Ladies and gentlemen, welcome to the IHG Hotels and Resorts 2024 First Quarter Trading Update Conference Call. I am Darwin, the Chorus Call operator. The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand it over to Stuart Ford, Senior VP, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to the IHG Hotels and Resorts Conference Call, covering the 2024 First Quarter Trading Update. I'm Stuart Ford, Head of Investor Relations at IHG, and I'm joined this morning by Elie Maalouf, our Chief Executive Officer; and Michael Glover, our Chief Financial Officer. Just to remind listeners on the call that in discussions today, the company may make certain forward-looking statements as defined under U.S. law. Please do refer to this morning's announcement and the company's SEC filings for factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. For those analysts or institutional investors who are listening via our website, can I remind you that in order to ask questions, you will need to dial-in using the details on Page 3 of this morning's Q1 RNS release. The release, together with the usual supplementary data pack for the first quarter, can be downloaded from the Results and Presentations section under the Investors tab on ihgplc.com. This morning, we also released a separate announcement regarding changes to System Fund arrangements, which is summarized in the Q1 trading update release. You'll also find that separate full release under the Investors tab on ihgplc.com or by following the link within the trading update release. Now over to Elie.

Thank you, Stuart, and good morning, everyone. I'd like to start today by congratulating our teams on what has been a very busy and productive start to the year across our business, and which has been another period that has really demonstrated the attractiveness and strength of our globally diverse distribution. RevPAR continued to grow and on a global basis was up 2.6% on last year. This was driven by both ADR, which was up 2.3%, and occupancy, which was up 0.2 percentage points. In terms of performance by stay occasion, leisure demand remained robust, with global rooms revenue on a comparable hotels basis up 7% on 2023. Group's performance also improved, with revenue up 5%. Business revenue was flat, but that reflects the timing of Easter being in March this year compared to April last year, as the week leading up to Easter always experiences a lull in business travel. In terms of system growth, we opened more than 6,200 rooms across 46 hotels in the quarter, leading to 5% gross growth year-on-year and 3.4% net growth. The number of rooms opened in the quarter was 11% higher than in 2023, adjusting for the Iberostar rooms, which were added this time last year. It is worth reminding that we typically experience seasonality in our system growth with the relatively fewer openings and more removals in the first quarter of each calendar year. Year-to-date, net system growth was therefore neutral, and we expect net growth to ramp up through the rest of 2024. Turning to signings. We added nearly 18,000 rooms into our pipeline in the quarter, which was an increase of 7% on the same period last year. This contributed to the milestone of over 300,000 rooms in the pipeline for the first time, an increase of 6.6% year-on-year. Over 35% of openings and signings were quicker to market conversions, reflecting the breadth and attractiveness of our brands and the benefits to owners of joining IHG's enterprise. This was further reflected with the major conversion deal we signed a couple of weeks ago. We were delighted to announce an agreement with NOVUM Hospitality, which will double IHG's presence across Germany and add up to 119 hotels or 17,700 rooms over the coming years. This deal boosts confidence in the outlook for our system growth and underlines the attractiveness to owners of our brands and enterprise platform. We expect the agreement to bring significant benefits for IHG and NOVUM Hospitality, including higher brand awareness, increased direct bookings, and excellent loyalty engagement. Germany is one of Europe's largest hotel markets, and so there's strong domestic consumption that IHG will capture. The country also generated the highest number of international outbound trips globally in 2022, around 100 million, which is a further attraction to this priority market for us. Of course, we also expect the agreement to drive the development of more of our brands across more locations. And in a separate announcement today, you will also see that we have made changes in our System Fund arrangements, which will further improve economics for our owners and grow ancillary fee streams. This change is consistent with the strategic priorities we shared with you a couple of months back, which drive value for owners through our leading commercial engine and grow ancillary fee revenue and drive margin improvements for IHG as part of our growth algorithm. In 2024, we expect the change to incrementally add $25 million to IHG's revenue and operating profit from reportable segments. Then in 2025, it should be double that amount, and we'll also grow further as more points are sold and as deferred revenue recognition ramps up. Michael will talk to you through more of the detail on these new System Fund arrangements in a moment after he has reviewed each region for you. And with that, let me hand it over to Michael.

