Annual Report and Financial Statements 2012
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Parent Company
Financial Statements
130 Parent Company balance sheet
Notes to the Parent Company
131
Financial Statements
Statement of Directors’ responsibilities
Independent Auditor’s Report to
the members
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134
135 Other information
136 Glossary
137 Shareholder profiles
138
Investor information
139 Dividend history
139 Five year history
140 Financial calendar
140 Contacts
141 Forward-looking statements
1 Overview
4 Chairman’s Statement
6 Chief Executive’s Review
Message from the
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IHG Owners Association
8 Preferred Brands
Industry overview
9 Business Review
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11 Our strategy
16 Measuring our success
18 Performance
20 The Americas
22 Europe
24 Asia, Middle East and Africa
26 Greater China
28 Central
28 System Fund
29 Other financial information
30 Our talented People
34 Corporate Responsibility
38 Risk management
45 Governance
46 The Board of Directors
48
Executive Committee
49 Corporate governance
56 Audit Committee Report
57
Corporate Responsibility
Committee Report
58 Nomination Committee Report
59 Directors’ Remuneration Report
79 Other statutory information
81 Group Financial Statements
82 Statements of Directors’
83
responsibilities
Independent Auditor’s Report
to the members
84 Group income statement
85 Group statement of
comprehensive income
86 Group statement
of changes in equity
88 Group statement
of financial position
89 Group statement of cash flows
90 Accounting policies
96 Notes to the Group
Financial Statements
This page
Hotel Indigo Xiamen Harbour, China
Front cover
Holiday Inn London-Stratford City, UK
About us
We are a global hotel business with nine preferred Brands. With over 4,600 hotels
and nearly 676,000 rooms in nearly 100 countries and territories around the
world, we know hospitality. Our Vision is to become one of the great companies
in the world by creating Great Hotels Guests Love. We will deliver this through
our portfolio of preferred Brands, our talented People and best-in-class Delivery
systems. At the heart of our culture is a commitment to act responsibly in
everything we do.
Brands
We have a high-quality portfolio of nine preferred Brands from luxury hotels in the world’s major cities
and resorts to family-orientated hotels that offer great service and value and the world’s first and largest
hotel loyalty programme.
See pages 8, 12 and 13 for more information on our preferred portfolio of Brands
People
Delivery
Our Brands represent a promise to our guests and it is our talented and passionate
People that bring each brand to life and thereby deliver Great Hotels Guests Love.
See pages 14, 30 to 33 for information on our talented People
Our best-in-class Delivery systems enable us to leverage our scale to build guest
preference for our Brands and drive reservations and revenue to our hotels.
See pages 14 and 15 for information on our best-in-class Delivery systems
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Responsible Business
IHG is committed to conducting business in a responsible way and this underpins each
of our strategic priorities. Championing and protecting the trusted reputation of IHG
and our Brands is not just the right thing to do, but it makes great business sense too.
See page 15 for information on our Responsible Business practices, pages 34 to 37 for Corporate Responsibility
matters, pages 38 to 44 for our approach to risk management and pages 45 to 80 on our governance processes
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About us
1
Where we compete
We have over 4,600 hotels and nearly 676,000 rooms internationally. When people travel, they
look for hotel brands they trust. Operating our preferred Brands to global standards increases
guest demand for the hotels we franchise, manage and own in nearly 100 countries and
territories around the world.
The Americas
Europe
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Hotel Indigo
Staybridge Suites
Candlewood Suites
Other
Total for The Americas
Total development pipeline
Hotels
53
183
820
1,931
37
183
299
49
3,555
670
Rooms
17,756
48,730
146,661
168,398
4,307
19,787
28,675
15,303
449,617
72,573
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Hotel Indigo
Staybridge Suites
Total for Europe
Total development pipeline
Hotels
30
84
288
212
10
4
628
91
Rooms
9,394
19,566
46,610
24,903
949
605
102,027
15,184
* Includes 3 Holiday Inn Resort properties (362 rooms)
Find out more on pages 22 and 23
* Includes 10 Holiday Inn Club Vacations (3,701 rooms) and 17 Holiday Inn Resort
properties (4,240 rooms)
Find out more on pages 20 and 21
Asia, Middle East and Africa (AMEA)
Greater China
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Staybridge Suites
Other
Total for AMEA
Total development pipeline
Hotels
65
65
75
12
2
13
232
132
Rooms
20,791
18,559
17,440
2,877
304
2,766
62,737
30,357
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Hotel Indigo
Other
Total for Greater China
Total development pipeline
Hotels
22
60
64
37
3
1
187
160
Rooms
9,373
21,452
20,777
9,453
405
141
61,601
50,916
* Includes 14 Holiday Inn Resort properties (3,311 rooms)
Find out more on pages 24 and 25
* Includes 3 Holiday Inn Resort properties (893 rooms)
Find out more on pages 26 and 27
2
IHG Annual Report and Financial Statements 2012
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Crowne Plaza Toulouse, France
InterContinental Danang Sun Peninsula, Vietnam
InterContinental The Palazzo, Las Vegas, US
Our business model
We run hotels in three ways: franchised, managed and owned. Our asset-light business model
means we own just 10 hotels* (less than one per cent of our portfolio). Most of our hotels operate
under a franchise agreement or are managed by IHG on behalf of owners. All of our hotels are
supported by our revenue delivery systems and marketing programmes, which drive business
to our hotels.
See page 12 for more information on our business model
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Key facts*
4,602
hotels
675,982
rooms
3,934
hotels franchised
658
hotels managed
10
hotels owned and leased
Operating profit before exceptional items
$614m†
Group
$486m†
The Americas
$115m
Europe
$88m
AMEA
$81m
Greater China
* As at 31 December 2012.
† Includes one significant liquidated damages receipt
in 2012 of $3m in The Americas.
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Where we compete, Our business model and Key facts
3
Chairman’s Statement
I feel privileged to be the Chairman of IHG, a company with
an impressive history and successful track record of driving
superior returns for shareholders. My fellow Board members
and I look forward to guiding IHG to even greater achievements
as we focus on brand building and the strategic global
expansion of the business in the near term and future.
In my first few months after taking over
from David Webster, I am delighted to
share my perspective and impressions
of our Company. Since I joined in January,
I have spent much of my time getting to
know the business better – meeting with
employees, shareholders, owners and
guests and visiting our operations around
the world.
Several things have struck me as a
newcomer to IHG. This is a business
with a clear strategy and a consistent
track record of implementation
throughout its 10-year history. There is
a focus across the whole organisation on
creating Brands that are preferred by both
our guests and owners, and at the heart of
this is the People. I have been particularly
impressed by the skills, commitment and
energy of all those I’ve met, who either
work in IHG’s corporate offices or in one
of IHG’s hotels, and on behalf of the Board,
I would like to thank all our People for
their focus, dedication and commitment.
Lastly, the integral role that Responsible
Business practices play in IHG’s strategy
is underpinned by a strong set of values
and unique culture seen across the
business.
Performance
IHG’s strong performance in 2012
demonstrates the effectiveness of
our strategy, despite the challenging
economic environment. We converted
4 per cent revenue growth into operating
profit growth of 10 per cent (before
exceptional items) and adjusted earnings
per share growth of 9 per cent.
We continue our long track record of
dividend growth for shareholders, with
the Board recommending a 10 per cent
increase to the final dividend for 2012,
taking it to 43.0 cents (27.7 pence). This
will give a full-year dividend of 64.0 cents
per share up 16 per cent on 2011. This
converts to a sterling full-year dividend
of 41.2 pence per share, up 19 per cent on
2011. Subject to shareholder approval, the
final dividend will be paid on 31 May 2013.
Financial position and
shareholder returns
We remain committed to an efficient
balance sheet while maintaining an
investment grade credit rating
through the cycle. During the year we
announced a $1 billion return of funds
to shareholders, split between a
$0.5 billion special dividend with share
consolidation and a $0.5 billion share
buyback programme. The special dividend
was paid on 22 October 2012 and $107
million of shares had been bought back
by year end. Once the share buyback
programme is complete, total funds
returned to shareholders since the 2003
demerger, excluding ordinary dividends,
will amount to $7.6 billion.
Year-end net debt of $1,074 million was up
$536 million on 2011, reflecting this return
of funds to shareholders. Nevertheless,
the business continues to be strongly
cash generative, with free cash flow of
$463 million, up 10 per cent on 2011. In
November 2012 we issued a £400 million
10-year bond, diversifying our sources
of funding and extending our average
debt maturity.
4
IHG Annual Report and Financial Statements 2012
Board
David Webster retired at the end of 2012,
having served on IHG’s Board since the
original listing of the Company in April
2003 and as Chairman since January
2004. During this period IHG has executed
the move to an asset-light business model,
grown net room count by over 25 per cent,
whilst successfully completing the
relaunch of the Holiday Inn brand. We
thank him for his invaluable contribution
and wish him a happy and fulfilling
retirement.
Graham Allan left the Board on 15 June 2012,
following his appointment as Chief Operating
Officer of Dairy Farm International Holdings
Limited based in Hong Kong. I would like
to thank Graham for his contributions as
an independent Non-Executive Director
and as a member of the Audit, Nomination
and Corporate Responsibility Committees.
We are in the process of recruiting a new
Non-Executive Director to replace Graham.
Dale Morrison, who has been a
Non-Executive Director since June 2011,
was appointed to the Corporate
Responsibility Committee in November
2012. This adds to his existing roles on
the Audit and Nomination Committees.
+5%
Total gross revenue
+6.8%
Fee revenuez
from hotels in IHG’s system to $21.2bn*
Revenue up 4%† to $1,835m†
Driven by 5.2% RevPAR growth and
2.7% net system size growth
$614m†
Operating profit before exceptional items
+5.2%
Revenue per available room∞
Group $614m† (2011 $559mt)
The Americas $486m† (2011 $451mt)
Europe $115m (2011 $104m)
Asia, Middle East and Africa $88m (2011 $84mt)
Greater China $81m (2011 $67m)
Total number of rooms operating under
IHG brands 675,982 (4,602 hotels)
+16%: 64.0¢
Total full-year dividend
sterling equivalent of 41.2p
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8.4m
new Priority Club Rewards
members added
Total Priority Club Rewards members 71.4m
69% of rooms revenue delivered through
IHG’s channels or by Priority Club Rewards
members direct to hotel
* Total room 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 2012 of $3m in The Americas.
t Includes two significant liquidated damages receipts in 2011; $10m in The Americas and $6m in Asia, Middle East and Africa.
zGroup revenue excluding owned and leased hotels, managed leases and significant liquidated damages. Growth stated at constant currency.
∞ Total System rooms revenue divided by the number of room nights available.
Governance
IHG is committed to high standards of
corporate governance; we believe good
governance is a fundamental part of being
a Responsible Business and underpins
everything we do. This year, we again
commissioned a formal evaluation of
the performance of the Board from an
independent consultant, the findings of
which are outlined on page 54. The 2012
feedback confirmed that the Board and
each of its Committees continue to
operate effectively and that each
Director continues to make an effective
contribution and retains a strong
commitment to the role.
Further information on our governance
practices can be found on pages 45 to 80.
Outlook
There is no doubt that the global economy
will continue to see challenges in the year
ahead. IHG’s proven strategy, resilient
business model, portfolio of preferred
Brands, talented People and strong
balance sheet give us the confidence that
the business will continue to perform well
into the future and deliver long-term value
to all stakeholders.
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Patrick Cescau
Chairman
Crowne Plaza London-The City, uK
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Chairman’s Statement
5
Chief Executive’s Review
2012 was another year of high-quality growth for IHG, with the
launch of two new brands and a strong pace of hotel openings
and signings. Driven by a material increase in worldwide
demand for hotel rooms, we generated an impressive
6.8 per cent growth in fee revenue, one of our key metrics of
success. This translated into double digit profit growth, driven
by our preferred Brands and brought to life in our hotels by
talented and passionate People.
How we win
Our well established, asset-light strategy
has enabled us to deliver good revenue
and profit growth again this year, despite
the continued challenges in the wider
global economy. At the core of this
strategy lies the third party owners of IHG
branded hotels. At IHG we have a unique
competitive advantage, which is the strong
and deep relationship that we have with
our owners, primarily through the IHG
Owners Association. This collaboration
enables us to work closely with our
owners, tap into their combined expertise
and take action more quickly and
effectively than our competitors.
As we move into our 10th year as a
stand-alone listed company, we can be
proud of our record of delivery as we
continue to gain market share, leveraging
our scale to grow margins, profits and
cashflow. This has enabled us to continue
to reinvest in our business whilst
simultaneously returning significant sums
of surplus cash to shareholders and
generating superior shareholder returns.
In August 2012 we announced a $1 billion
return of funds to shareholders continuing
our long track record of returns, with total
funds returned to shareholders since
the 2003 demerger, including ordinary
dividends, of around $9 billion, almost
twice the market capitalisation of the
Group when we listed.
We will continue to drive the business
forward through our preferred Brands,
talented People and best-in-class
Delivery systems, all underpinned by our
commitment to Responsible Business.
In 2012 we continued to outperform the
industry with strong RevPAR growth, with
particular outperformance in our two
largest markets, the US and Greater
China. Importantly, in spite of the limited
availability of capital in many markets, we
increased the number of rooms operating
in our System by 2.7 per cent. This,
combined with healthy RevPAR growth
is what has enabled us to grow our fee
revenue so strongly.
Preferred Brands
Our preferred Brands are at the heart of
our business and are key to our continued
success in driving strong results. Our
brands are already some of the most
recognised in the industry but we continue
to innovate and develop them to meet
changing guest needs and to stay ahead
in a competitive market place.
We are delighted to have launched two
new brands in 2012; HUALUXE Hotels &
Resorts in China and EVEN Hotels in the
US. HUALUXE has had a particularly
strong start with 15 signings in the year.
Each of these brands has been created
through a deep understanding of the
trends in the lodging marketplace
combined with genuine insight into guest
occasions and needs. They have been
designed to meet a need which we feel
is underserved in the market today and
which can deliver significant revenue
and profit opportunities over the longer
term, in our two largest markets. IHG’s
significant expertise in both these
markets and the scale of our operations
enabled us to launch these two new
brands simultaneously, unprecedented
in the industry.
New brands are exciting and have the
potential to create value in the future and
IHG has a track record of successful
brand launches. But it is our powerful
portfolio of established brands that create
value for our owners and shareholders
today – and we never lose sight of that fact
as we continually evolve and refine them.
Our largest brand, the Holiday Inn brand
family, continues to deliver significant
value for both IHG and our owners. This
year Holiday Inn was the official hotel
provider to the London 2012 Olympic and
Paralympic Games and celebrated its 60th
anniversary. In 2012 Holiday Inn continued
its post relaunch track record by growing
its premium to the sector each year since
2007, and was ranked ‘Highest Guest
Satisfaction Among Mid-Scale Full Service
Hotel Chains, Two Years in a Row’ by
J.D. Power and Associates¤ (see page 141).
Crowne Plaza is our second largest brand
after the Holiday Inn brand family. It is already
the world’s fourth largest full-service hotel
brand in the upper segments, generating
almost 20 per cent of our total gross
revenue per annum. Crowne Plaza has
been highly successful and has a solid
foundation for future growth, however
we see significant opportunity to take its
performance in The Americas up to the
levels achieved by the brand globally.
We are currently undertaking a three-phase,
multi-year repositioning programme,
which will look to provide a more consistent,
targeted experience around the world.
Talented People
Great hotel brands need to deliver a
consistent, branded experience to guests,
and talented and passionate People are
essential for this. At IHG we are focussed
on ensuring our People deliver consistent
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The IHG Owners Association is
continuing to strengthen its alignment
with IHG – we’ve been on this journey for
nearly 60 years, and this latest chapter
is perhaps the most exciting yet.
In autumn 2012, the Executive
Committee of the IHG Owners
Association and the IHG Executive
Committee met in Oklahoma City to
fashion a plan that launched this latest
chapter. Together we agreed to refine
the focus of our work and established
five key priorities around which to
organise our work:
1. deliver the strongest brand portfolio
in the industry;
2. deliver the strongest set of tools
in the industry;
3. develop the strongest approach
to standards in the industry;
4. develop the strongest General
Manager talent in the industry; and
5. maintain the strongest reputation
for doing business the right way.
As a result of establishing these focussed
priorities, the IHG Owners Association
is reorganising its committee structure
to work towards this shared vision.
Our goal is to work closely with IHG
to increase owner margins by
strengthening the IHG brands.
We plan to begin by working in three
specific areas: energise General
Managers to be our brand promise
keepers; master the IHG revenue tools
in every hotel; and relentlessly pursue
these brand standards that matter.
IHG owners are proud of their hotels,
and the IHG Owners Association is proud
to work with IHG. Our mutual focus on
strengthening the IHG brands gives us
the greatest opportunity to increase
hotel value and owner margins.
Mike Hembree
2013 Chairman
IHG Owners Association
Delivering Great Hotels Guests Love
Preferred
Brands
Talented
People
Best-in-class
Delivery
Responsible Business practice
Invest in growth
Grow market share
Sustainable margin growth
industry-owned online hotel search
engine. Revenues from mobile devices
generated $330 million in 2012. During
2012, Holiday Inn was the first major
hotel brand to launch a travel app on the
Windows 8 platform. In 2012, 69 per cent
of total rooms revenue was delivered
through IHG’s channels, including our
call centres and websites, and our
award-winning Priority Club Rewards
programme. This is the largest loyalty and
rewards programme in the industry with
71.4 million members worldwide and is a
very important way in which we retain and
reward loyal guests. In 2012 Priority
Club Rewards members accounted for
41 per cent of the revenue generated in
our hotels. Our scale advantage means
that we can offer guests more choice,
which better meet their needs, and this
is a key driver of our outperformance.
Looking forward we remain confident.
Despite the uncertain economy in some
markets, long-term travel trends are
positive, particularly in developing
markets such as China and Asia generally.
The drivers of demand in the hotel
industry remain positive and IHG is
well-placed to benefit from these as we
continue to deliver against our clearly
defined strategy with preferred Brands
delivered by talented People and
best-in-class Delivery systems, all
underpinned by our strong governance
structure and Responsible Business
practices.
service, irrespective of ownership model.
This is a complex task and our success
has required significant innovation and
effort as we have worked hand-in-hand
with our owners to deliver on it.
Our suite of People Tools help our owners
and General Managers to develop a
BrandHearted culture, make IHG and its
hotels a great place to work and deliver the
brand promise to our guests. To support
communities and aid recruitment we have
developed the IHG Academy programme,
which is a collaboration between IHG
hotels or corporate offices and local
education providers and/or community
organisations around the world, providing
the opportunity to develop skills and
improve employment prospects. We
celebrated the opening of our 150th IHG
Academy in January this year and to date
over 10,000 participants have benefited
from the IHG Academy programme.
We continue to be rewarded for our efforts
in this area and have been recognised in
The Sunday Times 25 Best Big Companies
to Work For in 2012, as well as winning a
number of other awards globally.
Best-in-class Delivery
IHG provides our hotels with a powerful
combination of best-in-class revenue
platforms, programmes and tools with
which to drive profitable revenue to our
branded hotels – what we call our System.
The scale and power of this System
enables us to outperform by creating,
converting, yielding and retaining demand.
We continue to lead industry innovation,
and this can be seen in our progress with
mobile and web booking solutions. We are
a founding member of roomkey.com,
which was launched in 2012 as the first
Richard Solomons
Chief Executive
For information on the
IHG Owners Association
go to www.owners.org
Chief Executive’s Review
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Preferred Brands
Delivering nine preferred hotel Brands: a portfolio that covers everything
from luxury hotels in the world’s major cities and resorts to reliable
family-orientated hotels that offer great service and value.
EVEN™ Hotels
EVEN Hotels uniquely provides solutions for all
aspects of business and leisure travellers’ holistic
wellness needs. Our guests want to maintain their
balance and well-being on the road and we’re
here to help them.
1 hotel in development pipeline
Staybridge® Suites
We provide guests with a warm and welcoming
environment and the modern comforts of
home-like surroundings.
189 hotels
20,696 rooms
71 hotels in development pipeline
Candlewood® Suites
Our guests turn to us for all the comforts of home
when home is temporarily left behind. Guests
have the space to stretch out and relax, with
on-site amenities and services always available.
299 hotels
28,675 rooms
78 hotels in development pipeline
InterContinental® Hotels & Resorts
We’ve been on the international scene for over
60 years, so no-one knows the world like we do.
Located in more than 60 countries, we know
that well-travelled, affluent guests want to be
connected to what’s special about a destination.
170 hotels
57,314 rooms
48 hotels in development pipeline
Crowne Plaza® Hotels & Resorts
Our guests are high achievers that strive to be
successful in everything they do. We provide the
facilities and service they need to help them on
their upward journey.
392 hotels
108,307 rooms
98 hotels in development pipeline
Holiday Inn®
Our guests appreciate innovation, but they also
want to be comfortable, both emotionally and
physically. The Holiday Inn brand promise is to
deliver comfort in a way that is new, yet familiar.
1,200 hotels
218,981 rooms
231 hotels in development pipeline
Holiday Inn Club Vacations®
We give our guests all of the benefits of a vacation
home with none of the hassle. While staying with
us, they don’t have to compromise on space or
daily routines.
10 hotels
3,701 rooms
Holiday Inn Resort®
We offer effortless choice for a relaxing break that
is safe and inviting, where everyone has activities
with indulgent touches along the way.
37 hotels
8,806 rooms
12 hotels in development pipeline
Holiday Inn Express®
Our guests want a straightforward, uncomplicated
experience, delivered in an engaging manner. A
hotel that provides just what they need enabling
them to manage their money wisely and stay smart.
2,192 hotels
205,631 rooms
452 hotels in development pipeline
HUALUXE™ Hotels & Resorts
HUALUXE Hotels & Resorts is the first upscale
international hotel brand designed specifically for
Chinese guests focussing on unique aspects of
Chinese etiquette, the importance of rejuvenation,
status recognition and enabling spaces that
reflect local customs and heritage.
15 hotels in development pipeline
Hotel lndigo®
Our guests appreciate art and design, the latest
fashion and new experiences. They are looking
for the individuality and style of a boutique hotel,
but with the reliability and consistency of a big
brand company.
50 hotels
5,661 rooms
47 hotels in development pipeline
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IHG Annual Report and Financial Statements 2012
Business Review
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This Business Review provides a review of the business environment in which
InterContinental Hotels Group PLC (the Company) and its group of companies (together
the Group or IHG) operate, our strategy for winning, key performance indicators (KPIs) and
commentaries on the development and performance of the business for the financial year
ended 31 December 2012. It also covers our approach towards employee and corporate
responsibility matters, including the environment, risk management throughout the
Group and a description of the risks and uncertainties impacting the business.
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Competing in relevant consumer segments
Competing in the most attractive markets
Competing with an appropriate business model
Winning with a portfolio of preferred Brands
10 Industry overview
11 Our strategy
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14 Winning with our talented People
14 Winning with our best-in-class Delivery
Winning with our Responsible Business
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practices
16 Measuring our success
16 Where we compete
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How we win – Delivering Great Hotels
Guests Love
18 Performance
18 Group performance
20 The Americas
22 Europe
24 Asia, Middle East and Africa
26 Greater China
28 Central
28 System Fund
29 Other financial information
29 Exceptional operating items
29 Net financial expenses
29 Taxation
29 Earnings per ordinary share
29 Dividends
29 Share price and market capitalisation
29 Capital structure and
liquidity management
30 Our talented People
34 Corporate Responsibility
38 Risk management
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Hotel Indigo shanghai on the Bund, China
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Business Review
Industry overview
The hotel industry performed well last year despite challenging economic conditions. The economic outlook deteriorated over the course of
2012 with increased concerns over the Eurozone and weaker performance in the US and China. Global Domestic Product (GDP) increased by
2.3 per cent in 2012, compared with 2.9 per cent in 2011 and the year ended with a continued uncertain outlook across the globe.
However, the hotel industry demonstrated its resilience against this challenging economic background. Globally, industry revenue per
available room (RevPAR), a key industry indicator, increased by 4.5 per cent, compared to a 5.9 per cent increase in 2011. IHG performed well
against these market conditions, with global RevPAR growth in 2012 of 5.2 per cent.
RevPAR growth 2011 v 2012
2011
+5.9%
+6.2%
2012
+4.5%
+5.2%
Global industry
RevPAR growth1
Global IHG
RevPAR growth2
Global industry
RevPAR growth1
Global IHG
RevPAR growth2
1 Data sourced from Smith Travel Research.
2 Comparable hotels.
The global hotel market is estimated to be close to 21.5 million rooms. Smith Travel Research calculates that there are 7.3 million branded
hotel rooms, with the remainder a combination of independent hotels, guesthouses and other types of lodging. IHG holds the largest share
of branded rooms, currently approximately nine per cent of branded supply, distributed across nearly 100 countries and territories around
the world. In 2012 we opened 33,922 new rooms worldwide (226 new hotels). This has taken the number of open IHG hotel rooms to 675,982
(4,602 hotels) at 31 December 2012, up 2.7 per cent from 2011, taking into account the removal of hotels which left the IHG System.
The benefits of a brand, such as the greater security and performance of a global reservation system, loyalty programmes and international
networks, are clear to many owners and IHG is well-positioned to win the business of owners seeking to grow with a hotel brand. Additionally,
IHG and other large hotel companies have the competitive advantage of a global portfolio of brands that suit the different real estate or market
opportunities an owner may have.
To ensure our strategy continues to be sustainable in the changing business environment and suitable for the Group’s capabilities, IHG closely
monitors markets across the globe and follows key industry and business metrics such as RevPAR, average daily rate, demand, GDP and
guest satisfaction.
10
IHG Annual Report and Financial Statements 2012
Business Review
Our strategy
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With a portfolio of preferred Brands in the most attractive markets, our talented
People are focussed on delivering Great Hotels Guests Love and executing a clear set of priorities
to achieve our Vision of becoming one of the great companies in the world
Where we compete
Relevant consumer segments
Most attractive markets
Appropriate business model
How we win
Portfolio of preferred Brands
Talented People
Best-in-class Delivery
Responsible Business
A good strategy makes clear choices against a range of business
opportunities in order to achieve a set of defined goals. An
organisation needs to be able to execute these decisions and
measure its success using a clear set of comprehensively
aligned metrics.
Delivering the elements of our strategy
Where we compete
IHG’s strategy determines a set of choices to balance the quality of
IHG branded hotels and the speed at which we grow. We measure
this through key performance indicators (KPIs) such as growing
RevPAR, System size and fee based margins. In addition, we ensure
we continue to improve employee engagement, guest and owner
satisfaction and increase the proportion of hotel room demand that
we generate for our owners through our proprietary distribution
and reservation systems.
Competing in relevant consumer segments
The hotel industry is usually segmented according to price point and IHG is focussed on the three segments that generate over 90 per cent
of branded hotels revenue, namely midscale (broadly three star), upscale (mostly four star) and luxury (five star). However, to build preferred
Brands, we believe we need to advance our understanding of our guests and their needs to ensure our brands remain contemporary
and relevant.
We have therefore completed a fundamental occasion-based needs segmentation analysis to understand why guests book hotels – looking at
who they are, the occasion they are travelling for and their needs when travelling. Many guests no longer have a single purpose for their hotel
stay – for example, business trips turn into family holidays, and we need to meet these demands, focussing more on the needs of our guests, to
deliver loyalty and brand preference. We used this analysis to develop the brand proposition for our two new brands, HUALUXE Hotels & Resorts
and EVEN Hotels, and we continue to work on this needs-based segmentation to help inform our view of the hotel market and our brand
strategies going forward.
Competing in the most attractive markets
Our strategy is to build preferred Brands with scale positions in the most attractive markets globally. Concentrating growth in the largest
markets means IHG and owners can operate more efficiently and benefit from enhanced revenues and reduced costs. Our key markets include
large developed markets such as the US, UK and Germany, as well as emerging markets like China and India.
The US is the largest market for branded hotels, with 3.38 million rooms, accounting for 69 per cent of all US rooms available. The segment in
the US with the greatest share is midscale, with 1.38 million branded hotel rooms, and IHG’s Holiday Inn brand family, comprising Holiday Inn,
Holiday Inn Express, Holiday Inn Club Vacations and Holiday Inn Resort, is the largest brand in this segment.
In China, IHG sees the greatest opportunity for growth of any single country and our strategy has been to enter the market early, to develop our
relationships with key local third party owners and grow our presence rapidly. In a country with 659,000 branded hotel rooms, IHG is the largest
international hotel company with over 61,000 rooms across our brands and more than 50,000 in the planning phase or under construction. This
rapid pace of openings for IHG has been in anticipation of increasing demand for hotels, driven by a large, emerging middle class and growing
domestic and international travel.
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IHG is also focussed on developing in other high priority markets. We seek to develop our portfolio of brands in those markets which will be
sources of strong hotel demand in the future. We have continued to build our position in these markets in the last year. For example, we
increased the distribution of our core brands in India, building upon our leadership position of Holiday Inn. In Russia and the Commonwealth
of Independent States (CIS), there are opportunities for new construction and conversions as well as strong demand for branded hotels. IHG
continues to adapt its business model by market, choosing partnerships and joint ventures where appropriate.
Outside the largest markets, we focus on building presence in key gateway cities where our brands can generate revenue premiums from
high business and leisure demand.
During 2012, we opened 33,922 rooms in 26 countries and territories, and signed a further 53,812 rooms into our development pipeline (hotels
in planning and under construction but not yet opened) across 33 countries and territories. As part of our ongoing commitment to maintaining the
quality of our brands, we removed 16,288 rooms during the year. As at 31 December 2012, IHG had the second largest pipeline in the industry, with
169,030 rooms in 1,053 hotels across 60 countries and territories. This represents a market share of 12 per cent of all hotels under development,
including those that are independent or unaffiliated with a brand.
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Business Review: Our strategy continued
Competing with an appropriate business model
Brand
ownership
Marketing and
distribution
Staff
Hotel
ownership
IHG capital
IHG income
Franchised
This is the largest part of our
business: 3,934 hotels operate
under franchise agreements
IHG
IHG
Third-party
Third-party
None
Managed
We manage 658 hotels
worldwide
IHG
IHG usually
IHG
supplies
COPY TO COME
General
Manager as
a minimum
Third-party
Low/none
Owned and leased
We own 10 hotels worldwide
(less than one per cent of
our portfolio)
IHG
IHG
IHG
IHG
High
Fee % of
rooms
revenue
Fee % of total
revenue plus
% of profit
All revenues
and profits
As can be seen in the diagrams above and below, our business model
is focussed on franchising and managing hotels, rather than owning
them, enabling us to grow at an accelerated pace with limited capital
investment. This allows IHG to focus on building strong, preferred
Brands based on relevant consumer needs, leaving asset management
and real estate to our local third party owners with the necessary
expertise. With this asset-light approach, IHG also benefits from
the reduced volatility of fee based income streams, as compared with
the ownership of assets. It allows IHG to focus on building strong
Delivery systems such as our branded hotel websites and call
centres, creating greater returns for owners.
A key characteristic of the franchised and managed business
model is that it is highly cash generative, with a high return on
capital employed. It enables us to focus on growing our fee revenue
(Group revenue excluding owned and leased hotels, managed
leases and significant liquidated damages) and fee based margins
(operating profit as a percentage of revenue, excluding revenue and
operating profit from owned and leased hotels, managed leases and
significant liquidated damages).
Currently 86 per cent of our Group operating profit (before regional and
central overheads and exceptional items) is derived from franchised
and managed operations. In some situations, IHG supports its brands
by using its capital to build or support the funding of flagship assets in
high-demand locations in order to drive growth. We plan to recycle
capital by selling these assets when the time is right and to reinvest
elsewhere in the business and across our portfolio.
On 6 November 2012, we announced that the InterContinental London
Park Lane would be the next hotel considered for sale and that
discussions regarding the disposal of the InterContinental New York
Barclay were progressing and would be opened to a wider group of
prospective buyers.
We continue to invest for growth, strengthening both our existing
brands and launching new ones.
IHG global hotel count by ownership type
at 31 December 2012
IHG continuing operating profit* by ownership type
for the year ended 31 December 2012
(cid:31) Franchised
(cid:31) Managed
(cid:31) Owned and leased
3,934 hotels
658 hotels
10 hotels
(cid:31) Franchised
(cid:31) Managed
(cid:31) Owned and leased
61%
25%
14%
*Before regional and central overheads and exceptional items
How we win
Winning with a portfolio of preferred Brands
We aim to build a portfolio of brands that are bigger, better, and stronger:
• Bigger means we have prioritised our growth strategy to
build brand scale and leverage this scale through greater
operational efficiency.
• Better means a focus on continuous improvement in how we
develop and deliver our brands to ensure guest needs are met
with a consistent, high-quality experience.
• Stronger means a focus on driving brand preference among
guests, owners, investors and employees.
As part of our commitment to deliver against our brand strategy,
in 2012, IHG launched two unique new brands to the market, which
complement our overall portfolio of brands.
12
IHG Annual Report and Financial Statements 2012
As of 31 December 2012, IHG’s portfolio comprised the following brands:
Our new brands
EVEN Hotels was launched in February 2012 following extensive
customer research in order to create a brand that meets travellers’
holistic wellness needs. EVEN Hotels is aimed at business and leisure
travellers who are looking for a wellness experience in a hotel stay
at a mainstream price point. IHG is investing up to $150 million in
establishing the brand, owning and managing the first hotels to ensure
the brand achieves its potential and market share growth in the US.
During 2012, IHG signed the first EVEN hotel located in the heart of
midtown Manhattan, New York.
HUALUXE Hotels & Resorts was officially launched in March 2012
and is the first international upscale hotel brand designed specifically
for Chinese guests, to take advantage of both the supply and demand
side opportunities we see in China. The brand is tailored to address
the specific needs of domestic Chinese guests focussing on the
unique aspects of Chinese etiquette, the importance of rejuvenation,
status recognition and local customs and heritage. It will enable us
to expand in China’s key gateway cities but will also drive growth in
its secondary cities where a specifically Chinese offer is appealing.
The brand could open in key global gateway cities in the future as
outbound travellers from China are forecasted to reach 100 million in
the next 10-15 years. During 2012, we signed 15 hotels for the brand.
Our established brands
InterContinental Hotels & Resorts is IHG’s luxury brand located in
key cities and resort destinations across more than 60 countries
worldwide. The brand’s ethos is to empower guests to share their
knowledge to enjoy great experiences that enrich their lives. Hotels
under this brand tend to be managed by IHG. In 2012, we opened six
more properties around the world, including the InterContinental
London-Westminster in the UK, the InterContinental Sanctuary Cove
Resort, IHG’s first InterContinental Resort in Australia, and two new
resorts in Asia – InterContinental Samui Baan Taling Ngam Resort
in Thailand and InterContinental Danang Sun Peninsula Resort in
Vietnam. We also signed 10 hotels in 2012.
Crowne Plaza Hotels & Resorts is IHG’s upscale brand and is
currently the fourth largest full-service hotel brand in the upper
segments with nearly 400 hotels and resorts in 66 countries. The
brand continues to appeal to business travellers, providing facilities
and services that cater to these types of travellers. We continue to
progress the three-phase, multi-year Crowne Plaza repositioning
programme. As part of IHG’s commitment to strengthen the brand,
quality audits have been carried out at almost all Crowne Plaza
hotels in The Americas and Europe and we have been actively
managing the estate in order to drive brand consistency. Crowne
Plaza also saw significant growth in 2012, particularly in China with
eight new hotel openings making it the largest international upscale
brand in China.
Hotel Indigo is our boutique brand, and the world’s first global boutique
hotel brand focussed on guests who appreciate art and design and who
want to experience something different. Hotel Indigo provides guests
with the refreshing design and service experience synonymous with a
boutique hotel, aligned with the local neighbourhood story. During 2012,
we opened 13 Hotel Indigo properties, six in The Americas, two in
Greater China and five in Europe, expanding the brand’s footprint.
In 2012, the brand also reached its 50th hotel milestone with the
openings of Hotel Indigo London Kensington-Earl’s Court in the UK
and Hotel Indigo New Orleans Garden District in the US.
The Holiday Inn brand family, which comprises Holiday Inn, Holiday
Inn Club Vacations, Holiday Inn Resort and Holiday Inn Express, is
the world’s largest midscale hotel brand by number of rooms at
31 December 2012. It is the largest brand in IHG’s portfolio
predominantly operating under franchise agreements in The
Americas and Europe and management agreements elsewhere.
Holiday Inn is for the contemporary traveller looking for innovative
comfort in a relaxing hotel environment. Holiday Inn aims to provide
guests familiarity, convenience and reliability while supporting and
meeting all guest needs. As official hotel provider to the London 2012
Olympic and Paralympic Games, we opened the Holiday Inn
London-Stratford City. In 2012, the brand celebrated its 60th
anniversary and we opened our largest Holiday Inn to date – the
stunning Holiday Inn Macao Cotai Central in China with 1,224 rooms.
Holiday Inn Club Vacations, our timeshare business in North
America, provides guests with all the benefits of a vacation home
with none of the hassle. It expanded its portfolio in 2012 with the
opening of three new resorts, including a new 658-room resort in
Las Vegas, Nevada.
Holiday Inn Resort is our Holiday Inn resort proposition with 37
properties currently in the portfolio, for guests who work hard but
also want to lead a balanced life. Seven new resorts opened in 2012,
including the Holiday Inn Resort Changbaishan in China.
Holiday Inn Express is a brand for the traveller looking for efficiency.
The brand offers a straightforward, uncomplicated guest experience
providing the things a guest needs, and is delivered in a way that is
stimulating and engaging. As one of the world’s fastest growing hotel
brands, it is geared to the smart business or private traveller who
appreciates value without compromising on comfort and style. IHG
continued to grow the brand in all regions with 114 new openings in
2012, including hotels in Thailand and India.
Staybridge Suites is IHG’s upscale extended stay brand for guests
on longer trips, offering studios and suites complete with full
kitchens and separate sleeping and work areas in a sociable,
family-like atmosphere. During 2012, Staybridge Suites opened 11
hotels, including the prominent Staybridge Suites London-Stratford
City as part of IHG’s London 2012 Olympic and Paralympic Games
legacy, taking the total number of Staybridge Suites hotels to 189.
In 2012, 17 Staybridge Suites hotels under IHG’s management
were renovated as part of a renovation programme with the owner,
Hospitality Properties Trust. Hotels under this brand tend to be
under franchised and management contracts.
Candlewood Suites is IHG’s midscale extended stay brand in North
America and is primarily franchised by IHG. Candlewood Suites aims
to provide guests with a home-like stay at great value. A trust system
has always prevailed for this brand – the ‘Candlewood Cupboard’
which is a convenient place for our guests to stock up on essentials
and treats on an honour system and our newly launched ‘Lending
Locker’, which enables guests to borrow kitchen apparatuses, such
as coffee grinders. During 2012, 59 Candlewood Suites hotels under
management by IHG were renovated with the owner, Hospitality
Properties Trust, as part of our commitment to deliver a great brand
for guests. We opened 12 hotels during 2012, taking the total number
of Candlewood Suites hotels to 299.
External recognition
We have received a number of awards for our brands and hotels
during 2012, including the following:
• InterContinental Hotels & Resorts was named 2012 World
Travel Awards’ World’s Leading Hotel Brand for the fourth
year running and World’s Leading Business Hotel Brand for
the second year running;
• InterContinental Hotels & Resorts won Best Business Hotel
Brand in the World at the 2012 Business Traveller Awards
Asia-Pacific Awards for the third year running;
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• Holiday Inn was ranked ‘Highest in Guest Satisfaction Among
Mid-Scale Full Service Hotel Chains, Two Years in a Row’ by
J.D. Power and Associates¤ (see page 141);
• Hotel Indigo Shanghai on the Bund was named Best Boutique
Hotel in Asia-Pacific at the 2012 Business Traveller Asia-Pacific
Awards; and
• Hotel Indigo San Diego Gaslamp Quarter featured as one of the
Top 25 Hotels in Southern California in the Condé Nast 2012
Readers’ Choice Awards.
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Business Review: Our strategy continued
Winning with our talented People
IHG believes that our preferred Brands are brought to life by our
talented and passionate People. Therefore to deliver on our brand
promise, we must attract, retain and develop the very best talent
in the industry to service our guests and bring our Brands to life.
IHG directly employed an average of 7,981 people worldwide in the
year ended 31 December 2012, whose costs were borne by the Group.
When the whole of IHG’s estate is taken into account (including staff
working in the franchised and managed hotels) over 350,000 people
worked globally across all IHG’s brands as at 31 December 2012.
The four pillars of our People strategy are:
• Developing a BrandHearted culture: Our brands are brought to
life by our talented and passionate People and we have focussed
on developing and improving our tools, to make it easy for our
People to deliver the brand promise. In 2012, we launched a new
brand framework focussed on transforming our brand standards
and looked at how we manage projects – all part of developing
a BrandHearted culture.
• Making IHG a great place to work: We believe in treating people
as individuals and celebrating achievements. In our employer
brand, we call this ‘Room to be yourself’ and this commitment
is brought to life by four key promises (as explained on pages 31
and 32). IHG continues to be recognised around the globe as an
employer of choice.
• Delivering world-class People Tools to our owners: By
partnering with the hotel human resources community, we have
developed a set of award-winning People Tools that not only help
increase employee retention and guest satisfaction but also drive
efficiencies and increase revenue for our owners.
• Building a strong leadership team: To grow our business
sustainably and responsibly, we need a strong BrandHearted
leadership team. Therefore, we have created a Leadership
Framework, which clearly defines what great leadership looks
like to help develop our leaders of tomorrow.
Being the first hotel company to be trusted to run the London 2012
Olympic and Paralympic Village was a groundbreaking opportunity
for IHG, giving our People the opportunity to benefit from new skills
and experiences.
See pages 30 to 33 for more information.
Winning with our best-in-class Delivery
During 2012, IHG remained focussed on driving guests (room nights)
to its hotels and its portfolio of brands. IHG leverages its size and
scale to drive demand to its hotels, executing a multi-channel
strategy that enables guests to search and book in the most
appropriate mode for them, either over the phone, by computer or
via an application on a mobile device. We maximise the demand we
deliver through these channels through advanced techniques that
manage revenue per booking, drive customer loyalty and maximise
owner returns.
Our channels and loyalty programme, Priority Club Rewards, are the
engine of our business, and in 2012 delivered on average 69 per cent
of total rooms revenue direct to hotel.
Our channels
As part of our multi-channel strategy, we aim to drive revenue and
bookings using our direct channels. During 2012, hotel revenue
generated through our websites increased to $3.4 billion whilst our
global call centres answered more than 23 million inbound contacts
and drove more than $1.9 billion in revenue for our hotels.
Mobile communications are also having profound effects on the hotel
industry and IHG has been quick to adapt to these new channels with
significant growth in revenue generated through our branded mobile
applications, across all major platforms, rising from $2.4 million in
2009 to more than $330 million in 2012.
We are also a founding member of roomkey.com, which was
launched in 2012 as the first industry-owned hotel metasearch
engine, providing another innovative channel to drive guest nights
to our brands.
Social media has also changed the way in which we communicate
with guests and with our stakeholders in general. Our new Guest
Ratings and Review tool launched on our websites in 2012 enables
guests to share their thoughts about their hotel experiences so
that other future guests can take this into account during the
booking process.
Priority Club Rewards
Priority Club Rewards was the hotel industry’s first loyalty
programme and is the largest of its kind in the world with 71.4 million
members at the end of 2012, an increase of 13 per cent during the
year. In 2012, it won Premier Traveler magazine’s inaugural award for
Best Hotel Loyalty Program and Global Traveler magazine’s award
for Best Hotel Rewards Program for the eighth consecutive year.
We also leverage sales and marketing expertise in order to support
our multi-channel strategy. The System Fund is a $1.2 billion fund of
cash assessments and contributions, collected by IHG from hotels
within the IHG System, and proceeds from the sale of Priority Club
Rewards points. The System Fund is managed by IHG for the benefit
of hotels in the IHG System with the objective of driving revenues for
the hotels. It is therefore used to pay for marketing, the Priority Club
Rewards loyalty programme and the global reservation system.
