Earnings Call: H2 2015

Feb 23, 2016

Now, morning everyone. Thanks for joining us today, and welcome to our 2015 full year results presentation. In a moment, Paul will talk you through the financial details, but first let me just share some highlights from the year. So we continue to drive strong momentum behind our brand portfolio and across all four of our regions. Our best openings performance since 2009 took us past the 5,000 hotel mark, and solid RevPAR increases delivered underlying fee revenue growth of 8%. Given the backdrop of economic uncertainty around the world, particularly in the second half of the year, this strong performance demonstrates the resilience of our business. The top line growth that we delivered was underpinned, as always, by disciplined execution and a focus on cost efficiency. This allows us to invest in key areas of the business whilst at the same time growing our profit margins and free cash flow generation. In addition to trading cash flows, as you're no doubt all aware, we generated disposal proceeds of $1.3 billion in the year, effectively completing our very successful asset disposal program. Reflecting this, our confidence in the future, and our ongoing commitment to generating shareholder value, we today announced a $1.5 billion special dividend and a 10% increase in the total dividend. This will bring the cash we've returned to shareholders to over $12 billion since 2003, demonstrating the consistently cash generative nature of our high-quality business model, even before disposal proceeds. So I'll now hand over to Paul, and I'll return later to discuss the broader hospitality environment and how we're executing against our strategy. Well, thank you, Richard, and good morning everyone. We're pleased to report another year of strong performance with growth in all of our key financial metrics. The comparability of our total revenue and operating profit continues to be distorted by the impact of owned hotel disposals, managed leases, significant liquidated damages, the acquisition of Kimpton Hotels & Restaurants, and the impact of foreign exchange. I will therefore focus my commentary today on our underlying numbers after these adjustments and using constant 2014 exchange rates, as this will give the clearest explanation of our financial performance. On that basis, we translated 8% revenue growth into an 11% profit increase by leveraging the scalability of our asset-light business and continuing our focus on disciplined cost management. Higher interest charges were due to bridge financing for the Kimpton acquisition, which we subsequently refinanced with a new 10-year 300 million pound sterling bond. Our effective tax rate decreased by one point to 30%, and we expect it to remain in the low 30s for the next few years. Weighted average shares decreased following the share consolidation relating to the special dividend in mid 2014. In aggregate, this enabled us to increase our underlying earnings per share to 167.3 cents, an increase of 19%. Looking now to our levers of growth. Our hotels operated at record occupancies of almost 70% in 2015, which meant that our RevPAR growth of 4.4% was predominantly rate driven. This is on a comparable basis, and so excludes the impact of hotels ramping up, particularly in lower RevPAR developing markets. Our total RevPAR, including these hotels, was slightly lower at 3.8%. Across the year, we added 56,000 rooms, increasing our system size by 4.8%, which includes those added when we acquired Kimpton. Excluding these, we delivered 3.2% growth. We also removed 22,000 rooms as we continue to focus on maintaining the quality of our portfolio. We expect our removals rate to remain in the range of 2%-3% of system size in the near term. Each one of our regions drove strong growth in fee revenues in the year, reflecting the quality of our earnings delivered by our asset-light model where revenue growth is a product of changes in both rooms and RevPAR. Including Kimpton, fee revenue increased by over 12% at a group level, driven by the additional managed revenue in our Americas business. This takes our two-year fee growth to nearly 20%, demonstrating the value being delivered from new as well as existing rooms. This is highlighted by our Greater China region, where over the past two years we have delivered fee growth of more than 17% despite slower RevPAR performance. To give some more context as to how and where we drove this growth, I will now take you through the performance in each of our regions in more detail. Firstly, the Americas, where with the exception of August, industry demand in the U.S. has been at record levels for 57 months. As a consequence, our hotels in the region are driving record occupancies of nearly 70%. In this environment, we were able to deliver solid rate growth, taking U.S. RevPAR up 4.7%. This performance moderated somewhat in the fourth quarter, where the impact of lower oil prices on the wider economy was seen across the industry. We are overweight to the oil producing states, with 14% of our rooms located there compared to 11% for the industry. Our oil market RevPAR declined 10% in the fourth quarter compared to almost 5% growth for the rest of the estate. Underlying profit was up 10%, with strong growth in royalty fees impacted by $4 million of costs relating to our 20% joint venture share of InterContinental New York Barclay. The refurbishment of this hotel is progressing well, and we look forward to it reopening towards the middle of this year. Ahead of this, we will incur $6 million of costs, which will help drive the longer-term profitability of the hotel. Once fully ramped up, we continue to expect it to generate annual fees of approximately $7 million. With sustained availability of debt for high-quality projects and continued demand for our brand's owners, we delivered our third successive year of signing more than 300 hotels. This included six deals for EVEN Hotels, notably a dual-branded property with Staybridge Suites in Seattle, adjacent to the new Amazon campus. To continue accelerating our signings pace and to support the openings of our pipeline hotels, in 2016, we plan to invest a further $7 million, primarily into strengthening our franchise development team. In Europe, our focus markets continue to perform well. RevPAR growth was up over 5% in the U.K., led by the provinces, with steady growth in London. Germany also delivered robust growth, benefiting from a favorable trade fair calendar, which will continue to be strong into 2016. RevPAR across the rest of Europe grew in the mid-single digits, despite the recent terrorist attacks in Paris. Although we expect to continue to see some impact in 2016, less than 3% of our Europe rooms are located in the city. This solid trading performance, along with good system growth, drove fee revenues up over 7%, translating into underlying profit growth of 23%. This reflects cost efficiencies and the streamlining of our mainstream European operations, which will allow us to expand our brands more quickly