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Preliminary Results Presentation 27 February 2003

Preliminary Results Presentation 27 February 2003. Sir Ian Robinson. Chairman. Brian Wallace. Deputy Group Chief Executive and Group Finance Director. Hilton Group plc - Summary of Performance. Year to 31 December 2002 £m. Year to 31 December 2001 (1) £m. Variance B(W).

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Preliminary Results Presentation 27 February 2003

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  1. Preliminary Results Presentation 27 February 2003

  2. Sir Ian Robinson Chairman

  3. Brian Wallace Deputy Group Chief Executive and Group Finance Director

  4. Hilton Group plc - Summary of Performance Year to 31 December 2002£m Year to 31 December 2001(1)£m Variance B(W) Hotels 212.1 255.3 (16.9)% Worldwide Betting 149.3 113.5 31.5% Disposal businesses - 2.8 Central costs and income (13.3) (12.4) Operating profit (2) 348.1 359.2 (3.1)% Interest (76.7) (79.0) 2.9% Profit before tax (2) 271.4 280.2 (3.1)% Effective tax rate (2) 22.0% 21.1% EPS(2)13.40p 14.30p (6.3)% (1) Restated for the impact of FRS 19 (2) Before goodwill amortisation and exceptional items

  5. Exceptional Items Operating£m Non-operating £m Disposal of UK hotels (1) - (17.9) Impairment of fixed assets 39.7 - Closure of betting shops 5.1 1.2 Sydney redevelopment 3.3 - Loss on future disposal of assets - 10.0 Write off on closure - 4.9 Total charge48.1 (1.8) (1) Relates to the sale and leaseback transaction, 60% of gross profit on disposal, less costs

  6. Hotels - Like for Like Profit (1) 2001£m 2002 £m % change Reported profit 212.1255.3 (16.9)% Scandic profit (34.5) (33.9) Comparable profit 177.6 221.4 (19.8)% Sale and leaseback rent 27.8 16.7 Sale and leaseback associate (2.5) - Disposals / new openings (3.5) (6.5) Foreign exchange 1.2 - Like for like profit 200.6231.6 (13.4)% Before goodwill amortisation and exceptional items

  7. Hotels Worldwide Occupancy, Rate and Revpar Performance Like for Like Hotels, Constant Currencies 9.1% % 10 8.5% Occupancy % pts growth 8 Rate growth 6 3.0% 4 Revpar growth 1.2% 1.0% 1.1% 2 0 (2) 1.2% (4) (6) (4.2)% (4.4)% (5.4)% (5.7)% (8) (7.4)% (10) Jan Feb Mar/Apr May Jun Jul Aug Sep Oct Nov Dec Jan Including Scandic March / April have been combined to avoid the distortion caused by the timing of Easter

  8. Worldwide Revpar by Ownership Type Like for Like Hotels, Constant Currencies Revpar growth 2002 vs 2001 % 6 5.0% 4 2 0 (2) (1.7)% (4) (4.8)% (6) Owned and Fixed Lease Contingent Lease Management Contract

  9. Hotels - Cost Management Like for Like, excluding Scandic Total £m Increasing revenue £m Declining revenue £m Revenue movement (15.4) 72.1 (88.0) GOP movement (25.7) 37.9 (63.5) Incremental conversion (167)% 52.6% 27.8% Rental & Owners return (9.0) Depreciation 3.6 Insurance (2.7) Other 1.6 Exchange 1.2 Operating profit decline (31.0) Before goodwill amortisation and exceptional items

  10. UK Hotels Revpar Performance vs 2001 Like for Like Hotels % 25 London 5 Star 25 London 4 Star 20 Provinces 15 Total UK 10 5 0 (5) (10) (15) (20) Jan Feb Mar/Apr May Jun Jul Aug Sep Oct Nov Dec Jan March / April have been combined to avoid the distortion caused by the timing of Easter