As a result of the power of our revenue delivery systems, IHG has
built strong relationships with its owners. These relationships are
founded on the ability to deliver high returns to owners using
premium revenue generating products. IHG meets with the IHG
Owners Association on a regular basis to facilitate the continued
development of IHG’s brands and systems. A message from the
IHG Owners Association can be found on page 7.
14
IHG Annual Report and Financial Statements 2012
Scale
4,602 hotels
157 million room nights
annually
Brand portfolio
Nine preferred
hotel brands
Priority Club Rewards
71.4 million members,
contributing over $7.2 billion to
global system rooms revenue
Web/Mobile
13 language sites
six language apps
Revenue Management
World-class
systems
69%
room revenue delivery
Reservations systems
10 call centres
12 languages
Market coverage
In nearly 100 countries
and territories
Sales force
17,600 sales professionals
2,020 accounts
Food and beverage
Over $4.7 billion of food
and beverage revenue and
over 4,500 outlets worldwide
System Fund
Annual fund totalling $1.2 billion
to maintain marketing and
systems that generate demand
for our hotels
Winning with our Responsible Business practices
With over 4,600 hotels in nearly 100 countries and territories around
the world, our commitment to being a Responsible Business is
central to our Vision of becoming one of the great companies in the
world. Our People understand how important it is to champion and
protect the trusted reputation of IHG and its brands and this is
embedded in our culture. We believe that being a Responsible
Business is necessary to enable us to stay ahead of the competition
and grow, creating value for all of our shareholders and stakeholders
in the long term. Amongst other things, it offers us a huge opportunity
to innovate, create employment, empower people to perform at their
best and feel good about what they do, and drive value for our business.
That’s why, for us, Responsible Business underpins each of our three
strategic corporate priorities of preferred Brands, talented People
and best-in-class Delivery, which work together to determine How
We Win to create Great Hotels Guests Love.
Governance and leadership
Our Chairman and the Board and its Committees provide a strong
leadership and promote a responsible business culture, by
maintaining high standards in corporate governance, corporate
responsibility and internal controls and risk management. Information
on our Board and governance processes can be found on pages
45 to 80.
Brands
Trusted brands deliver a superior and consistent brand experience
and to achieve this, we require a clear brand framework. Brand
standards are the foundations of a clear brand framework for all our
hotels and our compliance teams ensure that our hotels deliver in
accordance with these. Our brand safety standards assist hotels
in providing a safe and secure environment for our guests and
employees. Our Corporate Responsibility programmes have also
been designed so that they can be implemented throughout our
hotel brands and corporate offices in any region. Information on
our approach to Corporate Responsibility can be found on pages
34 to 37.
People
At the core of being a Responsible Business is ensuring that the
actions of all of our employees working at our corporate offices and
hotels maintain our trusted reputation. Operating an ethical business
is vital to maintaining and protecting this trusted reputation and
therefore we continually keep under review our internal policies
and training to promote understanding, awareness, accountability
and transparency.
Delivery
Having in place an effective system of internal controls and risk
management is essential to being a Responsible Business. Our tools,
processes and procedures ensure a business based on a solid
foundation with a commitment to doing the right thing for the benefit
of all our stakeholders. Information on our risk management
processes can be found on pages 38 to 44.
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Our strategy
15
Business Review
Measuring our success
We have a holistic set of carefully selected key performance
indicators (KPIs) to monitor our success in achieving our strategy.
These are organised around the elements of our strategy:
• ‘Where we compete’, focussing on relevant consumer segments,
the most attractive markets and the appropriate business
model; and
• ‘How we win’, focussing on our corporate priorities of preferred
Brands, talented People, best-in-class Delivery and
Responsible Business.
In particular, we use the following measures to monitor our
performance:
• fee revenue and fee based margins;
• global RevPAR;
• system contribution – the proportion of business delivered to our
hotels by our dedicated IHG booking channels;
• employee engagement; and
• Responsible Business practices.
These KPIs are used to measure the progress of our Group to deliver
Great Hotels Guests Love and achieve our Vision of becoming one of
the great companies in the world.
Our performance against our KPIs over the 2010-2012 period is summarised below:
Where we compete
strategic priorities
KPIs
Current status and
2012 development
2013 priorities
• Accelerate growth strategies in
quality locations in agreed scale
markets; and
• continue to leverage scale.
Most attractive markets and
appropriate business model
To accelerate profitable growth
of our core business in our
most attractive markets where
presence and scale really count
using the right business model
to drive our fee revenue and
income streams.
647,161
658,348
675,982
• System size grown to 675,982
rooms;
• 4,602 hotels open globally;
• built scale of Hotel Indigo brand
to 50 hotels globally; and
• fee based margins of 42.6%, up
two percentage points on 2011,
a particularly strong result.
2010
2011
2012
Net rooms supply
6.8%
5.7%
otN
Not
Not
available
a
ail
ble
avaia
lab
le
2010
2011
2012
Growth in fee revenue1
40.6%2
42.6%
35.7%
2010
2011
2012
Fee based margins
How we win – Delivering Great Hotels Guests Love
strategic priorities
KPIs
Preferred Brands
Operate a portfolio of preferred,
locally-relevant brands
attractive to both owners and
guests that have clear market
positions and differentiation in
the eyes of the guest.
6.2%
6.2%
5.2%
2011
2010
2012
Global RevPAR growth/(decline)
Comparable hotels, constant $
Current status and
2012 development
2013 priorities
• Clarified the brand propositions
for Holiday Inn and Holiday Inn
Express and celebrated the
Holiday Inn 60th anniversary;
• continued the repositioning
of Crowne Plaza;
• achieved two new brand launches
in two geographies; and
• achieved strong brand successes
in Greater China, particularly
through the growth of HUALUXE
Hotels & Resorts with 15 signings
for the brand and improved the
strength of Crowne Plaza through
brand preference and awareness.
• Invest to build long-term brand
preference for the Holiday Inn
brand family;
• continue the repositioning of
the Crowne Plaza brand;
• support growth of our new
brands: EVEN Hotels in the US
and HUALUXE Hotels & Resorts
in Greater China; and
• continue to deliver a consistent
brand experience and increased
guest satisfaction through our
needs-based segmentation
analysis.
1 At constant currency.
2 One percentage point growth on an underlying basis.
16
IHG Annual Report and Financial Statements 2012
How we win – Delivering Great Hotels Guests Love
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Current status and
2012 development
78.6%
• New brand management
74.5%
75.8%
strategic priorities
KPIs
Talented People
Create hotels that are well run,
with brands brought to life by
people who are proud of the
work they do.
2010
2011
2012
Employee engagement scores
Average of two employee
engagement surveys per year
2013 priorities
• Empower our frontline teams
with the tools and training to
consistently deliver great guest
experiences that build brand
preference, advocacy and
repeat business;
• continue to strengthen our
talent pipeline and succession
planning to meet our growth
ambitions;
• instil a winning culture through
strong leadership and
performance management; and
• build on our strong employer
brand to make IHG a magnet
for talent.
training launched for General
Managers;
• all of our corporate offices
and more than 4,000 IHG
hotels participated in Celebrate
Service week, our global
employee recognition event;
• created a new Mandarin
recruitment site and launched
career pages on social
networking platforms in China
to continue our aim to be
employer of choice; and
• industry-leading suite of People
Tools now embedded in our
franchised and managed
hotel estate.
Best-in-class Delivery
Generate higher returns for
owners and IHG through
increased revenue share,
improved operating efficiency
and growing margins.
18.7
20.2
21.2
2010
2011
Total gross revenue
Actual $bn
2012
67%
68%
69%
• Launched strategic industry
partnership in roomkey.com;
• 71.4 million Priority Club
Rewards members – 8.4 million
new members enrolled in 2012,
up 13 per cent on 2011; and
• global IHG sales force with
17,600 sales professionals.
• Continue to strengthen IHG’s
system of delivering profitable
demand to hotels;
• put in place the required
technology infrastructure
to enable growth; and
• continue to increase business
from our loyalty programme,
Priority Club Rewards.
2011
2010
2012
System contribution to revenue*
Per cent of rooms revenue
delivered through IHG’s channels
and Priority Club Rewards
programme direct to hotel
Responsible Business
Take a proactive stance and
seek creative solutions on
environmental sustainability and
sustainable communities in a
way that drives shared value
for IHG, owners, guests and
the communities in which we
operate.
2,219
1,772
1,122
2010
2011
Hotels signed-up to Green Engage
Hotels, cumulative
2012
6,377
5,608
4,800
20102010
2011
2011
2012
2012
Participants benefiting from
the IHG Academy
• 2,219 of our hotels enrolled in
Green Engage by end of 2012;
• 11.7 per cent energy savings in
our owned and managed estate
by end of 2012 (on a per available
room night basis);
• industry standard for measuring
carbon was launched in 2012
and included in Green Engage
via our new carbon calculator;
• over 150 IHG Academy
programmes by the end of
2012; and
• fan base of the ‘IHG Planet CR’
Facebook page expanded to over
20,000 by the end of 2012.
• Work to ensure all our hotels
that are enrolled in Green
Engage effectively use the tool
for greatest impact;
• continue to drive awareness and
engagement around the IHG
Shelter in a Storm Programme;
• continue to expand the IHG
Academy programme
throughout the world; and
• focus on driving awareness of
IHG’s approach to corporate
responsibility across internal
and external stakeholder
groups using a variety of
channels, to maximise
employee pride, and reinforce
IHG’s reputation as a
Responsible Business.
* All historical numbers are stated on a comparable basis.
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Measuring our success
17
Business Review
Performance
Group performance
Group results
12 months ended 31 December
2012
$m
2011
$m
%
change
Revenue increased by 3.8% to $1,835m and operating profit before
exceptional items increased by 9.8% to $614m during the 12 months
ended 31 December 2012.
Revenue
Americas
Europe
AMEA
Greater China
Central
Operating profit
Americas
Europe
AMEA
Greater China
Central
Operating profit before
exceptional items
Exceptional operating items
Net financial expenses
Profit before tax
Earnings per ordinary share
Basic
Adjusted
Average US dollar to sterling
exchange rate
837
436
218
230
114
1,835
486
115
88
81
(156)
614
(4)
610
(54)
556
830
405
216
205
112
1,768
451
104
84
67
(147)
559
35
594
(62)
532
0.8
7.7
0.9
12.2
1.8
3.8
7.8
10.6
4.8
20.9
(6.1)
9.8
(111.4)
2.7
12.9
4.5
189.5¢
141.5¢
159.2¢
130.4¢
19.0
8.5
$1:£0.63
$1:£0.62
1.6
Total gross revenue
InterContinental
Crowne Plaza
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
Other
Total
2012
$bn
4.5
4.0
6.3
4.8
0.6
0.5
0.2
0.3
21.2
2011
$bn
%
change
4.4
3.9
6.0
4.4
0.6
0.5
0.1
0.3
20.2
2.3
2.6
5.0
9.1
–
–
100.0
–
5.0
18
IHG Annual Report and Financial Statements 2012
Fee revenue, being Group revenue excluding revenue from owned
and leased hotels, significant liquidated damages received
in 2012 and 2011 and properties that are structured for legal
reasons as operating leases, but with the same characteristics
as management contracts, increased by 6.8% when translated
at constant currency and applying 2011 exchange rates.
The 2012 results reflect continued RevPAR growth in each of the
regions, with an overall RevPAR increase of 5.2%, including a 3.2%
increase in average daily rate. The results also benefited from
System size growth of 2.7% year-on-year to 675,982 rooms. Group
RevPAR growth remained robust for the year, reflecting favourable
supply and demand dynamics in the US over 2012, although trading
was also affected by the impact of Eurozone uncertainty as well as
industry-wide challenges in Greater China in the latter part of the
year related to the political leadership change.
Operating profit improved in each of the regions. RevPAR growth
of 6.1% in The Americas helped drive an operating profit increase of
$42m (9.5%), after excluding the benefit of a $3m liquidated damages
receipt in 2012 and a $10m liquidated damages receipt in 2011.
Operating profit in Europe increased by $11m (10.6%), with RevPAR
growth of 1.7%. Operating profit in AMEA increased by $13m (17.3%)
after adjusting for a $6m liquidated damages receipt in 2011 and the
disposal of a hotel asset and partnership interest that contributed
$3m in profits in 2011, reflecting RevPAR growth of 4.9%. Strong
operating profit growth of $14m in Greater China reflected an 11.6%
increase in System size as well as 5.4% RevPAR growth.
At constant currency, central overheads increased from $147m to
$158m in 2012 ($156m at actual currency), reflecting investment in
infrastructure and capabilities to support the growth of the business.
Operating profit margin was 42.6%, up 2.0 percentage points on 2011,
after adjusting for owned and leased hotels. The Americas and
Europe managed leases and significant liquidated damages received
in 2012 and 2011.
Profit before tax increased by $24m to $556m. Adjusted earnings per
ordinary share increased by 8.5% to 141.5¢.
One measure of IHG 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 5.0% from $20.2bn in 2011 to
$21.2bn in 2012, including a 5.0% increase in Holiday Inn and a 9.1%
increase in Holiday Inn Express.
Global hotel and room count
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Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
During 2012, the IHG global System (the number of hotels and rooms
which are franchised, managed, owned or leased by the Group)
increased by 122 hotels (17,634 rooms).
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
Other
170
392
1,247
2,192
189
299
50
63
4,602
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
3,934
658
10
4,602
Openings of 226 hotels (33,922 rooms) were driven by continued
expansion in the US, particularly within the Holiday Inn brand family
which opened more than 11,000 rooms during 2012, and Greater
China. The level of hotel removals fell from 198 hotels (33,078 rooms)
in 2011 to 104 hotels (16,288 rooms) in 2012, as anticipated following
the completion of the Holiday Inn relaunch.
1
5
7
78
10
14
11
(4)
122
102
21
(1)
122
57,314
108,307
231,488
205,631
20,696
28,675
5,661
18,210
675,982
500,792
170,998
4,192
675,982
(284)
3,203
3,232
8,965
1,129
1,175
1,097
(883)
17,634
11,721
6,005
(92)
17,634
* Includes 10 Holiday Inn Club Vacations (3,701 rooms) and 37 Holiday Inn Resort
properties (8,806 rooms) (2011: 7 Holiday Inn Club Vacations (2,928 rooms) and
32 Holiday Inn Resort properties (7,809 rooms)).
Global pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
EVEN
HUALUXE
Other
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
48
98
243
452
71
78
47
1
15
–
1,053
(3)
(10)
(24)
(18)
(24)
(16)
(12)
1
15
–
(91)
15,713
31,183
44,988
51,760
7,544
6,742
5,869
230
4,904
97
169,030
(1,910)
(3,460)
(5,762)
(441)
(2,482)
(1,320)
(1,310)
230
4,904
97
(11,454)
(13,612)
2,158
(11,454)
Total
Analysed by ownership type
Franchised
Managed
Total
744
309
1,053
(109)
18
(91)
82,901
86,129
169,030
* Includes nil Holiday Inn Club Vacations (nil rooms) and 12 Holiday Inn Resort
properties (2,390 rooms) (2011: 1 Holiday Inn Club Vacations (658 rooms) and
15 Holiday Inn Resort properties (3,037 rooms)).
Global pipeline signings
At 31 December
Total
Hotels
Change over
2011
Rooms
Change over
2011
2012
–
53,812
(1,612)
2012
356
At the end of 2012, the pipeline totalled 1,053 hotels (169,030 rooms).
The IHG pipeline represents hotels and rooms where a contract has
been signed and the appropriate fees paid. The continued global
demand for IHG brands is demonstrated by over 50% of pipeline
rooms being outside of The Americas region, including 30% in
Greater China.
Excluding 25 hotels (4,796 rooms) signed as part of the US
government’s Privatization of Army Lodgings initiative in 2011,
signings increased from 331 hotels (50,628 rooms) to 356 hotels
(53,812 rooms). Signings during 2012 included 15 hotels for the
HUALUXE Hotels & Resorts brand, as well as the first signing for
the EVEN Hotels brand.
During 2012, the opening of 33,922 rooms contributed to a net
pipeline decline of 11,454 rooms. Active management out of the
pipeline of deals that have become dormant or no longer viable
reduced the pipeline by 31,344 rooms, representing a decrease
of 11.8% over 2011.
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Performance
19
Business Review: Performance continued
The Americas
Maximise the performance and growth of our portfolio of preferred
Brands, focussing on our core midscale and upscale segments, mostly
through franchise agreements over the next three years.
2013 priorities
• Build upon the success of the Holiday Inn relaunch by continuing to improve the guest
experience, investing to drive guest consideration and differentiation between the Holiday
Inn brand family, particularly Holiday Inn and Holiday Inn Express, improving hotel
performance and unit growth;
• execute the multi-year programme to reposition Crowne Plaza Hotels & Resorts;
• activate growth in our newest brands by successfully launching EVEn Hotels and continuing
to accelerate growth from Hotel Indigo; and
• further deploy IHG tools throughout the franchised estate, across revenue management,
brand standards, channel management, Responsible Business practices and People Tools.
Revenue and operating profit before exceptional items increased
by $7m (0.8%) to $837m and by $35m (7.8%) to $486m respectively.
RevPAR increased 6.1%, with 4.1% growth in average daily rate.
US RevPAR was up 6.3% in 2012 despite uncertainty regarding the
presidential election and the ‘fiscal cliff’ in the latter part of the year.
Franchised revenue increased by $39m (7.8%) to $541m. Royalties
growth of 8.7% was driven by RevPAR growth of 6.0%, including 6.1%
for Holiday Inn Express, together with System size growth of 2.3%.
Operating profit increased by $35m (8.1%) to $466m.
Managed revenue decreased by $27m (21.8%) to $97m and operating
profit decreased by $4m (7.7%) to $48m. Revenue and operating
profit included $34m (2011 $59m) and $nil (2011 $1m) respectively
from managed leases. Excluding properties operated under this
arrangement, as well as the benefit of a $3m liquidated damages
receipt in 2012 and a $10m liquidated damages receipt in 2011,
revenue and operating profit grew by $5m (9.1%) and $4m (9.8%)
respectively. Growth was driven by a RevPAR increase of 7.3%,
including 9.6% for Holiday Inn.
Owned and leased revenue declined by $5m (2.5%) to $199m and
operating profit grew by $7m (41.2%) to $24m. Excluding the impact
of disposals, revenue increased by $4m (2.1%) and operating profit
increased by $8m (50.0%). The increase in revenue was driven by
RevPAR growth of 6.3%, offset by the impact of the partial closure
of an owned hotel in the Caribbean. The operating profit increase
of $7m included a $1m year-on-year benefit from lower depreciation
recorded for the InterContinental New York Barclay since the hotel
was categorised as held for sale in the first quarter of 2011, after
which no depreciation was charged, and a $3m year-on-year benefit
relating to one-off reorganisation costs at one hotel in 2011.
Americas results
Revenue
Franchised
Managed
Owned and leased
Total
Franchised
Managed
Owned and leased
Operating profit before exceptional items
466
48
24
538
(52)
486
Regional overheads
Total
2012
$m
541
97
199
837
12 months ended 31 December
2011
$m
%
change
502
124
204
830
431
52
17
500
(49)
451
7.8
(21.8)
(2.5)
0.8
8.1
(7.7)
41.2
7.6
(6.1)
7.8
Americas comparable RevPAR movement on previous year
12 months ended
31 December 2012
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
All brands
5.4%
5.9%
6.1%
6.0%
10.5%
3.8%
9.6%
(1.7)%
(0.8)%
7.3%
6.3%
20
IHG Annual Report and Financial Statements 2012
Americas hotel and room count
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Rooms
Change over
2011
2012
Change over
2011
2012
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn
Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
Other
53
183
820
1,931
183
299
37
49
3,555
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
3,354
196
5
3,555
1
(5)
4
57
9
14
4
(2)
82
88
(5)
(1)
82
17,756
48,730
146,661
168,398
19,787
28,675
4,307
15,303
449,617
407,849
39,583
2,185
449,617
158
(1,272)
840
5,463
967
1,175
334
(246)
7,419
9,169
(1,639)
(111)
7,419
* Includes 10 Holiday Inn Club Vacations (3,701 rooms) and 17 Holiday Inn Resort
properties (4,240 rooms) (2011: 7 Holiday Inn Club Vacations (2,928 rooms) and
14 Holiday Inn Resort properties (3,658 rooms)).
Americas pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn
Express
Staybridge Suites
Candlewood Suites
Hotel Indigo
EVEN
Total
Analysed by ownership type
Franchised
Managed
Total
659
11
670
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
4
16
139
345
64
78
23
1
670
(1)
(6)
(19)
(27)
(22)
(16)
(15)
1
(105)
(106)
1
(105)
925
3,737
18,827
32,388
6,648
6,742
3,076
230
72,573
70,290
2,283
72,573
(415)
(1,512)
(3,224)
(1,972)
(2,247)
(1,320)
(1,417)
230
(11,877)
(11,997)
120
(11,877)
* Includes nil Holiday Inn Club Vacations (nil rooms) and 5 Holiday Inn Resort
properties (640 rooms) (2011: 1 Holiday Inn Club Vacations (658 rooms) and 6
Holiday Inn Resort properties (669 rooms)).
The Americas hotel and room count in the year increased by 82
hotels (7,419 rooms) to 3,555 hotels (449,617 rooms). Openings of
148 hotels (16,618 rooms) included 113 Holiday Inn brand family
hotels (12,566 rooms), representing more than 70% of openings for
the region. Six Hotel Indigo openings (639 rooms) helped the brand
reach the 50 property milestone globally by the end of 2012. 22 hotels
(1,927 rooms) opened as Staybridge Suites hotels and Candlewood
Suites hotels, IHG’s extended stay brands. 66 hotels (9,199 rooms)
were removed from the System in 2012, compared to 153 hotels
(24,284 rooms) in 2011.
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The Americas pipeline totalled 670 hotels (72,573 rooms) as at
31 December 2012. Signings of 226 hotels (25,536 rooms) included
173 hotels (18,866 rooms) in the Holiday Inn brand family as well
as the first signing for the EVEN Hotels brand, a flagship property
in the heart of midtown Manhattan, New York City. The pipeline
decreased by 105 hotels (11,877 rooms) compared to 2011.
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Performance
21
Business Review: Performance continued
Europe
Continue to grow in priority markets and across key cities, and
improve underlying margin through operational excellence over the
next three years.
2013 priorities
• Accelerate growth in our priority markets and in key cities across the region;
• continue to expand Hotel Indigo across the region in key gateway cities and localise the
Holiday Inn Express brand; and
• continue to deliver operational excellence to improve guest satisfaction and deliver market
outperformance by embedding our revenue tools, system delivery platforms, Responsible
Business practices and People Tools.
Revenue and operating profit before exceptional items increased
by $31m (7.7%) to $436m and by $11m (10.6%) to $115m respectively.
RevPAR increased 1.7%, with 1.2% growth in average daily rate
despite challenging economic conditions across Europe.
Franchised revenue increased by $5m (5.8%) to $91m, whilst
operating profit was flat at $65m. At constant currency, revenue
increased by $8m (9.3%) and operating profit increased by $3m
(4.6%). Growth was mainly driven by an increase in royalties of 2.7%
(7.5% at constant currency) reflecting RevPAR growth of 1.8%,
together with System size growth of 4.0%.
Managed revenue increased by $29m to $147m (24.6%) and operating
profit increased by $6m (23.1%) to $32m. Revenue and operating
profit included $80m (2011 $46m) and $2m (2011 $nil) respectively
from managed leases. Excluding properties operated under this
arrangement and on a constant currency basis, revenue decreased
by $1m (1.4%) reflecting a 4.3% decrease in System size partially
offset by RevPAR growth of 1.0%. On the same basis, operating
profit grew by $5m (19.2%).
In the owned and leased estate, revenue decreased by $3m (1.5%)
to $198m and operating profit increased by $1m (2.0%) to $50m.
At constant currency and excluding the impact of disposals,
revenue increased by $10m (5.1%) and operating profit increased
by $4m (8.3%). The InterContinental London Park Lane and the
InterContinental Paris Le Grand delivered year-on-year RevPAR
growth of 8.0% and 2.5% respectively.
Europe results
Revenue
Franchised
Managed
Owned and leased
Total
Franchised
Managed
Owned and leased
Operating profit before exceptional items
65
32
50
147
(32)
115
Regional overheads
Total
2012
$m
91
147
198
436
12 months ended 31 December
2011
$m
%
change
86
118
201
405
65
26
49
140
(36)
104
5.8
24.6
(1.5)
7.7
–
23.1
2.0
5.0
11.1
10.6
Europe comparable RevPAR movement on previous year
Franchised
All brands
Managed
All brands
Owned and leased
InterContinental
12 months ended
31 December 2012
1.8%
1.0%
5.2%
22
IHG Annual Report and Financial Statements 2012
Europe hotel and room count
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Staybridge Suites
Hotel Indigo
30
84
288
212
4
10
628
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
528
98
2
628
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
–
(2)
(2)
14
1
5
16
19
(3)
–
16
9,394
19,566
46,610
24,903
605
949
102,027
79,899
21,211
917
102,027
(270)
(159)
145
1,722
162
542
2,142
3,088
(946)
–
2,142
* Includes 3 Holiday Inn Resort properties (362 rooms) (2011: 3 Holiday Inn Resort
properties (362 rooms)).
Europe pipeline
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
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
2
12
20
43
1
13
91
83
8
91
(3)
–
(5)
–
(1)
2
(7)
1
(8)
(7)
404
2,769
4,267
6,284
168
1,292
15,184
12,186
2,998
15,184
(906)
(184)
(672)
342
(115)
37
(1,498)
187
(1,685)
(1,498)
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During 2012, Europe System size increased by 16 hotels (2,142 rooms)
to 628 hotels (102,027 rooms). Openings of 39 hotels (5,477 rooms)
included 31 hotels in the Holiday Inn brand family (4,233 rooms).
Hotel Indigo continued to build momentum in the region with five
hotel openings, doubling the System size in Europe for the brand.
23 hotels (3,335 rooms) were removed from the System in 2012.
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The Europe pipeline totalled 91 hotels (15,184 rooms) as at
31 December 2012. Signings of 48 hotels (7,023 rooms) increased
from 2011 levels and included 35 hotels (5,489 rooms) in the Holiday
Inn brand family, including the first two Holiday Inn Express hotels in
Russia. Seven Hotel Indigo hotels (572 rooms) were signed, including
three more hotels in the UK and firsts for the brand in France, Spain
and Israel. 16 hotels (3,044 rooms) were removed from the pipeline
in 2012. The pipeline decreased by seven hotels (1,498 rooms)
compared to 2011.
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23
Business Review: Performance continued
Asia Middle East and Africa (AMEA)
Execute our strategic plans to strengthen our Brands and increase our
revenue share through operational excellence and outperformance
over the next three years.
2013 priorities
• Grow distribution of our core brands across the region, building upon the leadership
position of Holiday Inn;
• build preferred Brands and strengthen our position in key strategic markets; and
• deliver operational excellence and outperformance at our hotels by embedding revenue
driving tools and, where appropriate, localising brands, channels, Responsible Business
practices and People Tools.
Revenue and operating profit before exceptional items increased
by $2m (0.9%) to $218m and by $4m (4.8%) to $88m respectively.
RevPAR increased 4.9%, with 1.2% growth in average daily rate,
with robust trading in Southeast Asia and Japan, partly offset by
continuing uncertainty impacting some markets in the Middle East.
On both a constant and actual currency basis, franchised revenue
decreased by $1m (5.3%) to $18m and operating profit was flat
at $12m.
Managed revenue and operating profit increased by $1m (0.7%) to
$152m and by $3m (3.4%) to $90m respectively. At constant currency,
excluding the benefit of a $6m liquidated damages receipt in 2011
and after adjusting for the disposal of a hotel asset and partnership
interest in Australia, which contributed $3m to operating profit in
2011, revenue and operating profit increased by $7m (4.8%) and
$11m (14.1%) respectively. RevPAR growth was 4.6% and although
year-end System size was 7.1% higher than at the end of 2011, due to
the phasing of openings towards the end of the year, rooms available
during the year grew by only 2.2%. Operating profit in 2012 benefited
from a $1m increase in profit from an associate and $2m lower
year-on-year bad debt expense.
In the owned and leased estate, revenue and operating profit
increased by $2m (4.3%) to $48m and by $1m (20.0%) to
$6m respectively.
AMEA results
Revenue
Franchised
Managed
Owned and leased
Total
Franchised
Managed
Owned and leased
Operating profit before exceptional items
12
90
6
108
(20)
88
Regional overheads
Total
2012
$m
18
152
48
218
12 months ended 31 December
2011
$m
%
change
19
151
46
216
12
87
5
104
(20)
84
(5.3)
0.7
4.3
0.9
–
3.4
20.0
3.8
–
4.8
AMEA comparable RevPAR movement on previous year
Franchised
All brands
Managed
All brands
12 months ended
31 December 2012
7.2%
4.6%
24
IHG Annual Report and Financial Statements 2012
AMEA hotel and room count
O
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V
I
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W
* Includes 14 Holiday Inn Resort properties (3,311 rooms) (2011: 13 Holiday Inn Resort
properties (3,121 rooms)).
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
48
182
2
232
AMEA pipeline
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
2
130
132
65
65
75
12
2
13
232
20
18
47
35
6
6
132
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
1
4
(2)
4
–
(3)
4
(6)
10
–
4
20,791
18,559
17,440
2,877
304
2,766
62,737
10,860
51,290
587
62,737
366
1,638
(592)
1,020
–
(778)
1,654
(1,757)
3,400
11
1,654
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
1
(3)
4
8
(1)
1
10
(2)
12
10
5,366
5,345
10,895
7,091
728
932
30,357
425
29,932
30,357
272
(1,384)
515
1,410
(120)
80
773
(427)
1,200
773
* Includes 4 Holiday Inn Resort properties (900 rooms) (2011: 4 Holiday Inn Resort
properties (900 rooms)).
The AMEA hotel and room count in the year increased by four hotels
(1,654 rooms) to 232 hotels (62,737 rooms). The level of openings
increased from 10 hotels (2,907 rooms) in 2011 to 16 hotels
(4,243 rooms) in 2012. These included four hotels for the
InterContinental brand, including the 197-room InterContinental
Danang Sun Peninsula Resort in Vietnam, as well as the first Holiday
Inn Express hotels in Bahrain, India and Thailand. Six Crowne Plaza
hotels (1,777 rooms) were opened in 2012, including resort locations
in Thailand and Jordan. 12 hotels (2,589 rooms) were removed from
the System in 2012.
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The AMEA pipeline totalled 132 hotels (30,357 rooms) as at
31 December 2012. Signings of 36 hotels (7,866 rooms) included
24 hotels (4,657 rooms) in the Holiday Inn brand family. In addition,
six InterContinental hotels (1,728 rooms) were signed, including
resort locations in Thailand and Australia. 10 hotels (2,850 rooms)
were removed from the pipeline in 2012, compared to 32 hotels
(8,243 rooms) in 2011. The pipeline increased by 10 hotels
(773 rooms) compared to 2011.
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Performance
25
Business Review: Performance continued
Greater China
Maximise scale and strength and establish multi-segment local
operating expertise to drive margin and expand our strong portfolio
of Brands over the next three years.
2013 priorities
• Grow distribution and expand our portfolio of Brands with a particular focus on Crowne Plaza
Hotels & Resorts and HuALuXE Hotels & Resorts;
• build upon the success of the Holiday Inn relaunch to continue to grow the Holiday Inn
brand family;
• extend IHG’s leading presence in the market with strategic distribution of brands in
established and emerging cities in Greater China; and
• localise IHG channels, systems, processes, brands, Responsible Business practices
and People Tools to increase efficiency and margin performance.
Revenue and operating profit before exceptional items increased by
$25m (12.2%) to $230m and by $14m (20.9%) to $81m respectively.
RevPAR increased 5.4% with 3.1% growth in average daily rate.
Franchised revenue increased by $1m (50.0%) to $3m and operating
profit by $1m (33.3%) to $4m, boosted by the opening of the
1,224-room Holiday Inn Macao Cotai Central.
Managed revenue increased by $12m (15.6%) to $89m and operating
profit increased by $8m (18.6%) to $51m. RevPAR growth of 5.6%
reflected continued economic growth in the region, although the
whole industry was affected in the latter part of the year by the once
in a decade political leadership change and the Diaoyu/Senkaku
islands territorial dispute. There was also continued significant
System size growth for the managed estate in the region (9.7% rooms
growth in 2012 following 14.2% rooms growth in 2011).
Owned and leased revenue increased by $12m (9.5%) to $138m and
operating profit increased by $8m (21.6%) to $45m, with RevPAR
growth of 6.7% at the InterContinental Hong Kong.
Regional costs increased by $3m (18.8%) to $19m reflecting
increased investment in operations and infrastructure in the region.
Greater China results
12 months ended 31 December
Revenue
Franchised
Managed
Owned and leased
Total
2012
$m
3
89
138
230
Franchised
Managed
Owned and leased
Operating profit before exceptional items
4
51
45
100
(19)
81
Regional overheads
Total
2011
$m
%
change
2
77
126
205
3
43
37
83
(16)
67
50.0
15.6
9.5
12.2
33.3
18.6
21.6
20.5
(18.8)
20.9
Greater China comparable RevPAR movement on previous year
Managed
All brands
Owned and leased
InterContinental
12 months ended
31 December 2012
5.6%
6.7%
26
IHG Annual Report and Financial Statements 2012
Greater China hotel and room count
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
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
4
182
1
187
Greater China pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn*
Holiday Inn Express
Hotel Indigo
HUALUXE
Other
Total
Analysed by ownership type
Franchised
Managed
Total
–
160
160
22
60
64
37
3
1
187
22
52
37
29
5
15
–
160
(1)
8
7
3
2
1
20
1
19
–
20
9,373
21,452
20,777
9,453
405
141
61,601
2,184
58,914
503
61,601
(538)
2,996
2,839
760
221
141
6,419
1,221
5,190
8
6,419
–
(1)
(4)
1
–
15
–
11
(2)
13
11
9,018
19,332
10,999
5,997
569
4,904
97
50,916
–
50,916
50,916
(861)
(380)
(2,381)
(221)
(10)
4,904
97
1,148
(1,375)
2,523
1,148
* Includes 3 Holiday Inn Resort properties (893 rooms) (2011: 2 Holiday Inn Resort
properties (668 rooms)).
Hotels
Rooms
Change over
2011
2012
Change over
2011
2012
* Includes 3 Holiday Inn Resort properties (850 rooms) (2011: 5 Holiday Inn Resort
properties (1,468 rooms)).
O
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I
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W
The Greater China hotel and room count in the year increased by
20 hotels (6,419 rooms) to 187 hotels (61,601 rooms). Openings of
23 hotels (7,584 rooms) included the Holiday Inn Macao Cotai
Central (1,224 rooms), the largest Holiday Inn in the world. Eight
Crowne Plaza hotels (2,996 rooms) and two Hotel Indigo hotels
(224 rooms) were opened in 2012.
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The Greater China pipeline totalled 160 hotels (50,916 rooms) as
at 31 December 2012. Signings of 46 hotels (13,387 rooms) increased
from 38 hotels (12,112 rooms) in 2011 and included 15 hotels for the
newly launched HUALUXE Hotels & Resorts brand, together with
12 Crowne Plaza hotels (4,527 rooms). 12 hotels (4,655 rooms)
were removed from the pipeline in 2012. The pipeline increased
by 11 hotels (1,148 rooms) compared to 2011.
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27
Business Review: Performance continued
Central
Central results
Revenue
Gross central costs
Net central costs
12 months ended 31 December
2012
$m
114
(270)
(156)
2011
$m
112
(259)
(147)
%
change
1.8
(4.2)
(6.1)
Net central costs increased by $9m (6.1%) from $147m in 2011 to
$156m in 2012. At constant currency, net central costs increased
by $11m (7.5%). The movement was driven by investment in
infrastructure and capabilities to support the growth of the business.
Central revenue mainly comprised technology fee income.
System Fund
System Fund results
Assessment fees and
contributions received
from hotels
Proceeds from sale of
Priority Club Rewards points
12 months ended 31 December
2012
$m
2011
$m
%
change
1,106
1,025
144
1,250
128
1,153
7.9
12.5
8.4
In the year to 31 December 2012, System Fund (the Fund) income
increased by 8.4% to $1,250m primarily as a result of growth in hotel
room revenues. The increase in proceeds from the sale of Priority
Club Rewards points mainly reflects the strong performance of
co-brand credit card schemes.
In addition to management or franchise fees, hotels within the IHG
System pay assessments and contributions which are collected by
IHG for specific use within 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.
28
IHG Annual Report and Financial Statements 2012
Other financial information
Exceptional operating items
Exceptional operating items totalled a net loss of $4m. Exceptional
gains included a $23m impairment reversal and the release of a $9m
liability no longer required relating to the 2003 demerger of the Group
from Six Continents PLC. Exceptional charges included $16m from
the reorganisation of the Group’s support functions together with a
restructuring in the AMEA region, $2m loss on disposal of an interest
in a hotel and $18m write-off of software.
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.
Net financial expenses
Net financial expenses decreased by $8m to $54m primarily due to
lower average debt levels.
Financing costs included $2m (2011 $1m) 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 2012 also included $19m (2011
$18m) in respect of the InterContinental Boston finance lease.
Taxation
The effective rate of tax on operating profit excluding the impact of
exceptional items, was 27% (2011 24%). Excluding the impact of prior
year items, the equivalent tax rate would be 30% (2011 36%). This rate
is higher than the average UK statutory rate of 24.5% 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 credit of $142m
(2011 $48m). This represented, primarily, the recognition of $104m
of deferred tax assets whose value has become more certain as
a result of a change in law and the resolution of prior period tax
matters, together with the associated release of $37m of provisions.
In 2011 the credit mainly related to a revision of the estimated tax
impacts of an internal reorganisation completed in 2010.
Net tax paid in 2012 totalled $122m (2011 $90m) including $3m paid
(2011 $1m) in respect of disposals. Tax paid represents an effective
rate of 22% (2011 17%) on total profits and is lower than the effective
income statement tax rate of 27% primarily due to the impact of
deferred taxes (including the realisation of assets such as tax losses),
the receipt of refunds in respect of prior years and provisions for
tax for which no payment of tax has currently been made.
IHG pursues a tax strategy that is consistent with its business
strategy and its overall business conduct principles. This strategy
seeks to ensure full compliance with all tax filing, payment and
reporting obligations on the basis of communicative and transparent
relationships with tax authorities. Policies and procedures related
to tax risk management are subject to regular review and update,
and are approved by the Board.
Tax liabilities or refunds may differ from those anticipated,
in particular as a result of changes in tax law, changes in the
interpretation of tax law, or clarification of uncertainties in the
application of tax law. Procedures to minimise risk include the
preparation of thorough tax risk assessments for all transactions
carrying tax risk and, where appropriate, material tax uncertainties
are discussed and resolved with tax authorities in advance.
IHG’s contribution to the jurisdictions in which it operates includes
a significant contribution in the form of taxes borne and collected,
including taxes on its revenues and profits and in respect of the
employment its business generates.
IHG earns approximately 60% of its revenues in the form of franchise,
management or similar fees, with almost 90% of IHG branded hotels
being franchised. In jurisdictions in which IHG does franchise business,
the prevailing tax law will generally provide for IHG to be taxed in the
form of local withholding taxes based on a percentage of fees rather
than based on profits. Costs to support the franchise business are
normally incurred regionally or globally and therefore profits for an
individual franchise jurisdiction cannot be separately determined.
Earnings per ordinary share
Basic earnings per ordinary share in 2012 was 189.5¢, compared
with 159.2¢ in 2011. Adjusted earnings per ordinary share was 141.5¢,
against 130.4¢ in 2011.
Dividends
The Board has proposed a final dividend per ordinary share of
43.0¢ (27.7p). With the interim dividend per ordinary share of 21.0¢
(13.5p), the full-year dividend per ordinary share for 2012 will total
64.0¢ (41.2p), an increase of 16% over 2011. On 22 October 2012 a
special dividend of $1.72 (108.4p) per ordinary share was paid to
shareholders.
Share price and market capitalisation
The IHG share price closed at £17.07 on 31 December 2012, up from
£11.57 on 31 December 2011. The market capitalisation of the Group
at the year end was £4.6bn.
Capital structure and liquidity management
Net debt* at 31 December
Borrowings:
Sterling
US dollar
Other
Cash and cash equivalents
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
2012
$m
638
626
5
(195)
1,074
651
2012
$m
1,075
96
1,171
2012
%
100
2011
$m
–
715
5
(182)
538
721
2011
$m
1,075
79
1,154
2011
%
100
During the year, $472m of cash was generated from operating
activities of which $133m was invested in capital expenditure.
After shareholder returns of $786m, including a $505m special
dividend and $107m of share buybacks, net debt at 31 December
2012 was $1,074m, an increase over the year of $536m. Net debt
included $212m in respect of the finance lease obligations for the
InterContinental Boston and $11m in respect of currency swaps
related to the £250m sterling bond.
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In November 2012, the Group issued a 10-year £400m public bond
under its Medium Term Notes programme. The bond has a coupon
of 3.875% and extends the maturity profile and diversifies the
sources of the Group’s debt. The Group issued its first bond under
the programme in December 2009 which was a £250m seven-year
public bond at a coupon of 6%, which was immediately swapped into
US dollar debt using currency swaps.
The Group refinanced its bank debt in November 2011, putting in
place a five-year $1.07bn syndicated bank facility which matures
in November 2016. This facility was undrawn at the year end.
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Additional funding is provided by a finance lease on the
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Performance
29
Business Review
Our talented People
We believe that the success of IHG doesn’t just depend on the brilliance of one brand
or one person, but a whole family of preferred Brands, brought to life by talented and
passionate People who deliver Great Hotels Guests Love.
IHG employed 7,981 people worldwide during the year ended 31 December 2012 whose costs were borne by the Group. When the Group’s entire
estate is taken into account (including employees working in the franchised and managed hotels) over 350,000 people worked globally across
all IHG’s brands as at 31 December 2012. Unless otherwise stated, any data in this section relates to the people directly employed by IHG and
those who work in managed hotels or part of our joint venture with All Nippon Airways in Japan – in total 120,000 people. Our People strategy
is focussed on engaging all those who work in IHG hotels and corporate offices to deliver great performance and Great Hotels Guest Love
across all our Brands regardless of the business model.
In this section we explain each of the pillars of our People strategy and how this enables us to meet the fresh challenges of a changing
workforce and increased competition, as well as describing our approach to diversity and how we provide a safe and secure environment
for our guests and employees.
Our employer brand
We want…
We are...
We share
a purpose...
We live our
winning ways...
We offer...
To be treated as
individuals and
recognised for the
great work we do
• Proud
• Passionate
• Collaborative
• Room to have
a great start
• Room to grow
• Room to be involved
• Room for you
Do the
right thing
Aim
higher
Work better
together
Show
we care
Celebrate
difference
We give our best performance and delight our guests
The four pillars of our People strategy are:
• developing a BrandHearted culture;
• making IHG a great place to work;
• delivering world-class People Tools to our owners and hotels; and
• building a strong leadership team.
Developing a BrandHearted culture
Being BrandHearted means changing the way we think, act and
behave when it comes to our Brands – it means putting them at the
centre of every conversation, every idea and every decision we make.
Our Brands offer a distinct promise to our guests, so it is vital that we
make it easy for our owners and General Managers and their teams
to keep those brand promises. In 2012 we launched a new Brand
Framework to better define what a great branded guest experience
looks like. We are also transforming the way we deliver our brand
standards to hotels, making it easier than ever before for all of our
hotels to create a consistent brand experiences. This work forms
part of our ongoing commitment to provide our hotel estate with
simple, easy-to-use tools that generate better business performance
and brand preference. Our Programme Office has been leading this
work internally.
30
IHG Annual Report and Financial Statements 2012
Ways of working
The Programme Office has been instrumental in driving a more
disciplined approach to the way we develop, design and deliver
projects to hotels. This year we refreshed our Ways of Working
to promote a more coordinated approach to project design and
developed the new IHG Way of Project Management – a bespoke
set of tools to improve the way we deliver projects to hotels. This
gives us a consistent and more effective approach to projects, and
project risk management.
