IHG(IHG) - 2024 Q1 - Quarterly Report

Full Year 2023 Results Overview IHG delivered strong financial results in 2023, with significant growth in revenue, profit, and system size, alongside increased shareholder returns Financial and Operational Highlights IHG achieved robust financial growth in 2023, with reportable segment revenue up 17% to $2.16 billion and operating profit exceeding $1 billion for the first time 2023 Full Year Financial Highlights | Metric | 2023 | 2022 | % Change | Underlying % Change | | :--- | :--- | :--- | :--- | :--- | | Reportable Segments | | | | | | Revenue ($ million) | 2,164 | 1,843 | +17% | +19% | | Operating Profit ($ million) | 1,019 | 828 | +23% | +25% | | Fee Margin | 59.3% | 55.9% | +3.4%pts | | | Adjusted EPS (cents) | 375.7 | 282.3 | +33% | | | Group Results | | | | | | Total Revenue ($ million) | 4,624 | 3,892 | +19% | | | Operating Profit ($ million) | 1,066 | 628 | +70% | | | Basic EPS (cents) | 443.8 | 207.2 | +114% | | | Total Dividend per Share (cents) | 152.3 | 138.4 | +10% | | - Global RevPAR (Revenue Per Available Room) increased by 16.1% year-over-year and was 10.9% ahead of 2019 pre-pandemic levels, indicating a strong recovery in travel demand across all markets[6][9] - The company announced an $800 million share buyback program, which, combined with ordinary dividends, is expected to return over $1 billion to shareholders in 2024[6][9] System Size and Pipeline Progress IHG's global system size grew 3.8% to 946,000 rooms, driven by strong development momentum and a record 79,200 room signings System and Pipeline Movements in 2023 (Rooms) | Region | Openings (Rooms) | Removals (Rooms) | Net Growth (Rooms) | Total System (Rooms) | System YoY% | Signings (Rooms) | Total Pipeline (Rooms) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Group | 47,919 | (13,343) | 34,576 | 946,203 | +3.8% | 79,220 | 296,954 | | Americas | 10,405 | (6,307) | 4,098 | 519,594 | +0.8% | 28,297 | 109,164 | | EMEAA | 21,174 | (3,571) | 17,603 | 247,267 | +7.7% | 24,787 | 82,226 | | Greater China | 16,340 | (3,465) | 12,875 | 179,342 | +7.7% | 26,136 | 105,564 | - Net system size grew by 3.8%, with gross growth of 5.3%; the global pipeline expanded by 5.5% and now represents 31% of the current system size[19][24] - Signings increased by 26% year-over-year (excluding Iberostar), with conversions doubling from 96 hotels in 2022 to 191 in 2023[24] Strategic Priorities and Outlook IHG's evolved strategy focuses on growth, brand strength, and commercial engine, supported by a clear framework for long-term value creation and disciplined capital allocation Update on Strategic Priorities IHG's evolved strategy focuses on growth, beloved brands, a leading commercial engine, and social responsibility, with key initiatives like the Garner brand launch - The company's evolved strategy is built on four pillars: Relentless Focus on Growth, Brands Guests and Owners Love, Leading Commercial Engine, and Care for our People, Communities and Planet[23][25] - The new midscale conversion brand, Garner, was launched and became franchise-ready in the US, with plans for expansion in Mexico and Japan[28] - The IHG One Rewards loyalty program grew to over 130 million members, with record enrolments in 2023; loyalty members now account for over 55% of global room nights and spend approximately 20% more than non-members[30] - The percentage of room revenue booked through IHG-managed channels has increased to almost 80%, up from 72% three years ago, indicating the growing strength of the commercial engine[30] Outlook and Growth Framework IHG anticipates continued growth from resilient travel demand, targeting high single-digit fee revenue growth and 12-15% adjusted EPS CAGR medium to long term - The hotel industry has demonstrated resilience, with revenue outpacing global economic growth in 19 of the last 24 years, and is supported by tailwinds such as the ongoing post-pandemic recovery and constrained new supply[35] Medium to Long-Term Growth Targets | Metric | Target (Annual Average) | | :--- | :--- | | Fee Revenue Growth | High-single digit % | | Fee Margin Expansion | 100-150 bps | | Adjusted Earnings to Adjusted Free Cash Flow Conversion | ~100% | | Adjusted EPS Compound Annual Growth | 12-15% | Capital Allocation and Shareholder Returns IHG's capital allocation prioritizes growth investment, sustainable dividends, and shareholder returns, targeting a 2.5-3.0x leverage ratio and launching an $800 million share buyback - The company's capital allocation priorities are: investing in the business, funding a sustainably growing dividend, and returning surplus capital, while maintaining an investment-grade credit rating[40][41] - A new $800 million share buyback program will commence immediately, following the completion of a $750 million program in 2023, which returned $1.0 billion to shareholders when combined with dividends[44][45] - The Board proposed a 10% increase in the final dividend to 104.0 cents, bringing the total 2023 dividend to 152.3 cents, a 10% increase over 2022[42][71] Financial Performance Review IHG's 2023 financial performance showed substantial growth in revenue and profit, strong cash generation, and a disciplined approach to net debt and liquidity Summary of Financial Performance (Income Statement) IHG's total revenue grew 18.8% to $4.62 billion, with operating profit surging 69.7% to $1.07 billion and adjusted EPS increasing 33.1% to 375.7 cents Income Statement Summary (in $ million, except per share data) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue ($ million) | 4,624 | 3,892 | +18.8% | | Operating Profit from Reportable Segments ($ million) | 1,019 | 828 | +23.1% | | Operating Profit ($ million) | 1,066 | 628 | +69.7% | | Profit Before Tax ($ million) | 1,010 | 540 | +87.0% | | Profit for the Year ($ million) | 750 | 376 | +99.5% | | Adjusted Earnings ($ million) | 635 | 511 | +24.3% | | Basic EPS (cents) | 443.8 | 207.2 | +114.2% | | Adjusted EPS (cents) | 375.7 | 282.3 | +33.1% | - Operating profit from reportable segments increased by $191 million (23.1%) to $1,019 million, driven by a $187 million increase in fee business operating profit[54] - Fee margin increased by 3.4 percentage points to 59.3%, benefiting from trading improvement, particularly in EMEAA and Greater China[4][56] Cash Flow, Net Debt, and Balance Sheet IHG generated strong cash flow, with adjusted free cash flow rising to $819 million, while net debt increased to $2.27 billion due to shareholder returns Cash Flow and Net Debt Summary (in $ million) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Adjusted EBITDA ($ million) | 1,086 | 896 | | Cash Flow from Operations ($ million) | 1,219 | 961 | | Adjusted Free Cash Flow ($ million) | 819 | 565 | | Net Cash Flow before other net debt movements ($ million) | (318) | (184) | | Net Debt at end of year ($ million) | (2,272) | (1,851) | - Adjusted free cash flow increased by $254 million to $819 million, driven by higher Adjusted EBITDA and an improved System Fund result[78] - Net debt increased by $421 million, reflecting $1,035 million in payments for dividends and share buybacks, partially offset by strong cash flow[80] - As of December 31, 2023, the Group had total liquidity of $2,572 million, comprising $1,350 million of undrawn bank facilities and $1,222 million of cash and cash equivalents[86] Detailed Performance Analysis IHG achieved robust system-wide revenue growth and strong RevPAR recovery across all regions, driven by strategic brand performance and pipeline expansion Additional Revenue and System Analysis IHG's total gross revenue grew 22.6% to $31.6 billion, with robust RevPAR growth and system expansion to 6,363 hotels and a pipeline of 297,000 rooms Total Gross Revenue in IHG's System (in $ billion) | Category | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | By Ownership Type | | | | | Franchised ($ billion) | 20.0 | 16.7 | +19.6% | | Managed ($ billion) | 11.1 | 8.7 | +28.4% | | Owned, leased and managed lease ($ billion) | 0.5 | 0.4 | +18.8% | | Total ($ billion) | 31.6 | 25.8 | +22.6% | Full Year 2023 RevPAR Growth (Constant Currency) | Region | vs 2022 | vs 2019 | | :--- | :--- | :--- | | Group | +16.1% | +10.9% | | Americas | +7.0% | +13.0% | | EMEAA | +23.7% | +15.4% | | Greater China | +71.7% | +0.7% | - The global system ended the year with 6,363 hotels (946,203 rooms), a net increase of 199 hotels and 34,576 rooms over 2022[100] - The global pipeline grew to 2,016 hotels (296,954 rooms), with the Holiday Inn Brand Family and Luxury & Lifestyle brands showing strong development activity[101][103] Regional Performance Reviews All regions contributed to strong 2023 results, with Americas RevPAR up 7.0%, EMEAA up 23.7%, and Greater China surging 71.7% post-restrictions Americas Americas comparable RevPAR increased 7.0% year-over-year, driving a 7.1% rise in operating profit to $815 million, with net system growth of 0.8% Americas Financial Results (in $ million) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue from Reportable Segment ($ million) | 1,105 | 1,005 | +10.0% | | Operating Profit from Reportable Segment ($ million) | 815 | 761 | +7.1% | - Comparable RevPAR increased by 7.0% versus 2022, with a 4.6% rise in average daily rate (ADR) and a 1.5 percentage point increase in occupancy[108] - The region achieved net system growth of +0.8%, ending the year with 4,414 hotels (519.6 thousand rooms); the pipeline stands at 1,040 hotels (109.2 thousand rooms)[115][120][122] EMEAA EMEAA comparable RevPAR rose 23.7% year-over-year, leading to a 41.4% increase in operating profit to $215 million and robust 7.7% system growth EMEAA Financial