Intercontinental Hotels Group (LSE:IHG) Q3 2026 Earnings Call

0:00 Good morning everyone and welcome to IHG Hotel and Resorts conference call covering the 2026 third quarter trading update. I'm Stuart Ford, Senior Vice President and Head of Investor Relations at IHG and I'm joined this morning by Elie Wajih 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 US law. Please 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, may I remind you that in order to ask questions, you will need to have registered using the details on page two of this morning's R&S release.

0:50 The release, together with the usual supplementary data pack for the third quarter, can be downloaded from the results and presentations section under the investors tab on isgplc.com. Now over to Elie.

1:03 Thank you, Stuart, and good morning, everyone. I will begin today's call by providing a brief overview of our global trading and development performance in the third quarter. I will then hand over to Michael to go through the performance in each of our three regions in more detail, and he will also cover the share buyback and financing updates. I will then provide some brief concluding remarks and we will open up the call for Q&A in about 15 minutes or so. Let me start by thanking our teams around the world for their hard work and dedication. We have delivered another strong performance with RFR growth accelerating in the third quarter and our development momentum continuing. The quarter once again demonstrated the benefits of ISG's strategic diversification across geographies and Stay Occasion.

1:55 Turning first to trading, Global Rev Bar grew by 5.3% in the third quarter, taking growth for the year to date to 4.6%. The U.S. performance was very strong, with growth across every brand, every demand driver, and every location type. This reflects the ongoing strength and breadth of the U.S. economy and of ISG's enterprise platforms. The ENEAA region also saw very good growth overall, particularly in Europe and East Asia Pacific. The wider Middle East subregion improved to broadly flat, though there were still declines in the GCC countries. And in recent weeks, there have been escalations of the conflict in the Kingdom of Saudi Arabia.

2:44 And we hope for a speedy and lasting resolution right across the region. In Greater China, Revbar eased in this last quarter, impacted by adverse weather and changes to public holiday timings. Revbar growth remains positive year-to-date, and we remain confident in the strength of the outlook. At a global level, both rate and occupancy contributed to the 5.3% Revbar growth, with average daily rate up 3.9% and occupancy increasing by 0.9 percentage points. By demand driver, rooms revenue on a comparable hotels basis was up 10% for groups, up 5% for leisure, and up 4% for business, further demonstrating the benefit of strategic diversification.

3:39 Turning to development activity, we expect 2026 to be another record year and the fifth straight year of accelerating net system growth. In the quarter, we opened 12,900 rooms across 92 hotels, taking our year-to-date total to almost 300 and expanding our global system to 7,200 hotels. Net system growth was 4.9% year-on-year. Among openings in the quarter, we celebrated our 1,000th opening in Europe and globally our 200th for Hotel Indigo and our 150th for BoCo. and there were plenty more opening debuts to new countries.

4:25 For example, the first vignette collection hotels into each of Spain, Germany and the Dominican Republic. We signed 21,100 rooms across 164 hotels in the quarter, almost twice the number of hotels we opened. With that momentum, year to date, signings have already topped 500 hotels. Our pipeline is more than 3% bigger than a year ago and equivalent to growth of 33% on our current system size. Development is split roughly evenly between new builds and conversions, the latter, of course, moving more quickly through the pipeline. Each of our collection and conversion-focused brands, VOCO, Vignette, Garner, and Noted Collection continue to expand around the world, demonstrating the breadth and attractiveness of our brand portfolio.

5:21 With that, let me now hand over to Michael to run through the regions in more detail for you.

5:28 Thanks, Elie. Starting with the Americas, where rep part growth accelerated to 6.8% in the third quarter, taking year-to-date growth to 5.6%. Rate grew by 3.9%. and occupancy increased by 2.1 percentage points to 73.9%. You have to go all the way back to 2017 for a higher level of occupancy. In the U.S., Red Park grew by 6.9% in the quarter and 5.4% year-to-date. The tail end of the FIFA World Cup in July added 40 basis points to the region's Red Park growth in the third quarter.

6:13 The quarter also had within it a small benefit from the timing of public holidays and events, which supported a further uptick in travel, rather than any sort of shift from the prior or following quarter. So aside from those small benefits, the vast majority of the strength of the performance in the U.S. is a reflection of the ongoing strength and breadth of the U.S. economy as we noted. That is also reflected in the growth of all three demand drivers. Roots was strongest with comparable rooms up 12% compared with 2025, followed by Leisure up 7% and Business up 6%.

6:58 Turning to development in the region, gross system growth was 3.6% year-on-year and net system growth was 2.1%. We opened 4,000 rooms across 39 hotels in the quarter, 1,300 rooms more than the same period last year. Notable openings included the Intercontinental Presidency Mexico Miana, the new flagship Crown Plaza in Times Square, New York, 11 Holiday Inn Expresses, and eight more Garner properties. Moving to signings in the quarter, we signed 5,700 rooms across 65 hotels. These included 24 hotels for the Holiday Inn brand family, 22 across our extended stay brands, and 14 across our conversion-focused brands.

7:49 Highlights included signing Intercontinental Bogota, further expanding the brand's presence to one of Latin America's most important gateway cities, as well as signings to take the BOCO brand into additional markets in Central America and the Caribbean. Moving on now to Europe, Middle East, Asia, and Africa region, where Repar grew by 5% in the third quarter, a significant improvement on the 0.6% growth in the prior quarter. This takes the region to 3.9% for the year to date. In Q3, rate grew by 4.1%, an occupancy increase by 0.6 percentage points to 75.5%.

