InterContinental Hotels Group PLC
Broadwater Park, Denham
Buckinghamshire UB9 5HR
United Kingdom
Telephone +44 (0) 1895 512 000
+44 (0) 1895 512 101
Fax
make a booking at
www.ihg.com
IHG Annual Report and
Financial Statements 2010
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Contacts and Forward-looking statements 121
Industry and market trends
1 Overview
2 Headlines
3 Chairman’s statement
4 Chief Executive’s review
5 Message from the IAHI
6 Great brands
7 Business review
8
9 Our strategy
12 Measuring our success
12 Where we compete
13 How we win
14 Group performance
16 Regional performance
22 Central and System Fund results
22 Other financial information
24 Our people
28 Corporate responsibility
31 Risk management
1
Overview
InterContinental Sanya Resort, China
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Business review
Business review
We’re a global hotel company –
the world’s largest by number
of rooms – operating seven
well-known brands internationally.
Our Vision is to become one of
the world’s great companies.
For us this means having great
brands which lie at the heart of
Great Hotels Guests Love.
We want people to feel good about
what we do and how we do it. Around
the world, we aim to delight our guests,
inspire our people, act responsibly
and generate financial returns for
our hotel owners and our investors.
This requires:
Great Brands
which not only stand out, but also
stand for something that resonates
with our guests.
Great People
who bring our brands to life and
give guests every reason to stay
with us time and again.
Great Values
which bring our people together as
a happy, successful and responsible
business.
Great Ways of Working
which place our guests at the heart
of everything we do, and support
our hotel owners to do the same.
We’ll be a great company when:
• Guests love to stay with us
• People love to work for us
• Owners love our brands
• Investors love our performance
Cover images:
See inside back cover for image details
Crowne Plaza Athens, Greece
Forward-looking statements
Both the Annual Report and Financial
Statements 2010 and the Annual Review and
Summary Financial Statement 2010 contain
certain forward-looking statements as defined
under US legislation (Section 21E of the
Securities Exchange Act of 1934) with respect to
the financial condition, results of operations and
business of InterContinental Hotels Group and
certain plans and objectives of the Board of
Directors of InterContinental Hotels Group PLC
with respect thereto. Such statements include,
but are not limited to, statements made in the
Chairman’s statement and in the Chief
Executive’s review. These forward-looking
statements can be identified by the fact that they
do not relate only to historical or current facts.
Forward-looking statements often use words
such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’,
‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of
similar meaning. These statements are based
on assumptions and assessments made by
InterContinental Hotels Group’s management in
light of their experience and their perception of
historical trends, current conditions, expected
future developments and other factors they
believe to be appropriate.
By their nature, forward-looking statements are
inherently predictive, speculative and involve risk
and uncertainty. There are a number of factors
that could cause actual results and developments
to differ materially from those expressed in, or
implied by, such forward-looking statements,
including, but not limited to: the risks involved
with the Group’s reliance on the reputation of its
brands and the protection of its intellectual
property rights; the risks related to identifying,
securing and retaining franchise and
management agreements; the effect of political
and economic developments; the ability to
acquire and retain the right people and skills
and capability to manage growth and change;
the risk of events that adversely impact domestic
or international travel; the risks involved in the
Group’s reliance upon its proprietary reservations
system and increased competition in reservations
infrastructure; the risks in relation to technology
and systems; the risks of the hotel industry
supply and demand cycle; the possible lack of
selected development opportunities; the risks
related to corporate responsibility; the risk of
litigation; the risks associated with the Group’s
ability to maintain adequate insurance; the risks
associated with the Group’s financial stability,
its ability to borrow and satisfy debt covenants;
compliance with data privacy regulations;
the risks related to information security; and
the risks associated with funding the defined
benefits under its pension plans.
The main factors that could affect the business
and financial results are described in the
Business review of the Annual Report and
Financial Statements 2010 and also in the
Company’s Annual Report on Form 20-F.
InterContinental Hotels Group PLC
Broadwater Park, Denham
Buckinghamshire UB9 5HR
United Kingdom
Telephone +44 (0) 1895 512 000
Fax +44 (0) 1895 512 101
make a booking at
www.ihg.com
2
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IHG Annual Report and
Financial Statements 2010
3
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6
Images on the outside cover
1. Holiday Inn, Singapore
2. Crowne Plaza Gurgaon, India
3. Staybridge Suites Newcastle, UK
4. Hotel Indigo London-Tower Hill, UK
5. Candlewood Suites Orlando, US
6. InterContinental Shanghai Expo, China
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Designed and produced
by Corporate Edge
Print management by
HH Associates
Printed by Royle Print
This Report is printed
on 9lives 80 Silk which is
made up of 60% FSC post-
consumer recycled fibre,
20% pre-consumer recycled
fibre and 20% FSC virgin fibre
from FSC managed forests.
Our printer is also FSC and
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37 The Board, senior management
and their responsibilities
38 The Board of Directors
39 Other members of the Executive Committee
40 Directors’ report
42 Corporate governance
47 Audit Committee report
48 Remuneration report
61 Group financial statements
62 Statements of Directors’ responsibilities
63
64 Group income statement
65 Group statement of comprehensive income
66 Group statement of changes in equity
68 Group statement of financial position
69 Group statement of cash flows
70 Accounting policies
76 Notes to the Group financial statements
Independent auditor’s report to the members
109 Parent company
financial statements
110 Parent company balance sheet
111 Notes to the parent company
financial statements
113 Statement of Directors’ responsibilities
114
Independent auditor’s report
to the members
115 Useful information
116 Glossary
117 Shareholder profiles
118
Investor information
119 Dividend history and Financial calendar
120 Contacts
121 Forward-looking statements
37
37
The Board, senior management
The Board, senior management
and their responsibilities
and their responsibilities
109
109
Parent company
Parent company
financial statements
financial statements
Hotel Indigo London-Tower Hill, UK
Staybridge Suites Newcastle, UK
61
61
Group financial statements
Group financial statements
115
115
Useful information
Useful information
Holiday Inn Pattaya, Thailand
Candlewood Suites Hot Springs, Arkansas, US
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IHG Annual Report and Financial Statements 2010
IHG Annual Report and Financial Statements 2010
Headlines
Signings of 55,598 rooms (319 hotels)
with development pipeline now totalling
204,859 rooms (1,275 hotels)
Total number of rooms operating under
IHG brands 647,161 (4,437 hotels)
2,956 hotels operating under the new
Holiday Inn standards (89% of the
global Holiday Inn estate)
Revenue per available room* up 6.2%
Total gross revenue from all hotels in
IHG system up 11% to $18.7bn†
Revenue up 6%∞ to $1,628m
Operating profit before exceptional items
up 22%∞ to $444m
68% of total rooms revenue booked through
IHG’s channels or by Priority Club Rewards
members direct to hotel
8m new Priority Club Rewards members
added (56m members in total)
Total adjusted earnings per share down
4% to 98.6¢
Net debt of $743m down $349m on
the position at 31 December 2009
Final dividend up 21% at 35.2¢
(sterling equivalent of 22p)
* Total system rooms revenue divided by the number
of room nights available.
† Total rooms revenue from franchised hotels and total
hotel revenue from managed, owned and leased hotels
(not all attributable to IHG).
∞ Includes one significant liquidated damages receipt
in 2009 in EMEA totalling $3m.
InterContinental Sanya Resort, China
Headlines and Chairman’s statement 3
Chairman’s statement
Dear Shareholder
Performance
Revenue increased 6 per cent to $1.6 billion, with operating profit before exceptional
items of $444 million, up 22 per cent. Adjusted earnings per share decreased
4 per cent from 102.8 cents to 98.6 cents.
The Board is recommending a 21 per cent increase to the final dividend for 2010,
taking it to 35.2 cents per share. This will give a full-year dividend of 48.0 cents per
share, 16 per cent higher than 2009. This converts to a sterling full-year dividend of
30.0 pence, up 15 per cent compared with 2009. Subject to shareholder approval,
the final dividend will be paid on 3 June 2011.
Board
I am pleased to welcome Jim Abrahamson and Kirk Kinsell to the Board as Executive
Directors. Their appointments were effective from 1 August 2010. Each has retained
his existing responsibilities as a member of IHG’s Executive Committee.
Jim joined IHG as President of the Americas region in January 2009 from Global Hyatt
Corporation. He has over 30 years of management experience in hotel operations,
branding, development and franchisee relations, including 12 years with Hilton Hotels
Corporation.
Kirk joined IHG in 2002 as Chief Development Officer for the Americas region, having
previously held senior franchise and brand operations roles with the former Holiday Inn
Corporation and ITT Sheraton. He was appointed to IHG’s Executive Committee as
President, EMEA, in September 2007.
Both Jim and Kirk are highly regarded within the industry and have a deep
understanding of the hotel business. This significant operational experience will
be of great benefit to IHG’s Board.
Financial position and shareholder returns
Given the uncertainty in the wider economic environment during 2010, we continued
with our prudent approach to managing our balance sheet. Careful control over cash
has enabled us to reduce our overall net debt position by $349 million to $743 million.
No returns above normal dividends were made to shareholders in 2010. Total funds
returned since March 2004 amount to more than £3.5 billion.
Outlook
Our people were central to our strong performance in 2010. On behalf of the Board
I should like to thank everyone in IHG for their hard work and commitment during
the year.
With improving business confidence and corporate profitability, combined with a
lower level of hotel openings expected across the industry, forward trends look
favourable. Our global scale, attractive brands, powerful system and experienced
management team position us well to drive market share and improve margins into
the future.
David Webster
Chairman
“During 2010 we grew both sales
and profits and delivered on our
priorities. The recommended
21 per cent growth in the final
dividend reflects our confidence
in IHG’s prospects.”
David Webster
Chairman
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4
IHG Annual Report and Financial Statements 2010
Chief Executive’s review
In a year when the global hotel industry returned to growth,
we continued to improve the strength of our brands and our system.
This has resulted in a greater share of the global pipeline and the
successful near completion of the Holiday Inn relaunch.
The economic environment remained uncertain throughout 2010. But as the year
progressed the hotel recovery gathered pace, resulting in growth in revenue per
available room (RevPAR) in each of our regions and a rise of 6.2 per cent for the
Group as a whole.
This led to good growth in revenues and profit for IHG and we continued to make
excellent progress against our long-term strategic priorities. Consequently we
are well placed to drive market share and improve margins in the years to come.
Driving market share
The relaunch of Holiday Inn was close to completion at the end of the year.
2,956 hotels are now operating under the new brand standards, which have revitalised
our largest brand family globally. Relaunched hotels continue to perform strongly.
The global roll-out of our newest brand, Hotel Indigo, continued as we opened a
second hotel in London at Tower Hill and the first Hotel Indigo in Asia Pacific in
Shanghai. We signed 25 Hotel Indigos into our pipeline, taking the total number
under development to 62.
The power of our system and brands helped us achieve an 18 per cent share of the
global pipeline of new-build hotels. During the year we re-entered the Hawaii market
with Holiday Inn and formed an innovative alliance with Las Vegas Sands Corp.,
bringing The Venetian and Palazzo Resorts into the InterContinental system.
In 2010, 68 per cent of rooms revenue came through our reservations channels or by
Priority Club Rewards members direct to hotels. We also signed a record number of
new Priority Club Rewards members in the year. Total membership now stands at
56 million.
Growing margins
We kept regional and central costs broadly in line with 2009 excluding the impact of
performance-based incentives. This, and our drive to improve the efficiency of the
Group, helped increase fee-based margins by 1.1 percentage points.
Our Vision is to become one of the world’s great companies and the actions we have
taken in 2010 have reaffirmed that we are on the right path. We continue to focus
hard on our strategic priorities to drive market share and improve margins, and
with industry trends set to be positive, we look forward to a successful 2011.
“We’ve made excellent progress this
year, strengthening our brands and
using our scale advantage to drive
market share and improve margins.
We will continue to focus on investing
behind growth and creating value
for our shareholders.”
Andrew Cosslett
Chief Executive
Chief Executive’s review and Message from the IAHI 5
Our Vision is to become one of the world’s great companies
Over the past years we have put the key elements in place to help us fulfil our Vision.
We are working side by side with our owners on our shared core purpose of creating
Great Hotels Guests Love. We continue to invest in strengthening our brands so that
they stand out and stand for something in the hearts and minds of our guests. And we
continue to align our organisation behind those brands, helping to inspire pride in the
people who bring the brands to life for our guests every day, in every country. These
key elements, delivered consistently, will ensure that guests prefer our brands,
helping us to win market share.
Our Vision to become great
When we have
Delivered by
Who share
With
We will become
Great
Brands
Great
People
Great
Values
Great
Ways of
Working
one of
the world’s
Great
Companies
Driving brand preference
We are in the people business. It’s the people in our hotels that really bring the brands
to life for our guests. So in 2011 we are rolling out a world class suite of tools that give
our owners the opportunity to immerse their people in our brands still further. The
tools will help them hire the best person for their brand, clarify their understanding
of what a guest is looking for in that brand and give them the tools to motivate and
recognise their people. These tools will help us to drive consistency in brand delivery
and help our owners to engage, develop and retain good people.
Global opportunities
We are always looking for new opportunities around the world. There are, however,
huge opportunities for our existing brand portfolio. We are focused on quality not
quantity. The Holiday Inn relaunch has been one of the biggest initiatives in hotel
history and we are now preparing to refresh Crowne Plaza. We have been pleased
with the results of our boutique brand, Hotel Indigo, this year and are looking forward
to an escalated roll-out next year. Our brands are benefiting from the opportunities
opening up in emerging markets where we are building a strong position.
Andrew Cosslett
Chief Executive
A profitable future together
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Bill DeForrest Chairman,
IAHI, the Owners’ Association
For further information go to
www.iahi.org
“All IAHI members will likely not share the same view of 2010. Some will have seen significant recovery in their markets; others will have continued to face challenges. But no matter where they are on the road to recovery, every IAHI member will share a positive view of our collaboration with IHG. This year, we launched Celebrate Service, a global tribute to our greatest asset – our people. This collaboration, which started as an idea of past IAHI Chairman Mark Carrier, became a platform for celebrating the contribution of every employee. Building on that success, the IAHI encouraged and supported the introduction of People Tools to all IHG hotels, responding to what our members said was a key challenge: recruiting, developing, and retaining talent. Another key challenge is driving down costs. In 2010, we introduced one cost-saving innovation, InnSupply, which began as an IAHI initiative. When it became apparent that the resources needed to support a procurement programme were beyond our scope, we approached IHG for their expertise to launch such a programme. InnSupply rolls out in early 2011, and the savings to our owners in dollars and time should be significant. The benefits of the IAHI and IHG working closely together have never been more apparent. Working together, we will continue to build a profitable future for every owner.”
6
IHG Annual Report and Financial Statements 2010
Great brands
InterContinental®
Hotels & Resorts
In the know
Crowne Plaza®
Hotels & Resorts
Celebrate your stay
We’ve been on the
international scene for
decades, so no-one knows
the world like we do. We
love to share our knowledge
with our guests and they
love our understated
service and style.
We love to make sure that
our guests have fun when
they stay with us. We do
this by combining the very
best facilities with great
service, helping our guests
get more from their trip
beyond work.
171 hotels
58,429 rooms
Development pipeline
60 hotels
388 hotels
106,155 rooms
Development pipeline
123 hotels
Hotel Indigo®
Refreshingly local
We love the fact that we’re
different, right down to our
local take on design. We’re
all about neighbourhoods
and take every opportunity
to share the colour, ambience
and flavours of our localities
with our guests.
38 hotels
4,548 rooms
Development pipeline
62 hotels
www.intercontinental.com
www.crowneplaza.com
www.hotelindigo.com
Holiday Inn®
Hotels & Resorts
Championing the real you
We’ve always been known
for our friendly service,
comfort and value. Now
we’re completing our
worldwide relaunch, our
business and leisure
travellers can expect even
better quality and service.
1,241 hotels
227,225 rooms
Development pipeline
313 hotels
www.holidayinn.com
Holiday Inn Express®
Championing the real you
Staybridge Suites®
Like family
Candlewood Suites®
Feel free
Priority Club® Rewards
Unleash the power of your points
One of the fastest growing
hotel brands, we offer
convenience and comfort
at great value.
2,075 hotels
191,228 rooms
Development pipeline
494 hotels
www.hiexpress.com
We love our guests to feel
like family and our hotels
to feel like home.
188 hotels
20,762 rooms
Development pipeline
101 hotels
www.staybridgesuites.com
We love giving our guests
all the essentials they need
for a home-like stay at great
value. We give them room
to be themselves and are
always there when they
need us.
288 hotels
28,253 rooms
Development pipeline
120 hotels
www.candlewoodsuites.com
The world’s first and largest
hotel loyalty programme,
Priority Club Rewards, offers
members more ways to earn
and redeem points than any
other hotel scheme.
56 million members
Over 600,000 new members
every month
www.priorityclub.com
Great brands and Business review 7
In this section we describe the industry
and markets in which we operate and our
strategy for winning in this environment.
We set out our key performance indicators,
describe the development and performance
of the business during 2010, and provide
a comprehensive review of our approach
towards our employees, corporate
responsibility and risk management
throughout the Group.
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Business review
Industry and market trends
8
9 Our strategy
9 Business model
10 Markets
10 Brands
11 Scale and expertise
11 People and values
12 Business relationships
12 Measuring our success
12 Where we compete
13 How we win
14 Group performance
14 Group results
14 Total gross revenue
15 Global hotel and room count
15 Global pipeline
16 The Americas
18 Europe, Middle East and Africa
20 Asia Pacific
22 Central
22 System Fund
22 Other financial information
22 Exceptional operating items
22 Net financial expenses
23 Taxation
23 Earnings per ordinary share
23 Dividends
23 Share price and market capitalisation
23 Capital structure and liquidity management
24 Our people
24 Our Vision
25 Room to be yourself
25 Winning Ways
27 London 2012
27 Celebrating diversity
27 External recognition
27 Ensuring health and safety
28 Corporate responsibility
28 Our approach
28 Review of 2010
28 Reducing our environmental footprint
29 Supporting communities
29 Regulation and legislation
29 External recognition
29 Policies and Code of Ethics
30 Priorities, performance and targets
31 Risk management
31 Business risk management
33 Managing risk in hotels
34 2011 risk factors
Crowne Plaza Athens, Greece
8
IHG Annual Report and Financial Statements 2010
Business review
This Business Review for the financial year ended 31 December 2010 provides a review of the business
environment and strategy of InterContinental Hotels Group PLC (the Group or IHG), Key Performance
Indicators, and commentaries on the development and performance of the business. It also covers employee
and corporate responsibility matters, including the environment, and a description of the risks and uncertainties
impacting the business.
Industry and market trends
2010 was a turnaround year for the global economy, with clear
signs that the global recession was easing during the second half
and business and consumer confidence returning. This assisted
the hotel industry’s recovery from a challenging economic period.
The lodging industry is cyclical, tending to reflect the shape of the
general economic cycle. Historically as an industry, in previous
cycles we have experienced periods of five to eight years of growth
in revenue per available room (RevPAR) followed by up to two years
of decline. Demand has rarely fallen for sustained periods and it is
the interplay between hotel supply and demand that drives
longer-term fluctuations in RevPAR.
The expected recovery in demand took place in 2010, and during
the last six months of the year the industry sold more rooms than
during the same period in 2007, when demand was strong prior to
the onset of the recession. The more modest increases in industry
pricing, or average daily rate (ADR), which along with occupancy,
make up RevPAR, was caused by the increase in supply of hotel
rooms globally, a legacy of the growth in hotel construction which
began prior to the downturn.
The sustained success of the economic recovery is likely to be
determined by both the challenging choices policy makers are faced
with regarding austerity measures and the issues surrounding
sovereign debt, along with the response of corporations and the
financial sector. Corporations will need to play an important role
in the recovery through sustained investment and job creation, and
IHG, with an ambitious programme to open new hotels, anticipates
the need to recruit around 160,000 people over the next few years.
IHG monitors key industry drivers and business fundamentals,
such as RevPAR, to ensure its strategy remains well suited to the
environment and the Group’s capabilities, and as such the business
remains resilient.
Different regions, countries and types of demand vary in the speed
they recover and it is our understanding of local demand drivers,
combined with a global outlook, that help us anticipate the needs
of different types of guest demand and so continue to develop the
business to meet these needs. As an example, IHG’s recent launch
of new tools to support meetings and events in our hotels was
well-timed with the earlier than anticipated recovery in this type
of demand. Many commentators thought meetings and events
business would remain subdued into 2011.
There are a number of external drivers from which IHG will
continue to benefit:
Global economic recovery – the global economy grew by 3.8%
during 2010, and US historic market data show that following
recessions, hotel industry revenues broadly increase ahead of
Gross Domestic Product (GDP). We expect the current recovery
to be similar, and are investing in the business to capture demand
as it continues to strengthen;
Increase in affluence and freedom to travel in emerging markets –
countries such as China are increasingly significant as domestic
and international travel markets. They already have a sizeable
hotel industry, and the importance of hotel brands is growing;
Rising global travel volumes – airline capacity continues to grow,
with affordability of travel improving globally. Business travel is
expected to recover in most markets in 2011 and leisure travellers
– who remained surprisingly resilient in the downturn – will continue
to travel both internationally and within domestic markets;
Change in demographics – as the population ages and becomes
wealthier in developed markets, increased leisure time and
incomes encourage more travel and hotel stays; conversely,
younger generations are increasingly seeking a better work/life
balance, with higher expectations from those providing their
accommodation. This has positive implications for increased
leisure travel; and
Demand for branded hotels is growing faster than that for
independent hotels.
Business review 9
Our strategy
With a portfolio of great brands, in the best developed and emerging markets, we are winning with our size, scale, people and expertise
to create a clear strategy to realise our Vision to become one of the great companies of the world…
‘Where we compete’
Appropriate business model
Best developed and emerging markets
‘How we win’
Portfolio of great brands
Our scale and expertise
Relevant consumer segments
Our people and our relationships
…achieved through strategic priorities
Growing our core business in the largest
markets where scale really counts, and also in
key global gateway cities and resort destinations
Seek opportunities to leverage our scale
in new business areas
Financial returns
Our people
Guest experience
Responsible business
With a portfolio of great brands, in the best developed and emerging
markets, we are using our size, scale, people and expertise to
realise our Vision of becoming one of the world’s great companies.
This strategy is measured by a series of key performance indicators
around ‘Where we compete’ and ‘How we win’.
IHG’s strategy has ensured that we remain the largest hotel
company in the world, by number of rooms. By grounding our
operations and growth in Great Hotels Guests Love, we use
elements of our strategy, such as the business model of third-
party ownership, to grow faster than our global competitors.
Delivering the elements of our strategy
Competing with an appropriate business model
Our business model has a clear focus on franchising and managing hotels, rather than owning them outright, enabling us to grow at an
accelerated pace with limited capital investment. Furthermore, IHG benefits from the reduced volatility of fee-based income streams,
as compared with the ownership of assets.
A key characteristic of the franchised and managed business is that it generates more cash than is required for investment in the business,
with a high return on capital employed. Currently 87% of operating profit* is derived from franchised and managed operations.
Where necessary we actively support our brands by employing our own capital to showcase best-in-class operations through flagship assets.
Our business model creates opportunities to build relationships with independent hotel owners and generate revenues by offering access
to our global demand delivery systems, where guests can book their hotels through IHG booking channels, including branded websites and
call centres. The latest example is our strategic relationship with Summit Hotel Properties Inc., a US hotel investment company focused on
branded hotels. On any unbranded hotel bought by Summit, we now have first rights to give the hotel an IHG brand and earn fee revenues
through generating demand for that hotel.
The key features of our business model are represented in the following table and charts.
Franchised
This is the largest part of our
business: 3,783 hotels operate
under franchise agreements
Managed
We manage 639 hotels worldwide
Owned and leased
We own 15 hotels worldwide
(less than 1% of our portfolio)
Brand
IHG
IHG
IHG
Marketing and
distribution
Staff
Ownership
IHG capital
IHG income
IHG
Third party
Third party
None
IHG
IHG
Third party
Low/none
IHG usually
supplies general
manager as a
minimum
IHG
IHG
High
Fee % of
rooms revenue
Fee % of total
revenue plus
% of profit
All revenues
and profits
* Before regional and central overheads, exceptional items, interest and tax.
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10 IHG Annual Report and Financial Statements 2010
Business review continued
IHG continuing operating profit* by
ownership type for the year ended
31 December 2010
Franchised
Managed
Owned and leased
* Before regional and central overheads,
exceptional items, interest and tax.
Competing in the best developed and emerging markets
When considering open hotel rooms and those in development, we
have leadership positions in 15 of the top 20 markets globally. These
markets alone account for over 80% of global lodging spend. These
include large developed markets such as the United States (US),
United Kingdom (UK) and Germany, as well as emerging markets
like China.
The US is the largest market for branded rooms, at 3.4m.
The segment in the US with the greatest share is midscale, with
1.3m branded hotel rooms, and IHG’s Holiday Inn brand family
is the largest in this segment.
IHG is also focused on growing in large markets such as the UK
and Germany where we rank 2nd and 3rd, respectively. The benefits
of a large hotel presence across these high-value self-supporting
markets for IHG include the ability to build relationships with the
largest possible number of guests.
IHG is the largest hotel company in China, the emerging market
with the greatest scale, having 0.5m branded rooms. IHG, which
was the first international chain to open hotels in the country,
remains the largest, with close to 50,000 rooms. The rapid pace
of openings for IHG and the wider lodging industry shows that China
and other emerging markets are behaving as we have seen in
developed markets over the past 50 years. The strong demand
drivers for hotels suggest these will remain key growth markets.
Outside the largest markets, we focus on achieving presence for
our biggest brands in key gateway cities which show the potential
for high demand from business and leisure guests, and where our
brands can generate revenue premiums.
In the hotel industry, the future supply of hotels and hotel rooms
is visible through the pipeline, and our pipeline reflects the
sustainability of our leadership position.
In 2010, we opened 35,744 rooms in 29 countries, and signed a
further 55,598 into our pipeline across 38 countries. We currently
have 204,859 rooms in 1,275 hotels under development in
64 countries.
Our pipeline ensures sustainable development in new and
emerging markets that best suit our strengths and anticipate the
future needs of customers. We have committed development teams
ensuring a sizable pipeline in developing markets: during 2010 we
opened 7,253 rooms in Greater China, representing 20% of all new
rooms opened by IHG across the globe during 2010.
Our pipeline is the largest branded hotel pipeline in the world,
representing 18% of all hotels under development, including
those that are independent or unaffiliated.
IHG global room count by ownership
type at 31 December 2010
Franchised
Managed
Owned and leased
Winning with a brand portfolio focused on relevant consumer
segments
We offer hotel brands that appeal to guests with different needs
and tastes. This requires a portfolio of large global brands, growing
alongside innovative new brands to meet the unique experiences
our guests desire.
The hotel industry is usually split into segments based upon price
point and consumer expectations. IHG is focused on the three
segments that together generate over 90% of branded hotel
revenues: midscale (broadly 3 star hotels), upscale (mostly 4 star),
and luxury (5 star).
• InterContinental Hotels and Resorts is IHG’s 5 star brand
located in major cities in over 60 countries worldwide. With over
60 years experience, the brand’s understanding of high quality,
understated service and outstanding facilities, coupled with a
genuine interest in our guests differentiate it in a competitive
segment. The philosophy of the brand is to enable every guest
to maximise the enjoyment of their stay – specialising in engaging
guests with the destination by sharing local knowledge to create
authentic experiences that enrich our guests’ lives and help
them broaden their outlook. Hotels under this brand tend to
be managed by IHG;
• Crowne Plaza Hotels and Resorts, in the upscale 4 star
segment, specialises in offering state-of-the-art business
and meeting facilities that provide productive, successful and
energising experiences to guests who believe travel is fun and
rewarding. The majority of hotels under this brand tend to be
franchised agreements in the US and Europe, and managed
elsewhere in the world;
• The Holiday Inn family of brands is the world’s largest midscale
hotel brand family by number of rooms, and IHG’s most
significant operation. Focused around a relaxed atmosphere,
the brands are designed to support both business travellers
and families. During 2010, the brand family neared completion
of a $1bn refresh, updating their image by upgrading facilities,
service and amenities, ensuring the brands continue to remain
competitive within their midscale markets. The family adds to
IHG’s record of firsts, being both the first international hotel
chain to open in China in 1984, and to launch a direct bookings
website in 1995. The Holiday Inn brand family operates
predominantly under franchise agreements;
• Hotel Indigo is our boutique and youngest brand, launched in
2004, and focuses on a guest that appreciates art and design
and that is seeking affordable luxury. Hotel Indigo provides
guests with the refreshing design and intimate service
synonymous with a boutique along with the consistency,
reliability, and accessibility of a branded hotel. Each hotel is
unique and reflects its local neighbourhood with local murals
and images, a vibrant colour palette and locally sourced and
seasonal menu items. Hotels under this brand tend to be
franchise agreements; and
Business review 11
• Staybridge Suites and Candlewood Suites are IHG’s extended
stay brands, offering studios and suites complete with full kitchens
and separate sleeping and work areas, for guests on longer trips.
Staybridge Suites is our upscale extended stay brand, offering
a sociable, family-like atmosphere. It was the fastest upper-tier
extended stay brand to reach the 50-hotel and 100-hotel
milestones, and was ranked highest in the prestigious J.D.
Power and Associates’ 2009 North America Hotel Guest
Satisfaction Index Study for extended stay hotels. In 2008,
Staybridge Suites opened its first EMEA hotel in Liverpool, and
has since opened properties in Cairo, Abu Dhabi and Newcastle.
Candlewood Suites is our midscale extended stay brand that
gives its guests all the essentials they need for a home-like stay
at great value. Shortly after being acquired by IHG in 2003,
Candlewood Suites won J.D. Power’s award for highest
extended stay guest satisfaction in North America in 2004
whilst also ranking first in the Market Metrix Hospitality Index
survey for customer satisfaction. Candlewood Suites continues
to lead the way in midscale extended stay lodging, with the most
properties under development.
These brands tend to be a mixture of franchise and
management agreements.
Winning with our scale and expertise
The major benefit IHG brings to guests who stay with us, and
owners who invest with us, is our system to help guests book and
stay with us, and then maintain the relationship with them after they
leave. This includes having hotels in key locations, great brands
with consumer appeal, efficient reservations systems, global web
presence, our loyalty rewards schemes, along with other elements.
Together, these form the largest such ‘system’ in the industry and
are the engine of our business, delivering on average, 68% of total
rooms revenue.
System Fund
Annual fund
totalling
$1.1bn
Scale
4,437 hotels.
Over 146 million
room nights
per annum
Loyalty
programme
Priority Club
Rewards, the
largest in the
industry, with
56 million
members
Brand
portfolio
7 hotel brands
covering all major
segments
IHG’s system
delivers
68%
of total rooms
revenue
Web presence
11 local language
websites and one
of the most active
in industry on
the web
Reservations
systems
10 call centres
around the world,
covering 12
languages
Market
coverage
Leadership
positions in
15 of the 20 largest
hotel markets,
more than any
other company
Sales force
Global
sales team
of more
than 8,000
With continued focus on the success of this global system, we have
developed best-in-class marketing and technology to support our
hotels and drive incremental revenues. From the ‘Stay You’ campaign
for the Holiday Inn relaunch to sophisticated technology allowing
for highly targeted marketing and communications, to market-
leading brand websites and innovative booking technologies, we
are well on our way to strengthening our leading delivery systems.
Our focus on key geographical markets where we operate a large
number of hotels, such as the US, UK, China, Middle East and
Germany, means we can run hotels and our operating system with
greater efficiencies, delivering more to the consumer at a lower cost.
The size of the global hotel market is estimated to be close to
20m rooms. This has grown at approximately 2% per annum
over the past five years. However, new rooms growth reached
its peak during 2009 as it caught up with the economic cycle.
Competitors in the market include other branded hotel companies,
both large and small, international and domestic, and independently
owned hotels.
We remain the largest branded hotel company, with our share
currently at approximately 10% of the branded rooms, and a
presence in 100 countries and territories. Leading research
(Smith Travel Research) calculates that there are 6.6m branded
hotel rooms, with the remainder a combination of independent
hotels, guesthouses and other types of lodging.
Although currently less than half of all hotel rooms are branded,
the benefits of being part of a brand are clear to many owners – the
growth of branded rooms has exceeded the growth of unbranded
over the last 10 years.
Raising finance is still an issue globally, and branded hotels are
perceived as offering greater security through global reservations
systems, loyalty schemes and international networks. Branded hotel
companies, such as IHG, are attractive to independent hotel owners
and are therefore gaining market share at the expense of the
unbranded portion of the industry. IHG is well positioned to benefit
from this trend.
Hotel owners are increasingly recognising the benefits of franchising
or managing with IHG, which can offer a portfolio of brands to suit the
different real estate opportunities an owner may have, together with
effective revenue delivery through global reservations channels.
Furthermore, hotel ownership is increasingly being separated from
hotel operations, encouraging hotel owners to use third parties, such
as IHG, to manage their hotels.
Winning with our people and values
Our Vision can only be realised if we have collaborative and
engaged employees, delivering the right experience to our guests
through shared values and living our brands. We have extensive
on-boarding, communication, development and recognition
programmes, aligned under our employment brand, ‘Room to
be yourself’, providing the right environment for our people to
be successful.
Our people dictate our culture, and IHG is aligned around great
values which are consistently brought to life through a set of five
IHG behaviours, the ‘Winning Ways’:
• do the right thing;
• show we care;
• aim higher;
• celebrate difference; and
• work better together.
See pages 24 to 27 for more information.
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12 IHG Annual Report and Financial Statements 2010
Business review continued
Business relationships with others
Examples include:
IHG maintains effective relationships across all aspects of its
operations. The Group’s operations are not dependent upon any
single customer, supplier or hotel owner due to the extent of its
brands, market segments and geographical coverage. For example,
IHG’s largest third-party hotel owner controls just 3% of the
Group’s total room count.
IHG continued to enhance and streamline its procurement
processes during 2010, and with the implementation of initiatives
to combat waste and enhance relationships with suppliers, IHG is
striving to ensure best-practice is employed throughout the Group.
With a focus on ensuring high-quality goods and services are
sourced at the most competitive prices, IHG strives to ensure
enhanced value for the Group, our hotel owners and shareholders.
IHG is proud of its strong and important relationship with the IAHI,
the Owners’ Association for owners of hotels in IHG’s seven brands
across the world. IHG meets with the IAHI, in large and small
groups, on a regular basis and works together to support and
facilitate the continued development of IHG’s brands and systems.
During 2010, the combined work of the two organisations
implemented several enhancements to the IHG system.
• Holiday Inn relaunch – the near completion of the $1bn
global relaunch of the Holiday Inn brand family;
• InnSupply – improving purchasing efficiencies and streamlining
procurement processes across both organisations;
• IHG Way of Sales – developing best-in-class practices for the
sales operations of both organisations, having identified critical
roles for generating revenues;
• Celebrate Service week – giving recognition and thanks to the
many thousands of front-line employees, and emphasising
engagement through the IHG brands; and
• People Tools – enhancing the recruitment, hiring, training and
retention practices across both organisations, with specific
focus on reflecting the individual qualities of each brand. These
tools are supplied to all hotels: managed, franchised and owned
and leased.
Many jurisdictions and countries regulate the offering of franchise
agreements and recent trends indicate an increase in the number
of countries adopting franchise legislation. As a significant percentage
of the Group’s revenue is derived from franchise fees, the Group’s
continued compliance with franchise legislation is important to the
successful deployment of the Group’s strategy.
Measuring our success
Already we see the market responding to the comparatively strong
position IHG reinforced during the recovery. The Group’s share
price increased by 39% in the 12 months to 31 December 2010,
from £8.93 to £12.43, and our Total Shareholder Returns (TSR)
outperformed our benchmark, the Dow Jones World Hotels index,
by 8% on an annualised basis over the past three years.
In addition to measuring our success against shareholder value,
we have a holistic set of strategic priorities. These form our key
performance indicators (KPIs) to ensure a consistent approach
to running the business. These include ‘Where we compete’,
including the appropriate business model, key target markets and
consumer segments; and ‘How we win’, including financial returns,
our people, the guest experience and responsible business.
Where we compete
Strategic priorities
To accelerate
profitable growth of
our core business in
the largest markets
where presence and
scale really count and
also in key global
gateway cities. Seek
opportunities to
leverage our scale in
new business areas.
Key performance indicators
(KPIs)
Current status and 2010
developments
2011 priorities
• Sustained system size growth;
• System size maintained at
and
• deal signings focused in scale
markets and key gateway
cities.
647,161 rooms;
• over 90% of deals signed in scale
markets and key gateway cities;
• re-entry into Hawaii with a
Holiday Inn Resort;
• opening our second Hotel Indigo
in London, and our first in Asia
Pacific, on the Bund in Shanghai;
• 17 signings of Hotel Indigo and
Staybridge Suites outside of
North America; and
• 259 hotels opened globally.
• Continue international roll-out of
Staybridge Suites and Hotel Indigo;
• accelerate growth strategies in
quality locations in agreed scale
markets; and
• continue to leverage scale and
build upon improved strategic
position during the economic
downturn.
Business review 13
Key performance
indicators (KPIs)
Current status and 2010
developments
2011 priorities
19.1
16.8
18.7
2008
2009
2010
Total gross revenue (TGR)
Actual US$bn
64%
68%
68%
• Further procurement efficiencies
• Capitalise on recovery of group
made;
and meetings business;
• enhanced Customer Relationship
• strengthen global sales force
Management with new
technology and campaign
management tools to involve
non-Priority Club Rewards
members; and
• enhanced communications with
Priority Club Rewards loyalty
programme members with
refreshed loyalty systems.
effectiveness;
• optimise revenues from third party
and IHG websites;
• ensure IHG’s industry leading
system of delivering demand
and revenue to hotels retains
competitive advantage; and
• strengthen loyalty programme,
with enhanced member offer.
2009
2008
2010
System contribution to revenue
(reservations channels and PCR
members direct)
As percentage of rooms revenue
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68%
69%
73%
• Launched and cascaded our
Vision to become one of the
world’s great companies;
• Cascade of branded management
tools to whole IHG estate, including
our franchised hotels;
• developed management tools to
• ongoing partnership with IAHI
2008
2010
Employee engagement scores
2009
How we win
Strategic priorities
Financial returns
To generate higher
returns for owners
and IHG through
increased revenue
share, improved
operating efficiency
and growing margins.
Our people
Creating hotels that
are well run, with
brands brought to
life by people who
are proud of the work
they do.
deliver a branded guest experience;
• further emphasis on our culture
of learning and development,
with industry recognition;
• ‘Celebrate Service’ week – a
global event to recognise our
people, in partnership with the
IAHI ownership community; and
• managing employee engagement.
• Global pilots to identify
opportunities to create branded
hallmarks with guest appeal;
• near completion of the Holiday
Inn relaunch; and
• grew our industry-leading
loyalty programme to 56 million
members, contributing $6.5bn
of global system rooms revenue.
• ‘Green Engage’ developed (patent
pending): rolled out to over 1,000
hotels by 31 December 2010;
• collaborated with the University
of Oxford’s Department of Plant
Sciences to understand better
how hotel design and
development impacts the
environment; and
• Corporate Responsibility
approach defined and agreed.
ownership community for people
events;
• continued focus on developing
skills to deliver our Vision and
branding capability; and
• opportunities for employees and
communities to be involved with
Olympics partnership.
• Leverage strong position of
Holiday Inn relaunch with roll-out
of global marketing initiatives;
• ensure growth plans of each brand
aligns fully with corporate Vision;
• focus on strength of Priority Club
Rewards and visibly enhance
offering to its members in hotels
and across global reservations
channels; and
• increase IHG business from
Priority Club Rewards members .
• Continue to roll out ‘Green
Engage’ to our owned and
managed hotels, and expand into
the franchised estate in all
regions;
• work with stakeholders, such as
Harvard University, to educate
decision-makers on IHG’s
economic impacts; and
• continue to embed our
community strategy, including
establishing the IHG Academy
programme and activating our
strategic partner in providing
disaster recovery.
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Guest experience
To operate a portfolio
of brands attractive to
both owners and
guests that have clear
market positions and
differentiation in the
eyes of the guest.
0.9% (14.7)%
2008
6.2%
2010
2009
Global RevPAR growth/(decline)
Comparable hotels, constant US$
1,122
911
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2009
Hotels signed-up to ‘Green Engage’
Hotels, cumulative
2010
Responsible business
To take a proactive
stance and seek
creative solutions
through innovation
and collaboration on
environment and
community issues,
and to drive increased
value for IHG, owners,
guests and the
communities where
we operate.
14 IHG Annual Report and Financial Statements 2010
Business review continued
Group performance
Group results
Revenue
Americas
EMEA
Asia Pacific
Central
Operating profit
Americas
EMEA
Asia Pacific
Central
Operating profit before
exceptional items
Exceptional operating items
Net financial expenses
Profit/(loss) before tax
Earnings per ordinary share
Basic
Adjusted
n/m – non meaningful
12 months ended 31 December
2010
$m
2009
$m
%
change
807
414
303
104
1,628
369
125
89
(139)
444
15
459
(62)
397
772
397
245
124
1,538
288
127
52
(104)
363
(373)
(10)
(54)
(64)
101.7¢
98.6¢
74.7¢
102.8¢
4.5
4.3
23.7
(16.1)
5.9
28.1
(1.6)
71.2
(33.7)
22.3
n/m
n/m
(14.8)
n/m
36.1
(4.1)
Revenue increased by 5.9% to $1,628m and operating profit
before exceptional items increased by 22.3% to $444m during
the 12 months ended 31 December 2010.
The 2010 results reflect a return to RevPAR growth in a recovering
market, with an overall RevPAR increase of 6.2% led by occupancy.
Fourth quarter comparable RevPAR increased 8.0% against 2009,
including a 2.4% increase in average daily rate. Over the full year
average daily rate grew for the InterContinental and Holiday Inn
brands by 1.3% and 0.5% respectively.
The $1bn roll-out of the Holiday Inn brand family relaunch is
substantially complete, enabling the consistent delivery of best in
class service and physical quality in all Holiday Inn and Holiday Inn
Express hotels. By 31 December 2010, 2,956 hotels were converted
globally under the relaunch programme, representing 89% of the
total estate. The required improvement in quality standards
contributed to the removal of a total of 35,262 rooms from the
system during 2010. In spite of this necessary reduction, the closing
global system size was 647,161 rooms, in line with 2009 levels.
The ongoing focus on efficiency across the Group largely sustained
underlying cost reductions achieved in 2009. Regional and central
overheads increased by $49m, from $209m in 2009 to $258m in
2010, driven by incremental performance-based incentive costs
of $47m and charges of $4m relating to a self-insured healthcare
benefit plan.
Primarily as a result of these actions taken across the Group
to improve efficiencies, operating profit margin was 35.7%, up
1.1 percentage points on 2009 after adjusting for owned and leased
hotels, Americas managed leases, significant liquidated damages
received in 2009, an onerous contract provision established in 2009
and non-payment of performance-based incentive costs in 2009.
