InterContinental Hotels Group PLC (IHG) Earnings Call Transcript & Summary

Good morning and afternoon to all who are attending the fireside chat with Michael Glover, CFO of InterContinental Hotel Group. He is also joined by Stuart, Head of Investor Relations. For those who don't know, I'm Jarrod Castle from the Travel and Leisure team, and I'm also joined by my U.S. colleague, Robin Farley. And basically, what we're going to do is we're going to ask a number of questions and topics. I'm not sure we will have time, but if you would like to ask a specific question, please e-mail either Robin or myself, and we'll try to get there. It's first name.surname at ubs.com. In terms of all the disclaimers, please look at ubs.com. And more importantly, with that, Stuart, Michael, thanks once again for your time, especially given the interesting times we're living in. But actually, Michael, I thought maybe we could kick off by you just kind of spending a minute or two telling us what made you switch actually from the energy sector into the leisure space. And a little bit about your history at IHG?

Yes. Well, first of all, Jarrod, thanks for having Stuart and myself on, and to everybody on the call, thanks for your interest in IHG. Obviously, as we go through today, there will be a lot of questions we'll hopefully get a lot of your questions answered. As always, if there's more, Stuart Ford with Investor Relations, you can reach out and we'll get in touch with you and be able to answer any further questions you may have. For me, it's actually -- I'm probably a little bit unique in the industry as I didn't grow up in the hotels. In fact, I've spent most of my early parts of my career at Halliburton and then spent a pretty short stint in waste management. And so I decided to turn in oil and trash for hotels. I think it was a bit of an upgrade there, but actually didn't come in initially to run hotels. I was finance technology kind of expert and started to do that and work on the finance systems for IHG, but then just really fell in love with the industry and so worked in our Americas region for about 8 years or so and then moved over to become CFO of our China region. I spent 3 years in China. My whole family with me, we had a great time there and then moved to the U.K. to become a corporate group controller and spent 4 years doing that, and then moved back to the U.S. again to be CFO of our Americas business. So I've been around the world with IHG. It's been a great journey, and it's a great business, which hopefully, you all will learn more about if you're new to the industry and to the business. Of course, if you're invested, you already know what a great job we do. So excited about our future at IHG and what we can deliver. And with that, I'll let you maybe pop into any kind of questions you might have.

Great. And I would say it's not unique for people to have a long tenure at IHG, certainly at the senior management level. So yes, I think kind of probably what's high up or #1 on people's list is the demand environment and certainly how it's evolved since your February results. Especially, I guess, given some warnings recently from U.S. airlines. So any color on how you see the recent hotel data? Any color on what might be different with your business in aviation and leisure versus business trends?

Yes, sure. Well, as you know, we're in the midst of our first quarter, we'll be announcing our first quarter results. So I've got to be a little bit careful about what I talk about, but I will talk about some industry data and maybe even recap some of the things we said at the full year results. We first thing we kind of came out and said was that January and February -- January looked better or was better than what we thought, it was. And February looked like it was going to be better as well, and that still holds true. If you then come into March, I think we've all seen the RevPAR data from STR that's come through. And the first few weeks of March, I would just tell you that's what we expected, actually. If you look at what, with RevPAR being down in the industry in the U.S., we expected that to happen, mainly because of the timing of Easter. And so last year, with Easter being kind of at the back end of March, what you saw was on the shoulders of Easter business meetings and groups and events being pushed into that time period. So you're beginning to lapse some bigger periods as a result of Easter last year in the first part of March. That then is going to dissipate, and you're going to have -- you're going to cover some weaker periods in March. And so if you look at the industry, I think the forecast from STR at the time was that March would be positive in the last forecast. I don't think any of that has changed. And then as you look forward, obviously, it's early to tell what's going to completely happen in the industry with some of the things that are going on. But right now, what we see is nothing that would really make us move off of where kind of consensus sits today. And certainly, nothing that would worry us about that full year outlook. And so I'll pause there and say -- and then let you dive into a little bit more because I'm sure you've got even more questions on it.

Maybe if I could jump in and ask. I think we see the FTR data points sometimes flat, sometimes up 3%. It can move around and sort of the trailing 28-day has been in that kind of 2% growth. Then I think last week's data point, that minus 4% was a bigger aberration than normal. And I know there's some shifting around. I guess though, would you think -- would you expect that just to be a one-off data point that 1 week because sometimes it feels like 2 data points is a trend. So I don't know what we would think this week. But if -- understanding that things got pushed into the shoulder, it seems like last week could be as equally tough. The data point that we will get tomorrow could be an equally tough comp and so...

Yes, I think your first few weeks in March are going to be a tougher comp than your last 2 weeks in March. So exactly what you're saying, I think you're going to see those first couple of weeks of March being weaker and then the rest of March be stronger. And then...

So the data point -- go ahead, I'm sorry.

Yes, go ahead.

