Morning Note: Market News and updates from IHG Group and Unilever.

Market News

The UK 10-year gilt yield has fallen back to 4.4%, its lowest level since mid-December, as weaker-than-expected CPI data fueled speculation of early interest rate cuts by the Bank of England. The market is now pricing in 70% probability of December cut. Headline inflation held steady at 3.8% in September, defying forecasts of an increase to 4%, with food price growth finally easing. Meanwhile, core inflation rate slipped to 3.5% from 3.6%, also below expectations of 3.7%. Although inflation remains nearly double Bank’s 2% target, the figures offered some relief for Chancellor Reeves.

Brent crude oil futures jumped more than 3% to above $64 per barrel, reaching a two-week high, following the US announcement of sanctions on key Russian oil companies. The US has banned state-owned giants Rosneft PJSC and Lukoil PJSC, in a move aimed at increasing pressure on the Kremlin over Moscow’s lack of commitment to peace in Ukraine. Shipments to major Indian refiners are expected to drop to almost zero following the restrictions, refinery executives said.

A second face-to-face Trump-Putin meeting was cancelled amid reports of differences in positions. Trade remains in focus with EU-China relations fracturing as Beijing's rare earth export restrictions impact European manufacturing. Several EU states now demand activating the bloc’s anti-coercion instrument, the nuclear option enabling sweeping tariffs, investment bans, and counter-export controls targeting China’s aviation and aerospace sectors. Gold remains volatile, although it has bounced off yesterday’s low to currently trade at $4,130 an ounce.

US equities last night – S&P 500 (-0.5%); Nasdaq (-0.9%) – after weak earnings results. Tesla slid post-market after quarterly profit missed estimates. In Asia this morning, equities were also down: Nikkei 225 (-1.3%); Hang Seng (-0.1%); Shanghai Composite (-0.7%). The FTSE 100 is currently up 0.1% at 9,526, while Sterling trades at $1.3355 and €1.1510.

Source: Bloomberg

Company News

InterContinental Hotels Group (IHG) has released Q3 results slightly ahead of the market expectation as growth across Europe and Middle East made up for weak performance in the US. The company remains on track to meet full-year consensus profit expectations and has continued with its share buyback programme. The group now intends to change the trading currency of its ordinary shares to US dollars. The shares have been strong over the long-term but have under-performed so far this year. They rose by 3% yesterday and in early trading this morning they are little changed.

IHG owns a portfolio of 20 attractive brands across all price tiers (including Crowne Plaza, InterContinental, Holiday Inn, and Six Senses) and has a strong operating system, both of which drive customer loyalty and pricing power. The group operates a highly scalable, asset-light model, based on franchising and management contracts, with low capital intensity and high returns. The model also means the group doesn’t own or bear the operational costs of running a hotel. The company is focused on delivering industry-leading net rooms growth over the medium term. It currently has a 4% global market share and a 10% share of the new room pipeline. At the end of September 2025, the global estate was just over a million rooms across 6,845 hotels, with 67% in midscale segments and 33% in upscale and luxury. Annual gross revenue generated by the group’s hotels is more than $33bn.

Long-term growth is being driven by a rising global middle class with a desire to travel. In the business market, IHG’s weighting is towards essential travel and non-urban markets. Last year, the group set out a financial framework for the medium to long term, targetting:

·       high single-digit percentage growth (i.e. 7%-9%) in fee revenue, through combination of RevPAR (revenue per available room, the key measure of industry performance) and system size growth, together with 100‑150bps of fee margin expansion, annually on average. This excludes the positive margin impact of the credit card business.

·       100% conversion of adjusted earnings into adjusted free cash flow, supporting investment in the business to optimise growth, sustainably growing the ordinary dividend and returning surplus capital.

·       12-15% adjusted EPS compound annual growth rate, including the assumption of ongoing share buybacks.

During the latest quarter, global revenue per available room (RevPAR) – the key measure of industry performance – only grew by 0.1%, albeit better than the small decline expected by the market. As anticipated, growth was similar to the prior quarter and leaves the year-to-date growth at 1.4%. Growth in occupancy – up 0.4 percentage points – was offset by a small decline in pricing, with average daily rate down 0.4%.

By sector, global rooms revenue on a comparable basis comprised of Business (+4%), offset by Leisure (-2%) and Groups (-4%). There is still a wide regional variation across the business.

