InterContinental Hotels Group PLC (IHG) Q4 2016 Earnings Report, Transcript and Summary

Welcome and thank you for standing by. At this time all participants will be in listen only mode until the question-and-answer session of today's call. [Operator Instructions]. This call is being recorded. If you have any objections you may disconnect at this point. I would now like to turn the call over to your host, Heather Woods. You may begin.

Good morning everyone. This is Heather Woods, Head of Investor Relations at IHG. I am joined this morning by Richard Solomons, Chief Executive; and Paul Edgecliffe-Johnson, Chief Financial Officer. Before I hand over to them for the discussion of our results, I need to remind you that in the following discussion the company may make certain forward-looking statements as defined under U.S. law. Please check this morning's press release and the Company's SEC filings for factors that could lead actual results to differ materially from any such forward-looking statements. With that, I'll now turn the call over to Richard Solomons.

Thank you, Heather. Good morning everyone. Recording of our 2016 full-year results presentation we gave this morning is on our website. So Paul and I will give you the highlights before opening up to Q&A. 2016 has been an unsettled year for the global economy and particularly the travel and leisure sector. Through the year, we saw multiple terrorist incidents impact travel in Europe as well as two major political events in the UK and U.S. the full implications of which are unclear. Despite this backdrop of considerable economic and political uncertainty, our resilient asset-light business delivered strong results. Before Paul talks through the details of our financial performance, I just wanted to remind you of the journey we have been on. We sold the majority of our owned hotels focusing on becoming an asset-light company. This created the resilience needed to weather the global recession since 2008 to 2010. In 2011, I introduced our winning strategy importance of which cannot be overstated particularly its enduring consistency over the past five years. Through disciplined application of our strategy, we made considered long-term sustainable investments across our business, each building on the growth platform; we've created over the past 13 years as a standalone company. In 2016, the five elements of our winning model remain the same. But we regularly refine our execution to meet ever-changing consumer trends and industry dynamics. This consistent incremental approach means we stay resolutely focused on doing what we do best creating deferred brands and delivering operational excellence which we believe is the best way to drive industry-leading returns for our shareholders. In our first year as a fully asset-light company, our low capital intensity and high quality fee streams continues to generate significant levels of cash flow. In line with our stated strategy of returning surplus cash and maintaining an efficient balance sheet, we have announced today a $400 million special dividend. And reflecting our confidence in the future, we've also increased our total ordinary annual dividend by 11%. Our last major disposal was in September 2015 and so this means we will return over $0.5 billion to shareholders in the first half of 2017 completely funded from underlying operations. I will hand over to Paul.