So you -- in other words, the data point tomorrow, we could see a reversal of that big drop potentially?

I think what would be that week because it just got ...

15th to the 22nd, right?

So I think you could see some of that reverse into that period, it would be stronger, yes.

Okay. Great. No, that's helpful. And I'm sorry, I cut you off. You were giving some additional...

Because then you're going to go into April as well and then you're going to cover Easter. So I think really also you need to look at March and April together as we kind of go through because I think the Easter movement is such a big component, especially as you go further East, as you get into Europe, as Easter tends to be a much bigger holiday than it is in the U.S. And you have more time off for those of you that are in the U.S. Here, for example, you typically get -- in the U.K., you get a 2-day weekend or an extra couple of days on holiday. And so it tends to be a bigger impact as you get into Europe. And so I think as we go through -- I think we just need to look at kind of March and April and how that looks together as we move forward.

No, great. That's very reassuring. And maybe just 1 quick follow-up, which Jarrod kind of alluded to is just the fact that the airlines, I think that's really what has set off so much concern about travel. Your comments sound very much like your expectations, everything is in line with what you thought. Things are -- why do you think there's maybe were some airlines looking for more aggressive growth than what you're -- or is there something about the airline travel versus hotel. It seems like it would be a similar mix of business and leisure travel, airlines and hotels. So any thoughts there?

Yes. I think kind of where the airlines were, I think they were a little bit of the high single-digit expectations on revenue growth. So we got to be a little bit careful. If you kind of looked at where some of our competitors were and where we were and where the industry was, particularly in the U.S. because I think you were in that kind of low single digits, 2% to 3% range. And so what you see is actually the airlines coming back into that -- that lower single-digit range of growth in what they've announced versus that high single-digit growth. And then I think it's not a complete read across. First of all, their profits is a very different structure than us because they're asset heavy and the cost basis are very different than what an IHG or some of our competitors would be and so I would consider that -- I wouldn't do a direct read across from that. But also, I think it's particularly with our business, a lot of our business because of our geographic dispersion, the type of brands we have, particularly in the U.S., is that we tend to be a lot more drive-to locations and our business clients also tend to be more small to medium-sized enterprises. So you tend to have -- those tend to be more regional based and you have a lot of drive-to locations there. And so obviously, there will be impacts of travel and airlines reducing capacity and things like that. But I think, like I said before, we haven't seen anything that would make us move off of where we see the full year, where the full year is at right now.

Great. I'll turn it back to Jarrod. I mean -- and I assume when you were talking about the drive-to, you do have some brands that are more full service, so you're not seeing anything -- you're similarly not seeing anything there that is changing your view.

No.

So no, thank you.

I think also I mean a lot of that was really related to the U.S. I think when we think about China. China, we're fully feel pretty good about where China sits today. And I think the first quarter is going to have a tougher comp relative and so to the rest of the year. And so I think you could see -- you'll certainly see China being a little tougher RevPAR. I think you've seen that in the industry data. But as you move throughout the year, it eases up a bit on that tougher comp.

Great. Michael, I did ask you and Elie on the full year results call, if you were seeing any positive or negative indications in terms of the initiatives and proclamations by President Trump. And obviously, these encompass tariffs and DOGE and policy on illegals. But how are you feeling about that now? Is there any impact that you think is coming down the pipeline? And then just secondly, I mean, just in terms of like -- I think it's very low, but what is the direct exposure to the U.S. government? And how do you contract with the U.S. government, I guess?

Yes. Sure. So what I'd say it's still very early days on some of these things. And in some of the tariffs, as you all know, some of the tariffs have been on, then they've been adjusted or they've been taken off or they've been delayed. So obviously, uncertainty, I think we would all prefer a little more certainty in business. But right now, it's probably still early days to see exactly what happens, of course, we want a growing economy, and we'll see how that comes when we have the print. When we talk to our customers and our managed accounts today, still pretty optimistic about travel for the year. As we -- we just actually in preparing for this, I talked to some of our head of our sales, and they've been meeting with a lot of our big customers, a lot of still meeting events going on. We talked at the full year about groups and meetings on the books being over 30% ahead of last year. And so we're seeing that still kind of come through and that's going to come to -- those tend to be longer lead book times. And so those come through. I think in terms of the government business, for us, now all government total, and this means federal, state and local government, it's about 5% of our overall business. Federal tends to be a couple of basis points or a couple of those percentage points. And so right now, there's been no material impact so far. However, what we would also say is we've got other demand drivers that are coming in like that groups and meetings coming back in. And so there's also still lots of essential government travel that has to happen. And so as people go -- as they go through that, we might see some impact, but it's relatively small portion of our overall business and the overall environment, at least today is still really pretty strong. Even if you look at unemployment outlook, there's a lot of noise the last readout we had, there was jobs added, and we were at all-time almost all-time jobs high in the industry, and that's what we really look at in the U.S. That's what we really look at versus the unemployment rate. We look kind of the number of people employed. And that was really still at all-time highs or close to all-time highs. So we feel really comfortable that if people have jobs, they're going to want to get out and they're going to want to travel. Now does that travel change, maybe a change -- maybe they don't get on an airline and go, maybe they do a drive to vacation to a location that's closer to them. That's fine with us, too, because we have that hotels in those locations. So I think as we look at some of that, I think we just need more time to see how things play out.