In 2010 the InterContinental Buckhead, Atlanta and the Holiday Inn
Lexington were sold, with proceeds used to reduce net debt. These
disposals result in a reduction in owned and leased revenue and
operating profit of $19m and $4m respectively compared to 2009.
The average US dollar exchange rate to sterling strengthened
during 2010 (2010 $1=£0.65, 2009 $1=£0.64). Translated at
constant currency, applying 2009 exchange rates, revenue
increased by 6.0% and operating profit increased by 22.3%.
Profit before tax increased by $461m from a loss of $64m in 2009 to
a profit of $397m. Adjusted earnings per ordinary share decreased
by 4.1% to 98.6¢ as a result of the particularly low tax rate of 5% in
2009, compared to 26% in 2010.
Total gross revenue
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
12 months ended 31 December
2010
$bn
4.2
3.5
5.8
4.0
0.5
0.4
0.3
18.7
2009
$bn
3.8
3.0
5.4
3.6
0.4
0.3
0.3
16.8
%
change
10.5
16.7
7.4
11.1
25.0
33.3
–
11.3
One measure of overall IHG hotel system performance is the
growth in total gross revenue, defined as total room revenue from
franchised hotels and total hotel revenue from managed, owned
and leased hotels. Total gross revenue is not revenue attributable
to IHG, as it is derived mainly from hotels owned by third parties.
Total gross revenue increased by 11.3% from $16.8bn in 2009 to
$18.7bn in 2010. All brands grew total gross revenue, with most
brands growing by more than 10% compared to 2009.
Global hotel and room count
2010
171
388
1,241
2,075
188
288
38
6
42
4,437
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
Holiday Inn Club
Vacations
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
3,783
639
15
4,437
Global pipeline
2010
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
Other
Total
Analysed by ownership type
Franchised
Managed
Total
60
123
313
494
101
120
62
2
1,275
970
305
1,275
Hotels
Change
over 2009
2010
58,429
5
22
106,155
(78) 227,225
191,228
20,762
28,253
4,548
6
6
34
5
2,892
–
(1)
7,669
(1) 647,161
(16) 479,320
162,711
17
(2)
5,130
(1) 647,161
Rooms
Change
over 2009
2,308
5,161
(13,343)
3,221
877
2,970
518
–
(1,230)
482
(4,221)
5,424
(721)
482
Hotels
Change
over 2009
Rooms
Change
over 2009
2010
(3)
(6)
(25)
(69)
(22)
(49)
9
2
19,374
38,994
57,505
53,219
10,760
10,506
7,627
6,874
(163) 204,859
(799)
439
(1,503)
(4,537)
(2,600)
(4,345)
967
6,874
(5,504)
(188) 113,940
90,919
(163) 204,859
25
(12,446)
6,942
(5,504)
Global pipeline signings
At 31 December
Total
Hotels
Change
over 2009
(26)
2010
319
2010
55,598
Rooms
Change
over 2009
2,707
Business review 15
During 2010, the IHG global system (the number of hotels and
rooms which are franchised, managed, owned or leased by the
Group) remained in line with 2009 at 4,437 hotels (647,161 rooms).
Openings of 259 hotels (35,744 rooms) were driven, in particular,
by continued expansion in the US and China and offset the removal
of 260 hotels (35,262 rooms).
In Asia Pacific, demand for upscale brands (InterContinental,
Crowne Plaza and Hotel Indigo) contributed 65% of total room
openings in the region.
The Holiday Inn brand family relaunch is substantially complete
with 2,956 hotels (89% of the total Holiday Inn brand family) open
under the updated signage and brand standards as at 31 December
2010. During 2010, the removal of non-brand-conforming hotels
contributed to the total removal of 247 Holiday Inn and Holiday Inn
Express hotels (30,892 rooms).
At the end of 2010, the pipeline totalled 1,275 hotels (204,859
rooms). The IHG pipeline represents hotels and rooms where
a contract has been signed and the appropriate fees paid.
Signings of 319 hotels (55,598 rooms) represent an increase in
rooms signed from 2009 levels. Demonstrating the continued
demand for IHG brands globally, 50% of the rooms pipeline is now
outside the Americas region. There were 25 hotel signings (3,025
rooms) for Hotel Indigo as it gains real momentum in Europe and
Asia Pacific where, together, 12 hotels (1,456 rooms) were signed.
IHG also entered into an InterContinental Alliance relationship with
the Las Vegas Sands Corp. to bring the 6,874 all-suite Venetian and
Palazzo Resorts into the system in 2011.
During 2010, the opening of 35,744 rooms contributed to a net
pipeline decline of 5,504 rooms. Terminations from the pipeline
in 2010 totalled 25,358 rooms, down 21% from 2009. Terminations
occur for a number of reasons such as withdrawal of financing and
changes in local market conditions.
O
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16 IHG Annual Report and Financial Statements 2010
Business review continued
The Americas
Americas strategic role
To leverage our outstanding brand portfolio, focusing on our
substantial midscale franchise sector.
Americas results
Revenue
Franchised
Managed
Owned and leased
Total
Operating profit before exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
12 months ended 31 December
2010
$m
465
119
223
807
392
21
13
426
(57)
369
2009
$m
437
110
225
772
364
(40)
11
335
(47)
288
%
change
6.4
8.2
(0.9)
4.5
7.7
152.5
18.2
27.2
(21.3)
28.1
Americas comparable RevPAR movement on previous year
12 months ended
31 December 2010
Franchised
Crowne Plaza
Holiday Inn
Holiday Inn Express
All brands
Managed
InterContinental
Crowne Plaza
Holiday Inn
Staybridge Suites
Candlewood Suites
All brands
Owned and leased
InterContinental
4.5%
4.1%
4.4%
4.5%
10.2%
6.2%
7.1%
6.3%
3.7%
7.5%
8.7%
2011 priorities
• Execute our strategic plans of becoming a brand-led business
by delivering Great Hotels Guests Love and increasing revenue
share;
• build upon the success of the Holiday Inn relaunch to continue
to grow the Holiday Inn brand family;
• optimise Crowne Plaza’s position within its segment; and
• deliver our People Tools to include the franchised estate.
Revenue and operating profit before exceptional items increased
by $35m to $807m (4.5%) and $81m to $369m (28.1%) respectively.
Franchised revenue increased by $28m to $465m (6.4%) and
operating profit by $28m to $392m (7.7%). Royalties growth was
driven by RevPAR gains across all brands and by 4.5% in total. While
year end system size was lower than opening system size, the
weighting of removals towards the end of the year meant that daily
rooms available actually grew in 2010 from 2009 levels, further
boosting royalty growth. Non-royalty revenues and profits remained
flat on 2009, as real estate financing for new activity remained
constrained.
Managed revenue increased by $9m to $119m (8.2%) in line with
the RevPAR growth of 7.5%. Operating profit increased by $61m
to $21m from a $40m loss in 2009. The prior year loss included
a charge for priority guarantee shortfalls relating to a portfolio
of hotels. A provision for onerous contracts was established on
31 December 2009 and further payments made during 2010 were
charged against this provision. Excluding the effect of the provision,
managed operating profit increased by $3m, driven by RevPAR
growth of 23.3% in Latin America.
Results from managed operations included revenues of $71m (2009
$71m) and operating profit of $1m (2009 nil) from properties that
are structured, for legal reasons, as operating leases but with the
same characteristics as management contracts.
Owned and leased revenue declined by $2m to $223m (0.9%) and
operating profit increased by $2m to $13m (18.2%). Improving
trading conditions led to RevPAR growth of 6.4%, including 8.1%
at the InterContinental New York Barclay. The disposal of the
InterContinental Buckhead, Atlanta in July 2010 and its subsequent
conversion to a management contract resulted in reductions of
$15m in revenue and $4m in operating profit when compared to
2009. The Holiday Inn Lexington was also sold in March 2010, which
has led to a $4m reduction in revenue and no reduction in operating
profit compared to last year. Excluding the impact of these two
disposals, owned and leased revenue grew by $17m (9.0%) and
operating profit by $6m (150.0%).
Regional overheads increased by $10m (21.3%) during the year,
from $47m to $57m. The increase comes primarily from
performance-based incentives and $4m from increased claims
in a self-insured healthcare benefit plan.
Business review 17
The Americas hotel and room count in the year decreased by
21 hotels (5,979 rooms) to 3,458 hotels (439,375 rooms). Openings
of 194 hotels (20,980 rooms) included key openings of the
InterContinental New York Times Square and the first Staybridge
Suites in New York, taking IHG’s room count in the city to 6,570.
The Holiday Inn brand family generated openings of 137 hotels
(13,446 rooms) and IHG’s extended stay brands, Staybridge Suites
and Candlewood Suites, achieved openings of 41 hotels
(3,862 rooms). Removals of 215 hotels (26,959 rooms) were
mainly from Holiday Inn and Holiday Inn Express hotels.
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Americas hotel and room count
2010
At 31 December
Analysed by brand
56
InterContinental
209
Crowne Plaza
812
Holiday Inn
1,847
Holiday Inn Express
183
Staybridge Suites
288
Candlewood Suites
Hotel Indigo
35
Holiday Inn Club Vacations 6
22
Other brands
Total
3,458
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
3,230
219
9
3,458
Americas pipeline
Hotels
Change
over 2009
Rooms
Change
over 2009
2010
1
7
19,120
57,073
(72) 144,683
159,867
20,014
28,253
4,254
2,892
3,219
(21) 439,375
1
5
34
3
–
–
(15) 392,536
43,848
(4)
(2)
2,991
(21) 439,375
621
1,383
(13,518)
1,583
694
2,970
288
–
–
(5,979)
(5,468)
210
(721)
(5,979)
2010
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
Other
Total
Analysed by ownership type
Franchised
Managed
Total
5
27
187
407
96
120
46
2
890
878
12
890
The Americas pipeline totalled 890 hotels (102,509 rooms) as at
31 December 2010. Overall signings of 30,223 rooms were flat on
2009 as slow real estate and construction activity continued into
2010. Notable signings included the InterContinental Alliance
established with the Las Vegas Sands Corp., and the re-entry
to the Hawaii market with the Holiday Inn Beachcomber Resort
in Waikiki Beach.
Hotels
Change
over 2009
Rooms
Change
over 2009
2010
(1)
(6)
(29)
(79)
(20)
(49)
(1)
2
1,340
5,669
25,260
37,011
10,116
10,506
5,733
6,874
(183) 102,509
(185) 100,072
2,437
(183) 102,509
2
(700)
(1,293)
(2,682)
(6,427)
(2,392)
(4,345)
(254)
6,874
(11,219)
(11,036)
(183)
(11,219)
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18 IHG Annual Report and Financial Statements 2010
Business review continued
Europe, Middle East and Africa
EMEA strategic role
To manage margins in a diverse and complex region; and seek
ways to achieve scale in key geographic areas.
EMEA results
Revenue
Franchised
Managed
Owned and leased
Total
Operating profit before exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
12 months ended 31 December
2010
$m
81
130
203
414
59
62
40
161
(36)
125
2009
$m
83
119
195
397
60
65
33
158
(31)
127
%
change
(2.4)
9.2
4.1
4.3
(1.7)
(4.6)
21.2
1.9
(16.1)
(1.6)
EMEA comparable RevPAR movement on previous year
Franchised
All brands
Managed
All brands
Owned and leased
InterContinental
All ownership types
UK
Continental Europe
Middle East
12 months ended
31 December 2010
7.6%
3.3%
11.4%
3.8%
10.1%
(1.0)%
2011 priorities
• Execute our strategic plans of becoming a brand-led
business by delivering Great Hotels Guests Love and
increasing revenue share;
• drive growth strategies of our portfolio of brands in agreed
scale markets and key gateway cities;
• build upon the success of the Holiday Inn relaunch to
continue to grow the Holiday Inn brand family;
• deliver our People Tools to include the franchised estate; and
• support London 2012 Olympics.
Revenue increased by $17m to $414m (4.3%) and operating profit
before exceptional items decreased by $2m to $125m (1.6%).
At constant currency, revenue increased by $30m (7.6%) and
operating profit before exceptional items increased by $3m (2.4%).
Excluding $3m of liquidated damages received in 2009, revenue at
constant currency increased by 8.4% and operating profit by 4.8%.
Franchised revenue and operating profit decreased by $2m to
$81m (2.4%) and $1m to $59m (1.7%) respectively. At constant
currency, revenue increased by 1.2% and operating profit increased
by 1.7% respectively. Excluding the impact of $3m in liquidated
damages received in 2009, revenue and operating profit at constant
currency increased by 5.0% and 7.0% respectively. The underlying
increase was driven by RevPAR growth of 7.6% across the
franchised estate. Revenues associated with new signings,
relicensing and terminations decreased compared to 2009 as
real estate activity remained slow.
EMEA managed revenue increased by $11m to $130m (9.2%)
and operating profit decreased by $3m to $62m (4.6%).
At constant currency, revenue increased by 10.9% while operating
profit declined by 3.1%. Positive RevPAR growth in key European
cities and markets, including growth of 14.8% in IHG’s managed
properties in Germany, was offset by unfavourable trading across
much of the Middle East where RevPAR declined overall by 0.7%.
At the year end, a provision of $3m was made for future estimated
cash outflows relating to guarantee obligations for one hotel.
In the owned and leased estate, revenue increased by $8m to
$203m (4.1%) and operating profit increased by $7m to $40m
(21.2%), or at constant currency by 8.2% and 27.3% respectively.
RevPAR growth of 11.9% benefited from average daily rate growth
of 6.5% across the year. The InterContinental London Park Lane
and InterContinental Paris Le Grand delivered strong year-on-year
RevPAR growth of 15.0% and 11.5% respectively. Margins improved
in both these hotels as the focus remained on cost control.
Regional overheads increased by $5m to $36m (16.1%), mainly
attributable to performance-based incentive costs.
EMEA hotel and room count
2010
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Hotel Indigo
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
64
98
325
198
5
2
2
694
523
167
4
694
EMEA pipeline
2010
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Hotel Indigo
Total
Analysed by ownership type
Franchised
Managed
Total
24
25
41
47
5
11
153
90
63
153
Hotels
Change
over 2009
Rooms
Change
over 2009
2010
20,111
(1)
22,941
5
52,945
(8)
23,706
1
748
1
110
1
–
291
(1) 120,852
79,950
3
39,456
(4)
–
1,446
(1) 120,852
Hotels
Change
over 2009
1
1
(4)
(2)
(2)
7
1
(3)
4
1
2010
6,469
7,599
9,128
6,523
644
1,072
31,435
13,542
17,893
31,435
(475)
784
(427)
447
183
46
(2)
556
1,734
(1,178)
–
556
Rooms
Change
over 2009
369
958
(1,301)
(565)
(208)
721
(26)
(1,410)
1,384
(26)
Business review 19
During 2010, EMEA system size decreased by one hotel (a net
increase of 556 rooms) to 694 hotels (120,852 rooms). Activity
included openings of 33 hotels (5,767 rooms) and removals of
34 hotels (5,211 rooms). The net decrease of seven Holiday Inn and
Holiday Inn Express hotels comprised 25 openings and 32 removals.
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The pipeline in EMEA increased by one hotel (a net decrease of
26 rooms) to 153 hotels (31,435 rooms). There were 9,303 room
signings in 2010, with continued demand for IHG brands in the UK
and Germany. Demand was particularly strong in the midscale
segment which represented 61% of room signings. There were
eight signings for IHG’s lifestyle brand, Hotel Indigo, including four
in the UK and entry into new markets in Lisbon, Madrid and Berlin.
There were also six Crowne Plaza signings including the strategic
markets of Istanbul, St. Petersburg and Amsterdam.
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20 IHG Annual Report and Financial Statements 2010
Business review continued
Asia Pacific
Asia Pacific strategic role
Within the region, Greater China is one of the specific growth
opportunities and will be a major contributor to IHG, where we
can leverage scale, drive margin and expand our outstanding
portfolio of brands, whilst the focus in Asia Australasia is to
drive profitable growth in emerging key markets and cities.
Asia Pacific results
Revenue
Franchised
Managed
Owned and leased
Total
Operating profit before exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
12 months ended 31 December
2010
$m
12
155
136
303
7
73
35
115
(26)
89
2009
$m
11
105
129
245
5
44
30
79
(27)
52
%
change
9.1
47.6
5.4
23.7
40.0
65.9
16.7
45.6
3.7
71.2
Asia Pacific comparable RevPAR movement on previous year
Managed – all brands
Asia Pacific
Greater China
Owned and leased
InterContinental
All ownership types
Greater China
12 months ended
31 December 2010
13.4%
26.7%
15.3%
25.8%
2011 priorities
• Execute our strategic plans of becoming a brand-led business
by delivering Great Hotels Guests Love and increasing revenue
share;
• grow our portfolio of brands in key strategic markets,
especially India and resort locations;
• continue rapid expansion, particularly of our upscale brands,
in established and emerging cities in China;
• build upon the success of the Holiday Inn relaunch to continue
to grow the Holiday Inn brand family; and
• localise systems, processes, brands and People Tools to drive
efficiency, consumer preference and margin performance.
Asia Pacific revenue and operating profit before exceptional
items increased by $58m to $303m (23.7%) and by $37m to
$89m (71.2%) respectively.
Continued strong economic growth in the region was given a
further boost by the World Expo held in Shanghai from May to
October 2010. Resulting RevPAR growth in key Chinese cities
was exceptional, with Shanghai and Beijing growing 55.9% and
29.9% respectively.
Franchised revenue increased by $1m to $12m (9.1%)
and operating profit grew by $2m to $7m (40.0%).
Managed revenue increased by $50m to $155m (47.6%) and
operating profit increased by $29m to $73m (65.9%). In addition
to strong comparable RevPAR performance, there was a positive
contribution from recently opened hotels, with a 9% room increase
in the size of the Asia Pacific managed estate during the year
following a 10% increase in 2009, and a $4m operating profit
benefit due to the collection of old or previously provided for debts.
In the owned and leased estate, revenue increased by $7m
to $136m (5.4%) and operating profit by $5m to $35m (16.7%).
These results were driven by the InterContinental Hong Kong,
where RevPAR increased 15.3% during the year.
Regional overheads decreased by $1m to $26m (3.7%), with
an increase in performance based incentive costs offset by the
effect of the 2009 restructuring.
Asia Pacific hotel and room count
2010
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Hotel Indigo
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
51
81
104
30
1
18
285
30
253
2
285
Asia Pacific pipeline
2010
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Hotel Indigo
Total
Analysed by ownership type
Franchised
Managed
Total
31
71
85
40
5
232
2
230
232
Hotels
Change
over 2009
5
10
2
4
1
(1)
21
(4)
25
–
21
Hotels
Change
over 2009
(3)
(1)
8
12
3
19
–
19
19
2010
19,198
26,141
29,597
7,655
184
4,159
86,934
6,834
79,407
693
86,934
2010
11,565
25,726
23,117
9,685
822
70,915
326
70,589
70,915
Rooms
Change
over 2009
2,162
2,994
602
1,191
184
(1,228)
5,905
(487)
6,392
–
5,905
Rooms
Change
over 2009
(468)
774
2,480
2,455
500
5,741
–
5,741
5,741
Business review 21
Asia Pacific hotel and room count increased by 21 hotels (5,905
rooms) to 285 hotels (86,934 rooms). Openings of 32 hotels (8,997
rooms) were partially offset by the removal of 11 hotels (3,092
rooms). The growth was driven by 24 hotel openings in 17 cities
across Greater China (7,253 rooms), seven hotels (1,477 rooms)
more than in 2009. This included key hotel openings in Shanghai
of the InterContinental at the Expo site and the Hotel Indigo on the
Bund, the first opening for this brand in Asia Pacific. Across the
region 65% of rooms opened were in upscale brands
(InterContinental, Crowne Plaza and Hotel Indigo).
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The pipeline in Asia Pacific increased by 19 hotels (5,741 rooms)
to 232 hotels (70,915 rooms). Pipeline growth was evenly balanced
between the Greater China market (nine hotels, 3,128 rooms) and
Asia Australasia (10 hotels, 2,613 rooms) including six hotel signings
in India taking its total pipeline to 10,073 rooms.
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Across the region there were 18 Holiday Inn Express signings,
more than double the number for this brand in 2009 indicating the
potential for midscale growth in the region. In Vietnam two new
Holiday Inn resorts were signed in prime beach-front locations of
Cam Ranh Bay and Phu Quoc. There were also 12 Crowne Plaza
signings, including the Crowne Plaza Lumpini Park in Bangkok.
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22 IHG Annual Report and Financial Statements 2010
Business review continued
Central
Central results
Revenue
Gross central costs
Net central costs
System Fund
System Fund results
12 months ended 31 December
2010
$m
104
(243)
(139)
2009
$m
124
(228)
(104)
%
change
(16.1)
(6.6)
(33.7)
During 2010, net central costs increased by $35m from $104m
to $139m (33.7%). The movement was primarily driven by an
increase in performance based incentive costs where no payments
were made on some plans in 2009. At constant currency, net central
costs increased by $36m (34.6%).
Assessment fees and contributions
received from hotels
Proceeds from sale of Priority
Club Rewards points
12 months ended 31 December
2010
$m
2009
$m
%
change
944
875
7.9
106
1,050
133
1,008
(20.3)
4.2
Other financial information
Exceptional operating items
Exceptional operating items of $15m consisted of gains of $35m
from the disposal of assets, including $27m profit on the sale of the
InterContinental Buckhead, Atlanta offset by an impairment charge
of $7m, severance costs of $4m and costs of $9m to complete the
Holiday Inn brand family relaunch.
Compared with the previous year, exceptional operating items were
significantly lower as 2009 was impacted by difficult trading which
resulted in exceptional costs of $373m largely down to the
recognition of impairment charges, an onerous contract provision
and the cost of office closures.
Exceptional operating items are treated as exceptional by reason
of their size or nature and are excluded from the calculation of
adjusted earnings per ordinary share in order to provide a more
meaningful comparison of performance.
In the year to 31 December 2010, System Fund income increased
by 4.2% to $1.1bn primarily as a result of growth in hotel room
revenues and marketing programmes. Sale of Priority Club
Rewards points declined due to the impact of a special promotional
programme in 2009.
In addition to management or franchise fees, hotels within the
IHG system pay cash assessments and contributions which are
collected by IHG for specific use within the System Fund (the Fund).
The Fund also receives proceeds from the sale of Priority Club
Rewards points. The Fund is managed for the benefit of hotels in
the system with the objective of driving revenues for the hotels.
The Fund is used to pay for marketing, the Priority Club Rewards
loyalty programme and the global reservation system. The
operation of the Fund does not result in a profit or loss for the
Group and consequently the revenues and expenses of the Fund
are not included in the Group Income Statement.
Net financial expenses
Net financial expenses increased from $54m in 2009 to $62m in
2010, as the effect of the £250m 6% bond offset lower net debt
levels and low interest rates. Average net debt levels in 2010
were lower than 2009 primarily as a result of improved trading, the
disposal of the InterContinental Buckhead, Atlanta and a continuing
focus on cash.
Financing costs included $2m (2009 $2m) of interest costs
associated with Priority Club Rewards where interest is charged
on the accumulated balance of cash received in advance of the
redemption points awarded. Financing costs in 2010 also included
$18m (2009 $18m) in respect of the InterContinental Boston
finance lease.
Other financial information continued
Taxation
The effective rate of tax on the combined profit from continuing and
discontinued operations, excluding the impact of exceptional items,
was 26% (2009 5%). The rate was particularly low in 2009 due to the
impact of prior year items relative to a lower level of profit than in
2010. By excluding the impact of prior year items, which are
included wholly within continuing operations, the equivalent tax rate
would be 35% (2009 42%). This rate is higher than the UK statutory
rate of 28% due mainly to certain overseas profits (particularly in
the US) being subject to statutory rates higher than the UK statutory
rate, unrelieved foreign taxes and disallowable expenses.
Taxation within exceptional items totalled a charge of $8m
(2009 credit of $287m) in respect of continuing operations. This
represented the release of exceptional provisions relating to tax
matters which were settled during the year, or in respect of which
the statutory limitation period had expired, together with tax relief
on exceptional costs, tax arising on disposals and also tax relating
to an internal reorganisation in 2010.
Net tax paid in 2010 totalled $68m (2009 $2m) including $4m paid
(2009 $1m) in respect of disposals. Tax paid is lower than the
current period income tax charge, primarily due to the receipt of
refunds in respect of prior years, together with provisions for tax for
which no payment of tax has currently been made.
Earnings per ordinary share
Basic earnings per ordinary share in 2010 was 101.7¢, compared
with 74.7¢ in 2009. Adjusted earnings per ordinary share was 98.6¢,
against 102.8¢ in 2009.
Dividends
The Board has proposed a final dividend per ordinary share of
35.2¢ (22.0p). With the interim dividend per ordinary share of 12.8¢
(8.0p), the full-year dividend per ordinary share for 2010 will total
48.0¢ (30.0p).
Share price and market capitalisation
The IHG share price closed at £12.43 on 31 December 2010, up from
£8.93 on 31 December 2009. The market capitalisation of the Group
at the year end was £3.6bn.
Business review 23
Capital structure and liquidity management
Net debt* at 31 December
Borrowings:
US dollar
Euro
Other
Cash
Net debt
Average debt levels
*Including the impact of currency derivatives.
Facilities at 31 December
Committed
Uncommitted
Total
Interest risk profile of gross debt
for major currencies at 31 December
At fixed rates
At variable rates
2010
$m
715
100
6
(78)
743
923
2010
$m
1,605
53
1,658
2010
%
100
–
2009
$m
863
216
53
(40)
1,092
1,231
2009
$m
1,693
25
1,718
2009
%
90
10
In 2010, the Group continued its focus on cash management. During
the year, $462m of cash was generated from operating activities,
with the other key elements of the cash flow being:
• proceeds from the disposal of hotels and investments of $135m,
including $105m from the sale of the InterContinental
Buckhead, Atlanta on 1 July 2010; and
• capital expenditure of $95m including $23m for the purchase of
the InterContinental San Francisco Mark Hopkins ground lease
and $16m in relation to Global Technology projects.
The Group is mainly funded by a $1.6bn syndicated bank facility
which matures in May 2013.
In December 2009, the Group issued a seven-year £250m public
bond, at a coupon of 6%, which was initially priced at 99.465% of
face value. The £250m was immediately swapped into US dollar
debt using currency swaps and the proceeds were used to reduce
the existing term loan from $500m to $85m. The term loan was
completely paid down in September 2010. Additional funding is
provided by a finance lease on the InterContinental Boston.
Net debt at 31 December 2010 decreased by $349m to $743m and,
in the table above, included $206m in respect of the finance lease
commitment for the InterContinental Boston and $27m in respect
of currency swaps related to the sterling bond.
Further information on the Group’s treasury management can be
found in note 21 on pages 91 to 95 in the notes to the Group financial
statements 2010.
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24 IHG Annual Report and Financial Statements 2010
Business review continued
Our people
IHG directly employed an average of 7,858 people worldwide during
2010 whose costs are borne by the Group. When the whole IHG
estate is taken into account (including staff working in the
franchised and managed hotels) approximately 335,000 people
are employed globally across IHG’s brands.
Unless otherwise stated, any data in this section relates to the
people directly employed by IHG and those who work in managed
hotels or as part of our joint venture with AII Nippon Airways in
Japan – in total approximately 115,000 people.
During 2010, our trading environment began to recover but
we continued to focus on balancing greater efficiencies in our
operations, while continuing to engage with our people.
Furthermore, we developed and cascaded a compelling Vision of
the Company for our people – to become one of the world’s great
companies. This Vision builds on our core purpose of creating
Great Hotels Guests Love.
To achieve our Vision we need to develop a clear articulation of
what makes each brand great. We will help our people understand
their role in delivering the Vision, the values and ways of working
required and the results that will measure our progress.
We have been focusing on these areas over the past four years
and this report provides an update on these activities.
Our Vision to become great
When we have
Delivered by
Who share
With
We will become
Great
Brands
Great
People
Great
Values
Great
Ways of
Working
one of
the world’s
Great
Companies
Our Vision explained
We launched and cascaded our Vision to be a great company during
2010 and we have given our people clear direction on what is important
for us as a business. This effort will continue throughout 2011.
Having great brands
As part of our Vision to be a great company, we know we need to
develop a strong family of brands. Our brands need to be distinctive
and consistently deliver the promises made to guests. This will
require our people to deliver a consistent, brand-specific guest
experience in all our hotels so that the guests feel that our brands
are a perfect fit for them.
Delivered by great people: Room to be yourself
IHG has developed a strong culture of engagement that provides
the environment which helps us attract and retain great people. As
part of our brand, we make four key promises which are described
as part of our Room to be yourself commitment. People processes
have been aligned to our commitment to ensure that we can meet
a set of defined standards.
Sharing great values: Winning Ways
Winning Ways, a set of behaviours that defines how IHG interacts
with guests, colleagues and hotel owners, was developed in 2006
and integrated into the business in 2007. IHG’s people have embraced
these behaviours with enthusiasm and creativity worldwide.
With great ways of working
We have developed ways of working to help us work together more
efficiently. These include teams working towards IHG’s set of four
agreed strategic priorities, centralised procurement, making
greater use of our scale to drive cost savings, and the planning
and co-ordination of activities across our corporate, regional and
hotel teams, so that initiatives are delivered even more effectively
to guests.
One of the world’s great companies
When we have achieved this we will have:
• Guests who love to stay with us;
• People who love to work for us;
• Owners who love our brands; and
• Investors who love our performance.
Room to be yourself
Room to have a great start
Room to grow
You will be treated with
respect and we will make
sure you have everything you
need to have a great start.
You will be supported
and given opportunities
to develop yourself and
pursue a rewarding career.
Room to be involved
Room for you
You will have the opportunity
to work with great teams,
know what is going on and
make a real difference in
your workplace.
You will be rewarded
and recognised for your
contributions and we will
value the significance of
your life beyond work.
Winning Ways
Do the right thing
Show we care
Aim higher
Celebrate
difference
Work better
together
Business review 25
Veronica
Holiday Inn
Strategic priorities
The key success factors:
• Financial returns
• Our people
• Guest experience
• Responsible business
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Activities that support our Vision
Having great brands
During 2010 we have been working closely to define the guest
experience and personality for each brand. This has allowed us
to design training that will help employees understand what each
brand stands for and to deliver each unique brand experience.
IHG has updated its comprehensive ‘Holiday Inn refresh’ training
programme and has developed a number of tools to help managers
and employees understand what they need to do to deliver the
service experience expected by guests. This will be launched in
2011 across all hotels. The other hotel brands are updating their
training programmes to reflect the service experience expected
by guests, and these will also launch in 2011.
Room to be yourself
Room to have a great start
With such a robust hotel development pipeline we have been
focusing on how to recruit the people we need over the next few
years. IHG’s online recruitment system attracts and matches
candidates to job vacancies. Over 1.8 million people visited the site
during 2010 and more than a million potential candidates have
expressed an interest to work at IHG.
In China, we have established a number of initiatives as part of our
focus on recruiting talented individuals to support the anticipated
number of openings over the next few years. We have continued
to focus our efforts in two ways: the pipeline of hotel staff and the
pipeline of General Managers.
The pipeline of hotel staff is supported by a number of fast-track
programmes aimed at bringing in professionals from human
resources and finance backgrounds to support our growth plans.
We also run IHG Academies in partnership with a number of
educational bodies to provide training to students to equip them
with skills required by the hotel industry. These Academies operate
in 10 locations, are supported by 23 partners in the region and in
December 2010 had more than 4,800 students enrolled on one of
these programmes.
Our franchisee in Panama continues to provide a school to
teach our employees the skills required in all aspects of hotel
management, particularly in areas of skills shortage such as
food and beverage management.
We also continue to provide an extensive range of training to
our employees including e-learning curricula from respected
business schools such as Cornell University in the US.
To manage our graduate pipeline, both our Asia Pacific and
EMEA regions run graduate programmes. The I-grad and Future
Leaders programmes rotate graduates through departments in
our hotels and corporate offices to develop their operational and
leadership capabilities. In 2010 we had 25 graduates on rotation
in our hotels and 22 have so far secured permanent jobs since
the programmes started.
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26 IHG Annual Report and Financial Statements 2010
Business review continued
Room to be involved
Great emphasis is placed on employee communication, particularly
on matters relating to the Group’s business and its performance.
Communication channels include global management conferences,
team meetings, informal briefings, in-house publications and
intranets. The Group has continued to improve the capability of
the corporate intranet site, ‘Merlin’, which now provides continuous
access to information about people, policies and news across all
hotels, corporate offices and reservations centres.
Regular employee feedback is obtained to ensure that IHG meets
expectations and delivers on its commitments. The Group conducts
a twice-yearly survey that measures employee opinion and attitudes.
This survey covers employees in owned and managed hotels,
corporate offices and reservations centres. We have not reported
the survey data on our joint venture partners.
Since the first survey in 2007, we have continued to achieve very
high response rates with over 96,000 employees participating in
the October 2010 survey.
Division/region
Americas hotels
EMEA hotels
Asia Pacific hotels
Corporate offices
Reservations centres
2010 response rates
%
2009 response rates
%
92
91
93
91
86
90
89
93
89
91
IHG’s key measure from the survey is the Engagement Index,
constructed from a set of questions which measure employee
advocacy, retention and effort.
During 2010, IHG’s Engagement Index improved by three
percentage points to 73%. The survey also highlights that 93% of
our people are proud to work for IHG, while retention and advocacy
have both improved during the year.
We have used our survey to track awareness and understanding
of Great Hotels Guests Love. Our October 2010 employee survey
results show that 91% of our people understand Great Hotels
Guests Love and that it has helped them focus on the right things
for the business.
Room to grow
To meet the demands of our growth and to deliver our Vision of
becoming one of the world’s great companies, IHG continues to
focus on developing talent.
During 2010, we again conducted our annual review of the Group’s
corporate managers and hotel general managers to identify skills
required for the future and how to develop individuals. The outcome
is to increase clarity around our talented individuals, their key
development needs and the ability to move these individuals into
the positions which will enable them to enhance their skills and
meet IHG’s key objectives. The succession planning process for
senior leadership roles has continued in 2010, enabling IHG to
manage changes in leadership.
During the year, IHG continued to place importance on the growth
and development of its people in the owned and managed hotels,
and within its corporate and reservations offices, and ensured
training programmes were available to all of its employees.
The Group’s internal survey indicates that 87% of employees agree
that IHG delivers training to assist with their current roles, which
is a two percentage point improvement on 2009.
We have continued to leverage technology through our learning
management system, which helps people learn flexibly and to
develop their skills in the workplace rather than attend courses
in classrooms.
Over 100,000 employees received some form of training and
development. We introduced a number of new online programmes
and our most popular training courses were around optimising IHG
channels and managing revenue.
IHG has a number of development programmes in place to support
managers in hotels and corporate offices. These include the
assessment of individual potential and capability, together with
clarity on expectations and business-related education.
The Leaders Lounge, an online leadership development system
for IHG senior managers, provides cost-effective and high-quality
development and communication to all of our senior leaders. This
forum provides input from the Chief Executive and the Executive
Committee on key issues and challenges for the business as well
as inputs from external business thinkers.
In 2010 we expanded The Lounge by opening a Leadership Academy
within it. The Academy gives leaders a curriculum of IHG-specific
e-learning modules on strategy, finance, coaching and other key
areas of leadership. The Leaders Lounge was recognised in 2010
with a Chief Learning Officer Magazine Global Learning Award,
an ASTD (American Society for Training and Development) citation
for Excellence in Practice and a Training Magazine Best Practice
award. Since its launch, over 3,000 ‘how to lead’ tools have been
downloaded from The Lounge by IHG leaders. 88% of Lounge
members use the site to develop themselves and their teams
at least once a month.
Room for you
In July 2010 IHG and our Owners’ Association, the IAHI, sponsored a
global event to recognise our people – Celebrate Service. For one
week we recognised those people in our hotels who deliver great
service to our guests and colleagues. Around 3,000 hotels participated
in this event along with all our corporate offices and reservations
centres. We gathered over 1,500 stories of great service, many of
which featured on our corporate intranet.
InterContinental Shenzhen, China
Feedback from employees suggest the event was very well received
and over 75% of employees responding to a survey said that they
felt recognised and thanked for their efforts. There is strong
support for Celebrate Service to become an annual event, and part
of the IHG culture.
Business review 27
External recognition
During the year, IHG won a number of prestigious awards in
recognition of its people management and HR practices.
In March 2010 IHG was named as one of the ‘Best 25 Big Companies’
to work for by the Sunday Times (UK). Each year the Sunday Times
celebrates the best companies in the UK to work for. The list is
created from the views of employees across eight indicators of
engagement and the policies and processes of employers. The
Sunday Times says that being one of the best companies goes
beyond the bottom line – it is about excelling in every area
throughout the workplace and a business’s commitment to
its employees.
Tracy Robbins, Executive Vice President, Human Resources &
Group Operations Support, received the HR Director of the year
award in December 2010 at the Personnel Today Awards in London.
This prestigious award recognised HR’s commercial approach and
its contribution to creating the coherent culture enjoyed at IHG. Tracy
was specifically recognised for her work around the Vision, Room to
be yourself, and our Winning Ways.
In October 2010 IHG was named the World’s ‘BEST’ Learning and
Development Organisation by the American Society for Training
and Development (ASTD). IHG was compared with 103 global
companies, including IBM and Deloitte. The award winners set
the standard for exceptional learning practices to create a skilled
workforce. Learning is used as a strategic tool and senior leaders
champion a learning culture.
IHG has remained one of Britain’s Most Admired leisure and
hospitality companies over the past four years. The awards are
a peer review of corporate reputation and are presented by
Management Today and the Birmingham City Business School.
A number of IHG people have also been recognised for achievements
and service excellence.
Ensuring health and safety
Providing and supporting a safe and secure environment for our
guests, employees and visitors is paramount and IHG applies
high standards of health and safety across the Group. Our Risk
Management team evaluates policies and procedures, operating
a range of health and safety and security measures and we require
all parties to comply with relevant health and safety legislation.
All of our Group companies are responsible for protecting the
health of our employees through suitable work-based strategies;
minimising the risk of injury from work activity; ensuring that
sufficient resources, information and systems are in place to
address health and safety; and involving employees in continuous
improvement, reporting and review of health and safety matters.
Further information on our approach towards safety and
security can be found on pages 31 to 36 of this Business
Review and in the online Corporate Responsibility Report at
www.ihgplc.com/responsibility
IHG’s compensation and benefits programmes are designed to be
competitive and to recognise and reward achievement. The benefits
offered to employees vary according to region. IHG contributes to
both mandatory and company-sponsored retirement plans to
ensure benefits are competitive within each local market. IHG’s
employee survey indicates that the majority of employees believe
they are fairly paid for the work they do.
The Group offers a range of benefits that are aimed at helping
employees to achieve a better work/life balance. Healthcare is
provided to some staff groups and, in our Americas region,
programmes are in place to help employees maintain a healthy
lifestyle and also reduce the cost of health insurance claims.
In some regions employee assistance programmes offer a
confidential counselling service to help employees deal with
financial and legal matters, relationship problems and stress.
IHG manages performance by helping people to align their objectives
to our core purpose. The Group also encourages managers to
acknowledge employee achievements or contributions as part of
our Winning Ways culture.
London 2012 Olympic and Paralympic Games
The selection of Holiday Inn and Holiday Inn Express as the
Official Hotel Services Provider to the London 2012 Olympic and
Paralympic Games continues to provide a great opportunity to
engage and motivate our people to build our business and our
Holiday Inn brand. It also helps us to reinforce our commitment
to the community and our approach to corporate responsibility.
In 2010 we began an ‘employ an athlete’ programme. We have
employed six athletes who work in our hotels while continuing to
train for 2012. We have also seconded two employees to LOCOG
– the London Organising Committee for the Olympic Games.
This number will increase to 120 by 2012.
Celebrating diversity
IHG benefits from the diversity of its employees, owners, business
partners and guests. The Group regards diversity as a fundamental
factor in its success in operating as a global organisation and this
principle is embedded in IHG’s Winning Ways.
The Group is committed to providing equality of opportunity to all
employees without discrimination and continues to be supportive
of the employment of disabled persons. Where existing employees
become disabled, it is the Group’s policy to provide continuing
employment wherever practical in the same or a suitable
alternative position.
We were proud to receive the 2010 Personnel Today award for
Innovation in Recruitment. The award was made in acknowledgement
of the work we do to connect recruitment with our responsible
business values. Since 2006 we have been in partnership with the
Learning and Skills Council and Her Majesty’s Prison Service to
help those who have completed their sentences, get back to work.
Each year about 32 people take part in hotel chef training as part of
the 14-week programme. 250 ex-offenders have now been trained,
with many going on to take jobs in the industry.
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28 IHG Annual Report and Financial Statements 2010
Business review continued
Corporate responsibility
Corporate responsibility (CR) is central to the way we do business.
Acting responsibly creates value for our brands while helping our
hotels to manage costs, drive revenue and be prepared for the future.
It also keeps us in tune with the thinking of our stakeholders,
and supports our mission to champion and protect IHG’s trusted
reputation. Doing the right thing reinforces trust in our brands, builds
competitive advantage and strengthens our corporate reputation.
With over 4,400 hotels worldwide and almost 1,300 in the pipeline,
we have a tremendous opportunity to help make tourism
responsible, from the energy we use to the economic opportunities
we create in the communities where we operate. We work to
achieve this by treating CR as a strategic business issue, and an
integral part of our Vision to become one of the world’s great
companies through our core purpose, Great Hotels Guests Love.
Our approach
Our strategy is based on innovation and collaboration and our
CR Board Committee, formed in 2009, oversees that we have the
right policies, management and measurement systems in place
to deliver against our strategy. The Committee is chaired by
Jennifer Laing, a Non-Executive Director. It met three times in
2010, focusing on the role of hotels in society, our community and
environmental strategies, our response to carbon regulation and
a LEED (Leadership in Energy and Environmental Design)
endorsement for Green Engage.
Innovation
We develop innovative concepts and technologies, and we work
closely with our partners to find creative solutions to the challenges
we face. Rather than purchasing carbon offsets, for example, we
have chosen to develop innovative technologies, such as Green
Engage, and to implement practical measures to make real carbon
and energy reductions across our hotel estate. Our efforts were
recognised this year when we were awarded LEED endorsement
and the Carbon Trust Standard, for showing genuine carbon
reductions and a commitment to ongoing reductions.
Collaboration
Our stakeholders play a key role in helping us identify and tackle
our priorities. They include guests and corporate clients, hotel
owners and franchise holders, local communities, employees,
shareholders, suppliers, academic institutions, non-government
organisations, governments and industry-specific institutions.
We engage with them through forums, meetings, individual interviews,
surveys and our award-winning online Innovation Hotel, where
stakeholders propose ideas that contribute to the way we design,
build and operate more responsible hotels.
As a member of the World Travel and Tourism Council we work with
our competitors to share knowledge and resources, develop policy
and implement programmes that have a positive social, economic
and environmental impact.
During the year we collaborated with some of the world’s best
minds and institutions in order to revise our Community Strategy
and find the right strategic partner. We worked with Harvard
University, and with Business in the Community (BiTC) who
facilitated the set up of partnerships through which we deliver
IHG Academy in the UK. The IHG Academy is a public/private
partnership that helps us create local economic opportunities.
