20-F 1 d802209d20f.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, 2019

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)

Nicolette Henfrey

General Counsel and Company Secretary

+44 (0) 1895 512000

companysecretariat@ihg.com

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

American Depositary Shares
Ordinary Shares of 20340/399 pence each
 

IHG

IHG

 

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 20340/399 pence each   187,717,720

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, every Interactive Data File required to be submitted 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 such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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 Financial Reporting Standards as issued by

the International Accounting Standards 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

Contents

 

Strategic Report
2   2019 key highlights
4   Chair’s statement
6   Chief Executive Officer’s review
8   Industry overview
10   Our business model
14   Our brands
18   Our strategy
24   Our culture, responsible business and stakeholders
42   Key performance indicators (KPIs)
46   Our risk management
54   Viability statement
55   Performance
55   Key performance measures (including Non-GAAP measures) used by management
60   Group
63   Americas
66   Europe, Middle East, Asia and Africa (EMEAA)
69   Greater China
Governance
78   Chair’s overview
79   Corporate Governance
79   Our Board and Committee governance structure
80   Our Board of Directors
82   Our Executive Committee
84   Board meetings
86   Director induction, training and development
86   Board effectiveness evaluation
88   Audit Committee Report
92   Corporate Responsibility Committee Report
93   Nomination Committee Report
94   Statement of compliance with the UK Corporate Governance Code
96   Directors’ Remuneration Report
110   Directors’ Remuneration Policy
Group Financial Statements
120   Statement of Directors’ Responsibilities
128   Independent Auditor’s US Report
132   Group Financial Statements
139   Accounting policies
146   New accounting standards and presentational changes
150   Notes to the Group Financial Statements
Additional Information
214   Other financial information
221   Directors’ Report
225   Group information
237   Shareholder information
245   Exhibits
246   Form 20-F cross-reference guide
248   Glossary
250   Useful information
252   Forward-looking statements

The Strategic Report on pages 2 to 75

was approved by the Board on 17 February 2020.

Nicolette Henfrey, Company Secretary

LOGO

 


Table of Contents

LOGO

 

IHG  |  Annual Report and Form 20-F 2019   1


Table of Contents

Strategic Report

2019 key highlights

 

LOGO

 

a 

Restated to reflect the adoption of IFRS 16 (see pages 146 to 149) in the Group Financial Statements.

 

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 pages 55 to 59 and reconciliations to IFRS figures, where they have been adjusted, are on pages 214 to 218.

 

c 

Adjusted EPSb 303.3¢ (+3%); 2018: 293.2¢a

 

2   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  2019 key highlights   3


Table of Contents

Strategic Report

 

Chair’s

statement

 

 

LOGO

Patrick Cescau

Chair

 

 

Final dividend

85.9¢

to be paid on 14 May 2020

(2018: 78.1¢)

 

 

Total Shareholder Return

25.1%

IHG’s Total Shareholder Return in 2019 versus the FTSE 100 Index at 17.3%

 

                      

 

Full-year dividend

Five-year progress (¢)

 

LOGO

 

 

 

 

Return of funds

Since March 2003, the Group has returned over $11 billion of funds to shareholders by way of special dividends, capital returns and share repurchase programmes.

 

 
 

 

Since 2014:

 $500 million special dividend paid 29 January 2019

 

 $400 million special dividend paid 22 May 2017

 

 $1.5 billion special dividend paid 23 May 2016

 

 $500 million share buyback completed in 2014

 

 $750 million special dividend paid 14 July 2014

 

 

After a crucial period of transformation across our business, teams, priorities and processes, 2019 was a year in which a sharper and more agile execution of IHG’s strategy moved us closer to ambitious levels of growth and strengthened our long-term prospects.

The backdrop to this important work is one of an increasingly competitive industry. All peers are seeking to deliver on both evolving consumer expectations and aggressive growth strategies, focusing on system size expansion, market consolidation and big investments in service, loyalty, partnerships and technology.

We are clear that what will underpin IHG’s scale and success in key growth markets globally is a focus on enhancing and growing at pace, a distinct, high-quality portfolio of brands designed for great guest experiences and strong owner returns. Despite a weaker RevPAR environment, the fundamental drivers supporting our industry remain strong, with a growing global economy, increasing disposable income and an expanding middle class all fuelling long-term demand.

As a company we recognise the increasing importance of ensuring our culture, actions and aspirations also reflect a broader responsibility to contribute to society, local communities and the environment.

This is particularly important at a time of increasing political, societal, economic and environmental complexity. Climate change, trade tensions, nationalism and eroding trust in institutions represent some of the biggest themes of our time. IHG’s ability to act with integrity, transparency and conviction is key to our reputation with all stakeholders and to long-term future growth.

Accelerating growth

Over the past two years, our transformation has sparked the change needed to take IHG to the next level in terms of our capability and growth aspirations. This includes a refined structure and ways of working, and more targeted investments that strengthen our brands and business – be it fresh designs, signature marketing campaigns, new hotel tools, or new additions to our brand portfolio, such as Six Senses Hotels Resorts Spas (Six Senses) and Atwell Suites in 2019. Collectively this is delivering positive results.

On a performance level, our system size growth continues to accelerate in line with our aim to reach industry-leading levels, and we have achieved record signings in key markets that will support future growth.

 

 

4   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

“Over the past two years, our transformation has sparked the change needed to take IHG to the next level in terms of our capability and growth aspirations.”

 

Together, this illustrates the attractiveness of our evolving brand portfolio for guests and shows the trust owners have in our ability to listen to their needs and drive strong returns.

More broadly we have enriched the type of company we want to be, strengthening our environmental commitments and ties with local communities, launching a new share plan for corporate employees, and increasing our focus on diversity and inclusion at global and regional levels through our D&I Board. We have also put great effort into promoting the behaviours we see as critical to driving IHG’s growth and contributing to a workplace everyone is proud of.

Inspiring change

I spent time in many of our markets in 2019, meeting with owners, investors and colleagues and staying in our hotels, and I have seen first-hand how the changes we are making are resonating with different stakeholders. From a conference with Crowne Plaza owners in the Americas, to a marquee InterContinental opening in France, and events in China and Japan, it is clear from my discussions that IHG is being recognised for a real focus on competitiveness and quality.

These results would not be possible without a rich company culture, whereby employees are engaged with our strategy, values and our purpose of providing True Hospitality for everyone. Special credit must go to Chief Executive Officer Keith Barr and his leadership team for uniting the business and for leading by example on what’s required to go above and beyond for guests, owners, investors and each other.

The evolution of our culture and nurturing of talent is critical to IHG’s long-term success, and as a Board we engage regularly with leadership on executive development, succession planning and bench strength in management teams. In 2019, we also appointed a designated non-executive director to ensure the Board’s engagement with IHG’s workforce, with several forums providing a valuable cross-section of views that ensures an employee voice is represented on key matters.

Our Board

The importance of the Board’s role in challenging and supporting corporate decision making during such a formative time for IHG cannot be underestimated, and we place great emphasis on ensuring that we keep pace with evolving topics that are central to our industry and organisation.

Alongside the evolution of a strong company culture, focus areas in 2019 included audit reform, the Greater China market, and consumer and technology trends. The changing cybersecurity landscape was also considered at length, alongside progress against our 2018 action plan, and the Board spent time understanding different environmental, social and governance (ESG) factors as part of the work being done to evolve our Corporate Responsibility strategy.

During 2019 we developed proposals for our refreshed Directors’ Remuneration Policy, details of which are set out in the Remuneration Committee Chair’s Statement on pages 96 to 98. As part of this work, we consulted with shareholders who made up more than 50% of the share register, as well as shareholder representative bodies. Please also see the Directors’ Remuneration Policy on pages 110 to 117.

 

Equally important to an effective Board is the right mix of diversity, experience and backgrounds around the table – something we want to ensure is felt consistently throughout IHG. In 2019 we were delighted to again be named in the Hampton-Alexander Review as one of the top 10 FTSE 100 companies for female representation across our Executive Committee and direct reports. At a Board level, I am pleased to report that an external evaluation found the Board to be well functioning and effective.

During the year, we appointed Arthur de Haast as an Independent Non-Executive Director, effective from 1 January 2020. Chair of the Capital Markets Advisory Council of NYSE-listed professional services firm Jones Lang LaSalle, Arthur brings more than 30 years of capital markets, hotels, hospitality and sustainability experience to IHG, as well as significant insight into Asia. Arthur will serve on IHG’s Remuneration and Corporate Responsibility Committees.

Shareholder returns

Continuing IHG’s long track record of increasing shareholder returns, I am pleased to announce the Board is recommending a final dividend of 85.9 cents per ordinary share, an increase of 10% on the final dividend for 2018. This results in a full-year dividend of 125.8 cents per share, up 10% on 2018.

As we look to the future, our successful strategy and cash generative business model remains a great strength of IHG. It is one that allows us to invest in initiatives that drive demand for our brands and returns for our owners, motivate colleagues for high performance, and still deliver on our commitment to shareholder returns.

As ever, our achievements are the result of the hard work of everyone in our hotels and offices. I would like to thank all colleagues for their dedication and commitment to bringing our brands to life, and to our owners for their continued confidence.

 

LOGO

Patrick Cescau

Chair

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Chair’s statement   5


Table of Contents

Strategic Report

 

Chief Executive

Officer’s review

 

LOGO

Keith Barr

Chief Executive Officer

 

LOGO

 

We continue to improve the strength and breadth of IHG’s brand portfolio and enterprise offer to create the rich guest experiences and owner returns that are so integral to our growth, and to delivering our purpose of True Hospitality for everyone.

For the past two years, we have been united as a business behind delivering our strategy to evolve and expand our brand portfolio, sharpen our operations, loyalty and owner offer, and put our global scale and resources to greatest use.

Building upon a position of great strength as one of the world’s leading hotel companies, this period has been characterised by a desire to add pace, agility and ambition to our operations, culture and enterprise offer, and ensure that IHG is well positioned to reach its full potential for the long-term.

Central to this is our ability to accelerate the pace at which we sign and open more hotels in key growth markets globally. In turn, this drives our successful fee business model and generates more cash for further investment in our enterprise and to return to shareholders.

The importance and effectiveness of this model is amplified at times when industry RevPAR growth slows. We saw such conditions arise in 2019, led by macro and geopolitical factors, supply growing ahead of demand in some markets, and ongoing unrest in Hong Kong SAR.

Delivering results

Against this backdrop and the progression of key strategic growth initiatives, we delivered a solid annual performance, with underlying operating profit increasing 6% and new openings for the year reaching record levels.

Our commitment to quality remains a key ingredient in the success of our brands, with consistent investment in our design, service, technology and loyalty offer.

Testament to this is our Holiday Inn Brand Family, for years IHG’s growth engine, which delivered its highest ever level of openings in 2019. Helping fuel demand has been the continued roll out of modern public space and room designs like Open Lobby and H4 for Holiday Inn, and Formula Blue for Holiday Inn Express, both of which have led to increased guest satisfaction scores and owner returns.

In the year, we also launched transformative new prototypes for what are already award-winning extended stay brands in Candlewood Suites and Staybridge Suites. Underlining the commitment to quality and modern service that we share with our owners, many of our Crowne Plaza and InterContinental properties are also being refreshed with important renovations and enhancements.

 

 

6   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

“In 2019, we have taken more important steps to be the best long-term partner for owners, a great place to work for employees, and a brand of choice for guests.”

 

It has also been another year of impressive demand for our boutique brands, with a best ever year of signings for Hotel Indigo, and the global expansion of Kimpton Hotels & Restaurants taking the brand’s combined system and pipeline to almost 100 hotels.

New brands

Alongside our established brands, we have added new brands to our portfolio in fast-growing segments to further accelerate future growth. In a period of less than two years we have launched or acquired five new brands, with the acquisition of Six Senses Hotels Resorts Spas (Six Senses) and launch of Atwell Suites in 2019, following the addition of Regent Hotels & Resorts and voco in 2018, and avid in 2017.

A world-renowned wellness and sustainability brand, Six Senses represents the very top tier of luxury, whilst Atwell Suites offers a new option in an $18bn US all-suites market.

Illustrating the strength of these new brands, avid has surpassed 200 signings since launch in September 2017, Atwell Suites already has 10 signings, and voco is growing ahead of expectations in EMEAA, with plans to expand into more markets globally in 2020. In the luxury space, a redefined Regent is attracting owner interest, and signings for Six Senses have accelerated, with some fantastic locations added, including London and the Galapagos Islands.

As well as the right brands, we know our success relies on having an attractive loyalty offer, a rich digital guest experience, and the tools, support and systems that unlock greater hotel performance for our owners. Our IHG Rewards Club partnerships in 2019 with the US Open Tennis Championships and travel club and boutique hotel specialist, Mr & Mrs Smith, underline our ambition to strengthen the programme through world class partnerships and help attract, reward and retain high value guests.

We are heavily investing in technology too, with the continued development of our industry-leading cloud-based Guest Reservation System

 

within IHG Concerto and our wifi solution IHG Connect. In 2019, we also launched IHG Studio, our new digital in-room guest entertainment solution, which allows guests to stream content, make service requests and pay with loyalty points through their TV.

For every priority and programme we have, there is insight, data and expertise behind it that makes sure we are delivering relevant and effective solutions. Owners and guests vote with their feet, and we have seen improved guest satisfaction scores in the year, and increasing owner confidence illustrated by a growing market share of signings. Continuing this progress in 2020 is a key priority.

As a global industry leader, we understand how to operate in an ever-changing macro-economic environment to drive in-year performance and future growth. This includes dealing with the more recent challenges associated with the outbreak of Covid-19 in Greater China and the impact on other parts of the world.

Focusing on the quality of our brands and owner offer, and investing in our culture and the colleagues that deliver for us every day, will continue to allow us to grow our estate and revenues, and in turn drive our ability to reinvest in growth and deliver returns.

Operating responsibly

Our commitment to acting in responsible and sustainable ways is a critical component of our purpose to provide True Hospitality for everyone. Every day, it ensures that we do the right thing when it comes to our culture and operations, local communities and the environment.

In a period of internal change, we continue to listen carefully to employees to improve processes and empower them to be at their best. While there is more to do, key progress in 2019 included strengthening our commitment to flexible working, launching a new employee share plan, providing additional paid leave volunteering opportunities, and introducing conscious inclusion training as part of a focus on diversity and inclusion.

 

Recognising how through our scale we have the potential to positively impact communities and the world around us, we also further developed our human rights programme, including material updates to our Human Rights Policy and launching a new, free e-learning module for all colleagues to combat human trafficking.

In addition, it was fantastic to see more than 160,000 colleagues take part in our Giving for Good month and help support IHG charity partners. During 2019, we also started projects including an AI technology partnership to reduce food waste, and a programme with Junior Achievement Worldwide to build young people’s hospitality skills.

Proudly, IHG also became the first global hotel group to commit to switching all bathroom amenities to bulk-size products, which together with our 2018 pledge to eliminate plastic straws, will reduce plastic waste in our hotels each year.

It is very clear that the actions we take to grow in the right way are being evermore closely followed. Alongside the delivery of our 2018-2020 Responsible Business Targets, we are working on an ambitious and effective future Corporate Responsibility strategy and associated targets, which includes setting a 2030 science-based target to reduce greenhouse gas emissions.

Thank you

In 2019, we have taken more important steps to be the best long-term partner for owners, a great place to work for our employees, and a brand of choice for guests. Testament to this is the many awards we’ve received, including IHG being recognised as a Kincentric (formerly a part of Aon) Global Best Employer and as a Best Place to Work for LGBTQ equality, EVEN Hotels named one of hospitality’s most customer centric brands by Forbes, and Six Senses, InterContinental and Kimpton hotels all being recognised by Conde Nast’s Readers’ Choice Awards.

Our 400,000 colleagues make all this possible, and I would like to sincerely thank everyone at IHG, and our owners, for their contribution, passion and commitment.

 

LOGO

Keith Barr

Chief Executive Officer

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Chief Executive Officer’s review   7


Table of Contents

Strategic Report

 

Industry overview

 

Despite a more challenging global economic backdrop, leading to RevPAR growth moderating, increasing room supply illustrates the positive fundamentals for the industry overall, such as increasing disposable incomes and growing appetite for branded hotels.

The $535 billion hotel industry remains fragmented, with 54% of rooms affiliated with a global or regional chain. Competition among branded players continues to increase as companies seek growth through acquisitions, organic expansion and diversification in their offer.

Evolving consumer expectations in areas such as sustainability, luxury and technology

 

continue to influence how the industry operates, whilst increasing digital commerce has led to a broader competitive landscape involving online travel intermediaries, serviced apartments and peer-to-peer home rental companies.

2019 Industry performance

In terms of key performance metrics, room supply reflects how attractive the hotel industry is as an investment from an owner’s perspective. RevPAR is an important indicator of the value guests ascribe to a given hotel, brand or market, and grows when guests stay more often or pay higher rates.

2019 saw the industry delivering its 10th year of consecutive RevPAR growth at +1% globally,

 

slower than previous years due in part to lower growth in the global economy. In a slower RevPAR environment, rooms supply growth becomes an important driver of value creation for hotel groups. In 2019, global rooms supply grew by +2%, driven by attractive owner returns across a number of segments.

The hotel industry is cyclical; long-term fluctuations in RevPAR tend to reflect the interplay between industry demand, supply and the macroeconomic environment. At a local level, political, economic and factors such as terrorism, oil market conditions and hurricanes can impact demand and supply in the short term.

 

 

Overview of global hotel industry

 

Geography

The US is the largest hotel market, whilst Greater China continues to growa

 

LOGO

Branded hotels

The top fivec hotel groups have increased their market share by 5 percentage pointsa

 

LOGO

Segment

The hotel industry can be categorised by price levela

 

LOGO

 

 

Hotel industry growth drivers: 10-year annual growth rate

Global hotel industry performance

Hotel business models

 

Global GDP

 

+3.1   %
  CAGRb

Indicator of economic growth – hotel performance correlates with GDP

Global household disposable income

 

+3.0   %
  CAGRb

Growing consumer spending and leisure travel, supported by cheaper air travel

Global corporate profits

 

+6.1   %
  CAGRb

Good indicator of business travel – continues to grow

 

a 

Source: STR, Inc

 

b 

Source: Oxford Economics

 

c 

IHG, Marriott International, Inc., Hilton Worldwide Holdings Inc., Wyndam Hotels & Resorts Inc., Accor S.A.

 

Global Industry RevPAR ($)a

RevPAR growth suggests solid lodging demand

 

LOGO

Global rooms supply (m rooms)a

Supply growth reflects the attractiveness of the hotel industry

 

LOGO

 

LOGO   Please see pages 10 to 13 for information on IHG’s business model.

There are two principal business models used by branded hotel groups:

 

  Fee-based, asset-light model

 

    Franchised: owned and operated by parties distinct from the brand, who pay fees to the hotel company for the use of their brand.

 

    Managed: operated by a party distinct from the hotel owner. The hotel owner pays management fees and, if the hotel uses a third-party brand name, fees to that third-party also.

 

  Owner-operated, asset-heavy model

 

    Owned: operated and branded by the owner who bears the costs but benefits from all the income.

 

    Leased: similar to owned, except the owner-operator does not have outright ownership of the hotel but leases it from the ultimate owner.

Asset-heavy business models allow tighter control over hotel operations, whilst asset-light models enable faster growth with lower capital investment.

 

 

 

8   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

 

Trends shaping our industry

 

Sustainability

Operating with

a social purpose

 

Employees, consumers, investors, governments and industry bodies are paying closer attention to how committed companies are to caring for communities and the environment. Many businesses, including IHG, have aligned their efforts to the United Nations Sustainable Development Goals, focusing on priorities most relevant to their operations. The goals range from wiping out poverty and delivering decent work and economic growth, to driving gender equality and climate action. All require creativity, commitment and collaboration in order to drive real change at global scale.

 

See pages 24 to 40 for more information on how IHG is addressing this trend.

 

 

 

200m

IHG is significantly reducing the 200 million bathroom miniatures used in its hotels annually

 

 

In an industry first, in 2019 IHG committed to replacing all our miniature bathroom amenities with bulk-size products across all brands. The move, which will significantly reduce plastic waste, has been followed by several industry peers.

