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

Good morning, and good afternoon to everyone attending this fireside chat with Michael Glover, CFO of IHG. He's also joined by Stuart Ford, who's Head of Investor Relations. For those who don't know me, my name is Jaina Mistry. I'm Head of European Leisure at Barclays. So thank you, everyone, for joining this fireside chat, especially after the wildness of this morning, thank you for taking the time. A bit of housekeeping before we start. [Operator Instructions] In fact, just drop me an e-mail or drop me a Bloomberg, my e-mail is [email protected].

So Michael, Stuart, we are thrilled to have you on, particularly at such an uncertain moment for the travel industry. And maybe that's a good area to start. So Michael, let's kick off with the Middle East. This conflict feels much more expensive than previous conflicts in the last few years. It's the first time that the Gulf states have been significantly impacted. What is IHG's exposure to the Middle East? What type of contract exposure do you have? And can you give us any commentary on the trading there over the last 4 weeks since the conflict has started?

Sure. I'm shocked that this is your first question that has come out. But thank you for having us, and thanks to everybody on the call for the interest in IHG. As we look at the Middle East, obviously, you can see from some of the industry data that's coming out, it is having an impact, and it will have an impact. But I think you need to put it in the context of the broader world as well and what we said at our full year results announcements. And we said that we felt like all 3 regions would be positive. And even with the conflict, we still feel the same way that all 3 regions will be positive in Q1. There's no change to that, including for EMEAA. Actually, heading into the war, RevPAR was actually quite strong in the Middle East. It's obviously been affected by the war. It will obviously depend on how long this lasts and how far it goes. In terms of our system, we have about 5% of our system in the Middle East. That includes Israel, Turkey and Cyprus. Without that -- without those 3 countries, we're a little below 5% that's about 50,000 rooms. Around 26,000 or half of the 25,000 rooms are in the Saudi Arabia market and then 12,000 are in the UAE. So they're the vast majority of those rooms. In terms of revenue impact, it's again about 5%. We don't have any owned and leased or owned hotels there. It is predominantly franchised and managed like rest of the world. So there's no further exposure beyond our normal kind of fee rates that we take. In terms of pipeline, it's about 9% of our pipeline. And this year, it was about 5% of our kind of target for openings in the global IHG system. If you think about that from a system size perspective, we think limited impact on that. Most of these hotels are under construction or in the process. We would probably be -- at this point, we're not seeing anything pushing back, probably actually be more cost prohibitive to stop actually construction because you have crews on site, you have loans that have been made at this point. That doesn't mean we won't see some impact in the future. But as we sit today, probably limited impact from a NUG perspective on this year, maybe some, but limited. We'll have to see how RevPAR comes out. It's still very early. We are still seeing good demand in Saudi for the religious holidays and the religious travel that's there, although not as strong as it would have been without this. So I think, again, that region is very resilient and has dealt with these things in the past. So we'll have to see really -- we'll all have to watch how does this thing come to some sort of conclusion and when does it come to conclusion to really understand the full impact and the lingering impact.

And Jaina, just to add on contracting mix. I think probably everyone knows that we are roughly speaking, globally 70-30 franchised versus managed. For the EMEA region overall, it's more like 60-40 franchise managed. Now within EMEA, the much more developed markets like the U.K. are heavily franchised. So the Middle East is one of those markets as part of EMEA that does have a bit more of a skew towards managed. But as Michael says, it's entirely asset-light. So there's not the 17 owned and leased hotels that are part of the Middle East region.

I think the other thing to think about as you go into and think about the region and the travel there is a lot of it is leisure travel. And actually, as you think about, there will probably be some dispersion into other markets around the world, and we'll pick that up. And actually, a good example of this is actually what happened in the U.S. last year when the new administration came in and there was some friction between Canada and the U.S. in terms of the 51st state, what we saw was a significant reduction in Canadian inbound into the U.S. In our business alone, it was down 13% last year. But it wasn't necessarily demand destruction. Actually, if you look at our RevPAR in Canada, it was up 12%. And if you looked at demand into Latin America and the Caribbean from Canadian consumers was up quite a bit as well. So you'll have some of that movement that happens. I'm sure people are in a wait-and-see mode. Actually, the person sitting next to me here has a trip planned for the UAE this year. He hasn't canceled the trip yet and is actually looking to see what do I do? Do I go there or do I go somewhere else? And so I think that's probably a lot of what will happen. There will be some demand destruction, right, if you were doing business meetings or things of that nature. We were actually going to go down and do some investor work in the Middle East and have actually decided to not do that until there is some sort of resolution here. But we are going to switch and we're going to move in and potentially go down to -- it looks like go down to Australia to do that work. So again, shift of where we would do it. So I think we need to kind of let all that play out and see how things move, and we'll probably pick up a lot of that demand elsewhere in the world. But I would still leave it that there will probably be some impact there.

Yes, that's interesting because there's a lot in the press about Europeans especially shifting their travel plans from the Middle East over back to Europe. Have you seen any changes in consumer behavior outside the Middle East?

