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
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Annual Report and Form 20-F 2014
Strategic Report
The Strategic Report on pages 2 to 51
was approved by the Board on
16 February 2015
George Turner, Company Secretary
Dream
‘Guest Journey’ – Step One
The Dream phase of the ‘Guest Journey’
is one of the most exciting parts of travel
for many of our guests as they research,
seek inspiration, and dream, about their
future trip.
Contents
IHG at a glance
Our preferred brands
Chairman’s statement
Chief Executive Offi cer’s review
Industry overview
Strategic Report
2
4
6
8
10
12 Our business model
14 Our strategy for high-quality growth
16 Winning Model
18
20
22 Disciplined Execution
24 Doing business responsibly
26 Risk management
30 Key performance indicators
34 Performance
Targeted Portfolio
Our Winning Model and Targeted Portfolio in action
Who is on our Board of Directors
Who is on our Executive Committee
Governance
54 Chairman’s overview
55 Corporate Governance
57
60
65
68
69
70
72 Directors’ Report
76 Directors’ Remuneration Report
Audit Committee Report
Corporate Responsibility Committee Report
Nomination Committee Report
Statement of compliance with the UK Corporate Governance Code
Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
Independent Auditor’s US Report
Group Financial Statements
94
95
99
100 Group Financial Statements
107 Accounting policies
114 Notes to the Group Financial Statements
Parent Company Financial Statements
156 Parent company balance sheet
157
Notes to the Parent Company Financial Statements
Additional Information
162 Group information
171 Shareholder information
179 Useful information
181 Exhibits
182 Form 20-F cross-reference guide
184 Glossary
186 Forward-looking statements
Front cover: EVEN Hotel, Rockville, Maryland, US
1
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
IHG at a glance
Our strategy for high-quality growth
We focus on strengthening our portfolio of preferred and differentiated
brands, building scale in key markets, creating a long-lasting relationship
with our guests and delivering revenue to hotels through the lowest cost,
direct channels. Our proposition to owners is highly competitive and
drives superior returns.
We execute our asset-light strategy in the most attractive, high-growth
markets and industry segments. We take a disciplined approach to
capital allocation, investing for the future growth of our brands. This
enables us to drive sustainable growth in our profitability and deliver
superior shareholder returns over the long term.
Our strategy is detailed on pages 14 to 33.
Our business model
We predominantly franchise our brands to, and manage hotels
on behalf of, third-party owners; our focus is therefore on building
preferred brands and strong revenue delivery systems.
Franchised:
4,096 hotels (514,984 rooms)*
2013: 3,977 hotels (502,187 rooms)
Managed:
735 hotels (192,121 rooms)*
2013: 711 hotels (180,724 rooms)
Owned and leased:
9 hotels (3,190 rooms)*
2013: 9 hotels (3,962 rooms)
Our business model is detailed on pages 12 and 13.
Our portfolio of brands is detailed on pages 4 and 5.
Our revenue delivery systems are detailed on pages 17 and 22.
Hotels in the IHG System pay IHG:
• management and/or franchise fees; and
• assessments and contributions which are collected for specific
use within the System Fund (this does not result in profit or loss
for IHG).
Information on the System Fund is detailed on page 49.
2
Group highlights *
+6%: $23bn†
Total gross revenue in IHG’s System (2013: $21.6bn†)
Group Revenue down 2% to $1,858m‡ (2013 : $1,903m §)
-3%: $651m‡
Total operating profit before exceptional items (2013: $668m §)
+10%: 77¢ (48.6p)
2014 Full-year dividend ¶ (2013: 70.0¢ (43.2p))
+6.1%
Revenue per available room** (2013: +3.8%)
710,295 rooms (4,840 hotels) operating in the IHG System
+7%
Fee revenue †† (2013: + 4%). Driven by 6.1% (2013: 3.8%) of RevPAR
growth and 3.4% (2013: 1.6%) net IHG System size growth
Our global and regional performance is set out on pages 34 to 51.
* Unless otherwise stated, all facts and figures as at 31 December 2014.
† This comprises total rooms revenue from franchised hotels and total hotel
revenue from managed, owned and leased hotels. It is not revenue attributed
to IHG.
‡ Includes two liquidated damages receipts in 2014: $7m, both in The Americas.
§ Includes three liquidated damages receipts in 2013; $31m in The Americas,
$9m in Europe and $6m in AMEA.
¶ Subject to shareholder approval of 2014 final dividend.
** Total IHG System rooms revenue divided by the number of room nights
available.
†† Group revenue excluding owned and leased hotels, managed leases
and significant liquidated damages. Growth stated at constant currency.
Where we operate
We operate in nearly 100 countries globally.
Europe
See pages 40 to 42
Revenue
2014
2013
$374m
$400m§
Operating profit before
exceptional items
2014
2013
$89m
$105m§
Greater China
See pages 46 to 48
Revenue
2014
2013
$242m
$236m
Operating profit before
exceptional items
2014
2013
$89m
$82m
The Americas
See pages 37 to 39
Asia, Middle East
& Africa (AMEA)
See pages 43 to 45
3
$230m§$242m2013Operating profit before exceptional itemsRevenue2014$86m§$84m20132014$916m§$871m‡2013Operating profit before exceptional itemsRevenue2014$550m§$544m‡20132014STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
Our preferred brands
Each of the brands in our portfolio are complementary and
differentiated to meet the changing, multifaceted needs of our
guests and be commercially compelling to third-party hotel owners.
Supported by the IHG brand and IHG Rewards Club (our loyalty programme), our portfolio of hotel brands
is aimed at meeting evolving guests’ needs.
Driving brand preference for our guests
Each of our brand strategies revolves around guest research and
insight, allowing us to develop each brand to deliver unique guest
experiences against specific needs, occasions and price points.
Delivering preferred brands by our people
We recognise that our people deliver the brand experience
for our guests and we therefore invest heavily in our talented
people (see page 23).
To drive brand preference, our brands must deliver a truly holistic
experience for our guests, from the moment travel plans are
conceived, across the planning and booking experience,
throughout the hotel stay and thereafter – we call this the
‘Guest Journey’ (see pages 17 and 22).
In January 2015, we acquired Kimpton Hotels & Restaurants,
the world’s largest independent boutique hotel operator. This,
alongside Hotel Indigo and EVEN Hotels, strengthens our brand
portfolio and creates a leading boutique and lifestyle hotel
business in one of the fastest growing industry segments
(see page 21).
Having preferred brands for owners
Given our asset-light business model, strong owner relationships
are vital to building scale (see pages 16 and 17). Integral to this,
is a portfolio comprising strong, clearly defined brands enabling
third-party hotel owners to choose the right IHG brand for
their hotel.
InterContinental® Hotels & Resorts
Our international luxury brand is located
in most of the world’s key cities and many
resort destinations across more than
60 countries worldwide. The brand’s
ethos is to provide insightful, meaningful
experiences to our guests to make
their world feel bigger.
HUALUXE® Hotels and Resorts
Launched in March 2012, it was the
first luxury international hotel brand
where every element has been designed
specifically to suit the tastes and
sensibilities of the Chinese guest.
It focuses on the unique aspects of
Chinese etiquette, the importance of
rejuvenation, status recognition, local
customs and heritage.
24†
Hotels in the pipeline
7,551†
Rooms in the pipeline
Crowne Plaza® Hotels & Resorts
With hotels in major business centres
around the world, Crowne Plaza is our
modern business hotel dedicated to
business travel that is ever more flexible,
more connected, and more mobile.
We enable our guests to be their most
productive by simply making business
travel work.
61†
Hotels open
6,731†
Rooms open
63†
Hotels in the pipeline
9,096†
Rooms in the pipeline
Hotel Indigo®
Hotel Indigo artfully combines the unique
design and authentic local experiences of
a boutique hotel, with the ease and peace
of mind of a recognised brand name. Each
hotel reflects the local culture, character
and history of the surrounding area.
180†
Hotels open
61,235†
Rooms open
50†
Hotels in the pipeline
15,664†
Rooms in the pipeline
406†
Hotels open
113,562†
Rooms open
92†
Hotels in the pipeline
25,336†
Rooms in the pipeline
4
Holiday Inn Express®
Holiday Inn Express champions smart
and simple travel for everyone. We
support guests without hassle, without
complication, without extravagance – but
always with a warm smile. Our mantra is
‘everything you need, nothing you don’t’.
Holiday Inn®
At Holiday Inn, we believe the joy of travel
is for everyone. Warm and friendly, Holiday
Inn has been opening its doors to guests
since 1952, affordably blending the familiar
with the new, and putting everyone at ease
no matter the reason for their stay.
Holiday Inn Resort® properties offer great
value, warm and friendly service and the
peace of mind of a trusted brand name.
The Holiday Inn Resort brand champions
the family holiday.
Holiday Inn Club Vacations® is a vacation
ownership club that opens the door to
the joy of owning a vacation home. The
portfolio is a collection of resorts in the
US, offering spacious villa accommodation
for families in great vacation destinations.
2,365†
Hotels open
229,110†
Rooms open
522†
Hotels in the pipeline
62,954†
Rooms in the pipeline
1,212†*
Hotels open
225,159†*
Rooms open
269†§
Hotels in the pipeline
52,713†§
Rooms in the pipeline
* Includes 12 Holiday Inn Club Vacations properties (4,027 rooms) and
42 Holiday Inn Resort properties (9,904 rooms).
§ Includes 18 Holiday Inn Resort properties (4,412 rooms).
Candlewood Suites®
IHG’s extended-stay brand in North
America aimed at providing guests
with a relaxed, casual and home-like
environment at a great value.
EVENTM Hotels
Launched in February 2012, the
brand was created to meet the large
and growing demand for a hotel brand
to help wellness-minded travellers
maintain their balance on the road.
322†
Hotels open
30,708†
Rooms open
89†
Hotels in the pipeline
7,717†
Rooms in the pipeline
2†
Hotels open
296†
Rooms open
3†
Hotels in the pipeline
584†
Rooms in the pipeline
Staybridge Suites®
IHG’s extended-stay brand for business
and leisure travellers who are spending
an extended time away from home
and prefer a warm, home-like and
community environment.
Kimpton® Hotels & Restaurants
Acquired by IHG in January 2015, this is
a leading collection of boutique hotels and
award-winning destination restaurants
in the US. The brand is renowned for its
distinctive design and personal approach
to guest service, using thoughtful perks
and amenities and a sense of fun to make
them feel truly at home.
205†
Hotels open
22,409†
Rooms open
99†
Hotels in the pipeline
10,908†
Rooms in the pipeline
62‡
Hotels open
11,300‡
Rooms open
16‡
Hotels in the pipeline
3,000‡
Rooms in the pipeline
† As at 31 December 2014.
‡ These were part of the acquisition which completed on 16 January 2015.
IHG System size of 4,840 hotels (710,295 rooms) includes 87 hotels
(21,085 rooms) that are unbranded.
5
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
Chairman’s statement
We have continued to execute our strategy to deliver high-quality
growth. Our strong performance was underpinned by our successful
Winning Model, which is our framework for delivering value for our
shareholders and owners through our portfolio of preferred brands,
talented people and leading revenue delivery systems.
Our highlights in 2014 included the opening
of the first two hotels under the EVEN
Hotels brand, and the progress made in
both strengthening our digital offer and
enhancing our loyalty programme, IHG
Rewards Club, with the aim of building
lifetime loyalty with our guests and
enhancing their experience with our
brands before, during, and after, their
stay. We also continued our strong track
record of delivering attractive returns
for shareholders, with over $1 billion
(including ordinary dividends) returned
in the year.
We ended the year on a high, with the
announcement that we had agreed to
acquire Kimpton Hotels & Restaurants,
making IHG the clear market leader in
the boutique segment.
I have seen, first hand, this momentum
in the business. I have visited many hotels
in our established markets, as well as our
growth markets, and I continue to be
enormously impressed. Our continued
success is testament to our strong
relationship with our owners and the
passion and commitment our 350,000
colleagues globally bring to the business
on a daily basis.
Views on the year as a whole
With hotels in nearly 100 countries around
the world, our scale position has been
a key driver of our consistently strong
performance. It allowed us to allocate
resources in a focused way to grow in
our attractive markets (described on page
18), whilst ensuring we maintain a strong
presence in growth markets of the future.
One of IHG’s greatest strengths is our
ability to adapt and evolve in a changing
global landscape. We are a dynamic
business. In 2014, we saw some of the
world’s biggest economies return to
growth and others faced uncertainty
in the shape of natural, economic and
political upheaval. In this context, our
expertise and discipline was critical to
us delivering consistently good results.
Shareholder returns
We remain committed to delivering
long-term shareholder value, returning
surplus funds to our shareholders and
thereby maintaining an efficient balance
sheet with an investment grade credit
rating. In the 11 years since IHG became
a standalone business, we have
consistently delivered superior and
sustainable returns for our shareholders.
In May 2014, we announced a $750 million
special dividend with share consolidation
which we paid on 14 July 2014. During the
year, we also successfully completed our
$500 million share buyback programme.
In total, we have now returned $10.4 billion
(including ordinary dividends) to
shareholders since our 2003 demerger.
I am pleased to announce that the
Board is recommending a final dividend
of 52 cents (33.8 pence) per ordinary share,
an increase of 11 per cent on the final
dividend for 2013, resulting in a full-year
dividend of 77 cents (48.6 pence) per share,
up 10 per cent on 2013.
Total Shareholder Return was 32 per cent
in the year; the 10th best performance
in the FTSE 100.
“ We made excellent
progress against our
well-established strategy
to deliver high-quality
growth and returned over
$1 billion to shareholders .”
Patrick Cescau
Chairman
6
InterContinental Paris – Le Grand, France
Crowne Plaza Costa Mesa Orange County, California, US
The Board and its areas of focus
IHG is an ambitious company with an
impressive scale position and a proven
strategy for high-quality growth. Ensuring
we have the right balance of skills, style
and expertise at both the Board level
and across the business is an important
factor in supporting our future growth
(see pages 57 to 62).
In last year’s Annual Report, I said how
impressed I was by the strength and
diversity of the IHG Board. This continues
to be the case. I also stressed the
importance of evolving the composition
of the Board to best support the business
as it grows and develops.
In 2014, a key priority for me was to
appoint a Non-Executive Director with
a strong background in consumer-facing
technology. On 1 September 2014, we were
therefore delighted to welcome Jo Harlow
to the Board and as a member of the
Audit, Nomination and Remuneration
Committees. Jo has a wealth of experience
and knowledge, particularly on the role
digital technology plays in driving
consumer behaviour.
On 31 December 2014, Jonathan Linen
retired from the Board and I would
like to thank him for his tremendous
contribution to IHG. In December 2014,
we announced that Kirk Kinsell would
step down from the Board and his role
as President of our Americas business
on 13 February 2015. Kirk was succeeded
by Elie Maalouf as Chief Executive Officer,
The Americas, who became a member
of IHG’s Executive Committee. We are also
pleased that, effective from 1 March 2015,
Anne Busquet will be joining the Board
as a Non-Executive Director and she will
also sit on the Audit, Nomination and
Corporate Responsibility Committees.
Anne has an impressive breadth of
experience in digital commerce,
hospitality, finance and marketing.
During the year, the Board remained
focused on IHG’s strategy and the
execution of our Winning Model, as well
as on maintaining our deep understanding
of both the risks facing the business and
the controls we have in place. These are
further described on pages 14 to 33.
Governance
High standards of corporate governance
are fundamental to the way IHG operates
and reflect our values and commitment to
being a truly responsible business. In last
year’s Annual Report, we explained how
we had commissioned a formal evaluation
of the Board from an external independent
consultant. This year we undertook an
internal Board effectiveness evaluation and
internal performance evaluations of each
Director. The Board also considered the
performance of each of its Committees.
