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InterContinental Hotels Group PLC (NYSE:IHG)

Q4 2013 Earnings Conference Call

February 18, 2014 09:00 ET

Executives

Catherine Dolton - Head, Investor Relations

Richard Solomons - Chief Executive Officer

Paul Edgecliffe-Johnson - Chief Financial Officer

Analysts

Steven Kent - Goldman Sachs

David Loeb - Baird

Chris Jones - Telsey

Operator

Good afternoon, ladies and gentlemen and welcome to the Intercontinental Hotels Group Results Conference Call. My name is Fay and I will be your coordinator for today’s conference. (Operator Instructions)

I will now hand you over to our host Catherine Dolton to begin. Thank you.

Catherine Dolton - Head, Investor Relations

Good morning everyone. This is Catherine Dolton, 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.

I will now turn the call over to Richard Solomons.

Richard Solomons - Chief Executive Officer

Thank you, Catherine. Good morning, everyone. Thank you for joining us. In a moment, Paul will take you through the financial results in detail, but first let me just cover some highlights. 2013 marked IHG’s tenth anniversary as a standalone company and was another year of strong performance for our business. Growing preference of our brands combined with solid net rooms expansion fueled increasingly from developing markets, good growth in fees. Our focus on cost efficiencies combined with our success in leveraging our scale has allowed us to reinvest in the business whilst growing our margins, the achievement we have repeated now for a number of years.

We have once again demonstrated our achievability to drive powerful cash flows and to deliver against our commitment to reduce the capital intensity of the business. And I am delighted today to announce the disposal of InterContinental Mark Hopkins San Francisco for $120 million. This follows our agreement to dispose of 80% of our InterContinental in New York in December with both deals highlighting the enduring appeal of the InterContinental brand.

IHG’s ability to reliably recycle capital provides us with the flexibility to invest behind our brands and our technology platforms, at the same time, is being able to generate significant and consistent shareholder returns. The $638 million of capital we returned in 2013 by our special dividend and share buyback together with the 9% growth in the 2013 total dividend announced today demonstrates both an ongoing commitment to our longstanding strategy and the confidence we have in our ability to drive strong performance into the future.

So I am going to hand you over to Paul now and then I will return later to discuss our strategy.

Paul Edgecliffe-Johnson - Chief Financial Officer

Thanks, Richard and good morning, everyone. So the increases in RevPAR and rooms under our brand drove a 4.3% increase in fee revenue growth right across our business in 2013, which added $49 million in absolute terms to our income. That took total fees to nearly $1.2 billion. The comparable RevPAR grew 3.8% with rate up 1.8% and 130 basis point increase in average occupancy, which is now at 67.1%, the highest we have seen since 2007. We opened 35,000 new rooms in the year. We also removed 25,000 rooms. These were hotels, which just weren’t living up to our brand promise and had on average guest satisfaction scores more than 5 points lower than the estate as a whole and were almost twice as old.

Looking forward, we will continue to manage the quality of our system for the long-term, removing hotels where necessary. On an underlying basis, adjusting for the 4,000 rooms that exited in relation to three large liquidated damages received totaling $46 million in the year, net rooms increased 2.3%. Reported profit growth was 10% included these three large receipts. Without the benefit of these and excluding results from managed leads hotels and the owned revenue from InterContinental London Park Lane, which we sold in May, we grew underlying profit by 8% on a constant currency basis.

As Richard mentioned, we have again delivered sustainable fee margin progression in 2013, with a higher than expected increase of 130 basis points. Continued growth in this key metric over the medium-term remains a focus for us. Some years will of course be better than others. And in the last year, we have seen above average margin growth. This will be at more normal level than 2014 as we continued to invest in brand development and in local infrastructure in developing markets, which drive long-term fee growth and market share.

Interest was $19 million higher at $73 million, reflecting increased average debt as we have executed on our capital returns program. Our effective tax rate increased by 2 percentage points to 29%. Our expectation remains that our tax rate will rise to the low 30s in 2014. After these higher tax and interest costs and a 8% reduction in weighted average shares, earnings per share increased to $1.583, up 14% year-on-year.