Heart of house
Our Heart of house initiative has been a key project in 2012. When our
colleagues feel engaged, they deliver better service to our guests.
This is why Heart of house continues to be so influential in helping us
embed a BrandHearted culture. Heart of house is an integral part of
our People Tools. It is unique in the hotel industry – transforming the
traditional ‘back of house’ into the heart of our hotels – an inspiring,
inviting, place for employees to learn more about what’s happening
at IHG, their hotel brand, their hotel and in their teams. Heart of
house provides both a shared space for colleagues to communicate
and an improved working environment and supports our General
Making IHG a great place to work
Our People play a key role in delivering our brand promises day in,
day out. To achieve our Vision, we need to attract the very best
people, harness their passion and equip them with the right skills to
give our guests a truly great experience. Research shows that people
want to be treated as individuals and recognised for the great work
they do. In our employer brand we call this Room to be yourself and
this commitment is brought to life by four key promises:
Room to have a great start
Over the next few years, to meet our growth targets, we need to find
an additional 90,000 BrandHearted colleagues. People that really love
our Brands, can bring them to life though great service delivery. By
defining the specific behaviours needed to bring our Brands to life
and incorporating them in all our People Tools, we are able to recruit
people with the right attitude for the brand as well as the right
technical skills for the role. All new recruits attend an orientation
programme and have access to a new onboarding portal to ensure
they understand our Winning Ways, Room to be yourself and what
being BrandHearted really means, from the moment they join IHG.
To support our recruitment efforts and build upon our high levels
of employee engagement, we launched the Recommend a friend
scheme in 2012 to all franchised, managed and owned and leased
hotels and central reservations offices. This followed the success of
the launch of a similar scheme at our corporate offices, which saw
21 per cent of corporate hires coming through employee
recommendations – a 15 per cent increase from 2011.
One of the biggest recruitment challenges we face is how we
leverage the strength of our global brand, while being sensitive to
the local markets in which our hotels operate. In Greater China,
for example, we have created a new recruitment site in Mandarin and
have launched career pages on social networking platforms such as
Weibo and Renren (the number 1 social media platform amongst
college students in Greater China).
As further explained on page 35 as part of our Responsible Business
practices, the IHG Academy provides local people with the opportunity
to build and develop their skills and improve their employment
prospects. An IHG Academy is a collaboration between IHG hotels
or our corporate offices and local education providers and/or
community organisations and helps us create a pipeline of potential
recruits and future talent. We currently have over 150 IHG Academy
programmes in 37 countries around the world.
Managers in involving, inspiring and engaging their teams as brand
ambassadors. Nearly 1,000 of our hotels have now installed Heart
of house.
Celebrating service
Being BrandHearted is also about celebrating employees, and
recognising achievement is very important to us. That’s why every
year, through Celebrate Service week, we recognise our colleagues
for the great work they do to give our guests an enjoyable stay.
Celebrate Service week, which was instigated by, and run in
partnership with, the IHG Owners Association, saw more than 4,000
hotels participating in 2012. This has now become an important
driver of employee engagement – following this year’s event we found
99 per cent of employees at our corporate offices, central
reservations offices and managed and owned hotels and 98 per cent
of those working at participating franchised hotels said they felt
proud to work for a company that recognises its people in this way.
Room to be involved
We ask our employees and those colleagues working in our managed
hotels to participate in an employee engagement survey twice a year.
96 per cent of employees took part in our 2012 employee engagement
survey. The results were impressive with 94 per cent of respondents
saying they are proud to work for IHG – which is an all time high and
20 per cent higher than industry benchmarks. Better still, our
engagement scores continue to improve year-on-year and we have seen
an 18 percentage point increase across the Group in the last five years.
Highlights of our 2012 employee engagement survey results
(taking the average of the two annual surveys) include:
• our employees are more engaged than ever before with
78.6 per cent engagement for 2012 – 2.8 per cent higher than
the 2011 engagement average;
• 85 per cent say we are ‘living’ our Winning Ways; and
• we continue to beat external benchmarks – according to our
survey administrator, engagement scores for high-performing
companies have remained flat and service companies have had
a decrease of 1.5 per cent per year since 2010.
This year, for the first time we launched the employee engagement
survey to our franchise estate with 15 per cent of hotels pioneering
its use and a 4.7 percentage point increase in engagement in those
hotels between April and October.
By listening to our People and responding to their needs we can
drive better business results. This was shown in a study we
commissioned to examine the link between employee
engagement and hotel performance. This study found that the
difference in gross operating profit margin between hotels
with highly engaged people compared with those with lower
engagement can be as much as seven percentage points.
When we compared hotels where engagement had increased,
against those where it had not, we found that for every 5 percentage
point increase in engagement, there was, on average, 70 cents of
increased RevPAR. That means that for a 200-bed hotel this
RevPAR increase could generate an additional $50,000 of revenue
per annum.
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Our talented People
31
Business Review: Our talented People continued
Room to grow
Providing all our colleagues with Room to grow is an essential part
of our culture and is at the heart of how we continue to develop our
business. Our approach ensures that we provide learning and
development opportunities to all colleagues, whilst investing
strongly behind our critical roles and core capabilities. To support
this, every employee creates a personal development plan with their
manager, which supports their development and, in turn, drives our
business success.
One of the most important roles for driving the success of our
business is our hotel General Managers. This is why we are
launching our new General Manager training programme, which is a
breakthrough programme designed to shift our mindset away from
simply creating great hotel managers to developing great Brand
managers. To have preferred Brands, we need the best General
Managers in the industry and therefore we have invested heavily in
our approach to hiring, training and developing them. This has been
the focus of our shared agenda with the IHG Owners Association and
we are proud to have worked with them to develop this programme,
which will be rolled-out initially to new Holiday Inn and Holiday Inn
Express General Managers from the first quarter of 2013.
Mid-management and above continue to be supported through
IHG’s Leaders Lounge, our award-winning online community and
leadership development forum. The usage of IHG’s Leaders Lounge
continues to rise, with more than 7,000 visits per month to access
short learning sessions, providing practical tips and insights
designed to be completed in just a few minutes.
Room for you
We pride ourselves on our ability to recognise great BrandHearted
behaviour internally and in 2012 we launched Bravo!, an online
peer-to-peer recognition tool that gives our colleagues the means
to publicly recognise each other’s work and efforts. To date more
than 25,000 Bravos! have been sent, proving our People really
value the opportunity to be able to give and receive recognition
from their peers.
We are also strengthening Group performance culture in our
corporate offices. Our annual incentive plan for our senior executives
now aligns with our strategic priorities of Brands, People and Delivery,
as explained in the Directors’ Remuneration Report on pages 59 to 78,
ensuring alignment with shareholder interests.
Delivering world-class People Tools for our owners
It’s never easy to find people who can live and breathe our Brands,
but it’s an important job, perhaps the most important job, because
guests don’t differentiate between a hotel being franchised,
managed or owned, they just want a fantastic and consistent brand
experience. By working with the hotel human resources community
we developed a set of award-winning People Tools that not only help
increase employee retention, performance and guest satisfaction but
also drive efficiencies and increase revenue for our owners.
Our People Tools are a suite of best practice tools which help our
hotels hire, train, involve and recognise the best people for each
of our brands. In 2012, 96 per cent of General Managers using our
People Tools regularly said they would recommend them to
others. We believe this is a point of differentiation compared
to our competitors.
As well as continuing to drive awareness around our People Tools
we have also worked to make it easier for hotels to access them.
In 2012 we launched Hotel Solutions which is the ultimate toolbox,
providing hotels with a single gateway to access the full suite of People
Tools, as well as other training and guidance tools. These tools cover
across a broad range of hotel operations, housekeeping and hotel
safety, as well as Responsible Business practices. Hotel Solutions also
encourages collaboration across all of our hotels around the world,
another example of us leveraging our System size for the benefit of our
hotels. Since its launch, 71 per cent of hotels have been using it, with
General Managers saving an estimated three to four hours each month
on administrative tasks. Further, hotels using Hotel Solutions have
seen improvements in guest satisfaction, which shows that the right
tools, in the right hands, can deliver the right results.
Building a strong leadership team
Growing our business sustainably and responsibly requires leaders
who deliver great results, do the right thing, inspire their people
and put our Brands at the heart of everything they do. In 2012 we
introduced a more disciplined approach to leadership assessment
and created our Leadership Framework to make it easier for our
People to understand what great leadership looks like, including
the skills and experiences they need in order to be able to move to the
next level in their careers. Together, these approaches are ensuring
that we are best placed to select and develop the best leaders for our
business and for our Brands.
Our global suite of leadership programmes helps us develop our
leaders and attract some of the world’s best talent to our team.
These programmes combine skills, development, education,
experiences and access to great managers, mentors and coaches
in order to develop the leadership competencies we need to meet
our business goals. Support to our leaders also continues to be
provided through IHG’s Leaders Lounge.
By developing internal talent together with the strategic hiring of key
individuals who bring additional skills, perspectives and experiences,
we are building a strong leadership team, capable of driving a high
performance culture and delivering on our strategic agenda.
Our Board and Executive Committee leadership and governance
processes are set out on pages 46 to 80.
32
IHG Annual Report and Financial Statements 2012
London 2012 Olympic and Paralympic Games: Giving our People a once-in-a-lifetime opportunity
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Being the first hotel company to be trusted to help run the
Athletes’ Village was a groundbreaking opportunity for IHG. It
gave us the chance to show thousands of athletes and a team of
8,000 volunteers, employees, contractors and secondees what
world-class service is all about. The London 2012 Olympic and
Paralympic Games were great for our colleagues too. Our
Olympic secondees learnt many new skills to take back to their
hotels and offices, and the first intake of talent from the IHG
Academy at Newham were able to benefit from local work
experience and hospitality training. The Olympics has enabled us
to inspire our next generation of talent to achieve great things.
Before the London 2012 Olympic and Paralympic Games began,
we were embracing the Olympic spirit across the whole business.
Not everybody got to carry the torch or work in the Athletes’ Village,
but we tried to provide opportunities for all our People to have the
chance to feel part of the experience.
Celebrating diversity
Being a global organisation operating in nearly 100 countries and
territories around the world, we recognise the importance and
benefit of ensuring our workforce fully represents the communities
in which we operate and the guests who stay in our hotels. We value
our employees as unique individuals, with the different ideas,
perspectives and energy they bring. We have created an inclusive
culture where people are encouraged to be themselves. This is seen
in our Room to be yourself employer brand and drives higher levels
of employee engagement and, as a result, improves business
performance.
Currently, 35 per cent of our middle to senior leadership population at
our corporate offices are female and we continue to explore ways to
increase the diversity of our management team. In 2012, we launched
a review of diversity and inclusion that will ensure we have the right
combination of policy and practices to further improve our
recruitment, retention, development and career progression of
minority groups, including a focus on increasing the representation
of women at all levels of our business. The Group is also committed
to providing equality of opportunity to all employees without
discrimination and continues to be supportive of the employment
of disabled persons.
External recognition
We are incredibly proud of the external recognition we receive
across the globe as an employer of choice. In 2012 we:
• featured in The Sunday Times 25 Best Big Companies to
Work For;
• received recognition for our employer brand at the Personnel
Today Awards 2012 winning the Award for Employer Branding;
Examples of our People being part of the Olympic and Paralympic
experience include:
• we organised a charity fundraising campaign, ‘Race Around
the World,’ which got more than 60,000 colleagues running,
swimming and cycling and helped raise $300,000 for the IHG
Shelter in a Storm Programme;
• we gave more than 1,400 people the chance to take part in an
Olympics Masterclass, run by some of the world’s top athletes, from
cycling with Victoria Pendleton to swimming with Ellie Simmonds;
• we received more than 550 entries in our Design a Keycard
competition for our hotels at the Athletes’ Village;
• 72 IHG employees were given the opportunity to become Olympic
Torchbearers. They were nominated by colleagues for showing
remarkable feats in the environment and community or for having
an extraordinary personal story;
• on 24 July 2012 the Olympic Torch Relay reached our UK Denham
corporate office and 800 colleagues, friends and family were able
to see the torch first-hand and cheer four IHG colleagues as they
became official Olympic Torchbearers; and
• we were proud that 47 of our hotels across the country were given
the important task of looking after the Olympic Torch Relay crew
– helping to make the Relay such a success.
Our Board’s commitment to supporting diversity is set out on
pages 50 and 58. Currently our Board comprises three women
(27 per cent).
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 Global Risk
Management team evaluates policies and procedures, operating a
range of health and safety and security measures and we require
everyone to comply with relevant health and safety legislation.
The Group ensures that we protect 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 the review of
health and safety matters.
Further information on our approach towards health and safety and
security can be found on pages 38 to 44 and on our online Corporate
Responsibility Report viewable at www.ihgplc.com/responsibility
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• were named in the top 10 of the World’s Learning Elite –
recognising the effectiveness of our use of formal training
together with coaching and on-the-job learning;
• were recognised as one of India’s Best Companies to Work For
in 2012;
• were recognised as being one of the 100 Best Human Resource
Management Companies in China; and
• were listed in The Job Crowd’s The Top Companies For
Graduates To Work For in 2012/13.
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Business Review
Corporate Responsibility
Corporate Responsibility (CR) is a key part of our Responsible Business practices.
We treat it as a strategic business issue and therefore believe CR only makes
sense if it aligns to our Vision of becoming one of the great companies in the
world by creating Great Hotels Guests Love.
We believe that incorporating societal and environmental factors
into our business strategy and operations will play a vital role in the
long-term viability of our business and the travel and tourism sector.
Whilst tourism plays a large role in the world economy and is an
important source of wealth for many countries, our industry faces
increasing pressure to balance its economic performance with its
social and environmental impacts.
As a leading global hotel company, we are in a particularly strong
position to help make tourism increasingly responsible. That’s why,
for IHG, Responsible Business underpins all of our strategic
priorities. We aim to harness the role hotels play in society in order
to create shared value for our business, our guests, the environment
and the communities where we operate, whether that’s conserving
and protecting resources, helping local people build skills and
improve their employability or providing refuge when disaster
strikes. CR is an essential element of doing business responsibly.
Our CR ambition is to transform hospitality for more sustainable
communities and better lives. We work to find innovative ways to
build and run hotels that can fulfil our brand promises, tackle the
environmental and social challenges we face and create shared
value for IHG and our stakeholders.
We focus our CR activities in two areas that make sense to our
business and where we believe we can make the most difference –
the environment and the local community:
• Environmental sustainability – we drive environmental
sustainability through our online environmental management
platform Green Engage; and
• Sustainable communities – we create local economic
opportunity, particularly through the IHG Academy, and
we provide shelter when disaster strikes through the IHG
Shelter in a Storm Programme.
All activities are underpinned by the robust policy and management
foundations we have worked to build and strengthen since we set up
our CR function in 2006.
Our CR governance
Our Corporate Responsibility Committee, a committee of the
Board, was established in 2009 and is chaired by Jennifer Laing,
a Non-Executive Director. Our Corporate Responsibility Committee
Report is set out on page 57 and the Committee’s membership,
role, responsibilities and activities in 2012 are set out therein.
The Committee oversees that we have the right policies,
management and measurement systems in place to deliver against
our strategy. It met three times in 2012, focussing on the global
expansion of the IHG Academy programme, the activation of the IHG
Shelter in a Storm Programme, the ongoing roll-out of Green Engage
and our CR stakeholder engagement channels such as our online
Corporate Responsibility Report.
We have established further governance committees run
by members of the CR team to oversee globally-aligned
decisions. These include our Global Sustainability Council
and our IHG Community Strategy Committee, both of which
met during 2012 to discuss improvements to, and expansions
of, our key CR programmes.
Environmental sustainability
We are committed to designing, building and operating more
environmentally sustainable hotels, something we believe
is essential to being a Responsible Business and delivering
Great Hotels Guests Love. Through Green Engage, our online
environmental management platform, we provide our hotel owners
with a roadmap to develop and operate more sustainable hotels.
In 2012:
• in our managed and owned estate our three-year target
(2010-2012) was to reduce energy per available room by between
6 and 10 per cent; we exceeded our target with a reduction of
11.7 per cent; and
• our latest carbon footprint assessment revealed that we achieved
an absolute reduction in IHG’s global carbon footprint in our
hotels and corporate offices of 76,000 metric tonnes in a year.
Our online Innovation Hotel website helps us to envision what future
hotels could look like and how they might operate. The site allows
online visitors to tell us what they think of the latest sustainable
hotel concepts: www.ihgplc.com/innovation
Green Engage
The environmental impact of our hotels is managed through every
stage of the hotel lifecycle by Green Engage. Green Engage tracks
the use of energy, carbon and water and the management of waste in
our properties along with the associated costs. An important feature
in Green Engage is Green Solutions – over 200 actions a property can
implement to reduce its environmental impact. The programme
provides owners with advice on everything from picking a suitable
site and selecting the correct lighting for the hotel through to
choosing responsible cleaning materials and providing staff training
on environmental sustainability. Green Engage also provides the
ability for our properties to answer our corporate client sustainability
questions through its robust reporting feature.
Green Engage helps us fulfil our important commitment to doing
business responsibly and, in turn, this stops hotels losing money on
energy costs. Energy is the second biggest cost to our business – the
average IHG hotel spends over $500,000 on energy usage each year.
Green Engage can help hotels become up to 25 per cent more energy
efficient, so it makes both environmental and financial sense.
34
IHG Annual Report and Financial Statements 2012
In 2012 we continued to invest in Green Engage, adding new features,
such as the carbon calculator, energy and water benchmarks and
multi-unit reporting. As at 31 December 2012, 2,219 of our hotels
were enrolled in Green Engage. Our user base has since grown to
over 2,260 hotels. Our aim is to have our entire estate tracking,
managing and reporting its environmental impact over time.
Green Engage is driving revenue for IHG as well. Our research
shows that many frequent travellers prefer hotels which are
meaningfully engaged in managing their environmental impact.
We have made it easier for this growing band of customers to book
a Green Engage hotel by introducing an online booking capability
for guests who want to stay at Green Engage hotels.
We think it is important for us to lead by example so we extended
our environmental sustainability principles to our corporate office
in Denham, UK, which incorporates a range of sustainable design
features and uses Green Engage on an ongoing basis.
In addition to internal programme improvements, we have
demonstrated leadership through our role in the International
Tourism Partnership (ITP)/World Travel and Tourism Council (WTTC)
Working Group seeking to agree a common carbon metric for the
industry. The common methodology was agreed in 2012, a big
step forward for our industry. We were able to quickly build it into
Green Engage with our hotels able to start applying it immediately.
Sustainable communities
Our scale gives us a real opportunity to improve and transform
the lives of local people in the communities where we operate.
Our community strategy, which sets out how we seek to create
local economic opportunity, is critical to achieving economic success
and delivering Great Hotels Guests Love. In 2012 we continued to
increase our focus on the community, successfully expanding
both the IHG Academy programme and the IHG Shelter in a Storm
Programme. To support the expansion of these programmes we
work in collaboration with expert partners.
IHG Academy
The IHG Academy is a collaboration between individual IHG hotels
or corporate offices and local education providers and/or community
organisations providing local people with the opportunity to develop
skills and improve their employment prospects in one of the world’s
largest hotel companies.
Within a consistent framework, each IHG Academy is tailored to meet
the needs of local communities as well as hotels around the world.
All IHG Academy programmes have three things in common:
• they operate together with local community organisations and/or
education providers;
• they include a work experience placement, giving participants
skills and real experience of working in a hotel; and
• they include performance feedback and a recruitment discussion,
giving participants an opportunity to gain real experience of the
job interview process, thereby improving their chances of finding
a job in the hotel sector and in many cases, secure a job in one of
IHG’s hotels.
Participants of an IHG Academy come from all walks of life and
range from university graduates through to disadvantaged young
people, reflecting the range of careers, as well as opportunity for
progression, available at IHG. In February 2012, we launched an
IHG Academy in Newham East London, UK. This award-winning
collaboration provides a hospitality certification and work experience
in IHG hotels and, as part of our contribution to the London 2012
Olympics and Paralympics Games legacy, it supports the
regeneration of East London.
We currently have over 150 IHG Academy programmes in 37
countries around the world and our vision is to have as many IHG
hotels as possible participating in an IHG Academy. Our ability to
build skills and raise aspirations across hundreds of communities
continues to drive our commitment to this programme.
For more information on the IHG Academy visit
www.ihgacademy.com
Celebrating the 150th IHG Academy opening, Beijing, China
IHG Shelter in a Storm Programme
Through the IHG Shelter in a Storm Programme, our hotels receive
guidance on when and how best to respond when natural or man-made
disasters occur. Our global partnership with CARE allows us to draw
on expertise in humanitarian assistance and helps us find appropriate
partners in the area when disaster strikes, directing help to where it is
needed. When a disaster occurs, funds from the IHG Shelter Fund can
be allocated to enable our hotels to respond quickly and effectively to
support our guests, employees and the local community with financial
support, vital supplies and accommodation.
The IHG Shelter Fund, a pool of funds from the fundraising efforts of
IHG hotels and corporate offices, is a key element of the IHG Shelter
in a Storm Programme, enabling us to respond quickly when disaster
strikes, instead of waiting to raise funds after the event.
In 2012, $545,000 was raised for the IHG Shelter in a Storm
Programme and the fund was put into action to support 10 disasters
across six countries, including responding to severe flooding and a
cyclone in Fiji, Superstorm Sandy on the US East Coast, flooding in
Manila and the UK, wildfires in Colorado and Hurricane Isaac on the
US Gulf Coast. On each occasion we assessed the damage to IHG
hotels and the impact on their employees and communities, and
allocated funds from the IHG Shelter Fund to help with essential
supplies and accommodation.
For more information on the IHG Shelter in a Storm Programme
or to donate visit www.ihgshelterinastorm.com
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Business Review: Corporate Responsibility continued
data privacy and intellectual property. We work in a coordinated
fashion with industry and business advocacy organisations in all
regions where we have hotels.
Our systems and CR programmes help us keep ahead of legislative
and regulatory requirements. For example, Green Engage is core
to helping hotel owners manage current regulatory performance
and prepare for anticipated regulations. In 2012 we used the
programme to comply with the requirements of the UK’s Carbon
Reduction Commitment, a mandatory carbon emissions reporting
and pricing scheme.
These and other complex regulatory matters are overseen by our
Global Sustainability Council. Our carbon strategy for managing our
footprint is through Green Engage and we discuss our approach and
actions with the IHG Owners Association to ensure our franchisees
understand and support our initiatives.
To further drive engagement of our owners, General Managers and
their teams, we introduced a suite of web-based tools to help them
engage with their elected officials on policy issues of critical
importance to the business.
Policies and Code of Ethics
Responsible Business is at the heart of everything we do. We
encourage all our employees to ‘do the right thing’ and ‘show we
care’ through living our Winning Ways as shown in the diagram on
page 30. The Group’s Code of Ethics and Business Conduct
consolidates and clarifies expected standards of behaviour and
communicates the ethical values of the Group globally. 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 of
Ethics and Business Conduct is applicable to all employees and is
available on the Company’s website at www.ihgplc.com/investors
under corporate governance. We also have detailed policies on the
environment, supporting our community, competition, anti-bribery
and data privacy, which are regularly communicated via eLearning
and face-to-face training modules promoting accountability and
transparency.
We participate in the ITP working group on human trafficking. We
also have our own human rights policy and in 2010, we signed up to
the UN Global Compact aligning our operations and strategies with
the 10 universal principles that include commitments to human
rights and labour standards.
External recognition
In 2012, we were:
• awarded the Global Business Travel Association (GBTA)
Gold Medal Award for Sustainability;
• awarded the Hotel Owners’ and Franchisees’ Transatlantic
and European League (HOFTEL) Owner Friendly Innovation
Award for Green Engage, an important recognition that
Green Engage is of value to our hotel owners; and
• shortlisted for the World Environment Centre Award
for Sustainability, making it to the final round with
Green Engage commended.
IHG employees take part in the Shelter Sprint to raise funds for the IHG
Shelter in a Storm Programme
Stakeholder engagement
Our stakeholders play a key role in helping us identify and tackle
our priorities. They include guests, corporate clients, our hotel
owners, local communities, employees, shareholders, suppliers,
academic institutions, non-government organisations, governments
and industry-specific institutions.
As a member of the International Tourism Partnership (ITP) and
the World Travel & Tourism Council (WTTC), we work with our
industry peers to share knowledge and resources, and together
we address issues that affect the industry as a whole.
We engage with our stakeholders through a number of channels,
including forums, meetings, individual interviews, surveys and
through our websites:
• our award-winning online Corporate Responsibility Report,
updated regularly, is available at www.ihgplc.com/responsibility;
• our ‘IHG Planet CR’ Facebook page is available at
www.facebook.com/IHGCorporateResponsibility and at the end
of 2012 had been liked by over 20,000 fans; and
• our internal intranet site is a one-stop-shop resource centre, which
keeps all of our colleagues up-to-date on our key programmes.
We also continue to build on our series of animated videos to help
raise awareness and understanding of our key programmes in a
fun and engaging way. Recently we created a new video about our
economic impacts – this reached almost one million people through
Facebook. The videos are also available on YouTube and through our
online Corporate Responsibility Report.
To make sure our hotel General Managers and their teams have the
latest information on our programmes, we launched standalone
websites for the IHG Academy and the IHG Shelter in a Storm
Programme. These provide ‘how to’ guides and other materials
for hotels to download and share with their teams.
Our engagement with shareholders is set out on page 55.
Public policy, regulation and legislation
The travel sector is one of the largest employers in the world and
being a Responsible Business means engaging with decision-makers
on policies that affect our guests, hotel owners and our other
stakeholders.
We constantly engage with policymakers in executive and legislative
branches around the world in order to advocate issues important to
IHG, our owners and our guests. We particularly concentrate on
issues relating to the operating environment for small businesses,
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IHG Annual Report and Financial Statements 2012
CR priorities, performance and targets
The following table outlines IHG’s overall CR developments and achievements during 2012 and priorities for 2013.
CR priorities
2012 developments and achievements
2013 priorities
Environmental
sustainability
• In our managed and owned estate our three-year target
(2010-2012) was to reduce energy per available room by
between 6 and 10 per cent, we exceeded our target with
a reduction of 11.7 per cent;
• reduced our carbon footprint in our owned and managed
• Work to ensure all our hotels that are enrolled in Green
Engage use the tool for greatest impact to help them
reduce their environmental impacts and operating costs;
• continue to work with the IHG Owners Association to further
expand the Green Engage programme across our hotels;
hotels by 19 per cent per occupied room in a year;
• continue our active engagement with the Hotel Carbon
Sustainable
communities
• achieved an absolute reduction in our global carbon
footprint in our hotels and corporate offices of
76,000 metric tonnes in a year;
• reached our target to have 50 per cent of our hotels
(based on January 2012 hotel figures) using Green
Engage on 14 January 2013, we now have over
2,260 hotels enrolled; and
• launched a global carbon standard for hotels and added
a new carbon calculator in Green Engage with our hotels
able to start applying it immediately.
Measurement Initiative (HCMI) to further drive the carbon
methodology in the industry; and
• expand the ability for our guests to locate and book
Green Engage hotels.
• Expanded our IHG Academy to 157 programmes – an
• Continue to expand the IHG Academy throughout our
estate making sure these programmes deliver positive
and transformational results for their participants
and IHG;
• continue to drive awareness and engagement around the
IHG Shelter in Storm Programme ensuring our hotels
are prepared for disaster and able to respond quickly and
effectively to help the local community and employees
when needed; and
• continue to provide ways for our employees in all IHG
hotels and corporate offices to engage with the IHG
Shelter in a Storm Programme by raising awareness
and funds for the IHG Shelter Fund.
increase of over 100 during the 2012 year;
• created an IHG Academy online toolkit to help hotels
and corporate offices on their journey to become an
IHG Academy;
• offered a life skills workshop in conjunction with
our IHG Academy with Newham College as part of our
London 2012 Olympic and Paralympic Games legacy
commitment;
• held 198 fundraising events including a global ‘Race
Around the World’ event for the IHG Shelter in a Storm
Programme;
• raised $545,000 compared to our target of $150,000 for
our IHG Shelter in a Storm Programme enabling us to
respond quickly to disasters;
• the IHG Shelter in a Storm Programme supported 10
disasters across six countries;
• created an IHG Shelter in a Storm Programme online
toolkit to share guidance on when and how to respond
to a disaster and facilitate fundraising events; and
• participated in the International Tourism Partnership
working group on human trafficking and continued to
raise awareness of our human rights policy internally.
Stakeholder
engagement and
public affairs
• Continued to engage with our stakeholders through our
refined stakeholder engagement process and channels;
• exceeded our ‘IHG Planet CR’ Facebook page fans target
of 6,000-10,000, with over 20,000 fans by the end of 2012;
• launched a video to communicate the results of IHG’s
economic impact study;
• launched a new ePlatform for government relations
for US-based owners and General Managers; and
• successfully joined with industry partners to lobby the
US Government to reconsider a change to the per diem
calculation methodology.
• Launch a set of externally facing targets across our three
core programmes: IHG Academy, Green Engage and the
IHG Shelter in a Storm Programme;
• focus on driving awareness of IHG’s approach to CR
across internal and external stakeholder groups, and
continue to share updates of each of our programmes;
• drive higher engagement in our ‘IHG Planet CR’ Facebook
page particularly around our three core programmes;
• review our Corporate Responsibility Report in light of the
new Global Reporting Initiative G4 guidelines;
• roll out new CR eLearning training and integrate with the
new General Managers training module; and
• engage with a broader cross-section of our owners in
public policy.
For more information please visit our Corporate Responsibility Report at www.ihgplc.com/responsibility or join us on our ‘IHG Planet CR’
Facebook page at www.facebook.com/IHGCorporateResponsibility
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Business Review
Risk management
IHG recognises the importance of having in place an effective system of internal controls
and risk management to achieve our Vision of becoming one of the great companies in the
world. Our Board and Committees work together with senior management to identify, assess,
prioritise and mitigate risks. This is an essential part of being a Responsible Business.
Risk management system
Our internal controls and risk management system aims to support
the delivery of our strategy by managing the risk of failing to achieve
business objectives and protecting our business, in particular:
• our brands and market position;
• our financial strength and performance;
• our business capability and systems including our People,
IT systems and ways of working; and
• our business reputation and relationships with stakeholders.
We are continually evolving our risk management system to
respond to our ever-changing competitive environment, business
relationships and guest preferences and believe that for this to be
effective, we must:
• have a proactive risk management culture;
• embed risk management activity across our business;
• have comprehensive and accurate risk content; and
• have a robust risk management process and framework.
Proactive risk management culture
Having in place an effective system of internal controls and risk
management is essential to being a Responsible Business.
Therefore, the Board aims to embed proactive risk management
capability and culture throughout the business. In achieving this, the
Board is supported by the General Counsel and Company Secretary
and the Heads of Global Risk Management and Global Internal Audit.
IHG’s ambition for risk management is to foster a culture that
is well-informed, curious, alert, responsive, consistent and
accountable so that risk management becomes instinctive.
We consider risks in a wide number of business activities, these
include, but are not limited to,:
• key strategic planning and budget allocation processes;
• the Programme Office’s processes on project planning,
management and delivery (see page 31); and
• the design of policies, procedures, internal controls, and
our approach to corporate governance (see pages 46 to 58).
Our risk management capability is continually developing and
growing through ongoing risk assessment, post-project reviews
and post-incident and crisis reviews.
Embedded Risk Management Activity
We seek to integrate risk-based solutions, programmes and
activities into our day-to-day business processes. The Group
continues to invest in risk management systems, training and
controls to improve the performance and resilience of the
business to protect IHG, our business, our brands, our guests
and our other stakeholders.
By way of example, we have shown the application of the Risk
Management Framework with respect to how we manage safety
and security risk in our hotels in the Hotel Safety Framework on
page 41. Additional risk activity applied to some of the dynamic risks
the Group faces are described in the control and mitigation activities
described on pages 40 and 41.
Comprehensive and accurate risk content
Risk management is about managing uncertainty and IHG seeks
to develop comprehensive and accurate risk content through
risk assessments. This enables us to have better informed
decision-making, which when implemented in the right cultural
context, greatly improve performance at the strategic, tactical and
operational levels of the business. We therefore categorise our risks
in this way to ensure that we consider the relevant risks and have
in place appropriate oversight roles:
• Strategic and market risks: these typically arise from changes
in the external environment and can impact on our Vision,
ambitions and strategy over the long-term (often five to ten years
or more). Risk assessments are integrated into Board level
strategy setting and in the strategic planning process, which
includes reporting to the Chief Executive during strategic reviews.
Strategic risks are managed by senior leadership teams across
the regions and corporate functions, with oversight by the
Executive Committee.
• Tactical and project risks: these are risks that impact the
delivery of IHG’s key initiatives and projects. They often arise
from project delivery challenges such as complexity, inaccurate
assumptions or interdependencies. Project risks are managed
as part of the management and delivery of projects, with central
oversight on all priority projects provided by the Programme
Office and the Executive Committee. As explained on page 31,
the Programme Office has been integral in driving a consistent
approach to our internal projects. Project risk management
awareness, identification and mitigation is included as part
of our project planning, management and delivery processes
and training tools.
• Operational risks: these include a wide spectrum of risks that
can affect the resilience, continuity or performance of IHG’s
internal operating systems or hotels. They are managed by
corporate functions and regional teams working collaboratively
with General Managers and hotel management teams to set
policies and standards, and provide systems and tools,
suitable for hotels to implement. Our senior leadership teams,
regional operating committees, Global Operations Council
and the Executive Committee work together to provide
appropriate oversight.
IHG
Regions
and functions
Strategic
Projects
Tactical
IHG operating system
Hotels
Owned
Managed
Franchised
Operational
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IHG Annual Report and Financial Statements 2012
Robust risk management process and framework
The Major Risk Review process enables the business to identify, monitor and manage the most significant risks to the Group (the Major Risks)
and report these to the senior leadership teams across the regions and corporate functions. The Risk Management Framework provides a
systematic consistent approach to managing identified risks.
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Major Risk Review process
Having in place a robust major risk review process is essential to
maintaining an effective risk management system. IHG’s Major Risk
Review process continuously identifies, monitors and manages risks
owned by a wide range of stakeholders across each region, major
projects and the corporate functions.
The Board is ultimately responsible for the Group’s strategy and
system of internal controls and risk management, as explained
on pages 54 and 55. In addition, the Audit Committee annually
reviews the effectiveness of the Group’s internal controls and risk
management system.
Risks identified in the regions, functions and projects are consolidated,
refined and calibrated against a strategic view of risks by the
Risk Working Group (RWG). The RWG is chaired by the General
Counsel and Company Secretary and comprises the Heads of Global
Strategy, Programme Office, Global Risk Management and Global
Internal Audit and takes an active role in overseeing the Major Risks.
The RWG meets on a quarterly basis, to ensure the Major Risks are
appropriately managed and emerging risks are identified. The Major
Risks are then discussed with the Executive Committee to gain
agreement on the risk descriptions and ownership of actions, before
final presentation to the Audit Committee and the Board.
Audit Committee
Board
Executive Committee
IHG Risk Profile
Risk Working Group (RWG)
Risk Profiles in Regions, Functions and Projects
Risk Management Framework
The Risk Management Framework is depicted in the ‘Manage Risk’ cog of the Hotel Safety Framework shown on page 41. This is a pragmatic
risk framework which starts with a risk profile and moves through the necessary considerations for effective management or mitigation of
risks. The framework reflects the cyclical nature of risks and allows for continuous assessment, particularly as the operating environment
and competitive landscape is in a constant state of change. The segments of the ‘Manage Risk’ cog are as follows:
Risk profile: the identification and prioritisation of risks against
consistently applied assessment definitions. This includes an
assessment of gross risk (the level of risk before controls or actions
are taken) and net risk (the level of risk after existing management
actions are applied). Where these management actions are not
sufficient, a further target risk level is set. The risk profile is captured
in ‘heatmaps’ as shown in the diagram below:
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G
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(Risk level with ineffective
or no controls in place)
N
Net Risk
(Current risk level with
existing controls in place)
N
T
T
Target Risk
(Desired risk level to optimise
investment, as required)
Impact
Policy and standards: the formal articulation of the approach,
controls and actions for IHG employees when dealing with specific
risks. These set out accountability for risks, relevant roles and
responsibilities and actions that are measurable or auditable;
Ways of working: the practical aspects of risk management, such
as roles, tools, templates, systems, forums and behaviours, which
help management bring the policies and standards to life;
Training and communication: the face-to-face and online learning
programmes to provide appropriate skills and knowledge and
regular communication to raise awareness;
Operate and control: the ongoing operational activities and the
use of tools, systems, checks and control measures to support
compliance with policies and standards and to manage risk;
Risk financing: the consideration of the financial impact of risks if
they were to happen and ensuring, where possible, that appropriate
coverage is in place, which is usually through insurance; and
Review and report: the collection and analysis of management
information to evaluate the effectiveness of controls and risk
management, changes in the risk environment and delivery
of action plans.
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Managing risks in a changing environment
We continue to experience a dynamic external risk environment seeing changes or disruptions in political, economic, social, technological,
legal and environmental risks. These external factors are expected to remain unsettled for 2013 and the foreseeable future. The Group’s wide
geographic spread and fee based model means that in general, events affecting specific hotels or in all but the most significant countries are
not expected to have a material impact on the Group’s results.
The following sets out our control and risk mitigation activities for those risks which are perceived as most dynamic and thus continuously
monitored by senior management. These complement the wider comprehensive risk factors listed on pages 42 to 44.
Risk description
Macroeconomic outlook
The current outlook for 2013 may worsen due to
escalating impacts of the US ‘fiscal cliff’, change
in leadership in China, uncertainty in the Eurozone
and ongoing unrest in the Middle East. In addition
to trading conditions, the economic outlook also
affects the availability of capital to current and
potential owners which may have an impact on
existing operations and the health of the pipeline.
Control and mitigation activities
• IHG’s scale, diverse portfolio of brands, segments, countries of operation and mix
in business model, positions it well against short-term macroeconomic impacts;
• IHG continues to monitor macroeconomic conditions and make necessary
adjustments, including cost optimisation programmes where appropriate; and
• IHG has developed revenue management tools and guidelines to assist hotels to
monitor local developments in supply and demand and to inform decisions on
pricing, promotions, channels and room inventory.
Increasing dependence on online travel
agents (OTAs)
Travellers now have access to far more information
through comparison websites, search engines and
online travel agents. Sales through these channels
typically have high commission rates and are taking
an increasing share of bookings across the travel
and hospitality sector, which may have an impact
upon our brands and profitability.
• IHG devotes a significant proportion of its marketing budget to non-traditional
tools such as online search engines, its loyalty programmes and web and mobile
applications, to encourage guests to book through its direct channels;
• the Group continues to invest in developing its own internet presence and aims to
make scale benefits when working with online business partners; and
• IHG has implemented a book direct strategy, which has several initiatives including
IHG’s Best Price Guarantee for bookings made through IHG branded websites and
roomkey.com, a hotel metasearch engine founded by IHG in partnership with
several other hotel companies.
IT performance, resilience and technology
change
IHG is dependent on the stability of its IT
infrastructure and must stay abreast of industry
shifts towards mobile applications and cloud
computing. Failure to maintain IT performance,
resilience and technology change could impact
guest experience and revenue channels.
• Network stability is a priority for IHG’s Global Technology team, which includes
deploying back-up systems, developing robust business continuity practices and
working collaboratively with external service providers;
• IHG’s strategic partnerships with leading technology companies enables us to
innovate, develop and deliver cost-effective solutions that differentiate its brands
and enhance the guest experience; and
• our Programme Office has developed a consistent approach to project management
to ensure successful delivery of projects, including major technology ones.
Information security and payment card
protection
The threats against information remain an
increasing concern with high-profile losses in many
big businesses. The risk ranges from payment card
information to other personal or sensitive
information which can be held in IT systems, in
paper format on desks and filing cabinets, in voice
and video recordings and in other media.
• IHG takes information security very seriously and has applied risk-based methods
to build capability and resilience into our systems and processes for a number
of years;
• IHG continues to aim to be fully compliant with Payment Card Industry – Data
Security Standards (PCI-DSS) using tools and services from a leading specialist
third party provider with respect to payment card processing; and
• the Group manages data security incidents through internal committees and
councils, which work together to contain this risk and reduce the Group’s exposure.
Sensitive data is tightly controlled through limited and monitored access.
Reputation and brand protection
• Responsible Business underpins each of our corporate priorities and we
IHG’s reputation and brands are important assets
for the business. Protecting them is reliant upon
the performance, behaviours and reputation of
those working in all hotels and corporate offices
and our owners. Failure to safeguard the reputation
of IHG and its brands could have severe impacts on
the Group’s future performance.
continually keep under review our internal policies and communicate these to
employees throughout our business, thereby working to ensure our employees
work ethically to maintain our trusted reputation;
• led by the General Counsel and Company Secretary, a team of lawyers, compliance
specialists, chartered secretaries, internal auditors and risk managers work
together to champion and protect the trusted reputation of IHG and its brands;
• we continue to ensure that global registered trademark protections for all of our
new and existing brands, loyalty programmes and other relevant intellectual
property are in place; and
• we have established an effective internal controls and risk management system.
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IHG Annual Report and Financial Statements 2012
Risk description
Control and mitigation activities
Safety, security and crisis management
• IHG’s proactive, risk-based approach to hotel safety and security is summarised
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• IHG’s hotel-level safety solutions combine measures to protect the physical
building and processes and procedures to ensure guest and employee safety; and
• IHG has strengthened the Group’s crisis management capability in 2012, including
the upgrading of the crisis call centre, refreshing our internal toolkit and eLearning
course and strengthening the network of crisis coordinators.
There is a constant need to protect the safety
and security of our guests, employees and assets
against natural disasters and man-made threats.
These include, but are not limited to, exceptional
events such as natural catastrophes, civil or
political unrest, violence and terrorism, fire and
day-to-day accidents and incidents which impact
the guest experience. The external risk
environment over the last few years appears
to be increasing – we have seen an increase in
extreme weather and civil and political unrest.
Furthermore, IHG’s growth in emerging markets
may increase the Group’s exposure to the risk of
civil and political unrest.
Managing risks in hotels
IHG’s commitment to risk management safety, security and crisis management in hotels remains fundamental to it being a Responsible
Business. We recognise the difference between a safe hotel and one which is poorly designed or operated. Therefore we require all hotels
to become compliant with a set of global Brand Safety Standards.
IHG’s approach has been to enable and support our hotel owners, General Managers and hotel employees to manage risk effectively. This is
accomplished by giving them a systematic approach and framework to follow and by providing them with user-friendly tools to do this. In 2012,
over 50,000 employees used our web-based risk management tools, which include a comprehensive suite of risk management, safety and
security training aligned to different roles and competency levels and have reached over 17,000 enrolments.
Hotel Safety Framework
The Hotel Safety Framework enables a consistent approach to
managing safety and security risk in IHG hotels. The framework
is illustrated by showing two mechanical cogs meshed together
showing different types of safety and security risks in the ‘Safe
Hotel’ cog, against the actions described in the ‘Manage Risk’
cog. This framework is actively managed by IHG’s risk managers
around the world, working with hotels and their management
teams in order to keep IHG hotels safe and secure. Safety and
security is an essential element of being a Responsible Business
and our Hotel Safety Framework underpins our hotel operations.
A hotel risk profile is also developed through various methods,
including self-assessment, guest satisfaction surveys, design and
engineering plans, incidents, intelligence gathering, quality audits
and risk management reviews. Hotel management teams discuss
issues at monthly safety meetings and action plans are developed.
Risks are prioritised, responsibility is assigned and improvement
actions are identified, progressed and monitored. Action plans are
reviewed at appropriate levels throughout the organisation for
issues that need to be escalated, either to drive action or to
develop common solutions.