I think it's really early right now. And actually, we go back to how I started this in terms of RevPAR and what we've been seeing is you may remember, as I said at the full year results that RevPAR was going to be positive for all 3 regions. And if you think back and really why did we have to make that statement is actually at Q3 last year, we were saying that we felt like the U.S. would be negative in the first quarter and as you had tougher comps there and then get better from there. But as we moved into the year, actually, what we've seen is January and February will be pretty strong. And we've seen really strong corporate demand come back and well above our expectations. And so while the U.S. was the toughest comparable in Q1, it looks like it's actually come in pretty strong. And so we feel really good about that. And at the same time, we also had said that we felt like China would be kind of negative or flat as we kind of moved in and it had continued to improve. But again, as we came into January, it looked strong. And while we had the shift in Chinese New Year, it was much better than we expected. And then, of course, Chinese New Year happened in February was very strong and a couple of extra days that happened there really helped and drove demand, and we saw demand all around Asia as well as a result of that. And so as we -- and as we sit right now, it's been very, very strong demand as we've seen elsewhere around the world. And really within Europe, where we're seeing the same, you can see some of the industry data. The last kind of month-to-date, the U.K. has been up 2% in RevPAR and Germany was actually up 12%. Now there's some timing of conventions in that, but really strong data. So as we look at that, I think, yes, there probably will be, and as we look at around other parts of the world, we're seeing good demand for hotel rooms. So that's encouraging.

That's really clear. And actually, while we're talking about the U.S., let's maybe dig into the January and February data a bit more because the SCR data has been, at least on our side, surprisingly strong. What's driving this RevPAR inflection in upper mid-scale? Is it business? Is it leisure? Is it groups? What are you seeing in your numbers?

Yes. Well, really, we've been pleasantly surprised with kind of corporates and our business transient travelers that have come in. And so corporate has been very strong into the U.S. And actually, you also had 2 pretty big weather storms that happened in the middle of those -- both January and February and still had that strong performance. And so hopefully, we can resolve some of the TSA issues that we're seeing now, and that doesn't have an effect. But as we sit right now, everything looks pretty strong. And then you have easier comps as you go on into the year. You also have the impact of the taxes and the tax breaks that have happened. You have the World Cup coming in. You have the Americas or U.S. 250 celebrations. You still have employment at all-time highs. We look at the number of people employed, that's a better indicator than unemployment for us. And those still are in good -- those numbers are in good shape. You've seen wage increases. You've also got some negatives. There will likely be some impact on gas prices as you get into kind of the summer travel period. But if you think about that, as an American, we do a lot of drive-to locations and holidays in there. That's the kind of quintessential American holiday. But if you're talking about maybe $20 more a tank -- for a tank of gas, you're doing maybe a couple of tanks of gas, you're talking about $100 extra maybe that would be coming in on a road trip if you're driving somewhere typical. That's not probably enough to really change in light of all the other things that's coming in, the strength of all the other things. So it may have some impact. But if you put it in context, I think we feel pretty good about going into the summer and where kind of Q2 and Q3 could land.

Okay. That's very clear. And at this stage, Q2, Q3, comps get easier, you've got events coming up. You must have some visibility over your booking curve. Q2 and Q3, could they look in line with Q1 so far? Or is it just too early to say?

Well, it is early to say. Remember that roughly 60% of our bookings happen within 7 days of the stay. What I can say is what we have on the books looks good. Groups, particularly are still up nearly double digits in bookings. So that feels really good. And so right now, there's nothing that would indicate any kind of weakness coming forward. So I think we feel good about where we sit right now.

Excellent. And we've actually just had a question come in around the World Cup. There's been so much mixed press around the World Cup, both on the positive and the negative. Are you seeing any cancellations from recent geopolitical events on your -- on the booking curves around the World Cup?

Nothing that we would pull out. I think there's -- I think because you also have an extended group of teams coming into the World Cup this year, they -- maybe some of the -- that's maybe driving some of the question around are these countries really going to be traveling countries. I think as you get closer and we will know more once we know kind of who advances and when they advance and the type of countries that advance. But I think if history holds, those will be countries that tend to want to travel and support their teams. And I think our view is that because there are going to be a lot of international countries, it will be longer stays as well. So I think as we go through there, there's nothing I would note as of right now, any different than what we've said in the past that it looks like it will be a benefit. I think indicators around different people that have estimated somewhere between 40 to 100 basis points of growth. At this point, I wouldn't change anything. We're not seeing anything that would say that would be significantly more or less.

Okay. Very clear. We've got lots of questions coming in. So I'm going to weave something in. Let's talk about gas prices or petrol prices. You've obviously operated through several cycles with IHG. What tends to be the impact of high gas prices on drive-to demand?