8:35 Looking at the major geographic submarkets, Repar increased by 3% in the UK, 4% in continental Europe, and grew 8% in East Asia and Pacific. A number of other markets were even stronger, for example, India and Africa, both growing in the mid-teens. The Middle East improved to be broadly flat in Q3, having been 19% lower in Q2. Within this Q3 improvement, Egypt and Turkey performed strongly, though countries closest to the ongoing conflict continue to experience declines. Across the six GCC countries of KSA, the UAE, Qatar, Kuwait, Bahrain, and Oman, there was a rep-hard decline of 12% in Q3.

9:27 Turning to development in the EMEAA region, Grow System Growth was 7.1% year-on-year, and Net System Growth was 6%. We opened 3,600 rooms across 23 hotels in the quarter. We also signed 7,000 rooms across 47 hotels. These included 21 conversion deals and further signings for noted collections, which has already secured hotels in five countries since its launch in February. Elsewhere, we signed two further Vanette Collection properties in France, additional Kempton Hotels in Thailand and Italy, and a Ruby in Greece. Finally, moving on to Greater China, year-to-date repar has grown by 1%, although the third quarter it eased by 3%, with rate down 0.8% and occupancy decreasing by 1.6 percentage points to 62.3%.

10:28 A number of adverse weather events impacted domestic travel during the first two months of the quarter, while changes to public holiday timings supported more international outbound leisure travel in late September. However, we did capture the benefit of that outbound travel in EMEAA during the quarter. So these factors contributed to repart declining by 7.5% in Tier 2 to 4 cities, Tier 1 cities grew by 0.2%. There was very strong growth in Hong Kong and Taiwan. We continue to remain confident in the attractive long-term fundamentals of the greater China market, underpinned by strong economic development, a growing middle class, and the continued underpenetration of hotel rooms per capita.

11:22 Because of these strong fundamentals, development activity in the region remains excellent. Growth system growth was 12.1% year-on-year and net system growth was 10.3%. We opened 5,300 rooms across 30 hotels in the quarter, taking year-to-date openings to 20,500 rooms. A particular highlight was the opening of Holiday Inn Shanghai in the ECC, which brought the new Holiday Inn design to Shanghai and became our 90th hotel open in the city with a population of some 25 million. We signed 8,300 rooms across 52 hotels in the quarter including 20 Holiday Inn Express and 14 Holiday Inn properties. Increasing demand for conversions comprising both hotel rebranding and adaptive reuse projects have grown to represent approximately 40% of openings and signings in the year to date. A notable conversion example was the Harry Hotel in Hong Kong, which was both a signing and an opening within the quarter, and is part of a portfolio of three luxury hotels joining our vignette collection.

12:41 Moving on next to update you on the share buyback. We are currently 74% of the way through this year's $950 million program, with $707 million spent today and 4.7 million shares repurchased. This has reduced the total number of voting rights in the company by a further 3.1% to $147 million. Together with the $285 million of ordinary dividend payments, Thank you for joining us. In September, we issued €850 million a bond across two tranches, and following the maturity of a £350 million bond in the prior month, we now have $4.6 billion a bond outstanding and a blended cost of 5.1%.

14:03 The next scheduled maturity is the €500 million bond in May 2027. As previously described, our expected range for adjusted interest expense for 2026 remains $230 million to $240 million. Given the increase in our gross debt, as well as the modest increase in our blended borrowing weight following this year's refinancing activities, the adjusted interest expense expected to increase $40 to $60 million pre-tax in 2027. This is an expected feature of operating our growth algorithm, which includes returning surplus capital to shareholders and maintaining leverage within our target range as part of targeting EPS growth of 12% to 15% annually on average over the medium to long term.

15:01 To conclude then with some comments on consensus for this year, our strong performance and the continued positive outlook for demand gives us confidence in achieving consensus expectations for 2026. We would expect consensus to increase modestly further given the successful Q3 we are reporting today. Consensus, as it currently stands for the 2026 full year, is global red part of 3.5%. Thank you, Michael. And to wrap up,

16:01 RevPAR growth accelerated in the third quarter to 5.3%. Net system growth was 4.9%. We expect 2026 to be another record year for development activity in our fifth straight year of accelerating net system growth. And we are confident of achieving consensus expectations for the year, which would mark the third consecutive year of delivering adjusted EPS growth around the top end of our growth algorithm of 12% to 15% annually on average over the medium to long term. This once again shows the power of ISG's enterprise platform and the benefit of our scale and strategic diversification around the world. And with that, Michael and I would be happy to take your questions.

16:47 Operator, can we open up the lines and take the first question? Ladies and gentlemen, we will now begin the question and answer session. If you are dialed into the call and would like to ask a question, please signal by pressing star 1. We will pause for a moment to assemble the queue. And your first question comes from the line of Jamie Roller from Morgan Stanley. Your line is open.

17:11 Thanks. Morning, everyone. Three questions on net system growth, please. First, just on China, a very strong figure, again, 10%, but that was a bit of a slowdown. and many, many more. and then finally so looking into 2027 I know you don't guide but consensus I think is on 4.8% again for net system growth. I think DAF is not that number that should add about 70 basis points so do you think somewhere in the mid 5% is right for next year or is there any risk from that China question or indeed from the Middle East situation?

18:08 Thank you.

18:11 Okay. Thank you Jamie. So On China, we're very confident that we're going to keep building upon the record year upon record year of signings and openings that we have and strongman system size growth. We don't give guidance on exactly what the number will be for next year, but we don't see any indication that there's a slowdown in development. Our brands are in strong favor. Our signings are strong. Our hotels are performing. The market is expanding. We're delivering for owners over there. And our team is optimistic about continuing the current trend. We're not going to give you a number, but it's going to continue to be a very strong contributor, not just to our net unit growth, but also to our profitability.