Thanks, Elie. Starting with the Americas. RevPAR was down 0.3% year-on-year. The U.S. was down 1.9%. Whereas in aggregate, Canada, Latin America and the Caribbean was up 11.3%. Occupancy in the region was down 1.1 percentage points, though pricing demand remained robust with rate growing by 1.5%. In terms of demand types, group's demand was the strongest with comparable rooms revenue up year-on-year by 5%. Leisure revenue was also ahead by 1%, while business revenue was slightly lower than the first quarter of 2023, down 2%. For the industry as a whole, this was a quarter with some adverse calendar timing and other seasonal impacts. When we look at the last 8 weeks rolling performance, which obviously smooths out the shift of Easter that impacts not just leisure travel but also the timing of business travel, our U.S. RevPAR in aggregate over the last 8 weeks was ahead of last year. The quarter also had some other small adverse impacts to deal with. For example, the location of the Super Bowl this February compared to last year was less helpful in terms of the geographic distribution of our rooms inventory, and there was also less hotel demand for a combination related to weather events than this time last year. And if you take our overall performance for the first quarter compared to the U.S. industry, we are very satisfied when we look at it on a weighted change scale basis. Looking ahead, booking trends would indicate a move back into positive RevPAR for the second quarter. In terms of system size, over 3,000 rooms were opened in Q1 in the Americas, an increase of more than 60% versus the same period last year, albeit as we've noted, Q1 is a seasonally small quarter for openings. This included 13 hotels across the Holiday Inn Brand Family as well as openings for avid, Atwell, and Garner as we continue to build momentum behind these newer brands. There were also 2 Kimpton additions, one of which, the Kimpton Todos Santos in Mexico, was an example of a hotel signed and opened in the same quarter, demonstrating the speed in which IHG can deliver to market high-quality conversions to our brands. We signed over 5,000 rooms across the Americas, broadly in line with the first quarter of 2023. It was a great start to the year for our newer mid-scale brands, with 8 avid properties and 9 Garner hotels added to the pipeline. Similarly, the 25 signings across our extended stay brands show their continued strong appeal to owners. Moving on now to our Europe, Middle East, Asia and Africa region, where RevPAR increased by an impressive 8.9% compared to 2023. This growth was encouragingly driven by both pricing and demand, with rates up by 4.5% and occupancy increasing by 2.7 percentage points. The variation in RevPAR performance across EMEAA continued to decrease. Japan saw a 17% increase in RevPAR, followed by Australia at 10%, the Middle East at 7%, and Continental Europe at 6%. The 2.4% growth in the U.K. was simply a sign of normalized growth in a market that fully recovered earlier than much of the rest of the EMEAA region. This time last year, U.K. RevPAR was already 12% above 2019 levels, and we are now an additional 2.4% above that. Just over 1,000 rooms were opened in the quarter, resulting in a gross year-to-date growth of 0.4% and a gross year-on-year growth of 7.2%. Net system growth saw a slight decline of 0.2% in the quarter. We anticipate a return to net growth as we move through 2024. In the quarter, 5,400 rooms were signed to the pipeline, representing a 4% increase from a year earlier. These signings were well distributed across all segments, showcasing IHG's capability to compete and secure deals across the chain scales. It was exciting to see the first three Garner deals signed as the brand becomes available across the EMEAA region, having only launched in the Americas back in September. Additionally, the NOVUM deal will bring over 50 more Garner hotels. Finally, moving on to Greater China, where RevPAR was up 2.5% year-on-year, driven by occupancy improvement of 0.7 percentage points and rate growth of 1.3%. An increase in international travelers in the quarter contributed to a 7.3% rise in Tier 1 city RevPAR. In Tier 2 to 4 cities, RevPAR was down 2.1% given tougher comparables from the resurgent demand this time last year and outbound leisure travel, particularly to Southeast Asia, has also picked up, which is a benefit we've seen in our EMEAA region. Looking ahead, we expect to continue to see a tailwind through 2024 from the return of more airlift capacity into Greater China. In terms of system size, over 2,100 rooms were opened in the quarter, driving gross year-to-date growth of 1.2% and gross year-on-year growth of 10.4%. Net system size growth was 0.2% year-to-date, while net year-on-year growth was 7.9%. Development momentum continues to build, and the 7,200 rooms signed in the region is an increase of 22% on the same period last year. Now to update you on the share buyback, we are currently 30% of the way through the $800 million program announced in February. To date, this has reduced our share count this year by a further 1.4%. Elie has already noted the new agreement recently announced with NOVUM Hospitality that will double IHG's presence in Germany. Just to add some further color for you, we currently have just under 100 hotels in Germany, and this portfolio of 119 hotels would add a further 111 in Germany, and the remaining 8 are in Australia, the Netherlands, and the U.K. The increase in our global system size would be up to 1.9% over the coming years, with the majority of the conversions expected to take place over the next 24 months. IHG is contributing key money capital that will reflect the phased conversion and timing of openings of this major portfolio of hotels, which, of course, includes the European debuts of our Garner and Candlewood Suites brands, which we are very excited about. And then in terms of fees, IHG will receive franchise fees after the phased conversion of the existing properties and upon the opening of the hotels under development. The projected fee revenue net of key money amortization once all the hotels enter our system would be in excess of $10 million a year. Additionally, standard assessments were received into IHG's System Fund, including those to cover the operation of IHG One Rewards and marketing and reservation services. Finally, to cover off for you the separate announcement regarding the changes to our System Fund arrangements, under the new terms that govern the sharing arrangements with the System Fund, a portion of the revenue from the sale of certain loyalty points and some other ancillary revenues will now be recognized by IHG within our results from reportable segments. Initially, 50% of this will be recognized in 2024, which is expected to deliver an estimated incremental $25 million of both revenue and profit for the year before increasing to 100% from 2025 onwards, which doubles the run rate of this incremental fee stream. The run rate is expected to further increase in subsequent years as the number of points sold continues to grow and also due to the ramp-up effect of deferred revenue recognition. As analysts and investors revisit their expectations for our fee revenue and operating profit from reportable segments, or EBIT, you'll want to bear this in mind for future uplift. As Elie mentioned, it is important to recognize that the changes we are making are also improving the economics for our owners. We're able to do this because of the successful growth and development of the IHG One Rewards loyalty program and the efficiencies and scale of the System Fund. For example, the assessments into the fund meant that the System Fund revenues in 2023 totaled nearly $1.6 billion, which is $330 million or 27% greater than 5 years earlier. IHG's hotel owners benefit from the substantial scale and efficiency of the System Fund, will continue to do so as it further grows and as the overall enterprise achieves new levels of strength. To the immediate benefit of owners and reflecting the efficiencies that are already being achieved, IHG is lowering its standard loyalty assessment that owners pay into the fund and is also increasing the Reward Night reimbursements that owners receive back out of the Fund. Across all the changes being made to the System Fund arrangement, IHG and the IHG Owners Association have worked together to ensure that the overall capacity and effectiveness of the fund to invest and spend on behalf of all IHG System hotels remains strong and that the operation of the fund continues to be on a net nil surplus or deficit basis over the long term. With that, I'll hand back to Elie for some closing comments.

