InterContinental Hotels Group PLC

Good morning, everyone, from me, and welcome to IHG's conference call covering the third quarter of 2023 trading update. So I'm Stuart Ford, Head of Investor Relations at IHG, and I'm joined this morning by Elie Malouf, our Group Chief Executive, and Michael Glover, our Chief Financial Officer. Just to remind listeners on the call that in discussions today, the company may make certain forward-looking statements as defined under US law. Please refer to this morning's announcement and the company's SEC filings for factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. For those analysts or institutional investors who are listening via our website, may I remind you that in order to ask questions, you will need to dial in using the details on page two of this morning's R&S release. The release, together with the usual supplementary data pack for the third quarter, can be downloaded from the results and presentation section under the investors tab on IHGPLC.com. I'll now hand the call over to Eli.

Well, thank you, Stuart, and good morning, everyone. As Stuart said, I'm here this morning with Michael. I'll pass over to him in just a moment, and he will review each of the regions for you in more detail. But before that, I would like to thank our teams and colleagues for all their support in delivering what has been another strong trading performance. You will have seen that we are still providing monthly RevPAR data in our release, as well as giving you both the year-on-year movements and the performance relative to 2019, given the impact that COVID was still having, particularly in Greater China this time last year. On a group-wide basis, RevPAR was up 10.5% on last year, and up 12.8% versus 2019 levels. You will recall that we first saw Group REVPAR exceed 2019 in the third quarter last year. The 12.8% we are reporting today therefore marks the fifth quarter of sequential improvement ahead of pre-pandemic highs. Our Americas region was already ahead of 2019 from April last year, with EMEA also moving ahead a year ago In this last quarter, the excellent rebound in Greater China means that it too has now completed its post-COVID recovery. In terms of the component parts of Group Rev Par for the quarter, pricing remained very robust with average daily rate up 4% versus last year and up 15% on 2019. Occupancy of 72% was four percentage points better than last year. And at just one percentage point lower than 2019 is a further reflection of the near complete return to pre-COVID levels of demand. In terms of the split of stay occasions between leisure, business, and groups, each of these saw rooms revenue ahead of last year. Leisure was already well up on 2019 levels in the third quarter of last year. So it was very pleasing to see that this year, we've exceeded that high benchmark. Business revenue is also above 2019 levels, and the further normalization of global working habits has seen the return of more meetings, conferences, and events. Groups revenue, which lags bookings, is up 16% on last year, and it's just now 2% below that 2019 level. More importantly, the forward indicator of booked revenue for groups and meetings globally has accelerated to be 37% of 2019. So we've got very good visibility of a more than full recovery of this activity. Now turning to net system size, nearly 8,000 rooms were opened in the quarter, which is similar to the same quarter last year. Year to date, we've opened 29,000 rooms, which is 25% more than last year. This has led to net system size growth of 4.7% year-on-year. Iberistar has contributed 1.8% of it, so our net growth excluding Iberistar is 2.9% year-on-year. Net system size growth year-to-date is 2%. The fourth quarter is seasonally our biggest for delivering net growth, and we have good visibility of the hotels that are due to open in the next three months which should get us close to 4% for the year. Turning to signings, we added 17,000 rooms into our pipeline in the quarter. That's 27% more signings than the third quarter last year. And it's the same amount of rooms signed as in each of the last two quarters. Year to date, this means signings are ahead by 16%, and it takes the total pipeline to 292,000 rooms, which is an increase a 5.1% year-on-year. We are making good development progress across our brands and categories of suites, essentials, premium, and luxury lifestyle. For the latter, our six luxury lifestyle brands continue to grow to be a larger proportion of our business. They are now 14% of the current system, 22% of the pipeline, and 26% of all signings year-to-date. Our investor relations team have released the next episode of the ISG Checks On today. And this latest teach-in is all about ISG's presence of luxury and lifestyle across more than 800 open and pipeline hotels. You can find it on the investor section of our website. Now, coming back to the bigger picture for development activity for a moment, despite some economic uncertainties and challenges to financing across the wider commercial real estate sector, that are holding back new development in the short term. Our industry is fully expected to return back to prior levels of new supply growth, as it has always done in past cycles. The combination of higher room rates and a period of lower supply are stimulants to new development further down the line. In the meantime, ISG's ability to increasingly capture conversion opportunities is an important highlight. Conversions are obviously quicker to market in terms of delivering system growth. And they have increased this year to represent over a third of both openings and signings, as well as being a higher proportion. The 125 conversion signings so far this year represent a record level in absolute terms and almost double the level over the last decade. In September, our new mid-scale conversion brand, Garner, became a veil ready for franchising, and we are very excited about the levels of owner interest, and we are receiving congratulations. and its growth prospects, and further accelerating the number of conversion deals for ISG. We expect the first Garner hotels to open by the end of 2023. And now, I'll hand it over to Michael to provide more detail at a regional level.

