Ladies and gentlemen, welcome to the IHG Q1 Results Call. My name is Braka and I will be coordinating your call today. [Operator Instructions] I will now hand over to your host, Heather Wood, Head of Investor Relations. Please go ahead.

Hi. Good morning, everyone. It’s Heather Wood, Head of Investor Relations IHG. I am joined this morning by Paul Edgecliffe-Johnson, our Chief Financial Officer. We will be talking you through our 2019 first quarter trading update this morning. As previously, we won’t be holding a separate call for U.S. investors today, but we will be making the replay of this call available on our website. I therefore need to remind you that in the discussions today, the company may make certain forward-looking statements as defined under U.S. laws. So please refer to this morning’s announcement and our SEC filings for factors that could lead actual results to differ materially from those expressed in or implied by any such forward-looking statements. With that, I will now hand the call over to Paul.

Thanks, Heather and good morning everyone. I will begin with some of the key highlights in the quarter before covering each of our regions in turn and then I will open up the call to questions. Looking first at our rooms and our focus on accelerating growth, we delivered strong results with net system size increasing 5.4% in the first quarter. We opened 12,000 rooms or 11,000 excluding the acquisition of Six Senses, a strong performance for what is typically our smallest quarter for openings. These included 3,700 rooms in Greater China as we passed the milestone of 400 hotels opened in the region. At the same time, we remain focused on removing underperforming hotels from our system and exited 6,000 rooms. We have strengthened our portfolio of brands, signing 24,000 rooms or 173 hotels into our pipeline. Excluding the hotels from the acquisition of Six Senses, this is our highest room signings pace for the first quarter in 12 years. Our total pipeline now stands at 279,000 rooms. In Greater China, we continued to see strong traction for our Holiday Inn Express Franchise Plus product with 21 signings in the quarter, taking our total to 164 signings since launch nearly 3 years ago. We also signed a further 6 franchised hotels for Holiday Inn and Crowne Plaza. Looking now to our brands, the Holiday Inn Brand Family continues to be the engine of growth for our business. In the first quarter, we signed 10,000 Holiday Inn Brand Family rooms, 69 hotels into our pipeline. And we are continuing to roll out our next-generation room and public space designs across the estate. Last month, we celebrated the opening of our 100th Open Lobby hotel in Europe. These next generation designs are driving a meaningful uplift in guest satisfaction, and owners…

[Operator Instructions] First up we have Jamie Rollo from Morgan Stanley. Please go ahead.

Good morning, everyone. Three questions. I will ask them separately. Just first Paul, how do you feel about sort of consensus for RevPAR up 1% to up 2%, I mean it looks like Q2 might be a bit slower than Q1 given the Easter shifts probably offset the South Korea impact. So just sort of talk a bit about how you feel about Q2 and full year expectations, please?

Sure. So, I think what’s going to be interesting is how the year plays across half one and half two. So half one in the Americas, you are still going to see the impacts of lapping the hurricane comparables but I have been around for a while, but really they die out after quarter two. So, half two should be a little easier from that perspective. I think that the Easter impact that we will see, it is really going to be just in April obviously and March where normally we would have seen some Easter benefit that was largely counteracted by the fact there was an additional Sunday in the quarter and also because the timing of Easter meant that some holidays that otherwise might have been taken in March didn’t happen. So, I am not sure we really saw much Easter benefit in the first quarter and we will see a bit of a headwind from it in quarter two, but hopefully the second half will improve from that.

So 1% to 2% in the full year, you are happy with that?

Yes, we are not expecting that people will move numbers on the back of what we are talking about today. I think that if you look at the group overall, the second half is easier in China, because the comparables get a bit easier there. The comparables get easier in the U.S. And obviously, we have the South Korea impact for the first quarter. So Middle East is going to stay fairly challenging, I think. There is a lot of supply that’s coming into the Middle East has been for a while in the buildup to Dubai Expo 2020. It means a lot of hotels are getting opened up, but that’s really the most problematic region for us. Also, I think that second half will get stronger. So as I said, I am not really expecting people to move their numbers from what they have got at the moment.

Thanks. And my second question just on the UK regional trading, if you could just sort of breakdown why you think things have been so tough there in the first quarter. And also the FDR deal on leases, you have obviously got some high exposure there. Could you remind us what the sort of liability is, what the operational gearing is in that business and whether – could you actually lose money in that UK regional lease?

Sure. So overall, the UK for quarter one was up 2%. London was actually really strong and the provinces were flattish. And so we are pleased with our London performance. We have got the Kimpton, which came about through the FDR portfolio coming through that. The FDR portfolio, we are doing a fair amount of work on to bring that up into the brands that are going to be opened up under, so voco and some Kimptons. The portfolio we are still very pleased with. It is a little bit more seasonal, because of the nature of that business. So you will see profitability more than 100% of the profitability in the second half of the year that will come through as we talk about the first half numbers. But overall, Jamie, yes, still pleased with the transaction. It will give us good representation for the brand and help us sell around the world and so very happy.