 

 

 

5.9%

IHG’s reduction in carbon per occupied room from 2017 baseline

 

 

Working alongside our owners and hotels, one of our 2018-2020 Responsible Business targets is a commitment to reduce our carbon footprint per occupied room by 6-7%, and we are on track to do so.

 

 

100+

Hotels adopting IHG Studio

 

 

IHG Studio uses either the IHG app or in-room TV connection to offer guests easier ways to manage their stay – from directly casting their own content or ordering room service, to using loyalty points to pay for services. IHG Studio was launched in 2019 following a successful trial and will become a brand standard globally.

 

 

 

Technology

Enriching the digital guest experience

 

As technology continues to play an increasingly important role in our lives, the hospitality industry is investing in data, platforms and partnerships capable of integrating digital services and connectivity at the right moments of a stay experience. The overarching ambition is to deliver richer, personalised and frictionless experiences for consumers, and to create more effective, efficient operations and greater revenue opportunities for businesses.

 

See page 21 for more information on how IHG is addressing this trend.

 

 

$5.6bn

IHG’s digital (web and mobile) revenue in 2019, up 7% on 2018

 

 

 

As consumers spend increasingly more time online exploring and researching travel options, IHG continues to invest in providing engaging and seamless digital guest experiences. The IHG mobile app is a critical component of our offer, with revenues increasing 18% in 2019 and downloads rising by 11%.

 

 

Consumer trends

Instagrammable experiences

 

For many guests, the hotel they choose to stay in needs to be as much a part of their travel experience as the destination they are preparing to explore. This requires an abundance of boutique and lifestyle hotels with character, authentic neighbourhood roots, and memorable designs and service style, without compromise on quality.

 

Large hotel groups have seized on the opportunity to grow these brands at pace, based on their ability to offer consistently rich experiences in multiple locations, alongside those all-important distinctive twists worthy of a snap for social media.

 

See page 23 for more information on how IHG is addressing this trend.

 

 

 

5,290

rooms

 

2019 was a record year of signings for Hotel Indigo

 

 

Since launching in 2004, IHG’s Hotel Indigo brand has grown to become one of the world’s largest branded boutique chains, with no two properties the same. Demand continues to increase, with its estate set to double in size over the next five years.

 

 

 

 

~100

hotels

 

Kimpton Hotels & Restaurants has been adding exciting new international destinations at a rapid rate

 

 

Since acquiring Kimpton in 2015, IHG has focused on taking the brand’s highly personal service and playful design from its US base to top luxury boutique destinations globally. From Bali and Bangkok to London and Shanghai, Kimpton has grown to almost 100 open and pipeline hotels.

 

     LOGO  

These pages should be read together with

our principal risks on pages 46 to 53

and risk factors on pages 226 to 230.

   

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Industry overview   9


Table of Contents

Strategic Report

 

Our business model

 

We predominantly franchise our brands and manage hotels on behalf of third-party hotel owners. As an asset-light business, we focus on growing our fee revenues and fee margins, with limited requirements for capital. This enables us to grow our business whilst generating high returns on invested capital.

Whether we franchise or manage hotels is largely determined by market maturity, owner preference and, in certain cases, the particular brand. For instance, in more developed markets such as the US and Europe, over 90% of IHG hotels are franchised. These hotels tend to be limited service. By contrast, in emerging markets such as Greater China over 80% of IHG hotels are managed by IHG, where we look after the day-to-day running of the hotel on behalf of the owner. These hotels tend to be full service.

Over time, we expect the Chinese market to move towards a franchised model. We successfully launched the first tailored franchised offer for Holiday Inn Express® in 2016, and have since extended this to include Holiday Inn® and Crowne Plaza®.

 

Since launch, we have signed over 200 franchise hotels in Greater China, which attract full franchise fees.

Our asset-light business model means that we do not generally employ colleagues in franchised hotels, nor do we control their day-to-day operations, policies or procedures. That being said, IHG and our franchised hotels are committed to delivering a consistent brand experience, conducting business responsibly and delivering our purpose of providing True Hospitality for everyone. See page 28 for more information.

IHG owner proposition

We focus on ensuring our brand portfolio, loyalty proposition, systems and expertise provide a rich and distinctive offer that stands out to consumers and is attractive to owners.

To keep our brands relevant to guests and evolving trends, we commit to developing our established brands with new designs, service enhancements and operational support that drive demand and returns, and keeps True Hospitality at the heart of our offer.

In addition to our core brands, we are focused on growing our portfolio in high-potential areas, and have launched and acquired new brands in the mainstream, upscale and luxury segments in recent years.

We have also developed state-of-the-art technology to drive hotel demand, be it through our mobile booking app or cloud-based hotel solutions. Our distribution channels (booking sites and call centres through which hotel rooms are marketed and booked) allow hotel owners to reach potential guests at lower costs of sale, with the proportion of revenue from rooms booked through IHG’s direct and indirect channels having steadily increased over the last few years.

Our investments in development resources has meant that we can provide outstanding operational support to owners. We have embedded new processes to help reduce the time taken from hotel signing to ground break and opening. Our hotels also have access to a suite of applications designed to help them manage and improve performance, with the aim of further boosting returns.

 

 

 

How we generate revenue

Franchised hotels

We receive a fixed percentage of rooms revenue following a

guest staying at a hotel. This is our fee revenue.

 

LOGO

 

Managed hotels

From our managed hotels, we generate revenue through a fixed percentage of the total hotel revenue and a proportion of each hotel’s profit.

Owned, leased & managed lease hotels

For hotels which we own or lease, we record the entire revenue and profit of the hotel in our financial statements. Our owned, leased and managed lease hotels have reduced from over 180 hotels 18 years ago, to 26 hotels at 31 December 2019.

 

 

 

How we deliver value

 

Franchised hotels

We deliver value to our hotel owners through the cultivation of hotel brands, economies of scale, access to shared systems and resources, and centralised marketing activity to drive hotel guest bookings.

Managed hotels and owned, leased and managed lease hotels

As well as the benefits we deliver through our franchise model, we drive value to our managed hotel owners, and owned, leased

and managed lease hotels, by optimising the performance of these hotels.

Other stakeholders

As part of our purpose to provide True Hospitality for everyone we believe it is important that we deliver value to all our stakeholders. Whether it is our workforce, hotel owners, guests, suppliers, shareholders or society, we want to create a positive impact on them and the world around us. See pages 24 to 40 for more information.

 

Revenue from reportable segmentsa

Our revenue is directly linked to the revenue generated by the hotels in our system.

 

LOGO

 

Franchised

614,974

rooms

 

Central

Revenue is principally technology fee income see page 72

 

Managed

262,253

rooms

 

Owned, leased and managed lease

6,336

rooms

 

a  Excludes System Fund results, hotel cost reimbusements and exceptional items.

 

 

 

10   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

IHG revenue from reportable segmentsa and the System Fund

 

 

System Fund

IHG manages a System Fund on behalf of our third-party hotel owners, who pay contributions into it. This includes a marketing and reservation assessment and a loyalty assessment.

 

The System Fund also receives proceeds from the sale of IHG Rewards Club points under third-party co-branding arrangements.

 

The System Fund is managed by IHG for the benefit of hotels within the IHG system and is run at no profit or loss over the long-term. In 2019, IHG recognised $1.4 billion of System Fund revenue.

 

 

    LOGO

 

    

 

 

 

 

 

 

a 

Excludes System Fund results, hotel cost reimbursements and exceptional items.

 

b 

Definitions for Non-GAAP measures can be found on pages 55 to 59. The reconciliation for fee margin can be found on page 216.

 

c 

The margin for owned, leased and managed lease is calculated from the results related to owned, leased and managed lease included within reportable segments (see page 214 revenue of $573m and operating profit of $52m).

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our business model   11


Table of Contents

Strategic Report

 

Our business model continued

Disciplined approach to capital allocation

    

Our asset-light business model is highly cash generative and enables us to invest in our brands and strengthen our enterprise. We have a disciplined approach to capital allocation which ensures that the business is appropriately invested in, whilst maintaining an efficient balance sheet.

Beyond this, we look to return surplus cash to shareholders through ordinary and special dividends and share buybacks.

Our objective is to maintain an investment-grade credit rating. One of the measures we use to monitor this is net debt: EBITDA and we aim for a ratio of 2.5-3.0x. This is equivalent to our previous guidance of 2.0-2.5x before the adoption of IFRS 16 ‘Leases’.

Dividend policy

The Board consistently reviews the Group’s approach to capital allocation and seeks to maintain an efficient balance sheet and investment-grade credit rating. IHG has a progressive dividend policy and 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 242. When reviewing dividend recommendations, the Directors take into account the long-term consequences of any recommendation. The Company looks to ensure that any recommendation does not harm the long-term sustainable success of the Company and that there are sufficient distributable reserves to pay any recommended dividend.

 

LOGO   For more details on our dividend policy and approach, see pages 4 and 73.

 

Our priorities for the uses of cash are consistent with previous years and comprise of three pillars:

 

 

 

LOGO

1

Invest in the business to drive growth

 

Through strategic investments and our day-to-day capital expenditures, we continue to drive growth.

 

 

 

Capital investments net ($m)

 

LOGO

 

 

Ordinary dividend progression (¢)

 

LOGO

 

 

 

LOGO

2

Maintain sustainable growth in the ordinary dividend

 

IHG has a progressive dividend policy which means we look to grow the dividend per ordinary share each year.

 

LOGO

3

Return surplus funds to shareholders

 

In January 2019, we paid a $500m capital return to shareholders via a special dividend and share consolidation.

 

 

 

Shareholder returns 2003-19 ($bn)

 

LOGO

 

a 

The 2018 comparatives have been restated to reflect the adoption of IFRS 16 ‘Leases’

 

 

12   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Disciplined approach to capital expenditure

Capital expenditure incurred by IHG can be summarised as follows.

 

      Type

 

 

What is it?

 

 

Recent examples

 

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

 

Maintenance capital expenditure is devoted to the maintenance of our systems and corporate offices along with our owned, leased and managed lease hotels.

 

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

 

 

Examples of maintenance spend include maintenance of our offices, systems and our owned, leased and managed lease hotels.

 

Examples of key money include investments to secure representation for our brands in prime city locations.

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

 

Recyclable investments are capital used to acquire real estate or investment through joint ventures or equity capital. This expenditure is strategic to help build brand presence.

 

We would look to divest these investments at an appropriate time and reinvest the proceeds across the business.

 

 

Examples of recyclable investments in prior years include our EVEN Hotels brand, where we used our capital to develop three hotel properties in the US to showcase the brand. Over time, we expect to divest our interest in these hotels.

System Fund capital investments for strategic investment to drive growth at hotel level.

 

The development of tools and systems that hotels use to drive performance. This is charged back to the System Fund over the life of the asset.

 

Recently, we rolled out our new pioneering cloud-based Guest Reservation System (GRS), one of IHG Concerto’s comprehensive set of capabilities, which we developed with Amadeus (see page 224). In addition, during the year we made a strategic investment, alongside other large hotel companies, in Groups360 to create an online sourcing and booking solution for meetings.

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report   |  Our business model   13


Table of Contents

 

    

LOGO

 

14   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our brands   15


Table of Contents

 

LOGO

 

16   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

LOGO

 

Loyalty

 

A rich loyalty offer allows IHG to build valuable relationships with members who are often strong advocates for our hotel brands, and seven times more likely to book directly, which helps deliver higher-value revenue to our estate.

 

LOGO

 

IHG® Rewards Club

One of the industry’s leading loyalty programmes, IHG Rewards Club is our way of ensuring that travel is experienced the way it should be: personal, seamless and rewarding.

 

All our members receive free internet worldwide, have access to exclusive rates and can select personal preferences that ensures their stays are just as they like them.

 

On top of a stay, members can earn points on everyday activities such as shopping, dining or car rentals through our many partners globally, and

 

these can be used to redeem Reward Nights or book flights with more than 400 airlines. In addition, our IHG Rewards Club Concierge can be used for access to one-of-a-kind opportunities.

 

Further enhancing the programme, we added more world-class global and regional partnerships in 2019, and progressed important trials, including an option for members to use loyalty points to pay for amenities and services during their stay. See page 20 for more detail.

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our brands   17


Table of Contents

Strategic Report

 

Our strategy

Our strategy for high quality growth

 

Our clearly defined strategy is focused on delivering industry-leading net rooms growth over the medium term. We consistently enhance and grow our mainstream, upscale and luxury brands in high-value markets with strong consumer demand to create scale positions and develop a differentiated guest and owner offer.

 

With disciplined execution, we focus on key markets with high potential, investing ahead of demand to drive high-quality growth. This means consistent, sustained growth in cash flows and profits over the long-term.

Our strategy is executed through a strong set of values, business behaviours and talented people, with a clear commitment to grow in the right way for our communities and the world around us, delivering on our purpose to provide True Hospitality for everyone.

 

 

Strategic model

 

LOGO  

1

Build and leverage scale

 

2

Strengthen loyalty programme

 

3

Enhance revenue delivery

 

4

Evolve owner proposition

 

5

Optimise our preferred portfolio of brands for owners and guests

  LOGO  

Industry-leading net rooms

growth over the medium term

Whilst committing to responsible business

 

Robust assurance processes, business ethics, values and behaviours

 

 

       Strong, diverse, innovative and inclusive culture        Respect for the environment and the communities we work in        Engagement with our stakeholders and nurturing relationships

 

On the following pages we set out some examples of how we implement each element of our strategic model   LOGO

 

LOGO   Our strategy should be read together with our culture, responsible business and stakeholders section, pages 24 to 40, and our principal risks and uncertainties, pages 47 to 53.   LOGO  

For further information about our strategy, go to

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

 

18   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

LOGO

Build and

leverage scale

Scale provides significant advantages in the hospitality industry at both a global and national level. Focusing on the highest opportunity segments, IHG uses a diverse brand portfolio, loyalty offer, strong systems and depth in attractive markets to drive significant efficiencies that lead to increased operating leverage and ultimately higher margins.

In 2019, our scale provided further competitive advantage, allowing us to accelerate our net system size growth to 5.6%. Moreover, we increased our market share of signings in key markets, helping to expand our high-quality pipeline and position us well for future growth.

Illustrating the attractiveness of our enterprise offer, our established brands continue to expand at pace globally. This expansion included a best ever openings performance for our Holiday Inn Brand Family, underscoring our leading position in the mainstream segment.

Within upscale and luxury markets more broadly, our Hotel Indigo estate is set to double in size in the coming years and we are bringing Kimpton Hotels & Restaurants to new international destinations at an excellent pace. We continue to use our scale to build new brands too, including avid hotels, which has had over 200 signings in the US, Canada and Mexico since September 2017, with seven hotels already open.

 

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our strategy   19


Table of Contents

Strategic Report

 

Our strategy continued

 

LOGO

Strengthen

loyalty programme

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

In 2019, our focus on global and regional partnerships helped deliver richer experiences for our IHG Rewards Club members and increased awareness of our brands. This included our inaugural sponsorship of the US Open Tennis Championships, which attracted almost 21 million social media impressions, with

members able to use loyalty points to bid for ‘money can’t buy’ experiences. We also announced a partnership with Mr & Mrs Smith that makes around 500 hand-selected luxury and boutique properties exclusively available for IHG Rewards Club members, and we extended our InterContinental Alliance Resorts partnership with Sands Macao to include The Venetian Macao and The Parisian Macao in Greater China.

Beyond this, we are piloting several programme enhancements, including an option for guests to pay with points for services including spa treatments, food and beverages.

 

 

LOGO

 

20   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

LOGO

Enhance

revenue delivery

 

By striving to drive business through our direct channels, IHG maximises returns for our owners, delivering revenue at a lower cost than alternatives such as third-party intermediaries. Digital and technological innovation, alongside strong brands and a compelling loyalty offer, is key to ensuring IHG continues to manage revenue delivery effectively.

We continue to develop IHG Concerto, our proprietary, cloud-based hotel technology system. In 2019, we began piloting attribute pricing for our Guest Reservation System, which was developed with Amadeus and rolled out in 2018. Rather than simply choosing a room at booking, guests will be able to customise their stay by selecting specific attributes, whilst hotel owners will

unlock value by optimising pricing for desirable items. In addition, our Revenue Management for Hire programme has now been rolled out to over 3,500 hotels, providing owners with data-driven insights for setting room rates.

A compelling B2B offer is also a crucial source of revenue, and we are focused on enhancing our leading global sales enterprise that drives high-quality, low-cost revenue to our hotels. In 2019, with three industry peers, we made a strategic investment in Groups360 to enhance the GroupSync platform and make group travel easier for meeting planners. Using an online tool, planners will be able to source and book meetings and events across a wide selection of brands.

 

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our strategy                                                21


Table of Contents

Strategic Report

 

Our strategy continued

 

LOGO

Evolve our owner proposition

 

Maintaining positive relationships with long-standing owners and constantly forging new ones is vital for IHG. Our outstanding operational support, preferred brands, industry-leading franchise offer and continued investment in innovation deliver a compelling owner proposition and strong returns.

Our global procurement solutions provide support to our owners in opening and running their hotels. Progress in 2019 included delivering a supply chain solution for new Holiday Inn Express hotels in Greater China, which helps get hotels open in a faster time period and offers high quality products at lower costs.

In the Americas, following the success of our 2017 launch of avid hotels, which encompassed a streamlined process for owners from signing a hotel, to building and running the property, we launched cost-efficient prototypes in 2019 for Holiday Inn and our extended stay brands, Candlewood Suites and Staybridge Suites.

In Greater China, we have provided owners with more opportunities to work with IHG through our franchise offer for Holiday Inn Express, which launched in May 2016. Since then, we have extended franchising to our Holiday Inn and Crowne Plaza brands too, achieving more than 200 signings to date.

 

 

LOGO

 

22   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

LOGO

Optimise our

preferred portfolio

of brands for owners

and guests

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

As an example of this, in the mainstream segment with Holiday Inn Express, our new guest room designs have delivered a five percentage points premium in guest satisfaction and strong owner returns. We are on track for adoption of these new designs in over 1,600 hotels in our Americas estate by the end of 2020, and the successes have informed enhancements rolling out for Holiday Inn, Crowne Plaza, Staybridge Suites and Candlewood Suites.

In addition to enhancing our established brands, we have added new brands in fast-growing markets that will support future rooms growth.

This includes using our mainstream expertise to launch avid and Atwell Suites, targeting underserved guests in the midscale and all-suites segments. In upscale, our voco brand offers owners of high-quality assets a chance to quickly convert to a strong brand and leverage IHG’s scale and systems to drive improved performance. In the luxury space, the acquisitions of Regent Hotels & Resorts and Six Senses builds on our existing heritage to offer a more comprehensive offer to guests and to owners wanting to work with IHG in the top tier of luxury.

 

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report   |  Our strategy   23


Table of Contents

Strategic Report

 

Our culture, responsible

business and stakeholders

 

 

LOGO

Our purpose to provide True Hospitality for everyone is at the centre of our culture. It underpins, reinforces and supports our strategy, sets the tone for our commercial activities, drives performance, and creates value for our stakeholders.

We are committed to:

 

  Robust business ethics, values and behaviours;

 

  A strong, diverse, innovative and inclusive culture;

 

  Respect for the environment and the communities we work in; and

 

  Engaging with and nurturing relationships with our stakeholders.

IHG believes that good culture is more than written values, policies and principles. It is the demonstration of our culture, the ethical and inclusive behaviours that matter, be it the way our Board and Executive Committee lead us, the way our office spaces are set out, the way we prioritise resources, monitor performance, respond to climate and societal change, or how our performance support teams partner with General Managers in our hotels.

The Company culture is driven through a mixture of the Board leading by example, delegating to the Executive Committee and Senior Leadership, setting and monitoring values, behaviour and ethical business practices, standing Board agenda items on key areas of culture, reviewing and approving policies, and direct or delegated interactions with stakeholders.

Our culture is crucial to who we are, how we work together, how we make our strategic decisions, how our stakeholders view us and how we grow our business.

