InterContinental Hotels Group PLC (IHG) on Q1 2023 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, hello, and welcome to the IHG First Quarter Trading Update to March 31, 2023. My name is Maxine, and I'll be coordinating today's call. [Operator Instructions] I will now hand you over to Stuart Ford, VP and Head of Investor Relations, to begin. Stuart, please go ahead when you're ready.
Stuart Ford: Thanks, Maxine. So good morning, everyone, and welcome to IHG's call for the first quarter of 2023 trading update. So, I'm Stuart Ford, Head of Investor Relations at IHG. And I'm joined this morning by Keith Barr, our Group Chief Executive; and Michael Glover, our Chief Financial Officer. Just to remind listeners on the call that in the discussions today, the company may make certain forward-looking statements as defined under U.S. law. Please do 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, can I remind you that in order to ask questions, you will need to dial in using the details on Page 2 of today's RNS release. The release, together with the usual supplementary data pack, can be downloaded from the Results and Presentation section under the Investors tab on ihgplc.com.com. I'll now hand over the call to Keith.
Keith Barr: Thank you, Stuart, and good morning, everyone. Before turning to the trading update, I just want to acknowledge the other announcement we have made this morning regarding my stepping down as CEO and the appointment of Elie Maalouf as my successor. It has been an incredible privilege to spend more than 30 years at IHG and be part of the many achievements and successes that the business has had so far. IHG is a very special company, and to have spent the last six years as CEO has been an owner, as has working alongside our talented colleagues and in partnership with our hotel owners, who all share our passion for hospitality. When I look at the business today, it is set for a very bright future with the breadth of our portfolio, our scale and the strength of our enterprise platform and a clear strategy ahead to grow the business. On a personal level, it's been a very difficult decision to make. But after nearly 20 years away from the U.S. working in different countries, now is the right time for me and my family to return to the U.S., given my daughters will be studying there. I'm delighted that Elie will be succeeding me. I will be here in an advisory capacity until the end of 2023, but from July, Elie will take over as Group CEO and be based here in the U.K. Many of you already know Elie, who has led the Americas region for the last eight years. Under Elie's leadership, he's grown the Americas system by almost 700 hotels or 20%, launched new brands and formats, strengthened how we drive value for hotel owners and delivered record profit levels. Elie and I have worked incredibly closely together, including on key investments and on successfully delivering our strategic priorities. And I know IHG will be in great hands and ready to continue a strong track record of growth and value creation. With that, let me turn to the subject matter of the call, our first quarter trading update, and it's great to be updating you on another strong quarter of trading. I'm here with Michael Glover, who, as you know, stepped up to Group CFO in March. Michael has been with IHG for some 19 years, most recently as CFO of the Americas region. He has previously served as IHG's Group Financial Controller and CFO for Greater China. Many of you had the opportunity to meet him in person for the first time when we were out on the road together following the release of our 2022 financial results a couple of months back. I'll pass over to Michael in just a moment for him to review each of the regions for you in more detail. But before that, I want to summarize the group's 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 during the first quarter of 2022. On a group-wide basis, RevPAR was up 33% on last year and up 6.8% on 2019. You'll recall that Q4 2022 was up 4.1% on 2019. But, had we reverted back to the pre-COVID definition of comparable hotels, Q4 growth would have been around 2% higher. We have now reverted back, which aligns to the definition used by U.S. peers. Even taking that into account, Q1 growth of 6.8% still shows another quarter of sequential improvement. In terms of the component parts of global RevPAR for the quarter, rate was up 11% versus last year and up 10% on 2019. Occupancy of 62% was 10 percentage points better than last year and is now recovered to be within 2 percentage points of 2019 occupancy levels. In terms of the split on stay occasions between leisure, business and groups, we generated 30% more leisure-driven rooms revenue in total than the same quarter last year. While this was particularly driven by the continued strong rate seen across the industry, it also reflective of the strength of our brands as they continue to grow in the Luxury & Lifestyle segment as well in resort locations. Lapping last year's COVID impacted comps meant that business and group's revenue was up by more than 30% on a year-on-year basis, and this reflects further normalization of global working habits and the return of more meetings, conferences and events. When comparing to 2019, leisure revenue is up by around 25%, business revenue is now broadly flat and group is down around 12%. We've talked before about groups being the last of the three demand drivers to be fully restored, and we're confident that it will be. Turning now to group net system size. Over 8,000 rooms were opened in the quarter, 25% more than the same quarter last year. This represents the strongest Q1 openings performance since the onset of the pandemic. This led to net system size growth of 4.2% year-on-year, adjusted for the impact of the removal of our Russian business in Q2 of 2022. It is worth noting that we generally experience seasonality in our system growth with relatively fewer openings and more removals in the first quarter of each calendar year. Year-to-date net system size growth was therefore 0.4%, very similar to the 0.5% at this stage last year, and we expect the rate to accelerate through the rest of 2023. That said, there are economic uncertainties and clearly some financing challenges for the wider commercial real estate industry. These are holding back hotel development and opening activity from fully returning to normal, though improvements are anticipated as the year progresses. Turning to signings. We added more than 16,000 rooms into our pipeline in the quarter, matching the same quarter last year, which had been the strongest over the last three years. This takes the total pipeline to 287,000 rooms, which is an increase of 3.3% year-on-year. You can see the strength and the competitiveness of our brands across chain scales in that performance, with signing spread broadly across regions and segments. One area to call out is Luxury & Lifestyle, which is currently 13% of our system, but represented 33% of all signings in the latest quarter. Our ability to increasingly capture conversion opportunities was also highlighted, representing over a third of both openings and signings in Q1. Interestingly, the 39 conversion signings in the latest quarter represented in absolute terms the third highest for any quarter across the last decade. I'll now hand over to Michael to provide more detail at a regional level.