Looking now at the RevPAR performance of each of our regions in a little more detail. Americas comparable RevPAR was up 4.3% with average rate up 2.6% and a 110 basis point increase in average occupancy, which now stands at 66.4%, 30 basis points above the 2007 prior peak. We were pleased with the performance of each of our brands during the year and in particular with the 130 basis point RevPAR growth outperformance, that our higher price point hotels of Crowne Plaza and InterContinental both achieved against their industry competitors. Holiday Inn and Holiday Inn Express maintained a sizable rate premium to their competitors, but grew RevPAR slightly more slowly in 2013. It is unsurprising given their significantly superior RevPAR performance through the cycle, proving to be much more robust during the downturn and recovering back to prior peak levels almost 12 months sooner than the wider U.S. industry.

In Europe, after a slow start with tough comparatives for Germany and increased supply growth in the UK, comparable RevPAR grew 1.7% across the year. In the fourth quarter, we achieved 5% growth, although this benefited from the timing of certain exhibitions and events in the quarter, so is not fully representative of underlying economic conditions.

Moving now to Asia, Middle East and Africa, having previously held the CFO role in this region, I know just how diverse it can be with different dynamics driving each of our key markets. 6.1% comparable RevPAR growth was led by Southeast Asia and Japan, both up almost 10%. In the Middle East, more modest growth reflected strong trading in the United Arab Emirates offset by continued geopolitical unrest elsewhere in the region. In Greater China, our ability to continue to grow RevPAR in 2013, while the industry was experiencing significant declines reflects our scale and the strength of our competitive position. We have brands across multiple price points and hotels in 70 cities. This in conjunction with our experienced team and our well-established operations and infrastructure, places us very well to trade resiliently in Greater China. This also means we are not overly reliant on any one segment.

In 2013, we took measures which drove transient business up 10% and our Holiday Inn Express brands drove RevPAR up almost 5%. You will see in our announcement this morning that we have disclosed total RevPAR growth by our Asia, Middle East and Africa and Greater China regions. This differs from comparable RevPAR and that it includes rooms which have opened or exited in the last two years and so reflects our change in mix, which means it has a more linear relationship with fee revenue growth.

Our key market strategy focuses our efforts on not just the largest markets, but also those which are the fastest growing. As we have said before, this often means that we are having hotels at the same time as the demand drivers in developing markets are being built, which inevitably means lower absolute levels of RevPAR especially in the early years. The fees these hotels contribute are incremental to those we receive in established markets, where of course we are still growing, so we continue to be positive by IHG’s top line.

Looking for a moment at our pipeline at a group level, which remains strong with 55,000 rooms signed in the year, that’s up 22% on 2012. This takes our total pipeline to 180,000 rooms, over 45% of which is under construction. Just to remind you, our pipeline only contains deals which have been signed and for which the appropriate fees have been paid. Free cash flow generated by the business of $502 million was up 11% in the year driven by 10% increase in operating profit and strong cash conversion with two-thirds of EBITDA converting to free cash flow. $444 million of cash released from asset sales more than funded our $129 million of growth CapEx in 2013. This spend included $72 million to acquire three owned EVEN Hotels, just under half the amount we have committed to launch the brand.

Maintenance capital expenditure of $140 million was in line with prior guidance. Our medium-term CapEx guidance of up to $350 million a year is unchanged. This will be invested behind maintaining the strength of our technology platforms to ensure we remain competitive in the evolving digital world and strategic investments to drive the growth of our brands. We will continue to fund growth capital through asset recycling wherever possible. In addition to this, we will be contributing 20% of the cost to the $175 million refurbishment of the Barclay in line with our joint venture share, which we currently expect to be invested across 2014 and 2015.

In 2013, we continued our strong history of returning surplus funds to shareholders. For the second year in a row, we distributed over $600 million in additional returns over and above the ordinary dividend. We are now four-fifth through our buyback program with just over $100 million of it still to be completed. Over the last 10 years, the strong free cash flow generated by robust fee-based business model combined with $6.2 billion generated from disposals has enabled us to return some $9.6 billion of funds to shareholder, whilst also selectively investing behind growing our business to optimally position it for the long-term. Looking forward, we continue to be committed to keep an appropriately strong balance sheet and an investment grade credit rating. As Richard mentioned, 9% growth in the ordinary dividend reflects our confidence in our long-term strategic position, although we remain mindful of the short-term external headwinds still impacting some markets around the world.