Security
Crisis &
Incident
Fire
Safety
Hote
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Saf e
Leisure
Safety
Guest
Safety
Food
Safety
Staff
Safety
Risk
Profile
Policy &
Standards
Review
& Report
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Ways of
Working
Risk
Financing
Training &
Comms
Operate
& Control
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External recognition
• IHG’s risk management training programme was awarded the
Best Risk Training Programme in 2012 by the StrategicRISK
European Risk Management Awards;
• we were awarded the Bronze award for the Best Use of
Technology in Learning in the 2012 Training Journal Awards; and
• IHG remains a corporate member of the Chartered Institute of
Environmental Health (CIEH), reflecting the Group’s commitment
to high standards of environmental health and it offers some
safety training programmes which are accredited by the CIEH.
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Business Review: Risk management continued
2013 risk factors
Whilst the Major Risk Review focussed on a number of changing or emerging risks which represent the priorities for today, the Group is subject
to a variety of inherent risks which may have an adverse impact on the business operations, financial condition, turnover, profits, brands and
reputation. The following section describes the main risks that could materially affect the Group’s business. 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 risk 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 141.
Strategic risks
The Group is exposed
to the risks of political
and economic
developments
The Group is exposed to political, economic and financial market developments such as recession, inflation,
availability of credit and currency fluctuations that could lower revenues and reduce income. The current
outlook for 2013 may worsen due to escalating impacts of the US ‘fiscal cliff’, change in leadership in China,
uncertainty in Eurozone and ongoing unrest in the Middle East. In addition to trading conditions, the economic
outlook also affects the availability of capital to current and potential owners, which could impact existing
operations and health of the pipeline. 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 the Group’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 as well as the US dollar.
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, political or civil unrest, 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 preparation, contingency planning or recovery capability in relation
to a major incident or crisis may prevent operational continuity and consequently impact the value of our brands
and/or the reputation of the Group.
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 is
dependent upon a
wide range of external
stakeholders and
business partners
The Group is dependent upon the performance, behaviours and reputation of a wide range of business partners
and external stakeholders including, but not limited to, owners, contractors, lenders, suppliers, vendors, joint
venture partners, agents, third party intermediaries and other business partners. Further, the number and
complexity of interdependencies with stakeholders is evolving. Breakdown in relationships, poor vendor
performance, stakeholder behaviours or adverse reputations could impact on the Group’s performance
and competitiveness, guest experiences or the reputation of the Group or its brands.
Tactical risks
The Group is exposed
to a variety of risks
related to identifying,
securing and retaining
franchise and
management
agreements
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; 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 IHG
System or to secure management contracts. For example, the availability of suitable sites, market saturation,
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. This could result in franchisees prematurely terminating contracts which would
adversely impact overall System size and the Group’s financial performance.
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IHG Annual Report and Financial Statements 2012
The Group is exposed
to inherent risks in
relation to changing
technology and
systems
The Group is reliant upon certain technologies, systems and platforms for the running of its business,
particularly those which are highly integrated with business operational processes. Some of these are
dependent upon the products and services of third party technology providers. The failure of any such third party
provider to provide products and/or perform services could materially adversely impact the Group’s business.
The Group may also 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 adversely affect guest
experiences, lose customers, fail to attract new customers, incur substantial costs or face other losses.
Operational risks
The Group is reliant
on the reputation
of its brands and
the protection of
its intellectual
property rights
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 Group is exposed
to the risks related
to information security
and data privacy
Any event that materially damages the reputation of one or more of the Group’s existing or new brands and/or
fails to sustain the appeal of the Group’s existing or new brands to its customers may have an adverse impact
on the value of that brand and subsequent revenues from that brand or business.
In particular, where the Group is unable to enforce adherence to its safety or 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 Group’s brands.
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 travel comparison websites
and online travel agents), consumer preference and perception, or other factors affecting consumers’
willingness to purchase goods and services provided by the Group.
Given the importance of brand recognition to the Group’s business, the protection of its intellectual property poses
a risk due to the variability and change of controls, laws and effectiveness of enforcement globally. 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 value of the Group’s brands is partly derived from the ability to drive reservations through its proprietary
HolidexPlus reservations system, a central repository of the Group’s 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 and operational availability and/or the failure of a third party technology provider could lead
to prolonged service disruption and may result in significant business interruption, impact the guest booking
experience and subsequently impact on revenues. Lack of investment in these systems may also result in
reduced capability, stability and ability to compete. Additionally, failure to maintain an appropriate technology
strategy and select the right technology partners could erode the Group’s long-term competitiveness.
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, financial
reporting and commercial development. The information is sometimes held in different formats such as digital,
paper, voice and video and could be stored in many places including facilities managed by third party service
providers.
The threats towards the Group’s information are dynamic including cyber attacks, fraudulent use, loss or
misuse by employees and breaches of our vendors’ security arrangements amongst others. The legal and
regulatory environment and requirements set out by the payment card industry surrounding information
security and data privacy across the many jurisdictions in which the Group operates are constantly evolving.
If the Group fails to appropriately protect information and ensure relevant controls are in place to enable the
release of information through the appropriate channels in a timely and accurate manner, System performance,
guest experience and the reputation of the Group may be adversely affected. This can lead to revenue losses,
fines, penalties and other additional costs, including legal fees.
The Group is exposed
to a variety of risks
associated with safety,
security and crisis
management.
There is a constant need to protect the safety and security of our guests, employees and assets against natural
and man-made threats. These include but are not limited to exceptional events such as extreme weather, civil
or political unrest, violence and terrorism, serious and organised crime, fraud, employee dishonesty, cyber
crime, fire and day-to-day accidents, incidents and petty crime which impact the guest or employee experience,
could cause loss of life, sickness or injury and result in compensation claims, fines from regulatory bodies,
litigation and impact reputation. Serious incidents or a combination of events could escalate into a crisis which
if managed poorly could further expose the Group and its brands to significant adverse reputational damage.
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Business Review: Risk management continued
Operational risks continued
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, failure to 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. Some emerging markets may not have the required local expertise to operate a
hotel and may not be able to attract the right talent. Failure to attract and retain 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 required
to comply with
existing and changing
regulations across
numerous countries,
territories and
jurisdictions
Governmental regulations affect countless aspects of the Group’s business ranging from corporate
governance, health and safety, environmental, bribery and corruption, employment law and diversity,
disability access, relationships, data privacy and information protection, financial, accounting and tax.
Regulatory changes may require significant changes in the way the business operates and may inhibit the
strategy including the markets the Group operates in, brand protection, and use or transmittal of customer
data. If the Group fails to comply with existing or changing regulations, the Group may be subject to fines,
prosecution, loss of licence to operate or reputation damage.
The Group is exposed
to the risk of litigation
Certain companies in the Group are the subject of various claims and proceedings. The ultimate outcome of
these matters is subject to many uncertainties, including future events and uncertainties inherent in litigation.
In addition, the Group could be at risk of litigation from many parties, including but not limited to, guests,
customers, joint venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners
of hotels it manages. Claims filed in the US may include requests for punitive damages as well as compensatory
damages. Unfavourable outcomes of claims or proceedings could have a material impact on the Group’s results
of operations, cash flow and/or financial position. Exposure to significant litigation or fines may also affect the
reputation of the Group and its brands.
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 stakeholder groups such as 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 relevant regulatory requirements.
The Group is exposed
to a variety of risks
associated with its
financial stability and
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, the Group does require capital to fund some development opportunities and to
maintain and improve owned hotels. The Group is reliant upon 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 exposed
to funding risks in
relation to the defined
benefits under its
pension plans
The Group may face
difficulties insuring
its business
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. 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 118 to 121.
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.
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IHG Annual Report and Financial Statements 2012
Governance
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In this section we present our Board and Executive Committee, our corporate
governance processes and details of Directors’ remuneration and the structure
of senior executives’ pay for 2012.
46 The Board of Directors
Executive Committee
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Corporate governance
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56 Audit Committee Report
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58 Nomination Committee Report
59 Directors’ Remuneration Report
79 Other statutory information
Corporate Responsibility Committee Report
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interContinental Danang sun Peninsula Resort, Vietnam
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Governance
The Board of Directors
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1 Patrick Cescau, Non-Executive Chairman
2 Richard Solomons, Chief Executive
Appointed to the Board: 1 January 2013
Skills and Experience: From 2005 to 2008, Patrick was Group Chief
Executive of Unilever Group, having previously been Chairman of
Unilever PLC, Vice-Chairman of Unilever NV and Foods Director, following
a progressive career with the Company, which began in France in 1973.
Prior to being appointed to the Board of Unilever NV in 1999, as Finance
Director, he was Chairman of a number of the Company’s major operating
companies and divisions, including in the USA, Indonesia and Portugal.
Board Contribution: Patrick has held Board positions for more
than 12 years in leading global businesses and brings extensive
international experience in brands, consumer products, as well as
finance. As Chairman, Patrick is responsible for leading the Board and
ensuring it operates in an effective manner and promoting constructive
relations with shareholders.
Other Appointments: Currently a Non-Executive Director of International
Consolidated Airlines Group S.A. and the Senior Independent Director
and Non-Executive Director of Tesco PLC. Patrick is also a trustee of the
Leverhulme Trust and Chairman of the St Jude India Children’s Charity.
He was formerly a Senior Independent Director and Non-Executive
Director of Pearson PLC and a Director at INSEAD.
Appointed to the Board: 10 February 2003
Skills and Experience: A chartered accountant and a member of
the Executive Committee of the World Travel & Tourism Council. From
2003 to 2011 Richard was Chief Financial Officer and Head of Commercial
Development. Since joining the Group in 1992 he has held a variety of
senior financial and operational roles, including Chief Operating Officer
of The Americas Hotels division and Finance Director of the Hotels
business prior to the separation of Six Continents PLC in April 2003.
He became Chief Executive in July 2011.
Board Contribution: Richard has extensive experience in finance
and is responsible for the executive management of the Group and
ensuring the implementation of Board strategy and policy.
3 Tom Singer, Chief Financial Officer
Appointed to the Board: 26 September 2011
Skills and Experience: Prior to joining the Group, Tom was Group
Finance Director and a main board member of Bupa, a global healthcare
provider. Previously Group Finance Director and Chief Operating Officer
at William Hill PLC and Finance Director at Moss Bros Group PLC.
Board Contribution: Tom has extensive financial experience obtained
from UK and international finance roles. He is responsible, together with
the Board, for overseeing the financial operations of the Group and
setting its financial strategy.
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IHG Annual Report and Financial Statements 2012
4 Kirk Kinsell, President, The Americas
8 Jonathan Linen, Independent Non-Executive Director
Appointed to the Board: 1 August 2010
Skills and Experience: Kirk has 30 years’ experience in the hospitality
industry, including senior franchise positions with Holiday Inn
Corporation and ITT Sheraton. He joined the Group in 2002 as Senior
Vice President, Chief Development Officer for The Americas region.
He became an Executive Committee member in September 2007 and
was previously President, Europe, Middle East and Africa until June 2011.
Board Contribution: Kirk has vast experience in the hospitality industry
and is responsible for the business development and performance of all
the hotel brands and properties in The Americas region.
Appointed to the Board: 1 December 2005
Skills and Experience: Jonathan 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.
Board Contribution: Jonathan has over 25 years’ experience working
in the financial and branded sectors and is a member of the
Remuneration Committee.
Other Appointments: Currently a Non-Executive Director of Yum!
Brands, Inc. and Modern Bank, N.A., a US private banking company.
Jonathan also serves on a number of US councils and advisory boards.
5 Tracy Robbins, Executive Vice President, Human Resources
and Group Operations Support
Appointed to the Board: 9 August 2011
Skills and Experience: Tracy has over 27 years’ experience in human
resources roles in service industries. She 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. She also spent seven years at Tesco PLC as a Retail Human
Resources Manager where she implemented a culture change and
restructuring strategy across 150 stores.
Board Contribution: Tracy has many years of experience in human
resources and is responsible for global talent management, leadership
development, employee reward strategy and implementation,
organisational capability and operations support.
6 David Kappler, Senior Independent Non-Executive Director
Appointed to the Board: 21 June 2004
Skills and Experience: David is a fellow of the Chartered Institute of
Management Accountants. Formerly Chief Financial Officer of Cadbury
Schweppes plc and Non-Executive Chairman of Premier Foods plc.
He also served as a Non-Executive Director of Camelot Group plc and
HMV Group plc.
Board Contribution: David brings over 35 years’ knowledge and
experience in financial reporting, risk management and internal financial
controls. As Chairman of the Audit Committee he is responsible for
leading the Committee to ensure effective internal controls and risk
management systems are in place.
Other Appointments: David is a Non-Executive Director of Shire plc,
a member of the Europe Advisory Council of Trilantic Capital Partners
and Chairman of ADS2 Brands Limited.
7 Jennifer Laing, Independent Non-Executive Director
Appointed to the Board: 25 August 2005
Skills and Experience: Jennifer 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, she has over 30 years’
experience in advertising including 16 years with Saatchi & Saatchi.
Board Contribution: Jennifer has over 30 years’ experience in marketing
and advertising and is Chairman of the Corporate Responsibility
Committee, responsible for the Corporate Responsibility objectives
and strategy.
Other Appointments: Currently a Non-Executive Director of Hudson
Global, Inc., a US human resources company and Premier Foods plc,
a branded food producer.
9 Luke Mayhew, Independent Non-Executive Director
Appointed to the Board: 1 July 2011
Skills and Experience: Luke is currently a Non-Executive Director of
Brambles Limited, a global provider of supply chain and information
management solutions. Previously he served for 12 years on the Board
of John Lewis Partnership, including as Managing Director of the
Department Store Division. Luke also spent five years at British Airways
PLC and seven years at Thomas Cook Group PLC in senior positions.
He was also a Non-Executive Director of WH Smith PLC and Chairman
of Pets at Home Group Limited.
Board Contribution: Luke has over 30 years’ experience in senior
roles in the branded sector and is Remuneration Committee chairman
at Brambles Limited and has been since 2006. As Chairman of
the IHG Remuneration Committee he is responsible for setting the
remuneration policy.
Other Appointments: Currently a Non-Executive Director of
Brambles Limited.
10 Dale Morrison, Independent Non-Executive Director
Appointed to the Board: 1 June 2011
Skills and Experience: A founding partner of TriPointe Capital Partners,
a private equity firm. Dale was previously President and Chief Executive
Officer of McCain Foods Limited and President and Chief Executive Officer
of Campbell Soup Company.
Board Contribution: Dale has over 10 years’ experience in sales
and marketing positions, and over 25 years’ experience in general
management, having held senior positions in the branded foods sector.
Other Appointments: Currently a Non-Executive Director of International
Flavors & Fragrances Inc., a producer of flavours and fragrances, and
Chairman of Findus Group Limited, a frozen food company.
11 Ying Yeh, Independent Non-Executive Director
Appointed to the Board: 1 December 2007
Skills and Experience: Ying was formerly Vice President and Chairman,
Greater China Region, Nalco Company and Chairman and President,
North Asia Region, President, Business Development, Asia Pacific Region
and Vice President, Eastman Kodak Company. She was, for 15 years, a
diplomat with the US Foreign Service in Hong Kong and Beijing until 1997.
Board Contribution: Ying has over 20 years’ experience gained from
working in senior positions in global organisations across a broad range
of sectors.
Other Appointments: Currently a Non-Executive Director of AB Volvo,
a transportation related products and services company, ABB Ltd,
a global leader in power and automation technologies, and Samsonite
International S.A., a travel luggage company.
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Audit Committee member
Corporate Responsibility Committee member
Nomination Committee member
Remuneration Committee member
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Governance
Executive Committee
1
5
2
6
3
7
4
In addition to the Executive Directors on the Board, the Executive Committee comprises:
1 Keith Barr, Chief Executive, Greater China
5 Jan Smits, Chief Executive, Asia, Middle East and Africa
Joined the Group: 2000
Skills and Experience: Keith has over 20 years’ experience in the
hospitality industry. He has held senior appointments including Vice
President of Sales and Revenue Management, Vice President of
Operations and Chief Operating Officer, Australia, New Zealand and
South Pacific. He was appointed Managing Director, Greater China in
June 2009 and became Chief Executive, Greater China in April 2011.
Key Responsibilities: These include business development and
performance of all the hotel brands and properties in the Greater
China region.
2 Angela Brav, Chief Executive, Europe
Joined the Group: 2002
Skills and Experience: Jan has 31 years’ experience in the hospitality
industry. He held various senior positions in the Asia and Australasia
region. He became Managing Director, Asia Australasia in June 2009.
Following the amalgamation of our Middle East and Africa region
with our Asia Australasia region, he became Chief Executive, Asia,
Middle East and Africa in August 2011.
Key Responsibilities: These include business development and performance
of all the hotel brands and properties in Asia, Middle East and Africa.
6 George Turner, Executive Vice President, General Counsel
and Company Secretary
Joined the Group: 1988
Skills and Experience: Angela has over 24 years’ experience in the
hospitality industry, including hotel operations, franchise relations and
technology solutions. She has held various senior roles in the Group’s
US and European businesses prior to becoming Chief Operating Officer,
North America. She was appointed Chief Executive, Europe in August 2011.
Joined the Group: 2008
Skills and Experience: George is a solicitor and qualified to private
practice in 1995. Prior to joining the Group, George spent 12 years with
Imperial Chemical Industries PLC where he held a number of key positions
including Deputy Company Secretary. He was appointed Executive Vice
President, General Counsel and Company Secretary in January 2009.
Key Responsibilities: These include business development and
performance of all the hotel brands and properties in Europe.
3 Larry Light, Chief Brands Officer
Joined the Group: 2012
Skills and Experience: Larry is one of the world’s leading brand
consultants and was formerly Chief Marketing Officer for McDonald’s.
Larry has held previous executive roles in media, marketing and advertising
for BBDO Worldwide and Ted Bates Advertising and has made many
academic contributions on branding principles and methods.
Key Responsibilities: These include building on the Group’s strategy
of developing and nurturing a powerful portfolio of preferred Brands.
4 Eric Pearson, Executive Vice President and
Chief Information Officer
Joined the Group: 1997
Skills and Experience: Eric has a background in engineering and
technology and started his career at IHG over 15 years ago. Since
then he has held various senior positions in the field of emerging
technologies and global e-commerce. Eric most recently held the
position of Chief Marketing Officer for The Americas region.
Key Responsibilities: These include global technology, including IT
systems and information management, throughout the Group.
Key Responsibilities: These include corporate governance, risk
management, insurance, regulatory, internal audit, legal, corporate
responsibility and public affairs.
7 Steven Sickel, Interim Global Head of Sales and Distribution*
Joined the Group: 2000
Skills and Experience: Steven has over 20 years’ experience in sales and
marketing. Prior to joining the Group over 12 years ago, he was Managing
Director, Loyalty Marketing at Continental Airlines for eight years.
Key Responsibilities: Has interim responsibility for revenue
management, revenue systems and worldwide sales, in addition to his
existing responsibilities as Senior Vice President, Distribution Relationship
Marketing, where he is responsible for e-commerce, reservations and
loyalty programmes.
In April 2013 Kenneth MacPherson will join the Group as Chief Executive, Greater
China having previously been General Manager and Board Director of Sichuan
Shuijingfang Company Ltd, a Diageo joint venture in China. With effect from 1 June
2013 Keith Barr will be appointed to the newly created position of Chief Commercial
Officer, responsible for brands, sales, marketing and distribution, and will remain a
member of the Executive Committee. During the transition Larry Light will continue
in his role as Chief Brands Officer and as a member of the Executive Committee.
Following the transition Larry will stay on as a senior IHG advisor.
* Steven Sickel, who has been an interim member of the Executive Committee, will
return to his full-time role leading Distribution Relationship Marketing in June 2013.
48
IHG Annual Report and Financial Statements 2012
Governance
Corporate governance
Chairman’s overview
Since becoming Chairman at the beginning of January, I have sought
to understand and assess the effectiveness of governance at IHG.
I have considered the following areas in particular:
• the Board’s ability to (i) achieve its objectives and effectively
monitor progress against our strategy and (ii) to deliver strong
performance and create long-term shareholder value;
• the effectiveness of internal controls and risk management;
• the composition of the Board, including the balance of skills and
experience, its size and effectiveness; and
• the Board’s calendar of meetings, the meeting agendas and the
quality and level of information received by Directors and the
Board’s management of time.
I have sought the views of shareholders, the Directors and senior
management and I have also reviewed current and previous
evaluations of the Board’s performance and investor reports.
IHG is committed to conducting its business with high standards
of corporate governance and believes that good governance, with
robust practices and processes, is a fundamental part of being
a Responsible Business.
We have seen a couple of Board changes during 2012, with the
retirement of David Webster as Non-Executive Chairman on
31 December 2012 and the retirement of Graham Allan as a
Non-Executive Director on 15 June 2012. Dale Morrison was
appointed to the Corporate Responsibility Committee, in addition
to his membership of the Audit and Nomination Committees, in
November 2012. The progressive refreshing of the Board ensures
that we have appropriate continuation and a multi-skilled and
diverse Board.
Our dual listed status requires that the Corporate Governance Report
give details on our compliance against the UK Corporate Governance
Code (the Code) and also the New York Stock Exchange (NYSE) rules,
US securities laws and the rules of the Securities and Exchange
Commission (SEC). 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.
I am pleased to report in this section of the Annual Report on our
compliance against the principles and provisions of the Code,
available at www.frc.org.uk, and I can confirm that during 2012 we
complied with all aspects of the Code.
Patrick Cescau
Chairman
18 February 2013
Leadership
Board and Committee structure
The Board and Committee structure are pivotal in maintaining
compliance with best practice. IHG has a number of Board
and management committees which provide a sound
governance framework.
The Board
Board composition
The Board’s current composition of a Non-Executive Chairman, four
Executive and six Non-Executive Directors meets the requirement
of the 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 appointment to the Board.
Current Directors’ biographical details, including their main external
commitments, are set out on pages 46 and 47.
Non-Executive/Executive Director split
■ Chairman
9% (1)
■ Non-Executive Directors 55% (6)
■ Executive Directors
36% (4)
Board balance of skills
Collectively, the Board has an appropriate balance of skills,
experience, independence, knowledge and diversity to enable it
to discharge its duties and responsibilities effectively.
Board experience and skills
11 directors
9 directors
9 directors
5 directors
Branded
industry
Consumer
International Finance
2 directors
Marketing
& Sales
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Board meetings
Eight regular Board meetings are scheduled each year and additional
meetings are held as necessary. This includes a two-day strategy
meeting held in one of the Group’s key markets, in which the Board
considers the Group’s strategy and related issues. This provides an
opportunity for the business to have a wide-ranging dialogue with the
Board and for the Board to meet many of our senior management
and understand key geographical markets.
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49
Governance: Corporate governance continued
The Chairman, in conjunction with the Company Secretary, plans the
agenda for each Board meeting. Directors are briefed on the Group’s
financial performance and its operations, including commercial and
operational matters, relations with investors and updates on key
strategic plans, by means of comprehensive papers in advance of,
and by presentations at, Board meetings. The Board also receives
more in-depth presentations on a wide range of business issues in
a more informal context the evening before formal Board meetings.
Evening presentation topics during 2012 included updates from
the Global Operations Council, an economist presentation and
developments in our communications strategy.
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.
Below is a chart illustrating the approximate time the Board has spent
discussing key topics at scheduled Board meetings during the year:
Board allocation of time
■ Strategy
■ Operations
■ Finance and Risk
■ Governance
35%
30%
22%
13%
Board annual strategy meeting
During 2012, the Board held a two-day strategy meeting in Delhi,
India which enabled the Board to gain a greater understanding of
growth potential in India. The discussion topics included major trends
in the industry, key responses and actions planned by IHG, new
business development opportunities, execution of IHG’s strategy and
current progress, and an overview of the medium to long-term
financial impacts of our strategic choices.
Diversity
With a presence in nearly 100 countries and territories globally,
we believe that our leadership should reflect the diversity of our
employees, our guests and the local communities in which we
operate. The Board recognises the benefits of diversity throughout
our global business and firmly believes in the importance of a diverse
Board membership.
We continue to focus on providing an inclusive environment, in which
employees are valued for who they are and what they bring to the
Group, and in which talented individuals are retained through all
levels of the organisation. Further details on our approach to
diversity are set out on pages 33 and 58.
The current Board gender and nationality split is illustrated below:
Board gender split
(cid:31) Male
(cid:31) Female
73% (8)
27% (3)
Board nationalities
■ French
■ Chinese
■ American
■ British
9% (1)
9% (1)
27% (3)
55% (6)
Independent advice
All Directors have access to the advice and services of the Company
Secretary, the Company’s external legal advisers and the external
auditors, who are currently Ernst & Young LLP. There is an agreed
process by which Directors may seek independent professional
advice at the Company’s expense in the furtherance of their duties.
Conflicts of interest
The Board reviews potential conflicts of interest as a standing
agenda item at each Board meeting. At the December 2012 Board
meeting, each of the Directors were requested to disclose any
conflicts or potential conflicts by returning a questionnaire to the
Company Secretary. The Board considered all the responses to the
questionnaires and approved potential conflicts of interest as it
deemed appropriate. Directors have continuing obligations to update
the Board on any changes to these conflicts. Under the Articles of
Association the Board is authorised to approve Director conflicts
of interest.
Directors and officers liability (D&O) insurance
The Company maintains D&O insurance which covers Directors and
officers of the Company against defending civil proceedings brought
against them in their capacity as a Director or officer of the Company.
There were no indemnity provisions relating to the UK pension plan
for the benefit of the Directors during 2012.
Effectiveness
The Board believes that in order to be most effective there must be
a mix of skills and experience, background and length of service on
the Board. The current Non-Executive Directors’ lengths of tenure as
at 1 January 2013 are illustrated below:
Length of Non-Executive Director tenure
3 directors
3 directors
1 director
0-3 years
4-6 years
7-9 years
The structure, size and composition of the Board and succession
planning is continuously monitored by the Chairman and the
Nomination Committee. Further details can be found on page 58.
50
IHG Annual Report and Financial Statements 2012
Key responsibilities
The Board
Chairman
Chief Executive
• Strategic direction, development,
performance and control of the Group,
approval of strategic plans and capital
and revenue budgets;
• Leadership of the Board and in doing
so ensuring the efficient and effective
operation of the Board and its
Committees;
• overseeing corporate governance
matters and ensuring they are
addressed;
• representing the Group externally,
in particular with shareholders; and
• in conjunction with the Chief Executive
and Company Secretary, ensuring 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.
• reviewing significant investment
proposals;
• maintaining an overview and control of
the Group’s operating and financial
performance;
• monitoring the Group’s overall system
of internal controls and risk
management, governance and
compliance, considering regulatory
changes and developments; and
• ensuring that the necessary financial
and human resources are in place for
the Group to meet its objectives.
The Board has a schedule of matters
reserved to it which are available on the
website at www.ihgplc.com/investors under
corporate governance.
• Recommending to the Board, and
implementing, the Group’s strategic
objectives;
• managing business operations; and
• managing the executive management of
the Group and ensuring that the Board
understands Executive Directors’ views
on business issues.
The Chief Executive is assisted in meeting
his responsibilities by the Chief Financial
Officer and the Executive Committee (who
head up the Group’s principal operations
and functions).
Non-Executive Director
Senior Independent Director
Company Secretary
The Non-Executive Directors represent
a strong source of advice and judgement.
Part of their role is to constructively
challenge and help develop proposals on
strategy. Each Director has significant
external commercial experience and
together they have a broad range of skills
and experience.
• Being available to liaise with
shareholders who have concerns that
they feel have not been addressed
through the normal channels;
• Ensuring a good flow of information to
the Board and its Committees and
between the Executive Committee and
the Non-Executive Directors;
• being a sounding board for the
• facilitating all Director inductions; and
Chairman; and
• leading the performance evaluation
of the Chairman.
• advising the Board on corporate
governance and keeping the Board
up-to-date on all legal, regulatory and
other developments.
Biographical details of the members of the Board, including the Chairman, Chief Executive and Senior Independent Director, and Company
Secretary can be found on pages 46 to 48.
Board committees
The Board has established four permanent Committees to assist in the discharging of its responsibilities. These are as follows:
• Audit Committee;
• Corporate Responsibility Committee;
• Nomination Committee; and
• Remuneration Committee.
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Reports for each Committee setting out the membership, responsibilities, key issues discussed during the year and key priorities for 2013 are
set out on pages 56 to 78.
Each Committee has written terms of reference which are approved by the Board and subject to review every year. At the review in
December 2012 some minor amendments were made to update the Audit and Remuneration Committee’s terms of reference. Copies of the
terms of reference are available on the Company’s website www.ihgplc.com/investors under corporate governance/committees or from the
Company Secretary’s office on request.
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Corporate governance
51
Governance: Corporate governance continued
Set out below is a table showing the current membership of each Committee:
Directors
Patrick Cescau
Designation
Non-Executive Chairman
Richard Solomons
Chief Executive
Kirk Kinsell
Tracy Robbins
Tom Singer
David Kappler2
Jennifer Laing2
President, The Americas
Executive Vice President, Human Resources
and Group Operations Support
Chief Financial Officer
Senior Independent Non-Executive Director
Non-Executive Director
Jonathan Linen2
Non-Executive Director
Luke Mayhew2
Dale Morrison2
Ying Yeh2
Non-Executive Director
Non-Executive Director
Non-Executive Director
1 Committee Chairman.
2 In the Board’s view all Non-Executive Directors are independent.
Management committees
Details of our management committees are set out below:
Audit
Committee
Corporate
Responsibility
Committee
Nomination
Committee
X1
Remuneration
Committee
X
X1
X
X
X
X1
X
X
X
X
X
X
X
X
X
X
X1
X
Executive Committee
Its role is to consider and manage a range of important strategic and business issues facing the Group. Amongst many other things 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.
Governance: The Committee is chaired by the Chief Executive and usually meets monthly. As set out on page 48, members of the
Committee comprise the Executive Directors and the most senior executives from the Group. The Committee recommends to the Board
significant decisions which require its approval.
Disclosure 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.
Governance: The Committee is chaired by the Group’s Financial Controller. Members of the Committee comprise the Company Secretary
and other senior executives. The Committee reports to the Chief Executive, the Chief Financial Officer and the Audit Committee.
General Purposes Committee
The Committee 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.
Governance: The 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 and the other Executive Directors are notified in advance
of the business of the meeting.
Copies of the terms of reference are available on the Company’s website www.ihgplc.com/investors under corporate governance/committees
or from the Company Secretary’s office on request.
52
IHG Annual Report and Financial Statements 2012
A summary of each Director’s attendance at the Board and its principal Committee meetings during 2012 is shown below:
Directors
Designation
Richard Solomons Chief Executive
Kirk Kinsell
President, The Americas
Tracy Robbins
Executive Vice President, Human Resources
and Group Operations Support
Tom Singer
Chief Financial Officer
David Kappler
Senior Independent Non-Executive Director
Jennifer Laing
Non-Executive Director
Jonathan Linen
Non-Executive Director
Luke Mayhew
Non-Executive Director
Dale Morrison
Non-Executive Director
Ying Yeh
Non-Executive Director
Former Directors
David Webster1
Non-Executive Chairman
Graham Allan2
Non-Executive Director
Total meetings held
Board
Corporate
Audit Responsibility
Nomination Remuneration
Committees
8/8
8/8
6/83
8/8
8/8
8/8
6/83
8/8
8/8
8/8
7/83
3/3
8
n/a
n/a
n/a
n/a
5/5
5/5
n/a
n/a
5/5
n/a
n/a
2/2
5
3/3
n/a
n/a
n/a
n/a
3/3
n/a
3/3
1/1
3/3
n/a
1/1
3
n/a
n/a
n/a
n/a
5/5
5/5
3/53
5/5
5/5
5/5
4/4
2/2
5
n/a
n/a
n/a
n/a
6/6
n/a
6/6
6/6
n/a
6/6
n/a
n/a
6
1 Patrick Cescau was appointed as Non-Executive Chairman on 1 January 2013 following the retirement of David Webster on 31 December 2012.
2 Graham Allan resigned as a Non-Executive Director on 15 June 2012.
3 Tracy Robbins missed two Board meetings due to health reasons. Jonathan Linen missed two Board meetings and two Nomination Committee meetings; one due to
illness and the other due to a prior commitment known to the Board in advance. David Webster missed one Board meeting due to a prior work commitment, known to the
Board in advance.
Annual re-election of Directors
The Directors have agreed to retire at each Annual General Meeting
(AGM) and offer themselves for re-election annually in line with the
Code recommendations. Biographical information about the
Directors can be found on pages 46 and 47 and shareholders will
receive further information on Directors seeking election and
re-election as part of the Notice of AGM 2013. Details of Directors’
service contracts and appointment terms are set out on page 74.
Director induction, training and development
Director induction
There is a tailored induction programme for all Director
appointments which is designed to meet their individual needs
and to introduce them to, and familiarise them with, the principal
activities of the Group as well as with central and regional
management. Throughout their appointment with the Company,
Directors are encouraged to request further information as
they consider necessary to fulfil their role.
Key aspects of the induction are as follows:
• familiarisation with the Group, this includes areas such as
the Board structure and its Committees, Group structure
and strategy, the principal activities of the Group and its
approach to risk and risk management;
• meetings with both senior executives and regional and
central management from various functions across the
Group, including Business Reputation and Responsibility,
Human Resources, Corporate Affairs, Global Strategy and
Corporate Development, Global Internal Audit and Financial
Planning and Analysis;
• meetings with institutional investor groups and key institutional
investors to gain an understanding of their views; and
• visits to our global corporate offices and hotels to provide
a greater insight into the business.
All induction programmes accord with best practice guidelines and
are tailored to each Director’s individual requirements.
On appointment Non-Executive Directors are advised of the likely
time commitment for the role. Annually, as part of the Board
performance evaluation, the Chairman reviews the time each
Non-Executive Director has dedicated to the Company during
the year.
Director training and development
The updating of all Directors’ skills and knowledge, ongoing training
and development and understanding of the Group’s business and
operations is a progressive exercise. This is accomplished at Board
and Committee meetings through business presentations and by
visits to hotels and other premises in the regions.
Board legal and regulatory briefings
During 2012, the Directors received briefings on a number of legal
and regulatory developments, including the Financial Reporting
Council’s updates on changes to the Code and guidance to Audit
Committees and draft regulations on the reform of executive
remuneration. The Chairman regularly reviews and agrees training
and development needs with each Director. In addition, the Company
Secretary regularly makes the Board aware of training opportunities
and additional information to enable them to keep up-to-date and
enhance their knowledge of the business.
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Corporate governance
53
Governance: Corporate governance continued
Board performance evaluation
IHG has always recognised the importance of evaluating the
performance of the Board, its main Committees and its Directors.
Accordingly, an independent external facilitator assists in the
performance evaluation.
2012 Board performance evaluation process
The 2012 evaluation of the Board and its Committees was conducted
with external assistance in accordance with the guidance in the Code. The
Board performance evaluation was conducted with Lintstock Limited,
an independent facilitator, who has no other connection with IHG.
The Board performance evaluation questionnaires covered a variety
of topics including:
• Board composition, succession planning and dynamics;
• Board advisors, Board papers and effectiveness
of the Committees;
• Board expertise and how the Board spends its time;
• the Board’s strategic and operational oversight;
• input into risk management and internal controls; and
• investor and stakeholder relationships.
2012 Board performance evaluation results
The results of the questionnaires were collated and presented to the
Board for discussion at its meeting in February 2013. The feedback
confirmed that the Board and each of its Committees continue to
operate effectively and that each Director continues to make an
effective contribution and retains a strong commitment to the role.
2012 and 2011 Board performance evaluation outcomes and action plan
2012
Observations
Action taken/to be taken
2011
Observations
Actions taken
Deepen the Board’s focus on
the Group’s strategy.
Retain focus on strategy with
particular attention on the
external environment.
Improve meeting processes to
enable more time for wider
Board discussion.
Board agendas are regularly
reviewed to ensure sufficient
time for Board discussion.
Ensure the smooth integration
of the new Chairman.
A tailored induction has
been completed with
ongoing support.
Allot adequate time on agendas
to review the effectiveness of
past decisions.
Board agendas are assessed
to ensure adequate time is
allocated to all matters.
Continue to improve the
meeting process including
senior management
presentations and papers
to the Board.
Senior management to review
the optimum level of detail in
presentations and papers.
Continue to encourage
discussion on key strategic
issues facing the Group.
Facilitation of discussions
on key strategic issues has
been addressed.
Consider growth opportunities
for the Group.
Continue to review growth
opportunities for the Group.
Build upon and improve
oversight of the main risks
affecting the Group.
Provision of additional
materials as necessary to the
Board and increased discussion
at Board meetings.
Individual Director performance evaluations
The performance evaluations of members of the Board are carried
out by the following individuals:
Director being appraised
Appraisee
Chairman
Chief Executive
All Directors complete the externally
produced questionnaire. The results are
then reviewed by the Senior Independent
Director and Non-Executive Directors
excluding the Chairman.
Chairman and all Non-Executive
Directors meet to discuss performance.
Executive Directors
Chief Executive.
Non-Executive
Directors
Chairman.
Accountability
Internal controls and risk management
The Board has ultimate responsibility for ensuring that business
risks are effectively managed. The Board has considered and
approved the risk management policy and has delegated regular
review of the risk management procedures to the Audit Committee.
The review was carried out through a monitoring process, which
accords with the Code and the Turnbull Guidance.
Day-to-day management of business risks is the responsibility of
the Executive Committee. These are managed through established
processes which 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 processes relying upon a dynamic risk
assessment and assurance mapping process (through reports
from the Head of Global Risk Management, the Head of Global
Internal Audit, and, as appropriate, from management) providing
assurance that the significant risks faced by the Group are being
identified, assessed, prioritised, evaluated and appropriately
managed and mitigated, having regard to the balance of risk,
cost and opportunity.
In addition, the Audit Committee reviews:
• regular reports from management, Global Risk Management,
Global Internal Audit and the external auditors on the
effectiveness of systems for internal controls, financial reporting
and risk management;
• the timeliness and effectiveness of corrective action taken by
management; and
• material financial and non-financial risks.
54
IHG Annual Report and Financial Statements 2012
For further details on the Group’s risk management system and 2013
risk factors see pages 38 to 44.
Board annual review of internal controls and risk management
The Board conducted a review of the effectiveness of the system
of internal controls and risk management during the year ended
31 December 2012. This covered all material controls, including
financial, operational and compliance controls, the principal risks
affecting the Group, the risk management systems, and also took
into account any material developments since the year end.
Whilst areas for continuous improvement have been identified and
actions initiated as a result of the Group’s processes, no significant
shortcomings have been identified from the 2012 risk assessments.
Internal controls and managing risk
The system of internal controls and risk management aims to
support the delivery of our strategy by managing the risk of failing to
achieve business objectives. As such it must be recognised that it can
only provide reasonable and not absolute assurance.
The Group continues to insure against risks but 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 on pages 38 to 44.
Risk register
In 2012, the Audit Committee was satisfied that the Group has an
effective risk management system and the Executive Committee,
Audit Committee and the Board reviewed and agreed the major risks
affecting the Group.
Global internal audit plan
Annually the Audit Committee discusses the internal audit plan and
approves its nature and scope for the forthcoming year. This plan
is reviewed on a quarterly basis to ensure coverage of emerging
risks. The Audit Committee then instructs Global Internal Audit
to undertake an agreed schedule of audits during which the
effectiveness of the Group’s internal controls are assessed.
Global Internal Audit (GIA) Effectiveness Review
During the year a GIA Effectiveness Review was carried out and
reported to the Audit Committee. The review contained input from
auditees, external auditors and senior management and assessed
GIA against the Institute of Internal Auditors (IIA) Standards. The
following conclusions were highlighted:
• the GIA audit methodology standards are aligned to IIA Standards
and recognise best practice;
• the dynamic risk assessment and assurance mapping processes
enable GIA to effectively identify and monitor emerging risks; and
• working in collaboration with other Group functions has
increased effectiveness of audits and reduced duplication.
The Audit Committee therefore concluded that during the year the
Group’s systems of internal controls and risk management, including
the internal audit activities, were operating effectively.
Financial reporting controls
The key financial controls across all our business units have been
identified and evaluated, in particular, to comply with our US
obligations, arising from the Sarbanes-Oxley Act 2002. 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.
Engagement
Shareholder relations
The Board takes its responsibility to represent and promote the
interests of its shareholders seriously and believes it is very
important to fully engage with its shareholders. Details of
shareholder profiles as at 31 December 2012 can be found
on page 137.
Shareholder engagement
The Board has engaged with shareholders in a number of ways
during 2012, which included:
• half-year and full-year formal reporting;
• presentations by the Chief Executive and Chief Financial Officer
to institutional investors, analysts and the media following results
announcements;
• a programme of meetings throughout the year with major
institutional shareholders;
• telephone conferences after the release of first and third quarter
results; and
• meeting the shareholders face-to-face and responding to
questions at the Annual General Meeting.
To enable as many shareholders as possible to access conferences
and presentations, telephone dial-in facilities are made available
in advance and live audio webcasts are made available after the
presentation, together with associated data and documentation.
These can be found at www.ihgplc.com/investors under
financial library.
Currently around 30 sell-side research analysts publish research on
the Group; their details are available at www.ihgplc.com/investors
under analysts’ details.
Meetings with major institutional shareholders
A programme of meetings throughout the year is arranged with
major institutional shareholders. These meetings provide 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.
Board shareholder updates
Facilitated, structured meetings are encouraged with shareholders
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.
Annual General Meeting (AGM)
Additionally, the AGM provides a useful forum for one-to-one
communication with private shareholders, many of whom are also
guests in our hotels. At the AGM, shareholders receive presentations
on the Company’s performance and may ask questions of the Board,
including the Chairman and Chairmen of the Committees.
Re-engaging with lost shareholders
We continue to be supported by ProSearch to locate shareholders
who have failed to keep their details up-to-date. To date the
programme has been very successful and many asset reunifications
have been made.
Engagement on remuneration matters
Details of the Remuneration Committee’s engagement with
shareholders is set out on page 61.
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Corporate governance
55
Governance
Audit Committee Report
The Audit Committee takes responsibility for reviewing the integrity of the Group’s
financial reporting systems, the effectiveness of internal controls and risk management
systems and the appointment and work of the internal and external auditors.
Committee membership
Member
Role
David Kappler
Chairman
Graham Allan
Member
Jennifer Laing
Member
Dale Morrison
Member
Total meetings held
Meetings
attended
Appointed to
Committee
from
Length of
tenure to
31 Dec 2012
Jun 2004
8 yrs 7 mths
(retired
Jun 2012)
n/a
Aug 2005
7 yrs 5 mths
Jun 2011
1 yr 7 mths
5/5
2/2
5/5
5/5
5
Governance
The Committee’s terms of reference 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 Committee was in place throughout 2012. All Committee
members are independent. The Committee had the opportunity
to meet with the internal and external auditors on at least four
occasions in the year without the presence of management.
The Board is satisfied that David Kappler has recent and relevant
financial experience as a qualified accountant and former CFO of
Cadbury Schweppes plc. Details of the qualifications and experience
of the other Committee members are set out on pages 46 and 47.
At the invitation of the Committee, the Chief Executive, Chief Financial
Officer, Head of Global Internal Audit (GIA) and external auditors
(Ernst & Young LLP (E&Y)), attend meetings.
Responsibilities
The Board delegates authority to the Committee under five areas:
internal controls and risk management, financial reporting, internal
audit, external audit and compliance, whistleblowing and fraud.
The Committee’s key responsibilities are set out below:
• to review the integrity of the Company’s internal financial
controls, internal controls and risk management systems,
as well as review reports from management, GIA and the
external auditors;
• to review the Group’s processes for detecting and addressing
fraud, misconduct and control weaknesses and consider the
response to any such occurrence, including overseeing the
whistleblowing process;
• to review and maintain the role and effectiveness of the
internal audit function;
• to oversee the Group’s relations with our external auditors and
make recommendations on their appointment, reappointment,
removal and independence;
• to pre-approve the external auditors’ non-audit work and
associated fees; and
• to oversee the Group’s Code of Ethics and Business Conduct
and associated procedures for monitoring adherence.