We haven't had -- it kind of depends on how significant we're talking about. And -- but I mean, as like -- I gave you the example below, I was just in the U.S. last week, purchased gas. It was definitely getting a little more expensive. I think there's still a lot to see because also the governments have announced tapping some of the oil reserves. There's a movement of pipeline and gas out of the strait. And so hopefully, we're able to mitigate some of that risk. As we sit right now, it has to generally take a pretty big move because if you put it in the context of everything else that's going on, the tax incentives that have happened and the increase in wages, the fact that people have jobs, I think the fact that people still want to travel and have experiences with their families and their friends and their partners, then it doesn't give us a concern. It's something to watch for sure. But I think in the environment we're in right now and based on what we're seeing right now, I don't think we would call out anything that would be a risk.

Very clear. Michael, let's move on to our favorite topic of net unit growth. On the conference call at full year results, you sounded very confident in achieving the 4.4% that consensus is on. You even flagged upside to this number on the conference call. Number one, you mentioned earlier that there may or may not be some impact to net unit growth from the Middle East conflict and potentially the rise in inflation that's potentially coming. But do you still feel as confident in achieving consensus or exceeding consensus on...

We've done a lot of work on this and just to make sure that -- because we knew this would come up, not surprising. But yes, I think full year results, we said that we felt like we had more upside opportunity to the 4.4% than downside risk to the 4.4%. Consensus has moved to 4.5%. I would say, we're still in that same position, having looked at everything and understanding the data, the movement. We do have a little more visibility into openings because you have construction schedules. And we're not seeing anything slip at this point. And we started the year strong. So I feel like the same story holds true, and we would kind of hold to that verbiage that we said. And we do feel like there's more opportunity to upside to that even 4.5% number than there is downside.

And the Middle East exposure point within that. So we mentioned of current open system size, that broad Middle East definition is around 5% of our system size. It's a bit more as a proportion of the pipeline. So it's around 9% of the pipeline. But in terms of this year's expected openings, actually, it's around 5% so not dissimilar from the mix of the open system. So that pipeline in the Middle East is a bit more skewed towards longer-term openings, particularly given sort of the greater amount of long-term new builds that are expected to come on stream in future years. So in that sense, the exposure on the NUG expectations for this year, pretty minimal in terms of Middle East. So we'll have to just wait and see how the coming months go.

That's very clear. And then on this inflection from 4% last year to roughly 4.5% this year. What's driving that? Are there any regions that are inflecting more positively than others? Any chain scales? Do you need large conversion deals in order to hit or exceed these numbers? What's underpinning the confidence?

Well, I think, one, if you look at our pipeline, you look at what's under construction today, we said about 50% under construction in the pipeline. As you've seen in our results, we've seen really strong results really around the world, both EMEAA and China. And even last year, Americas began to tick back up. And I think we have confidence that those all 3 regions can continue to deliver. We have greater visibility there. We have been on a journey. And I think maybe historically, we could have done a better job of being more consistent in our system growth. But if you look at our pipeline, you look at our signings and you look at how those have been coming in, the growth we had in 2024 in the pipeline and again, the growth in 2025, the amount of items under construction, you've seen us begin to accelerate that. And we want to get to and continue to grow that and get to an enduring level and consistent level of delivery. And that's really what we've been focused on, and we feel our teams are really focused on that execution. We have great visibility of it. And I think we've got new brands that are allowing us to do that. We've got great opportunity to introduce new brands into places like China as well. We've got India that's beginning to grow. The Middle East has been a strong growth engine for us, but other parts of the world as well. So I think we have a lot of vectors of growth now, and we feel really confident that we can continue to accelerate and have that enduring growth. I think we are impacted a bit about some of that inconsistency that we had historically. And particularly when you look at kind of what we did with the Crowne Plaza Holiday Inn initiative, we don't have anything like that coming again. So you won't see something like that affect our system growth going forward. And that's kind of in our past and our history. Eventually, I think over time, that will come out and get out of the kind of the comparisons. And then people will see kind of what we're doing. And hopefully, today, they see that acceleration, they see that growth, they see that execution. And I think we deliver and continue to deliver on that, there'll be more trust we can do that on a regular basis.

We had a big conversion deal sort of almost exactly 2 years ago. So the NOVUM deal, which was almost entirely in Germany. That added just over 10,000 rooms in 2024, and then there was another just under 4,000 rooms in 2025. So the net unit growth last year, only a very small amount of it, a very small amount of it was to do with sort of that big conversion deal. And the further improvement that we're expecting in net unit growth this year is definitely not predicated on another large conversion deal. If I look at the signings last year that we had on an underlying basis, the total signings growth was up 9% year-on-year. There is strength generally in conversions or conversion signings were up 10%, but new build signings were up 8% year-on-year. So there's a broad spread of that improvement in achieving a record level of signings and also breadth across chain scales as well.