Thank you, Michael. So to summarize the first quarter, global RevPAR has increased by 2.6% year-on-year, with both occupancy and rate showing further improvement. Gross system growth was 0.7% year-to-date, and net system growth was 3.4% year-on-year. Our newer brands continue to build momentum, including a dozen signings globally for Garner as it accelerates in Americas and secured further growth in EMEAA. And the progress we have made in securing large conversion deals and delivering ancillary fee streams gives us confidence in our ability to deliver our growth ambitions and drive shareholder value. As we progress through 2024, we expect to continue advancing the strategic priorities that we have laid out for IHG in order to drive the core components of value creation. As a reminder, these are growing our fee revenues through the combination of RevPAR system size expansion and ancillary fee streams, which in turn will drive further margin accretion. And with our typical strong cash conversion, this allows IHG to both reinvest in the business and to return surplus capital to shareholders.

Thank you, Elie. We will now open the call for questions.

Just wanted to start off on the System Fund changes. So it looks like it's sort of described as a win-win for all, IHG gets more and the owners seem to pay less. So if you could just help us understand sort of who loses here? Is that ultimately lower marketing spend? Where does the difference come from? And with that, how do your owners sort of feel about the initiatives? Secondly, on that point, you talked about the faster growth from beyond next year. So just any sense of what that $50 million by next year could ramp up at? What pace of growth beyond that? And then the final question was just back on the NOVUM deal. I don't think you've called out exactly how much key money will be involved there. And so just any sort of quantification there? And then, I guess, particularly whether that could lift you above that sort of $200 million CapEx level you talked about for this year?

Thank you, Vicki. I'll address your first and second questions and take part of the third before passing it to Michael. When we established the arrangement to begin selling points through IHG One Rewards and leveraging our brand strength in the mid-2000s, specifically in 2008 and 2009, the System Fund was significantly smaller than it is today. At that time, IHG One Rewards had not experienced the growth it has now. We always anticipated that as the System Fund reached a certain scale, adjustments would be necessary once it achieved the capabilities it has today. Currently, the System Fund stands at nearly $1.6 billion and has grown almost 40% since 2018. It has sufficient capacity to handle everything we're discussing while continuing our brand marketing and operational effectiveness. It's important to note that the System Fund grows annually alongside RevPAR, system size, and additional revenues. Therefore, it is a growing fund and not a static entity or a zero-sum scenario. Additionally, this situation does not involve an accounting change; it is a real fee stream currently recognized in the System Fund that will now appear in the P&L. Our owners are benefiting from increased reimbursement for loyalty nights and reduced loyalty assessments. We plan to apply this approach consistently across all fees that we charge in the System Fund. As the System Fund reaches a certain scale, the unit cost per hotel decreases. We continuously work on enhancing our owners' value proposition, and since the System Fund operates with a net surplus or deficit, we aim to ensure they receive maximum value from operations. There is no decline in capability regarding what System Fund marketing will achieve, and no one party is benefiting at the expense of another. As the System Fund expands, it can successfully manage multiple initiatives at once. Regarding the ramp-up, it occurs for two reasons: first, there is some deferred revenue that can only be acknowledged in future years when the points are used. Second, our points sales program is very appealing to consumers, and we've seen an increase in point purchases over recent years. As IHG One Rewards strengthens, the master brand grows, and our system expands, we expect continued growth in point purchases. On NOVUM, it's a significant transaction. The chance to secure a portfolio of 100 hotels through a straightforward franchise deal is notable. This isn't a partnership or a distribution agreement; it’s a genuine franchise conversion. Finding a portfolio that can convert at this scale is very appealing. The competition is intense in a high-value market like Germany, which has a large hotel market but is not heavily branded. Therefore, we and other hotel groups are working to expand our presence in this valuable market. We achieved success due to the scale, quality, and duration of these franchise agreements, which made it competitive. Consequently, there was some additional funding required, though we can't disclose that for commercial and competitive reasons. I'll let Michael explain how this impacts our projections.