We provided quarterly updates to elements of our online CR report
this year. Feedback on our report shapes the way we report in the
future. In 2010, IHG senior management met with students from
Harvard University for an interactive critique. In 2011 we will
continue to keep the report updated and move to our second version
of the Innovation Hotel, a website which invites feedback on the
latest ideas in sustainable hotel design and operations.
Review of 2010
Our innovation and collaboration activities are focused on the areas
that make most sense to our business, and where we believe we
can make most difference in our communities. Our CR strategy
has two pillars:
• Environment – reduce energy in our owned and managed estate
by between 6% and 10% over three years (2010 – 2012) via the
use of Green Engage; and
• Community – generate local economic opportunities, particularly
through the IHG Academy, and provide shelter in a storm
through disaster relief.
To help our work, we have established committees to support and
drive globally-aligned decisions around environment and community.
In response to feedback from users, we enhanced the usability
of our industry-leading online sustainability tool, Green Engage.
We also further developed our online Innovation Hotel to make it
even more dynamic and interactive.
We signed up to the UN Global Compact, aligning our operations,
culture and strategies with 10 universally accepted principles in
the areas of human rights, labour, environment and anti-corruption.
This aligns with and supports our existing Environmental,
Community and Human Rights policies.
Reducing our environmental footprint
Energy is the second biggest cost to our business, with the average
IHG hotel spending over $500,000 on energy usage each year.
Taking measures to conserve energy makes environmental sense.
At the same time it helps our hotels to stop losing money on energy
costs, which makes good financial sense.
Green Engage is our innovative system, designed to help hotels
reduce energy costs, with hotels achieving energy savings of
up to 25%. The system, which has recently received a LEED
endorsement, allows hotels to track, measure and report on
their energy, water and waste, and recommends actions that
will cut energy bills without compromising the guest experience.
Over 1,000 of our hotels are registered to use Green Engage and
2,000 individuals are registered as users. Our aim is to have our
entire estate using it over time. In 2011 we will launch version 2.0
based on feedback from existing users. The new version retains
all the features and benefits of the original but is easier to use,
with better benchmarking.
Green Engage is driving revenue too. Our research shows that
many US and UK frequent travellers prefer hotels which are
meaningfully engaged in corporate responsibility. For this growing
band of environmentally-aware customers, the recent LEED
endorsement of Green Engage is proof that we are making
environmental responsibility part of the way we do business.
Supporting communities – generating local economic opportunities
This year we revised our Community Strategy and made good
progress on implementing our new key initiatives.
With hotels in 100 countries and territories we have a great
opportunity to improve the lives of local people. Making a tangible
difference is also a key element in building a strong reputation for
our business and our brands. As such, our Community Strategy,
which outlines how we seek to create local economic opportunities,
is critical to our core purpose of Great Hotels Guests Love and to
achieving economic success.
IHG Academy
Through our IHG Academy we partner with education providers
and community organisations to create local education and
employment opportunities and drive economic growth. This is a
truly sustainable business proposition. The Academy partnerships
help to ensure the future of our hotels in areas where skilled
employees can be hard to find and give people the skills and access
to careers that they would not have otherwise had. They provide
our existing employees with a chance to participate and make a
difference, and ensure we provide high quality guest experiences
throughout the world.
The IHG Academy was first established in China, where we have
23 partners in 10 locations, training more than 4,800 students
each year. We are now establishing similar partnerships in
other countries.
Focusing on creating economic opportunity puts us at the
leading edge in our sector, giving us a competitive advantage
and resonating with key external stakeholders, such as corporate
clients. IHG Academy has also featured in case studies written
by Harvard University and the International Tourism Partnership.
Business review 29
Disaster relief
Hotels are places to celebrate, provide opportunities for
employment and have an economic impact on local communities.
When disaster strikes, they also provide shelter in a storm.
While our hotels already took action in times of need, this year
we drew up plans to formalise the way we respond in a disaster.
We will be partnering with one of the world’s three biggest aid
agencies to develop a rapid, cohesive response strategy, including
operating guidelines to help hotels make the best use of their
resources in times of disaster. We are also putting in place simple
and effective donation channels to leverage our global scale and
employee and guest base.
Regulation and legislation
Over and above complying with legal requirements wherever
we operate, our systems and programmes are helping to put us
ahead of regulatory demands. Green Engage is core to helping
hotel owners manage current regulatory performance and prepare
for anticipated regulations.
This year we were able to use Green Engage to comply with the
requirements of UK’s Carbon Reduction Commitment, a mandatory
carbon emissions reporting and pricing scheme.
These and other complex regulatory matters are overseen by
our Global Carbon Strategy Team. We review our carbon strategy
regularly with our CR Committee and discuss it with our owners’
association, the IAHI, to make sure our franchise partners support
our aims.
External recognition
Our activities received external recognition, including:
• LEED endorsement of Green Engage;
• Best 2010 Corporate Responsibility Report in the Travel
and Leisure sector – Radley Yeldar;
• IHG was recognised as the most environmentally and socially
responsible hotelier in Australasia, after being awarded the
inaugural Responsible Travel Management Award by
the National Business Travel Association 2010; and
• Worldwide Hospitality Award judges award 2010 for our
approach to sustainability.
Policies and Code of Ethics
We have detailed policies on the environment, human rights,
the community and a Code of Ethics and Business Conduct.
Among the Group’s core values is the concept that all employees
should have the courage and conviction to do what is right.
The Group’s global Code of Ethics and Business Conduct
consolidates and clarifies expected standards of behaviour and
communicates the ethical values of the Group. It states clearly
that IHG’s reputation is built upon the trust and confidence of our
stakeholders and is fundamental to our operations worldwide.
A Confidential Disclosure Channel also provides employees with
a means to report any ethical concerns they may have. The Code
is applicable to all employees and is available on the Company’s
website at www.ihgplc.com/investors under corporate governance.
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30 IHG Annual Report and Financial Statements 2010
Business review continued
Priorities, performance and targets
The following table outlines IHG’s overall CR priorities, developments and achievements during the year and priorities for 2011.
The main headings, Innovation, Collaboration, Environment and Community reflect the areas our CR strategy focuses on.
CR priorities
2010 developments and achievements
2011 priorities
Innovation
• Developed commercial applications for our CR innovations; and
• Continue to identify and develop
• developed the blueprint for the second version of the
Innovation Hotel to showcase new ideas in sustainable
hotel design.
ways to commercialise CR to build
competitive advantage; and
• launch version 2.0 of the online
Innovation Hotel.
Collaboration
• Began to integrate CR into the brand planning process;
• Continue to integrate CR into
• refined our stakeholder engagement process;
• made CR an integral part of staff induction;
• held a staff ‘lunch and learn’ event to present ideas for the
hotel of the future; and
• developed Green Engage version 2.0 based on user feedback.
brand strategies;
• utilise the CR and its supporting
committees to drive globally-aligned
decisions around environment and
community;
• add a CR component to IHG employee
engagement survey; and
• work with stakeholders such as Harvard
University to educate decision-makers on
IHG’s economic impacts.
Environment
• Rolled out Green Engage to our owned and managed hotels
• Roll out version 2.0 of Green Engage; and
and to 400 franchised hotels;
• explore ‘green’ standards with our
• completed Green Engage studies to guide the development
hotel brands.
of Green Engage version 2.0;
• LEED endorsement of Green Engage;
• Global Carbon Strategy Team developed a carbon strategy;
• awarded Carbon Trust Standard in the UK for showing
genuine carbon reductions and a commitment to ongoing
reductions; and
• worked with Oxford University department of plant sciences
to understand better how hotel design and development
impacts the environment – funding provided by Priority Club
Rewards members who want to convert to email statements
and pass the savings to a good cause.
Community
• Refined Community Strategy;
• Expand IHG Academy concept across
- surveyed all owned and managed hotels to understand
major regions;
their current and future community activities;
• refine General Managers’ survey so we
- at corporate level, defined areas of focus and aligned
corporate community activities accordingly; and
- established a Community Strategy Committee.
• expanded the IHG Academy concept with pilots in the UK
and US;
• established a new partnership with Business in the
Community; and
• continued to work with the London Organising Committee
of the Olympic and Paralympic Games to support the
sustainability goals of London 2012, sharing our learning
on community and Green Engage.
have an awareness of activity in our hotels;
• continue to align corporate efforts to
support new strategy;
• create IHG volunteer portal to encourage
and track volunteerism;
• align corporate responsibility activity with
2012 Olympic activation plan; and
• announce a strategic partner in providing
disaster relief.
For more information please visit our Corporate Responsibility website at www.ihgplc.com/responsibility
and the Innovation Hotel at www.ihgplc.com/innovation
Risk management
As a business, IHG manages and takes risks every day. However,
we recognise that by managing risks effectively, particularly
the major risks that may affect our business plans and strategic
objectives, we are able to protect or enhance our key assets
appropriately. Amongst our key assets, we have:
• brands and market position;
• financial strength and performance;
• business capability and systems including people, IT systems
and ways of working; and
• business reputation and relationships with our stakeholders.
Accordingly, we have established a risk management framework
applied to IHG’s Business and Hotel Safety risks. The aim in 2011
is to embed and mature this approach to risk management
even further.
Business risk management
Capability, process and framework
In 2010, the Group improved its risk management capability across
the business by fine-tuning the process and focusing on emerging
risks. For all key risks, existing controls were identified and
assessed as well as the ability, benefit and cost to improve them.
The work is documented in ‘heat maps’ and risk action plans which
support the risks.
The process for identifying and managing key risks to IHG begins
with risk assessments involving a wide range of stakeholder inputs.
These result in risk profiles and actions for all regions and
functions, which are monitored and reported regularly by senior
leadership teams.
The region and function risks are consolidated, refined and
calibrated with a strategic view of risks at the Risk Working Group
chaired by the Company Secretary and comprising the heads of
IHG’s strategy, risk management and internal audit functions.
The resultant set of risks and action plans are discussed and
further refined at the Executive Committee and finally considered
and agreed by the Board. The Audit Committee focuses on the
robustness of the risk management process and the effectiveness
of actions in managing these risks. This may include calling on risk
owners to report on progress in managing key risks and actions.
At each stage of the process communications are two way,
facilitated by the Risk Management department and nominated
risk coordinators embedded in the business.
Business review 31
This process is referred to as the Major Risk Review, the key
elements of which are represented in the diagram below:
BOARD/AUDIT COMMITTEE
EXECUTIVE COMMITTEE
MAJOR RISK REVIEW
GROUP LEVEL RISKS
RISK WORKING GROUP
REGION AND FUNCTION RISKS
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Working together to manage corporate risk
The development of IHG’s risk management culture and capability
is a collaborative effort led by the Company Secretary. IHG’s vision
for risk management is to foster a culture that becomes instinctive,
well-informed, curious, alert, responsive, consistent and
accountable.
Risk management activity permeates the whole Group and
is embedded in our business processes. For example, risk
management is included in the strategic review process between
the Chief Executive and individual Executive Committee members
twice a year. This ‘tone from the top’ support for risk management
is cascaded into the business.
In addition, the strategy, risk management, internal audit and legal
and regulatory compliance teams are all represented at the Risk
Working Group to align activities, leverage skills and relationships
and provide consistent key messages to the Executive Committee
and the Board.
Strategy:
The strategy function provides a strong link to forward-looking
value creation opportunities and asset protection requirements
of the business.
Risk Management:
The risk management function focuses on driving action to support
the strategy and protect assets by building a risk-aware and
proactive culture and capability amongst management, focusing
on risks prioritised by the business leaders.
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32 IHG Annual Report and Financial Statements 2010
Business review continued
Assurance:
Global Internal Audit uses a risk-based approach to provide
assurance and identify vulnerabilities and opportunities for
improving existing controls that business leaders might not
have identified for themselves.
Global Internal Audit is separately responsible for providing
assurance across the Group and provides reports on the internal
control framework to the Audit Committee. This ensures
appropriate allocation of duties between the risk management
and internal audit functions and hence supports good governance.
Legal/Compliance:
Our legal and regulatory compliance teams protect and support
the business by identifying and interpreting regulations applicable
to IHG, using a risk-based approach to create awareness and
achieve compliance.
Risk governance:
Risk governance is included in the roles and responsibilities of the
Board, Executive Committee and Audit Committee and is described
in the Corporate Governance section of this Annual Report on
pages 42 to 46.
The Risk Working Group and the Company Secretary provide
operational leadership to risk governance and appropriate access
to the Board, its Committees and both the Chief Executive and
the Chairman.
STRATEGY
LEGAL/
COMPLIANCE
ASSURANCE
RISK
MANAGEMENT
Governance
Major Risk Review and risk mitigation activity
The Board is ultimately responsible for the Group’s strategy, risk
management and system of internal control, and for reviewing
their effectiveness. In discharging this responsibility, the Board
considered the 2010 Major Risk Review.
The 2010 Major Risk Review focused on all key, changing or
emerging risks and in particular the mitigating actions and controls
necessary or already in place. The following section gives insight
into some of these risks and control activities:
Capital availability – the recent difficult economic conditions have
made capital availability a challenge for our current and potential
hotel owners which could impact the size of the existing estate
or the delivery and growth of the hotel development pipeline.
In response to the market conditions, specialist teams were
formed within the mature markets focused on monitoring and
analysing market conditions, supporting owners with distressed
assets and reviewing financial alternatives with lenders. In addition,
development teams focused on opportunities with less capital
requirement, to improve likelihood of completion.
Data security and credit card fraud – studies from credit card
companies report that global incidents related to data security or
credit card fraud in the hotel and hospitality industry is increasing.
IHG takes this risk very seriously and has been using risk-based
methods to build capability and resilience into our systems for a
number of years, as well as moving to Payment Card Industry –
Data Security Standards (PCI-DSS). In the last year, the Group has
achieved PCI compliance for core systems, increased data security
resources and efforts globally, formed a Data Security Task Force
to bolster our response to incidents and continued with the
Information Security Council, as a governing body, which is attended
by senior executives across the business, directly focused on
containing this risk.
Maintenance and upgrading of systems and platforms – IHG is
reliant on a number of key IT systems and platforms which require
continuous investment, maintenance and system upgrades to
meet changing user requirements, system capabilities and
specifications. In 2010, the Group continued to invest substantially
in IT systems, with a number of key projects. The Group also
strengthened project risk management and project governance
capability to ensure alignment of strategic projects, successful
project delivery and to minimise business, interruption.
Distribution channels and intermediaries – there has been a shift
towards online sales and distribution channels over recent years.
This includes increasing dependence on comparison websites
and search engines. Sales through these channels typically have
high commission rates and are taking a larger share across the
travel and hospitality sector. IHG has responded well in this area
by devoting more than half of its discretionary marketing budget
to non-traditional tools such as online search, loyalty programmes
and direct/incentive-based marketing. The Group has also
continually invested in developing IHG’s own internet presence
and we have the scale to negotiate favourable terms with
business partners.
Terrorism and security – security risks, particularly the threat
of terrorism, continue to be a significant concern for the hospitality
industry as a whole. IHG has implemented a sophisticated risk
mitigation and response programme that is intelligence-led
and risk-based. For the highest risk sites, detailed threat and
vulnerability assessments have been conducted. This year, IHG
also launched a new Crisis Management Toolkit to ensure that
hotels and corporate offices are prepared to respond to crisis
events or scenarios.
Business review 33
Managing risk in hotels
Process and framework
IHG has an established risk management process and framework embedded in owned and managed hotels in all regions. These are also
made available to our franchised hotels. The long-term strategic goals are aligned with the IHG core purpose Great Hotels Guests Love and
include three key elements:
• safety and security of guests, employees and other third parties;
• brand strength supported by operational excellence in risk management at all hotels and corporate locations; and
• maintenance and promotion of IHG’s reputation.
Our approach has been to enable and support hotel owners, staff and corporate functions to manage risk effectively. This is accomplished
by giving them a systematic approach and framework to follow and by providing them with tools to do the job.
The Risk Management function aims to share specialist knowledge and capability globally whilst being aligned to the operational structure
of the business to ensure local circumstances are understood and respected and greater engagement of our people is achieved.
Safety and security risks in hotels
A strategic framework for hotel safety and security has been designed for owned and managed hotels and is illustrated below, showing the
identified groups of risks and describing the management activities carried out to mitigate those risks.
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CRISIS &
INCIDENT
FIRE
SAFETY
LEISURE
SAFETY
SAFE
HOTEL
GUEST
SAFETY
FOOD
SAFETY
STAFF
SAFETY
RISK
PROFILE
POLICY &
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REVIEW
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WAYS OF
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MANAGE
RISK
RISK
FINANCING
TRAINING
& COMMS
OPERATE
& CONTROL
Hotel safety framework
The Safe Hotel wheel illustrates the groups of
hotel risks identified and actively managed by
IHG’s risk managers around the world. They work
with hotels and their management teams in order
to minimise such risks and keep hotels safe
and secure.
As a result of our holistic approach to risk, we are
able to maintain and develop risk management
strategies to assess and control individual types
of risk. This has involved developing policies,
standards and guidelines, raising awareness
levels, training staff on controls and systems to be
used to manage and mitigate risk and reviewing
and reporting upon progress and emerging risk.
These management activities are represented by
the Manage Risk wheel.
Mitigating hotel safety and security risks
Risks are identified at the hotel level through various means including intelligence gathering, quality audits, risk management assessments
and internal audits. They are also identified as a result of guest satisfaction surveys, incidents, customer audits and self-assessment.
IHG hotel management discuss issues at monthly safety meetings and action plans are developed. Risks are prioritised, assigned and
improvement actions are identified, progressed and monitored. Action plans are reviewed at appropriate levels in the organisation for
issues that need to be escalated either to drive action or to develop common solutions.
IHG believes it has a mature and capable systemic and systematic approach to managing hotel safety and security risk which reduces both
the likelihood and impact of events. The embedded culture within IHG makes hotels and the corporation more resilient to unexpected or
unidentifiable risks.
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34 IHG Annual Report and Financial Statements 2010
Business review continued
2011 risk factors
Whilst the Major Risk Review focused on a number of changing or emerging risks, the Group is subject to a variety of inherent risks which
may have an adverse impact on the business, results of operations, cash flow, financial condition, turnover, profits, assets, liquidity and
capital reserves. The following section describes some of the main risks that could materially affect the Group’s business. The factors
below should be considered in connection with any financial and forward-looking information in this Annual Report and the cautionary
statements regarding forward-looking statements contained on page 121.
The risks below are not the only ones that the Group faces. Some risks are not yet known to IHG and some that IHG does not currently
believe to be material could later turn out to be material.
The Group is reliant on the
reputation of its brands and
the protection of its
intellectual property rights
The Group is exposed to a
variety of risks related to
identifying, securing and
retaining franchise and
management agreements
The Group is exposed to the
risks of political and
economic developments
Any event that materially damages the reputation of one or more of the Group’s brands and/or failure
to sustain the appeal of the Group’s brands to its customers may have an adverse impact on the value
of that brand and subsequent revenues from that brand or business.
In addition, the value of the Group’s brands is influenced by a number of other factors, some of which
may be outside the Group’s control, including commoditisation (whereby price and/or quality becomes
relatively more important than brand identifications due, in part, to the increased prevalence of
third-party intermediaries), consumer preference and perception, failure by the Group or its franchisees
to ensure compliance with the significant regulations applicable to hotel operations (including fire and
life safety requirements), or other factors affecting consumers’ willingness to purchase goods and
services, including any factor which adversely affects the reputation of those brands.
In particular, where the Group is unable to enforce adherence to its operating and quality standards,
or the significant regulations applicable to hotel operations, pursuant to its franchise and management
contracts, there may be further adverse impact upon brand reputation or customer perception and
therefore the value of the hotel brands.
Given the importance of brand recognition to the Group’s business, the Group has invested
considerable resources in protecting its intellectual property, including registration of trademarks and
domain names. However, the controls and laws are variable and subject to change. Any widespread
infringement, misappropriation or weakening of the control environment could materially harm the
value of the Group’s brands and its ability to develop the business.
The Group’s growth strategy depends on its success in identifying, securing and retaining franchise
and management agreements. This is an inherent risk for the hotel industry and franchise business
model. Competition with other hotel companies may generally reduce the number of suitable
franchise, management and investment opportunities offered to the Group and increase the bargaining
position of property owners seeking to become a franchisee or engage a manager. The terms of new
franchise or management agreements may not be as favourable as current arrangements and the
Group may not be able to renew existing arrangements on similarly favourable terms or at all.
There can also be no assurance that the Group will be able to identify, retain or add franchisees to
the Group system or to secure management contracts. For example, the availability of suitable sites,
planning and other local regulations or the availability and affordability of finance may all restrict
the supply of suitable hotel development opportunities under franchise or management agreements.
In connection with entering into franchise or management agreements, the Group may be required
to make investments in, or guarantee the obligations of, third parties or guarantee minimum income
to third parties. There are also risks that significant franchisees or groups of franchisees may have
interests that conflict, or are not aligned, with those of the Group including, for example, the
unwillingness of franchisees to support brand improvement initiatives.
Changes in legislation or regulatory changes may be implemented that have the effect of favouring
franchisees relative to brand owners.
The Group is exposed to the inherent risks of global and regional adverse political, economic and financial
market developments, including recession, inflation, availability of affordable credit and currency
fluctuations that could lower revenues and reduce income. A recession reduces leisure and business
travel to and from affected countries and adversely affects room rates and/or occupancy levels and other
income-generating activities. This may result in deterioration of results of operations and potentially
reduce the value of properties in affected economies. The owners or potential owners of hotels
franchised or managed by the Group face similar risks which could adversely impact IHG’s ability to
retain and secure franchise or management agreements. More specifically, the Group is highly exposed
to the US market and, accordingly, is particularly susceptible to adverse changes in the US economy.
Further political or economic factors or regulatory action could effectively prevent the Group from
receiving profits from, or selling its investments in, certain countries, or otherwise adversely affect
operations. For example, changes to tax rates or legislation in the jurisdictions in which the Group
operates could decrease the proportion of profits the Group is entitled to retain, or the Group’s
interpretation of various tax laws and regulations may prove to be incorrect, resulting in higher
than expected tax charges.
Business review 35
The Group requires the right
people, skills and capability
to manage growth and
change
In order to remain competitive, the Group must employ the right people. This includes hiring and
retaining highly skilled employees with particular expertise or leadership capability. The implementation
of the Group’s strategic business plans could be undermined by failure to build resilient corporate
culture, recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s
succession planning and incentive plans, or a failure to invest in the development of key skills.
Some of the markets in which the Group operates are experiencing economic growth and the Group
must compete against other companies inside and outside the hospitality industry for suitably qualified
or experienced employees. Failure to attract and retain these employees may threaten the success
of the Group’s operations in these markets. Additionally, unless skills are supported by a sufficient
infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated
knowledge if key employees leave the Group.
The Group is exposed to the
risk of events that adversely
impact domestic or
international travel
The room rates and occupancy levels of the Group could be adversely impacted by events that reduce
domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics,
travel-related accidents, travel-related industrial action, increased transportation and fuel costs and
natural disasters, resulting in reduced worldwide travel or other local factors impacting individual
hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse
impact on the Group’s operations and financial results. In addition, inadequate preparedness,
contingency planning or recovery capability in relation to a major incident or crisis may prevent
operational continuity and consequently impact the value of the brand or the reputation of the Group.
The Group is reliant upon its
proprietary reservations
system and is exposed to the
risk of failures in the system
and increased competition in
reservations infrastructure
The value of the brands of the Group is partly derived from the ability to drive reservations through
its proprietary HolidexPlus reservations system, a central repository of all hotel room inventories
linked electronically to multiple sales channels including IHG’s own websites, call centres and hotels,
third-party intermediaries and travel agents.
Lack of resilience in operational availability could lead to prolonged service disruption and may result
in significant business interruption and subsequent impact on revenues. Lack of investment in these
systems may also result in reduced ability to compete. Additionally, failure to maintain an appropriate
e-commerce strategy and select the right partners could erode the Group’s market share.
The Group is exposed to
inherent risks in relation to
technology and systems
The Group is reliant upon certain technologies and systems (including IT systems) for the running
of its business, particularly those which are highly integrated with business operational processes.
Disruption to those technologies or systems could adversely affect the efficiency of the business,
notwithstanding business continuity or disaster recovery processes. The Group may have to make
substantial additional investments in new technologies or systems to remain competitive. Failing to
keep pace with developments in technologies or systems may put the Group at a competitive
disadvantage. The technologies or systems that the Group chooses may not be commercially
successful or the technology or system strategy employed may not be sufficiently aligned with the
needs of the business or responsive to changes in business strategy. As a result, the Group could
lose customers, fail to attract new customers or incur substantial costs or face other losses.
The Group is exposed to the
risks of the hotel industry
supply and demand cycle
The future operating results of the Group could be adversely affected by industry overcapacity
(by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry,
or other differences between planning assumptions and actual operating conditions. Reductions
in room rates and occupancy levels would adversely impact the results of Group operations.
The Group may experience a
lack of selected development
opportunities
While the Group is operating in 100 countries and territories, if the availability of suitable development
sites becomes limited for IHG and its prospective hotel owners, for example due to saturation or
changing geo-political circumstances, this could adversely affect the Group’s future growth pipeline.
The Group is exposed to
risks related to corporate
responsibility
The reputation of the Group and the value of its brands are influenced by a wide variety of factors,
including the perception of key stakeholders and the communities in which the Group operates.
The social and environmental impacts of business are under increasing scrutiny, and the Group is
exposed to the risk of damage to its reputation if it fails to demonstrate sufficiently responsible
practices, ethical behaviour, or fails to comply with regulatory requirements in a number of areas
such as fraud, bribery and corruption, safety and security, sustainability and responsible tourism,
environmental management, equality, diversity and human rights, and support for local communities.
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36 IHG Annual Report and Financial Statements 2010
Business review continued
The Group is exposed to the
risk of litigation
The Group could be at risk of litigation from many parties, including guests, customers, joint venture
partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of hotels we
manage. Claims filed in the US may include requests for punitive damages as well as compensatory
damages. Exposure to litigation or fines imposed by regulatory authorities may also affect the
reputation of the Group.
The Group may face
difficulties insuring its
business
Historically, the Group has maintained insurance at levels determined to be appropriate in light of the
cost of cover and the risk profiles of the business in which it operates. However, forces beyond the
Group’s control, including market forces, may limit the scope of coverage the Group can obtain and the
Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as
terrorist attacks or natural disasters may be uninsurable or simply too expensive to insure. Inadequate
or insufficient insurance could expose the Group to large claims or could result in the loss of capital
invested in properties, as well as the anticipated future revenue from properties, and could leave the
Group responsible for guarantees, debt or other financial obligations related to such properties.
The Group is exposed to a
variety of risks associated
with its financial stability,
ability to borrow and satisfy
debt covenants
While the strategy of the Group is to extend the hotel network through activities that do not involve
significant amounts of its own capital, we do require capital to fund some development opportunities
and to maintain and improve owned hotels. The Group is reliant on having financial strength and
access to borrowing facilities to meet these expected capital requirements. The majority of the Group’s
borrowing facilities are only available if the financial covenants in the facilities are complied with.
Non-compliance with covenants could result in the lenders demanding repayment of the funds
advanced. If the Group’s financial performance does not meet market expectations, it may not be
able to refinance existing facilities on terms considered favourable.
The Group is required to
comply with data privacy
regulations
Existing and emerging data privacy regulations limit the extent to which the Group can use personal
identifiable information. Compliance with these regulations in each jurisdiction in which the Group
operates may require changes in the way data is collected, monitored, stored and used, which
could increase operating costs or limit the advantages from possessing such data. In addition,
non-compliance with data privacy regulations may result in fines, damage to reputation or
restrictions on the use or transfer of information.
The Group is exposed to the
risks related to information
security
The Group is increasingly dependent upon the availability, integrity and confidentiality of information
including, but not limited to, guest and employee credit card, financial and personal data, business
performance and financial reporting.
The reputation and performance of the Group may be adversely affected if it fails to maintain
appropriate confidentiality of information and ensure relevant controls are in place to enable the
release of information only through the appropriate channels in a timely and accurate manner.
The Group is exposed to
funding risks in relation to
the defined benefits under
its pension plans
The Group is required by law to maintain a minimum funding level in relation to its ongoing obligation
to provide current and future pensions for members of its UK pension plans who are entitled to defined
benefits. In addition, if certain plans of the Group are wound up, the Group could become statutorily
liable to make an immediate payment to the trustees to bring the funding of defined benefits to a level
which is higher than the minimum legal requirements. The contributions payable by the Group must
be set with a view to making prudent provision for the benefits accruing under the plans of the Group.
In particular, the trustees of IHG’s UK defined benefit plan may demand increases to the contribution
rates relating to the funding of this plan, which would oblige relevant employers of the Group to
contribute extra amounts. The trustees must consult the plan’s actuary and principal employer before
exercising this power. In practice, contribution rates are agreed between the Group and the trustees on
actuarial advice, and are set for three-year terms. The funding implications of the last actuarial review
are disclosed in the notes to the Group financial statements on pages 98 to 101.
Business review and The Board, senior management and their responsibilities 37
Business review 37
The Board, senior management
and their responsibilities
38 The Board of Directors
39 Other members of the Executive Committee
40 Directors’ report
42 Corporate governance
47 Audit Committee report
48 Remuneration report
48 Shareholder letter
49 Introduction
49 The Remuneration Committee
50 Remuneration policy and structure
51 Base salary and benefits
51 Annual Bonus Plan
52 Long Term Incentive Plan
53 Performance graph
54 Total compensation
54 Shareholding policy
55 Policy regarding pensions
55 Non-Executive Directors’ pay
55 Service contracts
56 Audited information on Directors’ emoluments
In this section we present our Board and
senior management team, our governance
processes and procedures, and our
compliance with the codes and
regulations to which we are committed.
We also present details of Directors’
remuneration in 2010, and the structure
of senior executives’ pay for 2011.
Hotel Indigo London-Tower Hill, UK
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38 IHG Annual Report and Financial Statements 2010
The Board of Directors
David Webster
Non-Executive Chairman*
Chairman of the Nomination Committee
Appointed Deputy Chairman and Senior Independent Director of
InterContinental Hotels Group on the separation of Six Continents PLC
in April 2003. Appointed Non-Executive Chairman on 1 January 2004.
Also Non-Executive Chairman of Makinson Cowell Limited, a capital
markets advisory firm, a Non-Executive Director of Amadeus IT
Holding SA, a transaction processing and technology solutions
company for the travel and tourism industry, a member of the
Appeals Committee of the Panel on Takeovers and Mergers and a
Director of Temple Bar Investment Trust PLC. Formerly Chairman
of Safeway plc and a Non-Executive Director of Reed Elsevier PLC.
Age 66.
Andrew Cosslett
Chief Executive†
Appointed Chief Executive in February 2005, joining the Group
from Cadbury Schweppes plc where he was most recently
President, Europe, Middle East & Africa. During his career at
Cadbury Schweppes he held a variety of senior regional management
and marketing roles in the UK and Asia Pacific. Also has over
11 years’ experience in brand marketing with Unilever. A member
of the Executive Committee of the World Travel & Tourism Council
and a member of the President’s Committee of the CBI. Age 55.
Richard Solomons
Chief Financial Officer and Head of Commercial Development†
Qualified as a chartered accountant in 1985, followed by seven years
in investment banking, based in London and New York. Joined the
Group in 1992 and held a variety of senior finance and operational
roles. Appointed Finance Director of the Hotels business in
October 2002 in anticipation of the separation of Six Continents PLC
in April 2003. Responsible for corporate and regional finance,
Group financial control, strategy, investor relations, tax, treasury,
commercial development and procurement. Age 49.
James Abrahamson
President, The Americas†
Appointed a Director in August 2010. Has over 32 years’
experience in hotel operations, branding, development and
franchise relations. Joined the Group as an Executive Committee
member with responsibility for the Americas region in January
2009 from Global Hyatt Corporation, where he served as Head of
Development, The Americas. Previously Senior Vice President,
Hilton Hotels Corporation for 12 years. Responsible for the
business development and performance of all the hotel
brands and properties in the Americas region. Age 55.
Kirk Kinsell
President, EMEA†
Appointed a Director in August 2010, retaining his responsibility
for the EMEA region, which he had held as an Executive Committee
member since September 2007. Has over 28 years’ experience in
the hospitality industry, including senior franchise positions with
Holiday Inn Corporation and ITT Sheraton, prior to joining the Group
in 2002 as Senior Vice President, Chief Development Officer for the
Americas region. Responsible for the business development and
performance of all the hotel brands and properties in the EMEA
region. Age 56.
David Kappler
Senior Independent Non-Executive Director#
Chairman of the Audit Committee
Appointed a Director and Senior Independent Director in June 2004.
A Non-Executive Director of Shire plc. A qualified accountant and
formerly Chief Financial Officer of Cadbury Schweppes plc and
Non-Executive Chairman of Premier Foods plc. Also served as a
Non-Executive Director of Camelot Group plc and HMV Group plc.
A member of the Trilantic Europe Advisory Council. Age 63.
Graham Allan
Non-Executive Director•
Appointed a Director in January 2010. Became Chief Executive Officer
of Yum! Restaurants International (YRI), a subsidiary of
Yum! Brands, Inc., in 2010 after serving as President since 2003.
Previously Executive Vice President and Chief Operating Officer
of YRI and Managing Director of YRI in Europe. Has over 19 years’
experience in brand management, marketing, franchising and retail
development. Age 55.
Ralph Kugler
Non-Executive Director°
Chairman of the Remuneration Committee
Appointed a Director in April 2003. Also Chairman of Byotrol plc,
a hygiene technology company, a Non-Executive Director of
Discovery Group Holdings Ltd, a PR services company, Board
Adviser at Mars, Incorporated, the global consumer business,
a Non-Executive Director of Spotless Holding Sas, a consumer
products business, and Senior Adviser to 3i plc. Previously Director on
the boards of Unilever PLC and Unilever N.V. until May 2008, with his
last role as Global President, Unilever Home and Personal Care. Age 54.
Jennifer Laing
Non-Executive Director•
Chairman of the Corporate Responsibility Committee
Appointed a Director in August 2005. Was Associate Dean,
External Relations at London Business School, until 2007. A Fellow
of the Marketing Society and of the Institute of Practitioners in
Advertising, has over 30 years’ experience in advertising including
16 years with Saatchi & Saatchi. Also a Non-Executive Director of
Hudson Highland Group, Inc., a US human resources company.
Age 63.
Jonathan Linen
Non-Executive Director‡
Appointed a Director in December 2005. Was formerly Vice Chairman
of the American Express Company, having held a range of senior
positions throughout his career of over 35 years with
American Express. A Non-Executive Director of Yum! Brands, Inc.
and Modern Bank, N.A., a US private banking company. Also serves
on a number of US Councils and advisory boards. Age 67.
Ying Yeh
Non-Executive Director‡
Appointed a Director in December 2007. Vice President and
Chairman, Greater China Region, Nalco Company, a water
treatment and process improvement company. Previously
Chairman and President, North Asia Region, President,
Business Development, Asia Pacific Region and Vice President,
Eastman Kodak Company. Also a Non-Executive Director of
AB Volvo. Was, for 15 years, a diplomat with the US Foreign
Service in Hong Kong and Beijing until 1997. Age 62.
The Board of Directors and Other members of the Executive Committee 39
The Board of Directors and members of the
Executive Committee together comprise the IHG Senior
Leadership Team.
While the Directors have certain specific legal and
regulatory duties and responsibilities, they work with and
rely on the detailed knowledge and experience of the
Executive Committee members to secure the effective
running of the business in support of IHG’s core purpose
to create Great Hotels Guests Love, and its Vision to
become one of the world’s great companies.
* A Non-Executive Director and a member
of the Nomination Committee
† A member of the Executive Committee
# An independent Non-Executive Director and a member
of the Audit, Remuneration and Nomination Committees
• An independent Non-Executive Director and a member
of the Audit, Nomination and Corporate Responsibility
Committees
° An independent Non-Executive Director and a member
of the Audit, Remuneration, Nomination and Corporate
Responsibility Committees
‡ An independent Non-Executive Director and a member
of the Remuneration and Nomination Committees
§ Not a main Board Director
Other members of the Executive Committee
Tom Conophy
Executive Vice President and Chief Information Officer†§
Has over 30 years’ experience in the IT industry, including
management and development of new technology solutions within
the travel and hospitality business. Joined the Group in February
2006 from Starwood Hotels & Resorts International where he held
the position of Executive Vice President & Chief Technology Officer.
Responsible for global technology, including IT systems and
information management throughout the Group. Age 50.
Tracy Robbins
Executive Vice President, Human Resources
& Group Operations Support†§
Has over 25 years’ experience in line and HR roles in service
industries. Joined the Group in December 2005 from
Compass Group PLC, a world leading food service company, where
she was Group Human Resources Leadership & Development
Director. Previously Group HR Director for Forte Hotels Group.
Has global responsibility for talent management, leadership
development, reward strategy, organisational capability and
operations support. Age 47.
Tom Seddon
Executive Vice President and Chief Marketing Officer†§
Has over 18 years’ experience in sales and marketing in the
hospitality industry, including with IHG’s predecessor parent
companies from 1994 to 2004. Rejoined the Group in November
2007, from restaurant business SUBWAY® where he was
responsible for worldwide sales and marketing activities. Has
responsibility for worldwide brand management, reservations,
e-commerce, global sales, relationship and distribution marketing,
and loyalty programmes. Age 42.
George Turner
Executive Vice President, General Counsel and
Company Secretary†§
Solicitor, qualified to private practice in 1995. After 12 years with
Imperial Chemical Industries PLC, where he was most recently
Deputy Company Secretary, he joined the Group in September
2008. Appointed Executive Vice President, General Counsel and
Company Secretary in January 2009. Responsible for corporate
governance, risk management, insurance, data privacy, internal
audit, company secretariat, legal and corporate responsibility &
public affairs. Age 40.
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40 IHG Annual Report and Financial Statements 2010
Directors’ report
The Directors present their report for the financial year ended
31 December 2010.
Certain information required for disclosure in this report is
provided in other appropriate sections of the Annual Report and
Financial Statements 2010. These include the Business Review, the
Corporate Governance and Remuneration Reports and the Group
financial statements, and these are, accordingly, incorporated into
this report by reference.
Activities of the Group
The principal activities of the Group are in hotels and resorts, with
franchising, management, ownership and leasehold interests in
over 4,400 establishments, with more than 640,000 guest rooms in
100 countries and territories around the world.
Business review
This Directors’ Report should be read in conjunction with the
Chairman’s statement and the Chief Executive’s review on pages
3 to 5, and the Business Review on pages 8 to 36. Taken together,
these provide a fair review of the Group’s strategy and business,
significant developments during the year and a description of the
principal risks and uncertainties it faces. The development and
performance of the business during and at the end of the year
are described, together with main trends, factors and likely
developments, key performance indicators, environmental and
employee matters, and social and community issues.
Results and dividends
The operating profit before exceptional items was $444m: the
Group’s income statement is set out on page 64 of the Group
financial statements. An interim dividend of 8.0p per share
(12.8 cents per ADR) was paid on 1 October 2010. The Directors are
recommending a final dividend of 22.0p per share (35.2 cents per
ADR) to be paid on 3 June 2011 to shareholders on the Register of
Members at the close of business on 25 March 2011. Total dividends
relating to the year are expected to amount to $101m.
Share capital
During the year, 2,496,584 new shares were issued under employee
share plans. The Company’s issued share capital at 31 December
2010 consisted of 289,472,651 ordinary shares of 1329⁄47p each.
There are no special control rights or restrictions on transfer
attaching to these ordinary shares.
IHG operates an Employee Share Option Trust (ESOT) for the benefit
of employees and former employees. The ESOT purchases shares
in the market and releases them to current and former employees
in satisfaction of share awards. During the year, the ESOT released
1,492,859 shares and at 31 December 2010 it held 1,900,036 shares
in the Company. The ESOT adopts a prudent approach to purchasing
shares, using funds provided by the Group, based on expectations
of future requirements.
No awards or grants over shares were made during 2010 that
would be dilutive of the Company’s ordinary share capital.
Current policy is to settle the majority of awards or grants under
the Company’s share plans with shares purchased in the market.
A number of options granted up to 2005 are yet to be exercised and
will be settled with the issue of new shares.
The Company has not utilised the authority given by shareholders at
any of its Annual General Meetings to allot shares for cash without
first offering such shares to existing shareholders.
Share repurchases
No shares were purchased or cancelled under the authority
granted by shareholders at the Annual General Meeting held on
28 May 2010. The share buyback authority remains in force until
the Annual General Meeting in 2011, and a resolution to renew
the authority will be put to shareholders at that Meeting.
Substantial shareholdings
As at 14 February 2011, the Company had been notified, in
accordance with the Disclosure and Transparency Rules of the UK
Financial Services Authority, of the following significant holdings of
voting rights in its ordinary shares:
Cedar Rock Capital Limited
5.07%
Direct interest
BlackRock, Inc.
5.02%
Indirect interest
Capital Research and
Management Company
5.02%
Legal & General Group plc 3.96%
Indirect interest
Direct interest
Directors
Details of Directors who served on the Board during the year are
shown on page 38. Details of the beneficial share interests of
Directors who were on the Board at the year end are shown below.
No changes to these interests occurred between the year end and
the date of this Report.
31 December 2010
InterContinental Hotels Group PLC
ordinary shares1
Executive Directors
James Abrahamson
Andrew Cosslett
Kirk Kinsell
Richard Solomons
Non-Executive Directors
Graham Allan
David Kappler
Ralph Kugler
Jennifer Laing
Jonathan Linen
David Webster
Ying Yeh
52,203
496,133
63,1362
171,522
2,000
1,400
1,169
3,998
7,343 3
34,905
–
1 These shareholdings are all beneficial interests and include shares held by
Directors’ spouses and other connected persons. None of the Directors has
a beneficial interest in the shares of any subsidiary. These shareholdings do
not include Executive Directors’ entitlements to share awards under the
Company’s share plans, which are set out separately in the Remuneration
Report on pages 58 to 60.
2 62,499 ordinary shares and 637 American Depositary Receipts.
3 Held in the form of American Depositary Receipts.
Subject to the Company’s Articles of Association, any relevant
legislation and to any directions given by special resolution, the
business is managed by the Board which may exercise all the
powers of the Company. These include the power to allot and to
purchase shares. The Articles of Association may only be amended
by special resolution of the shareholders.
During the year, IHG has maintained cover for its Directors and
officers, and those of its subsidiary companies, under a directors’
and officers’ liability insurance policy, as permitted by the
Companies Act 2006.
The Group has provided to all of its Directors, indemnities in
respect of costs of defending claims against them and third-party
liabilities. These are all qualifying third-party indemnity provisions
for the purposes of the Companies Act 2006 and are all currently
in force.
There were no indemnity provisions relating to the UK pension
plan, for the benefit of the Directors of the Company, in place
during the period.
Employees
IHG directly employed an average of 7,858 people worldwide
during 2010, whose costs are borne by the Group. When the whole
IHG estate is taken into account (including staff working in the
franchised and managed hotels) approximately 335,000 people are
employed globally across IHG’s brands.
Further information regarding the Group’s employment policies,
including its obligations under equal opportunities legislation,
its commitment to employee communications and its approach
towards staff development, can be found on pages 24 to 27 of the
Business Review.