Thank you, Ellie. Starting with the Americas, Repar was up 4.1% year-on-year and was up 13.8% versus 2019. For the U.S., Repar grew 3.1% year-on-year and was up by 11.8% on 2019 levels. Occupancy of 72% was 0.7 percentage points up on last year and just 0.6 percentage points away from 2019 levels. Pricing power remained robust, with average daily rate exceeding last year by 3% and up 15% on 2019 levels. Leisure rooms revenue in total was up 3% year on year, driven in part by another strong summer vacation period. The pricing powers of our hotels was already robust in this segment a year ago, and it continues to be so. Business revenue was up 6% year on year, while group demand, which has been the final area to recover, has shown an even more marked improvement of 8% on 2022. If you look at this performance on a 2019 basis, group revenue still lags, but now just by 9%, while business revenue is up 3% and leisure revenue is ahead by 22%. In terms of system size, 2,000 rooms were opened in Q3, This included 13 more Holiday Inn Express properties, while the most recent AVID openings included its first in New York. As with all regions, we expect a significant step up in openings in the fourth quarter. We've signed over 5,000 rooms across the Americas. Mexico, Latin America, the Caribbean, and Canada had another strong quarter, demonstrating our growing appeal beyond the U.S. core market in our increased development efforts in these locations. Year-to-date, they represent a quarter of the signings in the region, compared to just about 7% last year. Signings for the region as a whole included eight AVID hotels, 16 across the Holiday Inn brand family, and another particularly strong quarter for our extended stay brands with 26 signings. In luxury and lifestyle, another two fantastic properties were signed for six census, one at a private island and harbor resort location in coastal Carolina, and the other at an exclusive beach location in Mexico. Year-to-date, total signings for the Americas region are up by nearly 10% on last year. Moving on now to our Europe, Middle East, Asia, and Africa region, where REPPAR exceeded last year by 15.9%. Compared to 2019, REPPAR was up 17.5%, as the region now pushes on past the level of recovery already achieved by the Americas, which is a reflection of the greater amount of rate uplift. Whilst occupancy is still four percentage points behind 2019 levels, rate is up by 24%. There's a greater amount of inflationary pressure in a number of the EMEA markets when compared to the Americas. But there's also a mixed effect given how our growing estate of luxury and lifestyle hotels have achieved the highest increases in average daily rate. 2,000 rooms were opened in EMEAA during the quarter, a seasonally low period which is expected to be considerably exceeded in the fourth quarter. Signings in the region added almost 5,000 rooms to the pipeline, with conversions representing around 40% of these. Luxury and lifestyle also accounted for 40% and included three intercontinentals, and three sixth census properties. In what is proving a strong year overall for the EMEAA pipeline, signings are up by almost 40% year-to-date on 2022. But before we move away from the EMEAA region, just to note to say that all of us at ISG are deeply saddened by the tragic loss of life in the Israeli-Gaza conflict, and our thoughts are with those affected. Of EMEAA's just over 1,200 hotels, we have five that are in Israel, three of which remain open. And we're monitoring the situation closely and alongside of our hotel owners. Our colleagues and guests are safe and accounted for. We continue to prioritize their safety and have increased security measures in and around our hotels. Finally, moving on to Greater China. Since the lifting of COVID restrictions at the end of 2022, trading has significantly improved. This latest quarter, as Allie mentioned, is the first that we've seen in the region exceed 2019 levels, with growth of 9.3%. Year-on-year, Repar was up 43%. Occupancy was 67%, which was up 14 percentage points on last year and was up 2 percentage points on 2019 levels. Rate was up 13% on last year and 6% on 2019. There was particularly strong domestic leisure demand, which is also reflected in July being the strongest monthly performance in the quarter, easing back to more modest performance REPAR growth by September. This is also a factor of why the strongest REPAR performance was across the Tier 2 to 4 cities, which saw REPAR up 13% versus 2019. Tier 1 cities were still down 3% due to the more gradual return of international travel, which has a stronger bearing on performance in these locations. The start of October is also an important leisure period in China, given the national holidays. Recently published data has shown that domestic travel volumes were ahead of 2019, while the hotel industry saw domestic tourism revenues even further ahead of pre-COVID levels. Aligned with this, IHG saw repars strongly ahead of 2019 through the eight-day holiday period. Development activity is also coming back as the region moves on from the prior COVID-related restrictions. There were 37 hotels signed into the pipeline, or nearly 7,000 rooms, which is the highest quarterly signings performance since 2021. In terms of openings, there were 21 hotels added in the quarter, but reflecting the seasonal step-up, we expect a considerably greater number to open in the final quarter of the year. Going back to the pipeline, it was another strong quarter for Holiday Inn Express with 16 hotels signed, as well as for Holiday Inn with a further eight. There were also eight new signings across our luxury and lifestyle brands. The opportunity for conversions continued to grow in the region, with these representing over 30% of the hotels signed so far this year compared to less than 20% in previous years. Finally, just to update you on the share buyback, we are currently 94% of the way through the $750 million program for 2023. To date, this has reduced our share count by 5.7% on top of the 5% share count reduction from the 2022 program. As we've stated in this morning's announcement, our priority uses for cash generation remain the same, as does our target range for leverage, which is 2.5 to three times net debt to EBITDA. Because of the strong growth in profitability and strong cash generation in 2023, leverage at December 31st, 2023 is likely to be below 2.5 times. The Board will continue to evaluate the potential for future returns, doing so next in early 2024. What's important to note here is that our highly cash generative model should enable regular annual returns of surplus capital, such as through annual share buyback programs. Having already returned $500 million in of surplus capital in 2022 and $750 million in 2023, we expect to have significant ongoing capacity to return further surplus capital to shareholders, both in the ordinary course and as we look to move leverage into our target range over time. we would expect consensus to routinely model the return of surplus capital in future years aligned to our capital allocation approach. The 2023 share buyback program of $750 million, combined with the ordinary dividends, will have returned $1 billion to shareholders in 2023, equivalent to 10% of our market cap at the start of the year and equivalent to more than 8% of our current market cap. Now back to you, Eli.