19:05 I mean, you saw at the half year, our profitability was up 25%. So these are not just keys, but they're keys with fees in China. And we are confident in continuing that trajectory. We're confident in America's signings continuing to power our business. This will be the third year in a row of America's net system size growth accelerating from beyond the pandemic. We had a strong first half of the year. I think signings can be lumpy from time to time. We think we'll finish the year with good momentum, so We're confident in that momentum

19:46 over there. And year to date, we're up 7% on donnings in the Americas. So as Elie said, there can sometimes be some lumpiness there.

19:53 And, you know, for 27, you rightly include the Air Force deal. But setting that aside, I think we have good momentum going forward. We're doing, you know, This is our 50th in a row accelerating that system size growth. We think that momentum continues and Air Force will build on that. We're not putting a number out there for next year, but yes, we're very confident in consensus next year. We'd say that at that 4.8 number for next year, there's definitely more upside than downside. Very helpful. Thank you. Your next question comes from Jared Castle from UBS.

20:40 Your line is open.

20:42 Good morning, everyone. I'll go for three as well. You've just announced you've got over a thousand rooms in Europe, so just want to Get any views on what's been happening in Europe with the riots and how you see that impacting your business? It looks like potential for further protests, etc. coming up. So any color there, if you do have any color. Secondly, just again, I don't know if you want to say anything on fee triangulation between NUG and and Rev Par, I guess, Q3 would have again seen a bit of lag there. So just if there is any comments on the triangulation, I think probably we've spoken about it too much, but I'll ask that anyway.

21:30 And then Elie, Michael, just one looking a bit forward. I mean, it's the kind of time of year where you're talking to corporates about their travel plans for next year. Just getting an idea if you've got any color on what they're saying about Volumes of Corporate Travel and your indications potentially of what room rates will do across your network. Again, I don't know if you've got anything to add there. Thanks.

21:58 Sure. Thank you, Jared. Yeah, we're very proud of our teams growing our business in Europe. I mean, Europe is, the broader definition of Europe, including UK, is roughly 25% of global GDP per It's over 50% of global inbound travel. It punches way above its weight in inbound international travel. It will continue to do so. It has unequal destinations, culture, gastronomy, climate, geography, history, art, all the things that people come to Europe for. This year, it's going to be another record of Americans traveling to Europe despite higher airfares and higher temperatures and whatever.

22:45 It's just It's just a long-term trend of people, especially the more affluent, wanting to travel and wanting to travel to Europe. I think Europe is four out of the top six destinations in the world with the highest inbound travel. So that's not changing. And of course, we're growing with that trend. And we're growing a lot in Southern Europe, which is Portugal, Spain, Italy, Greece, all the way over to Turkey. There's a lot of demand for the Enterprise Strength that we bring for our brands, for the international travelers, especially U.S. travelers that we bring. I personally meet with a lot of the investors and owners in Europe that are delighted to see the performance. I just walked over with our board this week to our new VOCO in Bloomsbury conversion from another global brand and how delighted the owner and general manager were about the immediate and significant improvement in performance, rate, occupancy. I actually won awards, you know, Visitors, travelers, decrease in OTA, and we've already done multiple hotels, so we're going to do more.

23:50 So this is a trend in Europe, one of continued strong inbound travel, international travel. Number two, opportunity for conversion of not just independent, but other branded hotels to our brands, and expansion mostly, I would say, in Southern Europe. So we're very pleased with that. Look, we're Of course, disappointed with everybody to see some of the tensions in some cities, particularly in France. France is only 1% of our system size, so we hope and we think it'll pass, as it has passed before, by the way. It's not the first time there have been disturbances in France. We hope it's the last time, but it's not the first time, and it's passed before, and France continues to be one of the strongest, I think, number two destinations

24:45 In terms of fee triangulation, if you want me to take that one, Elie, as you know, as this is a trading update, we don't get into the finer details of the fee revenue triangulation. But as that said, as our review remains unchanged from the half-year result, and we should still expect Thank you for joining us. Newly opened hotels take some time to reach stabilized occupancy, room rates, and overall hotel revenue levels.

25:30 And most agreements also have some fee structures that step up over the first few years of the operation. And so as a result of all that, the full fee revenue contribution from recent openings only partially reflected initially, but builds up over time as the hotel matures and the fee structures progress. There will also always be some noise in any given period. This includes differences in liquidated damages, hotel renovations, or hotel closures. Of course, at the half-year, the triangulation included the impact of the war in the Middle East and the impact on our incentive management fees and things of that time. As we said at the time, neither of these should be viewed as permanent as recently hotels mature and contribute to a greater proportion in the period.

26:19 And so I think, you know, we still feel very comfortable that it's going to continue to narrow over time.

26:26 And it's driven mostly by our accelerating the system size growth 50 year in a row, which is a good thing to have. And I'm not eager for that to discontinue, by the way. So your question about business travel, look, it's been strong. Strong globally at 4%, stronger even in the Americas at 6%. That's a reflection on the strength of the U.S. economy. Look, what's happening in the U.S., you have strong corporate profits. S&P profits have been very strong, the up double-digit year to date. GDP growth over 2%. Employment's still at record levels. Corporate investment, not leaving aside government investment, but corporate investment in technology, data centers, energy, pharmaceuticals, manufacturing, construction. And then you have government investment, the defense.

27:15 All those sectors are growing, and we're very exposed to the industrial segments travel segments in the U.S. I would also look at our group business, which is up double digit, 10% globally, 12% in the Americas. Half of that business is also corporate travel, meetings, events, conferences. Your own research, I think at UBS, we looked at recently shows that 2027 expectations are nearly double digit higher for travel budgets. I think it was 9.9%, right, Jared? 9.9% expected growth Your next question, Consul-Liner of J&M History from Barclays. Your line is open. Good morning, Elie and Michael. I had three questions as well.