It was confirmed that the Board and its
Committees were operating effectively,
and that each Director continues to bring
relevant knowledge, diversity of
perspective, an ability and willingness to
challenge and retains a strong commitment
to the role. The progress against our
2013 evaluation, and details of our 2014
evaluation and action plan, can be found
on pages 63 and 64.
Detailed information on our Board
and governance processes, including
the Directors’ Remuneration Report,
can be found on pages 54 to 91.
In line with our commitment to responsible
business practices (see pages 24 and 25),
this year, we have decided to produce a
broader Responsible Business Report in
place of the Corporate Responsibility
Report, which can be downloaded at
www.ihgplc.com/responsiblebusiness.
Outlook
We continue to remain confident in the
long-term growth prospects of the hotel
industry. There are some major structural
tailwinds and socio economic trends
which mean that the hotel industry will
experience significant growth into the
future. Our proven strategy for high-quality
growth means that we are well placed to
continue to outperform.
Patrick Cescau
Chairman
7
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
Chief Executive Officer’s review
2014 was an excellent year for IHG. We made significant progress
in delivering our winning strategy for high-quality growth, and reported
strong financial and operational performance. We also made good
progress with our asset-light strategy.
IHG is in a position of strength, a position
which has been enhanced by another year
of excellent delivery against our strategic
priorities. We remained focused on
building our compelling scale position
in what is a growing global marketplace,
as we continued to build, develop, and
shape our business and our brands for
the future. We achieved strong RevPAR
performance, opened the highest number
of hotels since 2009 and reported growth
in net System size.
We also made good progress with our
asset-light strategy with the sale of
InterContinental Mark Hopkins San
Francisco and the disposal of 80 per cent
of our interest in InterContinental New
York Barclay, as well as the acceptance
of a binding offer for InterContinental
Paris – Le Grand.
Our Winning Model
The Winning Model is our framework
for delivering value for our shareholders
and owners through our portfolio of
preferred brands, talented people and
leading revenue delivery systems. We
are focused on delivering against all
components of this model, combining it
with a targeted approach to building our
portfolio and disciplined execution, all
underpinned by our commitment to being
a responsible business. On pages 16 and
17, we have set out why each element of
the model is so critical to our business
and have provided more detail on the
excellent progress we made during the
course of 2014. This includes our superior
owner proposition. On our website,
www.ihgplc.com/ihgowners, you will
find a message from Buggsi Patel, 2014
Chairman of the IHG Owners Association,
on his highlights from the year.
Our acquisition of Kimpton Hotels
& Restaurants (see page 21), which
completed in January 2015, is an example
of how each element of the model came
into play and will help support our
ambitions for the brand in the
medium term.
Our Winning Model in action
Kimpton Hotels & Restaurants is a
well-established and highly successful
business that has grown to become the
world’s leading boutique hotel business
with a portfolio of world-class hotels and
destination restaurants. This distinctive
and innovative brand fits perfectly into
our brand family, alongside our highly
successful Hotel Indigo and EVEN Hotels
brands, creating the world’s largest
boutique hotel business. We will use our
scale, network of owner relationships
and powerful digital platforms to
accelerate its growth both within the
US and globally (see page 21).
Our scale
With a five per cent share of the global
industry supply of rooms and 13 per cent
of the active industry pipeline, IHG enjoys
significant scale advantages in what is a
competitive industry. During 2014, we
continued to build our scale, focusing on
our priority markets such as the United
States and Greater China (see page 18).
This resulted in us achieving a series of
milestones in the year, including our
highest ever number of hotel openings
in Greater China (see pages 19 and
46 to 48).
“ IHG is in a position of
strength, a position which
has been enhanced by
another year of delivery
against our strategic
priorities.”
Richard Solomons
Chief Executive Officer
8
Epic Miami, A Kimpton Hotel, Florida, US
EVEN Hotel Rockville, Maryland, US
HUALUXE Hotels and Resorts, People’s Republic of China
Our brands
Our award-winning preferred brands
continued to go from strength to strength.
InterContinental Hotels & Resorts is twice
the size of any other luxury hotel brand and
the Holiday Inn brand family is the largest
global mainstream brand. We also opened
the 400th Crowne Plaza hotel and 200th
Staybridge Suites hotel during the year.
The number of awards our brands receive
externally is remarkable, reflecting the
work we have been doing to build
awareness, recognition and guest
satisfaction. In 2014 alone, our brands
won over 300 global, regional and hotel
level awards.
For the sixth consecutive year,
InterContinental Hotels & Resorts was
named ‘World’s Leading Hotel Brand’
at the 2014 World Travel Awards; and for
the tenth consecutive year, IHG Rewards
Club has been recognised as ‘Best Hotel
Rewards Programme in the World’ by
Global Traveler magazine. IHG as a
company also had a successful year
– we were listed as one of FORTUNE
Magazine’s ‘World’s Most Admired
Companies’, named as the ‘Best British
Business’ in China and came third in
The Sunday Times ‘25 Best Big Companies
to Work For’ list.
Innovating for the future
We have continued to build on our long
history of innovation to help us both
navigate and evolve our business for
success in what is a changing world.
This is supported by our focus on
delivering preferred brands, building
lifetime relationships with our guests and
developing our strong direct channels.
In 2014, we opened the first two EVEN
Hotels (see page 20) to critical acclaim,
and in February 2015, we opened the first
hotel for the HUALUXE Hotels and Resorts
brand. Both of these new brands address
previously unmet guests’ needs.
We have also taken an innovative approach
to evolving our loyalty and digital offer
around the ‘Guest Journey’ with the launch
of initiatives such as Mobile Check-in and
Check-out and further improvements
to our number one rated mobile app.
Continuing to evolve and enhance our
digital capabilities will be a key area
of focus for us over the coming years.
Trust
In the context of this changing landscape,
the theme of ‘Trust’ was more important
than ever and was the main theme of our
2015 Trends Report (see page 10 for more
details). The report argues that ‘Trust
Capital’ is now the ‘4th C’ of organisational
value – alongside Human, Financial and
Intellectual Capital – and is a key factor
for consumers in making brand choices.
Our people play a critical role in building
trust with our guests and owners. They are
responsible for delivering a differentiated
brand experience for our guests (see pages
16 and 23) and as such we work hard to
build our ‘winning culture’ and our
employer brand and maintain our high
Employee Engagement survey scores
(see page 32).
Responsible Business
Operating as a Responsible Business
underpins each of our strategic priorities
and is a commitment everyone working
at IHG is responsible for delivering
(see page 24 and 25). We made excellent
progress with each of our three corporate
responsibility programmes during the
course of the year. We announced the
global roll-out of our environmental
sustainability tool, IHG Green Engage, as
a brand standard, which was a powerful
demonstration of our commitment to
protecting the environment. More recently,
we announced the opening of our 600th
IHG Academy. Launched in 2006, the
programme provides local people with
bespoke skills-development and
employment opportunities. Finally,
our disaster relief programme, IHG
Shelter in a Storm, responded to 18
disasters in nine countries.
Finally, I would like to take this opportunity
to thank those who work across IHG and
its brands globally for the energy and
enthusiasm they bring to the business.
With their support, and together with our
owners, we can look forward to another
excellent year ahead.
Richard Solomons
Chief Executive Officer
9
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
Industry overview
Where the industry is now
The global hotel industry
The global hotel industry comprises approximately 15.5 million
rooms and is broadly segmented into branded (multiple hotels
under the same brand name) and independent (non-branded)
hotels. Growth in demand is driven by economic growth and an
increasing trend for domestic and global travel, resulting in part
from favourable demographics and the globalisation of travel.
Over the long term, the lodging industry has grown broadly in line
with Gross Domestic Product (GDP). In the US market (which is the
largest market in terms of number of rooms), growth in consumer
spend on lodging has exceeded GDP growth by two percentage
points per annum over the last 50 years.
There are a number of industry metrics that are widely recognised
and used to track performance and we actively monitor these.
These include revenue per available room (RevPAR), average daily
rate and rooms supply growth.
Global industry RevPAR growth (2014 v 2013)
2014
2013
5.9%
4.4%
IHG’s Key performance indicators (KPIs) are set out on pages 30 to 33.
The branded hotel market
The branded hotel market is estimated to account for 53 per cent
of the total hotel market. We benchmark our performance against
the largest branded players that we consider to be our peer group,
with a similar system size and pipeline to ours and who operate in
similar market segments to us (as explained on page 18).
Five of the leading branded hotel companies (IHG, Accor, Hilton,
Marriott and Starwood) account for approximately 30 per cent
of the total branded hotel market in terms of open rooms, and
65 per cent of the development pipeline (hotels in planning
and under construction but not yet open).
In the US, around 70 per cent of the industry supply is branded.
In fast developing markets, such as China and India, penetration
of international brands is, however, lower, at around 45 to 55 per
cent. This level of international brand penetration is expected to
increase significantly over the coming decades, as large global
branded hotels gain traction due to the advantages of reliability,
guest safety and security, consistency of standards and the ability
to invest in customer experience and technology. IHG has
measures in place for all of these – see Our Strategy and
Managing Risks on pages 14 to 29.
Source: Smith Travel Research for all of the above industry facts.
10
The different business models within the hotel industry
The global hotel industry operates under a number of different
business models, depending on whether a hotel is branded or
independent. The four models typically seen are owned, leased,
managed and franchised:
• owned hotels are owned and operated by an owner who bears
all the costs associated with the hotel but also benefits from
all of the income;
• a leased model is similar, except that the owner-operator
of a hotel does not have outright ownership of the hotel but
pays rental fees to the ultimate owner of the property;
• under a managed model, the owner of a hotel uses a third-party
manager to operate the hotel on its behalf and pays the manager
management fees and, if the hotel is operated under a
third-party brand name, brand licensing fees; and
• a franchised hotel is owned and operated by an owner under
a third-party brand name, and the owner pays a brand licensing
fee to the brand owner.
Other models, such as pay-for-performance or commission-
based, are sometimes used by independent hotels to benefit
from a brand’s booking distribution system (for example,
hotel collections).
Whilst an owner-operated hotel enables the owner to have full
control over the hotel operation, it requires high capital investment.
In contrast, for hotel brand owners, a managed or franchised
model enables quicker rooms growth due to the lower capital
investment, but this requires strong relationships with third-party
hotel owners. As a franchisor and manager, we therefore recognise
that our owner proposition is a key part of our strategy.
IHG’s business model, which is a predominantly managed and
franchised model, is set out on pages 12 and 13.
IHG’s 2015 Trends Report: Building Trust Capital:
The new business imperative in the Kinship Economy
– released in January 2015
The third in our series of
Trends Reports focused
on consumer insights
impacting the hospitality
industry and business
in general.
Our 2015 Report identifies
the importance for
companies to build brand
and organisational trust.
It demonstrates how to
build Trust Capital with different demographics and across
different geographies, unveiling a blueprint of seven principles
for making it the core driver of an organisation.
Further details about all three Trends Reports can be found at
www.ihgplc.com/trends_report
Where the industry is heading
Short-term drivers and global trends
Short-term industry trends are shaped by differing economic,
political or physical factors impacting local geographical markets.
Since the economic crisis of 2008/09, GDP growth has returned to
key economies, leading to an increase in disposable income and an
increase in demand for hotel rooms. Typically, the industry would
meet this demand through an increase in the supply of rooms.
Long-term drivers and global trends
In the long term, growth in the hotel industry is driven by a number
of trends:
Economic
The travel and hotel industries have benefited substantially from
long-term macroeconomic trends. Global GDP growth in the last
10 years of approximately 3.6 per cent per annum has contributed
to increasing disposable income and a greater number of
middle-class households, particularly in emerging markets
such as Greater China, with a greater propensity to travel.
Improvements in physical infrastructure, particularly in emerging
markets, have allowed hotels to meet the needs of guests more
effectively and to open up new destinations for travel.
Our growth strategy focuses on 10 priority markets comprising both
developed and emerging ones.
Demographic
Traveller demographics are continuously evolving. Many travellers
travel for a variety of reasons and no longer for a singular purpose,
such as only business or leisure. Across the globe, the types
of traveller can range from single people to multi-generation
families. The younger workforce is driving more diverse and
informal working patterns, with an expectation that hotels can
cater for flexible working arrangements. A growing ageing
population with the desire, and means, to travel is also expected
to significantly increase travel flows and lead to an overall
increase in demand for travel services.
Having a portfolio of distinct and complementary brands enables IHG
to meet a range of guests’ needs and occasions at differing price points.
Social
Other trends also provide new opportunities for increased travel.
Growing competition and capacity amongst airlines, lower air
fares and more relaxed travel restrictions in many regions have
made international travel a viable option for an increasing number
of people. Worldwide, international tourist travel is expected
to increase by 3.3 per cent a year from 2010 to 2030 reaching
1.8 billion by 2030, according to the UNWTO.
Increasingly, travellers are concerned about the sustainability
of hotels and their impact on the environment and local
communities.
We are committed to responsible business practices from
environmental sustainability to supporting our local communities.
In developed markets, recent industry revenue growth has been
driven largely by an increase in the room rate as occupancy levels
have returned to previous peak levels, but the growth in supply
of rooms has been below the long-term average. In emerging
markets, growth has been a result of both an increase in room
rate and the supply of rooms. The industry is also impacted in
the short term by local market economic or political factors.
Technology
Technology is playing an increasingly important role in
both shaping the travel industry and in guests’ appreciation
of their entire travel experience. The internet, increasingly
accessed through mobile devices, has established itself as
the preferred method to research, plan and book travel. In
emerging markets, consumers are bypassing desktop PCs and
going straight to mobile – there are twice as many smartphone
users in China than internet users in the US.
The development of social networking has changed the way in which
people think about travel, with the sharing of experiences, reviews
and recommendations influencing research and decision-making.
Travellers can make more informed decisions, and book their travel
options with greater control and immediacy, leading to an increase
in travel to a variety of destinations.
The ‘Internet of Things’ is an emerging trend that offers enormous
potential. 75 billion devices are forecast to be internet-enabled by
2020 offering the potential to transform the in-hotel guest
experience.
We focus on delivering across the entirety of the ‘Guest Journey’
and invest in developing strong technology platforms.
Competitors
These long-term drivers and global trends are changing the
competitive landscape within the travel industry. Competitors are
no longer simply branded or independent hotels, but also include
companies offering alternative lodging solutions and search
options, providing inspiration for travel ideas and aggregating a
range of travel solutions. The consumer peer-to-peer rental
market, which is largely unbranded, has also opened up a large
supply of travel accommodation. However, many of these
businesses are not subject to regulations such as fire and life
safety, food safety and local industry regulations, which apply
to traditional hotel operators.
For booking and distribution, hotel companies also compete with
the increasingly sizeable travel intermediaries.
Our channel management strategic priority considers both direct and
indirect booking and distribution channels.
What is IHG doing in light of these trends?
See Our Strategy on pages 14 to 33
11
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
Our business model
We predominantly franchise our brands to, and manage hotels on behalf
of, third-party owners. Our asset-light strategy enables us to grow our
business whilst generating high returns on invested capital.
We franchise and/or manage hotels depending largely on market maturity, owner preference and, in certain cases, on the particular
brand. For example, in the US, a mature market, we operate a largely franchised business, working together with our owners to deliver
preferred brands. By contrast, in Greater China, an emerging market, we operate a predominantly managed business where we are
responsible for operating the hotel on behalf of our owners. We adapt this business model by market as necessary, for example, we also
have managed leases (properties structured for legal reasons as operating leases but with the same characteristics as management
contracts), partnerships and joint ventures.