Thank you, Richard, and good morning everyone. We are pleased to report another year of strong financial performance. On an underlying basis, we translated 4.6% revenue growth into a 9.5% operating profit increase by leveraging the scalability of our asset-light business and by managing our cost base. This has allowed us to increase our fee margin by 250 basis points whilst continuing to invest for future growth. Interest charges were flat on last year and our reported tax rate remained at 30%. We expect our tax rate to stay in the low 30s for the next few years. Weighted average shares decreased following the share consolidation relating to the special dividend in mid-2016. In aggregate this enabled us to increase our underlying earnings per share by 23.1%. Looking now at our levers of growth, rooms and RevPAR. We added 40,000 rooms to the system. At the same time as adding these new high quality representations of our brands, we remain focused on removing underperforming hotels, exiting 17,000 rooms in the year. This took net system sized growth to 3.1% which combined with RevPAR growth of 1.8% drove total underlying fee revenue up 4.4%. To give you some more color, I will now take you through the performance in each of our regions in more detail. First the Americas region where U.S. industry demand has been at record levels for 69 of the last 70 months and supply remains slightly below the long-term average. Consequently, our hotels in the region are continuing to drive record occupancies of nearly 70%. In this environment, RevPAR was predominantly rate driven with Americas RevPAR up 2.1% and U.S. RevPAR up 1.8%. We continue to be impacted by our higher weighting towards the underperforming oil market, where 14% of our rooms are located compared to the industry's 11%. RevPAR in oil markets declined almost 8% in the year and over 6% in the fourth quarter compared to 2.2% growth in non-oil markets. We had expected to see a lower rate of decline in the fourth quarter given the easier comparable but the high rate of supply in the market lead to a continued decline in occupancy. In 2017 we expect ongoing elevated levels of new supply in these oil markets to continue to hold back their RevPAR growth. For the Americas region as a whole, underlying revenue was up 6% and profit was up 8%. Franchise profit grew 5% driven by strong RevPAR and rooms growth which more than funded our additional investments in development resources. Managed profit was flatted by an unusually high number of small liquidated damages received totaling $4 million in the second half of the year. This was offset by $8 million of costs relating to our 20% interest in the Intercontinental New York Barclay and the impact of high supply growth on RevPAR in New York City something we expect to continue to affect trading in this market in 2017. The Barclay continues to ramp-up after successful renovation and repositioning which means in 2017, we expect our joint venture cost will be broadly offset by growth in management fees. Regional overheads were $11 million lower than last year predominantly due to lower cost associated with high U.S. Healthcare schemes. We now have stop loss insurance in place to minimize future fluctuations. In Europe, RevPAR growth accelerated towards the end of the year, fourth quarter growth of 3.1% drove full-year growth of 1.7%. Our performance in France, Belgium, and Turkey continue to be impacted by security concerns. Excluding those markets, RevPAR in Europe grew 4%. On a relative RevPAR basis, we performed well outpacing industry growth in our priority markets. UK RevPAR grew 2.6% lead by the provinces up 4.5%. Fourth quarter RevPAR was particularly strong growing almost 5% with the weaker pound boosting tourist arrivals. In Germany, RevPAR grew 6.8% benefiting from a favorable trade fair calendar. Franchise profit grew 8% while managed profit declined due to the impact of two hotel exits and a refurbishment, along with weak trading in Paris following the terror attacks in November 2015. This led to underlying profit for the region as a whole being flat on 2015. Moving now to Asia, Middle East, and Africa where comparable RevPAR was broadly flat. Oil markets continue to have an impact on our overall trading with RevPAR for the Middle East falling 7%. Excluding the Middle East RevPAR grew 3.7%. Underlying revenue and profit were both down 4% impacted by disposal of an equity stake and the renewal of three hotels on to standard market terms. During the year, we opened 4,000 rooms, 60% of which were in developing markets. These markets while profitable still trade at a sizeable RevPAR discount. We are purposefully expanding into these developing markets where the long-term demand drivers are favorable to build a scale position which will drive strong future fee growth. This combined with a number of other individually insignificant items means we expect 2017 managed profit in EMEA to be in line with 2016. Turning now to Greater China, where we continue to outperform the industry. Comparable RevPAR increased 