 

LOGO  

The following pages should be

read in conjunction with:

Our business model pages 10 to 13

Our strategy pages 18 to 23

KPIs pages 42 to 45

Our risk management pages 46 to 53

Governance on pages 78 to 117

Directors’ Report on pages 221 to 224

 

 

24   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

LOGO

 

    

 

 

How we engage

 

Engagement with our stakeholders and day-to-day management is a multi-layered and delegated process. At all levels of the business, from front line operations, through corporate functions, Senior Leadership, the Executive Committee, the Board and its Committees, we engage both internally and externally.

 

The Board delegates oversight of day-to-day operations and execution of strategic priorities through the Executive Committee and Senior Leaders, and sets, approves, embeds, reviews and course corrects (where necessary) the Company’s strategy, values, policies, principles, behaviours and responsible business culture in line with our purpose and business model.

 

 

We use a variety of mechanisms to engage with employees and other stakeholders, including face-to-face meetings, conferences, feedback and performance reviews, employee forums and training, and we monitor this through, for example, our employee and investor engagement surveys, reports and presentations to the Board. We have an open, collaborative and inclusive approach. We take the information we glean from those interactions and use it to make informed judgements in our decision

making.

 

 

We also take into consideration the views and interests of other stakeholders, such as regulators and industry bodies, when determining our strategy, values and behaviours, as well as awareness of environmental and social concerns. They help provide a framework against which we measure ourselves, protect our reputation and develop our commercial and social awareness.

 

  LOGO  

More information about our culture, approach to responsible business and stakeholders is set out on the following pages. See Board agenda items on pages 84 and 85 for more information on which stakeholders were considered as part of Board decisions.

 

 

 

Our engagement model

     

 

 

 

 

 

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   25


Table of Contents

Strategic Report

 

Our culture, responsible business

and stakeholders continued

 

 

Our values, behaviours and work practices

Who leads at IHG

    Board and Committees

 

    Executive Committee

 

    Senior Leaders

 

    D&I Board

 

    Human Resources and Business Reputation and Responsibility functions

 

    Functional business partners including Corporate Affairs, Finance and Global Commercial and Technology

How we engage

    Board and Committee oversight, monitoring and review

 

    Formal reporting and escalation processes to Senior Leadership and management teams

 

    Virtual Learning Summits

 

    Employee engagement surveys

 

    Company intranet site including ‘our people’, and ‘Code of Conduct’ portals

 

    E-learning relating to Code of Conduct, Anti-bribery, Antitrust and Handling Information Responsibly

 

    Cybersecurity training and awareness

 

    Incident handling

Our commercial success is dependent on our values and behaviours, together with our Code of Conduct, key policies, and monitoring and assurance processes, to support our decision-making. Combined they ensure that we continue to build trust in the Company.

Our culture is monitored and assessed through a number of metrics, including our employee engagement survey, employee forum feedback, e-learning participation, reports from our confidential reporting hotline, and third-party consultant surveys.

 

10 years ago IHG became a member of the United Nations Global Compact (UNGC). We remain committed to aligning our operations, culture and strategies with its 10 universally accepted principles in the areas of human rights, labour, environment and anti-corruption.

IHG Values

IHG’s Values, formerly Winning Ways, reflect the values and beliefs of our employees and leadership. They underpin the way we behave, the decisions we make, our strategy and our commitment to providing True Hospitality for everyone. They reflect the diversity of our colleagues, business partners, guests and other stakeholders.

 

LOGO  

Do the right thing. We always do what we believe is right and have the courage and conviction to put it into practice, even when it might be easier not to. We are honest and straightforward and see our decisions through.

 

LOGO  

Show we care. We want to be the company that understands people’s needs better than anyone else in our industry. This means being sensitive to others, noticing the things that matter and taking responsibility for getting things right.

 

LOGO  

Aim higher. We aim to be acknowledged leaders in our industry, so we have built a team of talented people who have a real will to win. We strive for success and value individuals who are always looking for a better way to do things.

 

LOGO  

Celebrate difference. We believe that it’s the knowledge of our people that really brings our brands to life. Our global strength comes from celebrating local differences whilst understanding that some things should be kept the same.

 

LOGO   Work better together. When we work together, we are stronger. We’re at our best when we collaborate to form a powerful, winning team. We listen to each other and combine our expertise to create a strong, focused and trusted group of people

Behaviours

We have a set of growth behaviours that encourage corporate employees to be decisive, work at pace, be collaborative, develop talent and focus on performance to deliver our strategic objectives and purpose to provide True Hospitality for everyone.

During 2019 we continued to increase our efforts to establish a high-performing culture through a series of learning events across the organisation. We also initiated a programme to help our employees sustain high impact and unlock performance throughout the organisation. The programme, focusing on holistic physical, mental and emotional health, was rolled out to 200 IHG employees.

In addition, local teams led a range of wellbeing programmes, which will be further enhanced during 2020.

Our Code of Conduct

IHG’s Code of Conduct (Code) is fundamental in supporting employees working in IHG corporate offices, reservation centres and managed hotels in making the right decisions, in compliance with the law and our high ethical standards. It provides information on our key principles and global policies, including human rights, diversity and inclusion, accurate reporting, information security, anti-bribery and the environment. It also provides employees with guidance on where to go if they are faced with a difficult issue and need further help.

The Board, Executive Committee and all employees must comply with the Code and the policies and procedures it refers to. The Code is reviewed and approved by the Board on an annual basis to ensure it reflects and responds to changes in the external environment and continues to support IHG’s purpose and strategy.

In 2019, new processes were put in place to ensure the Code e-learning modules are automatically populated in employees’ learning plans, including for all new starters. All our Board and Executive Committee, along with employees across the organisation, have affirmed their commitment to the Code.

 

LOGO   The Code is available on our website www.ihgplc.com/responsible-business under Policies, and also displayed on our Company intranet.

 

 

LOGO

 

 

26   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

The following policies and principles are key areas within the Code, each of which is supported by its own guidance and training materials.

Human rights and modern slavery

Helping combat human rights abuses, including modern slavery, is an ongoing commitment at IHG, and we continue to develop our policies and processes. During 2019 we enhanced our human rights programme, including significantly updating our Human Rights Policy and making available a new e-learning module for all colleagues to support in preventing human trafficking.

In 2019 IHG joined the Tourism Child-Protection Code of Conduct to benefit from ECPAT-USA’s expertise in addressing human trafficking and child sexual exploitation risks within the hospitality industry.

 

LOGO   Our Modern Slavery statement is available on our website www.ihgplc.com/modernslavery

Bribery and financial crime

Bribery and financial crime, including improper payments, money laundering and tax evasion, are not permitted at IHG under any circumstances. This also applies to any agents, consultants and other service providers who do work on IHG’s behalf. Our Anti-Bribery Policy sets out IHG’s zero-tolerance approach and is applicable to all Directors, IHG employees and our managed hotels. It is accompanied by a mandatory anti-bribery e-learning module.

Our Gifts and Entertainment Policy supports our approach to anti-bribery and corruption. Increased targeted engagement was undertaken in 2019, including face-to-face training for employees in our corporate offices.

IHG is a member of Transparency International UK’s Business Integrity Forum and participates in its annual Corporate Anti-Corruption Benchmark. The results from this are used to help measure the effectiveness of the anti-bribery and corruption programme and identify areas for continuous improvement.

Handling information responsibly

As set out in our Code, we want everyone, including guests booking via our reservation channels, members of our loyalty programmes, colleagues, shareholders and other stakeholders, to trust the way we manage their information and are addressing cybersecurity threats. We have standards, policies and procedures in place to manage how personal data should be used and protected. In 2019 we relaunched our e-learning training for employees on handling information responsibly, covering topics such as how to work with vendors and transfer data securely.

We continue to enhance our privacy programme to address evolving privacy requirements, such as the California Consumer Privacy Act 2018.

Our monitoring and assurance processes

The trusted reputation of IHG and its brands is one of IHG’s most important assets. Our due diligence practices, monitoring of the health and performance of our working practices, are critical to protect this, and support our commitment to responsible business and drive commercial advantage through risk identification and mitigation.

Specific monitoring arrangements are in place for key risk areas. For example, our operational risk specialists track a range of indicators of safety and security risks to assess their potential impact on hotel operations, and to consider where additional guidance, learning materials or adjustments to existing controls may be required. Despite best efforts, incidents occur across our hotel operations. IHG management reviews reported incidents as appropriate.

We carry out risk-based due diligence and compliance checks on new third-party hotel owners with whom we enter into hotel management or licence agreements. A central committee of senior IHG decision-makers considers and reviews any material issues, such as concerns or allegations of

human rights violations, financial crime including bribery and corruption, or any other activities which may have a reputational, legal or ethical impact on IHG, prior to approval for any new hotel or entry into a new market.

To help manage and monitor our corporate supply chain, an automated procurement system is used across many of our large corporate offices. In addition to acknowledging adherence to IHG’s Supplier Code of Conduct, new suppliers onboarded to the system are required to complete due diligence questionnaires, which include questions on human rights, labour, environment and anti-corruption.

Our internal audit team aims to provide objective and insightful assurance to the Board and management over our control environment. Internal audit also provides independent oversight of the mechanisms in place for confidential reporting across IHG, including the design and operation of the reporting hotline, and maintains an ongoing dialogue with employees from Human Resources, Ethics & Compliance and Finance to monitor:

 

  the volume of reports received;

 

  the source and nature of allegations received; and

 

  the overall environment across the Group to promote a ‘speak-up’ culture.
 

 

LOGO

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   27


Table of Contents

Strategic Report

 

Our culture, responsible business

and stakeholders continued

 

 

Our people

Who leads at IHG

    Board and Committees

 

    Designated non-executive director ‘Voice of the Employee’

 

    Executive Committee

 

    Senior Leaders

 

    D&I Board

 

    Human Resources function

How we engage

    Board and Committee oversight, monitoring and review

 

    Responsible Business Targets 2018-2020

 

    Colleague HeartBeat

 

    Town Halls, conversation series and blogs

 

    Employee Resource Groups (ERGs) and other employee forums

 

 

    Sustainable Leadership programmes

 

    Rise programmes

 

    Conscious inclusion workshops

 

    Virtual Learning summits

 

    IHG® Academy

 

    Careers and job portals

IHG is constantly developing, with a new organisational structure deployed in 2018, and a focus on accelerating our growth. Our people are key to delivering both our purpose of True Hospitality for everyone and our strategic initiatives. We believe that an engaged and diverse workforce, and inclusive environment are necessary to our competitiveness. We seek to employ talented people, develop and train them, and provide a diverse and inclusive culture in which they can thrive. We also seek to ensure that our approach to compensation and benefits remains competitive.

Our activities

The Board and Executive Committee considered the impact on employee interests regularly during the year, including in relation to the acquisition of Six Senses, diversity and inclusion initiatives, such as the adoption of a flexible working policy, and employee engagement matters. The Corporate Responsibility Committee reviews progress against our people 2018-2020 Responsible Business Targets and our CEO continues to chair our D&I Board, (see the Governance section on pages 92 and 93 for more information).

Employee engagement

At IHG we foster a culture of open and honest feedback. Responsibility for employee engagement is a company-wide activity. Through our wide range of engagement forums, management-led performance updates and Voice of the Employee, (see pages 32 and 33), we talk to employees about our performance, key metrics, values, diversity and inclusion initiatives, and we give them the opportunity to talk to each other and give feedback to the Board, Executive Committee and Senior Leaders. This information assists them in their decision making.

Our employee engagement survey, ‘Colleague HeartBeat’, is measured bi-annually and is completed by our corporate, customer reservations office and managed hotel employees (excluding our joint ventures). In 2019 the survey focused on key areas associated with our business strategy. 96% of the participants responded and our overall employee engagement was 87%. We saw several positive shifts across our employee engagement, most notably in relation to questions about our growth behaviours. Areas for improvement include a focus on enabling effective work processes for employees, resource deployment, and ways of working between regional and global teams. The Executive Committee and Senior Leaders continue to look for ways to appropriately address this feedback.

Reward culture

Our reward packages aim to attract, retain and motivate top talent, and are centred around a set of core principles:

 

  Our employees are recognised and paid competitively for their contribution to the Group’s success;

 

  Reward and recognition practices are consistent across our employee population regardless of gender and other aspects of diversity; and

 

  There is alignment between the wider workforce and how executives are rewarded.

Applying a consistent approach to reward across the corporate business, which we regularly review against our competitors, ensures that we meet the needs of employees by offering market-driven rewards packages. We place great emphasis on aligning everyone to our business strategy, so that shareholders and employees have a shared interest in the performance of the Group. This alignment was further strengthened in 2019 with the launch of an employee share plan, which will encourage shared ownership and align the interests of employees with our external stakeholders.

 

LOGO   Our wider Remuneration policies are regularly reviewed by the Remuneration Committee. See the Remuneration Report and Directors Remuneration Policy on pages 96 to 117 for more information on how we align workforce and executive reward.

Early talent development

Recognising the significance of people to our business, we aim to attract the very best talent into our hotels through our Early Careers programme, where we provide programmes to young people looking for work experience, internships, apprenticeships and graduate opportunities.

During 2019 we recruited over 15,000 participants into our Early Careers programme globally, providing them with first look experiences, work placements and permanent roles with IHG.

 

LOGO

 

 

28   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

We also signed a partnership with Swiss hospitality schools Les Roches, Glion and EHL to develop global hospitality talent. As a result of this partnership, IHG leaders visited the schools to participate in curriculum development and welcomed over 100 of their students into our hotels and support centres to share with them our passion for True Hospitality for everyone.

As part of our Responsible Business Targets we are committed to increasing the number of young people coming through IHG’s Academy. The IHG Academy is a collaboration between individuals, IHG hotels, corporate offices, local education providers and community organisations. It provides local people with the opportunity to develop skills and improve their employment prospects in one of the world’s largest hotel companies.

In 2019, several improvements were made to the programme, including first look and internship ‘Learning Pathway’ toolkits, designed to enhance the participant’s experience and support consistent execution of the programme globally.

Attracting and developing top talent

To ensure we achieve our strategic priorities as a business, we know we need to attract, develop and retain a diverse and talented workforce.

In 2019 we continued to use our Learning Management System to ensure that all IHG employees have a more seamless experience accessing IHG learning content. In addition to improvements across our Learning offer, we launched a job posting portal (available in 13 languages) that allows our franchisees access to IHG’s career website and have their open positions included in search results.

It was also a foundational year for the development of our Talent Attraction Strategy, which recognises that as the business grows, we will need to develop more creative and efficient ways to attract people to work in our hotels. Our plans include revitalising our Employer Brand to create a more enduring and distinctive value proposition and candidate experience.

As at 31 December 2019        Male    Female      Total

Directors

    

7

  

 

4

 

  

11

Executive Committee

    

7

  

 

3

 

  

10

Executive Committee direct reports

    

40

  

 

23

 

  

63

Senior managers
(including directors of subsidiaries)

    

102

  

 

34

 

  

136

All employees
(whose costs were borne by the Group or the System Fund)

    

6,498

  

 

7,938

 

  

14,436

 

 

 

EMEAA General Manager (GM)

Learning Events

During 2019, IHG held GM Learning Events across EMEAA, welcoming 632 GMs to a number of four-day events. The events were designed to create engaging and dynamic learning opportunities for our hotel leaders. The IHG Learning and Development team designed the agenda to deepen GM knowledge across the region and provide them with the right tools to drive performance at their hotels. All the learning modules were developed in support of IHG’s growth strategy and to maximise each GM’s personal development.

  LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   29


Table of Contents

Strategic Report

 

Our culture, responsible business

and stakeholders continued

 

 

 

Diversity
and
Inclusion

(D&I)

   

Our D&I Framework

 

LOGO

 

IHG is a global business with a global reach and as such D&I is fundamental for us to succeed. Our colleagues and guests represent multiple nationalities, cultures, races, sexual orientation, backgrounds and beliefs. It makes for a diverse and inclusive culture we are proud of, underpins our purpose to provide True Hospitality for everyone and is key to our ‘celebrate difference’ value.

 

Our special culture is crucial to who we are, how we work together and how we grow our business. We are proud to have been recognised as a Kincentric (formerly a part of Aon) Global Best Employer three years running, Best Place to Work for LGBTQ Equality, by the Human Rights Campaign’s Corporate Equality Index in the US for the past six years, and for our CEO to be awarded third place in the HERoes awards for advocating women in business.

 

We are committed to a continual review of our practices and policies, such as raising awareness of bias at all levels in our hiring processes and reviewing flexible working processes and policies. We have signed up to the WiHTL’s Diversity in Hospitality, Travel and Leisure Charter, a 10-point action plan that ensures diversity and inclusion not only remains a priority but that we openly track progress towards our goals.

 

We also support the UN LGBTI Standards for Business, which focus on tackling discrimination against lesbian, gay, bi, trans and intersex people. And at the beginning of 2020, IHG became signatories of the CEO Action for Diversity and Inclusion, and The Valuable 500.

 

The Nomination Committee was accountable for our global D&I Policy during 2019, but this responsibility will move to the Corporate Responsibility Committee in 2020. The operational D&I Board ensures that we put the D&I policy into practice. For more information see the Governance section on pages 92 and 93.

 

30   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

 

1. Strengthening a culture of inclusion

At IHG one of the core pillars of our D&I strategy is to foster a culture of inclusion so all employees feel included, valued and respected. Last year our Senior Leaders took part in a conscious inclusion programme to equip them to role model inclusive leadership and champion the flexible working guidelines that we have launched globally. We piloted changes to our recruitment practices which we plan to scale globally in 2020.

 

We also expanded our existing Employee Resource Groups (ERGs) globally following regional success, and now have more than 1,700 members across groups such as Out and Open, FAVE (field and virtual employees), PATH (pan Asians for true hospitality), BBX (baby boomers and Gen X), and DAWN (disability and well-being network).

 

For example, Out and Open is a forum for colleagues to get involved with LGBTQ+ focused activities and conversations. The ERG has more than 150 active members, who come together throughout the year to celebrate key dates in the LGBTQ+ calendar.

 

 

2. Increasing the diversity of our leadership talent

As part of our 2018-2020 Responsible Business Targets we made a commitment to increase the diversity of our Senior Leaders, as well as increase the number of females working in General Manager and Operations roles in managed hotels.

 

Although our overall percentage of female Senior Leaders, currently 37% globally, is the same as our 2017 baseline, we are committed to furthering the opportunities for female leaders. We continue to drive increased representation through initiatives such as the development of our Future Leaders’ programme, which provides graduate-level talent with the opportunity to work across a range of departments and geographies.

 

We have also extended our Rise mentoring initiative for aspiring female General Managers to China, India, the Middle East, Europe and the Americas, which enabled us to increase the percentage of women in General Manager and Operations roles from 24% to 26%.

 

3. Putting the right decision-making around our actions

In 2018 we established our Global Diversity & Inclusion Board, (D&I Board), led by our CEO and other Senior Leaders in IHG who are responsible for shaping IHG’s diversity and inclusion priorities. The D&I Board worked with a third-party independent partner to gain a different perspective of our business and help us identify areas for improvement. The key objectives of the partnership were to identify the ‘typical profile’ of individuals deemed to be successful at IHG, understand real and perceived barriers to success for women, and define actions to address those barriers and improve leadership gender balance. As a result of this work we took several actions, such as the launch of our flexible working policy.

 

As part of our ongoing commitment to diversity and inclusion we also launched Diversity & Inclusion Councils across our regions in 2019, which represent the voice of our regions and markets, making sure we listen to employees and engage on local priorities, as well as collaborating to roll out initiatives.

Through collaboration with Hotel Indigo, Out and Open helped launch the #ColorOfPride campaign, which all Hotel Indigo properties in the Americas celebrated. They continued the theme into our Atlanta Pride celebrations, which is the biggest event for IHG Out and Open each year. Annually, around 250 colleagues, friends and family volunteer their time in the IHG booth and walk with the IHG float in the Pride parade.

 

At the Holiday Inn Singapore Orchard City Centre, approximately 12% of staff are colleagues with disabilities. The hotel, which has been recognised for its work in this area by the UN, invests in providing training for managers to adjust to the different ways of communicating with persons with disabilities. This includes encouraging managers to give more regular feedback, supervision and encouragement to colleagues with disabilities to ensure they always feel a part of the IHG family.

