20-F 1 d519981d20f.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, 2017

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
Ordinary Shares of 19 17/21 pence each
 

New York Stock Exchange

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 19 17/21 pence each   189,990,180

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      Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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  ☐

If “Other” has been checked in response to the previous question, 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            ☑

(Applicable only to Issuers involved in bankruptcy proceedings during the past five years).

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

  ☐    Yes      ☐No

 

 

 

 


Table of Contents

LOGO


Table of Contents

LOGO

 

    

 

Throughout the world, in almost

100 countries, True Hospitality

is brought to life for everyone

across our brands, every day.

  
  Holiday Inn Express London – Park Royal, UK   


Table of Contents

LOGO

Contents

 

Strategic Report
2   IHG at a glance
4   Chairman’s statement
6   Chief Executive Officer’s review
8   Industry overview
10   Our brands
12   Our business model
14   Our strategy for high-quality growth
16   Our Strategic Model in action
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
32   Regional highlights
33   Americas
35   Europe
37   Asia, Middle East and Africa (AMEA)
39   Greater China
Governance
46   Chairman’s overview
47   Corporate Governance
47   Our Board and Committee governance structure
48   Our Board of Directors
50   Our Executive Committee
52   Board meetings
53   Director induction, training and development
54   Board effectiveness evaluation
55   Engagement with shareholders
56   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
80   Statement of Directors’ Responsibilities
87   Independent Auditor’s US Report
88   Group Financial Statements
95   Accounting policies
104   Notes to the Group Financial Statements
Additional Information
154   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 43 was

approved by the Board on 19 February 2018.

George Turner, Company Secretary

 

 

IHG  |  Annual Report and Form 20-F 2017   1


Table of Contents

Strategic Report

 

IHG at a glance

We are one of the world’s leading hotel companies, committed to providing True Hospitality for everyone. This is a simple but powerful purpose, centred on creating great guest experiences and recognising, respecting and understanding people. It extends to our guests, owners, colleagues, partners, and communities all around the world.

 

Our portfolio of differentiated brands are well-known and loved by millions of people, and we make sure we have the right hotels for both our guests and owners, whatever their needs. We focus on strengthening our established brands and addressing gaps in our portfolio, on building and leveraging our

 

scale, developing lifetime guest relationships, and delivering revenue to our hotels through the lowest-cost, direct channels. As a manager and franchisor of hotel brands, our proposition to third-party hotel owners is highly competitive and has a track record of delivering returns. To drive future growth,

 

we focus on building brand preference in quality, high-potential industry segments and geographies. This approach is supported by disciplined processes and targeted allocation of resources, enabling us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.

 

 

Our brands

 

LOGO

  

Financial highlights

 

Group revenue

$1,784m (+4.0%)

2016: $1,715m

 

Group operating profit

$763m (+12.5%)

2016: $678m

 

Group operating profit before exceptional items

$759m (+7.4%)

2016: $707m

 

Total gross revenue in IHG’s System

$25.7bn (+4.9%)

2016: $24.5bn

 

Total underlying operating profit growth

$59m (+8.4%)

2016: $61m

 

Revenue per available room (RevPAR) growth

+2.7%

2016: +1.8%

 

Underlying fee revenue growth

+5.0%

2016: +4.4%

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 154 and 155.Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.

 

2   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

1. Holiday Inn Suzhou Taihu Lake, China

 

2. HUALUXE Xiamen Haicang, China

   LOGO    LOGO
   1.    2.

 

 

 

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

5,348

(798,075)

2016: 5,174 (767,135)

 

Franchised hotels (rooms)

4,433

(552,834)

2016: 4,321 (542,650)

 

Managed hotels (rooms)

907

(242,883)

2016: 845 (222,073)

 

Owned and leased hotels (rooms)

8

(2,358)

2016: 8 (2,412)

 

Total hotels (rooms) in the pipeline

1,655

(244,146)

2016: 1,470 (230,076)

 

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  IHG at a glance   3


Table of Contents

Strategic Report

 

Chairman’s statement

Our ability to deliver on our proven strategy,

focused on guests and owners, laid the foundation

for further high-quality growth in 2017, in what was

another year of shifting dynamics within the global

hospitality sector.

    

    

    

 

LOGO

 

Patrick Cescau

Chairman

Final dividend

71.0¢

to be paid on 11 May 2018

(2016: 64.0 ¢)

Consumer expectations continue to evolve, supported by ever-increasing choice and the integration of sophisticated technology into the guest journey, which has transformed how people choose, experience and share products and brands. When you combine this changing landscape with an evolving global economic, political and societal backdrop, it has never been more important for businesses to embrace change whilst protecting what is core to their purpose and ambition.

The global economy continued to improve in 2017, led by Europe and Asia, and we saw encouraging signs of positive growth prospects for the year ahead, including the decision to cut corporate tax in the US towards the end of the year. On the other hand, in many markets political volatility and instability continued, and we saw the devastating impact of terror attacks and a series of natural disasters in certain parts of the world.

As a global business operating in nearly 100 countries, we have considerable experience of managing our business through volatility. Whatever external challenges we

 

may face, our focus remains on delivering consistent, quality brands and experiences that meet guest needs and build loyalty. This commitment to quality extends to how we grow our business too, and we take a targeted approach, ensuring that we commit resources against the most attractive segments, and work with owners who share our values.

The Board has an important responsibility to ensure that we maintain our discipline and strategic direction, whilst at the same time remaining as agile and dynamic as possible. This approach and consistent execution of our strategy will continue to be central to maintaining IHG’s long track record of delivering high-quality, sustainable growth for our stakeholders.

CEO succession

In 2017, we said goodbye to Richard Solomons, following his decision to retire as Chief Executive Officer (CEO) in June, after 25 years with the business and six as CEO. I would like to thank Richard for his outstanding leadership, which helped IHG become the leading global organisation it is today, with a track record of creating exceptional shareholder value.

We place an ongoing high importance on succession planning and talent development, and the appointment of Keith Barr as CEO was the result of a rigorous evaluation. With significant industry experience and an excellent track record in the business, having already transformed our Greater China operations and more recently led our sales and marketing function, the Board was unanimous in its assessment that Keith was the best candidate for the job. Following a smooth transition into the role, Keith is instilling great energy and passion in the business, and has moved decisively to introduce changes designed to accelerate IHG’s growth, with the full support of the Board. The foundation for these changes has been laid over several years, successfully completing our major asset-disposal programme and subsequently focusing on building a powerful global enterprise for our fee-based business. As our industry becomes more competitive, ensuring that we are now best set-up to maximise the potential of our strategy is crucially important, and will allow us to deliver increased value and returns for our shareholders over the long term.

 

 

4   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

1. InterContinental Los Angeles Downtown, California, US

2. IHG Academy programme at InterContinental Singapore

LOGO

1.

LOGO

2.

 

 

 

Full-year dividend

Five-year progress (¢)

 

LOGO

Final dividend

71.0¢ to be paid on 11 May 2018

(2016: 64.0¢)

Supporting Keith with this work will be a key priority for the Board in 2018, alongside ensuring there is a continued strong focus on risk management and operational delivery.

Board composition and talent

Effectively challenging and supporting the business in its corporate decision making is a role the Board takes seriously, and we place high importance on making sure there is the right mix of expertise, skills and diversity that befits a global organisation. We focus on ensuring our actions and processes are effective, that we regularly review training for individual Board members and that we seek external consultation regarding areas for improvement. In 2017, we were proud to be recognised by the independent Hampton-Alexander Review as one of the top 10 FTSE 100-listed companies for female representation across our Board, as well as our Executive Committee and their direct reports.

Building a business and culture that is representative of the markets in which we operate is an important factor in ensuring that, both as an organisation and as individuals, the actions we take to serve multiple stakeholders meet IHG’s strong values.

At the end of 2017, the Board comprised seven Non-Executive Directors, myself as Chairman, and two Executive Directors. In addition to Keith’s appointment, we were delighted that, effective 1 January 2018, Elie Maalouf, IHG’s Chief Executive Officer for the Americas, joined the Board as an Executive Director. Elie is an excellent addition and offers substantial and highly relevant commercial and hotel development, branding, finance, real estate and operations experience across multiple industries.

Shareholder returns

I am pleased to announce that the Board is recommending a final dividend of 71.0 cents per ordinary share, an increase of 10.9% on the final dividend for 2016. This results in a full-year dividend of 104.0 cents per share, up 10.6% on 2016.

Doing business responsibly

I spent time in different parts of our business during the year, once again seeing first-hand the great work of colleagues in our hotels, visiting impressive new properties such as our InterContinental® and Hotel Indigo® hotels in downtown Los Angeles, and also meeting owners, representatives of the IHG Owners Association, and shareholders.

When visiting parts of our company, one element I am particularly proud of is our truly global commitment to being a responsible business. I have seen this through the everyday behaviours of our colleagues, through the work the IHG® Foundation does to support people and communities when they need it most, and through our corporate responsibility programmes. Thousands of people have gained valuable skills and employment experience in our industry through our IHG® Academy programme, while our IHG Green Engage™ system continues to help hotels effectively reduce things like carbon, water and energy use. In recognition of our actions, we were extremely proud to be ranked first in our industry on the S&P Dow Jones Sustainability World Index in 2017. We enter this year with new three-year responsible business targets, aligned to the areas where we can have the greatest positive impact.

I would like to sincerely thank all colleagues for their work in what has been another year of strong progress, and our owners for their continued confidence in IHG and our brands.

 

LOGO

Patrick Cescau

Chairman

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Chairman’s statement   5


Table of Contents

Strategic Report

 

Chief Executive Officer’s review

Having worked in the hospitality industry for almost three decades, including nearly 18 years at IHG, it was a great honour to become CEO in 2017. With the support of our owners and hugely talented colleagues, I have worked all around the world helping IHG and our brands grow.

    

    

    

 

LOGO

 

Keith Barr

Chief Executive Officer

Key highlights

Total room signings

83,000

The highest number since 2008

Launch of avid hotels

$20bn

Market opportunity

Total room openings

48,000

The highest number since 2009

As a company, we are extremely grateful to my predecessor, Richard Solomons, whose legacy is a strong business, with a proven strategy built to deliver long-term sustainable growth.

Since my appointment in July, I have been clear that the right foundations for success have been carefully put in place, and that we must now build on this and execute our strategy at a faster pace, in order to deliver industry-leading net rooms growth over the medium term. Important changes to our structure and how we operate are underway, and with greater focus and agility we will deliver more for our owners and guests.

In 2017, we delivered another year of consistent, high-quality growth and strong financial and operational performance. We continued to expand and invest in our brands, entering exciting markets and introducing our newest brand, avid™ hotels. We also further enhanced our IHG® Rewards Club loyalty programme with new partnerships and benefits, and made important progress

 

 

with our next generation Guest Reservation System (GRS). Following successful hotel pilots, GRS will roll out in 2018 as part of IHG Concerto™, our new cloud-based platform, which over time will seamlessly bring together all our hotels’ core systems.

Financial and operational highlights

We delivered strong underlying profit growth and opened our highest number of hotels since 2009, including the most ever in both AMEA and Greater China. We finished the year with 5,348 properties in our portfolio and, supported by positive industry trends such as low-cost travel and growing middle classes, demand for our brands remains healthy. We are focused on targeting segments and markets with the greatest opportunities, and we made great progress in the year, signing our highest number of hotels since 2008. Underlining our organic growth potential, we closed 2017 with a pipeline of 244,146 rooms, which represents a 13% share of the active industry pipeline and is three times our share of current supply.

Brands

In a world where consumers and our hotel owners have more choice, it has never been more important to focus on ensuring our brands are competitive and that we have a portfolio tailored to the highest growth markets and segments. IHG has a proud history of leading the way in service, design, technology and marketing, and we continue to ensure our actions are based on insights that deliver rich, relevant guest experiences and compelling propositions for our owners.