Well, thank you, Michael. And so to summarize the third quarter, strong trading has driven continued improvement in our group-wide REFAR performance, with China demonstrating an excellent rebound in trading, and both the Americas and EMEA regions showing no signs of weakening. Net system size growth was 4.7% year-on-year, and we expect close to 4% for the year. And with good development progress across our categories, we're pleased that we continue to see luxury lifestyle becoming an increasing proportion of our business, as well as strong growth and conversions across the brand portfolio. As we said in this morning's announcement, we expect to close out 2023 with very strong financial performance. I'm excited about the future price G and the attractive long-term demand drivers in our markets. As such, we are confident in the strengths of our business model, scale, and strategy to capture sustainable, profitable growth. In February, we will talk more about the evolution of our strategic priorities, but the core components of creating value for our shareholders will remain unchanged. First, growing our fees through the combination of both REF PAR and net system size growth. Next, this in turn contributes to driving further margin expansion. And then, With our typically strong cash conversion, this allows IG to both reinvest in the business and to consistently return surplus capital to shareholders, which further enhances earnings growth. And with that, I'll now pass it back to the operator and open up the call for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only answers while asking a question. Anyone who has a question may press star and one at this time. Our first question comes from the line of Richard Clark with Bernstein. Please go ahead.

Hi, good morning, everybody. Three questions, if I may. Maybe just starting off with net unit growth. You're talking about further challenges. Is there any sort of sign of a light at the end of the tunnel there? You know, you're beginning to see construction starts accelerate. You know, when do you think you can get back to sort of north of 5% net unit growth at this stage? And then second question, obviously, in the news this week, we heard about the choice bid for Wyndham. It may or may not happen. I don't expect you to comment particularly on that deal, but would you see kind of consolidation in the industry as broadly good for IHG? You know, when Marriott bought Starwood, you talked about some opportunities for IHG to grab some of the peripheral hotels. So would you be seeing that as a positive boost overall for IHG? And maybe just lastly, again, Topical, you made the comments about Israel hotels and two of the hotels being closed. Just the wider region, are you seeing any particular weakness in demand into any of the neighboring countries to Israel and the wider Middle East?