2.2% with Mainland China growing almost 4% and Tier 1 cities over 6% driven by strong corporate demand. The combination of our strong RevPAR net room's growth increased underlying fee revenues by 13% after the 8% increase in 2015. Our ongoing investment behind strengthening our deal-signing capabilities was more than offset by scale benefits and cost efficiencies driving underlying profit up 16%. Our strong performance in Greater China is a result of the strategic choices we have made position us to take full advantage of the long-term opportunity. We invested early to build the operational infrastructure needed to support rapid growth in what has become our second largest market. In 2011, we established Greater China as a standalone region to ensure it received the focus and resources it needed to secure IT position as the company's leading international hotel company. In the last five years, we've opened almost 40,000 rooms taking our total hotels opened in the region to almost 300 and become the most broadly penetrated international hotel company in the country. At $2.6 billion, China now delivers almost 10% of our global gross revenue and the same proportion of our fee revenue. We have continued to evolve our cost base as the business matures, investing and strengthening our operational capabilities, while finding efficiency to scale and still increasing our profits by 50% since 2011. That is all being done without the need to grow capital investment. Looking ahead, we already have a pipeline of 239 hotels with 70% under construction. We continue to see long-term demand for hotels increasing in Greater China, much of which will be in the midscale segment as rapid urbanization spreads from Tier 1 into Tier 2 and 3 cities. To ensure we take the maximum share of this growth we launched in 2016 our tailored franchising solution for HolidayInn Express. Under this model, we are able to capitalize on the benefits of franchising namely more rapid growth and access to a new owner base but also protect against the risk. We support our revenues in delivering against our brand standards by appointing the general manager by mandating that hotels use our performance support tools. We considered other options such as master franchising, but our model allows us to keep control to who we work with, where our hotels are located, and the pace at which we grow, while still retaining the full economic benefit of the fee stream. We believe this is a most value enhancing business models. We've seen immediate success with this approach. Since May, we've signed 20 HolidayInn Express franchise contracts all with new owners. We expect signings under the Franchise Plus model to continue to accelerate in 2017 and beyond. Moving back to the group level, I will spend some time now on our disciplined approach to both cost and capital. Since 2013, we've been able to hold overheads broadly flat as we've offset inflation in our cost base and investment behind growth initiatives with a rigorous focus on procurement and cost efficiencies. Through a strategic management of our cost, and our targeted approach to expansion, we improved our fee margins by 250 basis points in 2016 and some 500 basis points across the last three years. We will continue to focus on efficiency improvements while investing behind our operational capabilities which will enable us to continue to grow margin in 2017 albeit at a slower rate than the last few years. We've once again generated significant cash from operations with underlying free cash flow of $551 million. We've talked before about our priorities for the uses of cash. Our first focus is to reinvest capital into the business to drive growth. In 2016, we spend gross CapEx of $241 million and net CapEx of $185 million. Our overall CapEx guidance remains unchanged, it's up to $350 million gross per annum and $150 million net per annum. As well as using cash to reinvest behind our long-term growth, we continue to generate sufficient funds to support sustainable growth in the ordinary dividend. And for 2016 we're proposing $0.11 increase to $0.94 per share with our further cash available which has been truly surplus we said before we will return to shareholders. The $400 million special dividend we've announced today take the total return to some $12.8 billion, almost $5 billion of which has been generated from operational cash flows. Looking forward, our long-term funding sources are secure with our first bond debt maturity not for another five years. Every year, our fee based business model generates strong cash flows independent of asset sales. Excluding the contribution from owned hotels, our free cash flow has grown on average 14% per year since 2013. By leveraging the scale benefits of our business model and managing our cost to drive further fee margin growth, we would continue to generate significant levels of cash from operations, creating substantial funds for reinvestments or for future returns to shareholders. I'll now hand back to Richard who will talk more about our strategic progress this year.