The key differences in our three main models are summarised below:
Franchised
Managed
Owned and leased
Number
of hotels
4,096
735
9
% of our
portfolio
84.6%
15.2%
Less than 1%
Hotel
ownership
Third party†
Third party†
IHG
IHG capital
intensity
Low
Low
High
Employees*
Third party
IHG and third party
IHG
Brand ownership,
marketing and distribution
IHG
* For information on who are our employees and how we invest in our talent, see page 23.
† We are committed to delivering a compelling and preferred offer to our hotels owners through our owner proposition – see page 17.
In 2014, over 90 per cent of our operating profit was generated from our asset-light management and franchise contracts. In addition,
approximately 85 per cent of our fee-based income was derived from hotel revenues, and 15 per cent was principally from management
fees linked to hotel profits.
The asset-light approach, and franchised and managed business model:
• is highly cash-generative, with a high return on capital employed; and
• means IHG benefits from the reduced volatility of fee-based income streams and allows us to focus on growing our fee revenues
and fee margins with limited requirements for IHG’s capital.
IHG Revenue and the System Fund
Third-party hotel owners pay: (i) fees to IHG in relation to licensing of our brands and/or our hotel management services; and
(ii) assessments and contributions which are collected by IHG for specific use within the System Fund.
For our:
• Franchised hotels
= total rooms revenue‡
Total Gross Revenue
• Managed hotels
= total hotels revenue‡
• Owned and leased hotels
= total revenue
IHG revenues
• Franchised hotels = RevPAR x rooms x royalty rate
• Managed hotels = Fee % of total revenue plus % of profit
Fee revenues§ – 2014: 61% of our revenue comes from franchise
and management fees
• Owned and leased hotels = All revenue and profits
• Central revenue: Principally technology fees (see page 48)
System Fund
2014: $1.5bn
• Assessments and contributions paid by hotels
• Proceeds from the sale of IHG Rewards Club points
• No profit or loss for IHG – managed by IHG for the benefit of
hotels within the IHG System
See page 49 for more information
Fee-based margins: 2014: 44.7%
Profit from fee revenues
• After allocating costs, we estimate our margins to be as follows:
• – Franchised
• – Managed
• Not all of our costs can be allocated directly to revenue streams
and these are shown as regional or central infrastructure costs
– Fee margin
44.7%
– Owned and leased 18.0%
84.6%
58.6%
Marketing
IHG Rewards
Club loyalty
programme
Global
reservation
system
‡ Not attributable to IHG – IHG revenues are as described in the
‘IHG revenues’ box.
§ Group revenue excluding owned and leased hotels, managed leases
and significant liquidated damages.
For definitions, please refer to the Glossary on pages 184 and 185.
12
Disciplined approach to allocation of capital
Our focus on an asset-light business model is supported by a disciplined, long-term approach to allocating capital and reducing
the asset intensity of the business. We seek to maintain an efficient balance sheet with an investment grade credit rating.
Our business is highly cash-generative, and we have three primary uses of the cash we generate:
• Invest in the business to drive growth: This includes acquisitions of businesses and our day-to-day capital expenditures (see below).
• Maintain sustainable growth in the ordinary dividend: Our 2014 full-year dividend will be 77 cents (48.6 pence) per share (subject
to shareholder approval of the 2014 final dividend) – up 10 per cent on 2013 (see page 50).
• Return surplus funds to shareholders: During 2014, we announced a $750 million return to shareholders via special dividend with
share consolidation, and completed our $500 million share buyback (see page 50).
In support of our asset-light strategy, during 2014 we:
Disposals
• completed the disposal of 80 per cent of our interest in InterContinental New York Barclay for $274 million;
• sold InterContinental Mark Hopkins San Francisco for $120 million; and
• announced a binding offer in respect of InterContinental Paris – Le Grand for €330 million ($406 million).
Acquisitions
• announced the acquisition of Kimpton Hotels & Restaurants for $430 million – a fully asset-light business. This acquisition
completed in January 2015.
IHG’s philosophy to capital expenditure
Capital expenditure incurred by IHG can be summarised as follows:
Capital expenditure
Examples
Maintenance capital expenditure
and key money to access strategic
growth, particularly into high-
quality and sought-after
opportunities
Recyclable investments to drive
the growth of our brands and our
expansion in priority markets
System funded capital
investments for strategic
investment to drive growth
at hotel level
• Maintenance of our owned and leased hotels, which will reduce as we become increasingly asset-light.
• Corporate infrastructure maintenance, for example, in respect of our offices and systems.
• Deployment of key money, which is used to access strategic opportunities, particularly in high-quality
and sought-after locations when returns are financially and/or strategically attractive.
• Through the acquisition of real estate, investment through joint ventures or via an equity stake.
• We aim to seek to recycle this capital by selling these assets when the time is right and to reinvest
elsewhere in the business and across our portfolio – we are currently doing this for our EVEN Hotels
brand, just as we previously did for the Staybridge Suites and Hotel Indigo brands.
• The development of tools and systems that hotels use to drive performance.
For definitions, please refer to the Glossary on pages 184 and 185.
13
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG Annual Report and Form 20-F 2014
Our strategy for high-quality growth
We focus on strengthening our portfolio of preferred and differentiated brands, building scale in key markets,
creating a long-lasting relationship with our guests and delivering revenue to hotels through the lowest cost,
direct channels. Our proposition to owners is highly competitive and drives superior returns.
We execute our asset-light strategy in the most attractive, high-growth markets and industry segments.
We take a disciplined approach to capital allocation, investing for the future growth of our brands. This enables
us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.
Winning Model
Our Winning Model is our framework for delivering value
for our shareholders and owners through our portfolio of
preferred brands, talented people and leading revenue
delivery systems.
See pages 16 and 17.
Value creation:
Winning Model
Superior
owner
proposition
Preferred brands
delivered through
our people
5
1
Effective
channel
management
4
3
2
Build and
leverage
scale
Strong brand
portfolio and loyalty
programme
Disciplined Execution
We recognise that successful delivery of our strategy
for high-quality growth requires Disciplined Execution.
We prioritise investment in our technology platforms
and our people as well as delivering operational efficiencies.
See pages 22 and 23.
Disciplined Execution
Scale and
efficiency of
operations
Investment in
developing strong
technology platforms
Whilst doing business responsibly
Doing Business Responsibly
A commitment to responsible business practices underpins
our entire strategy and the way we work. We recognise the
importance it has for all of our stakeholders in making IHG
and its brands their preferred choice.
See pages 24 and 25.
14
Superior
shareholder returns
Targeted Portfolio
Attractive markets
Highest opportunity segments
Managed and franchised model
Investment in
developing great
talent
Our purpose is to
create Great Hotels
Guests Love®
Targeted Portfolio
Our Targeted Portfolio means that we operate in the most
attractive markets for IHG and in the highest opportunity
segments based on guests’ occasion needs, with an
asset-light business model, i.e. franchising and managing
hotels rather than owning them.
See pages 12, 13, 18 and 19.
Management of our principal risks
See pages 28 and 29 for how IHG manages its principal
risks and uncertainties.
Key performance indicators (KPIs)
We measure our performance against these strategic
imperatives through a set of selected KPIs which monitor
our success in achieving our strategy and measure the
progress of the Group in delivering high-quality growth.
See pages 30 to 33.
15
Whilst doing business responsibly
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Winning Model
Our Winning Model is our framework for delivering value for our
shareholders and owners through our portfolio of preferred brands,
talented people and leading revenue delivery systems.
Key performance indicators (KPIs)
and What we have done in 2014
See pages 30 to 33
How we manage principal risks
See pages 28 to 29
Our portfolio of preferred brands
See pages 4 and 5
Where we operate and detailed global
and regional Performance
See pages 34 to 51
16
5
1
4
2
3
Preferred brands
delivered through
our people
Why we think this is important
Having a strong portfolio of preferred
brands is fundamental to our success.
In a highly competitive industry, powerful
well-defined, consistent and well-known
brands assist both guests and owners in
choosing an IHG brand over a competitor’s,
as well as deciding which IHG brand meets
their specific needs. Our people are critical
in providing the guest experience, and
our ‘winning culture’ encourages and
empowers them to bring each of our
differentiated brand experiences to life and
provide high standards of guest service.
The value of building strong preferred
brands results in increased RevPAR, as
occupancy will be higher and guests will
pay a higher rate to stay at their preferred
brand, which, in turn, delivers better
returns for our owners through an
increase in total gross revenue.
What we are doing
We build brand preference by defining
each of our brands so that they can provide
a differentiated experience to meet both
the targeted guest need and occasion and
be consistent in the experience they deliver.
We have sharpened each of our brand
strategies looking at a number of areas,
from the brand ambition and position to the
brand platform and strategic brand pillars,
to ensure our portfolio meets the needs of
the evolving guest and owner. We are also
refreshing the brand standards for each of
our brands to ensure they are up to date
and relevant to drive consistency.
We invest in our talented people who are
the face of our brands and help us build
brand preference (see page 23).
5
1
4
2
3
Build and
leverage scale
Why we think this is important
Scale provides significant advantages in the
hotel industry at the global, national and city
level. The size of the IHG System, and our
concentration on priority markets and key
gateway cities, allows us to benefit from
economies of scale, which lead to higher
margins and operating leverage. With
scale, we can invest in our brands and
the technology required to support their
continued growth, and deliver efficient
sales and marketing and procurement
practices, thereby increasing the
advantages an IHG brand brings to
owners. Scale also enables us to invest
in, and grow, new brands and take them
global, for example Hotel Indigo.
What we are doing
IHG already benefits from substantial
scale advantages. With over 710,000 rooms
open at the end of 2014, we delivered our
strongest net IHG System size growth
since 2009 of 3.4 per cent, opening over
41,000 rooms. Our brand portfolio also
reached some significant milestones in
2014 – opening the 400th Crowne Plaza
hotel, the 200th Staybridge Suites hotel
and the 60th Hotel Indigo hotel in its
10th anniversary year. Our scale has also
enabled us to commit $150 million of
investment behind the EVEN Hotels brand,
opening the first two properties in 2014.
We focus on developing our scale in 10
priority markets, where we currently have
85 per cent of our open rooms (see page 18).
Benefiting from the strong growth in these
markets, Group fee margins were up
1.5 percentage points to 44.7 per cent
in 2014 and total gross revenue was up
6 per cent to $23 billion.
For details on how we maximise the scale and
efficiency of our operations, see page 22.
How we measure it
KPIs – Guest HeartBeat, RevPAR,
Employee engagement, Total gross
revenue
How we measure it
KPIs – Net rooms supply, Fee revenues,
Total gross revenue, Fee margin
5
1
4
2
3
Strong brand
portfolio and loyalty
programme
Why we think this is important
A portfolio of strong, complementary
brands allows us to offer solutions for each
guest need, which increases cross-selling
across different brands. Combined with
a strong loyalty programme, it also
increases awareness and recognition of
the IHG brand, and of each of the individual
hotel brands, helping us to drive business.
Guests who have an increased loyalty
to IHG and its portfolio have also proven
to have a higher spend per stay. Both of
these result in higher RevPAR premiums,
thereby increasing total gross revenue
and strengthening our owner proposition.
What we are doing
Our brands are complementary across
the segments in which they operate
(midscale, upscale and luxury), catering
to different guest needs and occasions.
One of our newest brands, EVEN Hotels,
caters to an identified guest need for
maintaining wellness while travelling
and the acquisition of the Kimpton brand
has a strong strategic fit with our Hotel
Indigo and EVEN Hotels brands (see pages
20 and 21). Recognising the importance of
a strong loyalty programme, we encourage
guests to stay across the portfolio and
build lifetime relationships through the
IHG Rewards Club programme, which has
84 million members. We continue to evolve
our loyalty programme to ensure that it
is not just the largest in the market, but
also the most preferred – refreshing
and reviewing the rewards and benefits
available to increase its attractiveness to
our guests. We recognise our loyal guests
and aim to personalise their experiences.
5
1
4
2
3
Effective channel
management
5
1
4
2
3
Superior owner
proposition
Why we think this is important
As a franchisor and manager of hotels,
we aim to drive demand to our hotel brands
and reduce distribution costs for our
owners through strong brand awareness
and effective yield-management practices,
delivering better returns for our owners.
Our direct channels (digital and voice)
are less costly to owners than third-party
intermediaries. Our strong brands are
a significant driver of bookings through
indirect channels (online travel
intermediaries (OTIs) and business and
leisure travel agents). We therefore aim
to drive demand for our hotels through our
direct channels and manage revenue per
booking, thereby delivering the highest
quality revenues to IHG hotels at the
lowest possible cost, increasing RevPAR
and owner returns.
What we are doing
Our direct and indirect channels delivered
71 per cent of total rooms revenue to our
hotels in 2014. Our digital business has
significant scale and is growing fast,
accounting for $4 billion in revenue in
2014. We continue to invest in features
that enhance the digital experience,
with branded and personalised offerings
to encourage guests to book via our
direct channels.
We recognise the impact of OTIs as an
indirect booking channel, mainly used
by comparison-site shopping leisure
travellers searching for a competitive deal.
We have therefore leveraged our global
footprint to secure better terms with the
OTIs on behalf of our owners, whilst
leveraging OTIs as a complementary
distribution channel.
For details on our investment in developing
strong technology platforms, see page 22.
Why we think this is important
We recognise that hotel owners have
a choice of brand, if any, to choose for
their property. A strong owner proposition,
preferred brands and effective operational
support, play a vital part in making us the
brand choice for owners. Relationships
with new and existing owners therefore
have a significant impact on our ability
to build scale. A strong owner proposition
and relationships with our owners also
enable us to deliver the brand promise
for our guests and continue building
preferred brands.
What we are doing
We are committed to delivering a
compelling and preferred owner offer.
We continually review and enhance our
owner proposition in many ways, including:
• ensuring a profitable return on
investment for our owners, assisting
them along the lifecycle of their
investment, from identifying the right
site to operating a profitable business;
• providing a range of revenue-driving
tools and services, including booking
and distribution channels;
• seeking to price our fees to reflect
our services, tools and brand value;
• having strong owner relationship
management and working with the
IHG Owners Association (which
represents the interests of our hotel
owners globally) to deliver joint
initiatives – www.ihgplc.com/ihgowners;
• recognising the importance of
responsible business practices to all
stakeholders, and developing tools
which support both our commitment to
doing business responsibly and
delivering superior returns to our
owners (see pages 24 and 25).
How we measure it
KPIs – Total gross revenue, RevPAR,
System contribution to revenue,
Guest HeartBeat
How we measure it
How we measure it
KPIs – System contribution to revenue,
RevPAR
KPIs – All KPIs measure the strength
of our owner proposition
17
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Targeted Portfolio
Our Targeted Portfolio means we operate in the most attractive
markets for IHG and in the highest opportunity segments based
on guests’ occasion needs, with an asset-light business model –
franchising and managing hotels rather than owning them.
Key performance indicators (KPIs)
and What we have done in 2014
See pages 30 to 33
How we manage principal risks
See pages 28 and 29
Where we operate and detailed global
and regional Performance
See pages 34 to 51
Managed and franchised model (our
asset-light business model)
See pages 12 and 13
Attractive
markets
Why we think this is important
Achieving scale and driving growth
requires us to focus on those markets
that are most attractive and where there is
the best fit with our strategy and business
model. These markets have large inbound
and domestic demand for branded hotels
or show great potential to have this in
the future.