 

Within India, Nepal and Bangladesh, we have close to 100 colleagues with disabilities working for IHG branded hotels. To cultivate a supportive environment for them, we have partnered with the Sarthak Educational Trust to deliver training sessions for hotel colleagues and developed a toolkit and a series of guidance videos on working with colleagues with disabilities.

 

 

 

LOGO

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   31


Table of Contents

Strategic Report

 

Our culture, responsible business

and stakeholders continued

 

 

LOGO

 

    Designated    

non-
executive

director

 

 

As part of IHG’s commitment

to compliance with the UK

2018 Corporate Governance

Code, the Board asked Luke Mayhew, Non-Executive

Director (NED), to conduct a review and recommend the best way for the Board to engage with, and take fully into account, the views of employees, and how that would align with IHG’s existing employee forums, feedback mechanisms and monitoring by the Board. Luke was supported in the review by the CEO, Chief Human Resources Officer and Company Secretary. He reported to the Nomination Committee during the course of the year, which in turn made a proposal to the Board that a designated non-executive director was the most appropriate approach for IHG, as it aligned with existing employee engagement forums. The Board formally appointed Luke as the designated non-executive director with responsibility for workforce engagement (Voice of the Employee) in August 2019.

 

Due to the global reach of IHG, Luke is supported in his role by Jill McDonald (Chair of the Corporate Responsibility Committee), as well as other NEDs depending on the forum and topic matter. All Directors engage with employees during the course of the year as part of hotel and office visits.

 

The Board will review this approach annually in the light of any changing governance expectations and ongoing feedback.

 

Role  

Luke’s role is to:

 

 Ensure that employee interests and feedback are structured into the Board’s deliberations and the setting of KPIs;

 

 Support management in the design and content of structured Board discussions on culture and employee engagement; and

 

 Review the effectiveness of wider employee engagement approaches.

 

His responsibilities include ensuring that:

 

 The Board, through the Executive, has effective methods of receiving feedback from employees and communicating Board and executive decisions and priorities throughout the organisation;

 

 All significant business and budget proposals include a management assessment on the impact on employees;

 

 Executives share employee feedback openly, transparently and in a balanced way, including reviewing employee engagement surveys and other employee reports including whistleblowing;

 

 

32   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

LOGO

 

  The Board considers any dissonance between what is reported to it and what emerges from feedback to the Voice of the Employee; and

 

  Other NEDs gather feedback and perspectives from employees too.

Human Resources (HR) provides Luke with support regarding planning and engagement forums, and shares findings on employee engagement surveys and HR scorecards. Luke is expected to seek feedback from other NEDs, in a private session at each Board meeting, from their meetings with employees and discuss insights with the CEO and Board as appropriate. In addition, he will respond to shareholders on questions of governance in respect of the Voice of the Employee.

 

2019

engagement

  During 2019 a schedule of employee forums and meetings was agreed with Luke to attend and appreciate the scope of existing engagement methods,
employee concerns and points of view on company culture, diversity and inclusion, career opportunities, strategy and performance, as well as to discuss the role of the Board and its Committees.

Luke visited our corporate offices in Atlanta in the US, and Branston and Denham in the UK and observed a number of Town Hall meetings, attended a variety of employee meetings and focus groups, including Lean In Circles and employee resource group (ERG) meetings, with employees from all band levels, across all IHG functions. Those locations were chosen as they are our main corporate headquarters where we have 3,098 employees. Branston was a key location in our 2018 transformation programme, where 78 new roles were created. In Atlanta there are eight active employee groups reflecting employee communities.

Insights and learnings  

Insights from the forums included understanding:

 

  How informal peer support amongst employees works across a range of topics;

 

  How formal management engagement with employee forum representatives is conducted;

 

  How the CEO and other Executive Committee members communicate performance and culture updates with employees;

 

  How the D&I Board works and the commitment to rolling out this initiative;

 

  How regional ERGs are launched and the key issues they discuss;

 

  How culture-related initiatives resonate most effectively with employees; and

 

  How our employee engagement survey, (Colleague HeartBeat), results are analysed and acted on by management.

As well as Luke’s activities, Jo Harlow attended a European Employee Forum and Jill McDonald attended an ERG and D&I overview session in Atlanta. Patrick Cescau visited Japan with Kenneth Macpherson in February 2019 where he met employees, and visited Mexico with Elie Maalouf in June 2019 and met IHG leaders and employees in the region.

 

Board
actions
  The Board did not consider that any significant change of direction or overall approach to engagement was needed in light of Luke’s activities. However, following his

observations and feedback the following are being actioned by HR:

 

  Improved employee dashboards and scorecards to better enable the Board’s appreciation of employee concerns and engagement results;

 

  Revised and additional wording in engagement surveys to gain more relevant feedback on the impact and progress of the transformation programme; and

 

  Active Board support for diversity and inclusion initiatives being launched across IHG and the optimisation by the Executive Committee of ERGs as the most effective touchpoint with the Voice of the Employee.
 
2020 plans   With the responsibilities and expectations agreed and fully trialled in 2019, a plan of meetings and review sessions has been scheduled for 2020.

The schedule includes opportunities to meet and talk to a range of employees in different locations across band levels, and further develop Luke’s understanding of employee issues and concerns. He will meet them at a variety of IHG’s existing employee engagement forums, such as Town Halls, virtual interface meetings and corporate regional office visits. The meetings will also give employees the opportunity to give feedback to the Board, through Luke.

Meeting and engagement topics to include:

 

  Performance results – employee questions and management responses;

 

  Employee feedback on the transformation programme and IHG competitiveness;

 

  Manager-level employee issues and observations;

 

  D&I Board perspectives;

 

  Lean In peer support issues and activities;

 

  European Employee Forum – engagement with Forum representatives; and

 

  Regional ERG activities.

Planned 2020 Voice of the Employee and Board reviews and interactions, ahead or as part of Board meetings, include:

 

  Review of the engagement dashboard with Luke and Jill;

 

  Review of the HR scorecard and employee engagement dashboard, and deep-dive into specific areas of Board interest;

 

  Participation in a virtual employee interface session with Company managers in Asia; and

 

  People and Culture Strategy and Voice of the Employee feedback discussion.

In addition:

 

  Luke and other NEDs will discuss any material feedback from their meetings with employees, as and when it is received;

 

  All relevant Board and budget papers will continue to have an employee impact assessment; and

 

  The Board will regularly review the approach in line with best practice and changes in regulation.
 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   33


Table of Contents

Strategic Report

 

 

Our culture, responsible business

and stakeholders continued

 

 

Environment

Who leads at IHG

 

    Board and Committees

 

    Executive Committee

 

    Senior Leaders

 

    IHG Responsible Business Governance Committee (represented by senior management from across the business)

 

    Corporate Responsibility function

How we engage

 

    Board and Committee oversight, monitoring and review

 

    Responsible Business Targets 2018-2020

 

    Dashboards sent monthly to Executive Committee on progress against our hotel carbon reduction target

 

    Responsible Business Report

 

    IHG Green Engage system

    

With 5,903 hotels operating in more than 100 countries, we recognise the risks presented by climate change, which have the potential to impact our performance and growth, and our responsibility to keep adapting to meet the challenge. In 2019, the Board considered the Company’s post-2020 environmental sustainability approach and ambitions, and the Corporate Responsibility Committee endorsed new sustainability commitments, including a science-based target for carbon reduction by 2030, and

reporting in line with the Task Force on Climate-related Financial Disclosures.

Tackling climate change related issues involves collaboration with our key stakeholders to find solutions and innovations to drive positive outcomes. We are uniquely placed to educate and support behavioural change amongst our third-party hotel owners, suppliers and millions of guests, and will continue to develop our approach.

Our activities

Environmental sustainability

Our environmental policy sets out our approach to measuring and managing our environmental impact, and supports and guides our colleagues and hotels to find innovative ways to reduce our environmental footprint. Our group-wide online digital sustainability platform, the IHG Green Engage system, helps hotels and colleagues measure and reduce energy, carbon, water and waste.

Carbon and energy

One of our Responsible Business Targets is to reduce our carbon footprint per occupied room by 6-7% over the period 2018-2020. Over a two year period, we have reduced our carbon footprint by 5.9% per occupied room, including a 3.7% reduction in 2019, from a 2017 baseline.

As we look at our longer-term ambitions, we know that we have to do more, which is why we have set a 2030 science-based target to reduce greenhouse gas emissions.

 

Waste

To help address the waste generated by our corporate offices and hotels, from food to plastics and linens, and make our offices and hotels more sustainable, we have mapped out the biggest areas of waste within our operations and considered our global and environmental impact, operational requirements and guest experience. We are proud to be the first global hotel group to commit to switching all our bathroom amenities to bulk-size products.

Food waste is a big challenge for our industry and we recognise we have more to do in this area. We have partnered with a third-party technology company in 24 hotels to use their AI technology to track, measure and reduce food waste for more sustainable and efficient restaurant and bar operations. On average we have achieved reductions of 35%.

Water

Following a comprehensive water risk assessment in 2016, and reassessment in 2019 of our open hotels and pipeline, we have identified risks related to water quantity and quality and developed water stewardship action plans for our hotels in water stressed areas.

In 2018 we committed to launching two water stewardship projects each year, and in 2019 we launched two projects in Beijing and Bali.

To signal our continued water stewardship work, CEO Keith Barr has signed a commitment of membership to the UN Global Compact CEO Water Mandate. This represents a pledge to six core commitments that mobilises business leaders on water, sanitation, and the UN Sustainable Development Goals.

 
LOGO  

LOGO

 

 

 

LOGO

 

Further information about our Responsible Business Targets and our responsible business approach is available on our website www.ihgplc.com/responsible-business

 

See details of our greenhouse gas (GHG) emissions on page 223.

 

 

 

Task Force on Climate-related Financial Disclosures (TCFD)

Building on the work we have done to set science-based targets, we have made a formal commitment to implement the recommendations of the TCFD, and in 2020 we will be developing a disclosure roadmap for the coming years.

 

 

34   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Community

Who leads at IHG

    Board and Committees

 

    Executive Committee

 

    Senior Leaders

 

    IHG Responsible Business Governance Committee (Represented by Senior Leadership from across the business)

 

    Corporate Responsibility function

How we engage

    Board and Committee oversight, monitoring and review

 

    Responsible Business Targets 2018-2020

 

    True Hospitality for Good programme

 

    Giving for Good month

 

    Charitable partnerships

 

    Volunteering days

 

    Responsible Business Report

 

The travel and tourism industry accounts for 1 in 10 jobs globally with hotels in thousands of communities. The resilience and the prosperity of those communities and their people are important factors to how we operate and our long-term success.

Our community policy supports and guides our hotels and colleagues on how to be a responsible partner with our communities, whilst ensuring that our business objectives enhance the quality of life in the community.

Our activities

We aim to maximise the positive contribution we make by creating shared value in our communities through our True Hospitality for Good programme. We form strategic partnerships with non-government organisations, (NGOs), and charities that can help to make a difference in communities and wider society, helping shape a positive future for generations to come.

In 2019 we launched volunteering guidelines and encouraged employees to take two paid days each year to help charitable causes. Our Board and Executive Committee have evaluated our future approach to supporting

local communities, as part of our post-2020 responsible business ambitions, and recognise that we need to keep developing our approach.

Charitable partnerships

In 2019, through our partnerships with NGOs and charities, we contributed more than $1.3m to projects and causes in areas of hospitality skills building, environmental sustainability and disaster relief, supporting 25,000 people globally.

We work with global disaster relief agencies to provide support and preparedness training in the event of natural disasters for our colleagues and local communities.

Giving for Good month

Our Giving for Good month in September 2019 brought colleagues together to make positive change through volunteering, taking care of the environment, and activities focused on health, fitness and wellbeing. A record-breaking 160,000 colleagues in 88 countries took part in 2019, volunteering 188,000 hours of their time.

 

LOGO   For details of our IHG Academy programme see page 29

 

 

 

 

LOGO  

IHG First Look

In 2019 as part of our commitment to helping young people gain skills and experience in hospitality, we partnered with JA (Junior Achievement) Worldwide, one of the world’s largest youth-serving NGOs, which focuses on preparing people for future employment and entrepreneurship.

 

Through an IHG Foundation legacy grant, we worked to develop a curriculum to run hotel work-experience events called IHG First Look; providing young people with the opportunity to receive hands-on experience working in a hotel. Combining classroom working and a practical hotel takeover, students receive a close-up look at what a career in hospitality involves. Initiated during 2019, this year-long partnership will support more than 750 young people to gain skills and experience in hospitality, in nine major markets.

 

Building on the relationship, in early 2020 we began running a set of innovation camps, which focus on solving a sustainability-based problem core to the hospitality industry.

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   35


Table of Contents

Strategic Report

 

 

Our culture, responsible business

and stakeholders continued

 

 

Investors and

shareholders

Who leads at IHG

    Board and Committees

 

    Executive Committee

 

    Investor Relations function

 

    Functional business partners including Corporate Affairs, Human Resources and Business Reputation and Responsibility

How we engage

    Board and Committee oversight, monitoring and review

 

    Annual General Meeting (AGM) and General Meetings

 

    Results presentations

 

    Investor roadshows, face-to-face meetings and presentations

 

    Annual investor perception survey

 

    Asset reunification programme

 

    Shareholder dealing programme

 

    Annual Report and Form 20-F, Responsible Business and other publications

 

    Website, media and regulatory announcements

We recognise that our purpose, culture, business model and strategy are fundamental to attracting and retaining investment in our Company. With a commitment to open dialogue we maintain a comprehensive programme of investor relations activities.

In order to keep up-to-date with best practice and market views, the Company solicits independent advice and assesses guidance provided by a number of agencies, including the Investment Association.

A formal external review of investor perceptions is presented to the Board on an annual basis and both the Executive Committee and the Board receive regular updates on shareholder relations to ensure that they are made aware of and understand the views and perceptions of our major shareholders, in order to develop a balanced understanding.

In addition, our Registrar, Equiniti, and J.P. Morgan Chase Bank, N.A., custodians of our American Depositary Receipts (ADR) programme, have teams equipped to deal with shareholder and ADR holder queries.

 

Our activities

Shareholder meetings

We consider our AGM and, when we need to hold them, General Meetings, to be invaluable forums for communicating with investors and shareholders, both formally as part of the meeting, and informally afterwards.

During 2019 we held a General Meeting in January to approve a share consolidation proposal, and held our AGM in May to conduct our usual statutory business.

The 2020 AGM will be held at 11:00 on Thursday 7 May 2020. The notice convening the meeting, including details of the conditions of admission, will be sent to shareholders and be available at www.ihgplc.com/investors under Shareholder centre in the AGMs and meetings section, along with the results of the 2019 AGM and General Meeting.

Results presentations

Each year Keith Barr and Paul Edgecliffe-Johnson present to institutional investors, analysts and the media following our half-year and full-year results announcements. Telephone conferences are held following the release of our first and third-quarter trading updates, including Q&A sessions with sell-side analysts.

 

 

 

LOGO

 

36   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Investor meetings

As part of our annual cycle we have a programme of one-to-one meetings with major institutional shareholders, including Non-Executive Director meetings, hosted by the Chair.

We also attend key institutional investor conferences and hold a series of investor roadshow events in the UK, US, Canada and Europe. In addition, we hold telephone conference events with investors and shareholders in other countries to keep them up-to-date with IHG performance and strategy, and engage with them on their areas of interest.

Elie Maalouf and Kenneth Macpherson held investor roundtables during the year and investor hotel tours took place in both London and Cardiff. During November we hosted an education event about our business in Greater China, with Keith Barr and Jolyon Bulley outlining our competitive position and strategy in that region.

The Investor Relations team also engaged with retail shareholders and hosted two investor forums in London during 2019 to help shareholders understand our strategy and performance. The feedback and insights from these events will help us develop and shape future engagement.

In addition to this, we held a series of investor consultation meetings between our Chair of the Remuneration Committee, Jo Harlow and major shareholders seeking feedback on the proposed Directors’ Remuneration Policy.

 

 

 

LOGO

The Senior Independent Director, Dale Morrison, was and remains available to shareholders if they have concerns they wish to discuss.

Shareholder services

During 2019, IHG ran its annual share-dealing programme for shareholders with shareholdings of up to 225 shares, giving them the option to sell or increase their shareholdings at a preferable set fee. Shareholders who sold their shares had the option to donate their proceeds to charity.

 

 

 

 

 

 

LOGO

 

 

To enable as many shareholders as possible to access conferences and presentations, telephone dial-in facilities are made available in advance and live audio webcasts are made available after results presentations, together with associated data and documentation.

These can be found at www.ihgplc.com/investors under Results and presentations. Details of the sell-side research analysts who publish research on the Group are available at www.ihgplc.com/investors under Analyst details and consensus.

 

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   37


Table of Contents

Strategic Report

 

 

Our culture, responsible business

and stakeholders continued

 

 

Suppliers

Who leads at IHG

 

    Board and Committees

 

    Oversight from the Chief Financial Officer

 

    IHG Responsible Business Governance Committee

 

    Procurement function, including Strategic Supplier Management Office (SSMO)

How we engage

 

    Board and Committee oversight, monitoring and review

 

    Responsible Business Targets 2018-2020

 

    Supplier Code of Conduct

 

    IHG Green Supplier scorecard

 

    Employee education programme on responsible procurement

 

    Supplier risk assurance programme

Being a trusted business with a strong reputation is critical to our long-term operational growth. Our scale gives hotels under our brands the benefits of broader supply chain opportunities and consistent products and services, which in turn benefits our guests. We have a complex supply chain and work with suppliers who share our commitment to our responsible business agenda and ethical work practices.

The Procurement function drives IHG’s Responsible Business agenda into our supply chains. During 2019 the function focused on enhancing the foundations for responsible procurement in IHG, through the supply chain risk assurance programme, employee awareness of responsible procurement and our IHG Green Supplier programme, which evaluates prospective suppliers across a number of sustainability factors.

During 2019, we made progress with our supplier risk assurance programme pilot, with support from the British Standards Institute. As part of the introductory pilot, which began in 2018, we issued a desktop-based risk assessment questionnaire to all IHG Marketplace suppliers to help us understand their governance, human rights and environmental practices. In 2019, we reviewed responses and categorised them based on their risk profile. We will expand the scope beyond the IHG Marketplace suppliers group in the next phase of our programme. The initial pilot has been an important step in understanding our supply base.

The Strategic Supplier Management Office, (SSMO), supports strategic suppliers, identified for their contractual and operational value, via business performance reviews to promote value realisation, risk mitigation and create healthy supplier partnerships.

Our activities

Our supply chain activities are split into two categories – corporate and hotel supply chains. Our corporate supply chain covers items such as technology and professional services. Procurement of goods and services at hotel level, covers items required for opening, renovating and operating a hotel, such as food and beverages, furniture, linen and electrical goods. Procurement predominantly occurs at local hotel level as our hotels are largely owned by independent third-party owners, who are responsible for managing their own independent supply chains.

In certain cases, IHG provides a centralised procurement programme for both managed and franchised hotels, such as IHG® Marketplace in the Americas region (for US, Canada, Mexico) and IHG Mall in Greater China. IHG also provides purchasing support and leverages procurement platforms for managed hotels in some countries within EMEAA.

 

LOGO

 

During the year our Supplier Code of Conduct was updated and approved by the Corporate Responsibility Committee. The Supplier Code sets out our requirement for suppliers to demonstrate that they act with integrity and respect for human rights and the environment. We expect our suppliers to adhere to these standards, both within their own business and across their supply chains.

IHG complies with the statutory reporting duty on payment practices and performance and is a signatory of the Prompt Payment Code.

 

LOGO   See also our business relationships disclosure on page 224.

 

LOGO

 

Gender-inclusive supply chain

Following a review of our supply chain, we identified textiles as a priority supply chain commodity, given they are widely present in our hotels. At IHG, we know that gender-inclusivity is essential for a sustainable business, leading to more productive, resilient and secure value chains. This is why in partnership with CARE International and our key suppliers, we are exploring the social impacts that can be gained through creating more gender-inclusive workplaces via a detailed supply-chain mapping and gender risk analysis exercise.