At the heart of our growth are our Holiday Inn® and Holiday Inn Express® brands, and working with our owners, we continued to introduce new services and vibrant designs that are increasing guest satisfaction scores and revenues. Holiday Inn Express has also been at the centre of our very successful Franchise Plus business model in Greater China, leading to the signing of 54 hotels in 2017. Due to its strong performance, we took the important step of extending our leading franchise offer to our Holiday Inn and Crowne Plaza® brands, which will help drive further growth in the region.

 

 

6   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

1. Artist’s impression of avid brand hotel exterior

2. Holiday Inn Express Shanghai Puijang, China

LOGO

1.

LOGO

2.

 

 

“The right foundations for success have been carefully put in place, and we must now build on this and execute our strategy at a faster pace.”

The launch of avid hotels was another significant milestone and represents a huge opportunity. Building on our long-standing successful track record in the Mainstream space, this brand will bring much-needed consistency and quality to a segment of 14 million people, worth an estimated $20 billion in industry revenues. Since launching in September, we’ve seen significant owner interest, closing the year with 44 properties signed and one already under construction. In the first six weeks of 2018, signings further increased to 75 hotels.

Equally exciting as launching new brands, is taking others into new markets, and we made important progress in 2017 with the introduction of Kimpton® Hotels & Restaurants in China and Asia, and EVEN® Hotels into China and Australasia.

Making sure we have the right brands in markets and segments with the highest potential will remain a key focus for us. As part of this, we will be launching an Upscale conversion brand in 2018, leveraging the power of our system to capture share of this significant premium-priced market.

Technology

The role of technology increases in importance every year, from how we use and manage data, to the systems in place to support our hotels, and our IHG App, which both enhances guest experiences and serves as a key revenue driver. Digital revenue in 2017 was $4.6 billion, including more than $2 billion of mobile revenues, which have more than doubled over three years.

Another important area of technology is the development of IHG Concerto, which puts IHG at the very forefront of our industry and provides a major competitive advantage (see page 17 for more details). Hotel colleagues will have everything at their fingertips to provide more personal touches and manage reservations and revenues, and over time, guests will benefit from an unrivalled tailored booking experience. This is a long-term programme, which will see increasingly sophisticated functionality added in phases.

Accelerating growth

I strongly believe that our strategy remains the right one for IHG and our stakeholders, but moving with speed and focus is important when operating in an industry with both increasing opportunity as well as competition. To accelerate our growth, we will sharpen our focus on scale and how we invest resources in the highest opportunity markets and segments. We will also strengthen our brand portfolio and loyalty offer, enhance our marketing, and prioritise digital and technological innovations that drive hotel performance and stronger owner returns.

Our plans rely on the support of our passionate colleagues, who shape and deliver outstanding guest experiences every day, and our owners, whose trust in IHG and our brands remains paramount to our success. Linking us all is a commitment to a shared purpose of providing True Hospitality for everyone – guests, owners, colleagues and partners. This is a simple but powerful culture centred on recognising, respecting and understanding people, and making everyone feel welcome and cared for, wherever they are in the world.

Testament to everyone’s efforts are the hundreds of awards once again received during the year. In particular, we were very proud to see IHG recognised as an Aon Global Best Employer, based on our excellent employee engagement scores.

I would like to thank everyone who helped make 2017 another great success for IHG and I look to 2018 with much optimism for another strong performance.

 

LOGO

Keith Barr

Chief Executive Officer

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Chief Executive Officer’s review   7


Table of Contents

    

 

LOGO

 

8                  IHG  |  Annual Report and Form 20-F 2017


Table of Contents

LOGO

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Industry overview                  9


Table of Contents

Strategic Report

 

Our brands

IHG is a brands business built on a commitment to

providing True Hospitality for everyone. Through our family

of well-loved and distinctive brands, our talented colleagues

deliver memorable guest experiences all around the world,

every day, and we are trusted for rewarding loyalty.

 

Continuing to evolve with changing consumer trends, we strengthened our brands with enhanced services and new designs in 2017, and expanded further into both new and existing markets. It was also the year we launched our newest brand, avid™ hotels.

We plan to launch an Upscale conversion brand in 2018, which leverages the power of IHG’s system to capture share of this significant premium priced market. The brand will initially launch in our new EMEAA region and will subsequently be extended to our Americas and Greater China regions.

LOGO   See page 29 for a breakdown of IHG hotels open and in the pipeline.
LOGO   For more information on our brands visit www.ihgplc.com/our-brands
 

 

LOGO

LOGO

LOGO

 

Live the InterContinental life

The world’s first, and largest, Luxury hotel brand, dedicated to those who appreciate and enjoy the InterContinental life. Offering the glamour and exhilaration of fascinating places, we provide our guests with a blend of international know-how and local cultural wisdom.

A different way to stay

Kimpton is a brand renowned for making travellers feel genuinely cared for through thoughtful perks, inventive meetings and events, bold and playful design, and sincerely personal service. Having brought boutique to the US, we are now taking Kimpton global.

Capturing the spirit of Chinese hospitality

The first Upscale international hotel brand designed for Chinese guests. Every detail of service and design is woven with Chinese culture and heritage, emphasising values of etiquette, rejuvenation in nature, recognition of status and enabling spaces.

 

 

LOGO

LOGO

LOGO

 

 

Making travel inspiring

Hotel Indigo serves the curious; people with a passion for new places. Making travel inspiring in the world’s most intriguing neighbourhoods, each hotel reflects the local area, combining thoughtful design and personal service to create authentic experiences.

Where wellness is built in

For travellers seeking a healthier and happier stay when away from home, EVEN Hotels and its wellness-savvy staff give guests a best-in-class fitness experience, nutritious food choices, and natural, relaxing spaces.

Making business travel work

Championing a better way of business travel, Crowne Plaza understands that today’s business travellers need to combine the flexibility to work, eat and connect with others, with the opportunity to simply relax whenever and wherever it suits.

 

 

10   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

LOGO

LOGO

LOGO

 

Joy of travel for all

An iconic brand, Holiday Inn has championed enjoyable travel for millions of guests since 1952. Today we have more new and refreshed hotels than ever before, and our guests’ love for the brand continues to grow right across the globe.

Simple, smart travel

IHG’s largest brand has blazed a trail in defining a simple and smart travel experience, evolving guest room and public space designs to offer inviting, efficient hotels all over the world.

Feel at ease when you stay with us

At Staybridge Suites we offer a sense of community, comfort and convenience for guests, providing the best of home and hotel for business and leisure travellers alike.

 

 

LOGO

LOGO

LOGO

 

The joy of lifetime vacations

For families investing in a lifetime of memories, we offer exceptional villa accommodation in top leisure destinations, with easy access to world-class attractions such as mountain adventures, championship golf courses and serene beaches.

The joy of family holidays

We want families to experience the joy of great holidays. On the beach, or near theme parks and golf courses, we offer a variety of activities from kids’ clubs and swimming pools, to informal restaurants and fireside lounges.

Your home base

Offering a more casual kind of longer stay, guests always feel at home and at their best while on the road. With hotels in easily accessible locations, guests can book whenever and wherever it works for them.

 

 

LOGO

 

Where the rest is easy

Championing everyday travel at a fair price, Our avid hotels brand is designed for guests who don’t want to compromise on quality or pay more for things they don’t need. Delivering the essentials exceptionally well, avid experiences feel just right, every time.

     

 

LOGO

 

Creating relevant,

rewarding relationships

Relationships are important to us and we have more than 100 million enrolled IHG Rewards Club members worldwide. Offering industry-leading benefits across our brands, we ensure travel is experienced the way it should be: personal, simple and rewarding.

  

 

LOGO

   

 

LOGO

 

 

For more information on our rewards club visit www.ihgplc.com/our-brands under Rewards Club.

  

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our brands   11


Table of Contents

Strategic Report

 

Our business model

As an asset-light business, we are a manager and

franchisor of hotel brands. This means we can focus on

growing our fee revenues and fee margins, with limited

requirements for capital. It’s an approach that’s helped us

successfully grow our business and deliver high returns.

    

    

 

Whether we franchise to, or manage hotels on behalf of 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% of IHG hotels are franchised.

 

  While a managed model is typically used in emerging markets:

 

  In AMEA, about 80% of IHG hotels are managed by us.

 

  In Greater China, that figure rises to more than 97%.

Our owned, leased and managed leased hotels have dramatically reduced from over 180 hotels 16 years ago, to just 12 hotels at 31 December 2017.

% of our operating profit before central overheads

 

LOGO

 

LOGO   Definition: System Fund or Fund Assessment fees and contributions collected from hotels within the IHG System which fund activities that drive revenue to our hotels including marketing, the IHG Rewards Club loyalty programme and our distribution channels.

IHG revenue and the System Fund

LOGO

 

 

12   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

 

Disciplined approach to allocation of capital

Our business is highly cash generative (see page 43), and our focus on our brands and revenue systems is underpinned by a disciplined long-term approach to allocated capital and maintaining an asset-light business model. We have an efficient balance sheet and seek to maintain an investment grade credit rating. Our priorities for the use of free cash are consistent with previous years and comprise of:

    

 

 

 

LOGO

 

     

LOGO

 

     

LOGO

 

1.

 

Invest in

the business

 

   2.   

Maintain sustainable

growth in the ordinary dividend

 

   3.   

Return

surplus funds

 

             

 

Through strategic investments and our day-to-day capital expenditures we continue to drive growth – see table below, and page 105 for further details of our capital expenditure in 2017.    We continue our focus on growing the ordinary dividend, which has seen compound annual growth of 11% since 2003.    In May 2017 we returned a further $404 million to shareholders via a special dividend and share consolidation. Over the last 15 years we have returned $13.0 billion to shareholders.

IHG’s outlook on capital expenditure

Capital expenditure incurred by IHG can be summarised as follows.

 

Capital expenditure

      

Examples

 

Maintenance capital expenditure, key money and selective investment to access strategic growth

 

    

 

Deployment of key money and selective investment which is used to access strategic

opportunities, particularly in high-quality and sought-after locations when returns are financially and/or strategically attractive.

 

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

 

Maintenance of our owned and leased hotels, which is now reducing as we have become

increasingly asset-light.

 

    

 

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.

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our business model   13


Table of Contents

Strategic Report

 

Our strategy for high-quality growth

We have a clearly defined strategy which will continue

to drive superior shareholder returns. Our focus is on

delivering high-quality growth, which for us means

consistent, sustained growth in cash flows and profits

over the long term.

    

    

 

Overview of strategy

IHG has an established and successful strategy. Our focus is on unlocking ways to execute this strategy at a faster pace, and accelerate growth. Our Strategic Model sets out our approach and remains central to our commitment to delivering high-quality, sustainable growth in cash flows and profits over the long term.

Through our Strategic 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.

In an increasingly competitive environment, IHG is well placed to accelerate the growth of our core business, as well as maximise returns on new initiatives. This includes our new brand, avid hotels, launched in 2017, which had 75 hotels in the pipeline as at 9 February 2018 – of which 44 hotels were signed at 31 December 2017 – see page 16 for more information.

 

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 23-25 for more details.

LOGO

 

LOGO  

For further information on our strategy, go to

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

 

    

 

 

14   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

Strategic Model

The individual components of IHG’s Strategic Model are

at the heart of our success, and continue to align our

organisation to focus on the most important strategic

initiatives and deliver our commitment to True Hospitality.

This approach helps us create value for our stakeholders

and deliver high-quality growth for our shareholders.

 

         
Build and leverage scale   LOGO   

Scale provides significant advantages in the hospitality industry at both global and national level. IHG uses the breadth of its portfolio combined with our depth in attractive markets and focus on the highest opportunity segments, to drive significant efficiencies, leading to increased operating leverage and ultimately higher margins.

 

   LOGO  

To see how we build and leverage scale, go to:

 

  Expanding our Upscale and Luxury portfolio on page 32

Strengthen loyalty programme   LOGO   

Having an attractive, differentiated loyalty offering tailored to our guests’ needs is critical to IHG’s continuing success. We are continually innovating IHG Rewards Club to build lifetime relationships with our guests. This creates a sustainable long-term revenue source and transforms previously unaffiliated travellers into powerful advocates for our brands.

