• Revenue: $1.1 billion, up 7% year over year.

• EBIT: $535 million, representing growth of 12%.

• Fee Business Revenue: Increased by 6% to $850 million.

• Fee Margin: Expanded by 180 basis points to 60.6%.

• Operating Profit: Over $0.5 billion, up 12%.

• Earnings Per Share (EPS): Grew 12% to $2.039.

• RevPAR: Increased by 3% for the first half, with Q2 growth of 3.2%.

• System Size Growth: Gross growth of 4.9% and net growth of 3.2%.

• Hotel Additions: Added 126 hotels, totaling 955,000 rooms across more than 6,400 hotels.

• Record Signings: Over 57,000 rooms, up 67% year over year.

• Interim Dividend: Declared at $0.532, consistent with a 10% growth rate.

• Share Buyback Program: $800 million, contributing to over $1 billion expected return to shareholders in 2024.

• Free Cash Flow: $132 million for the first half.

• Interest Costs: Expected to rise to between $160 million and $170 million for the full year.

• Effective Tax Rate: 27% for the first half.

• Warning! GuruFocus has detected 4 Warning Signs with OSTO:IMMNOV.

Release Date: August 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• InterContinental Hotels Group PLC (NYSE:IHG) reported a strong financial performance in the first half of 2024, with operating profit up 12% and EPS growth of 12%.

• The company achieved record-breaking signings of over 57,000 rooms, a 67% increase from the previous year, driven by strong momentum across its brand portfolio.

• IHG's fee margin expanded by 180 basis points, contributing to a robust operating profit of over $0.5 billion.

• The company declared an interim dividend of $0.532, consistent with a 10% growth rate over the past two years, and expects to return over $1 billion to shareholders in 2024.

• IHG's global RevPAR improved by 3.2% in Q2, with strong performance in the Americas and EMEAA regions, indicating a positive rebound in key markets.

Negative Points

• RevPAR in Greater China decreased by 7% in Q2, reflecting tougher year-over-year comparisons and challenges in the domestic market.

• The company's free cash flow conversion is expected to be lower than the typical 100% due to the spending down of the system fund surplus.

• IHG's interest costs have increased due to higher net debt levels and refinancing activities, impacting overall financial expenses.

• The effective tax rate increased to 27%, up from 25% in the first half of 2023, due to the absence of a non-recurring deferred tax credit.

• US signings showed a mix shift to smaller key counts, and some brands like Holiday Inn Express experienced a decline in signings compared to the previous year.

Q & A Highlights

Q: Can you provide insights on the expected net unit growth, excluding the NOVUM deal, and the outlook for exits and incentive management fees in China? A: Elie Maalouf, CEO: We are comfortable with the consensus of 4.2% net system size growth, including NOVUM. We expect similar growth next year, supported by organic conversions and pipeline acceleration. Exits are expected to remain around 1.5%. Regarding China, while incentive management fees were down, we see strong growth in other regions like EMEAA, which offsets some of the China impact. We remain confident in China's long-term growth potential.

Q: What is your view on the US domestic leisure market, given the slowdown flagged by peers, and how does this affect your RevPAR growth expectations? A: Elie Maalouf, CEO: We haven't observed a slowdown in our numbers. Our Q2 RevPAR accelerated, and July showed a continuation of this trend. We are comfortable with the consensus RevPAR growth of around 3% for the full year, considering the US had a negative Q1 but recovered in Q2.

Q: Can you explain the central revenue growth and the impact of ancillary revenue streams? A: Michael Glover, CFO: Central revenue growth includes contributions from consumer points sales and technology fees. While there are moving parts, we are confident in the growth trajectory of our credit card and ancillary revenue streams, which will contribute significantly over time.

Q: How do you view the potential for net system growth beyond this year, considering new builds and conversions? A: Elie Maalouf, CEO: We see gradual improvement in new build signings and openings, alongside strong conversion growth. We are comfortable with the current consensus for net system size growth and aim to sustain this trajectory with continued pipeline acceleration and conversion opportunities.

Q: What are the strategic priorities for reinvesting the system fund surplus this year? A: Heather Balsley, Chief Commercial & Marketing Officer: Our focus remains on marketing investments to drive hotel revenue, optimizing channels like the mobile app, launching our new revenue management platform, and continuing investments in the loyalty program.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.