Thanks, Paul. So going back to our consistent strategy that is delivering these results, the winning model is a virtuous circle of value creation. By leveraging our guest, owner, and industry insights, we invest behind our brands, technology, and people to drive long-term sustainable growth. Since becoming a standalone company, we've continued to build our clearly differentiated portfolio of preferred brands. We do this by enhancing our established brands launching new ones and expanding our presence in new markets. We strengthened our industry-leading loyalty program underpinned by our innovations in digital marketing and technology which is driving an ever increasing number of member bookings to our low cost direct channels. And we're reinforcing our owner proposition with leading operational support. So, I'll now focus on some of our successes from 2016 and how these continue to build IHG's competitive advantage, firstly our brands. Understanding travelers through extensive consumer research gives us the insights we need to accurately target our brands against specific guest needs. And this helps us to make genuinely distinctive and relevant and enables them to compete well against other hotels and of course other accommodation types. Creating and delivering a consistent experience through our preferred brand is at the heart of our commercial strategy. All consumer brands need to be refreshed and honed over time and hotel sector is no exception. Innovation is one important way we ensure they stay relevant and continue to gain share. So let me give you the highlights of the progress we made in 2016. Starting with InterContinental, which celebrated its 70th anniversary last year, we've continued to aggressively expand the brand globally keeping it relevant to the modern luxury traveler and we consolidated InterContinental's position as the largest luxury hotel brand in the world. With nearly twice as many open rooms as our nearest luxury competitor, we've leveraged this leadership position to drive guest satisfaction and RevPAR outperformance over the past five years, resulting in over 20% growth in total gross revenue. And the quality of the brand is recognized externally winning multiple industry accolades including Leading Hotel Brand at the World Traveler Awards for the eighth year running. We continue to strengthen our leading position signing 18 hotels around the world in 2016, our best performance in eight years. In 2017, we will expand our state further with 12 openings including hotels in LA, DC, and Singapore in each case the second InterContinental in these cities. As Paul detailed, our early investment in China is now delivering impressive results illustrating the vast scale of some Chinese cities, we opened our fifth InterContinental in Shanghai last year, the most hotels for the brand in any city globally. Our relentless focus on service quality guest experience means that InterContinental is now recognized as the number one luxury hotel brand in China overtaking Shangri-La. Moving now to HolidayInn, the engine of our business. Leveraging the multiyear refresh program, we launched in 2007, we had much success in recent years improving guest satisfaction and driving growth. The power of HolidayInn brand family cannot be overstated. At more than twice the scale of its nearest global competitor, it's a clear leader of the upper midscale segment representing a quarter of all open rooms and a third of the global pipeline. This segment remained a highly attractive market representing around 45% of future U.S. industry room revenue growth over the next decade. Following the success to refresh HolidayInn, we're delivering the next stage of the brand's transformation. We're continuing to evolve our room and public space design enhancing the overall guest experience and driving satisfaction scores up. Our Open Lobby is now in place in 50 HolidayInn Hotels in Europe; the number we expect to double by the end of 2017. By creating areas that enable more dweller time we're changing how guests use our hotels enhancing the enjoyment of their stay and encouraging them to spend more time and money with us which is leading to increased guest satisfaction and higher hotel revenues. The HolidayInn Express in the U.S. will continue to rollout our Formula Blue designs now in place for 175 hotels which is driving meaningful incremental RevPAR and improved guest satisfaction. By 2020, we expect two-thirds of our Open and pipeline HolidayInn Express state in the U.S. to have these designs in place. Moving now to Crowne Plaza where outside of the Americas open rooms have grown by 26% and guest satisfaction is up six points over the past five years. This progress continues to be recognized externally with the brand winning multiple prestigious awards in Asia and Europe including the world's best Airport Hotel at Changi in Singapore. We are making good progress on our plans in North America which will see us indebt $200 million in marketing and capital over the next three years which is designed to bring the quality of this estate up to the stand that we see in the rest of the world. Half of this will be system funded marketing which by 2018 will represent the 200% increase on historic levels of spend and be supported by dedicated commercial team. This capitalizes on the work we have done in cleaning up the estate to-date, one factor in the four point guest satisfaction increase that we have seen since 2012. We will invest up to $100 million on refurbishments and halo signings funded as by existing capital expenditure budget. We know this approach works where we've deployed capital to support refurbishments in recent years. Post renovation satisfaction scores have increased by eight points more from the rest of the estate. Although it takes time to reposition brands, we are already seeing results of these initiatives. In 2016 we were delighted that Crowne Plaza was awarded best upscale hotel brand in North America by Business Travel News up from eighth the previous year. So moving on to our boutique and lifestyle brands, in 2016, we saw momentum building with each of these taking them into new markets and growing traction with owners as we continue to demonstrate strong performance in guest preference. Firstly Hotel Indigo. We have grown our open rooms by 14% annually since 2011 reaching our 75th open property this year, including iconic locations in Bangkok and Singapore. And we continue to expand into new markets signing hotels in Australia and Japan and we look forward to opening our first Hotel Indigo Resort in Bali expected in the first half of this year. In 2012, we launched EVEN hotels, our wellness focus