What we are doing
Whilst we operate in nearly 100 countries
and territories and continue to expand our
presence globally, we primarily focus our
efforts on 10 priority markets in which we
either have a strong existing competitive
position or have a compelling opportunity
to build one. These include a number of key
emerging and more developed markets
– US, Middle East, Germany, UK, Canada,
Greater China, India, Russia and the
Commonwealth of Independent States,
Mexico and Indonesia. These currently
represent 85 per cent of the IHG System
and 89 per cent of the pipeline. We focus
our brand building efforts and prioritise
the investment in infrastructure in these
markets, for instance, by adapting our
websites to the local language and
deploying dedicated sales teams.
Depending on the market, we will adapt
our model and proposition to owners
to take into account local market
characteristics.
The Performance section provides details
of how we have performed in each of our
regions and priority markets.
Highest
opportunity segments
Why we think this is important
Typically, the traditional hotel industry
is segmented according to price point,
and IHG is focused on the three segments
that generate over 66 per cent* of branded
hotels revenue – namely, midscale, upscale
and luxury. We believe these segments
have the highest growth opportunity
and strongest resilience to the industry/
economic cycle. However, we also recognise
that guests choose a hotel based on their
needs and the occasion, resulting in the
possibility of the same guest staying
across multiple hotel segments.
What we are doing
Our portfolio of brands is targeted
around differing occasion segments.
We tailor each of our brands to meet
guests’ needs, looking at the differing
occasion they are travelling for and
their need for travelling.
We used this segmentation analysis
to develop the brand proposition for
both the HUALUXE Hotels and Resorts
and EVEN Hotels brands (see page 20). It
was also a consideration in the acquisition
of Kimpton Hotels & Restaurants (see page
21).
How we measure it
KPIs – Guest HeartBeat, RevPAR
*Source: Smith Travel Research.
18
How we measure it
KPIs – Net rooms supply, Total gross
revenue
Holiday Inn Manhattan – Financial District, New York, US
HUALUXE Hotels and Resorts, People’s Republic of China
Our Targeted Portfolio in action:
Greater China – a priority market
In 2014, IHG celebrated our 30th anniversary of operating
in Greater China, one of our priority markets. We were the
first international hotel company to enter the country in 1984,
and we have developed a leading business in the region with
78,194 rooms open (241 hotels) and a further 54,338 rooms
(189 hotels) in our development pipeline. In 2014, Greater China
contributed 11 per cent of our Group operating profit before
central overheads and exceptional items.
We originally developed our business in China’s tier 1 cities
and along the eastern seaboard, and have more rooms today
in tier 1 cities than our major international competitors.
However, our more recent growth has focused on tier 2
and 3 cities, which are expected to generate significant
long-term demand growth and, by 2022, nearly 80 per cent
of the fast growing Chinese middle-class are expected to live
in these cities. We achieved several key milestones for our
Greater China business in 2014, for example, we:
• opened Crowne Plaza Beijing Lido with the same owner
as our first hotel in the region (Holiday Inn Beijing Lido),
demonstrating our established track record and the strength
of our owner relationships in the region;
• opened 10,648 rooms (34 hotels), our highest number of
room openings since we started our business in the region,
growing the IHG System size by 14 per cent;
• signed 15,754 rooms (64 hotels), our best year for hotel
signings since 2007; and
• opened our 50th Holiday Inn Express hotel and signed our
50th pipeline hotel, making Holiday Inn Express the largest
international limited-service brand in China.
In February 2015, we opened our first hotel for the HUALUXE
Hotels and Resorts brand in Yangjiang, slightly later than
expected. As at 31 December 2014, we had 24 hotels
(7,551 rooms) in the pipeline for the brand, which we will
continue to build.
In addition to driving growth in Greater China, we are focused
on establishing hotels that cater for Chinese guests in other
locations outside China. Our China-Ready programme ensures
we will be able to cater for the growing number of Chinese
guests around the world through cultural and food and
beverage training for hotel teams. We currently have 84 hotels
in AMEA, The Americas and Europe that have signed up for
the programme.
Crowne Plaza Beijing Lido, People’s Republic of China
19
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Our Winning Model and
Targeted Portfolio in action
EVENTM Hotels
5
1
4
2
3
Strong brand portfolio
and loyalty programme
We have been using our loyalty
programme, IHG Rewards Club, to
introduce our members to the EVEN
Hotels brand, specifically targeting
our communications at those guests
who travel to, or have expressed an
interest in, the locations of our first
hotels, wellness or the brand itself.
5
1
4
2
3
Effective channel
management
As with our other brands, we have leveraged
our existing booking platforms to create a
brand-specific webpage targeted via the
app. We have specifically customised it to
be brand specific to EVEN Hotels, focusing
on wellness needs with relevant content
and healthy lifestyle features such as
fitness videos, ambient sounds, a diary
of wellness-focused events organised by
the hotel, and ‘wellness travel tips’.
5
1
4
2
3
Superior owner
proposition
The EVEN Hotels brand allows owners
to diversify their portfolio with a new IHG
brand in a unique guest occasion segment.
IHG, through its own capital investment,
currently owns and manages the first two
open EVEN hotels. Three additional hotels
are currently in development. Owning
and operating our first hotels enables
us to showcase the brand to other
potential owners.
We announced the launch of a new hotel
brand, EVEN Hotels, in February 2012.
In June 2014, we opened our first hotels
under the brand in Norwalk, Connecticut
and in Rockville, Maryland.
Winning Model
3
5
4
2
1
Preferred brands delivered
through our people
As part of having a portfolio of preferred
brands, we continually review our portfolio
of brands in light of the evolving needs and
preferences of our guests. As part of this,
EVEN Hotels was launched in 2012
as the first wellness lifestyle hotel brand.
We developed the brand based on a large
and growing traveller need for maintaining
wellness routines while travelling. More
than two years of research into consumer
insights showed that there are 17 million
wellness-minded travellers in the US
alone who struggle to maintain healthy
eating and exercise habits, get proper
sleep and be productive when they are
travelling away from home. Therefore,
the brand was developed to meet a guest’s
holistic wellness needs in the areas of
exercise, food, work and rest. For example,
an EVEN branded hotel offers nutritious
menus and amenities, such as guest
rooms designed for in-room workouts.
5
1
4
2
3
Build and
leverage scale
IHG has committed up to $150 million
of its own capital to the development
of the EVEN brand over the next few
years. In the future, we will look to recycle
this capital, just as we did for both the
Staybridge Suites and Hotel Indigo brands.
As part of matching the brand to the right
location, we are looking at core urban
areas, dense office parks and suburban
markets as well as considering the
expansion of the brand beyond the US. As
at 31 December 2014, we had three hotels
(584 rooms) signed into our development
pipeline and two hotels (296 rooms) open.
20
“ The EVEN Hotels brand
allows owners to
diversify their portfolio
in a unique guest
occasion segment.”
Targeted Portfolio
Attractive markets
The US is one of our priority markets, and
we opened the first EVEN hotels in cities
where we have existing brand presence.
Highest opportunity segments
The EVEN Hotels brand has a strategic
fit in our brand portfolio alongside Hotel
Indigo, and now Kimpton, in the boutique
and lifestyle segment. The brand is
targeted at the unique segment of wellness
and lifestyle.
Managed and franchised
We have used our own capital to develop
the brand and will look to recycle this in
the future. We will seek to accelerate
growth for the brand through our
managed and franchising model.
EVEN Hotel Rockville, Maryland, US
Acquisition of Kimpton® Hotels & Restaurants
Our acquisition of Kimpton Hotels
& Restaurants, the world’s largest
independent boutique hotel operator,
completed in January 2015. Kimpton
is a highly successful business with
a US-based portfolio comprising
62 managed hotels (11,300 rooms)
and a further 16 hotels (3,000 rooms)
in the pipeline (as at 16 January 2015).
A sophisticated food and beverage
operator, Kimpton also runs 71 hotel-
based destination restaurants and bars.
Winning Model
5
1
4
2
3
Preferred brands delivered
through our people
The Kimpton brand is renowned for having
distinctive and innovative hotels located
in attractive urban and resort locations.
Each hotel aims to deliver a deeply
personal, genuine and authentic service
for guests and, whilst each hotel is unique,
the brand has a number of common design
and service principles and hallmarks.
The Kimpton brand caters for a broad
and varied range of guest needs.
The Lumen, A Kimpton Hotel, Dallas, Texas, US
5
1
4
2
3
Build and
leverage scale
The boutique segment, in which Kimpton
operates, is the fastest growing in our
industry over the last five years, and there
is significant opportunity for future growth
based on high levels of demand growth.
We also believe the brand has enormous
potential for growth outside the US and
plan to capitalise on our scale, powerful
distribution systems and owner networks
to support its growth globally. We did
this previously for our Hotel Indigo brand
which started with a well-established
base in the US and has now been expanded
globally to 21 countries (including hotels
in the pipeline).
3
5
4
2
1
Strong brand portfolio
and loyalty programme
The Kimpton brand has a strong strategic
fit within our existing brand portfolio at
the upper upscale price point. It is also
highly complementary with our Hotel
Indigo and EVEN Hotels brands, creating
a leading boutique and lifestyle hotel
business, with over 200 open and pipeline
hotels across 21 countries.
We plan to leverage Kimpton’s market-
leading insight and strong track record in
operational excellence, food and beverage,
and design, to add value across our brand
portfolio. Kimpton’s loyalty programme
(Kimpton Karma) members account for
25 per cent of its room bookings.
5
1
4
2
3
Effective channel
management
A large proportion of Kimpton’s business
already comes through direct channels,
driven by its most loyal guests. Each hotel
has a dedicated website with engaging
content, reflecting the boutique nature
of the brand. We will leverage our digital
platforms to accelerate Kimpton’s growth,
whilst maintaining the uniqueness of
Kimpton’s existing channels.
“ We believe the Kimpton
brand has enormous
potential for growth.”
5
1
4
2
3
Superior owner
proposition
The addition of Kimpton to IHG’s brand
portfolio offers owners another attractive
option in the boutique segment and access
to a brand with a strong track record at
the upper upscale price point. Its presence
in the most attractive markets in the US has
delivered excellent financial performance
for both the business and its hotel owners.
It also enables IHG to raise awareness
of other IHG brands among owners of
Kimpton branded hotels. Kimpton’s strong
brand, combined with our scale and booking
and distribution channels, will drive
superior returns for owners.
Targeted Portfolio
Attractive markets
The US is one of our priority markets
and Kimpton hotels currently have
presence in the most attractive urban
and resort locations, as well as the highest
RevPAR markets such as San Francisco
and New York.
Highest opportunity segments
The boutique hotel segment has been
the fastest growing in our industry over
the last five years, with demand, supply
and RevPAR growth in boutique hotels in
the US each significantly outperforming
the overall industry.
Managed and franchised
Kimpton is a fully asset-light brand,
operating hotels under management
contracts.
More information on the acquisition of
Kimpton Hotels & Restaurants can be
found at www.ihgplc.com/kimpton
21
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Disciplined Execution
We recognise that successful delivery of our strategy for high-quality
growth requires Disciplined Execution. We prioritise investment in our
technology platforms and our people as well as delivering operational
efficiencies.
Scale and efficiency
of operations
Why we think it is important
Driving efficient operational processes
and managing our costs allows us to
contribute to hotel performance through
efficient practices, tools and systems.
It also helps us strengthen our revenue
delivery systems which means an increase
in system contribution to hotel revenue,
supporting our owner proposition and
maximising our investment in building
preferred brands. Careful cost management,
leveraging our scale and focusing on
productivity improvements also allows
us to drive continued improvement in
our margin.
What we are doing
To maximise the scale and efficiency of our
operations, we:
• focus on spending in a way which
enables further investment in our
strategic priorities. Our procurement
team has tools and processes which
allow us to monitor and control spend
and use our scale to deliver buying
advantage. Our focus on cost efficiency
and continuous improvement ensures
we deploy our resources effectively,
concentrating on the key priorities
and activities that drive our business;
• introduced a new human resources
system to streamline and improve the
automation of our human resources
processes in 2014 – see page 32; and
• continue to benefit from off-shoring
our Business Service Centre in Gurgaon,
India. This provides centralised
accounting services for IHG corporate
offices, and owned and managed hotels.
How we measure it
KPI – Fee margins
See page 32 for the KPI and
What we have done in 2014
22
Investment in developing strong technology platforms
Why we think it is important
As identified on page 11, technology, as used
by travellers, is playing an increasingly
important role in shaping the travel industry.
The internet, which is now more than ever
accessed through mobile devices, is used
extensively to research, plan and book
travel. In emerging markets, consumers are
going straight to mobile devices, and there
are now twice as many mobile internet
users in China than internet users in the US.
Guests are also seeking greater levels of
personalisation, and are sharing their
experiences instantly via social media.
We believe that keeping abreast of the
evolving traveller trends and investing in
technology systems will assist us in building
brand preference, strengthen our loyalty
programme and deliver compelling and
engaging digital content across the ‘Guest
Journey’ (which comprises five steps –
Dream, Plan, Book, Stay and Share), thereby
enabling us to build lifetime relationships
with our guests.
What we are doing
To deliver the highest quality digital content
for our guests, we are ensuring that we have
the right technology foundations and
infrastructure in place. In 2014, we:
• standardised on property hardware
for all IHG hotels in the US, providing
a consistent platform that allows us
to develop solutions such as Mobile
Check-in and Check-out (now available
in over 500 hotels);
• piloted enhanced customer relationship
management capability that allows us to
utilise our IHG Rewards Club members’
profiles to drive personalisation and
guest recognition in our hotels;
• implemented new digital marketing
capabilities that allow us to target
potential guests more effectively
through the internet; and
• announced our strategic partnership
with Amadeus, the leading provider of
advanced technology solutions for the
global travel industry, to explore
technology solutions.
Improving our technology infrastructure
gives us the foundation to transform
the guest experience and make it more
interactive through digital content. In 2014,
we:
• increased mobile bookings by 50 per cent
to $900 million and downloads of the IHG
app grew by 80 per cent;
• made numerous improvements to our
award-winning mobile app, including the
launch of IHG translator, a learning tool
which engages our guests and drives
greater interaction; and
• created benefits for our IHG Rewards
Club members, including multi-brand
campaigns that include over one million
automatically tailored offers generated
using specific insights from each guest’s
profile and stay history – $360 million in
revenue was generated by the 2014 ‘Big
Win’ IHG Rewards Club promotion.
How we measure it
KPI – System contribution to delivery
See page 30 for the KPI and
What we have done in 2014
InterContinental Sydney Double Bay, Australia
Our Winning Ways
The set of behaviours that define how we interact with our guests and colleagues
Do the
right thing
Show we care
Aim higher
Celebrate
difference
Work better
together
For further information on the below, see our Responsible Business Report.
Investment in developing great talent
Why we think it is important
Our people bring our brands to life on
a daily basis, delivering on each individual
brand promise to enhance the guest
experience. They are, therefore, a critical
part of our success. Accordingly, we
recognise the importance of attracting,
retaining and developing the very best
talent in the industry to service our
guests and bring our brands to life.
What we are doing
To achieve this, the four pillars of our
people strategy have consistently been:
1. To develop a BrandHearted culture
Each of our brands delivers a differentiated
guest experience dependent upon the
brand’s strategy. This is delivered by our
people who place brands at the centre
of this helping to drive guest satisfaction
and brand preference, which we measure
through Guest HeartBeat – a KPI.
2. To make IHG a great place to work
Building a strong employer brand assists
us in attracting the best possible talent
to meet our strategic objectives:
• we ask our people to live our Winning
Ways (set out above) and act in a
responsible way – see pages 24 and
25 for how acting responsibly is part
of our culture; and
• we offer our people our Room to be
yourself commitment, which is brought
to life by four promises:
– Room to have a great start: This
assists us in recruiting the right
people for each brand and role.