Yes. As Elie mentioned, we won't disclose the exact key money figure agreed upon, and the key money will be disbursed over the duration that the hotel is operational, spread out over the next few years. Regarding our guidance, we increased it to a key money range of $150 million to $200 million during the full year results announcement, mainly due to the rise in Luxury & Lifestyle properties we're opening. It's still early in the year, and the mix of openings will vary as the year progresses. Therefore, we will maintain that guidance for now but will monitor it closely as we approach the half-year mark.

I have three questions. First, regarding the loyalty changes, could you quantify the reduction in the loyalty assessment fee? Additionally, how does that compare to the competition in terms of percentage or dollar value spent on marketing? Second, concerning U.S. RevPAR, I understand your comments on seasonality and other one-off external factors. It seems to be somewhat weaker than anticipated this year, especially in the mid-scale and economy segments. What do you attribute that to? Are there any forward-looking indicators you can share? You mentioned expecting a positive Q2, so aside from the figures for March and April, what can you tell us about the rest of the quarter or the year? Lastly, regarding NOVUM, I believe the mature run rate was around $10 million, translating to just over 0.5% of group fees compared to about 2% of group rooms. Some of this relates to the refurb CapEx, but could you clarify that connection for us?

Thank you, Jamie. In terms of the reduction, the actual reduction, Michael, was...

4.75 to 4.55, 20 basis points.

So 20 basis points. If you're wondering how, I think we're in a competitive range. Our competitors charge various rates, with some differing by brand and others by category. We believe it's still a competitive rate, and it doesn't impact our ability to market our brands. We charge a certain amount and then reimburse hotels when guests stay there, so it doesn't affect the System Fund's capacity for marketing. Returning to your point about marketing, we have been increasing our marketing efforts over the last few years alongside the growth of the System Fund. At a certain point, as the system and System Fund grow and we identify greater efficiencies in overhead, the growth rate of the System Fund will not match the increase in room nights and RevPAR, resulting in more capacity. In the past, we have reduced other fees for owners related to various programs, including technology support and revenue management services. We have found ways over time to lower those fees without publicly discussing it, as unit costs can decrease even though total costs remain stable, creating more capacity in the System Fund. Lowering fees over time as the system expands and our costs do not increase at the same rate as our revenues is a logical step for us to take for our owners. This disclosure pertains to its impact on the P&L. On U.S. RevPAR, look, it's very hard to estimate the impact of Easter. We know it happens every year. It does move every year. It's very hard to estimate exactly how much it's going to be. It probably turned out to be more than some people in the industry expected, some of what some of the forecasters expected. Now as Michael and Stuart said, April has shown a pickup. So we're pleased with that. I don't know if that's a read across for the rest of the year or not. I think it's a smaller part of the year here in the first quarter. We're pleased with the start that we've had, the projections from the industry for U.S. RevPAR are still for positive growth. Actually, the U.S. economy is in pretty good shape. GDP is growing, unemployment is low, wage growth and job growth is high in a way that's kind of why the Federal Reserve isn't lowering interest rates as much as people thought. And our group's bookings are pretty strong. I mean we're, at the end of the first quarter, 11% year-over-year in group's booking, which is showing momentum and people wanting to travel for business and for large groups and meetings. We'll see how that plays out for the rest of the year, but projections are still for RevPAR growth for the rest of the year.

In terms of NOVUM and that calculation, the 2% to the 1%, let me turn it over to Michael. Yes. We are discussing an amount exceeding $10 million. This is a standard franchise deal that we have in place, with typical arrangements similar to those we see in Germany regarding the fees we receive from both franchise fees and the System Fund. It's also essential to note that 50 of these will be Garner, which fall into the lower RevPAR and mid-scale ranges. This impacts the total fee revenue as well. I believe these factors are the primary reasons for reaching the figure of over $10 million.

I have three questions, if I may. First, regarding the System Fund changes, I would like to know the origin of this decision. Did the owners request a reduction in their fees, leading to this situation, or was it IHG seeking extra revenue that necessitated the fee cut? Who initiated the conversation? Secondly, concerning churn in Q1, it's challenging to find a year where Q1 maintains flat system size; it seems we have to go back to around 2017. This suggests higher churn than usual in Q1, with a few Kimptons leaving the U.S. and approximately 1,200 Holiday Inn Express rooms also exiting. Is there anything specific driving this higher-than-expected churn, and what do you anticipate for the full year? Finally, there's a significant gap between U.S. RevPAR performance and Americas RevPAR performance. I am curious how much of that gap is attributed to Iberostar, as you do not break out Iberostar RevPAR figures. Is it performing well for you?