  11. Continental Europe (exc. Scandic) Revpar by Ownership Type Like for Like, Constant Currencies % 25 20 15 10 5 0 (5) (10) (15) (20) (25) Jan Feb Mar May Jun Jul Aug Sep Oct Nov Dec Jan Apr Managed Owned and Fixed Lease

  12. New Sydney Hilton

  13. Scandic Revpar Progression Like for Like Hotels, Constant Currencies, Scandic acquiredRevpar growth 2002 vs 2001 % 8 Occupancy % pts growth Revpar growth 6 Rate growth 4 2.4% 2 0 (2) (0.6)% (1.0)% (1.4)% (1.2)% (1.9)% (4) (1.9)% (6) (4.9)% (5.3)% (6.1)% (8) (7.3)% (10) (10.2)% (12) Jan Feb Mar/Apr May Jun Jul Aug Sep Oct Nov Dec Jan March / April have been combined to avoid the distortion caused by the timing of Easter

  14. Scandic Performance 2002 vs 2001 Other / exchange / central costs £m 2001 Actual (1) £m Like for like (2) £m Openings / closures (2) £m 2002 Actual £m Rebrands (2) £m Revenue460.6 (11.8) (2.5) 5.0 10.1 461.4 GOP196.3 (6.8) (7.5) 1.4 4.7 188.1 Profit 43.6 (4.3) (5.7) (1.7) 6.0 37.9 Pre-opening costs (3.4) Operating profit 34.5 (1) Includes results for the full year (2) At constant currencies

  15. Worldwide Betting Gross Win Operating Profit 2002 £m 2001 £m 2002 £m 2001 £m UK Retail460.8 442.4 113.2 90.6 Ireland & Belgium 60.8 60.8 11.2 11.8 Telephone Betting 27.4 25.2 8.1 3.6 eGaming 53.4 26.4 11.3 2.0 Vernons 20.0 21.4 5.5 5.5 Worldwide Betting 622.4 576.2 149.3 113.5 Before goodwill amortisation and exceptional items

  16. UK Retail Better (worse) % 2002 £m 2001 £m Gross win (1)460.8 442.4 4.2% Costs (347.6) (351.8) Operating profit 113.2 90.6 24.9% Staff costs per slip 30.94p 33.19p 6.8% Stake per slip £8.06 £6.72 19.9% Gross win (1)460.8 442.4 4.2% Costs (347.6) (351.8) Operating profit 113.2 90.6 24.9% Staff costs per slip 30.94p 33.19p 6.8% Stake per slip £8.06 £6.72 19.9% (1) Gross win is before duty / gross profits tax are deducted

  17. Cost Conversion Conversion of Gross Profit Growth to Operating Profit 2002 First Half 2002 Second Half 2002 Full Year 2001 Full Year UK Retail 26.4% 54.0% 39.8% 22.0% Worldwide Betting 31.7% 51.9% 41.6% 39.3%

  18. Telephone Betting 2002 £m 2001 £m Better (worse) % Gross win (1)27.4 25.2 8.7% Costs (19.3) (18.6) Operating profit (2)8.1 6.6 22.7% Average stake per call £81.92 £74.88 9.4% No. of calls (000’s) 26.3% Active customers (000’s) (3)103.6 91.1 13.7% 4,736 3,750 (1) Gross win is before duty / gross profits tax are deducted (2) 2001 stated before repatriation costs £3m (3) Active customers are those who placed a bet during the period

  19. eGaming 2002 £m 2001 £m Better (worse) % Gross win (1)53.4 26.4 102.3% Costs (42.1) (24.4) Operating profit 11.3 2.0 465.0% Active customers (000’s) (2) Sportsbook 168 105 60.0% Casino 46 27 70.4% On-line registrations (000’s) 257 160 60.6% (1) Gross win is before duty / gross profits tax are deducted (2) Active customers are those who placed a bet during the period