whilst focusing our management expertise on only the most profitable hotels. We signed 9,000 rooms, over 25% of which were in Germany, where we are now driving real success. We have adapted our strategy to reflect local market dynamics and are investing behind our franchise development team on the ground and strengthening relationships with our multi-development partners. We are now seeing the benefits of this approach, delivering a second consecutive record year of signings, nearly all of which will be new build Holiday Inn brand family properties in key cities. Moving now to Asia, Middle East, and Africa, where comparable RevPAR increased 4.5%. As a particularly diverse region, trading varied significantly across our key markets. Japan led the way as it continues to benefit from increased inbound travel, particularly from China. We also saw robust trading in Australia and Southeast Asia. Despite a solid performance for most of the year, the Middle East was negatively impacted in the fourth quarter by lower oil prices, the timing of Hajj in Saudi Arabia, and continued high supply growth in the U.A.E. Of the 7,000 new rooms we opened, nearly 3,000 are located in Mecca, Saudi Arabia, where we also signed a further 3,500 rooms into our pipeline. This will give us a leading position in this key destination, but the highly seasonal demand in this market will be reflected in the fee contribution from these hotels. Underlying profits grew by 9%, driven by a robust trading performance and the contribution from the new rooms we added, more than half of which opened in the fourth quarter. Turning now to Greater China, where our strong brands and operational excellence have driven continued industry outperformance. Underlying revenue growth of 8% reflects not just the strength of our comparable estate, but also the value being delivered from the 20,000 rooms we have added in the region over the past two years. In order to position us to achieve outperformance into the future, as previously disclosed, we invested $5 million in strengthening our operational capabilities. Together with the non-recurrence of $5 million of one-off upsides in 2014, this resulted in an underlying profit decrease of 11%. As China makes its transition to a consumption-led economy, we are seeing the impact of this on the hotel development environment in the form of some clear trends. Firstly, the government is encouraging the creation of leisure destinations to capture the significant growth in private consumption. Our broad portfolio of brands is helping us to capitalize on this, and in 2015, we signed around 4,000 rooms in prime leisure markets such as Sanya and Kunming. Secondly, we have talked before about our strategy for growth in tier 2 and tier 3 cities. While the supply-demand equation is imbalanced in these markets today, the long-term demand for hotels that will be driven by a growing middle class and rapid urbanization is compelling. Much of this demand will be in the mid-scale segment, and with 142 Holiday Inn brand family hotels open and a further 114 in the pipeline across the region, IHG has the leading presence by far. Thirdly, given the competitive trading conditions in many markets, several of the weaker competitor brands and independent hotels are struggling. Our operational excellence, combined with our strong, established brands, have allowed us to take advantage of this situation, converting nearly 3,000 rooms in the year into IHG's portfolio as owners look to our brands to drive returns. A great example of this is Crowne Plaza Sanya City Center, a 495 room hotel that we rebranded in the fourth quarter, where we are already driving a significant uplift in performance. We demonstrated our adaptability in 2015, signing more than 65 hotels and opening more than 30, significantly ahead of any of our international competitors in the region. Whilst some hotel developers may be more cautious in the current environment, we remain confident in the strength of our brands and our ability to deliver good growth into the future. This reflects our relationship with well-financed owners who are demonstrating their preference for IHG's brands and their trust in our ability to deliver strong returns. Looking now at the shape of our RevPAR performance in Greater China. In mainland tier 1 cities where the hotel market is further along the maturity curve, we drove RevPAR up 6% as supply increases moderate and demand remains robust. Conversely, while tier 2, 3, and 4 markets are also seeing substantial demand increases, this is being broadly matched by new supply growth, albeit from a much smaller base. As these markets mature, we would expect the supply-demand ratio to tip the other way, leading to a more favorable RevPAR picture and creating the greatest overall long-term opportunity. Once again, our leading scale position means that we are well-placed to capture this demand. Market specific issues negatively impacted trading across the industry in Hong Kong and Macau, which continue to be a drag on RevPAR growth for the region as a whole. Excluding these two markets, mainland China RevPAR increased 2.9%. Moving back to the group level and looking at our fee margin. Our discipline focused on costs, combined with our targeted approach to expansion and a low capital intensity model, have allowed us to increase our reported fee margin by 160 basis points while continuing to invest for future growth. Leveraging our scale and optimizing our business model while focusing on procurement and cost efficiency will allow us to continue to grow margin over the medium term. We have balanced this longer term view by making further investment in China in 2015, increasing our operational capability in this fast-growing region. Fee margin has increased by an average of 125 basis points per year since 2004, and we expect this trend to continue into 2016. As a result of our strong trading performance in all regions and focus on growing our fee margins, our business model continues to generate significant amounts of cash. In 2015, free cash flow was $466 million, covering our dividend by more than 2 times. This was on top of the funds raised from asset sales. Over the last 18 months, I've set out the detail of our capital expenditure philosophy and medium-term guidance across our three categories of spend. In 2015, we executed against this approach with gross CapEx of $264 million and net $226 million, including our investment in InterContinental New York Barclay. Our guidance remains unchanged at $350 million gross, and we expect our recyclable investments to even out over the medium term, resulting in $150 million net per annum. But in the short term, this type of expenditure will continue to be lumpy. In 2016, we expect to spend around $100 million of system-funded CapEx, the majority relating to our new cloud-based guest reservation system. As well as reinvesting capital behind our brands, we continue to generate significant funds to support sustainable growth in the ordinary dividend, which in 2015, we