InterContinental Hotels Regulatory News (IHG)

InterContinental Hotels Group PLC

Half Year Results to 30 June 2023

8 August 2023

1.  Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section, along with reconciliations of these measures to the most directly comparable line items within the Financial Statements.

2.  Re-presented for the adoption of IFRS 17 'Insurance Contracts' (see note 1 to the Financial Statements).

"I am honoured to take over as IHG's group CEO and excited to look ahead with our talented teams and owners all around the world to an important next chapter of growth. Our teams have delivered strong results in the first half, with financial performance, hotel openings and signings all significantly above prior year comparisons. Travel demand is very healthy, with RevPAR improving year-on-year across all our markets and exceeding 2019 pre-pandemic peaks for four consecutive quarters. In the Americas and EMEAA regions, leisure demand has remained buoyant and business and group travel continued to strengthen, while in Greater China, demand has rebounded rapidly.

The investments we're making in our powerful enterprise platform are delivering results for guests and owners - be it the breadth of attractive brands we now have in place, the excellent impact of our new mobile app, or the strength of our IHG One Rewards programme, which has seen enrolments jump by +60% since launch a year ago. We opened 21 thousand rooms across 108 hotels in the half, keeping us on track for net system size growth expectations, and we signed over 34 thousand rooms across 239 hotels, +11% ahead of last year. More than a quarter of all signings were across our six Luxury & Lifestyle brands, as we accelerate growth in this higher fee income segment.

As we continue to grow our brand portfolio, we're excited to announce we will soon launch a new brand targeted at midscale conversion opportunities. We're proud of our industry-leading position in upper midscale with Holiday Inn and Holiday Inn Express. Our aim is that this new conversion brand will become the first choice for guests and owners in the midscale segment, accelerating our growth in a space that is already worth $14bn in the US market alone. Conversions represent a major growth opportunity for us, generating around 40% of first half openings and signings globally, and we see an increasing desire from owners to quickly realise the benefits of IHG's scale and strong enterprise. We're delighted that more than 100 hotels have already expressed definitive interest in the new brand.

The combination of RevPAR and system growth drove further expansion of our fee margin, leading to a +27% increase in operating profit from reportable segments. Our +50% growth in adjusted EPS includes the additional earnings accretion from our ongoing return of surplus capital via share buybacks. The combination of these drivers demonstrates how IHG creates value for our shareholders, and as this industry continues to power forward, we are confident in the strengths of our business model, scale and strategy to capture sustainable, profitable growth."

For further information, please contact:

Presentation for analysts and institutional shareholders:

A conference call and webcast presented by Elie Maalouf, Chief Executive Officer, and Michael Glover, Chief Financial Officer, will commence at 9:30am (London time) on 8 August 2023 and can be accessed directly on https://www.investis-live.com/ihg/6495503c67ddff0c00694bc4/jtla or via www.ihgplc.com/en/investors/results-and-presentations.

Analysts and institutional shareholders wishing to ask questions should use the following dial-in details for a Q&A facility:

An archived webcast of the presentation is expected to be available later on the day of the results and will remain available for the foreseeable future, accessed at www.ihgplc.com/en/investors/results-and-presentations. An audio replay will also be available for 7 days using the following details:

Website:

The full release and supplementary data will be available on our website from 7:00am (London time) on 8 August. The web address is www.ihgplc.com/en/investors/results-and-presentations.

About IHG Hotels & Resorts:

IHG Hotels & Resorts [LON:IHG, NYSE:IHG (ADRs)] is a global hospitality company, with a purpose to provide True Hospitality for Good.

With a family of 18 hotel brands and IHG One Rewards, one of the world's largest hotel loyalty programmes, IHG has over 6,000 open hotels in more than 100 countries, and more than 1,900 in the development pipeline.

- Luxury & Lifestyle: Six Senses Hotels Resorts Spas, Regent Hotels & Resorts, InterContinental Hotels & Resorts, Vignette Collection, Kimpton Hotels & Restaurants, Hotel Indigo

- Premium: voco hotels, HUALUXE Hotels & Resorts, Crowne Plaza Hotels & Resorts, EVEN Hotels

- Essentials: Holiday Inn Express, Holiday Inn Hotels & Resorts, avid hotels

- Suites: Atwell Suites, Staybridge Suites, Holiday Inn Club Vacations, Candlewood Suites

- Exclusive Partners: Iberostar Beachfront Resorts

InterContinental Hotels Group PLC is the Group's holding company and is incorporated and registered in England and Wales. Approximately 345,000 people work across IHG's hotels and corporate offices globally.

Visit us online for more about our hotels and reservations and IHG One Rewards. To download the new IHG One Rewards app, visit the Apple App or Google Play stores.

For our latest news, visit our Newsroom and follow us on LinkedIn, Facebook and Twitter.

Cautionary note regarding forward-looking statements:

This announcement contains certain forward-looking statements as defined under United States law (Section 21E of the Securities Exchange Act of 1934) and otherwise. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group PLC's management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in or implied by, such forward-looking statements. The main factors that could affect the business and the financial results are described in the 'Risk Factors' section in the current InterContinental Hotels Group PLC's Annual report and Form 20-F filed with the United States Securities and Exchange Commission.