The Committee reviews the relationship the Group has with E&Y
annually and for the year ended 31 December 2012, the Committee
was satisfied with the independence, objectivity and effectiveness
of the relationship with E&Y as the external auditors.
Non-audit services
A key factor that may impair the external auditors’ independence is a
lack of control over the volume of non-audit services. To address this
issue all proposals for non-audit work are subject to pre-approved
limits and additionally there is a prohibition on the undertaking of
certain services. The Committee is aware of, and sensitive to,
investor body guidelines on non-audit fees. For information on fees
paid to E&Y for non-audit work during 2012 see page 100.
Internal audit
The Head of GIA is responsible for reporting and ensuring findings of
internal audit work are brought to the attention of local management
and the Committee as appropriate. During 2012 GIA operated in all
the Group’s principal regions.
Key issues discussed in 2012 meetings
During 2012, the Committee considered, amongst others, the
following matters:
• review of the quarterly, interim and full-year financial results
in advance of their consideration by the Board;
• review of E&Y’s quarterly, interim and full-year reports as
well as all non-audit work carried out by E&Y to ensure audit
independence and objectivity are safeguarded;
• the effectiveness of E&Y, in particular their objectivity,
independence and reappointment in advance of their
consideration by the Board;
• the scope of GIA’s annual internal audit plan and the review
of GIA’s effectiveness and compliance with professional
standards;
• developments in corporate governance and accounting
standards in the UK and US and compliance with
Sarbanes-Oxley Act 2002;
• reports from the Head of Global Risk Management on the
activities of Global Risk Management;
• review of the disclosure controls and procedures operated
by the Group;
• review of reports on significant incidents of fraud and
whistleblowing; and
• the effectiveness of the Committee and the continuing
appropriateness of its terms of reference.
Key priorities for the Committee in 2013
During 2013 the Committee will continue its role in reviewing the
integrity of the Company’s internal financial controls, internal
controls and risk management systems.
Independence of external auditors
E&Y have been the Group’s independent external auditors since 2003.
To ensure the auditors’ independence is safeguarded, lead audit partners
rotate every five years. In 2011 the lead audit partner was rotated.
David Kappler
Chairman of the Audit Committee
18 February 2013
56
IHG Annual Report and Financial Statements 2012
Governance
Corporate Responsibility Committee Report
The Corporate Responsibility Committee takes responsibility for considering the
strategy, policies, management, measurement systems and key programmes and
projects for Corporate Responsibility across the Group.
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Key priorities for the Committee in 2013
Corporate Responsibility continues to be an area of great importance
to IHG. During 2013 the Committee will continue to review Corporate
Responsibility strategy, objectives and progress particularly with
respect to rolling out key Corporate Responsibility programmes
around the world.
For further information on our approach to Corporate Responsibility
matters see pages 34 to 37.
Jennifer Laing
Chairman of the Corporate Responsibility Committee
18 February 2013
Committee membership
Member
Role
Jennifer Laing
Chairman
Graham Allan
Member
Luke Mayhew
Member
Dale Morrison
Member
Richard Solomons Member
Ying Yeh
Member
Total meetings held
Meetings
attended
Appointed to
Committee
from
Length of
tenure to
31 Dec 2012
Feb 2009
3 yrs 11 mths
(retired Jun
2012)
n/a
Jul 2011
1 yr 6 mths
Nov 2012
2 mths
Jun 2011
1 yr 7 mths
Aug 2011
1 yr 5 mths
3/3
1/1
3/3
1/1
3/3
3/3
3
Governance
The Committee’s terms of reference 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 Committee was in place throughout 2012.
The majority, four out of the five members, of the Committee are
Non-Executive Directors as required under its terms of reference.
Responsibilities
The Board delegates authority to the Committee for all Corporate
Responsibility matters. The Committee’s key responsibilities are set
out below:
• to review and advise the Board on Corporate Responsibility
objectives and strategy;
• to review policies and approaches to sustainable development
and Corporate Responsibility matters;
• to review reports on performance and progress against KPIs
relating to Corporate Responsibility;
• to review internal and external audit reports on Corporate
Responsibility and monitor progress towards actions; and
• to review the content of the Corporate Responsibility Report.
Key issues discussed in 2012 meetings
During 2012, the Committee considered, amongst others, the
following matters:
• the Group’s approach to Corporate Responsibility;
• review of the impact of the IHG Shelter in a Storm Programme
including specific case studies and learnings for the future;
• review of the key Green Engage, IHG Shelter in a Storm
Programme and IHG Academy 2013 objectives and 2012
achievements;
• review of the impact of the IHG Academy roll-out and its
successes to date;
• further embedding of our Corporate Responsibility policies
across the business;
• receive an update on competitor Corporate Responsibility
strategy and execution, and the implications for IHG; and
• review stakeholder engagement and communications.
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Audit Committee Report and Corporate Responsibility Committee Report
57
Governance
Nomination Committee Report
The Nomination Committee takes responsibility for considering the structure,
size and composition of the Board, advising on succession planning and making
appropriate recommendations to ensure the Board retains the appropriate level
of skills and experience.
Committee membership
Member
Role
Meetings
attended
David Webster1
Chairman2
4/4
Graham Allan
Member
2/2
David Kappler
Member
Jennifer Laing
Member
Jonathan Linen
Member
Luke Mayhew
Member
Dale Morrison
Member
Ying Yeh
Member
Total meetings held
5/5
5/5
3/5
5/5
5/5
5/5
5
Appointed to
Committee
from
(retired
Dec 2012)
(retired
Jun 2012)
Length of
tenure to
31 Dec 2012
n/a
n/a
Jun 2004
8 yrs 7 mths
Aug 2005
7 yrs 5 mths
Dec 2005
7 yrs 1 mth
Jul 2011
1 yr 6 mths
Jun 2011
1 yr 7 mths
Dec 2007
5 yrs 1 mth
1 Patrick Cescau was appointed as Non-Executive Chairman and Chairman of the
Nomination Committee on 1 January 2013 following the retirement of David
Webster on 31 December 2012.
2 The Chairman does not chair when the Committee is considering matters relating
to his position. In these circumstances David Kappler, Senior Independent
Director, usually acts as Chairman of the Committee.
Governance
The Committee’s terms of reference 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 Committee was in place throughout 2012. All Committee
members excluding the Chairman are independent as required
under its terms of reference.
Responsibilities
The Committee’s key responsibilities are set out below:
• to review the structure, size and composition of the Board and
its Committees;
specification setting out the particular skills, knowledge and experience
required for this particular position. Accordingly, the Committee
nominated Patrick Cescau for the position and he was subsequently
appointed by the Board, with such appointment effective from
1 January 2013.
Succession planning
The Board plans for its own succession with the support of
the Committee. Independent consultants are engaged for all
Non-Executive Director appointment searches.
The Committee remains focussed, on behalf of the Board, on Board
succession planning for both Executive and Non-Executive Directors.
By way of example, since 2008 eight Directors have joined the Board
and seven have left. During 2012 the Committee also considered a
more detailed review of the talent pool within the business, looking
to future succession planning for Executive Directors.
Diversity
The Board is committed to supporting women in reaching their
full potential and we welcomed Lord Davies’ Report on ‘Women
on Boards’ and fully support its recommendations. We have
announced our aspiration to continue to retain a minimum of 25%
female representation on the Board.
Whilst all appointments are made on merit, we seek to ensure the
Board maintains an appropriate balance through a diverse mix
of skills, experience, knowledge and background. Currently, the
Board includes three women (27%) and four nationalities.
Key issues discussed in 2012 meetings
During 2012, the Committee considered, amongst others, the
following matters:
• search for a new Board Chairman using external consultants;
• candidates for a new Audit Committee Chairman;
• candidates for a Non-Executive Director;
• to evaluate the balance of skills, experience, independence,
knowledge and diversity on the Board, taking into account the
Group’s strategic priorities;
• annual review of the composition, skills, diversity, knowledge
and experience of the Board;
• recommendations of Directors for re-election at the 2013
• to make recommendations on suitable candidates for approval
AGM; and
by the Board;
• to engage external consultants, as appropriate, to identify,
review and recommend candidates for Board appointments
and ensure that appointments are made on merit against
objective criteria, including the ability to commit time and with
due regard for the benefits of diversity, including gender; and
• to advise the Board on succession planning for Executive and
Non-Executive Directors and the Executive Committee in light
of the need for progressive refreshing of the Board and the
skills and experience needed in the future.
2012 Board appointments
Following notification by David Webster of his intention to retire and
step down as Chairman, external search agents were engaged. The
search for a new Chairman was undertaken against a detailed job
• review of performance appraisals for members of the Executive
Committee and Executive Committee succession planning.
Key priorities for the Committee in 2013
During 2013, the Committee will continue to search for a new Audit
Committee Chairman and Senior Independent Director and make
recommendations to ensure the Board retains the appropriate level
of skills, knowledge and experience whilst taking into account the
recommendations of the Davies Report.
Patrick Cescau
Chairman of the Nomination Committee
18 February 2013
58
IHG Annual Report and Financial Statements 2012
Governance
Directors’ Remuneration Report
Dear Shareholder
2013 is a year of transition for directors’ remuneration reports. We
have prepared this report before new final Government regulations
on executive remuneration disclosure are issued. However, we have
reflected as much as is practical of the direction and spirit of the
draft regulations in both the content and structure of this report.
There is more information on areas such as how we recognise risk
in our remuneration policy and our interactions with stakeholders,
including data on previous shareholder votes. We have historically
tried to make this report transparent and easy to read and in recent
years already included, for example, the single figure for Executive
Directors’ remuneration and a remuneration policy summary table.
Last year, I used this introduction to set out the key elements of this
report. This year, there is an overview at the start of the report itself.
However, I would like to highlight the following points in particular.
Executive Director remuneration at IHG has evolved during 2012:
• the measures under the Annual Bonus Plan (ABP) have been
changed for Executive Directors in 2013. To distinguish it from
the previous measures, we refer to it as the Annual Performance
Plan (APP). Although not a radical change, the APP does align
annual incentives more closely to the key elements of our
strategic priorities of Brands, People and Delivery; and
• the 2010/12 Long Term Incentive Plan (LTIP), which will vest
in 2013, is the last LTIP using the previous measures. The
2011/13 LTIP, which vests in 2014, is the first LTIP including the
new corporate performance measures of net rooms growth
and RevPAR.
Remuneration for Executive Directors in 2012 reflects another year
of strong results, as shown in the table below:
EBIT
Adjusted EPS*
TSR*
2012
+9.8%
+21.7%
+28.2%
2011
+25.9%
+2.5%
+29.8%
2010
+22.3%
+9.6%
+8.0%
* Annualised three-year changes.
Remuneration has reflected these results with an ABP award just
above target for 2012 and a maximum vesting of the 2010/12 LTIP cycle.
Contents of Directors’ Remuneration Report
1. The Remuneration Committee
2. Policy: remuneration policy for 2013
A – Key remuneration principles
B – Link with strategy
C – Remuneration policy summary
D – Fixed and variable pay mix
E – Salary and benefits
F – APP
G – LTIP
H – Pensions
I – Executive share options
J – Clawback
We continually keep all aspects of remuneration under review
and listen to the views of shareholders, Government and other
stakeholders. We believe our current approach to remuneration
is responsible and appropriate as it:
• is structured to drive execution of our business strategy;
• aligns reward with the creation of shareholder value;
• allows the Company to recruit and retain talent in a competitive
global sector;
• incorporates measures and safeguards to ensure that high
rewards only follow strong, balanced results; and
• incentivises the delivery of long-term, sustainable business
growth and shareholder value, rather than the pursuit of
unsustainable short-term results.
The targets for 2013 are stretching and will require a strong corporate
performance to achieve similar levels of total remuneration.
Luke Mayhew
Chairman of the Remuneration Committee
18 February 2013
Directors’ Remuneration Report glossary of terms
ABP
APP
DB
DC
Annual Bonus Plan
Annual Performance Plan
Defined Benefit
Defined Contribution
DJGH index
Dow Jones Global Hotels index
EBIT
EPS
ICETUS
IC Plan
LTIP
OPR
RevPAR
TSR
Earnings before interest and tax
Earnings per share
InterContinental Executive Top-up Scheme
InterContinental Hotels UK Pension Plan
Long Term Incentive Plan
Overall performance rating
Revenue per available room
Total Shareholder Return
3. Implementation: outcomes for 2012
A – Single figure remuneration in 2012
B – Executive shareholding requirement
C – ABP
D – LTIP
E – Pensions
4. Other matters
A – Share capital
B – Performance graph
C – Non-Executive Directors’ pay policy and structure
D – Service contracts
5. Audited information on Directors’ emoluments
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Nomination Committee Report and Directors’ Remuneration Report
59
Governance: Directors’ Remuneration Report continued
Overview
Report structure
In June 2012, the UK Government Department for Business, Innovation & Skills (BIS) published draft regulations setting out the proposed
content of a new two-part Directors’ Remuneration Report to consist of:
• a forward-looking remuneration policy report that sets out the parameters for directors’ pay, on which shareholders will have
a binding vote; and
• an implementation report that explains how the agreed policy has been implemented and the resulting payments, on which
shareholders will have an advisory vote.
Although the new regulations do not apply to IHG’s Directors’ Remuneration Report until 2013, we have reflected as much as is practical
of the direction and spirit of the draft BIS regulations, including the proposed structure, addressing firstly remuneration policy for 2013,
and then the 2012 outcomes.
IHG, and a number of other FTSE 100 companies, worked with the Financial Reporting Council’s Financial Reporting Lab in making
recommendations on the composition of the single figure disclosure that will be required under the new regulations.
This report has been prepared by the Remuneration Committee and has been approved by the Board. It complies with the Companies Act 2006
and related regulations. It will be put to shareholders for approval at the 2013 Annual General Meeting (AGM).
Summary of IHG’s Executive Director remuneration policy for 2013
Fixed remuneration
Variable remuneration
Salary
Pension
Benefits
Annual incentive – APP
Long-term incentive – LTIP
50% cash and 50% shares deferred for three years
Linked to individual and company achievement using
performance measures relating to:
– Brands;
– People; and
– Delivery.
Share awards vest after three years if performance
conditions are met:
– 25% relative net rooms growth;
– 25% relative RevPAR growth; and
– 50% relative TSR v the DJGH index.
Minimum shareholding requirement
Approach for members of the Executive Committee
Members of the Executive Committee are rewarded on the same
basis as the Executive Directors, participating in the same incentive
plans and with a similar split between fixed and variable
remuneration, and between cash and shares.
Key executive remuneration principles
Executive remuneration should drive delivery of strategic objectives by:
• attracting and retaining high-quality executives in an
environment where compensation is based on global market
practice;
• aligning rewards for executives with the achievement of
business performance targets, strategic objectives and returns
to shareholders;
• supporting equitable treatment between members of the same
senior executive team; and
• facilitating critical global assignments and relocations.
Factors taken into account in determining pay
In making decisions in relation to 2012 pay, the Committee took
into account:
• the achievement of corporate performance targets under the
ABP and LTIP (see pages 71 and 72);
• an appropriate mix of fixed and variable pay, with an emphasis
on driving performance through approximately two-thirds of
total pay being variable (see page 66);
• pay and conditions elsewhere in the Group, including the
average budgeted salary increase for the employee population
in the table below; and
• the corporate performance indicators in the table below.
Key changes in 2012
Changes to the annual incentive for senior executives, including the
Executive Directors, were approved by the Committee for 2013, with
the objective of more closely aligning reward to the delivery of our
strategic objectives of Brands, People and Delivery.
Corporate performance indicators
Operating profit before exceptional items
Full-year dividend (excluding any special dividends and capital returns)
Three-year total TSR (annualised)
Three-year adjusted EPS (annualised)
Budgeted salary increase (US and UK corporate employees)
2012
+9.8%
$614m†
2011
+25.9%
$559mt
2010
+22.3%
$444m
64 cents
(41.2p) per share
55 cents
(34.5p) per share
48 cents
(30.0p) per share
+28.2%
+21.7%
3.0%
+29.8%
+2.5%
3.0%
+8.0%
+9.6%
2.9%
† Includes one significant liquidated damages receipt in 2012 of $3m in The Americas.
t Includes two significant liquidated damages receipts in 2011; $10m in The Americas and $6m in Asia, Middle East and Africa.
60
IHG Annual Report and Financial Statements 2012
1. The Remuneration Committee
Committee membership
The independent Non-Executive Directors who served on the
Committee during 2012 were as follows:
Member
Luke Mayhew
Role
Chairman
Meetings attended
6/6
Date of appointment
1 July 2011
David Kappler
Member
Jonathan Linen
Member
Ying Yeh
Member
Total meetings held
6/6
6/6
6/6
6
The following attended all meetings:
21 June 2004
1 December 2005
1 December 2007
David Webster (Chairman of the Board until 31 December 2012);
Richard Solomons (Chief Executive); and Tracy Robbins (Executive
Vice President, Human Resources and Group Operations Support).
Committee meetings were also attended by the following individuals
who provided advice to the Committee on remuneration proposals:
Lori Gaytan (Senior Vice President, Americas Human Resources
and Global Reward) – February, May and June meetings; and
Jean-Pierre Noel (appointed Senior Vice President, Global Reward
in April 2012) – from May meeting onwards.
None of these individuals is in attendance when his/her own
remuneration is being discussed.
Governance
The Committee’s remit is set out in its terms of reference which
are reviewed annually and were updated by the Board in
December 2012. They are available on the Company’s website
www.ihgplc.com/investors under corporate governance/committees,
or from the Company Secretary’s office on request.
Responsibilities
The Committee agrees, on behalf of the Board, all aspects of
the remuneration of the Executive Directors and the Executive
Committee, 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.
Committee approach to managing risk
The approach to remuneration is to directly link it to IHG’s strategy.
Risk management is a key part of IHG being a Responsible Business
and the Committee considers risk mitigation as central to the way
that incentive arrangements are structured, for example:
• the APP, ABP and LTIP are all structured so as to have a balance
of measures that ensure senior executives are not incentivised to
behave in a way that could adversely affect the sustainable growth
of the Company and the long-term interests of its shareholders.
For instance, in the new APP, the drive for short-term financial
results is balanced by performance measures focussed on guest
satisfaction and employee engagement;
• the Committee reserves the discretion to determine that payouts
in the LTIP are adjusted if they are not consistent with the
Committee’s assessment of earnings and the quality of the
Company’s financial performance over the relevant performance
period; and
• for awards under the Company’s incentive plans made
from January 2012, clawback provisions may be used by the
Committee in any situation of misconduct that causes significant
damage or potential damage to IHG’s prospects, finances or
brand reputation, and/or actions that lead to material
misstatement or restatement of accounts.
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Key issues discussed in 2012 meetings
In 2012, the Committee met six times. The most significant
topic of discussion was the review of annual incentives and
the new APP. The Committee discussed, amongst others, the
following matters:
Date
Key issues discussed
9 February
• Executive Committee performance and
salary review;
• 2011 Directors’ Remuneration Report;
• vesting of 2011 annual incentive plan and 2009/11
long-term incentive plan; and
• design of 2012 annual incentive plan and 2012/14
long-term incentive plan.
3 May
• Initial review of future annual incentive
structure; and
• 2012 incentive measure projections.
27 June
• Key design principles for annual incentive
plan for 2013 onwards (APP); and
• 2012 incentive measure projections.
26 September • Detailed structure of incentives for
2013 onwards;
• 2012 incentive measure projections; and
• IHG’s return of capital to shareholders – effect
on incentive plans.
1 November
• Design of APP measures for 2013.
12 December • APP targets for 2013;
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• update on the Committee Chairman’s meetings
with shareholders;
• executive remuneration market updates;
• 2012 incentive measure projections;
• approach to 2012 Directors’ Remuneration
Report; and
• annual review of the Committee’s terms
of reference.
Committee interaction with stakeholders
The Committee actively engages with shareholders on remuneration
matters. Major shareholders were approached prior to the 2012 AGM
and offered the opportunity to discuss any aspect of our approach
to remuneration. In addition, in November 2012, the Chairman of the
Committee approached major shareholders outlining the changes
to annual incentive arrangements for 2013. Meetings were held with
many of them, as well as shareholder representative organisations,
at which details of the changes, best practice stemming from the
proposed regulatory changes and reporting of executive remuneration
were discussed.
Votes in favour of our Directors’ Remuneration Report at previous AGMs:
2012
2011
% in favour
95.46%
96.24%
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Governance: Directors’ Remuneration Report continued
Remuneration advisers
Throughout 2012, the Committee retained PricewaterhouseCoopers LLP (PwC) as independent advisers. PwC also supported management
in developing and implementing remuneration proposals and provided advice in relation to the review of annual incentive arrangements
during 2012.
Adviser
Retained by
PwC
Remuneration
Committee
Services provided to the
Committee
Executive remuneration advice
Other services provided
Support in developing and implementing
remuneration proposals;
advice on employer and employee tax compliance
processes for expatriate employees;
advice on tax withholding obligations in relation to
ABP and LTIP; and
other tax and consulting services.
Towers Watson
the Company
Data on executive and employee
reward levels in the Group’s
regional markets
None
Freshfields
Bruckhaus Deringer
LLP
the Company
None
Advice and information on tax and legal aspects of
operating the LTIP and ABP, and other legal services
to the Group.
Tapestry Compliance
LLP
the Company
None
Advice and information on tax and legal aspects of
operating the LTIP and ABP.
The terms of engagement for the advisers named above are available from the Company Secretary’s office on request.
PwC and Towers Watson are members of the Remuneration Consultants Group. Members of this group adhere to a voluntary Code of Conduct
that sets out the role of executive remuneration consultants in the UK and the professional standards they have committed to adhere to when
advising remuneration committees.
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IHG Annual Report and Financial Statements 2012
2. Policy: remuneration policy for 2013
A – Key remuneration principles
IHG’s executive remuneration principles are designed to drive the delivery of strategic objectives by:
• attracting and retaining high-quality executives in an environment where compensation is based on global market practice;
• aligning rewards for executives with the achievement of business performance targets, strategic objectives and returns to shareholders;
• supporting equitable treatment between members of the same executive team; and
• facilitating global assignments and relocations.
IHG’s remuneration structure for senior executives places a strong emphasis on performance-related reward. The Committee believes that
it is important to reward management, including the Executive Directors, for targets achieved, provided those targets are stretching.
B – Link with strategy
Our strategy (summarised below) is the driver of our reward structure, and is further explained on pages 11 to 17 of this Annual Report.
The current performance measures used in IHG’s incentive plans are aligned with our strategic priorities, which will enable us to achieve our
Vision of becoming one of the great companies in the world by creating Great Hotels Guests Love.
Where we compete
Relevant consumer segments
Most attractive markets
Appropriate business model
How we win
Portfolio of preferred Brands
Talented People
Best-in-class Delivery
Responsible Business
Annual Performance Plan
Measures provide focus on key
drivers of sustainable growth:
Heartbeat
Increases guest satisfaction as an
indicator of the strength of our Brands
Engagement
Increases the engagement of our
People who bring our Brands to life
EBIT
Provides annual focus on earnings growth
driven by core operating inputs, namely
rooms growth, RevPAR, fee revenue
and margins
Brands
People
Delivery
Responsible Business
Long Term Incentive Plan
Measures balance the quality of hotels
with the speed at which we grow:
Relative net rooms growth
supports our business model, segment
and market strategies to grow system size
over three years
Relative RevPAR growth
Reflects the sustainable power of our Brands,
scale and experience and engaged workforce
Focusses growth on quality rooms in
key markets
Relative TSR
Provides alignment with shareholder returns
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Governance: Directors’ Remuneration Report continued
C – Remuneration policy summary
The following table shows a summary of the individual elements of remuneration provided to the Executive Directors for 2013.
The APP replaces the ABP for senior executives from 2013.
Reward element
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Salary
(cash)
Recognises the market value of
the role and the individual’s skill, performance
and experience.
Reviewed annually and fixed for 12 months from 1 April.
Committee considers:
• business and individual performance;
• current remuneration against internal and external
benchmarks; and
• average salary increases for the wider IHG workforce.
When external benchmarking is used, the comparator groups
are chosen having regard to:
• size – market capitalisation, turnover, profits and the
number of employees;
• diversity and complexity of the business;
• geographical spread of the business; and
• relevance to the hotel industry.
Determined annually on the
factors set out to the left
None
Changes in year
Directors’ salaries
increased between
2.5%-3% in 2012
APP
(50% cash
and 50%
shares)
Drives and rewards annual performance
against both financial and non-financial metrics.
Aligns individuals and teams with key strategic
priorities of Brands, People and Delivery.
Aligns short-term annual performance with
strategy to generate long-term returns
to shareholders.
Takes into account personal performance
of individuals.
Reviewed annually with targets set in line with strategic objectives.
Target = 115% of salary
20% Brands: year-on-year improvement in guest
Regional as well as global targets are used when appropriate.
Maximum = 200% of salary
Payment is determined by the Committee, which has certain
specified discretion over award levels, after the end of the year.
satisfaction
engagement
10% People: year-on-year improvement in employee
70% Delivery: EBIT v target
All targets measured over one year
APP for senior
executives from 2013
LTIP
(shares)
Drives and rewards delivery of sustained
long-term performance on measures that
are aligned with the interests of shareholders.
Annual awards over IHG shares, which vest after
three years, subject to the achievement of corporate
performance targets.
Reviewed annually with targets set in line with strategic
objectives. Vesting is confirmed by the Committee after the
end of the vesting period, with discretion to reduce vesting
level if the quality of the underlying performance of the
Company is not satisfactory.
Maximum for 2013/15 LTIP cycle =
25% relative net rooms growth and 25% relative RevPAR
None in 2012
205% of salary
growth (both measured v comparator group):
Will not exceed three times annual
salary other than in exceptional
circumstances
• 20% threshold vesting if equal to average growth of
comparator group;
group; and
• maximum vesting if ranked as 1st in the comparator
Pension
Helps recruit and retain.
The following plans are operated:
UK DB Plan: 1/30th accrual rate
None
Rewards long-term individual performance.
• for UK executives, the executive section of the
InterContinental Hotels UK Pension Plan (the IC Plan),
which has a defined benefit section (UK DB Plan) and
a defined contribution section (UK DC Plan);
• for UK executives, the InterContinental Executive Top-Up
Scheme (ICETUS);
• for US executives, a DC 401(k) Plan (US 401(k) Plan) and
a DC Deferred Compensation Plan (US Deferred
Compensation Plan); and
• for non-UK and non-US executives, the InterContinental
Hotels Group International Savings and Retirement Plan,
and other local plans.
A cash allowance in lieu of pension benefits is offered for
UK executives.
UK DC Plan: 7.5% employee
contribution with 30% matching
Company contribution
US 401(k) Plan: 2%-75% employee
contribution with 4% matching
Company contribution
US Deferred Compensation Plan:
up to 75% employee contribution
with 2% matching Company
contribution and 4%-20% additional
Company contribution if certain
conditions are met
64
IHG Annual Report and Financial Statements 2012
• straight-line vesting in between.
50% relative TSR (v DJGH index):
• 20% threshold vesting if equal to index;
• maximum vesting if 8% or more per year ahead of index; and
• straight-line vesting in between.
All targets measured over a three-year performance period
None in 2012
UK DB Plan will close
to future accrual for
existing members with
effect from 1 July 2013
Reward element
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Salary
(cash)
the role and the individual’s skill, performance
and experience.
Recognises the market value of
Reviewed annually and fixed for 12 months from 1 April.
Determined annually on the
factors set out to the left
None
Changes in year
Directors’ salaries
increased between
2.5%-3% in 2012
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Committee considers:
• business and individual performance;
• current remuneration against internal and external
benchmarks; and
• average salary increases for the wider IHG workforce.
When external benchmarking is used, the comparator groups
are chosen having regard to:
• size – market capitalisation, turnover, profits and the
number of employees;
• diversity and complexity of the business;
• geographical spread of the business; and
• relevance to the hotel industry.
Payment is determined by the Committee, which has certain
specified discretion over award levels, after the end of the year.
APP
(50% cash
and 50%
shares)
against both financial and non-financial metrics.
Aligns individuals and teams with key strategic
priorities of Brands, People and Delivery.
Aligns short-term annual performance with
strategy to generate long-term returns
to shareholders.
Takes into account personal performance
of individuals.
LTIP
(shares)
Drives and rewards delivery of sustained
Annual awards over IHG shares, which vest after
long-term performance on measures that
three years, subject to the achievement of corporate
are aligned with the interests of shareholders.
performance targets.
Reviewed annually with targets set in line with strategic
objectives. Vesting is confirmed by the Committee after the
end of the vesting period, with discretion to reduce vesting
level if the quality of the underlying performance of the
Company is not satisfactory.
Drives and rewards annual performance
Reviewed annually with targets set in line with strategic objectives.
Target = 115% of salary
Regional as well as global targets are used when appropriate.
Maximum = 200% of salary
20% Brands: year-on-year improvement in guest
satisfaction
APP for senior
executives from 2013
10% People: year-on-year improvement in employee
engagement
70% Delivery: EBIT v target
All targets measured over one year
Maximum for 2013/15 LTIP cycle =
205% of salary
25% relative net rooms growth and 25% relative RevPAR
growth (both measured v comparator group):
None in 2012
Will not exceed three times annual
salary other than in exceptional
circumstances
• 20% threshold vesting if equal to average growth of
comparator group;
• maximum vesting if ranked as 1st in the comparator
group; and
• straight-line vesting in between.
50% relative TSR (v DJGH index):
• 20% threshold vesting if equal to index;
• maximum vesting if 8% or more per year ahead of index; and
• straight-line vesting in between.
All targets measured over a three-year performance period
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Pension
Helps recruit and retain.
The following plans are operated:
UK DB Plan: 1/30th accrual rate
None
Rewards long-term individual performance.
• for UK executives, the executive section of the
InterContinental Hotels UK Pension Plan (the IC Plan),
which has a defined benefit section (UK DB Plan) and
a defined contribution section (UK DC Plan);
• for UK executives, the InterContinental Executive Top-Up
Scheme (ICETUS);
• for US executives, a DC 401(k) Plan (US 401(k) Plan) and
a DC Deferred Compensation Plan (US Deferred
Compensation Plan); and
• for non-UK and non-US executives, the InterContinental
Hotels Group International Savings and Retirement Plan,
and other local plans.
A cash allowance in lieu of pension benefits is offered for
UK executives.
UK DC Plan: 7.5% employee
contribution with 30% matching
Company contribution
US 401(k) Plan: 2%-75% employee
contribution with 4% matching
Company contribution
US Deferred Compensation Plan:
up to 75% employee contribution
with 2% matching Company
contribution and 4%-20% additional
Company contribution if certain
conditions are met
None in 2012
UK DB Plan will close
to future accrual for
existing members with
effect from 1 July 2013
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Governance: Directors’ Remuneration Report continued
D – Fixed and variable pay mix
Individual reward elements for all Executive Directors and Executive Committee members are designed to provide the appropriate balance
between fixed remuneration and variable ‘at risk’ reward, linked to both the performance of the Group and the achievements of the individual.
The usual pay mix for Executive Directors is as follows at target and maximum levels:
Target
Maximum
(cid:31) Salary
(cid:31) LTIP
(cid:31) APP
(cid:31) Fixed: cash
Variable: cash
and shares
32%
32%
36%
32%
68%
(cid:31) Salary
(cid:31) LTIP
(cid:31) APP
(cid:31) Fixed: cash
Variable: cash
and shares
20%
40%
40%
20%
80%
– Target performance assumes APP award is at target (115% of salary) and LTIP award vests at 50% of potential maximum (102.5% of salary, measured at the time of grant).
– Maximum performance assumes APP award is at maximum (200% of salary) and LTIP award vests at 100% of potential maximum (205% of salary, measured at the time
of grant).
– Benefits and pensions are excluded.
The Committee also reviews the balance of fixed and variable remuneration provided to the wider executive population, to ensure these are
appropriate relative to the Executive Directors and to market practice.
E – Salary and benefits
• Base salary is the only element of remuneration which is
pensionable.
• In addition to salary, benefits are provided to Executive Directors,
who are all based in the UK or US, in accordance with local
market practice.
• The overall budget for salary increases for IHG corporate
employees in the UK and US, and the overall increase in the
Directors’ salaries for 2013 is shown below:
Executive Director annual salaries for 2012 and 2013
Director
Richard Solomons
Kirk Kinsell*
Tracy Robbins
Tom Singer
2013
£
739,000
424,300
550,800
2013
$
2012
£
721,000
2012
$
774,000
755,400
412,000
540,000
* Kirk Kinsell is paid in US dollars and his annual base salary for 2012 and 2013 is
shown in US dollars above. The equivalent sterling values calculated using an
exchange rate of $1=£0.63 are: 2012 – £476,562; and 2013 – £488,296.
UK corporate
employees
US corporate
employees
Executive
Directors
3.0%
3.0%
2.5%
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IHG Annual Report and Financial Statements 2012
F – Annual Performance Plan
During 2012, a review of the annual incentive arrangements for the Executive Directors was carried out. As a result of this review, the APP is
being launched with effect from 2013. It will apply to the Executive Directors, the Executive Committee and other senior executives from 2013,
and roll-out to the rest of our eligible corporate employees is planned for 2014.
The APP is being introduced in the context of the broader growth agenda and more closely aligns the annual incentive with our strategic
priorities of Brands, People and Delivery. The APP will require the achievement of challenging goals in 2013 before the target award is payable.
The measures for 2013 are focussed on the following key
strategic priorities:
• Brands: Guest satisfaction as measured by the Heartbeat
score – year-on-year improvement;
• People: Employee engagement score – year-on-year
improvement; and
• Delivery: EBIT achievement against target.
Performance
measures
20% Brands
APP
10% People
Payment
structure
50% shares
(deferred for
three years)
70% Delivery
50% cash
Why do we use these measures?
Brands: Heartbeat score
People: Employee engagement score
Delivery: EBIT v target
• Heartbeat is an overall guest satisfaction
• We measure employee engagement
score relating to hotel visits;
• it is a robust measure of the strength of
our brands; and
• inclusion in the APP provides executive
focus on this key performance metric at
global and regional level.
because our brands are, effectively, a
promise kept by our People, as engaged
colleagues, to deliver a great guest
experience; and
• a fully engaged employee agrees to
five statements – pride, advocacy, job
meaning, extra effort and happiness.
• EBIT is a key measure of business
performance for our shareholders;
• it factors in other critical measures: net
rooms growth, RevPAR, fee revenue and
margins; and
• ensures affordability of the APP.
APP targets for 2013
• Achievement of target performance results in an award of 115% of salary and the maximum annual award an Executive Director can
receive in any one year is 200% of salary.
• A combination of global and regional targets will be used. Executive Directors with global roles will have global measures. Kirk Kinsell
will have partly regional measures, reflecting his regional role as President, The Americas.
• Award levels relate to achievement v target under each of the measures, as shown below:
Heartbeat
20% of award
Employee engagement
10% of award
EBIT
70% of award
Total award
% of salary
Threshold
Achievement v target
50%
50%
90%
Award level
50% of target payment
11.5% of salary
50% of target payment
5.75% of salary
50% of target payment
40.25% of salary
57.5%
Target
Achievement v target
100%
100%
100%
Award level
100% of target payment
23% of salary
100% of target payment
11.5% of salary
100% of target payment
80.5% of salary
115%
Maximum
Achievement v target
200%
200%
110%
Award level
Maximum payment
40% of salary
Maximum payment
20% of salary
Maximum payment
140% of salary
200%
For less than Threshold achievement, no award is made.
Payment is determined on a straight-line basis between Threshold and Target, and Target and Maximum.
Threshold award is subject to a global EBIT affordability gate such that:
• if global EBIT is below 85% of target, no award is made; and
• if global EBIT is between 85% and 90% of target, half of any award relating to the Brands and/or People measures is made.
The Committee has the ability to exercise certain specified discretion over the level of awards made under the 2013 APP.
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G – Long Term Incentive Plan (LTIP)
The LTIP allows Executive Directors and other eligible executives to receive share awards, subject to the achievement of performance targets
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.
The performance measures for the 2013/15 cycle are:
• cumulative annual growth in net rooms;
• cumulative annual like-for-like RevPAR growth; and
• IHG’s TSR relative to the DJGH index.
Growth in net rooms and RevPAR are measured on a relative basis
against the comparator group, comprising the following major
globally branded competitors: Accor, Choice, Hilton, Hyatt, Marriott,
Starwood and Wyndham.
These performance measures are also used in the 2011/13 and
2012/14 LTIP cycles, granted in 2011 and 2012 respectively.
For the 2010/12 LTIP cycle, the performance measures were TSR
and EPS; details of structure and outcome are set out on page 72.
Performance
measures
25% net rooms
LTIP
25% RevPAR
50% TSR
Payment
structure
100%
shares
Why do we use these measures?
Net rooms growth
RevPAR growth
TSR
This measures the net growth in total
number of IHG hotel rooms over the duration
of the cycle relative to our major global
competitors. Together with the RevPAR
measure, it provides focus on ensuring a
balance between the quality of IHG hotels
and the speed at which IHG grows.
This measures success in growing our rates
for the rooms we have open for the duration
of the cycle relative to the RevPAR growth of
our major global competitors.
This measures the return to shareholders
by investing in IHG relative to our
competitors in the DJGH index.
In order to generate higher returns for our shareholders, we need to increase revenue share, improve operating efficiency and grow margins
through increasing the number of rooms we have available to sell, as well as generating more RevPAR for those rooms. By focussing on both
net rooms growth and RevPAR growth, we are rewarding the balanced approach to growth that will support the long-term increase in
shareholder value.
Performance measure
Weighting
Threshold
requirement
Threshold
performance
Maximum
requirement
Maximum
performance
Net rooms growth v
major competitors
RevPAR growth v
major competitors
TSR growth v
DJGH index
25%
25%
Equal to average growth
of comparator group
Equal to average growth
of comparator group
50%
Equal to index
20%
20%
20%
Ranked as 1st in the
comparator group
Ranked as 1st in the
comparator group
Outperform index by 8% or
more per year (equivalent to
26% over three years)
100%
100%
100%
For the 2013/15 LTIP cycle, the Committee resolved to grant maximum awards at 205% of base salary for the Executive Directors. Vesting
for points between Threshold and Maximum will be calculated on a straight-line basis.
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.
After testing the performance targets set at grant, the Committee will review the vesting outcomes of the net rooms and RevPAR measures
against an assessment of earnings and quality of Company financial performance 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 Directors’ Remuneration Report.
There is no re-testing of performance targets under the LTIP, and awards lapse if they are not met.
68
IHG Annual Report and Financial Statements 2012
H – Pensions
IHG operates the following pension arrangements in which the Executive Directors participate:
• for UK executives, the executive section of the IC Plan, which has a DB section and a DC section (the UK DB Plan and the UK DC Plan
respectively);
• for UK executives, ICETUS; this is an unfunded arrangement, but with appropriate security;
• for US executives, the DC US 401(k) Plan and the DC US Deferred Compensation Plan; and
• for executives outside the UK and US, the InterContinental Hotels Group International Savings and Retirement Plan, or other local plans.
As an alternative to the pension arrangements, a cash allowance may be taken in lieu by UK executives.
Following an extensive UK pension review and subsequent consultations with affected employees, it was announced on 29 September 2011
that the UK DB Plan would close to future accrual for existing members with effect from 1 July 2013. The UK DB Plan is already closed to new
entrants. A cap on pensionable salary increases of RPI plus 2.5% per annum became effective on 1 October 2011.
As part of the consultation with employees and the plan trustees about these changes, it was agreed that the Enhanced Early Retirement
Facility (EERF) would be retained. This provides an option for plan members, with the Company’s agreement, to retire within five years of
normal retirement age on accrued benefits without reduction. The level of plan funding provides for this facility. The Committee considered
that the reduction in risk and expense achieved by the closing of the UK DB Plan justified the cost of retaining this facility for existing
active members.
The Executive Directors participate as follows:
• Richard Solomons participates in the UK DB Plan and the ICETUS on the same basis as other senior UK-based executives;
• Tracy Robbins participated in the executive UK DC Plan on the same basis as other senior UK-based executives until March 2012; from
April 2012 she received a cash allowance in lieu of pension benefits;
• Tom Singer does not participate in any pension plan and receives a cash allowance in lieu of pension benefits; and
• Kirk Kinsell participates in the DC US 401(k) Plan and the DC US Deferred Compensation Plan.
Further details on the Executive Directors’ pension arrangements are shown on pages 75 and 76.
I – 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 78.
J – Clawback in incentive plans
For awards made from January 2012, the ABP, APP and LTIP allow the Committee discretion to claw back unvested share awards in the
following circumstances:
• misconduct that causes significant damage or potential damage to IHG’s prospects, finances or brand reputation; and/or
• actions that lead to material misstatement or restatement of accounts.
This feature helps ensure alignment between executive rewards and shareholder returns.
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Governance: Directors’ Remuneration Report continued
3. Implementation: outcomes for 2012
A – Single figure remuneration in 2012 – actual and maximum
Value
(£000)
6,000
5,000
4,000
3,000
2,000
1,000
0
max
actual
max
actual
max
actual
max
2010/12 LTIP
actual
2012 ABP deferred shares
2012 ABP cash
2012 pension benefit
2012 benefits
2012 actual salary paid
Richard Solomons
Kirk Kinsell
Tracy Robbins
Tom Singer
Single Total Figure Table (£000)
Director
Richard Solomons
Kirk Kinsell*
Tracy Robbins
Tom Singer
2012 actual
salary paid
2012
benefits
716
474
409
540
48
663
23
19
2012
pension
benefit
1,140
110
123
162
2012
ABP
cash
494
306
300
346
2012 ABP
deferred
shares
494
306
300
346
2010/12
LTIP
1,738
1,287
954
1,194
Total
4,630
3,146
2,109
2,607
* Kirk Kinsell is paid in US dollars and the sterling values in the chart above have been calculated using an exchange rate of $1=£0.63.
Details of elements shown:
2012 actual salary paid – salary for the year; for Kirk Kinsell this shows actual salary paid converted into sterling;
2012 ABP cash – cash portion of ABP award for 2012 performance;
2012 ABP deferred shares – value of deferred share portion of ABP award for 2012 performance (based on share price of 1,707.0p as at
31 December 2012);
2010/12 LTIP – value of LTIP award due to vest on 20 February 2013 as a result of 2010 to 2012 performance (based on share price of 1,707.0p
as at 31 December 2012);
2012 benefits – all taxable benefits arising from the individual’s employment in 2012; this includes the provision of a fully-expensed company
car, private healthcare, financial counselling and other benefits. For Kirk Kinsell, this includes the cost of expatriate benefits related to his
international assignment prior to taking up his Board appointment as President, The Americas, on 13 June 2011;
2012 pension benefit – for Richard Solomons, the increase in pension value during 2012; for other Executive Directors, the value of
Company contributions to pension plans or any cash allowances paid in lieu of pension contributions. The pension benefit accruing to
Richard Solomons in 2012 arose principally from his salary review when appointed Chief Executive in July 2011.
2009 ABP deferred shares – there was no vesting of ABP deferred shares relating to 2009 as no annual incentive was paid in respect
of financial year 2009.
All figures are calculated in accordance with our understanding of the requirements of the draft BIS regulations on disclosure
of executive pay.
.
70
IHG Annual Report and Financial Statements 2012
B – Executive shareholding requirement
The Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individuals’
personal interests and those of the shareholders.
Executive Directors are expected to hold all shares earned (net of any share sales required to meet personal tax liabilities) until the guideline
shareholding requirement is achieved.
The table below excludes share options held by Richard Solomons, details of which can be found on page 78.
Shares held by Executive Directors
Richard
Solomons
Kirk
Kinsell
Tracy
Robbins
Tom
Singer
200
400
600
800 1,000 1,200 1,400
1,600
0
%
Shares held outright
Total shares and awards4
Guideline shareholding requirement
Director
Guideline
shareholding as
Shares held
outright as
% of salary % of salary1
ABP deferred
share
awards as
% of salary2
LTIP share
Total shares
awards as and awards as
% of salary4
% of salary3
Richard Solomons
Kirk Kinsell
Tracy Robbins
Tom Singer5
300
200
200
200
763
557
355
66
153
180
167
0
693
776
706
715
1,609
1,513
1,228
781
Percentages are based on share price of 1,707.0p per share as at 31 December 2012.
