The analyst conference of IHG Hotels & Resorts ($IHG (-0.9%) ) for the fourth quarter and financial year 2024 began with opening remarks from CEO Elie Maalouf and CFO Michael Glover. They highlighted the strong business performance last year, which was characterized by revenue per room (RevPAR) growth of three percent and an overall improvement in all regions. Gross system growth reached 6.2 percent, while net system growth amounted to 4.3 percent.
IHG signed contracts for 106,000 new rooms in 714 hotels, an increase of 34 percent compared to the previous year. Fee margin increased by 190 basis points due to operating leverage and additional fee income. EBIT rose by ten percent, while adjusted earnings per share increased by 15 percent. In addition, an $800 million share buyback program was completed and a further $900 million program was announced. IHG also announced the acquisition of the Ruby brand for 116 million US dollars.
Various topics were discussed in the subsequent Q&A session. Jamie Rollo from Morgan Stanley asked about the key money payments (this is a kind of handout to convince hotels of the merits of one's own company), which amounted to over 200 million US dollars last year and could continue to rise in the future. He wanted to know whether this is due to the expansion of NOVUM and the higher proportion of luxury hotels or whether competitive pressure is increasing. Michael Glover explained that the increase was mainly due to the increased focus on premium and luxury brands and NOVUM. However, the intensity of competition has remained unchanged. The revenue contributions from Key Money are amortized over the term of the contract and currently amount to around five to six million US dollars.
Vicki Stern from Barclays also addressed the topic of key money and asked about general trends in the industry. She referred to reports from Marriott, according to which key money requirements have also increased in the lower price segment. Elie Maalouf replied that IHG is not observing this trend in the Essentials and Suites brands in the USA. The majority of the higher key money payments were attributable to the luxury, lifestyle and premium segments. Stern also wanted to know more about the declining International Marketing Fund (IMF) revenues in China. Maalouf was positive about the future RevPAR outlook in China, while Glover added that IHG does not expect significant declines in IMF revenue.
Jaina Mistry from Jefferies continued the discussion on Key Money, asking whether these payments are primarily used in the US or in other regions as well. Maalouf explained that key money is predominantly used in the US in the premium, luxury and lifestyle segments, while no such payments are made in China.
Mistry also inquired about the impact of the Ruby acquisition on earnings in 2025. Maalouf explained that one-off costs of around ten million US dollars are expected in connection with the integration of Ruby and that no significant profit contribution is expected in 2025.
Muneeba Kayani from Bank of America asked questions about Net System Growth. Maalouf was confident that IHG would be able to achieve growth of at least four percent in 2025. With regard to capital returns, Glover referred to the planned share buybacks and dividend increases. Maalouf also commented on the expansion strategy for Ruby and emphasized that the company's founder will remain involved.
Jarrod Castle from UBS addressed geopolitical and macroeconomic issues, including the situation in the US, the war in Ukraine and climate change. Maalouf explained that the actual impact of US policy on the business remains to be seen. Regarding Ukraine, he expressed a desire for peace, but clarified that IHG currently has no plans to return to Russia. With regard to climate change, he emphasized that while natural disasters are regrettable, they have not yet had a significant impact on IHG's business.
Andre Juillard from Deutsche Bank asked whether there is an optimal number of brands that a hotel group should own. Maalouf emphasized that it is not the number of brands that matters, but that they offer clear added value for both guests and hotel owners.
Juillard also asked about the potential in the resort segment. Maalouf confirmed that IHG sees considerable growth opportunities in this area and referred to the partnership with Iberostar as well as numerous resort projects in the pipeline.
In conclusion, the CEO emphasized that IHG remains on a strong growth path. The company is confident that it will achieve its strategic goals and continue to create added value for its shareholders.
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