20-F 1 d286710d20f.htm 20-F 20-F
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-10409

 

 

InterContinental Hotels Group PLC

(Exact name of registrant as specified in its charter)

 

 

England and Wales

(Jurisdiction of incorporation or organization)

Broadwater Park,

Denham, Buckinghamshire UB9 5HR

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares   New York Stock Exchange
Ordinary Shares of 18 318/329 pence each   New York Stock Exchange*

 

 

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Ordinary Shares of 18 318/329 pence each   197,517,380

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ☑    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:    Yes  ☐    No  ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ☑   Accelerated filer  ☐    Non-accelerated filer  ☐   Smaller reporting company  ☐
     (Do not check if a smaller reporting company)  

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 ☐      Item 18 ☑

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes            ☐                     No            ☑

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP  ☐

  

International Reporting Standards as issued by

the International Standards Accounting Board  ☑

   Other  ☐

 

 

 


Table of Contents

LOGO


Table of Contents

Contents

 

Strategic Report

2

  IHG at a glance

4

  Chairman’s statement

6

  Chief Executive Officer’s review

8

  Industry overview

10

  Our preferred brands

12

  Our business model

14

  Our strategy for high-quality growth

16

  Our Winning Model in action: executing our strategy

18

  Doing business responsibly

20

  Risk management

22

  Viability statement

23

  Key performance indicators (KPIs)

26

  Performance

26

  Key performance measures (including Non-GAAP measures) used by management

27

  Group

30

  Regional highlights

31

  The Americas

34

  Europe

37

  Asia, Middle East and Africa (AMEA)

40

  Greater China

Governance

48

  Chairman’s overview

49

  Corporate Governance

49

  Our Board and Committee governance structure

50

  Our Board of Directors

52

  Our Executive Committee

54

  Board meetings

55

  Director induction, training and development

55

  Board effectiveness evaluation

56

  Engagement with shareholders

57

  Audit Committee Report

60

  Corporate Responsibility Committee Report

61

  Nomination Committee Report

62

  Statement of compliance with the UK Corporate Governance Code

64

  Directors’ Remuneration Report

Group Financial Statements

84

  Statement of Directors’ Responsibilities

90

  Independent Auditor’s US Report

91

  Group Financial Statements

98

  Accounting policies

106

  Notes to the Group Financial Statements

Additional Information

156

  Other financial information

160

  Directors’ Report

164

  Group information

173

  Shareholder information

181

  Exhibits

182

  Form 20-F cross-reference guide

184

  Glossary

186

  Useful information

188

  Forward-looking statements

The Strategic Report on pages 2 to 45 was approved by the Board on 20 February 2016.

George Turner, Company Secretary

LOGO

 

 

 

 

              IHG  Annual Report and Form 20-F 2016         Strategic Report


Table of Contents

LOGO

 

 
Contents        IHG Annual Report and Form 20-F 2016                1


Table of Contents

IHG at a glance

 

      

 

 

We have a diverse portfolio of differentiated brands that are well known and loved by millions of guests around the world. Whatever their needs, we have the right hotel brands for both our guests and owners.

 

We are focused on strengthening our portfolio of preferred brands, building and leveraging scale, and delivering revenue to our hotels through the lowest-cost, direct channels. Our proposition to third-party hotel owners    is highly competitive and drives superior returns for them. We execute an asset-light strategy with a focus on the most attractive, high-growth markets and industry segments. We take a disciplined approach to capital     allocation, investing for the future growth of our brands. This enables us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.

 

 

    OUR BRANDS

          

 

FINANCIAL HIGHLIGHTS

 

   
 

 

LOGO

 

Live the InterContinental Life

 

 

 

LOGO

 

A different way to stay

 

 

 

LOGO

 

Making travel inspiring

 

        

 

Group revenue

 

$1,715m (-4.9%)

2015: $1,803m

    

 

Group operating profit

$678m (-54.8%)

2015: $1,499m

    

 

Group operating profit before exceptional items

$707m (+4.0%)

2015: $680m

    

 

Total gross revenue in IHG’s System 

$24.5bn (+2.1%)

2015: $24.0bn

    

 

Total underlying operating profit growth 

$61m (+9.5%)

2015: $67m

    

 

Revenue per available room (RevPAR) growth

+1.8%

2015: +4.4%

    

 

Underlying fee revenue growth

+4.4%

2015: +7.7% (excluding growth arising from the acquisition of Kimpton Hotels & Restaurants) Driven by: +1.8% (2015: 4.4%) RevPAR growth; and 3.1% (2015: 4.8%) net System size growth

 
 

 

LOGO

 

Where wellness

is built in

 

 

 

LOGO

 

Capturing the spirit

of Chinese hospitality

 

 

 

LOGO

 

Making business

travel work

 

          
 

 

LOGO

 

Joy of travel for all

 

 

 

LOGO

 

Simple, smart travel

 

 

 

LOGO

 

The joy of lifetime vacations

 

          
 

 

LOGO

 

The joy of family holidays

 

 

 

LOGO

 

Feel at ease when

you stay with us

 

 

 

LOGO

 

Your home base

 

          
                

 

LOGO

  For further information on our brands, see pages 10 and 11.   

 Use of Non-GAAP measures

In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 156 and 157.

 

 
2            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

      

 

 

 

We are one of the world’s leading hotel companies, whose purpose is to create Great Hotels Guests Love® through delivering our promise of True Hospitality for everyone.   LOGO   LOGO  

Definition System

Hotels/rooms operating under
our franchise and management
agreements, together with IHG
owned and leased hotels/rooms.

 

   

 

OUR SCALE

 

We predominantly franchise our brands to, and manage hotels on behalf of, third-party hotel owners; our focus is therefore on building preferred brands and strong revenue delivery systems.

 

 

Total hotels (rooms) in the IHG System

5,174

(767,135)

2015: 5,032 (744,368)

 

 

Franchised hotels (rooms)

4,321

(542,650)

2015: 4,219 (530,748)

 

 

Managed hotels (rooms)

845

(222,073)

2015: 806 (211,403)

 

 

Owned and leased hotels (rooms)

8

(2,412)

2015: 7 (2,217)

 

 

Total hotels (rooms) in the pipeline

1,470

(230,076)

2015: 1,330 (213,916)

      LOGO

 

LOGO    For details on central revenue and net central costs, see page 43.

 

 

LOGO

 

 


 

 
IHG at a glance        IHG Annual Report and Form 20-F 2016            3


Table of Contents

Chairman’s statement

 

 

 

 

 

LOGO

“The work being done by our colleagues day in, day out, to deliver the real hallmarks of our distinctive brands, and bring each of them to life, is truly outstanding.”

 

Patrick Cescau

Chairman

  

Throughout 2016, we continued to focus on delivering our proven strategy for high-quality growth and enhancing our offer for guests and owners. In what was another year of change for both our sector and the wider world, we once again demonstrated our ability to deliver sustainable growth.

 

Shaped for success

IHG has a long track record of succeeding in a changing world. As a global business, with a footprint in nearly 100 countries, managing through change and uncertainty is something that we are very used to. Our success comes from having a clear, proven and focused strategy in place, which continues to deliver value in this environment. It is also a result of having a portfolio of brands that mean something to our guests, strong long-term relationships with our owners, and significant global scale.

 

As the hospitality and consumer landscape continues to evolve, with continued digitisation, changing demographics and further industry consolidation, coupled with broader political, economic and societal change, these core strengths and capabilities will remain at the heart of our success.

  

Strategic priorities

Against this backdrop, we continue to make sure that we deliver on our strategy in a way that makes sense for different markets and geographies, and that resources are aligned behind the greatest opportunities. This involves staying close to the trends shaping our industry, something we capture each year in our IHG Trends Report (see page 8). The Board’s priority remains to ensure that the business is focused on staying agile and moving at pace, whilst at the same time maintaining our strategic direction and ensuring that we continue to nurture a culture of strong values, develop world-class talent, and maintain trust and integrity with our stakeholders.

 

Our Board and our culture

Making sure our Board has the right expertise to challenge and support the business in its corporate decision-making is crucial, and is something I personally take very seriously indeed. We regularly review the composition of the Board to ensure that our combined skill set is aligned with the business’ strategic priorities. At the end of 2016, the Board comprised six Non-Executive Directors, myself as Chairman, and two Executive Directors. We are delighted that, effective from 1 March 2017, Malina Ngai will be joining the Board as a Non-Executive Director and she will also sit on the Corporate Responsibility, Nomination and Remuneration Committees. Malina will bring a deep understanding of how consumer-facing, branded companies operate, as well as the role that technology and digital-commerce play in transforming the consumer experience. She also has a truly global perspective and significant insight into the Asian market, which is a key focus for the business.

 

We are a diverse Board in terms of gender, nationality and age, as well as in the broad range of skills and areas of expertise we collectively bring to the table. Ensuring that we strengthen this breadth, particularly from a regional and gender diversity perspective, will continue to be a key priority for us. This will ensure that the Board has the ability to maintain a high-quality level of discussion and debate, and keep IHG well prepared for the future.

 

Crowne Plaza Atlanta – Midtown, Georgia, US,

which completed a major renovation in 2016

 

  
LOGO   

 

 
4            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

      

 

 

 

  FULL-YEAR DIVIDEND

 

  Five-year progress (¢)

 

LOGO

 

    

 

    FINAL DIVIDEND

 

    64.0¢ to be paid on 22 May 2017

    (2015: 57.5¢)

 

    

 

RETURN OF FUNDS

 

Since March 2004, the Group has returned over £5.9 billion of funds to shareholders by way of special dividends, capital returns and share repurchase programmes. A further return of funds of $400 million via a special dividend with share consolidation is proposed in 2017.

 

Paid during the last five years

•  $500 million paid 22 October 2012

 

•  $350 million paid 4 October 2013

 

•  $750 million paid 14 July 2014

 

•  $500m share buyback completed in 2014

 

•  $1.5 billion paid 23 May 2016, equivalent to 632.9¢/438.2p per share

 

We know that, to be truly successful, we must also focus on how we deliver sustainable, high-quality growth. We achieve this through a passionate commitment to instilling IHG’s effective culture and values in our ways of working, and maintaining our deep commitment to conducting business responsibly – a principle that guides the behaviour of our colleagues, and builds trust with consumers and investors.

Shareholder returns

Our close, trusted relationships with our owners, together with our internationally-renowned brands, people, scale and systems, is a powerful combination that continues to deliver outstanding long-term shareholder value.

I am pleased to announce that the Board is recommending a final dividend of 64.0 cents per ordinary share, an increase of 11 per cent on the final dividend for 2015, resulting in a full year dividend of 94.0 cents per share, up 11 per cent on 2015. The Board has also proposed a $400 million special dividend with share consolidation, which will take the total funds returned to shareholders since 2003 to $12.8 billion. With our asset-light strategy concluding in 2015, it is important to note that nearly $5 billion of the total returns has come from IHG’s underlying operations, illustrating the strength of our cash generative business model and ability to deliver sustained organic growth.

Thank you

I spent time in all our regions during the year and visited brands across our portfolio. During this time, I had the opportunity to meet many of our colleagues and have seen first-hand the many improvements that we are making to our brands. I have also spent time with our owners, as well as representatives of the IHG Owners Association, to share ideas, discuss new projects and, alongside our Executive Committee, ensure that we maintain our excellent working relationships.

I am very proud of all the achievements we have made in 2016. The work being done by our colleagues day in, day out, to deliver the real hallmarks of our distinctive brands, and bring each of them to life, is truly outstanding. Their passion and enthusiasm has been a driving factor in our strong – and improving – satisfaction scores (Guest Love), and has fuelled further demand from our owner community, illustrated by another strong year of hotel openings and signings. As we head into 2017, I would like to thank all colleagues for their tireless efforts to create great guest experiences, and our owners for their continued confidence in our business and commitment to driving success.

 

LOGO

Patrick Cescau

Chairman

 

 

 

LOGO

 

 


 

 
Chairman’s statement        IHG Annual Report and Form 20-F 2016            5


Table of Contents

Chief Executive Officer’s review

 

 

 

 

LOGO

“Underpinning the success of all our brands is a focus on digital leadership. This involves us using new technologies and data to deliver truly relevant experiences.”

Richard Solomons

Chief Executive Officer

 

 

 KEY HIGHLIGHTS

 

 

 Gross revenue delivered through mobile bookings

  $1.6bn

 

 

 The launch of

 Your Rate

 by IHG® Rewards Club

 

 

 Total hotel signings

 516

 The highest number since 2008

IHG delivered another year of consistent, high-quality growth and strong financial and operational performance in 2016, led by the continued execution of our Winning Model.

This focus, brought to life by our talented colleagues and supported by strong owner relationships, enables us to successfully differentiate ourselves from the competition and meet the needs of our guests in an ever-changing consumer environment.

We made important progress against every element of our Winning Model. We built scale where it matters by broadening the global footprint of our brands in key markets, made important enhancements to our digital channels, significantly strengthened our direct-bookings offer for guests and owners, and further improved our industry-leading loyalty programme (see pages 16, 17 and 30).

Financial and operational highlights

Alongside this important work, we delivered strong underlying operating profit growth, signed the highest number of hotels since 2008, and closed the year with almost 5,200 open hotels in our portfolio. We remained focused on driving growth in markets where we see the greatest opportunities, and continued to build important momentum in this approach. IHG finished 2016 with a pipeline of 230,000 rooms, with approximately 90 per cent of them situated in our 10 priority markets. This represents a 14 per cent share of the active industry pipeline – more than three times our share of current supply – and illustrates our attractive prospects for strong, organic growth.

In what is an increasingly important space, we made excellent progress in driving digital growth across the business, strengthening our booking channels and leveraging our leading, data-driven marketing capabilities to engage with more guests in ways that are both relevant and most preferred. Digital revenue grew approximately eight per cent – driven by mobile, which delivered $1.6 billion in revenue. This channel alone now drives more traffic to our websites than desktop, with our award-wining app a key driver of this shifting trend. This is particularly important and helpful for our owners, with increased direct bookings delivering more low-cost revenue.

Brands-led business

The increasing global demand from guests and owners for our portfolio of brands is extremely encouraging. Throughout the year, we made real progress, be it by entering new markets or securing flagship locations, or by introducing important enhancements to service and design that are making a positive difference to the guest experience and helping attract new business.

In InterContinental Hotels & Resorts’ 70th anniversary year, we strengthened its position as the world’s largest luxury hotel brand with a significant global marketing campaign, more iconic openings, improved service training and the highest number of hotel and room signings since 2008.

Illustrating our ability to successfully grow and develop some of our newer US brands, we celebrated taking Kimpton Hotels & Restaurants global, signing a deal in Paris and opening a property in Grand Cayman. In 2017, the brand will debut in Europe, opening a hotel in Amsterdam. We also doubled the size of our lifestyle brand, EVEN Hotels, to six open hotels, added more to the pipeline and signed a deal to launch the brand in Australia and New Zealand.

For our Crowne Plaza Hotels & Resorts brand, we established a new global identity and service style to help to further build on its industry-leading position in many of our markets around the world. Using this as a foundation, we announced the Crowne Plaza Accelerate programme – a $200 million investment programme designed to deliver an improved performance in The Americas through enhanced service and marketing that better resonates with the modern business traveller.

Delivering our strategy

Underpinning the success of all our brands is a focus on digital leadership. In 2016, we made strong progress in enhancing the Guest Journey (Dream, Plan, Book, Stay and Share), building more rewarding loyalty relationships, and strengthening our competitive advantage, by leveraging the latest technology.