And I guess just in terms of government contracts themselves, are these negotiated in the same manner that you would negotiate a corporate contract, let's say, with the UBSs of the world?

Yes, we have sales teams that manage all our government accounts, and we work with them on the government per diems. And so we'll negotiate deals with them just like we do with any other customer account.

And so Jarrod, at around 5%. It's on the broadest definition in terms of any part of the government that's getting a government rate code effectively, which is why when we assess it, we know that, that's across all swathes of government, federal, state and local.

And then I guess, a travel management company would manage governments travels or would it go through other channels when they're making the booking or any view on that?

It goes through different channels, depending on how -- they have their own booking process.

Great. Robin, you got anything you'd like to ask around government?

No. I mean I think that's helpful so far in terms of the amount that's similar to some of our other companies. It's been around 3% or so. So it seems somewhat manageable, yes.

And Michael, you kind of big growth area for you for plenty of decades in that market, but you did kind of bring up China and it did seem like when you look at kind of Q4 that maybe it was inflicting. And it seems like you're still quite positive about the trajectory kind of coming out of Q1. Any kind of additional comments in terms of how it's growing and what's giving you that confidence?

Yes. I mean I think we're still pretty positive on China and bullish on the -- especially the long-term aspects of China. And I think you really have to be in China for the long term. Because I think as I sit back and I think about China and what we've done there, the first thing I'd say that our investors and potential investors want to know is why are we the right business to invest in that has China exposure. And so I think the first thing I'd say is, one, unlike a lot of businesses, we don't deploy capital in China. Very little key money to new key money goes in. We're not building factories. We're not building plants there. So the level of risk that we have there is it's pretty small. The other thing I'd say is, unlike a lot of industries where we go to China and we take -- they take all the value out of China. Actually, most of the value that we create stays in China for the development and growth of China. Our owners are Chinese. We don't have any owners that are outside of China. Our employees are Chinese, our business is 80% domestic within China. And so all of that economic value that we create is staying within China. Now we take a sliver of that out with our fees and our -- obviously, our royalty fees and our management, marketing and reservation assessments. But a lot of that stays in the pay for the resources we have in China. And then I think the third thing I'd say is we're very much -- our industry is very much aligned to where the government is actually trying to take the country. One is around domestic consumption. As I mentioned, we're 80% domestic. They're also really focused on driving travel and tourism into China. It's one of their key points of their pillars of economic growth. And so what we see, and we still see significant growth in China. The other thing is you've got great fundamentals that will help the long term. One is you've got a growing economy. It's projected to grow in that 4% to 5% range. You've got a growing middle class expected to -- we've got about 75 million households that are expected to go into the middle class over the next decade. That's roughly around 200 million people. And so as you think about that, as people gain wealth they want to travel. They want experiences. First, they travel locally, then they travel internationally. Being strong in China is going to help us. The kind of third thing there is that the penetration of hotel rooms in China is still one fifth of the size of the U.S. per capita. And so we have seen -- we believe that China has a lot of growth ahead of us. And so we see that in our kind of development activity, signings were up significantly, openings were up as well record on -- nearly record highs or record highs for China for us in 2024. We think that continues. We don't see any reason for that to kind of slow down. And so we feel really bullish about that long-term growth prospects. And then if you talk about then let's go a little micro and let's go kind of in the moment of what's going on here. If you look at our occupancy last year in China, it was relatively flat. We were 4 points down on 2020 -- 0.4 points down on 2023. Now most people with all the noise that was going on in China were probably be pretty surprised about that. And that also is coupled with a tremendous amount of outbound travel that happened in China -- outside of China. And so the Chinese are traveling. And so why is that bucking the trend because you hear all the noise. And so in the economy that's the size of China, there can be multiple things that are true. One, it could be, there could be issues in the retail -- in the real estate sector, but also travel and tourism be really well. There could be luxury goods are doing poorly, but affordable goods are doing well. And that happens to be what's happening. And so why is some of that happening? Elie and I spent some time out there with the team in January. Every time we go out, we meet with some economists there in China. And there's some dynamics that's still -- that's going on. So the fact that they're not building out significant and building and spending on homes, they have a lot of discretionary income available now because where they would be investing or investing in apartments or houses or building out those houses and buying products for those houses. They now have more discretionary income. In China, these are high savers. So there's a part of the population that has a lot of discretionary income available and they're traveling. And then you say, well, also, there's a lot of noise about unemployment in the lower-end the younger generation in China. And that's true. We wouldn't refute or debate that. But what's happening there is those people tend to be living with their parents longer. And so when they do have income, what they want to spend it on is experiences. And actually, what we see is where they're living with their parents, their parents are actually helping them. And so you're also seeing -- through the pensions, the governments being very generous in how it gives increases to pensioners. In fact, the last couple of years that have been 10% increases in pensions for pensioners there. And so all of that is combining with a lot of discretionary income that's allowing people to continue to go out and travel, and that's what they're choosing to do. So I think we feel very confident about that. I think when you look at directly what happened and why RevPAR was down, I said occupancy was roughly flat. It was mainly driven by rate. It was mainly driven by that outbound China traveler, which in 2023 was still contained within China. So in 2024, they really opened up the country, opened up visa fee travel and those high-end travelers that were paying those high-end rates and your Tier 3 and 4 -- I mean your Tier 4 cities, Tier 1 cities were moving outside of China to go travel, and we saw that in our business around China, particularly right around it. So I think there's a lot of positives going on for our industry in China, and that's why we remain bullish on China for the long term.