On that note, I will hand back to Richard.

Richard Solomons - Chief Executive Officer

Thank you, Paul. At our educational event in November, I talked about the major tailwinds that we believe will continue to drive demand for hotel rooms over the next two decades, including growing GDP, globalization of trade, aging population and increased outbound trouble flows. We have calculated that by 2020, 10 markets alone will account for more than three quarters of industry growth and this is where IHG is primarily focusing its efforts. We have the industry leading system of pipeline position in these 10 markets today and they make out more than 85% of our combined open and pipeline rooms. It’s not straightforward to continuously win in an ever changing marketplace, but IHG has the right strategy to deliver high-quality growth into the future.

Our targeted portfolio combined with our winning model, underpinned by disciplined execution, will continue to drive superior returns of IHG’s shareholders. At the center of this strategy is our brands. Each year at IHG, we look after some 34 million unique guests staying more than 160 million nights, from whom we receive regular feedback. Guest satisfaction is obviously hugely important and we know and can quantify that improvement in this metric drives both the guests’ likelihood to return and their likelihood to recommend our brands to others.

At the start of 2011, we introduced a new survey system across all of our brands and regions that we call guest Heartbeat. And in 2013, we produced some good results driving increased guest satisfaction at every single one of our brands. We are also gaining significant amounts of external recognition for the great work we are doing. Our brands, hotels, and corporate offices won more than 400 awards last year, but that doesn’t mean we are standing still. We are evolving our brands to ensure they remain relevant to guests and their needs. We have undertaken major research studies, which look at the universe of guest needs and occasions and their relative groupings in the hotel market. This unique and deep insight allows us to best differentiate our hotel experiences and will be a key driver of our ability to continue to grow ahead of the market. We have talked a lot recently about our two innovative new brands, EVEN Hotels and HUALUXE Hotels and Resorts and we are making great progress with these and are looking forward to the first hotel’s opening.

Today though I would like to focus specifically on our established brands and how we’re evolving them to drive increased preference amongst our current and future guests. InterContinental Hotels and Resorts is of course our international luxury brand which we’ve grown to be more than twice the size of any other luxury brand with the largest pipeline. In fact InterContinental today is almost three times the size of four seasons, and more than double the size of each of Ritz-Carlton, JW Marriott, Fairmont and Shangri-La. We’re focused on adding hotels in iconic locations. And in 2013, we opened nine new hotels in key markets such as Shanghai, Osaka, Lagos, Marseilles, and Davos. We also signed a further 14 hotels in pipeline, including the third for London and the second for Washington DC and Sydney, Australia. In recognition of the changing travel habits of today’s InterContinental guests, this year we’ll rollout our first global menu for the brand for children, by our link-up with Annabel Karmel, one of the U.K’s most trusted experts on children and families.

Moving on now to Hotel Indigo, the industry’s first global branded boutique. This combines the modern design and intimate service associated with a boutique hotel with the peace of mind and ease of staying with one of the world’s largest hotel companies. Each Hotel Indigo reflects the local culture, character, and history with surrounding neighborhood. Since we took the brand global in 2008, we’re seeing great traction with 55 hotels now opened and a further 51 in our pipeline. 2013 was a great year for the brand, six openings included the first Hotel Indigo properties in each of Israel, Spain, and Hong Kong really demonstrating our success in securing prime urban locations. We’ve run some great consumer campaigns in 2013 to highlight Hotel Indigo’s neighborhood focus. In Hong Kong in December, we celebrated both of three-year anniversary of the brand in greater China and the opening of the Hotel Indigo Hong Kong by branding two Hong Kong tram cars with the neighborhood stories from our five Hotel Indigo Properties open in the region.

