InterContinental Hotels Group PLC

Hello and welcome to IHG's 2023 Fall Year Results presentation. I'm Stuart Ford, Head of Investor Relations at IHG Hotels and Resorts, and shortly you will be hearing from Ellie Maloof, our Chief Executive Officer, and Michael Glover, our Chief Financial Officer. Before we proceed, I'm obliged to remind all viewers that the company may make certain forward-looking statements as defined under U.S. law. Please refer to the accompanying four-year results 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. The results release, together with the usual supplementary data pack, as well as the presentation slides accompanying this webcast, can all be downloaded from the Results and Presentations section under the Investors tab on iHGPLC.com. Now, over to Ellie.

Hello, and welcome to iHG's 2023 full-year results presentation. I'm Elie Malouf, Chief Executive Officer of ISG Hotels and Resorts. I was honored to take on this role on July 2023, and to now be presenting my first set of annual results. Our results presentation follows a slightly different format this year, as we are holding a separate live webcast and Q&A session to talk about ISG's update on strategic priorities. All material background for that update is contained in the full year results announcement that we have released. This webcast that you're currently watching is specifically to cover the performance in 2023. In a moment, Michael Glover will talk you through our financial results. But before that, let me share some key highlights. We saw excellent progress in 2023 with key metrics for our trading performance, hotel openings and signings, profit and earnings, all significantly ahead of last year. REF PAR improved significantly, up 16% versus 2022 and up 11% versus 2019. Despite tougher comparables as we progressed through the year, Q4 REF PAR still finished up 8% year on year and up 13% versus 2019. Looking at system size, our gross growth was 5.3% and net growth was 3.8%. We added 275 hotels to our system, delivering 16% more room openings in 2022 after adjusting for a Bear Star. Signings were up 26% on last year, driven by one of iShe's best ever quarterly signings performances in Q4. We continue to successfully capture conversion opportunities, which represented over 35% of both openings and signings. Our essentials and sweets brands had another strong year and luxury lifestyle is a rising proportion of our future growth. iShe's overall pipeline increased 6% year on year to almost 300,000 rooms representing secured growth equivalent to more than 30% of today's system. Our fee margin continued to expand growing by 3.4 percentage points in the year and helping to drive operating profit to just over $1 billion up 23% on 2022. Earnings per share grew 33% year-on-year and is 24% ahead of where earnings were back in 2019. 2023 saw another record year of cash generation, with free cash flow totaling $819 million. We are pleased to propose a final dividend of 104 cents, contributing to total dividend growth of 10% for the year to 152.3 cents. After completing buyback programs in each of 2022 and 2023, and while continuing to invest in our business, we have announced a further $800 million buyback program for 2024, demonstrating our commitment to routinely return surplus capital to shareholders. Let me now hand over to Michael, who will take you through the details of our financial results for the year.

Thanks, Ellie. I'm Michael Glover, Chief Financial Officer for IHG Hotels and Resorts. Let me take you through some more detail of the strong financial performance that we delivered in 2023. I'll start as usual with our headline results from reportable segments. Revenue of $2.2 billion and operating profit of $1 billion and $19 million. represented growth of 17% and 23% against 2022, respectively. Revenue from the fee business increased by 17% to $1.7 billion, while operating profit from the fee business increased by 23% to $992 billion, or by 25% on an underlying basis. Fee margin once again made considerable progress, improving by 340 basis points to 59.3%, and I'll touch on this in more detail shortly. Adjusted interest increased to $131 million, while our full-year effective tax rate was 28%. Later in the presentation, I'll give you a view on Outlook for these line items to help with modeling. Earnings per share includes the benefit of accretion from the $750 million share buyback program completed in 2023, as well as the annualization of the previous $500 million buyback that was conducted in the second half of 2022. So, taken all together, along with the reduction in our share count as a result of the share buyback programs, earnings per share increased by 33% to $375.7. Moving on to a summary view of REVPAR performance by region. In the Americas and EMEA region, you can see the sustained recovery of REVPAR versus 2019 levels over the last 12 to 18 months. As had become well-known, trading in Greater China was bumping in 2022. But in 2023, there was a sharp and sustained improvement and full recovery in Repar, with the year as a whole up 1% versus 2019. Q3 Repar was particularly strong, up 9% versus 2019, driven by a better-than-anticipated uptick in domestic leisure trips. Q4 red part dipped back down to a percentage point behind 2019 levels, but this was expected given the seasonally high business demand in that quarter, which still lags leisure demand given the delayed return of international airlift capacity. I will come back to each of the three regions in more detail in a moment. Looking at REVPAR performance on a versus 2022 basis, substantial improvements were seen in the first half of the year due to a lower base in 2022 as a result of the residual COVID impact on trading in that prior year. As we move through 2023, we lapped much