·       In Americas (the group’s largest division), RevPAR was down 0.9%. The US was down 1.6% with continued slower trading conditions as President Trump’s trade policies raise concerns of pricier goods and higher living expense.

·       The EMEAA region grew by 2.8%, with particular strength in the Middle East (+9.8%).

·       Greater China RevPAR fell by 1.8%, a further sequential improvement on previous quarters. 

IHG continued to open new hotels and sign more rooms into its pipeline as owner demand for its world class brands continues to increase. 2025 is set to be one of the group’s biggest ever years for both openings and signings. During Q3, 14.5k rooms across 99 hotels were opened, up 17% YOY excluding NOVUM conversions added to IHG’s system.

Gross system growth was 7.2% year-on-year, while after removals, net system size growth was 4.4% year-on-year. Excluding the previously disclosed impact of removing rooms previously affiliated with The Venetian Resort Las Vegas, net growth was an impressive 5.2%. Demand for quick-to-market conversions to IHG’s brands continues to be high, representing more than half of openings. This is a big positive given the time to open is much shorter than with a new build.

IHG signed 22.6k rooms (170 hotels) in Q3, up 18%, in underlying terms excluding the acquisition of Ruby, a premium urban lifestyle brand with 30 hotels. This leaves a global pipeline of 342k rooms (2,316 hotels), up 4.7% year-on-year, and 34% of the current system size, providing good growth visibility. The group has announced today that a new premium collection brand will be launched in the coming months

The asset-light model means IHG has low investment requirements and a negative working capital cycle. The group operates a conservatively leveraged business model and maintains strong liquidity. At the last balance sheet date (30 June 2025), gearing was 2.7x net debt to EBITDA, in the middle of its 2.5x-3.0x target range. The group is returning surplus capital through share buybacks – $700m of a $900m programme has been completed to date. In addition, the half-year dividend has been raised by 10% to 58.6c.

On a prospective basis, given analyst consensus expectations for growth in EBITDA and cash generation in 2025, together with the buyback and the Ruby acquisition, leverage is still expected to end 2025 around the middle of the target range of 2.5-3.0x.

IHG intends to change the currency in which its ordinary shares are traded on the LSE from Sterling to US dollars, a move allowed whilst maintaining FTSE index inclusion. Changing the share price currency to match the group’s reporting currency will help reduce the translational impact of exchange rate fluctuations on the share price, therefore better aligning the share price to financial performance, and simplifying the investment appraisal of IHG. The change does not impact the nominal currency of IHG’s shares, which will remain in Sterling and does not impact IHG’s London listing in any other way and has no impact on IHG’s ADR listing in New York.

As an asset-light, fee-based, predominantly franchised business model, IHG has no material direct exposure to tariffs on the fees charged to and therefore the revenues received from hotel owners, or on the operating costs that IHG incurs. Clearly, however, periods of macro-economic uncertainty can lead have a broad impact on business and consumer confidence, which can in turn impact travel spending patterns.

Looking ahead, the company expects to finish 2025 in line with consensus profit and earnings expectations, and in line with its growth algorithm. The statement highlights that long-term structural drivers of both travel demand and supply remain compelling, and while near-term macro-economic challenges persist in some markets, others are showing improvement or sustained growth.

Source: Bloomberg

Unilever has today released Q3 results which were slightly better than market expectations. The company has reconfirmed its full-year outlook and in response the shares are little changed in early trading.

Unilever is one of the world’s leading suppliers of consumer goods, with annual sales of more than €60bn across five business groups: Beauty & Wellbeing (22% of 2024 sales), Personal Care (22%), Home Care (20%), Foods (22%), and Ice Cream (14%). Its products are low-ticket, repeatable purchases, with 3.4bn people using a Unilever brand every day. With unique routes to market, the company has an unrivalled emerging market presence and generates more than half of its sales from those parts of the world expected to experience strong long-term growth in demand. In particular, the group’s 62% holding in India-listed Hindustan Unilever Limited provides exposure to the largest consumer goods company in India.

The company is in the process of demerging its Ice Cream unit, The Magnum Ice Cream Company, a business that has distinct characteristics compared with Unilever’s other activities. While the preparatory work for the demerger remains on track, on Tuesday the group announced a revision to the timetable due to the ongoing US federal government shutdown. However, Unilever is still committed to and confident of implementing the demerger in 2025. Upon demerger, Unilever will retain a 19.9% stake in Magnum for up to five years.