Holiday Inn continues to be an extremely successful brand and IHG’s engine of growth. It’s the largest hotel brand family in the world, it’s the largest pipeline and it enjoys the significant RevPAR premium to its industry segment. The brand had another strong year in 2013 opening some 150 hotels including country debuts of the Holiday Inn core brand in Ecuador, the Cayman Island and Mauritius. We signed a further 280 hotels into the pipeline which makes it almost successful year for brand family signings since 2008.

In 2014, we’ll continue to innovate to enhance proposition for our target guests across the brand family. And in the Americas, this includes the addition of more healthy items to our Holiday Inn Express breakfast offering. We’re on a journey to improve the quality and consistency of the Crowne Plaza brand primarily in U.S. and we’re really encouraged by the results so far. In 2013, the brand in U.S. meaningfully outperformed the upscale segment. And in North America, we’ve improved our JD Power Survey overall satisfaction mix by some 15 points of big step-up. Crowne Plaza now has a clear relevant brand proposition, which we call travelling for success.

We’ve aligned the brand, the business productivity and building business interaction segments. These insights have led to a number of guests experience enhancements which we piloted during 2013 with encouraging results and 2014 will commence to role of these, starting with our Americas and Europe regions.

Turning now to our extended stay brands and starting with Staybridge Suites, a brand which IHG used its own capital to launch back in 1997 and since we’re just been released in full. Today, we have almost 200 hotels open with 80 in the pipeline. In 2013, we opened seven Staybridge Suites hotels including the first for Lebanon in Beirut and we signed the further 32 hotels into pipeline including great new locations in Saudi Arabia and London.

Staybridge Suite has some very loyal guests and the highest guest satisfaction of all IHG’s brands. We’ve been doing a lot improved this further. The evening social is a key hallmark of the brand providing a welcoming environment where guests can interact. Our new food and beverage menus help to drive strong increases in attendance events thereby driving deeper engagement with the brand. Candlewood Suites is our second extended stay brand focus solely on the U.S. and Canada. We acquired this brand in 2003 when it had a combined system size and pipeline of just 136 hotels, and we’ve grown this to almost three times that number today.

In 2013 in response to our guest insides we introduced the Lending Locker, a place where guests can borrow common household items during their stay. And this built on the success of the Candlewood Cupboard, one of the brand’s core hallmarks, which operates an honor system. By expanding the notion of trust at the Lending Locker, we are treating our guests like trusted members of the family. And this leads to the core values of the brand. Everything I have talked about so far is important, because brands are the promise that we make to customers, but all of these great brands need to be supported by strong delivery systems. We are focused on how we can best serve our guests in the changing landscape of 24/7 connectivity in order to build trust with them and strengthen our proposition to owners. This is what led us to re-launch our loyalty program in July 2013 with a new name, IHG Rewards Club.

IHG Rewards Club clearly communicated to consumers that all of our brands are part of the same IHG brand family. We have also added new benefits, including being the first hotel company to offer internet to all members in all our hotels globally. Since the re-launch, we have driven awareness of IHG as a brand family by 10 percentage points. We have seen early increases in the number of brands used by members. But making our loyalty program more effective in this way, we will grow IHG’s share of our guests’ wallets thereby driving up hotel revenues.

Direct web channels remain at the heart of IHG’s distribution strategy and we continue to invest heavily in customer-facing enhancements to improve the guest experience and attract more revenue to the slow cost channel. Today, our websites across 13 languages support our strong online presence. These are being accessed by 19 million potential customers annually and have driven up web revenue over 30% in just three years. Mobile has quickly become a dominant touch point. IHG’s mobile revenues last year were over $600 million, up 85% from 2012 and they continue to grow strongly.

In 2012, IHG is one of the first hotel companies to launch guest ratings and reviews on our branded websites. Over 320,000 guest reviews are now live globally with an average hotel rating of 4.2 out of 5 stars. In fact in 2013, we collected more reviews on our sites for our hotels than TripAdvisor has for all IHG hotels. We have been leaders in many areas of the digital revolution. This is a difficult area in which to measure success. So, we are pleased that our hard work has been widely recognized externally. IHG has the highest rated mobile apps in the industry. And in the U.S. in 2013, the digital think tank, L2 rated IHG as having the highest average digital IQ in the U.S. industry beating all of our major competitors.