stronger comps and so the growth rate decelerated, which was always the expectation. And as you can see, it's stabilized still significantly ahead of the prior year. It's worth pointing out that as we move into 2024, we will no longer report trading metrics on a versus 2019 basis, given the full recovery of nearly all of our markets. Here we are showing our global demand split between leisure, business, and groups, and the component drivers of revenue split between room nights and rate progress. We've previously shown this to you for the US, and now we are showing the global picture, and this is now instructive given the pattern of full recovery. Leisure demand, as we previously knew, recovered first, but what you can see from the top charts is how that strength of demand has been sustained. Business demand continued to strengthen, both in terms of occupancy and pricing. We returned to regular renegotiation of corporate rates on an annual basis, which continues to drive ADR. Meanwhile, the ongoing return of international airlift capacity into and out of China has supported demand throughout Asia, and this will remain a tailwind into 2024. Groups, which had been the slowest demand driver to recover, continues to advance. And whilst for 2023 as a whole it was still 5% behind 2019 revenues, it turned positive for the final quarter. What's on the books for Groups is 17% ahead of this time last year, which would more than complete the recovery of this category. As I mentioned at the start of the presentation, we've seen further expansion of our fee margin, which at 59.3% increased 340 basis points ahead of 2022. This improvement was led by our EMEAA and Greater China regions, which saw margins increase significantly as trading performance continued to accelerate. Both regions have seen margins restored to above pre-COVID levels. The Americas region saw margins slightly dip down 210 basis points to 82.2%. As you will remember, we had previously signaled that there was cost investment in 2023 to support various growth initiatives. Margins are still substantially ahead of 2019 levels and sustainably so. It's worth noting that in the appendixes, there is further detail on the components of our revenue, our overheads, and our operating profit. Our fee business overheads increased by 8.5% year-on-year, though the underlying overheads inflation rate was only around 5%. The integration costs for Averastar, the launch of Gartner, and other investments in systems and growth initiatives meant that overheads grew by more than we'd expect in a typical year. But the outlook and fee margin opportunity remain the same. Our efficient cost base and operating model enables investing for growth as well as expanding margin in an expected average of 100 to 150 basis points a year. just as IHE has delivered over the prior decade. This is a topic that I will cover in our separate presentation, updating on our strategic priorities. Turning to system growth, gross additions were 5.3% as we opened 48,000 rooms in 2023, equivalent to 16% more openings than the prior year when excluding a Barrow Star. 13,000 rooms exited the system during the year, equivalent to a 1.5% removal rate, in line with the historic underlying average. Taken together, net system growth over the last 12 months was 3.8%, matching our expectations of achieving close to 4% growth for the year. conversions grew strongly, representing 39% of openings in the year. The number of conversion room openings increased by 21% year on year. And pleasingly, the number of new build openings also grew by 12% year on year. Consensus currently shows an expectation of 4% net system growth in 2024. And at this early stage in the year, that aligns with our internal expectations. We signed 79,000 rooms in the year, an increase of 26% on 2022 when adjusted for a Bear Star. In Q4 alone, we signed over 28,000 rooms, up 50% on the same period in the prior year, representing one of the strongest quarters of development activity on record. This reinforces our future growth potential and clearly demonstrates the continued attractiveness of our brands and enterprise system. We had strong performance across all segments, but it was very pleasing to see our six luxury and lifestyle brands account for 23% of signings, further increasing this part of the portfolio in our pipeline mix. Accelerating system growth and fee income further, one in two luxury and lifestyle development deals now comprises a branded residences component. In terms of signings by type, conversion signings more than doubled on 2022, but it was great to see that new build signings were also up on the prior year. Moving on now to give some brief highlights for each of the three regions starting with the Americas. Repar was up 7% versus 2022 and 13% versus 2019. Occupancy was up 1.5 percentage points year-on-year and rate was up 4.6%. Trading in the first quarter of 2022 saw travel volumes impacted as a result of the Omicron variant of COVID-19. with comparatives becoming tougher from April onwards. RepR growth in the fourth quarter was up 1.5% versus 2022, which still represented further sequential improvement versus 2019, up 14%. For the U.S., Repar growth was 0.1% given it was up against tougher comps with resurgent demand in Q4 of 2022. That compares to the U.S. industry that saw Repar in slight negative territory for mid-scale and upper mid-scale in Q4. industry forecasts for 2024, such as from STR, are for REBPAR for all change scales to be positive low to mid single digits year on year. Turning to gross system growth, which was at 2%, momentum picked up later in the year with 40% of openings occurring in the fourth quarter. We were delighted to see the first two Garner conversions open by the end of the year, within just three months of the brand becoming franchise