Yes. Now that's not to say we won't take a conversion deal. And I think one part of the -- what's going on in the industry, if you look at kind of how much share we have versus how much share of the pipeline we have and how the industry is beginning to consolidate and what we can offer owners has improved significantly. And so we're constantly working with owners. There's lots of interest in our brands. And hopefully, we have that -- those kind of things continue. Now probably won't be at the scale of NOVUM, of course, because that was quite a large business in and of itself. So -- but you could see more conversions happening in that respect, and we would continue to see. And you've seen individual conversions happening, but there could be some portfolios happen. And we're constantly working on that, working with owners and exploring all avenues. Again, making sure we get keys with fees that add profit down to the bottom line. We want to do the right thing. We don't want to just necessarily grow system size. We want to make sure that converts into our growth algorithm and drives that earnings growth for our shareholders.

That's really helpful. And I guess just on that algo, when we're thinking about the medium term from here, if we hit 4.5% this year, is that a sustainable run rate going forward over the next few years?

Well, as you know, we don't give guidance. But I would say we're headed and if you take my comments earlier, we feel very comfortable that we can begin to consistently deliver. We would not put a cap on it at 4.5%. We would like to continue to grow and continue to do that, deliver even more. So that's our goals. Obviously, we won't have -- there could be individual situations in a given year that affects that, but we would like to continue to accelerate, and you've seen us do that. And that's kind of our target and our goals is what Elie and I are working with the teams to do and motivate the teams to do and putting in place the processes and procedures and investing to make sure we can capture all that growth because I think all of us on this call are sitting here because we believe this is an industry that has structural tailwinds that the middle class is growing and that this is -- there is wealth being created around the world, particularly as we move east of the Americas or the United States and that we want to capture that growth. And we believe this is an industry that has structural tailwinds that will allow us to achieve higher highs and higher lows. And so we will continue to push on that and make sure we're achieving our fair share or more than our fair share of that growth.

And very last question on the top line before we move on. We've just had a question come in around economic downturns. And it doesn't feel like very long since we were talking about IHG's playbook into recessions or into at least periods where consumer wallets are squeezed. How would IHG run the business in a period of macro pressure? What's the playbook do you typically see and benefit from down trading? And in particular, I mean someone is asking if business travel tends to down trade from, let's say, upper upscale down to upper mid-scale. So any insight that you have around previous trading periods, would be helpful.

Well, let's look -- I mean, if you look at it in terms of what is a one point impact of RevPAR on the business, globally, it's about, what, $13 million in fees. So if you have -- if you look in a small impact of RevPAR declines would be 1%, 2%, 3%, you're talking $30 million, $40 million in fees. You've got some incentive management fees that might add to that, but those are kind of franchise and management fees. So it's not a major significant decrease. Now you can look back all the way to COVID and what we did with this business when it happened. We have many levers that we can pull in a downturn -- in a significant downturn like COVID. I don't think anybody is suggesting that we would get back to a COVID type decline, which was the worst in the industry. And I would actually point to what was actually happening there. Actually, in the U.S., I was actually CFO of our U.S. business. We still were able to collect over $1 billion during that time. And as a company, we were cash flow positive during that time. And if you looked at some of our brands to the question around trading down, if you looked at our Holiday Inn Express during that period, it was still running in the kind of mid-50s occupancy range. Our extended stay brands were running in the 60% to 70% occupancy range. And so that kind of gives you the idea of the essential to business travel that's out there. This was a time period when people weren't supposed to be traveling at all, and we were still -- our hotels were half full or more than half full. And so I think that tells you that our mix of portfolio, while we have begun to expand up into luxury and lifestyle and premium. And I don't know that your high-end luxury consumer necessarily changes their patterns. You see kind of that wealth growth of baby boomers. I think we're headed to and everybody talks about that transfer of wealth over time, but their preference right now for luxury goods and even luxury seats on a plane continues. And I don't see that necessarily stopping. But as you go into -- that's why we have such a mix of brands because it allows us to pick up all kinds of demand up and down the chain scale. Now we don't have economy, but I don't think we're talking about business travel changing and pushing down into economy. So we feel very comfortable that we have the levers we can pull no matter what happens in the industry to be able to kind of continue moving this business forward.

And I've studied some of the data, the prior 3 downturns, actually, which are the more -- like economic downturns as opposed to COVID. I mean one thing that's unhelpful when you look at that data is each downturn has got deeper. Now that's not because the industry or our business has become more cyclical. It's just actually the cause of the event was different each time when you look at the prior 3 recessions. What you very clearly see from the industry data though is that there is that clear cut resiliency of upper mid-scale. Now it still has an element of impact. It's just a lesser impact because of that greater nature of essential travel that occurs in upper mid-scale. We've never really been able to prove any particular element of down trading. There's just a greater exposure, particularly in upscale of more discretionary business travel, particularly groups and events that tend to not -- end up not occurring in a recessionary cycle. So it's never really been proven that people go from going from an upscale brands and then there's a squeeze on so they'll go and do exactly the same stay, but they'll go to an upper mid-scale. But it's the resiliency itself of the type of occurrence of staycation. And that's actually got something that is about both essential business travel and an element of essential leisure travel, which always sounds like kind of an oxymoron, but the relevancy is at the weekends for a staycation into Holiday Inn Express, actually, it's an essential trip to go and do that family drive to take kids back to college, et cetera, et cetera. So there is that resiliency that's been well proven in the chain scale positioning that we've got. And then, of course, we've got the entirety of the asset-light resiliency of the model as well on top of that. We have been increasing our chain scale weighting at more of the top end chain scales. And actually, the very top end has its own level of resiliency. I mean we would like more across all of the chain scales. We're not trying to build a business that's specific to be future-proof in recession. We're building a business that has long-term secular growth drivers. So we want more of all from mid-scale all the way up to the top end of luxury.