So to sum up, this is an industry that has compelling long-term demand drivers, in which IHG is well-positioned to outperform. We have a clearly defined strategy, which will deliver industry outperformance and high-quality growth into the future. At the heart of this is our brands which are some of the biggest and best in the world. InterContinental Hotels and Resorts and the Holiday Inn brand family are by far in a way the largest brands in their price segment and they have set the strong future growth, with 2013 marking the best year for signings for both brands since 2008. We are continuing to strengthen and add to our brands through our industry leading insights and this is clearly working driving up guest satisfaction scores and winning us over 400 industry awards. We are not standing still though. We are continuing to innovate to ensure our brands remain fresh and preferred into the future.

IHG has a history of technology first in the industry, including the first ever reservations website and being the first to have mobile apps across all platforms. This pioneering approach is when we have best-in-class revenue delivery systems providing the highest quality revenues to IHG hotels at the lowest possible cost. We will continue to invest behind our brands and technology. It’s vital that we innovate as we have done in the past to meet change in consumer behaviors and sustain our industry leading position. We have once again demonstrated our commitment to returning funds to shareholders and we are focused on continuing to do so into the future.

Looking into 2014, although economic conditions in some markets remain uncertain, forward bookings data was encouraging and we are confident that we will deliver another year of growth. So thank you. And with that, Paul and I will be happy to take your questions.

Question-and Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Steven Kent from Goldman Sachs. Please go ahead.

Steven Kent - Goldman Sachs

Hi, good morning. Just a couple of questions. One, can you just broadly review the higher CapEx for 2014, and how we should start to think about your CapEx program as you move more and more towards asset light? Second, can you talk about the ability for developers in North America to get financing to build properties? And then third, I know this is hard for you to do given the dynamics of your business, but are there any forward indicators you are looking at to give you confidence on some of that mid-market consumer demand?

Richard Solomons

Yes, thanks, Steve. It’s Richard. I’ll take the last question and then I’ll ask Paul to take the first two. Just in terms of forward looking as you say, we don’t give – we don’t give guidance, but I think we look at a number of things so, groups and meetings, although it is smaller for us than peers, bookings are up about 15% year out that obviously covers the larger Holiday Inns as well as Crowne Plaza and InterContinental. The other thing that we look out we get regular feedback is intention to travel and when we look at that which is a part of the guest survey that remained strong and our December data showed more than 60% of our guest, that’s business and leisure, expect to travel more or the same amount in the next 12 months. In fact that’s 60% is the business number, and the leisure number is nearer to 80. So as we look at that, we look at momentum in U.S. and obviously we can’t legislate for any changes or problems with the debt ceiling or anything else over there, but that does seem to be some momentum and the intention to travel booking phase is up.

Steven Kent – Goldman Sachs

So Richard just to finish up.

Richard Solomons

Yes.

Steven Kent – Goldman Sachs

To finish up on that, how has that looked, let’s say 12 months ago, 24 months ago? Can you give us a sense that 80% and 60% number that you just talked about?

Richard Solomons

I think they are little bit higher, I mean, we certainly we’re looking about 50% 12 months ago, I think they’ve edged up a bit. I mean, it’s not best scientific. Its part of the survey that just from a feeling, I think I’d say feel a little bit better, but I’m sure I could quantify that. Paul, do you want to pick up the other two?

Paul Edgecliffe-Johnson

Sure, thanks, Richard. Steve, your first question around CapEx, but in 2013, we spent $140 million on our maintenance CapEx which splits out about one-third hotels, about two-thirds non-hotels, and then $127 million colors on growth CapEx, of which $72 million was behind the three EVEN Hotels that we bought and that’s about roughly half what we are going to put behind that brand both in total. Looking out into 2014, although our guidance – is generally it will be $250 million to $350 million, we said back in November that we’re expecting 2014 to be at the top end of that range. And in addition we’ve got our 20% stake of the refurbishment cost of the Barclay to pay, which will pay out over 2014 and 2015 that work gets done. And in terms of how they’ll going forward given the guidance, we’re not going to split that guidance out between maintenance and growth because it will just differ a little year-over-year, but hopefully that gives you enough of color to go and of course you will continue to recycle the capital that we put into the business, so for example, at EVEN, they make take some years, but once they ramped up then we’ll look at potentially recycling those so, it’s the story that I know isn’t new to you. In total development finance in the U.S., I guess one way to looking at this, this is we signed 350 – we signed 305 hotels in the Americas in 2013, but 34,000 rooms up one-third year-on-year and for the best brands with the best owners then I think there is development finance available, I mean, are you getting back to where it was, I don’t know 2006, 2007, not sure you are, but I think the good brand that will deliver well, I think the finance is available.

