InterContinental Hotels Group PLC Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Global Performance: Congratulated teams on busy start, RevPAR growth, robust leisure demand, group performance improvement. System growth with over 6,200 rooms opened, signings adding nearly 18,000 rooms to pipeline, including NOVUM deal doubling presence in Germany.
• Regional Breakdown: Americas RevPAR mix, system growth and signings; EMEAA RevPAR growth and signings; Greater China RevPAR and system growth.
• System Fund Changes: New arrangements to improve owner economics, with 2024 incremental revenue $25M, 2025 double that, further growth in subsequent years. Changes consistent with strategic priorities to drive value for owners and grow ancillary fee streams.

Segment Performance

• Global: RevPAR grew 2.6% y-o-y, driven by ADR (+2.3%) and occupancy (+0.2 ppt). Leisure rooms revenue up 7%, group revenue up 5%, business flat. System growth: opened over 6,200 rooms, 5% gross growth y-o-y, 3.4% net growth. Signings: added nearly 18,000 rooms to pipeline, pipeline over 300,000 rooms for first time.
• Americas: RevPAR down 0.3% y-o-y; US down 1.9%, while Canada, Latin America, Caribbean up 11.3%. Occupancy down 1.1 ppt, rate up 1.5%. System size: over 3,000 rooms opened in Q1, 60%+ y-o-y growth. Signings: over 5,000 rooms signed.
• EMEAA: RevPAR up 8.9% y-o-y, driven by rate (+4.5%) and occupancy (+2.7 ppt). System size: over 1,000 rooms opened, net system growth slight decrease. Signings: 5,400 rooms signed, 4%+ y-o-y growth.
• Greater China: RevPAR up 2.5% y-o-y, driven by occupancy (+0.7 ppt) and rate (+1.3%). Tier 1 cities RevPAR up 7.3%, Tier 2-4 down 2.1%. System size: over 2,100 rooms opened, 10.4%+ y-o-y growth. Signings: 7,200 rooms signed, 22%+ y-o-y growth.

Guidance

• RevPAR: Expecting positive RevPAR for Q2 in Americas.
• System Growth: Net system growth expected to ramp up through 2024. Q1 net system growth neutral, expected to increase later in 2024.
• System Fund: 2024 incremental revenue from System Fund arrangements estimated at $25M, 2025 expected to double that amount, with further growth in subsequent years as points sales and deferred revenue recognition ramp up.

Risks

• Calendar Timing: Adverse impact on RevPAR due to Easter and other seasonal factors, affecting business travel timing.
• System Growth Seasonality: Q1 typically has fewer openings and more removals, leading to neutral net system growth year-to-date.
• Market Competition: Competitive landscape in hotel markets may affect signings and conversions, including in high-value markets like Germany.

Q: On System Fund changes, who initiated the reduction in fees?

A: Elie Maalouf discussed that the discussion with owners is about delivering value, and scale enables lower unit costs, with the change being a deliberate decision to place revenues in the P&L as the System Fund grew.

Q: About U.S. RevPAR, why was it weaker than expected?

A: Elie Maalouf cited Easter timing, Super Bowl location, and weather events as factors, but noted April showed a pickup and projections still point to RevPAR growth for the rest of the year.

Q: On NOVUM deal, how is key money involved?

A: Michael Glover stated key money will be paid out over time, and while specific quantification isn't disclosed, the deal is expected to contribute to fee revenue, with the guidance for key money remaining at $150M to $200M as of now.