New recruits are offered a structured
orientation programme to provide
them with an understanding of IHG’s
strategy and values.
– Room to be involved: We communicate
with employees on matters relating
to the Group’s business and
performance and share information
on people, policies and news across
IHG through various channels,
including conferences, team meetings
and our intranet site. We encourage
employees to give regular feedback
to ensure IHG meets expectations and
delivers on its commitments – this is
formally done twice a year through
the Employee Engagement survey,
the results of which are a KPI.
– Room to grow: Our people are given
access to the required support,
experience and training and provided
with development opportunities.
– Room for you: We recognise
achievements and communicate
these throughout our business.
3. To deliver world-class People Tools
to our owners and hotels
Our People Tools are industry-leading
best practices tailored specifically for
our brands, and assist hotel management
and human resources teams to hire, train,
involve and recognise our colleagues. By
working to increase employee retention
and performance, guest satisfaction and
drive efficiencies, they help increase
revenue for our owners (helping us with
our owner proposition).
4. Building a strong leadership
and performance culture
We have established a ‘winning culture’
at IHG, this starts with building a strong
leadership from the top – see pages 57
to 69 for our Board and Executive
Committee leadership.
For alignment of our performance culture
with our strategic priorities and KPIs in our
corporate offices for our senior executives,
– see the Directors’ Remuneration Report
on pages 76 to 91.
Diversity and inclusion
Who are our employees?
Having a predominantly managed and
franchised estate means that not all of
those people who work at our hotels are
our employees. When the Group’s entire
estate is taken into account (including
those working in our franchised and
managed hotels), over 350,000 people
worked globally across IHG’s brands as
at 31 December 2014.
IHG employed the following as at
31 December 2014:
• 7,797 people worldwide (including
those in our corporate offices, central
reservations offices and owned hotels
(excluding those in a category below)),
whose costs were borne by the Group;
• 4,975 people who worked directly on
behalf of the System Fund and whose
costs were borne by the System Fund;
• 602 General Managers who work in
our managed hotels and whose costs
were borne by those hotels; and
• 11,848 other hotel workers who
work in our managed hotels, who
have contracts or letters of service
with IHG and whose costs were borne
by those hotels.
See pages 120 and 152 for more information.
How we measure it
KPIs – Employee engagement, Guest
HeartBeat
See pages 31 and 32 for KPIs and
What we have done in 2014
As a global organisation operating in nearly 100 countries 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. As at 31 December 2014:
• 5 of the 13 Directors on the Board were female (38%);
• 32 out of 127 of the senior managers employed by the Group (including directors
of subsidiaries) were female (25%); and
• 7,069 out of the 12,772 employed by the Group and whose costs were borne by the
Group or the System Fund were female (55%).
See page 62 for further information on our approach to diversity (including our diversity
policies) from the Board level and throughout the organisation.
23
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Doing business responsibly
A commitment to responsible business practices underpins our entire
strategy and the way we work. We recognise the importance it has for all
of our stakeholders in making IHG and its brands their preferred choice.
Why we think it is important
We believe that by ensuring our business
is committed to responsible business
practices we will enhance and protect
the reputation of IHG and our brands. It
provides us with the opportunity to protect
the environment, create job opportunities,
improve community resilience and make
us more innovative. Doing the right thing
in the right way enables us to make an
even greater contribution to the locations
where we operate. It also ensures we
act in a manner that benefits all of our
stakeholders, including employees,
guests, corporate customers, owners and
the local community, who are increasingly
considering whether the businesses with
which they interact share their values.
This provides us with a competitive edge,
assisting us to deliver profitable growth
and create shared value for all stakeholders
in the long term.
How we measure it and
What we have done in 2014
KPIs – Employee engagement and all
those KPIs set out on page 33
Our commitment to responsible
business underpins our whole strategy
and contributes to our success across
all areas.
See pages 32 and 33 for progress
against our KPIs.
Five-year corporate responsibility targets
These were released in September 2013,
and are centred on measuring our impact
on the environment and community
(at both global and local level) and
demonstrating our commitment to doing
business responsibly and creating shared
value for IHG and its stakeholders:
• some of these are KPIs; and
• the progress against others
can be found in our Responsible
Business Report.
Further information, including
our Responsible Business Report,
can be found at
www.ihgplc.com/responsiblebusiness
24
What we are doing
Our commitment to responsible business
is part of our culture. Our responsible
business practices include:
Governance and leadership
Our Chairman, the Board and its
Committees provide a strong leadership
and governance structure. They promote
responsible business behaviour by
maintaining high standards of corporate
governance, internal controls and risk
management and compliance with
relevant laws and regulations.
For information on our Board and governance
processes, see pages 54 to 91.
Commitment to responsible business
practices
We have a reputation for delivering a
consistent and superior guest experience,
we provide a safe and secure environment
and we actively engage with our
communities. Our brands are valuable
assets and doing business responsibly
enhances their reputation and builds
trust and brand preference.
Responsible procurement
Our Vendor Code of Conduct sets out
standards to which we require our
supply chain partners to operate. We are
committed to promoting diversity across
our responsible procurement agenda
and have set targets to ensure corporate
responsibility criteria are integrated into
the selection and evaluation process
for preferred suppliers.
Health, safety and security
A safe and secure environment for our
guests, employees and those working at
or visiting our hotels and corporate offices
is important. IHG has therefore established
a set of policies, procedures and measures,
and complies with relevant legislation. We
ensure the protection and well-being of
those working for IHG through suitable
work-based strategies, minimise the risk
of injury from work activity, ensure that
sufficient information is provided and
systems are in place to address health and
safety concerns, and involve employees in
the continuous improvement, reporting and
review of health and safety matters.
Risk management
We have in place an effective system of
internal controls and risk management
to identify, assess, prioritise and mitigate
risks to our business, guests and
employees, which enables us to achieve
our shared objectives. This is an essential
part of being a responsible business.
For information on our risk management
practices and systems of internal controls,
see pages 26 to 29.
People
Being a responsible business cannot be
achieved without the support and active
engagement of our people. They are
fundamental to ensuring we operate an
ethical business. Our Winning Ways (see
page 23) are a set of behaviours that we
internally promote to assist with how we
interact with our guests and colleagues.
As part of acting responsibly and putting in
place a responsible business ethos, we have
policies and training in place to ensure our
people are kept aware of and understand
the key legal and regulatory areas affecting
them in their roles, such as competition,
anti-bribery and data privacy laws and
procedures, crisis management and brand
safety standards. We do this through a
range of programmes, policies and training,
which we regularly keep under review and
which are communicated via e-learning
and face-to-face training modules.
Our Code of Conduct consolidates and
clarifies expected standards of behaviour
and communicates the ethical values of
the Group. It is applicable to all Directors,
officers and employees and is available
at www.ihgplc.com/investors under
corporate governance.
We also have a confidential disclosure
channel to provide employees with a
means to report any ethical concerns
they may have.
For information on our investment in
developing our talent and who are our
employees, see page 23.
IHG Academy – Holiday Inn Express Stoke On Trent, UK
Human rights
We focus on those areas of human rights
most relevant to our business, ensuring
the rights of the local people where we
operate are protected. We are working
to raise further awareness of our human
rights approach in our hotels through
embedding it as a brand standard, and will
continue to develop our training materials.
We are a signatory to the UN Global
Compact, aligning our operations and
strategies with the 10 universal principles
that include commitments to human rights
and labour standards. We are part of the
Business in the Community cross industry
working group on human rights as well as
the International Tourism Partnership’s
Human Trafficking Working Group. We
are also working with our internal
procurement team to embed further our
human rights approach into our contract s .
Corporate responsibility
Our global scale provides us with an
opportunity to make a positive impact
on the environment and communities in
which we operate. Our five-year corporate
responsibility targets, released in
September 2013, focus on measuring
this impact.
Each one of our hotels is a central part
of its community, from creating jobs and
stimulating local economic opportunities,
to managing their environmental impact in
a responsible way and providing shelter in
times of need. We work to develop new and
better ways to assist owners to build and
operate IHG branded hotels, creating
sustainable value for our brands, business
and stakeholders, as well as addressing
social and environmental challenges. Our
three bespoke corporate responsibility
programmes are a key part of this and we
work very closely with our owners and
colleagues to maximise the positive impact
of these initiatives:
• IHG Green EngageTM system: Helps us
minimise our impact on the environment
by tracking and managing the use of
energy, carbon and water and waste in
our hotels. This assists us in delivering
both more environmentally sustainable
hotels and cost efficiencies for owners.
• IHG® Academy: A collaboration between
our hotels and local schools, colleges
and community organisations to help
people develop the skills they need to
improve their employability and secure
a job in the hotel industry.
• IHG® Shelter in a Storm: Empowers
our hotels to support guests, colleagues
and local communities in times of
disaster with financial support, vital
supplies and accommodation.
IHG’s global greenhouse gas (GHG) emissions
By delivering more environmentally sustainable hotels, we can drive cost efficiencies
for owners as well as meet the expectations of all our stakeholders. We recognise the
importance of reducing our global greenhouse gas emissions for corporate offices and
hotels – our target is to reduce our carbon footprint per occupied room by 12% across our
entire estate by 2017 (against a 2012 baseline). See page 33 for progress.
Reporting boundary
Measure
20141
20131
Global –corporate
offices and managed,
franchised, owned
and leased hotels2
(a KPI and part of our
five-year targets)
Global – corporate
offices and managed,
owned and leased
hotels2 (as required
under the Companies
Act 2006)
Scope 1 Direct emissions
1,365,883
1,280,973
Scope 2 Indirect emissions
3,792,771
3,683,737
Total GHG emissions (tCO2e)
5,158,654
4,964,710
IHG’s chosen intensity measurement
GHG emissions per occupied room
(kgCO2e per occupied room)
32.3
33.4
Scope 1 Direct emissions
496,316
486,086
Scope 2 Indirect emissions
1,921,077
1,847,304
Total GHG emissions (tCO2e)
2,417,393
2,333,390
IHG’s chosen intensity measurement
GHG emissions per occupied room
(kgCO2e per occupied room)
59.2
62.2
1 Reporting period commencing on 1 October and ending on 30 September – due to the delay in hotels
receiving their energy bills it is not possible to report accurately GHG emissions from 1 January to
31 December.
2 Includes all of our branded hotels but does not include emissions from 88 hotels. We do not have
sufficient data to estimate their emissions and believe them to be immaterial.
Scope
We report Scope 1 and 2 emissions as
defined by the GHG protocol as follows:
• Scope 1 (Direct emissions): combustion
of fuel and operation of facilities; and
• Scope 2 (Indirect emissions):
electricity, heat, steam and cooling
purchased for own use.
Methodology
We have worked with external
consultants to give us an up-to-date
picture of IHG’s carbon footprint and
assess the performance over the past
few years. The external consultants use a
sampling and extrapolation methodology
to estimate our GHG emissions.
For 2014, in line with the methodology
set out in the GHG Protocol Corporate
Standard, the sample covered 1,402
of our 4,840 hotels. As IHG System size
is continually changing and the hotels
reporting data to the IHG Green Engage
system increases annually, we are
restating the impacts for all years from
the baseline year 2012 annually to enable
comparisons to be made.
25
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Risk management
IHG believes that an essential part of being a responsible business
is having in place robust and effective risk management and internal
controls. This supports our business to be resilient, successful
and trusted.
Risk
1st Line
Operations and hotels
Day-to-day activities that identify and manage risks
• Regional Operations, Hotel Executive Committees
• Policies, processes, systems, controls and training
2nd Line
Functional specialists
• Global Sales and Marketing, Global Technology, Global
Finance, Global Human Resources and Business Reputation
and Responsibility
• Risk identification, assessment, mitigation and monitoring
3rd Line
Independent assurance
• Internal Audit
• External Audit
IHG’s approach to risk management
The Board is ultimately accountable for risk management
across the organisation. It is supported by the Audit Committee,
the Executive Committee and other delegated committees who
collectively set the tone and appetite for risk management at IHG.
This is cascaded down to the day-to-day activities of IHG corporate
offices and hotels through well-established and continuously
improving policies, processes, systems and controls which set
out clear accountability, and are supported by tools, training
and communication to ensure risks are effectively managed.
Risks are further identified, assessed, mitigated and monitored
by functional specialists and, where deemed necessary,
periodically reviewed by internal and external auditors. These
activities are typically grouped into ‘Three Lines of Defence’
as shown on the right. IHG’s Global Risk Management team
provide subject matter expertise, leadership and support
across all these activities.
Embedded risk management processes
IHG has in place a Major Risk Review process to:
• enable the business to identify, assess, manage and monitor
the principal risks and uncertainties affecting the Group
(the Major Risks); and
• support the Executive Committee, Audit Committee and the
Board to monitor, review and reflect upon the progress of risk
management activities across the portfolio of Major Risks on
a biannual basis.
The Major Risks align closely with our strategy and business
priorities, and also identify those issues which are most likely to
significantly affect other operational, commercial or reputational
matters and, as such, are regularly discussed at senior leadership
team and committee meetings.
Our Risk Working Group (RWG) ensures there is sufficient focus
and effective management of the Major Risks, and seeks to
improve cross-functional working and effective risk management
of the highest priority and emerging risks affecting IHG. The RWG
is chaired by the General Counsel and Company Secretary and
comprises the heads of Global Risk Management, Global Strategy,
Programme Office and Global Internal Audit.
Underpinning the Group’s Major Risk Review process, each
of the regions and functions have their own risk profiles that
are updated quarterly in line with the activities of the strategic
planning cycle. During the interim periods, continuous dialogue
takes place between risk owners and risk subject-matter experts
to develop, execute and monitor detailed risk assessments, risk
mitigation strategies, controls and key risk indicators.
26
Holistic approach to risk assessment
IHG conducts risk assessments to identify, prioritise and inform decisions on risk mitigation. Risks are first assessed from an inherent
or gross risk perspective (unmitigated risk). Then, internal controls and mitigation activities are identified and developed resulting in
a residual or net risk assessment (mitigated risk, net of controls). This is informed by the performance monitoring of internal key risk
indicators, which provide objective evidence as to how effectively the risk is being managed. IHG and its Board think broadly and
holistically about potential risks to the business, across the following categories:
Risk
What are these?
Who manages them?
Strategic
Risks arising from IHG’s relationship with the external
environment that can impact on IHG’s ambition and
strategy over the long term.
• Leadership is provided by the Board, the Executive
Committee, the Regional Operating Committees
and functional leadership teams.
Include major market and environmental changes or
events that could impact our reputation across key
stakeholder groups.
Tactical
Risks that could impact the delivery of IHG’s one to
three-year commitments.
Operational
Include, but are not limited to, factors influencing IHG’s
ability to sign and open new hotels, the performance
of existing hotels and the delivery of projects that align
with strategic planning processes.
Risks which include a wide spectrum of day-to-day risks
that frontline hotel colleagues and corporate teams face
when dealing with guests or ensuring corporate systems
and processes are running smoothly.
Include, but are not limited to, those managing the safety
and security of our people and assets, the continuity of
the business, third-party service providers and the wider
supply chain.
• Expertise, co-ordination and oversight is provided
by Global Strategy in conjunction with Global Risk
Management to drive IHG’s leadership to make
decisions around its portfolio of brands, key markets,
business model and approach to ethics and other
reputational matters.
• Performance and delivery risks are managed by
senior leaders and reported to the Regional Operating
Committees and functional leadership teams.
• Project risks are managed by project management
teams with oversight provided by our internal
Programme Office and supported by Global
Risk Management.
• Operational risks are managed by frontline hotel
colleagues.
• Oversight is provided, in the context of the managed
and franchised business models, by specialist
functional teams, with leadership provided by the
Regional Operating Committees.