Charitable donations
During the year, the Group donated $649,760 (2009 $813,900) in
support of community initiatives and charitable causes. In addition,
IHG employees and guests made contributions during 2010 to a
variety of causes through IHG facilitated channels. Taking all these
contributions into account, total donations in 2010 are estimated at
$1,650,000 (2009 $1,675,000).
Political donations
The Group made no political donations during the year and
proposes to maintain its policy of not making such payments.
Financial risk management
The Group’s financial risk management objectives and policies,
including its use of financial instruments, are set out on page 23
of the Business Review and in notes 21 to 23 to the Group financial
statements on pages 91 to 97.
A number of IHG’s financing arrangements are terminable upon
a change of control of the Company.
Directors’ report 41
Policy on payment of suppliers
InterContinental Hotels Group PLC is a holding company and has no
trade creditors. Group companies apply standard payment terms
which are considered reasonable, transparent and consistent with
prevailing commercial practices. These are agreed with suppliers
and payments are contingent on goods or services being supplied
to the required standard.
Auditors
The Directors who held office as at the date of approval of this
report confirm that they have taken steps to make themselves
aware of relevant audit information. None of the Directors is aware
of any relevant audit information which has not been disclosed to
the auditors.
Ernst & Young LLP have expressed their willingness to continue in
office as auditors of the Company and their reappointment will be
put to members at the Annual General Meeting.
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Annual General Meeting
The Notice convening the Annual General Meeting to be held at
11.00am on Friday, 27 May 2011 is contained in a circular sent to
shareholders at the same time as this Report.
Going concern
An overview of the business activities of IHG, including a review of
the key business risks that the Group faces is given in the Business
Review on pages 8 to 36. Information on the Group’s treasury
management policies can be found in note 21 to the Group financial
statements on pages 91 to 95. The Group refinanced its debt in May
2008 and issued a £250m seven-year bond in December 2009 which
was used to retire most of the $500m bank facility that expired in
November 2010. At the end of 2010, the Group was trading
comfortably within its banking covenants and debt facilities.
The Group’s fee-based model and wide geographic spread means
that it is well placed to manage through uncertain times and our
forecasts and sensitivity projections, based on a range of reasonably
possible changes in trading performance, show that the Group
should be able to operate within the level of its current facilities.
After making enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future and, accordingly, they continue to adopt the going concern
basis in preparing the financial statements.
By order of the Board
George Turner
Company Secretary
InterContinental Hotels Group PLC
Registered in England, Number: 5134420
14 February 2011
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42 IHG Annual Report and Financial Statements 2010
Corporate governance
In May 2010 the Financial Reporting Council issued a revised UK
Corporate Governance Code (the new UK Code), building on the
contents of the familiar Combined Code on Corporate Governance
(the Combined Code). The new UK Code applies to financial years
beginning on or after 29 June 2010.
IHG takes its corporate governance responsibilities very seriously
and aims to implement and uphold robust and responsible business
processes and policies throughout the Group. The Board has
therefore already fully reviewed the overall objectives and contents
of the new UK Code, anticipates implementing a number of
improved practices arising from its recommendations and will
report on the Group’s compliance with the new UK Code as part
of its 2011 Corporate Governance statement.
In this section of the Annual Report, we continue formally to report
our compliance against the provisions of the Combined Code,
applicable for our 2010 financial year. However, we also aim to
describe IHG’s evolving approach towards governance, control,
risk management and compliance, recognising the changes
expected ahead.
Combined Code compliance
The Board considers that the Company has complied with all the
provisions of the Combined Code, available at www.frc.org.uk,
throughout the year ended 31 December 2010.
Control environment
The Board is responsible for the Group’s system of internal control
and risk management and for reviewing its effectiveness. In order
to discharge that responsibility, the Board has established the
procedures necessary to apply the Combined Code, including clear
operating procedures, lines of responsibility and delegated authorities.
The Board, the Executive Committee and the Regional Operating
Committees have established processes, as part of the normal
good management of the business, to monitor:
• strategic plan achievement, through a comprehensive series of
Group and regional strategic reviews;
• financial performance, within a comprehensive financial planning
and accounting framework;
• capital investment performance, with detailed appraisal and
authorisation processes; and
• risk management (through an ongoing process, which has been
in place up to the date of the accounts). This provides assurance
through reports from the Head of Risk Management, the Head of
Global Internal Audit, and, as appropriate, from management,
that the significant risks faced by the Group are being identified,
evaluated and appropriately managed, having regard to the
balance of risk, cost and opportunity.
In addition, the Audit Committee reviews:
• regular reports from management, Global Internal Audit and the
external auditor on the effectiveness of systems for internal
control, financial reporting and risk management;
• the timeliness and effectiveness of corrective action taken by
management; and
• material financial and non-financial risks.
The Board has conducted a review of the effectiveness of the
system of risk management and internal control during the year
ended 31 December 2010. This covered all material controls,
including financial, operational and compliance controls, and risk
management systems, and took into account any material
developments since the year end.
The review was carried out through the monitoring process set out
above, which accords with the Turnbull Guidance. The system of
risk management and internal control is designed to manage,
rather than eliminate, the risk of failure to achieve business
objectives and it must be recognised that it can only provide
reasonable and not absolute assurance against material
misstatement or loss. Whilst areas for improvement have been
identified and actions initiated as a result of the above process,
no significant shortcomings have been identified from the annual
assessment.
As IHG’s shares are also listed on the New York Stock Exchange
(NYSE), the Company is subject to the rules of the NYSE, US
securities laws and the rules of the Securities and Exchange
Commission (SEC). To comply with our US obligations, arising from
the Sarbanes-Oxley Act 2002, the key financial controls across all
our business units have been identified and evaluated. This has
enabled appropriate representations regarding the effectiveness
of internal financial controls to be made in the Company’s Annual
Report on Form 20-F.
With regard to insurance against risk, whilst the insurance market
has again softened in some areas, certain risks remain difficult to
insure both as to breadth and cost of coverage. In some cases
external insurance is not available at all or not at an economic
price. The Group regularly reviews both the type and amount of
external insurance that it buys, bearing in mind the availability of
such cover, its price and the likelihood and magnitude of the risks
involved. Our approach to risk management, key risk mitigating
activities and the principal risk factors that could affect the Group
are set out in the Business Review on pages 31 to 36.
Board and Committee structure
To support the principles of good corporate governance, the Board
and Committee structure operates as set out below.
The Board
The Board’s current composition of the Non-Executive Chairman,
four Executive and six Non-Executive Directors meets the
requirement of the Combined Code for at least half the Board,
excluding the Chairman, to be independent Non-Executive Directors.
In the Board’s view, all of the current Non-Executive Directors are
independent. The Chairman was independent on his original
appointment to the Board. Collectively, the Board has an appropriate
balance of skills, experience, independence and knowledge to enable
it to discharge its duties and responsibilities effectively. The roles
of the Chairman and of the Chief Executive are separate and have
been defined in writing and approved by the Board.
The Board is responsible to the shareholders for the strategic
direction, development, performance and control of the Group.
It therefore approves strategic plans and capital and revenue
budgets. It reviews significant investment proposals and the
performance of past investments and maintains an overview
and control of the Group’s operating and financial performance.
It monitors the Group’s overall system of internal controls, risk
management, governance and compliance and considers
regulatory changes and developments in advance, to ensure that
IHG is well-positioned to maintain the Group’s trusted reputation in
these areas. The Board also ensures that the necessary financial
and human resources are in place for the Group to meet its objectives.
The Board has responsibility for the planned and progressive
refreshing of the Board and its Committees. It establishes and
regularly reviews its policy in both of these areas. It is the
Nomination Committee’s responsibility to evaluate formally the
required skills, knowledge and experience of the Board, in a
structured way.
The schedule of matters which are reserved for the Board’s
attention and decision may be found on the Company’s website
at www.ihgplc.com/investors under corporate governance/main
board and executive committee.
Corporate governance 43
Directors of the Company during 2010 were:
David Webster
Andrew Cosslett
James Abrahamson
Kirk Kinsell
Richard Solomons
David Kappler
Graham Allan
Ralph Kugler
Jennifer Laing
Jonathan Linen
Ying Yeh
Position
Non-Executive Chairman
Chief Executive
President, The Americas
President, Europe,
Middle East and Africa
Chief Financial Officer
and Head of Commercial
Development
Non-Executive Director and
Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Date of original
appointment1
15.4.03
3.2.05
1.8.10
1.8.10
10.2.03
21.6.04
1.1.10
15.4.03
25.8.05
1.12.05
1.12.07
1 The capital reorganisation of the Group, effective on 27 June 2005, entailed the
insertion of a new parent company of the Group. All Directors serving at that
time signed new letters of appointment effective from that date. The dates
shown above represent the original dates of appointment of each of the
Directors to the Group’s parent company.
Current Directors’ biographical details are set out on page 38 of this
Annual Report. These include their main external commitments.
On appointment, Non-Executive Directors participate in induction
programmes designed to meet their individual needs and to
introduce them to, and familiarise them with, the principal activities
of the Group and with central and regional management.
Comprehensive induction programmes are also put in place for any
Executive Director who may join the Group and tailored induction is
provided for newly appointed Executive Directors from within the
Group, focusing on their responsibilities as Board Directors. Such
programmes were implemented for James Abrahamson and
Kirk Kinsell on their appointments in August 2010. These induction
programmes accord with best practice guidelines.
The updating of all Directors’ skills and knowledge and
understanding of the Group’s operations is a progressive exercise.
This is accomplished at Board and strategy meetings, through
business presentations and visits to hotels and other premises in
the regions, and through contact with employees. Going forward,
it is intended that the Chairman will regularly review and agree
training and development needs with each Director.
Eight regular Board meetings are scheduled each year, including
a two-day meeting which considers the Group’s strategy. Further
meetings are held as needed. All Directors are briefed by means
of comprehensive papers in advance of and by presentations at
these meetings.
During 2010, eight Board meetings were held. These were attended
by all Directors. Should any Director be unable to attend a meeting,
he or she would be provided with all the papers and information
relevant to that meeting and be able to discuss matters arising with
the Chairman and the Chief Executive.
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44 IHG Annual Report and Financial Statements 2010
Corporate governance continued
The Company’s Articles of Association allow the Directors to
authorise conflicts and potential conflicts of interest, where
appropriate. The Board has conflicts of interest as a standing
agenda item at each meeting and during 2010 asked each of the
Directors to identify any conflicts or potential conflicts by returning
a questionnaire to the Company Secretary. The Board considered
all the responses to the questionnaire and approved potential
conflicts as it deemed appropriate.
Performance evaluations of the Board, its main Committees and
the Directors were undertaken for 2010. An independent external
facilitator assists in the performance evaluation in alternate years.
This facilitator has no other connection with IHG. The 2010
evaluation was conducted internally by the Company Secretary.
The 2010 Board evaluations, including those of the Committees, the
Chairman and all Directors, involved completion of comprehensive
questionnaires and the Chairman having discussions with each
Director individually.
The Board questionnaire covered its role and organisation, agenda,
information flow, monitoring of Group performance, leadership
and culture and focus on priority tasks, including strategy and
corporate governance.
The Board received feedback through a presentation at a meeting
of the full Board, and the findings were discussed. It was concluded
that the Board was operating effectively and areas where more
emphasis could be considered were identified.
The work and effectiveness during the year of the Audit,
Remuneration, Nomination and Corporate Responsibility
Committees and their respective Chairmen were also evaluated.
These reviews concluded that each Committee was operating in
an effective manner.
With regard to the performance of individual Directors, attention
was focused on levels of skill, experience, attendance and
contribution, ability to listen and to address key issues. As part of
the evaluation process, the Chairman held meetings with each
Director and it was concluded that they continue to make an
effective contribution to the work of the Board. All Directors are
well prepared and informed concerning items to be considered by
the Board, have a good understanding of the Group’s business and
retain a strong commitment to their roles.
During the year, the Non-Executive Directors met together without
the Chairman present, under the chairmanship of the Senior
Independent Director, to appraise the Chairman’s performance.
All the Non-Executive Directors, including the Chairman, met to
appraise the Chief Executive’s performance.
In accordance with the recommendations of the new UK Code it
is the Chairman’s intention to report next year how the principles
relating to the role and effectiveness of the Board have applied
during 2011.
Chairman
David Webster was Non-Executive Chairman throughout the year.
He is also Non-Executive Chairman of Makinson Cowell Limited,
a member of the Appeals Committee of the Panel on Takeovers
and Mergers, and a Director of Temple Bar Investment Trust PLC.
In May 2010 he was appointed a Non-Executive Director of Amadeus
IT Holding SA.
The Chairman has responsibility for ensuring the efficient
operation of the Board and its Committees, for overseeing
corporate governance matters and ensuring they are addressed,
for representing the Group externally and communicating
particularly with shareholders. Working closely with the Chief
Executive and the Company Secretary, he also ensures that
Directors receive a full, formal and tailored induction to the Group
and its business and that all Directors are fully informed of relevant
matters. The Chairman also meets with the Non-Executive
Directors, without Executive Directors present.
Chief Executive
Andrew Cosslett was Chief Executive throughout the year. He has
responsibility to recommend to the Board and to implement the
Group’s strategic objectives. He is responsible for the executive
management of the Group. He is a member of the Executive
Committee of the World Travel & Tourism Council and a member
of the President’s Committee of the CBI. Neither of these positions
is remunerated.
Senior Independent Director
David Kappler was Senior Independent Director throughout the
year. His responsibilities include being available to liaise with
shareholders who have issues to raise and leading the
performance evaluation of the Chairman.
Non-Executive Directors
A team of experienced independent Non-Executive Directors
represents a strong source of advice and judgement. There are
currently six such Directors, in addition to the Non-Executive
Chairman, each of whom has significant external commercial
experience. The Non-Executive Directors, including the Chairman,
meet during the year to consider the Group’s business and
management.
Non-Executive Directors have the opportunity of continuing
professional development during the year and of gaining further
insight into the Group’s business. In addition, the training
requirements of the Non-Executive Directors are kept under review.
Company Secretary
All Directors have access to the advice and services of the Company
Secretary. His responsibilities include ensuring good information
flows to the Board and its Committees and between senior
management and the Non-Executive Directors. He facilitates the
induction of Directors, the regular updating and refreshing of their
skills and knowledge and he assists them in fulfilling their duties
and responsibilities. Through the Chairman, he is responsible for
advising the Board on corporate governance and generally for
keeping the Board up to date on all legal, regulatory and other
developments. The Company Secretary acts as secretary to each
of the main Board Committees. The appointment and removal of
the Company Secretary is a matter reserved for the Board.
Corporate governance 45
Committees
Each Committee of the Board has written terms of reference which are approved by the Board and which are subject to review every year.
Audit Committee
The Audit Committee is chaired by David Kappler who has significant recent and relevant financial experience and is the Committee’s
financial expert. During 2010 the other Committee members were Graham Allan, Ralph Kugler and Jennifer Laing. The Committee is
scheduled to meet at least four times a year. The Committee met five times in 2010. The Audit Committee’s role is described on page 47.
Remuneration Committee
The Remuneration Committee, chaired by Ralph Kugler, also comprises the following Non-Executive Directors: David Kappler, Jonathan
Linen and Ying Yeh. It meets at least four times a year. The Committee met five times during 2010. The Remuneration Committee’s role is
described on page 49.
Nomination Committee
The Nomination Committee comprises the Chairman of the Board and all the Non-Executive Directors. It is chaired by the Chairman of
the Board except when matters relating to this position are to be discussed, in which case it is chaired by an independent Non-Executive
Director. It meets at least twice a year and additional meetings are held as necessary. The Committee met eight times during 2010.
The Committee leads the process for Board appointments and nominates candidates for approval by the Board. The balance of skills,
experience, independence and knowledge of Board members is evaluated in order to define the requirements for a particular appointment.
The Committee generally engages external consultants to advise on candidates for Board appointments and appointments are made on merit,
against objective criteria, including ability to commit time, and with due regard for the benefits of diversity, including gender. The Committee
also has responsibility for succession planning and assists in identifying and developing the role of the Senior Independent Director.
During 2010 the Committee discussed succession planning for both the Executive Committee and the Board, considered and
recommended new Executive Director appointments, which have now been implemented, and considered the appointment of an
additional Non-Executive Director.
Corporate Responsibility Committee
The Corporate Responsibility Committee, chaired by Jennifer Laing, was established in February 2009. The other Committee member
during 2010 was Ralph Kugler. Graham Allan joined the Committee in January 2011. Meetings are regularly attended by other members of
the Board and Executive Committee. The Committee is scheduled to meet at least twice a year and met three times in 2010. The Corporate
Responsibility Committee’s role is described on page 28.
A summary of each Director’s attendance at the Board and its principal Committee meetings during 2010 is provided in the table below:
David Webster
Andrew Cosslett
James Abrahamson
Kirk Kinsell
Richard Solomons
Graham Allan
David Kappler
Ralph Kugler
Jennifer Laing
Jonathan Linen
Ying Yeh
Total meetings held
Chairman
Executive Director
Executive Director
Executive Director
Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Board
8
8
4*
4*
8
8
8
8
8
8
8
8
Audit Remuneration
Committee
n/a
n/a
n/a
n/a
n/a
n/a
5
5
n/a
4‡
5
5
Committee
n/a
n/a
n/a
n/a
n/a
5
5
5
5
n/a
n/a
5
Corporate
Nomination Responsibility
Committee
Committee
n/a
8
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
8
n/a
8
2†
7†
3
8
n/a
8
n/a
8
3
8
* Appointed a Director on 1 August 2010: attended all Board meetings from this date onwards.
† Unable to attend one meeting due to overseas travel commitment.
‡ Unable to attend one meeting due to family bereavement.
Executive Committee
The Executive Committee is chaired by the Chief Executive. It consists of the Executive Directors and the most senior executives from the
Group and usually meets monthly. Its role is to consider and manage a range of important strategic and business issues facing the Group.
It is responsible for monitoring the performance of the business. It is authorised to approve capital and revenue investment within levels
agreed by the Board. It reviews and recommends to the Board the most significant investment proposals.
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46 IHG Annual Report and Financial Statements 2010
Corporate governance continued
Disclosure Committee
The Disclosure Committee, chaired by the Group’s Financial
Controller, and comprising the Company Secretary and other senior
executives, reports to the Chief Executive, the Chief Financial Officer
and to the Audit Committee. Its duties include ensuring that
information required to be disclosed in reports pursuant to UK
and US accounting, statutory or listing requirements, fairly
represents the Group’s position in all material respects.
General Purposes Committee
The General Purposes Committee comprises any one Executive
Committee member together with a senior officer from an agreed and
restricted list of senior executives. It is always chaired by an Executive
Committee member. It attends to business of a routine nature and
to the administration of matters, the principles of which have been
agreed previously by the Board or an appropriate Committee.
Appointment, removal and re-election of Directors
The rules governing the appointment and removal of Directors are
set out in the Company’s Articles of Association. New Directors are
subject to election by shareholders at the next Annual General
Meeting following appointment, and the office of a Director shall
be vacated in the circumstances defined in Article 85 of the
Articles of Association, eg prohibition by law, bankruptcy, absence
without leave.
The Company’s Articles of Association provide that those Directors
who have not been subject to election by shareholders within the
last three years, must retire and stand for re-election at the next
Annual General Meeting.
The new UK Code recommends that all Directors of FTSE 350
companies submit themselves for election or re-election (as
appropriate) by shareholders every year. Although IHG is not
obliged to follow this recommendation until its Annual General
Meeting in 2012, the Board has decided to submit the appointment
of all its Directors for shareholder approval in 2011. Therefore, all
Directors will retire and offer themselves for election or re-election
at the next Annual General Meeting.
The Notice of Annual General Meeting, sent to shareholders at the
same time as this Report, provides further information about the
Directors standing for election and re-election. Information on
Executive Directors’ service contracts is set out on page 55. The
Non-Executive Chairman and the six independent Non-Executive
Directors have letters of appointment. All Directors’ service
contracts and letters of appointment are available for inspection
by shareholders in accordance with relevant legislation.
Independent advice
There is an agreed procedure by which members of the Board
may take independent professional advice in the furtherance of
their duties and they have access to the advice and services of
the Company Secretary, the Company’s external legal advisers
and the external auditors.
Shareholder relations
The Group reports formally to shareholders twice a year when its
half-year and full-year results are announced. The Chief Executive
and the Chief Financial Officer give presentations on these results
to institutional investors, analysts and the media. Telephone dial-in
facilities and live audio webcasts enable access to these
presentations for all shareholders. In addition, there are telephone
conferences after the release of the first and third quarter results.
The data used in these presentations and conferences may be
found at www.ihgplc.com/investors under financial library.
IHG also has a programme of meetings throughout the year with its
major institutional shareholders, which provides an opportunity to
discuss, using publicly available information, the progress of the
business, its performance, plans and objectives. The Chairman, the
Senior Independent Director and other Non-Executive Directors are
available to meet with major shareholders to understand their issues
and concerns and to discuss governance and strategy. Facilitated,
structured meetings are encouraged and any new Director is
available for meetings with major shareholders as a matter of course.
A formal external review of shareholder opinion is presented to the
Board on an annual basis and both the Executive Committee and the
Board receive regular updates on shareholder relations activities.
Additionally, the Annual General Meeting (AGM) provides a useful
interface with private shareholders, many of whom are also
customers. IHG facilitates both postal and electronic voting and all
resolutions are voted on by way of a poll. This ensures that all votes
are counted on the basis of one vote for every share held. At the AGM
itself shareholders receive presentations on the Company’s
performance and may ask questions of the Board, including the
Chairman and Chairmen of the main Board Committees. All votes
cast in respect of each resolution at the AGM are published on the
Company’s website immediately after the Meeting. A comprehensive
range of information about the Group is maintained and available to
shareholders through the Company’s website.
Information on share capital and substantial shareholdings in the
Company is set out on page 40 of the Directors’ Report.
Further information
The terms of reference of all of the Committees of the Board were
reviewed during the year against the latest best practice guidance.
A number of amendments were made to update the Audit,
Remuneration and Nomination Committees’ terms of reference,
which are available on the Company’s website
www.ihgplc.com/investors under corporate governance/committees
or from the Company Secretary’s office on request.
The Articles of Association of the Company are available on
the Company’s website www.ihgplc.com/investors under
corporate governance.
As required by the SEC, a statement outlining the differences
between the Company’s corporate governance practices and
those followed by US companies may be found on the Company’s
website at www.ihgplc.com/investors under corporate governance/
NYSE differences.
George Turner
Company Secretary
14 February 2011
Corporate governance and Audit Committee report 47
Audit Committee report
The Audit Committee supports the Board in meeting its
responsibilities in relation to the integrity of the Group’s financial
statements and associated announcements, the adequacy of
internal control and risk management systems and the
appointment and work of the internal and external auditors. The
role of the Audit Committee is summarised below and in full in its
terms of reference, a copy of which is available on the Company’s
website www.ihgplc.com/investors under corporate governance/
committees or on request.
The Committee’s composition, and the attendance of its members
in 2010, are set out on page 45.
The Committee’s Chairman and financial expert, David Kappler,
is a Chartered Management Accountant and until April 2004 was
Chief Financial Officer of Cadbury Schweppes plc. He also chairs
the Audit, Compliance and Risk Committee of Shire plc.
The Committee’s principal responsibilities are to:
• review the Group’s public statements on internal control, risk
management and corporate governance compliance prior to
their consideration by the Board;
• review the Group’s processes for detecting and addressing
fraud, misconduct and control weaknesses and to consider
the response to any such occurrence, including overseeing
the process enabling the anonymous submission of concerns;
• review reports from management, internal audit and external
audit concerning the effectiveness of internal control, financial
reporting and risk management processes;
During the year, the Committee’s deliberations included the
following matters:
• quarterly, interim and full-year financial results. These public
financial statements are reviewed by the Committee in advance
of their consideration by the Board. There is adequate time
between this review and the Board’s approval to complete any
actions or further work requested by the Committee;
• the scope and cost of the external audit;
• any non-audit work carried out by the Group’s external auditor
(and trends in the non-audit fees) in accordance with the
Committee’s policy to ensure the safeguarding of audit
independence and objectivity;
• the external auditor’s quarterly, interim and full-year reports;
• the effectiveness of the external auditors and consideration of
their objectivity, independence and reappointment;
• the scope of the annual Global Internal Audit plan, Global
Internal Audit’s approach to delivering assurance, its resourcing
and the results of its reviews;
• oversight of the financial control self-assessment process;
• the effectiveness of the Global Internal Audit function and its
compliance with professional standards;
• any major changes in the Group’s internal controls and control
environment;
• the co-ordination of the internal and external audit functions;
• the Group’s framework for the identification and control of
• review with management and the external auditor any financial
major risks, and the results of the Group’s risk review process;
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statements required under UK or US legislation before
submission to the Board;
• establish, review and maintain the role and effectiveness of the
internal audit function, including overseeing the appointment of
the Head of Global Internal Audit;
• assume responsibility for the appointment, compensation,
resignation, dismissal and the overseeing of the external
auditor, including review of the external audit, its cost and
effectiveness;
• pre-approve non-audit work to be carried out by the external
auditor, and the fees to be paid for that work, along with the
monitoring of the external auditor’s independence; and
• oversee the Group’s Code of Ethics and Business Conduct
and associated procedures for monitoring adherence.
The Committee discharges its responsibilities through a series
of Audit Committee meetings during the year, at which detailed
reports are presented for review. The Committee commissions
reports, either from external advisers, the Head of Global Internal
Audit, or Group management, after consideration of the major
risks to the Group or in response to developing issues. The Chief
Financial Officer attends its meetings, as do the external auditor
and the Head of Global Internal Audit, both of whom have the
opportunity to meet privately with the Committee, in the absence
of Group management, at the conclusion of each meeting.
All proposals for the provision of non-audit services by the external
auditor are pre-approved by the Audit Committee or its delegated
member, the overriding consideration being to ensure that the
provision of non-audit services does not impact the external
auditor’s independence and objectivity.
• developments in corporate governance and accounting
standards in the UK and the US;
• reports from the Head of Risk Management on the activities
of that function;
• consideration of the results of the Group’s tangible asset
impairment review and going concern review;
• overseeing the Group’s Sarbanes-Oxley Act compliance work;
• the disclosure controls and procedures operated by the Group,
with reference to periodic reports from the Chairman of the
Disclosure Committee;
• reviewing the Group’s approach to managing tax risk, including
related policies and initiatives;
• consideration of the Group’s technology strategy and related
risks;
• consideration of the Group’s treasury objectives and policies;
• a review of changes to the Group’s policy on delegation of
authority;
• a review of the funding position and governance of the Group’s
main pension plan;
• periodic reports on any significant incidents of fraud or any
allegations made via the Group’s whistleblowing procedures
and the effectiveness of these procedures;
• any material litigation involving the Group; and
• consideration of the effectiveness of the Audit Committee and
the continuing appropriateness of its terms of reference.
David Kappler
Chairman of the Audit Committee
14 February 2011
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48 IHG Annual Report and Financial Statements 2010
Remuneration report
Dear Shareholder
I am pleased to present the Directors’ Remuneration Report
for 2010.
The year started with significant uncertainty and volatility in the
economic environment. Early industry forecasts projected declining
revenue per available room (RevPAR) for 2010, including –4% for
the US market. However, by the end of 2010, the US market had
achieved 5.5% growth in RevPAR. Market conditions improved
progressively throughout the year as consumer confidence
strengthened.
For IHG, global RevPAR grew 6.2% and rates are now showing
positive growth in all regions. Other key performance indicators
also improved:
2010 Key performance indicator growth
(per annum)
2010
+22.6%
Earnings before interest and tax (EBIT)
+6.2%
Revenue per available room (RevPAR)
+3%
Employee engagement
+8%
Three-year total shareholder return (TSR)*
Three-year adjusted earnings per share (EPS)* +9.6%
2009
–34%
–14.7%
+1%
–8.7%
+15.2%
* Annualised.
Based on these results, annual bonus outcomes in respect of 2010
were 175% of base salary. The Remuneration Committee believes
this to be an appropriate reflection of a strong recovery, noting that
results significantly exceeded expectation at the start of the year.
Remuneration in 2010
No annual bonus payments were made in respect of 2009. Robust
links between performance and reward were maintained in 2010
incentive plan designs. Targets were set at a challenging level in
relation to IHG’s strategic goals and to external analyst consensus.
In light of the high level of continuing uncertainty in the industry, the
Committee put in place the following safeguards for 2010 executive
remuneration:
Annual Bonus Plan (ABP)
• the maximum bonus opportunity was temporarily capped at
175% of base salary;
• the target for maximum bonus achievement was temporarily
increased from 110% to 120% for EBIT;
• the weighting of EBIT remained at 70% to ensure a continued
strong focus on earnings; and
• as first introduced in 2009, no bonus is payable if EBIT
performance is lower than 85% of target.
Long Term Incentive Plan (LTIP)
• maximum award levels were maintained at 205% of base salary
(previously 270%); and
• EPS and relative TSR performance measures were restored to
50% weighting each.
Salaries were increased by an average of 2.8% following no
increase in 2009.
The above actions were also applied to 2010 remuneration for
all other Executive Committee members.
Remuneration in 2011
During 2010, the Remuneration Committee spent a significant
amount of time considering more strategically relevant long-term
performance measures, which also drive shareholder value. Based
on this review and consultation with key institutional shareholders,
the Committee concluded that relative TSR remains well aligned
with the goal of achieving enduring top quartile returns; hence TSR
will continue to account for 50% of the LTIP weighting.
However, the Committee also resolved that the LTIP would be
better aligned with strategy by replacing EPS with two equally
weighted measures – net Rooms growth and like-for-like RevPAR
growth, both relative to major competitors.
Both net Rooms growth and RevPAR underpin IHG’s strategy
to drive shareholder value and have high relevance for most
employees. Net Rooms growth focuses on the goal to increase
system size. Like-for-like RevPAR growth reflects the importance
of revenue share, guest preference and overall brand strength.
After testing the performance conditions set on grant, the
Committee will review the vesting outcomes of the Rooms and
RevPAR measures against an assessment of earnings and quality
of the financial performance of the Company over the period. The
Committee may reduce the number of shares which vest if they
determine such an adjustment is appropriate. IHG’s performance
and vesting outcomes will be fully disclosed and explained in the
relevant Remuneration Report.
The Committee is determined that the overall incentive package
is based on an appropriate balance of performance measures.
Earnings growth continues to account for a significant part of
executive incentives, due to the 70% weighting of EBIT in the
Annual Bonus Plan (increased from 50% in 2009).
In addition, the following changes have been made to executive
remuneration arrangements for 2011:
• the maximum bonus opportunity will revert from 175% to 200%
of base salary;
• the EBIT target for maximum bonus achievement will revert from
120% to 110% of budget; and
• the maximum LTIP award will be maintained at 205% of base
salary.
In conclusion, the Committee believes that these changes will
lead to greater management focus on the key drivers of superior
performance, and that they are well aligned with the goal of
increasing shareholding value.
Ralph Kugler
Chairman of the Remuneration Committee
14 February 2011
Remuneration report 49
Introduction
This report sets out the remuneration policy for the Company’s Directors, describes its implementation, and sets out the amounts paid in
2010. It has been prepared by the Remuneration Committee and has been approved by the Board. It complies with the Companies Act 2006
and related regulations. This report will be put to shareholders for approval at the forthcoming Annual General Meeting.
1. The Remuneration Committee
The independent Non-Executive Directors who served on the Committee during the year were as follows:
Ralph Kugler
David Kappler
Jonathan Linen
Ying Yeh
Role
Chairman
Member
Member
Member
Meetings attended
in 2010
5 out of 5
5 out of 5
4 out of 5†
5 out of 5
Date of appointment
to Committee
1 June 2008*
21 June 2004
1 December 2005
1 December 2007
* Ralph Kugler was previously a member of the Remuneration Committee from 2003 to 2005.
† Unable to attend one meeting due to family bereavement.
Committee meetings are also regularly attended by the following
individuals who provide advice to the Committee on remuneration
proposals:
David Webster (Chairman of the Board)
Andrew Cosslett (Chief Executive)
Tracy Robbins (Executive Vice President, Human Resources &
Group Operations Support)
Lori Gaytan (Senior Vice President, Global Compensation & Benefits)
None of the above is in attendance when his/her own remuneration
is being discussed.
The Committee’s remit is set out in its terms of reference which were
updated by the Board in December 2010. The Committee agrees, on
behalf of the Board, all aspects of the remuneration of the Executive
Directors and the Executive Committee members, and agrees the
strategy, direction and policy for the remuneration of other senior
executives who have a significant influence over the Company’s
ability to meet its strategic objectives.
Throughout the year, the Committee was assisted in its work
by PricewaterhouseCoopers LLP (PwC), as independent
consultants appointed by the Committee. PwC also support
management in developing and implementing remuneration
proposals. In addition, PwC provided additional services to IHG,
including advice on employer and employee tax compliance
processes for expatriate employees and on tax withholding
obligations in relation to employee share plans. The following
advisers were retained on behalf of the Company and provide
information to the Committee on relevant matters:
• Towers Watson provided advice on reward structures and levels
applicable in the markets relevant to the Group. Towers Watson
did not provide any other services to the Group during 2010; and
• Linklaters LLP and Freshfields Bruckhaus Deringer LLP
provided advice to the Committee and also other legal services to
the Group throughout 2010.
The terms of engagement for PwC and Towers Watson are available
from the Company Secretary’s office on request.
The Committee meets several times a year to discuss matters relating to the operation of the remuneration policy and emerging market
practices. In 2010, the Committee met five times and discussed, amongst others, the following matters:
Meeting
Agenda items discussed
Meeting
Agenda items discussed
11 February 2010
• 2009 Annual Bonus Plan and 2007/2009
Long Term Incentive Plan results and
awards
5 August 2010
• Long Term Incentive Plan measures
review, including alternative approaches
to structure and targets
• 2010 Annual Bonus Plan and 2010/2012
4 November 2010
• Long Term Incentive Plan measures
Long Term Incentive Plan designs
• Executive Committee performance
and salary review
• 2010 Executive Committee Key
Performance Objectives (KPOs)
• 2009 Remuneration Report
review for 2011
• UK Pensions Provision review
15 December 2010
• Long Term Incentive Plan measures
review
• Review of Chairman and Non-Executive
Director fees
23 June 2010
• IHG Pension Plan arrangements
• Terms of reference annual review
• Executive remuneration trends,
including a review of market practice
and latest developments
• Review of corporate governance
developments
• 2010 Board appointments of
James Abrahamson and Kirk Kinsell
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50 IHG Annual Report and Financial Statements 2010
Remuneration report continued
2. Remuneration policy and structure
IHG’s overall remuneration is intended to:
• attract and retain high-quality executives in an environment
where compensation is based on global market practice;
• drive aligned focus of the senior executive team and reward
the achievement of strategic objectives;
• align rewards of executives with returns to shareholders;
• support equitable treatment between members of the same
executive team; and
• facilitate global assignments and relocation.
The Committee believes that it is important to reward management,
including the Executive Directors, for targets achieved, provided
those targets are stretching and aligned with shareholders’ interests.
IHG’s remuneration structure for senior executives places a strong
emphasis on performance-related reward. The individual elements
are designed to provide the appropriate balance between fixed
remuneration and variable ‘risk’ reward, linked to both the
performance of the Group and the achievements of the individual.
Approximately two-thirds of variable reward is delivered in the form
of shares, to enhance alignment with shareholders.
In reaching its decisions, the Committee takes into account a
number of factors, including the relationship between remuneration
and risk, strategic direction and affordability. Performance-related
measures are chosen to ensure a strong link between reward and
underlying financial and operational performance.
Summarised below are the individual elements of remuneration provided to Executive Directors and other Executive Committee members,
including the purpose of each element. For variable incentive plans, the plan measures and link to Group strategic objectives are also included:
Element
Base Salary
(cash)
Maximum
value
n/a
200% of
base
salary1
Annual Bonus
(one-half cash
and one-half
deferred
shares)
Purpose
Measures and link to strategic objectives
• Recognises the market value of
the role and the individual’s skill,
performance and experience
n/a
• Drives and rewards annual
Group EBIT
performance of individuals and
teams against both financial and
non-financial metrics
• Aligns individual employee objectives
with those of the Group
• Aligns short-term annual
performance with long-term returns
to shareholders
Provides focus on earnings growth, driven by core operating
inputs, namely rooms growth, RevPAR, royalty fees and profit
margins
Individual Overall Performance Rating (OPR)
Provides focus on KPOs and leadership competencies relative to
the individual role. KPOs are linked to strategic priorities, notably:
Financial returns – deliver budget and growth targets (EBIT,
system size, margin, overheads)
Our people – employee engagement survey results
Guest experience – deliver brand performance targets (guest
satisfaction, market share)
Responsible business – continue hotel roll-out and adoption of
Green Engage sustainability management system
Long Term
Incentive Plan
(shares)
205% of
base
salary2
• Drives and rewards delivery of
TSR growth relative to Dow Jones World Hotels index
sustained long-term performance on
measures that are aligned with the
interests of shareholders
Aligned with our Vision to become one of the world’s great
companies by creating Great Hotels Guests Love
Net Rooms growth relative to major competitors3
Aligned with ‘Where we compete’, supporting our business model,
segment and market strategies to grow system size
Like-for-like RevPAR growth relative to major competitors3
Aligned with ‘How we win’, reflecting the power of our brands,
scale and experience, and engaged workforce
Pension and
benefits (varied)
n/a
• Provides a competitive level of
benefits, including short-term
protection and long-term savings
opportunities
n/a
1 Combined Annual Bonus award (cash and shares) was subject to a temporary maximum cap of 175% of base salary in 2010.
2 Until 2009, maximum awards were normally granted at 270% of salary.
3 As outlined on page 48, from 2011, EPS is replaced by net Rooms growth and RevPAR growth in the LTIP.
The normal policy for all Executive Directors and Executive
Committee members is that their target performance-related
incentives will equate to approximately 70% of total annual
remuneration (excluding pensions and benefits).
The following table shows the split of fixed and variable
compensation for the Executive Directors, assuming target
performance is achieved (where applicable):
Director
Andrew Cosslett
James Abrahamson
Kirk Kinsell
Richard Solomons
Fixed pay
30%
30%
30%
30%
Short-term
variable pay
35%
35%
35%
35%
Long-term
variable pay
35%
35%
35%
35%
The Committee also reviews the balance of fixed and variable
remuneration provided to the wider management population to
ensure these are appropriate, given relativities to the Executive
Directors and to market practice.
The Company recognises that its Executive Directors may be invited
to become Non-Executive Directors of other companies and that
such duties can broaden experience and knowledge, and benefit the
Company. Executive Directors are, therefore, permitted to accept
one non-executive appointment (in addition to any positions where
the Director is appointed as the Group’s representative), subject to
Board approval, as long as this is not, in the reasonable opinion of
the Board, likely to lead to a conflict of interest. Executive Directors
are generally authorised to retain the fees received. Current Executive
Directors hold no Non-Executive Directorships of other companies.
3. Base salary and benefits
The salary for each Executive Director is reviewed annually and
is based on both individual performance and relevant competitive
market data. Base salary is the only element of remuneration
which is pensionable. In addition, benefits are provided to Executive
Directors in accordance with local market practice.
In assessing levels of pay and benefits, IHG analyses those offered
by different groups of comparator companies. These groups are
chosen having regard to participants’:
• size – market capitalisation, turnover, profits and the number
of people employed;
• diversity and complexity of business;
• geographical spread of business; and
• relevance to the hotel industry.
Internal relativities and Group-wide remuneration approaches
are also taken into account. The Committee reviews average
base salary levels and average salary increase percentages for
the broader IHG workforce.
Remuneration report 51
Executive Directors’ annual base salaries are shown in the
table below:
Director
Andrew Cosslett
James Abrahamson
Kirk Kinsell
Richard Solomons
2011
£
850,780
477,117*
477,117*
540,000
2010
£
826,000
469,348
462,875
523,000
* Messrs Abrahamson and Kinsell are paid in US dollars. James Abrahamson’s
annual base salary for 2010 was $725,000 and for 2011 is $737,000. Kirk Kinsell’s
annual base salary for 2010 was $715,000 and for 2011 is $737,000. The sterling
values in the table above have been calculated using an exchange rate of $1=£0.65.
4. Annual Bonus Plan
Structure and outcomes in 2010
Awards under the ABP require the achievement of challenging
performance goals before bonus is payable. Achievement of target
performance results in a bonus of 115% of salary. Half of any bonus
earned is compulsorily deferred in the form of shares for three
years. No matching shares are awarded by the Company.
Awards under the ABP are linked to individual performance and
EBIT. Individual performance is measured by the achievement
of specific KPOs linked directly to the Group’s strategic objectives,
a selection of which is set out in the table on page 50, and an
assessment against leadership competencies and behaviours.
Each year, specific quantitative targets are set for each Executive
Director and Executive Committee member, as relevant to their
role. Performance is reviewed at the end of each year to determine
an OPR. The OPR determines 30% of the bonus outcome.
EBIT performance determines 70% of the bonus outcome. In 2010,
under the financial measure (EBIT), threshold payout was 90% of
target performance, with maximum payout at 120% or more of
target. Payout for individual performance would be reduced by half
if EBIT performance was below threshold. In addition, no annual
bonus would be payable on any measure if EBIT performance was
lower than 85% of target.
The maximum result for each measure is double its target value.
However, the combined payout result of the two measures was
capped at 175% of base salary.
The 2010 EBIT result was 159%, resulting in a maximum combined
payout for all Directors, as shown below:
Measure
Key performance indicator Payout as % of salary
Target Max
161
69
175*
80.5
34.5
115
Financial
EBIT (70%)
Individual OPR (30%)
Total
Actual 2010 result as % of salary
Andrew Cosslett
James Abrahamson
Kirk Kinsell
Richard Solomons
175
175
175
175
* Combined EBIT and OPR payout subject to a maximum of 175% of base salary.
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N
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A
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A
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E
N
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A
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52 IHG Annual Report and Financial Statements 2010
Remuneration report continued
Structure in 2011
The annual bonus structure remains largely unchanged in 2011
with awards under the ABP continuing to require the achievement
of challenging EBIT goals before target bonus is payable.
• 25% of the maximum award will be based on cumulative annual
growth of net Rooms; and
• 25% of the maximum award will be based on cumulative annual
A summary of the operation of the 2011 ABP is shown below.
like-for-like RevPAR growth.
Annual
Bonus
for 2011
70%
EBIT
30%
Individual
Performance
measures
50%
Deferred
Shares
50%
Cash
Structure
For 2011, the maximum bonus opportunity for the Executive
Directors will revert to 200% of salary. Under the financial
measure, the EBIT threshold for payout remains at 90% of target
performance. However, maximum payout will revert to 110% or
more of target.
As with previous years, the achievement of target performance will
result in a bonus of 115% of salary. Half of any bonus earned will be
deferred in the form of shares for three years. Payout for individual
performance will be reduced by half if EBIT performance is below
threshold, and no annual bonus will be payable on any measure if
EBIT performance is lower than 85% of target.