Post the separation of Ice Cream, Unilever will be focused on four fairly equally-weighted Business Groups: Beauty & Wellbeing, Personal Care, Home Care, and Foods. Under the group’s Growth Action Plan (GAP) 2030, the Business Groups will be driven by 30 Power Brands (including Dove, Hellmann’s, and Domestos) that account for 78% of turnover and operate across 24 Business Group-led markets, which represent nearly 85% of turnover. The main focus will be generating more sales in the US, India, beauty sector, premium markets, and the e-commerce channel. The remaining 100+ smaller markets will be run on a ‘One Unilever’ basis to benefit from scale and simplicity, further enhancing the group’s focus.

The group’s productivity programme is expected to deliver cost savings of around €800m over the three years to end 2026, more than offsetting the estimated operational dis-synergies from the Ice Cream demerger. The programme is running ahead of plan and is expected to deliver an aggregate €650m of savings by the end 2025. For full year, the company now anticipates lower restructuring costs of around 1.2% of turnover.

The group will then aim to deliver mid-single digit underlying sales growth, supported by underlying volume growth of at least 2%. The company expects modest underlying operating margin improvement, driven by gross margin expansion through operating leverage and productivity improvements. The company is also targetting around 100% cash conversion over time and has a ROIC ambition in the high teens.

Back to today’s results. As expected, market conditions remain challenging. In the third quarter of 2025, turnover fell by 3.5% to €14.7bn. However, underlying sales growth (USG) – adjusted for the impact of currency headwinds (-6.1%) and net disposals (-1.3%) – was 3.9%. As expected, this was a step up from the 3.4% generated in the first half and ahead of the market forecast of 3.7%. Growth excluding the Ice Cream business was 4.0%.

Growth was driven by underlying price growth of 2.4%, while volume rose 1.5%, a sequential improvement. The 30 Power Brands, which account for 78% of revenue, grew by 4.4%, 1.7% from volume and 2.6% from price.

In emerging markets, USG was 4.1%. The company has seen a return to growth in Indonesia and China as the benefits of restructuring actions flow through. Developed markets grew by 3.7%.

All five businesses reported growth:

·       Beauty & Wellbeing (+5.1% USG to €3.2bn) – led by double-digit growth in Dove hair, Vaseline, Liquid I.V., Nutrafol, Hourglass, and K18.

·       Personal Care (+4.1% to €3.3bn) - as Dove’s premium innovations in both deodorants and skin cleansing continued to perform well. 

·       Home Care (+3.1% to €2.8bn) - supported by double-digit growth from Cif and Domestos.

·       Foods (3.4% to €3.1bn) - led by strong momentum in Hellmann’s.

·       Ice Cream (+3.7% to €2.3bn).

As this was only a sales update, other than the update on the productivity programme there is no detail in the statement on profitability or the group’s financial position. As a reminder, at the end of the first half, the group generated a gross margin of 45.7%, the highest in a decade, and an underlying operating margin of 19.3%. Free cash flow was €1.1bn, leaving June-end net debt at €26.4bn, 2.1x EBITDA and in line with guidance of around 2x. The quarterly dividend has been increased by 3% to €0.4528, although in Sterling terms it is up 7% at 39.28p.

The bolt-on M&A strategy will focus on premium assets in the beauty and personal care and well-being space, particularly in the US with potential to ‘travel’ internationally. The company is looking for digitally native brands that show superior functionality, strong clinical background, and strong presence in digital commerce. In June, the group spent $1.5bn on men’s personal care brand, Dr. Squatch which aims to expand Unilever’s portfolio in premium markets. Dr. Squatch, known for its natural, high-performance personal care products and innovative marketing strategies, has reached millions through its retail and direct-to-consumer model. However, given the group’s mixed M&A track record, this deal will be closely watched to see if its generates a positive shareholder return.

The group’s full-year outlook is unchanged and applies both including and excluding Ice Cream. Underlying sales growth is expected to be within the 3%-5% range. Second-half growth is expected to be ahead of the first half, despite subdued market conditions. This reflects continued strength in developed markets and improving performance in emerging markets. The group is still guiding to an improvement in underlying operating margin for the full year, with second half margins of at least 18.5% (19.5% excluding Ice Cream), a significant improvement versus the second half of 2024.

Looking at the potential impact of tariffs, we note that Unilever has over the years “near-shored” its US supply chains to the degree that “almost everything” it sells in the US is made locally. As a result, the company believes the direct impact of tariffs on its profitability will be limited and manageable.

Source: Bloomberg