their leisure time and their personal choices. So what you're getting with resorts, holiday and vacation club, is the fact that you've got very invested and engaged customers who, in their hotel spend, they effectively spend 70% more than the average. So it's a valuable source of customers, it's very linked to rewards club and obviously investing heavily in the Holiday Inn brand. In terms of the price promise. The OFT - the specific UK issue in the past which was resolved with no criticism at all of us, I think what's going on, if you look in France, recently, some other European markets and the European Commission, is taking an interest in some of the contractual requirements of the OTAs around mostly the nation status and so on which can have an impact on consumer competitiveness. What we're doing in our piloting in the UK is a closed user group of Rewards Club members which is clearly something that is appropriate and we're enabled to do. So I think our focus is on - genuinely on giving a very clear proposition and a value proposition to our customers. Nothing we're doing is remotely impinging on any competition issues which, as I say, are being looked at in detail, but more around looking at the OTAs and their business practices and not around the hotel companies.

As you know the long-term supply growth in the U.S. is around 2% and the forecast from STR for next year is around 1.7% growth and it's similar for the industry as a whole and for the upper midscale segment where you're going to see Holiday Inn and Holiday Inn Express. I think the PKF numbers are marginally higher than that, but they're still below the long run average. So that's the top line. But the other point that we always make is that, we like new supply because we take such a higher proportion of it than our current market share. So you look at the number of rooms that we're signing, as those come in we're just going to continue to add more rooms and so we - if you look at, say, China, where you haven't got a lot of RevPAR coming through, you've got a lot of rooms coming through and we're growing our fee revenue there at the highest rate anywhere in our business. So, we can increase our revenues either from RevPAR growth or from new units. So as long as we're taking more than our fair share which we typically do, then we're okay with new supply coming into our market.

The next question is a follow-up question from line of Tim Ramskill from Credit Suisse. Please go ahead.

Just hopefully a couple of real quick ones. So, just back on the price promise, just wondered where you might go with that next. So is this likely to be something you perceive relatively quickly into your main market for U.S.; and related to that, are any of your peers, that you are aware of, trying anything similar right at the moment? And then just on CapEx. Obviously you've laid out the parameters for the longer term. Given the material disposals we've had, obviously, in the last few years, has that had any impact on the maintenance CapEx element of that long-term guidance? Thanks.

Okay, Tim, look on price promise, I can't talk about what our competitors are doing. I think, for us, as I said it, it's market by market, it's making sure that our direct channels are effective, give value and that there's very clear messaging to our customers about where they get value, because at the moment there's been a lot of noise in some of the indirect channels which, frankly, don't give value because there is no price advantage. So, we'll continue to make sure that the message comes through and what we see is a very, very clear response from a lot of our guests. They like it and it gives them confidence to book direct. And I think the fact that we've effectively put the pricing on the website, if you go and have a look, you can see it, that show we give value, again is part of giving confidence to customers. So we shall continue to take that philosophy elsewhere and we'll continue to drive share.

Sure, Tim. So, absolutely ,in terms of the fact that we don't own these properties any more, means that we have a lower property CapEx element. But we've reflected that in the permanent CapEx and where we talk about in terms of maintenance and key running of $150 million means the balance is shifting a bit, it's going more towards maintenance of IT systems, our corporate IT systems and less towards property level capital. Of course ,we now avoid the lumpiness that we had in the past of major refurbishments that we saw at, say, Le Grande 10 years ago and then in London 2006, 2007 when we had to put in $100-odd-million of capital. So as they're no longer under our ownership that's not part of our cash flow any more.

But the IT side, it's still effectively needing incremental cash versus a few years ago?

To the margin, if you think of the big IT systems, say the GRS, for example, that's part of the system funded expenditure, so it's not in our IHG systems. But you do see a shift, it's just not huge.

There are no further questions so I'll hand you back to Richard Solomons to close today's conference. Please go ahead.