Results (in $ million) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue from Reportable Segment ($ million) | 677 | 552 | +22.6% | | Operating Profit from Reportable Segment ($ million) | 215 | 152 | +41.4% | - Comparable RevPAR grew 23.7% versus 2022, driven by a 7.9 percentage point increase in occupancy and a 9.8% rise in ADR[126] - Net system size grew by 7.7%, reaching 1,237 hotels (247.3 thousand rooms); the pipeline contains 469 hotels (82.2 thousand rooms)[131][136][138] Greater China Greater China RevPAR surged 71.7% year-over-year, driving operating profit up 317.4% to $96 million, with strong 7.7% net system growth Greater China Financial Results (in $ million) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue from Reportable Segment ($ million) | 161 | 87 | +85.1% | | Operating Profit from Reportable Segment ($ million) | 96 | 23 | +317.4% | - Comparable RevPAR increased by 71.7% versus 2022, driven by a 19.1 percentage point surge in occupancy and an 18.0% increase in ADR[142] - Net system size grew by 7.7%, ending the year with 712 hotels (179.3 thousand rooms); the pipeline is very strong, with 507 hotels (105.6 thousand rooms), representing 59% of the current system size[146][147][149] Central Central revenue increased 11.1% to $221 million, with gross costs up 6.8%, resulting in a narrowed operating loss of $107 million Central Results (in $ million) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue ($ million) | 221 | 199 | +11.1% | | Gross Costs ($ million) | (328) | (307) | +6.8% | | Operating Loss ($ million) | (107) | (108) | (0.9)% | Financial Statements and Notes This section provides comprehensive financial statements, key performance definitions, non-GAAP reconciliations, and detailed notes on the Group's financial position and performance Key Performance and Non-GAAP Measures This section defines key performance indicators and non-GAAP financial measures, including RevPAR, Fee Margin, and Adjusted Free Cash Flow, for assessing IHG's performance - RevPAR (Revenue Per Available Room) is the primary metric used to track hotel performance, calculated on a comparable basis at constant currency[155][156][157] - Fee Margin is a key profitability measure for the core fee-based business, calculated by dividing fee operating profit by fee revenue[170][171] - Adjusted Free Cash Flow represents the cash available to invest in growth and fund shareholder returns, and is a key measure of the Group's cash-generative model[190][191] Non-GAAP Reconciliations This section provides detailed reconciliations of non-GAAP measures to IFRS figures, including underlying operating profit, fee margin, and adjusted earnings per share - Provides a reconciliation from reported operating profit of $828 million in 2022 to underlying operating profit of $818 million after adjusting for liquidated damages, disposals, and currency impacts[197] - Details the calculation of the Group's fee margin, showing an increase from 55.9% in 2022 to 59.3% in 2023[208][209][213] - Reconciles profit available to equity holders ($750 million) to adjusted earnings ($635 million) by removing items such as the System Fund result, exceptional items, and foreign exchange gains[219] Consolidated Financial Statements Presents the Group's audited financial statements, showing a $750 million profit for the year, $4.81 billion in total assets, and $893 million in net cash from operating activities Key Financial Statement Figures (in $ million) | Statement | Line Item | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Income Statement | Profit for the year ($ million) | 750 | 376 | | Financial Position | Total Assets ($ million) | 4,813 | 4,216 | | Financial Position | Net Liabilities ($ million) | (1,946) | (1,608) | | Cash Flows | Net cash from operating activities ($ million) | 893 | 646 | Notes to the Financial Statements This section provides critical details supporting financial statements, covering basis of preparation, going concern, segmental performance, exceptional items, dividends, and net debt - The going concern assessment, conducted over an 18-month period, concluded that the Group has sufficient resources to continue operating, even under a 'Severe Downside Case' scenario[246][248][254] - Operating exceptional items in 2023 included an $18 million gain from the reversal of a liability related to the InterContinental New York Barclay associate and $10 million in business interruption insurance income[260][264][266] - The Board has proposed a final dividend for 2023 of 104.0 cents per share, amounting to $171 million, for approval at the upcoming AGM[272] - The Group's $1.35 billion revolving credit facility was undrawn at year-end, and the company was in compliance with all financial covenants, with a leverage ratio of 2.14x (covenant limit <4.0x)[277][278][279]