Following a successful trial, we rolled out Your Rate by IHG Rewards Club globally, providing access to exclusive, preferential rates to loyalty members booking through our direct channels. This has led to higher direct bookings, delivering better-quality revenue to our hotels, and a rise in membership enrolments. We also

 

 

 
6            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

      

 

 

increased our attractiveness to Chinese travellers through a deal with China’s leading third-party online payment solutions company, Alipay, to offer their services across our hotels and online platforms worldwide, and we made important progress with the development of our new Guest Reservation System (GRS), which remains on track to begin roll-out in 2017. IHG has a rich history of innovation, and the new GRS will provide an industry-leading cloud-based booking platform that offers guests a more personalised experience and allows hotels to manage and sell rooms in a more powerful way.

  

LOGO

 

Kimpton Seafire Resort + Spa, Grand Cayman,

the first Kimpton hotel outside of the US, which opened in 2016

 

Our digital business is one of the ways in which we build meaningful lifetime relationships with our guests. This involves us using new technologies and data to deliver truly relevant experiences – be it more targeted marketing, or through enhanced arrival information that empowers our hotels to create a more personal stay. Mobile check-out and our wifi offer, IHG Connect, are all also making important contributions in this area. All these programmes will continue to expand across our hotels in 2017.

  

 

Combining this commercial strength with our unique brand propositions and outstanding colleagues forms the bedrock of creating Great Hotels Guests Love, which we deliver through providing True Hospitality for everyone. This important commitment connects us all at IHG and centres on our passion to make everyone feel welcome and cared for, recognised and respected – be it guests, owners, partners, colleagues or those in the communities in which we work.

 

Our responsible business credentials

We have made excellent progress with our two corporate responsibility programmes, IHG® Academy and the IHG Green Engage™ system. IHG Academy has been building hospitality skills in local communities for more than a decade and, in 2016, we introduced 11,985 new participants to programmes in 75 countries, while our group-wide sustainability programme, the IHG Green Engage system, is helping drive real improvements in how our hotels responsibly manage things such as water, carbon and waste.

 

We reached another significant milestone with the launch of the IHG® Foundation in February 2016. The IHG Foundation builds on the positive impact of our corporate responsibility initiatives, and allows us to make a deeper, more lasting change in communities beyond

  

our hotels around the world, and across areas including disaster relief and environmental protection. In 2016, the Foundation made 34 grants to 25 organisations, including donations to the Sichuan Province Foundation for Poverty Alleviation in China, and it supported communities affected by disasters such as flooding in France and earthquakes in Japan and Ecuador.

 

Awards

External recognition is the best measure of our progress and, in 2016, IHG won over 200 awards. This is an outstanding achievement. I am particularly proud of the many employer awards, including winning Best Employer Brand in the UK at the Personnel Today Awards, and being named on Atlanta’s Best Places to Work list by the Atlanta Business Chronicle. IHG was also named Britain’s most admired company in the leisure and hotels sector by Management Today, and 8th in their list of all UK companies. Our brands also picked up many coveted awards. Crowne Plaza was voted best Upscale Hotel Brand in North America by Business Travel News, up from 8th in 2015, and InterContinental Hotels & Resorts was named the World’s Leading Hotel Brand at the World Travel Awards. The Flyer Travel Awards named HUALUXE Hotels and Resorts Best New Hotel Brand in China and Holiday Inn was voted the Best Mid-Range Hotel Brand in China at the TTG China

  

Travel Awards for the sixth consecutive year, while Condé Nast also named the Kimpton RiverPlace Hotel in Portland, Oregon, US one of the world’s top hotels.

 

Strengthened position

It was a busy year, and both our industry and the world is changing at pace. This brings both challenges and opportunities and I remain confident that, by executing our winning strategy and leveraging the strength of our business model, we will continue to deliver sustainable, organic growth into the future.

 

We head into 2017 in a position of strength, and I would once again like to thank all our owners for their support and for the trust they place in us. Our owners are crucial to our performance, and we place the utmost importance on our relationship with them. I would also like to thank our talented, passionate and energetic colleagues, who bring our brands to life and remain IHG’s greatest competitive advantage.

 

LOGO

 

Richard Solomons

Chief Executive Officer

 

LOGO

 

 

 
Chief Executive Officer’s review        IHG Annual Report and Form 20-F 2016            7


Table of Contents

    

LOGO

 

 
8            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

LOGO

 

 
Industry overview        IHG Annual Report and Form 20-F 2016            9


Table of Contents

Our preferred brands

 

 

 

IHG is a brands-led business, and we create Great Hotels Guests Love® through our portfolio of complementary and differentiated hotel brands. Our brands are trusted for meeting guests’ needs, for rewarding loyalty and for delivering memorable experiences.

 

       
 

InterContinental® Hotels & Resorts:

Live the InterContinental Life

International travel should always be alluring. As the world’s first international luxury travel hotel brand, we have been pioneering new international destinations for decades. We are dedicated to those who appreciate and enjoy ‘The InterContinental Life’ – the glamour and exhilaration of fascinating places, mixed with our international know-how and local cultural wisdom.

 

Guest stay occasions: short-break experience, mixing business with pleasure, social identityb.

  

Kimpton® Hotels & Restaurants:

A different way to stay

As the industry pioneer that first introduced the boutique concept to the US, we are renowned for making travellers feel genuinely cared for through thoughtful perks and amenities, inventive meetings and events, bold and playful design, and a sincerely personal style of guest service.

 

Guest stay occasions: short-break experience, business productivity, family time.

 

HUALUXE® Hotels and Resorts:

Capturing the spirit of Chinese hospitality

We are the first upscale international hotel brand designed specifically for Chinese guests. We have woven into every detail of the luxury brand’s service and design an acknowledgement of Chinese culture and heritage, with particular emphasis on the Chinese values of etiquette, rejuvenation in nature, recognition of status and enabling spaces.

 

Guest stay occasion:

building business interactions.

LOGO
 

Hotel Indigo®:

Making travel inspiring

We serve the curious – people who are inspired by new places, new people and new ideas. Each hotel is part of the pulse and the rhythm of a place, drawing on the story of its local area to inspire every aspect of the hotel, from intriguing design to distinctive local ingredients in our menus.

 

Guest stay occasions: short-break experience, business productivity, romantic getawaya.

  

EVEN® Hotels:

Where wellness is built in

We provide a strong lifestyle offering for travellers seeking more options to stay healthier and happier away from home. Our hotels, and wellness-savvy staff, offer guests a best-in-class fitness experience, healthier food choices, and natural and relaxing spaces. Beyond our hotels, we support the needs of travellers through wellwellwell.com, a go-to source for healthier, happier travel.

 

Guest stay occasion: well-being.

 

Crowne Plaza® Hotels & Resorts:

Making business travel work

We believe business travel should work better. In every market in the world, business has changed, and so has work. It’s more digital, more flexible, more mobile, more connected. As one of the world’s largest upscale brands, we have properties located in major urban centres, gateway cities and resort destinations all around the globe.

 

Guest stay occasions: business productivity, building business interactionsb.

 

 
10            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

 

 

Our hotel brands are underpinned by the IHG® parent brand, strengthened by our leading loyalty programme, IHG® Rewards Club, and are brought to life by outstanding people in great hotels. Building upon an in-depth understanding of what matters most to guests, we continually enhance our brands’ promises.   In a crowded marketplace, our brands therefore stand out from the competition and continue to deliver memorable stay experiences, which in turn drives the performance of our business.    LOGO   

Definition Guest stay occasion

We broadly segment the market into nine globally relevant categories that align to the different occasions for which guests might travel, such as for family time or for a romantic getaway. By understanding these guest stay occasions, we are able to deliver a differentiated brand experience that better meets our guests’ expectations.

  LOGO   See page 29 for a breakdown of IHG hotels open and in the pipeline.      
         
         

 

     

Holiday Inn® Hotels & Resorts:

Joy of travel for all

We believe the joy of travel is for everyone. We pride ourselves on delivering an affordable, enjoyable hotel experience where guests are always welcomed warmly. We opened the doors of our first hotel in 1952, and since then we have been making travel a more enjoyable experience for all.

 

Guest stay occasions: family time, mixing business with pleasure, social identityb.

  

Holiday Inn Express® Hotels:

Simple, smart travel

We keep it simple and smart. As IHG’s largest hotel brand, we’re the clear choice for the increasing number of travellers who need a simple, engaging place to rest, recharge and get a little work done. We offer everything guests need, and provide more where it matters most.

 

Guest stay occasion: rest and go.

  

Staybridge Suites Hotels®:

Feel at ease when you stay with us

As an extended-stay brand, we make sure every space features a sense of community, comfort and convenience, so guests can feel at home while on the road. Staybridge Suites is ideal for upscale business and leisure travellers who want to enjoy the best of home and hotel.

 

Guest stay occasion: business productivity.

LOGO

Holiday Inn Club Vacations®:

The joy of lifetime vacations

Our owners are part of a community of people who understand the importance of family and investing in a lifetime of invaluable memories. All of our properties offer spacious villa accommodation for families in top leisure destinations, and access to world-class attractions such as mountain adventures, championship golf courses and serene beaches.

 

Guest stay occasion: family time.

  

Holiday Inn Resort®:

The joy of family holidays

We want all families to experience the joy of great holidays together. In some of the world’s most desirable locations – on the beach, by the theme park, next to the golf course, our resorts offer a wide variety of activities and comforts, from kids’ clubs and signature swimming pools, to informal restaurants and quiet, fireside lounges.

 

Guest stay occasion: family time.

  

Candlewood Suites Hotels®:

Your home base

We offer a more casual kind of longer stay, where you will always feel at home, at your best and really productive while on the road. All of our locations throughout The Americas are easily accessible, and we are always opening new hotels, so guests can book a spacious suite whenever and wherever it works for them.

 

Guest stay occasion: business productivity.

 

a US only

b China/India only

 

 

 

LOGO

 

 


 

 
Our preferred brands        IHG Annual Report and Form 20-F 2016            11


Table of Contents

Our business model

 

 

 

Our portfolio of 12 preferred brands are built on unique customer insights and cater to a broad range of needs. We predominantly franchise our hotel brands to, or manage hotels on behalf of, third-party hotel owners, resulting in an asset-light business model.

 

Whether we franchise or manage hotels to third-party hotel owners depends largely on market maturity, owner preference and, in certain cases, the particular brand.

 

  Mature markets predominantly follow a franchise model:

 

  -   In The Americas and Europe, over 90 per cent of IHG hotels are franchised.

 

  While a managed model is typically used in emerging markets:

 

  -   In AMEA about 80 per cent of IHG hotels are managed by us; and

 

  -   In Greater China, that figure rises to more than 98 per cent.

In addition, we own/lease and manage a few select hotels, however, this figure has dramatically reduced from over 180 owned hotels 15 years ago, to just eight hotels at 31 December 2016.

 

LOGO

 

LOGO  

Definition System Fund or Fund

assessment fees and contributions collected from hotels within the IHG System which fund specifically marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System.

LOGO

 

 

 
12            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

 

 

 

DISCIPLINED APPROACH TO ALLOCATION OF CAPITAL

Our focus on an asset-light business model is supported by a disciplined, long-term approach to allocating capital and reducing the asset intensity of the business. We seek to maintain an efficient balance sheet with an investment-grade credit rating. Our business is highly cash-generative (see page 45), and we have three primary uses for this cash:

 

1.

 

  

 

Invest in the business to drive growth: this includes strategic investments and our day-to-day capital expenditures – see table below, and page 107 for further details of our capital expenditure in 2016.

 

   

2.

 

  

Maintain sustainable growth in the ordinary dividend: compound annual growth of 11 per cent since 2003.

 

3.

 

  

 

Return surplus funds to shareholders. In February 2017, we proposed a further $400 million return of funds to shareholders via a special dividend with share consolidation.

 

IHG’s outlook on capital expenditure

Capital expenditure incurred by IHG can be summarised as follows.

 

Capital expenditure    Examples
Maintenance capital expenditure and key money to access strategic growth   

  Maintenance of our owned and leased hotels, which is now reducing as we have become increasingly asset-light.

 

  Corporate infrastructure maintenance – for example, in respect of our offices and systems.

 

  Deployment of key money, which is used to access strategic opportunities, particularly in high-quality and sought-after locations when returns are financially and/or strategically attractive.

Recyclable investments to drive the growth of our brands and our expansion in priority markets   

  Through the acquisition of real estate, investment through joint ventures or via equity capital.

 

   We aim to recycle this capital by selling these investments when the time is right and to reinvest elsewhere in the business and across our portfolio, as we are currently doing for our EVEN Hotels brand.

System-Funded capital investments for strategic investment to drive growth at hotel level   

   The development of tools and systems that hotels use to drive performance, such as our new, pioneering Guest Reservation System developed with Amadeus.

 

LOGO  

See Chairman’s statement for progress

on dividends, page 5.

 

 

LOGO

 

 


 

 
Our business model        IHG Annual Report and Form 20-F 2016            13


Table of Contents

Our strategy for

high-quality growth

 

 

We are focused on delivering high-quality growth,

which for us means delivering consistent, sustained

growth in cash flows and profits over the long term,

via our portfolio of preferred brands.

 

Our strategy is unchanged. Through our Winning Model, we focus on value-creation by building preferred brands, delivering a superior owner proposition, leveraging scale and generating revenue through the lowest-cost, direct channels. We concentrate on a Targeted Portfolio that, together with

Disciplined Execution of our strategy and a commitment to doing business responsibly, will drive superior shareholder returns.

 

LOGO   We measure our performance with a set of carefully selected key performance indicators (KPIs), which monitor our success in achieving our strategy – see pages 23 to 25.
 

 

LOGO

 

LOGO  

For further information on our strategy,

go to www.ihgplc.com/about-us under Our strategy.

 

LOGO

 

 

 
14            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

LOGO

 

 
Our strategy for high-quality growth        IHG Annual Report and Form 20-F 2016                15


Table of Contents

    

 

LOGO

 

 
16                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

LOGO

 

 
Our Winning Model in action: executing our strategy        IHG Annual Report and Form 20-F 2016                17


Table of Contents

Doing business responsibly

 

 

 

We genuinely care about the well-being of our guests and colleagues – and the impact we have on local communities and businesses too. Our responsible business culture is embedded throughout our organisation and underpins our entire strategy.

 

 

LOGO

 

 

Our culture of responsible business

In a climate where employees, guests and other stakeholders want confirmation that companies uphold their values, it’s important that the credibility and value of our brands are maintained through a culture of responsible business. We achieve this through:

 

  strong governance and leadership, which promote responsible business attitudes and behaviours;

 

  ensuring our employees understand key legal and reputational issues and our Winning Ways (see box to the left);

 

  ensuring the safety and security of employees, guests and other visitors to our hotels and offices;

 

  operating effective risk management and internal controls; and

 

  engaging in responsible procurement.

Our responsible business activities are also closely aligned to the objectives of the United Nations Sustainable Development Goals (SDGs), which means that we are contributing to the UN’s aim of transforming our world by 2030.

Corporate responsibility

Through our corporate responsibility programmes, we are capitalising on our unique position to help make communities

 

 

LOGO

 

around the world better places to be for all. In September 2013, IHG released a number of five-year corporate responsibility targets, which focus on measuring the positive impact IHG has around the globe (see page 25 for our performance against these targets).

 

LOGO

Our communities

Through the IHG® Academy, a collaboration between our hotels, education providers and community organisations in our local communities, we are nurturing and developing people, to improve their employability and grow their careers in the hospitality industry. It’s our way of opening doors and creating opportunities for all.