Richard Solomons

I guess it’s better to say Paul, there is a lot of cash flowing hotels, existing hotels. Hence our ability to move that Mark Hopkins Hotel and it’s harder for new build, unless it’s great brands.

Steven Kent – Goldman Sachs

Okay, thank you.

Richard Solomons

Thanks Steve.

Operator

Thank you. And our next question is from the line of David Loeb from Baird. Please go ahead.

David Loeb - Baird

Good morning. I want to just touch again a little more on the CapEx. On Slide 18, you talked about investment in technology platforms, is that likely to be more than it was last year or is this increase primarily for growth initiatives? Are there more kind of routine things?

Richard Solomons

I think we are talking about strategically, where we put our capital at the time. And as our hotel portfolio gets less, clearly the proportion of our technology investment will go up, but I think the important thing is it’s not technology investment for technology’s sake, it’s what it’s required to-date to deliver the guest experience right across the guest journey, whether it’s what we call the sort of dreaming or the planning phase upfront in the hotel, as well as the sharing phase afterwards. And we all know that, I talked about the 24/7 world, but in the digital world, that’s how consumers not just young consumers not just millennials, but right across the piece. That’s the way they are going. So we have put a history of us in technology. As you know, we were the first central reservation system that first to allow booking on the web. We were first in mobile, first in the apps, because every platform in it really is important that we continue that fundamentally about the brand experience and the guest experience.

David Loeb - Baird

So it sounds like those dollars are on an upward trajectory just to kind of keep pace with what guests need to stay ahead of the industry?

Richard Solomons

Well, I think Paul talked about the quantum and we are not changing the quantum. I think it is just directing it to effectively the appropriate place and this is a spend that will yield great value to us over time.

David Loeb - Baird

And even do you think you will do more on balance sheet beyond the ones that are underway or do you think that really shifts to more third-party developer interest?

Richard Solomons

I think it’s going to be a mix of both actually, David. We have got three of that we have acquired and in total we’ve got five signed up now. And so the three that we have acquired will put some CapEx behind renovating them and getting them opened and then we will see how it goes. We typically put a $150 million in total behind the launch of that brand and we are well on the way getting some really good interest and we got these hotels in great locations, which is really important.

David Loeb - Baird

And how big do you think HUALUXE and EVEN can be over, let’s say, 5 or 10 years?

Richard Solomons

Well, I think as you know as well as anybody David the profile of growth in these hotel brands that actually it’s the first 5 or 7 years even that sort of proves the case until you get to critical math. But as we look at HUALUXE hotels in China and that’s before we talk about it going overseas, which it will, there is more than 100 cities in China that can easily support HUALUXE over the next say 15 to 20 years. So how many we will have in each of those cities? Don’t know yet. But the level of interest has been very high with 21 signed to date. I think with EVEN, really not specific guidance, again it’s early days, but there is a lot of interest in it, not just importantly from owners, which is clearly vital for us in our business model, but also from a lot of our corporate clients, as we are saying which is really important, we are very concerned about the wellness and the well-being of our employees on the road and we need to get the first ones open. So I think we don’t forget that very much ground that in the research that we have done in our guest understanding. We just know there is a very big demand for it. So I actually feel because we look at sustaining our system growth over time on top of the very large pipeline we have got today, I think they will play an important role.

David Loeb - Baird

That’s great. That’s helpful. One more if I can, on the Paris Hotel, is this refresh essentially a first step before a sale or are you looking to broaden the brand presence in Paris before you consider that sale?

Richard Solomons

Let me let Paul take that one up.