IHG's asset-light business model is highly cash-generative through the cycle and enables us to invest in our brands and strengthen our enterprise platform. We have a disciplined approach to capital allocation which ensures that the business is appropriately invested in, whilst looking to maintain an efficient and conservative balance sheet.

IHG's perspectives on the uses of cash generated by the business are unchanged: ensuring the business is investing to optimise growth that will drive long-term shareholder value creation, funding a sustainably growing dividend, and then returning surplus capital to shareholders, whilst targeting our leverage ratio within a range of 2.5-3.0x net debt:adjusted EBITDA to maintain an investment grade credit rating.

IHG intends for the ordinary dividend to be covered 2-2.5x by Adjusted EPS (a payout ratio of 40-50%). This is consistent with cover averaging 2.3x in the 2012-2019 period. The total dividend for 2022 was covered 2.0x by Adjusted EPS.

Ordinary dividend payments in 2023 will return close to $250m to IHG's shareholders. As announced in February, a $750m share buyback programme is returning further surplus capital. This was expected to reset leverage into our target range, and it follows on from last year's $500m programme which already reduced the total number of voting rights in the Company by 5.0%. At the 30 June 2023 balance sheet date, the current $750m programme was 47% complete with $349.5m (£280.7m) spent repurchasing 5.2 million shares at an average price of £54.44 per share; this reduced the total number of voting rights in the Company by a further 2.9% to 170.2 million up to the balance sheet date.

EPS is calculated using the weighted average number of shares (WANOS) in issue for the period which reduces accordingly to take account of the timing of shares repurchased. For the first half of 2023, the WANOS was 173.1 million shares, a 6% lower share count than the comparable period.

IHG's business model is expected to continue its strong track record of converting around 100% of adjusted earnings into free cash flow. Whilst prioritising investing in the business to optimise growth, our asset-light model is expected to provide the opportunity to routinely return additional capital to shareholders such as through rolling share buybacks, which would further enhance growth of earnings per share.

Increased demand for travel in all our markets

· RevPAR growth YOY reflects the differing levels of travel restrictions that were still in place in the first half last year, leading to Q2 group RevPAR +17% YOY, with Americas +6%, EMEAA +27% and Greater China +110%.

· IHG's group RevPAR has exceeded 2019 levels each month since July 2022. For Q2 of 2023, group RevPAR was +9.9% ahead of 2019, with the Americas +12.1% and EMEAA +15.0%, partially offset by Greater China down just (0.5)% as it continues to recover with the more recent easing of travel constraints in that region.

· Leisure travel saw the earliest recovery coming out of Covid, followed by a return of business and then group travel.

· The US, our single largest country market, saw the following H1 revenue performances by stay occasion category:

o  Leisure +24% ahead of 2019, reflecting +7% more room nights and rate +16% ahead;

o  Business +1% ahead of 2019, reflecting -4% fewer room nights and rate +6% ahead; and

o  Groups -14% behind 2019, reflecting -19% fewer room nights and rate +7% ahead.

· As more Groups activity returns, bookings for these meetings and events have now exceeded 2019 levels for six consecutive months. At the end of June 2023, booked revenue globally was +36% higher than 2019.

Sustained volume and pricing improvements

· IHG's Q2 group RevPAR of +9.9% ahead of 2019 reflected occupancy just (1.5)%pts behind and ADR up +12%; the Americas, driven by the early US recovery, reached occupancy just (0.5)%pts below 2019 and ADR +13% ahead.

· There have been no broad signs of consumer price resistance or cooling of leisure demand to date. Some specific US resort destinations that had already experienced very strong demand-driven pricing last year have seen rates ease, with this offset by increased leisure travel to other destinations, including international trips to locations where IHG's global distribution reach has captured strong demand.

· The expected recovery in business demand has continued, with progress in the US indicating the potential elsewhere. Corporate rate negotiations in 2022 have supported ADR increases in 2023.

· The overall industry has been experiencing both the opportunity and the need for higher room rates, given the return of demand and inflationary pressures; STR's forecasts for the US industry expect this will be sustained:

o  RevPAR to be +13% ahead of 2019 levels in 2023 and +24% ahead by 2025;

o  This assumes ADR in 2023 is +17% ahead in nominal terms, but only +1% ahead in real terms, therefore indicating headroom for rates to increase further; and

o  occupancy to be restored to over 96% of 2019 levels in 2023, and to be almost fully recovered by 2025.

Whilst the comparatives to 2022 get tougher in the second half of the year and there are ongoing economic uncertainties, we expect RevPAR to remain positive year-on-year in each region. Irrespective of any shorter-term macro pressures, IHG has proven the resiliency of our business model and we remain confident about the tailwinds for attractive long‑term growth in RevPAR which drives our fee income. We also expect continued progress in growing our net system size, leveraging the power of our enterprise platform, strong brand portfolio, and the combination of driving growth through new build hotels, conversions and the potential to add further exclusive partnerships.