 

LOGO

Our environment

IHG Green Engage™ system is our Group-wide, online sustainability programme, which helps hotels manage their use of energy, carbon, water and waste, and minimise their overall utility costs and environmental impact. By delivering more environmentally sustainable hotels, we can drive cost efficiencies for owners as well as meet the expectations of all our stakeholders.

 

LOGO

Human rights

IHG focuses on those areas of human rights that are most relevant to our business and we work to ensure our values are reflected consistently across our business. We have developed an e-learning module on human rights and modern slavery. In addition, we publish a human rights policy, which is translated into more than 40 languages.

We report on diversity in our supply chain and set targets to ensure that corporate responsibility criteria, including human rights standards, are integrated into the selection and evaluation process for preferred suppliers. We also require our suppliers to adhere to our Vendor Code of Conduct.

 

LOGO

  See www.ihgplc.com/responsible-business for details on our first Slavery and Human Trafficking Statement, detailing the steps we are taking to eradicate modern slavery in our supply chain and business.
 

 

 
18            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

 

Employee Engagement

88.7%

of survey respondents in 2016 were engaged,

an improvement of

14ppt

since 2010

 

 

Awards

24

received in 2016 for our people practices

 

LOGO

 

 

More information on our employees can be found on page 161 and on our website

at www.ihg.com/responsible-business under Our people.

LOGO  

 

LOGO

Our people and our culture

Our colleagues live our corporate values, and are fundamental to helping us create Great Hotels Guests Love. To attract and retain the best talent, we invest in our people – we offer our people our commitment to develop their careers, keep them involved in the business and reward and recognise them for their contributions. We call this our ‘room to be yourself’ commitment.

 

LOGO   In turn, we ask our employees to live our Winning Ways, see box on page 18.

As we prioritise recruiting, developing and building talent capability to lead growth, we are progressing key initiatives in these areas.

Attracting talent

This year, we have further embedded our employer brand identity with the ‘All of you at IHG’ campaign, which captures colleagues across our regions doing what they love best, to highlight our diverse roles, people and brands. In November, we were recognised for our achievements by Personnel Today, and presented with the award for employer branding.

Continuous learning

We are evolving our learning strategy through examining what technology we need to support the future of learning at IHG and improving our focus on priority content. In 2017, we will be launching an updated Learning Management system that will enable us to better reach colleagues with the right learning content at the right time. In 2016, we launched a new-look General Manager (GM) interactive-learning platform, providing all GMs with social learning and other online tools to connect them together and share their progress with one another. IHG’s frontline colleagues now have access to more than 50 courses globally via IHG Frontline. As a result, more than 100,000 colleagues worldwide are able to take charge of their development and complete consistent brand, service and operations training through a single channel.

Developing a strong performance culture

Our regions and functions are aligned to the internal performance measures that most effectively drive business performance across our organisation. This framework, together with our talent and leadership programmes for colleagues in our hotels and corporate offices, is designed to enhance our colleagues’ performance while allowing them to focus on what matters most. This comprises our ‘Winning Culture’.

How we measure our culture

Understanding how engaged our teams feel is a fundamental part of how we run our business, and we measure this through our Employee Engagement survey. In 2017, we will launch Colleague HeartBeat, which incorporates a new engagement survey, among other modules.

Diversity and inclusion

At IHG, we recognise we can drive innovation, sustainable growth and competitive advantage if we mirror the diverse markets in which we operate and strive to be as inclusive and diverse as our brands. IHG in The Americas was recently recognised in the list of The Best Places to Work for LGBT Equality – Corporate Equality Index Human Rights Campaign.

We are also making strong progress in attracting and retaining female leaders. The Hampton-Alexander review recently listed IHG in the top 20 of the FTSE 100 for female representation across Executive Committees and their direct reports.

As at 31 December 2016:

 

  three of the nine Directors on the Board were female (33 per cent), however, following the appointment of Malina Ngai on 1 March 2017, four of the 10 Directors on the Board will be female (40 per cent);

 

  34 out of the 128 senior managers employed by the Group (including directors of the subsidiaries) were female (27 per cent).

 

  6,890 out of the 12,021 people employed by the Group and whose costs were borne by the Group or the System Fund were female (57 per cent).

 

LOGO   Please see page 61 for more information on Board diversity and succession planning.
 

 

LOGO

 

 

 
Doing business responsibly        IHG Annual Report and Form 20-F 2016            19


Table of Contents

Risk management

 

 

 

We deliver on our commitment to responsible business practices through our robust and effective risk management system, which continues to evolve in step with our business, and results in sustainable, long-term growth.

 

Our Winning Model strategy and risk

Our strategy and business model create a number of risks and opportunities for the business. The Board is ultimately accountable for the effectiveness of our risk management and internal control systems, and is supported by the Audit Committee, Executive Committee and delegated committees, who oversee our risk management system to ensure that risks are appropriately identified and managed within IHG’s risk appetite.

Risk appetite

IHG’s risk appetite reflects the nature and extent of risk that the Board is willing to take in pursuit of strategic and other business objectives. The risk appetite is then cascaded through the goals we set, the strategy we choose, decisions we make and how we allocate resources. IHG’s risk appetite is further reflected in our governance committees, structures, policies and targets we select, as well as in development guidelines for new hotels. In 2016, the Audit Committee also considered IHG’s approach to risk appetite more generally and in relation to the principal risk areas.

 

LOGO   For more information, see page 57.

 

OUR RISK MANAGEMENT SYSTEM

 

Our risk management system is fully integrated with the way we run the business through our culture, our controls and our reporting, and is reflected in our strategy. The Global Risk Management function is responsible for the support, enhancement and monitoring of the effectiveness of this system and includes the following key areas.

 

LOGO

 

LOGO   More information on our risk management system is available at www.ihgplc.com/responsible-business under Our culture of responsible business in the Risk management section.                                                    
 

 

 

 

IHG’s principal risks, uncertainties and review process

The external risk environment remains dynamic. However, the Group’s asset-light business model, diverse brand portfolio and wide geographical spread contribute to IHG’s resilience to events that could affect specific segmental or geographical areas. Our Risk Working Group, chaired by the General Counsel and Company Secretary and comprised of the heads of Global Risk Management, Global Strategy and Global Internal Audit, provides input on, and oversight of, the principal risk review process, which identifies and assesses risks for ongoing monitoring and review by senior management.

The Directors have carried out an assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. These risks are reviewed formally by the Directors on a biannual basis and are considered in more detail through the activities of the Board and Committees. The approach to principal risks was further strengthened in 2016 through an increased consideration of risks within the strategic-planning processes and the engagement of all Executive Committee members in the discussion of principal risks throughout the year. We have a standing risk working group who provide guidance and oversight with regard to the principal risks and risk management system.

 

LOGO   See pages 54 and 57 for details of the assessment of our principal risks by the Board and the Audit Committee.

Our principal risks remain unchanged, however, reflecting the dynamic environment in which we operate, we continue to review and refine the approach we take to mitigating our risk – see the table on pages 21 and 22.

 

LOGO   These principal risks are supplemented by a broader description of risk factors set out on pages 164 to 167.
 

 

 
20            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

 

 

   

RISK TREND

 

How the external environment for each principal

risk has changed over the past year:

 

RISK IMPACT

 

How each principal risk links to our strategic priorities:

LOGO

  Increased risk   LOGO    No change in risk   LOGO    Winning Model   LOGO    Targeted Portfolio
        

LOGO

 

  

Disciplined Execution

 

  LOGO   

Responsible Business

 

 

Risk description    Trend    Impact    Initiatives to manage these risks
Failure to deliver preferred brands and loyalty could impact our competitive positioning, our growth ambitions and our reputation with guests, owners and investors.    LOGO   

LOGO

 

LOGO

 

  

  Each of the brands in our portfolio is designed, and continues to evolve, to meet specific guest needs and occasions, through distinct and complementary brand propositions informed by guest research and insights – see pages 10 and 11.

 

  We continue to innovate and evolve our hotel-room and public-space designs to ensure we deliver differentiated, relevant guest experiences. In 2016, we introduced several new design initiatives across our Holiday Inn and Holiday Inn Express brands – see pages 17, 31 and 34.

 

  We manage brand consistency through the entire hotel life cycle, supported by clear contractual terms, new hotel opening processes, brand standard requirements and compliance processes. Tools, training and guidance assist owners and those working at our hotels to deliver brand consistency.

 

  For further information on our brand-strengthening initiatives this year, see pages 16 and 17.

Failure to recruit and retain the right leadership and talent, and to give them the tools, guidance and support to be successful, could impact the delivery of our strategic ambition.    LOGO   

LOGO

 

LOGO

 

LOGO

  

  We have a comprehensive, global people strategy in place, which includes a talent leadership programme, both in hotels and at a corporate level.

 

  The talent development programme also reflects our culture and values. Our leadership framework, support tools, and training and development programmes help our people grow their careers – see page 19.

 

  Our HR strategy manages specific training programmes globally, catering to specific talent needs in local markets, such as in Greater China.

 

  We proactively manage succession planning at all levels and consider the diversity (more broadly than gender) of our people and leadership – see page 61.

Failure to maintain and enhance our channel management and technology platforms could impact on our ability to deliver revenue.    LOGO   

LOGO

 

LOGO

  

  We recognise that technological advances, the growth of intermediaries and the sharing economy, and changing guest expectations mean that we must continually invest in, and improve, our technological systems to build lifetime relationships with our guests. Our focus is on encouraging guests to use direct booking channels. However, recognising that some travellers use intermediaries, we seek to secure improved terms with those intermediaries for our hotels.

 

  This year, we extended our Your Rate by IHG Rewards Club loyalty benefit (see page 16) to further markets, allowing more guests to get the best hotel rates by booking directly through IHG’s booking channels.

 

  We remain on track to roll out our new Guest Reservation System (see page 17) in 2017, providing easier booking interfaces for both guests and hotels, enhanced digital functionality and easier technology upgrades to better meet guest needs.

 

  We have a multi-award-winning mobile app, which has been downloaded over seven million times since launching. Consistent with our philosophy and focus, our app includes the most advanced loyalty functionality across the industry.

Failure to maintain strong relationships with owners, and to demonstrate attractive returns on investment, which we call our owner proposition, could impact the retention and growth of IHG’s System and development pipeline.    LOGO   

LOGO

 

LOGO

 

LOGO

 

LOGO

  

  Our franchise and managed owner offer includes tools, hotel solutions, revenue delivery systems, operational support and guidance to allow us to support our hotels and maintain relationships with owners throughout the hotel lifecycle.

 

  We carefully monitor net System size growth, and focus on contract renewals and renegotiations, to ensure that our owners receive the best value with IHG franchise and management agreements.

 

  Through the IHG Owners Association, we work with our owners to understand their key priorities and perspectives, for example, in respect of the use of the System Fund (described on page 43).

 

  In 2016, we reviewed and enhanced the hotel budget guidance process to provide owners with better information.

Failure to operate an appropriate risk management system which safeguards the safety and security of our guests and employees could impact our reputation.    LOGO   

LOGO

 

LOGO

 

LOGO

  

  We manage this risk by promoting a strong safety culture through our values and attitudes, our ‘Winning Ways’ (see pages 18 and 19) and a strong governance system.

 

  In 2016, we enhanced oversight through the development of a Safe Hotel Advisory Group comprising risk and standards measurement.

 

  We continuously monitor and refresh our brand safety standards where necessary, and work with our hotels to ensure that brand safety standards are met throughout the hotel lifecycle across our entire portfolio.

 

  Our operational safety and security teams have extensive subject matter expertise and experience, and provide support to line management to equip them to plan for, and respond to, incidents across all of our regions.

 

 

LOGO

 

 


 

 
Risk management        IHG Annual Report and Form 20-F 2016            21


Table of Contents

RISK MANAGEMENT CONTINUED

 

 

 

Risk description    Trend    Impact    Strategic Initiatives to manage these risks
The threat faced from the risk of cybersecurity and information governance is constantly evolving and, in 2016, has impacted a large number of organisations across multiple industries, including a number of cyber attacks on the hospitality industry. This threat could impact our operations, result in fines and legal actions, and undermine stakeholder trust in our business. In 2016, our Kimpton Hotels & Restaurants business in The Americas was subject to a cyber attack, and an investigation into another such attack at hotels in The Americas region is ongoing (see note 30 on page 141).    LOGO   

LOGO

 

LOGO

 

LOGO

  

  We have applied a risk-based methodology to considering the value of our information assets, including Payment Card Information (PCI), other Personally Identifiable information (PII), non-public financial information and employee data, to formulate a set of policies, processes, guidance and accountabilities with regards to information security.

 

  We monitor the evolution of this risk through our Information Security team and our Threats and Intelligence team, using forward-looking indicators and intelligence to inform our approach to managing this risk.

 

  We are implementing a number of initiatives to address specific elements of this risk. These include the role out of a Secure Payment System, tokenisation of key systems, the development of a revised information-management policy and increased focus on information shared with our suppliers and business partners.

 

  The approach to the risk is overseen by an Information Security Committee, who led and sponsored a full review of all relevant policies in 2016.

 

  We have a clearly defined incident management capability, which we are continuously developing and embedding across the organisation. We have deployed our incident response plan to develop and implement investigation, containment and mitigation steps in relation to both the Kimpton Security Incident and the Americas Security Incident (see note 30 on page 141).

Failure to effectively manage our programme and project delivery could impact the value realised from our investments.    LOGO   

LOGO

 

LOGO

 

  

  Our programme management capability is overseen by our Strategic Portfolio Governance Group and implemented by our Strategic Portfolio Management team.

 

  The Strategic Portfolio Management team ensure strategic alignment and prioritisation of key programmes, develop organisational capability through training and implement the Group’s project delivery approaches and tools. This team is supported by regional and functional project management teams, who manage and monitor specific programmes and projects.

 

  In 2016, we continue to streamline our priorities to ensure we focus on those core programmes that have a significant impact on our business, including Crowne Plaza Accelerate (see page 30) and our new Guest Reservation System (see page 17).

While the hotel sector is not subject to stringent industry-specific regulations, failure to ensure legal, regulatory and ethical compliance could impact our reputation.    LOGO   

LOGO

 

LOGO

  

  Our regulatory compliance programme works to identify and respond to relevant regulatory requirements. These include anti-bribery and corruption, data privacy and antitrust.

 

  We ensure that our corporate employees conduct annual Code of Conduct training that highlights, on a rolling basis, key areas such as anti-bribery and competition law, to ensure that we consistently adhere to the highest legal and ethical standards. Our hotels across the globe also provide training to their employees to ensure they are aware of their obligations.

Increased public scrutiny, litigation and regulatory investigation highlight the need for companies to ensure that their financial management and control systems are robust.    LOGO   

LOGO

 

LOGO

 

LOGO

 

  

  The maintenance of a sound financial-reporting and control environment is achieved through an effective policy framework, training programmes, and layered performance and review processes.

 

  IHG has a mature, experienced and stable global finance function that includes, among others, the following teams: Group Tax; Group Treasury; Procurement and Cost Efficiency; Global BSC Operations; Global and Regional Financial Planning and Analysis; Global Financial Reporting; and Governance and Compliance (including compliance with the Sarbanes-Oxley Act 2002 (SOX) – see page 57 for further details of our SOX review process).