brand. Last year we opened three properties including our third owned asset located in Brooklyn and our first franchise hotel in Omaha. And as an example of the almost universally positive cash feedback for the brand, the EVEN Hotel Times Square South was named one of TripAdvisor's Top 25 Hotels in the U.S. in 2016. Building on this appeal, we signed a deal with our long-term partner Pro-invest to develop a portfolio of EVEN Hotels in Australia and New Zealand. Traction continues to grow for the brand in the U.S. with around 15 projects either in the pipeline or advanced negotiations. Last year, we opened our fourth HUALUXE hotel; the first international hotel brand designed specifically for Chinese travelers. Demonstrating the strength of the brand proposition, the entire portfolio is already achieving top 10 TripAdvisor rankings in their respective markets. This impressive performance is converting into demand from new owners. With our pipeline now standing at more than 20 hotels with three key openings expected in 2017. In early 2015 we acquired Kimpton Hotels & Restaurants to fill a gap in our portfolio at the upper end of the boutique space. Delivering on our aim of growing the brand internationally, we opened our first hotel outside of North America, the Seafire Resort & Spa in Grand Cayman. We also signed two Kimpton hotels in Paris and Amsterdam in 2016 the latter of which will open later this year. We have around 30 deals in the pipeline or under active negotiation globally a record level for the brand. That's an overview of some of the actions we have been taking to enhance preference, one pillar of our commercial strategy. Hopefully many of you dive into our Capital Markets event in September when Keith Barr and I covered the two other pillars of our commercial strategy, lifetime relationships and strong direct channels. Given the importance of these, I will just touch on some of the highlights from the full-year. We made major enhancements to our loyalty program creating a new elite top tier for our most loyal guests who stay more than 75 nights per year and introducing Your Rate in 2016 our preferential member pricing structure and we have seen very encouraging early results. Since launch, the relative change in our retail channel growth rates has outstripped that of the OTAs demonstrating the shift in behaviors guest recognize the advantage to them of booking direct. This has also driven increase to IHG Rewards Club enrolments, which were up 16% year-on-year. As well as growing our loyalty base, our existing members are staying with this more often and redeeming more points for their reward club stays. All of this has increased our loyalty contribution by over three points since 2014 delivering low cost, high quality revenues to our owners. Our direct digital channels remain one of the fastest growing across our system and we continue to innovate and update them. Recognizing guests desire for transparency, our websites now have over 2 million verified reviews from IHG Hotel stays. We now offer 87 brand and language combinations delivering over $4 billion of room revenues. Mobile continues to be the driver of growth with bookings reaching $1.6 billion in 2016 up by a third from 2015. Recognizing the increasing importance of mobile devices in consumers lives and using it where we can to enhance the guest experience, we now offer mobile checkout at 1,800 of our hotels. Powering this growth in mobile is our award-winning app which has now been downloaded over two million times with the year-on-year app bookings up 50%. Now all together our investment is aimed to increase the proportion of revenues delivered through our most cost effective channels. And with our strength in loyalty proposition we have increased our system contribution by three points since 2014. Finally, I wanted to touch on the continuing technological innovations that underpin our commercial strategy. We have now implemented or installing IHG Connect in over 1,800 hotels in the U.S. giving guests the seamless Wi-Fi login across our stay using their IHG Rewards Club credentials. Hotels that have adopted the system seen Wi-Fi related scores increase by five points since implementation. Ensuring our hotels adopt the most sophisticated revenue management practices will maximize our revenues and owners' returns. So in an approach fully endorsed by our owners association, we've mandated either the appointment of a certified revenue manager or subscription to our industry-leading revenue management for Hire Program. This approach continues to drive our performance in hotel signing up to our services in 2016 saw a six point uplift in RevPAR index post implementation. We talked at length at our September event about our next-generation guest reservation system that we are developing with Amadeus, and the benefits this would bring to owners, guests, and the IHG. And this multiyear transformational project is now nearing the end of its development phase and we are entering an intensive testing period. The project remains on budget and on track to begin piloting hotels this summer with roll out beginning in late 2017. So to summarize, we have a clear strategy guided by our winning model. This has allowed us to make consistent strategic choices and considerable long-term investments which have delivered outperformance in the past and will continue to generate sustainable growth into the future. Through disciplined execution of this strategy, we're driving operational excellence through our franchise performance support and management capabilities. By focusing on what we do best creating preferred brands and delivering operational excellence, we have improved guest satisfaction and owner returns. We continue to enhance our established brands and expand our boutique and lifestyle portfolio into high demand markets. This is underpinned by our innovative digital marketing and technology strategy protecting and strengthening our competitive advantage. These investments will continue to support our asset-light highly cash generative model which will allow us to drive superior shareholder returns. And though we recognize there remains uncertainty in some markets, we are confident in the outlook for the rest of the year as well as our ability to continue delivering long-term sustainable growth. So thanks for listening and with that, Paul and I will be more than happy to take your questions. So operator, we will go to questions, please.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. One moment please for the first question. And speakers we do have three questions on queue and our first question comes from Chris Agnew. Your line is now open.

