InterContinental Hotels Group Plc 2026 Q2 Earnings Call

Hello. Thank you, and welcome to this Q&A session. I am Elie Maalouf, Chief Executive Officer of IHG Hotels & Resorts. Hopefully, you have all had a chance to watch the results presentation, which we made available at 7:00 A.M. U.K. time this morning. It featured myself and Michael Glover, our Chief Financial Officer. We also released the latest episode of "IHG Checks In On," featuring Heather Balsley, our Chief Commercial and Marketing Officer, and Jolie Fleming, our Chief Product and Technology Officer. The episode provides a closer look at how we are leveraging artificial intelligence to get closer to the guests, transform the search and discovery process, and further enhance the overall guest experience. Before we open the lines to take the first question, I will briefly summarize our strong performance in the first half of 2026.

Our global RevPAR grew by 4.1% with growth across all three regions and underpinned by the breadth of our geographic footprint, the depth of our brands, and the resilience of our operating model. We delivered gross system growth of 6.5% and net system growth of 5%, driven by record development activity with openings and signings both up 8% year-on-year on an organic basis. We expanded our fee margin by 120 basis points and grew EBIT by 10%. Adjusted earnings per share grew 13%, supported by our share buyback. In summary, we made excellent progress in the first half on our strategic priorities, and we are confident in the strength of our enterprise platform and the attractive long-term growth outlook. With that, let me turn it over to the operator to take the first question.

Thank you. Thank you, Jamie.

Let me start with China. We're very pleased with our performance in China and our growth in China in the first half of the year. We had very strong RevPAR growth in the first quarter, 5.7%, as you noted, 0.8% in Q2. For the half it was 3.1%, which is very pleasing. If you recall, for a number of years I've been saying that China would bottom out, and it did in the fourth quarter of last year, and I think it's just turned up. We said it would not be a vertical V-shaped turn up, but it's been gradually turning up. What happened in the first quarter, in the first quarter, you had a very strong Chinese New Year that had additional days added to it, and then the government threw in some new school holidays in the first quarter.

We think the combination of those pulled some business, some travel, some leisure forward from Q2. We still printed a positive RevPAR in Q2. We're confident in the long-term potential in China. If you looked at it by tiers, Tier 1 and Tier 4 did very well. Tier 1 is major cities, and then you've got Hong Kong and Taiwan. Tier 4 is leisure and resorts, and they did very well. Tier 2 and Tier 3 saw some softness in business transient, but that's not new. It's been going on for quite some time, and I think that overall China has been doing better. As you noted, we've had record development activity in China for a number of years now, and every year we're hitting new records. I think this year will be another record of signings and openings. We've reached 900 hotels. I believe we're going to reach 1,000 open hotels by the end of the year, with roughly another 600 under development, taking share in the marketplace.

Why is that happening consistently? It's happening because you still have a large economy, 20-plus trillion, growing between 4% and 5%, not as much as it used to grow, but on a bigger base. You have record exports, different products that are exporting. It's EVs, batteries, technology. They're leaders now among the leaders in artificial intelligence. A different economy, but still growing well. You have a middle class that's still growing. Importantly, while not every sector of the economy is doing very well, like the residential sector is still in a slow, but certain turnaround, but it's slow in the residential sector. Travel is strong. Domestic trips are up. International inbound now to China is a growing segment.

What you see is that travel among the sectors is still a favored thing. Our occupancy continues to actually improve in the first half of the year after being flat during the negative RevPAR years. We do not see signs of oversupply. We are adding a strong level of new openings, but it is being absorbed in our system, and we actually saw some rate growth too, across the full China business. We are confident that the midterm, the long-term China outlook is good. Look at the profit performance in China. It is up 25% year-over-year. For us, China is not just a growing and large market, it is a profitable market and getting more profitable. On the fee algorithm, let me turn that over to Michael, and then I will pick up on the industry question you had.

Hi, Jamie. Thanks for the question. You might expect we will have a similar answer to what we have had in the past. The vast majority of the fee triangulation difference that you raise is really around the development activity and the record level of openings and the growth in system size that we have seen. Newly opened hotels typically take time to reach realized, stabilized occupancy, room rate, overall hotel revenue. Most agreements have a graduated fee structure that steps up over the first few years of operation. As a result, the full fee revenue contribution from recent openings is only partially reflected initially, and builds over time as the hotels mature and fee structures step up. We said in the past that that will begin to narrow with time.

Actually at the group level, you have actually seen about a 40 basis points improvement year-over-year in that fee triangulation. In some markets like the U.S., you have seen 110 basis points of improvement year-over-year as that has happened. We do believe that will continue to improve. There is always some other noise in there, but really that is what is driving that, and that is a good problem to have because we have been driving that system size growth. We want to continue to drive that growth. As it stabilizes, it will normalize. I will pass it back to Elie on owner economics.

Yeah. Thank you, Michael. Look, this is our fifth year in a row of increasing net system size growth gradually with a focus on fees, with a focus on high quality estate. We are building a sustainable model of higher net system size growth, and you can see it building. We would rather have that going on and some lag in when those fees come in. But the good news is there are more fees coming. We are not putting a ceiling on where our system growth would reach. But at some point, in theory, when we reach a cruising altitude and level off that cruising altitude, then the closing of the lag will accelerate. But I would rather continue our growth and have the lag catch up with us as more fees come in. On your industry question. I am not going to comment on what others have said and done.

I would first say to you, as you would know, Jamie, some things are read acrosses to other businesses, some things are not. Let's not assume that everything is a read across. Let's not assume that every situation is different. We have a different distribution in the Americas than some competitors, different system fund arrangements. So, we have a slightly different situation. Overall, I would say, not just in the Americas, but globally, we have a very competitive owner value proposition and fee structure really designed to drive attractive returns for owners. And look, we are all aware that there have been cost pressures over the last couple of years across all industries. In our industry too, and they have affected owner economics, and that is why we have been in front.