Very clear. And I guess when we look over the last couple of years, the credit cards, your set of loyalty points and your tech fees have been a considerable driver of sales and EBIT. And I guess we're looking at 2026 now whereas -- these levers might actually grow just low double digit in the last [indiscernible]

Just low double digit.

But if we layer on uncertainty around the Middle East and just generally geopolitics, are there any other cost levers that the business can pull to drive EPS to still be within that 12% to 15% range? And I'm thinking whether it's an additional story around cost savings or ancillaries or any other levers that you would flag within your business for this year?

Well, I think for this year, I mean, we've been really clear around how we see those ancillary fees progressing. We still have the branded residence fees, but we're not getting a step-up this year. I think that, that comes more in 2027. But we do see those ancillary fees continue to grow. Remember, the credit card is primarily a U.S. credit card or is a U.S. credit card. And so it's more impacted by demand and patterns in the U.S. So just a reminder, we are compensated based on acquisition of credit cards. So we get things called acquisition bounties. The sale of points to Chase who then gives to consumers, but then we also have a portion of the sales on the card that come to us from both partners we have with the credit card, Mastercard and Chase. And so we still believe and have confidence that will continue to grow and nothing that we've seen today would change our pattern that we've seen. So as I've seen things coming in, we're in good shape. And similarly, with the point sales, while point sales can be global, it is heavily in the U.S. And so there's nothing there that would suggest that's not going to continue at that growth rate we've talked about. In terms of cost savings, I think we want to be careful. We do have levers we can always pull and we will do and try to make the best decision we can there in light of what the market. I think we still need to wait and see. We also don't want to make short-term decisions that reduce the -- our ability to capture the long-term growth. And I think that's probably our biggest risk as a company is really making sure we gather and capture that long-term growth. And so we want to invest in places like India. I want to put teams in there and make sure we're building the capability so that we can grab and build within India, but also capture those consumers so they know our brands. So for example, we were in India in January, Elie and I and the executive team, we met with some of the Ministers of Tourism. And one of the things I took out from that meeting is that the Indian outbound traveling consumer in 2024, they were in about the 13 -- 12 to 13 to 14th country as an outbound traveling group. If you look at them in 2025, they were #5. And so that is a huge part of the world in terms of growth in outbound travel. And as wealth is increasing there, you want to make sure you capture that. And you're building your affinity to the brand, you're building your awareness to the brands. We're working with owners in India to make sure we capture that. That's just one example of I think you could be shortsighted and lose out on that opportunity long term if you try to cut too hard in the short term. Now we always will make the right decisions and look at that in light of what's going on in the market. I think it's probably too early to really push into anything there, but we do have flexibility around a number of things. But also, I would just point you to the work that we have done recently on cost and actually work we started 3 years ago in terms of how we're adjusting our cost base and changing the way we work. We still have opportunity while you saw us reduce our cost base last year, and we have put in that work to continue to -- allow us to continue to take advantage of technology, take advantage of things like capability centers and process improvement. We said going into this year, we would be low single digits, similar to where we were in 2024. And so we do have opportunity, and we will continue to do that. But again, I think more importantly, let's see how things progress, and we'll look and make the right decisions.

That's very clear. And again, before we move on to wider ancillaries and maybe AI, one final question on net unit growth that's just come in. When you think about the step changes over the next few years, I guess one of the moving parts is around removals/dilutions. And how do you see the path to get back to kind of 1.5%? What steps have you got in place? What processes have you got in place to get to where you want to be eventually?

Yes. Really that we feel confident that we can eventually -- we will eventually get back to 1.5%. I know we've been a little bit elevated over the last couple of years. There's some structural things that were really driving that, particularly in China and some of the size of the hotels that were being exited there. As we look and go forward, the #1 thing we do is drive returns for owners. And if you look at all the things we've been doing around our commercial activities, the improvement in our loyalty contribution, it's gone from in the 20 -- if you looked at 2019, we were in the kind of low 50s, high 40s to today, we're in globally 65% and 70% in the U.S. So as we continue -- we've launched that into pricing program, which has helped us drive RevPAR improvement. All of those things we put in things like procurement to help lower the cost of operating a hotel for owners, building hotels, renovating hotels. So all of these things we've been doing to try to drive benefit to our owners. And actually, we've used our scale to help owners. You may remember in 2024, we launched a discount on some of our fees to owners where we changed our loyalty assessment from 4.75 to 4.55 and then also increased the reimbursement rate to owners. And so we're all doing that. And I think that allows us the more we can drive those returns for owners, the better off we are in terms of keeping assets with us. And certainly, we have the processes in place today to make sure that we're keeping as many hotels as we can. There's probably some natural churn that needs to happen. I think maybe in our history, and we've learned some lessons and maybe keeping some hotels we shouldn't. If you look at what we had to do with Holiday Inn back in the 2008, 2009 time frame where we relaunched the brand. And then actually, the initiative we had in -- with the Crowne Plaza and Holiday Inn initiative where we took assets out, you can -- you probably need some healthy churn. So we think getting back to 1.5% allows us to have that kind of healthy churn and keep the brand fresh. And that's where -- so I think we have the path to get there. A lot of work to do, of course, and we will work very diligently to do that.