Openings and signings progress in 2023 reflects IHG's strong portfolio of brands and the overall enterprise platform that we provide to hotel owners, together with the long-term attractiveness of the markets we operate in:

· Global system of 925k rooms (6,227 hotels) at 30 June 2023, weighted 68% across midscale segments and 32% across upscale and luxury

· Gross growth +6.3% YOY, with 21.0k rooms (108 hotels) opened in H1, +40% on prior year; Q2 openings of 12.6k (63 hotels), 51% ahead of both Q1 and the prior year

· Removal of 7.3k rooms (45 hotels) in H1; removal rate of -1.5% over last 12 months, in line with the historical underlying average rate

· Net system size growth +4.8% YOY; +3.0% excluding Iberostar

· Global pipeline of 286k rooms (1,931 hotels), representing 31% of current system size; pipeline growth +2.9% YOY

· Signed 34.2k rooms (239 hotels) in H1, +11% on prior year; Q2 signings of 17.7k rooms (131 hotels), +7% ahead of Q1 and +25% more than prior year

· Signings mix drives pipeline to be weighted 54% across midscale segments and 46% across upscale and luxury, which over the coming years will drive a more even-weighted system mix

· Conversions growing strongly, representing 36% of signings and 42% of openings (excluding Iberostar)

· More than 40% of the global pipeline is under construction, broadly in line with prior years

System and pipeline summary of movements in H1 2023 and total closing position (rooms):

The regional performance reviews provide further detail of the system and pipeline by region, and further analysis by brand and by ownership type.

Our four strategic priorities put the expanded brand portfolio we have built in recent years at the heart of our business, and our owners and guests at the heart of our thinking. Our priorities recognise the crucial role of a sophisticated, well‑invested digital approach, and our growing responsibility to care for and invest in our people, communities and planet.

1. Build loved and trusted brands

We continue to invest in our brands, evolving design, service and quality and increasing their scale. We also take opportunities to add additional brands to our portfolio to offer wider choice to guests and loyalty members and provide more owners access to the power of IHG's enterprise platform.

New conversion brand launch

We're excited to announce we will soon be launching a new midscale conversion brand. Conversions continue to rise in importance and present an increasing number of system growth opportunities. Over the last six months, conversions represented around 40% of our signings and openings. This reflects a desire from more hotel owners to convert to an IHG brand in order to quickly benefit from access to our enterprise platform, including our revenue-generating systems, distribution channels and loyalty programme that support performance, increase efficiencies and drive returns. Building on the successful development of several new brands in recent years, our new midscale conversion brand is aiming to be the leading choice for guests wanting great value stays at high-quality properties, and for owners seeking higher returns in the segment.

IHG already has the global leading position in the upper midscale segment, and in the US alone we have 545 Holiday Inn and 2,283 Holiday Inn Express properties. At price points beneath this, the midscale segment is a large target market which IHG only currently addresses through our new-build avid hotels brand and our Candlewood Suites extended stay brand. According to STR, the existing supply in this segment - in just the US market - is around 9,500 hotels (705k rooms), representing $14bn in annual hotel revenue, and which is expected to grow to $18bn by 2030. STR assess that current room supply in this segment is 72% branded and 28% independent. IHG expects this new brand to reach an estate of over 500 hotels over the next 10 years and 1,000 hotels over the next 20 years.

Conversions to the new brand will require distinct brand hallmarks and essential guest experience elements. IHG expects to target around a 25% lower cost per key to convert to the new brand than that for Holiday Inn Express. The brand will be flexible for owners of a broad range of midscale hotels, whilst ensuring each hotel will deliver a consistent high-quality experience. We are excited about attracting a new segment of guests into our portfolio and to IHG One Rewards, and new owner groups who can grow further with us. More than 100 hotels have already expressed definitive interest in the brand.

Other brand highlights in the first half of 2023 included:

Luxury & Lifestyle

We are successfully driving growth and market share in the higher fee per key Luxury & Lifestyle segment. Our six brands in this category have grown to represent 13% of IHG's system size (479 properties, 123k rooms) and 21% of our pipeline (336 properties, 61k rooms), around twice the size from five years earlier. Luxury & Lifestyle accounted for 26% of signings in the half (15% for Americas, 53% for EMEAA and 16% for Greater China). InterContinental has grown to 215 properties across more than 60 countries, with a pipeline of 93 more that is equivalent to 33% of current system size. Six Senses, Regent and Kimpton each represent IHG's success at accelerating the growth and internationalisation of these previously acquired brands: Six Senses now has 23 properties open, and eight signings in the half grew its pipeline to 39; Regent has nine properties open, including most recently the Carlton Cannes, one of the world's most iconic hotels; with two signings in the period for further flagship properties in the US and Saudi Arabia taking its pipeline to 11; Kimpton signed a further nine properties, including its first in Saudi Arabia, and its pipeline is now approaching 50 properties, on top of the 75 currently open. We continue to accelerate the expansion of Hotel Indigo, with 15 signings in the period, including five new countries for the brand; with 145 hotels open, its pipeline is set to double the existing system size. Vignette Collection, our Luxury & Lifestyle conversion brand, signed and opened its first hotel in the US, and now has 25 open and pipeline properties globally.