ready in September. It was also very pleasing to see an acceleration in the pace of openings for Avid's, with eight new properties added in the year and a further 18 already under construction. At the other end of the chain scale, our luxury and lifestyle category saw the first vignette open in the region, a new entry into Dominica with the Intercontinental Cabri Resort and Spa, as well as three new Kempton properties. We signed 100 deals across the Holiday Inn and Holiday Inn Express brands, indicative of the enduring attractiveness of these brands, as well as the untapped growth potential they still hold. We signed a portfolio including three holiday and club vacation hotels in Mexico, marking the first steps for the brand outside of the U.S. In the luxury and lifestyle segment, we had 29 signings, which was a 58% increase in rooms compared to 2022. Many of these were in high barrier to entry markets such as New York, Napa Valley, Washington, D.C., Turks and Caicos, and Hawaii. In the premium segment, signings tripled, with strong increases above FOCO and Crowne Plaza. And, as we strengthened development activity outside of the U.S., we achieved 51 signings, or nearly 20% across Canada, Mexico, Latin America, and the Caribbean. Signings in total for the year were over 28,000 rooms, which excluding Iberostar, was 34% more signings than in 2022. In our EMEAA region, REPAR was up 23.7% vs. 2022 and is up 15.4% vs. 2019. Occupancy improved year-on-year by 7.9 percentage points while rate was up 9.8%. The UK, which experienced a comparatively earlier easing of restrictions, saw red par up 14% for the year versus 2022, and up 5% in Q4, despite tough comps. Elsewhere, variances in performance largely reflected timing of recovery following the ease of travel restrictions, with fourth quarter year-on-year red par in Australia up 7%, continental Europe up 8%, Southeast Asia and Korea also up 8%, and Japan up 20%. Repar in the Middle East was down 1% in Q4, predominantly due to tough comps from the FIFA World Cup held a year prior, but was still up 24% on a versus 2019 basis. Growth system growth was 9.2% year on year, with the opening of over 21,000 rooms in the region. of which nearly a third were added in the fourth quarter. Openings for the year included 16 further Bear Star Beachfront resorts that were added as part of the long-term commercial agreement established in November 2022, and 26 openings across the Holiday Inn brand family. It was also a particularly strong year for the Intercontinental brand, with eight openings including Jaipur, Bucharest, Durat al-Rihad, and Rome. We signed nearly 25,000 rooms in the region during the year, including 10,000 in the fourth quarter. As we look to rapidly expand in Saudi Arabia, a key growth market for IHG, 14 new properties were added to the pipeline, including the Regent Jetta, which will be the debut of the brand in the Middle East region. Overall, for EMEAA, when looking at development activity levels excluding a bear star in both 2023 and 2022, it was very pleasing to see openings up 25% year-on-year and signings up 24%. Moving on to Greater China, where REBPAR was up 71.7% year-on-year, With COVID restrictions only being relaxed at the very end of 2022, rapid recovery in the region meant that 2023 was the first year in which we saw REPAR exceed pre-pandemic levels, delivering growth of 0.7% versus 2019. Occupancy of 61.1% was up 19.1 percentage points versus 2022, while rate grew by 18%. Q3 Repar, which was strongly driven by domestic leisure trips, was up 43% versus 2022, an outstanding increase of 9.3% versus 2019. Q4 red par was subsequently up 72% versus 2022 due to a comparable period in which the industry was substantially impacted by localized travel restrictions a year prior. But Q4 saw red par slip just below 2019 levels. It is important to reiterate that red par has recovered in Greater China at a much faster rate than what we have seen across the rest of our global business. and the slight regression in Q4 versus 2019 is simply a product of the demand bids being more weighted to business whereas in Q3 was heavily weighted to incredibly strong leisure demand. Gross system size growth was 9.8% year-on-year with the opening of 16,000 rooms in the region of which just half opened in a particularly busy final quarter of the year. Openings over the course of 2023 included 51 for the Holiday Inn brand family, with Express reaching over 300 properties in the region, and 14 more Crowne Plaza hotels opening for this category-leading brand which now has an estate of 124 hotels in Greater China. We welcomed the first three vignette collection hotels in the region, all of which opened within two months of signing, demonstrating the agility of the brand. The addition of another four VOCO hotels also helped drive the proportion of conversion openings to 32% for the year. Across Luxian Lifestyle brands, there were 15 openings, including a further flagship for Regent with Shanghai on the Bund, and six openings for Intercontinental. All of these additions combined to help us reach the milestone of 700 open hotels in Greater China, which is a fantastic achievement for our regional team. We signed over 26,000 rooms to the pipeline during the year, This included 20 luxury and lifestyle hotels, with the segment now representing 20% of both the existing system size and the pipeline in the region. Overall, for the year, openings in the region were 29% up on 2022 and signings were 19% ahead. Turning now to capital expenditure, we spent gross capex of $253 million and net capex was $157 million after proceeds from recyclable investment disposals and system fund inflows. Key money of $101 million, which was up from $64 million in 2022, is indicative of our increased development activity back to pre-COVID levels