Okay. I think I'll take these questions. Michael, just jump in. Okay. Wherever. Richard. So, look, we're not seeing anything different, you know, negative in the development market. The growth of our signings, 27% year-on-year for the quarter, 16% year-to-date over last year, is a positive indicator of the confidence of owners, not just in our brands and in our system delivery, but also in the wider development market, they see strong ref bar, strong rate, occupancy basically back to 2019, strong consumer confidence. Therefore, they're encouraged to build more hotels. And, you know, the supply environment's been low, which is a precursor to supply growth. So we do see this accelerating going forward. We don't know how many more interest rate increases are out there, but I think we all agree we're getting closer and closer to the end of those. If you heard the chairman of the Federal Reserve yesterday, I think he feels like we're getting closer, and then we're feeling like we're getting closer to flattening of inflation. So all those are positive indicators, and I think our owners and investors feel that confidence, and that's reflected in the growth of our signings and the acceleration of our growth. So, yes. We definitely see the light at the end of the tunnel and we're getting closer and closer to light every time. Meanwhile, I don't think we're waiting for the end of the tunnel. We are growing both in signings and in system size growth. We are growing our conversions in the meantime, which leads me to your second question. Obviously, we won't comment on any speculation around M&A. Look, we have a very sound strategy globally across our brand portfolio, across our enterprise delivery strategy. In our markets, we're very confident that it's the right strategy to deliver shareholder value. You know, we launched Garner Hotels at the half year with an intent of converting independent hotels first in the Americas and then beyond, and also those of, let's say, lesser delivery systems. That is still the case. Let me just leave it at that for the second question. And on your third question, look, it's very distressing, tragic to see what's happening in Gaza and Israel. We hope for an immediate cease of the hostilities. Our first priority is the safety of our colleagues and our guests in the area of conflict. Clearly, our five hotels in Israel have been impacted in terms of booking and cancellations, as anything travel-related has. It's too early to reflect and too early to assess a wider impact. Clearly, at a system level, we're not seeing anything at this point. But look, it's a fast-moving situation, and we're watching it very closely, as is anybody in the travel industry.

Thanks very much.

The next question comes from the line of Vicky Stern with Barclays. Please go ahead.

Good morning. Just firstly, coming back on the unit growth, I know you obviously talked there in your prepared remarks about a good visibility on openings coming through in Q4. But just could you elaborate on your confidence in reaching that sort of 4% net unit growth for the year? Because that obviously does leave quite a lot to be done in Q4. And then with that, I think consensus is right now modelling about 4% for next year also. So just at this stage, does that seem reasonable to you as well? And related, are you expecting to sign any other deals similar to Iberostar? Is there anything you're working on there right now? Second one's on China. RevPi data has obviously come through much better than you expected back at H1. I think you suggested back then something more like a minus 5% versus 19% in the back half. So where, for you, has the biggest surprise come from? And where does that leave you in terms of expectations now for the back half? And then just finally on the credit card opportunity, Ellie, I know you've been talking quite a bit recently on that and the renegotiation that will come through, I think, in 2025. So just a few words on just how big the opportunity could be there for IHG in terms of uplift. Thanks.

Okay. A lot in there, but I'll try to unpack it. I'll start with Q4 net unit growth and then turn it over to Michael or Stuart on next year and then move back in. So look, we, um, we have very good visibility and confidence in the openings for Q4, uh, to get to, uh, close to 4%. Uh, look, the fourth quarter is typically always our largest, uh, quarter for openings and also signings. And the amount, the proportional amount that we will be opening the fourth quarter is in the range of what we have opened over multiple years. So, um, that's where our confidence comes from. Um, I'll just skip over the next one. Regarding partnerships, look, we're always working on things. The Bear Star Partnership is giving us the platform to work on similar opportunities. We obviously won't comment on anything that may or may not be under discussion, but it's a long-term strategy that we have. And look, we've been in partnerships for well over a decade, starting with the LDS partnership in in Las Vegas, then we expanded to Macau, and now with a Bear Star. So there's more opportunity there over time. Michael, I will turn it over to you on China. On 2024, look, we're not giving guidance, as you know, but we're comfortable with consensus where it's at right now for 2024 on net unit growth. On the credit card, it is clearly an opportunity for us, and we're working towards that. There's a lot that we're doing beyond just the renegotiation or rebid of our credit card agreement. It's really strengthening our loyalty plan, which continues to perform very well and to attract more guests and more customers and more spend. The new cards we've already launched continue the strong trajectory that we announced, the fact that it accelerates trajectory. We announced that half year of new customers and new spend, and that's just really building the momentum and along with the expansion and growth of our luxury lifestyle portfolio. The more luxury lifestyle portfolio we have, which we just discussed the acceleration of it here in the third quarter, the more attractive we are for higher spending credit card customers. So it is really a total system approach, a total company approach to put us in the right position in 2025 for more monetization of our customer and our credit card opportunity. So, yes, it is a big opportunity for us. Michael, why don't I turn it over to you? on the China question, where the strength came from.