1 Shares held outright by each Executive Director with no restrictions.
2 ABP deferred share awards subject to risk of forfeiture if employment ceases.
3 LTIP share awards subject to achievement of corporate performance targets.
4 Includes shares held outright, ABP deferred shares and LTIP share awards.
5 Tom Singer joined in 2011 and did not qualify for the 2011 ABP deferred share award.
C – Annual Bonus Plan(ABP)
Structure
In 2012, Executive Directors participated in the ABP, which will be
replaced from 2013 by the APP, details of which can be found on
page 67.
The structure of the ABP is as follows:
ABP
2012
Performance
measures
70%
EBIT
30%
individual
Payment
structure
50% shares
(deferred for
three years)
50%
cash
The measures for 2012 were:
• Global EBIT achievement against target for 2012:
– threshold payout: 90% of target performance;
– maximum payout: 110% of target performance; and
– straight-line vesting in between.
• OPR – based on achievement of specific individual objectives
linked directly to strategic priorities, and an assessment against
leadership competencies and behaviours. The objectives and
OPRs are reviewed and agreed by the Committee.
2012 target and maximum payments
Measure
Financial
Individual
Total for 2012
Key performance
indicator
EBIT (70%)
OPR (30%)
Award as % of salary
Target
80.5
34.5
115
Maximum
161
69
200*
* Combined EBIT and OPR payout subject to a maximum of 200% of base salary.
Outcome for 2012
2012 EBIT achieved was 101.7% of target for the year. Based on this
performance, the following table shows the level of 2012 awards.
50% was paid in cash and 50% in deferred shares that will vest after
three years.
Director
Richard Solomons
Kirk Kinsell
Tracy Robbins
Tom Singer
EBIT %
award
93.8
93.8
93.8
93.8
OPR %
award
43.1
34.5
51.8
34.5
Total award as
% of salary
136.9
128.3
145.6
128.3
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Governance: Directors’ Remuneration Report continued
D – Long Term Incentive Plan (LTIP)
Structure and outcome for 2012
The award for the 2010/12 cycle had corporate performance measures based on relative TSR and EPS. The measures and outcomes are
as follows:
Performance
measure
Threshold
performance
Maximum
performance
Threshold/
maximum
vesting
Weighting Maximum
Outcome
award –
% of salary
2010/12 cycle
TSR
EPS
Total vesting
outcome
Growth equal to
the DJGH index
Growth exceeds the
index by 8% per year
or more
Growth of 5%
per year
Growth of 15% per
year or more
20%/100%
50%
102.5%
Growth exceeded index by 15%
per year
20%/100%
50%
102.5%
Growth of 21.7% per year
100% of maximum award
Current position on other outstanding awards
From 2011, the performance measures for the LTIP were changed. Details of the performance measures and potential vesting outcomes for
outstanding awards as at 31 December 2012 are as follows:
Performance
measure
Threshold
performance
Maximum
performance
Threshold/
Maximum
vesting
Weighting Maximum
Potential vesting outcomes
award –
% of salary
2011/13 cycle
Net rooms
growth
Average of the
comparator group
1st in the comparator
group
20%/100%
25%
51.25%
Improved performance needed
to achieve Threshold vesting
RevPAR
growth
Average of the
comparator group
1st in the comparator
group
20%/100%
25%
51.25%
TSR
Growth equal to
the DJGH index
Growth exceeds the
index by 8% per year
or more
2012/14 cycle
20%/100%
50%
102.5%
Net rooms
growth
Average of the
comparator group
1st in the comparator
group
20%/100%
25%
51.25%
RevPAR
growth
Average of the
comparator group
1st in the comparator
group
20%/100%
25%
51.25%
TSR
Growth equal to
the DJGH index
Growth exceeds the
index by 8% per year
or more
20%/100%
50%
102.5%
Between Threshold and
Maximum vesting if current
performance maintained
Maximum vesting if current
performance maintained
Between Threshold and
Maximum vesting if current
performance maintained
Between Threshold and
Maximum vesting if current
performance maintained
Maximum vesting if current
performance maintained
E – Pensions
The value of Richard Solomons’ DB pension arrangement as at
31 December 2012 is set out to the right. Details of this plan are
included above under Section 2.H – Pensions.
Richard Solomons is eligible for the EERF, which is available to
all members of the plan. This facility enables members to retire
without reduction in their pension if they are within five years of
normal retirement age. Although the EERF is non-contractual, its
continuation formed part of the agreement with trustees on closure
of the UK DB Plan. The EERF terms require an executive to obtain the
consent of the Company; the consent is discretionary but should not
be unreasonably refused.
Accrued value of annual
pension if retired
31 December 2012
Accrued value of annual pension
at 31 December 2012, assuming
retirement at normal retirement
age (9 October 2021)
£245,180, of which:
£377,200, of which:
• £46,770 is funded
• £198,410 is unfunded
• £71,950 is funded
• £305,250 is unfunded
The increase in the accrued value of the pension in 2012 arises
principally from Richard Solomons’ salary review when appointed
Chief Executive in July 2011.
72
IHG Annual Report and Financial Statements 2012
4. Other matters
A – Share capital
Return of share capital
Background
In October 2012, the Company paid a special dividend to its shareholders. This was accompanied by a share consolidation in order to maintain
comparability (as far as possible) of the share price before and after the payment of the special dividend. In addition, the Company commenced
a share buyback programme in November 2012.
Implications for outstanding LTIP awards
LTIP award holders were not entitled to receive the special dividend. The effect of the share consolidation was broadly to preserve the value
of their awards (subject to normal market fluctuations), so no adjustment was necessary to the number of shares to which awards related.
With regard to the LTIP performance targets, consideration was given by the Committee as to whether awards needed to be adjusted
in relation to the EPS measure for the 2010/12 LTIP cycle, so that it remained economically equivalent to the target before the share
consolidation took place. It was concluded that the maximum award target would have been exceeded by a significant margin even taking
such adjustment into account and therefore no adjustment to the performance targets was required.
No adjustment was required to the TSR targets under the 2010/12, 2011/13 and 2012/14 LTIP cycles because the special dividend and share
consolidation did not result in IHG’s TSR being impacted (excluding any market fluctuations).
No adjustment was required to the net rooms or RevPAR targets as these did not relate to the share capital of the Company.
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Implications for outstanding ABP deferred share awards
ABP award holders, other than Executive Directors and Executive Committee members, hold conditional awards and are not eligible to receive
dividends on their awards prior to vesting. They were similarly not entitled to receive the special dividend. The effect of the share consolidation
was broadly to preserve the value of their awards (subject to normal market fluctuations), so no adjustment was necessary to the number of
shares to which the awards related.
Executive Committee members hold forfeitable shares, rather than conditional awards (subject to one exception). Accordingly, they received
the special dividend and their share awards were subject to the share consolidation.
Kirk Kinsell holds one forfeitable share award and one conditional share award (upon which dividend equivalents are paid in order to ensure
economic parity with the rest of the Executive Committee). In order to achieve equality of treatment for Kirk Kinsell, his conditional award was
adjusted to place him in the same position as if he had held a forfeitable award, and therefore he received the special dividend and his share
award was subject to the share consolidation, in the same way as other Executive Committee members.
Implications for outstanding executive share options
IHG Executive Share Option Plan share option holders were not entitled to receive the special dividend. The effect of the share consolidation
was broadly to preserve the value of their awards (subject to normal market fluctuations), so no adjustment was made to the number of shares
to which the options related.
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s
Share buyback programme
In relation to the share buyback programme, the effect on LTIP awards, ABP deferred shares and share options will be to broadly preserve
the value of those awards. No adjustments are required to LTIP performance targets for the same reasons as stated above.
Use of share capital in incentive plans
No awards or grants over shares were made during 2012 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.
B – Performance graph
Throughout 2012, the Company was a member of the FTSE 100 index and, for remuneration purposes, used a TSR comparator group of the
DJGH 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 2007 to 31 December 2012, assuming dividends are
reinvested, compared with the TSR performance achieved by the FTSE 100 index and the DJGH index. All indices are shown in sterling. Over the
five-year period, IHG’s TSR performance has increased by 139%. Over the last three years, it has significantly outperformed the FTSE 100 index
and the DJGH index.
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TSR: InterContinental Hotels Group PLC v FTSE 100 and Dow Jones Global Hotels indices
250
200
150
100
50
InterContinental Hotels
Group PLC
DJGH index
FTSE 100 index
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Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Source: Datastream
Directors’ Remuneration Report
73
Governance: Directors’ Remuneration Report continued
C – Non-Executive Directors’ pay policy and structure
Determination of fee levels
Non-Executive Directors are paid a fee which is agreed by the Executive Directors and the Chairman of 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. The Chairman’s fees are agreed by the Committee.
Non-Executive Directors’ fee levels are reviewed annually. In the final quarter of 2012 an increase of approximately 3% for the Non-Executive
Directors was agreed from 1 January 2013. This increase is broadly in line with anticipated salary increases for executive and senior
management employees across the wider organisation.
Annual fee rates for 2012 and 2013
Non-Executive Directors
Role
David Webster1
Patrick Cescau2
David Kappler
Luke Mayhew
Jennifer Laing
Others
Chairman of the Board
Chairman of the Board
Senior Independent Director and Chairman of Audit Committee
Chairman of Remuneration Committee
Chairman of Corporate Responsibility Committee
Non-Executive Director
1 David Webster retired as Chairman on 31 December 2012.
2 Patrick Cescau was appointed Chairman on 1 January 2013.
1 Jan 2013
£ £
–
400,000
108,500
91,000
80,000
68,500
1 Jan 2012
406,000
105,060
88,230
77,520
66,300
D – Service contracts
Notice periods
• The Committee’s policy is for all Executive Directors to have rolling contracts with a notice period of 12 months.
• All Executive Directors have service contracts with a notice period of 12 months. All new appointments will have 12-month notice periods,
unless, on an exceptional basis to complete an external recruitment successfully, a longer initial notice period reducing to 12 months is
used, in accordance with the UK Corporate Governance Code.
Termination
• No provisions for compensation for termination following change of control, nor for liquidated damages of any kind upon termination in
any circumstances, are included in the current Directors’ contracts.
• There are no provisions in Executive Directors’ contracts for making a payment in lieu of notice. Instead the parties will rely on common
law to assess what, if any, damages may be payable for any loss resulting from termination in breach of contract (subject to the duty to
mitigate any loss).
• In the event of any early termination of an Executive Director’s contract, the policy is to seek to minimise any liability.
Non-executive directorships of other companies
• 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.
• Therefore, Executive Directors are 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 would generally be authorised to retain the fees received.
• Current Executive Directors do not hold any non-executive directorships of any other company.
Non-Executive Director appointments
• Non-Executive Directors have letters of appointment.
• Patrick Cescau’s appointment as Non-Executive Chairman, effective from 1 January 2013, is subject to 12 months’ notice.
Details of current Directors’ contracts
Executive Directors
Date of original appointment*
Notice period
Non-Executive Directors
Date of original appointment*
Richard Solomons
Kirk Kinsell
Tracy Robbins
Tom Singer
10 February 2003
1 August 2010
9 August 2011
26 September 2011
12 months
12 months
12 months
12 months
Patrick Cescau
David Kappler
Jennifer Laing
Jonathan Linen
Luke Mayhew
Dale Morrison
Ying Yeh
1 January 2013
21 June 2004
25 August 2005
1 December 2005
1 July 2011
1 June 2011
1 December 2007
Notice period
12 months
n/a
n/a
n/a
n/a
n/a
n/a
* 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.
All Directors’ appointments and subsequent re-appointments are subject to election and annual re-election by shareholders at the AGM.
Biographies of each of the Directors and their main responsibilities can be found on pages 46 and 47.
74
IHG Annual Report and Financial Statements 2012
5. Audited information on Directors’ emoluments
From this point forward the information, which is provided in accordance with statutory and/or regulatory requirements, has been audited by
Ernst & Young LLP.
Directors’ remuneration in 2012
The following table sets out the remuneration paid or payable to the Directors in respect of the year to 31 December 2012:
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V
E
R
V
I
E
W
Base salaries and fees
Performance
payments1
Benefits2
Executive Directors
Richard Solomons3
Kirk Kinsell4
Tracy Robbins5
Tom Singer6
Non-Executive Directors
David Webster7
Graham Allan8
David Kappler
Jennifer Laing
Jonathan Linen
Luke Mayhew9
Dale Morrison10
Ying Yeh
Former Directors11
Total
2012
£000
716
474
409
540
406
31
105
78
66
88
66
66
–
3,045
2011
£000
616
449
159
142
406
65
103
76
65
43
38
65
674
2,901
2012
£000
494
306
300
826 –
– –
– –
– –
– –
– –
– –
– –
– –
–
1,926
2011
£000
512
360
145
–
2
3
2
2012
£000
48
663
141
181
12 1
1
2
–
64
–
16
11 6
2011
£000
20
334
39
46
53
13
756 1
1,773
1,144
43 1
558
6,115
Total emoluments
excluding pensions
2012
£000
2011
£000
1,258
1,443
850
1,547
418
31
107
81
130
90
82
77
1,148
1,143
343
188
407
66
105
76
118
43
51
71
1,473
5,232
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 76. Tom Singer’s performance payment includes a cash
payment of £480,000 which he received in March 2012 to compensate him for
incentives from his previous employer that he had to forgo.
2 Benefits for Executive Directors 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. Benefits for Non-Executive Directors include, but are not limited to,
travel and accommodation expenses relating to attendance at Board and
Committee meetings.
3 Richard Solomons was promoted to Chief Executive on 1 July 2011.
4 Kirk Kinsell received base salary of $750,800 which equates to the figure in the
above table, using an exchange rate of $1=£0.63. Benefits incorporate the cost of
expatriate benefits related to his international assignment prior to taking up his
Board appointment as President, The Americas, on 13 June 2011.
5 Tracy Robbins was appointed as a Director on 9 August 2011. Her benefits include
receipt of a cash allowance in lieu of pension contributions of £117,700.
6 Tom Singer was appointed as a Director on 26 September 2011. His benefits
include receipt of a cash allowance in lieu of pension contributions of £162,000.
7 David Webster retired as Chairman of the Board on 31 December 2012.
8 Graham Allan resigned as a Director on 15 June 2012.
9 Luke Mayhew was appointed as a Director on 1 July 2011.
10 Dale Morrison was appointed as a Director on 1 June 2011.
11 2011 amounts relate to Andrew Cosslett, James Abrahamson and Ralph Kugler,
all of whom ceased to be Directors in 2011. Sir Ian Prosser retired as a Director on
31 December 2003. However, he had an ongoing healthcare benefit of £1,326
during 2012.
Directors’ pension benefits
The following information relates to the pension arrangements
provided for Richard Solomons under the executive UK DB Plan and
the unfunded ICETUS. The executive UK DB Plan is a funded,
registered, final salary, occupational pension scheme. The main
features applicable 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 or
annual allowance under the post-April 2012 pensions regime, these
benefits are limited in the IC Plan, but the balance is provided instead
by ICETUS.
The UK DB Plan will close to future accruals by existing members
with effect from 1 July 2013. ICETUS will also close to future accruals
with effect from 1 July 2013.
The following table sets out Richard Solomons’ pension benefits
under the UK DB plan:
Director’s contributions in the year1
Transfer value of accrued benefits at 1 January 2012
Transfer value of accrued benefits at
31 December 2012
Increase in transfer value over the year, less Director’s
contributions2
Absolute increase in accrued pension3 per annum
Increase in accrued pension4 per annum
Accrued pension at 31 December 20125 per annum
Age at 31 December 2012
£
35,000
6,999,800
8,272,500
1,237,700
72,900
63,500
377,200
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1 Contributions paid in 2012 by Richard Solomons under the terms of the plans
were 5% of full pensionable salary.
2 The increase in the transfer value of accrued benefits for Richard Solomons
arises principally from the increase in salary resulting from his appointment
as Chief Executive in July 2011.
3 The absolute increase in accrued pension during 2012.
4 The increase in accrued pension during 2012, excluding any increase for inflation.
5 Accrued pension is that which would be paid annually on retirement at 60, based
on service to 31 December 2012.
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Governance: Directors’ Remuneration Report continued
Tracy Robbins participated in the executive UK DC Plan until March
2012. This is a funded, registered, defined contribution, occupational
pension scheme. The main features applicable are:
• a normal pension age of 60;
• employee contributions of 7.5% of salary and company matching
contributions of 30% of salary (subject to the Annual Allowance,
with any excess over the Annual Allowance as a cash allowance
in lieu of pension benefits);
• life assurance cover of four times pensionable salary; and
• lump sum contributions payable in the event of ill health.
From April 2012, as a result of the reduction in the Lifetime Allowance,
contributions (including potential contributions payable in the event
of ill health) ceased and the full value of the company matching
contributions was paid as a cash allowance; life assurance cover
of four times pensionable salary continued to be provided.
Employer contributions to the UK DC Plan made for Tracy Robbins
amounted to £5,000. In addition, Tracy Robbins received a cash
allowance in lieu of pension contributions of £117,700.
Tom Singer does not participate in any pension plan and therefore
received a cash allowance in lieu of pension contributions of
£162,000; life assurance cover of four times pensionable salary
was also provided.
Kirk Kinsell has retirement benefits provided via the US 401(k) Plan
for employees of Six Continents Hotels, Inc. and the US Deferred
Compensation Plan (DCP). The US 401(k) Plan is a tax qualified plan
providing benefits on a defined contribution basis, with the member
and the relevant company both contributing. The US Deferred
Compensation Plan is a non-tax qualified plan, providing benefits
on a defined contribution basis, with the member and the relevant
company both contributing.
Contributions made by, and in respect of, Kirk Kinsell in the US
plans are*:
£
Director’s contributions to DCP in 2012
Director’s contributions to US 401(k) in 2012
Company contribution to DCP in 2012
Company contribution to US 401(k) in 2012
Age at 31 December 2012
191,498
14,195
103,620
6,309
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* Sterling values have been calculated using an exchange rate of $1=£0.63.
ABP deferred share awards
Directors’ pre-tax share interests during the year were as set out below:
Financial
year on
which
performance
is based
ABP
awards
held at
for award1 1 Jan 2012
ABP
awards
during
the year
Market
price per
share at
award
Award
date
ABP
shares
vested
during
the year
Market
price per
share at
vesting
Vesting
date
Directors
ABP
Value at
vesting
awards Planned
held at
£ 31 Dec 20122
Value based
on share
price of
1,707.0p at
vesting 31 Dec 2012
£
date
Richard Solomons
Total
Kirk Kinsell
Total
Tracy Robbins
Total
Tom Singer3
Total
2008
2009
2010
2011
2008
2009
2010
2011
2008
2009
2010
2011
2010
2011
66,549
–
32,295
98,844
41,427
–
27,375
68,802
33,132
–
20,377
53,509
–
–
23.2.09
472.6p
66,549
23.2.12 1,412.7p 940,138
21.2.11 1,417.0p
20.2.12 1,391.0p
36,838
36,838
23.2.09
472.6p
41,427
23.2.12 1,412.7p 585,239
21.2.11 1,417.0p
20.2.12 1,391.0p
26,360
26,360
23.2.09
472.6p
33,132
23.2.12 1,412.7p 468,056
21.2.11 1,417.0p
20.2.12 1,391.0p
22,889
22,889
–
–
30,142 21.2.14
34,382 20.2.15
64,524
514,524
586,901
1,101,425
25,550 21.2.14
24,602 20.2.15
50,152
436,139
419,956
856,095
19,018 21.2.14 324,637
21,363 20.2.15 364,666
689,303
40,381
–
–
1 For financial year 2008, the award was based on Group EBIT, net annual rooms additions and individual performance measures. For financial year 2009, no annual incentive
award was paid. For financial year 2010, the award was based on Group EBIT and individual performance measures. For financial year 2011, the award was based on
Group EBIT and individual performance measures.
2 InterContinental Hotels Group PLC 1329/47p ordinary shares were subject to a share consolidation effective from 9 October 2012. For every 15 existing ordinary shares
held at 6.00pm on 8 October 2012, shareholders received 14 new ordinary shares of 14194/329p each and a special dividend of 108.4p ($1.72) per existing ordinary share.
As a consequence, ABP awards held at 31 December 2012 have been reduced accordingly.
3 Tom Singer joined the Company and was appointed a Director on 26 September 2011 and did not participate in the 2011 ABP.
All Executive Directors participated in the ABP during the year ended 31 December 2012.
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IHG Annual Report and Financial Statements 2012
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Value
based
on share
price of
Planned 1,707.0p at
vesting 31 Dec 2012
£
date
–
–
Special share award
Details of a special share award which vested during the year ended 31 December 2012 is set out below:
Director
Tom Singer*
Total
Award
held at
1 Jan 2012
46,635
46,635
Awards
during
the year
Award
date
Market
price per
share at
award
Shares
vested
during
the year
Market
price per
share at
vesting
Vesting
date
Value at
vesting
Awards
held at
£ 31 Dec 2012
27.9.11 1,055.0p
46,635 26.9.12 1,630.0p 760,151
* As part of his recruitment terms, Tom Singer received a special share award to compensate for incentives forgone from his previous employer, which vested one year from
his appointment as a Director.
LTIP awards
The awards made in respect of cycles ending on 31 December 2011, 2012, 2013 and 2014 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 2011, 73.9% of the
award vested on 15 February 2012. In respect of the cycle ending on 31 December 2012, the Company outperformed the DJGH index in TSR
by 15 percentage points and achieved 21.7% per annum adjusted EPS growth. Accordingly, 100% of the award will vest on 20 February 2013.
End of year
performance
is based
for award
to which Maximum
LTIP
awards
held at
(31 Dec)1 1 Jan 2012
Maximum
LTIP
shares
awarded
during
the year
Directors
Richard Solomons
Total
Kirk Kinsell
Total
Tracy Robbins
Total
Tom Singer
Total
Former Directors
Andrew Cosslett3
Total
173,096
101,818
87,234
2011
2012
2013
2014
103,722
362,148 103,722
68,463
68,463
59,270
59,270
77,684
77,684
132,256
75,411
72,872
2011
2012
2013
2014
280,539
92,657
55,873
55,248
2011
2012
2013
2014
203,778
69,952
78,696
2012
2013
2014
148,648
2011
2012
2013
226,834
80,403
22,906
330,143
LTIP
shares
vested
during
the year2
Market
price per
share at
vesting
Value at
vesting
£
127,917 1,387.5p 1,774,848
97,737 1,387.5p 1,356,101
68,473 1,387.5p
950,063
Market
price per
share at
award
Award
date
3.4.09
604.0p
8.4.10 1,053.0p
8.4.11 1,269.0p
5.4.12 1,425.0p
3.4.09
604.0p
8.4.10 1,053.0p
8.4.11 1,269.0p
5.4.12 1,425.0p
3.4.09
604.0p
8.4.10 1,053.0p
8.4.11 1,269.0p
5.4.12 1,425.0p
27.9.11 1,055.0p
27.9.11 1,055.0p
5.4.12 1,425.0p
Maximum
value
based
on share
Maximum
price of
LTIP
awards
1,707.0p at
held at 31 Dec 2012
£
date 31 Dec 2012
Vesting
15.2.12
20.2.13
19.2.14
18.2.15
101,818 1,738,033
87,234 1,489,084
103,722 1,770,535
292,774 4,997,652
15.2.12
20.2.13
19.2.14
18.2.15
75,411 1,287,266
72,872 1,243,925
68,463 1,168,663
216,746 3,699,854
15.2.12
20.2.13
19.2.14
18.2.15
20.2.13
19.2.14
18.2.15
953,752
55,873
55,248
943,083
59,270 1,011,739
170,391 2,908,574
69,952 1,194,081
78,696 1,343,341
77,684 1,326,066
226,332 3,863,488
167,630 1,387.5p 2,325,866
3.4.09
604.0p
8.4.10 1,053.0p
8.4.11 1,269.0p
–
15.2.12
20.2.13
19.2.14
80,403 1,372,479
391,005
22,906
103,309 1,763,484
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2 This award was based on performance to 31 December 2011 where the performance measure related to both the Company’s TSR relative to the index and the cumulative
annual growth rate (CAGR) in adjusted EPS over the performance period. The Company outperformed the index in TSR by 7.9 percentage points and achieved 2.5% per
annum adjusted EPS growth. Accordingly, 73.9% of the award vested on 15 February 2012.
3 Andrew Cosslett retired as Chief Executive on 30 June 2011. Shares awarded to him in respect of cycles ending on 31 December 2011, 2012 and 2013 were pro-rated to reflect
his contractual service during the applicable performance periods.
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Governance: Directors’ Remuneration Report continued
Share options
Between 2003 and 2005, grants of options were made under the IHG Executive Share Option Plan. No price was paid for the grant of these
options. The performance conditions that applied to these options were satisfied when they became exercisable. No executive share options
have been granted since 2005.
Directors
Richard Solomons
Total
Kirk Kinsell
Total
Options
held at
1 Jan 2012
230,3201
100,5502
330,870
77,1101
32,0402
109,150
Ordinary shares under option
Lapsed
during
the year
Exercised
during
the year
Share price
on date of
exercise
–
–
–
77,110
32,040
109,150
1,577.63p
1,577.63p
Weighted
average option
price at
31 Dec 2012
532.36p
Options
held at
31 Dec 2012
230,3201
100,5502
330,870
–
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 308.48p to 619.83p per IHG share. The closing market value share price on 31 December 2012 was
1,707.0p and the range during the year was 1,157.0p to 1,725.0p per share.
The gain made by Directors in aggregate on the exercise of options during the year 2012 was £1,142,334.
This Directors’ Remuneration Report was approved by the Board on 18 February 2013.
Luke Mayhew
Chairman of the Remuneration Committee
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IHG Annual Report and Financial Statements 2012
Governance
Other statutory information
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Pages 1 to 80 (together with the sections of the Annual Report incorporated by
reference) constitute the Directors’ Report. The Directors present their report for the
financial year ended 31 December 2012.
Principal activities
InterContinental Hotels Group PLC (the Company), registered and
domiciled in England and Wales, with registered number 5134420,
is the holding company of the InterContinental Hotels Group (the
Group). The Group franchises, manages, owns and leases over
4,600 hotels with nearly 676,000 guest rooms in nearly 100 countries
and territories around the world.
General
Articles of Association (Articles)
The Company’s Articles may only be amended by special resolution.
Subject to the Articles and any relevant legislation, all Director
appointments must be ratified by the shareholders. The Articles
are available on the Company’s website www.ihgplc.com/investors
under corporate governance.
Annual General Meeting (AGM)
The Notice convening the AGM to be held at 11.00am on Friday,
24 May 2013 is contained in a circular sent to shareholders at the
same time as this Annual Report.
Board of Directors
Biographical details of Directors who served on the Board as at
18 February 2013 are shown on pages 46 and 47. The following were
Directors during 2012 and held office throughout the year, unless
otherwise indicated:
Executive Directors
Kirk Kinsell
Tracy Robbins
Tom Singer
Richard Solomons
Non-Executive Directors
Graham Allan1
Patrick Cescau2
David Kappler
Jennifer Laing
Jonathan Linen
Luke Mayhew
Dale Morrison
David Webster2
Ying Yeh
1 Graham Allan resigned as a Non-Executive Director on 15 June 2012.
2 Patrick Cescau was appointed on 1 January 2013 following the retirement of
David Webster on 31 December 2012.
Employees
IHG directly employed an average of 7,981 people worldwide during
2012, 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) more than 350,000 people worked globally
across all IHG’s brands at 31 December 2012.
Group Code of Ethics and Business Conduct (Group Code of Conduct)
As part of our commitment to being a Responsible Business, the
Board has a Group Code of Conduct relating to the lawful and ethical
conduct of business by its employees. All Directors and employees
are expected to observe the high standards set out in the Group Code
of Conduct and adhere to the Company values.
Further information regarding the Group’s employment policies,
including its obligations under equal opportunities legislation, its
commitment to employee communications and its approach towards
employee development, can be found on pages 30 to 33.
Subsidiaries, joint ventures and associated undertakings
The Group has over 290 subsidiary, joint venture and associated
undertakings.
Shares
Results and dividends
The operating profit before exceptional items was $614m: the Group’s
income statement is set out on page 84. An interim dividend of
13.5 pence per share (21.0 cents per ADR) was paid on 28 September
2012. A special dividend of 108.4 pence per share ($1.72 per ADR)
was paid on 22 October 2012. The Directors are recommending
a final dividend of 27.7 pence per share (43.0 cents per ADR) to be
paid on 31 May 2013 to shareholders on the Register of Members
at the close of business on 22 March 2013. Therefore, excluding the
special dividend, the full-year dividend will be 41.2 pence per share
(64.0 cents per ADR) (2011 34.5 pence per share (55.0 cents per
ADR)). Total dividends relating to the year, excluding the special
dividend, are expected to amount to $176m.
Share capital
The Company’s issued share capital at 31 December 2012 consisted
of 268,325,071 ordinary shares of 14194/329 pence each. There are no
special control rights or restrictions on share transfers or limitations
on the holding of any class of shares. During the year, 1,365,258 new
shares were issued under employee share plans and the Company
completed a share consolidation and commenced a share buyback
(see below).
Employee share ownership trust
IHG operates an Employee Share Ownership 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 3,219,427 shares and at 31 December 2012 it held 1,814,507
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.
2012 share awards and grants
No awards or grants over shares were made during 2012 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 AGMs to allot shares for cash without first offering such
shares to existing shareholders.
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Share issues and buybacks
On 7 August 2012, the Company announced a $1bn return of funds to
shareholders via a special dividend of $0.5bn and share consolidation
on a 14 for 15 basis and a share buyback programme of $0.5bn. The
share buyback authority remains in force until the AGM in 2013, and
a resolution to renew the authority will be put to shareholders at
that AGM.
During the year the following transactions took place which affected
the Company’s issued share capital:
Period
Event
1 Jan to 31 Dec 2012
9 Oct 2012
12 Nov to 20 Dec 2012
Share plan exercises
14 for 15 share consolidation
Share buyback
Ordinary shares
1,365,258
n/a
4,143,960
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Substantial shareholdings
As at 31 December 2012 and 18 February 2013, the Company had been
notified of the following significant holdings in its ordinary shares:
Shareholder
Cedar Rock Capital Limited
BlackRock, Inc.
Legal & General Group plc
As at
18 February 2013
5.07%
5.02%
3.96%
Director share interests
Details of the beneficial interests in shares of the Company, held by
Directors who were on the Board as at 31 December 2012 (unless
otherwise indicated), are shown below. No changes to these interests
occurred between the year end and the date of this Annual Report.
As at
31 December 2012
ordinary shares1
As at
31 December 2011
ordinary shares1
Executive Directors
Kirk Kinsell
Tracy Robbins
Tom Singer
Richard Solomons
Non-Executive Directors
Patrick Cescau3
David Kappler
Jennifer Laing
Jonathan Linen
Luke Mayhew
Dale Morrison
David Webster3
Ying Yeh
155,6282
85,703
20,846 –
322,379
– –
1,308
3,148
6,8534
1,866
4,2334
33,438
– –
109,547
43,108
252,166
1,400
3,373
7,343
2,000
–
35,828
1 These shareholdings include all beneficial interests and those held by Directors’
spouses and other connected persons. None of the Directors have 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 Directors’ Remuneration Report on
pages 59 to 78.
2 155,034 ordinary shares and 594 American Depositary Receipts.
3 Patrick Cescau was appointed as a Non-Executive Chairman on 1 January 2013
following the retirement of David Webster on 31 December 2012.
4 Held in the form of American Depositary Receipts.
Finance
Charitable and political donations
In 2012, the Group donated $760,000 (2011 $1,540,000) in support of
community initiatives and charitable causes. In addition, IHG employees
and guests made contributions during 2012 to a variety of causes through
IHG facilitated channels. Taking all these contributions into account,
total donations in 2012 are estimated at $1,015,000 (2011 $2,040,000).
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 29 and in notes
21 to 23 to the Group Financial Statements on pages 111 to 117.
Significant agreements and change of control provisions
The Group is a party to the following arrangements which could be
terminated upon a change of control of the Company and which are
considered significant in terms of their potential impact on the
business of the Group as a whole:
• the Group’s five-year $1.07bn syndicated loan facility agreement
dated 7 November 2011, under which a change of control of the
Company would entitle each lender to cancel its commitment and
declare all amounts due to it payable;
• the terms of the £250m seven-year bond issued by the Company
on 9 December 2009, under which, if the bond’s credit rating was
downgraded in connection with a change of control, the bond
holders would have the option to require the Company to redeem
or, at the Company’s option repurchase the outstanding notes
together with interest accrued; and
• the terms of the £400m 10-year bond issued by the Company on
28 November 2012, under which, if the bond’s credit rating was
downgraded in connection with a change of control, the bond
holders would have the option to require the Company to redeem
or, at the Company’s option, repurchase the outstanding notes
together with interest accrued.
Business relationships
During 2012, the Group entered into a five-year technology
outsourcing agreement with International Business Machines
Corporation (IBM), pursuant to which IBM operates and maintains
the infrastructure of the Group’s reservations system. Otherwise,
there are no specific individual contracts or arrangements
considered to be essential to the business of the Group as a whole.
Policy on payment of suppliers
The Company 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.
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 9 to 44. Information on the Group’s treasury management policies
can be found in note 21 to the Group Financial Statements on pages
111 to 115. The Group refinanced its bank debt in November 2011 and
put in place a five-year $1.07bn facility. In December 2009 the Group
issued a seven-year £250m sterling bond and, in November 2012,
a 10-year £400m sterling bond. At the end of 2012 the Group was
trading significantly 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.
Events after the reporting period
As explained in note 34 to the Group Financial Statements on page 128,
the Group is expected to receive a liquidated damages payment of
$31m in February 2013.
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 are aware of any
relevant audit information which has not been disclosed to the auditors.
Auditor reappointment
Ernst & Young LLP have expressed their willingness to continue
in office as auditors of the Company and their reappointment will
be put to shareholders at the 2013 AGM.
By order of the Board
George Turner
General Counsel and Company Secretary
18 February 2013
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Group Financial Statements
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In this section we present the Statements of Directors’ responsibilities, the independent
Auditor’s Report and the Consolidated Financial Statements of the Group for 2012.
82
83
Group Financial Statements
Statements of Directors’ responsibilities
Independent Auditor’s Report
to the members
84 Group income statement
Group statement of
85
comprehensive income
Group statement of changes in equity
Group statement of financial position
86
88
89 Group statement of cash flows
90 Accounting policies
Notes to the Group
Financial Statements
Exchange rates
Segmental information
Staff costs and
Directors’ emoluments
1
96
96
2
100 3
100 4
101 5
102 6
102 7 Tax
103 8
104 9
105 10
106 11
107 12 Goodwill
108 13
108 14
Auditor’s remuneration paid
to Ernst & Young LLP
Exceptional items
Finance costs
Dividends paid and proposed
Earnings per ordinary share
Property, plant and equipment
Assets sold and held for sale
Intangible assets
Investment in associates and
joint ventures
109 15 Other financial assets
Inventories
110 16
Trade and other receivables
110 17
Cash and cash equivalents
110 18
Trade and other payables
111 19
Financial risk management
Loans and other borrowings
Derivative financial instruments
111 20 Provisions
111 21
115 22
116 23
117 24 Net debt
118 25 Retirement benefits
122 26 Deferred tax
123 27
126 28
127 29 Operating leases
127 30
127 31 Contingencies
127 32
128 33 System Fund
128 34 Events after the reporting period
Principal operating
128 35
subsidiary undertakings
Share-based payments
Issued share capital and reserves
Capital and other commitments
Related party disclosures
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staybridge suites London-stratford City, uK
Other statutory information and Group Financial Statements
81
Statements of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the Group Financial
Statements in accordance with applicable law, regulations and
International Financial Reporting Standards as adopted by the
European Union.
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 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 in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and
Errors, and then 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, including the Group Financial Statements,
complies with the Disclosure and Transparency Rules 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
Richard Solomons
Chief Executive
18 February 2013
Tom Singer
Chief Financial Officer
18 February 2013
82
IHG Annual Report and Financial Statements 2012
Independent Auditor’s Report to the members of InterContinental Hotels Group PLC
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the Directors’ Report for
the financial year for which the Group 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 80, in relation to going
concern; and
• the part of the Corporate Governance statement relating to
the Company’s compliance with the nine provisions of the
UK Corporate Governance Code specified for our review; and
• certain elements of the report to shareholders by the Board on
Directors’ remuneration.
Other matter
We have reported separately on the Parent Company Financial
Statements of InterContinental Hotels Group PLC for the year
ended 31 December 2012 and on the information in the Directors’
Remuneration Report that is described as having been audited.
Alison Duncan (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
18 February 2013
Notes:
1. The maintenance and integrity of the InterContinental Hotels Group PLC website
is the responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the Financial Statements
since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
We have audited the Group Financial Statements of
InterContinental Hotels Group PLC for the year ended 31 December
2012 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 35. 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 82, 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 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. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
Financial Statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
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 2012 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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Statements of Directors’ responsibilities and Independent Auditor’s Report
83
Group Financial Statements
Group income statement
For the year ended 31 December 2012
Revenue
Cost of sales
Administrative expenses
Other operating income
and expenses
Depreciation and amortisation
Impairment
Operating profit
Financial income
Financial expenses
Profit before tax
Tax
Profit for the year from
continuing operations
Attributable to:
Equity holders of the parent
Non-controlling interest
Earnings per ordinary share
Continuing and total operations:
Basic
Diluted
Adjusted
Adjusted diluted
Note
2
Before
exceptional
items
$m
1,835
(772)
(363)
2
2
2
6
6
7
9
8
708
(94)
–
614
3
(57)
560
(153)
407
406
1
407
141.5¢
139.0¢
Exceptional
items
(note 5)
$m
–
–
(16)
(11)
(27)
–
23
(4)
–
–
(4)
142
138
138
–
138
2012
Total
$m
1,835
(772)
(379)
(3)
681
(94)
23
610
3
(57)
556
(11)
545
544
1 –
545
Before
exceptional
items
$m
1,768
(771)
(350)
11
658
(99)
–
559
2
(64)
497
(120)
377
377
–
377
Exceptional
items
(note 5)
$m
–
–
(31)
46
15
–
20
35
–
–
35
48
83
83
–
83
189.5¢
186.3¢
130.4¢
127.4¢
2011
Total
$m
1,768
(771)
(381)
57
673
(99)
20
594
2
(64)
532
(72)
460
460
460
159.2¢
155.4¢
Notes on pages 90 to 128 form an integral part of these Financial Statements.
84
IHG Annual Report and Financial Statements 2012
Group statement of comprehensive income
For the year ended 31 December 2012
Profit for the year
Other comprehensive income
Available-for-sale financial assets:
Gains on valuation
Losses reclassified to income on impairment
Cash flow hedges:
Reclassified to financial expenses
Defined benefit pension plans:
Actuarial gains/(losses), net of related tax charge of $1m (2011 credit of $13m)
Change in asset restriction on plans in surplus and liability in respect
of funding commitments, net of related tax credit of $7m (2011 $7m)
Exchange differences on retranslation of foreign operations,
including related tax credit of $3m (2011 charge of $3m)
Tax related to pension contributions
Other comprehensive income/(loss) for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Notes on pages 90 to 128 form an integral part of these Financial Statements.
2012
$m
545
1
–
1
–
(18)
24
19
27
572
571
1 1
572
2011
$m
460
15
3
4
(19)
(4)
(21)
2
(20)
440
439
440
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Group income statement and Group statement of comprehensive income
85
Group Financial Statements continued
Group statement of changes in equity
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
162
–
10
–
(27)
–
(2,893)
–
71
–
189
–
Retained
earnings
$m
3,035
544
IHG share-
Non-
holders’ controlling
interest
$m
equity
$m
At 1 January 2012
Profit for the year
Other comprehensive income:
Gains on valuation of available-
for-sale financial assets
Amounts reclassified to
financial expenses on cash
flow hedges
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
Repurchase of shares
Transfer to capital
redemption reserve
Transaction costs relating to
shareholder returns
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
Share of reserve in equity
accounted investment
Exchange adjustments
At 31 December 2012
547
544
1
1
–
–
–
–
–
(18)
(18)
25
–
25
25
–
–
–
–
–
–
–
–
–
–
19
1
545
–
(106)
(1)
(2)
–
24
19
27
571
10
(107)
–
(2)
(84)
(63)
–
27
20
(679)
27
20
(679)
5
–
308
Total
equity
$m
555
545
1
1
(18)
24
19
27
572
10
(107)
–
(2)
(84)
–
27
20
(679)
5
317
8
1
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
– –
9
–
–
–
–
–
–
–
10
(1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(84)
63
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
–
(1)
–
1
1
–
–
–
–
–
–
–
–
–
–
8
179
–
–
11
–
–
(48)
–
(8)
(2,901)
–
–
72
–
–
214
5
–
2,781
All items above are shown net of tax.
Notes on pages 90 to 128 form an integral part of these Financial Statements.
86
IHG Annual Report and Financial Statements 2012
Group statement of changes in equity continued
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I
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IHG share-
Non-
holders’ controlling
interest
$m
equity
$m
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
At 1 January 2011
Profit for the year
Other comprehensive income:
Gains on valuation of available-
for-sale financial assets
Losses reclassified to income
on impairment of available-for-
sale financial assets
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 loss
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 adjustments
At 31 December 2011
155
–
10
–
(35)
–
(2,894)
–
–
–
–
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
162
–
–
–
–
10
–
–
–
–
–
–
–
–
–
–
(75)
83
–
–
–
–
(27)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
(2,893)
49
–
15
3
4
–
–
–
–
22
22
–
–
–
–
–
–
–
71
211
–
–
–
–
–
–
(22)
–
(22)
(22)
–
–
–
–
–
–
–
189
All items above are shown net of tax.
Notes on pages 90 to 128 form an integral part of these Financial Statements.
Retained
earnings
$m
2,788
460
–
–
–
284
460
15
3
4
(19)
(19)
(4)
(4)
–
(22)
2
(21)
439
–
2
(21)
439
8
–
(75)
(80)
3
29
7
(148)
–
3,035
29
7
(148)
–
547
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W
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n
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E
s
T
A
T
E
M
E
n
T
s
Total
equity
$m
291
460
15
3
4
(19)
(4)
(21)
2
(20)
440
8
(75)
3
29
7
(148)
–
555
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O
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P
F
n
A
n
C
A
L
I
7
–
–
–
–
–
–
1
–
1
1
–
–
–
–
–
–
–
8
P
A
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E
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T
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O
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P
A
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Y
I
I
F
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F
O
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A
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Group statement of changes in equity
87
Group Financial Statements continued
Group statement of financial position
31 December 2012
ASSETS
Property, plant and equipment
Goodwill
Intangible assets
Investment in associates and joint ventures
Retirement benefit assets
Other financial assets
Non-current tax receivable
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Current tax receivable
Derivative financial instruments
Other financial assets
Cash and cash equivalents
Total current assets
Non-current assets classified as held for sale
Total assets
LIABILITIES
Loans and other borrowings
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
Liabilities classified as held for sale
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
Tom Singer
18 February 2013
Notes on pages 90 to 128 form an integral part of these Financial Statements.