Thinking sort of post that 2021 Holiday Inn and Crowne Plaza review, actually, the last 4 years, we've been at about 1.3%, 1.5%, 1.9%, and 1.9%. And I don't think an inference should be drawn from the last 2 years being 1.9. That's somehow a drift of 1.5%. The last 4 years have been sort of there or thereabouts around 1.5%. And as Michael said, sort of in China, the last couple of years has been their phase of sort of a bit of a post-COVID catch-up that has effectively worked its way through the system. If I look at the 5 previous years before taking that action that we did in 2021, those 5 years were consistently sort of 2.2%, 2.3% removals a year. So if you like the step changes occurred because those earlier years, we were chipping away at the tail end of the portfolios of Holiday Inn and Crowne Plaza, and then we undertook the final exercise in 2021. So that's all done. It was done many years ago, and we're delivering on that consistency of around 1.5% already.

Very clear. And the structural issues in China that you mentioned, has that now run its course? Are we now at a clean state again on a clean slate in China?

Well, I think -- I think it could still be a little lumpy as you have in the history of China, you really had and started to build. I was the CFO there from 2013 to '15. And you've had some really big hotels. And so sometimes you can have some of those -- the lumpiness of big hotels leave. So we'll have to watch it. But I think the COVID structural issues are probably over, but there could be, over time, some of those bigger hotels that come in and out.

Very clear. Maybe let's move on to the big topic of the year, which seems to be branded resi. I mean at various industry conferences, and that is the buzzword for the industry. And obviously, you've spoken about the step-up in fees potentially from next year. Walk us through the drivers of the step-up in branded resi fees next year.

Okay. Well, first of all, I would say why do the owners like to do branded residences. And I think you have to understand their motivation to understand why this is becoming such a popular thing. And not that it hasn't been an area of development in the past, but it's really become popular because basically, the owners can sell those units in advance of the construction. And by doing that, they get that capital in and reduces the amount that they have to borrow. And so that's quite attractive for a developer. In fact, many developers say they can build a hotel on the back of just what they're receiving from the branded residences. And so that becomes a very attractive proposition. Now for us, historically, we haven't had a lot of great brands that could really play into this segment. We had Intercontinental, but we've acquired Kimpton. We've acquired Regent, we have acquired Six Senses. And those all fit into this branded residential segment because it tends to be more in that higher end and more luxury in what it's built. And so as owners do that, we took actually analysts. We took [indiscernible] into our Six Senses here in London, which has 14 branded residential units. I think they have one left if it hasn't sold already. So if anybody wants one on the call, we do have one available to sell. It does run in the GBP 20 million to GBP 30 million range in terms of pounds. But if you have that, we've got a place for you. And what it gives you is access to the facilities in the hotel, which is incredible Six Senses. The team -- all the analysts walked through it and got to see really this incredible gym, wellness facilities, spa. It actually has a club associated with it as well. And so as an owner of one of those residents, you get access to that. And so there's a lot of benefit for the owner, too. Now also -- and how do we get fees on that? We get fees as the units are sold. There's also a bit of a management fee that can come with that. But also in many locations, those units will come back into the inventory of the hotel and be sold as rentals. And so -- especially in resort locations. So not only do you get the fees that come in as the units are sold, you get ongoing fees, and that's both franchise fees or management fees in this case and system fees. And so typically, in a resort location with one of these hotels, the owner may use it maybe a month or 2 of the year. It will come back into the inventory. That will be rented out as guests come in, and we'll earn management fees and potentially incentive fees off of that and then our system fees. And so that's how we're rewarded because we have more brands on this and because we're kind of in our infancy, it has taken a little time before this ramps up. And we said it's in that $6 million to $10 million in fees a year range. That's where we'll be this year again. But we believe it can be multitudes of that. And based on our pipeline of deals that are being signed and opened, we have an ability to really accelerate that going forward.

And we have a reasonable lead indicator because they're being built right now, and some of them are obviously sold in advance the full sale value may be coming in a year or 2 years' time when the sale of the resis already is completed at that point. But if I look at projects that have come on stream, it's quite diversified. There's some in the Middle East, but we've got new branded residences that are on stream and selling in Thailand. We've got Kimpton in Monterrey We've got a new one coming through in Japan. These are all live sales arrangements right now across the 30-plus projects that we've accumulated thus far for branded resis across those brands.