So if you look at what happened over the summer period, July was the strongest month over the summer period, and you started to see it come back in August and September, and that's because of the really strong leisure activity we're seeing in the region. And again, we saw really strong leisure activity over the Mid-Autumn Festival holiday in early October. We would expect to see that come back to normal levels. We still don't have the airlift back in China. It's now 45% of 2019. That has moved up by 10% at the half. So it's starting to come back, but not all the way back there. I think that will still affect our Tier 1 cities as they benefit mostly from that international travel and airlift coming back. I think that's what I'd say on China. And then from a net unit growth for next year, obviously, we don't give out guidance of what we're going to do next year. But what I would say is that, you know, there's some great indications with signings being up 16% year over year and up 27% in the quarter, that there is still a lot of confidence in our brands. The The conversion activity being almost 40% of our openings and signings is also very helpful as those tend to have a shorter burn to get into. So we feel good about our brands. The launch of Gardner, as Ellie mentioned, is going well. So I think we believe in our brands and what we've got going. And hopefully next year will be a good year.

And just back on China, I think Michael and I spent a week, a full week there a couple weeks ago and came back very encouraged. Yes, the macro that you read at a very high level is different, but really the travel industry, there's a lot of energy, a lot of dynamism. 1.8 billion trips were taken during the mid-autumn festival between air, rail, and car. You know, I think we believe that China's a tailwind for us, unlike a lot of the commentary.

Very helpful. Thanks very much.

The next question comes from the line of Jamie Rollo with Morgan Stanley. Please go ahead.

Morning, everyone. Three questions, please. First of all, just to back on the Barrow stock, could you remind us how many of the hotels still have to join the system and the timing of that and when it's going to hit your reported net unit growth? Secondly, What percent of your hotel guests in Europe come from North America generally? And if you've got it for this year, even better. And then finally, just on the buyback, that $750 million was due to be completed by the end of the year. You stepped up the pace quite a lot recently. It's now mostly done. I'm just wondering why that was accelerated if the next cash return is not going to be starting until sort of mid-late February. Thank you.

All right, I'll let Michael take the first question on a Bear Star, and we'll dig up the answer for you on guests from North America. I guess I don't count as a guest anymore. I've now got residents here in London, so I don't count anymore. And Michael will take the buyback question, too.

Yeah, so, Jamie, on a Bear Star, we have 27 of the 70 hotels remaining to be brought into the system. I think we've said all along those would be the lower – those would take a little longer – as those tend to be third-party owners. So I think we would look to see that come in over the next 12 to 18 months as we work with those owners to get the deal in. And then from a buyback perspective, what I would say on that is we actually use an enhanced agency model. And so we go out and agree with a broker that, to deliver and do the buybacks. We don't control the timing of that. They guarantee us a pricing discount to VWAP. And so they have been making the decisions on when to buy back. And so within whatever algorithm they use, they've determined that was the best period to do that, to accelerate.

And Jamie, just in terms of U.S. travelers into the EMEA region, it averages around 10% across the whole of the EMEA region. There are some locations that are higher and others that are lower. So locations like Ireland, for example, is a higher proportion, but it blends to around 10%. That's data that's based on our loyalty customers. Obviously, we're able to to analyze that with greater precision, and that's around half of stay occasions. So it's not something that you can collect with precision from every single guest stay, but it's pretty well-informed data.

Thanks. And, Michael, there's 27 remaining third-party-owned bare stars that are similar in size to the other sort of 40-odd, are they? Yeah, that's right.

Okay, thank you very much. Those 27 are all in the EMEA region. That's it. That's any difference with those 27.

Okay, thanks a lot.

The next question comes from a line of journey in mystery with Jefferies. Please go ahead.