Thank you, Richard. In response to your question about U.S. RevPAR compared to Americas RevPAR, I'll address the latter first. The rest of the Americas is performing well. Markets like Latin America, Mexico, the Caribbean, and Canada were slower to recover, but they are now thriving. Our properties are strategically located in both resort and urban areas that are doing well. Mexico, in particular, has seen significant growth thanks to the reshoring of manufacturing and a stronger peso, along with benefits from higher oil prices. This positive trend has continued for about 18 months, making resorts in Mexico very strong. While Iberostar is performing admirably, I believe our success isn't solely attributed to them. Canada also did quite well for us, highlighting the strengths of our global and regional diversification strategy. We recognize that different regions experience highs and lows, but our broad distribution helps to balance these variations. It's important to note that while Iberostar is indeed doing well, it is just one part of our overall performance. Let me address the first question regarding the System Fund discussions, and I'll let Michael handle the second question. We consistently engage with our Owners Association and our owners. This is an ongoing process. We have a formal association and a standing board, and we maintain a very active dialogue. As you might know, owners are always seeking lower costs, which is a consistent goal. They want the most effective revenue delivery system, and we believe we can provide that at the lowest possible cost. As I mentioned earlier, with Vicki or Jamie, we are continuously looking for ways to add value for them. The purpose of achieving scale is to enhance value for customers by providing a greater array of higher-value services, which can sometimes lead to lower unit costs. By reaching a certain scale, we can reduce unit costs. Over the years, we have successfully lowered some unit costs, even though we haven't publicized all of them. For instance, our revenue management for hire program operates as a self-contained program without surplus or deficit, one of those nil surplus programs that we offer to owners. As we have increased membership and revenue in that program, we have been able to lower unit costs and use the resources to finance the services provided to owners. We have lowered unit costs as the program has expanded.

Regarding system size and first quarter results, if we examine the average over the past eight years, our growth has been approximately 0.2%. The first quarter typically sees the highest number of removals and the lowest number of openings. Therefore, we still anticipate our removal percentage to remain in the 1.5% range for the full year, and I don't see any changes to that outlook. With the NOVUM deal and other opportunities this year, we are confident in achieving our consensus on system growth and certainly do not expect to fall below that target. I want to reaffirm this and express our comfort with the direction we are heading.

I mean, Richard, one other way I'd look at it is, we had a very strong year in signings and openings last year. We came back this first quarter with another 11% increase in openings, 7% increase in signings, pipeline up 6.6%. I think that's pretty good momentum. And by the way, those figures didn't even include the NOVUM deal, which was signed in April, but gives us greater confidence in continuing our growth momentum. I think that's actually a pretty good growth momentum.

Could you provide more details on the changes to the System Fund? Specifically, what is the cash impact of this? Is the $50 million fully impacting cash? Additionally, you mentioned this is part of the revenue from loyalty points. Can you clarify what percentage this represents of the total revenue? As we consider future growth, what are the main drivers of this? Should we attribute loyalty points growth to system size or RevPAR? A framework for understanding this would be beneficial. Lastly, regarding China’s performance, the STR data turned negative in April. What insights can you share about the situation in China and your expectations for the remainder of the year?

I'll take the first question on the cash impact. We are constantly bringing cash into the system. As you know, we aim to manage the System Fund to have neither a surplus nor a deficit, so we are using that cash. This results in positive cash flow for our operations and, since we won't be utilizing those funds, it will contribute almost entirely to EBIT with very high margins. Thus, it's beneficial for cash and also enhances our EBITDA margin. Regarding the percentage of loyalty points, we have various programs where we sell loyalty points, including credit cards. We are not providing specific guidance on the percentage of our overall sales related to loyalty points at this time. However, this is connected to the points we sell and the promotions we run. For instance, on our website, there might be a cash opportunity for a room that involves purchasing some points along with cash. We also have sales through platforms like points.com where users can buy points. The growth we are experiencing is closely linked to the expansion of our loyalty program. As we gain more loyalty members, the interest in purchasing points increases, which explains the growth we've observed. The relaunched loyalty program has led to an uptick in membership and member engagement, which further boosts points sales. That's our perspective on the situation.

To answer your question about why it grows, it grows because IHG is expanding its system. We have an increasing number of hotels, a growing member base in IHG One Rewards, and an enhanced brand portfolio that strengthens the recognition of our master brand. Consequently, customers are more inclined to engage with the IHG system. They prefer to stay with IHG and earn more points. Sometimes, they might want to acquire points even before their stays, either to achieve a certain status or because of promotional offers on purchasing points. This aspect introduces a gamification element to the points program, keeping customers engaged. As they earn points from stays, as credit card holders, or while shopping with a credit card, they may also look to buy additional points to enhance their total. This engagement is driving growth in point purchases, and based on trends observed over several years, we anticipate this growth will continue. On Greater China, there are multiple dynamics at play. We've observed that Tier 1 cities experienced RevPAR growth of over 7%. However, Tier 2, 3, and 4 cities did not see growth in the first quarter. Nonetheless, there has been an increase in outbound travel to Southeast Asia, particularly benefiting markets like Vietnam, Thailand, Cambodia, Japan, and Hong Kong. It's uncertain whether this trend will persist throughout the year. The Chinese economy recorded a GDP growth of 5% to 5.2% in the first quarter, though certain sectors, such as residential real estate and finance, are experiencing slower progress. In contrast, the hospitality sector continues to advance and grow, with our openings increasing by 10% and signings rising by 22%. This indicates strong confidence from owners and investors in the hospitality market. While we acknowledge that the market experiences fluctuations, we are committed to a long-term presence. Additionally, we benefit from Chinese travelers who may choose to travel abroad rather than staying within China. Although we cannot predict the remainder of the year, we are optimistic about continued growth in China going forward.