• Due to the nature of operational risks, IHG
typically mitigates these through policies,
operational and business processes and other
internal controls supported by systems, tools and
training. Subject-matter expertise, leadership and
co-ordination is provided by Global Risk Management
and functional specialists.
27
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Risk management continued
Managing risks in a changing environment
We continue to experience an increasingly risk aware and dynamic external risk environment with changes in political, economic, social,
technological, legal and environmental risks. However, the Group’s asset-light business model, diversity of brand portfolio and wide
geographical spread contribute to IHG’s resilience to events that could affect specific hotels or local areas.
The table below sets out the principal risks and uncertainties (the Major Risks) in the context of delivering against our strategy for
high-quality growth (as described on pages 14 to 25). Whilst the external risk environment is increasingly volatile, uncertain and
competitive, this is offset by our decision-making and strengthening risk culture, and efforts to continuously improve controls and
mitigation actions (some of which is summarised below). These Major Risks align to our strategic priorities and are therefore proactively
managed and monitored by senior management. They complement the wider comprehensive risk factors set out on pages 162 to 165.
Risk description
Controls and mitigations
Preferred brands
Having a portfolio of brands with a clear,
distinct brand proposition aimed at meeting
increasingly personalised guest needs and the
occasions they are travelling for, and delivering
a consistent experience, is crucial to creating
brand preference, loyalty and advocacy.
Failure to achieve this could impact on IHG’s
competitive position and our reputation with
guests, owners and investors.
WM TP
• Each of the brands in our portfolio of brands is designed to meet specific guest needs
and occasions through distinct and complementary brand propositions (see pages 4, 5
and 18). Our recent acquisition of Kimpton Hotels & Restaurants adds to the strength of
our portfolio and, together with EVEN and Hotel Indigo, enhances our boutique and
lifestyle business (see pages 20 and 21).
• We will continue to deliver on the growth of the Kimpton brand, running it as a standalone
business to preserve its uniqueness.
• We continually review ways to increase awareness and loyalty towards our brands
through our loyalty programme, IHG Rewards Club, as well as a blend of global and local
marketing promotions, sponsorships and brand initiatives to create synergies across the
brand portfolio.
• We manage brand consistency through the entire hotel life cycle supported by clear
contractual terms, new hotel opening processes, brand standard requirements and
compliance processes. This is supported by tools, training and guidance to assist
those working at our hotels and owners to enable them to deliver brand consistency.
Leadership and talent
IHG must recruit and retain the right people
and give them the tools, guidance and support
to be successful in order to deliver a preferred
brand promise. Recruiting and retaining
people to work in its hotels, especially in
rapidly growing emerging markets, is a
particular challenge and ensuring we
have the right leadership is crucial.
Failure to manage these could impact on IHG’s
service delivery and IHG’s brands, result in
increased cost of recruitment and have a
broader impact on performance and delivery.
WM DE RB
• We have in place a comprehensive global people strategy (see page 23) to ensure we
are able to recruit, retain and develop talent at our hotels, corporate offices and central
reservations offices. This includes our Room to be yourself commitment underpinned
by a set of globally consistent policies, guidance, systems and tools, with localisation
where appropriate.
• Supplementing the global strategy, we have developed local people strategies for some
of our priority markets to ensure we are best placed to be the employer of choice in these
markets. These strategies make necessary adjustments to meet local languages, laws,
customs and cultural nuances and to effectively leverage local recruitment channels.
• IHG Academy assists us to fill our talent pipeline whilst supporting the local communities
(see page 25).
• Our leadership framework, support tools, and training and development programmes
help our people grow their careers, thereby managing internal talent. We proactively
manage and monitor succession planning at all levels. We consider the diversity (more
broadly than gender) of our people and leadership, reviewing it in light of our guests and
the local communities in which we operate (see page 62).
How each Major Risk links to our strategic
priorities (described on pages 16 to 25)
WM
Winning Model
TP
DE
Targeted Portfolio
Disciplined Execution
RB
Responsible Business
28
Risk description
Controls and mitigations
Channel management and technology
platforms
Booking and distribution channels and
technological systems are a key part of
delivering across the ‘Guest Journey’ and
an important value driver for our owners.
This is also an area where there is rapid
change in terms of technology, guest
expectations and relationships, with online
travel intermediaries and travel agents
impacting guests booking direct.
Threats to information security, from
payment card information and other
information held in IT systems, paper format
and other formats, is a growing concern
which could impact our operations, result
in fines and other incremental costs,
and undermine stakeholder trust in
our business.
Failure to effectively manage and keep
under review our channels and information
technology infrastructure to optimise
performance and resilience could impact
on IHG’s revenue delivery systems, guest
experience, return for our owners and
investors, and IHG’s future performance.
WM DE RB
Owner proposition
As a result of IHG’s predominantly
franchised and managed business model
and the increasingly competitive market
for deals, maintaining strong relationships
with owners, having a compelling value
proposition, and demonstrating attractive
returns on investment for our existing, new
and potential owners is critical to sustaining
IHG’s growth.
Failure to manage the owner proposition
may result in the poor retention of hotels,
and impact on IHG’s System size and
development pipeline.
WM TP DE RB
Reputation and brand protection
IHG recognises the importance of its
brands and reputation as important assets
for the business. Societal and legal changes
are increasingly holding organisations
accountable for activities associated with
their extended enterprise. With digital
technology, news and the media, including
social media, heighten the need for IHG, all
those working in our hotels and corporate
offices, owners and business partners to
behave responsibly. Reputation is a complex
matter that involves all areas of business.
Failure to safeguard the reputation of IHG
and our brands could have a severe impact
on the Group’s future performance.
WM RB
• We recognise that technological advances and changing guest expectations mean
that we must continually invest in, and improve, our technological systems (see page 22)
to deliver across the ‘Guest Journey’ to build lifetime relationships with our guests. Our
focus is on encouraging guests to use direct booking channels. However, recognising that
some travellers use online travel agencies and intermediaries, IHG seeks to secure better
terms with them on behalf of our owners.
• Our Global Technology function works collaboratively with specialist third-party
technology partners to continuously monitor, manage and optimise our systems and
channels, including their resilience through backup systems and business continuity
practices, to enhance all aspects of the ‘Guest Journey’.
• Operating in nearly 100 countries and territories, IHG takes information security
very seriously and has applied risk-based methods to build capability and resilience
into our systems and processes. We manage data security to contain the risk
and reduce the Group’s exposure, tightly controlling sensitive data through limited
and monitored access.
• We continue 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.
• IHG’s regional teams build relationships with owners through a variety of methods,
including formal and informal communications and owner conferences. We continually
review and update our central support tools and systems, to offer a compelling owner
proposition (see page 17).
• IHG works closely with the IHG Owners Association, to ensure we have an understanding
and insight into owners’ perspectives, particularly with respect to new programmes and
initiatives (see www.ihgplc.com/ihgowners for a message from the 2014 Chairman of the
IHG Owners Association).
• The System Fund (described on page 49) is managed by IHG for the benefit of all our
hotels with the objective of driving revenue for them, and its use is reviewed annually
in collaboration with the IHG Owners Association.
• Long-term franchise and management contracts, owner due diligence, new hotel opening
teams and processes, Hotel Solutions (our internal online portal which provides tools
and guidance to hotels across a number of operational areas) and the wider corporate
infrastructure are put in place to leverage scale, support our hotels and maintain
relationships with owners throughout the life cycle of the hotel.
• Our commitment to responsible business underpins our strategy and is embedded
in our culture throughout the organisation (see pages 24 and 25).
• We have in place a comprehensive set of internal policies, processes and other internal
controls supported by tools, training, monitoring and reporting.
• Leadership in this area is provided by IHG’s Business Reputation and Responsibility function
comprising lawyers, brand standard compliance managers, chartered secretaries, corporate
responsibility specialists, risk managers and internal auditors who work together with the rest
of the business to champion and protect the trusted reputation of IHG and our brands.
• Our proactive risk-based approach to safety and security, intellectual property, regulatory
compliance, litigation, crisis management and human rights are examples of the activities
in place to manage reputational risk.
29
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Key performance indicators (KPIs)
We measure our performance through a set of carefully selected KPIs
which monitor our success in achieving our strategy and the progress
of our Group to deliver high-quality growth. The KPIs are organised
around the framework of our strategy – our Winning Model and
Targeted Portfolio, underpinned by Disciplined Execution and Doing
Business Responsibly.
Winning Model and Targeted Portfolio
KPIs
2014 progress
2015 priorities
Net rooms supply1,2
In line with our 2014 priorities, in relation to:
• growth, particularly in priority markets (as at 31 December 2014):
- IHG System size – 710,295 rooms (4,840 hotels), reflecting 3.4%
net IHG System size growth in 2014, the strongest since 2009;
- 610,274 rooms (4,351 hotels) of the IHG System are in our priority
markets – 85%;
- IHG’s pipeline – 193,772 rooms (1,221 hotels), with 2014 having
the highest signings in six years; and
- 173,252 rooms (1,117 hotels) of our pipeline are in our priority markets
– 89%.
• supporting the growth of the HUALUXE Hotels and Resorts and EVEN
Hotels brands, we:
- opened our first 2 EVEN hotels in 2014 (see page 20) and, in February
2015, the first HUALUXE hotel (see page 19); and
- had 3 EVEN hotels (one of which is owned) and 24 HUALUXE hotels in
the pipeline (as at 31 December 2014).
Continue to accelerate
growth strategies in priority
markets, and key locations
in agreed scale markets,
and continue to leverage
scale.
Continue to support the
growth of the EVEN and
HUALUXE brands.
Drive growth of the Kimpton
brand in the US and create
the foundation to establish
the brand globally.
In line with our 2014 priorities, in relation to:
• continuing to drive loyalty to our portfolio of brands and driving awareness
of IHG Rewards Club, we:
- enrolled 7m new IHG Rewards Club members (up 9% on 2013), taking
the total to 84m members;
- continued to win awards including the ‘Best Hotel Rewards Programme in
the World’ by Global Traveler magazine (see www.ihgplc.com/ourbrands);
- extended free internet access for all IHG Rewards Club members
across our hotels globally;
- launched the first global promotion by IHG Rewards Club, ‘Big Win’, aimed
at encouraging members to stay at more hotels within IHG’s portfolio; and
- enhanced our ancillary programmes such as Business Rewards,
Dining Rewards and co-branded credit cards to extend our relationship
with guests.
• continuing with investment in technology systems and platforms:
- we launched Mobile Check-in and Check-out at more than 500 hotels; and
- see page 22 for further initiatives undertaken in 2014.
• continuing to strengthen our revenue delivery, we delivered 71% system
contribution to revenue, including $4bn of digital revenues with 50%
growth in mobile bookings to over $900m.
• continuing to drive the adoption and impact of our performance tools,
systems and processes amongst our owners – there was an increase of
over 20% in the adoption of Revenue Management for Hire.
Continue to drive
adoption and impact
of our performance tools,
systems and processes
amongst our owners.
Continue to enhance
the functionality and
performance of our direct
channels to make these
the preferred way to book.
Drive preference for IHG
Rewards Club and leverage
this to build deeper, lifetime
relationships with our
guests.
Continue with investment
in technology systems
and platforms and embed
leading-edge digital
technology and enhanced
capabilities.
2014
2013
2012
710,295
686,873
675,982
Net total number of IHG
rooms in the IHG System.
Growth in fee revenues1,2
2014
2013
2012
4.3%
6.7%
6.8%
At constant currency
Group revenue excluding
revenue from owned and
leased hotels, managed
leases and significant
liquidated damages.
Total gross revenue from
hotels in IHG’s System
2014
2013
2012
Actual $bn
$22.8bn
$21.6bn
$21.2bn
Total rooms revenue from
franchised hotels and total
hotel revenue from managed,
owned and leased hotels. It is
not revenue attributable to
IHG, as it is derived from
hotels owned by third parties.
It is an indicator of the scale
and reach of IHG’s brands.
System contribution to
revenue1,2
2014
2013
2012
71%
69%
69%
The per cent of room revenue
delivered through IHG’s
direct and indirect systems
and channels.
30
Link between KPIs and Directors’ remuneration
Explanation as to how 2015 priorities have evolved
from 2014 priorities:
KPIs which could have an impact on the performance measures
for remuneration plans:
Same priority as 2014
1 Annual incentive plan (Annual Performance Plan)
2 Long-term incentive plan (Long Term Incentive Plan)
For more information see Directors’ Remuneration Report
pages 76 to 91.
Specific progress made in 2014 against 2014 priority, the
priority has accordingly been updated for 2015
New priority for 2015 in line with changes to our business
KPIs
2014 progress
2015 priorities
Strengthen frontline
training and capabilities
to consistently deliver great
guest experiences that build
brand preference.
Continue to strengthen
the quality and consistency
of the brand experience,
delivering guest journeys
that are differentiated
by brand and building
long-term brand preference
across our brands.
Embed refreshed brand
standards across our
brands.
Continue to operate the
Kimpton brand successfully
as part of the IHG portfolio.
Global RevPAR growth1,2
In line with our 2014 priorities, in relation to:
2014
2013
2012
6.1%
3.8%
5.2%
Comparable hotels,
at constant currency
Revenue per available room:
Rooms revenue divided by
the number of room nights
that are available (can be
mathematically derived from
occupancy rate multiplied
by average daily rate).
Guest HeartBeat1
2014
2013
2012
83.83%
82.91%
82.36%
IHG’s guest satisfaction
measurement tool to
measure brand preference
and guest satisfaction.
• strengthening the quality and consistency of the brand experience,
delivering guest journeys that are differentiated by brands, we:
- clarified each of the brand propositions (see pages 4, 5 and 16);
- recorded improvements in guest satisfaction scores in every region
for our brands, leading to a global Guest HeartBeat score of 83.83%; and
- received external recognition for our brands and hotels through
winning over 300 global, regional and hotel level awards – see
www.ihgplc.com/ourbrands.
• continuing to progress with our standards refresh across the brands,
we launched the Holiday Inn Express, Holiday Inn, EVEN, Crowne Plaza
and InterContinental standards manuals online.
• supporting the openings of the first EVEN and HUALUXE hotels (see pages
19 and 20).
• continuing to invest in building long-term brand preference across
our brands in line with segmentation by guest needs and occasions:
- for the Crowne Plaza Hotels & Resorts brand, we introduced a new,
innovatively designed guest room focused on meeting the changing
needs of today’s modern business traveller;
- for the InterContinental Hotel & Resorts brand, we rolled out the new
signature InterContinental Planet Trekkers menu, created exclusively
for children, across our properties;
- to deliver the Holiday Inn brand experience, we continued to roll out the
‘Open Lobby’ concept across the brand, having opened five in the UK;
- we further delivered on meeting guests’ changing needs by introducing
a new Holiday Inn Express prototype design, which was co-created with
hotel owners and through guest insights; and
- we acquired Kimpton Hotels & Restaurants in January 2015 (see page 21).
• empowering our frontline teams with the tools and training to consistently
deliver great guest experiences that build brand preference:
- 2,000 hotel General Managers globally have participated in our Journey
to Brand Manager programme; and
- we embedded the IHG General Manager Programme for new hotel
General Managers, with nearly 1,200 hotel General Managers having
participated.
Our regional priorities and progress in each of the regions are set out
on pages 37, 40, 43 and 46.
31
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Key performance indicators (KPIs)
continued
Disciplined Execution
KPIs
Fee margins1
2014
2013
2012
44.7%
43.2%
41.9%*
* Restated for IAS19R
‘Employee Benefits’
Operating profit as a
percentage of revenue,
excluding revenue and
operating profit from owned
and leased hotels, managed
leases and significant
liquidated damages.