Hi, it's Jane in mystery. Thanks for taking my questions. I've got three, if I may. My first question is around kind of the macro environment and I'm really interested to hear your thoughts on the health of the U.S. consumer. Obviously, the REVPAR data that you've reported to the Americas is really strong. Have you seen any changes to spending behavior since student loan repayments came back in this month? Then my second question is around growth. So macro side, I thought it was really interesting to see Marriott's new growth algorithm. Are you thinking about growth in a similar way for IHG? or is there any reason why IHG's growth trajectory would be different to Marriott's over the next one or two years? And then my last question is around NUG. I mean, you stated that you're happy with consensus. It seems like consensus is on 4% NUG for next year. To what extent is you being happy with 4% contingent on China coming back So openings in China coming back to a more normal level next year. Thank you.

Okay. I'll take the macro question and turn over the algorithm question to Michael and Stuart and also the 2024 not question, Michael. On the macro look, before I even talk about the consumer itself, On the one hand, we've been living now, even post-pandemic, in two years where there always seems to be something very significant to worry about. We've been waiting for a recession for two years now that hasn't happened. We've been waiting for the consumer to slow down or for travel to slow down, and that hasn't happened. We've been waiting for broader impacts from the conflict in Ukraine that hasn't happened. We've been waiting for energy prices to drop. to create more disruption, which hasn't happened. So I'm not happy about those things, but the adverse or severe adverse consequences that everybody predicted just haven't happened in our travel industry and our company, and our performance has powered through it. So we're not ignorant of what we still see and the new challenges that appear, but we're staying on our strategy and confident that executing it will deliver value in the long term and even in the midterm, and we're powering through it. You know, the U.S. consumer has been surprising most predictions, including the Federal Reserve predictions, which is almost looking for the U.S. consumer to soften, and yet they don't. And unemployment doesn't go up, and that's really the underpinning of the strength of the consumer. If people have jobs, they have pay. If they have pay, they're happy and they spend. And that's also the situation in China. Employment is good. People have income and they're traveling. So I think before to look at the leading indicator of consumer confidence, you have to look at employment. Wage gains have been good. Employment's been good. Job growth has been good. Always mostly surprising to the upside. And so that's why the health of the U.S. consumer at the moment is is good and we're not seeing any cracks in their desire to travel. And none in the business side of it either, which that and groups and meetings have been recovering. Over to you on the, before I turn it over sort of on the growth algorithm, on our total shareholder value algorithm, we've been very clear what it's like. The red bar growth, the net unit growth required to deliver, you know, the high, mid to high teens revenue growth, and the margin, which then allows us to drive margin growth in the 100, 150 basis points, which then drives EBIT in the 10% to 12%. And then with surplus capital that we return in form of share buyback, we end up in the 13% to 15% EPS growth. I think that algorithm is holistic and best in class.

Yeah, I wouldn't add anything else to that other than we just can't comment on what Marriott's doing in their view. And if you look at our asset-light model and our strong cash conversion, that allows us to deliver that algorithm as Ellie just laid out. I don't know that there's much more to say there. On the NUG versus ConsenSys, I think we've gone through that a couple of times, and Ellie's mentioned that we were happy with kind of where ConsenSys was. And as I mentioned earlier, I think given our brand portfolio and the impact of conversions and the launch of some of our new brands like Gartner, we really feel confident in our teams and what they can deliver and continue to grow our system successfully. system growth.

And I mean, your question was how much of it is relying on China? Look, it's an all region play. We expect and we're seeing momentum in all regions, not just in one region.

Do you need China to start to recover next year or openings to start to recover next year?

Well, they are. China signings and openings have been recovering sequentially every quarter. and well above 2022 and you know in the direction of 2019 so we're seeing that happen it's not it's not a hope it's a reality that we're seeing okay thank you the next question comes from the line of meaning with bank of america please go ahead uh good morning so just on conversions uh which is over the third right now

Can you talk about how you see that mix evolving next year? And do you think it remains around those levels? Secondly, can you remind us kind of where you are on your leisure versus business group mix now compared with pre-pandemic? And how should we be thinking about that impacting in the fourth quarter, which is typically kind of more of a business quarter than a leisure quarter? And then just also, Just on share buybacks, why did you not announce one today, given you're at the end of the current one? And could you kind of give us some guidelines on how to think about the size of share buybacks into next year?

Thank you. Okay. Let me take the first question and turn it over to Michael for the revenue mix and share buyback. Yes, our our share of signings and openings in conversions year to date is 35% signings, 39% openings. We think that's going to stay at a aggregate level strong. And now with Garner coming in, it adds to it. We would not be surprised. In fact, we would be pleased if the proportion went down as new construction accelerated. So, We're less focused on the proportion as much as the aggregate. We want both to increase in the aggregate. And the proportion may change as new construction accelerates. And that's just fine with us as long as the aggregate continues to grow and they both continue to grow. We don't target sort of a certain proportion, try to limit it. We want more of both. And I think that lately we've seen conversions go faster in the current environment. We are firmly convinced that new construction will accelerate. Michael?