If anybody is in the rest on the call, let us know, we'll get you set up.

Are you seeing any change in demand perhaps the Middle Eastern properties or appetite from Middle Eastern investors to buy into branded resi in recent weeks?

It's way too early. And I think to be honest, look, things can change. But I think most of these places and certainly, when we met with the Ministry of Tourism in Dubai and spent time in Saudi, they take a very long-term approach to the development of what they're doing there in the country. And really, we're impressed with their plans and what they're doing. And I think I don't think this will -- I don't believe, at least at this point, this will impact those kind of longer-term payout plans. There may be some short-term disruption, and it will kind of depend on maybe the outcome of what happens and how long this continues. But I think long term, we'll get back to that growth because there's great opportunity there. And the strategic plans of each of those governments, I think, are really supportive for travel and tourism in the future.

Do you have to hand what proportion of your branded resi pipeline or units that are currently being sold based in the Middle East?

No, not to hand. I mean there are some examples within those projects, but -- so there's quite a lot further east of that, but then also examples, U.S., Mexico as well. So it's -- yes, it will be a proportion. I don't know the exact figure, but it's a broad push. It's effectively an opportunity for developers everywhere where there's a logic for high-end luxury hotels, they will be thinking, as Mike sort of described about the attractions of building residences alongside that. I mean I think you mentioned sort of attending industry conferences. I know there's been a big Savills report on this, which has put out there sort of the expected twofold increase in this segment between now and 2032, I think, is what Savills was expecting is a twofold increase in the number of branded residences that will come on stream and open. And obviously, why people are doing that? It's partly to get the cash flow in early, often fund the building of a hotel alongside it. But that same Savills study talked about the target around 30% uplift in value of the property versus the equivalent benchmark. So exactly the same spec luxury apartments, but applying the appropriate luxury brand like a luxury hotel brand from us is typically targeting to get a 30% sale premium. And that's what we're tapping into because that premium is coming from the intellectual property of our brand like Six Senses, like Intercontinental, like Kimpton that's being applied to those branded residences.

Very clear. And on the topic of luxury, I mean, you've previously mentioned luxury and lifestyle, both as areas where there could be white space in your portfolio. We've had quite a few questions come in around M&A. Would you ever consider something larger like acquiring a Hyatt or Hyatt type brand, for example? Or are you happy to stay with smaller bolt-on brands at this stage?

Well, to be honest, if you look at the kind of history, there hasn't been a ton of transformational M&A. I think the last one that happened was Marriott and Starwood coming together in terms of -- and then you saw and if you follow the industry, a bit of a potential merger between Wyndham and Choice that didn't happen. And so there were some challenges associated with that. I think we always would look at everything that's available. We don't have any plans at the moment. But absent that transformational M&A, what typically happens in the industry is you get to kind of smaller brands that are private equity owned or individually owned, and there are changes that happen. And we kind of say you got to hang around the hoop. And you look at what we did with Ruby, and that was an individual that owned that brand. And we also have to think about being asset-light and making sure that we can come out of that in an asset-light way. And that's what we did with Ruby. We bought the BrandCo, and he continues to operate the ManageCo and OpCo -- I'm sorry, PropCo and OpCo. And so -- and then we also did that with Six Senses. Six Senses was heavily a brand company and didn't have a lot of assets owned. And so we always are looking at opportunities like that all over the world. If you look at where we sit from our kind of balance sheet perspective, we're in a great position. We sit at the end of last year at 2.5x our net debt to EBITDA. That's at the low end of our range. We're a highly cash-generative business. So we have opportunity, and we always will take that opportunity to evaluate. It doesn't always come up. And sometimes can be long gaps in between things happening. Our Chief kind of Head of Development that looks at this stuff says -- gives a quote you got to throw a lot of spaghetti on the wall to get anything to stick. And so that's what we do. And so we're always out there, and we're involved in anything that comes up. And as long as you got to make sure it's the right thing and we're getting the right return for our shareholders. But there's no aversion certainly between Elie and me in growing and making sure that we're pursuing every opportunity that can potentially drive value for our shareholders, and that's how we think about it.

And would there be appetite to make an acquisition to fill in the gap in economy right now in your portfolio?

There's kind of a -- it's an area that we've looked at. I won't say, we would never do it. To date, we've looked at it multiple times, both Elie and I when we were in the U.S. spent time looking at this. And even in our positions today, we look at it. We've said today it's probably not the right place for us to go. That doesn't mean that wouldn't change. There's a lot of complications that come in with the economy chain scales. And so we would have to make sure we could be successful and also make sure it doesn't distract from really the great opportunity in front of us that we have with our Luxury & Lifestyle and premium portfolio and really the opportunity to grow the existing brands we have. First and foremost, that's the greatest opportunity for us. We've got great brands. We're not distributing those brands all over the world. So there's still a lot of opportunity just in what we have today to continue to grow. That doesn't mean we wouldn't potentially add and even look at other segments. And think about what we would do in the luxury end, there's probably also additional capacity to add brands. If you think about our Six Senses brand, we have more demand for that brand than we have places we want to put it because there's some value in really having the scarcity of that brand. And so we've proven that we can really deliver for owners there. We've proven we can create a great guest experience for our guests at those hotels. And so we think that's a huge opportunity as well. So really up and down the chain scales, Elie and I spend a lot of time along with EEC, evaluating what are those opportunities, what are the right things and also work with our Board to make sure we're looking at everything and have the right appetite for M&A and growth.