 

   LOGO  

To see how we strengthen our loyalty programme, go to:

 

  Driving digital growth on page 17

Enhance revenue delivery   LOGO   

By striving to drive business through our direct channels, IHG maximises returns for our owners as these channels are less costly than alternatives such as third-party intermediaries. Digital and technological innovation, alongside strong brands and compelling loyalty, is key in ensuring IHG continues to manage revenue delivery effectively.

 

   LOGO  

To see how we enhance revenue delivery, go to:

 

  IHG Concerto on page 17

 

  Driving digital growth on page 17

Evolve owner proposition   LOGO   

Within our asset-light business model, maintaining positive relationships with long-standing owners and constantly forging new owner relationships is vital for IHG. Our outstanding operational support, preferred brands, industry-leading franchise offer and continued investment in innovation delivers a compelling owner proposition and strong returns.

 

   LOGO  

To see how we evolve our owner proposition, go to:

 

  Franchise Plus in Greater China, on page 32

Optimise our preferred portfolio of brands for owners and guests   LOGO    As competition intensifies, distribution channels proliferate and consumers become more demanding, actively building a strong portfolio of distinctive, preferred brands for both our owners and guests, is fundamental to IHG’s success and future growth.    LOGO  

To see how we are optimising our portfolio of preferred brands, go to:

 

  avid hotels on page 16

 

  Crowne Plaza Accelerate programme on page 32

 

  Transforming Holiday Inn brand family on page 32

         

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our strategy for high-quality growth   15


Table of Contents

    

 

LOGO

 

16                  IHG  |  Annual Report and Form 20-F 2017


Table of Contents

LOGO

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our Strategic Model in action                  17


Table of Contents

Strategic Report

 

Doing business responsibly

Our focus on responsible business is part of

everything we do at IHG, helping create a diverse

and inclusive culture that embodies our commitment

to provide True Hospitality for everyone.

 

In a fast-changing world, building trust with guests, colleagues and other stakeholders, living our core values and having a positive impact on society and the environment is more important than ever to IHG’s long-term success. Our people, policies and corporate responsibility programmes bear testimony to a culture of responsible business that is deep-rooted and embedded in our strategy, including:

 

  Strong governance and leadership, which promotes a culture of responsible business attitudes and behaviours.

 

  Ensuring our employees understand key legal and reputational issues and our Winning Ways.

 

  Ensuring the safety and security of employees, guests and other visitors to our hotels and offices.

 

  Operating effective risk management and internal controls.

 

  Engaging in responsible procurement.

 

We have comprehensive Group-wide policies and approaches on key responsible business issues. These are set out in our Code of Conduct and include Human Rights and Modern Slavery, Bribery and Financial Crime, Environment, Community Activities and Diversity and Inclusion. We regularly review our policies to ensure we align with best practice.

 

IHG® Foundation

From skills in hospitality to helping communities prepare for disasters, the IHG Foundation, an independent charity, helps make our world a more hospitable place. In support, IHG colleagues participate in fundraising and volunteering activities every year.

 

LOGO  

To find out more about

the IHG Foundation visit

www.ihgfoundation.org

 

Our targets

Following the conclusion of our five-year targets, in March 2018 we launch new three-year IHG Responsible Business targets in the four areas where we can have the greatest impact: Environmental sustainability; Community impact; Our people and Responsible procurement.

These targets and our approach to responsible business help us contribute to the objectives of the United Nations Sustainable Development Goals (SDGs).

 

LOGO   See page 60 for more information on our 2013-2017 performance, and how the Corporate Responsibility Committee have considered Environmental, Social, Community and Human Rights issues during 2017.

 

LOGO  

See our IHG Responsible Business Report

for information about our new targets

www.ihgplc.com/responsible-business

 

 

 

 

Our Winning Ways

The set of behaviours that define how we interact with our guests and colleagues, are embedded in the way we work, and are a vital component of our culture.

 

LOGO

Diversity and inclusion

At IHG, diversity is embedded in our culture. We understand that differing backgrounds and perspectives create a more dynamic and inclusive environment. Our global diversity and inclusion strategy seeks to ensure diversity in our management teams and wider workforce, and recognises the importance of our business representing the communities in which we operate.

In 2017, the Hampton-Alexander Review listed IHG in the top 10 of FTSE 100-listed companies for female representation across our Board, the Executive Committee and its direct reports.

We have also achieved a perfect score on the Human Rights Campaign’s annual Corporate Equality Index in the US for four years in a row, making IHG a best place to work for lesbian, gay, bisexual and transgender (LGBTQ) workplace equality.

 

As at 31 December 2017       Male        Female         Total
Directors     6        4       10
Executive Committee     8        2       10

Executive Committee

Direct Reports

    37        26       63
Senior Managersa     100        38       138

All employees

(whose costs were borne by the Group or the Systems Fund)

    5,184        7,029       12,213

 

a  Including directors of subsidiaries.

LOGO   For more information on our Diversity and Inclusion Policy and strategy see pages 61 and 66.

Attracting talent

To attract and retain the best talent, we invest in our people and support them in developing their careers, rewarding and recognising their contribution, whilst ensuring diversity across the workforce.

In 2017, we introduced ‘Apply on the Go’, which simplifies the hiring process by enabling candidates to apply for roles using a mobile device.

Continuous learning

We know that great service can turn an ordinary stay into an extraordinary one. The IHG® True Hospitality Service Skills training ensures colleagues consistently meet our guests’ needs. So far more than 150,000 colleagues in 90 countries from more than 3,500 hotels have completed the programme.

In 2017, we completed the global rollout of our General Manager (GM) Learning Programme via our online platform, Fuse. Fuse brings our GMs together in an online community to share best practice, seek advice and complete professional development courses.

 

 

 

18   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

Colleague engagement

We recognise great service during our annual Celebrate Service Week. The 2017 campaign saw over 1,300 inspiring stories of True Hospitality shared and over 1,200 social media posts using #IHGCelebrateService and #TrueHospitality.

Employee engagement is measured through our bi-annual survey, Colleague HeartBeat powered by Aon Hewitt. Corporate, managed hotel and customer reservations office employees take part. In 2017 a revised survey delivered record-breaking participation of 97%, earning IHG recognition from Aon Hewitt as a Best Employer, benchmarked against industry scores.

Human rights

Our training and awareness programme focuses on those areas of human rights that are most relevant to our business. Our human rights policy has been translated into more than 40 languages and, to ensure our values are consistently reflected, we require all IHG branded hotels to adopt and display a human rights policy. We also have in place an e-learning module on Human Rights and Modern Slavery, which has been completed by 40,000 colleagues to date.

Anti-corruption and anti-bribery

We are committed to operating with integrity and complying with all relevant laws, including all applicable anti-corruption legislation. IHG has a zero-tolerance approach to bribery and corruption; a position clearly set out in our Code of Conduct, Anti-Bribery and Gifts and Entertainment policies which apply to all

IHG employees and Directors, and our managed hotels. In 2017, all Board and Executive Committee members completed the latest anti-bribery e-learning module, along with more than 30,000 colleagues.

Responsible procurement and due diligence

In 2015, we launched an automated procurement system across many of our large corporate offices. This helps our central procurement team manage our supply chain, and we continue to increase corporate spend through the system. Onboarded suppliers are required to complete due diligence questionnaires covering responsible business and human rights. We have piloted a new supplier assessment and audit programme, using third-party risk assessment providers, which will be developed further in 2018.

We also carry out due diligence and compliance checks on all new parties we enter into hotel agreements with. A central committee considers and reviews any issues identified, including bribery and corruption and human rights.

Environmental sustainability

The IHG Green Engage™ system is our Group-wide, online sustainability programme. It supports our Environment policy and helps hotels manage their use of energy, carbon, water and waste. By creating more energy-efficient hotels, we can drive profitability for owners while minimising environmental impact.

We are a member of FTSE4Good and were ranked first in our industry on the 2017 S&P Dow Jones Sustainability World Index.

Community impact

Our Supporting Our Communities Policy aims to maximise the positive contribution we make by creating shared value in our communities and with our business partners. We support and develop people working in the hospitality industry, and have improved the employability of 47,962 IHG® Academy participants between 2013 and 2017.

We guide our hotels to enhance their disaster preparedness and provide extensive support to colleagues affected by disaster.

 

LOGO   Our principal risk assessment process takes into account the risks related to, and the impact of, non-financial matters on the business (see page 21 for a further description of our principal risks and the measures taken to mitigate their impact). We also consider our impact on the wider communities in which we operate through our responsible business programmes (see our Responsible Business Report).

 

IHG Code of Conduct

The IHG Code of Conduct supports colleagues in making the right decisions. It sets out the principles we must all work by at IHG. It also provides guidance on where to go if colleagues are faced with a difficult issue and need further help.

 

LOGO  

For further information on our Code of Conduct, including our Modern Slavery Statement see Policies under

www.ihgplc.com/responsible-business

 

 

Stakeholder engagement

Listening to and building strong, long-term relationships with our stakeholders helps focus our priorities and strategies and

 

creates loyalty, trust and credibility. We take into consideration the views of our stakeholders at all levels of decision making.

LOGO   For more information see Corporate Governance on pages 47 to 63.

 

LOGO  

See our 2017 IHG Responsible Business Report for a full stakeholder list, which supports our responsible business strategy

www.ihgplc.com/responsible-business

 

Key stakeholder engagement

 

  

 

  

Forms of engagement include:

  

Outcomes and measures include:

LOGO

  

  Executive Committee and Senior Management led employee ‘Town Halls’.

 

  Annual Celebrate Service Week.

 

  Bi-annual Colleague HeartBeat survey.

 

  Company intranet and employee focused events.

 

  

  97% average participation in the 2017 Colleague HeartBeat survey.

 

  

 

  

 

LOGO

  

  IHG Rewards Club.

 

  HeartBeat surveys (guest satisfaction surveys).

 

  Dedicated Guest Relations teams.

 

  

  3.7 million completed HeartBeat surveys and 7 million text and social media guest comments captured and analysed in 2017.

  IHG True Hospitality Service Skills training delivered to more than 150,000 colleagues.

 

  

 

  

 

LOGO

  

  AGM.

 

  Presentations following results announcements.

 

  Annual investor perception survey.

 

  Programme of one-to-one meetings with major institutional shareholders.

 

  

  Average of 98% votes in favour across all resolutions at 2017 AGM.

 

  

 

  

 

LOGO

  

  Supplier registration form and onboarding process included in our IHG Vendor Code of Conduct.

 

  US supplier diversity data collection.

 

  

  Increased diverse supplier spend in the US to $66 million, up from $59 million in 2016.

 

  

 

  

 

LOGO

  

  Global and regional branches of the IHG Owners Association.

 

  Asian American Hotels Owner’s Association.

 

  Regional conferences.

 

  Owner HeartBeat surveys (owner satisfaction surveys).

  

  avid hotels launched following collaboration with an owner advisory board as part of the brand development (see page 16).

 

  

 

  

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Doing business responsibly   19


Table of Contents

Strategic Report

 

Risk management

Our risk management system continues to evolve; we have an

established process to manage the risks we face as a business.

 

Our Strategic 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 is visible through the nature and extent of risk taken by the Board in pursuit of strategic and other business objectives. This risk appetite is cascaded through the goals we set, decisions we make and how we allocate resources. IHG’s appetite and tolerance for risk is further implemented through our governance committees, structures, policies and targets we select, as well as in development guidelines for new hotels. In 2017, the Board and Board Committees have reviewed many of these aspects directly through their meetings and discussions of principal risks.

 

Our risk management system

 

Our risk management system is fully integrated with the way we run the business through our culture, our processes and 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 focuses on culture, process and control and monitoring and reporting.

 

LOGO

    

 

 

 

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 comprising the Group Financial Controller and 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.