Employee Engagement
survey scores1
2014
2013
2012
84.7%
81.7%
78.6%
Average of a twice-yearly
employee engagement
survey, completed by
employees and those who
work in our managed hotels
(excluding our joint ventures).
2014 progress
2015 priorities
• In line with our 2014 priority to continue to focus on sustainable fee margin
progression over the medium term, we delivered Group fee margins of
44.7%, up 1.5 percentage points on 2013, benefiting from slightly higher
than usual strong growth in our scale markets.
Continue to focus on
sustainable fee margin
progression over the
medium term.
• Through leveraging our scale and focusing on productivity improvements,
we intend to continue growing fee margins over the medium term.
However, we will balance this with investing behind critical business
capabilities to maximise top-line growth as well.
Continue to focus on
developing our ‘winning
culture’ through our
leaders, in particular on
how we build a higher level
of feedback and coaching
to drive performance.
Review our learning
practices across our
corporate and hotel
operations to shape the way
we leverage learning over
the next five years in line
with business priorities.
Review how we develop
and retain talent and use
our new human resources
system to deliver better
talent analytics and insight.
In line with our 2014 priorities, in relation to:
• delivering our people strategy (see page 23), we increased our Employee
Engagement survey score by 3 percentage points on 2013 and we continue
to be recognised externally as an employer of choice – see page 9 and
www.ihgplc.com/aboutus under our awards.
• strengthening our approach to developing leaders and investing in tools
and training that build leadership capabilities we:
- launched new global leadership development programmes;
- increased leadership succession through new appointments and
internal promotions at senior levels and internal organisational
changes in line with business priorities; and
- improved our human resources systems and services through the
introduction of a single system creating a streamlined, globally
consistent approach to how we manage our people globally.
• continuing to build a ‘winning culture’ (a high performing culture) through
strong leadership and performance management, we:
- introduced a new approach to performance management driving closer
alignment of our global objectives, with stronger team collaboration and
a simpler connection between achievement and reward;
- rolled out a global metrics approach which requires each area of the
business to align to their highest priorities; and
- built a ‘winning culture’ champions network from our senior leadership
population, to shape and deliver this approach globally.
• improving the leadership capability of our frontline managers and
supervisors, we launched a new frontline manager and a supervisor
programme aimed at building critical skills to drive performance within
our hotels.
Responsible business activities continue to drive high levels of pride in our
employees with 92% of respondents of our Employee Engagement survey
saying overall they felt more positive about IHG as a result of its responsible
business initiatives and/or programmes.
32
Doing business responsibly
KPIs
2014 progress
Number of people
participating in IHG
Academy programmes
2014
6,666
2013
2012 Not applicable
6,391
In line with our 2014 priorities to expand the IHG Academy:
• 6,666 people benefited from our global IHG Academy programmes
in 2014, taking the total to 13,057 people since 2013; and
• we expanded our IHG Academy to 626 programmes (as at 31 December
2014), which includes participation by 409 hotels in 58 countries
– an increase of 325 programmes from 2013.
Value of monetary
donations and in-kind
support to communities,
including through IHG
Shelter in a Storm
2014
$6.18m
$1.92m
2013
2012 Not applicable
2011
In line with our 2014 priorities to contribute to communities, we:
• contributed a total of $6.18m in 2014, taking the total to $8.10m since 2013,
to communities through monetary donations and in-kind support, including
through IHG Shelter in a Storm;
• have raised $840,000 for the IHG Shelter Fund during 2014; and
• responded to 18 disasters in 9 countries in 2014, including Mexico, China,
Egypt and the UK, allocating funds to help with financial support, vital
supplies and accommodation.
Carbon footprint per
occupied room
In line with our 2014 priorities to reduce our carbon footprint and drive the
IHG Green EngageTM system, we:
2014
2013
2012
* Restated
e
32.3 KgCO
²
e*
33.4 KgCO
²
e*
33.2 KgCO
²
• reduced carbon footprint per occupied room to 32.3 kg CO2e (reduction
of 3% on 2012 baseline) across our entire estate. Year-on-year, our carbon
footprint increased by 0.6% per occupied room from 2012 to 2013 but
reduced by 3.5% per occupied room from 2013 to 2014;
See page 25 for further
information on scope and
methodology.
• reported a Carbon Disclosure Project disclosure rating of 92B (this
represents a significant increase on our score from the previous year
(85B)); and
• introduced a brand standard for all IHG hotels to be enrolled in the
IHG Green Engage system.
Water use per occupied
room in water-stressed
areas
2014
2013
2012
* Restated
0.64m³
0.67m³*
0.67m³*
In line with our 2014 priorities to reduce water use per occupied room in
water-stressed areas, we:
• reduced water use per occupied room by 0.03m3 (reduction of 4.2%
on 2012 baseline) in water-stressed areas. Year-on-year, water use in
water-stressed areas increased by 0.5% per occupied room from 2012
to 2013 and decreased by 4.2% per occupied room from 2013 to 2014; and
• launched a water stewardship programme to understand our risks and
impacts allowing us to develop strategies to assist hotels at a local level.
2015 priorities
Provide skills and improved
employability to a total of
20,000 people via the IHG
Academy over a five-year
period (2013-2017).
Continue to expand the IHG
Academy throughout our
hotel estate and work to
ensure the programmes
deliver positive results for
participants, IHG and
our hotels.
Contribute a total of $10m
over a five-year period
(2013-2017) to communities
through monetary donations
and in-kind support,
including through IHG
Shelter in a Storm.
Further increase awareness
of, and engagement with,
IHG Shelter in a Storm,
ensuring our hotels are
prepared for disaster and
able to respond quickly
and effectively to help
colleagues, guests and local
communities when needed.
Reduce carbon footprint
per occupied room by
12% across our entire
estate (over a five-year
period (2013-2017) using
2012 baseline).
Continue to drive quality
of use of the IHG Green
Engage system to reduce
impact on the environment,
enable cost savings and
drive revenue.
Support all our hotels
to meet the IHG Green
Engage standard.
Reduce water use per
occupied room by 12%
in water-stressed areas
across our estate (over a
five-year period (2013-2017)
using 2012 baseline).
Launch phase two of
the water stewardship
programme.
Improve a hotel’s
understanding of water
stress and pollution, and
their relationship with
local communities.
Our regional priorities and progress in each of the regions are set out
on pages 37, 40, 43 and 46.
33
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Group
Group results
Revenue
Americas
Europe
AMEA
Greater China
Central
Total
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
12 months ended 31 December
2014 vs
2013 %
change
20121
$m
2013 vs
2012 %
change
2014
$m
2013
$m
871
374
242
242
129
1,858
916
400
230
236
121
1,903
544
89
84
89
(155)
550
105
86
82
(155)
(4.9)
(6.5)
5.2
2.5
6.6
(2.4)
(1.1)
(15.2)
(2.3)
8.5
–
837
436
218
230
114
1,835
486
112
88
81
(162)
9.4
(8.3)
5.5
2.6
6.1
3.7
13.2
(6.3)
(2.3)
1.2
4.3
651
668
(2.5)
605
10.4
29
680
(80)
600
5
480.0
(4)
225.0
673
(73)
600
1.0
(9.6)
–
601
(54)
547
12.0
(35.2)
9.7
158.3¢ 140.9¢
158.3¢ 158.3¢
12.3
–
187.1¢
139.0¢
(24.7)
13.9
$1:
£0.61
$1:
£0.64
(4.7)
$1:
£0.63
1.6
1
With effect from 1 January 2013 the Group adopted IASI9 (Revised)
‘Employee Benefits’ resulting in an additional charge to operating profit
before exceptional items of $9m for the year ended 31 December 2012.
Accounting principles
The Group results are prepared under International Financial
Reporting Standards (IFRS). The application of IFRS requires
management to make judgements, estimates and assumptions
and those considered critical to the preparation of the Group
results are set out on pages 112 and 113 of the Group
Financial Statements.
The Group discloses certain financial information both
including and excluding exceptional items. For comparability
of the periods presented, some of the performance indicators
in this Performance review are calculated after eliminating
these exceptional items. Such indicators are prefixed with
‘adjusted’. An analysis of exceptional items is included in
note 5 on page 121 of the Group Financial Statements.
34
Highlights for the year ended 31 December 2014
Revenue decreased by $45m (2.4%) to $1,858m and operating
profit before exceptional items decreased by $17m (2.5%) to
$651m during the year ended 31 December 2014, due in part to
the disposal of owned hotels in line with the Group’s asset-light
strategy.
On 27 March 2014, IHG completed the disposal of its freehold
interest in InterContinental Mark Hopkins San Francisco for
gross proceeds of $120m and a long-term contract to manage
the hotel. On 31 March 2014, IHG completed the disposal of 80%
of its interest in InterContinental New York Barclay for gross
proceeds of $274m and a 30-year management contract with two
10-year extension rights, retaining the remaining 20% in a joint
venture set up to own and refurbish the hotel (see page 49).
On 7 August 2014, the Group received a binding offer to acquire
InterContinental Paris – Le Grand for gross proceeds of €330m
and a 30-year management contract with three 10-year extension
rights. The offer was subsequently accepted on 8 December 2014,
with the transaction expected to complete by the end of the first
half of 2015, subject to the satisfaction of certain standard
conditions.
On an underlying1 basis, revenue and operating profit increased
by $94m (6.0%) and $57m (9.6%) respectively. The underlying
results exclude InterContinental Mark Hopkins San Francisco
and InterContinental New York Barclay whilst under IHG
ownership, the results of managed lease hotels, and the benefit
of $7m liquidated damages receipts in 2014 and $46m liquidated
damages receipts in 2013.
Comparable Group RevPAR (see Glossary on pages 184 and 185)
increased by 6.1% (including an increase in average daily rate of
2.7%), led by particularly strong growth of 7.4% in The Americas.
Group System size increased by 3.4% to 710,295 rooms whilst
Group fee revenue2 increased by 6.7%.
At constant currency, net central overheads decreased by
$3m (1.9%) to $152m compared to 2013 (but at actual currency
remained flat at $155m), helped by continued cost control,
as well as additional technology fee income.
Group fee margin was 44.7%, up 1.5 percentage points on 2013,
after adjusting for owned and leased hotels, managed leases and
significant liquidated damages. Group fee margin benefited from
strong growth in IHG’s scale markets.
Profit before tax of $600m was unchanged on 2013. Basic earnings
per ordinary share increased by 12.3% to 158.3¢, whilst adjusted
earnings per ordinary share remained flat at 158.3¢.
Performance Global total gross revenue
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
12 months ended 31 December
2014
$bn
4.7
4.2
0.3
6.4
5.7
0.7
0.6
0.2
22.8
2013
$bn % change
4.5
4.0
0.2
6.2
5.2
0.6
0.6
0.3
21.6
4.4
5.0
50.0
3.2
9.6
16.7
–
(33.3)
5.6
One measure of IHG System performance is the growth in total
gross revenue, defined as total room revenue at franchised hotels
and total hotel revenue at managed, owned and leased hotels.
Total gross revenue is not revenue attributable to IHG, as it
represents revenue generated mainly at hotels owned by
third parties.
Total gross revenue increased by 5.6% (7.4% increase at constant
currency) to $22.8bn, primarily driven by strong comparable
RevPAR growth across the Group of 6.1% compared to 2013,
coupled with an increase in System size of 3.4%.
Highlights for the year ended 31 December 2013
Group revenue increased by $68m (3.7%) to $1,903m and
operating profit before exceptional items increased by $63m
(10.4%) to $668m.
On 1 May 2013, IHG completed the disposal of its leasehold
interest in InterContinental London Park Lane for gross proceeds
of $469m and a 30-year management contract with three 10-year
extension rights.
On an underlying1 basis, defined as reported results, excluding
those from the InterContinental London Park Lane whilst under
IHG ownership, results from managed lease hotels, together
with the benefit of $46m liquidated damages receipts in 2013
and a $3m liquidated damages receipt in 2012, revenue and
operating profit increased by $68m (4.2%) and $44m (7.8%)
respectively when translated at constant currency and applying
2012 exchange rates.
Fee revenue2 increased by 4.3%, with comparable Group RevPAR
growth of 3.8% over the period (including an increase in average
daily rate of 1.8%) and IHG System size growth of 1.6% to
686,873 rooms.
At constant currency, net central overheads decreased from
$162m to $157m in 2013 ($155m at actual currency), helped
by continued tight cost control, as well as additional technology
fee income.
Group fee margin was 43.2%, up 1.3 percentage points on 2012,
after adjusting for owned and leased hotels, managed leases
and significant liquidated damages.
Profit before tax increased by $53m to $600m. Adjusted earnings
per ordinary share increased by 13.9% to 158.3¢.
1
Underlying excludes the impact of owned asset disposals, managed leases,
significant liquidated damages and exceptional items translated at constant
currency by applying prior year exchange rates.
2
Fee revenue is defined as Group revenue excluding revenue from owned
and leased hotels, managed leases and significant liquidated damages.
35
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Global hotel and room count
Global pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
2014
180
406
61
2
1,212
2,365
205
322
87
4,840
4,096
735
9
4,840
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
2
61,235
1,132
15 113,562
6,731
6
2
296
(4) 225,159
107 229,110
22,409
30,708
21,085
143 710,295
9
10
(4)
119 514,984
24 192,121
3,190
143 710,295
–
4,671
532
296
582
14,513
891
930
(125)
23,422
12,797
11,397
(772)
23,422
1
Includes 42 Holiday Inn Resort properties (9,904 rooms) and 12 Holiday Inn
Club Vacations (4,027 rooms) (2013: 38 Holiday Inn Resort properties (8,818
rooms) and 10 Holiday Inn Club Vacations (3,701 rooms)).
During 2014, the global IHG System (the number of hotels and
rooms which are franchised, managed, owned or leased by
the Group) increased by 143 hotels (23,422 rooms) to 4,840 hotels
(710,295 rooms).
The Group continued to expand its global footprint, opening hotels
in nearly 30 different countries and territories and delivering
its highest net System size growth since 2009. 40% of 2014
openings were in developing markets, as classified by The World
Bank, with 22% of the closing rooms balance located in these
markets representing an increase of one percentage point from
31 December 2013. 123 hotels (17,630 rooms) were removed in
2014, a decrease from the previous year (142 hotels, 24,576 rooms).
Openings of 266 hotels (41,052 rooms) were 15.7% higher than
in 2013. This included 140 hotel openings (15,190 rooms) in
the Holiday Inn brand family in The Americas and four hotels
(834 rooms) as part of the US government’s Privatisation of
Army Lodgings (PAL) initiative, as well as the first two hotels
(296 rooms) for the wellness-focused EVEN Hotels brand.
34 hotels (10,648 rooms) were opened in Greater China in 2014,
up 38.8% from last year and the region’s highest on record, with
the Europe and AMEA regions contributing openings of 35 hotels
(5,353 rooms) and 19 hotels (4,228 rooms) respectively.
36
At 31 December
Analysed by brand
InterContinental
HUALUXE
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Global pipeline signings
2014
50
24
92
63
3
269
522
99
89
10
1,221
843
377
1
1,221
463
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
15,664
(1)
3
7,551
(2) 25,336
9,096
12
584
(2)
52,713
5
62,954
49
10,908
19
7,717
9
1,249
9
101 193,772
65
38
(2)
94,730
98,838
204
101 193,772
69,696
19
(1,196)
747
(3,033)
2,289
(296)
2,472
8,210
2,180
803
1,135
13,311
7,945
5,662
(296)
13,311
4,235
1 Includes 18 Holiday Inn Resort properties (4,412 rooms) and nil Holiday Inn
Club Vacations (2013: Includes 14 Holiday Inn Resort properties (3,163 rooms)
and one Holiday Inn Club Vacations (120 rooms)).