Yeah, sure. So in terms of the revenue mix, if we look at Q3 versus 2019, leisure was up 34% versus 2019. Business was up 5% versus 2019. And groups were down just minus 2%. versus 2019. However, I would say on groups, bookings are 37%. So forward bookings are 37% ahead of 2019. That's even a step up from Q2. And so what we see is that business and groups coming back Obviously, leisure has continued to be strong. We expect that to continue as we move forward into the fourth quarter. We're not seeing any cracks right now, so we'll feel comfortable with that. In terms of the buyback, we feel we're in a great place. We've seen really, as you saw at the half-year, strong profit growth. We've seen strong cash conversion, and exchange rates have moved with us. So that puts us in a really a good place and means likely at the end of the year we'll be below our net debt to EBITDA target of 2.5 to 3 times. So as you think about that and you think about the opportunity, I feel like there's great opportunity to continue to return cash to shareholders such as through share buybacks. The board feels the right of time to look at that is really at the half year and the full year. And so that's when we're going to do it.

Thank you. The next question comes from the line of Jabber Castle with UBS. Please go ahead.

Good morning, Ellie, Michael. Thanks. Just kind of revisiting some questions, I guess. You mentioned five hotels in Israel, but can you give the broader landscape in terms of Middle East and North Africa for us, please? And then I did notice in 3Q, the Middle East was slightly down in rare power. If you could just give some color on that. And then you spoke a little bit about international travel into China, and I guess Europe as well. Can you give some color in terms of international travel, how you see it coming into the U.S. at the moment? It seems like there's a lot of capacity restriction, for instance, between China and the U.S. at the moment. And then at the 2Q stage, you spoke about, I think it was like 100 hotels' potential interest had been expressed for Ghana. How has that interest kind of evolved since you kind of announced the name, et cetera? Thanks.

Yeah, this is Michael. I'll take the first question on Israel. Just to give you an idea, in Lebanon we have four hotels. In Egypt we have seven hotels. Across the broader Middle East, we have about 114 hotels, so less than 5% of our global system size. In terms of the Middle East, Repar being down 1%, that was mainly driven by the timing of some religious holidays. And so we would look for that to come back. And then in terms of China and the U.S., we have seen – is China into the U.S. is less than 1% of our guest stays in 2019. So it's not a huge impact. But then you've also heard of agreements of increasing the – with the U.S. government and China increasing the airlift back and forth between the countries. So it's not a huge impact to us right now. So, Elliot, anything you'd want to add on?

Yeah, I think it's just – it's going to be incremental to the good business trading that we have already in the U.S., And even in Europe, I think it was 2% in 2019. China to Europe was 2%. But yes, more concentrated in cities like London and Paris. But overall, our business was 2%. It's not all back yet, but it will come back. It's coming back faster to Europe than it has to the U.S. It's an even bigger percentage of Southeast Asia. Let's not forget, we have a good presence there, too. And we're starting to benefit from it. So it's really all incremental. We see it as a tailwind going forward. Your question about Garner, yeah, we had 100 owners, 100 hotels interested in converting. That's proceeding. Those interests are manifesting themselves into what we call applications and eventually approvals and eventually signings, eventually openings, and more people are calling in and we're reaching out to more people. So it is building from there.

Okay. Thanks very much.

The next question comes from the line of André Julliard with Deutsche Bank. Please go ahead.

Good morning. A few questions if I may. First one is about the pipeline. Could you give us some more color, if possible, about the financing of the pipeline in general, the origin of the funds, and the feedback you have from banks and financing in general? Second question about distribution. Could you update us on your partnership with Amadeus and the way things evolve between direct distribution, OTAs, and partnerships in general? And also an update on the loyalty program. Thank you very much.