 

Throughout 2017 the Global Risk team have performed continuous assessments of the principal risks facing the Group, including those which would threaten its business model, future performance, solvency or liquidity. These risks are formally reviewed with the Group’s Directors on a bi-annual basis and considered in more detail through the activities of the Board and Committees. As part of our reviews we have consolidated a previously identified risk relating to our owner proposition into other factors listed.

As outlined on page 7, we are now focused on executing our strategy at a faster pace. This emphasises the importance of the steps we take to consider risk explicitly as part of decision making, for example in the reprioritisation of resources, as well as considering the effect of any operational or functional changes on our risk management system described above.

 

Our principal risks remain structurally similar to those reported in previous years. However, we have noted the potential impact of the initiatives we are putting in place to accelerate growth both as a specific risk and also with the inherent trends and measures we undertake to mitigate other risks to a residual level appropriate to our risk tolerance, given a more dynamic organisational context.

In addition, we continue to conclude that the potential impact of Brexit on IHG will have no material impact on our strategy or operations.

 

LOGO   See pages 52 and 57 for details of the assessment of our principal risks by the Board and the Audit Committee.

 

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

 

Risk trend and speed of impact

Through the principal risk process we assess whether the risk area is stable or dynamic (inherent risk trend), and the rate at which there could be a material impact on IHG (speed of potential impact). The trend and unmitigated speed of impact are summarised in the following diagram with further detail on the initiatives undertaken to manage each of these risks in the table on the next page.

  LOGO

 

20   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

    

    

    

Principal risks descriptions

 

Inherent risk trend

  Risk impact  
LOGO   Dynamic   How each principal risk links to our strategic priorities:  
LOGO   Static   LOGO   Strategic Model     LOGO   Targeted Portfolio     LOGO   Disciplined Execution     LOGO   Responsible Business
                      

 

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

Inherent threats to cybersecurity and information governance continue to evolve at pace and, in 2017, created dynamic risks to multiple industries, evidenced by reported cyber incidents across the hospitality industry and by IHG (see page 139). This risk could impact our operations; lead to loss of sensitive data; undermine stakeholder trust; and result in fines and legal/regulatory action.   LOGO  

LOGO

 

LOGO

 

LOGO

  

We apply a risk-based methodology to identify, and consider the value and threats to, our key information assets. These include Payment Card Information (PCI), Personally Identifiable Information (PII), as well as sensitive financial and employee information. We monitor and update our information security policies and practices to respond to the risks we face, including those relating to evolving privacy requirements across IHG, including our increasingly third-party hosted infrastructure and systems.

 

Our approach to monitoring this dynamic risk combines IHG specialist teams in information security, technology and cyber enabled crime, supplemented by external insight and relationships to enhance our capability to analyse, prevent and detect potential threats.

 

During 2017, we continued our initiative to tokenise credit card data in key systems through implementation of our secure payment technology in more than 86% of our US franchised estate.

 

Despite our information security programme, we also recognise the need for rapid and appropriate response to data incidents. We have a clearly developed incident management capability which clarifies accountabilities and processes across the organisation, and works closely with our insurers. These also consider data reporting obligations, for example in relation to the EU General Data Protection Regulation (GDPR).

 

 

 

 

 

  

 

Failure to deliver preferred brands and loyalty could impact our competitive positioning, our growth ambitions and our reputation with guests and owners. The rapid rate of recent consolidation activity; brand launches and loyalty programme developments across the hospitality industry creates both risk and opportunity.   LOGO  

LOGO

 

LOGO

  

In 2017 we continued our investment of $200m in the refresh of the Crowne Plaza estate in the Americas; extended the implementation of our Holiday Inn Open Lobby; and updated room design concepts in several brands. (See page 32 for further details.) We launched avid hotels to positive reactions from owners, signed deals to extend other brands in new territories and built brand recognition across the portfolio, (see pages 6-7, 10-11, 16 and 32 for further details). In January 2018 we also integrated our Kimpton Karma members into the IHG Rewards Club programme.

 

The creation of one Global Marketing function will enable us to focus on fully integrated brand, marketing and loyalty activities, strengthening our existing brands and adding new brands where we see greatest potential for growth. For further information on initiatives to manage the opportunities and risks in our brand strategy, see pages 16 and 17.

 

 

 

 

 

  

 

Leadership and talent risk is inherent to all businesses and failure to effectively attract, develop and retain talent in key areas could impact our ability to achieve growth ambitions and execute effectively.   LOGO  

LOGO

 

LOGO

 

LOGO

  

In 2017, we have enhanced our ability to attract, retain and develop the best talent (see pages 18-19) within the hospitality sector, including GM and senior corporate positions.

 

Our focus on accelerating growth will increase opportunities for our people and our ambitions will place demands on key leadership and hotel talent. As we begin to redeploy and reprioritise resources, our human resources team are reviewing our performance management framework to promote interdependence and to incentivise team and individual performance. We have a global diversity and inclusion strategy (see pages 61 and 66), which will be led by a Diversity and Inclusion Board, with specific and targeted actions to address any inequalities in the workplace.

 

 

 

 

 

  

 

Failure to capitalise on innovation in booking technology and maintain and enhance our channel management and technology platforms and to respond to changing guest and owner needs remains a dynamic risk to IHG’s revenues and growth ambitions, particularly with the emergence of both evolutionary and disruptive technologies.   LOGO  

LOGO

 

LOGO

  

Technology innovation in the hotel industry continues to accelerate, with established and new competitors launching new solutions leveraging technology to enhance guest and owner experience. The speed of technological development and implementation in key markets such as China requires constant focus.

 

Our Commercial and Technology team continues to develop on and above property capabilities and functionality, including responsive website design and mobile check out, while undertaking controlled pilots in more complex areas such as mobile key solutions. In mid-2017 we began to pilot IHG Concerto (see page 17) which, as well as increased functionality, will increase the resilience of our revenue systems. We have also implemented our centrally controlled and high-performing IHG Connect solution to benefit owners and guests.

 

Changes to accelerate our growth will enable us to prioritise resources and streamline technology governance practices to drive efficiency and pace in our innovation and project delivery.

 

 

 

 

 

  

 

IHG’s focus to accelerate growth will require significant reprioritisation of activities and refocusing of resources. Given the importance and scope of the multi-faceted initiatives that will be undertaken to accelerate growth there are inherent risks which will require appropriate planning, project management, governance and clearly defined success factors.   LOGO  

LOGO

 

LOGO

 

LOGO

 

LOGO

  

Our executive team, supported by our programme office, is providing direct leadership and steering a portfolio of activities to accelerate growth, engaging our wider senior leader team to clarify and align on objectives, key drivers and associated behaviours required in the future; and to provide regular visibility to the Board to ensure that the scope and timing of delivery remains within our risk appetite framework.

 

We are also supported by third -party expertise to enable us to reprioritise resources and sequence activities in the most impactful way across the organisation, whilst mitigating and assuring risk to an acceptable level.

 

Our focus on accelerating growth involves evolving our risk management system, governance and assurance arrangements to enable effective and agile decision making during the organisational change, in alignment with our appetite and tolerance for risk.

 

 

 

 

 

  

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Risk management   21


Table of Contents

Strategic Report

 

Risk management continued

    

    

Risk description

  

Trend

  

Impact

  

Initiatives to manage these risks

Failure to maintain an effective safety and security system and to respond appropriately in the event of an issue could result in an adverse impact to IHG; such as reputational and/or financial damage and undermining stakeholder confidence.    LOGO   

LOGO

 

LOGO

 

LOGO

  

The environment in which IHG develops and operates hotels continues to evolve, creating continued inherent challenges to the safety and security expectations of our guests and owners. Although we assess this risk to be stable overall, our Risk team coordinates and monitors a management system designed to provide an appropriate level of control of safety and security in IHG branded hotels and IHG offices.

 

Our design & engineering, hotel opening and operations teams work together with our operational safety and security experts to evaluate our standards and provide guidance and training to our owners and hotel colleagues. We also have internal and external threat intelligence expertise to monitor potential impacts on IHG from, for example, terrorism.

 

  

 

  

 

  

 

Whilst the hotel sector is not subject to stringent industry specific regulations, the global business regulatory environment is continuously evolving and failure to ensure legal, regulatory and ethical compliance would impact IHG financially, operationally and reputationally.    LOGO   

LOGO

 

LOGO

  

Our regulatory compliance specialists work to identify and respond to relevant regulatory and societal expectations. This is a particular imperative in relation to new privacy and cyber legislation, such as the EU GDPR and China’s new cybersecurity law, and continued scrutiny of the hospitality industry in relation to the environment and human rights.

 

Our regulatory compliance programme focuses on bribery, sanctions, data privacy and competition compliance, with expectations defined within our Code of Conduct and related policies and training and awareness tools. Our development and legal teams work closely during owner due diligence procedures and escalate any identified ‘red flags’ for senior leadership review and decision. We also have in place a whistleblower hotline to report any concerns and defined controls which are routinely monitored. For example, we regularly review our gift and entertainment processes and registers to ensure these remain appropriate and are complied with.

 

For details on our culture of responsible business and out approach to issues such as human rights, anti-bribery and environmental sustainability, please refer to pages 18-19).

 

  

 

  

 

  

 

A material breakdown in our financial management and control systems would lead to increased public scrutiny, regulatory investigation and litigation.    LOGO   

LOGO

 

LOGO

 

LOGO

  

This risk has not experienced any material change in 2017, however IHG continues to operate a strong set of processes across its financial, operational and compliance processes. See page 42 for details of our approach to taxation, page 56 for details of our approach to internal financial control and pages 126-129 for specific details on financial risk management policies. Our finance team has worked to understand and prepare for changes to revenue recognition reporting under IFRS 15.

 

We continue to develop a scalable finance operating model, with increasing use of analytical capabilities, to enable us to adapt to future changes in the industry landscape and as we redeploy and refocus resources.

 

  

 

  

 

  

 

The inability to realise value from our programme and project delivery may result in failure to improve commercial performance, financial loss and undermining of stakeholder confidence.    LOGO   

LOGO

 

LOGO

  

IHG is currently delivering multiple high value and complex business change programmes. Resource prioritisation across these initiatives is overseen by our executive team, and processes, education and support have been provided throughout 2017 to increase the quality and consistency of programme delivery. Our plans to accelerate our growth will build on these capabilities during 2018 to review end-to-end processes and manage delivery interdependencies across IHG.

 

  

 

  

 

  

 

 

Viability statement

The Group’s annual planning process builds a robust three-year plan. 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 key assumptions included in the three-year plan relate to RevPAR, System size and no change to our stated dividend policy. There are no significant debt maturities in the period under consideration and therefore no assumptions have been included in relation to refinancing.

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 cybersecurity 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. These actions include a reduction in capital expenditure, salary freezes and suspension of bonus plans and the ordinary dividend. The results confirmed that the Group would be able to withstand the impact of each scenario.

The Directors have determined that the three-year period to 31 December 2020 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.

The Directors have assessed the viability of the Group over a three-year period to 31 December 2020, 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 2020.

 

 

22   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

Key performance indicators (KPIs)

Our carefully selected set of KPIs allow us to

effectively monitor our performance by measuring

our success in delivering against our strategy,

and in driving high-quality growth.

Our KPIs are organised around the framework of our strategy – our Strategic Model and targeted portfolio – underpinned by disciplined execution and doing business responsibly.

 

KPIs

  

2017 status

  

2018 specific priorities

Strategic Model and targeted portfolio      

Net rooms supply

Net total number of rooms in the IHG System.

 

LOGO   LOGO

 

Growth in underlying fee revenuesb

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

 

LOGO

 

LOGO

  

4.0%

increase in

net system size

 

31%

pipeline as a %

of system size

 

83,481

rooms signings

 

  

Launch and scale our new mainstream brand, avid hotels (see page 16 for details).

 

Leverage the expansion of our franchise offer for Holiday Inn, Holiday Inn Resort® and Crowne Plaza in Greater China, alongside Holiday Inn Express Franchise Plus model (see page 32 for details).

 

Continue to build international scale for Kimpton, accelerating the growth of the brand outside the Americas.