  20. eGaming Sportsbook 92% growth in sportsbook gross win year on year Gross Win by Country 2001 2002 4% 4% 3% 7% 30% 25% 59% 65% Europe UK Other Far East

  21. Hilton Group plc - Cash Flow 2002 £m 2001 £m Cash inflow from operating activities 455.7 445.7 Interest, tax and dividends paid (248.7) (267.3) Free cash flow 207.0 178.4 Capital expenditure (188.3) (184.3) Free cash flow after capex 18.7 (5.9) Proceeds from asset sales 341.2 376.0 Acquisitions / disposals (22.1) (486.2) 337. 8 (116.1) Exchange and other movements (1) (28.7) 16.5 Net borrowings movement309.1(99.6) Opening net borrowings (1,473.9) (1,374.3) Closing net borrowings(1,164.8)(1,473.9) (1) Includes £28.6m adverse exchange (2001: £13.3m favourable exchange), intangible additions £13.9m (2001: £2.9m) and dividends from associates £7.7m (2001: £0.3m).

  22. Hilton Group plc - Analysis of 2002 Capital Expenditure £m Hotels Sao Paulo (new build) 23.6 Alvik (hotel acquisition) 25.9 Gatwick (233 room extension) 19.1 Dusseldorf(refurb) 8.8 Cologne (Scandic new build & rebrand) 7.7 Zurich (refurb) 7.1 Barcelona (refurb) 4.6 Other (all under £3m) 42.8 Total Hotels 139.6 Total LivingWell 7.9 Worldwide Betting EPOS system 2.6 Shop information systems 4.3 Numbers terminals 1.5 eGaming / Telephone betting 5.7 Other (including: acqns / new openings £4.1m, relocations / refurbs / extensions £10.8m) 26.7 Total Worldwide Betting40.8 188.3 Total Group

  23. Treasury - Available Debt Facilities £m 2750 Capital Market debt 2500 Bank debt 2250 2002 net debt 2000 1750 1500 1250 1000 750 500 250 0 Dec 2002 y0 Dec 2003 y1 Dec 2004 y2 Dec 2005 y3 Dec 2006 y4 Dec 2007 y5 Dec 2008 y6 Dec 2009 y7 Dec 2010 y8 Dec 2011 y9 Dec 2012 y10 Maturity

  24. David Michels Group Chief Executive

  25. The Hotel Business

  26. Overseas Visitors to the UK 000’s 25 Gulf War 20 Falklands War 15 10 5 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002P Years Source: BTA

  27. Latest BDRC Research (2001) UK and Europe 100 90 Hilton 80 70 Marriot 60 50 Sheraton 40 Inter-Continental 30 20 10 0 Un-prompted recall Prompted recall

  28. 2002 Interbrand Survey • Hilton is the only hotel company in the top 120 of the “World’s most valuable brands” • 20 places above Marriott

  29. Openings Openings 2002 Openings 2003 / H1 2004 • Alexandria Green Plaza • Alvik • Auckland Residencies • Bruges • Chongqing • Cologne • Copenhagen Sydhaven • Grand Seoul • Kayseri • Konya • Kuwait • Linkoping • Luxembourg • Makkah Towers • Narita Airport • Paddington • Paris La Defense • Ras Sudr • Sao Paulo • Sharks Bay Resort • Beirut (Conrad) • Curacao • Coral by Hilton, Canoa • Coral by Hilton, Costa Caribe • Coral by Hilton, Hamaca • Coral by Hilton, Marien • Denarau • Dubrovnik • Festival Cruises • Jeddah Palace • Kuala Lumpur • Lagos • Mactan Island, Cebu • Moscow • Nedre Elvehavn, Trondheim • Newcastle • Nicosia Park, Cyprus • Paris • Shenzhan

  30. Branding Opportunities • Coral by Hilton • Other franchising opportunities • Scandic

  31. Scandic Fewer international travellers Costs of rebranding Poor markets during the last six months particularly in Sweden