Premium

Within our Premium category, the combined open and pipeline hotels now stands at 733 (43 Hualuxe, 55 EVEN, 110 voco and 525 Crowne Plaza properties). This category represents 15% of IHG's current system and 18% of our pipeline. Of particular note in the period were two openings for EVEN in Greater China as it builds its presence in that important market, whilst latest signings in the US reflect the new formats of in-room fitness equipment. Our voco brand continues to rapidly build, with seven openings and 16 signings in the period, including a first resort signing in the Middle East & Africa region. Crowne Plaza saw another strong period with 18 signings, with its pipeline representing growth of almost 30% of its current system size.

Essentials

IHG's Essentials category includes the leading Holiday Inn Express and the Holiday Inn Hotels & Resorts brands. Holiday Inn Express extended its market-leading scale with the opening of 38 hotels and another 77 signed; now reaching over 3,100 hotels open and a pipeline for a further 640, this represents future system growth of 24%. Holiday Inn opened seven hotels in the period and signed 19, with its pipeline equivalent to 20% of its current system size; recent openings such as Holiday Inn Riyadh The Business District showcase the latest design hallmarks and the brand's innovative Open Lobby concept. Our avid hotels brand has reached 61 open properties; with a pipeline of 146, this will more than triple today's existing system size and further demonstrate the strong guest and owner proposition for this new-build midscale brand.

Suites

In our Suites category, Candlewood Suites and Staybridge Suites opened 12 properties and signed 34 more; with nearly 700 open hotels and another 300 in their pipelines, their growth outlook remains very strong. Our newest brand, Atwell Suites, already has two properties open and signed eight more in the half to take its pipeline to 35. The Holiday Inn Club Vacations timeshare company signed a conversion portfolio of four beachfront resorts in Cancun, Mexico to expand on its current 28 and marks the brand's first properties outside of the US.

Exclusive Partners

The recent addition of our Exclusive Partners category further demonstrates the strengths and attractiveness of IHG's enterprise platform, particularly in regard to providing brands and hotels with access to our advanced technology and our distribution channels. For IHG, these commercial agreements will drive additional system growth and high-quality fee streams, while providing more choice for our owners, guests and loyalty members. The integration of Iberostar Beachfront Resorts as an Exclusive Partner brand is progressing well. A further 10 properties were added to IHG's system in the first half of 2023, taking the total to date to 43. Of the up to 70 existing hotels, the remaining 27 require additional approvals from third parties in order to join IHG, which are targeted to occur over the course of the balance of this year and next. Recent integration progress includes guests now earning IHG One Rewards points and receiving on-property loyalty member benefits. Together with progress on other important search and booking capabilities as we fully incorporate these properties onto the IHG enterprise platform and ready our technology systems (such as to fully enable all-inclusive booking functionality), we are building IHG's capabilities for further potential Exclusive Partner arrangements.

2. Customer centric in all we do

We are creating seamless and tailored guest experiences that generate increased demand and build loyalty, whilst delivering high returns for our owners. Highlights in the first half of 2023 included:

· Transformation of loyalty programme, IHG One Rewards, now one year on. Our loyalty programme, which has more than 115 million members, is a fundamental success factor of our business and future growth, with over half of room nights driven by loyalty members. Following the launch of our new IHG One Rewards programme a year ago, enrolments in the first half of 2023 are up around 60% on last year. Reward Nights are also up by more than 40% compared to 2019 levels, with these driving positive returns for owners particularly through Reward Night dynamic pricing, which increases demand in lower occupancy periods. More than 1.7 million Milestone Rewards have been chosen since launch; and Food & Beverage (F&B) rewards can be redeemed at more than 2,000 hotels globally.

· Relaunched US co-brand credit cards proving highly attractive to customers. New accounts have increased more than 80% year-on-year in the first half of 2023 and are more than double 2019 levels. There has also been strong double-digit percentage growth in overall card spend, both on a year-on-year basis and versus 2019. Customer satisfaction has been increasing with a strong rise in Net Promoter Scores (NPS), and the share of Reward Nights consumed by cardholders has also increased.

· Attribute up-sell now available in 5,000+ hotels. IHG's Guest Reservation System (GRS) offers guests more options like bigger rooms and better views, with our previous system investments both enhancing guest choice and enabling IHG owners to generate maximum value from the unique attributes of their inventory. Our direct digital booking channels that provide these up-sell opportunities are seeing around a 1% revenue uplift. The value per up‑sell booking is averaging $23 across the estate, reflecting $18 across our Essentials and Suites brands and $44 for Luxury & Lifestyle. Further attributes will continue to be tested and rolled out, as well as other opportunities to capture up-sell, such as via the pre-stay email and app reminders.