 

Ensure that, whilst driving strong rooms supply growth, we maintain a high level of guest satisfaction across our entire portfolio 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 booked through IHG’s direct and indirect systems and channels.

 

 

 

LOGO

 

LOGO

  

 

$4.6bn

digital revenues

delivered in 2017,

up by 9%c on 2016

 

 

22%

More hotels using

IHG’s revenue

management service

in 2017, vs 2016

  

Maintain our focus on increasing contribution from IHG Rewards Club members, and through direct bookings via our website or call centres.

 

Further grow our share of bookings through the IHG App, whilst also increasing engagement within the App.

 

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 154 and 155. Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.

 

c  Based on a restating of 2016 digital revenues at 2017 FX rates.

 

 

   Link between KPIs and          
   Directors’ remuneration          
  

As we continued our focus on delivering

high-quality growth, Directors’ Remuneration for 2017 was directly related to key aspects of our Strategic Model and targeted portfolio. The following indicates which KPIs have impacted Directors’ Remuneration:

   LOGO   The Annual Performance Plan    LOGO   The Long Term Incentive Plan
     

70% was linked to EBIT

30% was linked to non-financial measures, of which:

  20% was linked to improvements in Guest Love scores

  10% was linked to the delivery of other individual objectives; for Executive Directors, the majority of these objectives related to our KPIs

  

50% was linked to Total Shareholder Return

25% was linked to rooms growth

25% was linked to RevPAR growth

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Key performance indicators (KPIs)   23


Table of Contents

Strategic Report

 

Key performance indicators (KPIs) continued

    

    

KPIs

  

2017 status

  

2018 specific priorities

 

Strategic 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

  

 

77%

of Europe

Holiday Inn hotels

have implemented

or committed to

Open Lobby

 

 

3.0ppt

growth in

Guest Love over

the last three years

  

 

Drive 2018 rollout of IHG Concerto amongst our owners, across the entire estate (see page 17).

 

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

 

Progress the rollout of our enhanced internet connectivity and wifi offer, IHG Connect, across our estate.

 

Broaden consistency and quality across our Crowne Plaza portfolio in the US through the now established Crowne Plaza Accelerate programme (see page 32).

 

Continue to invest in brand innovation, including room design and finding new ways to use public spaces such as Holiday Inn Open Lobby (see page 32).

 

Support the recruitment and development of our high-performing General Managers.

 

Drive adoption of our learning solutions, such as the IHG Frontline online training platform, and brand-orientated services training across all IHG hotels.

 

 

  

 

  

 

Disciplined execution

 

     

Fee marginsb

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   

1.6ppt

growth in fee

margin in 2017

  

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.

 

Enhance our supplier management capabilities to drive further efficiencies throughout the business.

 

 

  

 

  

 

 

Employee Engagement

survey scores

Average of our revisedc bi-annual Colleague HeartBeat survey, completed by our corporate and managed hotel colleagues (excluding our joint ventures).

 

LOGO

 

 

 

LOGO

  

 

97%

2017 Colleague

HeartBeat participation rate

  

 

Improve and simplify performance management processes, in order to focus on productive development conversations.

 

Drive adoption of improvements to our human resources systems, including online colleague training, to further our ability to develop and retain talent.

 

  

 

  

 

 

Free cash flowb,d

Cash flow from operating

activities (after interest and tax

paid), less purchase of shares

by employee share trusts

and maintenance capital

expenditure, including key

money paide.

 

LOGO

 

 

 

LOGO

  

 

7.3%

growth in EBITDA

in 2017

  

 

Continue to deliver consistent, sustained growth in profits and cash flow.

 

Control capital deployment in line with business priorities.

 

Continue programme to recycle capital invested in minor equity positions and joint ventures, over time, when conditions are favourable.

 

  

 

  

 

 

a  Changes to the method for calculating IHG’s guest satisfaction scores (previously Guest HeartBeat) were introduced in 2016. The comparative for 2015 has been restated.

 

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 154 and 155. Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.

 

c  In 2017, the employee engagement survey was revised and relaunched as the Colleague HeartBeat survey. The 2016 and 2015 figures relate to previous survey results, which could not be restated and are not comparable.

 

d  Cash flow was introduced as a new measure for the 2017/19 LTIP cycle. Cumulative free cash flow over the three-year performance period forms part of the measure, with some adjustments. The target for each successive cycle is determined annually, taking into account IHG’s long-range business plan, market expectations and circumstances at the time.

 

e  In 2016, free cash flow excluded the $95m cash receipt from renegotiation of long-term partnership agreements.

 

24   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

    

    

    

KPIs

  

2017 status

  

2018 specific priorities

Doing business responsibly   

Number of people participating

in IHG® Academy programmes

 

LOGO

  LOGO   

2,599

IHG Academy programmes 

across 74 countries

  

Continue to provide skills and improved employability to people through IHG Academy (see page 19), 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 hotels.

 

  

 

  

 

 

Carbon footprint per

occupied room

 

LOGO

 

 

LOGO

  

 

15%

reduction in carbon

footprint per occupied

room from 2013–2017

on a 2012 baseline

 

  

 

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

  

 

5.3%

reduction in water use

per occupied room

in water-stressed areas  

from 2013–2017 on

a 2012 baseline

  

 

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

 

Implement two water projects to improve water stewardship and enable further reductions in water use.

 

  

 

  

 

 

a  Restated.

 

LOGO   Please see www.ihgplc.com/responsible-business for full disclosure of our carbon and water data,
as well as more information on our new set of Responsible Business targets for 2018-2020.

Final dividend

The Board has proposed a final dividend per ordinary share of 71.0¢. With the interim dividend per ordinary share of 33.0¢, the full-year dividend per ordinary share for 2017 will total 104.0¢.

 

Dividend policy

The Group’s business is highly cash-generative and the Group has three primary uses for its cash; investing to drive growth, maintaining sustainable growth in the ordinary dividend and returning surplus funds to shareholders. These are kept under constant review by the Board.

 

IHG has a progressive dividend policy, which means growing dividend per ordinary share each year. The Group has an excellent track record of returning funds to shareholders through ordinary and special dividends and share buybacks,

 

  

with the ordinary dividend seeing 11% CAGR since 2003. This is in addition to special returns of funds detailed on page 178.

 

In determining the dividend, the Group seeks to maintain an efficient balance sheet and investment grade credit rating and aims to maintain a net debt: EBITDA ratio of 2.0–2.5x. The ratio at 31 December 2017 was 2.1x. The Directors will also take into account, and ensure there are sufficient, distributable reserves. For more details on our dividend policy and approach, see pages 5 and 42.

  

LOGO

 

    

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Key performance indicators (KPIs)   25


Table of Contents

Strategic Report

 

Performance

Key performance measures (including Non-GAAP measures)

used by management.

As well as the performance measures found in the Group Financial

Statements, the following key performance measures are included

in the performance review (and IHG at a glance on pages 2–3).

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.

 

      
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 (ADR). Occupancy rate is rooms occupied by hotel guests expressed as a percentage of rooms that are available. ADR 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 ADR 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.

      
Total operating profit before exceptional items and tax Adjusted earnings per ordinary share Underlying 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. 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 ordinary share in note 9 on page 115 of the Group Financial Statements. Adjusted earnings per ordinary share provides a per share measure that is not skewed by exceptional items.

 

Underlying earnings per ordinary share is calculated by dividing underlying profit for the period available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the period.

  

Underlying earnings per ordinary share provides a per share measure based on comparable year-on-year trading and reflects underlying trends in the Group’s financial performance.

 

An analysis of exceptional items for the periods covered by the performance review is included in note 5 on page 110 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 88, 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 126.
      
Net capital expenditure
Net capital expenditure is defined as cash flow from investing activities, excluding tax paid on disposals and adjusted for System Fund depreciation and amortisation (recovery of previous System Fund capital expenditure). For internal management reporting, capital expenditure is reported as either maintenance, recyclable, or System Fund.    The disaggregation of net capital expenditure provides useful information as it enables users to distinguish between System Fund capital investments and recyclable investments (such as investments in associates and joint ventures), which are intended to be recoverable in the medium term, compared with maintenance capital expenditure (including key money paid), which represents a permanent cash outflow.
      
Free cash flow
Free cash flow is defined as cash flow from operating activities (after interest and tax paid), less purchase of shares by employee share trusts and maintenance capital expenditure, including key money paid. In 2016, free cash flow excluded the $95m cash receipt from renegotiation of long-term partnership agreements.    Free cash flow is a useful measure for investors, as it represents the cash available to invest back into the business to drive growth, pay the ordinary dividend, with any surplus being available for additional returns to shareholders.
      

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

 

LOGO  

The performance review should be read in conjunction with the Non-GAAP

reconciliations on pages 154 and 155 and the glossary on pages 184 to 185.

 

26   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

    

Group

Group results

 

         12 months ended 31 December  
         

                2017

$m

        

            2016

$m

        

    2017 vs 2016

% change

        

                2015 

$m 

        

    2016 vs 2015

% change

 
Revenue                                                       
Americas        1,025          993          3.2          955           4.0  
Europe        241          227          6.2          265           (14.3
AMEA        244          237          3.0          241           (1.7
Greater China        126          117          7.7          207           (43.5
Central        148          141          5.0          135           4.4  
Total        1,784          1,715          4.0          1,803           (4.9
Operating profit before exceptional items                                                       
Americas        644          633          1.7          597           6.0  
Europe        86          75          14.7          78           (3.8
AMEA        87          82          6.1          86           (4.7
Greater China        52          45          15.6          70           (35.7
Central        (110        (128        14.1          (151)          15.2  
         759          707          7.4          680           4.0  
Exceptional items        4          (29        113.8          819           (103.5
Operating profit        763          678          12.5          1,499           (54.8
Net financial expenses        (85        (87        2.3          (87)           
Profit before tax        678          591          14.7          1,412           (58.1
Earnings per ordinary share                                                       
Basic        306.7¢          195.3¢          57.0          520.0¢           (62.4
Adjusted        244.6¢          203.3¢          20.3          174.9¢           16.2  
Average US dollar to sterling exchange rate       

$1:

£0.78

 

 

      

$1:

£0.74

 

 

       5.4         

$1: 

£0.65 

 

 

       13.8  

 

Highlights for the year ended

31 December 2017

During the year ended 31 December 2017, revenue increased by $69m (4.0%) to $1,784m primarily resulting from 4.0% rooms growth and 2.7% comparable RevPAR growth. Operating profit and profit before tax increased by $85m (12.5%) and $87m (14.7%) respectively. Operating profit before exceptional items increased by $52m (7.4%) to $759m.

Underlyinga Group revenue and underlyinga Group operating profit increased by $80m (5.2%) and $59m (8.4%) respectively.

Comparable Group RevPAR increased by 2.7% (including an increase in average daily rate of 1.1%). IHG System size increased by 4.0% to 798,075 rooms, whilst Group fee revenueb increased by 4.1% (5.0% at constant currency).

The net central operating loss before exceptional items decreased by $18m (14.1%) to $110m and by $15m (11.7%) to $113m at constant currency due to an increase in central revenues and the impact of our strategic cost management programme.

 

Group fee margin was 50.4%, up 1.6 percentage points (up 1.4 percentage points at constant currency) on 2016, 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 increased by 57.0% to 306.7¢, whilst adjusted earnings per ordinary share increased by 20.3% to 244.6¢, reflecting the increase in operating profit before tax and the impact of the share capital reduction as a result of the share consolidation in May 2017.

 

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 154 and 155). 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 154 and 155).

 

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 100 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 110 of the Group Financial Statements.

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance   27


Table of Contents

Strategic Report

 

Performance continued

Group continued

    

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.