 

         
 

VIABILITY STATEMENT

 

In assessing the viability of the Group, the Directors have reviewed a number of scenarios, weighting downside risks that would threaten the business model, future performance, solvency and liquidity of the Group more heavily than opportunities. The scenario-testing focuses mostly, but not exclusively, on the impact of declining RevPAR on the viability of the Group, as most of the principal risks outlined on pages 21 and 22 will cause a deterioration in RevPAR. The scenarios included a severe but plausible downturn, like the financial crisis that occurred from 2008 to 2009 (when the Board maintained the ordinary dividend despite the severity of the downturn in trading), a widespread cyber security breach and a reverse stress test of the business starting from the presumption of the Group having insufficient liquidity to continue trading. In the severe scenarios, the

  

 

 

Directors also considered actions that would be taken if such events became a reality.

 

The Directors have determined that the three-year period to 31 December 2019 is an appropriate period to be covered by the viability statement. Although hospitality industry business cycles are on average longer than three years, the end of those cycles has only resulted in declining RevPAR when that has been caused by exogenous shocks, and the decline in RevPAR has only lasted two years. The Board has therefore determined that no additional insight can be gained from assessing these scenarios over a longer period, particularly as each year the Group’s planning process builds into a robust three-year plan against which to test the scenarios.

 

The detailed three-year plan takes into consideration the principal risks, the Group’s strategy, and current market conditions.

 

  

 

 

That plan then forms the basis for strategic actions taken across the business. The plan is reviewed annually by the Directors, and approved towards the end of the calendar year. Once approved, the plan is then cascaded to the business and used to set performance metrics and objectives. Performance against those metrics and objectives is then regularly reviewed by the Directors.

 

The Directors have assessed the viability of the Group over a three-year period to 31 December 2019, taking account of the Group’s current position, the Group’s strategy and the principal risks documented in the Strategic Report. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2019.

  

 

 

 
22            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

Key performance indicators (KPIs)

 

 

We measure our performance through a set of carefully selected KPIs, which monitor our success in achieving our strategy and the progress of our Group to deliver high-quality growth.   

The KPIs are organised around the framework of our strategy – our Winning Model and Targeted Portfolio – underpinned by Disciplined Execution and doing business responsibly.

 

 

 

KPIs

 

        

2016 status

 

  

2017 specific priorities

 

WINNING MODEL AND TARGETED PORTFOLIO

 

Net rooms supply

Net total number of rooms in the IHG System.

 

LOGO

 

Growth in underlying fee revenuesb

Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages.

 

  

LOGO

 

 

LOGO

  

87%

of open rooms are in priority markets

 

89%

of pipeline rooms are in priority markets

 

75,812

rooms signings

  

 Continue to accelerate growth in our 10 priority markets (such as Germany – see page 30) and key city locations in order to achieve further scale benefits.

 

 Support the expansion of Holiday Inn Express’ Franchise Plus programme in Greater China (see page 30 for details) and the development of Kimpton outside the US.

 

 Continue to drive strong rooms supply growth, whilst ensuring that we maintain a high level of guest satisfaction across our entire portfolio of hotels with removals from the System.

 

       

Total gross revenue from hotels in IHG’s Systemb

Total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Other than for owned and leased hotels, it is not revenue wholly attributable to IHG, as it is mainly derived from hotels owned by third parties.

 

LOGO

 

System contribution to revenue

The percentage of room revenue delivered through IHG’s direct and indirect systems and channels.

 

  

LOGO

 

 

 

 

LOGO

  

$4.3bn

digital revenues delivered in 2016, up by 8%on 2015

 

49%

of hotels adopting IHG’s revenue management service

  

 Continue to drive adoption and impact of our revenue management tools, systems and processes amongst our owners.

 

 Keep our focus on driving a greater revenue contribution from IHG Rewards Club members (see page 16).

 

 Our new Guest Reservation System (see page 17) is on track to begin roll-out in 2017.

 

 Continue to expand the language capabilities of our online channels and call centres across all regions.

 

 Drive greater food and beverage revenue, and support brand preference, by introducing new food and beverage concepts for our hotels to adopt.

 

a Including the acquisition of Kimpton (11,325 rooms).

b Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 156 and 157.

 

 

    LINK BETWEEN KPIS AND DIRECTORS’ REMUNERATION

 

KPIs that could have an impact on the performance measures

for 2016 remuneration plans:

 

    LOGO   The Annual Performance Plan

    LOGO

 

  The Long Term Incentive Plan

 

 

LOGO

 

 


 

 
Key performance indicators (KPIs)        IHG Annual Report and Form 20-F 2016            23


Table of Contents

KEY PERFORMANCE INDICATORS (KPIs) CONTINUED

 

 

 

 

 

KPIs

 

       

2016 status

 

  

2017 specific priorities

 

WINNING MODEL AND TARGETED PORTFOLIO CONTINUED

 

Global RevPAR growth

Revenue per available room: rooms revenue divided by the number of room nights that are available.

 

LOGO

 

Guest Love

IHG’s guest satisfaction
measurement indicator.

 

LOGO

  

LOGO

 

 

LOGO

 

105

Holiday Inn Express hotels with the new room design opened in 2016

 

+200

external recognitions for our brands, hotels and loyalty programme in 2016

 

Implemented, or in the process of installing, IHG Connect in over

1,800

hotels in The Americas

  

  Continue the roll-out of our enhanced internet connectivity and wifi offer, IHG Connect, for guests across our estate (see page 31).

 

  Embed and drive adoption of customer relationship management systems in our hotels to help us to build lifetime relationships with guests.

 

  Continue to invest in brand innovation, such as the new room designs for Holiday Inn Express.

 

  Support the development of our high- performing general managers.

 

  Focus on driving consistency and quality across our Crowne Plaza portfolio in the US through Crowne Plaza Accelerate (see page 30).

 

  Drive adoption of our learning solutions, such as the IHG Frontline online training platform, and brand-orientated services training across all IHG hotels, enabling our people to deliver consistently great guest experiences and maintain brand preference.

 

  Expand the roll-out of our China Ready hotel accreditation in key Chinese outbound destinations across The Americas, Europe and AMEA to further increase the attractiveness of our hotels to Chinese travellers. Accredited hotels offer a range of services and amenities catering specifically to the Chinese traveller with frontline teams who have received cultural training to better serve Chinese guests.

 

a Changes to the method for calculating IHG’s guest satisfaction scores (previously Guest HeartBeat) were introduced in 2016. The comparatives for 2014 and 2015 have been restated on the basis that the Guest Love methodology had always applied.

 

 

 

 

 

    LINK BETWEEN KPIS AND DIRECTORS’ REMUNERATION

 

   KPIs that could have an impact on the performance measures for

   2016 remuneration plans:

    LOGO   The Annual Performance Plan
    LOGO   The Long Term Incentive Plan

 

 
24            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

 

KPIs

 

       

2016 status

 

  

2017 specific priorities

 

DISCIPLINED EXECUTION

Fee marginsa

Operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases and significant liquidated damages.

 

LOGO

   LOGO  

3.3ppt

growth in fee margin in 2016

  

  Leverage our increasing scale in operations and systems to drive economies of scale across our portfolio of brands.

 

   Continue to strengthen our delivery capabilities to ensure that critical in-hotel initiatives are embedded on time and on target.

 

Employee Engagement survey scores

Average of our biannual Employee Engagement survey, completed by employees and those who work in our managed hotels (excluding our joint ventures).

 

LOGO

   LOGO  

1.4ppt

increase in Employee Engagement scores in 2016

  

  Continue to develop our ‘Winning Culture’ (see page 19), in particular encouraging our employees to have more regular and open performance conversations, and on embedding performance-management processes.

 

  Drive adoption of improvements to our human resources systems to further our ability to develop and retain talent.

 

DOING BUSINESS RESPONSIBLY

 

Number of people participating in IHG® Academy programmes

 

LOGO

   LOGO  

2,145

IHG Academy programmes across 75 countries

  

  Continue to provide skills and improved employability to people through IHG Academy (see page 18), ensuring a positive impact for local people, our owners and IHG.

 

  Continue to drive quality growth in the programme, including by increasing engagement with our franchise hotels and enabling the transfer of talent between regions.

 

Carbon footprint per occupied room

 

LOGO

   LOGO  

7.4%

reduction in carbon footprint per occupied room (to 31.21 kgCO²e), from 2013 –2016, on a 2012 baseline across our entire estate

 

  

   Continue to reduce our carbon footprint across our entire estate.

 

  Continue to drive quality use of the IHG Green Engage system across our entire estate.

Water use per occupied room in water-stressed areas

 

LOGO

   LOGO  

7.9%c

reduction in water use per occupied room (by 0.06m3), from 2013 – 2016, on a 2012 baseline in water-stressed areas

  

  Continue to reduce water use across our entire estate, with a particular focus on hotels in water-stressed areas.

 

  Implement initiatives at hotel level to improve water stewardship and enable further reductions in water use.

 

 

a  Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non- GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 156 and 157.
b  Restated.
c  We calculate water performance to 15 decimal places. Using a full decimal place calculation results in a 7.9 per cent reduction.

 

LOGO  

For full disclosure of our carbon and water data, please see

www.ihgplc.com/responsible-business under Our performance.

 

 

LOGO

 

 


 

 
Key performance indicators (KPIs)        IHG Annual Report and Form 20-F 2016            25


Table of Contents

 

Performance

Key performance measures (including

Non-GAAP measures) used by management

 

 

 

In addition to the performance measures that are directly observable in the Group Financial Statements, the performance review (and Group highlights on page 2) include the following key performance measures.    

With the exception of RevPAR, these are financial measures that are either not defined under IFRS or are adjusted IFRS figures and are therefore described as Non-GAAP measures.

 

    LOGO    The performance review should be read in conjunction with the Non-GAAP reconciliations on pages 156 and 157 and the glossary on pages 184 to 185.

 

 

Revenue per Available Room (RevPAR)

 

RevPAR is the primary metric used by management to track hotel performance across regions and brands. RevPAR is also a commonly used performance measure in the hotel industry.

RevPAR comprises IHG System rooms revenue divided by the number of room nights available and can be mathematically derived from occupancy rate multiplied by average daily rate. Occupancy rate is rooms occupied by hotel guests expressed as a percentage of rooms that are available. Average daily rate is rooms revenue divided by the number of room nights sold.

References to RevPAR, occupancy and average daily rate are presented on a comparable basis comprising groupings of hotels that have traded in all months in both the current and prior year. The principal exclusions in deriving this measure are new hotels, hotels closed for major refurbishment and hotels sold in either of the two years.

RevPAR and average daily rate are quoted at a constant US dollar conversion rate, in order to allow a better understanding of the comparable year-on-year trading performance excluding distortions created by fluctuations in exchange rates.

 

 

Total gross revenue

 

An important measure of IHG System performance is the growth in total gross revenue which provides a measure of the overall strength of the Group’s brands.

Total gross revenue comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Other than owned and leased hotels, total gross revenue is not revenue attributable to IHG as it is derived mainly from hotels owned by third parties. A reconciliation of total gross revenue to the owned and leased revenue included in the Group Financial Statements is set out on page 28.

 

 

Underlying revenue      Underlying operating profit growth      Underlying fee revenue      Fee margin growth

 

Underlying revenue and underlying operating profit both exclude the impact of owned asset disposals, managed leases, significant liquidated damages and current year acquisitions, all translated at constant currency using prior year exchange rates. Underlying operating profit growth also excludes the impact of exceptional items (see below). The presentation of these additional performance measures allows a better understanding of comparable year-on-year trading and thereby allows an assessment of the underlying trends in the Group’s financial performance. These measures also provide consistency with the Group’s internal management reporting.

Underlying fee revenue and fee margin further exclude the revenue and operating profit of the Group’s remaining owned and leased properties, thereby providing metrics which measure the underlying performance of the Group’s core fee-based business model.

The performance review should be read in conjunction with the Non-GAAP reconciliations on pages 156 and 157, which reconcile these alternative performance measures to the nearest comparable GAAP measures and also show the amounts on both an actual and constant currency basis.

 

 

Total operating profit before exceptional items and tax      Adjusted earnings per ordinary share

 

Total operating profit before exceptional items and tax enables a better understanding of the ongoing operational performance of the Group. For example, total operating profit including exceptional items can be significantly skewed by the profit on disposal of owned assets, as was the case in 2015 with the disposal of InterContinental Hong Kong. In addition, taxes can be influenced by external factors such as legislative changes, and a before tax measure of operating profit is therefore considered more reflective of the Group’s success in executing against its strategy.

Adjusted earnings per ordinary share excludes exceptional items, and their related tax impacts, and is reconciled to basic earnings per share in note 9 on page 117 of the Group Financial Statements. Adjusted earnings per share provides a per share measure that is not skewed by exceptional items.

An analysis of exceptional items for the periods covered by the performance review is included in note 5 on page 112 of the Group Financial Statements.

Exceptional items are identified by virtue of either their size or nature and are excluded from these measures so as to facilitate comparison with prior periods and to assess underlying trends in the financial performance of the Group and its regional operating segments. Exceptional items can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and restructuring costs.

Total operating profit both before and after exceptional items is shown on the face of the Group income statement on page 91, as permitted under IFRS.

 

 

Net debt

 

Net debt is used in the monitoring of the Group’s liquidity and capital structure, and is a number used to calculate the key ratios attached to the Group’s bank covenants.

Net debt comprises loans and other borrowings less cash and cash equivalents, and is reconciled to the amounts included in the Group Financial Statements in note 21 on page 128.

 

 

These are Non-GAAP financial measures which should be viewed as complementary to, and not as a substitute for, the measures prescribed by GAAP.

 

 

 


 

 
26            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

Group

 

 

 

Group results

 

               

 

ACCOUNTING PRINCIPLES

 

The Group results are prepared under International Financial Reporting Standards (IFRS). The application of IFRS requires management to make judgements, estimates and assumptions, and those considered critical to the preparation of the Group results are set out on page 103 of the Group Financial Statements.

 

The Group discloses certain financial information both including and excluding exceptional items. For comparability of the periods presented, some of the performance indicators in this Performance review are calculated after eliminating these exceptional items. Such indicators are prefixed with ‘adjusted’. An analysis of exceptional items is included in note 5 on page 112 of the Group Financial Statements.

     12 months ended 31 December         
     

2016

$m

   

2015

$m

    2016 vs 2015
% change
   

2014

$m

    2015 vs 2014
% change
        
Revenue                                              
Americas      993       955       4.0       871       9.6       
Europe      227       265       (14.3     374       (29.1     
AMEA      237       241       (1.7     242       (0.4     
Greater China      117       207       (43.5     242       (14.5     
Central      141       135       4.4       129       4.7       
Total      1,715       1,803       (4.9     1,858       (3.0     
Operating profit before exceptional items               
Americas      633       597       6.0       544       9.7       
Europe      75       78       (3.8     89       (12.4     
AMEA      82       86       (4.7     84       2.4       
Greater China      45       70       (35.7     89       (21.3     
Central      (128     (151     15.2       (155     2.6       
       707       680       4.0       651       4.5       
Exceptional items      (29     819       (103.5     29             
Operating profit      678       1,499       (54.8     680       120.4       
Net finance costs      (87     (87           (80     (8.8     
Profit before tax      591       1,412       (58.1     600       135.3       
Earnings per ordinary share                                              
Basic      195.3 ¢      520.0 ¢      (62.4     158.3 ¢      228.5       
Adjusted      203.3 ¢      174.9 ¢      16.2       158.3 ¢      10.5       
Average US dollar to sterling exchange rate     

£

$1:

0.74

 

 

   

£

$1:

0.65

 

 

    13.8      

£

$1:

0.61

 

 

    6.6       
               

 

Highlights for the year ended

31 December 2016

During the year ended 31 December 2016, revenue decreased by $88m (4.9%) to $1,715m primarily as a result of the sale of InterContinental Paris – Le Grand and InterContinental Hong Kong. Operating profit and profit before tax both decreased by $821m to $678m and $591m, primarily due to the gain on sale of InterContinental Paris – Le Grand and InterContinental Hong Kong during the year ended 31 December 2015. Operating profit before exceptional items increased by $27m (4.0%) to $707m.