88
IHG Annual Report and Financial Statements 2012
Note
10
12
13
14
25
15
26
16
17
23
15
18
660
11
2
22
19
20
(780)
22
23
25
19
20
26
11
2
317
28
28
28
28
28
28
2012
$m
1,056
93
354
84
99
155
24
204
2,069
4
422
31
2 3
6 –
195
534
3,263
(16)
(709)
(1)
(54)
(1,242)
(19)
(187)
(563)
(1)
(93)
(2,105)
(61)
(2,946)
179
11
(48)
(2,901)
72
214
2,781
308
9 8
317
2011
$m
1,362
92
308
87
21
156
41
106
2,173
4
369
20
182
578
217
2,968
(21)
(707)
(12)
(120)
(860)
(670)
(39)
(188)
(497)
(2)
(97)
(1,493)
(60)
(2,413)
555
162
10
(27)
(2,893)
71
189
3,035
547
555
Group statement of cash flows
For the year ended 31 December 2012
Profit for the year
Adjustments for:
Net financial expenses
Income tax charge
Depreciation and amortisation
Impairment
Other exceptional operating items
Equity-settled share-based cost
Other items
Operating cash flow before movements in working capital
Increase 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
Purchase of property, plant and equipment
Purchase of intangible assets
Investment in other financial assets
Investment in associates and joint ventures
Disposal of assets, net of costs
Proceeds from 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
Purchase of own shares by employee share trusts
Dividends paid to shareholders
Transaction costs relating to shareholder returns
Issue of long-term 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 90 to 128 form an integral part of these Financial Statements.
2012
$m
545
54
11
94
(23)
27
22
(2)
728
(50)
57
26
(12)
(104)
(6)
639
(50)
2 1
(119)
472
(44)
(84)
(2)
(3)
4
4
(3)
(128)
10
(107)
(84)
(679)
(2)
632
(99)
(329)
15
182
(2)
195
2011
$m
460
62
72
99
(20)
(15)
25
–
683
(11)
66
(20)
(19)
(44)
(32)
623
(56)
(89)
479
(55)
(48)
(50)
(41)
142
15
(1)
(38)
8
–
(75)
(148)
–
–
(119)
(334)
107
78
(3)
182
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89
Accounting policies
General information
The Consolidated Financial Statements of InterContinental Hotels
Group PLC (the Group or IHG) for the year ended 31 December 2012
were authorised for issue in accordance with a resolution of the
Directors on 18 February 2013. InterContinental Hotels Group PLC
(the Company) is incorporated and domiciled in Great Britain and
registered in England and Wales.
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.
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 2012, the Group has implemented
the following amendments to accounting standards. Neither of
these have had any impact on the Group’s financial performance
or position during the year and there has been no requirement to
restate prior year comparatives.
• IFRS 7 (Amendment) ‘Financial Instruments: Disclosures’,
requires additional disclosures about financial assets that have
been transferred but not derecognised and about continuing
involvement in derecognised assets.
• IAS 12 (Amendment) ‘Income Taxes’, introduces a rebuttable
presumption that deferred tax on investment property measured
at fair value should be determined on the basis that its carrying
amount will be recovered through sale. The amendment also
introduces the requirement that deferred tax on non-depreciable
assets measured using the revaluation model in IAS 16 will
always be measured on a sale basis of the asset.
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.
Foreign currencies
Transactions in foreign currencies are translated to 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.
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.
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 re-assessed annually.
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.
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IHG Annual Report and Financial Statements 2012
On adoption of IFRS, the Group retained previous revaluations of
property, plant and equipment which are included at deemed cost as
permitted by IFRS 1 ‘First-time Adoption of International Financial
Reporting Standards’.
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 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, in which
case they are capitalised and amortised over the estimated useful
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 normally 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.
Borrowing costs
Borrowing costs attributable to the acquisition or construction of
property, plant and equipment or in respect of software projects
that necessarily take a substantial period of time to prepare for
their intended use, or sale, are capitalised as part of the asset cost.
Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds. All borrowing
costs relating to projects commencing before 1 January 2009
were expensed.
Associates and joint ventures
An associate is an entity over which the Group has the ability to
exercise significant influence, but not control or jointly control,
through participation in the financial and operating policy decisions
of the entity.
A joint venture is a contractual arrangement whereby two or more
venturers exercise joint control over the entity and unanimous
agreement is required to make strategic financial and operating
policy decisions.
Associates and jointly controlled entities are accounted for
using the equity method unless the associate or jointly controlled
entity 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 and other movements
in the investee’s reserves. When the Group’s share of losses
exceeds its interest in an associate or joint venture, 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 or jointly controlled entity.
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. Subsequent impairment
reversals relating to previously impaired equity instruments are
recorded in equity.
Inventories
Inventories are stated at the lower of cost and net realisable value.
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.
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Accounting policies
91
Accounting policies continued
Cash and cash equivalents
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 recognised in 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.
Derivative financial instruments and hedging
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.
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 either financial income or expenses over the term of
the agreement, unless the accounting treatment for the hedging
relationship requires the interest to be taken to reserves.
Self insurance
Liabilities in respect of self insured risks 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.
In respect of litigation, provision is made when management
consider it probable that payment may occur even though the
defence of the related claim may still be ongoing through the
court process.
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.
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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.
Curtailment gains arising from the cessation of future benefit
accrual are recognised in the period in which the defined benefit
plan is amended.
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 arises from the sale of goods and provision of services
where these activities give rise to economic benefits received and
receivable by the Group on its own account and 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.
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 contract.
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.
Share-based payments
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.
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Accounting policies
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Accounting policies continued
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.
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.
Exceptional items
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 these 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.
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 surpluses
and deficits held in the Group statement of financial position.
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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. Deferred tax balances are dependent on
management’s expectations regarding the manner and timing
of recovery of the related assets.
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 as set out below. Unless otherwise indicated,
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.
• IAS 1 (Amendment) ‘Presentation of Financial Statements’,
which is effective from 1 July 2012, changes the grouping of items
presented in other comprehensive income (OCI) so that items
which may be reclassified to profit or loss in the future are
presented separately from items that will never be reclassified.
• IAS 19 (Revised) ‘Employee Benefits’, which is effective from
1 January 2013, introduces numerous changes including the
removal of the option to defer recognition of some actuarial
gains and losses (‘the corridor mechanism’) and the concept of
expected returns on plan assets. The Group currently recognises
all actuarial gains and losses in OCI, therefore the removal of
the corridor mechanism will have no impact on financial
performance or position. The impact of calculating the expected
return on plan assets (after relevant asset restrictions) using
the same interest rate as applied to discounting the benefit
obligations is expected to result in a higher operating profit
charge of approximately $3m in 2013 compared with the 2012
charge under the current version of IAS 19.
• IAS 28 (Amendment) ‘Investments in Associates and Joint
Ventures’, which will be adopted by the Group from 1 January
2013, has been renamed as a consequence of the new IFRS 11
and IFRS 12 (see below) and describes the application of the
equity method to investments in joint ventures in addition
to associates.
• IFRS 10 ‘Consolidated Financial Statements’, which will be
adopted by the Group from 1 January 2013, introduces a single
control model for all entities, including special purpose entities,
which will require significant judgement to determine which
entities are controlled and therefore consolidated in the Group
Financial Statements. Based on the preliminary analyses
performed, IFRS 10 is not expected to have any material impact
on the investments held by the Group.
• IFRS 11 ‘Joint Arrangements’, which will be adopted by the Group
from 1 January 2013, eliminates the option to account for jointly
controlled entities (JCEs) using proportionate consolidation. The
Group currently accounts for its JCEs using the equity method
which is the requirement of IFRS 11.
• IFRS 12 ‘Disclosure of Interests in Other Entities’, which will be
adopted by the Group from 1 January 2013, incorporates all of
the disclosures required in respect of an entity’s interests in
subsidiaries, joint arrangements, associates and structured
entities. The requirements are extensive and likely to result in
new disclosures in the Group Financial Statements.
• IFRS 13 ‘Fair Value Measurement’, which is effective from
1 January 2013, establishes a single source of guidance under
IFRS for fair value measurements. IFRS 13 does not change
when an entity is required to use fair value, but rather provides
guidance on how to measure fair value when fair value is required
or permitted. Based on the preliminary analyses performed,
IFRS 13 is not expected to have a material impact on the Group’s
Financial Statements.
• IFRS 9 ‘Financial Instruments: Classification and Measurement’,
which is effective from 1 January 2015, introduces new
requirements for classifying and measuring financial assets
and financial liabilities and, when finalised, will address hedge
accounting and impairment of financial assets. The Group will
assess the impacts when the final standard is issued.
Note: with the exception of IFRS 9, all of the above will be adopted
by the Group with effect from 1 January 2013. IAS 28 (Amendment),
IFRS 10, IFRS 11 and IFRS 12 have been endorsed for adoption by
the EU with effect from 1 January 2014 and are therefore being
adopted early by the Group.
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Accounting policies
95
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=£0.63 (2011 $1=£0.62). In the case of the
euro, the translation rate is $1=€0.78 (2011 $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=£0.62 (2011 $1=£0.65). In the case of the
euro, the translation rate is $1=€0.76 (2011 $1=€0.77).
2. Segmental information
The management of the Group’s operations, excluding Central
functions, is organised within four geographical regions:
income. Central liabilities include the loyalty programme liability
and the cumulative short-term System Fund surplus.
• Americas;
• Europe;
• Asia, Middle East and Africa (AMEA); and
• Greater China.
These, together with Central functions, comprise the Group’s
five reportable segments. No operating segments have been
aggregated to form these reportable segments.
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 activities and income taxes are managed
on a group basis and are not allocated to reportable segments.
Year ended 31 December 2012
Revenue
Franchised
Managed
Owned and leased
Central
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 (note 5)
Operating profit
Net finance costs
Profit before tax
Tax
Profit for the year
All items above relate to continuing operations.
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
541
97
199
–
837
91
147
198
–
436
18
152
48
–
218
3
89
138
–
230
–
–
–
114
114
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
466
48
24
(52)
486
23
509
65
32
50
(32)
115
(4)
111
12
90
6
(20)
88
(5)
83
4
51
45
(19)
81
–
81
–
–
–
(156)
(156)
(18)
(174)
(11)
653
485
583
114
1,835
Group
$m
547
221
125
(279)
614
(4)
610
Group
$m
614
(4)
610
(54)
556
545
96
IHG Annual Report and Financial Statements 2012
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
O
V
E
R
V
I
E
W
725
232
957
626
302
928
282
–
282
390
–
390
250
–
250
(403)
(61)
(464)
(249)
–
(249)
(58)
–
(58)
(61)
–
(61)
(690)
–
(690)
2. Segmental information continued
31 December 2012
Assets and liabilities
Segment assets
Non-current assets classified as held for sale
Unallocated assets:
Non-current tax receivable
Deferred tax assets
Current tax receivable
Derivative financial instruments
Cash and cash equivalents
Total assets
Segment liabilities
Liabilities classified as held for sale
Unallocated liabilities:
Current tax payable
Deferred tax liabilities
Loans and other borrowings
Derivative financial instruments
Total liabilities
Year ended 31 December 2012
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisation*
Reversal of previously recorded impairment
Write-off of software
Demerger liability released
Share-based payments cost
Share of profit of associates and joint ventures
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
25
20
(23)
–
–
–
–
19
23
–
–
–
–
–
6
14
–
–
–
–
(3)
7
15
–
–
–
–
–
76
22
–
18
(9)
22
–
* Included in the $94m of depreciation and amortisation is $31m relating to administrative expenses and $63m relating to cost of sales.
Year ended 31 December 2012
Reconciliation of capital expenditure
Capital expenditure per management reporting
Timing differences
Capital expenditure per the Financial Statements
Comprising additions to:
Property, plant and equipment
Non-current assets classified as held for sale
Intangible assets
Investments in associates and joint ventures
Other financial assets
–
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
25
(1)
24
15
5
2
2
2
24
19
–
19
9
–
8
–
–
19
6
–
6
2
–
4
–
–
6
7
2
9
9
–
–
–
–
9
76
–
76
6
–
70
–
2
76
133
1
134
41
5
84
2
134
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
O
T
H
E
R
I
n
F
O
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M
A
T
I
O
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Notes to the Group Financial Statements
97
2,273
534
2,807
24
204
31
2
195
3,263
(1,461)
(61)
(1,522)
(54)
(93)
(1,258)
(19)
(2,946)
Group
$m
133
94
(23)
18
(9)
22
(3)
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E
s
s
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G
O
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n
A
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C
E
s
T
A
T
E
M
E
n
T
s
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R
O
u
P
F
n
A
n
C
A
L
I
P
A
R
E
n
T
C
O
M
P
A
n
Y
Notes to the Group Financial Statements continued
2. Segmental information continued
Year ended 31 December 2011
Revenue
Franchised
Managed
Owned and leased
Central
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 (note 5)
Operating profit
Net finance costs
Profit before tax
Tax
Profit for the year
All items above relate to continuing operations.
31 December 2011
Assets and liabilities
Segment assets
Non-current assets classified as held for sale
Unallocated assets:
Non-current tax receivable
Deferred tax assets
Current tax receivable
Derivative financial instruments
Cash and cash equivalents
Total assets
Segment liabilities
Liabilities classified as held for sale
Unallocated liabilities:
Current tax payable
Deferred tax liabilities
Loans and other borrowings
Derivative financial instruments
Total liabilities
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
502
124
204
–
830
86
118
201
–
405
19
151
46
–
216
2
77
126
–
205
–
–
–
112
112
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
431
52
17
(49)
451
13
464
65
26
49
(36)
104
(39)
65
12
87
5
(20)
84
26
110
3
43
37
(16)
67
–
67
–
–
–
(147)
(147)
35
(112)
(72)
609
470
577
112
1,768
Group
$m
511
208
108
(268)
559
35
594
Group
$m
559
35
594
(62)
532
460
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
691
217
908
816
–
816
276
–
276
388
–
388
228
–
228
(427)
(60)
(487)
(247)
–
(247)
(53)
–
(53)
(54)
–
(54)
(625)
–
(625)
2,399
217
2,616
41
106
20
3
182
2,968
(1,406)
(60)
(1,466)
(120)
(97)
(691)
(39)
(2,413)
98
IHG Annual Report and Financial Statements 2012
2. Segmental information continued
Year ended 31 December 2011
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisation*
Impairment losses
Reversal of previously recorded impairment
Share-based payments cost
Share of profit of associates and joint ventures
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
–
84
23
2
(25)
–
–
15
24
3
–
–
–
14
16
–
–
–
(1)
8
16
–
–
–
–
72
20
5
–
25
–
193
99
(25)
25
(1)
* Included in the $99m of depreciation and amortisation is $30m relating to administrative expenses and $69m relating to cost of sales.
Year ended 31 December 2011
Reconciliation of capital expenditure
Capital expenditure per management reporting
Management contract acquired on disposal
Timing differences
Capital expenditure per the Financial Statements
2
Comprising additions to:
Property, plant and equipment
Intangible assets
Investments in associates and joint ventures
Other financial assets
Americas
$m
Europe
$m
AMEA
$m
Greater China
$m
Central
$m
Group
$m
84
2
–
88
6
30
31
21
88
15
–
–
15
12
3
–
–
15
14
–
2
14
2
–
11
1
14
8
–
–
10
10
–
–
–
10
72
–
4
72
26
46
–
–
72
193
2
199
56
79
42
22
199
Geographical information
Revenue
United Kingdom
United States
People’s Republic of China (including Hong Kong)
Rest of World
Year ended
31
December
2012
$m
Year ended
31 December
2011
$m
152
769
238
676
139
740
210
679
1,768
1,835
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
31 December
2012
$m
31 December
2011
$m
78
590
333
257
361
559
328
331
270
1,849
329
1,587
For the purposes of the above table, non-current assets comprise property, plant and equipment, goodwill, intangible assets and
investments in associates and joint ventures. 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.
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F
n
A
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C
A
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I
P
A
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C
O
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P
A
n
Y
I
I
F
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A
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A
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s
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A
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Notes to the Group Financial Statements
99
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
* Before exceptional items.
Average number of employees, including part-time employees:
Americas
Europe
Asia, Middle East and Africa
Greater China
Central
2012
$m
547
44
4
22
617
2011
$m
550
43
8
22
623
2012
2011
2,552
1,866
1,195
1,051
1,317
7,981
2,895
1,574
1,195
1,000
1,292
7,956
The costs of the above employees are borne by IHG. In addition, the Group employs 5,018 (2011 4,462) people who work in managed hotels
or directly on behalf of the System Fund and whose costs of $353m (2011 $307m) are borne by those hotels or by the Fund.
Directors’ emoluments
Base salaries, fees, performance payments and benefits
2012
$m
9.7
2011
$m
8.3
More detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Directors’
Remuneration Report on pages 59 to 78.
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
2012
$m
2.8
1.5
0.5
0.3
0.2
1.9
7.2
2011
$m
1.9
1.5
0.7
0.3
0.4
1.4
6.2
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.
100
IHG Annual Report and Financial Statements 2012
5. Exceptional items
Exceptional operating items
Administrative expenses:
Litigation provision
Resolution of commercial dispute
Pension curtailment gain
Reorganisation costs
Other operating income and expenses:
(Loss)/gain on disposal of hotels (note 11)
Write-off of software (note 13)
Demerger liability released
VAT refund
Impairment:
Impairment charges:
Property, plant and equipment (note 10)
Other financial assets (note 15)
Reversals of previously recorded impairment:
Property, plant and equipment (note 10)
Associates (note 14)
Tax
Tax on exceptional operating items
Exceptional tax credit
Note
2012
$m
a
b
c
d
e
f
g
–
–
–
(16)
(16)
(2)
(18) –
9
–
(11)
–
–
23
–
23
(4)
1
141
142
2011
$m
(22)
(37)
28
–
(31)
37
–
9
46
(2)
(3)
23
2
20
35
5
43
48
All items above relate to continuing operations.
The above items are treated as exceptional by reason of their size or nature.
a Related to a lawsuit filed against the Group in the Americas region, for which the final balance was paid in March 2012.
b Related to the settlement of a prior period commercial dispute in the Europe region.
c Related to the closure of the UK defined benefit pension scheme to future accrual with effect from 1 July 2013.
d Arises from a reorganisation of the Group’s support functions together with a restructuring within the AMEA region.
e Release of a liability no longer required relating to the demerger of the Group from Six Continents PLC.
f Arose in the UK relating to periods prior to 1996.
g Represents the recognition of $104m of deferred tax assets, principally relating to pre-existing overseas tax losses, whose value has become more certain as a result of a
change in law and the resolution of prior period tax matters, together with the associated release of $37m of provisions. In 2011, related to a $30m revision of the estimated
tax impacts of an internal reorganisation completed in 2010 together with the release of $13m of provisions.
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n
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s
T
A
T
E
M
E
n
T
s
I
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F
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A
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C
A
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s
T
A
T
E
M
E
n
T
s
I
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R
O
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P
F
n
A
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C
A
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I
P
A
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T
C
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P
A
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Y
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I
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F
O
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A
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I
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Notes to the Group Financial Statements
101
Notes to the Group Financial Statements continued
6. Finance costs
Financial income
Interest income on deposits
Unwinding of discount on other financial assets
Financial expenses
Interest expense on borrowings
Interest rate swaps fair value transferred from equity
Finance charge payable under finance leases
2012
$m
2
1
3
37
1
19
57
2011
$m
1
1
2
42
4
18
64
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 (2011 $1m) 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 24.5% (2011 26.5%):
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 for the year
Further analysed as tax relating to:
Profit before exceptional items
Exceptional items (note 5):
Exceptional operating items
Exceptional tax credit
All items above relate to continuing operations.
100
Note
2012
$m
2011
$m
a
b
170
a
112
c
22
(34)
(12)
(31)
(27)
8
(2)
(105)
10
(89)
11
153
(1)
(141)
11
30
(25)
5
98
(16)
(65)
17
22
73
(2)
(12)
(9)
50
72
120
(5)
(43)
72
a Includes $37m (2011 $39m) of exceptional credits 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.
b Represents corporate income taxes on profit taxable in foreign jurisdictions, a significant proportion of which relates to the Group’s US subsidiaries.
c Represents the recognition of $104m of deferred tax assets, principally relating to pre-existing overseas tax losses, whose value has become more certain as a result of a
change in law and the resolution of prior period tax matters, together with the associated release of $37m of provisions. In 2011 related to a $30m revision of the estimated
tax impacts of an internal reorganisation completed in 2010 together with the release of $13m of provisions.
102
IHG Annual Report and Financial Statements 2012
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I
E
W
Before
exceptional itemsb
2011
26.5
2.6
9.8
(0.4)
(3.2)
(0.3)
(12.1)
1.3
24.2
7. Tax continued
Reconciliation of tax charge, 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
a Calculated in relation to total profits including exceptional items.
b Calculated in relation to profits excluding exceptional items.
2012
%
24.5
2.0
9.7
(0.3)
(5.5)
(19.0)
(9.7)
0.3
2.0
Total a
2011
%
26.5
1.9
8.9
(0.5)
(3.0)
(2.3)
(18.9)
0.9
13.5
2012
% %
24.5
1.0
9.7
(0.1)
(5.5)
(0.2)
(2.4)
0.4
27.4
Tax paid
Total net tax paid during the year of $122m (2011 $90m) comprises $119m (2011 $89m) paid in respect of operating activities and $3m
(2011 $1m) paid in respect of investing activities.
Tax paid represents an effective rate of 22% (2011 17%) on total profits and is lower than the effective income statement tax rate of 27%
primarily due to the impact of deferred taxes (including the realisation of assets such as tax losses), the receipt of refunds in respect of
prior years and provisions for tax for which no payment of tax has currently been made.
UK corporation tax of $6m was paid in the year in settlement of prior period liabilities. Corporation tax liabilities are not expected to arise
in respect of 2012 or for a number of years thereafter due to expenses and associated tax losses attributable principally to employment
matters, in particular additional shortfall contributions to the UK pension plan (see note 25).
Tax risks, policies and governance
Information concerning the Group’s tax governance can be found in the Taxation section of the Business Review on page 29.
8. Dividends paid and proposed
Paid during the year:
Final (declared for previous year)
Interim
Special (note 28)
Proposed (not recognised as a liability at 31 December):
Final
2012
cents per
share
2011
cents per
share
39.0
21.0
172.0
232.0
35.2
16.0
–
51.2
2012
$m
113
61
505 –
679
43.0
39.0
115
2011
$m
102
46
148
113
The final dividend of 27.7p (43.0¢ converted at the closing exchange rate on 15 February 2013) is proposed for approval at the Annual
General Meeting (AGM) on 24 May 2013 and is payable on the shares in issue at 22 March 2013.
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O
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P
A
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Notes to the Group Financial Statements
103
Notes to the Group Financial Statements continued
9. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average
number of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the
weighted average number of dilutive ordinary share options outstanding during the year.
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more
meaningful comparison of the Group’s performance.
Continuing and total operations
Basic earnings per ordinary share
Profit available for equity holders ($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 ($m)
Diluted weighted average number of ordinary shares (millions)
Diluted earnings per ordinary share (cents)
Adjusted earnings per ordinary share
Profit available for equity holders ($m)
Adjusting items (note 5):
Exceptional operating items ($m)
Tax on exceptional operating items ($m)
Exceptional tax credit ($m)
Adjusted earnings ($m)
Basic weighted average number of ordinary shares (millions)
Adjusted earnings per ordinary share (cents)
Adjusted diluted earnings per ordinary share
Adjusted earnings ($m)
Diluted weighted average number of ordinary shares (millions)
Adjusted 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
2012
2011
544
287
189.5
544
292
186.3
544
4
(1)
(141)
406
287
141.5
406
292
139.0
2012
millions
287
5
292
460
289
159.2
460
296
155.4
460
(35)
(5)
(43)
377
289
130.4
377
296
127.4
2011
millions
289
7
296
104
IHG Annual Report and Financial Statements 2012
10. Property, plant and equipment
Cost
At 1 January 2011
Additions
Net transfers to non-current assets classified as held for sale
Disposals
Exchange and other adjustments
At 31 December 2011
Additions
Net transfers to non-current assets classified as held for sale
Reclassification to intangible assets
Disposals
Exchange and other adjustments
At 31 December 2012
Depreciation and impairment
At 1 January 2011
Provided
Net transfers to non-current assets classified as held for sale
Impairment charge (see below)
Impairment reversal (see below)
Disposals
Exchange and other adjustments
At 31 December 2011
Provided
Net transfers to non-current assets classified as held for sale
Reclassification to intangible assets
Impairment reversals (see below)
Disposals
Exchange and other adjustments
At 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
At 1 January 2011
Land and
buildings
$m
Fixtures, fittings
and equipment
$m
1,548
2
(258)
(44)
(11)
1,237
8
(265)
–
–
15
995
(213)
(10)
19
(2)
23
9
–
(174)
(11)
16
–
23
–
–
(146)
849
1,063
1,335
997
54
(98)
(25)
(11)
917
33
(99)
(25)
(12)
10
824
(642)
(56)
71
–
–
8
1
(618)
(46)
42
2
–
11
(8)
(617)
207
299
355
Total
$m
2,545
56
(356)
(69)
(22)
2,154
41
(364)
(25)
(12)
25
1,819
(855)
(66)
90
(2)
23
17
1
(792)
(57)
58
2
23
11
(8)
(763)
1,056
1,362
1,690
The impairment charge in 2011 arose in respect of one hotel in Europe following a re-assessment of its recoverable amount, based on fair
value less costs to sell.
In 2012, a previously recorded impairment charge relating to a North American hotel was reversed in full following a re-assessment of its
recoverable amount, based on the market value of the hotel as determined by an independent professional property valuer.
Of the impairment reversal in 2011, $11m arose in March 2011 on the classification of a North American hotel as held for sale. The amount
of the reversal was based on the expected net sales proceeds which were subsequently realised on the disposal of the hotel (see note 11).
A further $12m arose in respect of another North American hotel 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 12.6%.
All impairment charges and reversals are included within impairment on the face of the Group income statement.
The carrying value of property, plant and equipment held under finance leases at 31 December 2012 was $187m (2011 $190m).
No borrowing costs were capitalised during the current or prior year.
Charges over one hotel totalling $89m exist as security provided to the Group’s pension plans.
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Notes to the Group Financial Statements
105
Notes to the Group Financial Statements continued
11. Assets sold and held for sale
Assets sold
During the year ended 31 December 2012, the Group sold an interest in a hotel in the Europe region.
During the year ended 31 December 2011, the Group sold four hotels, three in the Americas region and one in the AMEA region. The gain on
disposal mainly related to the sale of the Holiday Inn Burswood in Australia. The other significant disposal was the Hotel Indigo San Diego
which resulted in an impairment reversal (see note 10) in March 2011 on classification as held for sale.
Consideration
Current year disposals:
Cash consideration, net of costs paid
Management contract value
Net assets disposed of
(Loss)/gain on disposal of assets from continuing operations
Net cash inflow
Current year disposals:
Cash consideration, net of costs paid
Tax
Prior year disposals:
Tax
2012
$m
4
–
4
(6)
(2)
4
–
(3)
1
2011
$m
142
2
144
(107)
37
142
(1)
–
141
Assets held for sale
Two hotels, the InterContinental New York Barclay and the InterContinental London Park Lane, and one associate investment met the held
for sale criteria of IFRS 5 at 31 December 2012. The InterContinental New York Barclay was held for sale at 31 December 2011.
Assets and liabilities held for sale
Non-current assets classified as held for sale:
Property, plant and equipment
Associates
Liabilities classified as held for sale:
Deferred tax (note 26)
2012
$m
524
10
61
2011
$m
217
–
217
60
534
106
IHG Annual Report and Financial Statements 2012
12. Goodwill
Cost
At 1 January
Exchange adjustments
At 31 December
Impairment
At 1 January and 31 December
Net book value
At 31 December
At 1 January
2012
$m
233
1
234
2011
$m
233
–
233
(141)
(141)
93
92
92
92
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 cash-generating unit (CGU) (see below).
Goodwill has been allocated to CGUs for impairment testing as follows:
Asia Australasia franchised and managed operations
Americas managed operations
2012
$m
93
141
234
Cost
2011
$m
92
141
233
Net book value
2011
$m
92
92
2012
$m
93
– –
93
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 the
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 2012, the recoverable amount of the CGU has been assessed based on the approved budget for 2013 and strategic plans
covering a five-year period, a perpetual growth rate of 3.5% (2011 3.5%) and a discount rate of 14.3% (2011 13.9%).
Impairment was not required at either 31 December 2012 or 31 December 2011 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
Goodwill relating to the Americas managed operations was impaired in full in 2009. As goodwill impairment cannot be reversed, there is
no sensitivity around any assumptions that could lead to further impairment adjustments.
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Notes to the Group Financial Statements
107
Notes to the Group Financial Statements continued
13. Intangible assets
Cost
At 1 January 2011
Additions
Disposals
Exchange and other adjustments
At 31 December 2011
Additions
Reclassification from property, plant and equipment
Disposals
Exchange and other adjustments
At 31 December 2012
Amortisation and impairment
At 1 January 2011
Provided
Disposals
Exchange and other adjustments
At 31 December 2011
Provided
Reclassification from property, plant and equipment
Disposals
Exchange and other adjustments
At 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
At 1 January 2011
Software
$m
Management
contracts
$m
Other
intangibles
$m
203
46
–
3
252
70
25
(21)
(1)
325
(120)
(13)
–
(5)
(138)
(17)
(2)
2
(8)
(163)
162
114
83
231
2
–
(2)
231
–
–
–
4
235
(106)
(10)
–
–
(116)
(10)
–
–
–
(126)
109
115
125
109
31
(2)
–
138
14
–
(3)
2
151
(51)
(10)
2
–
(59)
(10)
–
3
(2)
(68)
83
79
58
Total
$m
543
79
(2)
1
621
84
25
(24)
5
711
(277)
(33)
2
(5)
(313)
(37)
(2)
5
(10)
(357)
354
308
266
Software disposals in 2012 include an exceptional write-off of $18m resulting from a re-assessment of the ongoing value of elements of the
technology infrastructure.
Borrowing costs of $0.3m (2011 $0.4m) were capitalised during the year in respect of software projects.
The weighted average remaining amortisation period for management contracts is 19 years (2011 20 years).
14. Investment in associates and joint ventures
Associates
$m
Joint ventures
$m
Total
$m
Cost
At 1 January 2011
Additions
Share of profit/(loss)
Dividends
At 31 December 2011
Reclassification
Additions
Transfer to non-current assets classified as held for sale
Share of profit/(loss)
Dividends
Share of reserve movement
At 31 December 2012
Impairment
At 1 January 2011
Impairment reversal (see below)
At 31 December 2011 and 31 December 2012
Net book value
At 31 December 2012
At 31 December 2011
At 1 January 2011
The impairment reversal arose in the Americas region.
108
IHG Annual Report and Financial Statements 2012
48
11
2
(1)
60
4
–
(10)
3
(3)
5
59
(5)
2
(3)
56
57
43
–
31
(1)
–
30
(4)
2
–
–
–
–
28
–
–
–
28
30
–
48
42
1
(1)
90
–
2
(10)
3
(3)
5
87
(5)
2
(3)
84
87
43
14. Investment in associates and joint ventures continued
The following table summarises the financial information of the Group’s associates and joint ventures:
Associates
Joint ventures
Share of statement of financial position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Non-controlling interests
Net assets
Share of revenue and profit
Revenue
Profit/(loss)
Related party transactions
Revenue from related parties
Amounts owed by related parties
Loans from related parties
2012
$m
22
59
(6)
(11)
(8)
56
30
3
5
2
–
2011
$m
9
70
(7)
(15)
–
57
28
2
5
1
(2)
2012
$m
1
27
–
–
–
28
–
–
–
–
–
2011
$m
3
27
–
–
–
30
–
(1)
–
–
–
2012
$m
23
86
(6)
(11)
(8) –
84
30
3 1
5 5
2 1
–
Total
2011
$m
12
97
(7)
(15)
87
28
(2)
The most significant investments are a 30% associate holding in President Hotel and Tower Co Ltd, the owner of the InterContinental Hotel
Bangkok and the Holiday Inn Bangkok, and a 49% holding in BCRE IHG 180 Orchard Holdings LLC, a joint venture established to develop and
build a multi-use property in Manhattan, New York, including a Hotel Indigo.
15. Other financial assets
Current
Loans and receivables
Non-current
Equity securities available-for-sale
Loans and receivables
2012
$m
6 –
112
43
2011
$m
112
44
156
155
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 2012, $18m (2011 $15m) were listed securities and $94m (2011 $97m)
unlisted; $59m (2011 $61m) were denominated in US dollars, $24m (2011 $23m) in Hong Kong dollars and $29m (2011 $28m) 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 the International Private Equity and Venture Capital Valuation Guidelines, using either the earnings multiple or net assets
methodology as appropriate. Listed equity share valuations are based on observable market prices. Dividend income from available-for-sale
equity securities of $5m (2011 $11m) is reported as other operating income and expenses in the Group income statement.
Loans and receivables consist of trade deposits and restricted cash which are held at amortised cost. A deposit of $37m was made in 2011 to
a hotel owner in connection with the renegotiation of a management contract. The deposit is non-interest-bearing and repayable at the end of
the management contract, and is therefore held at its discounted value of $11m (2011 $10m); the discount will unwind to the income statement
within financial income over the period to repayment. Restricted cash of $29m (2011 $27m) 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:
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T
A
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M
E
n
T
s
At 1 January
Provided – exceptional items
Reclassification
Amounts written off
At 31 December
2012
$m
(25)
–
(1)
–
(26)
2011
$m
(26)
(3)
3
1
(25)
The amount provided as an exceptional item in 2011 related to an available-for-sale equity investment and arose as a result of a significant
and prolonged decline in its fair value below cost.
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.
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Notes to the Group Financial Statements
109
Notes to the Group Financial Statements continued
16. Inventories
Finished goods
Consumable stores
17. Trade and other receivables
Trade receivables
Other receivables
Prepayments
2012
$m
2 2
2 2
4
2012
$m
344
18
60
4
422
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
Asia, Middle East and Africa
Greater China
186
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
223
74
69
43
409
Provision
$m
–
(3)
(3)
(41)
(47)
2012
Net
$m
223
71
66
2
362
Gross
$m
201
73
59
40
373
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
2012
$m
83
64
29
362
Provision
$m
(1)
(2)
(3)
(40)
(46)
2012
$m
(46)
(18)
10
7
(47)
2012
$m
57
138
195
2011
$m
2011
$m
299
28
42
369
2011
$m
170
69
61
27
327
2011
Net
$m
200
71
56
–
327
2011
$m
(58)
(15)
7
20
(46)
2011
$m
51
131
182
Short-term deposits are highly liquid investments with an original maturity of three months or less, in various currencies.
Cash and cash equivalents includes $7m (2011 $2m) that is not available for use by the Group due to local exchange controls.
110
IHG Annual Report and Financial Statements 2012
19. Trade and other payables
Current
Trade payables
Other tax and social security payable
Other payables
Accruals
Non-current
Other payables
2012
$m
117
35
268
563
2011
$m
126
35
262
284
707
497
289
709
Trade payables are non-interest-bearing and are normally settled within an average of 45 days.
Other payables include $623m (2011 $578m) relating to the future redemption liability of the Group’s loyalty programme, of which $108m
(2011 $105m) is classified as current and $515m (2011 $473m) as non-current.
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20. Provisions
At 1 January 2011
Provided
Utilised
At 31 December 2011
Utilised
At 31 December 2012
Analysed as:
Current
Non-current
Onerous
management
contracts
$m
Litigation
$m
10
1
(8)
3
(1)
2
–
22
(11)
11
(11)
–
2012
$m
1
1
2
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
Total
$m
10
23
(19)
14
(12)
2
2011
$m
12
2
14
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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 litigation provision was charged in the income statement as an exceptional item in 2011 (see note 5) and related to an action brought
against the Group in the Americas region. The final balance was settled in March 2012.
21. Financial risk management
Overview
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 may 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.
Market risk exposure
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.
From time to time, 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.
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Notes to the Group Financial Statements
111
Notes to the Group Financial Statements continued
21. Financial risk management continued
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 $2.8m (2011 $3.3m) and increase net
assets by an estimated $1.8m (2011 decrease of $10.4m). Similarly,
a five cent fall in the euro:US dollar rate would reduce the Group’s
profit before tax by an estimated $2.3m (2011 $1.9m) and decrease
net assets by an estimated $16.1m (2011 $10.3m).
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 in major currencies were fixed
rate debt at 31 December 2012.
Based on the year-end net debt position and given the underlying
maturity profile of investments, borrowings and hedging instruments
at that date, neither a one percentage point rise in US dollar, euro nor
sterling interest rates would impact the annual net interest charge
in the current or prior year.
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. Medium and long-term borrowing requirements
are met through the $1.07bn Syndicated Facility which expires in
November 2016, through the £250m 6% bonds that are repayable
on 9 December 2016 and through the £400m 3.875% bonds
repayable on 28 November 2022. The $1.07bn Syndicated Facility
was undrawn at the year end. The £400m 3.875% bonds, which
were issued during the year under the Group’s £750m Medium
Term Notes programme, extend the maturity profile and diversify
the sources of the Group’s debt. 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). 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 $195m which is
predominantly 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, although $7m (2011 $2m) is held in a
country 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.
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 $1,382m at
31 December 2012 (2011 $1,085m). 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 is highly
cash generative, 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’s debt is monitored on the
basis of a cash flow leverage ratio, being net debt divided by
EBITDA, with the objective of maintaining an investment grade
credit rating.
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 2012. At 31 December 2012, the Group
did not hold any interest rate swaps (2011 notional principals held
of $100m swapping floating for fixed). 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 2012 or 31 December 2011.
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 2012, the Group held currency swaps with a
principal of $415m (2011 $415m) and short dated foreign exchange
swaps with principals of EUR75m (2011 EUR75m) and USD170m
(2011 USD 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 (2011 $415m) and short
dated foreign exchange swaps with principals of EUR75m (2011
EUR100m) and USD350m (2011 USD100m).
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.
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.
112
IHG Annual Report and Financial Statements 2012
21. Financial risk management continued
Liquidity risk
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:
O
V
E
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V
I
E
W
31 December 2012
Non-derivative financial liabilities:
Secured bank loans
£250m 6% bonds 2016
£400m 3.875% bonds 2022
Finance lease obligations
Trade and other payables
Provisions
Derivative financial liabilities:
Forward foreign exchange contracts
Currency swaps – outflows
– inflows
31 December 2011
Non-derivative financial liabilities:
Secured bank loans
£250m 6% bonds 2016
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
Less than
1 year
$m
Between 1 and
2 years
$m
Between 2 and
5 years
$m
More than
5 years
$m
–
24
25
16
709
1
(2)
26
(24)
–
24
25
16
154
1
–
26
(24)
5
453
75
48
191
–
–
467
(453)
–
–
772
3,316
285
–
–
–
–
Less than
1 year
$m
Between 1 and
2 years
$m
Between 2 and
5 years
$m
More than
5 years
$m
5
23
16
100
707
12
1
(3)
26
(23)
–
23
16
–
123
1
–
–
26
(23)
–
456
48
–
135
1
–
–
492
(456)
–
–
3,332
–
324
–
–
–
–
–
Total
$m
5
501
897
3,396
1,339
2
(2)
519
(501)
Total
$m
5
502
3,412
100
1,289
14
1
(3)
544
(502)
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
Derivative financial instruments
Loans and receivables:
Cash and cash equivalents
Other financial assets
Trade and other receivables, excluding prepayments
2012
$m
112
2
195
49
362
2011
$m
112
3
182
44
327
668
720
I
B
u
s
n
E
s
s
R
E
V
I
E
W
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
I
G
R
O
u
P
F
n
A
n
C
A
L
I
P
A
R
E
n
T
C
O
M
P
A
n
Y
O
T
H
E
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I
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F
O
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M
A
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Notes to the Group Financial Statements
113
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*
Derivatives*
Loans and receivables:
Cash and cash equivalents
Other financial assets
Trade and other receivables, excluding prepayments
Financial liabilities
£250m 6% bonds 2016
£400m 3.875% bonds 2022
Finance lease obligations
Other borrowings
Trade and other payables
Derivatives*
Provisions
Carrying
value
$m
Note
15
23
18
15
17
22
22
22
22
19
23
20
112
2
195
49
362
(403)
(638)
(212)
(5)
(1,272)
(19)
(2)
2012
Fair value
$m
112
2
195
49
362
(456)
(652)
(268)
(5)
(1,272)
(19)
(2)
Carrying
value
$m
112
3
182
44
327
(384)
–
(209)
(98)
(1,204)
(39)
(14)
2011
Fair value
$m
112
3
182
44
327
(411)
–
(268)
(98)
(1,204)
(39)
(14)
* 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 bonds, approximates book value as interest rates reset to market rates on a frequent basis.
The fair value of the £250m and £400m bonds is based on their 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
Derivatives
Liabilities
Derivatives
Level 1
$m
Level 2
$m
Level 3
$m
2012
Total
$m
Level 1
$m
Level 2
$m
Level 3
$m
18
–
–
2
94
–
112
2 –
15
3
–
–
97
3
2011
Total
$m
112
–
(19)
–
(19)
–
(39)
–
(39)
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.
114
IHG Annual Report and Financial Statements 2012
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 (losses)/ gains recognised in other comprehensive income
Impairment*
At 31 December
2012
$m
97
–
(1)
(2)
–
94
2011
$m
84
1
(3)
16
(1)
97
* The impairment charge recognised in the income statement in 2011 (see note 5) included $2m 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 or by reference to share of net assets. A 10% increase in the average P/E
ratio would result in a $5m increase (2011 $5m) in the fair value of the investments and a 10% decrease in the average P/E ratio would
result in a $5m decrease (2011 $5m) in the fair value of the investments. A 10% increase in net assets would result in a $2m increase
(2011 $3m) in the fair value of the investments and a 10% decrease in net assets would result in a $2m decrease (2011 $3m) in the fair
value of the investments.
O
V
E
R
V
I
E
W
I
B
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s
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E
s
s
R
E
V
I
E
W
22. Loans and other borrowings
Secured bank loans
Finance lease obligations
£250m 6% bonds 2016
£400m 3.875% bonds 2022
Unsecured bank loans
Total borrowings
Denominated in the following currencies:
Sterling
US dollars
Other
Current
$m
Non-current
$m
–
16
–
–
–
16
–
16
–
16
5
196
403
638
–
1,242
1,041
196
5
1,242
2012
Total
$m
5
212
403
638
–
1,258
1,041
212
5
1,258
Current
$m
Non-current
$m
5
16
–
–
–
21
–
16
5
21
–
193
384
–
93
670
384
286
–
670
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
2011
Total
$m
5
209
384
–
93
691
384
302
5
691
I
G
R
O
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F
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Secured bank loans
The New Zealand dollar mortgage is secured on the hotel property to which it relates.
Non-current amounts include $5m (2011 $nil) repayable by instalments.
Finance lease obligations
Finance lease obligations, which relate to the 99-year lease (of which 93 years remain) 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
3,316
3,396
(3,184)
212
2012
Present
value of
payments
$m
16
48
148
212
–
212
Minimum
lease
payments
$m
16
64
3,332
3,412
(3,203)
209
2011
Present
value of
payments
$m
16
48
145
209
–
209
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.
P
A
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E
n
T
C
O
M
P
A
n
Y
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
O
T
H
E
R
I
n
F
O
R
M
A
T
I
O
n
Notes to the Group Financial Statements
115
Notes to the Group Financial Statements continued
22. Loans and other borrowings continued
£250m 6% bonds 2016
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).
£400m 3.875% bonds 2022
The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable on 28 November 2022. Interest is payable
annually on 28 November in each year commencing 28 November 2013 to the maturity date. The bonds were initially priced at 98.787%
of face value and are unsecured.
Unsecured bank loans
Unsecured bank loans are borrowings under the Group’s Syndicated Facility and its short-term bilateral loan and overdraft facilities. The
Syndicated Facility comprises a $1.07bn five-year revolving credit facility that matures in November 2016. 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. Borrowings under the facilities are classified as non-current when the facilities have more than 12 months to
expiry. The facility was undrawn at the year end.
Facilities provided by banks
Committed
Uncommitted
Unutilised facilities expire:
Within one year
After two but before five years
Utilised
$m
Unutilised
$m
5
–
5
1,070
96
1,166
2012
Total
$m
1,075
96
1,171
Utilised
$m
105
–
105
Unutilised
$m
970
79
1,049
2012
$m
96
1,070
1,166
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
Forward foreign exchange contracts
Analysed as:
Current assets
Non-current liabilities
2012
$m
19
(2)
17
(2)
19
17
2011
Total
$m
1,075
79
1,154
2011
$m
79
970
1,049
2011
$m
39
(3)
36
(3)
39
36
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.