28:19 The first one is on FY27 annual interest guidance. It's very helpful that you quantified that. From where you sit today, does the wider algo of high single-digit fee growth, 10% EBIT growth and 12% to 15% EPS growth still hold for next year despite the increase in interest costs? Second question is around Key 4 specifically. The news flow around geopolitics and Saudi Arabia, France, the risk of protests in the wider European region. Are you seeing any cracks in demand there? Or is the booking curve slowing in any way in Q4? And then very last question on net unit growth. Really helpful comments earlier on Jamie's question.

29:06 I guess one of your peers last night lowered their net unit growth guide for this year. It sounded like they were flagging higher interest rates, fewer transactions, and that kind of impacting conversions. Can you say a few words on why you at IHG feel so confident this year and next year, and maybe why you're less impacted from the higher rates business than maybe some of your peers? Thank you.

29:34 All right. Michael will take the first question on interest, but the quick answer is Yes, the algo still holds. Over to you, Michael.

29:45 Yeah, I mean, well, let's just take a step back and remember that the growth algorithm we laid out in February of 2024. And as Elie said, there is no change to the 12 to 15% earnings pressure guidance in the algo. And through this algo, you know, we aim to deliver high single digit fee revenue growth per annum on average over the medium to long term. And we do this through a combination of rev par and system growth. Given the highly scalable nature of our business model, we expect this high single digit fee revenue growth to translate into approximately 10% EBIT growth per annum on average. As our business continues to grow and compound, we generate more and more cash each year, which we then allocate first towards reinvesting in the business and driving future growth, then second towards sustainably growing the ordinary dividend and then third, returning surplus cash to shareholders in the form of buybacks. And importantly, while maintaining net debt to EBITDA in our two and a half to three times leverage range.

30:51 So as a business, we continue to grow and as we continue to lever on our growth algorithm and as we aim to keep leverage in the target range, our overall debt balance and interest will grow each year. This is more than offset, however, by increasing in debt and cash flow and then returning capital to shareholders via the share buyback as we replace higher cost equity with lower cost debt. So while we've said in the stock exchange this morning that we expect our adjusted net interest expense to increase between 40 and 60 million pre-tax next year, it is also important to remember that this assumes another year of growing the business and executing on our growth algorithm which aims to deliver that 12% to 15% adjusted earnings per share growth per annum on average over the medium to long term. While most analysts have appropriately noted an expectation of further buyback in 2027, I think consensus as it sits today is around $980 million, which is in line with our growth algorithm and balance sheet targets. Consensus also needs to reflect the interest costs and the assumed reduction in the share count in order for this to be appropriately reflected in the ALGO. And that's why we gave out that interest expense number today.

32:15 But I think it's important to put it in the context of everything else that's going on. And as we said, there is no change to that 12 to 15% earnings per share guidance in the ALGO.

32:26 No, I mean, Red Bar grows, fees grow. EBIT grows, cash flow grows. That allows us to invest in the business, also do more buybacks. That has to also keep us within, staying within our leverage ratio also means leverage grows. Therefore, interest grows, but it's all within the algo of 12% to 15%. Your second question on Q4. Well, we're in Q4. We don't get guidance. What we did say, and what we're saying clearly today is we're Confident in consensus and that we can see consensus moving up a little bit given the strong performance we've had here to date and especially in Q3 with the strong ref park. And we're comfortable with that too.

33:16 So that's about all the guidance we're going to give about Q4. Sure, look, there are disturbances around the world. Of course, the Middle East conflict hasn't resolved yet. It is not. at the level of tension that it was in March or April, but it's not resolved yet. If it gets resolved sooner, that's better, but it's only 5% of our business, and if it doesn't get resolved as soon, we're still happy that 95% of our business is doing very well and making up for it in the near term. We're highly confident that as soon as there's a resolution, the Middle East will continue, go back to its trajectory, of growth and success. It bounces back very quickly. You already saw that in this year, in the third quarter. As soon as there's a little bit of resolution, the business bounces back very quickly, and we're confident that will happen.

34:08 You might have seen the news in the last day or two that there's already more oil coming out of the Gulf now than there was before the conflict. So while there is still some tension, there are ways to also continue the economy around the world Despite the tensions. So I think there are workarounds that are resolving some of the issues. So we are confident in the fourth quarter globally, despite, you know, there are some tensions in some parts of the world. And on Q4, we are not by any means a read across to what you might have heard last night from some other hotel company. and it's not always a read across right there are other hotel companies earlier this year that downgraded their net unit growth and we've actually been upgrading it we started I think consensus was 4.2 at the beginning of the year and now it's 4.8 so well maybe others have been downgrading ours has been upgrading and we're confident in in where consensus is today we're We feel underpinned at that consensus and we're not putting a ceiling on it.

35:26 We feel like our teams are working very hard throughout the end of the year to open up every one of the many hotels we have in pipeline. So we're not putting a ceiling on it.

35:38 The other side is we go into 2027. We have great visibility into the progression of our pipeline and especially now that you have more conversions in that pipeline. So that gives us confidence that 27 can continue to accelerate, but that's also then underpinned by the Air Force and what we're doing with the Air Force. Now, we don't know exactly how all those are going to come in and when they're going to come in and all those rooms, and how many rooms that's going to be, which is why we haven't given you the clear numbers on that. But we will when all that gets finalized. That's what gives us confidence on, you know, where we sit today, both on 26 and 27.

36:46 you start to see some selectivity owners start to move to the stronger performing brands like ours that's why you see our conversions continue to increase now roughly half of our openings and half of our signings around the world and more than half of our openings in the US are from conversions we're converting from independent we're converting from other brands so there are winners and losers in these times and we are definitely feeling on the winner side of it we have More conversion brands. We're assigning more conversions. We're opening up more conversions. Most of them are coming from other brands in the US and around the world. You can call it a flight to quality in these times, but we think we're benefiting from it. Very clear. Thank you.