Very clear. Let's move on to our last topic, which is AI. I think the most interest in the industry right now is how AI will impact distribution, direct bookings and marketing. And maybe my first question is, how has the industry progressed so far? And in particular, what investments has IHG made? What are you trialing today? And how is that different to where you see the company in, let's say, 5 or 6 years' time?

Well, I do think this is a very fast-moving area. I mean you can go back not just a few months ago and one of the companies in this area was going to win everything. I think that was OpenAI. And then all of a sudden, Google is back in and taking back over. And so it moves very fluidly and it's very fast. I think what we feel good about, and Elie laid it out at our full year results announcement, is that we have really strong connections with the owner, and we own in the inventory, and there's no way to book one of our hotel rooms without going to us. And so that is really an area that's kind of in between those 2 where you see search patterns changing. And so what we're working on, the first thing you need to have is a portfolio of -- a technology portfolio that's AI-ready. And fortunately, we've been investing well ahead of the curve on that. We were the first team to put our reservation system in the cloud with GRS. We're in the process of updating our PMS system around the world. We'll have a brand-new cloud-based PMS system in place by the end of 2027 of all of our hotels around the world. And then we've been working on our platform and a content manager. That's a really important piece. So if you sit there and think about how is someone going to search in the future, I want to stay in San Francisco, I want to give me a hotel that has a room with a bay view. I want nothing. I don't want anything near an elevator. I want to make sure that this has TripAdvisor scores above a 4.5. So give me that. And so what we're doing is servicing all that content so these agents can come in and get that content and push it back to the guest. And they may say, well, let me show me a video of the -- well, we want to make that video and that content available as they go through that process. Now we also -- and Google, you've heard that Google actually announced that they were working with us. And part of the reason they wanted to work with us is we have such a great infrastructure in place. They know because they've been part of it. So all of our data sits in Google Cloud Platform. That's probably the key component of your being able to really take advantage of AI is having that platform and data in a place that can actually be leveraged by agents as they're being used. And so we're working with Google on that. We're also looking and working with OpenAI and working with them to see how we can work with the things that they're doing. But what's beautiful about what we're doing with Google is also as you then are doing that search and you learn 10 different tendencies, if someone is saying, well, also, I need to make sure I have a pet-friendly hotel. So we want to make sure then that, that we're actually learning from that. That's what people want and updating our content. And so it becomes this cycle. And really, if you think about what we're doing, we want to work with any of those partners so that we're really expanding that funnel of all the room nights that could potentially come into our hotels. And then we're using AI in our commercial and pricing activities to be able to yield out which of that business we want or don't want. And so all of that AI technology is coming together to make sure that we're capturing that demand as it's coming in, the way guests and want to change and how they are changing and be able to then take the business that we want. And so that's what we're working on. We really have 3 pieces of strategy. Actually, we were -- as an executive committee, we were in California last week working on and working through some of this with our partners and having presentations from some pretty influential people in this segment. And our team is actually there this week as well, and we've hired actually a new Head of AI, Wei Manfredi, which we're really impressed with what she's brought so far and is going to bring. So we're really trying to be on the forefront of this. We're focused on the distribution side. We're focused on the commercial side. But then you can see we're also using it within our cost base, and we'll use it also to help owners as well. So really across that whole broad spectrum, AI is changing how we work, and we want to be on the forefront of that. And actually, what I think most people don't necessarily or maybe a piece that people don't appreciate is I think this also gives us a competitive advantage on the backside because if you think about you're an independent hotel, how can you keep up with a company like IHG that has this big system fund because all this is covered under our system fund that is growing with RevPAR and with systems. So every year, I have additional funds that I can spend on technology and make sure I'm investing to make sure we're ahead of the curve. As you get to be an independent company, how are you doing? How are you doing that with your app? How are you doing that with your loyalty program? How are you making sure your reservation systems, your property management systems can make sure you're still seeing. And I think that gives us -- continues to give us an advantage. I think also why you're seeing conversions continue to be such a big part of the story is that owners see that, too. And it's really hard to compete against the kind of investment we can make to make sure we're ahead of the game.

Very clear. I mean I think the future is really exciting with AI, and let's see how it pans out over the next few years. Well, I think we're at time. So Michael, Stuart, thank you so much for this last hour. It's been fascinating. We could have spoken to you for another hour or more on AI alone. But I guess we'll leave it there to all our investors on the line, thank you for joining. We hope you found it insightful. If you have any follow-ups, let us know, and we'll share them with the company. Thank you very much, and enjoy your evening.

Thanks, everyone.