InterContinental Hotels Group Plc Q2 FY2023 earnings call

• Strong first half financial results with RevPAR exceeding 2019 pre-pandemic peaks for four consecutive quarters.
• System size growth: opened 108 hotels, signed 239 hotels, pipeline increased to over 286,000 rooms.
• Launched a new best-in-class mid-scale conversion brand.
• IHG One Rewards loyalty program transformed, with enrollments up 60% and reward nights up over 40% compared to 2019 levels.
• Invested in technology and distribution channels, with direct digital channels contributing to revenue.
• Progress on strategic priorities: developed brand portfolio, focused on customer-centric and digital advantage, and advanced responsible business plan.

The fee business revenue increased by 21% to $799 million (or 24% on an underlying basis at constant currency). Operating profit from the fee business increased by 27% to $470 million (or 30% on an underlying basis). Fee margin improved to 58.8%. Global RevPAR in H1 was up 24% year-on-year and up 8.7% versus 2019; Q2 RevPAR was up 17% year-on-year and up 9.9% versus 2019. System size: gross growth was 6.3% and net growth was 4.8%; opened 108 hotels (40% more rooms than H1 last year), signed 239 hotels (11% more rooms than last year); pipeline increased 3% year-on-year to more than 286,000 rooms representing 31% of system size.

• Confident in achieving consensus expectations of around 4% net system size growth for the year.
• Current $750 million share buyback program 47% complete, interim dividend 10% higher than 2022.
• Expect continued margin expansion and operating leverage with 100 to 150 basis points a year margin expansion anticipated.

• Short-term macro pressures.
• Current financing environment for commercial property constraining new build hotel development.
• Air capacity constraints affecting inbound and outbound travel in Greater China, leading to expected RevPAR down in the middle-single digits versus 2019 in the second half of the year for Greater China.

Q: Just in terms of changes to strategy since senior changes?

A: Elie Maalouf mentioned building on a strong foundation, evolving strategy to be relevant to guests, owners, and local markets, and announced a new mid-scale conversion brand.

Q: Concerns about Americas RevPAR flatlining vs 2019 and US Q2 trends?

A: Michael Glover said US RevPAR Q2 2023 was 4.4% vs 2019, industry in US remains strong with strong unemployment and consumer sentiment; confident in progress.

Q: Confidence in hitting 4% net unit growth next year?

A: Elie Maalouf said pleased with progress, strong signings, new brand launch, and confident in continuing to grow system at competitive rates.

Q: Thoughts on new mid-scale conversion brand vs other brands?

A: Elie Maalouf said it targets a different market, allows owners to join IHG system with lower distribution costs and stronger loyalty program, not overlapping with existing brands like avid or Holiday Inn Express.

Q: Iberostar openings and margin impact?

A: Michael Glover said Iberostar openings on track, fee structure different but equivalent to current franchise arrangements in terms of profitability; Elie Maalouf said progress with Iberostar on hotel openings and integration.