If I may follow up on the cash question. Just to clarify, so it's adding to your operating cash. So we should be thinking about this as kind of benefiting your net debt position at year-end?

Yes, absolutely.

Thank you, Muneeba.

I have got 3. The first question is around your balance sheet. At the Capital Markets Day or at your full year results, you mentioned you had a potential $500 million of excess cash. We've seen M&A activity pick up, particularly in the Luxury/Lifestyle segment. Are you seeing any compelling opportunities this year? Or do you see potential to return the excess cash to shareholders this year? Second question is on the U.S. environment. I wondered if you could give us an update on what you're hearing from developers and banks in terms of bank financing conditions, specifically in the U.S. And then my third question, you mentioned earlier about the headwind from the location of the Super Bowl. And I wondered, do you have any plans to accelerate growth in Vegas, specifically, over the next few years?

Thank you, Jaina. In February, we indicated that we had an additional $500 million of headroom, which doesn't mean we have $500 million in cash on hand, but rather $500 million of capacity within our debt-to-EBITDA guidance. We do not provide comments on mergers and acquisitions. As you know, we have stated that we are always seeking opportunities that may be both strategically and financially beneficial, and we have pursued some of those in the past. However, we refrain from speculating on potential future actions.

I would also say that we discussed having $500 million available if we adjusted net debt-to-EBITDA to 3x. We've been clear about our capital allocation policy, prioritizing investments in the business first, growing the ordinary dividend, and returning cash to shareholders. Assuming we don't identify other uses for that cash through M&A activity, we intend to return it to shareholders. As we mentioned last year, we believe the best time to do that is during our full year results, and I expect we will reconsider this then. This serves as our general guideline on how we approach this.

The U.S. financing development environment is improving. We indicated back in February that it wouldn't follow a V-shape trajectory, and it hasn't. Interest rates have stabilized, though they may not drop much further. However, stability and predictability are just as important as having lower rates. Currently, rates are steady in the mid-4s for a 10-year period, and while inflation isn't decreasing as quickly as some anticipated, it’s also not rising. This stability allows people to better project their construction costs and secure financing. Our recent signings reflect this, as our construction starts in the first quarter were more than double last year's figures, indicating growth. We believe this trend will continue, although the growth will be gradual rather than sudden. On the conversion side, we're seeing positive results as well, particularly with Garner. It's gaining traction not only in the U.S. but also internationally, with new deals in Japan and Germany, and availability now in Mexico and Canada. We expect both new development and conversions to keep improving. Regarding Las Vegas, look, we're always looking to grow our distribution in key markets. We don't have anything to announce right now, but our developers, our teams are always looking to add. And I mean, as we speak, I'm sure we have hotels that are entering the pipeline and are being planned in Las Vegas. I don't have anything specifically to announce on that.

Could you provide a broad overview of how you're approaching marketing in relation to the system brand, specifically where the spending will be allocated in areas like loyalty points, digital, TV, and print? I understand this might vary by market, but any insights would be appreciated. Additionally, what are you currently observing regarding construction cost inflation and the ability to complete projects on schedule? Are there any supply chain challenges? Lastly, concerning the U.S. market, while occupancy has been declining for several months, pricing seems to remain strong. How sustainable do you think this will be? Is it primarily due to better revenue management systems in the industry, which might not result in pricing being significantly pressured?

The scope of our marketing activities is extensive and impactful. It encompasses traditional media such as TV, airports, airplanes, and radio, but extends far beyond that. Our digital and social media marketing, along with both earned and paid media, is also very effective. Our partnerships and alliances, including those in sports sponsorships, have been on the rise. You can see IHG hotels and resorts virtually everywhere you travel, at every sporting event you watch, whether it's U.S. Soccer, Major League Soccer, rugby in Europe, or the U.S. Tennis Open. Our presence is noticeable in major airports worldwide and on many airlines in China. Over the past couple of years, our marketing efforts have expanded significantly, which was part of a deliberate strategy we had discussed. This strategy involved enhancing our Luxury/Lifestyle portfolio and relaunching the IHG One Rewards app, along with a robust marketing push for these initiatives. This approach has fueled the growth of IHG One Rewards and contributed to the overall growth of our system and System Fund. We will keep this momentum going, and nothing in our current arrangements will change or hinder that.