5. Long Term Incentive Plan
The LTIP allows Executive Directors and eligible management
employees to receive share awards, subject to the achievement
of performance conditions set by the Committee, measured over
a three-year period. Awards are made annually and, other than
in exceptional circumstances, will not exceed three times annual
salary for Executive Directors.
Structure for 2010/2012 cycle
For the 2010/2012 cycle awards were made at 205% of base salary.
The performance conditions for the cycle are:
• IHG’s TSR relative to the Dow Jones World Hotels index
(50% weighting); and
• growth in adjusted EPS over the period (50% weighting).
Awards under the LTIP lapse if performance conditions are not met
– there is no re-testing. Performance conditions for all outstanding
awards are shown in the table on page 53.
Structure for 2011/2013 cycle
For the 2011/2013 cycle, maximum award levels will remain at
205% of base salary. As outlined on page 48, the Committee
believes relative TSR is well aligned with the goal of achieving
enduring top quartile returns and so TSR will continue to retain
a 50% weighting in the LTIP.
Furthermore, the Committee concluded that the LTIP can be better
aligned with IHG’s strategy by replacing EPS with two equally
weighted relative growth measures, as follows:
Growth in both Rooms and RevPAR will be measured on a relative
basis against a comparator group of the major globally-branded
competitors: Accor, Choice, Hilton, Hyatt, Marriott, Starwood and
Wyndham. A summary of the operation of the 2011/2013 LTIP cycle
is shown below.
LTIP
2011/2013
50%
TSR
25% Rooms
25% RevPAR
Performance
measures
100%
Shares
Structure
Threshold vesting will occur if IHG’s TSR growth is equal to the
Dow Jones World Hotels index. Maximum vesting will occur if IHG’s
TSR growth exceeds the index by 8% or more.
In setting the TSR performance target, the Committee has
taken into account a range of factors, including IHG’s strategic
plans, historical performance of the industry and FTSE 100
market practice.
For both Rooms growth and RevPAR measures, threshold vesting
will occur if IHG performance at least equals the average of the
comparator group. Maximum vesting for either measure will only
occur if IHG is ranked first in the comparator group. Vesting for
points between threshold and maximum will be calculated on a
straight-line basis.
The vesting range and weighting for each measure is set out in the
table below:
Performance
% of award vesting
TSR relative to
Dow Jones World
Hotels index
Net Rooms
growth relative to
comparator group
RevPAR growth
relative to
comparator group
Threshold
20%
Match
index
Maximum
100%
Index +
8% pa
Weighting
50%
Average
1st position
25%
Average
1st position
25%
After testing the performance conditions set on grant, the
Committee will review the vesting outcomes of the Rooms and
RevPAR measures against an assessment of earnings and quality
of the financial performance of the Company over the period.
The Committee may reduce the number of shares which vest if they
determine such an adjustment is appropriate. IHG’s performance
and vesting outcomes will be fully disclosed and explained in the
relevant Remuneration Report.
Remuneration report 53
Outcomes in 2010 and progress on all current LTIP cycles
The specific vesting performance conditions and position as at 31 December 2010 for all conditional LTIP awards made between 2008 and
2010 are set out in the following table:
Performance
measure
Threshold
performance
Maximum
performance
Threshold1
vesting
Maximum1
vesting
Weighting
Maximum
award
Outcome/
current position
2008/2010 cycle
TSR
EPS
Total vesting
2009/2011 cycle2
TSR
EPS
2010/2012 cycle3
TSR
EPS
Growth equal to
the index
Growth exceeds the
index by 8% or more
20%
100%
50%
135%
Growth outperformance
of 8.0%
Growth of 6% pa Growth of 16% pa
20%
100%
50%
135%
Growth of 9.6% pa
or more
73.8% of maximum
award
Growth equal to
the index
Growth exceeds the
index by 8% or more
20%
100%
66.7%
102.5%
Growth outperformance
of 6.1%
Growth of 0% pa Growth of 10% pa
0%
100%
33.3%
102.5%
Growth of –1.0% pa
or more
Growth equal to
the index
Growth exceeds the
index by 8% or more
20%
100%
50%
102.5%
Growth outperformance
of –5.4%
Growth of 5% pa Growth of 15% pa
20%
100%
50%
102.5%
Growth of 26% pa
or more
1 Vesting between threshold and maximum occurs on a straight-line basis.
2 Two years of cycle completed.
3 One year of cycle completed.
6. Performance graph
Throughout 2010, the Company was a member of the FTSE 100 index and, for remuneration purposes, used a TSR comparator group of the
Dow Jones World Hotels index. Accordingly, the Committee has determined that these are the most appropriate market indices against
which to test the Company’s performance. The graph below shows the TSR performance of IHG from 31 December 2005 to 31 December
2010, assuming dividends are reinvested, compared with the TSR performance achieved by the FTSE 100 index and the Dow Jones World
Hotels index. Over the five-year period, IHG outperformed the FTSE 100 index by 39.6% and the Dow Jones World Hotels index by 18.5%.
Total Shareholder Return: InterContinental Hotels Group PLC v FTSE 100 and v Dow Jones World Hotels index
250
200
150
100
50
0
31 Dec 2005
31 Dec 2006
31 Dec 2007
31 Dec 2008
31 Dec 2009
31 Dec 2010
InterContinental Hotels Group PLC –
Total Shareholder Return Index
FTSE 100 –
Total Shareholder Return Index
Dow Jones World Hotels –
Total Shareholder Return Index
Source: Datastream
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54 IHG Annual Report and Financial Statements 2010
Remuneration report continued
7. Total compensation
The charts below show the total value of Executive Director remuneration at maximum and target performance levels and show the actual
2010 outcome:
Andrew
Cosslett
2010
James
Abrahamson
2010
Kirk
Kinsell
2010
Richard
Solomons
2010
5,000
4,000
3,000
2,000
1,000
0
)
0
0
0
£
(
e
u
l
a
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Notes:
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� Base salary � Annual bonus � Deferred annual bonus shares � Long Term Incentive Plan
• Actual base salary represents actual salary paid during the financial year. Maximum and Target base salary is annual.
• Actual annual bonus represents the cash amount payable in respect of financial year 2010.
• Actual deferred annual bonus shares represent the value at vesting for shares released in 2010 in respect of the 2006 financial year.
• Actual Long Term Incentive Plan represents the value at vesting for the 2007/2009 LTIP cycle.
• Target Long Term Incentive Plan is assumed to be halfway between threshold and maximum.
8. Shareholding policy
Share ownership
Share capital
The Committee believes that share ownership by Executive
Directors and senior executives strengthens the link between the
individual’s personal interests and those of the shareholders.
Executive Directors are expected to hold twice their base salary in
shares, or three times in the case of the Chief Executive. Executives
are expected to hold all shares earned (net of any share sales
required to meet personal tax liabilities) until their shareholding
requirement is achieved.
No awards or grants over shares were made during 2010 that
would be dilutive of the Company’s ordinary share capital.
Current policy is to settle the majority of awards or grants under
the Company’s share plans with shares purchased in the market.
A number of options granted up to 2005 are yet to be exercised and
will be settled with the issue of new shares.
The following table shows the guideline and actual shareholdings
of the Executive Directors.
Executive share options
From 2006, executive share options have not formed part of the
Company’s remuneration structure. Details of prior share option
grants are given on page 60.
Director
Andrew Cosslett
James Abrahamson2
Kirk Kinsell2
Richard Solomons
Guideline
shareholding
as % of salary
300
200
200
200
Actual
shareholding
at 31 Dec 2010
as % of salary1
747
138
170
408
1 Based on share price of 1243p per share as at 31 December 2010.
2 Shareholding requirement took effect upon appointment to the Board on
1 August 2010.
Remuneration report 55
9. Policy regarding pensions
Andrew Cosslett, Richard Solomons and other senior UK-based executives participate on the same basis in the executive section of the
registered defined benefit InterContinental Hotels UK Pension Plan and, if appropriate, the InterContinental Executive Top-Up Scheme
(ICETUS). The latter is an unfunded arrangement, but with appropriate security provided via a fixed charge on a hotel asset. As an
alternative to these unfunded arrangements, a cash allowance may be taken. Following recent changes to UK pensions legislation,
the pension provision is under review. This Plan is now closed to new entrants.
James Abrahamson, Kirk Kinsell and other senior US-based executives participate in US retirement benefit plans. Executives outside the
UK and US participate in the InterContinental Hotels Group International Savings and Retirement Plan or other local plans.
10. Non-Executive Directors’ pay policy and structure
Non-Executive Directors are paid a fee which is approved by the Board, taking into account fees paid in other companies of a similar
complexity. These fees also reflect the time commitment and responsibilities of the roles. Accordingly, higher fees are payable to the Senior
Independent Director who chairs the Audit Committee and to the Chairmen of the Remuneration and Corporate Responsibility Committees,
reflecting the additional responsibilities of these roles.
Non-Executive Directors’ fee levels are reviewed annually. In the final quarter of 2010 an increase of 2% for the Chairman and 3% for the
Non-Executive Directors was agreed by the Board to be effective from 1 January 2011. This increase is broadly in line with anticipated
salary increases for executive and senior management employees across the wider organisation.
The following table sets out the change in annual fee rates from 2010 to 2011 for the Non-Executive Directors:
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I
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W
Role
Chairman
Senior Independent Director & Chairman of Audit Committee
Chairman of Remuneration Committee
Chairman of Corporate Responsibility Committee
Non-Executive Director
Fees at
1 Jan 2011
£
406,000
103,000
86,500
76,000
65,000
Fees at
1 Jan 2010
£
398,000
99,750
84,000
73,500
63,000
David Webster
David Kappler
Ralph Kugler
Jennifer Laing
Others
11. Service contracts
Policy
The Remuneration Committee’s policy is for Executive Directors to have rolling contracts with a notice period of 12 months.
Messrs Cosslett, Abrahamson, Kinsell and Solomons have service agreements with a notice period of 12 months. All new appointments
are intended to have 12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial
notice period reducing to 12 months may be used, in accordance with the Combined Code.
No provisions for compensation for termination following change of control, nor for liquidated damages of any kind, are included in the
current Directors’ contracts. In the event of any early termination of an Executive Director’s contract, the policy is to seek to minimise
any liability.
Non-Executive Directors have letters of appointment. David Webster’s appointment as Non-Executive Chairman, effective from 1 January
2004, is subject to six months’ notice. The dates of appointment of the other Non-Executive Directors are set out on page 43.
All Directors’ appointments and subsequent reappointments are subject to election and re-election by shareholders.
Biographies of each of the Directors and their main responsibilities can be found on page 38.
Directors’ contracts
Andrew Cosslett
James Abrahamson
Kirk Kinsell
Richard Solomons
Contract
effective date
3.02.05
1.08.10
1.08.10
15.04.03
Notice period
12 months
12 months
12 months
12 months
Messrs Cosslett and Solomons signed a letter of appointment, effective from completion of the June 2005 capital reorganisation of the
Group, incorporating the same terms as their original service agreements.
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56 IHG Annual Report and Financial Statements 2010
Remuneration report continued
From this point forward, the information provided has been audited by Ernst & Young LLP.
12. Audited information on Directors’ emoluments
Directors’ remuneration in 2010
The following table sets out the remuneration paid or payable to the Directors in respect of the year to 31 December 2010:
Executive Directors
Andrew Cosslett
James Abrahamson3
Kirk Kinsell3
Richard Solomons
Non-Executive Directors
David Webster
Graham Allan4
David Kappler
Ralph Kugler
Jennifer Laing5
Jonathan Linen
Ying Yeh
Former Directors6
Total
Base salaries and fees
Performance payments1
2010
£000
820
196
193
520
398
63
100
84
74
63
63
–
2,574
2009
£000
802
–
–
512
390
–
95
80
68
60
60
–
2,067
2010
£000
723
178
169
458
–
–
–
–
–
–
–
–
1,528
2009
£000
2010
£000
–
–
–
–
–
–
–
–
–
–
–
–
–
28
6
74
18
–
–
–
–
–
–
–
1
127
Benefits2
2009
£000
25
–
–
19
–
–
–
–
–
–
–
1
45
Total emoluments
excluding pensions
2010
£000
1,571
380
436
996
398
63
100
84
74
63
63
1
4,229
2009
£000
827
–
–
531
390
–
95
80
68
60
60
1
2,112
1 Performance payments comprise cash payments in respect of participation in the ABP but exclude bonus payments in deferred shares, details of which are set out in
the ABP table on page 58. For Messrs Abrahamson and Kinsell, this also includes a cash payment in lieu of dividends relating to share awards as outlined on page 58.
2 Benefits incorporate all tax assessable benefits arising from the individual’s employment. This includes, but is not limited to, benefits such as the provision of a fully
expensed company car, private healthcare, financial counselling and other benefits as applicable to the individual’s work location. This includes the cost of expatriate
benefits related to Kirk Kinsell’s international assignment.
3 Messrs Abrahamson and Kinsell were appointed as Directors on 1 August 2010. Base salaries, performance payments and benefits have been pro-rated from their date
of appointment. James Abrahamson’s pro-rated base salary is US$302,083 and Kirk Kinsell’s pro-rated base salary is US$297,917. Sterling values have been calculated
using an exchange rate of $1=£0.65.
4 Graham Allan was appointed as a Director on 1 January 2010.
5 Jennifer Laing’s fee was increased, pro rata, from 1 March 2009 when she became Chairman of the Corporate Responsibility Committee.
6 Sir Ian Prosser retired as a Director on 31 December 2003. However, he had an ongoing healthcare benefit of £1,179 during the year.
Remuneration report 57
Directors’ pension benefits
The following information relates to the pension arrangements provided for Messrs Cosslett and Solomons under the executive section of
the InterContinental Hotels UK Pension Plan (the IC Plan) and the unfunded ICETUS.
The executive section of the IC Plan is a funded, registered, final salary, occupational pension scheme. The main features applicable to the
Executive Directors are:
• a normal pension age of 60;
• pension accrual of 1/30th of final pensionable salary for each year of pensionable service;
• life assurance cover of four times pensionable salary;
• pensions payable in the event of ill health; and
• spouses’, partners’ and dependants’ pensions on death.
When benefits would otherwise exceed a member’s lifetime allowance under the post-April 2006 pensions regime, these benefits are
limited in the IC Plan, but the balance is provided instead by ICETUS.
James Abrahamson has retirement benefits provided via the Six Continents Hotels, Inc. Deferred Compensation Plan (DCP).
Kirk Kinsell has retirement benefits provided via the 401(k) Retirement Plan for employees of Six Continents Hotels, Inc. (401(k)) and the
DCP. The 401(k) is a tax qualified plan providing benefits on a defined contribution basis, with the member and the relevant company both
contributing. The DCP is a non-tax qualified plan, providing benefits on a defined contribution basis, with the member and the relevant
company both contributing.
The following table sets out the pension benefits of the Executive Directors in the final salary plans:
Directors’ contributions in the year1
Transfer value of accrued benefits at 1 January 2010
Transfer value of accrued benefits at 31 December 2010
Increase in transfer value over the year, less Directors’ contributions
Absolute increase in accrued pension2 (pa)
Increase in accrued pension3 (pa)
Accrued pension at 31 December 20104 (pa)
Age at 31 December 2010
Andrew
Cosslett
£
40,100
2,574,100
3,438,100
823,900
30,300
23,600
161,500
55
Richard
Solomons
£
25,500
3,934,700
4,708,400
748,200
21,500
10,400
239,200
49
1 Contributions paid in the year by the Directors under the terms of the plans. Contributions were 5% of full pensionable salary.
2 The absolute increase in accrued pension during the year.
3 The increase in accrued pension during the year, excluding any increase for inflation.
4 Accrued pension is that which would be paid annually on retirement at 60, based on service to 31 December 2010.
Contributions made by and in respect of James Abrahamson and Kirk Kinsell in the defined contributions plans are*:
Directors’ contributions to DCP in the year
Directors’ contributions to 401(k) in the year
Company contribution to DCP in the year
Company contribution to 401(k) in the year
Age at 31 December 2010
James
Abrahamson
£
3,900
–
18,000
–
55
Kirk
Kinsell
£
3,800
3,500
22,300
–
55
* Messrs Abrahamson and Kinsell were appointed as Directors on 1 August 2010. Pension contributions have been pro-rated from their date of appointment.
Sterling values have been calculated using an exchange rate of $1=£0.65.
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58 IHG Annual Report and Financial Statements 2010
Remuneration report continued
Annual Bonus Plan deferred share awards
All Directors participated in the ABP during the year ended 31 December 2010. No matching shares are provided on awards. Directors’
pre-tax share interests during the year were as follows:
Directors
Andrew Cosslett
Total
James Abrahamson 2009
Total
Kirk Kinsell
Financial
year on
which
performance
is based
ABP
awards
held at
for award* 1 Jan 2010
55,870
2006
71,287
2007
2008 104,652
–
2009
231,809
–
–
13,610
19,731
41,427
–
74,768
35,757
45,634
66,549
–
147,940
2006
2007
2008
2009
2006
2007
2008
2009
Total
Richard Solomons
Total
ABP
shares
vested
during
the year
55,870
ABP
awards
during
the year
Market
price per
share at
Award
award
date
26.2.07
1235p
25.2.08 819.67p
23.2.09 472.67p
–
–
26.2.07
1235p
25.2.08 819.67p
23.2.09 472.67p
–
26.2.07
1235p
25.2.08 819.67p
23.2.09 472.67p
–
Market
price per
share at
vesting
26.2.10 914.66p 511,021
Value at
vesting
Vesting
date
ABP
awards
held at
£ 31 Dec 2010
Value
based
on share
price of
1243p at
vesting 31 Dec 2010
£
date
Planned
71,287
104,652
–
175,939
–
–
25.2.11 886,097
23.2.12 1,300,824
–
2,186,921
–
–
13,610
26.2.10 914.66p 124,485
35,757
26.2.10 914.66p 327,055
19,731
41,427
–
61,158
25.2.11 245,256
23.2.12 514,938
–
760,194
45,634
66,549
–
112,183
25.2.11 567,231
23.2.12 827,204
–
1,394,435
* For financial year 2006, the award was based on EPS and EBIT measures and total shares held include matching shares. For financial year 2007, the award was based on
Group EBIT and net annual rooms additions measures and total shares held include matching shares. For financial year 2008, the award was based on Group EBIT, net
annual rooms additions and individual performance measures. No matching shares were awarded. For financial year 2009, no bonus was paid.
Special share award
James Abrahamson received a special share award which vests over three years as part of his recruitment terms in 2009. Vesting each
year is subject to continued service. The details are set out below:
Director
James Abrahamson
Award
date
Market
Awards
price per
held at
share at
1 Jan 2010
award
45,000 23.2.09 454.25p
45,000 23.2.09 454.25p
45,000 23.2.09 454.25p
Shares
vested
during
the year
45,000
Total
135,000
Market
price per
share at
vesting
17.2.10 900.07p 405,032
Value at
vesting
Vesting
date
Awards
held at
£ 31 Dec 2010
Value
based
on share
price of
1243p at
vesting 31 Dec 2010
£
date
Planned
45,000
45,000
90,000
16.2.11 559,350
15.2.12 559,350
1,118,700
Remuneration report 59
Long Term Incentive Plan awards
The awards made in respect of cycles ending on 31 December 2009, 2010, 2011 and 2012 and the maximum pre-tax number of ordinary
shares due if performance targets are achieved in full are set out in the table below. In respect of the cycle ending 31 December 2009, 46%
of the award vested on 17 February 2010. In respect of the cycle ending on 31 December 2010, the Company outperformed the Dow Jones
World Hotels index in TSR by 8 percentage points and achieved 9.6% per annum adjusted EPS growth. Accordingly, 73.8% of the award will
vest on 16 February 2011.
Maximum
LTIP
shares
awarded
during
the year
End of year
to which Maximum
LTIP
awards
held at
1 Jan 2010
159,506
253,559
272,201
performance
is based
for award
(31 Dec) 1
2009
2010
2011
2012
160,807
685,266 160,807
82,486
164,973
138,730
2009
2010
2011
2012
386,189
30,156
16,987
84,397
132,256
2009
2009
2010
2011
2012
263,796
102,109
161,241
173,096
2009
2010
2011
2012
436,446
79,008
79,008
75,411
75,411
101,818
101,818
Directors
Andrew Cosslett
Total
James Abrahamson
Total
Kirk Kinsell
Total
Richard Solomons
Total
LTIP
shares
vested
during
the year
73,372 2
Market
price per
share at
vesting
901.5p
Value at
vesting
£
661,449
37,943 2
901.5p
342,056
13,871 2
7,814 2
901.5p
901.5p
125,047
70,443
46,970 2
901.5p 423,435
Market
price per
share at
award
1256p
854p
604p
1053p
457p
457p
604p
1053p
1256p
961.5p
854p
604p
1053p
1256p
854p
604p
1053p
Award
date
2.4.07
19.5.08
3.4.09
8.4.10
23.2.09
23.2.09
3.4.09
8.4.10
2.4.07
12.11.07
19.5.08
3.4.09
8.4.10
2.4.07
19.5.08
3.4.09
8.4.10
Maximum
value
based on
Maximum
share price
LTIP
awards
of 1243p at
held at 31 Dec 2010
£
date 31 Dec 2010
Vesting
17.2.10
16.2.11
15.2.12
13.2.13
253,559 3,151,738
272,201 3,383,458
160,807 1,998,831
686,567 8,534,027
17.2.10
16.2.11
15.2.12
13.2.13
164,973 2,050,614
138,730 1,724,414
982,069
382,711 4,757,097
79,008
17.2.10
17.2.10
16.2.11
15.2.12
13.2.13
84,397 1,049,055
132,256 1,643,942
937,359
292,064 3,630,356
75,411
17.2.10
16.2.11
15.2.12
13.2.13
161,241 2,004,226
173,096 2,151,583
101,818 1,265,598
436,155 5,421,407
1 All details of performance conditions in relation to the awards made in respect of cycles ending on 31 December 2010, 2011 and 2012 are provided on page 53.
2 This award was based on performance to 31 December 2009. Performance was measured against both the Company’s TSR relative to a group of eight other comparator
companies and the cumulative annual growth rate (CAGR) in adjusted EPS over the performance period. The number of shares released was determined according to
a) where the Company finished in the TSR comparator group, with 50% of the award being released for first position and 10% of the award being released for median
position; and b) the cumulative annual growth in adjusted EPS, with 50% of the award being released for growth of 20% per annum or more and 10% of the award being
released for growth of 10% per annum. The Company finished in fourth position in the TSR group and achieved 15.2% per annum adjusted EPS growth. Accordingly,
46% of the award vested on 17 February 2010.
O
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60 IHG Annual Report and Financial Statements 2010
Remuneration report continued
Share options
Between 2003 and 2005, grants of options were made under the IHG Executive Share Option Plan. No executive share options have been
granted since then.
Directors
Kirk Kinsell
Total
Richard Solomons
Total
Ordinary shares under option
Lapsed
during
the year
Exercised
during
the year
Options
held at
1 Jan 2010
77,110 1
32,040 2
109,150
230,320 1
100,550 2
330,870
Options
held at
31 Dec 2010
77,110 1
32,040 2
109,150
230,320 1
100,550 2
330,870
Weighted
average option
price
531.06p
532.36p
Option
price
494.17p
619.83p
494.17p
619.83p
1 Executive share options granted in 2004 became exercisable in April 2007 up to April 2014.
2 Executive share options granted in 2005 became exercisable in April 2008 up to April 2015.
Option prices during the year ranged from 494.17p to 619.83p per IHG share. The closing market value share price on 31 December 2010
was 1243p and the range during the year was 887p to 1266p per share.
No Director exercised options during the year; therefore there is no disclosable gain by Directors in aggregate for the year ended
31 December 2010 (2009 £437,732).
This report was approved by the Board on 14 February 2011.
Ralph Kugler
Chairman of the Remuneration Committee
Remuneration report and Group financial statements 61
Group financial statements
Group financial statements
Statements of Directors’ responsibilities
Independent auditor’s report to the members
62
63
64 Group income statement
65 Group statement of comprehensive income
66 Group statement of changes in equity
68 Group statement of financial position
69 Group statement of cash flows
70 Accounting policies
Notes to the Group financial statements
In this section we present
the statements of Directors’
responsibilities, the
independent auditor’s
report and the consolidated
financial statements of
the Group for 2010.
76
76
80
80
1 Exchange rates
2 Segmental information
3 Staff costs and Directors’ emoluments
4
Auditor’s remuneration paid to
Ernst & Young LLP
5 Exceptional items
6 Finance costs
7 Tax
8 Dividends paid and proposed
9 Earnings per ordinary share
81
82
82
83
84
85 10 Property, plant and equipment
Assets sold, held for sale and
86
discontinued operations
11
Inventories
12 Goodwill
Intangible assets
Investment in associates
15 Other financial assets
16
17 Trade and other receivables
18 Cash and cash equivalents
19 Trade and other payables
87
88 13
88 14
89
89
90
90
91
91 20 Provisions
91 21 Financial risk management
95 22 Loans and other borrowings
96 23 Derivative financial instruments
97 24 Net debt
98 25 Retirement benefits
102 26 Deferred tax
103 27 Share-based payments
106 28
107 29 Operating leases
107 30 Capital and other commitments
107 31 Contingencies
107 32 Related party disclosures
108 33 System Fund
108 34
Issued share capital and reserves
Principal operating subsidiary undertakings
Holiday Inn Pattaya, Thailand
O
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62 IHG Annual Report and Financial Statements 2010
Statements of Directors’ responsibilities
In relation to the Group financial statements
The following statement, which should be read in conjunction with
the independent auditor’s report set out on the opposite page, is
made with a view to distinguishing for shareholders the respective
responsibilities of the Directors and of the auditor in relation to the
Group financial statements.
The Directors are responsible for preparing the Annual Report,
the Remuneration report and the Group financial statements in
accordance with applicable United Kingdom law and those
International Financial Reporting Standards as adopted by the
European Union.
The Directors are required to prepare Group financial statements
for each financial year which present fairly the financial position of
the Group and the financial performance and cash flows of the
Group for that period.
In preparing these financial statements, the Directors are
required to:
• select suitable accounting policies and apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable International Financial Reporting
Standards as adopted by the European Union have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and the
Group will continue in business.
The Directors have responsibility for ensuring that the Group keeps
accounting records which disclose with reasonable accuracy the
financial position of the Group and which enable them to ensure
that the Group financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. The Directors have
general responsibility for taking such steps as are reasonably open
to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Disclosure and Transparency Rules
The Annual Report and the Group financial statements comply with
the Disclosure and Transparency Rules of the United Kingdom’s
Financial Services Authority in respect of the requirement to
produce an annual financial report.
The Annual Report and the Group financial statements are the
responsibility of, and have been approved by, the Directors.
The Directors confirm that to the best of their knowledge:
• the consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
as adopted by the European Union;
• the financial statements give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a
whole; and
• the Annual Report, including the Directors’ report, and the Group
financial statements include a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
On behalf of the Board
Andrew Cosslett
Chief Executive
14 February 2011
Richard Solomons
Chief Financial Officer
14 February 2011
Statements of Directors’ responsibilities and Independent auditor’s report 63
Independent auditor’s report to the members of InterContinental Hotels Group PLC
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion the information given in the Directors’ Report for
the financial year for which the financial statements are prepared
is consistent with the Group financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 41, in relation to going
concern;
• the part of the Corporate Governance statement relating to the
Company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review; and
• certain elements of the report to shareholders by the Board on
Directors’ remuneration.
Other matters
We have reported separately on the parent company financial
statements of InterContinental Hotels Group PLC for the year ended
31 December 2010 and on the information in the Remuneration
Report that is described as having been audited.
Alison Baker (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
14 February 2011
We have audited the Group financial statements of InterContinental
Hotels Group PLC for the year ended 31 December 2010 which
comprise the Group income statement, the Group statement of
comprehensive income, the Group statement of changes in equity,
the Group statement of financial position, the Group statement of
cash flows, accounting policies and the related notes 1 to 34.
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as
a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities
of Directors and auditor
As explained more fully in the Statements of Directors’
responsibilities set out on page 62, the Directors are responsible
for the preparation of the Group financial statements and for being
satisfied that they give a true and fair view. Our responsibility is to
audit and express an opinion on the Group financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s (APB’s) Ethical Standards
for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of
the financial statements.
Opinion on financial statements
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs as
at 31 December 2010 and of its profit for the year then ended;
• have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
• have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the IAS Regulation.
O
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64 IHG Annual Report and Financial Statements 2010
Group financial statements
Group income statement
For the year ended 31 December 2010
Revenue
Cost of sales
Administrative expenses
Other operating income
and expenses
Depreciation and amortisation
Impairment
Operating profit/(loss)
Financial income
Financial expenses
Profit/(loss) before tax
Tax
Profit for the year from
continuing operations
Profit for the year from
discontinued operations
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Earnings per ordinary share
Continuing operations:
Basic
Diluted
Adjusted
Adjusted diluted
Total operations:
Basic
Diluted
Adjusted
Adjusted diluted
Exceptional
items
(note 5)
$m
–
(91)
(83)
(2)
(176)
–
(197)
(373)
–
–
(373)
287
(86)
6
(80)
(80)
–
(80)
Exceptional
items
(note 5)
$m
–
–
(13)
35
22
–
(7)
15
–
–
15
(8)
7
2
9
9
–
9
Note
2
Before
exceptional
items
$m
1,628
(753)
(331)
2
2
2
6
6
7
11
9
8
552
(108)
–
444
2
(64)
382
(98)
284
–
284
284
–
284
98.6¢
95.9¢
98.6¢
95.9¢
2010
Total
$m
1,628
(753)
(344)
43
574
(108)
(7)
459
2
(64)
397
(106)
291
2
293
293
–
293
101.0¢
98.3¢
101.7¢
99.0¢
Before
exceptional
items
$m
1,538
(769)
(303)
6
472
(109)
–
363
3
(57)
309
(15)
294
–
294
293
1
294
102.8¢
99.3¢
102.8¢
99.3¢
2009
Total
$m
1,538
(860)
(386)
4
296
(109)
(197)
(10)
3
(57)
(64)
272
208
6
214
213
1
214
72.6¢
70.2¢
74.7¢
72.2¢
Notes on pages 70 to 108 form an integral part of these financial statements.
Group income statement and Group statement of comprehensive income 65
Group statement of comprehensive income
For the year ended 31 December 2010
Profit for the year
Other comprehensive income
Available-for-sale financial assets:
Gains on valuation
Losses reclassified to income on impairment/disposal
Cash flow hedges:
Losses arising during the year
Reclassified to financial expenses
Defined benefit pension plans:
Actuarial losses, net of related tax credit of $7m (2009 $1m)
Change in asset restriction on plans in surplus and liability in
respect of funding commitments, net of related tax credit of $10m (2009 $nil)
Exchange differences on retranslation of foreign operations,
including related tax credit of $1m (2009 $4m)
Tax related to pension contributions
Other comprehensive (loss)/income for the year
Total comprehensive income for the year attributable to equity holders of the parent
Notes on pages 70 to 108 form an integral part of these financial statements.
2010
$m
293
17
1
(4)
6
(38)
(38)
(4)
7
(53)
240
2009
$m
214
11
4
(7)
11
(57)
21
43
–
26
240
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66 IHG Annual Report and Financial Statements 2010
Group financial statements continued
Group statement of changes in equity
At 1 January 2010
Profit for the year
Other comprehensive income:
Gains on valuation of available-
for-sale financial assets
Losses reclassified to income
on impairment/disposal of
available-for-sale financial
assets
Losses on cash flow hedges
Amounts reclassified to
financial expenses on cash
flow hedges
Actuarial losses on defined
benefit pension plans
Change in asset restriction
on pension plans in surplus
and liability in respect of
funding commitments
Exchange differences on
retranslation of foreign
operations
Tax related to pension
contributions
Total other comprehensive income
Total comprehensive income
for the year
Issue of ordinary shares
Purchase of own shares by
employee share trusts
Release of own shares by
employee share trusts
Equity-settled share-
based cost
Tax related to share schemes
Equity dividends paid
Exchange
At 31 December 2010
Equity
Capital
share redemption
capital
$m
Shares
held by
employee
reserve share trusts
$m
$m
Unrealised
gains and
losses
reserve
$m
Other
reserves
$m
Currency
translation
reserve
$m
142
–
11
–
(4)
–
(2,900)
–
29
–
215
–
Retained
earnings
$m
2,656
293
IHG share-
Non-
holders’ controlling
interest
$m
equity
$m
149
293
–
–
–
–
–
–
–
–
–
–
19
–
–
–
–
–
(6)
155
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
10
–
–
–
–
–
–
–
–
–
–
–
(53)
21
–
–
–
1
(35)
–
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
(2,894)
1
(4)
6
–
–
–
–
20
20
–
–
–
–
–
–
–
49
–
–
–
–
–
–
17
–
–
–
1
(4)
6
(38)
(38)
–
(38)
(38)
(4)
–
(4)
(4)
–
–
–
–
(4)
7
(69)
224
–
7
(53)
240
19
–
(53)
(26)
(5)
–
–
–
–
211
33
22
(121)
–
2,788
33
22
(121)
–
284
Total
equity
$m
156
293
17
1
(4)
6
(38)
(38)
(4)
7
(53)
240
19
(53)
(5)
33
22
(121)
–
291
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
All items above are shown net of tax.
Notes on pages 70 to 108 form an integral part of these financial statements.
Group statement of changes in equity 67
Group statement of changes in equity continued
Equity
Capital
share redemption
capital
$m
Shares
held by
employee
reserve share trusts
$m
$m
Unrealised
gains and
losses
reserve
$m
Other
reserves
$m
Currency
translation
reserve
$m
118
–
10
–
(49)
–
(2,890)
–
9
–
172
–
Retained
earnings
$m
2,624
213
IHG share-
Non-
holders’ controlling
interest
$m
equity
$m
(6)
213
At 1 January 2009
Profit for the year
Other comprehensive income:
Gains on valuation of available-
for-sale financial assets
Losses reclassified to income
on impairment/disposal of
available-for-sale financial
assets
Losses on cash flow hedges
Amounts reclassified to
financial expenses on cash
flow hedges
Actuarial losses on defined
benefit pension plans
Change in asset restriction
on pension plans in surplus
and liability in respect of
funding commitments
Exchange differences on
retranslation of foreign
operations
Total other comprehensive income
Total comprehensive income
for the year
Issue of ordinary shares
Purchase of own shares by
employee share trusts
Release of own shares by
employee share trusts
Equity-settled share-
based cost
Tax related to share schemes
Equity dividends paid
Exchange
At 31 December 2009
All items above are shown net of tax.
–
–
–
–
–
–
–
–
–
11
–
–
–
–
–
13
142
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
11
–
–
–
–
–
–
–
–
–
–
(6)
55
–
–
–
(4)
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10)
(2,900)
–
11
–
–
–
–
–
–
11
–
–
–
4
(7)
11
(57)
(57)
4
(7)
11
–
–
–
21
21
1
20
20
–
–
–
–
–
–
–
29
43
43
43
–
–
–
–
–
–
–
215
–
(36)
177
–
–
(61)
24
10
(118)
–
2,656
44
27
240
11
(6)
(6)
24
10
(118)
–
149
Notes on pages 70 to 108 form an integral part of these financial statements.
Total
equity
$m
1
214
11
4
(7)
11
(57)
21
43
26
240
11
(6)
(6)
24
10
(118)
–
156
7
1
–
–
–
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
7
O
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I
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S
I
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A
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S
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F
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I
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F
O
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A
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I
O
N
68 IHG Annual Report and Financial Statements 2010
Group financial statements continued
Group statement of financial position
31 December 2010
ASSETS
Property, plant and equipment
Goodwill
Intangible assets
Investment in associates
Retirement benefit assets
Other financial assets
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Other financial assets
Total current assets
Total assets
LIABILITIES
Loans and other borrowings
Derivative financial instruments
Trade and other payables
Provisions
Current tax payable
Total current liabilities
Loans and other borrowings
Derivative financial instruments
Retirement benefit obligations
Trade and other payables
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Equity share capital
Capital redemption reserve
Shares held by employee share trusts
Other reserves
Unrealised gains and losses reserve
Currency translation reserve
Retained earnings
IHG shareholders’ equity
Non-controlling interest
Total equity
Signed on behalf of the Board
Richard Solomons
14 February 2011
Notes on pages 70 to 108 form an integral part of these financial statements.
Note
10
12
13
14
25
15
26
16
17
18
15
2
22
23
19
20
22
23
25
19
20
26
2
28
2010
$m
1,690
92
266
43
5
135
79
2,310
4
371
13
78
–
466
2,776
(18)
(6)
(722)
(8)
(167)
(921)
(776)
(38)
(200)
(464)
(2)
(84)
(1,564)
(2,485)
291
155
10
(35)
(2,894)
49
211
2,788
284
7
291
2009
$m
1,836
82
274
45
12
130
95
2,474
4
335
35
40
5
419
2,893
(106)
(7)
(668)
(65)
(194)
(1,040)
(1,016)
(13)
(142)
(408)
–
(118)
(1,697)
(2,737)
156
142
11
(4)
(2,900)
29
215
2,656
149
7
156
Group statement of financial position and Group statement of cash flows 69
Group statement of cash flows
For the year ended 31 December 2010
Profit for the year
Adjustments for:
Net financial expenses
Income tax charge/(credit)
Depreciation and amortisation
Impairment
Other exceptional operating items
Gain on disposal of assets, net of tax
Equity-settled share-based cost, net of payments
Other items
Operating cash flow before movements in working capital
(Increase)/decrease in trade and other receivables
Net change in loyalty programme liability and System Fund surplus
Increase/(decrease) in other trade and other payables
Utilisation of provisions
Retirement benefit contributions, net of cost
Cash flows relating to exceptional operating items
Cash flow from operations
Interest paid
Interest received
Tax paid on operating activities
Net cash from operating activities
Cash flow from investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Investment in associates and other financial assets
Disposal of assets, net of costs and cash disposed of
Proceeds from associates and other financial assets
Tax paid on disposals
Net cash from investing activities
Cash flow from financing activities
Proceeds from the issue of share capital
Purchase of own shares by employee share trusts
Proceeds on release of own shares by employee share trusts
Dividends paid to shareholders
Issue of £250m 6% bonds
Decrease in other borrowings
Net cash from financing activities
Net movement in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
Exchange rate effects
Cash and cash equivalents at end of the year
Notes on pages 70 to 108 form an integral part of these financial statements.
2010
$m
293
62
106
108
7
(22)
(2)
26
1
579
(35)
10
131
(54)
(27)
(21)
583
(59)
2
(64)
462
(62)
(29)
(4)
107
28
(4)
36
19
(53)
–
(121)
–
(292)
(447)
51
40
(13)
78
2009
$m
214
54
(272)
109
197
176
(6)
14
1
487
58
42
(41)
–
(2)
(60)
484
(53)
2
(1)
432
(100)
(33)
(15)
20
15
(1)
(114)
11
(8)
2
(118)
411
(660)
(362)
(44)
82
2
40
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I
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S
N
E
S
S
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B
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N
A
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F
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I
N
F
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A
T
I
O
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70 IHG Annual Report and Financial Statements 2010
Accounting policies
General information
The consolidated financial statements of InterContinental Hotels
Group PLC (the Group or IHG) for the year ended 31 December 2010
were authorised for issue in accordance with a resolution of the
Directors on 14 February 2011. InterContinental Hotels Group PLC
(the Company) is incorporated in Great Britain and registered in
England and Wales.
Summary of significant accounting policies
Basis of preparation
The consolidated financial statements of IHG have been prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006.
Changes in accounting policies
With effect from 1 January 2010, the Group has implemented
the following new accounting standards, amendments and
interpretations. None of these have had a material impact on the
Group’s financial performance or position during the year and there
has been no requirement to restate prior year comparatives.
• IFRS 3 (Revised) ‘Business Combinations’ changes the accounting
for transaction costs, the valuation of non-controlling interests,
the initial recognition and subsequent measurement of contingent
consideration, and business combinations achieved in stages.
These changes will impact the amount of goodwill recognised
and the reported results in the period when an acquisition occurs
and future reported results. These changes only apply to new
acquisitions and there have been none during the year.
• IAS 27 (Revised) ‘Consolidated and Separate Financial
Statements’ requires the effects of all transactions with non-
controlling interests to be recorded in equity if there is no change
in control and such transactions no longer result in goodwill or
gains and losses. The standard also specifies the accounting
when control is lost; any remaining interest in the entity is
remeasured to fair value with a gain or loss recognised in profit
or loss.
• IFRIC 17 ‘Distribution of Non-cash assets to Owners’ provides
guidance on accounting for arrangements where non-cash
assets are distributed to shareholders.
• IAS 39 (amendment) ‘Financial Instruments: Recognition and
Measurement – Eligible Hedged Items’ clarifies that an entity is
permitted to designate a portion of the fair value changes or cash
flow variability of a financial instrument as a hedged item. The
amendment also specifies that inflation is not a separately
identifiable risk and cannot be designated as the hedged risk
unless it represents a contractually specified cash flow.
• IFRS 2 (amendment) ‘Share-based Payment: Group Cash-settled
Share-based Payment Arrangements’ provides guidance on
accounting for inter-group cash-settled share-based payment
transactions in the separate financial statements of an entity.
• IFRS 5 (amendment) ‘Non-current Assets Held for Sale and
Discontinued Operations’ clarifies that disclosures required in
respect of non-current assets and disposal groups classified as
held for sale or discontinued operations are only those set out
in IFRS 5.
• IFRS 8 (amendment) ‘Operating Segments’ clarifies that segment
assets and liabilities need only be reported when included in
information reviewed by the chief operating decision maker.
• IAS 7 (amendment) ‘Statement of Cash Flows’ states that only
expenditure resulting in recognition of an asset can be presented
as a cash flow from investing activities.
• IAS 17 (amendment) ‘Leases’ clarifies that a lease of land should
be classified as an operating or finance lease in accordance with
the economic substance of the arrangement.
• IAS 36 (amendment) ‘Impairment of Assets’ clarifies that the
largest permitted unit for allocation of goodwill is the IFRS 8
operating segment before aggregation for reporting purposes.
• IFRIC 16 (amendment) ‘Hedges of a Net Investment in a Foreign
Operation’ removes the restriction on a hedged foreign operation
holding the hedging instruments.
Changes in presentation
The Group statement of changes in equity has been expanded
to include an analysis of other comprehensive income by each
component of equity. The additional information is presented in
accordance with best practice and will become mandatory in 2011.
The fair values of derivative financial instruments are presented
separately on the face of the Group statement of financial position for
the first time (previously included within current ‘Trade and other
payables’) due to their increased materiality and in accordance with
best practice.
Net debt has been redefined to include the exchange element of
the fair value of currency swaps that fix the value of the Group’s
£250m 6% bonds. This change has been made to reflect the
commercial rationale of the hedging relationship. See notes 23
and 24 for further details.
Presentational currency
The consolidated financial statements are presented in millions
of US dollars following a management decision to change the
reporting currency from sterling during 2008. The change was
made to reflect the profile of the Group’s revenue and operating
profit which are primarily generated in US dollars or US dollar-
linked currencies.
The currency translation reserve was set to nil at 1 January 2004
on transition to IFRS and this reserve is presented on the
basis that the Group has reported in US dollars since this date.