Underlyinga Group revenue and underlyinga Group operating profit increased by $69m (4.6%) and $61m (9.5%) respectively.

Comparable Group RevPAR increased by 1.8% (including an increase in average daily rate of 1.2%). IHG System size increased by 3.1% to 767,135 rooms, whilst underlying Group fee revenueb increased by 2.3% (4.4% at constant currency).

At constant currency, the net central operating loss before exceptional items decreased by $12m (7.9%) to $139m compared to 2015 (but at actual currency decreased by $23m (15.2%) to $128m).

Group fee margin was 48.8%, up 3.3 percentage points (up 2.5 percentage points at constant currency) on 2015, after adjusting for owned and leased hotels, managed leases, and significant liquidated damages. Group fee margin benefited from efficiency improvements and by leveraging our global scale.

Basic earnings per ordinary share decreased by 62.4% to 195.3¢, whilst adjusted earnings per ordinary share increased by 16.2% to 203.3¢, reflecting the increase in operating profit before exceptional items and the impact of the share consolidation in May 2016.

 

a  Underlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
b  Underlying fee revenue is defined as Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages (see pages 156 and 157).
 

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016            27


Table of Contents

PERFORMANCE CONTINUED

 

Group continued

 

 

 

Highlights for the year ended

31 December 2015

During the year ended 31 December 2015, revenue decreased by $55m (3.0%) to $1,803m primarily as a result of the disposal of owned hotels in line with the Group’s asset-light strategy. Operating profit and profit before tax increased by $819m (120.4%) to $1,499m and by $812m (135.3%) to $1,412m respectively, primarily due to the gain on sale of InetrContinental Paris – Le Grand and InterContinental Hong Kong during the year. Operating profit before exceptional items increased by $29m (4.5%) to $680m.

On 16 January 2015, the Group completed the acquisition of Kimpton Holding Group LLC (Kimpton) for cash consideration of $430m before working capital adjustments and cash acquired, resulting in the addition of 62 hotels (11,325 rooms) into the IHG System.

On 20 May 2015, the Group completed the sale of InterContinental Paris – Le Grand for gross proceeds of 330m and, on 30 September 2015, the Group completed the sale of InterContinental Hong Kong for proceeds of $928m after final working capital adjustments and cash tax.

Underlyinga revenue and underlyinga operating profit increased by $113m (8.0%) and $67m (11.5%) respectively. The underlying results exclude the impact of owned hotel disposals in 2015 and the prior year, the results of managed-lease hotels, Kimpton, and significant liquidated damages receipts (2015: $3m; 2014: $7m).

Comparable Group RevPAR increased by 4.4% (including an increase in average daily rate of 3.1%), with growth across all regions. IHG System size increased by 4.8% (3.2% excluding the Kimpton acquisition) to 744,368 rooms, whilst underlying Group fee revenueb increased by 7.5% (3.0% excluding Kimpton).

At constant currency, the net central operating loss before exceptional items increased by $5m (3.2%) to $160m compared to 2014 (but at actual currency decreased by $4m (2.6%) to $151m).

Group fee margin was 46.3%, up 1.6 percentage points (up 1.3 percentage points at constant currency) on 2014, after adjusting for owned and leased hotels, managed leases, Kimpton, and significant liquidated damages. Group fee margin benefited from strong growth in IHG’s scale markets, reflecting scale benefits and tight overhead control.

Basic earnings per ordinary share increased by 228.5% to 520.0¢, whilst adjusted earnings per ordinary share increased by 10.5% to 174.9¢.

Global total gross revenue

 

     12 months ended 31 December  
      2016 $bn      2015 $bn      % change  

Analysed by brand

                          
InterContinental      4.6        4.5        2.2  
Kimpton      1.1        1.1         
Crowne Plaza      4.1        4.2        (2.4
Hotel Indigo      0.4        0.3        33.3  
Holiday Inn      6.2        6.2         
Holiday Inn Express      6.3        6.1        3.3  
Staybridge Suites      0.8        0.8         
Candlewood Suites      0.7        0.7         
Other      0.3        0.1        200.0  

Total

     24.5        24.0        2.1  

Analysed by ownership type

                          
Franchised      14.3        14.1        1.4  
Managed      10.0        9.6        4.2  
Owned and leasedc      0.2        0.3        (33.3

Total

     24.5        24.0        2.1  

Total gross revenue is a Non-GAAP financial measure, see page 26 for additional information.

Total gross revenue increased by 2.1% (4.2% increase at constant currency) to $24.5bn, driven by IHG System size and comparable RevPAR growth.

 

a  Underlying excludes the impact of owned asset disposals, significant liquidated damages, Kimpton, and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
b  Underlying fee revenue is defined as Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages (see pages 156 and 157).
c  See note 2 of the Group Financial Statements on page 106.
 
 

 

 

 
28            IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

Group hotel and room count

 

                   

Total number of hotels

 

5,174

    

    

Total number of rooms

 

767,135

 

During 2016, the global IHG System (the number of hotels and rooms which are franchised, managed, owned or leased by the Group) increased by 142 hotels (22,767 rooms) to 5,174 hotels (767,135 rooms). Openings of 258 hotels (40,134 rooms) were 5.5% lower than in 2015.

 

Openings in The Americas included 128 hotels (15,680 rooms) in the Holiday Inn brand family. 29 hotels (7,938 rooms) were opened in Greater China in 2016, with the Europe and AMEA regions contributing openings of 24 hotels (4,188 rooms) and 17 hotels (4,473 rooms) respectively. 116 hotels (17,367 rooms) left the IHG System in 2016, a decrease from the previous year (143 hotels, 21,679 rooms).

     Hotels            Rooms            
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

           
Analysed by brand                                                  
InterContinental      187        3                63,650        1,610        
Kimpton      61                       11,238        262        
HUALUXE      4        1                1,096        298        
Crowne Plaza      408        2                    113,803        519        
Hotel Indigo      75        10                8,905        1,241        
EVEN Hotels      6        3                1,010        564        
Holiday Inna              1,241        15                231,756        3,656        
Holiday Inn Express      2,497        72                247,009        10,603        
Staybridge Suites      236        16                25,610        1,646        
Candlewood Suites      362        21                34,192        1,864        
Other      97        (1              28,866        504        
Total      5,174        142                767,135        22,767        

 

Analysed by ownership type

                                                 
Franchised      4,321        102                542,650        11,902        
Managed      845        39                222,073        10,670        
Owned and leased      8        1                2,412        195        
Total      5,174        142                767,135        22,767        
                   
a  Includes 46 Holiday Inn Resort properties (11,652 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)
  (2015: 47 Holiday Inn Resort properties (11,518 rooms) and 16 Holiday Inn Club Vacations properties (5,231 rooms)).

 

Group pipeline

 

                  

 

    

Total number of hotels in the pipeline

 

1,470

    

    

Total number of rooms in the pipeline

 

230,076

 

At the end of 2016, the global pipeline totalled 1,470 hotels (230,076 rooms), an increase of 140 hotels (16,160 rooms) on 31 December 2015. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid. Approximately 90% of the closing pipeline at 31 December 2016 is in our 10 priority markets.

 

Group signings increased from 474 hotels in 2015 to 516 hotels whilst rooms decreased from 78,438 rooms to 75,812 rooms in 2016 due to the signing of one large hotel in the Middle East (5,154 rooms) in 2015. This included 328 hotels (47,842 rooms) signed for the Holiday Inn brand family, 28.2% of which were contributed by Greater China (63 hotels, 13,472 rooms).

 

Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 118 hotels (19,518 rooms), compared to 108 hotels (17,004 rooms) in 2015.

     Hotels            Rooms           
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

          
Analysed by brand                                                 
InterContinental      62        10                17,480        1,804       
Kimpton      18                       3,098        (268     
HUALUXE      22        1                6,956        324       
Crowne Plaza      90        6                24,536        1,355       
Hotel Indigo      75        12                10,593        1,385       
EVEN Hotels      6        (2              780        (482     
Holiday Innb      261        5                52,678        474       
Holiday Inn Express      676        74                83,882        8,277       
Staybridge Suites      140        26                15,321        2,680       
Candlewood Suites      108        10                9,604        884       
Other      12        (2              5,148        (273     
Total              1,470        140                    230,076        16,160       

 

Analysed by ownership type

                                                
Franchised      1,039        134                117,694        15,525       
Managed      431        7                112,382        837       
Owned and leased             (1                     (202     
Total      1,470        140                230,076        16,160       
                  
b Includes 14 Holiday Inn Resort properties (3,531 rooms) (2015: 14 Holiday Inn Resort properties (3,548 rooms)).       
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                29


Table of Contents

    

 

LOGO

 

 
30                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

The Americas

 

 

 

Maximise the quality of growth and scale of our System, by focusing on driving brand preference across our core upper midscale and upscale portfolio, over the next three years.   LOGO

 

 

PROGRESS AGAINST 2016

REGIONAL PRIORITIES

 

1. Grew System size by opening 188 hotels, and through key signings for our InterContinental brand (including Houston, Minneapolis, and San Diego). Grew our EVEN Hotels brand, including opening the first franchise in Omaha and two openings in New York City. Delivered a strong year of signings for Kimpton Hotels & Restaurants, and opened its first international hotel with the Kimpton Seafire Resort + Spa, Grand Cayman.

 

2. Strengthened brand preference by embedding the new Holiday Inn Express room design (see page 17), which has delivered strong performance and penetration in the estate. Began driving adoption of the new Holiday Inn room design (see page 17), which became a brand standard in the US and Canada in 2016. Launched the Crowne Plaza Accelerate programme (see page 30).

 

3. Built more meaningful relationships with our guests by implementing IHG Connect, which delivers a faster, more reliable and consistent hotel internet experience. Guests benefit from a seamless, wifi log-in across our estate using their IHG Rewards Club credentials. Hotels that have adopted the system have seen wifi-related scores increase by five points since implementation.

 

4. Drove superior returns for our owners by refining our revenue toolkit, including expansion of the newly approved standard for revenue management, expansion of our revenue management services and embedding our operational model for hotel support.

 

 

IHG’S 2017 REGIONAL PRIORITIES

 

1. Grow System size by opening key properties and strengthening our upscale and luxury portfolio (including the InterContinental Los Angeles Downtown, Hotel Indigo Los Angeles Downtown, and Crowne Plaza HY36 Midtown Manhattan).

 

2. Drive brand preference through the Crowne Plaza Accelerate programme (see page 30), and through the continued scaling of Holiday Inn Express and Holiday Inn new designs.

 

3. Drive superior returns for our owners by expanding our revenue management service, Revenue Management for Hire and, in particular, through the expansion of our owner-centric support model and revenue management standard to Mexico.

 

LOGO

Industry performance in 2016

Industry RevPAR in the Americas increased by 3.8%, driven by a 1.5% increase in room demand and a 4.0% increase in average daily rate. On the supply side, the number of available rooms increased by 1.6%, the highest growth since 2009. All industry segments experienced RevPAR growth, driven by average daily rate. RevPAR in the upper midscale segment, where the Holiday Inn and Holiday Inn Express brands operate, increased by 2.1%, driven by a 2.5% increase in average daily rate. In the US, lodging industry room demand increased by 1.7%, continuing to outpace GDP for the past seven years. Industry room demand set records in all months this year as it has done, except in one month, since March 2011. US supply growth continued to move upwards, reaching 1.6%, (still below the 1.9% per annum historic average). Average daily rate growth of 3.1% drove a 3.2% increase in US RevPAR. In the US, RevPAR increased by 2.3% in upper midscale, 2.1% in upscale and 1.3% in luxury. In Canada, industry RevPAR increased by 4.9%, driven by a 4.3% increase in average daily rate, and in Mexico, RevPAR increased by 17.2%, due to a 17.1% increase in average daily rate.

Source

Smith Travel Research for all of the above industry facts.

IHG’s regional performance in 2016

IHG’s comparable RevPAR in the Americas increased 2.1%, driven by 2.0% average daily rate growth. The region is predominantly represented by the US, where comparable RevPAR increased 1.8%. US RevPAR growth was impacted by our concentration in oil producing markets, where RevPAR declined by 7.5%; in the remainder of the estate RevPAR increased by 3.0%. In the US, we are most represented by our upper midscale brands Holiday Inn and Holiday Inn Express. The Holiday Inn brand increased RevPAR 2.5%, slightly ahead of the segment, whilst Holiday Inn Express brand increased by 1.5%, behind the segment. However, absolute occupancy for both brands was ahead of the industry. In Canada, our comparable RevPAR increased by 2.7% and Mexico increased by 12.9%, both led by rate growth.

Strong demand for IHG-branded hotels continued, with 37,038 rooms signed during 2016. We continued to demonstrate our commitment to quality, with 15,117 rooms leaving the IHG System.

Americas comparable RevPAR

movement on previous year

 

                 

12 months ended

31 December 2016

 
Franchised               Managed        
Crowne Plaza      1.5%       InterContinental      2.7%  
Holiday Inn      2.6%       Kimpton      2.9%  
Holiday Inn Express      1.7%       Crowne Plaza      5.7%  
All brands      1.9%       Holiday Inn      4.9%  
       Staybridge Suites      5.3%  
       Candlewood Suites      1.2%  
       All brands      3.2%  
       Owned and leased  
       EVEN Hotels      15.5%  
       All brands      4.0%  
 

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                31


Table of Contents

PERFORMANCE CONTINUED

The Americas continued

 

 

 

Americas results

 

     12 months ended 31 December  
     

        2016

$m

   

    2015

$m

   

    2016 vs 2015 %

change

    

        2014

$m

   

    2015 vs 2014 %

change

 
Revenue                                          
Franchised      685       661       3.6        630       4.9  
Managed      172       166       3.6        103       61.2  
Owned and leased      136       128       6.3        138       (7.2
Total      993       955       4.0        871       9.6  
Percentage of Group revenue      57.9       53.0       4.9        46.9       6.1  
Operating profit before exceptional items                                          
Franchised      600       575       4.3        544       5.7  
Managed      64       64              47       36.2  
Owned and leased      24       24              18       33.3  
       688       663       3.8        609       8.9  
Regional overheads      (55     (66     16.7        (65     (1.5
       633       597       6.0        544       9.7  
Exceptional items      (29     (41     29.3        110       (137.3
Operating profit      604       556       8.6        654       (15.0
Percentage of Group operating profit before central overheads and exceptional items      75.8       71.9       3.9        67.5       4.4  

 

Highlights for the year ended

31 December 2016

With 3,925 hotels (487,993 rooms), The Americas represented 64% of the Group’s room count and 76% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2016. The key profit-producing region is the US, although the Group is also represented in Latin America, Canada, Mexico and the Caribbean. 88% of rooms in the region are operated under the franchise business model, primarily in the upper midscale segment (the Holiday Inn brand family). In the upscale segment, Crowne Plaza is predominantly franchised whereas, in the upper upscale segment, Kimpton is entirely managed. In the luxury segment, InterContinental-branded hotels are operated under both franchise and management agreements. 11 of the Group’s 12 hotel brands are represented in The Americas.