 

 

38   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

Hotel owners

Who leads at IHG

    Board and Committees

 

    Executive Committee

 

    Senior Leaders

 

    Regional hotel lifecycle and growth functions

 

    Regional hotel operational support functions

How we engage

    Board and Committee oversight, monitoring and review

 

    IHG Owners Association meetings

 

    International Hotel Investment Forum (IHIF)

 

    Owner HeartBeat surveys

 

    Regional brand and owner conferences

 

    Owner portfolio and hotel reviews

 

    Dedicated operational support

 

    Hotel openings

 

    Hospitality industry forums

Our global network of hotel owners is one of IHG’s greatest strengths and we continually look to evolve our owner proposition. Our success is reliant on matching owners with the right brands in our portfolio and markets, sharing a common outlook on responsible business and working together to use our scale and resources to drive strong returns.

From meeting to discuss a new project, to planning every facet of a hotel’s operations, to the opening itself, we focus on building businesses. Once open, we support owners with world class, brand-specific resources that help drive hotel employee performance, improved guest satisfaction and increased revenues.

Our activities

Across our managed estate hotel operations, including operations leaders, General Managers, hotel employees and corporate operations support, regularly engage with owners on hotel performance. Our franchise performance support teams engage with franchised owners and operators through annual portfolio or hotel reviews.

 

LOGO   For more information on the IHGOA see www.owners.org

We also engage with the IHG Owners Association (IHGOA), the representative body of more than 4,500 hotel owners and operators for nearly 3,600 IHG branded hotels worldwide, in relation to brand initiatives, industry topics and hotel operations. In 2019, we worked with various IHGOA committees to obtain owner feedback on IHG standards, programmes and initiatives that impact both owners and guests. In particular, we engaged with the IHGOA on our System Fund.

We also establish, when appropriate, working groups with key owners in relation to major public issues relevant to the hospitality sector. In 2019, for example, we formed a group to consider Brexit.

In 2019, members of the Board and Executive Committee engaged with a number of our key owners at events including:

 

  The 2019 World Economic Forum in Davos;
  The 2019 NYU International Hospitality Industry Conference in New York;

 

  Strategic Owners Gathering at the InterContinental Zhuhai Yanheng, celebrating Greater China’s 400th hotel milestone;

 

  Hotel openings, including InterContinental Beppu Resort and Spa in Japan, InterContinental Houston – Medical Center in the US, and Kimpton Da’an in Taipei;

 

  Dinners at the InterContinental Berlin (as part of the IHIF), and at the InterContinental Shanghai Wonderland;

 

  Face-to-face meetings during visits to priority markets, including Mainland China, Japan and Mexico; and

 

  Americas Investors and Leadership Conference for owners and General Managers in Las Vegas.

 

LOGO   See page 23 for details about how we are optimising our brand portfolio for our owners and guests.
 

 

LOGO

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   39


Table of Contents

Strategic Report

 

Our culture, responsible business

and stakeholders continued

 

Hotel guests and

corporate clients

Who leads at IHG

    Board and Committees

 

    Executive Committee

 

    Senior Leaders

 

    Global Marketing function

 

    Hotel-facing operations

How we engage

    Board and Committee oversight, monitoring and review

 

    Hotel visits

 

    Corporate and brand websites

 

    IHG Rewards Club

 

    Guest HeartBeat surveys

 

    Guest relations

 

    Social media channels

We recognise that our hotel guests and corporate clients want to do business with a trusted company, with a reputation for strong business ethics, and a wide portfolio of hotel brands, which understands and responds to their environmental and community concerns.

 

LOGO   See page 23 for details about how we are optimising our brand portfolio for our owners and guests.

Our activities

Strengthening our loyalty programme is one of our strategic drivers and a key foundation for engaging with our guests. See page 20 for more information.

As part of our purpose to provide True Hospitality for everyone we consider guest experience extremely important:

 

  We have a dedicated team with a customer-centric agenda focused on measuring guest satisfaction through data-driven insights derived from post-stay surveys and social reviews, which are validated and posted on IHG branded websites and social media. Data collected informs us how our hotels are performing, and helps us to support hotels to improve where required.

 

  We have nine contact centres in six countries, with over 3,300 agents on hand to help guests. They speak 13 different languages and handled 26.6 million guest issues and questions in 2019.

LOGO

 

  Agents assist our guests with reservations, loyalty programme support and other customer service enquiries via telephone, email, on-line chat and social media.

During 2019 we continued to enhance guest experience through several technology initiatives, including IHG Connect, where guests can connect to wifi in our hotels with ease, and IHG Studio, where content from guests’ devices can be streamed in their individual hotel room. See page 9 for more information.

Whether for business or leisure, we know, through our guest insight efforts, that hotel guests increasingly want their stays to be more sustainable without any impact on the quality of their experience. See page 9 for information about our environmental activities, including our commitment to reducing plastic bathroom miniatures, which has received positive guest feedback.

LOGO

 
 

 

40   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Compliance Statements

As a UK publicly listed company we have to comply with numerous regulations. In order to make it easier to assess compliance, we have presented some of our compliance statements below. Our statement of compliance with the UK Corporate Governance Code can be found on pages 94 and 95.

Section 172(1)

A director of a company must act in the way he or she considers, in good faith, would most likely promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

 

  the likely consequences of any decisions in the long-term;

 

  the interests of the company’s employees;

 

  the need to foster the company’s business relationships with suppliers, customers and others;

 

  the impact of the company’s operations on the community and environment;

 

  the desirability of the company maintaining a reputation for high standards of business conduct; and

 

  the need to act fairly as between members of the company.

The Board considers that it has complied in all material respects with their s172(1) duties. Details of how the Board of Directors discharged its duties are set out in the Strategic Report pages 24 to 40 and should be read in conjunction with information disclosed in the Governance section, on pages 78 to 117. The Board and its Committees received Board papers, presentations and reports, participated in discussions and considered the impact of the Company’s activities on its key stakeholders, (wherever relevant), against the backdrop of the Company’s purpose, values and strategies.

 

LOGO   Further information about our responsible business approach is available on our website www.ihgplc.com/responsible-business

Employee engagement

IHG has a number of forums, such as Town Halls, weekly office updates and performance metrics, through which employees are provided with information on matters of concern to them, including awareness of financial and economic factors affecting the performance of the Company, career development opportunities and Company policies and principles. In addition there are opportunities to give feedback to Senior Leaders, Executive Committee members and the Board through Q&A sessions, engagement surveys and the Voice of the Employee meetings. During 2019, an employee share plan was introduced, which also continues to raise awareness of the performance of the Company with employees. Further information about how the Board and Senior Leaders engaged with employees during the year, and have taken their interests into account, is set out on pages 28 to 33, and in the Governance section on pages 78 to 117.

Business relationships with suppliers, customers and others

As part of our strategic growth initiatives, the interests of our suppliers, guests and hotel owners are taken into account in our commercial decisions. We engage with them at all levels of the Company. Details of our relationship with them are set out on pages 38 to 40, and should be read together with our disclosures in the rest of the Strategic Report, as well as the Governance and Directors’ Report sections on pages 78 to 117 and 221 to 224.

Non-financial information

Non-financial information, including a description of policies, due diligence processes and outcomes, where applicable, is set out as follows:

 

  Environmental matters on page 34

 

  Social matters on page 35

 

  Anti-corruption and anti-bribery matters on pages 26 and 27

 

  Employee matters on pages 28 to 33

 

  Respect for human rights on pages 26 and 27

 

  A description of the Group’s business model on pages 10 to 13

 

  The Group’s principal risks on pages 48 to 53

 

  The Group’s KPIs on pages 42 to 45
 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Our culture, responsible business and stakeholders   41


Table of Contents

Strategic Report

 

Key performance indicators (KPIs)

 

Our KPIs are carefully selected to allow us to monitor the delivery of our strategy and long-term success. They are organised around our Strategic Model, which is underpinned by doing business responsibly, (see page 18). KPIs are reviewed annually by senior management to ensure continued alignment to our strategy and Responsible Business targets and are included in internal reporting and regularly monitored. Measures included are those considered most relevant in assessing the performance of the business and

relate to our growth agenda and commitment to our major stakeholders including owners, guests, colleagues, shareholders and the communities in which we work. KPIs should be read in conjunction with the other sections of the Strategic Report, and where applicable, references to specific relevant topics are noted against each KPI.

 

 

 

 

A guide to this KPI section

Link between KPIs and Director remuneration

As we continued our focus on delivering high-quality growth as in prior years, Directors’ Remuneration for 2019 was directly related to key aspects of our Strategic Model. The following indicates which KPIs have impacted Directors’ Remuneration:

LOGO   The Annual Performance Plan

 

  70% was linked to operating profit from reportable segments

 

  30% was linked to strategic measures, of which:

 

 

15% was linked to improvements in net System size growth

 

 

15% was linked to the delivery of our comprehensive efficiency programmea

LOGO   The Long Term Incentive Plan

 

  40% was linked to Total Shareholder Return

 

  20% was linked to rooms growth

 

  20% was linked to Total Gross Revenue growth

 

  20% was linked to cash flow generation

 

LOGO  

For more information on Directors’

Remuneration see pages 96 to 117

 

 

 

Link to our Strategic Model

Our Strategic Model is at the heart of our success. The five strategic initiatives are represented as follows:

LOGO   

1  Build and leverage scale

 

2  Strengthen loyalty programme

 

3  Enhance revenue delivery

4

Evolve owner proposition

 

5

Optimise our preferred portfolio of brands for owners and guests

 

 

 

Link to Responsible Business

We consult with our stakeholders to determine the issues that are most relevant to them and IHG. Based on this feedback there are four priority areas, which are indicated by the following icons:

LOGO

 

 

LOGO

 

Our

people

  Environment

LOGO

 

 

LOGO

 

Community  

Responsible

procurement

 

 

KPIs

 

2019 status and 2020 priorities

Net rooms supply

Net total number of rooms in the IHG System.

 

Increasing our rooms supply provides significant advantages of scale, including increasing the value of our loyalty programme. This measure is a key indicator of achievement of our growth agenda (see page 18).

 

Signings

Gross total number of rooms added to the IHG pipeline.

 

Continued signings secure the future growth of our System and continued efficiencies of scale. Signings indicate our ability to deliver sustained growth (see page 18).

 

LOGO

 

LOGO

 

2019 status

Increased net System size growth to 5.6%, our highest growth rate in over 10 years and acceleration from ~3% in 2016, taking total rooms supply to 883,563 rooms.

 

Signings decreased -1%, with a record performance in Greater China and EMEAA offset by a decline in the Americas where 2018 signings were boosted by the launch of avid hotels. We increased our share of signings in key markets globally, driven by the addition of five new brands in the last two years.

 

2019 performance was driven by:

 

  Further growth of our established brands:

 

  Our highest ever number of openings for the Holiday Inn Brand Family.

 

  InterContinental Hotels & Resorts reinforcing its position as the largest global luxury hotel brand with nine openings in 2019.

 

  Record openings and signings in Greater China and record signings in EMEAA.

 

  The acquisition of Six Senses and signing of a further ten deals post-acquisition.

 

  Launch of new mainstream brand Atwell Suites with ten signings in 2019.

 

  Scaling of recently launched brands with:

 

  avid hotels adding six openings and 54 signings in 2019.

 

  voco hotels growing to 12 hotels opened by the end of 2019, with a total of 33 signed since launch.

 

2020 priorities

  Continued focus on delivering industry-leading net System size growth.

 

  Further scale avid hotels in the US and voco hotels globally.

 

  Grow the footprint of our new luxury brands Regent and Six Senses.

 

  Expand Kimpton and Hotel Indigo’s international presence.

 

  Drive Atwell Suites signings and prepare for the first openings in the US.

 

 

 

   

 

42   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

a 

See reorganisation costs on page 72 for further information.

 

KPIs

 

2019 status and 2020 priorities

Growth in underlying fee revenuesa, b

Group revenue from reportable segments excluding revenue from owned, leased and managed lease hotels, significant liquidated damages and current year acquisitions, stated at constant currency.

 

Underlying fee revenue growth demonstrates the continued attractiveness to owners and guests of IHG’s franchised and managed business (see page 10).

 

Total gross revenue from hotels in IHG’s Systemb

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

 

The growth in gross revenue from IHG’s System illustrates the value of our overall System to our owners (see page 11).

 

System contribution to revenue

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

 

System contribution is an indicator of IHG value-add and the success of our marketing distribution channels (see page 10).

 

LOGO

 

LOGO

 

LOGO

 

2019 status

  Net System size growth of 5.6% supported growth in underlying fee revenue of 2% in a weaker RevPAR environment.

 

  Grew digital (web and mobile) revenue by 7% to $5.6 billion.

 

  Revenue Management for hire now adopted in over 3,500 hotels across our estate.

 

  IHG Connect, our seamless wifi guest login, is now implemented or being installed in over 4,500 hotels globally.

 

  Continued to innovate through use of technology including initiation of a pilot for attribute pricing through our Guest Reservation System (see page 21).

 

  Further strengthened loyalty offer with new partnerships including the addition of Mr & Mrs Smith luxury and boutique properties to IHG Rewards Club and sponsorship of the US Open Tennis Championship (see page 20).

 

  Extended our InterContinental Alliance Resorts and Sands partnership to new hotels in Macau SAR, providing additional opportunities for guests to earn and redeem points in highly desirable locations.

 

  Conducted pilots of variable points pricing for redemption nights and pay with points for additional services during guest stays.

 

2020 priorities

  Commence roll out of attribute pricing via IHG Concerto.

 

  Continue to innovate our loyalty offering including in-hotel experiences and brand integrations, to provide greater opportunities for our members to earn and redeem IHG Rewards Club points.

 

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

 

  Continue to develop strategic partnerships to enhance the value of our loyalty programme for members.

 

 

 

Global RevPAR growth

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

 

RevPAR growth indicates the increased value guests ascribe to our brands in the markets in which we operate and is a key measure widely used in our industry (see page 8).

 

Guest Love

IHG’s guest satisfaction measurement indicator.

 

Guest satisfaction is fundamental to our continued success and is a key measure to monitor the risk of failing to deliver preferred brands that meet guests’ expectations (see page 49 for details).

 

LOGO

 

LOGO

 

 

2019 status

  RevPAR declined slightly in 2019 as industry growth slowed, impacted by macro and geopolitical uncertainties, increased supply growth in some markets, and ongoing unrest in Hong Kong SAR.

 

  We continued to undertake activities to position our brands for future success:

 

  Rolled out new prototypes and designs for Holiday Inn and Holiday Inn Express in Americas and Europe.

 

  Continued Crowne Plaza Accelerate programme, a multi-year programme to transform Crowne Plaza in the Americas region, including flagship hotels showcasing the reinvention of the brand, with the first opening in Atlanta.

 

  Modernised Staybridge Suites and Candlewood Suites brands with launch of new prototypes.

 

2020 priorities

  Continue to invest in brand innovation, including room design and hotel layout to meet evolving guest needs.

 

  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.

 

 

 

 

a 

In 2019 the underlying fee revenue calculation was restated for 2017 onwards following a change in the definition of how we calculate constant currency. The 2017 growth figure is not comparable and thus excluded from comparison.

 

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 pages 55 to 59 and reconciliations to IFRS figures, where they have been adjusted, are on pages 214 to 218. A reconciliation of total gross revenue to owned, leased and managed lease revenue as recorded in the Group Financial Statements can be found on page 61.

 

c 

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.

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Key performance indicators   43


Table of Contents

Strategic Report

 

Key performance indicators (KPIs) continued

 

 

KPIs

 

2019 status and 2020 priorities

Fee margina,b

Operating profit as a percentage of revenue, excluding System Fund, reimbursement of costs, revenue and operating profit from owned, leased and managed lease hotels, significant liquidated damages, the results of the Group’s captive insurance company and exceptional items.

 

Our fee margin progression indicates the profitability of our fee revenue growth and benefit of our asset-light business model (see page 10).

  LOGO  

2019 status

  Grew fee margin by 80bps.

 

  Continued to embed our new operating structures and leverage operational efficiencies.

 

  Cost efficiency programme to deliver ~$125m in annual savings, including System Fund, by 2020 substantially complete, with savings fully reinvested in growth initiatives.

 

2020 priorities

  Continuation of our strong cost and efficiency focus.

 

  Leverage our growth and systems infrastructure to drive economies of scale.

 

  Continue to leverage AI to drive process efficiency, enhance revenue generation, and improve guest experience.

 

  Provide procurement solutions to help lower owner cost of sale.

 

  Continue to look for further operational efficiencies through greater application of technology.

 

 

 

Free cash flowb,c

Cash flow from operating activities excluding payments of contingent purchase consideration, less purchase of shares by employee share trusts, maintenance capital expenditure and lease payments.

 

Free cash flow provides funds to invest in the business, sustainably grow the dividend and return any surplus to shareholders (see page 12). It is a key component in measuring the ongoing viability of our business (see page 54).

  LOGO  

2019 status

  Free cash flow of $509m was down $102m year-on-year with higher levels of cash tax and working capital offsetting lower levels of exceptional items.

 

2020 priorities

  Continue to deliver consistent, sustained growth in cash flow.

 

  Control capital deployment in line with business priorities.

 

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

 

 

 

 

a 

In 2019 the fee margin calculation was restated for 2017 onwards following implementation of IFRS 16 ‘Leases’. The 2016 figure is not comparable and is thus excluded from comparison.

 

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 55 to 59 and reconciliations to IFRS figures, where they have been adjusted, are on pages 214 to 218.

 

C 

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.

 

44   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

KPIs

 

2019 status and 2020 priorities

Responsible Business    

IHG® Academy

Number of people participating in IHG Academy programmes.

 

Sustained participation in the IHG Academy indicates the strength of our progress in creating career building opportunities and engagement with the communities in which we operate (see page 29).

  LOGO  

2019 status

  Hosted a range of IHG Academy programmes globally throughout the year, including internships and other experiences.

 

  Formed a global partnership with Junior Achievement Worldwide offering young people opportunities to gain skills and experience, empowering them to consider career opportunities in the industry.

 

  Reviewed and refreshed supporting material to drive greater participation and deliver an engaging candidate experience.

 

2020 priorities

  Continue to provide skills and improved employability through IHG Academy, ensuring a positive impact for local communities, our owners and IHG. This will enable IHG to achieve our longer-term target of 30,000 – 40,000 IHG Academy participants in 2020.

 

  Realign focus of the IHG Academy programme, prioritising an increase in the length of the IHG Academy opportunities and placements to drive conversion of participants to permanent employment.

 

  Build on the IHG Academy programme offering through launching an internship toolkit in 16 hotel-ready languages.

 

  Continue to drive quality growth in the programme through enabling our regional teams to measure impact through a robust reporting solution and convert IHG Academy hires into employees for 2021 and beyond.

 

 

 

 

Carbon footprint per occupied room

We work with our hotels to drive reductions in carbon emissions to reduce our overall carbon footprint (see page 34).

  LOGO  

2019 status

  Achieved 5.9% reduction in our carbon footprint per occupied room from 2017 baseline.

 

2020 priorities

  Continue to reduce our carbon footprint across our entire estate.

 

  Partner with owners and our hotels to share best practices to help drive greater carbon reductions.

 

  Work to meet the requirements of Task Force on Climate-related Financial Disclosures (TCFD).

 

 

 

Employee Engagement survey scores

Average of our revisedb bi-annual Colleague HeartBeat survey, completed by our corporate, customer reservations office and managed hotel employees (excluding our joint ventures).

 

We measure employee engagement to monitor risks relating to talent (see page 28) and to help us understand the issues that are relevant to our people as we build a diverse and inclusive culture (see page 30).

  LOGO  

2019 status

  Commenced Non-Executive Director-led employee interface sessions across geographies to better understand workforce engagement (Voice of the Employee, see pages 32 and 33 for further information).

 

  Launched starters and leavers survey with employees (in managed hotels and corporate offices) to understand their feedback on these critical employee life cycle events.

 

2020 priorities

  Improve our talent acquisition systems and services to position IHG as a leading employer and deliver a great hiring experience for candidates.