Jarrod, on your forecast and consensus generally, there's an expectation for 2025, there to be a small positive for the year as a whole for China RevPAR year-on-year. I think the first quarter, and you can see this from the STR figures for the first couple of months, it is still a small negative, but that's because the comps are still tough, particularly over the Lunar New Year break. There's a lot of Chinese tourists who are taking that as their first time to go on vacation over that break internationally. And that benefit can be seen in the locations in our EMEA region, which is something that we talked about, particularly through Q2 and even more so Q3 last year. So I think Q1 is the sort of the last of the tough comps in that sense until you've got this normalization of how those patterns have domestically traveled historically and then the resumption of outbound leisuring effectively as by the end of this Q1 will have fully cycled up against itself.

I would love to if I could jump in and ask a question while we're on the topic of China, just on the supply side. Obviously, it sounds like on the demand side, still so robust. On the supply side, we see headlines about some real estate development that is sort of -- and not specific to hotels, not -- the headlines are not about hotels, but we see stories about real estate developments that are sort of stopped midway through construction and kind of sitting there unfinished. And so I am wondering if you are seeing that at all with hotel development in China just because we tend to look at pipeline under construction as being something that's going to open relatively quickly. And in other markets, we see that. Just wondering if there is some degree of that under construction hotel supply in China that's maybe not moving forward at the same pace that we should be thinking about?

Not that we're experiencing right now. And actually, I would say it's just the opposite. It's actually as an asset class and hotels are seen -- been seen as delivering great returns for owners in a place where you can actually grow. And so actually, you see more opportunity of people looking to say, okay, can we convert some of these residential buildings into hotels? Do you have rights to do that? Can we do that? And so actually, if you look at our signings last year, they were near record highs or actually, they were record highs. Sorry, I keep saying the near, but it's record highs as well as our openings were record highs. And I think what you have -- the government takes a long-term approach to building out in China. And so within our owner base, you do have a lot of state-owned enterprises. And they are still in the process of building out these cities. We've done several with some of the, for example, Shanghai government and so we still see that moving. But you'll also see these private enterprises as we move more east wanting to build hotels. And so actually, we feel very comfortable about where that sits in the direction that we sit as of today.

Right. And I mean, obviously, a good growth market for you. But can you give a little bit of color around how you see industry supply discipline. I mean, I guess if we just break it up into the Americas, Europe, maybe Middle East, North Africa, how do you see things at the moment there?

Yes, Jarrod. I mean a lot of people always ask me, are we going to have a supply-led recession in the industry? And I can't remember. I've been in the industry now 21 years. I don't believe there has been a supply-led downturn in the industry. It's always been, especially over the -- since 2000, it's been macro event occurrences the 9/11, the financial crisis, COVID. Those have been what has happened. And that the industry is pretty efficient, right? And if you actually watch what happens during those periods is as RevPAR drops, development starts to slow, right? And then as RevPAR comes back, actually, it lags the RevPAR growth and it's done at every time, and we're still in that process right now. And so the market is really efficient. In fact, historically, the long-term supply growth has been just what is about 2%. It's still under 1%, and projected to be under 1% for the U.S. again in 2025. Now there's parts of that, that are above 1%. I think some of the mid-scale areas are getting back above 1%, but still below those long-term trends. And so the industry has never really gotten itself in trouble with that. And so I think the discipline is really strong across all the markets in making sure that the kind of work that's being done and the valuations that are being done or assets or looking at those demand patterns and the returns that can be delivered on those hotels. So I think I'm not worried right now about an oversupply at this moment and especially as you look at kind of the forecast as we go forward, too.

Great. And I mean, again, just given the evolution since your full year results, kind of 2 things, which have obviously changed. I mean one is Germany and fiscal and obviously you, you had your big conversion deal last year with NOVUM, so yes. I say that's looking better. And then obviously, potential for peace. So any additional comments on either, what that could mean for your business?