· Stay enhancements driving further guest choice and incremental revenue for hotels. As well as up-sell of rooms, our GRS capabilities are also enabling more effective cross-sell of non-room extras - such as F&B credits, lounge access, additional in-room welcome amenities and parking - as part of the redesigned booking flow. Results of testing so far are showing cross-sell conversion of around 2% of eligible guests, with incremental revenue per booking of $26 for Essentials brands and $81 for Luxury & Lifestyle.

· Further improvements in brand resonance and overall guest satisfaction. Our masterbrand campaigns have continued to resonate with key target audiences and support driving more business for our hotel owners. In all our key markets we've seen measures for each of awareness, favourability and consideration of our brand rise year-on-year. Global 'Guest Love' scores are also up further year-on-year in the latest quarter, and Guest Satisfaction Index (GSI, which measures our outperformance against peers) has maintained its improvements to be consistently trending at a four-year high.

3. Create digital advantage

Our digital-first approach drives a higher percentage of direct bookings to our hotels, helps meet evolving guest expectations, creates cost efficiencies and delivers data and insights to optimise revenue management decisions. Developments in the first half of 2023 included:

· Strong IHG mobile app performance. Our new mobile app saw the number of downloads, users, bookings and revenue all increase by 40-50% on 2022 levels during the half, building on the success of the many enhancements as part of last year's relaunch of the app, which included streamlining the booking process, allowing guests to check-in faster and providing IHG One Rewards members with seamless access to managing all aspects of their loyalty benefits. IHG's digital direct channels have grown to contribute around one quarter of hotel revenue globally, and our mobile channels now account for more than half of all digital bookings.

· Wi-Fi Auto Connect drives further app 'stickiness'. IHG One Rewards loyalty members can now use a further industry-leading development within the mobile app. Mobile devices are seamlessly and securely connected to the hotel's Wi-Fi network automatically upon a loyalty member's arrival at an IHG hotel. This reduces technology friction for millions of loyalty members and drives further uptake and frequency of app usage. This is already rolled-out across more than 5,000 hotels globally.

· Delivering bespoke channel developments in Greater China. Our enhancements to the WeChat channel, including a redesigned user interface, have driven a near 200% increase in revenue generated from this channel and a 32% increase in booking conversions year-over-year.

4. Care for our people, communities and planet

With hotels in thousands of communities all over the world, our business and brands touch the lives of millions of people every day and are united by a purpose of True Hospitality for Good. Our actions are shaped by a culture of strong governance, clear policies and a series of ambitious commitments for our people, communities and planet set out in our Journey to Tomorrow 2030 responsible business plan, which launched in 2021. We are making substantial investments in systems and capabilities to help IHG and our hotel owners meet these commitments. Recent developments included:

People

Creating a culture where everyone feels valued and able to thrive is a vital part of our ability to continue attracting, developing and retaining a diverse range of talent with different experiences and backgrounds.

In 2023 we launched IHG University, a new gateway for learning to build skills, advance career development and champion best practice. The comprises of four specialist schools:

o  IHG School of Management, created for General Managers and hotel department leaders to support personal development and build leadership capabilities;

o  IHG School of Hospitality, focused on delivering learning that empowers frontline colleagues with the confidence to deliver True Hospitality for Good;

o  IHG School of Business Performance, created for corporate colleagues around the world to support professional growth, the expansion of our business and to drive value for our stakeholders; and

o  IHG Owner Learning Solutions, a space for owners looking at ways to maximize their IHG hotel investment.

IHG University has contributed to a significant increase in engagement with learning content across all three of our regions. 97% of all hotels globally are engaging with learning modules and we continue to add new content and expand our learning platform as a valuable resource for colleagues and owners.

Amongst many other initiatives that reflect IHG's ongoing commitment to diversity in its workplaces, hotels and local communities, in 2023 we have continued to sponsor Pride events through our 'Out & Open' LGBTQ+ Employee Resource Group (ERG). This is just one of nearly 30 ERG chapters at IHG, which are voluntary groups that provide platforms for its colleagues and promote workplace diversity across areas including ethnic diversity, gender, disability, wellbeing, veterans, family and early careers.

Communities

IHG is proud to be at the heart of thousands of communities around the world, and as part of delivering our purpose of True Hospitality for Good we focus on making a positive impact through three areas: skills building, disaster relief and tackling food poverty.

· The IHG Skills Academy, our free virtual learning platform, is growing its user base each week and currently has 15,000 participants worldwide.

· Working closely with our long-term partners such as CARE International and the International Federation of Red Cross and Red Crescent Societies (IFRC), IHG has supported colleagues, communities and other charity partners to aid relief efforts following earthquakes in Turkey and Syria, and tropical cyclones in Vanuatu.

Planet

As part of our Journey to Tomorrow sustainability commitments, our 2030 science-based target is to reduce our absolute Scope 1 and 2 Greenhouse Gas (GHG) emissions, and our Scope 3 GHG emissions covering both our Fuel and Energy Related Activities (FERA) and franchise estate, by 46% from the 2019 baseline year. Developments in 2023 include:

· Introducing our next set of Energy Conservation Measures (ECMs) into our Americas estate for Essentials and Suites brands. These include new lighting controls, occupancy-sensing thermostats in guest rooms and PTAC heat pumps.