 

  Continue to drive a high-performance culture across IHG through embedding performance and reward practices.

 

  Further drive the adoption of improvement to our human resources systems, to further our ability to attract, develop and retain talent.

 

  Support the recruitment and development of General Managers for our managed hotels.

 

  Embed a diverse and inclusive culture across our places of work, through key initiatives such as RISE and ERGs, to further our promise to provide True Hospitality for everyone.

 

 

 

 

 

a 

In 2018 the carbon reduction measure was restated in line with a new baseline for the 2018-2020 target. The 2018 and 2019 impacts from the 2017 baseline year have been restated, aligned to annual changes to IHG’s System size and increase in number of hotels reporting data to the IHG Green Engage system, to enable comparisons to be made for our 2018-2020 target. The 2016 and 2015 figures could not be restated and are not comparable.

 

b 

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.

 

LOGO  

Please see www.ihgplc.com/responsible-business

for our 2018-2020 Responsible Business targets.

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Key performance indicators   45


Table of Contents

Strategic Report

 

Our risk management

 

Our growth ambition in a fast-moving and innovative business environment means that we must consider risk as a central part of the definition and execution of our strategy. The Board and Executive Committee have collaborated closely throughout 2019 to ensure that risk assessment, mitigation strategies and plans are integrated into broader consideration of our short-term goals and longer-term strategic initiatives and key projects.

The Board’s role in risk management – stewardship and partnership

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. Our regional and functional leaders, supported by the Risk & Assurance team, conduct strategic planning and business performance reviews throughout the year which monitor emerging risks – new or changing factors which require further consideration to determine the potential significance to our business. Our governance framework and committee agendas establish procedures for Board members to receive information from the Executive Committee and Senior Leaders and a range of other internal and external sources on emerging risks. More detail on the topics covered by the Board and committees is available in the Corporate Governance section, pages 78 to 117.

During 2019 the topics have included:

 

  many long-term industry and macroeconomic risk factors (within Board strategy meeting and committee discussions), often alongside management’s own presentations of plans and projects;

 

  discussion of risks relating to longer-term sustainability, shifting societal expectations, human rights and our evolving responsibilities across our supply chain (Corporate Responsibility Committee);

 

  emerging tax, treasury and regulatory risks, for example relating to privacy and data protection (Audit Committee);

 

  cultural, succession and retention risks and the competitiveness of director and executive remuneration (Remuneration and Nomination Committees).

While the Board oversees the risk management system to ensure that risks and opportunities are appropriately identified and managed to an acceptable level, it works in partnership with the Executive Committee and Senior Leaders to maintain and, where necessary, accelerate the understanding of key risk topics. This is particularly relevant in relation to cybersecurity, where the Board have met regularly with management outside of formal meetings to enable a more detailed appreciation of the risks and risk management strategies available to us to manage them.

Our enterprise risk management framework adopts a mitigate/transfer/accept approach, taking into account the potential impact on the ability of the Group to execute and deliver our objectives and strategy.

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. We cascade this appetite through the goals and targets we set, our Code of Conduct and other global policies, our formal Delegation of Authority policy including the governance structure of approval committees, decisions we make and how we allocate resources. It evolves with the IHG strategy. Our Annual Report and Form 20-F describes risk appetite in a number of places. For example, our appetite for financial risk is described in note 24 to the Group Financial Statements, see page 182. As a day-to-day example, decision makers in the business can refer to guidelines which articulate parameters for new hotel development deals.

 

LOGO   This section should be read together with the rest of the Strategic Report, Governance on pages 78 to 117, the going concern statement on page 224, and Risk Factors on pages 226 to 230.
 

 

 

 

Risk management supports decision making

Our risk management and internal control system is fully integrated with the way we run the business and how we create and protect value in pursuit of our objectives.

 

Our culture, values and behaviours, see pages 26 and 27, establish authorities, capabilities and appropriate incentives for empowered and agile decision-making across our portfolio of risks by teams across IHG, supported by functional expertise.

 

Formal and informal monitoring, reporting and assurance arrangements, see page 27, enable the Board and Executive Committee to maintain ongoing oversight of key areas of uncertainty and the effectiveness of our risk management and internal control arrangements.

   LOGO

 

46   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

IHG’s principal risks and uncertainties

Our risk profile is structurally similar to that of a year ago, although the context within which we operate is highly dynamic reflecting the cyclical nature of our industry and global macroeconomic uncertainties.

Our discussions of risk also take place within a context of increasing scrutiny of the impact of our business on our stakeholders, and our longer-term sustainability. We have therefore split out our consideration of external factors to recognise both the risks relating to political and economic headwinds on our growth ambitions (for example disruption in key markets and trade wars) and also the requirement to anticipate and respond appropriately to the risks and opportunities relating to our environmental and social responsibilities.

We have also refreshed our crisis and incident management procedures during 2019, with the Executive Committee and many regional and functional leadership teams working through training and tabletop crisis scenarios to review and practice ways of working. The Risk and Assurance team provides support and intelligence on emerging threats and will continue to provide advice to management on procedures for risk identification and mitigation and control. We are continuing to monitor the evolving situation relating to Covid-19 and its impact on both our business and the industry as a whole, and we are working closely with relevant authorities. The Group’s asset-light business model, diverse brand portfolio and wide geographical spread contribute to IHG’s overall resilience to events that could affect specific segmental or geographical areas.

Our programme to realise savings for reinvestment has led to a range of changes to organisation, accountabilities and processes, and a wide portfolio of initiatives is in place to pursue growth opportunities.

Our approach to risk management has therefore also evolved as part of our organisational focus on growth and how we take informed decisions in a fast moving environment. The Risk and Assurance team has continued to coordinate assessments of the principal risks facing the Group, including those which would threaten its business model, future performance, solvency or liquidity and reputation. 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, however risks are also discussed as an integral part of decision making across the year. In addition, focus on the behaviours necessary to drive growth has included cross-business participation in virtual learning summits, including how to make decisions at pace with the right governance and structure to maintain control.

Our strategy requires us to work increasingly with partners, intermediaries and other third parties, and access expertise and services which enable us to anticipate and respond to the needs of our owners, guests and colleagues, and to work efficiently and at scale. Many of our risks therefore reflect the changing nature of our extended enterprise and our responsibilities to our stakeholders. Some of these responsibilities, particularly in relation to our stewardship of data, are subject to significant changes in law and therefore highlighted as dynamic and demanding regular attention by senior management and the Board.

We continue to conclude that the potential impact of Brexit on IHG is not likely to have a material impact on our overall strategy or operations although, as with other external factors, this is considered as part of operational risk management and resilience planning, and a standing group reviews our preparedness for operational disruption. The impact of a potential movement in the value of sterling is articulated in note 24 of the Group Financial Statements, see pages 182 to 185.

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report   |  Risk management   47


Table of Contents

Strategic Report

 

Risk management continued

 

 

 

Risk trend and speed of impact

We assess whether the risk area is stable or dynamic in its impact and/or likelihood (inherent risk trend), and the rate at which there could be a material impact on IHG. The trend and speed of impact are summarised in the diagram with further detail on activities to manage each of these risks in the table below.

    

        

 

LOGO

 

Principal risks descriptions

 

 

Inherent risk trend   Risk impact – link to our strategic priorities

 

LOGO

 

  Dynamic/Rapid  

 

LOGO

 

  Build and leverage scale  

 

LOGO

 

  Strengthen loyalty programme   LOGO   Enhance revenue delivery

LOGO

 

  Dynamic/Gradual  

LOGO

 

  Evolve owner proposition  

LOGO

 

  Optimise our preferred portfolio of brands for owners and guests
LOGO   Stable/Rapid            

 

 

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

Inherent threats to cybersecurity and information governance remain significant and dynamic. We are aware of our responsibilities in relation to a range of high-value assets (critical systems & guest, employee and other sensitive data) which may be targeted by various threat ‘actors’ (including organised criminals, third parties and ‘threat actor-employees’), and rapid evolution in societal, regulatory and media scrutiny of privacy arrangements mean that the potential impact of data loss to IHG financially, reputationally or operationally remains a dynamic risk factor.   LOGO   LOGO   

  Effective and appropriate leveraging of data that we have a right to use is a key aspect of the interface between our marketing and our commercial and technology activity. We take account of regulatory and ethical factors as part of the decision-making processes in relation to marketing and technological initiatives, and we also rely on appropriate governance and control arrangements to mitigate risks that the validity of data that we use is undermined by cyber-attacks or operational failures.

 

  Our 2019 focus has been on progressing a Board-endorsed roadmap of the highest priority and highest-value initiatives to build and maintain core elements of our cybersecurity posture.

 

  During the year our Chief Information Security Officer has worked with teams across IHG to increase sophistication in how we identify, protect, detect, respond and recover in relation to cyber risks. This has involved developments in our security governance and risk tracking, including discussion and assessment of an approach to high-value assets with the Executive Committee.

 

  We have continued to drive awareness of cybersecurity risk, including an anti-phishing campaign which tested corporate employees on phishing attacks. We also developed a cybersecurity incident response playbook which is aligned with wider IHG resilience and incident preparation protocols.

 

  The nature of our operating model means that significant amounts of IHG’s confidential information assets are also held by or shared with third-party suppliers and owners, and we review those risks as part of our broader supply chain risk management arrangements.

 

  Our information security programme is supported and reviewed by internal and external assurance activities, including our Internal Audit and SOX teams and PCI assessments.

 

  During 2019 we have reported regularly to the Board and the Executive Committee on the information security roadmap using key risk indicators to track trends in risk and mitigation initiatives. We also continue to work closely with our insurers to review the adequacy of protection for our risks and have assessed potential cyber incident scenarios, including quantification of value at risk, to better aid in risk-based discussions on remediation investment against risk acceptance and available risk transfer opportunities.

    

 

 

 

 

  

 

 

48   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

Failure to deliver preferred brands and loyalty could impact our competitive positioning, our growth ambitions and our reputation with guests and owners. Competitor and intermediation activity creates inherent risks and opportunities for the hospitality industry and is relevant to the longer-term value of IHG’s franchised/managed proposition and our ability to deliver returns to current and potential owners of our various brands.   LOGO   LOGO   

  To enable our growth ambitions, we need to continuously strengthen our portfolio of brands to build an industry-leading offer which delivers leading-edge guest preference, and competitive owner returns. For a description of our brands and brand initiatives see pages 14 to 17, and page 23.

 

  We are building the underlying capabilities to achieve our vision by: strengthening our new brand development; enhancing our marketing capability; refining our brand portfolio strategy; building improved data analytics capabilities; and scaling the production and efficiency of our global marketing assets.

 

  During 2019, our Global Marketing team has continued to evolve an operating framework to provide additional clarity and alignment on prioritisation and focus areas. We have also implemented changes to several ways of working between our global functions and regional operations teams to drive commercial performance, supported by learning events and engagement sessions.

 

  We are also executing a loyalty roadmap that includes tactical improvements to drive short-term performance and foundational levers to enable a longer-term step change to improve member benefits, owner economics and programme technology. See page 20 for more details on our 2019 initiatives.

    

 

 

 

 

  

 

In a fast growth environment, it is essential that we attract, develop and retain leadership and talent and failure to do this could impact our ability to achieve growth ambitions and execute effectively. Our people are essential to delivering our objectives, and our ability to develop talent is a key way we can deliver value to our existing and potential owners of both managed and franchised hotels. It is also essential that we retain key executive talent, both at the corporate and hotel levels, in the face of attractive roles and competitive rewards available in the global markets where we operate and compete.   LOGO   LOGO   

  Our approach to managing our people is outlined in detail on pages 28 to 31 and our annual business planning process includes a review of workforce risks. We consider workforce risks when designing business initiatives and we regularly review talent and succession across the organisation. Our Human Resources team partners across IHG, and performs regular reviews including in relation to the diversity of our talent and competitiveness of our compensation and benefits plan.

 

  IHG has the ability to manage the risk directly in relation to IHG employees but relies on owners and third-party suppliers to manage the risk in related activities. Our Procurement, Legal and Risk teams also consider more indirect workforce risks relating to our third-party relationships.

 

  During 2019, we have continued to refine and streamline our performance management systems and embed a common set of leadership behaviours across IHG through employee participation in various virtual learning summits.

 

  Several policies supporting our Code of Conduct (for example our Human Rights Policy which is reviewed annually) relate to the management of our people, describing our intolerance for inappropriate behaviours, and appropriate adherence to those helps manage our risk.

 

  As our business expands through mergers and acquisition, we also undertake due diligence prior to transactions, and as part of integration activities, to evaluate and adapt relevant people practices.    

    

 

 

 

 

  

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report   |  Risk management   49


Table of Contents

Strategic Report

 

 

Risk management continued

 

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

The global business regulatory and contractual environment and societal expectations continue to evolve. Failure to ensure legal, regulatory and ethical compliance would impact IHG operationally and reputationally. Regulators are moving to impose significant fines for non-compliance, most notably in relation to privacy obligations and data security, and there is increasing attention on environmental, social and governance matters (for example relating to consumer protection, human rights including modern slavery, human trafficking and labour laws, and financial crime) from a range of external stakeholders such as corporate sales clients, investors and NGOs. With trading headwinds in some markets, increased pressure can be placed on compliance programmes, and a heightened risk of liabilities relating to our franchise model both in relation to brand reputation issues as well as litigation.   LOGO   LOGO   

  Our global Ethics and Compliance team (E&C team) are focused on ensuring IHG has a globally coordinated approach to material ethical and compliance risks, taking into account the regulatory environment, stakeholder expectations and IHG’s commitment to a culture of responsible business.

 

  The overarching framework for Ethics and Compliance is the IHG Code of Conduct (Code), (see pages 26 and 27). In addition to the Code, the E&C team manage the global compliance programmes for Anti-Bribery and Corruption, Antitrust/Competition Law, Sanctions and Human Rights.

 

  A number of processes and initiatives are used by the E&C team to manage ethical and compliance risks. For example, IHG is a member of Transparency International UK’s Business Integrity Forum and participates in its annual Corporate Anti-Corruption Benchmark. The findings from the Benchmark assessment are utilised predominantly by the E&C team to identify improvements to the design of the IHG Anti-Bribery and Corruption programme.

 

  The E&C team are also responsible for, and have oversight of, the owner legal due diligence process. This is designed to ensure that risk-based due diligence is carried out on third-parties with whom IHG enters into hotel relationships. This includes sanctions monitoring, third-party screening and internal communications – for example, an annual update is communicated to the Legal, Development and Strategy teams and other relevant colleagues providing a reminder of ‘No Go’ countries and sanctions issues that may restrict IHG.

 

  The E&C team currently monitor training completions, gifts & entertainment reporting and owner due diligence escalations. These areas help demonstrate whether the design of the Ethics & Compliance framework and core processes of the underlying programmes are operating effectively. The E&C team monitor activity of the Confidential Disclosure Channel and have regular discussions with regional Legal teams to help identify emerging issues. In addition, the E&C team receive informal queries/escalation of issues via an Ethics and Compliance email channel, which is publicised in training and awareness materials, and directly from employees, for example in face-to-face training sessions.

 

  The Board receives regular reports on the Confidential Reporting Channel and matters directly related to our responsible business agenda.

    

 

 

 

 

  

 

Failure to capitalise on innovation in booking technology and to maintain and enhance the functionality and resilience of our channel management and technology platforms (including those of third-parties on which we rely directly or indirectly), and to respond to changing guest and owner needs remains a dynamic risk to IHG’s revenues and growth ambitions. The pace of change in the hospitality industry continues to accelerate and IHG must evolve to effectively grow and compete in the marketplace. Technology is crucial to our strategy as we face increasing competition from both existing and new players in the travel space.   LOGO   LOGO   

  Our comprehensive channels strategy is a key driver and enabler of accelerated growth. We continue to seek opportunities to align and innovate our channels and technology platforms (see page 21). Our IHG Concerto platform is operating at all IHG hotels, and we are continuing to add more capabilities to the platform to enhance revenue delivery.

 

  Our Guest Reservation System (GRS) is hosted by a third-party vendor, Amadeus, in the cloud and supported by infrastructure which serves to decrease the likelihood of downtime. Availability of GRS and other key systems continues to be monitored on a 24/7 basis by the Network Operations Centre. Metrics are regularly reported to Commercial and Technology leaders so they can monitor performance.

 

  As our industry evolves, and with our acquisition of new brands, we have continued to review the capabilities of our systems in relation to market trends and expectations.

 

  In 2019, we also introduced regional revenue forums to focus on forecasting future business and determining integrated commercial plans to address challenges.

    

 

 

 

 

  

 

 

50   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

IHG’s continuing agenda to accelerate growth gives rise to inherent risks, for example as we transition systems, operating models and processes. The potential exists to impact commercial performance and financial loss, and undermine stakeholder confidence. As we move towards larger, more strategic outsourcing relationships for business-critical services, inherent risk levels are also raised.   LOGO   LOGO   

  The progress of our Group-wide efficiency programme has been tracked by the Board and Executive Committee, and the majority of our centrally driven transformation activity has now transitioned to Senior Leaders.

 

  Following the changes to our organisational structure in 2018, in 2019 we conducted corporate-wide virtual learning summits and we maintain a central digital hub for process and learning materials to enable our employees to find details about processes, learning content and key process owners.

 

  Our focus on accelerating growth has included review of risks relating to offshoring and outsourcing by Senior Leaders and the Board. Our Strategic Supplier Management Office has been established to manage existing critical supplier relationships as well as new outsourcing and/or business-critical relationships driving our strategic objectives. Our legal teams review contracts and provide advice on litigation, where required, and our insurance programme also provides a degree of protection in the event of supplier failure.

 

  Oversight teams, including our finance experts, have evolved governance and control frameworks and we also regularly review delegated approval authorities and processes to enable decisions on investments to be made quickly and efficiently with consideration of the risks involved. HR Business Partners continue to work with Senior Leaders to identify and retain key individuals across the business, and succession planning practices are in place to ensure continuity of key initiatives and business operations.

 

  During 2019 we reviewed our financial governance and controls relating to the integration of our acquisitions. For example, the integration of Six Senses into IHG’s financial control environment has been overseen by a dedicated governance committee.

 

  We have an established approach to System Development Lifecycle, and specific risks to delivery of the Global Reservations System have been managed throughout the programme of implementation (including those relating to technical delivery, business process testing and operation readiness testing).

    

 

 

 

 

  

 

Macro external factors such as political and economic disruption, the emerging risk of infectious diseases, actual or threatened acts of terrorism or war, natural or man-made disasters could have an impact on our ability to perform and grow. Heightening of macroeconomic tensions could lead to a downturn impacting our ability to grow.   LOGO   LOGO   

  While these factors are mostly outside our direct control, we track uncertainties which may impact the hospitality industry and which need to be considered in our strategic and financial planning. These types of risks are addressed in strategic review, including our market participation choices, particularly in emerging and key growth markets.

 

  During 2019, many leadership teams have used formal and informal scenario planning to anticipate the potential impact of these risks. The Board and Executive Committee receive regular updates on these types of factors from both operational and subject matter experts so that possible implications for IHG can be considered.

 

  Our in-house threat intelligence capability, supplemented by third-party expertise and methodology, supports development, hotel operations and customer-facing sales teams with planning and response to macro factors, for example concerns relating to terrorism, extreme weather events, or infectious diseases such as Covid-19. We are also increasingly able to complement more traditional sources with digital intelligence to anticipate potential impacts on IHG’s interests.

    

 

 

 

 

  

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Risk management   51


Table of Contents

Strategic Report

 

 

Risk management continued

    

    

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

As a global business, we are conscious of greater focus from a wider range of stakeholders on environmental and social mega-trends. These include regulators and investor groups (such as the Task Force on Climate-related Financial Disclosures (TCFD), and emerging risks presented by climate change which have the potential to impact performance and growth in key markets.   LOGO   LOGO   

  During 2019, our Corporate Responsibility team worked collaboratively with teams across IHG (including Human Resources, Business Reputation and Responsibility and Procurement) to consider the broader environmental and social risks associated with our business. These risks and opportunities are considered as an integral part of Board strategy discussions in relation to our commitment to responsible business. In 2019, this culminated with the approval of a science-based target relating to carbon reduction.