Equity share capital, the capital redemption reserve and shares
held by employee share trusts are translated into US dollars at
the rates of exchange on the last day of the period; the resultant
exchange differences are recorded in other reserves.
The functional currency of the parent company remains sterling
since this is a non-trading holding company located in the United
Kingdom that has sterling denominated share capital and whose
primary activity is the payment and receipt of interest on sterling
denominated external borrowings and inter-company balances.
Basis of consolidation
The Group financial statements comprise the financial statements
of the parent company and entities controlled by the Company.
All intra-group balances and transactions have been eliminated.
The results of those businesses acquired or disposed of are
consolidated for the period during which they were under the
Group’s control.
Foreign currencies
Transactions in foreign currencies are translated to the functional
currency at the exchange rates ruling on the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies are retranslated to the functional currency at
the relevant rates of exchange ruling on the last day of the period.
All foreign exchange differences arising on translation are
recognised in the income statement except on foreign currency
borrowings that provide a hedge against a net investment in a
foreign operation. These are taken directly to the currency
translation reserve until the disposal of the net investment, at
which time they are recycled against the gain or loss on disposal.
The assets and liabilities of foreign operations, including goodwill,
are translated into US dollars at the relevant rates of exchange
ruling on the last day of the period. The revenues and expenses of
foreign operations are translated into US dollars at average rates
of exchange for the period. The exchange differences arising on
the retranslation are taken directly to the currency translation
reserve. On disposal of a foreign operation, the cumulative amount
recognised in the currency translation reserve relating to that
particular foreign operation is recycled against the gain or loss
on disposal.
Property, plant and equipment
Property, plant and equipment are stated at cost less depreciation
and any impairment.
Borrowing costs attributable to the acquisition or construction of an
asset that necessarily takes a substantial period of time to prepare
for its intended use or sale are capitalised as part of the asset cost.
All other borrowing costs are expensed as incurred. Borrowing
costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. However, all borrowing
costs relating to projects commencing before 1 January 2009
were expensed.
Repairs and maintenance costs are expensed as incurred.
Land is not depreciated. All other property, plant and equipment
are depreciated to a residual value over their estimated useful
lives, namely:
buildings – lesser of 50 years and unexpired term of lease; and
fixtures, fittings and equipment – three to 25 years.
All depreciation is charged on a straight-line basis. Residual value
is reassessed annually.
Accounting policies 71
Property, plant and equipment are tested for impairment when
events or changes in circumstances indicate that the carrying value
may not be recoverable. Assets that do not generate independent
cash flows are combined into cash-generating units. If carrying
values exceed their estimated recoverable amount, the assets
or cash-generating units are written down to the recoverable
amount. Recoverable amount is the greater of fair value less costs
to sell and value in use. Value in use is assessed based on estimated
future cash flows discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Impairment
losses, and any subsequent reversals, are recognised in the
income statement.
On adoption of IFRS, the Group retained previous revaluations of
property, plant and equipment at deemed cost as permitted by IFRS 1
‘First-time Adoption of International Financial Reporting Standards’.
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
Goodwill
Goodwill arises on consolidation and is recorded at cost, being the
excess of the cost of acquisition over the fair value at the date of
acquisition of the Group’s share of identifiable assets, liabilities
and contingent liabilities. With effect from 1 January 2010,
transaction costs are expensed and therefore not included in
the cost of acquisition. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
Goodwill is tested for impairment at least annually by comparing
carrying values of cash-generating units with their recoverable
amounts. Impairment losses cannot be subsequently reversed.
Intangible assets
Software
Acquired software licences and software developed in-house are
capitalised on the basis of the costs incurred to acquire and bring
to use the specific software. Costs are amortised over estimated
useful lives of three to five years on a straight-line basis.
Internally generated development costs are expensed unless forecast
revenues exceed attributable forecast development costs, at which
time they are capitalised and amortised over the life of the asset.
Management contracts
When assets are sold and a purchaser enters into a franchise or
management contract with the Group, the Group capitalises as
part of the gain or loss on disposal an estimate of the fair value of
the contract entered into. The value of management contracts is
amortised over the life of the contract which ranges from six to
50 years on a straight-line basis.
Other intangible assets
Amounts paid to hotel owners to secure management contracts and
franchise agreements are capitalised and amortised over the shorter
of the contracted period and 10 years on a straight-line basis.
Intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not
be recoverable.
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
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E
N
O
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M
A
N
A
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M
E
N
T
A
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T
H
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B
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A
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D
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T
A
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E
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F
N
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A
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I
F
N
A
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A
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M
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F
U
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I
N
F
O
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A
T
I
O
N
72 IHG Annual Report and Financial Statements 2010
Accounting policies continued
Associates
Cash and cash equivalents
An associate is an entity over which the Group has the ability to
exercise significant influence, but not control, through participation
in the financial and operating policy decisions of the entity.
Associates are accounted for using the equity method unless the
associate is classified as held for sale. Under the equity method,
the Group’s investment is recorded at cost adjusted by the Group’s
share of post-acquisition profits and losses. When the Group’s
share of losses exceeds its interest in an associate, the Group’s
carrying amount is reduced to $nil and recognition of further losses
is discontinued except to the extent that the Group has incurred
legal or constructive obligations or made payments on behalf of
an associate.
Financial assets
The Group classifies its financial assets into one of the two
following categories: loans and receivables or available-for-sale
financial assets. Management determines the classification of
financial assets on initial recognition and they are subsequently
held at amortised cost (loans and receivables) or fair value
(available-for-sale financial assets). Interest on loans and
receivables is calculated using the effective interest rate method
and is recognised in the income statement as interest income.
Changes in fair values of available-for-sale financial assets are
recorded directly in equity within the unrealised gains and losses
reserve. On disposal, the accumulated fair value adjustments
recognised in equity are recycled to the income statement.
Dividends from available-for-sale financial assets are recognised
in the income statement as other operating income and expenses.
Financial assets are assessed for impairment at each period-end
date. In the case of an equity investment classified as available-for-
sale, a significant or prolonged decline in fair value below cost is
evidence that the asset is impaired. If an available-for-sale financial
asset is impaired, the difference between original cost and fair
value is transferred from equity to the income statement to the
extent of any cumulative loss recorded in equity, with any excess
charged directly to the income statement. Impairment losses on
equity instruments are not reversed through the income statement.
Inventories
Cash comprises cash in hand and demand deposits.
Cash equivalents are short-term highly liquid investments with an
original maturity of three months or less that are readily convertible
to known amounts of cash and subject to insignificant risk of
changes in value.
In the statement of cash flows, cash and cash equivalents are shown
net of short-term overdrafts which are repayable on demand and
form an integral part of the Group’s cash management.
Assets held for sale
Non-current assets and associated liabilities are classified as held
for sale when their carrying amount will be recovered principally
through a sale transaction rather than continuing use and a sale is
highly probable.
Assets designated as held for sale are held at the lower of carrying
amount at designation and fair value less costs to sell.
Depreciation is not charged against property, plant and equipment
classified as held for sale.
Financial liabilities
Financial liabilities are measured at amortised cost using the effective
interest rate method. A financial liability is derecognised when the
obligation under the liability expires, is discharged or cancelled.
Trade payables
Trade payables are non-interest-bearing and are stated at their
nominal value.
Bank and other borrowings
Bank and other borrowings are initially recognised at the fair value
of the consideration received less directly attributable transaction
costs. They are subsequently measured at amortised cost. Finance
charges, including the transaction costs and any discount or
premium on issue, are charged to the income statement using the
effective interest rate method.
Borrowings are classified as non-current when the repayment date
is more than 12 months from the period-end date or where they are
drawn on a facility with more than 12 months to expiry.
Inventories are stated at the lower of cost and net realisable value.
Derivative financial instruments and hedging
Trade receivables
Trade receivables are recorded at their original amount less
provision for impairment. It is the Group’s policy to provide for 100%
of the previous month’s aged receivables balances which are more
than 180 days past due. Adjustments to the policy may be made
due to specific or exceptional circumstances when collection is no
longer considered probable. The carrying amount of the receivable
is reduced through the use of a provision account and movements
in the provision are recognised in the income statement within cost
of sales. When a previously provided trade receivable is
uncollectable, it is written off against the provision.
Derivatives are initially recognised and subsequently remeasured
at fair value. The method of recognising the remeasurement
depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged.
Changes in the fair value of derivatives designated as cash flow
hedges are recorded in other comprehensive income and the
unrealised gains and losses reserve to the extent that the hedges
are effective. When the hedged item is recognised, the cumulative
gains and losses on the related hedging instrument are reclassified
to the income statement.
Changes in the fair value of derivatives designated as net
investment hedges are recorded in other comprehensive income
and the currency translation reserve to the extent that the hedges
are effective. The cumulative gains and losses remain in equity
until a foreign operation is sold, at which point they are reclassified
to the income statement.
Accounting policies 73
Changes in the fair value of derivatives which have either not been
designated as hedging instruments or relate to the ineffective portion
of hedges are recognised immediately in the income statement.
Documentation outlining the measurement and effectiveness of
any hedging arrangements is maintained throughout the life of the
hedge relationship.
Interest arising from currency derivatives and interest rate swaps
is recorded in financial income or expenses on a net basis over the
term of the agreement, unless the accounting treatment for the
hedging relationship requires the interest to be taken to reserves.
Self insurance
The Group undertakes self insurance for various insurable risks
including property damage/business interruption, fidelity guarantee,
general liability, workers’ compensation/employers’ liability and
employee medical and dental coverage from time to time in line with
economic conditions and trends within the global insurance market.
Insurance reserves for self insurance include projected settlements
for known and incurred but not reported claims. Projected
settlements are estimated based on historical trends and
actuarial data.
Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, it is probable that a payment will be
made and a reliable estimate of the amount payable can be made.
If the effect of the time value of money is material, the provision
is discounted.
An onerous contract provision is recognised when the unavoidable
costs of meeting the obligations under a contract exceed the
economic benefits expected to be received under it.
Taxes
Current tax
Current income tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from
or paid to the tax authorities including interest. The tax rates and tax
laws used to compute the amount are those that are enacted or
substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax assets and liabilities are recognised in respect
of temporary differences between the tax base and carrying value
of assets and liabilities, including accelerated capital allowances,
unrelieved tax losses, unremitted profits from overseas where
the Group does not control remittance, gains rolled over into
replacement assets, gains on previously revalued properties and
other short-term temporary differences.
Deferred tax assets are recognised to the extent that it is regarded
as probable that the deductible temporary differences can be
realised. The recoverability of all deferred tax assets is reassessed
at the end of each reporting period.
Deferred tax is calculated at the tax rates that are expected to apply
in the periods in which the asset or liability will be settled, based
on rates enacted or substantively enacted at the end of the
reporting period.
Retirement benefits
Defined contribution plans
Payments to defined contribution schemes are charged to the
income statement as they fall due.
Defined benefit plans
Plan assets are measured at fair value and plan liabilities are
measured on an actuarial basis, using the projected unit credit
method and discounting at an interest rate equivalent to the current
rate of return on a high quality corporate bond of equivalent
currency and term to the plan liabilities. The difference between
the value of plan assets and liabilities at the period-end date is the
amount of surplus or deficit recorded in the statement of financial
position as an asset or liability. An asset is recognised when the
employer has an unconditional right to use the surplus at some
point during the life of the plan or on its wind up. If a refund would
be subject to a tax other than income tax, as is the case in the UK,
the asset is recorded at the amount net of the tax. A liability is also
recorded for any such tax that would be payable in respect of
funding commitments based on the accounting assumption that the
related payments increase the asset.
The service cost of providing pension benefits to employees for
the year is charged to the income statement. The cost of making
improvements to pensions is recognised in the income statement
on a straight-line basis over the period during which any increase
in benefits vests. To the extent that improvements in benefits vest
immediately, the cost is recognised immediately as an expense.
Actuarial gains and losses may result from: differences between
the expected return and the actual return on plan assets;
differences between the actuarial assumptions underlying the plan
liabilities and actual experience during the year; or changes in the
actuarial assumptions used in the valuation of the plan liabilities.
Actuarial gains and losses, and taxation thereon, are recognised
in the Group statement of comprehensive income.
Actuarial valuations are normally carried out every three years and
are updated for material transactions and other material changes
in circumstances (including changes in market prices and interest
rates) up to the end of the reporting period.
Revenue recognition
Revenue is the gross inflow of economic benefits received and
receivable by the Group on its own account where those inflows
result in increases in equity.
Revenue is derived from the following sources: franchise fees;
management fees; owned and leased properties and other
revenues which are ancillary to the Group’s operations, including
technology fee income.
Generally, revenue represents sales (excluding VAT and similar
taxes) of goods and services, net of discounts, provided in the
normal course of business and recognised when services have
been rendered. The following is a description of the composition
of revenues of the Group.
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74 IHG Annual Report and Financial Statements 2010
Accounting policies continued
Franchise fees – received in connection with the license of the
Group’s brand names, usually under long-term contracts with
the hotel owner. The Group charges franchise royalty fees as a
percentage of rooms revenue. Revenue is recognised when earned
and realised or realisable under the terms of the agreement.
Management fees – earned from hotels managed by the Group,
usually under long-term contracts with the hotel owner.
Management fees include a base fee, which is generally a
percentage of hotel revenue, and an incentive fee, which is
generally based on the hotel’s profitability or cash flows. Revenue
is recognised when earned and realised or realisable under the
terms of the contract.
Owned and leased – primarily derived from hotel operations,
including the rental of rooms and food and beverage sales from
owned and leased hotels operated under the Group’s brand names.
Revenue is recognised when rooms are occupied and food and
beverages are sold.
Disposal of non-current assets
The Group recognises sales proceeds and any related gain
or loss on disposal on completion of the sales process.
In determining whether the gain or loss should be recorded,
the Group considers whether it:
• has a continuing managerial involvement to the degree
associated with asset ownership;
• has transferred the significant risks and rewards associated
with asset ownership; and
• can reliably measure and will actually receive the proceeds.
Discontinued operations
Discontinued operations are those relating to hotels or operations
sold or those classified as held for sale when the results relate to
a separate line of business, geographical area of operations, or
where there is a co-ordinated plan to dispose of a separate line of
business or geographical area of operations.
Share-based payments
Exceptional items
The cost of equity-settled transactions with employees is measured
by reference to fair value at the date at which the right to the shares
is granted. Fair value is determined by an external valuer using
option pricing models.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
any performance or service conditions are fulfilled, ending on the
date on which the relevant employees become fully entitled to the
award (vesting date).
The income statement charge for a period represents the
movement in cumulative expense recognised at the beginning and
end of that period. No expense is recognised for awards that do not
ultimately vest, except for awards where vesting is conditional upon
a market or non-vesting condition, which are treated as vesting
irrespective of whether or not the market or non-vesting condition
is satisfied, provided that all other performance and/or service
conditions are satisfied.
The Group has taken advantage of the transitional provisions of
IFRS 2 ‘Share-based Payment’ in respect of equity-settled awards
and has applied IFRS 2 only to equity-settled awards granted after
7 November 2002 that had not vested before 1 January 2005.
Leases
Operating lease rentals are charged to the income statement on
a straight-line basis over the term of the lease.
Assets held under finance leases, which transfer to the Group
substantially all the risks and benefits incidental to ownership of
the leased item, are capitalised at the inception of the lease, with
a corresponding liability being recognised for the fair value of the
leased asset or, if lower, the present value of the minimum lease
payments. Lease payments are apportioned between the reduction
of the lease liability and finance charges in the income statement so
as to achieve a constant rate of interest on the remaining balance
of the liability. Assets held under finance leases are depreciated
over the shorter of the estimated useful life of the asset and the
lease term.
The Group discloses certain financial information both including
and excluding exceptional items. The presentation of information
excluding exceptional items allows a better understanding of the
underlying trading performance of the Group and provides
consistency with the Group’s internal management reporting.
Exceptional items are identified by virtue of either their size or
nature so as to facilitate comparison with prior periods and to
assess underlying trends in financial performance. Exceptional
items can include, but are not restricted to, gains and losses on
the disposal of assets, impairment charges and reversals,
restructuring costs and the release of tax provisions.
Use of accounting estimates and judgements
The preparation of financial statements requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from these estimates under
different assumptions and conditions.
The estimates and assumptions that have the most significant effect
on the amounts recognised in the financial statements are:
Trade receivables – a provision for impairment of trade receivables
is made on the basis of historical experience and other factors
considered relevant by management.
Impairment – the Group determines whether goodwill is impaired
on an annual basis or more frequently if there are indicators of
impairment. Other non-current assets, including property, plant
and equipment, are tested for impairment if there are indicators
of impairment. Impairment testing requires an estimate of future
cash flows and the choice of a suitable discount rate and, in the
case of hotels, an assessment of recoverable amount based on
comparable market transactions.
Accounting policies 75
Other – the Group also makes estimates and judgements in the
valuation of franchise and management agreements acquired
on asset disposals, the valuation of financial assets classified as
available-for-sale, the outcome of legal proceedings and claims
and in the valuation of share-based payment costs.
New standards issued but not effective
The following accounting standards, amendments and
interpretations with an effective date after the date of these
financial statements have not been adopted early by the Group
and will be adopted in accordance with the effective date. The
Directors do not anticipate that the adoption of these standards,
amendments and interpretations will have a material impact on the
Group’s reported income or net assets in the period of adoption.
• IFRS 9 ‘Financial Instruments: Classification and Measurement’
which is effective from 1 January 2013, introduces new
requirements for classifying and measuring financial assets and
for measuring financial liabilities at fair value through profit
or loss.
• IAS 24 (amendment) ‘Related Party Disclosures’ which is effective
from 1 January 2011, clarifies and simplifies the definition of a
related party.
• IFRIC 14 (amendment) ‘Prepayments of a Minimum Funding
Requirement’ which is effective from 1 January 2011 with
retrospective application, permits an entity to treat the
prepayment of a minimum funding requirement as an asset.
• IFRIC 19 ‘Extinguishing Financial Liabilities with Equity
Instruments’ which is effective from 1 July 2010, clarifies that
equity instruments issued to a creditor to extinguish a financial
liability are measured at fair value with any gain or loss
recognised immediately in profit or loss.
• IFRS 7 (amendment) ‘Financial Instruments: Disclosures’, which
is effective from 1 January 2011, amends the credit risk
disclosures for financial assets.
• IFRIC 13 (amendment) ‘Customer Loyalty Programmes’, which is
effective from 1 January 2011, clarifies that when the fair value of
an award is measured based on redemption value, the amount of
discounts granted to customers not in the loyalty programme
should be taken into account.
Note: the effective dates are in respect of accounting periods
beginning on or after the date shown and so will be effective for
the Group from 1 January 2011, other than IFRS 9 which will be
effective for the Group from 1 January 2013.
System Fund – in addition to management or franchise fees, hotels
within the IHG system pay cash assessments and contributions
which are collected by IHG for specific use within the System Fund
(the Fund). The Fund also receives proceeds from the sale of
Priority Club Rewards points. IHG exerts significant influence over
the operation of the Fund, however the Fund is managed for the
benefit of hotels in the system with the objective of driving revenues
for the hotels. The Fund is used to pay for marketing, the Priority
Club Rewards loyalty programme and the global reservation
system. The Fund is planned to operate at breakeven with any
short-term timing surplus or deficit carried in the Group statement
of financial position within working capital.
As all Fund income is designated for specific purposes and does
not result in a profit or loss for the Group, the revenue recognition
criteria as outlined in the accounting policy above are not met and
therefore the income and expenses of the Fund are not included in
the Group income statement.
The assets and liabilities relating to the Fund are included in the
appropriate headings in the Group statement of financial position
as the related legal, but not beneficial, rights and obligations rest
with the Group. These assets and liabilities include the Priority Club
Rewards liability, short-term timing surpluses and deficits and any
receivables and payables related to the Fund.
The cash flows relating to the Fund are reported within ‘cash flow
from operations’ in the Group statement of cash flows due to the
close interrelationship between the Fund and the trading
operations of the Group.
Further information on the Fund is included in note 33.
Loyalty programme – the hotel loyalty programme, Priority Club
Rewards, enables members to earn points, funded through hotel
assessments, during each qualifying stay at an IHG branded hotel
and redeem points at a later date for free accommodation or other
benefits. The future redemption liability is included in trade and
other payables and is estimated using eventual redemption rates
determined by actuarial methods and points values. Actuarial gains
and losses on the future redemption liability are borne by the
System Fund and any resulting changes in the liability would
correspondingly adjust the amount of short-term timing differences
held in the Group statement of financial position.
Retirement and other post-employment benefits – the cost
of defined benefit pension plans and other post-employment
benefits is determined using actuarial valuations. The actuarial
valuation involves making assumptions about discount rates,
expected rates of return on assets, future salary increases,
mortality rates and future pension increases.
Tax – provisions for tax accruals require judgements on the
interpretation of tax legislation, developments in tax case law
and the potential outcomes of tax audits and appeals. In addition,
deferred tax assets are recognised for unused tax attributes to the
extent that it is probable that taxable profit will be available against
which they can be utilised. Judgement is required as to the amount
that can be recognised based on the likely amount and timing of
future taxable profits, taking into account expected tax planning.
Deferred tax balances are dependent on management’s
expectations regarding the manner and timing of recovery of
the related assets.
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76 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements
1. Exchange rates
The results of operations have been translated into US dollars
at the average rates of exchange for the year. In the case of sterling,
the translation rate is $1=£0.65 (2009 $1=£0.64). In the case of the
euro, the translation rate is $1=€0.76 (2009 $1=€0.72).
Assets and liabilities have been translated into US dollars at the
rates of exchange on the last day of the year. In the case of sterling,
the translation rate is $1=£0.64 (2009 $1=£0.62). In the case of the
euro, the translation rate is $1=€0.75 (2009 $1=€0.69).
2. Segmental information
The management of the Group’s operations, excluding Central
functions, is organised within three geographical regions:
income. Central liabilities include the loyalty programme liability
and the cumulative short-term System Fund surplus.
Americas;
Europe, Middle East and Africa (EMEA); and
Asia Pacific.
These, together with Central functions, comprise the Group’s four
reportable segments.
The Asia Pacific reportable segment comprises the aggregation
of two operating segments, Greater China and Asia Australasia.
Central functions include costs of global functions, including
technology, sales and marketing, finance, human resources and
corporate services; revenue arises principally from technology fee
Each of the geographical regions derives its revenues from either
franchising, managing or owning hotels and additional segmental
disclosures are provided accordingly.
Management monitors the operating results of the geographical
regions and Central functions separately for the purpose of making
decisions about resource allocation and performance assessment.
Segmental performance is evaluated based on operating profit or
loss and is measured consistently with operating profit or loss in
the consolidated financial statements, excluding exceptional items.
Group financing and income taxes are managed on a group basis
and are not allocated to reportable segments.
Year ended 31 December 2010
Revenue
Franchised
Managed
Owned and leased
Central
Total revenue*
Segmental result
Franchised
Managed
Owned and leased
Regional and central
Reportable segments’ operating profit
Exceptional operating items (note 5)
Operating profit*
Reportable segments’ operating profit
Exceptional operating items
Operating profit
Net finance costs
Profit before tax
Tax
Profit after tax
Gain on disposal of assets, net of tax
Profit for the year
* Relates to continuing operations.
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
465
119
223
–
807
81
130
203
–
414
12
155
136
–
303
–
–
–
104
104
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
392
21
13
(57)
369
14
383
59
62
40
(36)
125
3
128
7
73
35
(26)
89
(2)
87
–
–
–
(139)
(139)
–
(139)
Continuing
$m
Discontinued
$m
444
15
459
(62)
397
(106)
291
–
291
–
–
–
–
–
–
–
2
2
Group
$m
558
404
562
104
1,628
Group
$m
458
156
88
(258)
444
15
459
Group
$m
444
15
459
(62)
397
(106)
291
2
293
Notes to the Group financial statements 77
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
Group
$m
891
856
665
194
2,606
(452)
(290)
(86)
(568)
(1,396)
79
13
78
2,776
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
37
–
33
7
–
8
3
25
–
–
12
–
30
–
–
40
–
20
–
32
(167)
(84)
(794)
(44)
(2,485)
Group
$m
97
3
108
7
32
2. Segmental information continued
31 December 2010
Assets and liabilities
Segment assets
Unallocated assets:
Deferred tax assets
Current tax receivable
Cash and cash equivalents
Total assets
Segment liabilities
Unallocated liabilities:
Current tax payable
Deferred tax liabilities
Loans and other borrowings
Derivatives
Total liabilities
Year ended 31 December 2010
Other segmental information
Capital expenditure (see below)
Non-cash items:
Onerous management contracts
Depreciation and amortisation*
Impairment losses
Share-based payments cost
* Included in the $108m of depreciation and amortisation is $31m relating to administrative expenses and $77m relating to cost of sales.
Reconciliation of capital expenditure
Capital expenditure per management reporting
Management contract acquired on disposal
Timing differences
Capital expenditure per the financial statements
Comprising additions to:
Property, plant and equipment
Intangible assets
Other financial assets
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
Group
$m
37
5
–
42
27
11
4
42
8
–
(1)
7
6
1
–
7
12
–
(4)
8
3
5
–
8
40
–
–
40
23
17
–
40
97
5
(5)
97
59
34
4
97
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78 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
2. Segmental information continued
Year ended 31 December 2009
Revenue
Franchised
Managed
Owned and leased
Central
Total revenue*
Segmental result
Franchised
Managed
Owned and leased
Regional and central
Reportable segments’ operating profit
Exceptional operating items (note 5)
Operating loss*
Reportable segments’ operating profit
Exceptional operating items
Operating loss
Net finance costs
Loss before tax
Tax
Profit after tax
Gain on disposal of assets, net of tax
Profit for the year
* Relates to continuing operations.
31 December 2009
Assets and liabilities
Segment assets
Unallocated assets:
Deferred tax assets
Current tax receivable
Cash and cash equivalents
Total assets
Segment liabilities
Unallocated liabilities:
Current tax payable
Deferred tax liabilities
Loans and other borrowings
Derivatives
Total liabilities
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
437
110
225
–
772
83
119
195
–
397
11
105
129
–
245
–
–
–
124
124
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
364
(40)
11
(47)
288
(301)
(13)
60
65
33
(31)
127
(22)
105
5
44
30
(27)
52
(7)
45
–
–
–
(104)
(104)
(43)
(147)
Continuing
$m
Discontinued
$m
363
(373)
(10)
(54)
(64)
272
208
–
208
–
–
–
–
–
–
–
6
6
Group
$m
531
334
549
124
1,538
Group
$m
429
69
74
(209)
363
(373)
(10)
Group
$m
363
(373)
(10)
(54)
(64)
272
208
6
214
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
Group
$m
970
926
631
196
2,723
(417)
(236)
(63)
(567)
(1,283)
95
35
40
2,893
(194)
(118)
(1,122)
(20)
(2,737)
Notes to the Group financial statements 79
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
Group
$m
80
91
33
189
–
5
–
29
8
–
14
–
28
–
–
37
–
19
–
22
2. Segmental information continued
Year ended 31 December 2009
Other segmental information
Capital expenditure (see below)
Non-cash items:
Onerous management contracts
Depreciation and amortisation*
Impairment losses
Share-based payments cost
* Included in the $109m of depreciation and amortisation is $29m relating to administrative expenses and $80m relating to cost of sales.
Reconciliation of capital expenditure
Capital expenditure per management reporting
Timing differences
Capital expenditure per the financial statements
Comprising additions to:
Property, plant and equipment
Intangible assets
Investment in associates
Americas
$m
EMEA
$m
Asia Pacific
$m
Central
$m
80
(45)
35
29
6
–
35
5
1
6
6
–
–
6
14
1
15
9
3
3
15
37
–
37
13
24
–
37
Geographical information
Revenue
United Kingdom
United States
Rest of World
Total revenue per Group income statement
Year ended
31 December
2010
$m
Year ended
31 December
2009
$m
I
T
I
E
S
130
706
792
1,628
125
678
735
1,538
For the purposes of the above table, hotel revenue is determined according to the location of the hotel and other revenue is attributed to the
country of origin. In addition to the United Kingdom, revenue relating to an individual country is separately disclosed when it represents 10%
or more of total revenue.
Non-current assets
United Kingdom
United States
France
People’s Republic of China (including Hong Kong)
Rest of World
Total
31 December
2010
$m
31 December
2009
$m
366
726
344
335
320
2,091
389
805
376
354
313
2,237
For the purposes of the above table, non-current assets comprise property, plant and equipment, goodwill, intangible assets and
investments in associates. Non-current assets relating to an individual country are separately disclosed when they represent 10%
or more of total non-current assets, as defined above.
136
91
109
197
22
Group
$m
136
(43)
93
57
33
3
93
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
80 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
3. Staff costs and Directors’ emoluments
Staff
Costs:
Wages and salaries
Social security costs
Pension and other post-retirement benefits:
Defined benefit plans (note 25)
Defined contribution plans
Average number of employees, including part-time employees:
Americas
EMEA
Asia Pacific
Central
2010
$m
535
34
9
19
597
2010
3,309
1,795
1,517
1,237
7,858
2009
$m
441
45
12
26
524
2009
3,229
1,712
1,410
1,205
7,556
The costs of the above employees are borne by IHG. In addition, the Group employs 4,489 (2009 4,561) people who work in managed hotels
or directly on behalf of the System Fund and whose costs of $282m (2009 $267m) are borne by those hotels or by the Fund.
Directors’ emoluments
Base salaries, fees, performance payments and benefits
2010
$m
6.5
2009
$m
3.3
More detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Remuneration
report on pages 48 to 60.
4. Auditor’s remuneration paid to Ernst & Young LLP
Group audit fees
Audit fees in respect of subsidiaries
Tax fees
Interim review fees
Other services pursuant to legislation
Other
2010
$m
1.9
1.6
2.1
0.3
0.3
1.7
7.9
2009
$m
1.8
2.1
1.7
0.3
0.3
1.5
7.7
Audit fees in respect of the pension scheme were not material.
The Audit Committee has a process to ensure that any non-audit services do not compromise the independence and objectivity of the
external auditor and that relevant UK and US professional and regulatory requirements are met. A number of criteria are applied when
deciding whether pre-approval for such services should be given. These include the nature of the service, the level of fees and the
practicality of appointing an alternative provider, having regard to the skills and experience required to supply the service effectively.
Cumulative fees for audit and non-audit services are presented to the Audit Committee on a quarterly basis for review. The Audit
Committee is responsible for monitoring adherence to the pre-approval policy.
5. Exceptional items
Continuing operations
Exceptional operating items
Cost of sales:
Onerous management contracts
Administrative expenses:
Holiday Inn brand relaunch
Reorganisation and related costs
Enhanced pension transfer
Other operating income and expenses:
Gain on sale of other financial assets
Gain/(loss) on disposal of hotels (note 11)*
Impairment:
Property, plant and equipment (note 10)
Assets held for sale (note 11)
Goodwill (note 12)
Intangible assets (note 13)
Other financial assets (note 15)
Tax
Tax on exceptional operating items
Exceptional tax credit
Discontinued operations
Gain on disposal of assets (note 11)
Gain on disposal of hotels**
Tax credit
Notes to the Group financial statements 81
Note
2010
$m
2009
$m
a
b
c
d
e
f
g
–
(9)
(4)
–
(13)
8
27
35
(6)
–
–
–
(1)
(7)
15
(8)
–
(8)
–
2
2
(91)
(19)
(43)
(21)
(83)
–
(2)
(2)
(28)
(45)
(78)
(32)
(14)
(197)
(373)
112
175
287
2
4
6
* Relates to hotels classified as continuing operations.
** Relates to hotels classified as discontinued operations.
The above items are treated as exceptional by reason of their size or nature.
a An onerous contract provision of $65m was recognised at 31 December 2009 for the future net unavoidable costs under a performance guarantee related to certain
management contracts with one US hotel owner. In addition to the provision, a deposit of $26m was written off as it is no longer considered recoverable under the terms
of the same management contracts.
b Relates to costs incurred in support of the worldwide relaunch of the Holiday Inn brand family that was announced on 24 October 2007.
c Primarily relates to the closure of certain corporate offices together with severance costs arising from a review of the Group’s cost base.
d Related to the payment of enhanced pension transfers to those deferred members of the InterContinental Hotels UK Pension Plan who had accepted an offer to receive the
enhancement either as a cash lump sum or as an additional transfer value to an alternative pension plan provider. The exceptional item in 2009 comprised the lump sum
payments ($9m), the IAS 19 settlement loss arising on the pension transfers ($11m) and the costs of the arrangement ($1m). The payments and transfers were made in
January 2009.
e Relates to the gain on sale of an investment in the EMEA region.
f Represents the release of provisions of $7m (2009 $175m) which are exceptional by reason of their size or nature relating to tax matters which had been settled or in respect
of which the relevant statutory limitation period has expired, together with, in 2010, a $7m charge relating to an internal reorganisation. This charge comprises the
recognition of deferred tax assets of $24m for capital losses and other deductible amounts, offset by tax charges of $31m.
g In 2010, relates to tax refunded relating to the sale of a hotel in a prior year. In 2009, related to tax arising on disposals together with the release of provisions no longer
required in respect of hotels disposed of in prior years.
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
82 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
6. Finance costs
Financial income
Interest income
Fair value gains
Financial expenses
Interest expense
Finance charge payable under finance leases
2010
$m
2
–
2
46
18
64
2009
$m
2
1
3
39
18
57
Interest income and expense relate to financial assets and liabilities held at amortised cost, calculated using the effective interest
rate method.
Included within interest expense is $2m (2009 $2m) payable to the Priority Club Rewards loyalty programme relating to interest on the
accumulated balance of cash received in advance of the redemption of points awarded.
7. Tax
Income tax
UK corporation tax at 28% (2009 28%):
Current period
Adjustments in respect of prior periods
Foreign tax:
Current period
Benefit of tax reliefs on which no deferred tax previously recognised
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Changes in tax rates
Adjustments to estimated recoverable deferred tax assets
Adjustments in respect of prior periods
Total deferred tax
Total income tax charge/(credit) for the year
Further analysed as tax relating to:
Profit before exceptional items
Exceptional items (note 5):
Exceptional operating items
Exceptional tax credit
Gain on disposal of assets
The total tax charge/(credit) can be further analysed as relating to:
Continuing operations
Discontinued operations – gain on disposal of assets
Note
a
b
c
2010
$m
21
(29)
(8)
122
(13)
(23)
86
78
56
(2)
(36)
8
26
104
98
8
–
(2)
104
106
(2)
104
2009
$m
26
(33)
(7)
79
(6)
(246)
(173)
(180)
(73)
1
1
(25)
(96)
(276)
15
(112)
(175)
(4)
(276)
(272)
(4)
(276)
a Represents corporate income taxes on profit taxable in foreign jurisdictions, a significant proportion of which relates to the Group’s US subsidiaries.
b Includes $7m (2009 $165m) of exceptional releases included at note c below together with other releases relating to tax matters which have been settled or in respect of
which the relevant statutory limitation period has expired.
c Represents the release of provisions of $7m (2009 $175m) which are exceptional by reason of their size or nature relating to tax matters which have been settled or in
respect of which the relevant statutory limitation period has expired, together with, in 2010, a $7m charge relating to an internal reorganisation. This charge comprises the
recognition of deferred tax assets of $24m for capital losses and other deductible amounts, offset by tax charges of $31m.
Notes to the Group financial statements 83
2010
%
28.0
4.1
9.5
(0.4)
(3.5)
(9.1)
(11.2)
–
8.7
26.1
Total a
2009
%
28.0
(36.5)
(43.0)
(0.3)
7.2
5.9
185.5
(3.8)
298.3
441.3
Before
exceptional itemsb
2010
%
2009
%
28.0
4.2
9.3
(0.7)
(3.6)
(2.3)
(9.1)
–
–
25.8
28.0
7.4
8.7
0.1
(1.5)
(1.2)
(37.6)
0.8
–
4.7
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
7. Tax continued
Reconciliation of tax charge/(credit), including gain
on disposal of assets
UK corporation tax at standard rate
Non-deductible expenditure and non-taxable income
Net effect of different rates of tax in overseas businesses
Effect of changes in tax rates
Benefit of tax reliefs on which no deferred tax previously recognised
Effect of adjustments to estimated recoverable deferred tax assets
Adjustment to tax charge in respect of prior periods
Other
Exceptional items and gain on disposal of assets
a Calculated in relation to total profits/losses including exceptional items.
b Calculated in relation to profits excluding exceptional items.
Tax paid
Total net tax paid during the year of $68m (2009 $2m) comprises $64m paid (2009 $1m paid) in respect of operating activities and $4m paid
(2009 $1m) in respect of investing activities.
Tax paid is lower than the current period income tax charge primarily due to the receipt of refunds in respect of prior years together with
provisions for tax for which no payment of tax has currently been made.
Tax risks, policies and governance
It is the Group’s objective to comply fully with its worldwide corporate income tax filing, payment and reporting obligations, whilst
managing its tax affairs within acceptable risk parameters on a basis consistent with the Group’s overall business conduct principles in
order to minimise its worldwide liabilities in the best interests of its shareholders. The Group adopts a policy of open co-operation with tax
authorities, with full disclosure of relevant issues.
The Group’s tax objectives and policies, and any changes thereto, are reviewed and approved by the Audit Committee. Regular tax reports
are made to the Chief Financial Officer in addition to an annual presentation to the Audit Committee covering the Group’s tax position,
strategy and major risks. Tax is also encompassed within the Group’s formal risk management procedures and any material tax disputes,
litigation or tax planning activities are subject to internal risk review and management approval procedures.
8. Dividends paid and proposed
Paid during the year:
Final (declared for previous year)
Interim
Proposed (not recognised as a liability at 31 December):
Final
2010
cents per
share
2009
cents per
share
29.2
12.8
42.0
29.2
12.2
41.4
35.2
29.2
2010
$m
84
37
121
101
2009
$m
83
35
118
84
The final dividend of 22.0p (35.2¢ converted at the closing exchange rate on 11 February 2011) is proposed for approval at the Annual
General Meeting on 27 May 2011 and is payable on the shares in issue at 25 March 2011.
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
84 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
9. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average
number of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the
weighted average number of dilutive ordinary share options outstanding during the year.
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more
meaningful comparison of the Group’s performance.
Basic earnings per ordinary share
Profit available for equity holders ($m)
Basic weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Diluted earnings per ordinary share
Profit available for equity holders ($m)
Diluted weighted average number of ordinary shares (millions)
Diluted earnings per ordinary share (cents)
Diluted weighted average number of ordinary shares is calculated as:
Basic weighted average number of ordinary shares
Dilutive potential ordinary shares – employee share options
Adjusted earnings per ordinary share
Profit available for equity holders ($m)
Adjusting items (note 5):
Exceptional operating items ($m)
Tax on exceptional operating items ($m)
Exceptional tax credit ($m)
Gain on disposal of assets, net of tax ($m)
Adjusted earnings ($m)
Basic weighted average number of ordinary shares (millions)
Adjusted earnings per ordinary share (cents)
Adjusted earnings ($m)
Diluted weighted average number of ordinary shares (millions)
Adjusted diluted earnings per ordinary share (cents)
Continuing
operations
291
288
101.0
291
296
98.3
Continuing
operations
291
(15)
8
–
–
284
288
98.6
284
296
95.9
2010
Total
293
288
101.7
293
296
99.0
2010
millions
288
8
296
2010
Total
293
(15)
8
–
(2)
284
288
98.6
284
296
95.9
Continuing
operations
207
285
72.6
207
295
70.2
Continuing
operations
207
373
(112)
(175)
–
293
285
102.8
293
295
99.3
2009
Total
213
285
74.7
213
295
72.2
2009
millions
285
10
295
2009
Total
213
373
(112)
(175)
(6)
293
285
102.8
293
295
99.3
10. Property, plant and equipment
Cost
At 1 January 2009
Additions
Net transfers from non-current assets classified as held for sale
Reclassification
Disposals
Exchange and other adjustments
At 31 December 2009
Additions
Net transfers to non-current assets classified as held for sale
Disposals
Exchange and other adjustments
At 31 December 2010
Depreciation and impairment
At 1 January 2009
Provided
Net transfers from non-current assets classified as held for sale
Impairment charge (see below)
Valuation adjustments arising on reclassification from held for sale (note 11)
Disposals
Exchange and other adjustments
At 31 December 2009
Provided
Net transfers to non-current assets classified as held for sale
Impairment charge (see below)
Disposals
Exchange and other adjustments
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
At 1 January 2009
Notes to the Group financial statements 85
Land and
buildings
$m
Fixtures, fittings
and equipment
$m
1,366
22
176
14
–
44
1,622
24
(57)
(11)
(30)
1,548
(100)
(11)
(44)
(28)
(28)
–
(1)
(212)
(11)
1
–
8
1
(213)
1,335
1,410
1,266
900
35
104
(14)
(3)
24
1,046
35
(55)
(20)
(9)
997
(482)
(60)
(45)
–
(17)
2
(18)
(620)
(64)
29
(6)
18
1
(642)
355
426
418
Total
$m
2,266
57
280
–
(3)
68
2,668
59
(112)
(31)
(39)
2,545
(582)
(71)
(89)
(28)
(45)
2
(19)
(832)
(75)
30
(6)
26
2
(855)
1,690
1,836
1,684
The impairment charge in 2010 arose in respect of one hotel in the Americas following a re-assessment of its recoverable amount, based
on value in use. Estimated future cash flows were discounted at a pre-tax rate of 11.8%. The charge is included within impairment on the
face of the Group income statement.
The impairment charge in 2009 arose as a result of the economic downturn and a re-assessment of the recoverable amount of certain
properties, based on value in use. The charge, which is included within impairment on the face of the Group income statement, comprised
$20m in respect of a North American hotel and $8m relating to a European hotel. Estimated future cash flows were discounted at pre-tax
rates of 14.0% and 12.5% respectively.
The carrying value of property, plant and equipment held under finance leases at 31 December 2010 was $183m (2009 $187m).
The carrying value of assets in the course of construction was $nil (2009 $nil).
No borrowing costs were capitalised during the year (2009 $nil).
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
86 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
11. Assets sold, held for sale and discontinued operations
There were no assets or liabilities classified as held for sale at either 31 December 2010 or 31 December 2009.
During the year ended 31 December 2010, two hotels in the Americas were sold including the InterContinental Buckhead, Atlanta on 1 July
2010 for a profit of $27m.
During the year ended 31 December 2009, one hotel was sold and four others were reclassified as property, plant and equipment at 30 June
2009 when they no longer met the ‘held for sale’ criteria of IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ as sales
were no longer considered highly probable within the next 12 months. On reclassification, valuation adjustments of $45m were recognised,
comprising $14m of depreciation not charged whilst held for sale and $31m of further write-downs to recoverable amounts, as required by
IFRS 5. Recoverable amounts were assessed by reference to value in use with the expected future cash flows for the North American hotel
comprising substantially all of the write-down discounted at a pre-tax rate of 12.5%. The valuation adjustments were included within
impairment on the face of the Group income statement.