increased by 10% to $0.85 per share. This takes our compound annual growth rate to 11% since 2004. Finally, where cash is deemed truly surplus, we will return it to shareholders. Therefore, we are also proposing the return of $1.5 billion via a special dividend with share consolidation. This reflects the proceeds from asset sales and allows us to releverage our balance sheet towards the top end of our 2 to 2.5 times net debt to EBITDA range. This continues our strong track record of returning funds to our shareholders over the past 11 years. Although some of this cash came from asset sale proceeds, a significant proportion was driven by the underlying business. Since 2010, independent of asset sales, we have generated over $2.5 billion of free cash flow, averaging $425 million per year. Over 95% of our profits are now generated from our fee business. This, combined with the scale benefits of our model and disciplined execution driving further fee margin growth, will continue to generate significant levels of cash from operations, creating substantial funds for reinvestment or further returns to shareholders. I will now hand back to Richard, who will talk more about our strategic progress this year. Thanks, Paul. Given that we've now pretty much completed our asset disposal program, I thought I'd talk for a few minutes about our achievements over the last few years. I'll then focus on our deliberate and ongoing execution against our strategy, how we see the wider accommodation market, and why we're confident that we'll continue to drive high quality growth. Since the merger, IHG has outperformed on the two primary metrics of rooms and revenue growth. We've always been very focused on the quality of our estate, hence a historically higher level of removals than our competitors. But even with that, we've driven net system growth above 3%, well ahead of the total industry. For IHG as a brand owner, whilst RevPAR is obviously important, growing share of revenues is far more relevant, as it is this which demonstrates the underlying strength of our brands, and of course, revenues directly drive more than 85% of our fees. Playing in the most valuable segments, combined with the premium our brands deliver in the marketplace, means that IHG outperforms the industry significantly. Our transition to a predominantly fee-based business reflects our long-term strategy and has enabled us to drive consistent growth, more than doubling fee revenue since 2004, up to $1.3 billion last year. One of the attractive aspects of IHG's business model is our ability to grow fast, whilst at the same time leveraging our scale to improve profit margins and generate surplus cash. This, combined with asset disposals, has enabled us to improve our return on capital employed from less than 10% to 57% in 2015. We have clearly demonstrated over an extended period of time that IHG is able to create significant shareholder value through targeted organic growth. This is supplemented with bolt-on acquisitions when they enhance our brand portfolio. For example, our acquisition of Kimpton Hotels & Restaurants last year. I first presented what I call our winning strategy in 2011. Since that time, it has consistently guided the actions which have driven our growth, and it remains valid for the future. This does not mean, of course, that the hospitality business and IHG will not change as the consumer landscape evolves. However, what it does mean is that our core strengths and capabilities will remain at the heart of what drives our success. These include a portfolio of strong brands, the ability to leverage our scale, understanding our customers, offering them superior experiences, and effectively managing distribution channels, all of which I will talk about today. First, given the talk of disruptors and change in every industry, I thought it would be helpful to put travel and tourism into context. Travel and tourism is one of the five largest industries in the world, generating an annual direct GDP contribution of $2.4 trillion. This number has grown steadily for many years, and by 2025, is forecast to represent over 10% of global GDP. It is a top generator of jobs and tax receipts in most economies too, which explains why governments continue to focus on and support it, both financially and in terms of regulation. The growth in the sector is driven by a number of tailwinds, which have existed for some time and benefit the hotel business directly. We have talked about them before, but they still hold true and will continue to drive hotel revenue growth ahead of GDP. They include growing disposable income, an aging population, lower cost air travel, and emerging market expansion. Let me talk now about the market in which we compete. The accommodation space is a diverse landscape with a number of different segments meeting a wide variety of guest needs. Hotels are by far the largest segment, with branded hotels generating the fastest revenue growth of all. The cruise and vacation ownership or timeshare segments have also grown materially over the last decade or so, but combined, they only represent 12% of the market and are wholly leisure oriented. Then there is short-term home rental, representing 17% of the market, with a growth rate in line with cruise and behind branded hotels. It is worth remembering that this segment is only a quarter of the size of the hotel industry. What the new intermediaries have done is to aggregate existing supply, cause the addition of new supply, and importantly, made it easier to search and book. This, in turn, has brought in some new lodging customers, which is not surprising given that a significant proportion of the global population have never stayed in a hotel. It is important to understand what is going on here from a demand perspective, not just the supply side. The non-hotel lodging market appeals to a subsegment of guests skewed heavily to leisure customers, mainly seeking a short break experience, family time, and more generally, a longer-term stay. These needs are met in a number of ways across a spectrum of products and experiences. At the hard branded end of the spectrum, there are the extended stay products, Staybridge Suites and Candlewood Suites in IHG's case. As you start moving away from this, you get to branded serviced apartments such as InterContinental and Crowne Plaza Residences. In pure leisure markets, you have vacation ownership products such as Holiday Inn Club Vacations, and moving further along the spectrum, there are pure play apartment brands such as Ascott Apartments. At the far end of the spectrum are the short-term home rental businesses like HomeAway, Airbnb, onefinestay, and so on. So non-hotel accommodation is a broad sector with guest needs met by many suppliers in many different ways. Whilst the segment is growing and adding supply, it is not new, and we will continue to compete effectively in it, where we have a competitive advantage today, or we can build one in the future. So getting back to our core business, it is helpful to