116
IHG Annual Report and Financial Statements 2012
23. Derivative financial instruments continued
Currency swaps
At 31 December 2012, the Group held currency swaps with a principal of $415m (2011 $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 = $1.66. The fair value of
the currency swap comprises two components: $11m (2011 $29m) relating to the repayment of the underlying principal and $8m (2011
$10m) 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.
Interest rate swaps
At 31 December 2012, the Group did not hold any interest rate swaps (2011 notional principals held of $100m). These swaps were held to fix
the interest payable on borrowings under the Syndicated Facility; at 31 December 2011, $100m of US dollar borrowings were fixed at 1.99%
until May 2012. The interest rate swaps were designated as cash flow hedges.
Forward foreign exchange contracts
At 31 December 2012, the Group held short dated foreign exchange swaps with principals of €75m and $170m (2011 €75m).
The swaps are used to manage sterling surplus cash and reduce euro and US dollar borrowings whilst maintaining operational flexibility.
The foreign exchange swaps have been designated as net investment hedges.
O
V
E
R
V
I
E
W
I
B
u
s
n
E
s
s
R
E
V
I
E
W
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 in cash and cash equivalents
Add back cash flows in respect of other components of net debt:
Issue of long-term bonds
Decrease in other borrowings
(Increase)/decrease in net debt arising from cash flows
Non-cash movements:
Finance lease obligations
Exchange and other adjustments
(Increase)/decrease in net debt
Net debt at beginning of the year
Net debt at end of the year
2012
$m
195
(16)
(1,242)
(11)
(1,074)
15
(632)
99
(518)
(3)
(15)
(536)
(538)
(1,074)
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
2011
$m
182
(21)
(670)
(29)
(538)
107
–
119
226
(3)
(18)
205
(743)
(538)
I
G
R
O
u
P
F
n
A
n
C
A
L
I
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.
P
A
R
E
n
T
C
O
M
P
A
n
Y
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
O
T
H
E
R
I
n
F
O
R
M
A
T
I
O
n
Notes to the Group Financial Statements
117
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 598 (2011 545) employees, of which
119 (2011 125) are in the defined benefit section and 479 (2011 420) are in the defined contribution section. The defined benefit section of the
plan closed to new entrants in 2002 and will close to future accrual for current members with effect from 1 July 2013. New members
are provided with defined contribution arrangements as will be members of the defined benefit section in July 2013. 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 or annual allowances which will also close to future accrual from 1 July 2013. 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 closed to new members. The Group also operates
a number of smaller 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 – curtailment gain
2012
$m
5
25
(28)
2
–
2
UK
2011
$m
6
28
(29)
5
(28)
(23)
Pension plans
US and other
Post-employment
benefits
2011
$m
–
1
2012
$m
2011
$m
2012
$m
1
9
(9)
1
–
1
1
10
(9)
2
–
2
–
1
– –
1 1
– –
1 1
2012
$m
6 7
35
(37)
4 8
–
4
Total
2011
$m
39
(38)
(28)
(20)
The curtailment gain in 2011 arose in respect of the UK pension plan and from the decision to close the defined benefit section to future
accrual with effect from 1 July 2013. The plan rules were formally amended to reflect this change in September 2011.
The amounts recognised in the Group statement of comprehensive income are:
Actual return on plan assets
Less: expected return on plan assets
Actuarial gains/(losses) on plan assets
Actuarial (losses)/gains on plan liabilities
Total actuarial gains/(losses)
Change in asset restriction and liability in respect
of funding commitments*
2012
$m
34
(28)
6
(3)
3
(25)
(22)
UK
2011
$m
53
(29)
24
(22)
2
(11)
(9)
Pension plans
US and other
Post-employment
benefits
2012
$m
18 4
(9)
9
(16)
(7)
– –
(7)
2011
$m
2012
$m
2011
$m
(9)
(5)
(26)
(31)
(31)
– –
– –
– –
5
5
– –
5
(3)
(3)
(3)
2012
$m
52
(37)
15
(14)
1
(25)
(24)
Total
2011
$m
57
(38)
19
(51)
(32)
(11)
(43)
* 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.
118
IHG Annual Report and Financial Statements 2012
25. Retirement benefits continued
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:
O
V
E
R
V
I
E
W
Retirement benefit assets
Fair value of plan assets
Present value of benefit obligations
Surplus in schemes
Asset restriction and liability in respect
of funding commitments*
Total retirement benefit assets
Retirement benefit obligations
Fair value of plan assets
Present value of benefit obligations
Total retirement benefit obligations
Total fair value of plan assets
Total present value of benefit obligations
2012
$m
695
(507)
188
(91)
97
–
(62)
(62)
695
(569)
UK
2011
$m
551
(471)
80
(63)
17
–
(54)
(54)
551
(525)
Pension plans
US and other
Post-employment
benefits
2012
$m
2011
$m
2012
$m
2011
$m
2012
$m
17
(15)
2 4
– –
2 4
132
(232)
(100)
149
(247)
16
(12)
117
(221)
(104)
133
(233)
– –
– –
– –
– –
– –
– –
(25)
(25)
– –
(25)
712
(522)
190
(91)
99
132
(319)
(187)
844
(841)
(30)
(30)
(30)
Total
2011
$m
567
(483)
84
(63)
21
117
(305)
(188)
684
(788)
* 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 $2m (2011 $4m) relates to a defined benefit pension scheme in Hong Kong. Included within the ‘US and other’
deficit is $2m (2011 $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:
Pension plans
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 2024)
Ultimate rate that the cost trend rate trends to
2012
%
4.5
3.0
4.5
3.0
UK
2011
%
4.6
3.1
4.7
3.1
2012
%
– –
– –
3.5
– –
US
2011
%
4.1
5.0
Post-employment
benefits
2012
% %
4.0
– –
3.5
– –
9.0
11.8
2011
4.0
4.1
9.5
12.8
5.0
Mortality is the most significant demographic assumption. The current assumptions for the UK plan are based on the S1NA tables with long
cohort projections and a 1.25% 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 @ 2013 Non-Annuitant/Annuitant
healthy tables for males and females.
Accordingly, assumed life expectancy at retirement age is 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 2032.
The assumptions allow for expected increases in longevity.
Pension plans
UK
2011
Years
24
27
26
29
2012
Years
19
21
21
22
US
2011
Years
19
21
21
22
2012
Years
24
27
27
30
I
B
u
s
n
E
s
s
R
E
V
I
E
W
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
I
G
R
O
u
P
F
n
A
n
C
A
L
I
P
A
R
E
n
T
C
O
M
P
A
n
Y
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
O
T
H
E
R
I
n
F
O
R
M
A
T
I
O
n
Notes to the Group Financial Statements
119
Notes to the Group Financial Statements continued
25. Retirement benefits continued
Sensitivities
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
1.4
(1.0)
1.1
(0.6)
0.5
UK
Increase/
(decrease)
in liabilities
$m
20.7
(19.1)
17.9
(15.8)
8.2
Higher/(lower)
pension cost
$m
0.2
(0.2)
–
–
0.3
US
Increase/
(decrease)
in liabilities
$m
7.2
(6.8)
–
–
10.1
A one percentage point increase/(decrease) in assumed healthcare costs trend rate would increase/(decrease) the accumulated post-
employment benefit obligations as at 31 December 2012 by approximately $2.4m (2011 $2.8m).
Movement in benefit obligation
Benefit obligation at 1 January
Current service cost
Members’ contributions
Interest expense
Benefits paid
Curtailment gain
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
Expected return on plan assets
Actuarial gain/(loss) arising in the year
Exchange adjustments
Fair value of plan assets at 31 December
2012
$m
525
5
1
25
(14)
–
3
24
569
507
62
569
2012
$m
551
97
1
(14)
28
6
26
695
UK
2011
$m
512
6
1
28
(13)
(28)
22
(3)
525
471
54
525
UK
2011
$m
475
40
1
(13)
29
24
(5)
551
Pension plans
US and other
Post-employment
benefits
2012
$m
233
1
–
9
(12)
–
16
–
247
193
54
247
2011
$m
209
1
–
10
(13)
–
26
–
233
181
52
233
2012
$m
30
– –
– –
1 1
(1)
– –
(5) 3
– –
25
– –
25
25
2011
$m
27
(1)
30
30
30
Pension plans
US and other
Post-employment
benefits
2011
$m
–
(1)
2012
$m
133
10
– –
(12)
9 9
9
– 1
2011
$m
130
11
(13)
(5)
149
133
2012
$m
–
1 1
– –
(1)
– –
– –
– –
– –
2012
$m
788
6 7
1 1
35
(27)
–
14
24
841
700
141
841
2012
$m
684
108
1 1
(27)
37
15
26
844
Total
2011
$m
748
39
(27)
(28)
51
(3)
788
652
136
788
Total
2011
$m
605
52
(27)
38
19
(4)
684
120
IHG Annual Report and Financial Statements 2012
25. Retirement benefits continued
The plan assets are comprised as follows:
UK pension plans
Liability matching investment funds
Bonds
Equities
Hedge funds
Cash and other
Total market value of assets
US pension plans
Equities
Fixed income
Other
Total market value of assets
Value
$m
243
232
62
31
127
695
60
60
4
124
2012
%
35
33
9
5
18
100
48
48
4
100
Value
$m
290
74
93
56
38
551
58
52
–
110
2011
%
53
13
17
10
7
100
53
47
–
100
O
V
E
R
V
I
E
W
I
B
u
s
n
E
s
s
R
E
V
I
E
W
The expected overall rates of return on assets, being 4.2% (2011 4.8%) for the UK plan and 6.8% (2011 7.3%) 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 plans’ asset strategy. In respect of the UK plan, the long-term rate of return assumptions are 3.5% (2011 3.3%) for
liability matching funds and bonds and 6.4% (2011 7.4%) for equities and other return seeking assets. The UK plan is currently implementing
a de-risking strategy which is resulting in a move out of return seeking assets into liability matching funds and bonds.
Funding commitments
The most recent actuarial valuation of the InterContinental Hotels UK Pension Plan was carried out as at 31 March 2012 and showed a
deficit of £132m on a funding basis. Under the recovery plan agreed with the trustees, the Group aims to eliminate this deficit by 31 July
2014 principally through additional Company contributions of £130m. In respect of these additional Company contributions, £10m was paid
in July 2012, £45m was paid in October 2012, £30m is due for payment in July 2013, £15m is due for payment in July 2014 and £30m will be
paid into a funding trust on release of a trustee charge over a hotel asset. The amount in the funding trust may be available for release to
the plan on 31 July 2014 to the extent that a funding deficit remains at that time. The plan is formally valued every three years, or earlier
with the agreement of the Company and trustees, and future valuations could lead to changes in the amounts payable by the Company.
Company contributions are expected to be $62m in 2013, including known UK additional contributions of £30m.
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
History of experience gains and losses
UK pension plans
Fair value of plan assets
Present value of benefit obligations
Surplus/(deficit) 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
2012
$m
695
(569)
126
(3)
6
149
(247)
(98)
(16)
9
(25)
5
2011
$m
551
(525)
26
(22)
24
133
(233)
(100)
(26)
(5)
(30)
(3)
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
The cumulative amount of net actuarial losses recognised since 1 January 2004 in the Group statement of comprehensive income is $284m
(2011 $285m). 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.
I
G
R
O
u
P
F
n
A
n
C
A
L
I
P
A
R
E
n
T
C
O
M
P
A
n
Y
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
O
T
H
E
R
I
n
F
O
R
M
A
T
I
O
n
Notes to the Group Financial Statements
121
Notes to the Group Financial Statements continued
26. Deferred tax
At 1 January 2011
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2011
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2012
Analysed as:
Deferred tax assets
Deferred tax liabilities
Liabilities held for sale
Property,
plant and
equipment
$m
Deferred
gains on
loan notes
$m
205
19
–
–
(3)
221
12
–
–
3
236
144
(7)
–
–
–
137
(26)
–
–
3
114
Losses
$m
(150)
17
–
–
–
(133)
(74)
–
–
(8)
(215)
Employee
benefits
$m
Intangible
assets
$m
Other
short-term
temporary
differences
$m
(47)
–
(12)
–
–
(59)
6
(6)
(4)
–
(63)
35
1
–
–
2
38
(6)
–
–
1
33
(182)
20
1
9
(1)
(153)
(1)
1
(1)
(1)
(155)
2012
$m
(204)
93
61
(50)
Total
$m
5
50
(11)
9
(2)
51
(89)
(5)
(5)
(2)
(50)
2011
$m
(106)
97
60
51
Deferred gains on loan notes includes $55m (2011 $55m) which is expected to fall due for payment in 2016.
The deferred tax asset recognised in respect of losses of $215m (2011 $133m) includes $78m (2011 $104m) in respect of capital losses
available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and $137m (2011 $29m) in
respect of revenue tax losses. Deferred tax assets of $22m (2011 $44m) 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 $272m (2011 $358m), including capital losses with a value of $140m (2011 $134m), have not been
recognised. These losses may be carried forward indefinitely with the exception of $11m which expires after four years and $1m which
expires after eight years (2011 $11m which expires after five years and $1m which expires after six years). Deferred tax assets with a net tax
value of $32m (2011 $29m) in respect of employee benefits, up to $34m (2011 $34m) in respect of foreign tax credits and $53m (2011 $52m)
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 currently 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 as a result of resolving tax uncertainties, or as a consequence of case law and legislative
developments which make the value of assets more certain.
At 31 December 2012, 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. The tax which would arise upon reversal of the temporary differences is
not expected to exceed $20m (2011 $20m).
Other short-term temporary differences relate primarily to provisions, accruals, amortisation and share-based payments.
122
IHG Annual Report and Financial Statements 2012
27. Share-based payments
Annual Bonus Plan
The IHG Annual Bonus Plan (ABP) enables eligible employees,
including Executive Directors, to receive all or part of their bonus
in the form of deferred shares. The deferred shares are released
on the third anniversary of the award date. Under the terms of the
current plan, 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
ABP 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 and conditional rights over
340,924 (2011 528,213) shares were awarded to participants.
Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) allows Executive Directors
and eligible employees to receive share awards, subject to the
achievement 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 2,698,714
(2011 3,257,364) 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 2012 and no options
were granted in the year under the plan. The latest date that any
options may be exercised is 4 April 2015.
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, when operational, 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 2012 and no options were granted
in the year under the plan.
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 2012 and at 31 December 2012 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 2012, 352,115
(2011 397,943) such options were exercised and 106,699
(2011 45,655) lapsed, leaving no such options outstanding
at 31 December 2012 (2011 458,814).
O
V
E
R
V
I
E
W
I
B
u
s
n
E
s
s
R
E
V
I
E
W
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
I
G
R
O
u
P
F
n
A
n
C
A
L
I
P
A
R
E
n
T
C
O
M
P
A
n
Y
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
O
T
H
E
R
I
n
F
O
R
M
A
T
I
O
n
Notes to the Group Financial Statements
123
Notes to the Group Financial Statements continued
27. Share-based payments continued
The Group recognised a cost of $22m (2011 $25m) in operating profit and $1m (2011 $nil) within exceptional administrative expenses related
to equity-settled share-based payment transactions during the year, net of amounts borne by the System Fund.
The aggregate consideration in respect of ordinary shares issued under option schemes during the year was $10m (2011 $8m).
The following table sets forth awards and options granted during 2012. No awards were granted under the Executive Share Option Plan,
Sharesave Plan or US Employee Stock Purchase Plan during the year.
Number of shares awarded in 2012
ABP
340,924
LTIP
2,698,714
The Group uses separate option pricing models and assumptions depending on the plan. The following tables set out information about
awards granted in 2012 and 2011:
ABP
LTIP
2012
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility*
Term (years)
2011
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility*
Term (years)
Binomial
1,440.0p
2.95%
3.0
ABP
Binomial
1,415.0p
2.14%
3.0
Monte Carlo
Simulation and
Binomial
1,440.0p
2.99%
0.59%
31%
3.0
LTIP
Monte Carlo
Simulation and
Binomial
1,281.0p
2.78%
1.88%
39%
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.
124
IHG Annual Report and Financial Statements 2012
27. Share-based payments continued
Movements in the awards and options outstanding under the schemes are as follows:
O
V
E
R
V
I
E
W
ABP
Number of shares
thousands
LTIP
Number of shares
thousands
Outstanding at 1 January 2011
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2011
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2012
Fair value of awards granted during the year
2012
2011
Weighted average remaining contract life (years)
At 31 December 2012
At 31 December 2011
The above awards do not vest until the performance and service conditions have been met.
Executive Share Option Plan
Outstanding at 1 January 2011
Exercised
Lapsed or cancelled
Outstanding at 31 December 2011
Exercised
Lapsed or cancelled
Outstanding at 31 December 2012
Options exercisable
At 31 December 2012
At 31 December 2011
1,274
528
(702)
(150)
950
341
(643)
(18)
(8)
622
2,199.8¢
2,141.1¢
1.6
0.9
11,342
3,257
(3,454)
(2,115)
9,030
2,699
(2,621)
–
(1,948)
7,160
792.5¢
819.7¢
1.2
1.0
Number
of shares
thousands
Range of
option prices
pence
Weighted
average
option price
pence
3,291
(1,075)
(46)
2,170
(1,365)
(107)
698
308.5-619.8
308.5-619.8
422.8
308.5-619.8
308.5-619.8
434.2
438.0-619.8
698
2,170
438.0-619.8
308.5-619.8
489.3
476.5
422.8
497.0
492.8
434.2
514.8
514.8
497.0
Included within the options outstanding under the Executive Share Option Plan are options over nil (2011 458,814, 2010 902,412) 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 1,409.5p. The closing share price on
31 December 2012 was 1,707.0p and the range during the year was 1,157.0p to 1,725.0p per share.
Summarised information about options outstanding at 31 December 2012 under the share option schemes is as follows:
I
B
u
s
n
E
s
s
R
E
V
I
E
W
G
O
V
E
R
n
A
n
C
E
s
T
A
T
E
M
E
n
T
s
I
I
F
n
A
n
C
A
L
s
T
A
T
E
M
E
n
T
s
I
G
R
O
u
P
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Y
Range of exercise prices (pence)
Executive Share Option Plan
438.0
491.8 to 494.2
619.8
Number
outstanding
thousands
66
487
145
698
Options outstanding and exercisable
Weighted
average
remaining
contract life
years
Weighted
average
option price
pence
0.4
1.2
2.3
1.3
438.0
493.9
619.8
514.8
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Notes to the Group Financial Statements
125
Notes to the Group Financial Statements continued
28. Issued share capital and reserves
Equity share capital
Allotted, called up and fully paid
At 1 January 2011 (ordinary shares of 1329⁄47p)
Issued on exercise of share options
Exchange adjustments
At 31 December 2011 (ordinary shares of 1329⁄47p)
Share capital consolidation
Issued on exercise of share options
Repurchased and cancelled under repurchase programme
Exchange adjustments
At 31 December 2012 (ordinary shares of 14194⁄329p each)
Number of
shares
millions
Nominal
value
$m
Share
premium
$m
Equity share
capital
$m
289
1
–
290
(19)
1
(4)
2
268
61
–
–
61
–
1
(1)
6
63
94
8
(1)
101
–
9
–
8
116
155
8
(1)
162
–
10
(1)
179
–
On 7 August 2012, the Group announced a planned $1bn return to shareholders comprising a $0.5bn special dividend with share
consolidation and a $0.5bn share repurchase programme. The share consolidation was approved on 8 October 2012 at a General Meeting
(GM) of the Company and became effective on 9 October 2012 on the basis of 14 new ordinary shares of 14194 ⁄329p each for every 15 existing
ordinary shares of 1329⁄47p each. The special dividend of 172.0¢ per share was paid to shareholders on 22 October 2012 at a total cost of
$505m. Under the authority granted by shareholders at the GM held on 8 October 2012, the share repurchase programme commenced in
November 2012 resulting in the repurchase of 4,143,960 shares in the period to 31 December 2012 for a total consideration of $107m.
Transaction costs relating to shareholder returns of $2m, net of tax, have been charged to retained earnings.
No shares were repurchased in 2011.
The authority given to the Company at the GM held on 8 October 2012 to purchase its own shares was still valid at 31 December 2012.
A resolution to renew the authority will be put to shareholders at the AGM on 24 May 2013.
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 14194 ⁄329p shares. The share premium reserve represents the amount of proceeds received
for shares in excess of their nominal value.
The Company no longer has an authorised share capital.
The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 86 and 87 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 $48.0m (2011 $26.5m) in respect of 1.8m (2011 1.5m) InterContinental Hotels Group PLC ordinary shares held by employee
share trusts, with a market value at 31 December 2012 of $50m (2011 $26m).
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 90),
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 in the 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 2012 was $nil (2011 $nil).
Currency translation reserve
This reserve records the movement in exchange differences arising from the translation 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 2012
was a $17m net liability (2011 $36m).
The currency translation reserve includes a cumulative loss of $35m relating to non-current assets classified as held for sale.
126
IHG Annual Report and Financial Statements 2012
29. Operating leases
During the year ended 31 December 2012, $64m (2011 $64m) was recognised as an expense in the Group income statement in respect of
operating leases, net of amounts borne directly by the System Fund. The expense includes contingent rents of $19m (2011 $18m).
Future minimum lease payments under non-cancellable operating leases are as follows:
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W
Due within one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
2012
$m
47
34
25
22
22
237
387
2011
$m
46
41
32
23
21
255
418
In addition, in certain circumstances the Group is committed to making additional lease payments that are contingent on the performance
of the hotels that are being leased.
The average remaining term of these leases, which generally contain renewal options, is approximately 19 years (2011 19 years).
No material restrictions or guarantees exist in the Group’s lease obligations.
Total future minimum rentals expected to be received under non-cancellable sub-leases are $10m (2011 $14m).
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
2012
$m
81
2011
$m
14
The Group has also committed to invest up to $60m in two investments accounted for under the equity method of which $37m had been
spent at 31 December 2012.
31. Contingencies
Contingent liabilities not provided for in the Group Financial Statements
2012
$m
1 8
2011
$m
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 $50m (2011 $42m).
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. In particular, the Group is currently subject to an Office of Fair Trading enquiry in the UK and class action law suits in
the US. 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, it is not possible to quantify any loss to
which these proceedings or claims under these warranties may give rise, however, as at the date of reporting, the Group does not believe
that the outcome of these matters will have a material effect on the Group’s financial position.
32. Related party disclosures
Total compensation of key management personnel
Short-term employment benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
2012
$m
20.0
0.8
0.6
8.6
30.0
2011
$m
18.8
0.8
1.4
8.1
29.1
There were no other transactions with key management personnel during the year ended 31 December 2012 or the previous year.
Related party disclosures for associates and joint ventures are included in note 14.
Key management personnel comprises the Board and Executive Committee.
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Notes to the Group Financial Statements
127
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 94 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 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 4,431 (2011 3,885) 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
674
2012
$m
1,106
144
250
250
221
12
2
2012
$m
51
623
2011
$m
1,025
128
203
232
182
19
1
2011
$m
39
578
617
The net change in the loyalty programme liability and Fund surplus contributed an inflow of $57m (2011 $66m) to the Group’s cash flow
from operations.
34. Events after the reporting period
On 22 January 2013, the Group announced that it will receive $31m in liquidated damages under an agreement with a hotel owner that will
result in eight hotels leaving the IHG System on 1 March 2013. The payment is expected at the end of February 2013.
35. 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 US.
c Incorporated in Hong Kong.
d Incorporated in France.
128
IHG Annual Report and Financial Statements 2012
Parent Company Financial Statements
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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 2012.
130
Parent Company
Financial Statements
Parent company balance sheet
Notes to the Parent Company
Financial Statements
133
134
Statement of Directors’
responsibilities
Independent Auditor’s
Report to the members
Investments
131 1 Accounting policies
131 2 Directors
131 3
131 4 Debtors
Creditors
131 5
132 6
Share capital
132 7 Movements in reserves
133 8
Reconciliation of movements
in shareholders’ funds
Profit and dividends
133 9
133 10 Contingencies
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Holiday Inn Resort Kandooma Maldives
Notes to the Group Financial Statements and Parent Company Financial Statements
129
Parent Company Financial Statements
Parent company balance sheet
31 December 2012
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
Tom Singer
18 February 2013
Note
2012
£m
2011
£m
3
4
5
5
6
7
7
7
7
2,951
2,934
16
(1,440)
(1,424)
1,527
(644)
883
39
72
7
184
581
883
18
(1,960)
(1,942)
992
(249)
743
39
66
6
167
465
743
No profit and loss account is presented for InterContinental Hotels Group PLC as permitted by Section 408 of the Companies Act 2006.
Profit on ordinary activities after taxation amounts to £610m (2011 £264m).
Notes on pages 131 to 133 form an integral part of these Financial Statements.
130
IHG Annual Report and Financial Statements 2012
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 deemed capital contributions arising from share-based payment transactions 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. Details of the Group’s share-based payments are set out in note 27
of the Group Financial Statements on pages 123 to 125.
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 111 and 112.
Capital risk management
The Group’s capital risk management policy is set out in note 21 of the Group Financial Statements on page 112.
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
2012
7
2012
£m
1 1
2011
8
2011
£m
Detailed information on the emoluments, pensions, option holdings and shareholdings for each Non-Executive Director is shown in the
Directors’ Remuneration Report on pages 59 to 78.
3. Investments
At 1 January 2012
Share-based payments capital contribution
At 31 December 2012
£m
2,934
17
2,951
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 35 of the Group Financial Statements.
4. Debtors
Amounts due from subsidiary undertakings
Corporate taxation
5. Creditors
Amounts falling due within one year
Amounts due to subsidiary undertakings
Amounts falling due after more than one year
£250m 6% bonds 2016
£400m 3.875% bonds 2022
2012
£m
5
11
16
2012
£m
2011
£m
5
13
18
2011
£m
1,440
1,960
249
395
644
249
–
249
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Parent Company Financial Statements and Notes to the Parent Company Financial Statements
131
Notes to the Parent Company Financial Statements continued
5. Creditors continued
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.
The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable on 28 November 2022. Interest is payable
annually on 28 November in each year commencing 28 November 2013 to the maturity date. The bonds were initially priced at 98.787% of
face value and are unsecured.
6. Share capital
Allotted, called up and fully paid
At 1 January 2012 (ordinary shares of 1329⁄47p each)
Share capital consolidation
Issued on exercise of share options
Repurchased and cancelled under repurchase programme
At 31 December 2012 (ordinary shares of 14194⁄329p each)
Number
of shares
millions
290
(19)
1
(4)
268
£m
39
–
1
(1)
39
On 7 August 2012, the Group announced a planned $1bn return to shareholders comprising a $0.5bn special dividend with share
consolidation and a $0.5bn share repurchase programme. The share consolidation was approved on 8 October 2012 at a General Meeting
(GM) of the Company and became effective on 9 October 2012 on the basis of 14 new ordinary shares of 14194⁄ 329p each for every 15 existing
ordinary shares of 1329⁄47p each. The special dividend of 108.4p per share was paid to shareholders on 22 October 2012 at a total cost of
£315m (see note 9). Under the authority granted by shareholders at the GM held on 8 October 2012, the share repurchase programme
commenced in November 2012 resulting in the repurchase of 4,143,960 shares in the period to 31 December 2012 for a total consideration
of £67m. Transaction costs relating to shareholder returns of £1m, net of tax, have been charged to retained earnings.
No shares were repurchased in 2011.
The authority given to the Company at the GM held on 8 October 2012 to purchase its own shares was still valid at 31 December 2012.
A resolution to renew the authority will be put to shareholders at the Annual General Meeting (AGM) on 24 May 2013.
The Company no longer has an authorised share capital.
The aggregate consideration in respect of ordinary shares issued under option schemes during the year was £7m (2011 £5m).
Options to subscribe for ordinary shares
At 1 January 2012
Exercised*
Lapsed or cancelled
At 31 December 2012
Option exercise price per ordinary share (pence)
Final exercise date
* The weighted average option price was 492.8p for shares exercised under the Executive Share Option Plan.
7. Movements in reserves
Thousands
2,170
(1,365)
(107)
698
438.0-619.8
4 April 2015
At 1 January 2012
Premium on allotment of ordinary shares
Repurchase of shares
Transfer to capital redemption reserve
Transaction costs relating to shareholder returns
Profit after tax
Share-based payments capital contribution
Dividends
At 31 December 2012
132
IHG Annual Report and Financial Statements 2012
Share
premium
account
£m
Capital
redemption
reserve
£m
Share-based
payments
reserve
£m
Profit and
loss account
£m
66
6
–
–
–
–
–
–
72
6
–
–
1
–
–
–
–
7
167
–
–
–
–
–
17
–
184
465
–
(66)
(1)
(1)
610
–
(426)
581
8. Reconciliation of movements in shareholders’ funds
Earnings available for shareholders
Dividends
Issue of ordinary shares
Repurchase of shares
Transaction costs relating to shareholder returns
Share-based payments capital contribution
Net movement in shareholders’ funds
Shareholders’ funds at 1 January
Shareholders’ funds at 31 December
2012
£m
610
(426)
184
7
(67)
(1)
17
140
743
883
2011
£m
264
(92)
172
5
–
–
19
196
547
743
9. Profit and dividends
Profit on ordinary activities after tax amounts to £610m (2011 £264m).
A final dividend, declared in the previous year, of 24.7p (2011 22.0p) per share was paid during the year, amounting to £72m (2011 £63m).
An interim dividend of 13.5p (2011 9.8p) per share was paid during the year, amounting to £39m (2011 £29m). A special interim dividend
of 108.4p per share was paid during the year, amounting to £315m. A final dividend of 27.7p (2011 24.7p) per share, amounting to £74m
(2011 £71m), is proposed for approval at the AGM. The proposed final dividend is payable on shares in issue at 22 March 2013.
The audit fee of £0.02m (2011 £0.02m) was borne by a subsidiary undertaking in both years.
10. Contingencies
Contingent liabilities of £nil (2011 £65m) 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
Parent Company Financial Statements.
The Directors are responsible for preparing the Parent Company
Financial Statements and Directors’ Remuneration Report in
accordance with applicable United Kingdom law and United
Kingdom Generally Accepted Accounting Practice (UK GAAP).
The Directors are required to prepare 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 Parent 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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Notes to the Parent Company Financial Statements and Statement of Directors’ responsibilities
133
Independent Auditor’s Report to the members of InterContinental Hotels Group PLC
We have audited the Parent Company Financial Statements of
InterContinental Hotels Group PLC for the year ended 31 December
2012 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 133, 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 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. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
Financial Statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
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 2012;
• 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.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
• the part of the Directors’ 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
Directors’ 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 2012.
Alison Duncan (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
18 February 2013
Notes:
1. The maintenance and integrity of the InterContinental Hotels Group PLC website
is the responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the Financial Statements
since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination
of Financial Statements may differ from legislation in other jurisdictions.
134
IHG Annual Report and Financial Statements 2012
Other information
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In this section we present a glossary of terms used in the Annual Report and
Financial Statements 2012 and some analyses of our share ownership at the end of 2012.
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.
136 Glossary
137 Shareholder profiles
138 Investor information
139 Dividend history
139 Five year history
140 Financial calendar
140 Contacts
141 Forward-looking statements
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Crowne Plaza Changi Airport, singapore
Independent Auditor’s Report and Other information
135
Carbon Disclosure the CDP is a global, voluntary questionnaire
management contract
Other information
Glossary
adjusted
excluding the effect of exceptional items
and any relevant tax.
average daily rate
rooms revenue divided by the number of
room nights sold. Also known as average
room rate.
basic earnings per profit available for IHG equity holders
ordinary share
divided by the weighted average number
of ordinary shares in issue during the year.
capital expenditure
purchases of property, plant and
equipment, intangible assets, associate
and joint venture investments and other
financial assets.
Project (CDP)
cash-generating units
comparable RevPAR
which allows organisations to disclose
their carbon emissions and steps that they
are taking to reduce them.
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.
constant currency
a current year value translated using the
previous year’s exchange rates.
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
fee based margins
fee revenue
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).
operating profit as a percentage of revenue,
excluding revenue and operating profit
from owned and leased hotels, managed
leases and significant liquidated damages.
Group revenue excluding revenue from
owned and leased hotels, managed leases
and significant liquidated damages.
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
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.
136
IHG Annual Report and Financial Statements 2012
hedging
the reduction of risk, normally in relation
to foreign currency or interest rate
movements, by making offsetting
commitments.
IFRS
International Financial Reporting
Standards.
interest rate swap
managed leases
market capitalisation
an agreement to exchange fixed for
floating interest rate streams (or vice
versa) on a notional principal.
properties structured for legal reasons
as operating leases but with the same
characteristics as management contracts.
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.
midscale
hotels in the three/four star category
(eg, The Holiday Inn brand family).
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 rooms revenue divided by the number of
available room room nights that are available (can be
(RevPAR)
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 and taxation items.
Other information
Shareholder profiles
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Shareholder profile by type as at 31 December 2012
Category of shareholdings
■ Private individuals
■ Nominee companies
■ Limited and public limited
companies
■ Other corporate bodies
■ Pension funds, insurance
companies and banks
Total
Number of
shareholders
47,077
2,383
221
145
12
49,838
Percentage
total of
shareholders
94.46
4.78
0.44
0.30
0.02
100
Number of
ordinary
shares
17,059,256
242,910,573
1,421,014
6,731,137
203,091
268,325,071
Percentage
of issued
share capital
See chart
6.36
90.53
0.53
2.51
0.07
100
Shareholder profile by size as at 31 December 2012
Range of shareholdings
■ 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 and above
Total
Number of
shareholders
Percentage
total of
shareholders
31,692
9,528
4,508
3,168
260
355
97
145
33
52
49,838
63.59
19.12
9.05
6.36
0.52
0.71
0.19
0.29
0.07
0.10
100
Number of
ordinary
shares
2,032,132
3,050,566
3,153,476
5,896,590
1,830,791
8,068,630
7,311,296
32,377,070
24,839,873
179,764,647
268,325,071
Percentage
of issued
share capital
See chart
0.76
1.14
1.17
2.20
0.68
3.00
2.72
12.07
9.26
67.00
100
Shareholder profile by geographical location as at 31 December 2012
Country/Jurisdiction
■ UK
■ Rest of Europe
■ USA (including ADRs)
■ Rest of World
Total
Percentage
of issued
share capital1
See chart
51.0
11.8
32.6
4.6
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 89.3% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100⁄89.3 (1.120) to achieve
the figures shown in the table above.
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Glossary and Shareholder profiles
137
Other information
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 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 is to 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 offers discounted hotel stays (subject to availability) for
registered shareholders through a dedicated, controlled access
website. For further details please contact the Company Secretariat
department on 01895 512 000 or email companysecretariat@ihg.com
Corporate Responsibility Report
IHG updates its online Corporate Responsibility Report regularly,
covering progress on a range of environmental, social and community
issues. This can be viewed at www.ihgplc.com/responsibility
IHG Shelter in a Storm Programme
The IHG Shelter in a Storm Programme enables IHG to support our
hotels and surrounding communities, employees and guests when
a disaster strikes, by providing immediate and vital assistance.
If you would like to make a donation to the programme, you can do
so online via a secure payment page www.ihgshelterinastorm.com
Registrar
For information on a range of shareholder services including
enquiries concerning individual shareholdings, notification of a
shareholder’s change of address and amalgamation of shareholder
accounts (in order to avoid duplicate mailing of shareholder
communications), shareholders should contact the Company’s
Registrar, Equiniti, on 0871 384 2132†* (calls from within the UK)
or +44 (0) 121 415 7034 (calls from outside the UK).
Dividend services
Dividend Reinvestment Plan (DRIP)
The Company offers a 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 form and information booklet are available at
www.shareview.co.uk/products/pages/applyforadrip.aspx
Bank mandate
We encourage shareholders to have their dividends paid directly
into their UK bank or building society account to ensure efficient
payment and funds being cleared on the payment date
Shareholders who would like their dividends to be paid directly into
their account should contact our Registrar.
Overseas payment service
It is also 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/shareholders/pages/overseaspayments.aspx
Out of date/unclaimed dividends
If you think that you have out of date dividend cheques or unclaimed
dividend payments please contact our Registrar.
Individual Savings Account (ISA)
Equiniti offers a Stocks and Shares ISA where IHG shares can
be invested. For further information please contact Equiniti
on 0871 384 2244†*.
Share dealing services
Equiniti offers the following share dealing facilities:
Postal dealing
For more information call 0871 384 2248†*.
Telephone dealing
Call 0845 603 7037†•.
Internet dealing
Log on to www.shareview.co.uk
Changes to the base cost of IHG shares
Details of all the changes to the base cost of IHG shares held since
April 2003 to December 2012, for UK Capital Gains Tax purposes,
may be found on the Company’s website www.ihgplc.com/investors
under shareholder centre/tax information.
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 ‘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.moneyadviceservice.org.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 ADR depositary bank
(contact details shown on page 140).
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
† Calls cost 8p per minute plus network extras.
* Lines are open from 8.30am to 5.30pm Monday to Friday,
excluding UK public holidays.
• Lines are open from 8.00am to 4.30pm Monday to Friday,
excluding UK public holidays.
138
IHG Annual Report and Financial Statements 2012
Share price information
The latest share price is available in the financial press. Further details of the share price may be found on the Company’s website
www.ihgplc.com/investors
Share price 2012: InterContinental Hotels Group PLC v FTSE 100
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1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
)
e
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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), excluding special dividends and capital returns, paid by IHG since 2003.
2012
2011
2010
2009
2008*
2007
2006
2005
2004
2003
pence
13.50
9.80
8.00
7.30
6.40
5.70
5.10
4.60
4.30
4.05
Interim dividend
Final dividend
Total dividend
cents
21.0
16.0
12.8
12.2
12.2
11.5
9.6
8.1
7.7
6.8
pence
27.70
24.70
22.00
18.70
20.20
14.90
13.30
10.70
10.00
9.45
cents
43.0
39.0
35.2
29.2
29.2
29.2
25.9
18.7
19.1
17.4
pence
41.20
34.50
30.00
26.00
26.60
20.60
18.40
15.30
14.30
13.50
cents
64.0
55.0
48.0
41.4
41.4
40.7
35.5
26.8
26.8
24.2
* 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.
Five year history
Revenue
Operating profit before exceptional items
Profit/(loss) before tax
Basic earnings per share from total operations (cents)
Adjusted earnings per share from total operations (cents)
2012
Total
operations
$m
1,835*
614*
556
189.5
141.5
2011
Total
operations
$m
1,768†
559†
532
159.2
130.4
2010
Total
operations
$m
1,628
444
397
101.7
98.6
2009
Total
operations
$m
1,538
363
(64)
74.7
102.8
2008
Total
operations
$m
1,897
549
316
91.3
120.9
* Includes one significant liquidated damages receipt in 2012 of $3m in The Americas.
† Includes two significant liquidated damages receipts in 2011; $10m in The Americas and $6m in Asia, Middle East and Africa.
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Investor information, Dividend history and Five year history
139
Other information
Financial calendar
Interim dividend of 13.5p per share (21.0¢ per ADR):
Special dividend of 108.4p per share ($1.72 per existing ADR):
Financial year end
Payment date
Payment date
Preliminary announcement of annual results
Final dividend of 27.7p per share (43.0¢ per ADR):
Ex-dividend date
Record date
Announcement of first quarter interim management statements
Annual General Meeting
Final dividend of 27.7p per share (43.0¢ per ADR):
Announcement of interim results
Interim dividend:
Announcement of third quarter interim management statements
Financial year end
Payment date
Payment date
Preliminary announcement of annual results
2012
28 September
22 October
31 December
2013
19 February
20 March
22 March
8 May
24 May
31 May
6 August
October
5 November
31 December
2014
February
Contacts
Registered office
Broadwater Park
Denham
Buckinghamshire
UB9 5HR
Telephone +44 (0) 1895 512 000
Fax
+44 (0) 1895 512 101
www.ihgplc.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 department
at the above address.
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
ADR depositary
JPMorgan Chase Bank N.A.
PO Box 64504
St. Paul
MN 55164-0504
USA
Telephone +1 800 990 1135
Telephone 0871 384 2132*†
(US calls) (toll free)
(UK calls)
+44 (0) 121 415 7034
(non-UK calls)
www.shareview.co.uk
*For those with hearing difficulties
a text phone is available on
0871 384 2255† for UK callers with
compatible equipment.
†Calls cost 8p per minute plus network
extras. Lines are open from 8.30am to
5.30pm Monday to Friday, excluding
UK public holidays.
+1 651 453 2128
(non-US calls)
Email
jpmorgan.adr@wellsfargo.com
www.adr.com
Auditors
Ernst & Young LLP
Investment bankers
Bank of America Merrill Lynch
Goldman Sachs
Solicitors
Freshfields Bruckhaus
Deringer LLP
Stockbrokers
Bank of America Merrill Lynch
Goldman Sachs
Priority Club Rewards
If you wish to enquire about,
or join Priority Club Rewards,
IHG’s loyalty programme,
visit www.priorityclub.com
or telephone:
0871 226 1111∞ (in Europe)
+1 888 211 9874 (in US and
Canada) (toll free)
+1 800 272 9273 (in Mexico)
(toll free)
+1 801 975 3063 (English)
(in Central and South America)
(toll charges apply)
+1 801 975 3013 (Spanish)
(in Central and South America)
(toll charges apply)
+63 2 857 8788 (from most
countries in Asia Pacific)
(toll charges apply)
+86(0) 20 3419 8282
(Mandarin and Cantonese)
(in China and Hong Kong)
(toll charges apply)
+971 4 429 0530 (in Middle East
and Africa) (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
140
IHG Annual Report and Financial Statements 2012
Other information
Forward-looking statements
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¤The Holiday Inn® brand received
the highest numerical score
among mid-scale full service
hotels in the proprietary
J.D. Power and Associates
2011-2012 North America Hotel
Guest Satisfaction Index StudySM.
Study based on responses from
61,716 guests measuring seven
mid-scale full service hotels and
measures opinions of guests
who stayed in a hotel June 2011-
May 2012. Proprietary study
results are based on experiences
and perceptions of consumers
surveyed August 2011-May 2012.
Your experiences may vary.
Visit jdpower.com.
Both the Annual Report and Financial
Statements 2012 and the Annual Review and
Summary Financial Statement 2012 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 of the effect of political and economic
developments; the risk of events that adversely
impact domestic or international travel; the risks
of the hotel industry supply and demand cycle;
the Group’s dependency on a wide range of
external stakeholders and business partners;
the risks related to identifying, securing and
retaining franchise and management agreements;
the risks in relation to changing technology and
systems; the Group’s reliance on the reputation
of its brands and the protection of its intellectual
property rights; the risks involved in the Group’s
reliance upon its proprietary reservations
system and the risk of its failure and increased
competition in reservations infrastructure; the
risks related to information security and data
privacy; the risks associated with safety, security
and crisis management; the ability to acquire
and retain the right people, skills and capability
to manage growth and change; compliance
with existing and changing regulations across
numerous countries, territories and jurisdictions;
the risk of litigation; the risks related to
corporate responsibility; the risks associated
with the Group’s financial stability and its ability
to borrow and satisfy debt covenants; the risks
associated with funding risks in relation to the
defined benefits under the Group’s pension
plans; and the risks associated with the Group’s
ability to maintain adequate insurance.
The main factors that could affect the business
and financial results are described in the
Business Review of the Annual Report and
Financial Statements 2012 and also in the
Company’s Annual Report on Form 20-F.
Designed and produced
by Corporate Edge
Print management by
H H Associates Ltd
Printed by CPI Colour
This Report is printed on
Satimatt Green which is
manufactured with 75%
recycled fibre and 25% virgin
fibre, FSC® certified. Our
printer is also FSC and Carbon
Neutral accredited.
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Financial Calendar, Contacts and Forward-looking statements
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InterContinental Hotels Group PLC
Broadwater Park, Denham,
Buckinghamshire UB9 5HR
United Kingdom
Tel +44 (0) 1895 512 000
Fax +44 (0) 1895 512 101
Web www.ihgplc.com
Make a booking at www.ihg.com