37:34 Your next question comes from the line of Leo Carrington from Citi.

37:37 Your line is open. Good morning. Thank you. If I could first ask, just on the Americas region, you highlighted the strong growth in groups. I mean, given your visibility for this demand type is potentially better than others, is there any reason to expect that this kind of outperformance won't persist into the rest of Q4 and also Q1? Secondly, in the quarter, I noted in the trade press a few larger signings or a few signings of hotel groups like in Australia and Japan for you and a small amount of vignettes. Is this a normal tempo that I've just picked up on or has there been an acceleration in these kinds of opportunities?

38:29 And then lastly, away from the quarter, can you just Give an update on how the Noted Collection brand has been received among owners. I can see it now in your pipeline, and I suppose you've had almost a year out in the market with this. Thank you.

38:44 I'm going to start from your last question. Yeah, we're very pleased with the reception for Noted Collection. We're getting the first signings. We've got a lot of interest. I don't think it's been a year. We launched it this year. I don't think it's been anywhere near a year and we're pleased with the momentum that it's having. Look, all of our conversion brands have really reached rapid success. I mean, you look at, Noda's already got half a dozen signings and a couple of openings. You look at, you know, at Vignette, we've got over 88 hotels open and under development.

39:31 In just a few years, Garner is over 230 hotels open under development, way ahead of our projections in over a dozen countries. BoCo, nearly 300 hotels open under development around the world, well ahead of our projections when we launched it. So our collection and conversion brands have been successful. That's given us the confidence and following owner demand, the launch noted so. it's we haven't taken it to the U.S. yet it will be there at some point but it's in Europe and it's moving east from Europe where there are even greater conversion opportunities so we feel confident about the trajectory that it will have consistent with the success of our previous and successful collection and conversion brands.

40:17 On our signings look yeah we're pleased that year to date it's another year of signings acceleration year to date we're ahead of last year when you adjust for the ruby Michael Glover, Jolie Fleming, Strong REVPAR performance is something they really appreciate too. That's driven by the strength of our enterprise. Yes, our markets have been favorable in general, except for a few that we've discussed.

41:06 But I think we're outperforming the market and delivering strong revenues at low cost of distribution to our owners that they benefit from. So our whole enterprise is creating value for owners and they respond by partnering more with us for growth.

41:23 I can maybe just talk a little bit about groups. As we look at groups, obviously we've had an incredible performance, and I think over our past periods, we've talked about how group performance on the books has been really strong. As we sit here today, if we really look on a total basis for revenue on the books, we do have a little more visibility with groups. It's still up mid-single digits, so it still looks like groups are going to continue to come in, feel really good. around that, and really that's across the board and across all regions. So, yeah, we're feeling really good around how groups are coming in.

42:03 Thank you, Michael. Thank you, Elie. Your next question comes from Alex Prignall from Rothschild & Co. Red Band. Your line is open. Morning.

42:14 Thanks so much for taking the questions. I'll do three. The first one I'll do is Muse, just because I'm astonished no one's asked it so far. A few travel companies and other wider companies have blocked it on fears of sort of, you know, the idea that it goes and just tries to find you the cheapest option and keeps checking for you. How would you kind of think about agents to sort of self-book out and how you might work with them? Thank you. And then the second two, on similar issues, in terms of key money expectations so you don't give full quarterly results so is there any change in where you are for this year and then for next year how should we think about modeling key money and then in terms of what you've talked about in terms of this ramp up in contract signings and NUG can you just talk to us about the proportion of contracts or new signings on which you've offered ratcheting contracts because I think that that's the That's the piece where the royalty rate change is coming from. If you can talk about what proportion of contracts had ratchets in them previously and where that is now, because that might help with the modeling.

43:29 Thank you.

43:32 Okay. On Muse, look, we're in conversations with all the platforms, the hyperscalers, the platforms the frontier models as this and we have our own of course artificial intelligence strategy and and models and agents and you know on our website our app we already have conversational search so we're in conversations with everybody we're in conversations with Meta we haven't come to any conclusions on what an eventual collaboration could look like if any I think what others have decided to do is really down to them but we don't have really an update on that I'll tell you one thing is we're very confident in our artificial intelligence strategy to make sure that our channels are the preferred ones for our travelers, for our guests, for our issue and award members, that we continue to take share of bookings for our direct channels while working with other players, other distribution partners, because we've always said that for the hundreds of millions of bookings that we need every year to drive the best ref power and the best yield for our properties, Thank you for joining us.

45:05 that we aim to do in our growth algorithm.

45:07 Just to be clear on those numbers, Alex, I mean, we've said 200 to 250 for this year and we'll continue that guidance for 2027 and up to 350 million in capital. And as I always says, no change to that for either year.

45:21 On the ratchets, as you call them, it's not a term I'm most familiar with, but let's use that one. There's nothing new there. I joined the company in 2015. We did these fee ramps for new opening hotels so that there'd be some glide path as occupancy starts from zero and builds up for a couple of years. There's nothing new there. And so we will not disclose for competitive reasons. I'm sure you'll understand exactly how many deals we do in what form. It would be inappropriate for us to do so, but it's no more, no less than where you used to be. And it's There's nothing new there. We brought it forward in the last few periods of discussions to explain how when we are opening up more hotels, when our net system size growth is accelerating for the fifth year in a row, that is one feature, not the biggest feature.

46:23 The biggest feature is the revenue ramp up in hotels. But that is another feature that can create that deferral of fees. in what's called the triangulation. They're not fees that are lost or anything. It's just a deferral as the hotels ramps up. But the introduction and deployment of these ratchets or fee ramps, as we call them, are nothing new, nothing greater, nothing less than they've been for over a decade and probably longer because I only joined 11 years ago. Thank you, Alex.