understand where hotel revenue opportunities will be in order for us to use our resources most effectively to maximize profitable growth. Growth and demand for hotels is not evenly distributed around the world, and the biggest opportunities lie in just 10 markets. Nearly 90% of our pipeline is in these locations, which are expected to contribute 80% of the increase in industry rooms revenue during the next 10 years. Nearly 50% of the industry growth is expected to come from the U.S. and Greater China alone, the two markets where we are strongest and most concentrated. Our powerful positions in the biggest opportunity markets have enabled us to accelerate our pace of growth. Gross openings have surpassed 40,000 rooms in each of the last two years, and our signings have also stepped up during the same period. This demonstrates the strong momentum behind our brands, aided by sophisticated market planning and a growing development team, combined with long-term owner preference due to the returns that we help them generate. Our pipeline is now over 210,000 rooms. This represents 15% of the total industry pipeline and is more than three times our current share of industry supply, positioning us well to continue delivering market share growth into the future. I have talked on several occasions about the nine needs-based segments we have identified and how we use our understanding of these to create differentiated guest experiences. Across our brand portfolio, we are able to meet all the principal identified needs, ranging, for example, from a romantic getaway at the luxury price point with InterContinental, to a family holiday at the mainstream price point with Holiday Inn. Part and parcel of maintaining a relevant brand portfolio is developing and rolling out new brands to meet evolving guest needs. in 2015, we accelerated growth in EVEN Hotels and opened that brand's first hotel in Manhattan. In addition, we opened our first three Hualuxe hotels in Greater China, with a further 9 expected to open in the next 2 years. Managing any hotel brand requires innovation and change to keep it fresh and relevant to guests, to drive higher levels of satisfaction and open up new avenues for growth. Let us now look at a few of our recent innovations that are already being rolled out. Our boutique portfolio targets a high opportunity segment where guests are seeking unique experiences. It is now just over a year since we acquired Kimpton, and we have already begun to demonstrate our ability to leverage the IHG system to accelerate the brand's performance and global footprint. Since the acquisition, we have worked on integrating the back office, understanding how we increase the brand scale, whilst at all times maintaining the unique elements which make it so popular with guests. The integration is progressing well with Kimpton content now live on the IHG website and app and becoming embedded in our sales channels. We have also scaled up our development activity for the brand in the Americas and implemented localized design and operating principles for our other regions. This will ensure Kimpton properties are adapted to specific market tastes outside the U.S., a key aspect of successfully taking any brand global. Becoming part of the IHG family with our scale and all that we stand for delivered a record year for Kimpton with the most signings and openings ever achieved by the brand, including the recently opened Hotel Van Zandt in Austin, Texas. In January 2016, we announced a Kimpton hotel for Amsterdam, the first for the brand outside the Americas. One of the principal rationales for the acquisition was the opportunity to drive global growth, so this is a great start. We are currently seeing very encouraging demand from owners all over the world and are working on a number of new deals in the Americas, as well as more than 10 in major cities across our other three regions. The growth opportunities globally in the boutique sector have also been proven through the expanding presence of our other boutique brand, Hotel Indigo. Earlier in the year, we opened a property in Bangkok, our first for the brand in Asia, Middle East, Africa, giving it a presence now in all four of our regions. We also added a new halo asset in Manhattan with Hotel Indigo Lower East Side, which was IHG's 5,000th hotel and is another great representation of the brand. In fact, both this hotel and the new EVEN are today ranked number 7 and number 8 respectively out of 466 hotels in New York City. A remarkable result for such new hotels and a great demonstration of how our brands really meet guest needs and the strength of our hotel operations team. With all the talk of our newer brands, let us not forget that the Holiday Inn brand family is the biggest hotel brand in the world by a factor of 2 and the core of our business. I've talked before about Holiday Inn and the progress we're making with our open lobby rollout. Today I'm going to focus on Holiday Inn Express, a brand with particularly strong momentum behind it. We've delivered compound annual net rooms growth 5% over the last three years, and this trend looks set to continue with room signings accelerating to 29,000 in 2015, nearly double the level of 2010. To continue this momentum, we've evolved the brand design to meet changing owner and guest needs. Clearly, we use guest feedback and customer research when designing these changes, but we also work closely with our owners to ensure we get deep insight into the operational and cost aspects of any improvements we make. As more guests move towards using mobile devices, rooms have been redesigned to place more emphasis on comfort and a flexible workspace, providing a productive business environment whilst ensuring little touches are spot on to provide a great night's sleep. In addition, to maximize usage of the public areas throughout the day, they've been adapted to add comfort and facilities to attract more guests and increase revenues. Our design in the U.S., Formula Blue, has received overwhelmingly positive feedback, and specifically, satisfaction scores for the new guest room are eight points higher than the brand average. The design is mandatory for new signings and property improvement plans as licenses come up for renewal, with roughly 70% of the estate expected to have it installed by the end of 2020. The next generation design in Europe is in place at 19 properties so far, and we're already seeing great results, with guest satisfaction increasing by up to 10 points. Approximately 70% of the hotels in the region will have moved on to the new design by the end of 2018. I mentioned Holiday Inn Club Vacations earlier, our fast-growing U.S. vacation ownership brand, which we launched in 2008 to capture the increasing level of leisure demand, and in particular, the need for family time. Using the asset-light model, it allows us to access the significant vacation ownership opportunity without impacting the nature of our business and the high quality of earnings it generates. A number of the resorts