and also a mark of our growth in the luxury and lifestyle segment. Importantly, it is also a reflection of our discipline in only deploying funds where the returns justify the investment. Maintenance capex was $38 million, in line with prior spend as we continue to ensure that our business and enterprise platform is fully invested. Turning to the system fund, we continue to benefit from depreciation levels exceeding capex, which follows the completion of our major investment in the global reservation system. Moving now to cash flow. Adjusted free cash flow reached a record high of $819 million in 2023, once again demonstrating the highly cash-generative nature of our business model. Adjusted earnings converted 129% into free cash flow for the year. net cash outflow after the payment of just over $1 billion across the dividends and share buybacks was just over $300 million. Together with adverse foreign exchange movements, this meant that the closing net debt position increased by $421 million. Our strategy for uses of cash remains unchanged. After investing behind long-term growth, which remains the foremost priority, we look to sustainably grow the ordinary dividend. In this regard, we are pleased to propose the final dividend will be 104 cents, representing 10% growth on last year's. A year ago, we announced a $750 million buyback program, which completed in December. This repurchased 10.6 million shares and an average price of 55 pounds and 88 pence per share, and reduced the share count by 6.1%. The 2023 program, together with ordinary dividend payments, returned $1 billion to shareholders during the year, which was the equivalent to 10% of ICE-G's $10 billion market capitalization at the start of 2023. We are pleased to announce that a new share buyback program will commence immediately, targeted to return $800 million over the course of 2024. On a prospective basis, given expectation for growth in EBITDA and cash generation in 2024, we would expect this to result in leverage around the lower end of our target range of 2.5 to 3 times at the end of 2024. It's worth mentioning a few housekeeping points for those who maintain forecast models of IHG's performance. Interest costs will rise from 2023's $131 million This is due to higher net debt and our blended bond interest costs increasing to 3.7% following the recent issuance of the new bond. Our adjusted interest expense also includes the charge on system fund balances, which increased in 2023 given the rise in the SOFR benchmark rate that is used for this charge. Where the SOFR rate ends up in 2024 will impact the charge for the year. So at this stage, our expectation is for adjusted interest expense to increase to between $155 and $170 million for 2024. Our adjusted effective tax rate is expected to be around 27% in 2024 compared with 28% in 2023. This is also a rate that could be applied in years beyond based on our current geographic mix of profits and current tax legislation. we still advise that our normal course gross capex spend could total up to $350 million. However, given our increased development activity and growing focus on the luxury and lifestyle segment, our normal course net capital expenditure is likely to be up to $200 million. an increase to our previous direction of around $150 million. Ellie, the regional leadership of IHG, and I will be talking a lot more about our growth ambitions in the separate webcast that provides an update on our strategic priorities. But as a quick reminder, And as included in our results announcement, the baseline drivers for IHG's value creation are as follows. Fee revenue growth of high single-digit percent on average in the medium to long term through the combination of REPAR and net system growth. Those should also drive annual fee margin accretion of 100 to 150 basis points, which taken together should result in EBIT growth of around 10%. We expect to continue converting around 100% of earnings into free cash flow, and that should enable routinely returning additional capital to shareholders, such as through annual share buyback programs, which further enhances earnings growth. The resulting opportunity is for compound growth in earnings per share of 12% to 15% annually on average over the medium to long term, driven by the combination of the above. With that, let me now hand back to Ellie. Thank you, Michael.

To summarize... We operate in a very attractive industry, benefiting from long-term structural growth drivers of expanding GDP, growing populations, rising middle class and wealth, and people's fundamental desire to travel and physically interact for both business and leisure. iShe has a well-proven ability to successfully drive long-term growth, in both demand and supply, with full-year ref bar growth of 16% and net system growth of 3.8%, once again demonstrating this. Our well-invested portfolio of 19 brands forms a powerful network of nearly 950,000 rooms across more than 6,300 hotels. We have geographic reach across more than 100 countries and a full range of product segment diversification from mid-scale to upper luxury. Our pipeline of nearly 300,000 rooms represents secured multi-year growth of over 30% of today's system size. With year-on-year growth of 23%, our operating profit exceeded a billion dollars for the first time and helped drive earnings per share growth by an outstanding 33%. We're highly cash generative, which supports our capital allocation strategy. We returned a billion dollars to shareholders last year through ordinary dividends and share buybacks and will exceed that total in 2024. And with that, we thank you for listening to our 2023 full year results presentation and very much hope that you will also join us for the separate update on our strategic priorities and future growth ambitions later today.