Group total gross revenue

 

         12 months ended 31 December  
         

                     2017

$bn

        

                     2016

$bn

                 % change  
Analysed by brand                                 
InterContinental        4.8          4.6          4.3  
Kimpton        1.1          1.1           
Crowne Plaza        4.3          4.1          4.9  
Hotel Indigo        0.4          0.4           
Holiday Inn        6.3          6.2          1.6  
Holiday Inn Express        6.7          6.3          6.3  
Staybridge Suites        0.9          0.8          12.5  
Candlewood Suites        0.8          0.7          14.3  
Other        0.4          0.3          33.3  
Total        25.7          24.5          4.9  
Analysed by ownership type                                 
Franchised        14.9          14.3          4.2  
Managed        10.6          10.0          6.0  
Owned and leasedc        0.2          0.2           
Total        25.7          24.5          4.9  

 

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

Total gross revenue increased by 4.9% (5.7% increase at constant currency) to $25.7bn, driven by IHG System size and comparable RevPAR growth.

 

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 154 and 155). 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 154 and 155).

 

c  See note 2 of the Group Financial Statements on page 104.

    

 
 

 

28   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

    

    

    

Group hotel and room count

 

                      Hotels                       Rooms  
At 31 December        2017          Change
over 2016
         2017          Change
over 2016
 
Analysed by brand                                            
InterContinental        194          7          65,998          2,348  
Kimpton        66          5          12,516          1,278  
HUALUXE        7          3          2,089          993  
Crowne Plaza        414          6          114,800          997  
Hotel Indigo        85          10          10,645          1,740  
EVEN Hotels        8          2          1,238          228  
Holiday Inna        1,242          1          232,693          937  
Holiday Inn Express        2,600          103          262,398          15,389  
Staybridge Suites        255          19          27,745          2,135  
Candlewood Suites        376          14          35,424          1,232  
Other        101          4          32,529          3,663  
Total        5,348          174          798,075          30,940  
Analysed by ownership type                                            
Franchised        4,433          112          552,834          10,184  
Managed        907          62          242,883          20,810  
Owned and leased        8                   2,358          (54
Total                5,348                     174              798,075                  30,940  

 

a  Includes 47 Holiday Inn Resort properties (11,954 rooms) and 26 Holiday Inn Club Vacations properties (7,676 rooms)
  (2016: 46 Holiday Inn Resort properties (11,652 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)).

 

Group pipeline

 

                      Hotels                       Rooms  
At 31 December        2017          Change
over 2016
         2017          Change
over 2016
 
Analysed by brand                                            
InterContinental        63          1          17,353          (127
Kimpton        18                   2,796          (302
HUALUXE        21          (1        6,289          (667
Crowne Plaza        86          (4        23,047          (1,489
Hotel Indigo        82          7          11,301          708  
EVEN Hotels        12          6          2,110          1,330  
Holiday Innb        277          16          53,556          878  
Holiday Inn Express        766          90          93,360          9,478  
avid hotels        44          44          4,043          4,043  
Staybridge Suites        160          20          17,941          2,620  
Candlewood Suites        112          4          10,009          405  
Other        14          2          2,341          (2,807
Total        1,655          185          244,146          14,070  
Analysed by ownership type                                            
Franchised        1,223          184          139,348          21,654  
Managed        432          1          104,798          (7,584
Total                1,655                     185              244,146                  14,070  

 

b  Includes 13 Holiday Inn Resort properties (3,620 rooms) (2016: 14 Holiday Inn Resort properties (3,531 rooms)).

 

Total number of hotels

5,348

Total number of rooms

798,075

During 2017, the global IHG System (the number of hotels and rooms which are franchised, managed, owned or leased by the Group) increased by 174 hotels (30,940 rooms) to 5,348 hotels (798,075 rooms).

Openings of 285 hotels (48,817 rooms) were 20.1% higher than in 2016. Openings in the Americas included 124 hotels (12,949 rooms) in the Holiday Inn brand family. 43 hotels (10,570 rooms) were opened in Greater China in 2017, with the Europe and AMEA regions contributing openings of 26 hotels (4,917 rooms) and 26 hotels (11,085 rooms) respectively. 111 hotels (17,247 rooms) left the IHG System in 2017, a decrease from the previous year (116 hotels, 17,367 rooms).

Total number of hotels in the pipeline

1,655

Total number of rooms in the pipeline

244,146

At the end of 2017, the global pipeline totalled 1,655 hotels (244,146 rooms), an increase of 185 hotels (14,070 rooms) on 31 December 2016. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid.

Group signings increased from 516 hotels in 2016 to 605 hotels and rooms increased from 75,812 to 83,481 in 2017. This included 391 hotels (52,592 rooms) signed for the Holiday Inn brand family, 32.1% of which were contributed by Greater China (90 hotels, 16,904 rooms).

Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 135 hotels (21,224 rooms), compared to 118 hotels (19,518 rooms) in 2016.

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance   29


Table of Contents

Strategic Report

 

Performance continued

Progress against our 2017 regional priorities

 

Group revenue 2017 ($1,784m)

 

             LOGO

    

    

Number of rooms (798,075)

 

             LOGO

Americas

Europe

Asia, Middle East and Africa (AMEA)

Greater China

Central

 

LOGO  

See page 32 for our

Regional highlights.

 

Americas

 

Strengthened our Upscale and Luxury portfolio by opening the iconic InterContinental Los Angeles Downtown, Hotel Indigo Los Angeles Downtown and Crowne Plaza HY36 Midtown. In 2017, we signed a total of 365 hotels in the Americas.

 

Drove brand preference through signifcant investment in Crowne Plaza, Holiday Inn and Holiday Inn Express. 78% of the Crowne Plaza estate participated in the Accelerate programme in 2017, and over 1,000 new design Holiday Inn Express hotels were open or in the pipeline as of year end.

 

Enhanced owner returns by expanding use of our revenue mangement service, Revenue Management for Hire, across the region. Currently 67% of the Americas estate uses the service, up from 57% in 2016.

 

Greater China

 

Leveraged our Franchise Plus business model and grew significantly in tier 2 and 3 cities. Franchise Plus delivered 54 signings in 2017. More broadly, over 87% of openings for the region were outside tier 1 cities. We also expanded our franchise model to our Holiday Inn and Crowne Plaza brands.

 

Debut signings for: Kimpton Hotels & Restaurants (Taipei and Sanya); and EVEN Hotels (three properties). HUALUXE had 21 hotels in the pipeline as of year-end.

 

Drove a consistent guest experience through the rollout of True Hospitality Service training to 272 of our 328 hotels. Guest Love increased by 1.2ppts in 2017.

 

Strengthened our talent acquisition and development through the GM Ready programme, to create immediate GM resource pool for new opening hotels. Continued building hotel commercial and revenue management capability through a Sales Transformation project.
 

 

 

Asia, Middle East and Africa (AMEA)

 

Signings increased 20% year-on-year to 12,620, and included regional firsts for both Kimpton Hotels & Restaurants and EVEN Hotels. Our Upscale and Luxury presence was enhanced by the opening of Hotel Indigo Bali Seminyak – the world’s first Hotel Indigo in a resort location – as well as InterContinental properties in Perth, Singapore, Hanoi and Fujairah Resort.

 

Drove brand preference and our promise of True Hospitality through new service training, rolled out to 84% of AMEA hotels. Guest satisfaction in AMEA increased in 2017, with Guest Love 0.8ppts higher than last year.

 

Enhanced our owner proposition through new ways of working for our hotel opening teams, establishing relationship directors who serve as an owner’s single point of contact post-deal signing, through to opening.

 

Europe

 

Grew system size in Europe’s most attractive markets and highest opportunity segments, with particular focus on the UK and Germany. In 2017, over half of the region’s signings and openings were in either the UK or Germany.

 

Strengthened brand preference through continued rollout of Holiday Inn Open Lobby, which 77% of the estate has now installed or is commited to installing, driving a 7ppts Guest Love uplift. The Holiday Inn Express Generation 4 guestroom, which 87% of Generation 1 and 2 properties have now installed or are comitted to, has driven a 4ppt Guest Love uplift post-refurbishment. We also enhanced brand awareness of Kimpton Hotels & Restaurants with the opening of Amsterdam De Witt, the first for the brand in the region.

 

YourRate by IHG Rewards Club has now rolled out to all our European markets except Israel and is having a positive impact on direct bookings. IHG Rewards Club enrolments increased by 16% this year, against 2016.
 
 

 

30   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

         Industry performance in 2017        IHG’s regional performance in 2017

 

    

 

    

 

Americas     

Industry RevPAR in the Americas increased by 3.8%, driven by a 2.8% average daily rate growth and 0.6pts occupancy growth. Occupancy achieved its highest level ever recorded, topping the record set in 2015. Room demand was up 2.9%, its highest since 2014, led by increasing business and consumer confidence in the US. Demand was further propelled in the US by two hurricanes in the latter part of the year, while supply growth remained robust (1.9%) despite a fall from its seven year high in 2016.

 

US lodging industry room demand advanced 2.7% in 2017, its largest increase since 2014, whilst supply growth edged up to 1.8%. US industry RevPAR increased by 3.0%, led by an average daily rate growth of 2.1%. RevPAR in the US Mainstream chain scale, where the Holiday Inn and Holiday Inn Express brands operate, increased by 2.2%.

 

In Canada, industry RevPAR increased by 7.7%, driven by a 5.2% increase in average daily rate, and in Mexico, RevPAR increased by 6.4% with average daily rate advancing 6.0%.

    

IHG’s comparable RevPAR in the Americas increased by 1.6%, driven by 1.2% average daily rate growth. The region is predominantly represented by the US, where comparable RevPAR increased by 1.2%, with 3.0% growth in the fourth quarter led by demand in hurricane impacted areas. In the US, we are most represented by our Mainstream brands Holiday Inn and Holiday Inn Express. RevPAR in our Mainstream brands increased slightly behind the segment, with RevPAR for the Holiday Inn brand increasing by 1.9% whilst that for the Holiday Inn Express brand increased by 1.7%.

 

Canada achieved strong growth of 6.1%, whilst Mexico grew 5.1%, led by rate growth.

 

    

 

    

 

Europe      Strong demand and solid average daily rate growth propelled European industry RevPAR in 2017 up 7.2%, its largest gain since 2000. Demand rebounded in Continental Europe as certain markets recovered from terror incidents in 2016 and inbound tourism increased. Regional room demand grew 4.4% with average daily rate advancing 3.6%. UK industry RevPAR was up 4.1%, led by a 3.6% rate increase. UK room demand increased by 2.3% in 2017. In Germany, industry RevPAR was up 3.0%, driven by a 2.0% growth in average daily rate and a 2.1% increase in demand. A number of countries in the region including Italy, Russia and Spain, saw industry RevPAR rise in 2017 through increasing demand and average daily rate.      IHG’s regional comparable RevPAR in Europe increased by 6.3%, driven by both occupancy and average daily rate growth. The UK grew by 4.5%, ahead of the industry, led by average daily rate driven growth in the provinces. In London, RevPAR increased by 4.3% driven by strong demand growth in the first half of the year. Germany achieved growth of 2.1%, and Russia increased by 7.1%, both led by rate growth. Across the rest of Europe, RevPAR achieved strong growth of 7.6%, led by recovery in markets previously impacted by terror attacks.

 

    

 

    

 

Asia, Middle East and Africa (AMEA)     

AMEA room demand growth increased by its fastest rate of the past five years resulting in rising occupancy across most countries in the region. Average daily rate was also on the rise, driving up regional RevPAR growth to 3.0%; its highest for the past four years. RevPAR was up in several countries in the region, including Japan (3.0%), Australia (2.8%), India (3.8%) and Thailand (4.2%) with growth in both demand and average daily rate.

 

Egypt drove RevPAR growth in the Middle East (3.4%). Excluding Egypt, Middle East RevPAR fell 5.2% as Saudi Arabia, the United Arab Emirates, and others were impacted by weak oil prices and high supply growth. Room demand was up in all but two of the 11 Middle East countries excluding Egypt, as declining average daily rate was the principal driver of the weaker performance. Supply growth remained robust, up 5.4% in 2017, excluding Egypt, and it has been above 5% for the past decade.