are in high barrier to entry, high demand locations such as Orlando and Las Vegas, so they also broaden our IHG Rewards Club offering, giving our loyal members a wider variety of options when redeeming points. In addition, the Club Vacations brand builds strong loyalty with property owners, who are more than twice as likely to stay at another IHG branded hotel than the average guest. Since launching seven years ago, we've grown to 16 resorts with 5,000 villas, including a fantastic destination in Cape Canaveral. The growth has all been achieved through our strategic partnership with Orange Lake Resorts, who recognize the revenue benefit we deliver to them through the power of the Holiday Inn brand and IHG's distribution systems. We are delighted that the Orange Lake team has recently acquired 13 additional resorts, including 3,000 villas, all of which we expect to be rebranded to Holiday Inn Club Vacations by the end of this year. Having preferred brands is only one part of our winning model. They need to be supported by strong delivery systems, a powerful loyalty program, and digital capability. I have talked before about the importance of being able to deliver against guest needs through the entirety of their journey and the vital role technology plays in this. IHG has got a long track record of innovation, and we are continuing to invest in this area to ensure we remain at the forefront of the industry and meet the needs of current and future guests. A great example of this is the next generation guest reservation system that we are developing with Amadeus, which is on track for a phased 2017 launch. As we have said before, this will allow us to evolve our own bespoke systems, which will be connected through a separate state-of-the-art interface. Our aim is to deliver a flexible global hotel technology solution providing significant value to our guests, owners, and hotel colleagues. I will give you a bit more color on some of the benefits it will deliver. Across the entire guest stay, a huge advantage of the new GRS system will be the way it has been designed from inception to allow quick and agile development. This means we will be able to adapt to evolving guest needs faster and provide more personalization and individual options, which is increasingly critical to drive meaningful relationships, a topic I will touch more on later. As a simple example of the new system's functionality, guests will be able to select a stay experience meeting their specific requirements by mixing and matching from a wider range of choices. This will include room attributes such as distance to the lift, package combinations, for example, a spa treatment or tennis lesson, and stay terms such as checkout time. This flexibility will directly benefit unit profitability, as it will be much simpler to use sophisticated revenue management techniques such as pricing room attributes individually by view, size, floor, and in-room facilities. This has two benefits for owners. Firstly, it will ensure price can be optimized for every room sold, but as importantly, it will drive more revenue through our direct channels as guests will have the most choice when booking direct. Whilst the general focus for the reservation system is around the booking experience, it will also enhance the guest stay by providing improved functionality to our hotel teams. The availability of industry leading tools to our frontline staff is vital to delivering preferred experiences. This is just one example of how we are doing this. Alongside the technology innovation, we continue to strengthen our loyalty program and digital channels to drive low cost revenue to our hotels. One of the fundamentals of building loyalty among guests is ensuring they receive the best price available for rooms. I have talked before about one initiative we are running, our lowest price promise trial, which was initially launched for our Holiday Inn Express U.K. estate. By demonstrating a clear price benefit from booking direct and communicating the message in a targeted manner, we drove a 20% shift in bookings from online travel agents to direct channels, more than doubled online loyalty enrollments, and improved total hotel revenue performance at the same time. To support our messaging to consumers in this campaign, we utilized programmatic marketing, just one way that we are delivering more personalized content to potential guests to optimize booking behaviors. For example, we focused on those consumers that have visited both our website and online travel agents. We then displayed specific messages to them highlighting the benefits of booking direct. Following the positive results from our lowest price promise, it has been rolled out to all of our brands in Germany and France, and we have completed pilots in the U.S. and Asia, Middle East, Africa. Our digital channels deliver 20% of IHG's hotel revenues, some $4 billion per annum. The initiatives we put in place over the last two years have started to really accelerate growth, with revenues up by $430 million in 2015 alone. This growth is driven by bookings on both desktop and mobile devices, with the latter benefiting from the penetration of our app, which was downloaded 1.8 million times in 2015, up more than 25% year-on-year. Over 40% of our website visits are now through mobile devices, and in 2015, we generated over $1.2 billion in gross revenue through this channel. A staggering amount considering it was only introduced six years ago. Mobile is not only important for bookings, but it also offers the opportunity to provide digital services which enhance the guest stay. We have been piloting guest request over the last 12 months, a new tool which addresses problem resolution, an area which has a huge impact on overall guest satisfaction. Guest request allows users to contact hotel staff through a number of channels, including the IHG app, whether it be to ask for new towels or to report a problem. Making the request process easier for guests and making resolution tracking easier for hotel staff has led to a far better outcome, with guest satisfaction up five points, a very significant behavior-changing number from a very simple program. Alongside problem resolution, another major driver of guest satisfaction is internet access. Recognizing this, we have already introduced free internet for all IHG Rewards Club members, and now we will be launching a new enhanced service. IHG Connect will provide a seamless internet experience for all guests, but particularly for our loyalty members who will be able to walk into any one of our hotels and access the Wi-Fi through simply entering their IHG Rewards Club credentials. The technology to provide this service is already being rolled out and is expected to be live in over 1,500 North American hotels by the end of this year. We are also looking to develop the guest experience further by introducing individual landing pages after login. These will combine our member insight with more digital innovation to provide greater personalization