46:53 Brilliant. Thank you so much, guys.

46:55 We look forward to having you join us with our senior leaders meeting here next week.

47:01 I'm looking forward to it. Your next question comes from the line of Kate Zhao from Bank of America. Your line is open.

47:12 Good morning. Thank you very much for taking my questions. I also have three. The first one, can I just confirm on your commentary on EPS? Obviously, you said you're very confident in achieving this year's consensus EPS. You also mentioned that the better REF PAR should lead to a bit of uptick in EBIT numbers flow through Can I just confirm that that should also flow through to EPS, hence there could be a bit of upside to consensus EPS numbers as well? Is that understanding correct? The second question is on NUG. Obviously, you've done 3.3% year-to-date, which is 20 basis points better than last year. Any seasonality in particular for this year you could share with us, especially into 4Q Anything that could be positive or negative on a year-on-year basis, any color there would be appreciated Question number three is on credit cards A couple weeks ago we saw the announcement from Chase that they are launching a new card with you guys And I think that's the highest annual fee card And if I'm not mistaken, they're raising the annual fee for your existing cards as well I just wonder if that's something that's already kind of in your plan, in your 10-year agreement with them, or was that based on kind of your performance, hence could be incremental to your guide of $120 million by 2028?

48:35 And what's your expectation of the first year ramp of these cars and programs and spending? Thank you very much.

48:41 All right, Kate. Thank you for your questions. I'll turn it over to Michael for your EPS questions and I'll take Nug and credit card.

48:57 Okay, so yeah, sorry, I thought you were going to do the credit card first. On the earnings per share question, yes, absolutely. We've actually talked about where consensus sits today, you know, and we've given an indication that we could see in my prepared remarks some improvement in that given kind of where full year rep our consensus sits and what we've delivered today. If you look at where consensus for profit sits, it's at what $1,403,000,000. Obviously, there was a Q3 rep our beat. We feel like that will continue to flow through. And then, of course, that flows through into earnings per share as well as we could see that tick a little bit higher. And certainly, we've talked about 2027 and the interest cost, but the that also, remember, as we plan for that and we look at what interest costs comes into, it also assumes some rolling share buybacks.

49:55 And of course, therefore, your YNOS will also continue to reduce and earnings per share will accrete on top of that. And remember, importantly, leverage stays the same. We're not re-levering this business to do that. It stays in that two and a half to three times range.

50:12 Thank you, Michael. So your question on that unit growth of for this fourth quarter in this year. I mean, first I start by saying, look, we're very pleased that this year, 2026, will be another record year of development and the fifth straight year of accelerating our net system size growth. That's what we're trying to do is be consistent, grow our system growth sustainably, keys with fees, and do the right deals to get the right growth that drives the algorithm. It's keys with fees that drive the algorithm, so they're driving EBIT and eventually driving EPS. At Q3, we were at 4.9, as you know, 3.3 year to date. So last year, at the same time, we were at 3.1. So we're growing faster and we're already on a stronger track.

50:59 Consensus, as I mentioned earlier, has already moved from 4.2 to 4.8. So we're going upwards in expectation, not downwards as others may have been noting. Q4 is always our biggest openings quarter proportionally. and this year is headed for another typical strong quarter of openings. We don't need to do anything extraordinary in Q4 to reach consensus or even go ahead of consensus. It just needs to be and it's shaping up as a strong quarter of openings proportionally similar to other years. So we're confident that this underpins the current consensus and we're not placing a ceiling on it, as I said earlier. Our teams are out there pushing for every hotel, for every room, working with every owner to get quality hotels open by December 31st.

51:45 and we feel very good about it. Underpinning the future also are strong signings that are ahead of last year, strong openings that are ahead of last year and that gives us continued confidence and our momentum to accelerate net system size growth. On the credit card, it's been a successful launch altogether since we entered into new agreement with Chase and MasterCard a couple years ago. Expanding our credit card portfolio has have been on our roadmap, and not just in tiers of cards as this new select card is, but also across countries. We're now in the UK with a debit card. We announced a deal in Japan with a credit card.

52:30 There will be other launches in other countries. Yeah, the new IG1 Awards Premier Select Credit Card has gotten off to a great start. It's a $350 annual fee. It is already... getting strong initial customer interest. It's performing much better than we expected in the proportion of card selection among people who are signing up for HG One Rewards co-brand cards. I personally just got approved yesterday. It was probably a close call, but I got through. And I would not characterize this as anything new in our strategy. We always plan to expand the credit card portfolio geographically and by tier. But as we premiumize ICH1 awards, as our portfolio goes further into luxury and lifestyle, as we enroll more high spending customers, there's more demand for higher benefit cards that also sometimes come with a higher fee and we're very pleased with its initial uptake.

53:40 Thank you, Kate.

53:42 We can go to the next question. Your next question comes from the line of Estelle Weingart from JPM. Your line is open.

53:51 Hi, good morning. I've got two questions. The first one, are you worried about where airfares are heading, which in the context of all the geopolitical tensions and inflation not easing could weigh on the consumer going forward? And just another question on China, talking about the rest of the world, you mentioned weather and holiday timing. I guess it's not easy to quantify, but should we expect rest part to return to a more sort of flattish to slightly passive territory in Q4? And how do you see China evolving into next year? Thank you.

54:24 Thank you, Estelle. Okay. You know, airfares can be volatile. A lot of the airfare increases are related to the oil price increases. And so the bad news is that the airfares are up for airlines and for travelers, perhaps. But the good news is that it's from what we would consider a visible and temporary factor. When we see resolution to this conflict, and we'd hope that there will be resolution since this conflict, you'll see the airfares You'll see the oil price come back down. There's already, as I mentioned earlier, improving oil supply. And then when the conflict subsides, you probably will see lower oil prices, which will lead to lower airfares. And so there's nothing structural about the higher oil prices. It's conflict caused.