· We have expanded the availability of an industry-leading renewable energy solution for hotels in markets in the US. Our owners can reduce their greenhouse gas emissions through community solar projects, lower their costs through the credits they receive on their regular electricity bills, and promote to guests that they are powered by clean energy through receiving Renewable Energy Certificates (RECs). IHG has made this available to hotels across Illinois, Maine and Maryland, with plans to expand to more states soon.

· As we work to develop new-build hotels that operate at very low or zero-carbon, our recent signing of the new-build hotel voco Zeal Exeter Science Park is set to become IHG's first lifecycle net zero carbon hotel in the UK, aligned with the UK Green Building Council's framework definition of net zero carbon buildings.

INCOME STATEMENT SUMMARY

a. Re-presented for the adoption of IFRS 17 'Insurance Contracts'

b. Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

c. Percentage change considered not meaningful, such as where a positive balance in the latest period is comparable to a negative or zero balance in the prior period.

d. Adjusted earnings as used within adjusted earnings per share, a non-GAAP measure.

Revenue

Trading improved significantly in the first quarter of 2023, as the comparative period saw travel impacted by the Omicron variant of Covid-19. The comparatives for the second quarter become subsequently tougher as government-mandated travel restrictions eased across many markets. Leisure demand in the Americas remained strong, supported by improving corporate and group bookings. Trading in the EMEAA region also saw strong improvement and Greater China rebounded significantly through the half following localised travel restrictions lifting from December 2022.

Group comparable RevPARa improved by 33.0% in the first quarter, then grew 17.1% in the second quarter and 24.1% in the half. When compared to the pre-pandemic levels of 2019, Group comparable RevPARa improved by 6.8% in the first quarter, 9.9% in the second quarter and 8.7% in the half.

Our other key driver of revenue, net system size, increased by 4.8% year-on-year to 925.3k rooms, including 16.2k Iberostar Beachfront Resorts properties.

Total revenue increased by $432m (24.1%) to $2,226m, including a $46m increase in cost reimbursement revenue. Revenue from reportable segmentsa increased by $191m (22.7%) to $1,031m, driven by the improved trading conditions. Underlying revenuea increased by $220m to $1,031m, with underlying fee revenuea increasing by $153m. Owned, leased and managed lease revenue increased by $46m.

Operating profit and margin

Operating profit improved by $223m from $361m to $584m, including a $37m net change in operating exceptional items and an $84m increase in the System Fund result from a $3m profit to a $87m profit.

Operating profit from reportable segmentsa increased by $102m (27.1%) to $479m, driven by improved trading conditions. Underlying operating profita increased $110m to $479m.

Fee margina (as re-presented for IFRS 17 'Insurance Contracts') increased by 3.3 percentage points to 58.8%, benefitting from the improvement in trading.

The impact of the movement in average USD exchange rates for the first half of 2022 compared to the first half of 2023 netted to a nil impact on operating profit from reportable segmentsa when calculated as restating 2022 figures at 2023 exchange rates, but negatively impacted operating profit from reportable segmentsa by $5m when applying 2022 rates to 2023 figures. This difference is due to high growth in non-US dollar markets in 2023, meaning that 2023 operating profit from reportable segmentsa would be $5m higher if foreign exchange rates had remained constant with 2022.

If the average exchange rate during July 2023 had existed throughout the first half of 2023, the 2023 operating profit from reportable segments would have been $2m lower.

System Fund

The Group operates a System Fund to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, reservations and the Group's loyalty programme, IHG One Rewards. The System Fund also benefits from proceeds from the sale of loyalty points under third-party co-branding arrangements. The Fund is not managed to generate a surplus or deficit for IHG over the longer term but is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels in the System.

The growth in the IHG One Rewards programme means that, although assessments are received from hotels upfront when a member earns points, more revenue is deferred each year than is recognised in the System Fund. This can lead to accounting losses in the System Fund each year as the deferred revenue balance grows which do not necessarily reflect the Fund's cash position and the Group's capacity to invest.

In the six months to 30 June 2023, System Fund revenues increased $195m (35%) to $749m, driven by the continued strength in travel demand combined with strong performance of the IHG One Rewards programme since the relaunch in the first half of last year.

The System Fund result for the six months to 30 June 2023 improved to an $87m profit from a $3m profit, primarily due to the continued strength in travel demand on revenues, partially offset by increased investments in media as well as revenue-driving channels. The result is also impacted by seasonality of spend.

Reimbursement of costs

Cost reimbursement revenue represents reimbursements of expenses incurred on behalf of managed and franchised properties and relates, predominantly, to payroll costs at managed properties where IHG is the employer. As IHG record cost reimbursements based upon costs incurred with no added mark up, this revenue and related expenses have no impact on either operating profit or net profit for the period. In the six months to 30 June 2023, reimbursable revenue increased by $46m (11.5%) to $446m. The increase reflects the improvement in US trading.

a. Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

Operating exceptional items

Operating exceptional items of $18m relating to the Group's share of profits of associates and joint ventures. Further information on exceptional items can be found in note 5 to the Interim Financial Statements.