for our loyal guests. Last month, we launched our latest annual trends report, which focuses on the ability to drive significant brand preference through connecting guests in a meaningful way to the brand, what we call meaningful membership. It recognizes that consumers seek both individuality and inclusivity, and if you can achieve that, you start to create genuine loyalty. A key part of creating this engagement involves humanizing guests' personal involvement with our brands. Much of this can be achieved during the hotel stay, but this is just one stage of their journey. We also have to find a way to engage through digital content in a trustworthy manner to make consumers feel connected and involved. Recognizing this, we have increased our social media presence to 200 countries, and our own online review portal had more reviews for IHG hotels than any other website in 2015, with over 1 million now in total. This demonstrates the strength of our brand following and that guests value the opinions of fellow brand users more than those of strangers. We now have approximately 5 million social media followers, and last year we had two particularly successful campaigns for the Holiday Inn brand family. These drove a double-digit increase in awareness of the Holiday Inn brand and generated nearly 300 million impressions for the Holiday Inn Express Stay Smart campaign in the U.S. However, just creating digital communities alone is not enough. We leverage IHG Rewards Club to drive genuine loyalty to individual brands and as far as possible to the IHG brand family as a whole. We continue to build on the relaunch of Rewards Club in 2013 by offering increased personalization and encouraging a deeper relationship, always underpinned by the inclusivity of belonging to the largest hotel program in the world. Just one example of how we have increased personalization is through our latest global marketing campaign called Accelerate, which leverages the data we have on our members to provide offers specifically relevant to them. This has really resonated, driving our best results yet from this type of campaign, with proactive member registration up 35% year on year and revenue of more than half a billion dollars. Meanwhile, the launch of Spire Elite earlier in the year specifically plays to the desire of consumers to move up the loyalty ladder. Aimed at guests who stay with us over 75 nights a year, Spire Elite is a truly aspirational tier aimed at only our most loyal guests. The launch of this new tier, alongside other initiatives, has increased our member recognition scores to all-time highs and demonstrates the progress we are making in moving guest interactions from transactional to relationship based. To summarize, clearly there is some macro uncertainty in the world at the moment, but the fundamentals for the hotel industry remain positive, with a number of well-established tailwinds creating significant opportunities. IHG remains in a strong position. We have made clear strategic choices and are executing against these with focused investment, which has delivered outperformance in the past and will continue to do so into the future. At the heart of this is recognizing that guest and owner needs continue to evolve and adapting accordingly. We are doing this by innovating our brands and technology to ensure we meet the whole range of guest stay occasions and deliver low cost, profitable revenue to our hotels. We have a highly cash generative business model which generates sufficient funds to enable us to continue driving growth as well as making returns to shareholders. We look forward to the future with confidence. Thank you. With that, Paul and I will be happy to take your questions. Tim. Hi, it's James Ainley from Citi. Two questions, please. Your peers and some of the OTAs have talked about recent trends in Europe, and obviously you were impacted by Paris attacks. More broadly, there seems to have been some impact across Europe. Can you talk about how the market's evolved since then? I think your peers have referenced some steady improvements coming through. Would you agree with that? Secondly, when we talk about the lowest price promise, what's been the response from your OTA partners to that? Is there anything stopping you from a full-scale rollout across the business? I'll take the second one first, and then Paul, you can pick up on. Response has been fine from the OTAs in terms of your question about lowest price. I think it's about horses for courses. The OTAs are important partners to us. They're not a massive piece of the business, but they're important. We look upon them as the way to access business we couldn't otherwise get. They're primarily price-sensitive leisure travelers who we could never effectively afford to talk to in a sensible way. As long as their business is incremental to our hotels and profitable, then that's fine, right? There's a direct booking and OTAs will exist side by side very easily. It's just about making sure you're targeting the right customers, and that's how they see it, and that's how we see it. In terms of the terrorist attacks of Paris and the impact more broadly, we think that it will continue to improve through the year. There is still an impact in the first quarter for sure, and November and December will wane. So far we are seeing it as being contained to Paris. A lot of our business in France is in Paris, so there isn't a lot for it to spread out to across the rest of the country. We're not seeing it come to the other European capitals yet. Okay, Jamie. Thanks. Good morning. Jamie Rollo from Morgan Stanley. Just two questions, please. First, just continuing the current trading theme on the U.S., could you talk a bit about maybe some recent color on how things are going this year, how corporate rate negotiations went, group booking pace, that sort of stuff. Secondly, you talked about another year of 120, 130 basis points of margin growth. I am just wondering what gives you the confidence behind that, and if you could talk a bit about the cost flexibility in the business and what the plan there might be if revenue does not come in as expected. Thank you. Do you want to pick those up, Paul? Yeah. In terms of current trading, you have seen what the outlook statement is, and in terms of booking pace, we have relatively limited visibility at this point in the year. But we are seeing about six points up on 2015, and in our corporate rate negotiations, we are seeing rates come in 3%-4% ahead of where we were in 2015. So there is nothing there that gives us concern. As I say, we are still in February, so it is early in the year. In terms of margins, across the last 11, 12 years, we have grown margins at an average of 125 basis points. This year, 2015 was 160 or constant currency 130. As we look at the way that our business works and our continued disciplined approach to costs, we do think we can continue to grow margins out into 2016. In terms of the question as to what we did in prior downturn, would we have the flexibility