Thanks very much. Good morning. First question and thank you for all the color around the direct booking initiatives. I was hoping to dig a little bit into that. One of your competitors has called out the sort of impact on RevPAR from member discounts. I don't know if you have sort about that and can may be quantify what impact it's been having and can you also what percentage -- what share is IHG digital delivery as a percentage of revenue and what was in 2016 and can you compare that to OTA share? And then finally, can you quantify what mobile represents as a percentage of digital delivery? Thanks.

Yes, mobile is about 1.6 billion of 4.3 billion if you take total digital. Another side it's grown basically a third on the prior year. So really accelerating and we've been very focused on mobile, I mean we prioritize investments in app and we saw that coming, I think we were the first big player to have that across every platform. And you asked a question about what was your first question again?

It's just on RevPAR. I think one of your competitors.

I don't think it's anything one can pull out or one can particularly say and really it's in the mix because what you're doing is you're driving -- you're driving direct, you are driving loyalty sales, you are driving -- our loyalty enrolments are up 16%. So there is a real benefit across the piece and obviously direct bookings significantly more profitable to owners, which is ultimately what we're trying to do. So I won't say even if it hit RevPAR a little bit which we really can't isolate, I wouldn't mind about that, that's just an external number whereas internally driving profitability to owners is what we are focused on. Paul, do you want to take the other one?

Yes, so Chris in terms of your question on channel contributions, digital has moved from in 2015 we're at 20.7% up to 21.4% and OTA has moved from 14% up to 15.6%. So what we've seen, we are bringing Your Rate is that with real change in the growth rate there. So our growth in the digital retail channel rate is up 5% and the OTA growth rate is down 2% since the launch, so definitely seeing business shifting across into our direct channels.

Thanks, Paul. And I'll just add Chris; I think what's important is that I mean this has been talked about in different ways, some of our competitors talked about in different ways. We are not anti-OTA. So I think what's important is it's a good channel for price sensitive leisure travelers who are never going to be brand owners, it's a great route to market for us but it's very expensive. And I have told them that, they know that. And so if it's incremental and positive profitable contribution then have that refined with that. But for a lot of guests, direct booking is preferable, they know what they are getting, they know who they are dealing with, we get rich data create and engage them with the brand and obviously again for owners it's much more profitable. So I think they are always going to exist in parallel. The important thing is you target it to the right guest. What you don't want is guests who are loyal or can be brand loyal booking through OTAs is too expensive for the owners and I think they work in tandem.

Thank you. And if I could ask one follow-up and just looking at your U.S. pipeline it's obviously strong pipeline 100 to several hundred thousand rooms and given your gross openings in 2016, 24,000 is it fair to assume that the gross openings should accelerate from here. And then also the -- I guess dispositions or the units removed from the system probably at the higher end of the range, I think you said 2% to 3% before, how should we think about that going forward. Thank you.

Yes, Paul do you want to pick that up.

Yes, so Chris, I mean in terms of the removals and we have said 2% to 3% on what we removed this year was probably in the mid-point of that range and it may vary a little bit year-on-year but I'd hope that we will start to see it come over time down towards the lower end of the range and may be some years where we have to nudge it up a bit, we want to say something else but on average I would expect to say it's come down a bit. And in terms of the openings we started really increasing the signings back from 2011, a lot of what we're signing is new builds. So it does take a period for that to come through and guest open but I would expect that to come through. And in terms of the U.S. we saw the highest rate of room openings in the U.S. in 2015 was seen for a very long time. So it is time to go through and I will expect in 2017 we will see more benefits in that.

Thank you. Our next question comes from Stephen Grambling. Your line is now open.

Thanks for taking the question. So you cited having a differentiated hotel experience as key part of the value proposition, I have some details on slide 53 about technology driving your commercial strategy. Can you just talk a little bit more about how these will translate into improving personalization of the guest experience and perhaps digging into any changes you've made or thought about with the reservation management system as you kind of approach the testing and rollout phase?

Yes that can be very long answer; I will give you a covered copy. I think personalization has many aspects to personalization, I think there used to be a sort of viewpoint well you personalized my stay; I just like green apples in my room when I arrive and it really isn't that. What it is that we see from the research that we do and customers we talk to is they just want to what they want is what they get across the stay. So if you want to walk into the hotel and be greeted and spend a lot of time with the front desk and be taken to your room then that will happen. If you want to have everything done online and just turnout then that can happen. And through technology certainly through digital use of the app, you can do an awful lot of different things to guests and we are piloting things like ordering online, complaining about problems in your room online for your app and so on. And it's knowing your customers better as well, whether it be the room they want, whether it would be time of checking, whatever it might be, there is just an awful you can do. What GRS will do it will give us a state-of-the-art reservation system which allows us to collect data, allows us to sell room attributes and staff attributes in a way that we just can't do today but we have an old mainframe system that works extremely well and extremely efficiently and but doesn't enable us to personalize or sell things in a different way much more in line with what we think guests will need in the future. So there is a lot of pieces to it. I think the important thing here there is a lot of things you can do with technology that actually aren't necessarily a big value to guests and might take up a lot of time and effort. So for example we know that mobile check out is much more attractive to guests than mobile check in. There's different reasons for that, so we focused on that and I think it's easy to get carried away by the art of the possible rather than the art of the relevant.