Okay. On the pipeline, We said at the half year that about 40% of our pipeline is under construction. That is still the case as hotels open, more start under construction. So it's a recycling, revolving situation. But our pipeline has grown over 5% year over year, which is a pleasing thing, despite the fact we've been opening hotels, but we're signing more into it. And, you know, as I said at the top of the call, The financing environment has not gone backwards since the half year or since the beginning of the year. Our owners are encouraged by signing more hotels. We have more hotels under construction. We have more hotels opening. And that's just a gradual return to normality. As interest rates flatten out, as inflation flattens out, we're going to see more financing available for hotels. Certain sectors of commercial real estate, like office, are not. recovering, and in China, residential is not, but those are really disaggregated from the strength that we're seeing in travel and leisure, the strength that we're seeing in the industry, and the return of financing to our industry. On distribution, we've had a long-term relationship now with Amadeus. We're into the second stage of the rollout of the features in our guest reservation system, which is best in class, best in the industry. We've now got attributes selling. We've got features selling for guests on our site. So it's an integral part of how we go to market with our guests and with our owners, and it's proceeding very well. I don't know if you had a specific question about it, but it's ongoing and proceeding very well. Loyalty has continued to grow. Michael, I think you have some specific statistics, but our contribution has grown quarter year over year. from the high levels that we announced at the half year. And the program continues to perform very well.

Yeah, if you just look at our elite members, they're returning more often and staying more nights year over year. Our reward nights bookings are up 40% in Q3 versus 2019. And members redeemed 44% more points in Q3. 2023 versus 2019. And just a reminder, we launched the program in April of 2022 with a faster way to earn and a new tier system, exceptional choice rewards, and much more richer benefits. So we're seeing, you know, strong demand for that program and strong growth in that program.

I think it's important to recall that over 50% of our room nights globally come through ISG1 rewards. You should not disconnect that from the fact that our conversions are growing as owners appreciate the strength of a high-revenue, low-distribution system.

Okay. So 50% of the room nights are coming from this program. Is that right? Globally, yes. Okay.

And growing.

Okay. Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. Star followed by one. Our next question comes from the line of Leo Carrington with Citi. Please go ahead.

Good morning. Thank you. If I might, I've got three questions, please. If I might firstly follow up on the questions around the financing environment. In terms of what to expect, would we see the quarterly signings accelerate first and then openings to follow? Or are there some kind of pent-up openings that you would expect? I take the point around the signings growth, but absolute signings have been quite steady to one to three. And in terms of the regions, is the U.S. weather dynamic is the most challenging with America's system size being flat recently? year to date. Secondly, if I could ask, on the big picture around occupancy progression in Europe versus 19 going forward, do you see a recovery like you've seen in the Americas, or is there something structural about the EMEA portfolio that gives more of an occupancy challenge? And then last question, very quick follow-up on Ghana. Do you have any guidance for us or help for us in terms of how this might ramp over 2024 just in terms of openings. Thank you.

Okay. I'll take the financing question and pipeline question and the Garner ramp up and turn over the MEA occupancy question to Michael or Stuart. I mean, the funnel is signings, then openings, but We have a very healthy pipeline with nearly 2,000 hotels in it. So we feel confident that openings will come from the existing pipeline already, which 40% is under construction. But with the increase in conversions, maybe a higher proportion of openings is also coming from very recent signings because they tend to sign and open in many cases within the same year. and you therefore won't see it in the pipeline on a year-over-year basis in some cases. So yes, signings, when we're doing so much in convergence, can contribute at a higher level to in-the-year openings, but we're also going to get a lot of our openings. Most of our openings are always going to come from the existing pipeline that is getting financed and well under construction. But quarter-to-quarter signings and openings can be a bit lumpy. What we look at is You know, how are we comparing year over year? We're 27% in Q3 over last year. We're 16% year to date over last year. So we see that as an acceleration and good momentum and not as sort of being flat. And that is building really momentum for future years. In terms of Garner, it's going to be a contributor in 2024. We're not giving guidance on exactly how much, but it's going to be a contributor in 2024. And initially, we're starting it in the U.S., but we see it expanding further.

In terms of occupancy going into Europe, if you look at the MEAA total being down 4%, most of that is impacted by your Asia countries and the kind of Asia region as that has been slower recover because the lifting of COVID restrictions were later. And so actually, when you look at it in total, Europe has gotten back to occupancy much faster. So we wouldn't expect to see something structural there where we wouldn't see and we would expect it to return to occupancy levels we've seen pre-COVID.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Ali Malaf for any closing remarks.

Well, I want to thank everybody for joining us today for the call. We had a very good third quarter. I want to thank our teams for delivering us. I want to remind you that our financial results for the year, along with the trading in the fourth quarter, will be announced on Tuesday, the 20th of February. Look forward to speaking then again. Goodbye.