In terms of construction costs, they seem to have stabilized across all of our main markets. While they are not declining, they have leveled off. Supply chain challenges have not been significant for the past couple of years, and many material supplies are now in excess. We have established a strong procurement program that assists our owners in purchasing everything from HVAC to mechanical supply equipment at the lowest possible cost while ensuring high quality. Our construction starts in the first quarter are over twice as high compared to a year ago, which is encouraging. This statistic pertains to the U.S., and construction starts in China are also progressing steadily. We signed 22% more hotel deals in the first quarter, opened 10% more hotels, and made good strides in Europe. Additionally, the NOVUM deal announced in Germany comes with a solid and expanding pipeline, and NOVUM has committed that all future hotels will be part of the IHG brand. This reflects confidence in that market, indicating that we will continue to open and develop hotels, whether through conversions or new builds. Overall, the situation has stabilized and is improving. This is not a one-time effort. Our brand teams in design, engineering, and procurement are continuously examining our brand designs. They are seeking ways to create value by engineering our products. We analyze costs and assess where guests find value in the hotel experience. We consider increasing costs in certain areas while potentially reducing costs in others. We are consistently evaluating our construction costs as we advance and continue to develop the brand.

On your question about ADR in the U.S., can it keep moving up? Well, I mean you have the fundamentals of good demand, strong economy, strong employment, good wage growth and low supply growth. And then add it to something we discussed also in February, which was it isn't necessarily raising individual rates for certain customers, but it's remixing the rates, mixing out lower-rated business because occupancy is still solid and demand is strong and supply is low, and mixing in higher business. I mean I'm sitting today in a hotel here in London, the Kimpton Fitzroy, speaking to the manager, that's exactly what he was talking to me about this morning, which was given the strength that they're seeing from corporate business here in London, he's been mixing out some lower paying customers and mixing in some higher paying customers. Neither is paying more than they were a year ago, we're just taking more of the higher rated business, and that's showing up in higher net ADR. But the solid demand and low supply is still a pretty good tailwind for rate.

I have three questions, please. Firstly, regarding the changes to the System Fund, what was the 20 basis points of assessment fees that owners are no longer required to pay previously allocated for? Is it fair to say that those fees were not effectively contributing to the owner benefits you aimed for? Secondly, the number of EMEAA openings was quite low for Q1; is this a timing issue, or is the development and construction outlook in Europe or EMEAA not improving as you anticipated? How does this relate to your expectations for approximately 4% net unit growth this year, considering NOVUM as well? Lastly, looking ahead, are there any other potential changes to the System Fund that you could implement in the future to either reduce costs in the reportable segments, similar to what you did in December 2020, or any other changes like those announced today?

Okay. I'll take part of the first question and then turn it over to Michael to follow up on it. I guess I've said earlier, we had an assessment of 4.75%. But that's when our system was much smaller. The loyalty program was much smaller. And actually, our marketing spend was much smaller. And today, all of those things are much bigger and therefore, there's an opportunity to just lower the unit cost. But there are still more customers, and there are still growing room nights. So the total revenue System Fund doesn't necessarily have to decline. It's just that it is growing more so the unit cost can decline. And remember, it's 4.75% of portfolio. So as rate grows, that grows too. But rate has grown significantly. And so we find the opportunity to return some value to owners and say, we are covering the cost of the loyalty plan, of the loyalty marketing we have to do and can still give you a little bit of benefit back because the system has grown so much if the unit cost can come down. It is just one of those very classic economic models that as you grow scale, you can lower unit cost while still having a greater aggregate take, that is nobody necessarily loses because we've grown scale to the point where unit costs can come down, but the total volume is the large and the marketing can still continue and everybody wins.

Just a reminder that the 20 basis points is not off the marketing and reservation assessment. That stays the same. This is only on the assessment of Reward Night stay. So when a customer stays with us that is a Rewards member, as Elie mentioned, we charge 4.55% now on the full folio of what they stay. And so it's not taking out of the marketing and reservations assessment, it's coming from the loyalty program. And we don't expect to change what we've been able to do there in terms of marketing and targeting loyalty customers going after new enrollments, and we'll continue to see that happen. As Elie said, it's mainly a scale and efficiencies play. And so we feel really good about this. This is actually a great thing for our owners and hopefully, will help us sign more deals in the future.

On your question about EMEAA openings, that is mostly a timing thing. I've traveled throughout the EMEAA a lot since the beginning of the year. I've been in Japan. I've been in Southeast Asia. I just came back from India, been in the Middle East and Saudi Arabia. We see great momentum. I've been in Germany, where we signed the NOVUM deal, which really isn't in these figures, but will clearly boost EMEAA signings and openings for the year and beyond. I'm very comfortable with the EMEAA's outlook for growth, for signings, for openings, for starts, for the whole thing.