Michael Glover: Thank you, Keith. Let me step through each region to give you some more color. Starting with the Americas. RevPAR was up 18% year-on-year and was up 11% versus 2019. For the U.S., RevPAR grew 15% year-on-year and was up 10% on 2019 levels. As Keith touched on, this quarter we reverted back to our pre-COVID methodology of calculating RevPAR comparability. Back at Q4, we said this would have resulted in our quarterly U.S. RevPAR being approximately 200 basis points better than the 8% growth, which we reported. So this latest Q1 RevPAR performance, up 10% in the U.S. and 11% for the Americas, represents a continuation of last year's strong Q4 exit rate. Occupancy of 64.3% was 0.5 percentage points above 2019, marking the first quarter in which the region has exceeded pre-COVID occupancy levels. Pricing power remains robust, with average daily rate exceeding 2019 by 10%. Leisure revenue in total was up 11% year-on-year, driven in part by another strong spring break vacation period. The pricing power of our hotels was already strong in this segment a year ago, and it continues to be so. Business revenue has shown an even more marked improvement, up 20% year-on-year, while group demand, which had been the slowest driver to recover, has accelerated to see Q1 up nearly 30% on 2022. If you look at this performance on a versus 2019 basis, group revenue still lags behind by 10%, but business revenue was flat and leisure revenue is ahead by more than 20%. In terms of system size, nearly 2,000 rooms were opened in Q1. This included the first Vignette Collection property in the U.S., the Yours Truly DC, which is an excellent representation for the brand right in the heart of the nation's capital. We signed over 5,000 rooms across the Americas despite the uncertainty created by the financing environment during the quarter. Mexico and Canada represented over 20% of hotel signings in the quarter compared to around 10% last year, demonstrating our growing appeal beyond the core U.S. market. Also notable was our first Regent signing for the Americas, which is a spectacular property on Santa Monica Beach that will be the flagship for the brand both in the region and globally. Meanwhile, the signing of fantastic Six Senses properties in Napa Valley and the Yucatan Peninsula mark a clear signal of the momentum and excitement behind the brand. Signings also included 21 hotels across the Holiday Inn brand family and a further 18 across our extended stay brands. Moving on now to our Europe, Middle East, Asia and Africa region, where RevPAR exceeded the Omicron-impacted first quarter of 2022 by 64%. Compared to 2019, RevPAR was up 9.7%. With this, we've now seen the scale of RevPAR progress in EMEAA broadly match that of the Americas for the past two quarters. The dispersion of RevPAR performance across EMEAA has narrowed with the opening of borders and increasing return of international travel. Q1 RevPAR versus 2019 ranged from up 21% in the Middle East to up 12% in the U.K., up 11% in Australia and up 7% in Continental Europe. In Japan, where restrictions on international travel were lifted only partway through the previous quarter, RevPAR sharply improved to be down just 9% versus 2019 levels. The increasing return of business travel in groups demand has been notable in Europe as has the return of major events and expos in other markets such as Japan, Australia and India. Other destinations such as Thailand marked those that are only recently seen the benefit of international travel resume. Over 5,000 rooms were opened in EMEAA during the quarter, half of which came from the [indiscernible] Iberostar Beachfront Resort properties in Southern Europe. For all of two of the 43 properties which Iberostar own outright, we have now successfully completed the initial phase of integration onto the IHG system. You will recall there's a commercial agreement, it was for up to 70 properties. The pace of adding the remaining 27 of those will be slower from here as these are third-party-owned properties, and so they each require a separate process of third-party approvals. While traditionally, the first quarter of a calendar year is seasonally quiet, it was pleasing -- still pleasing to see that EMEAA achieved a record number of signings and looking back over all first quarters historically on an organic basis. Conversions were almost half of all signings in the regions, and almost two-thirds of the signings were in the Luxury & Lifestyle segment. There were three Vignette Collection and six voco signings in locations, including the U.K., Germany and Japan, which also underscores the ongoing opportunities for our newer brands and core markets. Finally, moving on to Greater China, where the lifting of COVID restrictions at the end of '22 has already resulted in a significant improvement in trading. RevPAR was down only 9% versus 2019, having been behind by more than 40% in Q4 2022. Rate