Net financial expenses

Net financial expenses decreased to $16m from $69m, including $31m in foreign exchange gains/losses. Adjusted interesta, which excludes exceptional finance expenses and foreign exchange gains/losses and adds back interest attributable to the System Fund, decreased by $6m to an expense of $58m. The decrease in adjusted interest expensea was primarily driven by increased interest income on deposits.

Financial expenses include $36m (2022: $43m) of total interest costs on public bonds, which are fixed rate debt. Interest expense on lease liabilities was $15m (2022: $15m).

Fair value gains on contingent purchase consideration

Contingent purchase consideration arose on the acquisition of Regent. The net loss of $1m (2022: gain of $7m) relates to an adverse movement in the bond rates used in the valuation. The total contingent purchase consideration liability at 30 June 2023 is $66m (31 December 2022: $65m).

Taxation

Adjusted taxa has been calculated by applying a blended effective tax rate of 25% (2022: 28%). This blended effective rate represents the weighting of the annual tax rates of the Group's key territories using corporate income tax rates substantively enacted at 30 June 2023 to provide the best estimate for the full financial year. It is higher than the blended 2023 UK Corporation Tax rate of 23.5% due to higher taxed overseas profits (particularly in the US) and other non-deductible expenses. Included within the tax expense is a non-recurring deferred tax credit of $9m in respect of a law change in the Middle East, which represents a 2% benefit to the effective tax rate for the six months ended 30 June 2023. Taxation within exceptional items totalled a charge of $4m (2022: credit of $5m) and relates to the tax impacts of the operating exceptional items. Tax paid totalled $122m (2022: $124m). Further information on tax can be found in note 6 to the Interim Financial Statements.

Earnings per share

The Group's basic earnings per ordinary share is 265.3¢ (2022: 117.4¢) benefitting from the reduced number of shares as a result of the buyback programmes in 2022 and 2023. Adjusted earnings per ordinary sharea increased by 61.0¢ to 182.7¢.

Dividends and shareholder returns

With the improvement in profitability in the first half of 2023, our net debt:adjusted EBITDA ratio reduced to 2.28x at 30 June 2023. The Board is therefore declaring an interim dividend of 48.3¢, which represents growth of 10% on the 43.9¢ interim dividend paid in 2022.

The ex-dividend date is Thursday 31 August 2023 and the Record date is Friday 1 September 2023. The corresponding dividend amount in Pence Sterling per ordinary share will be announced on Thursday 14 September 2023, calculated based on the average of the market exchange rates for the three working days commencing 11 September 2023. The dividend will be paid on Thursday 5 October, resulting in a cash outflow of around $80m. This will result in total dividends paid to shareholders in 2023 amounting to approximately $250m.

In August 2022 the Board approved a $500m share buyback programme that commenced on 9 August 2022 and completed in January 2023. In February 2023 the Board approved a further $750m share buyback programme, to be completed during 2023. In the six months to 30 June 2023, 5.4m shares were repurchased for total consideration of $372m (including transaction costs) of which $38m relates to the completion of the 2022 programme and $334m to the 2023 programme. 

a. Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

a. Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

Cash flow from operations

For the six months ended 30 June 2023, cash flow from operations was $453m, an increase of $117m on the comparable period, primarily reflecting the increase in operating profit.

Cash flow from operations is the principal source of cash used to fund interest and tax payments, capital expenditure, ordinary dividend payments and additional returns of capital of the Group.

Adjusted free cash flowa

Adjusted free cash flowa was an inflow of $277m, an increase of $135m on the six months to June 2022. Adjusted EBITDAa increased by $100m, the System Fund reported profit increased by $84m due to improved trading, and net interest paid decreased by $21m primarily due to an increase in interest received of $13m. These were partly offset by a $43m increase in working capital and other adjustments cash outflow and an increase in contract acquisition (key money) costs net of repayments of $29m. Working capital and other adjustments includes $115m of cash inflow related to deferred revenue, driven primarily by the loyalty programme.

Net and gross capital expenditure

Net capital expenditurea was $65m (2022: $22m) and gross capital expenditurea was $113m (2022: $72m). Gross capital expenditurea comprised: $86m maintenance capex and key money; $8m gross recyclable investments; and $19m System Fund capital investments. Net capital expenditurea includes the offset from $6m key money repayments and $42m System Fund depreciation and amortisation.

Net debta

At 30 June 2023, net debta was $2,270m (31 December 2022: $1,851m), including adverse net foreign exchange of $112m driven by translation of the Group's sterling bond debt. There were $538m of payments related to ordinary dividends and the share buyback programmes.

Sources of liquidity

As at 30 June 2023, the Group had total liquidity of $1,970m (31 December 2022: $2,224m), comprising $1,350m of undrawn bank facilities and $620m of cash and cash equivalents (net of overdrafts and restricted cash). The change in total liquidity from December 2022 is primarily due to the overall net cash outflow before other net debt movements of $288m.