The System Fund was the only other question. And really with the System Fund and are there other things, we have a really healthy relationship with the IHG Owners Association. We're constantly looking at how can we drive more revenue and benefit for our owners, how can we drive benefit for IHG. It's an evolving thing that we will always look at, just like you would do in any business. We try to grow it, and we try to grow ancillary revenue streams. We've been talking about the credit card, which is out there, and we're going through that process. So this is an evolving area, and we'll continue to look at it and do the right thing for our owners and for IHG.

Maybe just the only point not covered, the 4% net unit growth for this year, taking into account Q1 plus NOVUM, is that something you're still happy with?

Absolutely. It certainly doesn't come down after NOVUM deal and the momentum we feel in our markets.

Regarding RevPAR, it seems you’re not providing guidance, and I understand the reasoning behind that, which makes sense. However, it appears you’re indicating that consensus estimates might decrease by around 1% for the full year. When considering the second half, the comparisons to 2019 become significantly tougher, likely around 600 basis points more challenging in Q3 compared to Q1. How does this influence your outlook for year-over-year performance? Last year, international markets were recovering quickly, making the context for the second half quite different from the first half. Additionally, concerning NOVUM, it seems that the free cash flow from NOVUM as hotels transition may remain flat or negative. Other hospitality companies recently engaged in conversion deals that were less favorable than we have typically experienced, and there have been a considerable number of such deals. According to STR data, a decade ago, only 55% of branded hotels were managed by major companies, while now that figure exceeds 80%. This is certainly a positive trend, but it also means there are fewer smaller branded hotels available for conversion. I’d like your thoughts on how many of these smaller hotels remain for potential conversion to your larger brands and whether that poses a risk.

Thank you, Alex. To address your question about the remaining conversions, I'll hand it over to Michael for insights on comps and any additional guidance we may have. Regarding conversions, it's important to note that not all conversions are unbranded. For instance, in Germany, NOVUM hotels are classified as branded. They have their own brands but chose to rebrand to IHG to become part of a stronger system. Consequently, this shift doesn't register as unbranded rooms converting to branded, but rather as a movement from one brand to another. In the U.S., which has a high branding rate of about 70% branded to 30% unbranded, much of our conversion activity comes from other branded companies looking to join IHG. Thus, the potential for branding extends beyond just the unbranded category. Moreover, in Europe, about 70% remains unbranded, indicating there is still considerable opportunity for conversions. Therefore, we believe the potential for addressing conversions is not actually decreasing. I believe the opportunity for conversions remains strong as more branded, unbranded, and independent operators recognize the advantages of a robust global system like ours. At the IHIF conference in April, where we announced the NOVUM deal, we engaged in numerous discussions with hotel and owner groups interested in converting to IHG brands, independent of the NOVUM transaction, though likely influenced by it. These groups are looking at challenging cost dynamics, such as implementing a loyalty program, developing an app, establishing digital distribution, and maintaining a global sales force—resources that are typically inaccessible to European or pan-European operators. Thus, the addressable market is not shrinking. I'm unsure what you mean by lower value partnerships or transactions; the NOVUM deal is neither a partnership nor an alliance. It is a franchise agreement with full fees for profit and loss, as well as for the System Fund, for every individual hotel. Each hotel operates under a separate franchise agreement with IHG, adhering to an IHG brand. The distinguishing factor is that we signed many agreements at once rather than just one.

In terms of RevPAR, we've stated that our consensus is at 3.6 while we are at 2.6. We are not implying that the consensus should be adjusted. We simply wanted to illustrate the potential impact on profits and fee sensitivity if we remained at that 2.6 level, which amounts to about $11 million for each point in RevPAR. As we look ahead, both U.S. and international RevPAR growth has begun to slow over the quarters. Notably, U.S. RevPAR in the fourth quarter was approximately flat. We believe the comparables are somewhat better since the first quarter in the U.S. last year performed strongly. Internationally, the situation will vary by market, but overall, RevPAR growth is indeed slowing. Therefore, we aren't overly worried about the comparables being too challenging.

I don't need you to answer that question again, Elie. I specifically asked if you were talking about brands converting to other brands. Most franchise operators focus on whether conversions are primarily branded. I wasn't mentioning independent hotels. I was indicating that the proportion of large brands, like yours, has significantly increased compared to ten years ago. Consequently, the number of small brands you described as weak and seeking to join a larger group has become a much smaller pool than it used to be, which presents a challenge. I acknowledge your point about independence, but there aren’t many independent hotels that convert to brands for practical reasons. Regarding RevPAR, the year-on-year figures for 2023 were considerably lower than in the second half of 2022 since the latter was based on much stronger numbers. It seems that not considering 2019 might be somewhat limited, but perhaps I’m misinterpreting that.

No, we understand your point about the earlier comment regarding conversions. I still maintain that in Europe, there remains a significant opportunity within the unbranded or independent category for conversions. Therefore, we believe this opportunity will persist.

Thank you for your time today. We really appreciate it. We have no more questions coming in, and the operator will now hand back.

All right. Many thanks to all of you on this call. We just want to remind you that our second quarter 2024 update and financial results for the first half of the year will be announced on Tuesday, the 6th of August. Thank you, and have a great rest of your day.

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