Yes, I think the NOVUM deal was just an amazing deal. And I feel -- we feel very fortunate to be partnering with NOVUM Hospitality, there. It was a straight franchise agreement and deal. And what's beautiful about that is we had -- it took us forever to get penetrated, to develop scale in Germany. And why is that? Well, it's a lease model. And because we're an asset-light company, having a partner or build -- taking on leases within our business is really difficult to do. And so it was really hard to build scale in Germany. Now we have a partner that is growing, that's willing to take on the leases, brand with IHG and two franchise contracts. So that's a great place to be in. I am not sure people realize how important that is because Germany is not only just a great market to be in, it's a great outbound travel market as well. And so by building that growth in that penetration across all the different cities in Germany, which we're now in, we're building that brand awareness. And so that has been a real win for us. And now Ruby Hotels does something similar, and we just -- we announced the Ruby Hotel acquisition. And what was beautiful with that is we have a partner now that is going to take on the opco and the propco. They're going to take on leases. They're going to grow the brand. We're going to grow the brand as well, but we only take on the brand. So we get to grow and we get penetration into all these great European markets with a really cool and in-demand brand by both guests and owners and that really creates a unique opportunity for us because now we don't have to take those assets onto our balance sheet. It allows us to grow at scale. And they're obviously incentivized to grow with that. In terms of Ukraine and some of the -- what's going on there, obviously, we hope for peace there. We exited Russia in 2022. We only have 2 hotels in Ukraine. But any time there's less noise around the world with things like war, that's helpful for the business. Anytime we have stable economies and stable growth, that's better for our industry.

Great. And maybe joining a couple of things together in terms of questions: One, distribution, if you've kind of noticed any changes, direct, indirect, how you come to market? And then secondly, on something which has been important for you again, for decades. And I think if I'm not mistaken, you were the first hotel here to launch, which is loyalty program. And how that is driving direct bookings and indeed, increased partnership revenues. So just be interesting to get some thoughts on how that is progressing.

Yes, sure. I'll start with loyalty, and then I'll come back to the kind of direct distribution kind of conversation. Actually, if you look at what we've done with the loyalty program, I would say we were probably -- while we were the first to launch, we had gotten a little weak. And part of that was our brand portfolio in what we had there. And over the last 10 years, we've really been transforming that brand portfolio and actually bringing in some really great luxury brands, but also introducing new mid-scale brands such as Avid, Atwell, Garner. We brought in Kimpton, Six Senses, Regent. We've built Vignette and voco at that higher end. And that has made our brands portfolio cover more stay occasions up and down the segments within the industry. And so our loyalty program needed to be relaunched at the same time. And so in 2022, we relaunched that. We did a study on and really spend extensive research on what really people want in a loyalty program. And so we relaunched the program. It's been super successful. The combination of the new brands, the combination of the revamped loyalty program has meant we've been able to significantly grow our members. We're now over 145 million members. We were around that -- the '22 number, we were around 100 million and it's still rapidly growing. Our enrollments were up 13% last year, but up 37% on 2019, where more nights were booked were up 8% year-over-year about 48% on 2019. So the refresh program is really driving huge benefit. And the other -- it's not just for our guests is driving benefit, it's also driving benefit for our owners because on average, our loyalty contribution across the whole estate is now up to 60%. Prior to the relaunch, we were around 50%. In the U.S., that's reaching to 70%. And now that's more competitive with all of our competitors. In fact, we're in the game everywhere with them on the loyalty program. And so that's really important because also the loyalty members spend 10 times more -- 10x more likely to book direct and they spend around 20x more than nonmembers. So as they get into the hotel, they're driving better value for our owners. And then the other part is the ancillary benefit of both the brands that we've added in and the enhanced loyalty program has brought greater value in our offering for a credit card program. And so we just -- we did our -- last year, we did our -- we renewed our agreement with Chase and Mastercard that has brought significant additional value to our shareholders. And we've talked about we've been made people aware it will double what we were in 2023 and 2025. That's about $40 million, and then we'll triple that by 2028. And so that's really significant value because that comes directly to the bottom line at almost 100% margin. And then I think the other side of that is we then go back to distribution. What we're really proud of is our distribution and our enterprise contribution has increased from where it was previously, we're at up to 81% enterprise contribution. That's up 5 points since COVID. Within that 81%, there's roughly 20% related to OTAs as they are part of that overall contribution. We negotiate that channel and work with them. They are our partners and they are -- there is OTA business that we want and they play a role in that overall contribution. Of the 19% that we don't count is enterprise contribution, I would argue that it should count. But basically, what that is, is when guests call up to a hotel directly or they're driving to a hotel and they see the sign and they pull in and say, "I'm going to stay at the Holiday Inn Express on the side of the road in the U.S., for example, that doesn't count as part of the enterprise contribution. We don't do that. We don't put that in. But really, we think they're coming to stay because of that sign on the building and so that contribution is -- has grown, which is really, really important for our owners because that lowers the cost of acquisition of revenue for them and also makes them more sticky with IHG. In terms of direct digital contribution, it's been our fastest-growing channel and is 26% of all rooms revenue booked up from 21% in 2019. And so that drives significant value over the web and the app for our owners is all of that comes in at very low cost and no cost of acquisition for the owners. So I think a lot of great things to talk about there is a lot of great progress we've made.