Revenue and operating profit increased by $38m (4.0%) to $993m and by $48m (8.6%) to $604m respectively. Operating profit before exceptional items increased by $36m (6.0%) to $633m. Underlyinga revenue increased by $53m (5.8%), while underlyinga operating profit increased by $46m (7.7%), driven predominantly by RevPAR growth in the fee business and an increase in net rooms. The underlying results exclude the impact of owned asset disposals, managed leases, and the benefit of significant liquidated damages receipts (2016: $nil; 2015: $3m).

Franchised revenue and operating profit increased by $24m (3.6%) to $685m and by $25m (4.3%) to $600m respectively. Royaltiesb growth of 2.4% was driven by comparable

RevPAR growth of 1.9%, including 2.6% for Holiday Inn and 1.7% for Holiday Inn Express, together with 2.0% rooms growth. On a constant currency basis, revenue and operating profit increased by $29m (4.4%) to $690m and by $30m (5.2%) to $605m respectively.

Managed revenue increased by $6m (3.6%) to $172m, whilst operating profit stayed flat at $64m due to costs relating to our 20% interest in InterContinental New York Barclay and the ongoing impact of new supply on RevPAR growth in New York. Revenue and operating profit included $34m (2015: $38m) and $nil (2015: $nil) respectively from one managed-lease property. Excluding results from this managed-lease hotel, the benefit of significant liquidated damages receipts (2016: $nil; 2015: $3m) and on a constant currency basis, revenue increased by $16m (12.8%) and operating profit increased by $5m (8.2%) respectively.

Owned and leased revenue increased by $8m (6.3%) to $136m, whilst operating profit stayed flat at $24m.

Regional overheads decreased by $11m (16.7%) to $55m due to a $10m year-on-year decrease in US healthcare costs.

 

a  Underlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
b  Royalties are fees, based on rooms revenue, that a franchisee pays to the brand owner for use of the brand name.
c  Underlying excludes the impact of owned asset disposals, significant liquidated damages, Kimpton and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
 

Highlights for the year ended

31 December 2015

Revenue increased by $84m (9.6%) to $955m and operating profit decreased by $98m (15.0%) to $556m, primarily due to the gain on sale of InterContinental New York Barclay and InterContinental Mark Hopkins San Francisco during the year ended 31 December 2014. Operating profit before exceptional items increased by $53m (9.7%) to $597m. Underlyingc revenue increased by $71m (8.8%), while underlyinga operating profit increased by $53m (9.9%), driven predominantly by strong RevPAR growth in the fee business and an increase in net rooms. The underlying results exclude both InterContinental Mark Hopkins San Francisco and InterContinental New York Barclay whilst under IHG ownership, managed leases, Kimpton, and the benefit of significant liquidated damages receipts (2015: $3m; 2014: $7m).

Franchised revenue increased by $31m (4.9%) to $661m, including the impact of the $7m liquidated damages receipts in 2014 (7.9% excluding these liquidated damages and on a constant currency basis). Royaltiesb growth of 5.1% was driven by comparable RevPAR growth of 4.6%, including 4.6% for Holiday Inn and 4.1% for Holiday Inn Express, together with 1.2% rooms growth. Operating profit increased by $31m (5.7%) to $575m, including an $8m increase in fees associated with the initial franchising and relicensing of hotels. Excluding the benefit of significant liquidated damages (2015: $nil; 2014: $7m), and on a constant currency basis, operating profit increased by $47m (8.8%) to $584m.

Managed revenue increased by $63m (61.2%) to $166m, and operating profit increased by $17m (36.2%) to $64m. Revenue and operating profit included $38m (2014: $38m) and $nil (2014: $nil) respectively from one managed-lease property. Kimpton contributed $59m to managed estate revenue and $18m to operating profit, including $3m of significant liquidated damages. Managed operating profit was impacted by costs relating to our 20% interest in InterContinental New York Barclay during its refurbishment (2015: $4m; 2014: $5m). Excluding results for both Kimpton and managed-lease hotels and on a constant currency basis, revenue increased by $9m (13.8%) and operating profit increased by $2m (4.3%).

Owned and leased revenue decreased by $10m (7.2%) to $128m,and operating profit increased by $6m (33.3%) to $24m, following the disposal of two owned hotels (InterContinental Mark Hopkins San Francisco and an 80% interest in InterContinental New York Barclay) during 2014. Excluding these two hotels and on a constant currency basis, owned and leased revenue and operating profit increased by $13m and $5m, respectively, reflecting improved trading at InterContinental Boston and at Holiday Inn Aruba.

 

 

 
32                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

Americas hotel and room count

 

                  

Total number of hotels

 

3,925

    

    

Total number of rooms

 

487,993

 

The Americas System size increased by 85 hotels (8,418 rooms) to 3,925 hotels (487,993 rooms) during 2016. 188 hotels (23,535 rooms) opened in the year, compared to 183 hotels (22,942 rooms) in 2015. Openings included 128 hotels (15,680 rooms) in the Holiday Inn brand family, representing 66.6% of the region’s openings.

 

103 hotels (15,117 rooms) were removed from The Americas System in 2016, demonstrating our continued commitment to quality, compared to 104 hotels (14,709 rooms) in 2015. 37.3% of 2016 room removals were Holiday Inn rooms in the US (30 hotels, 5,638 rooms) compared to 44.0% in 2015 (31 hotels, 6,466 rooms).

     Hotels            Rooms           
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

          
Analysed by brand                                                 
InterContinental      48        (2              16,408        (701     
Kimpton      61                       11,238        262       
Crowne Plaza      164        (8              44,116        (2,200     
Hotel Indigo      46        6                5,932        861       
EVEN Hotels      6        3                1,010        564       
Holiday Inna      774        2                136,744        749       
Holiday Inn Express              2,154        48                    192,371        5,399       
Staybridge Suites      226        15                24,185        1,523       
Candlewood Suites      362        21                34,192        1,864       
Other      84                       21,797        97       
Total      3,925        85                487,993        8,418       

 

Analysed by ownership type

                                                
Franchised      3,633        85                430,866        8,636       
Managed      286        (1              55,302        (413     
Owned and leased      6        1                1,825        195       
Total      3,925        85                487,993        8,418       
Percentage of Group hotel and room count      75.9        (0.4              63.6        (0.8     
    

a   Includes 25 Holiday Inn Resort properties (6,791 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)

   (2015: 23 Holiday Inn Resort properties (5,902 rooms) and 16 Holiday Inn Club Vacations properties (5,231 rooms)).

    

    

    

 

Americas pipeline

 

                  

 

    

Total number of hotels in the pipeline

 

945

    

    

Total number of rooms in the pipeline

 

102,451

 

At 31 December 2016, The Americas pipeline totalled 945 hotels (102,451 rooms), representing an increase of 80 hotels (6,067 rooms) over the prior year. Strong signings of 332 hotels (37,038 rooms) were ahead of last year by seven hotels, but lower by 617 rooms. The majority of 2016 signings were within the Holiday Inn brand family (204 hotels, 21,826 rooms) and our extended-stay brands, Staybridge Suites and Candlewood Suites (93 hotels, 9,130 rooms).

 

64 hotels (7,436 rooms) were removed from the pipeline in 2016 compared, to 69 hotels (7,661 rooms) in 2015.

     Hotels          Rooms           
At 31 December    2016     

Change

over 2015

          2016     

Change

over 2015

          
Analysed by brand                                             
InterContinental      7        3            2,532        987       
Kimpton      17        (1          2,949        (417     
Crowne Plaza      17        2            3,286        796       
Hotel Indigo      32        2            3,965        (59     
EVEN Hotels      6        (2          780        (482     
Holiday Innb      128        3            17,304        (899     
Holiday Inn Express                488        39                  46,796        2,851       
Staybridge Suites      131        26            13,896        2,666       
Candlewood Suites      108        10            9,604        884       
Other      11        (2          1,339        (260     
Total      945        80            102,451        6,067       

 

Analysed by ownership type

                                            
Franchised      897        88            93,295        7,432       
Managed      48        (7          9,156        (1,163     
Owned and leased             (1                 (202     
Total      945        80            102,451        6,067       
                  

b  Includes three Holiday Inn Resort properties (455 rooms) (2015: seven Holiday Inn Resort properties (1,657 rooms)).

   

    

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                33


Table of Contents

PERFORMANCE CONTINUED

Europe

 

 

 

Continue to grow in priority markets and key cities, whilst driving brand preference, focusing on quality and innovation in guest experience, over the next three years.   LOGO

 

 

PROGRESS AGAINST 2016

REGIONAL PRIORITIES

 

1. Grew our System size, and our potential for future growth, by focusing on significantly increasing our scale in Germany (see page 30). In 2016, 22 hotels were signed or opened.

 

2. Strengthened brand preference by embedding the new Holiday Inn open-lobby concept – 58 per cent of the estate has implemented or committed to implement it, which has already resulted in an eight percentage-point increase in Guest Love scores versus pre-refurbishment. Embedded the new room design for Holiday Inn Express – 56 per cent of the estate has implemented or committed to implement it, which has already resulted in a five percentage-point increase in Guest Love scores versus pre-refurbishment. Signed the first two Kimpton Hotels & Restaurants hotels in Europe’s key cities, the first to open in Amsterdam in early 2017.

 

3. Drove demand through our direct channels by rolling out Your Rate across the UK and Ireland, Belgium, Netherlands, France and Germany (see page 16).

 

 

IHG’S 2017 REGIONAL PRIORITIES

 

1. Grow System size by driving growth in our priority markets of the UK, Germany, and Russia and CIS, and across key cities, localising our brands as necessary.

 

2. Drive brand preference through the adoption of our innovative design concepts, including the Holiday Inn open-lobby concept and the new room design for Holiday Inn Express, thereby continuing to improve the guest experience and increase guest satisfaction. Establish Kimpton in the region, by building on the momentum of our 2016 signings.

 

3. Drive demand through our direct channels by completing the roll-out of Your Rate in the whole Europe region.

LOGO

 

Industry performance in 2016

The hotel industry in Europe is influenced by the larger markets in the region, notably the UK and Germany. Slowing demand due to security concerns held back European industry RevPAR in 2016, which increased by 2.5%. Regional room demand increased 1.4% and the average daily rate increased by 2.0%. RevPAR growth in the UK was 1.4%, driven by a 1.6% increase in average daily rate and a 1.8% increase in demand. In Germany, RevPAR saw strong growth of 4.7%, driven by a 3.7% growth in average daily rate and a 1.5% increase in demand. Russia saw growth of 15.7% driven by a 7.7% increase in average daily rate.

Source

Smith Travel Research for all of the above industry facts.

IHG’s regional performance in 2016

IHG’s regional comparable RevPAR increased by 1.7%, driven by average daily rate growth of 1.4%. The UK achieved strong growth of 2.6%, ahead of the industry, led by average daily rate growth in the provinces. In Germany, a favourable trade fair calendar led to RevPAR growth of 6.8%, ahead of industry in both occupancy and average daily rate. Russia RevPAR increased by 16.4%, ahead of industry. Across the rest of Europe, RevPAR declined by 1.4%, impacted by challenging trading conditions in France, Turkey and Belgium.

Europe comparable RevPAR

movement on previous year

 

                 

12 months ended

31 December 2016

Franchised               Managed      
All brands      2.0%       All brands    (0.3)%
 

 

 
34                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

Europe results

 

     12 months ended 31 December  
     

        2016

$m

   

    2015

$m

   

    2016 vs 2015 %

change

   

        2014

$m

   

    2015 vs 2014 %

change

 
Revenue                                         
Franchised      102       104       (1.9     104        
Managed      125       131       (4.6     159       (17.6
Owned and leased            30       (100.0     111       (73.0
Total      227       265       (14.3     374       (29.1
Percentage of Group revenue      13.3       14.7       (1.4     20.1       (5.4
Operating profit before exceptional items                                         
Franchised      78       77       1.3       78       (1.3
Managed      22       28       (21.4     30       (6.7
Owned and leased            1       (100.0     14       (92.9
       100       106       (5.7     122       (13.1
Regional overheads      (25     (28     10.7       (33     15.2  
       75       78       (3.8     89       (12.4
Exceptional items            175       (100.0     (56     412.5  
Operating profit      75       253       (70.4     33       666.7  
Percentage of Group operating profit before central overheads and exceptional items      9.0       9.4       (0.4     11.0       (1.6

 

Highlights for the year ended

31 December 2016

Comprising 677 hotels (110,069 rooms) at the end of 2016, Europe represented 14% of the Group’s room count and 9% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2016. Revenues are primarily generated from hotels in the UK and continental European gateway cities. The largest proportion of rooms in Europe are operated under the franchise business model primarily in the upper midscale segment (Holiday Inn and Holiday Inn Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas, in the luxury segment, the majority of InterContinental-branded hotels are operated under management agreements.

Revenue decreased by $38m (14.3%) to $227m and operating profit decreased by $178m (70.4%) to $75m, primarily due to the gain on sale of InterContinental Paris – Le Grand during the year ended 31 December 2015. Operating profit before exceptional items decreased by $3.0m (3.8%) to $75m. Underlyinga revenue increased by $1m (0.6%) and underlyinga operating profit stayed flat at $76m. Overall, comparable RevPAR in Europe increased by 1.7%, with the UK increasing by 2.6%, led by average daily rate growth in the provinces, Germany growing by 6.8% and Russia and CIS growing at 14.7%.

Franchised revenue decreased by $2m (1.9%) to $102m, whilst operating profit increased by $1m (1.3%) to $78m. On a constant currency basis, revenue and operating profit increased by $6m (5.8%) and $6m (7.8%) respectively.

Managed revenue decreased by $6m (4.6%) and operating profit decreased by $6m (21.4%). Revenue and operating profit included $77m (2015: $75m) and $2m (2015: $1m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue decreased by $5m (8.9%) and operating profit decreased by $6m (22.2%). Performance was impacted by difficult trading conditions for our hotels in Paris, and a revenue reduction in relation to three managed hotels; two of which have exited the system and one of which is undergoing a major refurbishment.

The last remaining hotel in the owned and leased estate, InterContinental Paris – Le Grand, was sold in 2015. Following this, revenue and operating profit in the estate decreased to nil.

 

a  Underlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
 

 

 

Highlights for the year ended

31 December 2015

Revenue decreased by $109m (29.1%) to $265m and operating profit increased by $220m (666.7%) to $253m, primarily due to the gain on sale of the InterContinental Paris – Le Grand. Operating profit before exceptional items decreased by $11m (12.4%) to $78m. The decrease in revenue and operating profit before exceptional items was primarily due to InterContinental Paris – Le Grand becoming a managed property and the negative impact of significant foreign exchange translation movement. Underlyinga revenue and underlyinga operating profit increased by $13m (7.5%) and $17m (23.3%) respectively, with the transition of 61 UK managed hotels to franchise contracts driving an increase in underlying franchise fees, and cost efficiencies reducing regional overheads. Overall, comparable RevPAR in Europe increased by 5.4%, with the UK increasing by 5.1%, led by rate growth in both London and the provinces, and Germany growing by 4.4%.

Franchised revenue remained flat at $104m, whilst operating profit decreased by $1m (1.3%) to $77m. On a constant currency basis, revenue and operating profit increased by $15m (14.4%) and $11m (14.1%) respectively, following the transition of UK managed hotels to franchise contracts.