 

  As part of our responsible business strategy refresh work, we are also working with third-party experts to develop our responsible business targets for post 2020 and have made a formal commitment to implement the recommendations of the TCFD. In 2020 we will be developing a disclosure roadmap for the coming years. More broadly we recognise that continued collaboration across the wider industry is required to collectively combat climate change. We are taking an active role in this via our membership and active participation in several industry bodies, including the International Tourism Partnership (ITP) and the World Travel and Tourism Council (WTTC).

 

  Our values and behaviours, underpinned by our Code of Conduct, inform our decision-making at all levels. For example, specific elements of our Code of Conduct define expectations for IHG employees in relation to human rights and the environment. Our Supplier Code of Conduct and Human Rights Policy have been updated during 2019 and our Procurement, Legal and Risk teams monitor supply chain and human rights risks, see pages 26 and 27.

    

 

 

 

 

  

 

Failure to maintain an effective safety and security system and to respond appropriately in the event of disruption or incidents affecting our operations more broadly could result in an adverse impact to IHG, such as reputational and/ or financial damage and undermining confidence from our colleagues, guests, major sales accounts and wider stakeholders. This risk relates both to our direct operations in hotels and other locations where we have management responsibility, and also to outsourced activities and others with whom we collaborate and trade, including the owners of our franchised hotels which operate as independent businesses.   LOGO   LOGO   

  The environment in which IHG develops and operates hotels continues to evolve and impacts the safety and security risks faced by IHG. These risks are assessed as stable overall, but our approach is reviewed continuously to ensure that it remains fit for purpose, and able to anticipate and respond to the risk of an incident damaging the Group’s reputation.

 

  Our design and engineering, hotel opening and operations teams work together with our risk management experts to evaluate standards and develop capability to respond to an incident via training, intelligence tracking and standard operating procedures, and also deploy crisis management procedures where required for less predictable events.

 

  For example, the risks of epidemics such as Covid-19, earthquakes and extreme weather events continue to pose a threat to IHG’s operations, and are managed through refresher training, advanced monitoring and warning and standard operating procedures.

 

  In relation to geopolitical and terrorism risks, we deploy external industry benchmarking to allocate all pipeline and operational hotels a threat category. The category definitions are designed to guide hotels to make their own risk-based decisions on how to mitigate local security threats. Categories are reviewed regularly to adjust to the dynamic threat environment in which IHG develops and operates hotels.

 

  We continue to monitor UK Government and Local Authority investigations into the Grenfell tragedy. We will review our own fire and safety requirements once any changes and/or recommendations to building regulations and best practice are published, and will work with owners and operators of IHG branded hotels to provide appropriate support and guidance.

 

  IHG has also created a toolkit and resources for hotels to use to provide guests with menu allergen information, making it easier for them to identify ingredients they need to avoid.

    

 

 

 

 

  

 

 

52   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Risk description

 

Trend

 

Impact

  

Initiatives to manage these risks

A material breakdown in financial management and control systems would lead to increased public scrutiny, regulatory investigation and litigation. This risk includes our ongoing (and stable) operational risks relating to our financial management and control systems; the continuing expectations of IHG’s management decision making and financial judgements, in response to evolving accounting standards, which have added complexity to our control responsibilities; and our own business model and transactions.   LOGO   LOGO   

  We continue to operate an established set of processes across our financial control systems, which is verified through testing relating to our Sarbanes-Oxley compliance responsibilities. See pages 73 and 160 to 163 for details of our approach to taxation, page 73 for details of our approach to internal financial control, and pages 182 to 185 for specific details on financial risk management policies. These processes and our financial planning continue to evolve to reflect the changes in our management structure and business targets.

 

  To mitigate risks from adoption of the new accounting standard, IFRS 16 ‘Leases’, existing controls were modified and new controls added. Controls are revisited at least once a year for modification or addition.

 

  As our hotel estate evolves and grows, we also adapt our approach to financial control. Given the differences in the culture and ways of working across our regions, we apply globally and/or regionally consistent policies and procedures to manage the risks, such as fraud and reporting risks, wherever possible.

 

  Our Group insurance programmes are also maintained to support financial stability.

    

 

 

 

 

  

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Risk management   53


Table of Contents

Strategic Report

 

 

Risk management continued

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 approved annually by the Directors. 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, no change to our stated dividend policy and existing debt facilities are being renewed as they mature.

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 scenarios modelled and their link to our principal risks outlined on pages 48 to 53 are set out below:

 

 

Scenarios Modelled

 

Link to Principal Risk(s)

Widespread cybersecurity breach

This scenario models the impact of a specific material incident, which could relate to cybersecurity or an alternative material impact on the cash flow and income statement.

 

  Cybersecurity and information governance

 

  Legal, regulatory and ethical compliance

 

  Accelerate growth

 

 

    

Changes in RevPAR

This scenario models a prolonged decrease in RevPAR, which may be driven by external or internal factors.

 

  Preferred brands and loyalty

 

  Leadership and talent

 

  Channel management and technology

 

  Accelerate growth

 

  Environmental and social mega-trends

 

  Safety and security system

 

  Financial management and control systems

 

 

    

2008-2009 Financial Crisis

This represents the downturn that occurred from 2008 to 2009 (when the Board maintained the dividend despite the severity of the downturn in trading).

 

  Macro external factors

 

 

    

 

A reverse stress test of the business starting from the presumption of the Group having insufficient liquidity to continue trading was also modelled.

In each of the 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 2022 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 2022, 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 2022.

 

 

 

54   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

Performance

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

The Annual Report and Form 20-F presents certain financial measures when discussing the Group’s performance which are not measures of financial performance or liquidity under International Financial Reporting Standards (IFRS). In management’s view these measures provide investors and other users with an enhanced understanding of IHG’s operating performance, profitability, financial strength and funding requirements. These measures do not have standardised meanings under IFRS, and companies do not necessarily calculate these in the same way. Accordingly, they should be viewed as complementary to, and not as a substitute for, the measures prescribed by IFRS and as included in the Group Financial Statements (see pages 132 to 138).

 

   
  Linkage of performance measures to Directors’ remuneration and KPIs
  LOGO   The Annual Performance Plan   LOGO   The Long Term Incentive Plan   LOGO   Key Performance Indicators  

LOGO

 

 

See pages 96 to 117 for more information on Directors’ remuneration and pages 42 to 45 for more information on KPIs.

 

 

Measure

 

Commentary

Global revenue per available room (RevPAR) growth

LOGO

RevPAR, average daily rate and occupancy statistics are disclosed on pages 219 to 220.

 

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’s System (see Glossary, page 249) rooms revenue divided by the number of room nights available and can be derived from occupancy rate multiplied by average daily rate (ADR). ADR is rooms revenue divided by the number of room nights sold.

 

References to RevPAR, occupancy and ADR 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 (including those acquired), hotels closed for major refurbishment and hotels sold in either of the two years.

 

RevPAR and ADR are quoted at a constant US$ 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 in IHG’s System

LOGO LOGO LOGO

Owned, leased and managed lease revenue as recorded in the Group Financial Statements is reconciled to total gross revenue on page 61.

 

Total gross revenue is revenue not wholly attributable to IHG, however, management believes this measure is meaningful to investors and other users as it provides a measure of System performance, giving an indication of the strength of IHG’s brands and the combined impact of IHG’s growth strategy and RevPAR performance.

 

Total gross revenue refers to revenue which IHG has a role in driving and from which IHG derives an income stream. IHG’s business model is described on pages 10 to 13. Total gross revenue comprises:

 

  total rooms revenue from franchised hotels;

 

  total hotel revenue from managed hotels including food and beverage, meetings and other revenues and reflects the value IHG drives to managed hotel owners by optimising the performance of their hotels; and

 

  total hotel revenue from owned, leased and managed lease hotels.

 

Other than total hotel revenue from owned, leased and managed lease hotels, total gross hotel revenue is not revenue attributable to IHG as these managed and franchised hotels are owned by third-parties.

 

 

 

Revenue and operating profit measures

The reconciliation of the most directly comparable line item within the Group Financial Statements (i.e. total revenue and operating profit, accordingly) to the non-IFRS revenue and operating profit measures are included on pages 214 to 216.

 

Revenue and operating profit from (1) fee business and (2) owned, leased and managed lease hotels, are described as ‘revenue from reportable segments’ and ‘operating profit from reportable segments’, respectively, within note 2 to the Group’s Financial Statements. These measures are presented for each of the Group’s regions.

 

Management believes revenue and operating profit from reportable segments is meaningful to investors and other users as it excludes the following elements and reflects how management monitors the business:

 

  System Fund – the Fund is not managed to generate a profit or loss for IHG over the longer term, but is managed for the benefit of the hotels within the IHG System. As described within the Group’s accounting policies (page 144), the System Fund is operated to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, the Guest Reservation System and hotel loyalty programme.

 

 

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Performance   55


Table of Contents

Strategic Report

 

 

 

Performance continued

    

 

 

Measure

 

Commentary

Revenue and operating profit measures continued  

 Revenues related to the reimbursement of costs – as described within the Group’s accounting policies (page 144), there is a cost equal to these revenues so there is no profit impact. Cost reimbursements are not applicable to all hotels and growth in these revenues is not reflective of growth in the performance of the Group. As such, management do not include these revenues in their analysis of results.

 

 Exceptional items are identified by virtue of either their size or nature and can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and reorganisation costs. As each item is different in nature and scope, there will be little continuity in the detailed composition and size of the reported amounts which affect performance in successive periods. Separate disclosure of these amounts facilitates the understanding of performance including and excluding such items.

 

In further discussing the Group’s performance in respect of revenue and operating profit, additional non-IFRS measures are used and explained further below:

 

  Underlying revenue;

 

  Underlying operating profit;

 

  Underlying fee revenue; and

 

  Fee margin.

 

Operating profit measures are, by their nature, before interest and tax. Management believes such measures are useful for investors and other users when comparing performance across different companies as interest and tax can vary widely across different industries or among companies within the same industry. For example, interest expense can be highly dependent on a company’s capital structure, debt levels and credit ratings. In addition, the tax positions of companies can vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the various jurisdictions in which they operate.

 

Although management believe these measures are useful to investors and other users in assessing the Group’s ongoing financial performance and provide improved comparability between periods, there are limitations in their use as compared to measures of financial performance under IFRS. As such, they should not be considered in isolation or viewed as a substitute for IFRS measures. In addition, these measures may not necessarily be comparable to other similarly titled measures of other companies due to potential inconsistencies in the methods of calculation.

 

 

 

Underlying revenue and underlying operating profit  

These measures adjust revenue from reportable segments and operating profit from reportable segments, respectively, to exclude revenue and operating profit generated by owned, leased and managed lease hotels which have been disposed and significant liquidated damages, which are not comparable year-on-year and are not indicative of the Group’s ongoing profitability. The revenue and operating profit of current year acquisitions are also excluded as these obscure underlying business results and trends when comparing to the prior year. In addition, in order to remove the impact of fluctuations in foreign exchange, which would distort the comparability of the Group’s operating performance, prior year measures are restated at constant currency using current year exchange rates.

 

Management believe these are meaningful to investors and other users to better understand comparable year-on-year trading and enable assessment of the underlying trends in the Group’s financial performance.

 

 

 

Underlying fee revenue growth

LOGO

 

Underlying fee revenue is used to calculate underlying fee revenue growth. Underlying fee revenue is calculated on the same basis as underlying revenue as described above but for the fee business only.

 

Management believes underlying fee revenue is meaningful to investors and other users as an indicator of IHG’s ability to grow the core fee-based business, aligned to IHG’s asset-light strategy.

 

 

 

 

56   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Measure

 

Commentary

Fee margin

LOGO

 

Fee margin is presented at actual exchange rates and is a measure of the profit arising from fee revenue. Fee margin is calculated by dividing ‘fee operating profit’ by ‘fee revenue’. Fee revenue and fee operating profit are calculated from the revenue from reportable segments and operating profit from reportable segments, as defined above, adjusted to exclude the revenue and operating profit from the Group’s owned, leased and managed lease hotels and significant liquidated damages.

 

In addition, fee margin is adjusted for the results of the Group’s captive insurance company, where premiums are intended to match the expected claims (see page 144 to the Group Financial Statements), and as such these amounts are adjusted from the fee margin to better depict the profitability of the fee business.

 

Management believes fee margin is meaningful to investors and other users as an indicator of the sustainable long-term growth in the profitability of IHG’s core fee-based business, as the scale of IHG’s operations increases with growth in IHG’s System size.

 

 

 

Adjusted interest

Financial income and financial expenses as recorded in the Group Financial Statements is reconciled to adjusted interest on page 218.

 

Adjusted interest excludes the following items of interest which are recorded within the System Fund:

 

  IHG records an interest charge on the outstanding cash balance relating to the IHG Rewards Club programme. These interest payments are recognised as interest income for the Fund and interest expense for IHG.

 

  The System Fund also benefits from the capitalisation of interest related to the development of the next-generation Guest Reservation System.

 

As the Fund is included on the Group income statement, these amounts are included in the reported net Group financial expenses, reducing the Group’s effective interest cost. Given results related to the System Fund are excluded from adjusted measures used by management, these are excluded from adjusted interest and adjusted earnings per share (see below).

 

Management believes adjusted interest is a meaningful measure for investors and other users as it provides an indication of the comparable year-on-year expense associated with financing the business including the interest on any balance held on behalf of the System Fund.

 

 

 

Tax excluding the impact of exceptional items and System Fund

A reconciliation of the tax charge as recorded in the Group Financial Statements to tax excluding the impact of exceptional items and System Fund can be found in note 8 to the Group Financial Statements on page 161.

 

As outlined above, exceptional items can vary year-on-year and, where subject to tax at a different rate than the Group as a whole, they can therefore impact the current year’s tax charge. The System Fund is not managed to a profit or loss for IHG over the long term and is, in general, not subject to tax either.

 

Management believes removing these provides a better view of the Group’s underlying tax rate on ordinary operations and aids comparability year-on-year, thus providing a more meaningful understanding of the Group’s ongoing tax charge.

 

 

 

Adjusted earnings per ordinary share

Basic earnings per ordinary share as recorded in the Group Financial Statements is reconciled to adjusted earnings per ordinary share in note 10 to the Group Financial Statements on page 164.

 

Adjusted earnings per ordinary share adjusts the profit available for equity holders used in the calculation of basic earnings per share to remove System Fund revenue and expenses, the items of interest related to the System Fund as excluded in adjusted interest (above), change in fair value of contingent purchase consideration, exceptional items, and the related tax impacts of such adjustments.

 

Management believes that adjusted earnings per share is a meaningful measure for investors and other users as it provides a more comparable earnings per share measure aligned with how management monitors the business.

 

 

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |    Performance   57


Table of Contents

Strategic Report

 

 

 

Performance continued

    

 

 

Measure

 

Commentary

Net debt

Net debt is included in note 23 to the Group Financial Statements.

 

Net debt is used in the monitoring of the Group’s liquidity and capital structure and is used by management in the calculation of the key ratios attached to the Group’s bank covenants and in maintaining an investment grade credit rating (see page 12 for further discussion). Net debt is used by investors and other users to evaluate the financial strength of the business.

 

Net debt comprises loans and other borrowings, lease liabilities, the exchange element of the fair value of derivatives hedging debt values, less cash and cash equivalents.

 

 

 

Gross capital expenditure, net capital expenditure, free cash flow

The reconciliation of the Group’s statement of cash flows (i.e. net cash from investing activities, net cash from operating activities, accordingly) to the non-IFRS capital expenditure and cash flow measures are included on page 217.

  These measures have limitations as they omit certain components of the overall cash flow statement. They are not intended to represent IHG’s residual cash flow available for discretionary expenditures, nor do they reflect the Group’s future capital commitments. These measures are used by many companies, but there can be differences in how each company defines the terms, limiting their usefulness as a comparative measure. Therefore, it is important to view these measures only as a complement to the Group statement of cash flows.

 

 

 

Gross capital expenditure  

Gross capital expenditure represents the consolidated capital expenditure of IHG inclusive of System Fund capital investments (see page 13 for a description of System Fund capital investments and recent examples).

 

Gross capital expenditure is defined as net cash from investing activities, adjusted to include contract acquisition costs (key money). In order to demonstrate the capital outflow of the Group, cash flows arising from any disposals or distributions from associates and joint ventures are excluded. The measure also excludes any material investments made in acquiring businesses, including any subsequent payments of deferred or contingent purchase consideration included within investing activities, which represent ongoing payments for acquisitions.

 

Gross capital expenditure is reported as either maintenance, recyclable, or System Fund. This disaggregation provides useful information as it enables users to distinguish between:

 

  System Fund capital investments which are strategic investments to drive growth at hotel level;

 

  recyclable investments (such as investments in associates and joint ventures), which are intended to be recoverable in the medium term and are to drive the growth of the Group’s brands and expansion in priority markets; and

 

  maintenance capital expenditure (including contract acquisition costs), which represents a permanent cash outflow.

 

Management believe gross capital expenditure is a useful measure as it illustrates how the Group continues to invest in the business to drive growth. It also allows for comparison year-on-year.

 

 

 

Net capital expenditure  

Net capital expenditure provides an indicator of the capital intensity of IHG’s business model. Net capital expenditure is derived from net cash from investing activities, adjusted to include contract acquisition costs (net of repayments) and to exclude any material investments made in acquiring businesses, including any subsequent payments of deferred or contingent purchase consideration included within investing activities, which represent ongoing payments for acquisitions. Net capital expenditure includes the inflows arising from any disposal receipts, or distributions from associates and joint ventures.

 

In addition, System Fund depreciation and amortisation relating to property, plant and equipment and intangible assets, respectively, is added back, reducing the overall cash outflow. This reflects the way in which System Funded capital investments are re-charged to the System Fund, over the life of the asset (see page 13).

 

Management believes net capital expenditure is a useful measure as it illustrates the net capital investment by IHG, after taking into account capital recycling through asset disposal and the funding of strategic investments by the System Fund. It provides investors and other users with visibility of the cash flows which are allocated to long-term investments to drive the Group’s strategy.

 

 

 

 

58   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

    

    

    

    

Measure

 

Commentary

Free cash flow

LOGO

 

Free cash flow is net cash from operating activities adjusted to exclude: (1) the cash outflow arising from the purchase of shares by employee share trusts reflecting the requirement to satisfy incentive schemes which are linked to operating performance; (2) maintenance capital expenditure (excluding contract acquisition costs); (3) the principal element of lease payments; and (4) payments of deferred or contingent purchase consideration included within net cash from operating activities.

 

In 2016, free cash flow was also adjusted for the cash receipt arising from the renegotiation of a long-term partnership agreement.

 

Management believe free cash flow is a useful measure for investors and other users, as it represents the cash available to invest back into the business to drive future growth and pay the ordinary dividend, with any surplus being available for additional returns to shareholders.

 

 

 

 

LOGO  

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

reconciliations on pages 214 to 220 and the glossary on pages 248 to 249.

 

The following definitions have been amended and the prior year comparatives restated accordingly:

 

   

The adoption of IFRS 16 ‘Leases’ (see pages 146 to 149 for further information) has impacted all but the revenue derived Non-GAAP measures. Prior year measures have therefore been restated to provide year on year comparability. The definitions of free cash flow and net debt have been amended following the adoption of IFRS 16:

 

   

Free cash flow: has been amended to include the principal element of lease payments, reflecting the non-discretionary nature of these lease payments.

 

   

Net debt: has been amended to include lease liabilities, providing consistency with metrics used by investors and rating agencies.

 

   

The application of constant currency which impacts underlying revenue, underlying operating profit and underlying fee revenue has been amended so that prior period results are now restated using current year exchange rates, rather than restating current year results at prior period exchange rates. Management considers this to be a simplified approach and provides consistency between underlying results and the associated revenue and operating profit from reportable segments from which they are derived.

 

   

Fee margin has been amended to exclude the results of the Group’s captive insurance company. Over the longer term, premiums are intended to match the expected claims, and as such these amounts are adjusted from the fee margin in order to provide a more comparable analysis of IHG’s year-on-year fee margin progression.