Consideration
Current year disposals:
Cash consideration, net of costs paid
Management contract value
Net assets disposed of – property, plant and equipment
Prior year disposals:
Provision release
Tax
Gain on disposal of assets
Analysed as:
Gain/(loss) on disposal of hotels from continuing operations (note 5)
Gain on disposal of assets from discontinued operations (note 5)
Net cash inflow
Current year disposals:
Cash consideration, net of costs paid
Tax
Prior year disposals:
Costs paid
Tax
Discontinued operations
2010
$m
109
5
114
(87)
–
2
29
27
2
29
109
(6)
(2)
2
103
2009
$m
20
–
20
(22)
2
4
4
(2)
6
4
20
–
–
–
20
The results of discontinued operations comprise gains arising from prior year hotel disposals of $2m (2009 $6m) and do not impact on
segmental results.
Earnings per ordinary share from discontinued operations
Basic
Diluted
Cash flows attributable to discontinued operations were $2m (2009 $nil).
2010
cents
0.7
0.7
2009
cents
2.1
2.0
12. Goodwill
Cost
At 1 January
Exchange and other adjustments
At 31 December
Impairment
At 1 January
Impairment charge
At 31 December
Net book value
At 31 December
At 1 January
Notes to the Group financial statements 87
2010
$m
223
10
233
(141)
–
(141)
92
82
2009
$m
206
17
223
(63)
(78)
(141)
82
143
Goodwill arising on business combinations that occurred before 1 January 2005 was not restated on adoption of IFRS as permitted by IFRS 1.
Impairment charges are included within impairment on the face of the Group income statement and all cumulative impairment losses
relate to the Americas managed CGU (see below).
Goodwill has been allocated to cash-generating units (CGUs) for impairment testing as follows:
Asia Australasia franchised and managed operations
Americas managed operations
2010
$m
92
141
233
Cost
2009
$m
82
141
223
Net book value
2009
$m
82
–
82
2010
$m
92
–
92
The Group tests goodwill for impairment annually, or more frequently if there are any indications that an impairment may have arisen.
The recoverable amounts of the CGUs are determined from value in use calculations. These calculations use pre-tax cash flow forecasts
derived from the most recent financial budgets and strategic plans approved by management covering a five-year period or, in absence of
up-to-date strategic plans, the financial budget for the next year with an extrapolation of the cash flows for the following four years, using
growth rates based on management’s past experience and industry growth forecasts. After the five-year planning period, the terminal
value of future cash flows is calculated based on perpetual growth rates that do not exceed the average long-term growth rates for the
relevant markets. Pre-tax discount rates are used to discount the cash flows based on the Group’s weighted average cost of capital
adjusted to reflect the risks specific to the business model and territory of the CGU being tested.
Asia Australasia goodwill
At 31 December 2010, the recoverable amount of the CGU has been assessed based on the approved budget for 2011 and strategic plans
covering a five-year period, a perpetual growth rate of 3.5% (2009 3.5%) and a discount rate of 14.4% (2009 14.2%).
Impairment was not required at either 31 December 2010 or 31 December 2009 and management believe that the carrying value of the
CGU would only exceed its recoverable amount in the event of highly unlikely changes in the key assumptions.
Americas goodwill
Americas managed operations incurred significant operating losses during 2009 as a result of the global economic downturn and,
in particular, IHG’s funding obligations under certain management contracts with one US hotel owner. As a consequence, goodwill was
tested on a quarterly basis during 2009 using updated five-year projections prepared by management, a perpetual growth rate of 2.7% and
a discount rate of 12.5%. Due to the expectation of continuing losses, the recoverable value of the CGU declined resulting in the impairment
of the remaining goodwill balance during 2009. Total impairment charges of $78m were recognised in 2009 ($57m at 30 June 2009 and
$21m at 30 September 2009). As the goodwill is impaired in full, there is no sensitivity around any assumptions that could lead to a further
impairment charge.
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
88 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
13. Intangible assets
Cost
At 1 January 2009
Additions
Disposals
Exchange and other adjustments
At 31 December 2009
Additions
Disposals
Exchange and other adjustments
At 31 December 2010
Amortisation and impairment
At 1 January 2009
Provided
Impairment charge (see below)
Disposals
Exchange and other adjustments
At 31 December 2009
Provided
Disposals
Exchange and other adjustments
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
At 1 January 2009
Software
$m
Management
contracts
$m
Other
intangibles
$m
158
24
–
3
185
18
(2)
2
203
(81)
(19)
–
–
–
(100)
(15)
2
(7)
(120)
83
85
77
220
–
–
11
231
5
–
(5)
231
(50)
(10)
(32)
–
(4)
(96)
(10)
–
–
(106)
125
135
170
93
9
(7)
3
98
11
(1)
1
109
(38)
(9)
–
5
(2)
(44)
(8)
1
–
(51)
58
54
55
Total
$m
471
33
(7)
17
514
34
(3)
(2)
543
(169)
(38)
(32)
5
(6)
(240)
(33)
3
(7)
(277)
266
274
302
The impairment charge in 2009 arose as a result of the economic downturn and a revision to the fee income expected to be earned
under a US management contract. Estimated future cash flows were discounted at a pre-tax rate of 12.5% (previous valuation 12.5%).
The charge is included within impairment on the face of the Group income statement.
The weighted average remaining amortisation period for management contracts is 21 years (2009 22 years).
14. Investment in associates
The Group holds five investments (2009 five) accounted for as associates. The following table summarises the financial information
of the associates:
Share of associates’ statement of financial position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Share of associates’ revenue and profit
Revenue
Net loss
Related party transactions
Revenue from related parties
Amounts owed by related parties
2010
$m
5
62
(9)
(15)
43
26
–
4
1
2009
$m
5
65
(9)
(16)
45
31
(1)
4
2
15. Other financial assets
Non-current
Equity securities available-for-sale
Other
Current
Equity securities available-for-sale
Notes to the Group financial statements 89
2010
$m
87
48
135
–
2009
$m
66
64
130
5
Available-for-sale financial assets, which are included in the Group statement of financial position at fair value, consist of equity
investments in listed and unlisted shares. Of the total amount of equity investments at 31 December 2010, $3m (2009 $2m) were listed
securities and $84m (2009 $69m) unlisted; $41m (2009 $39m) were denominated in US dollars, $17m (2009 $14m) in Hong Kong dollars
and $29m (2009 $18m) in other currencies. Unlisted equity shares are mainly investments in entities that own hotels which the Group
manages. The fair value of unlisted equity shares has been estimated using valuation guidelines issued by the British Venture Capital
Association and is based on assumptions regarding expected future earnings. Listed equity share valuation is based on observable market
prices. Dividend income from available-for-sale equity securities of $8m (2009 $7m) is reported as other operating income and expenses
in the Group income statement.
Other financial assets consist of trade deposits and restricted cash. These amounts have been designated as ‘loans and receivables’ and
are held at amortised cost. Restricted cash of $42m (2009 $47m) relates to cash held in bank accounts which is pledged as collateral to
insurance companies for risks retained by the Group.
The movement in the provision for impairment of other financial assets during the year is as follows:
At 1 January
Provided – exceptional items (note 5)
At 31 December
2010
$m
(25)
(1)
(26)
2009
$m
(11)
(14)
(25)
The amounts provided as exceptional items relate to available-for-sale equity investments and have arisen as a result of significant and
prolonged declines in their fair value below cost. In 2009, a deposit of $26m was also written off directly to the income statement as an
exceptional item (see note 5) as it is no longer considered recoverable under the terms of the related management contracts which are
deemed onerous.
The provision is used to record impairment losses unless the Group is satisfied that no recovery of the amount is possible; at that point the
amount considered irrecoverable is either written off directly to the income statement or, if previously provided, against the financial asset
with no impact on the income statement.
16. Inventories
Finished goods
Consumable stores
2010
$m
2
2
4
2009
$m
2
2
4
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
90 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
17. Trade and other receivables
Trade receivables
Other receivables
Prepayments
2010
$m
292
32
47
371
Trade and other receivables are designated as ‘loans and receivables’ and are held at amortised cost.
Trade receivables are non-interest-bearing and are generally on payment terms of up to 30 days. The fair value of trade and other
receivables approximates their carrying value.
The maximum exposure to credit risk for trade and other receivables, excluding prepayments, at the end of the reporting period
by geographic region is:
Americas
Europe, Middle East and Africa
Asia Pacific
The ageing of trade and other receivables, excluding prepayments, at the end of the reporting period is:
Not past due
Past due 1 to 30 days
Past due 31 to 180 days
Past due more than 180 days
Gross
$m
197
75
66
44
382
Provision
$m
(3)
(4)
(9)
(42)
(58)
2010
Net
$m
194
71
57
2
324
Gross
$m
173
70
80
57
380
The movement in the provision for impairment of trade and other receivables during the year is as follows:
At 1 January
Provided
Amounts written back
Amounts written off
At 31 December
18. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2010
$m
163
98
63
324
Provision
$m
(2)
(9)
(19)
(55)
(85)
2010
$m
(85)
(27)
7
47
(58)
2010
$m
38
40
78
Short-term deposits are highly liquid investments with an original maturity of three months or less, in various currencies.
2009
$m
268
27
40
335
2009
$m
158
90
47
295
2009
Net
$m
171
61
61
2
295
2009
$m
(110)
(34)
3
56
(85)
2009
$m
23
17
40
19. Trade and other payables
Current
Trade payables
Other tax and social security payable
Other payables
Accruals
Non-current
Other payables
Notes to the Group financial statements 91
2010
$m
113
35
226
348
722
464
2009
$m
99
29
278
262
668
408
Trade payables are non-interest-bearing and are normally settled within an average of 45 days.
Other payables include $531m (2009 $470m) relating to the future redemption liability of the Group’s loyalty programme, of which $92m
(2009 $86m) is classified as current and $439m (2009 $384m) as non-current.
20. Provisions
Onerous management contracts
At 1 January
Provided
Utilised
At 31 December
Analysed as:
Current
Non-current
2010
$m
65
3
(58)
10
8
2
10
2009
$m
–
65
–
65
65
–
65
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
The onerous management contracts provision relates to the unavoidable net cash outflows that are expected to be incurred under
performance guarantees associated with certain management contracts. The non-current portion of the provision is expected to be utilised
over the period to 2020.
The amount provided in 2009 was recognised as an exceptional item (note 5).
21. Financial risk management
Overview
Market risk exposure
The Group’s treasury policy is to manage financial risks that arise in
relation to underlying business needs. The activities of the treasury
function are carried out in accordance with Board approved policies
and are subject to regular audit. The treasury function does not
operate as a profit centre.
The treasury function seeks to reduce the financial risk of the
Group and manages liquidity to meet all foreseeable cash needs.
Treasury activities include money market investments, spot and
forward foreign exchange instruments, currency options, currency
swaps, interest rate swaps and options and forward rate
agreements. One of the primary objectives of the Group’s treasury
risk management policy is to mitigate the adverse impact of
movements in interest rates and foreign exchange rates.
The US dollar is the predominant currency of the Group’s revenue
and cash flows. Movements in foreign exchange rates can affect
the Group’s reported profit, net assets and interest cover. To hedge
translation exposure, wherever possible, the Group matches
the currency of its debt (either directly or via derivatives) to the
currency of its net assets, whilst maximising the amount of US
dollars borrowed to reflect the predominant trading currency.
Foreign exchange transaction exposure is managed by the forward
purchase or sale of foreign currencies or the use of currency
options. Most significant exposures of the Group are in currencies
that are freely convertible.
A general strengthening of the US dollar (specifically a five cent
fall in the sterling:US dollar rate) would increase the Group’s profit
before tax by an estimated $3.5m (2009 $1.6m) and decrease net
assets by an estimated $5.6m (2009 $4.1m). Similarly, a five cent
fall in the euro:US dollar rate would reduce the Group’s profit
before tax by an estimated $1.4m (2009 $0.7m) and decrease net
assets by an estimated $8.2m (2009 $4.5m).
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
92 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
21. Financial risk management continued
Interest rate exposure is managed within parameters that stipulate
that fixed rate borrowings should normally account for no less than
25% and no more than 75% of net borrowings for each major
currency. This is usually achieved through the use of interest rate
swaps. Due to relatively low interest rates and the level of the
Group’s debt, 100% of borrowings were fixed rate debt or had been
swapped into fixed rate borrowings at 31 December 2010.
Based on the year-end net debt position and given the underlying
maturity profile of investments, borrowings and hedging instruments
at that date, a one percentage point rise in US dollar interest rates
would increase the annual net interest charge by approximately
$nil (2009 $0.8m). A similar rise in euro and sterling interest rates
would increase the annual net interest charge by approximately
$nil (2009 $1.1m) and $nil (2009 $nil) respectively.
Liquidity risk exposure
The treasury function ensures that the Group has access to
sufficient funds to allow the implementation of the strategy set
by the Board. At the year end, the Group had access to $1,452m of
undrawn committed facilities. Medium and long-term borrowing
requirements are met through the $1.6bn Syndicated Facility which
expires in May 2013 and through the £250m 6% bonds that are
repayable on 9 December 2016. Short-term borrowing
requirements are met from drawings under bilateral bank facilities.
The Syndicated Facility contains two financial covenants: interest
cover and net debt divided by earnings before interest, tax,
depreciation and amortisation (EBITDA). Net debt for this purpose
is calculated as total borrowings less cash and cash equivalents.
The Group is in compliance with all of the financial covenants in its
loan documents, none of which is expected to present a material
restriction on funding in the near future.
At the year end, the Group had cash of $78m which is held in
short-term deposits and cash funds which allow daily withdrawals
of cash. Most of the Group’s funds are held in the UK or US and there
are no material funds where repatriation is restricted as
a result of foreign exchange regulations.
Credit risk exposure
Credit risk on treasury transactions is minimised by operating a
policy on the investment of surplus cash that generally restricts
counterparties to those with an A credit rating or better or those
providing adequate security.
Notwithstanding that counterparties must have an A credit rating
or better, during periods of significant financial market turmoil,
counterparty exposure limits are significantly reduced and
counterparty credit exposure reviews are broadened to include
the relative placing of credit default swap pricings.
The Group trades only with recognised, creditworthy third parties.
It is the Group’s policy that all customers who wish to trade on credit
terms are subject to credit verification procedures.
In respect of credit risk arising from financial assets, the Group’s
exposure to credit risk arises from default of the counterparty,
with a maximum exposure equal to the carrying amount of
these instruments.
Capital risk management
The Group manages its capital to ensure that it will be able to
continue as a going concern. The capital structure consists of
net debt, issued share capital and reserves totalling $1,027m at
31 December 2010 (2009 $1,241m). The structure is managed to
maintain an investment grade credit rating, to provide ongoing
returns to shareholders and to service debt obligations, whilst
maintaining maximum operational flexibility. A key characteristic
of IHG’s managed and franchised business model is that it
generates more cash than is required for investment in the
business, with a high return on capital employed. Surplus cash is
either reinvested in the business, used to repay debt or returned to
shareholders. The Group maintains a conservative level of debt
which is monitored on the basis of a cash flow leverage ratio, being
net debt divided by EBITDA.
Hedging
Interest rate risk
The Group hedges its interest rate risk by taking out interest rate
swaps to fix the interest flows on between 25% and 75% of its net
borrowings in major currencies, although 100% of interest flows
were fixed at 31 December 2010. At 31 December 2010, the Group
held interest rate swaps (swapping floating for fixed) with notional
principals of $100m and EUR75m (2009 $250m and EUR75m). The
Group designates its interest rate swaps as cash flow hedges (see
note 23 for further details).
Foreign currency risk
The Group is exposed to foreign currency risk on income streams
denominated in foreign currencies. From time to time, the Group
hedges a portion of forecast foreign currency income by taking out
forward exchange contracts. The designated risk is the spot foreign
exchange risk. There were no such contracts in place at either
31 December 2010 or 31 December 2009.
Hedge of net investment in foreign operations
The Group designates its foreign currency bank borrowings
and currency derivatives as net investment hedges of foreign
operations. The designated risk is the spot foreign exchange
risk for loans and short dated derivatives and the forward risk
for the seven-year currency swaps. The interest on these financial
instruments is taken through financial income or expense except
for the seven-year currency swaps where interest is taken to the
currency translation reserve.
At 31 December 2010, the Group held currency swaps with
a principal of $415m (2009 $415m) and short dated foreign
exchange swaps with principals of EUR75m (2009 nil) and HKD70m
(2009 nil). See note 23 for further details. The maximum amount of
foreign exchange derivatives held during the year as net investment
hedges and measured at calendar quarter ends were currency
swaps with a principal of $415m (2009 $415m) and short dated
foreign exchange swaps with principals of HKD280m and EUR75m.
Hedge effectiveness is measured at calendar quarter ends. No
ineffectiveness arose in respect of either the Group’s cash flow or
net investment hedges during the current or prior year.
Notes to the Group financial statements 93
21. Financial risk management continued
Liquidity risk
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:
31 December 2010
Non-derivative financial liabilities:
Secured bank loans
£250m 6% bonds
Finance lease obligations
Unsecured bank loans
Trade and other payables
Provisions
Derivative financial liabilities:
Interest rate swaps
Forward foreign exchange contracts
Currency swaps – outflows
– inflows
31 December 2009
Non-derivative financial liabilities:
Secured bank loans
£250m 6% bonds
Finance lease obligations
Unsecured bank loans
Trade and other payables
Provisions
Derivative financial liabilities:
Interest rate swaps
Currency swaps – outflows
– inflows
Less than
1 year
$m
Between 1 and
2 years
$m
Between 2 and
5 years
$m
More than
5 years
$m
1
23
16
201
722
8
4
2
26
(23)
5
23
16
–
118
–
1
–
26
(23)
–
70
48
–
137
2
–
–
77
(70)
–
411
3,348
–
336
–
–
–
441
(411)
Less than
1 year
$m
Between 1 and
2 years
$m
Between 2 and
5 years
$m
More than
5 years
$m
3
24
16
512
668
65
7
26
(24)
1
24
16
–
102
–
4
26
(24)
5
73
48
–
120
–
1
77
(73)
–
453
3,364
–
302
–
–
467
(453)
Total
$m
6
527
3,428
201
1,313
10
5
2
570
(527)
Total
$m
9
574
3,444
512
1,192
65
12
596
(574)
Cash flows relating to unsecured bank loans are classified according to the maturity date of the loan drawdown rather than the facility
maturity date.
Interest rate swaps are expected to affect profit or loss in the same periods that the cash flows are expected to occur.
Credit risk
The carrying amount of financial assets represents the maximum exposure to credit risk.
Equity securities available-for-sale
Loans and receivables:
Cash and cash equivalents
Other financial assets
Trade and other receivables, excluding prepayments
2010
$m
87
78
48
324
537
2009
$m
71
40
64
295
470
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
94 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
21. Financial risk management continued
Fair values
The table below compares carrying amounts and fair values of the Group’s financial assets and liabilities.
Financial assets
Equity securities available-for-sale*
Loans and receivables:
Cash and cash equivalents
Other financial assets
Trade and other receivables, excluding prepayments
Financial liabilities
£250m 6% bonds
Finance lease obligations
Other borrowings
Trade and other payables
Derivatives*
Provisions
Carrying
value
$m
Note
15
18
15
17
22
22
22
19
23
20
87
78
48
324
(385)
(206)
(203)
(1,186)
(44)
(10)
2010
Fair value
$m
87
78
48
324
(404)
(217)
(203)
(1,186)
(44)
(10)
Carrying
value
$m
71
40
64
295
(402)
(204)
(516)
(1,076)
(20)
(65)
2009
Fair value
$m
71
40
64
295
(402)
(206)
(516)
(1,076)
(20)
(65)
* Financial assets and liabilities which are measured at fair value.
The fair value of cash and cash equivalents approximates book value due to the short maturity of the investments and deposits. Equity
securities available-for-sale and derivatives are held in the Group statement of financial position at fair value as set out in notes 15 and 23.
The fair value of other financial assets approximates book value based on prevailing market rates. The fair value of borrowings, excluding
finance lease obligations and the fixed rate £250m 6% bonds, approximates book value as interest rates reset to market rates on a frequent
basis. The fair value of the £250m 6% bonds is based on the quoted market price. The fair value of finance lease obligations is calculated by
discounting future cash flows at prevailing interest rates. The fair value of trade and other receivables, trade and other payables and
current provisions approximates to their carrying value, including the future redemption liability of the Group’s loyalty programme.
Fair value hierarchy
The Group uses the following valuation hierarchy to determine the carrying value of financial instruments that are measured at fair value:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
Assets
Equity securities available-for-sale
Liabilities
Derivatives
Level 1
$m
Level 2
$m
Level 3
$m
2010
Total
$m
Level 1
$m
Level 2
$m
Level 3
$m
2009
Total
$m
3
–
–
84
87
(44)
–
(44)
2
–
–
69
71
(20)
–
(20)
There were no transfers between Level 1 and Level 2 fair value measurements during the year and no transfers into and out of Level 3.
Notes to the Group financial statements 95
21. Financial risk management continued
The following table reconciles movements in instruments classified as Level 3 during the year:
At 1 January
Additions
Repaid
Valuation gains recognised in other comprehensive income
Impairment*
At 31 December
2010
$m
69
4
(5)
16
–
84
2009
$m
68
–
–
11
(10)
69
* The impairment charge recognised in the income statement (see note 5) also includes $1m (2009 $4m) of losses reclassified from equity.
The Level 3 equity securities relate to investments in unlisted shares which are valued by applying an average price-earnings (P/E) ratio for
a competitor group to the earnings generated by the investment. A 10% increase in the average P/E ratio would result in a $4m increase in
the fair value of the investments (2009 $5m) and a 10% decrease in the average P/E ratio would result in a $4m decrease in the fair value of
the investments (2009 $5m).
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
22. Loans and other borrowings
Secured bank loans
Finance leases
£250m 6% bonds
Unsecured bank loans
Total borrowings
Denominated in the following currencies:
Sterling
US dollars
Euro
Other
Secured bank loans
Current
$m
Non-current
$m
1
16
–
1
18
–
16
–
2
18
4
190
385
197
776
385
287
100
4
776
2010
Total
$m
5
206
385
198
794
385
303
100
6
794
Current
$m
Non-current
$m
3
16
–
87
106
–
103
–
3
106
5
188
402
421
1,016
402
348
216
50
1,016
2009
Total
$m
8
204
402
508
1,122
402
451
216
53
1,122
These mortgages are secured on the hotel properties to which they relate. The rates of interest and currencies of these loans vary.
Non-current amounts include $4m (2009 $5m) repayable by instalments.
Finance leases
Finance lease obligations, which relate to the 99-year lease on the InterContinental Boston, are payable as follows:
Less than one year
Between one and five years
More than five years
Less: amount representing finance charges
Minimum
lease
payments
$m
16
64
3,348
3,428
(3,222)
206
2010
Present
value of
payments
$m
16
48
142
206
–
206
Minimum
lease
payments
$m
16
64
3,364
3,444
(3,240)
204
2009
Present
value of
payments
$m
16
48
140
204
–
204
The Group has the option to extend the term of the lease for two additional 20-year terms. Payments under the lease step up at regular
intervals over the lease term.
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
96 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
22. Loans and other borrowings continued
£250m 6% bonds
The 6% fixed interest sterling bonds were issued on 9 December 2009 and are repayable in full on 9 December 2016. Interest is payable
annually on 9 December in each year commencing 9 December 2010 to the maturity date. The bonds were initially priced at 99.465% of
face value and are unsecured. Currency swaps were transacted at the same time the bonds were issued in order to swap the proceeds
and interest flows into US dollars (see note 23 for further details).
Unsecured bank loans
Unsecured bank loans are borrowings under the Group’s Syndicated Facility and its short-term bilateral loan and overdraft facilities.
Amounts are classified as non-current when the facilities have more than 12 months to expiry. These facilities contain financial covenants
and, as at the end of the reporting period, the Group was not in breach of these covenants, nor had any breaches or defaults occurred
during the year. At 1 January 2009, the Group had access to a $0.5bn term loan with a 30-month maturity and a $1.6bn five-year revolving
credit facility. In December 2009, $415m of the term loan was repaid with proceeds from the bond issue and the remaining $85m was
repaid in September 2010. The $1.6bn revolving credit facility matures in May 2013.
Facilities provided by banks
Committed
Uncommitted
Unutilised facilities expire:
Within one year
After two but before five years
Utilised
$m
205
1
206
Unutilised
$m
1,400
52
1,452
2010
Total
$m
1,605
53
1,658
Utilised
$m
519
3
522
Unutilised
$m
1,174
22
1,196
2010
$m
52
1,400
1,452
Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.
23. Derivative financial instruments
Currency swaps
Interest rate swaps
Forward foreign exchange contracts
Analysed as:
Current liabilities
Non-current liabilities
2010
$m
38
4
2
44
6
38
44
2009
Total
$m
1,693
25
1,718
2009
$m
22
1,174
1,196
2009
restated*
$m
13
7
–
20
7
13
20
* Restated for a $13m reclassification from current liabilities to non-current liabilities.
Derivatives are recorded at their fair values, estimated using discounted future cash flows taking into consideration interest and exchange
rates prevailing on the last day of the reporting period.
Currency swaps
At 31 December 2010, the Group held currency swaps with a principal of $415m (2009 $415m). These swaps were transacted at the same
time as the £250m 6% bonds were issued in December 2009 in order to swap the bonds’ proceeds and interest flows into US dollars. Under
the terms of the swaps, $415m was borrowed and £250m deposited for seven years at a fixed exchange rate of 1.66. The fair value of the
currency swap comprises two components: $27m (2009 $10m) relating to the repayment of the underlying principal and $11m (2009 $3m)
relating to interest payments. The element relating to the underlying principal is disclosed as a component of net debt (see note 24).
The currency swaps are designated as net investment hedges.
Notes to the Group financial statements 97
23. Derivative financial instruments continued
Interest rate swaps
At 31 December 2010, the Group held interest rate swaps with notional principals of $100m and EUR75m (2009 $250m and EUR75m).
These swaps are held to fix the interest payable on borrowings under the Syndicated Facility; at 31 December 2010, $100m of US dollar
borrowings were fixed at 1.99% until May 2012 and EUR75m of euro borrowings were fixed at 5.25% until June 2011. The interest rate swaps
have been designated as cash flow hedges.
Forward foreign exchange contracts
At 31 December 2010, the Group held short dated foreign exchange swaps with principals of EUR75m and HKD70m. The swaps are used to
manage US dollar surplus cash and reduce euro and Hong Kong dollar borrowings whilst maintaining operational flexibility. The foreign
exchange swaps have been designated as net investment hedges.
24. Net debt
Cash and cash equivalents
Loans and other borrowings – current
– non-current
Derivatives hedging debt values (note 23)
Net debt
Movement in net debt
Net increase/(decrease) in cash and cash equivalents
Add back cash flows in respect of other components of net debt:
Issue of £250m 6% bonds
Decrease in other borrowings
Decrease in net debt arising from cash flows
Non-cash movements:
Finance lease obligations
Exchange and other adjustments
Decrease in net debt
Net debt at beginning of the year
Net debt at end of year
2010
$m
78
(18)
(776)
(27)
(743)
51
–
292
343
(2)
8
349
(1,092)
(743)
2009
restated*
$m
40
(106)
(1,016)
(10)
(1,092)
(44)
(411)
660
205
(2)
(22)
181
(1,273)
(1,092)
* With effect from 1 January 2010, net debt includes the exchange element of the fair value of currency swaps that fix the value of the Group’s £250m 6% bonds at $415m.
An equal and opposite exchange adjustment on the retranslation of the £250m 6% bonds is included in non-current loans and other borrowings. Comparatives have been
restated on a consistent basis.
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
98 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
25. Retirement benefits
Retirement and death in service benefits are provided for eligible Group employees in the UK principally by the InterContinental Hotels UK
Pension Plan. The plan, which is funded and HM Revenue & Customs registered, covers approximately 500 (2009 460) employees, of which
140 (2009 150) are in the defined benefit section which provides pensions based on final salaries and 360 (2009 310) are in the defined
contribution section. The defined benefit section of the plan closed to new entrants during 2002 with new members provided with defined
contribution arrangements. The assets of the plan are held in self-administered trust funds separate from the Group’s assets. In addition,
there are unfunded UK pension arrangements for certain members affected by the lifetime allowance. The Group also maintains the
following US-based defined benefit plans; the funded InterContinental Hotels Pension Plan, unfunded InterContinental Hotels non-qualified
pension plans and post-employment benefits schemes. These plans are now closed to new members. The Group also operates a number
of minor pension schemes outside the UK, the most significant of which is a defined contribution scheme in the US; there is no material
difference between the pension costs of, and contributions to, these schemes.
In respect of the defined benefit plans, the amounts recognised in the Group income statement, in administrative expenses, are:
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Operating profit before exceptional items
Exceptional items
2010
$m
6
25
(25)
6
–
6
UK
2009
$m
7
22
(21)
8
11
19
Pension plans
US and other
2010
$m
1
11
(10)
2
–
2
2009
$m
1
10
(8)
3
–
3
Post-employment
benefits
2010
$m
2009
$m
–
1
–
1
–
1
–
1
–
1
–
1
2010
$m
7
37
(35)
9
–
9
Total
2009
$m
8
33
(29)
12
11
23
On 23 January 2009, approval was given for the payment of enhanced pension transfers to those deferred members of the InterContinental
Hotels UK Pension Plan who had accepted an offer to receive the enhancement either as a cash lump sum or as an additional transfer value
to an alternative pension provider. The payments, comprising lump sum amounts of £5.9m and additional contributions of £4.3m, were
made by the Group in the first quarter of 2009. The transfer values subsequently paid by the plan were £45m and the corresponding IAS 19
liability extinguished was £38m. The settlement loss arising of £7m (being the $11m exceptional item above), together with the lump sum
payment and costs of arrangement, was charged to the Group income statement as an exceptional item in 2009 (see note 5).
The amounts recognised in the Group statement of comprehensive income are:
Actual return on plan assets
Less: expected return on plan assets
Other actuarial (losses)/gains
Total actuarial (losses)/gains
Change in asset restriction and liability in respect
of funding commitments*
2010
$m
46
(25)
21
(49)
(28)
(48)
(76)
UK
2009
$m
7
(21)
(14)
(44)
(58)
21
(37)
Pension plans
US and other
2010
$m
13
(10)
3
(13)
(10)
–
(10)
2009
$m
22
(8)
14
(13)
1
–
1
Post-employment
benefits
2010
$m
2009
$m
–
–
–
(7)
(7)
–
(7)
–
–
–
(1)
(1)
–
(1)
2010
$m
59
(35)
24
(69)
(45)
(48)
(93)
Total
2009
$m
29
(29)
–
(58)
(58)
21
(37)
* Relates to tax that would be deducted at source in respect of a refund of the surplus taking into account amounts payable under funding commitments.
Notes to the Group financial statements 99
25. Retirement benefits continued
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:
Retirement benefit assets
Fair value of plan assets
Present value of benefit obligations
Surplus in schemes
Asset restriction*
Total retirement benefit assets
Retirement benefit obligations
Fair value of plan assets
Present value of benefit obligations
Deficit in schemes
Asset restriction and liability in respect
of funding commitments*
Total retirement benefit obligations
Total fair value of plan assets
Total present value of benefit obligations
2010
$m
–
–
–
–
–
475
(512)
(37)
(52)
(89)
475
(512)
UK
2009
$m
426
(414)
12
(4)
8
–
(47)
(47)
–
(47)
426
(461)
Pension plans
US and other
2010
$m
2009
$m
Post-employment
benefits
2010
$m
2009
$m
16
(11)
5
–
5
114
(198)
(84)
–
(84)
130
(209)
16
(12)
4
–
4
110
(185)
(75)
–
(75)
126
(197)
–
–
–
–
–
–
(27)
(27)
–
(27)
–
(27)
–
–
–
–
–
–
(20)
(20)
–
(20)
–
(20)
2010
$m
16
(11)
5
–
5
589
(737)
(148)
(52)
(200)
605
(748)
Total
2009
$m
442
(426)
16
(4)
12
110
(252)
(142)
–
(142)
552
(678)
* Relates to tax that would be deducted at source in respect of a refund of the surplus taking into account amounts payable under funding commitments.
The ‘US and other’ surplus of $5m (2009 $4m) relates to a defined benefit pension scheme in Hong Kong. Included within the ‘US and other’
deficit is $2m (2009 $1m) relating to a defined benefit pension plan in the Netherlands.
Assumptions
The principal financial assumptions used by the actuaries to determine the benefit obligation are:
Wages and salaries increases
Pensions increases
Discount rate
Inflation rate
Healthcare cost trend rate assumed for next year
– Pre 65 (ultimate rate reached in 2021)
– Post 65 (ultimate rate reached in 2023)
Ultimate rate that the cost trend rate trends to
2010
%
5.0
3.5
5.3
3.5
UK
2009
%
5.1
3.6
5.7
3.6
Pension plans
2010
%
–
–
5.2
–
US
2009
%
–
–
5.7
–
Post-employment
benefits
2010
%
4.0
–
5.2
–
–
10.0
14.0
5.0
2009
%
4.0
–
5.7
–
9.0
–
–
5.0
Mortality is the most significant demographic assumption. The current assumptions for the UK plans are based on the S1NA tables with
long cohort projections and a 1% per annum underpin to future mortality improvements with age rated down by 1.75 years for pensioners
and 1.5 years for non-pensioners. In the US, the current assumptions are based on the RP-2000 IRS PPA @ 2011 Non-Annuitant/Annuitant
healthy tables for males and females.
In both territories, the assumptions have been revised during the year to reflect increased life expectancy at retirement age as follows:
Current pensioners at 65a – male
Future pensioners at 65b – male
– female
– female
a Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period.
b Relates to assumptions based on longevity (in years) relating to an employee retiring in 2030.
The assumptions allow for expected increases in longevity.
Pension plans
UK
2009
Years
23
26
24
27
2010
Years
19
21
21
22
US
2009
Years
18
21
18
21
2010
Years
24
27
26
29
O
V
E
R
V
I
E
W
I
B
U
S
N
E
S
S
R
E
V
I
E
W
I
T
H
E
R
R
E
S
P
O
N
S
B
L
I
I
I
T
I
E
S
I
S
E
N
O
R
M
A
N
A
G
E
M
E
N
T
A
N
D
T
H
E
B
O
A
R
D
,
S
T
A
T
E
M
E
N
T
S
G
R
O
U
P
F
N
A
N
C
I
I
A
L
I
F
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
U
S
E
F
U
L
I
N
F
O
R
M
A
T
I
O
N
100 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
25. Retirement benefits continued
Sensitivities
The value of plan assets is sensitive to market conditions, particularly equity values. Changes in assumptions used for determining
retirement benefit costs and obligations may have a material impact on the income statement and the statement of financial position.
The main assumptions are the discount rate, the rate of inflation and the assumed mortality rate. The following table provides an estimate
of the potential impact of each of these variables on the principal pension plans.
Discount rate – 0.25% decrease
– 0.25% increase
Inflation rate – 0.25% increase
– 0.25% decrease
Mortality rate – one year increase
Higher/(lower)
pension cost
$m
0.6
(0.6)
1.6
(1.6)
0.8
UK
Increase/
(decrease)
in liabilities
$m
25.8
(25.8)
24.8
(24.8)
9.9
–
–
–
–
–
Higher/(lower)
pension cost
$m
US
Increase/
(decrease)
in liabilities
$m
A one percentage point increase/(decrease) in assumed healthcare costs trend rate would increase/(decrease) the accumulated post-
employment benefit obligations as of 31 December 2010 by approximately $2.5m (2009 $1.6m).
Movement in benefit obligation
Benefit obligation at 1 January
Current service cost
Members’ contributions
Interest expense
Benefits paid
Enhanced pension transfer
Actuarial loss/(gain) arising in the year
Exchange adjustments
Benefit obligation at 31 December
Comprising:
Funded plans
Unfunded plans
Movement in plan assets
Fair value of plan assets at 1 January
Company contributions
Members’ contributions
Benefits paid
Enhanced pension transfer
Expected return on plan assets
Actuarial (loss)/gain arising in the year
Exchange adjustments
Fair value of plan assets at 31 December
2010
$m
461
6
1
25
(12)
–
49
(18)
512
457
55
512
2010
$m
426
31
1
(12)
–
25
21
(17)
475
UK
2009
$m
411
7
1
22
(12)
(59)
44
47
461
414
47
461
UK
2009
$m
437
16
1
(12)
(70)
21
(14)
47
426
Pension plans
US and other
2010
$m
197
1
–
11
(13)
–
13
–
209
161
48
209
2009
$m
185
1
–
10
(13)
–
13
1
197
151
46
197
Pension plans
US and other
2010
$m
126
4
–
(13)
–
10
3
–
130
2009
$m
112
4
–
(13)
–
8
14
1
126
Post-employment
benefits
2010
$m
2009
$m
20
–
–
1
(1)
–
7
–
27
–
27
27
19
–
–
1
(1)
–
1
–
20
–
20
20
Post-employment
benefits
2010
$m
2009
$m
–
1
–
(1)
–
–
–
–
–
–
1
–
(1)
–
–
–
–
–
2010
$m
678
7
1
37
(26)
–
69
(18)
748
618
130
748
2010
$m
552
36
1
(26)
–
35
24
(17)
605
5.9
(5.6)
–
–
7.6
Total
2009
$m
615
8
1
33
(26)
(59)
58
48
678
565
113
678
Total
2009
$m
549
21
1
(26)
(70)
29
–
48
552
25. Retirement benefits continued
The combined assets of the principal plans and expected rate of return are:
UK pension plans
Liability matching investment funds
Equities
Bonds
Hedge funds
Cash
Other
Total market value of assets
US pension plans
Equities
Fixed income
Total market value of assets
Notes to the Group financial statements 101
Long-term
rate of return
expected
%
4.5
8.9
4.5
8.9
4.5
8.9
8.9
5.5
2010
Value
$m
185
105
95
61
10
19
475
65
44
109
Long-term
rate of return
expected
%
4.8
9.2
4.8
9.2
4.8
9.2
9.5
5.5
2009
Value
$m
196
77
64
17
55
17
426
63
42
105
The expected overall rates of return on assets, being 5.9% (2009 6.2%) for the UK plans and 7.5% (2009 8.0%) for the US plans, have been
determined following advice from the plans’ independent actuaries and are based on the expected return on each asset class together with
consideration of the long-term asset strategy.
Funding commitments
The most recent actuarial valuation of the InterContinental Hotels UK Pension Plan was carried out as at 31 March 2009 and showed a
deficit of £129m on a funding basis. Under the recovery plan agreed with the trustees, the Group aims to eliminate this deficit by March 2017
through additional Company contributions of up to £100m and projected investment returns. The agreed additional contributions comprise
three annual payments of £10m; £10m was paid in August 2010 and two further payments of £10m are due on or before 31 July 2011 and
2012, together with further payments related to the disposal of hotels (7.5% of net sales proceeds) and growth in the Group’s EBITDA above
specified targets. If required in 2017, a top-up payment will be made to bring the total additional contributions up to £100m. The Plan is
formally valued every three years and future valuations could lead to changes in the amounts payable beyond March 2012.
Company contributions are expected to be $35m in 2011, including known UK additional contributions of £14m (2009 £10m) with further
amounts payable if there are any hotel disposals.
History of experience gains and losses
UK pension plans
Fair value of plan assets
Present value of benefit obligations
(Deficit)/surplus in the plans
Experience adjustments arising on plan liabilities
Experience adjustments arising on plan assets
US and other pension plans
Fair value of plan assets
Present value of benefit obligations
Deficit in the plans
Experience adjustments arising on plan liabilities
Experience adjustments arising on plan assets
US post-employment benefits
Present value of benefit obligations
Experience adjustments arising on plan liabilities
2010
$m
475
(512)
(37)
(49)
21
130
(209)
(79)
(13)
3
(27)
(7)
2009
$m
426
(461)
(35)
(44)
(14)
126
(197)
(71)
(13)
14
(20)
(1)
2008
$m
437
(411)
26
55
(57)
112
(185)
(73)
3
(38)
(19)
1
2007
$m
611
(597)
14
31
(6)
144
(184)
(40)
–
–
(20)
–
2006
$m
527
(585)
(58)
(22)
13
111
(175)
(64)
–
4
(19)
1
The cumulative amount of net actuarial losses recognised since 1 January 2004 in the Group statement of comprehensive income is $253m
(2009 $208m). The Group is unable to determine how much of the pension scheme deficit recognised on transition to IFRS of $298m and
taken directly to total equity is attributable to actuarial gains and losses since inception of the schemes. Therefore, the Group is unable to
determine the amount of actuarial gains and losses that would have been recognised in the Group statement of comprehensive income
before 1 January 2004.
O
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102 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
26. Deferred tax
Property,
plant and
equipment
$m
Deferred
gains on
loan notes
$m
Losses
$m
Employee
benefits
$m
Intangible
Other
short-term
temporary
assets differences
$m
$m
At 1 January 2009
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2009
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2010
Analysed as:
Deferred tax assets
Deferred tax liabilities
At 31 December
226
(43)
–
–
6
189
24
–
–
(8)
205
142
–
–
–
9
151
(3)
–
–
(4)
144
(141)
6
–
–
(11)
(146)
(12)
–
–
8
(150)
(33)
(1)
(1)
–
–
(35)
11
(22)
–
(1)
(47)
28
1
–
–
2
31
6
–
–
(2)
35
(101)
(59)
–
(6)
(1)
(167)
–
(2)
(12)
(1)
(182)
2010
$m
(79)
84
5
Total
$m
121
(96)
(1)
(6)
5
23
26
(24)
(12)
(8)
5
2009
$m
(95)
118
23
Deferred gains on loan notes includes $55m (2009 $55m) which is expected to fall due for payment in 2016.
The deferred tax asset of $150m (2009 $146m) recognised in respect of losses includes $113m (2009 $97m) in respect of capital losses
available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and $37m (2009 $49m) in
respect of revenue tax losses. Deferred tax assets of $79m are recognised in relation to legal entities which suffered a tax loss in the
current or preceding period. These assets are recognised based upon future taxable profit forecasts for the entities concerned.
Tax losses with a net tax value of $411m (2009 $517m), including capital losses with a value of $148m (2009 $196m), have not been
recognised. These losses may be carried forward indefinitely with the exception of $16m which expires after six years (2009 $1m which
expires after 15 years, $1m which expires after nine years and $14m which expires after three years). Deferred tax assets with a net tax
value of $nil (2009 $9m) in respect of share-based payments, $15m (2009 $13m) in respect of employee benefits and $5m (2009 $7m) in
respect of other items have not been recognised. These losses and other deferred tax assets have not been recognised as the Group does
not anticipate being able to offset these against future profits or gains in order to realise any economic benefit in the foreseeable future.
However, future benefits may arise depending on future profits arising or on the outcome of EU case law and legislative developments.
At 31 December 2010, the Group has not provided deferred tax in relation to temporary differences associated with post-acquisition
undistributed earnings of subsidiaries as the Group is in a position to control the timing of reversal of these temporary differences and
it is probable that they will not reverse in the foreseeable future. Following introduction of a UK dividend exemption regime, the tax which
would arise upon reversal of the temporary differences is not expected to exceed $20m.
Other short-term temporary differences relate primarily to provisions and accruals and share-based payments.