Managed revenue decreased by $28m (17.6%) and operating profit decreased by $2m (6.7%). Revenue and operating profit included $75m (2014: $90m) and $1m (2014: $2m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue decreased by $2m (2.9%) and operating profit increased by $3m (10.7%), impacted by the transition of UK managed hotels to franchise contracts.

The one remaining hotel in the owned and leased estate, InterContinental Paris – Le Grand, was sold on 20 May 2015 for gross proceeds of 330m. Owned and leased revenue decreased by $81m (73.0%) to $30m and operating profit decreased by $13m (92.9%) to $1m.

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                35


Table of Contents

PERFORMANCE CONTINUED

Europe continued

 

 

 

Europe hotel and room count

 

                  

Total number of hotels

 

677

    

    

Total number of rooms

 

110,069

 

During 2016, Europe System size increased by 17 hotels (3,358 rooms) to 677 hotels (110,069 rooms). The Group opened 24 hotels (4,188 rooms) in Europe in 2016, compared to 36 hotels (5,493 rooms) in 2015.

 

Seven hotels (830 rooms) left the Europe System in the period, compared to 23 hotels (2,990 rooms) in the previous year.

     Hotels            Rooms           
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

          
Analysed by brand                                                 
InterContinental      31        (1              9,724        (162     
Crowne Plaza      92        4                20,887        618       
Hotel Indigo      21        2                1,910        120       
Holiday Inna      291        6                47,829        1,679       
Holiday Inn Express      234        6                28,578        1,053       
Staybridge Suites      7        1                1,000        123       
Other      1        (1              141        (73     
Total      677        17                110,069        3,358       

 

Analysed by ownership type

                                                
Franchised      629        14                97,030        2,620       
Managed      48        3                13,039        738       
Total      677        17                110,069        3,358       
Percentage of Group hotel and room count      13.1                       14.4        0.1       
                  
a  Includes one Holiday Inn Resort property (88 rooms) (2015: two Holiday Inn Resort properties (212 rooms)).

 

Europe pipeline

 

                  

 

    

Total number of hotels in the pipeline

 

137

    

    

Total number of rooms in the pipeline

 

23,954

 

The Europe pipeline totalled 137 hotels (23,954 rooms) at 31 December 2016, representing an increase of 24 hotels (3,422 rooms) over 31 December 2015. New room signings reached their highest level since 2007 with 60 hotels (9,554 rooms), an increase of 12 hotels (728 rooms) from the prior year. Signings included 17 hotels (2,790 rooms) in Germany, a record number of signings for the third year running and 12 hotels (1,952 rooms) in the UK.

 

12 hotels (1,944 rooms) were removed from the pipeline in 2016, compared to 13 hotels (1,694 rooms) in 2015.

     Hotels            Rooms           
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

          
Analysed by brand                                                 
InterContinental      6        1                813        (69     
Kimpton      1        1                149        149       
Crowne Plaza      14        3                3,185        512       
Hotel Indigo      18        7                2,264        861       
Holiday Inn      35        (2              7,511        (323     
Holiday Inn Express      58        13                9,395        2,197       
Staybridge Suites      5        1                637        126       
Other                                   (31     
Total      137        24                23,954        3,422       

 

Analysed by ownership type

                                                
Franchised      111        23                17,908        3,781       
Managed      26        1                6,046        (359     
Total      137        24                23,954        3,422       
                  

 

 
36                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

Asia, Middle East and Africa (AMEA)

 

 

 

Focus on portfolio growth in key cities and resort destinations, while increasing our revenue share through enhanced guest satisfaction and greater loyalty contribution, over the next three years.   LOGO

 

 

PROGRESS AGAINST 2016

REGIONAL PRIORITIES

 

1. Grew System size with in-year conversions of over 2,150 rooms in Japan, India, Indonesia and elsewhere. We accelerated our growth by signing over 10,500 rooms, most for full-service brands, and many in high RevPAR locations such as Japan, Australia and the Republic of Maldives.

 

2. Strengthened brand preference in the boutique and lifestyle segment in the AMEA region by opening the Hotel Indigo Singapore Katong, and entering into an agreement to introduce EVEN Hotels to Australia and New Zealand.

 

3. Supported our people strategy through the launch of our Learning Culture for General Managers and Corporate colleagues, to further leadership skills and business agility. Recognised by Great Places to Work as the third preferred employer in Singapore and fourth in Saudi Arabia across all industries.

 

 

IHG’S 2017 REGIONAL PRIORITIES

 

1. Grow System size in key cities and resort destinations through both new build and conversion signings. Particular attention to be paid to IHG’s strong portfolio of boutique and lifestyle brands to drive high-value growth.

 

2. Drive brand preference through relentless focus on service and enhance contribution from IHG Rewards Club, thereby continuing to improve the guest experience and increase guest satisfaction.

 

3. Drive superior returns for our owners through improved communication and refinement of our hotel design and opening processes, to ensure market-leading ROI.

LOGO

Industry performance in 2016

AMEA room demand growth was offset by supply growth, resulting in flat occupancy. Falling average daily rate in several key countries suppressed RevPAR growth to 0.9%. Slowing global trade and weak oil prices impacted lodging performance in Indonesia, United Arab Emirates (UAE) and Saudi Arabia. Industry RevPAR declined in all three countries by 4.0% in Indonesia, 8.5% in Saudi Arabia and 9.0% in UAE. Decreasing average daily rates were the principal driver in Indonesia and UAE, whilst both occupancy and average daily rate fell in Saudi Arabia. In contrast, Japan achieved solid RevPAR growth of 4.0% due to an increase in average daily rate. RevPAR increased in India by 5.9% and in Thailand by 3.7%, both led by occupancy growth. Australia RevPAR increased by 2.2%, driven by a 1.2% increase in average daily rate.

Source

Smith Travel Research for all of the above industry facts.

IHG’s regional performance in 2016

Across this large region, IHG is widely represented, both geographically and by brand, meaning comparisons with the industry are hard to make. IHG regional comparable RevPAR decreased by 0.2% due to a decline in average daily rate, offset by occupancy gains. Middle East RevPAR declined by 7.0%, impacted by declining oil prices. Performance outside the Middle East was strong with 3.7% RevPAR growth overall. Performance was led by strong positive trading in the mature markets of Japan, where RevPAR increased by 3.6%, and in Australia where RevPAR increased by 2.9% ahead of the industry. India outperformed the market with strong RevPAR growth of 14.1%. Total RevPAR was down 2.0% for the year impacted by the proportion of hotel openings in developing markets where RevPARs are significantly lower than developed markets.

AMEA comparable RevPAR movement on previous year

 

                 

12 months ended

31 December 2016

Franchised               Managed      
All brands      (0.1 )%      All brands    (0.2)%
 

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                37


Table of Contents

PERFORMANCE CONTINUED

Asia, Middle East and Africa (AMEA) continued

 

 

 

AMEA results

 

     12 months ended 31 December  
     

        2016

$m

   

    2015

$m

   

    2016 vs 2015 %

change

   

        2014

$m

   

    2015 vs 2014 %

change

 
Revenue                                         
Franchised      16       16             16        
Managed      184       189       (2.6     187       1.1  
Owned and leased      37       36       2.8       39       (7.7
Total      237       241       (1.7     242       (0.4
Percentage of Group revenue      13.8       13.3       0.5       13.0       0.3  
Operating profit before exceptional items                                         
Franchised      12       12             12        
Managed      89       90       (1.1     88       2.3  
Owned and leased      2       3       (33.3     3        
       103       105       (1.9     103       1.9  
Regional overheads      (21     (19     (10.5     (19      
       82       86       (4.7     84       2.4  
Exceptional items            (2     100.0             (100.0
Operating profit      82       84       (2.4     84        
Percentage of Group operating profit before central overheads and exceptional items      9.8       10.4       (0.6     10.5       (0.1

 

Highlights for the year ended

31 December 2016

Comprising 280 hotels (76,051 rooms) at 31 December 2016, AMEA represented 10% of the Group’s room count and contributed 10% of the Group’s operating profit before central overheads and exceptional items during the year. 83% of rooms in AMEA are operated under the managed business model.

Revenue and operating profit decreased by $4m (1.7%) to $237m and by $2m (2.4%) to $82m respectively. Operating profit before exceptional items decreased by $4m (4.7%) to $82m. Underlyinga revenue and underlyinga operating profit decreased by $8m (4.1%) and $3m (3.7%) respectively.

Comparable RevPAR decreased 0.2% primarily due to a fall in rate. Performance was positive in India, which grew by 14.1%, and Japan exhibited growth of 3.6%, however the Middle East decreased by 7.0%, impacted by declining oil prices and oversupply.

On an actual and constant currency basis franchised revenue and operating profit remained flat at $16m and $12m respectively.

Managed revenue and operating profit decreased by $5m (2.6%) to $184m and $1m (1.1%) to $89m respectively. Revenue and operating profit included $51m (2015: $46m) and $5m (2015: $5m) respectively from one managed-lease property. Excluding results from this hotel and on a constant currency basis, revenue decreased by $9m (6.3%) to $134m, whilst operating profit remained flat at $85m. Good underlying growth in our managed business was offset by a $7m revenue reduction in relation to four hotels; three long standing contracts being renewed onto standard market terms and one equity stake disposal.

In the owned and leased estate, on an actual and constant currency basis, revenue increased by $1m (2.8%) to $37m and operating profit decreased by $1m (33.3%) to $2m.

 

a  Underlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
 

Highlights for the year ended

31 December 2015

Revenue decreased by $1m (0.4%) to $241m, whilst operating profit remained flat at $84m. Operating before exceptional items increased by $2m (2.4%) to $86m. Revenue and operating profit before exceptional items were both adversely impacted by foreign exchange translation. Underlyinga revenue and underlyinga operating profit increased by $13m (6.5%) and $7m (8.7%) respectively.

Comparable RevPAR increased 4.5%, driven by growth in both rate and occupancy. Performance was led by strong positive trading in the mature markets of Japan, which grew by 14.6%, and Australia, which increased by 4.5%. South East Asia exhibited growth of 5.7%, however the Middle East increased by 0.2%, impacted by declining oil prices.

Franchised revenue and operating profit remained flat at $16m and $12m respectively. On a constant currency basis, revenue and operating profit increased by $1m (6.3%) and $1m (8.3%) respectively.

Managed revenue increased by $2m (1.1%) to $189m and operating profit increased by $2m (2.3%) to $90m. Comparable RevPAR increased by 5.4%, with the majority of rooms opening in the last quarter of 2015. Revenue and operating profit included $46m (2014: $41m) and $5m (2014: $4m) respectively from one managed-lease property. Excluding results from this hotel and on a constant currency basis, revenue increased by $9m (6.2%), whilst operating profit increased by $6m (7.1%).

In the owned and leased estate, revenue decreased by $3m (7.7%) to $36m and operating profit remained flat at $3m. On a constant currency basis, revenue increased by $3m (7.7%) and operating profit increased by $1m (33.3%).

 

 

 
38                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

 

AMEA hotel and room count

 

                  

Total number of hotels

 

280

    

    

Total number of rooms

 

76,051

 

The AMEA System size increased by 13 hotels (3,478 rooms) to 280 hotels (76,051 rooms) as at 31 December 2016. Openings decreased by five hotels (2,139 rooms) to 17 hotels (4,473 rooms) in 2016. Four hotels (995 rooms) were removed from the AMEA System in 2016, compared to eight hotels (1,915 rooms) in 2015.

     Hotels             Rooms          
At 31 December    2016     

Change

over 2015

             2016     

Change

over 2015

         
Analysed by brand                                                 
InterContinental      69        1                 21,203        (35    
Crowne Plaza      73        2                 20,749        738      
Hotel Indigo      2        1                 323        131      
Holiday Inna      93        2                 21,312        328      
Holiday Inn Express      34        7                 7,583        1,697      
Staybridge Suites      3                        425             
Other      6                        4,456        619      
Total                280        13                       76,051        3,478      

 

Analysed by ownership type

                                                
Franchised      55        3                 12,570        646      
Managed      223        10                 62,894        2,832      
Owned and leased      2                        587             
Total      280        13                 76,051        3,478      
Percentage of Group hotel and room count      5.4        0.1                 9.9        0.1      

 

a Includes 14 Holiday Inn Resort properties (2,953 rooms) (2015: 15 Holiday Inn Resort properties (3,169 rooms))

 

AMEA pipeline

 

                 

 

Total number of hotels in the pipeline

 

149

    

    

Total number of rooms in the pipeline

 

39,643

 

At 31 December 2016, the AMEA pipeline totalled 149 hotels (39,643 rooms) compared to 147 hotels (38,216 rooms) at 31 December 2015. Hotel signings in AMEA were at their highest since 2008 with 42 hotels (10,551 rooms), an increase of seven hotels although a fall in terms of rooms (1,890 rooms) from the level seen in 2015. Signings in 2016 included 23 hotels (5,934 rooms) in the Holiday Inn brand family and eight InterContinental hotels (1,737 rooms).

 

23 hotels (4,651 rooms) were removed from the pipeline in 2016, compared to eight hotels (1,959 rooms) in 2015.

     Hotels            Rooms          
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

         
Analysed by brand                                                
InterContinental      27        5                6,681        1,332      
Crowne Plaza      21        2                5,554        253      
Hotel Indigo      14        1                2,582        301      
Holiday Innb      48        3                13,022        1,493      
Holiday Inn Express      35        (8              7,486        (1,858    
Staybridge Suites      4        (1              788        (112    
Other                            3,530        18      
Total                  149        2                      39,643        1,427      

 

Analysed by ownership type

                                               
Franchised      11        3                2,406        227      
Managed      138        (1              37,237        1,200      
Total      149        2                39,643        1,427      

 

b  Includes five Holiday Inn Resort properties (1,256 rooms) (2015: four Holiday Inn Resort properties (1,071 rooms)).

   

   
                 
                 
                 

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                39


Table of Contents

PERFORMANCE CONTINUED

Greater China

 

 

 

Further grow System size, particularly in tier 2 and 3 cities and in the growing midscale segment, whilst developing a strong local talent pipeline for our hotels, over the next three years.   LOGO

 

 

PROGRESS AGAINST 2016

REGIONAL PRIORITIES

 

1. Grew System size by opening five InterContinental hotels, including two flagship hotels in Beijing and Shanghai. We also signed 82 new hotels, including four HUALUXE hotels, and increased our pipeline to 239 hotels, out of which around 90 per cent are in tier 2 and 3 cities.

 

2. Drove superior returns for our owners through the successful introduction of the Franchise Plus business model for the Holiday Inn Express brand in May (see page 30), with a dedicated support structure to capture the growth opportunity in the midscale segment. In 2016, a total of 20 hotels under the Franchise Plus business model were signed.

 

3. Supported our people strategy through the resourcing and development of hotel talent. Rolled out the IHG Frontline programme to drive consistent and effective frontline training, with almost 150 hotels actively adopting the system.

 

 

IHG’S 2017 REGIONAL PRIORITIES

 

1. Grow System size, under both the managed and franchised business models, through a deeper penetration in tier 2 and 3 cities and a strengthened Holiday Inn and Holiday Inn Express presence to capture the growing midscale segment opportunity.

 

2. Maximise System size growth potential by further expanding IHG’s brand portfolio in the market. Continue to build brand awareness and drive performance of opened hotels for the HUALUXE brand.

 

3. Drive brand preference by focusing on the delivery of consistent guest experiences for our brands. Further tailor IHG enterprise platforms to better meet evolving market needs.