The Group currently has $2,443m of sterling and euro bonds outstanding. The bonds mature in October 2024 (€500m), August 2025 (£300m), August 2026 (£350m), May 2027 (€500m) and October 2028 (£400m). There are currency swaps in place on both the euro bonds, fixing the October 2024 bond at £454m and the May 2027 bond at £436m. The Group currently has a senior unsecured long-term credit rating of BBB from Standard and Poor's.

The Group is further financed by a $1.35bn syndicated bank revolving credit facility (RCF). A one-year extension option was exercised during the period and the facility now matures in 2028. There is a one-year extension option remaining at the lenders discretion. There are two financial covenants: interest cover and leverage ratio. Covenants are tested at half year and full year on a trailing 12-month basis. The interest cover covenant requires a ratio of Covenant EBITDA to Covenant interest payable above 3.5:1 and the leverage ratio requires Covenant net debt to Covenant EBITDA below 4.0:1. At 30 June 2023 the leverage ratio was 2.30 and the interest cover ratio was 11.32. See note 10 to the Interim Financial Statements for further information. The RCF was undrawn at 30 June 2023.

The Group is in compliance with all of the applicable financial covenants in its loan documents, none of which are expected to present a material restriction on funding in the near future.

It is management's opinion that the available facilities are sufficient for the Group's present liquidity requirements.

a. Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

Disaggregation of total gross revenue in IHG's System

Total gross revenuea provides a measure of the overall strength of the Group's brands. It comprises total rooms revenue from franchised hotels and total hotel revenue from managed hotels and from owned, leased and managed lease hotels and excludes revenue from the System Fund and reimbursement of costs. Other than owned, leased and managed lease hotels, total gross revenue is not revenue attributable to IHG as it is derived from hotels owned by third parties.

Total gross revenue in IHG's system increased by 29.0% (31.0% increase at constant currency) to $15.2bn, driven by the improvement in trading conditions in many markets along with growth in the number of hotels in our system.

a. Definitions for the key performance measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

b. Year-on-year percentage movement calculated from source figures.

c. Includes Holiday Inn Club Vacations.

d. Includes exclusive partner hotels.

RevPARa movement summary at constant exchange rates (CER)

RevPARa movement at CER vs actual exchange rates (AER)

Monthly RevPARa (CER)

a. RevPAR (revenue per available room), ADR (average daily rate) and occupancy are on a comparable basis, based on comparability as at 30 June 2023 and includes hotels that have traded in all months in both the current and the prior year. This same group of hotels is also used to compare RevPAR performance for 2023 vs 2019. The principle exclusions in deriving these measures are new openings, properties under major refurbishments and removals. See 'Use of key performance measures and non-GAAP measures' section for further information on the definition of RevPAR.

a. Includes nine open hotels that will be re-branded to voco and three open hotels that will be re-branded to Vignette Collection.

b. Includes exclusive partner hotels.  

a. Includes exclusive partner hotels.

H1 Comparable RevPARa was up +11% vs 2022 (up +11.8% vs 2019). Trading in the first quarter of 2022 saw travel volumes impacted as a result of the Omicron variant of Covid-19, with comparatives becoming subsequently tougher. Q2 RevPARa was up +6% vs 2022 (up +12.1% vs 2019), with occupancy of 72% up +1.2%pts and rate +4.1% higher. US Q2 RevPARa was up +4.4%. Leisure demand remained buoyant and there was further return of business and group travel.

Revenue from the reportable segmenta increased by $66m (+14%) to $537m. Operating profit increased by $61m to $412m, driven by the increase in revenue, together with an exceptional income of $18m recorded in the first half of 2023 (further information on exceptional items can be found in note 5 to the Interim Financial Statements). Operating profit from the reportable segmenta increased by $43m (+12%) to $394m (an increase of $50m or +15% vs 2019).

Fee business revenuea increased by $50m (+12%) to $463m, with comparable RevPARa up +11%. Fee business operating profita increased by $37m (+11%) to $379m, driven by the improvement in trading. Fee margina was 81.9%, compared to 82.8% in 2022 and 77.3% in 2019; the year-on-year reduction reflects filling vacant roles, cost investment in growth initiatives and the non-repeat of payroll tax credits that were received in 2022. There were $7m of incentive management fees earned (2022: $7m; 2019: $7m).

Owned, leased and managed lease revenue increased by $16m to $74m, with comparable RevPARa up +30%, leading to an owned, leased and managed leased operating profit of $15m compared to $9m in the comparable period.

a. Definitions for non-GAAP measures can be found in the 'Use of key performance measures and non-GAAP measures' section along with reconciliations of these measures to the most directly comparable line items within the Interim Financial Statements.

b. Percentage change considered not meaningful, such as where a positive balance in the latest period is comparable to a negative or zero balance in the prior period.

a. Includes five open hotels that will be re-branded to voco.

b. Includes exclusive partner hotels.