Notes to the Group financial statements 103
Sharesave Plan
The Sharesave Plan is a savings plan whereby employees contract
to save a fixed amount each month with a savings institution for
three or five years. At the end of the savings term, employees are
given the option to purchase shares at a price set before savings
began. The Sharesave Plan is available to all UK employees
(including Executive Directors) employed by participating Group
companies provided that they have been employed for at least one
year. The plan provides for the grant of options to subscribe for
ordinary shares at the higher of nominal value and not less than
80% of the middle market quotations of the ordinary shares on the
three dealing days immediately preceding the invitation date. The
plan was not operated during 2010 and no options were granted
in the year under the plan. There were no options outstanding at
1 January 2010.
US Employee Stock Purchase Plan
The US Employee Stock Purchase Plan will allow eligible
employees resident in the US an opportunity to acquire Company
American Depositary Shares (ADSs) on advantageous terms.
The option to purchase ADSs may be offered only to employees of
designated subsidiary companies. The option price may not be less
than the lesser of either 85% of the fair market value of an ADS on
the date of grant or 85% of the fair market value of an ADS on the
date of exercise. Options granted under the plan must generally be
exercised within 27 months from the date of grant. The plan was not
operated during 2010 and at 31 December 2010 no options had been
granted under the plan.
Former Six Continents Share Schemes
Under the terms of the separation of Six Continents PLC in 2003,
holders of options under the Six Continents Executive Share
Option Schemes were given the opportunity to exchange their
Six Continents PLC options for equivalent value new options over
IHG shares. As a result of this exchange, 23,195,482 shares were
put under option at prices ranging from 308.5p to 593.3p. The
exchanged options were immediately exercisable and are not
subject to performance conditions. During 2010, 1,016,572 (2009
380,457) such options were exercised and 82,076 (2009 43,088)
lapsed, leaving a total of 902,412 (2009 2,001,060) such options
outstanding at prices ranging from 308.5p to 434.2p. The latest date
that any options may be exercised is 3 October 2012.
27. Share-based payments
Annual Bonus Plan
The IHG Annual Bonus Plan enables eligible employees, including
Executive Directors, to receive all or part of their bonus in the form
of shares together with, in certain cases, a matching award of
free shares of up to half the deferred amount. The bonus and any
matching shares awarded are released on the third anniversary
of the award date. The bonuses in 2007 were eligible for matching
shares, all of which will be released on the third anniversary of
the award date. In 2007, participants could defer up to 100% of the
total annual bonus, with the deferred amount being accounted for
as a share-based payment. Under the terms of the 2008, 2009 and
2010 plans, a fixed percentage of the bonus is awarded in the form
of shares with no voluntary deferral and no matching shares.
The awards in all of the plans are conditional on the participants
remaining in the employment of a participating company or leaving
for a qualifying reason as per the plan rules. Participation in
the Annual Bonus Plan is at the discretion of the Remuneration
Committee. The number of shares is calculated by dividing a
specific percentage of the participant’s annual performance-
related bonus by the middle market quoted prices on the three
consecutive dealing days immediately preceding the date of grant.
A number of executives participated in the plan during the year,
however, no conditional rights over shares (2009 1,058,734) were
awarded to participants. In 2009 this number included 228,000
shares awarded as part of recruitment terms or for one-off
individual performance-related awards.
Long Term Incentive Plan
The Long Term Incentive Plan allows Executive Directors and
eligible employees to receive share awards, subject to the
satisfaction of performance conditions, set by the Remuneration
Committee, which are normally measured over a three-year period.
Awards are normally made annually and, except in exceptional
circumstances, will not exceed three times salary for Executive
Directors and four times salary in the case of other eligible
employees. During the year, conditional rights over 2,602,773
(2009 5,754,548) shares were awarded to employees under the
plan. The plan provides for the grant of ‘nil cost options’ to
participants as an alternative to conditional share awards.
Executive Share Option Plan
For options granted, the option price is not less than the market
value of an ordinary share, or the nominal value if higher. The
market value is the quoted price on the business day preceding the
date of grant, or the average of the middle market quoted prices on
the three consecutive dealing days immediately preceding the date
of grant. A performance condition has to be met before options can
be exercised. The performance condition is set by the Remuneration
Committee. The plan was not operated during 2010 and no options
were granted in the year under the plan. The latest date that any
options may be exercised is 4 April 2015.
O
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104 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
27. Share-based payments continued
The Group recognised a cost of $32m (2009 $22m) in operating profit and $1m (2009 $2m) within exceptional administrative expenses
related to equity-settled share-based payment transactions during the year.
The aggregate consideration in respect of ordinary shares issued under option schemes during the year was $19m (2009 $11m).
The following table sets forth awards and options granted during 2010. No awards were granted under the Annual Bonus Plan, Executive
Share Option Plan, Sharesave Plan or US Employee Stock Purchase Plan during the year.
Number of shares awarded in 2010
Long Term
Incentive Plan
2,602,773
The Group uses separate option pricing models and assumptions depending on the plan. The following tables set forth information about
options granted in 2010 and 2009:
2010
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility*
Term (years)
2009
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility*
Term (years)
Long Term
Incentive Plan
Monte Carlo
Simulation and
Binomial
1,033.0p
3.10%
1.83%
41%
3.0
Long Term
Incentive Plan
Monte Carlo
Simulation and
Binomial
612.0p
5.26%
2.11%
43%
3.0
Annual Bonus
Plan
Binomial
454.0p
4.89%
3.0
* The expected volatility was determined by calculating the historical volatility of the Company’s share price corresponding to the expected life of the share award.
27. Share-based payments continued
Movements in the awards and options outstanding under the schemes are as follows:
Outstanding at 1 January 2009
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2009
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2010
Fair value of awards granted during the year
2010
2009
Weighted average remaining contract life (years)
At 31 December 2010
At 31 December 2009
* No awards were granted during the year.
The above awards do not vest until the performance and service conditions have been met.
Notes to the Group financial statements 105
Annual Bonus
Plan
Number of shares
thousands
Long Term
Incentive Plan
Number of shares
thousands
1,289
1,059
(434)
(60)
1,854
–
(580)
–
1,274
n/a*
735.6¢
0.7
1.3
11,153
5,755
(3,124)
(1,518)
12,266
2,603
(1,500)
(2,027)
11,342
1,181.9¢
414.1¢
1.0
1.3
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Executive Share Option Plan
I
T
I
E
S
Outstanding at 1 January 2009
Exercised
Lapsed or cancelled
Outstanding at 31 December 2009
Exercised
Lapsed or cancelled
Outstanding at 31 December 2010
Options exercisable
At 31 December 2010
At 31 December 2009
Number
of shares
thousands
Range of
option prices
pence
49
(48)
(1)
–
–
–
–
–
–
420.5
420.5
420.5
–
–
–
–
–
–
Sharesave Plan
Weighted
average
option price
pence
420.5
420.5
420.5
–
–
–
–
Number
of shares
thousands
Range of
option prices
pence
7,635
(1,518)
(247)
5,870
(2,497)
(82)
3,291
308.5-619.8
308.5-619.8
438.0-619.8
308.5-619.8
349.1-619.8
349.1
308.5-619.8
–
–
3,291
5,870
308.5-619.8
308.5-619.8
Weighted
average
option price
pence
486.3
496.2
509.9
482.8
478.6
349.1
489.3
489.3
482.8
Included within the options outstanding under the Executive Share Option Plan are options over 902,412 (2009 2,001,060, 2008 2,424,605) shares that have not been recognised
in accordance with IFRS 2 as the options were granted on or before 7 November 2002. These options, relating to former Six Continents share schemes, have not been subsequently
modified and therefore do not need to be accounted for in accordance with IFRS 2.
The weighted average share price at the date of exercise for share options vested during the year was 1063.8p. The closing share price on
31 December 2010 was 1243.0p and the range during the year was 887.0p to 1266.0p per share.
Summarised information about options outstanding at 31 December 2010 under the share option schemes is as follows:
Range of exercise prices (pence)
Executive Share Option Plan
308.5
422.8 to 494.2
619.8
Options outstanding and exercisable
Weighted
average
remaining
contract life
years
Weighted
average
option price
pence
1.8
2.4
4.3
2.7
308.5
460.7
619.8
489.3
Number
outstanding
thousands
12
2,676
603
3,291
I
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E
N
O
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A
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A
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106 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
28. Issued share capital and reserves
Equity share capital
At 30 September 2009, the authorised share capital was £160,050,000, comprising 1,175,000,000 ordinary shares of 1329⁄47p each and one
redeemable preference share of £50,000. As a result of the resolution passed at the Annual General Meeting on 29 May 2009 amending the
Articles of Association in line with the Companies Act 2006, from 1 October 2009 the Company no longer has an authorised share capital.
Allotted, called up and fully paid (ordinary shares of 1329⁄47p)
At 1 January 2009
Issued on exercise of share options
Exchange adjustments
At 31 December 2009
Issued on exercise of share options
Exchange adjustments
At 31 December 2010
Number of
shares
millions
Nominal
value
$m
Share
premium
$m
Equity share
capital
$m
286
1
–
287
2
–
289
57
–
6
63
1
(3)
61
61
11
7
79
18
(3)
94
118
11
13
142
19
(6)
155
The authority given to the Company at the Annual General Meeting on 28 May 2010 to purchase its own shares was still valid at
31 December 2010. A resolution to renew the authority will be put to shareholders at the Annual General Meeting on 27 May 2011.
The balance classified as equity share capital includes the total net proceeds (both nominal value and share premium) on issue of the
Company’s equity share capital, comprising 1329⁄47p shares. The share premium reserve represents the amount of proceeds received
for shares in excess of their nominal value.
The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 66 and 67 of the financial
statements is as follows:
Capital redemption reserve
This reserve maintains the nominal value of the equity share capital of the Company when shares are repurchased or cancelled.
Shares held by employee share trusts
Comprises $34.6m (2009 $3.8m) in respect of 1.9m (2009 0.3m) InterContinental Hotels Group PLC ordinary shares held by employee share
trusts, with a market value at 31 December 2010 of $37m (2009 $4m).
Other reserves
Comprises the merger and revaluation reserves previously recognised under UK GAAP, together with the reserve arising as a consequence
of the Group’s capital reorganisation in June 2005. Following the change in presentational currency to the US dollar in 2008 (see page 70),
this reserve also includes exchange differences arising on the retranslation to period-end exchange rates of equity share capital, the capital
redemption reserve and shares held by employee share trusts.
Unrealised gains and losses reserve
This reserve records movements to fair value of available-for-sale financial assets and the effective portion of the cumulative net change
in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred.
The fair value of cash flow hedging instruments outstanding at 31 December 2010 was a $4m liability (2009 $7m).
Currency translation reserve
This reserve records the movement in exchange differences arising from the translation of the financial statements of foreign operations
and exchange differences on foreign currency borrowings and derivative instruments that provide a hedge against net investments in
foreign operations. On adoption of IFRS, cumulative exchange differences were deemed to be $nil as permitted by IFRS 1.
The fair value of derivative instruments designated as hedges of net investments in foreign operations outstanding at 31 December 2010
was a $40m liability (2009 $13m).
Notes to the Group financial statements 107
29. Operating leases
During the year ended 31 December 2010, $53m (2009 $51m) was recognised as an expense in the Group income statement in respect of
operating leases, net of amounts borne by the System Fund.
Total commitments under non-cancellable operating leases are as follows:
Due within one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
2010
$m
50
40
36
31
25
323
505
The average remaining term of these leases, which generally contain renewal options, is approximately 21 years (2009 19 years).
No material restrictions or guarantees exist in the Group’s lease obligations.
Included above are commitments of $12m (2009 $8m) which will be borne by the System Fund.
Total future minimum rentals expected to be received under non-cancellable sub-leases are $17m (2009 $20m).
30. Capital and other commitments
Contracts placed for expenditure on property, plant and equipment and intangible assets not provided
for in the Group financial statements
31. Contingencies
Contingent liabilities not provided for in the Group financial statements
2010
$m
14
2010
$m
8
2009
$m
51
44
38
37
30
309
509
2009
$m
9
2009
$m
16
In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts.
The maximum unprovided exposure under such guarantees is $90m (2009 $106m).
From time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties
inherent in litigation. The Group has also given warranties in respect of the disposal of certain of its former subsidiaries. It is the view of
the Directors that, other than to the extent that liabilities have been provided for in these financial statements, such legal proceedings and
warranties are not expected to result in material financial loss to the Group.
32. Related party disclosures
Key management personnel comprises the Board and Executive Committee.
Total compensation of key management personnel
Short-term employment benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
2010
$m
13.6
0.6
–
9.4
23.6
2009
$m
9.8
0.6
0.8
9.5
20.7
There were no other transactions with key management personnel during the year ended 31 December 2010 or the previous year.
O
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S
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N
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F
N
A
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A
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I
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A
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I
O
N
108 IHG Annual Report and Financial Statements 2010
Notes to the Group financial statements continued
33. System Fund
The Group operates a System Fund (the Fund) to collect and administer assessments and contributions from hotel owners for specific use
in marketing, the Priority Club Rewards loyalty programme and the global reservation system. The Fund and loyalty programme are
accounted for in accordance with the accounting policies set out on page 75 of the financial statements.
The following information is relevant to the operation of the Fund:
Income:*
Assessment fees and contributions received from hotels
Proceeds from sale of Priority Club Rewards points
Key elements of expenditure:*
Marketing
Priority Club
Payroll costs
Net (deficit)/surplus for the year*
Interest payable to the Fund
* Not included in the Group income statement in accordance with the Group’s accounting policies.
The payroll costs above relate to 3,927 (2009 4,019) employees whose costs are borne by the Fund.
The following liabilities relating to the Fund are included in the Group statement of financial position:
Cumulative short-term net surplus
Loyalty programme liability
2010
$m
944
106
170
250
167
(51)
2
2010
$m
20
531
551
2009
$m
875
133
165
210
152
43
2
2009
$m
71
470
541
The net change in the loyalty programme liability and System Fund surplus contributed an inflow of $10m (2009 $42m) to the Group’s cash
flow from operations.
34. Principal operating subsidiary undertakings
InterContinental Hotels Group PLC was the beneficial owner of all of the equity share capital, either itself or through subsidiary
undertakings, of the following companies during the year:
Six Continents Limiteda
Hotel Inter-Continental London Limiteda
IHG Hotels Limiteda
Six Continents Hotels, Inc.b
Inter-Continental Hotels Corporationb
111 East 48th Street Holdings, LLCb
InterContinental Hotels Group Resources, Inc.b
InterContinental Hong Kong Limitedc
Société Nouvelle du Grand Hotel SAd
The companies listed above include those which principally affect the amount of profit and assets of the Group.
a Incorporated in Great Britain and registered in England and Wales.
b Incorporated in the United States.
c Incorporated in Hong Kong.
d Incorporated in France.
Notes to the Group financial statements and Parent company financial statements 109
Repeated Section Here 109
01_Page Heading
Parent company financial
statements
Parent company financial statements
110 Parent company balance sheet
Notes to the parent company
In this section we present the
balance sheet of our parent
company, InterContinental Hotels
Group PLC, and the related notes
supporting the parent company
balance sheet for 2010.
111
111
111
111
112
112
112
113
Investments
financial statements
1 Accounting policies
2 Directors
3
4 Debtors
Creditors
5
6 Share capital
7 Movements in reserves
8
Reconciliation of movements
in shareholders’ funds
9 Profit and dividends
113
113 10 Contingencies
113 Statement of Directors’ responsibilities
114
Independent auditor’s report to the members
Staybridge Suites Newcastle, UK
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110 IHG Annual Report and Financial Statements 2010
Parent company financial statements
Parent company balance sheet
31 December 2010
Fixed assets
Investments
Current assets
Debtors
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Share-based payment reserve
Profit and loss account
Equity shareholders’ funds
Signed on behalf of the Board
Richard Solomons
14 February 2011
Note
2010
£m
2009
£m
3
4
5
5
6
7
7
7
7
2,915
2,894
27
(2,147)
(2,120)
795
(248)
547
39
61
6
148
293
547
22
(2,048)
(2,026)
868
(248)
620
39
49
6
127
399
620
No profit and loss account is presented for InterContinental Hotels Group PLC as permitted by Section 408 of the Companies Act 2006.
Loss on ordinary activities after taxation amounts to £29m (2009 profit of £167m).
Notes on pages 111 to 113 form an integral part of these financial statements.
Parent company financial statements and Notes to the parent company financial statements 111
Notes to the parent company financial statements
1. Accounting policies
Basis of accounting
The financial statements are prepared under the historical cost convention and on a going concern basis. They have been drawn up
to comply with applicable accounting standards in the United Kingdom (UK GAAP). These accounts are for the Company and are not
consolidated financial statements.
Fixed asset investments
Fixed asset investments are stated at cost plus share-based payments capital contributions less any provision for impairment.
The Company records an increase in its investments in subsidiaries equal to the share-based payments charge recognised by its
subsidiaries with a corresponding credit to equity.
Borrowings
Borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. They are
subsequently measured at amortised cost. Finance charges, including the transaction costs and any discount or premium on issue, are
charged to the profit and loss account using the effective interest rate method.
Borrowings are classified as due after more than one year when the repayment date is more than 12 months from the balance sheet date.
Financial risk management policies
Financial risk management policies are set out in note 21 of the Group financial statements on pages 91 and 92.
Capital risk management
The Group’s capital risk management policy is set out in note 21 of the Group financial statements on page 92.
Related party transactions
The Company takes advantage of the exemption under FRS 8 and does not disclose transactions with wholly owned subsidiaries.
2. Directors
Average number of Non-Executive Directors
Remuneration costs
2010
7
2010
£m
1
2009
6
2009
£m
1
Detailed information on the emoluments, pensions, option holdings and shareholdings for each Non-Executive Director is shown in the
Remuneration Report on pages 48 to 60.
3. Investments
At 1 January 2010
Share-based payments capital contribution
At 31 December 2010
£m
2,894
21
2,915
The Company is the beneficial owner of all of the equity share capital of InterContinental Hotels Limited. The principal operating subsidiary
undertakings of that company are listed in note 34 of the Group financial statements.
4. Debtors
Amounts due from subsidiary undertakings
Corporate taxation
2010
£m
14
13
27
2009
£m
5
17
22
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112 IHG Annual Report and Financial Statements 2010
Notes to the parent company financial statements continued
5. Creditors
Amounts falling due within one year
Amounts due to subsidiary undertakings
Amounts falling due after more than one year
£250m 6% bonds
2010
£m
2009
£m
2,147
2,048
248
248
The 6% fixed interest sterling bonds were issued on 9 December 2009 and are repayable in full on 9 December 2016. Interest is payable
annually on 9 December in each year commencing 9 December 2010 to the maturity date. The bonds were initially priced at 99.465% of
face value and are unsecured.
6. Share capital
At 30 September 2009, the authorised share capital was £160,050,000 comprising 1,175,000,000 ordinary shares of 1329⁄47p each and one
redeemable preference share of £50,000. As a result of the resolution passed at the Annual General Meeting on 29 May 2009 amending the
Articles of Association in line with the Companies Act 2006, from 1 October 2009 the Company no longer has authorised share capital.
Allotted, called up and fully paid (ordinary shares of 1329⁄47p each)
At 1 January 2010
Issued on exercise of share options
At 31 December 2010
Number
of shares
millions
287
2
289
£m
39
–
39
The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £12m (2009 £7m).
Options to subscribe for ordinary shares
At 1 January 2010
Exercised*
Lapsed or cancelled
At 31 December 2010
Option exercise price per ordinary share (pence)
Final exercise date
Thousands
5,870
(2,497)
(82)
3,291
308.5-619.8
4 April 2015
* The weighted average option price was 478.6p for shares exercised under the Executive Share Option Plan.
The authority given to the Company at the Annual General Meeting on 28 May 2010 to purchase its own shares was still valid at
31 December 2010. A resolution to renew the authority will be put to shareholders at the Annual General Meeting on 27 May 2011.
7. Movements in reserves
At 1 January 2010
Premium on allotment of ordinary shares
Loss after tax
Share-based payments capital contribution
Dividends
At 31 December 2010
Share
premium
account
£m
Capital
redemption
reserve
£m
Share-based
payments
reserve
£m
Profit and
loss account
£m
49
12
–
–
–
61
6
–
–
–
–
6
127
–
–
21
–
148
399
–
(29)
–
(77)
293
Notes to the parent company financial statements and Statement of Directors’ responsibilities 113
8. Reconciliation of movements in shareholders’ funds
Earnings available for shareholders
Dividends
Issue of ordinary shares
Share-based payments capital contribution
Net movement in shareholders’ funds
Shareholders’ funds at 1 January
Shareholders’ funds at 31 December
9. Profit and dividends
Loss on ordinary activities after tax amounts to £29m (2009 profit of £167m).
2010
£m
(29)
(77)
(106)
12
21
(73)
620
547
2009
£m
167
(78)
89
7
16
112
508
620
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A final dividend, declared in the previous year, of 18.7p (2009 20.2p) per share was paid during the year, amounting to £54m (2009 £57m).
An interim dividend of 8.0p (2009 7.3p) per share was paid during the year, amounting to £23m (2009 £21m). A final dividend of 22.0p
(2009 18.7p) per share, amounting to £63m (2009 £54m), is proposed for approval at the Annual General Meeting. The proposed final
dividend is payable on shares in issue at 25 March 2011.
The audit fee of £0.02m (2009 £0.02m) was borne by a subsidiary undertaking in both years.
10. Contingencies
Contingent liabilities of £134m (2009 £356m) in respect of guarantees of the liabilities of subsidiaries have not been provided for in the
financial statements.
Statement of Directors’ responsibilities
In relation to the parent company
financial statements
The following statement, which should be read in conjunction with
the independent auditor’s report set out on the following page, is
made with a view to distinguishing for shareholders the respective
responsibilities of the Directors and of the auditor in relation to the
Company financial statements.
The Directors are responsible for preparing the parent company
financial statements and Remuneration Report in accordance with
applicable United Kingdom law and United Kingdom Generally
Accepted Accounting Practice (UK GAAP).
The Directors are required to prepare Company financial
statements for each financial year which present fairly the financial
position of the Company and the financial performance of the
Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors have responsibility for ensuring that the Company
keeps accounting records which disclose with reasonable accuracy
the financial position of the Company and which enable them to
ensure that the Company financial statements comply with the
Companies Act 2006.
The Directors have general responsibility for taking such steps
as are reasonably open to them to safeguard the assets of the
Company and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the Group’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
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114 IHG Annual Report and Financial Statements 2010
Independent auditor’s report to the members of InterContinental Hotels Group PLC
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006;
and
• the information given in the Directors’ Report for the financial
year for which the financial statements are prepared is consistent
with the parent company financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of the
Remuneration Report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Other matter
We have reported separately on the Group financial statements
of InterContinental Hotels Group PLC for the year ended
31 December 2010.
Alison Baker (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
14 February 2011
We have audited the parent company financial statements of
InterContinental Hotels Group PLC for the year ended 31 December
2010 which comprise the parent company balance sheet and the
related notes 1 to 10. The financial reporting framework that has
been applied in their preparation is applicable law and United
Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members
as a body, for our audit work, for this report, or for the opinions
we have formed.
Respective responsibilities of Directors
and auditor
As explained more fully in the Statement of Directors’ Responsibilities
set out on page 113, the Directors are responsible for the preparation
of the parent company financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and express
an opinion on the parent company financial statements in accordance
with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the parent company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements.
Opinion on financial statements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the Company’s affairs as
at 31 December 2010;
• have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
Independent auditor’s report and Useful information 115
Repeated Section Here 115
Useful information
116 Glossary
117 Shareholder profiles
118
Investor information
119 Dividend history
119 Financial calendar
120 Contacts
121 Forward-looking statements
In this section we present a glossary
of terms used in the Annual Report
and Financial Statements 2010 and
some analyses of our share ownership
at the end of 2010.
We also provide a range of information
designed to be helpful to shareholders
and contact details for the Company
and for a number of service providers.
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Candlewood Suites Hot Springs, Arkansas, US
116 IHG Annual Report and Financial Statements 2010
Glossary
Adjusted
excluding the effect of exceptional items
and any relevant tax.
IFRS
International Financial Reporting
Standards.
Average daily rate
rooms revenue divided by the number of
room nights sold. Also known as average
room rate.
Interest rate swap
Basic earnings per profit available for IHG equity holders
Management contract
ordinary share
divided by the weighted average number
of ordinary shares in issue during the year.
Market capitalisation
an agreement to exchange fixed for
floating interest rate streams (or vice
versa) on a notional principal.
a contract to operate a hotel on behalf
of the hotel owner.
the value attributed to a listed company
by multiplying its share price by the
number of shares in issue.
Capital expenditure
Cash-generating units
Comparable RevPAR
purchases of property, plant and
equipment, intangible assets, associate
investments and other financial assets.
the smallest identifiable groups of assets
that generate cash inflows that are largely
independent of the cash inflows from other
assets, or groups of assets.
a comparison for a grouping of hotels that
have traded in all months in both financial
years being compared. Principally
excludes new hotels, hotels closed for
major refurbishment and hotels sold in
either of the two years.
Contingencies
liabilities that are contingent upon the
occurrence of one or more uncertain
future events.
Continuing operations
operations not classified as discontinued.
Currency swap
Derivatives
Discontinued operations
an exchange of a deposit and a borrowing,
each denominated in a different currency,
for an agreed period of time.
a financial instrument used to reduce risk,
the price of which is derived from an
underlying asset, index or rate.
hotels or operations sold or those
classified as held for sale when the results
relate to a separate line of business,
geographical area of operations, or where
there is a co-ordinated plan to dispose
of a separate line of business or
geographical area of operations.
Exceptional items
items which are disclosed separately
because of their size or nature.
Extended stay
hotels designed for guests staying for
periods of time longer than a few nights
and tending to have a higher proportion of
suites than normal hotels (eg Staybridge
Suites, Candlewood Suites).
Franchisee
operator who uses a brand under licence
from the brand owner (eg IHG).
Franchisor
brand owner (eg IHG) who licenses brands
for use by operators.
Goodwill
Hedging
the difference between the consideration
given for a business and the total of the
fair values of the separable assets and
liabilities comprising that business.
the reduction of risk, normally in relation
to foreign currency or interest rate
movements, by making offsetting
commitments.
Midscale
hotels in the three/four star category
(eg Holiday Inn, Holiday Inn Express).
Net debt
borrowings less cash and cash equivalents,
including the exchange element of the fair
value of currency swaps hedging the
borrowings.
Occupancy rate
rooms occupied by hotel guests,
expressed as a percentage of rooms
that are available.
Pipeline
hotels/rooms that will enter the Group’s
system at a future date. A new hotel
only enters the pipeline once a contract
has been signed and the appropriate fees
paid. In rare circumstances, a hotel will
not open for reasons such as the financing
being withdrawn.
Revenue per
available room
(RevPAR)
rooms revenue divided by the number of
room nights that are available (can be
mathematically derived from occupancy
rate multiplied by average daily rate).
Room count
number of rooms franchised, managed,
owned or leased by IHG.
Rooms revenue
revenue generated from the sale of
room nights.
Royalty revenues
rooms revenue that a franchisee pays to
the brand owner for use of the brand name.
Subsidiary undertaking
a company over which the Group exercises
control.
System size
the number of hotels/rooms franchised,
managed, owned or leased by IHG.
Technology income
Total gross revenue
Total Shareholder
Return (TSR)
income received from hotels under
franchise and management agreements
for the use of IHG’s proprietary
reservations system.
total rooms revenue from franchised
hotels and total hotel revenue from
managed, owned and leased hotels.
the theoretical growth in value of a
shareholding over a period, by reference
to the beginning and ending share price,
and assuming that gross dividends,
including special dividends, are reinvested
to purchase additional units of the equity.
UK GAAP
United Kingdom Generally Accepted
Accounting Practice.
Working capital
the sum of inventories, receivables and
payables of a trading nature, excluding
financing items such as corporate taxation.
Glossary and Shareholder profiles 117
Shareholder profiles
Shareholder profile as at 31 December 2010 by type
Category of holdings
Private individuals
Nominee companies
Limited and public limited companies
Other corporate bodies
Pension funds, insurance companies and banks
Total
Number of
shareholders
Percentage of
total shareholders
Ordinary
shares
Percentage of
issued share capital
52,110
2,366
243
134
11
54,864
94.98
4.31
0.45
0.24
0.02
100
19,211,581
263,863,806
2,853,841
3,401,509
141,914
289,472,651
6.63
91.15
0.99
1.18
0.05
100
Shareholder profile as at 31 December 2010 by size
Range of holdings
1 – 199
200 – 499
500 – 999
1,000 – 4,999
5,000 – 9,999
10,000 – 49,999
50,000 – 99,999
100,000 – 499,999
500,000 – 999,999
1,000,000 – highest
Total
Number of
shareholders
Percentage of
total shareholders
Ordinary
shares
Percentage of
issued share capital
33,916
10,930
5,278
3,780
304
336
87
145
33
55
54,864
61.82
19.92
9.62
6.89
0.55
0.61
0.16
0.27
0.06
0.10
100
2,198,283
3,498,593
3,686,874
6,995,046
2,103,147
7,357,159
5,970,440
33,496,115
23,881,055
200,285,939
289,472,651
0.76
1.21
1.27
2.42
0.73
2.54
2.06
11.57
8.25
69.19
100
Shareholder profile as at 31 December 2010 by geographical location
Country/Jurisdiction
England and Wales
Rest of Europe
US (including ADRs)
Rest of World
Total
Percentage of
issued share capital1
55.70
11.10
29.00
4.20
100
1 The geographical profile presented is based on an analysis of shareholders (by manager) of 40,000 shares or above where geographical ownership is known. This analysis
only captures 89.1% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100⁄89.1 (1.122) to achieve the figures shown in the
table above.
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118 IHG Annual Report and Financial Statements 2010
Investor information
Website and electronic communication
As part of the Company’s commitment to reducing the cost and
environmental impact of producing and distributing printed
documents in very large quantities, IHG’s Annual Report
and Annual Review have been made available to the majority
of shareholders through the Company’s website
www.ihgplc.com/investors under financial library.
Shareholders may appoint electronically a proxy to vote on their
behalf on any poll that may be held at the forthcoming Annual
General Meeting. Shareholders who hold their shares through
CREST may appoint proxies through the CREST electronic proxy
appointment service, by using the procedures described in the
CREST Manual.
Shareholder Hotel Discount Promotion
IHG is currently operating a promotion for discounted hotel stays
(subject to availability) for registered shareholders, through a
dedicated, controlled access website. For further details please
contact the Company Secretariat at the registered office
on 01895 512 000 or email companysecretariat@ihg.com
Changes to the base cost of IHG shares
Details of all the changes to the base cost of IHG shares held since
April 2003 up to December 2010, for UK Capital Gains Tax purposes,
may be found on the Company’s website www.ihgplc.com/investors
under shareholder centre/tax information.
Corporate Responsibility Report
IHG has published an online Corporate Responsibility Report for
2010 covering progress on a range of environmental, social and
community issues. This is available on our corporate website and
can be downloaded directly at www.ihgplc.com/responsibility
Registrar
For enquiries concerning individual shareholdings, notification of
a shareholder’s change of address and for information on a range
of shareholder services please contact the Company’s Registrar,
Equiniti, on 0871 384 2132† (UK callers) or +44 (0) 121 415 7034
(non-UK callers).
Dividend services
The Company offers a Dividend Reinvestment Plan (DRIP) for
shareholders to purchase additional IHG shares with their cash
dividends. For further information about the DRIP, please contact
our Registrar helpline on 0871 384 2268†. A DRIP application and
information booklet are available on the Company’s website
www.ihgplc.com/investors under shareholder centre/dividends.
Shareholders who would like their dividends to be paid directly into
a bank or building society account, or who wish to amalgamate
their shareholder accounts in order to avoid duplicate mailing of
shareholder communications should contact our Registrar.
It may be possible for shareholders to have their dividends paid
direct to their bank account in a local currency. Charges are
payable for this service. Further information is available at
www.shareview.co.uk under shareholder centre/overseas
payment service.
If you think that you have out of date dividend warrants or
outstanding dividend payments please contact our Registrar
for further information.
Individual Savings Accounts (ISAs)
Equiniti offer ISAs in IHG shares. For further information please
contact our Registrar helpline on 0871 384 2244†.
Share dealing services
Equiniti offer a postal dealing facility for IHG shares. For more
information on this service, call 0871 384 2132†. They also offer a
telephone and internet dealing service, Shareview Dealing, which
provides a simple and convenient way of buying and selling shares.
For telephone dealings, call 08456 037 037 between 8.00am and
4.30pm Monday to Friday, and for internet dealings log on to
www.shareview.co.uk
ShareGift
The Orr Mackintosh Foundation operates this charity share
donation scheme for shareholders with small holdings of shares,
the value of which makes them uneconomic to sell. Details can be
obtained from Equiniti, the ShareGift website www.sharegift.org
or by calling ShareGift on 020 7930 3737.
Missing shareholders
Working with ProSearch, (an asset reunification company), we
continue to look for shareholders who have not kept their contact
details up to date. We have funds waiting to be claimed and are
committed to doing what we can to pay these to their rightful
owners. For further details please contact ProSearch on
01732 741 411 or email info@prosearchassets.com
Shareholder security
Many companies have become aware that their shareholders have
received unsolicited telephone calls or correspondence concerning
investment matters. These are typically from overseas-based
‘brokers’ who target UK shareholders, offering to sell them what
often turn out to be worthless or high-risk shares in US or UK
investments. These operations are commonly known as ‘boiler
rooms’. More detailed information on this or similar activity can
be found on the Financial Services Authority website
www.moneymadeclear.fsa.gov.uk
Details of any share dealing facilities that the Company endorses
will be included in Company mailings.
American Depositary Receipts (ADRs)
The Company’s shares are listed on the New York Stock Exchange
in the form of American Depositary Shares, evidenced by ADRs and
traded under the symbol ‘IHG’.
Each ADR represents one ordinary share. All enquiries regarding
ADR holder accounts and payment of dividends should be directed
to JPMorgan Chase & Co, our authorised depositary bank (details
shown on page 120).
Form 20-F
The Company is subject to the reporting requirements of the
Securities and Exchange Commission (SEC) in the US and files with
the SEC an Annual Report on Form 20-F. The Form 20-F can be
found on the Company’s website www.ihgplc.com/investors under
shareholder centre/ADR holders or by visiting the SEC’s website
www.sec.gov/edgar.shtml
†Telephone calls to these numbers are currently charged at 8p per minute if using
a BT landline. Other telephony provider costs may vary.
Investor information, Dividend history and Financial calendar 119
Share price information
The latest share price is available in the financial press, on Ceefax and also on the Financial Times Cityline Service, telephone
09058 171 690 (calls charged at 75p per minute from a BT landline). Further details of the share price may be found on the Company’s
website www.ihgplc.com/investors under share price.
Share price 2010: InterContinental Hotels Group PLC v FTSE 100
1,300
1,200
1,100
1,000
900
800
700
600
)
e
c
n
e
p
(
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
InterContinental Hotels Group PLC – Share price
FTSE 100 – Index
Source: Datastream
Dividend history
The table below details the interim and final dividends per share (pence) and per ADR (cents) paid by IHG since 2003.
2010
2009
2008*
2007
2006
2005
2004
2003
Interim dividend
Final dividend
Total dividend
pence
8.00
7.30
6.40
5.70
5.10
4.60
4.30
4.05
cents
12.80
12.20
12.20
11.50
9.60
8.10
7.70
6.80
pence
22.00
18.70
20.20
14.90
13.30
10.70
10.00
9.45
cents
35.20
29.20
29.20
29.20
25.90
18.70
19.10
17.40
pence
30.00
26.00
26.60
20.60
18.40
15.30
14.30
13.50
cents
48.00
41.40
41.40
40.70
35.50
26.80
26.80
24.20
(Excludes special dividends and capital returns)
* IHG changed the reporting currency of its Group accounts from sterling to US dollars effective from the half-year results as at
30 June 2008. Starting with the interim dividend for 2008, all dividends have first been determined in US dollars and converted
into sterling immediately before announcement.
Financial calendar
Payment of interim dividend of 8.0p per share (12.8 cents per ADR)
Financial year end
Preliminary announcement of annual results
Final dividend of 22.0p per share (35.2 cents per ADR):
Announcement of first quarter results
Annual General Meeting
Final dividend of 22.0p per share (35.2 cents per ADR):
Announcement of interim results
Interim dividend:
Announcement of third quarter results
Financial year end
Preliminary announcement of annual results
Ex-dividend date
Record date
Payment date
Payment date
2010
1 October
31 December
2011
15 February
23 March
25 March
10 May
27 May
3 June
9 August
October
8 November
31 December
2012
February
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120 IHG Annual Report and Financial Statements 2010
Contacts
Registered office
Broadwater Park
Denham
Buckinghamshire
UB9 5HR
Telephone +44 (0) 1895 512 000
Fax
+44 (0) 1895 512 101
www.ihg.com
For general information
about the Group’s business
please contact the Corporate
Affairs department at the
above address. For all other
enquiries please contact the
Company Secretariat at the
above address.
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone 0871 384 2132*†
(UK callers)
+44 (0) 121 415 7034
(non-UK callers)
www.shareview.co.uk
*For those with hearing difficulties
a text phone is available on
0871 384 2255† for UK callers with
compatible equipment.
†Telephone calls to these numbers are
currently charged at 8p per minute if
using a BT landline. Other telephony
provider costs may vary.
ADR depositary
JPMorgan Chase & Co
PO Box 64504
St. Paul
MN 55164-0504
USA
Telephone +1 800 990 1135
(US callers – toll
free)
+1 651 453 2128
(non-US callers)
Email:
jpmorgan.adr@wellsfargo.com
www.adr.com
Stockbrokers
Bank of America Merrill Lynch
Goldman Sachs
Auditors
Ernst & Young LLP
Investment bankers
Citi
Bank of America Merrill Lynch
Goldman Sachs
Solicitors
Freshfields Bruckhaus
Deringer LLP
Priority Club Rewards
If you wish to enquire about, or
to join Priority Club Rewards,
IHG’s loyalty programme for
frequent travellers, please visit
www.priorityclub.com or
telephone:
0871 226 1111∞ (in Europe,
Middle East and Africa)
(toll charges apply)
+1 888 211 9874 (in US and
Canada) (toll free)
+1 800 272 9273 (in Mexico)
(toll free)
+1 801 975 3013 (Spanish)
(in Central and South America)
(toll charges apply)
+1 801 975 3063 (English)
(in Central and South America)
(toll charges apply)
+63 2 857 8788 (from most
countries in Asia Pacific)
(toll charges apply)
∞Telephone calls to this number are
charged at 10p per minute. Standard
network rates apply. Calls from
mobiles will be higher.
For further investor information visit www.ihgplc.com/investors
Contacts and Forward-looking statements 121
Industry and market trends
1 Overview
2 Headlines
3 Chairman’s statement
4 Chief Executive’s review
5 Message from the IAHI
6 Great brands
7 Business review
8
9 Our strategy
12 Measuring our success
12 Where we compete
13 How we win
14 Group performance
16 Regional performance
22 Central and System Fund results
22 Other financial information
24 Our people
28 Corporate responsibility
31 Risk management
1
Overview
InterContinental Sanya Resort, China
7
7
Business review
Business review
We’re a global hotel company –
the world’s largest by number
of rooms – operating seven
well-known brands internationally.
Our Vision is to become one of
the world’s great companies.
For us this means having great
brands which lie at the heart of
Great Hotels Guests Love.
We want people to feel good about
what we do and how we do it. Around
the world, we aim to delight our guests,
inspire our people, act responsibly
and generate financial returns for
our hotel owners and our investors.
This requires:
Great Brands
which not only stand out, but also
stand for something that resonates
with our guests.
Great People
who bring our brands to life and
give guests every reason to stay
with us time and again.
Great Values
which bring our people together as
a happy, successful and responsible
business.
Great Ways of Working
which place our guests at the heart
of everything we do, and support
our hotel owners to do the same.
We’ll be a great company when:
• Guests love to stay with us
• People love to work for us
• Owners love our brands
• Investors love our performance
Cover images:
See inside back cover for image details
Crowne Plaza Athens, Greece
Forward-looking statements
Both the Annual Report and Financial
Statements 2010 and the Annual Review and
Summary Financial Statement 2010 contain
certain forward-looking statements as defined
under US legislation (Section 21E of the
Securities Exchange Act of 1934) with respect to
the financial condition, results of operations and
business of InterContinental Hotels Group and
certain plans and objectives of the Board of
Directors of InterContinental Hotels Group PLC
with respect thereto. Such statements include,
but are not limited to, statements made in the
Chairman’s statement and in the Chief
Executive’s review. These forward-looking
statements can be identified by the fact that they
do not relate only to historical or current facts.
Forward-looking statements often use words
such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’,
‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of
similar meaning. These statements are based
on assumptions and assessments made by
InterContinental Hotels Group’s management in
light of their experience and their perception of
historical trends, current conditions, expected
future developments and other factors they
believe to be appropriate.
By their nature, forward-looking statements are
inherently predictive, speculative and involve risk
and uncertainty. There are a number of factors
that could cause actual results and developments
to differ materially from those expressed in, or
implied by, such forward-looking statements,
including, but not limited to: the risks involved
with the Group’s reliance on the reputation of its
brands and the protection of its intellectual
property rights; the risks related to identifying,
securing and retaining franchise and
management agreements; the effect of political
and economic developments; the ability to
acquire and retain the right people and skills
and capability to manage growth and change;
the risk of events that adversely impact domestic
or international travel; the risks involved in the
Group’s reliance upon its proprietary reservations
system and increased competition in reservations
infrastructure; the risks in relation to technology
and systems; the risks of the hotel industry
supply and demand cycle; the possible lack of
selected development opportunities; the risks
related to corporate responsibility; the risk of
litigation; the risks associated with the Group’s
ability to maintain adequate insurance; the risks
associated with the Group’s financial stability,
its ability to borrow and satisfy debt covenants;
compliance with data privacy regulations;
the risks related to information security; and
the risks associated with funding the defined
benefits under its pension plans.
The main factors that could affect the business
and financial results are described in the
Business review of the Annual Report and
Financial Statements 2010 and also in the
Company’s Annual Report on Form 20-F.
InterContinental Hotels Group PLC
Broadwater Park, Denham
Buckinghamshire UB9 5HR
United Kingdom
Telephone +44 (0) 1895 512 000
Fax +44 (0) 1895 512 101
make a booking at
www.ihg.com
2
1
5
IHG Annual Report and
Financial Statements 2010
3
4
6
Images on the outside cover
1. Holiday Inn, Singapore
2. Crowne Plaza Gurgaon, India
3. Staybridge Suites Newcastle, UK
4. Hotel Indigo London-Tower Hill, UK
5. Candlewood Suites Orlando, US
6. InterContinental Shanghai Expo, China
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Designed and produced
by Corporate Edge
Print management by
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Printed by Royle Print
This Report is printed
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made up of 60% FSC post-
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20% pre-consumer recycled
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from FSC managed forests.
Our printer is also FSC and
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InterContinental Hotels Group PLC
Broadwater Park, Denham
Buckinghamshire UB9 5HR
United Kingdom
Telephone +44 (0) 1895 512 000
+44 (0) 1895 512 101
Fax
make a booking at
www.ihg.com
IHG Annual Report and
Financial Statements 2010
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