  32. Hotel Cost Variability (Approximate % of Turnover) Fixed Variable Labour (29%) Commissions (5%) Consumables (16%) Utilities (3%) Sales and Marketing (3%) Other (6%)

  33. Investing in the Internet • Substantial growth in hotel bookings via the internet • Hilton.com to launch local language / local content websites • Sites to be launched this year in the UK, Germany and Japan for the Hilton brand • Sites to be launched in Sweden, Norway, Finland and Denmark for the Scandic brand

  34. LivingWell • PBIT increased by 19.5% to £4.9m, like for like by over 50% • UK expansion stopped • Australian expansion continues • LivingWell Express launched Summer 2002 – 7 clubs in 7 countries • Several major awards including Peterborough winning the Flame Award for best club

  35. Guest Satisfaction 2001 2002 18.2% 18.6% 8.7% 8.5% 73.3% 72.7% Completely or very satisfied Fairly satisfied Dissatisfied

  36. Betting Shop Customers: Unprompted Awareness 80 76 Ladbrokes 70 58 William Hill 60 50 50 Coral 42 40 Stanley 30 25 17 20 Dones 14 11 10 10 5 4 Tote 1 0 First Mention Total Mentions Source : Millward Brown Nov/Dec 2002

  37. 2002 Full Year Performance - UK and Jersey 1998 1999 2000 2001 2002 Average number of shops PBIT £m 84.9 78.8 78.6 86.1 113.0 PBIT perShop £k 45.4 41.3 41.8 45.7 59.7 1,892 1,910 1,879 1,882 1,893

  38. Development of Shop Betting • Turnover continues to rise post the anniversary of the removal of customer tax • Low margin and virtual bets increasing in popularity • Media and data rights secured i.e. horses, football and greyhounds • Horses – Recording lowest theoreticals on-course; impacted by betting exchanges • Turnover, margin and gross win are inexorably linked • Level the playing field

  39. Self Service Customer Terminals • 2000 terminals installed; 1500 more by end June • Legal declaration case with UK gaming board; in High Court by Summer • Definition of roulette betting is the Gaming Board’s concern • DCMS concern is gaming machine proliferation • Terminals themselves are OK

  40. eGaming Gross Win £m 30 26.8 26.6 25 Hong Kongbusiness 20 15.9 15 World Cup 10.4 10 5 0 First half of 2001 Second half of 2001 First half of 2002 Second half of 2002

  41. eGaming Sportsbook Casino Poker (Internet only) Registered players 472,000 96,000 8,500 Active 168,000 46,000 8,500 Currencies 15 15 15 £ stake per bet / play £19.64 £9.36 Languages 13 13 13 (Played since 1 Jan 2002)

  42. Success of Poker Poker Rake (inc. tourney fees) Rolling 7 Days Launch to December 2002 £000’s 140 120 100 80 60 40 20 2002 0 19/05 06/06 24/06 12/07 30/07 17/08 0409 22/09 10/10 28/10 15/11 03/12 21/12

  43. Capex 2000 £m 2001 £m 2002 £m Plan2003 £m Capex: Hotels 278 144 97 78 Worldwide betting 40 40 41 55 Major property purchases 147 - 50 31 Capital expenditure 465 184 188 164 Disposals - hotels (13) (355) (335) 452 (171) (147) Capex: Hotels 278 144 97 78 Worldwide betting 40 40 41 55 Major property purchases 147 - 50 31 Capital expenditure 465 184 188 164 Disposals - hotels (13) 452 (171) (147) Acquisitions (Scandic) Cash - 454 - Shares - 165 - Memo: goodwill on acquisition - 597 - Hotels - Property net book value £2.8bn £2.6bn £2.3bn NB 2003 plan does not include any potential spillover from 2002

  44. Summary • Trading for the first six weeks of this year – better for betting / worse for hotels • Large upturn in international tourist traffic only after a Gulf War or a cessation of hostilities • Great time to be in betting – it will soon be a good time to be in hotels

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