 

4. Support our people strategy by developing a strong local talent pipeline, particularly in tier 2 and 3 cities. Continue to develop and strengthen capabilities to support the needs of the franchise business.

LOGO

Industry performance in 2016

Lodging industry RevPAR growth in Greater China was flat in the year, an improvement on a 2.4% decline in 2015. Industry occupancy increased 1.6 points driven by a 6.4% increase in room demand. Average daily rate decreased by 2.5%. RevPAR in mainland China increased by 1.6%, driven by a 6.9% increase in room demand and an occupancy increase of 1.8 points. The average daily rate decreased by 1.3%. The country’s two largest city markets in terms of hotel rooms, Beijing and Shanghai, both increased RevPAR due to rising room demand. Shanghai RevPAR growth of 3.1% was due to an occupancy increase. Beijing RevPAR growth of 5.0% was due to both occupancy and a moderate average daily rate increase of 2.0%. RevPAR in Hong Kong and Macau declined by 2.1% and 9.1% respectively, both driven by average daily rate declines as room demand increased.

Source

Smith Travel Research for all of the above industry facts.

IHG’s regional performance in 2016

IHG’s regional comparable RevPAR increased 2.2% in 2016, significantly ahead of the industry. Our RevPAR growth was driven by better than industry occupancy, which increased by 4.4%, whilst average daily rate decreased by 2.2%. Mainland China RevPAR increased by 3.9% led by growth of 6.3% in tier 1 cities driven by strong corporate demand. The rest of mainland China grew by 2.2%. Hong Kong RevPAR declined by 2.3%, slightly below the industry. Taiwan and Macau experienced significant trading declines of 10.5% and 13.5% respectively.

Greater China comparable RevPAR

movement on previous year

 

     

12 months ended

31 December 2016

Managed      
All brands    3.0%
 

 

 
40                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

 

 

Greater China results

 

     12 months ended 31 December  
     

        2016

$m

   

    2015

$m

   

    2016 vs 2015 %

change

   

        2014

$m

   

    2015 vs 2014 %

change

 
Revenue                                         
Franchised      3       4       (25.0     4        
Managed      114       105       8.6       99       6.1  
Owned and leased            98       (100.0     139       (29.5
Total      117       207       (43.5     242       (14.5
Percentage of Group revenue      6.8       11.5       (4.7     13.0       (1.5
Operating profit before exceptional items                                         
Franchised      3       5       (40.0     5        
Managed      64       59       8.5       63       (6.3
Owned and leased            29       (100.0     42       (31.0
       67       93       (28.0     110       (15.5
Regional overheads      (22     (23     4.3       (21     (9.5
       45       70       (35.7     89       (21.3
Exceptional items            698       (100.0           100.0  
Operating profit      45       768       (94.1     89       762.9  
Percentage of Group operating profit before central overheads and exceptional items      5.4       8.4       (3.0     11.0       (2.6

 

Highlights for the year ended

31 December 2016

Comprising 292 hotels (93,022 rooms) at 31 December 2016, Greater China represented approximately 12% of the Group’s room count and contributed approximately 5% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2016. 98% of rooms in Greater China are operated under the managed business model.

Revenue decreased by $90m (43.5%) to $117m and operating profit decreased by $723m (94.1%) to $45m, primarily due to the gain on sale of InterContinental Hong Kong in 2015. Operating profit before exceptional items decreased by $25m (35.7%) to $45m. Underlyinga revenue and underlyinga operating profit increased by $14m (12.8%) and by $6m (14.6%) respectively. Overall, the region achieved comparable RevPAR growth of 2.2%. Trading in mainland tier 1 cities was particularly strong, whilst the rest of mainland China showed slower growth.

On an actual and constant currency basis, franchised revenue and operating profit decreased by $1m (25.0%) and by $2m (40.0%) respectively.

Managed revenue and operating profit increased by $9m (8.6%) to $114m and by $5m (8.5%) to $64m respectively. Comparable RevPAR increased by 3.0%, whilst the Greater China System size grew by 9.0%, driving a 7.0% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 6.8%, primarily due to increased food and beverage revenue. On a constant currency basis, revenue and operating profit increased by $15m (14.3%) to $120m and by $8m (13.6%) to $67m respectively, with ongoing investment in growth initiatives more than offset by scale efficiencies and strategic cost management.

The last remaining hotel in the owned and leased estate, InterContinental Hong Kong, was sold in 2015. Following this, revenue and operating profit in the estate decreased to nil.

 

a  Underlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior year exchange rates (see pages 156 and 157). Underlying operating profit growth also excludes the impact of exceptional items.
 

 

 

Highlights for the year ended

31 December 2015

Revenue decreased by $35m (14.5%) to $207m and operating profit increased by $679m to $768m due to the gain on sale of InterContinental Hong Kong. Operating profit before exceptional items decreased by $19m (21.3%) to $70m. Underlyinga revenue increased by $8m (7.8%) due to the addition of over 20,000 rooms into the managed estate over the last two years. Underlyinga operating profit decreased by $5m (10.6%), impacted by $5m of ongoing investment into building long-term people capability, as well as the year-on-year impact from $5m of previously disclosed one-off upsides in 2014. Overall, the region achieved comparable RevPAR growth of 0.3%, significantly ahead of the industry, reflecting our scale and management strength in the region. Trading in mainland tier 1 cities was particularly strong, whilst the rest of mainland China showed marginal increases. Trading in Hong Kong and Macau significantly declined. Total RevPAR in Greater China decreased by 2.3% as more hotels opened into developing markets.

Franchised revenue and operating profit remained flat at $4m and $5m respectively.

Managed revenue increased by $6m (6.1%) to $105m, whilst operating profit decreased by $4m (6.3%) to $59m, impacted by the above-mentioned investment in people capability and previously disclosed one-off upsides in 2014. Comparable RevPAR increased by 1.1%, whilst the Greater China System size grew by 10.4%, driving a 4.8% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 7.9%, due primarily to increased food and beverage revenue. On a constant currency basis, revenue increased by $8m (8.1%) to $107m, whilst operating profit decreased by $3m (4.8%) to $60m.

The one remaining hotel in the owned and leased estate, InterContinental Hong Kong, was sold on 30 September 2015 for proceeds of $928m after final working capital adjustments and cash tax. Owned and leased revenue decreased by $41m (29.5%) to $98m and operating profit decreased by $13m (31.0%) to $29m.

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                41


Table of Contents

PERFORMANCE CONTINUED

Greater China continued

 

 

 

Greater China hotel and room count

 

                  

Total number of hotels

 

292

    

    

Total number of rooms

 

93,022

 

The Greater China System size increased by 27 hotels (7,513 rooms) in the year to 292 hotels (93,022 rooms). 29 hotels (7,938 rooms) opened during 2016, three hotels and 1,442 rooms lower than 2015. Recent growth in the region has focused on tier 2 and 3 cities, which now represent approximately 65% of our open rooms. 17 Holiday Inn brand family hotels (3,773 rooms) were also added in the year, compared to 19 hotels (4,567 rooms) in 2015.

 

Two hotels (425 rooms) were removed in 2016 compared to eight hotels (2,065 rooms) in 2015.

     Hotels             Rooms          
At 31 December    2016     

Change

over 2015

             2016     

Change

over 2015

         
Analysed by brand                                                 
InterContinental      39        5                 16,315        2,508      
HUALUXE      4        1                 1,096        298      
Crowne Plaza      79        4                 28,051        1,363      
Hotel Indigo      6        1                 740        129      
Holiday Inna      83        5                     25,871        900      
Holiday Inn Express      75        11                 18,477        2,454      
Other      6                        2,472        (139    
Total                292        27                 93,022        7,513      

 

Analysed by ownership type

                                                
Franchised      4                        2,184             
Managed      288        27                 90,838        7,513      
Total      292        27                 93,022        7,513      
Percentage of Group hotel and room count      5.6        0.3                 12.1        0.6      
                  
a Includes six Holiday Inn Resort properties (1,820 rooms) (2015: seven Holiday Inn Resort properties (2,235 rooms)).

 

Greater China pipeline

 

                 

 

    

Total number of hotels in the pipeline

 

239

    

    

Total number of rooms in the pipeline

 

64,028

 

At 31 December 2016, the Greater China pipeline totalled 239 hotels (64,028 rooms) compared to 205 hotels (58,784 rooms) at 31 December 2015. Signings (82 hotels (18,669 rooms)) were the highest since 2007 in terms of hotel count but decreased from 19,516 rooms in 2015. 63 hotels (13,472 rooms) were signed for the Holiday Inn brand family, including 20 franchised Holiday Inn Express hotels since launching the new franchise model in May. Overall, the Holiday Inn Express brand pipeline increased to 95 hotels (20,205 rooms).

 

19 hotels (5,487 rooms) were removed from the pipeline in 2016, compared to 18 hotels (5,690 rooms) in 2015.

             Hotels                    Rooms          
At 31 December    2016     

Change

over 2015

            2016     

Change

over 2015

         
Analysed by brand                                                
InterContinental      22        1                7,454        (446    
HUALUXE      22        1                6,956        324      
Crowne Plaza      38        (1              12,511        (206    
Hotel Indigo      11        2                1,782        282      
Holiday Innb      50        1                14,841        203      
Holiday Inn Express      95        30                20,205        5,087      
Other      1                       279             
Total                239        34                    64,028        5,244      

 

Analysed by ownership type

                                               
Franchised      20        20                4,085        4,085      
Managed      219        14                59,943        1,159      
Total      239        34                64,028        5,244      
                 

b  Includes six Holiday Inn Resort properties (1,820 rooms) (2015: three Holiday Inn Resort properties (820 rooms)).

   

   
                 
                 
                 
                 

 

 
42                IHG Annual Report and Form 20-F 2016        Strategic Report


Table of Contents

Central

 

 

Central results

 

     12 months ended 31 December      
     

        2016

$m

   

    2015

$m

   

    2016 vs 2015 %

change

    

        2014

$m

   

    2015 vs 2014 %

change

                                                                                            
Revenue      141       135       4.4        129       4.7    
Gross costs      (269     (286     5.9        (284     (0.7  
Operating loss before exceptional items      (128     (151     15.2        (155     2.6    
Exceptional items            (11     100.0        (25     56.0    
Operating loss      (128     (162     21.0        (180     10.0    

 

Highlights for the year ended

31 December 2016

The net operating loss decreased by $34m (21.0%) compared to 2015. Central revenue, which mainly comprises technology fee income, increased by $6m (4.4%) to $141m (an increase of $9m (6.7%) at constant currency), driven by increases in both comparable RevPAR (1.8%) and IHG System size (3.1%). At constant currency, gross costs decreased by $3m (1.0%) compared to 2015 (a $17m or 5.9% decrease at actual currency) driven by a continued focus on strategic cost management. Net operating loss before exceptional items decreased by $23m (15.2%) to $128m (a $12m or 7.9% decrease to $139m at constant currency).

Highlights for the year ended

31 December 2015

The net operating loss decreased by $18m (10.0%) compared to 2014. Central revenue, which mainly comprises technology fee income, increased by $6m (4.7%) to $135m, driven by increases in both comparable RevPAR (4.4%) and IHG System size (4.8%, 3.2% excluding Kimpton). At constant currency, gross costs increased by $13m (4.6%) compared to 2014 (a $2m or 0.7% increase at actual currency). Net operating loss before exceptional items decreased by $4m (2.6%) to $151m (a $5m or 3.2% increase to $160m at constant currency).

 

 

System Fund

 

 

 

System Fund assessments

 

 

  

Highlights for the year ended

31 December 2015

In the year to 31 December 2015, System Fund income increased by 7.2% to $1,573m primarily as a result of a 6.3% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, reflecting increases in RevPAR and IHG System size. Continued strong performance in co-branded credit card schemes drove the 13.3% increase in proceeds from the sale of IHG Rewards Club points.

     12 months ended 31 December     
     

        2016

$m

    

    2015

$m

    

    2016 vs 2015 %

change

    

        2014

$m

    

    2015 vs 2014 %

change

    
Assessment fees and contributions received from hotels      1,439        1,351        6.5        1,271        6.3     
Proceeds from sale of IHG Rewards Club points      283        222        27.5        196        13.3     
Total      1,722        1,573        9.5        1,467        7.2     

 

In addition to franchise or management fees, hotels within the IHG System pay assessments and contributions (other than for Kimpton and InterContinental) which are collected by IHG for specific use within the System Fund. The System Fund also receives proceeds from the sale of IHG Rewards Club points. The System Fund is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels.

The System Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System. The operation of the System Fund does not result in a profit or loss for the Group and consequently the revenues and expenses of the System Fund are not included in the Group Income Statement.

Highlights for the year ended

31 December 2016

In the year to 31 December 2016, System Fund income increased by 9.5% to $1,722m primarily as a result of a 6.5% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, reflecting increases in RevPAR and IHG System size. Continued strong performance in co-branded credit card schemes drove the 27.5% increase in proceeds from the sale of IHG Rewards Club points.

 

 

LOGO

 

 

 
Performance        IHG Annual Report and Form 20-F 2016                43


Table of Contents

PERFORMANCE CONTINUED

Other financial information

 

 

 

Exceptional items

Exceptional items totalled a loss of $29m which included $13m relating to the cost of integrating Kimpton into the operations of the Group and a $16m impairment charge relating to the Barclay associate which owns InterContinental New York Barclay, a hotel managed by the Group. The impairment charge reflects the currently depressed trading outlook for the New York market and the high cost of renovation of the hotel. See note 5 to the Group Financial Statements which provides further detail.

Exceptional items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per ordinary share in order to provide a more meaningful comparison of performance (for more information see page 26).

Net financial expenses

Net financial expenses were flat at $87m, reflecting the issue of £350m 2.125% public bonds in August 2016, and a full year of interest on the £300m 3.75% bonds issued in August 2015, offset by the impact of a weaker pound on translation of sterling interest expense.

Financing costs included $3m (2015: $2m) of interest costs associated with IHG Rewards Club where interest is charged on the accumulated balance of cash received in advance of the redemption of points awarded. Financing costs in 2016 also included $20m (2015: $20m) in respect of the InterContinental Boston finance lease.

Taxation

The effective rate of tax on operating profit excluding the impact of exceptional items was 30% (2015: 30%). Excluding the impact of prior-year items, the equivalent tax rate would be 31% (2015: 36%). This rate is higher than the average UK statutory rate of 20% (2015: 20.25%), due mainly to certain overseas profits (particularly in the US) being subject to statutory tax rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.

Taxation within exceptional items totalled a credit of $12m (2015: charge of $8m). In 2016, the credit included a $6m deferred tax credit in respect of the impairment charge relating to the Barclay associate and a $5m deferred tax credit representing future tax relief on $13m of Kimpton integration costs. In 2015, the charge comprised $56m relating to the disposal of InterContinental Hong Kong and InterContinental Paris – Le Grand, a credit of $21m in respect of the 2014 disposal of an 80% interest in InterContinental New York Barclay reflecting the judgement that state tax law changes would now apply to the deferred gain and credits of $27m for current and deferred tax relief on other operating exceptional items of current and prior years.

Net tax paid in 2016 totalled $130m (2015: $110m, including $1m in respect of disposals). Tax paid represents an effective rate of 22% (2015: 8%) on total profits and is lower than the effective income statement tax rate of 30% (2015: 30%), primarily due to the timing of US tax payments and the impact of deferred taxes.

IHG pursues an approach to tax that is consistent with its business strategy and its overall business conduct principles. This approach seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. Policies and procedures related to tax risk management are subject to regular review and update and are approved by the IHG Audit Committee.