That's helpful and then I think you may have talked about this on the earlier call but may be if you can elaborate on any change in corporate behavior you may have seen post the U.S. election given the rebound we have seen in small and medium sized business confidence?

I think it is too early to say, Paul would you?

Yes, it really is I mean if you look in the January numbers as well Stephen and we did they weren't a bad set of numbers obviously some benefits from DC and inauguration in that and --

Big inauguration.

Yes, the huge inauguration but nothing really that I will read into the numbers other than that.

Thank you. And then on capital allocation priorities, can you just remind us of why the special dividend versus buyback and how should we think about excess capital going forward or cash going forward? Thank you.

Yes. So what we've said consistently is we think the right leverage ratio for the business is 2 to 2.5 times net debt-to-EBITDA and where we have cash that is genuinely surplus that we can't invest it in the business then we will return it to shareholders over the last 13 years now we've returned $12.8 billion of it. Some of that from disposals of assets and a very large proportion of it about $5 billion of it from operating cash flows in the business, this is about cash generation. We always evaluate how best to return fund, having returned $12.8 billion you have to use every mechanism at your disposal. What we know is quicker to do it as a special dividend; we're quite in a liquid stock now and returning that much stock is always a risk that we're the buyer in the market, which we don't like to be. So, as we look at this time we decided to do the special dividend with check consolidation doesn't mean that we completely rule out a buyback at some point in the future but on this return it's going to be a special dividend.

We talked to our shareholders about it. They are happy with the dividend as are we.

Thank you. Our next question comes from David Katz. Your line is now open.

Good afternoon, all, or good morning. Just a follow-up question on unit growth. Just looking -- we want to be careful not to look at just the total net unit growth and yours versus your competitors'. But when we do that, the net unit growth is a little bit lower than what some of the others have indicated. And I don't want to guess, but my perception is that there are some net removals in there, particularly in the Americas, that is sort of bringing down that net number. Can you just elaborate a bit more on what the strategies are for that? And have you done the math around, is it better to sort of place the standard in a different place and have greater unit growth versus more removals and lower unit growth and presumably a higher-quality REVPAR along the way?

Yes let me start and I'm sure Paul will add. Yes I mean unit growth has been little lower than Hilton and Marriott, so they are ahead of lot of other people. And I think you can talk to them about some of that yes of net at the gross level we're right up there and you are absolutely right, it is do with removals which we've not been shy about, we've talked a lot about and it has been consistent. Some of it has been historic cleanup but we are now in the point of very much very focused on maintaining growing quality. And I think in this business making no comment on competitors because we know what is really in there but from our perspective, we could easily add more rooms. But we are genuinely trying to create and are creating a high quality long-term sustainable growth business and our belief absolutely as I've talked about and you have heard me talk about over the years David, is you have to have brands that are consistent and truly deliver to guests through good and bad times. In good times it's easy to fill rooms but in bad times you do it because you got something they prefer and they will pay a premium for. In order to do that you have to be selective in hotels you bring in the vacations, the owners and the -- you have to be very rigorous in terms of what you removed. And I'm involved with retail businesses have been in the past and in any multi-unit retail business you have to refresh your estate. If you don't do that for whatever reasons your ownership doesn't want it or you're fixated on profit growth in the short-term you will damage the long-term value of the business and we have been very consistent about that. So obviously we always like to see higher system growth that's part of one of our key metrics but we aren't going to do it as expensive quality and future sustainability. Paul, do you want to pick up on the numbers or anything?

Yes, I mean if you look at the breakout of where the removals are coming through and where we are adding, you can see absence, outside of the Americas the other three regions is less than -- the removals are less than 1% of our business there. It's really just in the Americas where we are taking out the rooms. And as I said earlier you think that all will come down a little over time but as Richard said on a stick-build estate, you've got to continue to refresh it and make sure that those brands HolidayInn Express and Candlewood, in particular, they have a finite light when they're built. And so when it's time to move them on them we are adding better representation to the brand. And when you look at the number of signings that we're making which in the U.S. on a hotel basis was highest for a decade, there is an awful lot of demand for the brand. So we can do that, we can bring in more at the top and take a few out at the bottom.