So it wouldn’t make a profit overall this year?

The expectations are that it will make a profit in 2019.

Thanks. And then finally just back on the Middle East, could you remind us what the exposure is there? And also if you remember, you have got some pretty lucrative incentive fees on contracts, could that sort of hurt this year with that RevPAR drop?

A lot of the contracts in the Middle East this year have been renegotiated over the last, I guess, 5 years or so. So we had some contracts in the Middle East that as you say were particularly lucrative. A lot of that that come up for renegotiations have seen the lucrative nature of that somewhat diminished. So there isn’t as much EBIT at risk as there would have been some years ago. And look it’s been a tough market in the Middle East for a few years now. And I am sure it will recover at some point, but it may not be until after the Dubai 2020 Expo is finished and some of that additional supply gets absorbed into the market, but then there is nothing that I would call out in terms of significant nonlinear fees being at risk there.

How much of EMEA is Middle East now?

About 5%.

Of the Group?

Of EMEA.

Okay, thank you very much.

Thanks very much, Jamie.

Next up, we have Jarrod Castle from UBS. Please go ahead.

Good morning, gentlemen. Just in terms of the all-suite launch, can you kind of give an update in terms of expression of interest and how that – how the thinking has developed, I guess, since the full-year results, any changes there? And secondly, just on net system size growth, obviously good start to the year. Could we expect that maybe to even accelerate a little bit as we move through the quarters? And then just lastly, just in terms of some of the more challenging markets, you spoke a little bit about the Middle East. But is there any indication that things might improve as we move through the year in either the Middle East or Australia? Thanks.

Thanks, Jarrod, and good morning. So, we’re pleased with the Middle. We’re pleased with the all-suites launch, and – which we’ll be talking about at our Americas Conference with our owners later this month. And as we did with avid, we’ve been designing that in combination with our owners, so the owners’ advisory group. Obviously, look, it’s too early to talk about owner interest and signings, et cetera. And after launching it, we then have to have a formal franchise to state the document, which then have to go through a regulatory process and to be approved for selling so we can’t actually sell any franchises for a little while, that will be right in the back end of this year as it was with avid, so very, very similar sort of timings there. In terms of net system size growth, so we’re pleased with the step-up that we’ve seen, and the 5.4% growth is in line with what we’re – the progress that we are looking to get up to industry-leading over time. Obviously, within that 5.4%, there’s some benefit from some of the small acquisitions that we’ve made, so about 20 basis points of benefit from Six Senses and about the same from Regent. So, once you take those out and look at it on a more organic basis, you’re talking around the 5%, which is what I’ve been aspiring to for 2019. And then the more important thing is just to keep that sequentially going up for 2019, upward of 5% will be good and then increasing that again in 2020. And that’s more what I’m pushing for rather than saying that we’re going to try and achieve everything in 1 year. And in terms of the markets, I think as I said a little earlier, I think that the second half might be easier on a comparative basis in the U.S. and in China. I think the Middle East is going to stay somewhat challenging. Saudi was particularly challenging in the first quarter, so I guess, we’ll see how that tracks. That may get a little better through the year, but I think that overall, it’s going to continue to be tough because of that new supply that’s been coming into the market there.

Okay, thanks.

Thanks, Jarrod.

We now have Vicki Stern from Barclays. Please go ahead.

Good morning. Couple of questions please. Just circling back on margins both full year and then the savings, I think you touched on an element of the savings point when you talked about the FdR deal. But just globally, if you can sort of talk more generally about how we should think about H1 versus H2 and also if you’re still happy with the 80 to 120 bps for the full-year? And then just going back on the regions, I mean, for the outlook, the one market you haven’t yet talked about is Continental Europe. Any comments there on your bigger countries like France and Germany as for the outlook, please? Thanks.

Thanks, Vicki. So, in terms of margins, aspiration is very much in line with what I talked about in full-year of growing margins over time by 80 to 120 bps. And because of the FdR deal, which as I said will mean that there is some profit deterioration there in the first half, it comes back in the second. Then it may have a small impact, but obviously, it’s not on the fee margin. So, let’s wait until we’ve put those numbers out and then you can look at those then, but there’s nothing that moves us away from the overall margin expectations. In terms of Continental Europe, it was a bit of a mixed bag in the first quarter. Germany actually was up 2% and France at negative 3%. That was really the social unrest that’s been going on in Paris. And we are – unusually for us because normally we are just quite a broad-based business, we’re a little bit more reliant on international inbounds in the French market. I think that has been held back by the social unrest there. So overall, Continental Europe up 1%, held back by France. In terms of the outlook that – I mean really, I think that Germany will have a decent year. And I can’t call what’s going to happen in France. It’s really very much based on what happens with the social unrest. If that goes away, then I think we would return back to our more normal levels of trading.