Paul Edgecliffe-Johnson

Sure, David. That hotel, I am not sure if you manage to get that yet, but it’s –we’ve got a fantastic primary function room called Salon Opera and that room is a national monument in France and the roof needs some work done to it and we have now decided to do that this year. And so we won’t go to take in some of the very large groups that sometimes we put in that. So, we are taking the opportunity to refurbish some of the rooms at the same time, while we will have slightly lower occupancy. We have been running such high occupancies there in some of those rooms we haven’t been able to refresh for few years. So it’s no more than that.

David Loeb - Baird

So what are your thoughts about disposition? Are you going to go back to the basic statements that this and Paris and Hong Kong you really want to have further brand distribution in those markets, you have that now in Hong Kong, so what are your thoughts on those two?

Richard Solomons

David, it’s Richard. I think the additional distribution is nice to have and that’s something we’re continuing to look at, but other than that you heard Paul talk about recycling of capital, something we’ll continue to do, but just the timing on those is not imminent.

David Loeb - Baird

Great. Thank you very much.

Richard Solomons

Thanks.

Operator

And we have a question from the line of Chris Jones, Telsey. Please go ahead.

Chris Jones - Telsey

Great. Thank you. Good morning. Just a quick question on regional overhead expense, you did a good job in terms of controlling that expense in the Americas, but I guess in the other regions it was quite a bit more of a challenge. How should we think about that in 2014?

Richard Solomons

Hi, Chris, yes, we will continue to invest behind growth market where it justified. We want to continue growing our margin, but it’s not going to be at the expense of holding back growth of the business, primary focus for us is having a sustainable business that will grow and take as much market share as we can. So in terms of how that will look over in the next few years, we don’t give the guidance out on that, I think you can see how it’s moved in prior years and I wouldn’t expect to say anything materially different from that. We control the cost pretty tightly, but equally that we are happy to invest where it drives growth. Over the last 10 years, we’ve grown our fee margin by on average 110 basis points a year. So, you can see a good track record coming through that.

Chris Jones - Telsey

And just one more, just on China, obviously F&B has been a disappointment for you and just the overall hotel industry. Has there been any rethinking of perhaps hotel design or just sort of the overall economics of hotels in China on how you sort of structure the deal, given that it seems to be a bit of a rebalancing in that market?

Richard Solomons

Chris, it’s Richard. I think just slightly extreme positioning of it, I think what we had is the government austerity measures have clearly impacted government spend and it’s not just from China that we’ve seen that. The reality though is, if you look at across Asia, across the Middle East, it’s the way of life to do business and to socialize in a certain way and hotels are at the core of that. So, China is in no way unique, it’s very much an Asian, Middle Eastern approach to business and life. So, what we’ve seen in China, there is some reduction in government business, there is no question about that. But our transient business is up double digits in 2013 in China and what we’ve demonstrated I think is because of our large scale in China, we just celebrated our 30th anniversary literally last weekend in China. So, we’ve been there longer than anybody, we’re much bigger than any of our major competitors because there is an upscale and luxury business, as big as Starwood which is our mid-scale business on top of it.

So, in our scale, systems – our revenue systems and our processes, and our people, we are really able to go and pick up the businesses there and I think what we’ve done is taken a lot of business away from others, which is what we’ve outperformed the market to the tune of about five percentage points in 2013. So, I think as we look at our brand so overtime it may be that there is a slight tweak to the way we think about the business. But as of today, 40% of our revenues in Middle East and Asia is non-rooms. So, it’s a very big piece of our business obviously its management contracts that we get decent fees on that. And I think overall we remained very, very confident about the long-term trends in China for all the reasons that I’m sure we’ve talked about before. And we have to take a longtime view of it albeit there clearly is an impact of the austerity activity.

Chris Jones - Telsey

Fair enough. Thank you.

Richard Solomons

My pleasure.

Operator

Thank you. (Operator Instructions)

Richard Solomons - Chief Executive Officer

Thank you, operator. That’s fine, if there is no more questions. That’s good, thank you everybody for your time. We look forward to catching up with all of you I’m sure over the coming months. Thank you very much. We’re done now, operator.

Operator

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Source: InterContinental Hotels Group's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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