to do that? The great majority of our costs are people related, so we still have that flexibility. Our business is a little different now with much less owned and leased exposure, without our HPT contract in the same way. So, it's a higher quality of earnings that we have now. I think I'd just add that we have seen several years of growth. We're in an industry that doesn't grow at a constant rate. We've seen that for many, many years. I think the interesting thing, though, is the momentum that we've got in signings and commitment to the hotel industry by owners all around the world. We are at a record level of openings, record since 2009 in terms of openings, in 2008 in terms of signings. So the people who are putting the money into real estate are very positive about the long term of the industry. Doesn't mean you might not see short-term ups and downs. That's the nature of it. Long term, the tailwinds I talked about, I think are supported by the investment going into the industry. Yeah. Hi, it's Vicky Stern, Barclays. I can't quite see you there, Vicky. Just the first question on OTAs. You talked about the benefit of the lowest price promise in terms of driving bookings directly. Can you give us an update on where you are in terms of percentage via OTAs, and I guess how you see that evolving potentially as you roll out things like the lowest price promise? Then just second question on M&A, I suppose where are your thoughts now on significant M&A post Marriott and Starwood getting together? Thanks. Yeah, I think in terms of the OTAs, we're about 13%, Paul. Actually, last year we saw higher growth in our own website growth than with OTAs. But I think the important thing on OTAs is it isn't either/or necessarily. The reality is, as I said earlier, we are targeting, in fact, different customers. For us, it's about building brand loyalty, and I talked a bit about that. People who are loyal to a brand are loyal to a family of brands. It's much the most efficient way to attract them directly. People who aren't brand loyal, we still want them to stay in their hotels if they'll pay the rate, and that's what the OTAs do. So I think it works quite well, and it ultimately comes down to proper revenue for the hotels. What our owners want is drive revenue. Give us the highest returns we can. So we'll keep that balance. I think that works fine. Maybe in the past, there was certainly some comment about it was one or the other about the rate of growth of OTAs, but we've seen that rate of growth slow, and we're certainly comfortable where we are with them in the business at the moment. Look, in terms of M&A, I think we, in a way, kicked off the M&A round last year by buying Kimpton. For us, it's about targeted M&A that fits where we see brands. So it's got to be a high-quality brand that has a real consumer offering in the right locations. Again, I talked about the 10 markets where most of the growth is going to be. That's where we want to be. We'll continue to look at targeted acquisitions like that of brands that truly fit the portfolio and add value to the portfolio as a whole. That's how we'll continue to look at it or launch new brands ourselves, which again, we've done with EVEN and Hualuxe, as you know. So it's wholly really about the portfolio, about offering guests the breadth that we need to, and obviously, making sure that we're driving value. Thank you. It is Jarrod Castle from UBS. Maybe just one follow-up on Vicky's question and then two questions. If the right opportunity did come along on M&A in terms of brands, would you be willing to exceed your net debt to EBITDA targets if it was the right opportunity? Secondly, can you just give a bit of color on the GRS? You talk about a phased approach. I take it you will be running the legacy system alongside for a while. Can you give an idea of when you will be 100% on the new GRS? Lastly, just on Hualuxe, any kind of color you can give on response from how it is going? Thanks. Do you want me to pick up the first two? Sure. In terms of if an opportunity came up, there are lots of funding options that we would have. At 2.5x or based on consensus for 2016, returning $1.5 billion will take us to about the midpoint of our range. It does still give us some flexibility. 2.5x is not an aggressive level of leverage. We would always have options as to how we would seek to fund an acquisition. In terms of the systems and whether we parallel run, once we launch GRS, it will be up and running. If the question is more around, are there any additional costs or something like that that is coming, then no, I would not be building anything into your model for that. Yeah, and then just on Hualuxe, I know you asked about that. The consumer feedback has been excellent. As I said, we are going to open a further nine hotels in the next two years. With any hotel brand, it does take quite a long time to build up owner and consumer awareness. The speed of growth of that brand in China, we are quite happy with. We signed well over 20 contracts. Of course, it just takes a long time to open them because of the size of the buildings and the mixed-use type developments that they get built in. So good feedback. Tim. Morning, Tim Ramskill from Credit Suisse. Three questions from me, please. First, on cash returns, at the risk of sounding greedy, as you move further forwards, do you ever foresee a circumstance where you may do rolling buybacks a little bit like Compass might do or Next or other companies in the U.K.? Any thoughts on that? Obviously, there's going to be fewer sort of large-scale disposals. Second question, in 2009, you were impacted by the HPT contract that you had. Can you give us any assurances that there's no similar risks in the business today if the trading environment gets more difficult? Then the third question, you talked about a bit more investment going into supporting your franchise growth in the U.S. Maybe just share with us your thoughts there as to sort of maybe what you've missed out on or the necessary need to step that up and what impact that can have on the signings going forwards. In terms of the cash returns, we've done over the last 11 years, pretty much every mechanism there exists, some that no longer exist for returning cash and B-share schemes and buybacks and special dividends. This time returning $1.5 billion, you can't really do it by a share buyback. It would just take too long. We reckon it'll probably take 18 months at least to return that. Going forward, we will continue to review what's the most appropriate mechanism if we have further cash to return. We always make the decision, is there an opportunity to invest further into the business? If there isn't, then we look at returning cash that's genuinely surplus to our shareholders. In terms of contingent liabilities and HPT and such things, we report in the annual report what the contingent liabilities are. There's always a small number of guarantees that a business like ours will give, but the HPT one was an exception, then we worked that one through