And I would just add, we earn our fees on 100%, not just on the 81% that's our enterprise contribution. Our fees are earned on the whole 100%, which reflects that it's the whole 100% where our brand is above the door of course.

Great. And then I guess moving on, I mean, you've spoken about brands that you've added, but obviously, also doing very well with conversions over the last 12 months. So just any thoughts on potentially how long you see that lasting? And I guess also, any comments on how you've seen signings since the start of the year? And maybe if you can, any color where those signings are happening.

Well, we won't talk about Q1 specifically, you'll have to wait until March 8 on that. I know you'll be waiting with bated breath there. But in general terms, let me cover off some key points. In terms of net system growth, we really feel like we're going to continue to grow in all 3 regions. Obviously, we don't give guidance. But I think consensus expectations are around 4% for the year. To achieve that, we would have a geographic mix in the low single digits in the Americas, mid-single digits in EMEAA and high single digits in greater China. And that's kind of what we've seen in the past. We would expect that to agree -- we would expect that to continue and be kind of where we're at. In the Americas, we've seen some really great progress, and we're really excited about some of the brands we have there and how it's starting to pick up. Particularly the Garner brand, really excited about the interest in the Garner brand there. And we feel like that's a great brand that's just now starting to take off. We've had Avid that's starting to grow as well. And actually, we're starting to see a lot of interest in our luxury and lifestyle brands in the Americas, particularly, we just opened the region, Santa Monica in California and is getting rave reviews. We've got a few Six Senses that are under development in the Americas and in the U.S., so really excited about that. As we move kind of further East into EMEAA, India, we have 50 hotels today and 50 in the pipeline. We really see India as a great opportunity to grow. And actually, if you think about the big countries around the world where you can really grow scale India is one of those. And really, you look at things where there's a big land mass, large population, growing wealth, good infrastructure to get around and good rule of law to be able to protect your brands and a good rule of law to be able to own property. Both China and the U.S. fit that criteria, India is on the way to fitting that criteria. And so it could be a huge opportunity where we have thousands of hotels, similar to what we're having in China. What we do have in the U.S. We're also excited about places like the Kingdom of Saudi Arabia, as they look to revamp their economy, and we have a further 71% growth in our pipeline embedded in the pipeline for Kingdom of Saudi Arabia. Also, Japan as -- while it's clearly more developed, but international brands are underpenetrated. Only about 5% of the inventory in Japan is branded today. And so we feel like there's great opportunity. Of course, you've seen what we've done in Germany. So lots -- we've really been pleased to grow our presence there. And really, our luxury and lifestyle brands are just taking off. And I don't say that to mean we don't care about our midscale brands actually as a CFO, we love our mid-scale brand because that's where the money comes. And if you look at development around the world, mid-scale brands are heavy growth area, but with 6 luxury and lifestyle brands, we have over 500 hotels open, but nearly 400 more in the pipeline. And so that represents over a 50% growth of what's already in already -- that's already in the pipeline. And so we're really excited about that and what we can do with that. Even Intercontinental, which is a brand that's been around for ever has 227 hotels open. It might surprise you, we have a further 101 InterContinental in the pipeline to open. And so we've got and even our most established brands, Holiday Inn and Holiday Inn Express, we have 23% of the existing system size in the pipeline. So lots of growth left to do there. So we're excited about what we have and really it boils down to what is the long-term tailwinds of this industry. It's making higher highs, higher lows. The growth of the middle class around the world is driving travel demand, which is going to propel growth in the industry for years to come.

Jarrod, just on the point on conversions are sort of within that progress on signings and net system size growth. Conversions, if you go about pre-COVID, we're a little under 20% of the signings and openings and mix. Since then, there've been a higher proportion of 30% to 40%. Last year, including the NOVUM deal, they were more than 50% of openings and signings. If you back that out, you're still at about 40%. That as a proportion also in absolute terms as well. Signings of new builds were increased in 2024. But then conversions will still continue to be good for us. That's about the inherent attraction of the overall enterprise platform. It's about the attraction of loyalty. It's about having more brands. Some of the developments on the brand ladder have been specific for conversion, most recently Garner in that respect, voco before it, Vignette as a collection brand. The 3/4 of all of our conversions are hard conversions into our other brands. It's not just about having dedicated conversion brands. So there's a lot going on in that conversion space still.