Okay, thanks very much.

Thanks, Vicki.

We now have Richard Clarke from Bernstein. Please go ahead.

Yes, three questions from me if I may. One is just on upper mid-scale in the U.S. market. You say you’re outperforming it, but clearly, that segment as a whole is underperforming the market. Is that having any impact on owners’ sort of demand for that part of the chain, are you seeing any impact there? The second question is a bit of an extension on Jamie’s question. Now you disclosed it, we can see incentive fees are more than 30% of your revenue in EMEA and Greater China. So, what impact does the RevPAR slowdown have on the incentive fee component across those 2 segments in entirety? And the third question is a little bit off-the-wall, but I stayed in a Holiday Inn Express recently and you’ve redone the breakfast there. There’s still a lot of plastic at the Holiday Inn Express breakfast, there’s Styrofoam cups, plastic cutlery, et cetera. Is there any plans to do away with that and any consumer backlash you’re seeing against that continued sort of disposable nature to breakfast?

Thanks, Richard. So, I’ll take those in turn. In terms of upper mid-scale, this has been where there’s been the highest level of investor demand to open up new hotels because the returns there are our strongest because it’s limited to other select service hotels. So, there has been more supply coming into that market. Obviously, there’s been demand as well. In some segments of the market, there’s been less supply coming in and demand has been low. So, if you look up at the top end, it’s a continuation of what, I guess, we’ve seen for some quarters, but the RevPAR there has been a little stronger. No change to owner demand there really, yes, and relative owner demand. It’s where a lot of the money is flowing into because the returns on capital are very strong. And it’s very favorable compared to other commercial real estate opportunities for investment in U.S. markets. So, nothing that I’ve identified that I could call out for you now. In terms of the incentive fees, there’s – in the markets that we’re talking about, so in China or in the Middle East, the incentive fees come about more on a linear basis. So, in the U.S., you have some whether it’s debt according to meeting profit thresholds, et cetera. So, they might step up or step down, but largely, it’s the share of the GOP in the hotel. So, although there’s a little bit more operational gearing in the hotels there as performance might come down, you might see a slight overleverage from that. It’s nothing that – that’s material. In terms of the – your comment on single-use plastics. So, we’re taking out straws out of the hotels, which is a good start. There is a lot of focus within the business on this and what we can do. What we want to make sure though and you’ll appreciate this knowing us is that in a number of hotels that we’ve got, if we say we’re going to do something, we know that it can be done operationally across all the hotels and that’s really important. So, there’s a number of things we’re talking to our owners about getting buy-in from them. We did launch our new breakfast product in Holiday Inn Express in the U.S. last year. It’s actually been very, very well received. It’s a step up in quality, which guests have appreciated. And in terms of what we can do to then make sure that everything is recyclable and we look at single-use plastics, it’s very much on the corporate agenda.

Okay. Thank you very much.

Thanks, Richard.

The next question is from Jaafar Mestari from Exane BNP Paribas. Go ahead.

This will be on RevPAR. The first one is, can you quantify the performance of Middle East and then South Korea individually, because for them to be almost 2 points impact on EMEA, they must be quite markedly negative, and also, I think you said Middle East is 5% of the region, how big is South Korea, please? And then on the U.S. RevPAR, you’re talking about an outperformance in your key categories. I guess Holiday Inn Express up 0.8% against mid-scale, upper mid-scale, I sort of see what you’re saying. But Crowne Plaza Americas down 1.5%, it doesn’t look like upscale was that bad in the quarter for the wider market, are you reading this as an outperformance as well?

Thanks, Jaafar. So, in terms of the questions on the RevPAR and what happened in South Korea, South Korea was negative 30% in the quarter, and EMEA was – so India, Middle East and Africa was negative about 2%, South Korea is a small part of the EMEA market. It’s only about 2%, but let’s say, it was significantly down, and so that has the weighting impact. And then in terms of the U.S. and in terms of upscale in Crowne Plaza, I mean, it does move around a little bit based on where you are located in the U.S. For example, if you’re more located into the Houston market, the Houston market was significantly negative in the first quarter and, for example, not in the San Francisco market, where Moscone came back on and then it does have a surprisingly large impact on the performance on the brand. So – because it is quite a small – it’s a small quarter with lower levels of demand, which then means you’ll see a bit of price fluctuations depending on what’s happening on the macro factors. So, I wouldn’t read too much into it.

Alright, thank you.

Thanks, Jaafar.

[Operator Instructions] We have no further questions today. So, I’ll hand back over to you, Heather.

Thanks, everybody, for dialing in, and thank you, Breka. So, any further questions, please as ever do follow up with us, and really appreciate you spending the time. Hopefully, we’ll see you all soon. Bye for now.

If you have missed any part of this call or you would like to hear it again, a recording will be ready shortly. Thank you for joining today’s call. Have a lovely day.