     Across this large region, IHG is widely represented both geographically and by brand, and comparisons across the industry are hard to make. Overall, IHG regional comparable RevPAR increased by 1.5%, driven by occupancy growth. Performance outside the Middle East was strong with 4.4% RevPAR growth overall, led by strong trading in the mature markets of Australia, where RevPAR increased by 4.5%, ahead of the industry, and in Japan where RevPAR increased by 2.7%. The Middle East RevPAR was down 4.1%, impacted by low oil prices and industry wide supply growth. Total RevPAR declined by 3.0% for the year impacted by the proportion of hotel openings in developing markets where RevPARs are significantly lower than developed markets.

 

    

 

    

 

Greater China     

Lodging industry RevPAR in Greater China increased by 5.2% via strong demand gains and the first average daily rate increase of the past seven years. While RevPAR declined from 2010 to 2016, demand has been robust, but performance had been held back by falling average daily rate and increasing supply. Supply gains in 2017 (3.5%) were the smallest of the past 18 years.

 

The two largest sub-regions (North & East) saw RevPAR gains of greater than 5% each, whereas the South and Central, the next two largest sub-regions, reported growth of more than 8% each. RevPAR growth in all four of the sub-regions was driven primarily by demand increases with supporting average daily rate gains. While supply growth slowed in Greater China overall, certain areas continued to see strong increases, including Macau (9.6%), the West (6.2%) and Central China (5.1%). Demand was also strongest in those three sub-regions, up more than 10% each.

     IHG’s regional comparable RevPAR in Greater China increased by 6.0% in 2017, slightly ahead of the industry. Our RevPAR was driven by better than the industry occupancy, which increased by 5.5%, whilst average daily rate grew by 0.4%. Mainland China RevPAR increased by 6.6%, led by growth of 6.9% in tier 1 cities due to strong transient, corporate and meeting demand. RevPAR grew in Hong Kong and Macau by 2.7% and 11.4%, respectively.

 

    

 

    

 

Source: Smith Travel Research for all of the above industry facts.

Comparable RevPAR movements on previous year (12 months ended 31 December 2017)

 

Region        Franchised               Managed               Owned and leased       

 

    

 

 

    

 

 

    

 

 
Americas      Crowne Plaza      1.9%        InterContinental      (0.9)%        All brands      6.6%  
    

 

 

    

 

 

    

 

 
     Holiday Inn      1.9%        Kimpton      0.4%          
    

 

 

    

 

 

       
     Holiday Inn Express      1.7%        Crowne Plaza      1.2%          
    

 

 

    

 

 

       
     All brands      1.8%        Holiday Inn      0.0%          
    

 

 

    

 

 

       
             Staybridge Suites      (0.7)%          
            

 

 

       
             Candlewood Suites      0.4%          
            

 

 

       
             All brands      0.2%          

 

    

 

 

    

 

 

    

 

 
Europe      All brands      6.1%        All brands      7.2%          

 

    

 

 

    

 

 

    

 

 
AMEA      All brands      (1.6)%        All brands      2.1%          

 

    

 

 

    

 

 

    

 

 
Greater China              All brands      6.1%          

 

    

 

 

    

 

 

    

 

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance   31


Table of Contents

    

 

LOGO

 

32                  IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

Americas

    

    

    

    

    

    

 

 

Americas results

 

        12 months ended 31 December
        

          2017

$m

       

          2016

$m

        2017 vs 2016
% change
       

          2015

$m

       

2016 vs 2015

% change

Revenue                              
Franchised     703     685     2.6     661     3.6
Managed     172     172         166     3.6
Owned and leased     150     136     10.3     128     6.3
Total     1,025     993     3.2     955     4.0
Percentage of Group revenue     57.4     57.9     (0.5)     53.0     4.9
Operating profit before exceptional items                              
Franchised     606     600     1.0     575     4.3
Managed     65     64     1.6     64    
Owned and leased     29     24     20.8     24    
Regional overheads     (56)     (55)     (1.8)     (66)     16.7
      644     633     1.7     597     6.0
Exceptional items     37     (29)     227.6     (41)     29.3
Operating profit     681     604     12.7     556     8.6
Percentage of Group operating profit before central overheads and exceptional items         74.1     75.8     (1.7)     71.9     3.9

 

Highlights for the year ended

31 December 2017

With 4,029 hotels (497,460 rooms), the Americas represented 62% of the Group’s room count and 74% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2017. The key profit producing market 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 Mainstream segment (including the Holiday Inn brand family). In the Upscale segment, Crowne Plaza is predominantly franchised whereas, in the Luxury segment, InterContinental-branded hotels are operated under both franchise and management agreements, whilst Kimpton is managed. 12 of the Group’s 13 hotel brands are represented in the Americas.

Revenue and operating profit increased by $32m (3.2%) to $1,025m and by $77m (12.7%) to $681m respectively. Operating profit before exceptional items increased by $11m (1.7%) to $644m. On an underlyinga basis, revenue increased by $37m (3.9%), while operating profit increased by $16m (2.5%), driven predominantly by RevPAR growth in the fee business and an increase in net rooms.

Franchised revenue and operating profit increased by $18m (2.6%) to $703m and by

$6m (1.0%) to $606m respectively. On a constant currency basis, revenue increased by $17m (2.5%) and operating profit increased by $6m (1.0%) as incremental royaltiesb growth from RevPAR and net rooms growth were partly offset by a delay in the recognition of a payroll tax credit, the implementation of the previously disclosed Crowne Plaza Accelerate financial incentives, and the annualisation of our investment in the Americas development team. Royalties growth of 3.3% was driven by comparable RevPAR growth of 1.8%, including 1.9% for Holiday Inn and 1.7% for Holiday Inn Express, together with 1.5% rooms growth.

Managed revenue remained flat at $172m, whilst operating profit increased by $1m (1.6%) to $65m. Revenue and operating profit included $34m (2016: $34m) and $nil (2016: $nil) respectively from one managed-lease property. Excluding results from this managed-lease hotel and on a constant currency basis, revenue increased by $6m (4.3%) and operating profit increased by $7m (10.9%) respectively.

Owned and leased revenue increased by $14m (10.3%) to $150m, whilst operating profit increased by $5m (20.8%) to $29m due to North American inbound business to Holiday Inn Aruba and the ramp up of EVEN Hotels Brooklyn.

 

Highlights for the year ended

31 December 2016

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 increased 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 154 and 155). 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.
 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance   33


Table of Contents

Strategic Report

 

Performance continued

Americas continued

    

Americas hotel and room count

         Hotels          Rooms  
At 31 December        2017          Change
over 2016
         2017          Change
over 2016
 
Analysed by brand                                            
InterContinental        50          2          17,578          1,170  
Kimpton        65          4          12,242          1,004  
Crowne Plaza        156          (8        41,278          (2,838
Hotel Indigo        51          5          6,828          896  
EVEN Hotels        8          2          1,238          228  
Holiday Inna        773          (1        135,604          (1,140
Holiday Inn Express        2,217          63          199,410          7,039  
Staybridge Suites        244          18          26,156          1,971  
Candlewood Suites        376          14          35,424          1,232  
Other        89          5          21,702          (95
Total        4,029          104          497,460          9,467  
Analysed by ownership type                                            
Franchised        3,727          94          437,292          6,426  
Managed        296          10          58,343          3,041  
Owned and leased        6                   1,825           
Total                4,029                     104              497,460                  9,467  
Percentage of Group hotel and room count        75.3          (0.6        62.3          (1.3

 

a  Includes 25 Holiday Inn Resort properties (6,787 rooms) and 26 Holiday Inn Club Vacations properties (7,676 rooms) (2016: 25 Holiday Inn Resort properties (6,791 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)).

 

Americas pipeline

         Hotels          Rooms  
At 31 December        2017          Change
over 2016
         2017          Change
over 2016
 
Analysed by brand                                            
InterContinental        7                   1,893          (639
Kimpton        14          (3        2,238          (711
Crowne Plaza        14          (3        2,719          (567
Hotel Indigo        33          1          4,026          61  
EVEN Hotels        8          2          1,114          334  
Holiday Innb        128                   16,375          (929
Holiday Inn Express        524          36          49,607          2,811  
avid hotels        44          44          4,043          4,043  
Staybridge Suites        146          15          15,432          1,536  
Candlewood Suites        112          4          10,009          405  
Other        12          1          1,648          309  
Total                1,042          97          109,104          6,653  
Analysed by ownership type                                            
Franchised        1,002                     105              102,844                  9,549  
Managed        40          (8        6,260          (2,896
Total        1,042          97          109,104          6,653  

 

b Includes one Holiday Inn Resort property (165 rooms) (2016: three Holiday Inn Resort properties (455 rooms)).

Total number of hotels

4,029

Total number of rooms

497,460

Americas System size increased by 104 hotels (9,467 rooms) to 4,029 hotels (497,460 rooms) during 2017. 190 hotels (21,615 rooms) opened in the year, compared to 188 hotels (23,535 rooms) in 2016. Openings included 124 hotels (12,949 rooms) in the Holiday Inn brand family, representing 59.9% of the region’s openings.

86 hotels (12,148 rooms) were removed from the Americas System in 2017, demonstrating our continued commitment to quality, compared to 103 hotels (15,117 rooms) in 2016. 26.3% of 2017 room removals were Holiday Inn rooms in the US (17 hotels, 3,189 rooms) compared to 37.3% in 2016 (30 hotels, 5,638 rooms).

 

Total number of hotels in the pipeline

1,042

Total number of rooms in the pipeline

109,104

At 31 December 2017, the Americas pipeline totalled 1,042 hotels (109,104 rooms), representing an increase of 97 hotels (6,653 rooms) over the prior year. Strong signings of 365 hotels (37,419 rooms) were ahead of last year by 33 hotels (381 rooms). The majority of 2017 signings were within the Holiday Inn brand family (220 hotels, 21,829 rooms) and our extended-stay brands, Staybridge Suites and Candlewood Suites (70 hotels, 6,977 rooms). Launched in the US in September 2017, avid hotels is making good progress towards becoming IHG’s next brand of scale with signings of 44 hotels (4,043 rooms).

78 hotels (9,151 rooms) were removed from the pipeline in 2017 compared to 64 hotels (7,436 rooms) in 2016.

 

 

34   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

Europe

    

    

    

    

    

 

 

Europe results

 

         12 months ended 31 December  
                  2017
$m
                 2016
$m
         2017 vs 2016
% change
                 2015
$m
         2016 vs 2015
% change
 
Revenue                                                       
Franchised        109          102          6.9          104          (1.9
Managed        132          125          5.6          131          (4.6
Owned and leased                                   30          (100.0
Total        241          227          6.2          265          (14.3
Percentage of Group revenue        13.5          13.3          0.2          14.7          (1.4
Operating profit before exceptional items                                                       
Franchised        85          78          9.0          77          1.3  
Managed        26          22          18.2          28          (21.4
Owned and leased                                   1          (100.0
Regional overheads        (25        (25                 (28        10.7  
         86          75          14.7          78          (3.8
Exceptional items        (2                          175          (100.0
Operating profit        84          75          12.0          253          (70.4
Percentage of Group operating profit before central overheads and exceptional items        9.9          9.0          0.9          9.4          (0.4

 

Highlights for the year ended

31 December 2017

Comprising 692 hotels (113,415 rooms) at the end of 2017, Europe represented 14% of the Group’s room count and 10% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2017. 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 Mainstream 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 and operating profit increased by $14m (6.2%) to $241m and by $9.0m (12.0%) to $84m respectively. Operating profit before exceptional items increased by $11m (14.7%) to $86m. On an underlyinga basis, revenue increased by $15m (10.0%) and operating profit increased by $12m (16.4%) driven by strong trading, 3.0% rooms growth

and effective cost control to maintain overheads in line with the prior year. Overall, comparable RevPAR in Europe increased by 6.3%, with the UK and Germany increasing by 4.5% and 2.1% respectively. Recovery in markets previously impacted by terror attacks led to RevPAR growth in the year of 7.1% in France and double digit growth in Belgium and Turkey.