back in 2009, as we've talked before about. In terms of what we're doing in the United States, well, in 2015, we put some more money into China to strengthen our operational capabilities there given the pace of growth that we're seeing, and we will continue to do that around the business because we are focused on growth. This year, we're going to put some more feet on the street to sign some more development contracts in the U.S. We've seen the number of signings going up 10% year-on-year for a number of years without putting more people in. So we want to have some more developers out there to make sure that we're maximizing the opportunity. And frankly, we now have a lot of contracts in the pipeline that have got to get opened. So having a few more people to make sure those are being progressed through rapidly will help us as well. Ian. Thank you. It's Ian Rennardson at Jefferies. A couple of questions for you. Number one is on management contracts. Where are we in terms of the proportion that are paying you incentive fees, and is there some upside to go there as the cycle progresses? Then back to the thorny subject of M&A. Of course, two quite large opportunities did present themselves, that's the Fairmont Raffles and Starwood, but you chose not to participate. What put you off? Thank you. Look, I think in terms of management contracts, we don't report that number, but most of our contracts are pretty straightforward in terms of share of revenue, share of profit. So the vast majority are paying out, and so as we continue to grow, hopefully that will continue. Look, on the M&A side of things, we obviously have a look at what's going on in the industry. We have a look at opportunities you'd expect us to do, and our shareholders would expect us to do that. Our focus, though, is on not being big for the sake of being big. Our focus is on building the brand portfolio out and creating value for shareholders. That's what we're doing. Thank you. Okay. Tim. Morning. Tim Barrett, Nomura. Question about RevPAR. You helpfully gave the oil-producing states figure for the U.S. It feels like the oil price has been declining forever, but at what point does that impact annualize through the numbers? A more general question about the length of time in the development pipeline. Has there been any big change to your expectations how the pipeline will convert? Thank you. Paul. We did pull out the fourth quarter oil impact because it was We talked about it at the half year as well. Because it does mask what is actually a pretty good underlying performance there. So in the fourth quarter, excluding the oil impact, it is 4.8% growth in the remaining 86% of our rooms, and then the 14% in the oil markets were down 10%. If you look at that across the year, it is 1.6% impact on us as a whole. We are going to likely see that continue through quarter one, quarter two of 2016, as you have some annualization of that coming through. In length of time hotels are in the development pipeline, no real change there, actually. They continue to be a little different by region. In China, the hotels are larger, typically, so they take longer. North American market, a lot of it is Holiday Inn Express, which is obviously quicker. Thank you. Thanks, Tim. Jeff Culligan from Deutsche. Couple of quick questions. On Kimpton, can you just remind us why you chose to use sterling to refinance U.S. earnings in terms of the bond? Secondly, have you now built out or opened all of the Kimpton pipeline? How much is there still to come from what you acquired? Thirdly, given all the work you're doing on driving loyalty, has there been any noticeable increase in the number of active members of the loyalty club? Can you just remind us what that is, please? Thanks. Yeah, just to pick up the last one, in terms of active members, yeah. There has been. That's a real focus. One thing, adding new members, the other thing, making existing members active. In fact, if you look, we sort of slowed down the growth of new members over the last couple of years, which has accelerated again now with a real focus on driving activity. It is always going to be a balance, and the fact that we're keen to grow the scheme, particularly in new markets. So you've seen a lot of growth. We talk about China, but in other markets as well. Overall, the key metric really is the proportion of total revenues that you generate through the loyalty scheme. We're continuing to grow that, and we're into the mid to high 40s now on that. In terms of the bond, we look at each market, and which market you want to tap, you have to have different numbers of rating agencies rating you, for example. The sterling market, when we went to it, was particularly attractive. 375 basis points that we got there was our best ever sterling bond, so we were really pleased with the timing and the terms that we got there. We are very pleased with that. You can always swap it then into dollars, which is often what we will do, to make sure we have got the hedges that we are looking for. I think I saw your last question was on, I think, the pace of the pipeline in Yes Kimpton. When we acquired it was a double-digit. I am looking at Catherine. 12? It was about 2,600 rooms. In the pipeline, which we're opening out. But 2015 was a record year for them in terms of new signings. That's excluding Amsterdam, which was 16. So a record of signings and openings. And clearly now with a bigger development organization and the fact that it's now part of our group, we've been accelerating that growth. So it's worked exactly as we'd hoped. Yes. Good morning. It's Alex Brignall from Redburn. Maybe just one last question on OTAs, if I may and dare. The OTAs made mention in their results of maybe a difference in opinion between hotel owners and hotel franchisors in terms of distribution. You talked of a good relationship with your hotel owners. Could you just talk a bit more through how that process works of the distribution of the hotel owner decisions versus your decisions and those discussions? Thank you. Well, certainly for IHG, the hotel owners are all part of our aggregated agreements with the online travel agents. And we work very closely with our owners through our owners association and otherwise. So we're actually very much aligned in what we're trying to do, which is drive returns to owners. So there's no difference really at all. You might hear individual owners who are particularly dependent upon OTA business in a particular region or for a particular reason who might have a different opinion, but it's absolutely not the majority at all. Indeed, if you think that the reason they sign up with us is, one, because of the revenues that we generate very effectively, and two, our ability to negotiate with the OTAs on their behalf. Not all just about commission, although that's clearly something we do, but just overall the terms. So it works well. Thank you. Okay. Good. Well, thanks so much for your questions. Thanks for coming, and look forward to seeing you all again soon. Thank you.