May I ask a follow-up there. Some other hotel companies have been launching brands in sort of the last 2 years that are a little bit more sort of mid-scale or premium economy, if that's a real category. But -- and so -- and sort of going to tiers below the sort of upper midscale and above where they had typically stayed. Just wondering if you think that do you see so much room in that mid-scale and economy segment that there's sort of room for more brands? Or do you feel like it's getting crowded in terms of brands in that segment?

Yes. Actually, I mean, this was -- it's interesting because we -- this was something we have been looking at for a long time, but we had other things we needed to do. And so this has always been an area where there is a tremendous amount of demand from consumers, and there is already a tremendous amount of supply available. Now we believe that with our brand and with Garner and what we've done there, we have great opportunity to consolidate some of that existing supply conversions. That's why Garner is a conversion brand. And so we think there's a huge opportunity to build scale there. We think our loyalty program fits well there that those consumers that we currently have in that mid-scale area, will flex down into that -- sorry, in the upper mid-scale area will flex down into that midscale area. Now we haven't decided to go into economy at this point as we think there's other issues with that, that you have to deal with. And so we have not decided to do that. Now I do know what you're referencing, there are some others that have gone into that area as well. I think we create and we have a great offering for owners in that area. And you see as we are continuing to sign more that we feel like we can provide those owners a real value, and part of that value is channel shift away from -- they tend to be higher OTA today. We can do -- we can deliver more direct. We can deliver a higher rate. And then we can also deliver loyalty in there. So we've got a real solid value proposition with Garner into that segment. We also -- if you're -- there's also a lot of really good hotels in that segment, newer hotels that don't have maybe long-term contracts that are independent that we feel like we can go in and have limited cost to renovate and they can come in and brand into Garner, which is some of the few hallmarks that we have. Now there's others that may take a bigger renovation. So we think there's a lot of value for owners to do that to coming into our system, channel shifting and getting that lower cost of acquisition of revenue and higher contribution.

And then I guess also, Michael, one of the big topics for the branded hotels has been key money, which obviously seems to be on the up. It'd be interesting just to get a refreshed view how you see it? Is it just a mix impact? Or is there something else going on?

Yes. I mean I was -- I don't think I've done a meeting without talking about key money in this cycle. So clearly, there's a lot of questions around it and concerns. And I think you got to start with what was actually said. Actually, Hilton, they had less key money than what they had -- would normally expect. And they said actually their key money would be going back up. So I don't think they were saying more key money. They just were saying it would go back up. In terms of Marriott, they had said they weren't seeing more key money but they might have to go down into some of the lower chain scales. And I think some of the other companies that came in, both Wyndham and Choice said they're seeing more competition for their brands, and they are seeing more defensive or more key money coming in from that. I think that's partly because we've launched Garner. Hilton has launched Spark in that area, and Marriott has launched Four Points Flex in that area. And so certainly, for them, that's probably a bit defensive. I can't speak for them. But -- and we personally within IHG, we don't have to deploy key money into Garners. We're not -- we don't see that we have to do that because of the strength of our system and what we can deliver in terms of channel shift, we feel like we can create a great value proposition for owners without having to put key money in there. And so -- if you look at what we did say around our key money that certainly year-over-year, we saw an increase. The reason for that was really kind of threefold. The first of that is that as we move into luxury and lifestyle and as we've built out those -- that brand portfolio, we're seeing more of those brands opening. And so as we've shifted into that, we actually had 50% of our openings were in luxury and lifestyle and premium in 2024. And if you look back to 2019, that was 25% of our opening. So double our openings in luxury and lifestyle. In luxury and lifestyle and premium, that's where most of the key money is deployed as those are much higher cost to build assets. And so you use the key money there to attract the higher fee generation. And also, we generate significant return on that key money. So I would look at that key money as an investment and probably one of the best investments and returns we can do. And so part of it is mix of just got more luxury and lifestyle. Luxury and lifestyle is where more key money is done. Then we had a second thing, which we had Noble hotels. So we signed 117 hotels all at once, and that had key money associated with a large portion of that key money, 2/3 of it was in 2024, and there will be a little bit in 2025 as well. And so that is -- that's part of that as well. So we've had that bump from that. And then the third factor really is as the industry has consolidated, we're having more conversions coming in. And so haven't necessarily budgeted more pay money. We're not seeing more key money per room increase, but we are seeing conversions come in, which means that key money comes out faster. Because typically, what happens is when you sign a deal, and it's a new build, it stays in the pipeline for some time because we don't pay the key money out until the hotel opens. So for example, InterContinental Bellevue was signed before COVID, it started to get built. It got delayed during COVID and just opened last year. So the key money for InterContinental Bellevue was sitting in the pipeline for quite some time, right? And so -- if you look at conversions, they will come out of the pipeline in, let's say, 12 to 24 months depending on the amount of conversion and renovation activity that needs to happen. So that -- because that's moved forward, that has accelerated some of that key money coming out of pipeline. The other thing, we're not saying that -- and actually, if you think about, we're not saying that key money is just going to continue to grow. And so actually, we've said just the opposite. We said this year, we gave guidance of $200 million to $250 million. We said that it would be around or slightly less than last year. And then it would be normalizing after that as some of the NOVUM key money comes out. And so I think there was obviously a lot of noise around it that actually in some concerns that we're having to pay more key money that is getting more competitive and more key money per room. We're not seeing that come through. It's more of a mix shift for us.