improved to 94% of 2019 levels while occupancy recovered to be less than 2 percentage points down on 2019. We saw the strongest performance in Tier 4 locations, which were up 18% on 2019, driven by leisure demand, particularly in resort locations such as Sanya and [indiscernible]. It's worth noting, whilst a very impressive sequential improvement is clear, going down from 42% in Q4 to down just 9% in Q1, further improvement from here becomes much more dependent on the return of international travel into China, given how this particularly drives demand into the highest RevPAR Tier 1 cities. We remain confident this will fully return as more international airlift comes back as we've seen in other regions, but it will take some time for these areas of demand to fully normalize. Whilst trading performance has rapidly improved in 2023, development activity in the region will likely take longer to get back to full speed. Despite this, the 1,000 rooms opened during the quarter was still an improvement on the same period in 2022. We expect this to accelerate through the year. Signings in Greater China were nearly 6,000 rooms, broadly in line with the levels over the last three years for the first quarter. These included the first Vignette Collection property for the region alongside a Crowne Plaza signing, both of which are at Shanghai's Snow World, a major tourist destination, which includes the world's biggest indoor ski park. There were six signings in total and another strong quarter for Crowne Plaza and 13 more for Holiday Inn Express. Additional signings for Intercontinental, Hotel Indigo and voco also highlight IHG's growing Luxury & Lifestyle presence and the opportunity for conversions in the region. Finally, just to update you on the share buyback, we are currently 32% of the way through the $750 million program announced in February. To-date, this has reduced our shares by 2.0%. Now, back to you, Keith.
Keith Barr: Thank you, Michael. So, to summarize the first quarter. Strong trading has seen continued improvement in our group-wide RevPAR performance, with China demonstrating our remarkable recovery since the lifting of restrictions in December 2022, and both the Americas and the EMEAA regions showing no signs of weakening. Net system size growth was 4.2% year-on-year on an adjusted basis. Luxury & Lifestyle continues to accelerate as a proportion of our pipeline with a third of the 16,000 rooms signed being within that segment. And while development and hotel opening conditions for the industry continue to have macro challenges, we remain on track to deliver on our growth ambitions this year. Taken together, we are therefore expecting 2023 to be another year of successful progressing on our strategic priorities and achieving the core components of how we create value for our shareholders. Growing our fees through the combination of both RevPAR and system size expansion, which will in turn drive further margin accretion, and with our typical strong cash conversion, this allows IHG to both reinvest in the business and return surplus capital to shareholders. With that, I'll now pass back to the operator to open up the call for questions.
Operator: Thank you. [Operator Instructions] Our first question today comes from Vicki Stern from Barclays. Please go ahead, Vicki. Your line is now open.
Operator: Thank you. The next question comes from Jamie Rollo from Morgan Stanley. Please go ahead. Your line is now open.
Operator: Thank you. The next question comes from Richard Clarke from Bernstein. Please go ahead. Your line is now open.
Operator: Thank you. The next question comes from Jaina Mistry from Jefferies. Please go ahead. Your line is now open.
Operator: Thank you. The next question comes from Leo Carrington from Citi. Please go ahead. Your line is now open.
Operator: Thank you. The next question comes from Tim Barrett from Numis. Please go ahead, Tim. Your line is now open.
Operator: Thank you. [Operator Instructions] Our next question comes from Alex Brignall from Redburn. Please go ahead, Alex. Your line is now open.
Operator: Thank you. That concludes our Q&A session for today. So, I'll hand back over to Keith Barr for any closing remarks.
Keith Barr: Many thanks to all of you who joined the call. And also thanks to many of you who I've had the privilege to work with closely over the years and have some fantastic conversations and some great debates, it's been a very real pleasure. I want to remind you that our second quarter update and financial results for the first half of the year will be announced on the 8th of August. And I'm sure you look forward to spending time with Elie and Michael then. But again, I wish you all well, and I'll be again advising IHG on the sidelines for the remainder of the year and continues to go from strength to strength. So thanks, everyone. Take care, and be well.
Operator: Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