 

   

Adjusted earnings per ordinary share have been amended to exclude the change in fair value of contingent purchase consideration. Since the changes in fair value are prone to volatility and are not necessarily reflective of the performance of the Group, excluding these amounts provides a more comparable year-on-year measure for investors and other users, aligned to how management monitor the business.

 

   

Gross capital expenditure, net capital expenditure and free cash flow have been amended to adjust for payments of contingent and deferred purchase consideration, as applicable. As payments relate to prior year acquisitions the exclusion of these amounts provides a more representative year-on-year measure for investors and other users, aligned to how management monitor the business.

 

   

Net capital expenditure has been amended to treat repayment of contract acquisition costs consistently with how this is reported internally.

The following Non-GAAP measure has been removed:

 

   

Underlying earnings per ordinary share. This measure has been removed in order to rationalise the number of non-IFRS earnings per share measures.

 

IHG  |  Annual Report and Form 20-F 2019  |    Strategic Report  |    Performance   59


Table of Contents

Strategic Report

 

 

 

Performance continued

Group

    

    

Group results

                                                12 months ended 31 December  
                                   2019
$m
        

                         2018
Restated

$m

                         2019 vs 2018
% change
        

                         2017
Restated

$m

                         2018 vs 2017
% change
 
Revenuea                                                       
Americas        1,040          1,051          (1.0        999          5.2  
EMEAA        723          569          27.1          457          24.5  
Greater China        135          143          (5.6        117          22.2  
Central        185          170          8.8          157          8.3  
Revenue from reportable segments        2,083          1,933          7.8          1,730          11.7  
System Fund revenues        1,373          1,233          11.4          1,242          (0.7
Reimbursement of costs        1,171          1,171                   1,103          6.2  
Total revenue        4,627          4,337          6.7          4,075          6.4  
Operating profita                                                       
Americas        700          673          4.0          648          3.9  
EMEAA        217          206          5.3          175          17.7  
Greater China        73          70          4.3          53          32.1  
Central        (125        (117        6.8          (102        14.7  
Operating profit from reportable segments        865          832          4.0          774          7.5  
System Fund result        (49        (146        (66.4        (34        329.4  
Operating profit before exceptional items        816          686          19.0          740          (7.3
Operating exceptional items        (186        (104        78.8          4          (2700.0
Operating profit        630          582          8.2          744          (21.8
Net financial expenses        (115        (96        19.8          (91        5.5  
Fair value gains/(losses) on contingent purchase consideration        27          (4        (775.0                  
Profit before tax        542          482          12.4          653          (26.2
Earnings per ordinary share                                                       
Basic        210.4¢          183.7¢          14.5%          276.7¢          (33.6
Adjusted        303.3¢          293.2¢          3.4%          243.0¢          20.7%  
Average US dollar to sterling exchange rate        $1:          $1:               $1:       
         £0.78          £0.75          4.0          £0.78          (3.8

 

Highlights for the year ended

31 December 2019

During the year ended 31 December 2019, total revenue increased by $290m (6.7%) to $4,627m, whilst revenue from reportable segments increased by $150m (7.8%) to $2,083m, primarily resulting from 5.6% rooms growth and the annualised benefit of an addition of a portfolio of hotels in the UK in mid-2018. Operating profit and profit before tax increased by $48m (8.2%) and $60m (12.4%) respectively, due in part to a $97m lower in-year System Fund deficit, partially offset by an $82m increase in operating exceptional items, driven by $131m impairment charges ($81m recognised in relation to the UK leased portfolio and $50m in relation to Kimpton management agreements) as described in note 13 to the Group Financial Statements and on pages 139 and 140. Operating profit from reportable segments increased by $33m (4.0%) to $865m.

Underlyingb revenue and underlyingb operating profit increased by $123m (6.5%) and $47m (5.8%) respectively.

Comparable RevPAR decreased by 0.3% (including a decrease in average daily rate of 0.4%). IHG System size increased by 5.6% to 883,563 rooms, whilst underlying fee revenueb increased by 2.0%.

Fee marginb increased by 0.8% percentage points to 54.1%.

Basic earnings per ordinary share increased by 14.5% to 210.4¢, whilst adjusted earnings per ordinary share increased by 3.4% to 303.3¢.

For discussion of 2018 results, and the changes compared to 2017, prior to the restatements of those years in 2019 to reflect the adoption of IFRS 16, refer to the 2018 Annual Report and Form 20-F.

The 2018 and 2017 results have been restated for IFRS 16 in the current year (see pages 146 to 149).

On a restated basis, profit before tax decreased by 26.2% from 2017 to 2018 (as previously reported: a decrease of 26.1%).

 

a 

Americas and EMEAA include revenue and operating profit before exceptional items from both fee business and owned, leased and managed lease hotels. Greater China includes revenue and operating profit before exceptional items from fee business.

 

b 

Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55 to 59.

 

Reconciliations of these measures to the most directly comparable line items with the Group Financial Statements can be found on pages 214 to 216.

 

 

60   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

Accounting principles

The Group results are prepared under International Financial Reporting Standards (IFRS) and following the adoption of IFRS 16 ‘Leases’ the 2018 comparatives have been restated. 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 pages 139 to 140 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. An analysis of exceptional items is included in note 6 on page 158 of the Group Financial Statements.

Total gross revenue in IHG’s System

 

                      12 months ended 31 December  
                                                 2019
$bn
                                                2018
$bn
        

%

                               change

 
Analysed by brand                                 
InterContinental        5.1          5.1           
Kimpton        1.4          1.3          7.7  
HUALUXE        0.1          0.1           
Crowne Plaza        4.3          4.5          (4.4
Hotel Indigo        0.6          0.5          20.0  
EVEN Hotels        0.1          0.1           
Holiday Inn        6.3          6.5          (3.1
Holiday Inn Express        7.3          7.1          2.8  
Staybridge Suites        1.0          0.9          11.1  
Candlewood Suites        0.9          0.8          12.5  
Other        0.8          0.5          60.0  
Total        27.9          27.4          1.8  
Analysed by ownership type                                 
Fee business        27.3          27.0          1.1  
Owned, leased and managed lease        0.6          0.4          50.0  
Total        27.9          27.4          1.8  

Total gross revenue in IHG’s System increased by 1.8% (3.3% increase at constant currency) to $27.9bn, driven by a RevPAR decline of 0.3% more than offset by IHG System size growth.

 

 

IHG  |  Annual Report and Form 20-F 2019  |    Strategic Report  |    Performance   61


Table of Contents

Strategic Report

 

 

 

Performance continued

Group continued

    

Total number of hotels

5,903

Total number of rooms

883,563

During 2019, the global IHG System (the number of hotels and rooms which are franchised, managed, owned, leased or managed lease) increased by 300 hotels (47,022 rooms) to 5,903 hotels (883,563 rooms).

Openings of 411 hotels (65,220 rooms) were 13.5% higher than in 2018. Openings in the Americas included 150 hotels (16,993 rooms) in the Holiday Inn Brand Family. 90 hotels (15,335 rooms) were opened in EMEAA in 2019, with the Greater China region also contributing openings of 88 hotels (23,764 rooms). 111 hotels (18,198 rooms) left the IHG System in 2019, compared to 107 hotels (17,877 rooms) in 2018.

 

a 

Includes 46 Holiday Inn Resort properties (11,502 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms), (2018: 45 Holiday Inn Resort properties (11,301 rooms) and 27 Holiday Inn Club Vacations properties (7,927 rooms)).

Group hotel and room count

                      Hotels                       Rooms  
At 31 December                            2019          Change
               over 2018
                             2019          Change
               over 2018
 
Analysed by brand                                            
Six Senses        18          18          1,448          1,448  
Regent        6                   2,003          (2
InterContinental        212          8          70,981          1,700  
Kimpton        66                   13,046          131  
HUALUXE        9          1          2,710          375  
Crowne Plaza        431          2          120,582          414  
Hotel Indigo        118          16          14,574          1,825  
EVEN Hotels        13          3          1,949          398  
voco        12          10          4,293          3,762  
Holiday Inna        1,284          33          239,894          6,042  
Holiday Inn Express        2,875          149          299,234          19,718  
avid hotels        7          6          635          548  
Staybridge Suites        300          24          32,633          2,416  
Candlewood Suites        410          14          38,332          1,122  
Other        142          16          41,249          7,125  
Total        5,903          300          883,563          47,022  
Analysed by ownership type                                            
Franchised        4,870          255          614,974          37,995  
Managed        1,007          42          262,253          8,687  
Owned, leased and managed lease        26          3          6,336          340  
Total        5,903          300          883,563          47,022  
 

Total number of hotels in the pipeline

1,918

Total number of rooms in the pipeline

283,043

At the end of 2019, the global pipeline totalled 1,918 hotels (283,043 rooms), an increase of 59 hotels (12,095 rooms) on 31 December 2018. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid.

Group signings decreased from 691 hotels in 2018 to 623 hotels and rooms decreased from 98,814 rooms to 97,754 rooms. This included 295 hotels (43,856 rooms) signed for the Holiday Inn Brand Family, 42.6% of which were contributed by Greater China (108 hotels, 18,667 rooms).

Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 153 hotels (20,439 rooms), compared to 125 hotels (15,669 rooms) in 2018.

 

a 

Does not include three open hotels and one pipeline hotel that will be re-branded to voco.

 

b 

Includes 29 Holiday Inn Resort properties (6,335 rooms) and one Holiday Inn Club Vacations property (110 rooms), (2018: 19 Holiday Inn Resort properties (5,229 rooms) and zero Holiday Inn Club Vacations properties (zero rooms)).

Group pipeline

 

                      Hotels                       Rooms  
At 31 December                            2019          Change
               over 2018
                             2019          Change
               over 2018
 
Analysed by brand                                            
Six Senses        25          25          1,770          1,770  
Regent        5          2          944          430  
InterContinental        65          5          17,018          1,223  
Kimpton        33          6          6,203          1,729  
HUALUXE        22          1          6,180          81  
Crowne Plaza        88          9          24,506          2,372  
Hotel Indigo        101          9          15,148          2,070  
EVEN Hotels        26          8          4,342          1,158  
vocoa        17          9          6,220          4,710  
Holiday Innb        275          (13        52,909          (2,742
Holiday Inn Express        754          (30        95,874          (2,550
avid hotels        207          36          19,068          3,257  
Staybridge Suites        182                   20,734          (115
Candlewood Suites        91          (11        8,186          (935
Atwell Suites        10          10          1,000          1,000  
Other        17          (7        2,941          (1,363
Total        1,918          59          283,043          12,095  
Analysed by ownership type                                            
Franchised        1,411          13          166,641          5,298  
Managed        506          46          116,247          6,797  
Owned, leased and managed lease        1                   155           
Total        1,918          59          283,043          12,095  
 

 

62   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

Americas

 

LOGO  

“2019 was a year of growth for IHG’s largest region as we marked our highest number of new hotel openings in eight years. We also strengthened our established brands, drove continued growth of avid hotels including the first new property in Mexico, and launched the Atwell Suites brand, which now has projects signed across the US.”

 

Elie Maalouf

Chief Executive Officer, Americas

 

 

Americas revenue 2019 ($1,040m)

 

         LOGO

 

Americas number of rooms (524,647)

 

 

         LOGO

Comparable RevPAR movement on

previous year

(12 months ended 31 December 2019)

 

Fee business     
InterContinental   0.7%
Kimpton   2.2%
Crowne Plaza   (1.6%)
Hotel Indigo   0.2%
EVEN Hotels   (5.3%)
Holiday Inn   (0.7%)
Holiday Inn Express   0.1%
Staybridge Suites   0.1%
Candlewood Suites   (1.1%)
All brands   (0.1%)
Owned, leased and managed lease    
InterContinental   3.0%
EVEN Hotels   0.9%
Holiday Inn   6.2%
All brands   4.1%

Regional priorities

  Strengthen our established brands through the adoption of the Formula Blue design for Holiday Inn Express and the introduction of new design prototypes for multiple other mainstream brands.

 

  Deliver on our upscale and luxury proposition with growth across brands, including adding 17 hotels to our pipeline in 2019. We’re also looking forward to bringing Six Senses to the region, with locations coming soon to New York City and the Galapagos Islands.

 

  Continue transformation of the Crowne Plaza brand with the Accelerate Ahead programme.

 

  Continue momentum for avid hotels with new hotels opened across the US in 2019, the first property under construction in Mexico and more than 200 in the pipeline.

 

Industry performance in 2019

Industry RevPAR in the Americas increased by 1.0%, driven by 1.3% average daily rate growth that was partially offset by a 0.2ppt decline in occupancy. Occupancy levels remain high, falling just below the record set in 2018. Room demand grew 1.7%, a lower rate of growth than 2018. Supply growth remained broadly in line with 2018 at 2.0%.

US lodging industry room demand advanced 2.0% in 2019, whilst supply growth also increased 2.0%, remaining the highest it has been in ten years. US industry RevPAR increased by 0.9% in 2019, driven by average daily rate growth of 1.0%. RevPAR in the US upper midscale chain scale, where the Holiday Inn and Holiday Inn Express brands operate, declined by 0.2%, impacted by supply growth.

In Canada, industry RevPAR declined by 0.2%, driven by a 0.9ppt occupancy decline, and in Mexico, RevPAR declined by 5.1%, led by a 2.6% decline in average daily rate.

Regional highlights

Launch of Atwell Suites

  Atwell Suites was created to target an estimated $18 billion industry segment which has grown by 70 percent over the last four years and is a complement to IHG’s established brands. The prototype for the all-suites hotel brand features 96 guest rooms with distinct zones for living and sleeping, public spaces such as a double-height, open lobby that suits guests’ transition from work to leisure, and inspiring food and beverage options.

 

  Atwell Suites has received strong owner interest with 10 signings in Q4 2019. The first hotels are expected to begin construction in 2020 and open in 2021.

 

IHG’s regional performance in 2019

IHG’s comparable RevPAR in the Americas declined by 0.1%, driven by a 0.2ppt occupancy decline, impacted by lower group business, despite growth in average daily rate. The region is predominantly represented by the US, where comparable RevPAR declined by 0.2%. In the US, we are most represented by our mainstream brands Holiday Inn and Holiday Inn Express. RevPAR in our mainstream brands declined, due to increased supply in the upper midscale segment, whilst outperforming the segment overall. US RevPAR for the Holiday Inn Express brand increased by 0.4%, whilst the Holiday Inn brand declined by 1.1%.

Canada RevPAR declined by 1.4%, whilst Mexico RevPAR declined by 2.2%, led by occupancy declines.

 

 

 

 

IHG  |  Annual Report and Form 20-F 2019  |  Strategic Report  |  Performance   63


Table of Contents

Strategic Report

 

 

Performance continued

Americas continued

    

 

Americas results

 

                                   12 months ended 31 December  
         

            2019

$m

                     2018
Restated
$m
        

          2019 vs

2018

% change

                   2017
Restated
$m
        

          2018 vs
2017

% change

 
Revenue from the reportable segmenta                                                       
Fee business        853          853                   811          5.2   
Owned, leased and managed lease        187          198          (5.6        188          5.3   
Total        1,040          1,051          (1.0        999          5.2   
Operating profit from the reportable segmenta                                                       
Fee business        663          638          3.9          613          4.1%   
Owned, leased and managed lease        37          35          5.7          35          –   
         700          673          4.0          648          3.9   
Operating exceptional items        (62        (36        72.2          37          (197.3)  
Operating profit        638          637          0.2          685          (7.0)  

 

Highlights for the year ended

31 December 2019

With 4,307 hotels (524,647 rooms), the Americas represented 60% of the Group’s room count. The key profit-generating region is the US, although the Group is also represented in Latin America, Canada, Mexico and the Caribbean. 89% of rooms in the region are operated under the franchise business model, primarily under our mainstream brands (including the Holiday Inn Brand Family). In the upscale market segment, Crowne Plaza is predominantly franchised whereas, in the luxury market segment, InterContinental-branded hotels are operated under both franchise and management agreements, whilst Kimpton is predominantly managed. 12 of the Group’s 16 hotel brands are represented in the Americas.

Revenue from the reportable segmenta decreased by $11m (1.0%) to $1,040m, whilst operating profit increased by $1m (0.2%) to $638m, impacted by a $26m increase in operating exceptional items. Operating profit from the reportable segment increased by $27m (4.0%) to $700m. On an underlyingb basis, revenue decreased by $9m (0.9%), as growth from net room additions was held back by $9m of one-off marketing assessments in the prior year, whilst underlying operating profit increased by $29m (4.3%), benefiting from a continued focus on maintaining an efficient cost base.

Revenue and operating profit from the reportable segment are further analysed by fee business and owned, leased and managed lease hotels.

Fee business revenueb remained in line with 2018 at $853m, partly impacted by adverse foreign exchangec ($2m), whilst fee business operating profitb increased by $25m (3.9%) to $663m, also partly impacted by adverse foreign exchangec ($2m).

Owned, leased and managed lease revenueb decreased by $11m (5.6%) to $187m, whilst operating profitb increased by $2m (5.7%) to $37m, benefiting from strong trading across a number of hotels and the mitigation of losses by business interruption insurance at one hotel. There was no material impact of foreign exchangec on either revenue or operating profit.

 

 

For discussion of 2018 results, and the changes compared to 2017, prior to the restatements of those years in 2019 to reflect the adoption of IFRS 16, refer to the 2018 Annual Report and Form 20-F.

The 2018 and 2017 results have been restated for IFRS 16 in the current year (see pages 146 to 149).

On a restated basis, operating profit decreased by 7.0% from 2017 to 2018 (as previously reported: a decrease of 7.1%).

 

a 

Americas reportable segment includes revenue and operating profit before exceptional items, excluding System Fund revenues and expenses and reimbursement of costs, for both fee business and owned, leased and managed lease hotels.

 

b 

Definitions for Non-GAAP revenue and operating profit measures can be found on pages 55 to 59. Reconciliations of these measures to the most directly comparable line items with the Group Financial Statements can be found on pages 214 to 216.

 

c 

The impact of movements between the previous year’s average exchange rates and actual average exchange rates in 2019.

 

 

64   IHG  |  Annual Report and Form 20-F 2019


Table of Contents

    

 

    

    

    

Americas hotel and room count

 

                     

Hotels

                      Rooms  
At 31 December                                2019         

Change

               over 2018

                                 2019          Change
              over 2018
 
Analysed by brand                                            
InterContinental        51          –           17,896          143   
Kimpton        61          (3)          11,997          (310)  
Crowne Plaza        149          (7)          39,875          (1,624)  
Hotel Indigo        64                   8,267          772   
EVEN Hotels        13                   1,949          398   
Holiday Inna        783                   135,286          794   
Holiday Inn Express        2,368          79           214,993          8,373   
avid hotels        7                   635          548   
Staybridge Suites        283          22           30,244          2,212   
Candlewood Suites        410          14           38,332          1,122   
Other        118          16           25,173          2,090   
Total        4,307          146           524,647          14,518   
Analysed by ownership type                                            
Franchised        4,008          155           465,265          15,163   
Managed        292          (9)          57,160          (644)  
Owned, leased and managed lease        7          –           2,222          (1)  
Total        4,307          146           524,647          14,158   
Percentage of Group hotel and room count        73.0          (1.3)ppt           59.4          (1.6)ppt   

 

a 

Includes 22 Holiday Inn Resort properties (6,003 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms), (2018: 23 Holiday Inn Resort properties (6,184 rooms) and 27 Holiday Inn Club Vacations properties (7,927 rooms)).

Total number of hotels

4,307

Total number of rooms

524,647

Americas System size increased by 146 hotels (14,518 rooms) to 4,307 hotels (524,647 rooms) during 2019. 233 hotels (26,121 rooms) opened in the year, compared to 208 hotels (22,248 rooms) in 2018. Openings included 150 hotels (16,993 rooms) in the Holiday Inn Brand Family, representing 64.4% of the region’s hotel openings.

87 hotels (11,603 rooms) were removed from the Americas System in 2019, demonstrating our continued commitment to quality, compared to 76 hotels (9,579 rooms) in 2018.

 

Americas pipeline