So it is a balance obviously there is I think in a low growth environment where we generated 5% revenue growth to 10% profit growth, 23% earnings growth now think it's a balance we're comfortable with.

Understood. One more question, if I may just on -- and this is as much an industry question as it is related to you. There's certainly been a number of brands launched over the past positive cycle, and you have added some to your roster, as well. A two-part question. One, are we getting to a point where you think there are just too many brands out there? And if we look at some things that Hilton has done and what Marriott is going through, et cetera, it would seem that there are some brands in important categories for you where the competition is going to ramp. And I think privately they would say they're coming for you. What's your perspective or view about the brand landscape, particularly in limited services as it relates to Holiday Inn and Holiday Inn Express, and how you position yourself to compete going forward?

Okay. I think there are lot of brands out there and we say we've done our fair share of them. I think interesting couple of things I would say if they come in; first we're used to that, so not too worries. I think the way to think about brands is a little bit different. So we have tens how you count it -- 10 or 11 brands versus I think is 30 plus from Marriott and it's well into double-digit Hilton if you keep adding new brands and counting recently. And our view is what you want actually large and more powerful brands. So HolidayInn is the largest mid-market brand in the world by far, it's double the size of mix, InterContinental is double the size of the next luxury brand. And as I said it's performing extremely well overtaking Shangri-La as the top luxury brand in China turns a perception not just size. So being able to build owner awareness, customer awareness, scale, density, and marketing efficiency because marketing multiple brand is incredibly expensive versus marketing scale brands. And I think you see the consumer goods companies ducting and doubling down on big brands. So philosophically it's the right way to go. It's easy to add brands again from if you think about it purely from a supply perspective, from a guest perspective if your brand isn't meaningful and relevantly differentiated because I've been talking about then what we are doing is confusing them. So I think it's really important that you continue to -- we continue to take brands seriously, you've got intermediaries who would love to commoditize the industry and then more brands we got that don't stand for something the easier it is to intermediate them. And I think in the mid-market, we’ve obviously done an awful lot with HolidayInn and HolidayInn Express. We do see opportunity in the mid market to add a brand or two particularly as we get to scale in U.S. with HolidayInn and HolidayInn Express where there is always the limited number of places we can fill out, although the prior brand is still in -- well in the hundreds and we're continuing to grow those brands, as you know. So I think that's something we will continue to look at. But I think it's not just about number of brands, it's about the quality of what you’ve got.

Thank you. And we do have a follow-up question from Stephen Grambling. Your line is now open.

Hey, thanks for taking the follow-up. Perhaps I missed this but you called out franchise-plus signings and had some comments on what the new model brings to me. Can you just help clarify what the difference is between these franchise-plus contracts versus the standard contracts? Thanks.

Paul, do you want to pick that.

Yes, so we launched franchise plus in China for the HolidayInn and Express brand in May last year and we've signed 20 to-date. We mandate who the general manger is and we mandate that they use various of our tools which will help them deliver the service proposition. So it's the intermediate step between manage the franchise, you give more control over to the owner because that is what we're looking for but in an environment where there is still a little bit of education required and we want to maintain little bit more control, it works well for the owner and it works well for us and say very strong demand from owners and I'm sure it will yield a lot more contract in 2017.

That's helpful. Thanks.

I think it's important though that it's -- it's an important business model for us in Greater China and I think it's Paul has been saying it enables us to drive quality we're taking control of this business. Whereas others have gone for master franchising with local players which we don't think is a sensible route forward. But because we have scale and we have the quality operation out there, we can grow it and we can retain the economics which is what's important it's a bit get back to the earlier question Dave, about system size, we could drive system size to master franchising but it risks quality, it certainly doesn't drive the economics. So we are taking a slightly different approach in Greater China where I think our leadership position enables us to do that as opposed to having to play catch-up for accelerate growth artificially.

So thanks everybody. Appreciate the questions, appreciate you listening in obviously please follow-up with Heather and the IR team here if you got any more questions and hopefully we will see some of you when we're over there in the U.S. shortly. Thanks very much. Thank you, operator. We are done.

And that concludes today's conference. Thank you so much for your participation. You may now disconnect.