Just I don't know if you've quantified this, but roughly what percent of your pipeline has key money associated with it. I don't know if...

We don't give that number out, and we haven't given that number out.

Okay. All right thanks. I'll turn it back to Jarrod.

And Michael, you did touch on Ruby. So just an update on how you think about acquisitions driving shareholder returns and a recap of what was so appealing for Ruby hotels?

Yes. I mean we're really excited about Ruby. It is a cool brand. And really, let me talk about this kind of our philosophy on what we do with -- and how we think about build versus buy actually within the company. And what we first look at is, is there a segment where owners want to build hotels, is there a segment where guests want to stay at hotels and in the industry, Ruby is what is considered urban micro. And so what we've found is that the Urban Micro is really in demand for owners to build. It's a smaller footprint room that allows you to put more rooms within their building, then it then has great common area space which guests really love and they don't want to sit in their rooms necessarily anymore. They want to get out and socialize and mingle. And so we have this intersection where guests want to buy and stay and where owners want to bill. And we look to say, did we have anything and look to say, do we have anything that meets that need. If we don't, then we look to say, okay, do we go out, do we build that? Or do we buy that brand? Now typically, and how we have looked at that historically and really what kind of guides us is if you look at the higher end, the upper -- the premium end, we've tended to buy there. Think of Kimpton, think of Six Senses, Regent, Ruby, we tend that we'll buy that brand. And the reason for that is really hard and expensive to build scale there because the cost to build those assets are significant. As you go down the chain scale and if you look at what we've done in the upper mid-scale area and mid-scale areas, is that we've built, I think, Garner, Avid, Atwell and why can't you do that? The cost to build is much lower. You have partners that will partner with you and you can build that with your existing owners and then attract new owners as you go forward. So it allows you to build that brand and build that -- the awareness of the brand inorganically -- organically. And so that's how we think about that. Ruby was a great brand that allowed us to get in there -- allowed us to get into a lot of markets. I mentioned that we've now got a partner that's going to grow with us in Europe, where Europe is a heavy lease model. Obviously, we don't want to take leases onto the balance sheet because that would make us asset heavy. And so that's how we kind of think about it when we're thinking about strategy. Obviously, we've done a few things here and there, right? Vignette collection, which is in the upscale area or an upscale area where we're building that brand. It's a collection brand though. But generally, that's how we think about it.

I'm correct, you don't see at the moment any gaps now in your brand portfolio?

Actually, we're always looking and the industry is dynamic. And the other thing I would say is there's all -- we're always looking for those opportunities. There is also opportunities where we may have existing brands where there's enough demand that we would do potentially another brand in that same category. So for example, take upward luxury. Our demand for Six Senses is outpacing how many really we're willing to put -- because in that upper luxury there is an upward luxury segment, you really want scarcity. And so we don't want to just have so much scale that it doesn't -- it doesn't feel special. And so take, for example, in Saudi Arabia, we've got four openings in the pipeline. Would we take and add another one in there. Probably, maybe not too anymore, but if we wanted there's plenty of demand for it there both from a guest perspective and an owner perspective. So would we put in another brand to maybe go in there and have that. Yes, we would look -- we'd probably look at something like that because there's so much demand on both sides, owner and guests. And so that's how we would kind of think about that.

Great. I know we're on the hour, maybe one more then actually, Michael. And obviously, wearing a CFO hat. What keeps you up at night? What do you worry about? What do you think about the business over the coming 12 months or medium term even?

Yes. I mean there's always -- obviously, we think about what's going on in the U.S., what does that impact the business? How do we think about that? Obviously, you think about any macroeconomic things. Is there an issue that potentially happens with Taiwan? Are there -- I said I was doing a bond raise back in 2019 or 2018, I think. And I said, really, the only thing I think that could really impact us is a global pandemic or something of that nature. And of course, we had a global pandemic and actually, that didn't take us down, we were actually cash positive during the global pandemic. So I was wrong there. But what I do think is probably the most important thing for both Elie and I is how do we actually drive and capture the growth of this industry. If you believe that the industry has the tailwinds that we believe it has is how do we capture our share or more than our share of that growth. And that's really what we focus on. That's why we take long-term decisions because there's so much opportunity for us in this industry.

Great. So I think that's a fantastic note to end at. Thanks very much, Michael. We have to get you back. Thanks very much, Stuart, as always. You always provide great access to UBS and let's say the market on the whole. So thank you very much from Robin and myself.

Yes. Thank you very much for having us.

Thank you.

Bye.

Appreciate it. Bye.