Franchised revenue increased by $7m (6.9%) to $109m, whilst operating profit increased by $7m (9.0%) to $85m. On a constant currency basis, revenue and operating profit increased by $8m (7.8%) and $7m (9.0%) respectively, positively impacted by strong US inbound tourism to the UK in the first half of the year.

Managed revenue increased by $7m (5.6%) and operating profit increased by $4m (18.2%). Revenue and operating profit included $77m (2016: $77m) and $nil (2016: $2m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue increased by $7m (14.6%) and operating profit increased by $5m (25.0%).

 

Highlights for the year ended

31 December 2016

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 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.
 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance   35
 


Table of Contents

Strategic Report

 

Performance continued

Europe continued

    

Europe hotel and room count

 

         Hotels          Rooms  
At 31 December                        2017          Change
    over 2016
                         2017          Change
    over 2016
 
Analysed by brand                                            
InterContinental        32          1          9,889          165  
Kimpton        1          1          274          274  
Crowne Plaza        97          5          22,477          1,590  
Hotel Indigo        24          3          2,182          272  
Holiday Inna        286          (5        46,928          (901
Holiday Inn Express        244          10          30,508          1,930  
Staybridge Suites        7                   1,000           
Other        1                   157          16  
Total        692          15          113,415          3,346  
Analysed by ownership type                                            
Franchised        636          7          98,302          1,272  
Managed        56          8          15,113          2,074  
Total        692          15          113,415          3,346  
Percentage of Group hotel and room count        13.0          (0.1        14.2          (0.2

 

a Includes one Holiday Inn Resort property (88 rooms) (2016: one Holiday Inn Resort property (88 rooms)).

 

Europe pipeline

 

         Hotels          Rooms  
At 31 December                        2017          Change
    over 2016
                         2017          Change
    over 2016
 
Analysed by brand                                            
InterContinental        5          (1        779          (34
Kimpton        1                   149           
Crowne Plaza        16          2          3,199          14  
Hotel Indigo        20          2          2,353          89  
Holiday Inn        38          4          7,781          512  
Holiday Inn Express        67          9          10,410          1,015  
Staybridge Suites        7          2          921          284  
Other        1          1          396          396  
Total            155          19          25,988          2,276  
Analysed by ownership type                                            
Franchised        135          24          20,774          2,866  
Managed        20          (5        5,214          (590
Total        155          19          25,988          2,276  

Total number of hotels

692

Total number of rooms

113,415

During 2017, Europe System size increased by 15 hotels (3,346 rooms) to 692 hotels (113,415 rooms). The Group opened 26 hotels (4,917 rooms) in Europe in 2017, compared to 24 hotels (4,188 rooms) in 2016. In Germany, we opened a record 11 hotels (2,101 rooms).

11 hotels (1,571 rooms) left the Europe System in the period, compared to seven hotels (830 rooms) in the previous year.

 

Total number of hotels in the pipeline

155

Total number of rooms in the pipeline

25,988

The Europe pipeline totalled 155 hotels (25,988 rooms) at 31 December 2017, representing an increase of 19 hotels (2,276 rooms) over 31 December 2016. Signings of 59 hotels (9,241 rooms), a decrease of one hotel (313 rooms) from the prior year, included 19 hotels (3,690 rooms) in Germany, a record number of signings for the fourth year running, and 14 hotels (1,497 rooms) in the UK.

14 hotels (2,048 rooms) were removed from the pipeline in 2017, compared to 12 hotels (1,944 rooms) in 2016.

 

 

36   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

AMEA

    

    

    

    

    

    

 

 

AMEA results

 

                                   12 months ended 31 December      
                    2017
$m
                   2016
$m
         2017 vs 2016
% change
                   2015
$m
         2016 vs 2015
% change
     
Revenue                                                         
Franchised        17          16          6.3          16             
Managed        193          184          4.9          189          (2.6  
Owned and leased        34          37          (8.1        36          2.8    
Total        244          237          3.0          241          (1.7  
Percentage of Group revenue        13.7          13.8          (0.1        13.3          0.5    
Operating profit before exceptional items                                                         
Franchised        14          12          16.7          12             
Managed        91          89          2.2          90          (1.1  
Owned and leased        2          2                   3          (33.3  
Regional overheads        (20        (21        4.8          (19        (10.5  
         87          82          6.1          86          (4.7  
Exceptional items        (2                          (2        (100.0  
Operating profit        85          82          3.7          84          (2.4  
Percentage of Group operating profit before central overheads and exceptional items        10.0          9.8          0.2          10.4          (0.6  

 

Highlights for the year ended

31 December 2017

Comprising 299 hotels (85,661 rooms) at 31 December 2017, AMEA represented 11% of the Group’s room count and contributed 10% of the Group’s operating profit before central overheads and exceptional items during the year. The majority of rooms in AMEA are operated under the managed business model.

Revenue and operating profit increased by $7m (3.0%) to $244m and by $3m (3.7%) to $85m respectively. Operating profit before exceptional items increased by $5m (6.1%) to $87m. On an underlying basisa, revenue and operating profit increased by $9m (4.8%) and $9m (11.7%) respectively.

Comparable RevPAR increased 1.5% primarily due to an increase in occupancy. Performance was positive in Japan and Australia, which grew by 2.7% and 4.5% respectively, however the Middle East decreased by 4.1%, impacted by low oil prices and industry wide oversupply.

Franchised revenue increased by $1m (6.3%) to $17m, whilst operating profit increased by $2m (16.7%) to $14m. On a constant currency basis, revenue stayed flat at $16m and operating profit increased by $2m (16.7%).

Managed revenue and operating profit increased by $9m (4.9%) to $193m and $2m (2.2%) to $91m respectively. Comparable RevPAR increased by 2.1%, with average daily rate declines offset by occupancy gains. Australasia benefitted from strong domestic travel, whilst growth in South East Asia was driven by international arrivals in Indonesia and Thailand. Revenue and operating profit included $52m (2016: $51m) and $4m (2016: $5m) respectively from one managed-lease property. Excluding results from this hotel and on a constant currency basis, revenue increased by $12m (9.0%) to $145m, whilst operating profit increased by $6m (7.1%) to $90m.

In the owned and leased estate, on an actual and constant currency basis, revenue decreased by $3m (8.1%) to $34m and operating profit stayed flat at $2m.

 

Highlights for the year ended

31 December 2016

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 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.
 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance   37


Table of Contents

Strategic Report

 

Performance continued

AMEA continued

    

AMEA hotel and room count

                      Hotels                       Rooms      
At 31 December                      2017          Change
  over 2016
                       2017          Change
  over 2016
     
Analysed by brand                                              
InterContinental        72          3          21,902          699    
Crowne Plaza        79          6          22,097          1,348    
Hotel Indigo        3          1          612          289    
Holiday Inna        97          4          23,502          2,190    
Holiday Inn Express        38          4          8,667          1,084    
Staybridge Suites        4          1          589          164    
Other        6                   8,292          3,836    
Total        299          19          85,661          9,610    
Analysed by ownership type                                              
Franchised        59          4          13,476          906    
Managed        238          15          71,652          8,758    
Owned and leased        2                   533          (54  
Total        299          19          85,661          9,610    
Percentage of Group hotel and room count        5.6          0.2          10.8          0.9    

 

a  Includes 15 Holiday Inn Resort properties (3,259 rooms) (2016: 14 Holiday Inn Resort properties (2,953 rooms)).

AMEA pipeline

                      Hotels                       Rooms      
At 31 December                      2017          Change
  over 2016
                       2017          Change
  over 2016
     
Analysed by brand                                              
InterContinental        23          (4        5,701          (980  
Kimpton        1          1          50          50    
Crowne Plaza        20          (1        5,456          (98  
Hotel Indigo        14                   2,387          (195  
EVEN Hotels        1          1          200          200    
Holiday Innb        57          8          14,284          1,020    
Holiday Inn Express        41          6          7,686          200    
Staybridge Suites        7          3          1,588          800    
Other                          18          (3,512  
Total        164          14          37,370          (2,515  
Analysed by ownership type                                              
Franchised        18          7          4,054          1,648    
Managed        146          7          33,316          (4,163  
Total        164          14          37,370          (2,515  

 

b Includes five Holiday Inn Resort properties (1,075 rooms) (2016: five Holiday Inn Resort properties (1,256 rooms)).

Total number of hotels

299

Total number of rooms

85,661

The AMEA System size increased by 19 hotels (9,610 rooms) to 299 hotels (85,661 rooms) as at 31 December 2017. Openings increased by nine hotels (6,612 rooms) to 26 hotels (11,085 rooms) in 2017 including 3,512 rooms in Makkah, Saudi Arabia which relate to the remaining portion of the signing that was announced in 2015.

Seven hotels (1,475 rooms) were removed from the AMEA System in 2017, compared to four hotels (995 rooms) in 2016.

Total number of hotels in the pipeline

164

Total number of rooms in the pipeline

37,370

At 31 December 2017, the AMEA pipeline totalled 164 hotels (37,370 rooms) compared to 150 hotels (39,885 rooms) at 31 December 2016. Hotel signings in AMEA were the highest since 2007 with 63 hotels (12,620 rooms), an increase of 21 hotels (2,069 rooms) from 2016. The AMEA pipeline decreased by 2,515 rooms partly due to the opening of 3,512 rooms in Makkah, Saudi Arabia. The majority of 2017 signings were within the Holiday Inn brand family (42 hotels, 7,787 rooms) including the rebranding of a portfolio of 14 properties in India to the Holiday Inn Express brand as well as three InterContinental hotels (730 rooms).

23 hotels (4,050 rooms) were removed from the pipeline in 2017, compared to 23 hotels (4,651 rooms) in 2016.

 

 

38   IHG  |  Annual Report and Form 20-F 2017


Table of Contents

    

 

Greater China

    

    

    

    

    

    

 

 

Greater China results

 

                                   12 months ended 31 December      
                  2017
$m
                 2016
$m
         2017 vs 2016
% change
                 2015
$m
         2016 vs 2015
% change
     
Revenue                                                         
Franchised        4          3          33.3          4          (25.0  
Managed        122          114          7.0          105          8.6    
Owned and leased                                   98          (100.0  
Total        126          117          7.7          207          (43.5  
Percentage of Group revenue        7.1          6.8          0.3          11.5          (4.7  
Operating profit before exceptional items                                                         
Franchised        2          3          (33.3        5          (40.0  
Managed        73          64          14.1          59          8.5    
Owned and leased                                   29          (100.0  
Regional overheads        (23        (22        (4.5        (23        4.3    
         52          45          15.6          70          (35.7  
Exceptional items                                   698          (100.0  
Operating profit        52          45          15.6          768          (94.1  
Percentage of Group operating profit before central overheads and exceptional items        6.0          5.4          0.6          8.4          (3.0  

 

Highlights for the year ended

31 December 2017

Comprising 328 hotels (101,539 rooms) at 31 December 2017, Greater China represented approximately 13% of the Group’s room count and contributed approximately 6% of the Group’s operating profit before central overheads and exceptional items for the year ended 31 December 2017. The majority of rooms in Greater China are operated under the managed business model.

Revenue and operating profit increased by $9m (7.7%) to $126m and by $7m (15.6%) to $52m respectively. On an underlyinga basis, revenue increased by $11m (9.4%) and operating profit increased by $7m (15.6%), driven by strong trading in mainland China and 9.2% rooms growth as well as robust cost control as we continue to leverage the scale of the operational platform we have built in Greater China.

On an actual and constant currency basis, franchised revenue increased by $1m (33.3%) to $4m, whereas operating profit decreased by $1m (33.3%) to $2m due to additional investment in growth initiatives.

Managed revenue and operating profit increased by $8m (7.0%) to $122m and by $9m (14.1%) to $73m respectively. Comparable RevPAR increased by 6.1%, whilst the Greater China System size grew by 7.6%. RevPAR in mainland tier 1 cities benefitted from strong transient, corporate and meetings demand. On a constant currency basis, revenue and operating profit increased by $10m (8.8%) to $124m and by $10m (15.6%) to $74m respectively.

 

Highlights for the year ended

31 December 2016

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 exch