55:29 And so we think that that reverses at some point. The more important thing is that we are not as exposed to airfares as you would think. Most of our travel at ISG is domestic travel, is drive-to travel. Most of our travel in the U.S., 95% of our travel in the U.S. is domestic. Most of that is drive-to. A lot of our travel in Europe is drive-to travel. Over probably 90% of our travel in China is domestic. A lot of that is drive and train. So yeah, air travel is part of it, but it's not the majority part of it. The other thing is that the travelers have shown a lot of resilience to these higher airfares.

56:15 Despite the fact that they've been higher, you know, demand has been very strong. I was just talking to the CEO of a U.S. airline, I won't name who, and they said, and many of them probably are in the same place, but this one CEO of one of the major four airlines was saying, it's going to be a record year in demand, a record year in revenue. People are paying for the fares. It's the oil price that might affect their results differently. And that's what they're saying publicly, that demand is strong. Front cabin, back cabin demand is strong. We don't see that being a long term issue because what's causing the higher airfares is a short term issue with the conflict. And we're not as exposed to that as destinations and maybe groups that are much more indexed to air travel than we are.

57:02 We're much more indexed to domestic and non-air travel customers. On China, Yeah, we're confident. One, not just in the long term in China, but also that some of the anomalies of Q3 will reverse in Q4. We're not giving guidance on what Q4 could be, but it's shaping up as a better quarter than Q3 was, definitely. And we see no scenario under which we're not in positive REF PAR territory for the full year in China. Beyond that, the fundamentals are strong in China. I know not all the headlines are as positive as they can be, but if you look at things in totality in China, it's still a GDP growing at 4-5%.

57:50 They announced last week record exports again. Strong technology industry, probably only rivaled by the US, whether it's in artificial intelligence, renewables, batteries, automotive, electric vehicles. Not every sector is doing very well in China, but many sectors are. You have a growing middle class with a population that isn't growing, but GDP is growing. GDP per capita is growing. That means the middle class is growing and travel is growing. We are, in China, we are double digits ahead in domestic travel in 2019 already by 2025. Not even 2026, that's 2025. We are double digits ahead in international travel in 2025 and even more in 2026. Thank you for joining us.

59:04 and investment in the future. China will be the largest domestic and international travel market in the world at some point. It's already number two or three in international outbound and it feeds the rest of our network, whether Southeast Asia, Middle East, Europe, not so much the US today, but the rest of the world, yes. So it is an important market for us, not just in China for China, but in China for the rest of the network.

59:29 Thank you. As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced. That is star one to ask a question. And your next question comes from the line of Tim Barrett from Deutsche Bank. Your line is open.

59:47 Hi, both of you. I had a couple of things left, please. Just going back to that refinancing balance sheet question, I guess what wasn't asked was the strategy behind the bond issue and your strategy. Clearly, a bigger business means more net debt, but I guess, why did you go so early on the refinancing? And does that mean there's just some dual running in the new guidance? And then second question, Continental Europe, we haven't talked about very much. It looks like you've lagged STR a little bit in Continental Europe. So I just wondered if you could give some color on your exposure there. Thanks very much.

1:00:24 Yeah, I'll take the refinancing question. Yeah, we did refinance those bonds yesterday. earlier this year now that we do that in advance to de-risk some of the payments as we go into 2027. We have done that as a practice for the past several years. We also look at kind of where EBITDA is and where we want to and the kind of leverage we want to maintain. And so, you know, We had a really a great result, great interest in the bonds and also pretty much a great timing. Our next bond comes due in May of 2027, which will obviously use the proceeds of the bond as we do that. The carrying cost in the short term is pretty narrow because you have the cash And then, of course, as we go in, we use that in next year to fund all the different things we talked about, including share buybacks and repaying expiring bonds as well. So, yeah, it puts us in a, you know, we're well placed as we look at this year. We're, you know, heading to be in the low end of our net debt to EBITDA range.

1:01:41 And then as we get into 2027, you know, we're in good shape as well. So I think we're, you know, we've done a good job there and our balance sheet is really strong at this point.

1:01:53 Michael, on your question about continental Europe. So, look, we're very pleased with our performance in continental Europe. I mean, REF are up in Q3 at 3.8%, year-to-date at 3.7%, reflecting the strength of international inbound into Europe. I think you must be comparing, you may be comparing our results to STR Europe data, which I believe includes Turkey. We did very well in Turkey, but for us, Turkey is in the Middle East. When we looked at our Middle East results, which we said improved to broadly flat, we did very well in Turkey, which helped improve to broadly flat in the Middle East, despite the GCC being down double-digit.

1:02:41 We benefited from a strong season there, but that counted somewhere else. But I think in like-for-like in Europe, we're very pleased with our performance and believe it's very competitive.

1:02:55 Okay, makes sense. Thank you both. Your next question comes from Simon Lechepe from Jefferies. Your line is open.

1:03:05 Yes, good morning. Two questions, please, on Middle East. First of all, we are hearing that many hotels are cutting rates in order to protect the volumes. So how do you feel about that?

1:03:17 Excuse me, Simon. Can you speak up more closely? We're not picking up everything you're saying.

1:03:26 Okay, sorry, hopefully that's much better now. We are hearing that many hotels in the Middle East are cutting rates in order to protect volumes. So how do you feel about that and what would be your thoughts in terms of potential recovery and how long it can take for AFP to recover to a given rate being cut? And certainly just on the pipeline in Saudi, can you remind us of your exposure to the country. I have eight persons in mind, but you can call them or rectify. And given the recent attacks, do you see a risk in terms of opening but also in terms of signing of new projects for the coming hotels? Thank you.

1:04:11 Okay. On... I mean, look, the... Market, as we said, in the Middle East and the GCC, I think that's probably where you're most focused on. We said it was double digit down in Q3. And given the recent escalations, probably could continue to be down until until things get resolved. But it's very resilient. And I think the rates will just follow. You know, when when demand is down, you're going to see some hotels and we don't set the rates for hotels, as you know. We make great recommendations, but every property sets its own rates. They're going to compete in the best way they can.

1:04:57 But we're pleased with how our hotels are competing in the market. Actually, looking at our market share, our revenue index, penetration index has been very strong in the region. And we're competing very well. But you're going to see it's dynamic pricing. They'll price appropriately to draw in more demand when demand is softer as it is now and price up when demand comes back. It's It's what they need to be doing to capture the share that they need within a certain market environment. So we think that the market is behaving rationally and economically at this point in the region. Our pipeline in Saudi is something we're very proud of. We've been growing our business in Saudi. I think it will continue to grow. Of course, there are going to be probably some delays to some projects.

1:05:43 We are not aware of any cancellations right now in the market. I'm going to be actually in the region later next week meeting with partners. And we are interestingly still in serious conversations on many new projects, many new deals that we hope to be announcing and concluding soon. So it really hasn't come to a standstill as some people would think. It continues to grow. There could be some delays in some projects, but we're confident that all of our projects As a reminder, if you wish to ask a question, please press star followed by one on your telephone and wait for your name to be announced.

1:06:34 And your next question comes from BNP Paribas. The line is open. Hi, good morning. I have three, if that's all right. Sorry to labor the point on EPS, but I see EPS of 579 cents in your company compiled consensus, which is already above 15% gross. So I just wanted to clarify when you say towards the top end of 12 to 15, do you mean 16 and a half? Otherwise, it seems in line. Related to that, and I promise there's a more interesting question after that. Related to that, on the net finance cost guidance for 27, as you correctly said in your prepared remarks, this is a feature of the model.

1:07:19 This is what you do every year, literally for the last three years in exactly the same format. You give us a number for the buyback, but you also tell us how much the finance costs are going to increase. The refinancing, if anything, has been exactly the same timing as in the previous three years. So I'm very curious what led you to do this ad hoc update in October because you usually wait for February and give us both parts of the equation at the same time. How big is the buyback but also where are the finance costs going? Do you think it's a bit bigger than usually? Do you think consensus is a bit ahead of itself this year for example? And lastly, just in terms of the room openings, the brands that the group has been launching organically have had very good traction, started by your predecessor, but then more under the current team.

1:08:14 If I take all of them together, about a third of your openings are, you know, Garner, Voco, Vignette, etc. They're less than 20% of your pipeline. and I know some of them are reliant on openings, so the pipeline may understate the growth potential. But yeah, just curious if those can continue to ramp up. Some of them would look like they are starting to plateau, not the most recent ones, obviously. Do you need to launch more? Do you see new segments where you can fill the remaining gaps in your portfolio, please?

1:08:48 Yeah. Thanks, Jamar. I'll take the earnings for sure question. Yeah, the current consensus sits at 5.79%. and what we've been consistently saying is that should tick up a bit as Repar gets funneled through all the models is most the consensus Repar is kind of below where we feel like the full year will come in. You know, certainly as folks put that through their models and then we would expect EBIT to come down to that. And we haven't indicated a very large increase in earnings per share, but that would That additional earnings that come through would flow through into earnings per share. And then as we look at the timing of why we announced the additional interest expense, we probably were maybe a little late last year in doing that. And we have visibility of how that's going to come in. If we look at where consensus sits today, it's almost for 27, almost at the same level. Thank you.

1:09:49 My question about the growth of our conversion brands.

1:10:17 and I think what you have to keep in mind is first they're all doing very well and I went through the statistics earlier so I won't belabor them but they're all have very strong pipelines but what happens with many conversion brands and conversion deals is they come in and come out of the pipeline very quickly I mean some not many but some don't ever hit the pipeline because we sign them and they're in such good condition they'll open up in that quarter the I think the Garner in Shanghai, the first Garner in Shanghai, signed and opened in that quarter because it had just been opened as another brand. It just was a brand new hotel, really. And so it never hit the pipeline. So you will see the opening, but you don't see it in the pipeline. And therefore, you might get that impression that there's not enough in pipeline. But in general, many, many of them will open within the year.

1:11:12 They will sign and open within the year. And so from beginning year to end of year, They won't be reflected in the pipeline at the end of the year, but you'll see the opening. But that's actually not a bug. That's the feature. That's a feature of conversion and collection brands is they're quicker to open, and therefore you won't get the same much higher pipeline than openings feature, which you do with new build. Now, yes, it's nice about new build because you see the pipeline growing, but it takes more years for them to open and more years for the fees to come through. Conversions are solving for different issues. for properties that are in very good condition that can join IC1 Awards without having to adapt completely to one of our hard brands, to one of our much more prescriptive brands, but that can also open more quickly, require less investment, and bring fees faster to us and performance quicker to the owner.

1:12:06 So it is not sort of a distortion. It is more of a feature that you may not build up the same pipeline because they're opening up more quickly and not staying in the pipeline as long.

1:12:21 Thank you. There are no further questions on the conference line. I want to hand back to Elie Wajih Maalouf for closing remarks.

1:12:33 Thank you, everybody. Many thanks to everybody on the call. And to remind you that our fourth quarter update and financial results for the 2026 financial year will be announced on Tuesday, 23rd of February 2027. Thank you all and goodbye.