At the end of 2014, the global pipeline totalled 1,221 hotels (193,772
rooms), an increase of 101 hotels (13,311 rooms) on 31 December
2013. The IHG pipeline represents hotels where a contract has
been signed and the appropriate fees paid. 89% of the closing
pipeline at 31 December 2014 was in IHG’s 10 priority markets.
The continued global demand for IHG brands is demonstrated by
the Group signing hotels in 35 different countries and territories in
2014, 35% of which were in developing markets. 48% of the closing
pipeline at 31 December 2014 was in developing markets, down
by three percentage points compared to the previous year. 28%
of the closing pipeline at 31 December 2014 was in Greater China.
Group signings increased from 444 hotels (65,461 rooms) in 2013
to 463 hotels (69,696 rooms) in 2014, the strongest level in six
years. This included 307 hotels (45,522 rooms) signed for the
Holiday Inn brand family, up by 15.1% compared to 2013, nearly
a quarter of which were contributed by Greater China (45 hotels,
10,860 rooms). The Greater China region signed a further 19 hotels
(4,894 rooms) across other IHG brands. The pipeline for HUALUXE
Hotels and Resorts increased by three hotels (747 rooms) to 24
hotels (7,551 rooms).
Active management of the pipeline to remove deals that have
become dormant or no longer viable reduced the pipeline by
96 hotels (15,333 rooms), compared to 140 hotels (18,563 rooms)
in 2013.
Performancecontinued The Americas
Maximise the performance and growth of our portfolio
of preferred brands, focusing on our core upper
midscale and upscale segments, mostly through
franchise agreements, over the next three years.
Industry performance in 2014
In 2014, industry RevPAR in The Americas grew by 8.4% driven
by a 4.2% increase in demand and a 5.0% increase in average
daily rate. On the supply side, the number of rooms increased by
1.0%, the fourth year with growth of 1.0% or less. All segments
experienced strong growth, with the upper midscale segment,
where the Holiday Inn and Holiday Inn Express brands operate,
having a 7.5% growth in RevPAR.
IHG’s regional performance in 2014
IHG’s comparable RevPAR increased 7.4% with 3.7% rate growth.
The region is predominantly represented by the US, where
comparable RevPAR increased 7.5%. Our upper midscale brands
in the US performed broadly in line with the segment, with RevPAR
for the Holiday Inn brand increasing 8.1% whilst that for the Holiday
Inn Express brand was at 7.2% due to higher absolute occupancies
than the industry. Our US upscale brands (Crowne Plaza and Hotel
Indigo) were also in line with the upscale segment with both brands
increasing RevPAR by 8.3%. We strengthened our 20-year
relationship with Grupo Presidente to expand the footprint and
diversity of our brands in key cities and resort destinations.
We continued to demonstrate our commitment to quality with
12,230 rooms leaving the IHG System. Strong demand for IHG
branded hotels continued with 38,108 rooms signed, with the
pipeline increasing by 10,177 rooms over 2013.
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
• continued to strengthen our preferred brands and provide
best-in-class revenue delivery to hotels – the Holiday Inn brand
rolled out revenue-driving food and beverage options to address
guest needs, whilst the Holiday Inn Express brand introduced an
innovative, cost effective design solution that resonated well
with owners;
• strengthened our Holiday Inn brand family with the opening
of 140 new hotels;
• continued to execute our multi-year programme to strengthen
the Crowne Plaza brand by focusing on brand differentiation,
performance initiatives and signing 10 hotels into the pipeline;
and
• opened our first two hotels for the EVEN Hotels brand, which
have consistently received excellent guest feedback.
The US lodging industry also saw strong growth as the economy
continued to recover with GDP up 2.4%. In December, demand
reached record highs for the 46th consecutive month, while supply
growth of 0.9% remained well below the 1.9% per annum historic
average. Average daily rate growth of 4.6% combined with strong
demand drove US RevPAR up 8.3%. RevPAR in the US upper
midscale segment was up 8.2%, with the US upscale segment
up by 8.4%.
Americas comparable RevPAR
movement on previous year
Franchised
Managed
Crowne Plaza
Holiday Inn
Holiday Inn
Express
All brands
6.9%
7.9%
InterContinental
Crowne Plaza
7.0%
Holiday Inn
7.2%
Staybridge Suites
Candlewood Suites
All brands
Owned and leased
All brands
12 months ended
31 December 2014
6.9%
12.7%
9.0%
9.7%
11.7%
8.9%
11.2%
IHG’s 2015 regional priorities
1. Continue to increase IHG System size growth through
working with owners to accelerate openings, assisting
low-performing hotels to improve, and continuing to support
our high-performing hotels.
2. Continue to deliver against our multi-year plan for the
Crowne Plaza Hotels & Resorts brand by enhancing the
guest experience and driving brand differentiation through
innovations.
3. Continue to strengthen the Holiday Inn brand family position
through the delivery of innovations and consistency across
our hotels.
Source: Smith Travel Research for all of the above industry facts.
37
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Americas results
Revenue
Franchised
Managed
Owned and leased
Total
Percentage of
Group Revenue
Operating profit before
exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
Percentage of Group
Operating profit before
central overheads and
exceptional items
12 months ended 31 December
2014 vs
2013 %
change
2012
$m
2013 vs
2012 %
change
2014
$m
2013
$m
630
103
138
871
576
128
212
916
9.4
(19.5)
(34.9)
(4.9)
541
97
199
837
46.9
48.1
(1.2)
45.6
544
47
18
609
(65)
544
499
74
30
603
(53)
550
9.0
(36.5)
(40.0)
1.0
(22.6)
(1.1)
466
48
24
538
(52)
486
6.5
32.0
6.5
9.4
2.5
7.1
54.2
25.0
12.1
(1.9)
13.2
67.5
66.8
0.7
63.4
3.4
Highlights for the year ended 31 December 2014
With 3,699 hotels (460,017 rooms), The Americas represented 65%
of the Group’s room count and 68% of the Group’s operating profit
before central overheads and exceptional operating items for the
year ended 31 December 2014. The key profit producing region is
the US, although the Group is also represented in Latin America,
Canada, Mexico and the Caribbean. 91% of rooms in the region
are operated under the franchise business model, primarily in the
upper midscale segment (Holiday Inn brand family). In the upscale
segment Crowne Plaza is predominantly franchised whereas in the
luxury segment InterContinental branded hotels are operated under
both franchise and management agreements. Eight of the Group’s
nine hotel brands are represented in The Americas, including
the wellness-focused EVEN Hotels brand, which made its global
debut in the region during the year, with two owned hotels
(296 rooms) open at 31 December 2014.
Revenue and operating profit before exceptional items decreased
by $45m (4.9%) to $871m and by $6m (1.1%) to $544m respectively.
On an underlying1 basis, revenue increased by $71m (9.7%), while
operating profit increased by $39m (7.8%) driven predominantly
by strong RevPAR growth in the fee business and an increase
in net rooms. Regional overheads increased by 22.6% to $65m
following investment in IHG’s development and quality teams
and unusually high healthcare costs. Revenue and operating
profit were negatively impacted by the disposal of an 80% interest
in InterContinental New York Barclay and the disposal of
InterContinental Mark Hopkins San Francisco during the year,
by a combined $95m and $21m respectively compared to 2013.
Conversely, revenue and operating profit were positively impacted
by the benefit of $7m liquidated damages receipts in 2014 in the
franchised business relating to two exited hotels, compared to
$31m in the managed business in 2013.
38
Franchised revenue increased by $54m (9.4%) to $630m including
the benefit of the $7m liquidated damages receipts (8.2% excluding
these liquidated damages). Royalties growth of 7.6% was driven by
comparable RevPAR growth of 7.2% including 7.9% for Holiday Inn
and 7.0% for Holiday Inn Express, together with 2.0% rooms
growth. Operating profit increased by $45m (9.0%) to $544m.
Managed revenue decreased by $25m (19.5%) to $103m and
operating profit decreased by $27m (36.5%) to $47m. Revenue and
operating profit included $38m (2013 $34m) and $nil (2013 $nil)
respectively from one managed lease property. Excluding results
from this hotel, as well as the $31m liquidated damages in 2013
(2014 $nil), revenue increased by $3m (4.8%) and operating profit
increased by $4m (9.3%) on a constant currency basis.
Owned and leased revenue decreased by $74m (34.9%) to
$138m and operating profit decreased by $12m (40.0%) to $18m.
The decrease in revenue and operating profit were driven by the
disposal of an 80% interest in InterContinental New York Barclay,
and the disposal of InterContinental Mark Hopkins San Francisco
(combined negative impact of $95m and $21m respectively).
Excluding these two hotels, owned and leased revenue and
operating profit increased by $21m and $9m respectively reflecting
strong trading at InterContinental Boston and post refurbishment
performance at Holiday Inn Aruba.
Highlights for the year ended 31 December 2013
Revenue and operating profit before exceptional items increased by
$79m (9.4%) to $916m and by $64m (13.2%) to $550m respectively.
On an underlying1 basis, revenue and operating profit increased by
$52m (6.5%) and $36m (7.5%) respectively. Revenue and operating
profit were adversely impacted by $8m lower fees on the exit
of eight Holiday Inn hotels owned by FelCor Lodging Trust but
were positively impacted by the benefit of a $31m liquidated
damages receipt in 2013 in the managed business, compared
to $3m in 2012.
The franchise business drove most of the growth in the region
(excluding the liquidated damages in the managed estate).
Franchised revenue increased by $35m (6.5%) to $576m.
Royalties growth of 4.7% was driven by RevPAR growth of 3.2%,
including 3.4% for Holiday Inn Express, together with a 0.7%
increase in available rooms. Operating profit increased by $33m
(7.1%) to $499m. Fees from initial franchising, relicensing and
termination of hotels also increased by $6m compared to 2012.
Managed revenue increased by $31m (32.0%) to $128m and
operating profit increased by $26m (54.2%) to $74m. Revenue and
operating profit included $34m (2012 $34m) and $nil (2012 $nil)
respectively from one managed lease property. Excluding results
from this hotel, as well as the benefit of the $31m liquidated
damages in 2013 and the $3m in 2012, revenue grew by $4m (6.7%)
and operating profit decreased by $2m (4.4%) on a constant
currency basis.
Owned and leased revenue increased by $13m (6.5%) to $212m
and operating profit grew by $6m (25.0%) to $30m. The increase
in revenue was driven by RevPAR growth of 6.0%.
Performancecontinued Americas hotel and room count
Americas pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Percentage of Group
hotel and room count
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
(1)
5
2
2
16,897
48,366
4,551
296
(16) 136,280
75 182,601
21,200
9
30,708
10
(3)
19,118
83 460,017
(556)
1,309
207
296
(2,550)
8,170
891
930
(104)
8,593
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
83
–
–
417,215
41,172
1,630
83 460,017
8,340
1,025
(772)
8,593
Franchised
Managed
Owned and leased
Total
2014
50
181
39
2
770
2,060
197
322
78
3,699
3,477
217
5
3,699
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
1
2
8
(2)
–
31
19
9
9
77
62
17
(2)
77
2,337
3,206
4,259
584
20,155
37,125
9,594
7,717
1,218
86,195
900
(22)
1,141
(296)
811
3,637
2,099
803
1,104
10,177
78,980
7,011
204
86,195
6,961
3,512
(296)
10,177
2014
7
18
31
3
139
389
90
89
10
776
740
35
1
776
76.4
(0.6)
64.8
(0.9)
1
Includes 20 Holiday Inn Resort properties (4,864 rooms) and 12 Holiday Inn
Club Vacations (4,027 rooms) (2013: 18 Holiday Inn Resort properties (4,438
rooms) and 10 Holiday Inn Club Vacations (3,701 rooms)).
The Americas System size increased by 83 hotels (8,593 rooms)
to 3,699 hotels (460,017 rooms) during 2014. 178 hotels (20,823
rooms) opened in the year, compared to 173 hotels (19,775 rooms)
in 2013 and included four hotels (834 rooms) as part of the US
government’s PAL initiative (33 hotels with 4,061 rooms in 2013).
Openings included 140 hotels (15,190 rooms) in the Holiday Inn
brand family, representing more than 70% of the region’s
openings. 23 hotels (2,130 rooms) opened as Staybridge Suites
hotels and Candlewood Suites hotels, IHG’s extended-stay brands.
The first two hotels (296 rooms) were opened under the wellness-
focused EVEN Hotels brand.
95 hotels (12,230 rooms) were removed from The Americas
System in 2014, demonstrating IHG’s continued commitment
to quality, compared to 112 hotels (17,968 rooms) in 2013.
45% of 2014 room removals were Holiday Inn rooms in the
US (34 hotels, 5,499 rooms) compared to 61% in 2013 (53 hotels,
10,933 rooms).
1
Includes nine Holiday Inn Resort properties (1,916 rooms) and nil Holiday Inn
Club Vacations (2013: five Holiday Inn Resort properties (694 rooms) and one
Holiday Inn Club Vacations (120 rooms)).
At 31 December 2014, The Americas pipeline totalled 776 hotels
(86,195 rooms), representing an increase of 77 hotels
(10,177 rooms) over the prior year. Strong signings of
319 hotels (38,108 rooms) were ahead of last year by 14 hotels
(4,224 rooms) and the highest for six years, demonstrating
continued demand for IHG branded hotels. Signings included
14 hotels (2,012 rooms) signed as part of the US government’s PAL
initiative. The majority of 2014 signings were within the Holiday Inn
brand family (208 hotels, 24,037 rooms), up by 17.0% compared to
2013, and included the 777-room Holiday Inn Nickelodeon Suites
Orlando. Staybridge Suites and Candlewood Suites together
contributed signings of 73 hotels (7,091 rooms), up by 31.2%
compared to 2013. Crowne Plaza Atlanta – Midtown, which was
signed and opened in the year, is one of 10 signings for the brand.
Other notable signings included the 900-room InterContinental
Downtown Los Angeles, the largest for the brand in the US.
64 hotels (7,108 rooms) were removed from the pipeline in 2014,
significantly down in terms of both hotels and rooms from 2013
(103 hotels, 10,664 rooms).
1
Underlying excludes the impact of owned asset disposals, managed leases,
significant liquidated damages and exceptional items translated at constant
currency by applying prior year exchange rates.
39
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Europe
Continue to grow in priority markets and across
key cities, and improve underlying margin through
operational excellence over the next three years.
Industry performance in 2014
Europe is a diverse region and industry figures are driven by
the larger markets, in particular the UK and Germany. RevPAR
growth was 6.0%, average daily rate grew by 3.5% and demand
grew by 3.5%.
RevPAR growth in the UK reached 7.9% due to a 10.5% increase in
the UK provinces, which was driven by a 6.5% increase in average
daily rate and 4.9% increase in demand. However, RevPAR growth
in other European countries was more moderate, with RevPAR
IHG’s regional performance in 2014
IHG’s comparable RevPAR increased by 5.1% with the UK
particularly strong at 8.9%. Germany was also strong at 4.1%.
IHG’s hotels in Russia and the Commonwealth of Independent
States (CIS) were, however, impacted by the geopolitical instability
in the region but our hotels outperformed the industry with a
RevPAR decline of 4.0%.
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
• grew in our priority markets and key gateway cities with the
signing of 48 hotels of which 17 were in the UK, 12 in Germany,
and seven in Russia and the CIS;
• continued to expand the Hotel Indigo brand across the region in
key gateway cities, opening four new properties in Paris, Madrid,
Rome and St Petersburg, and as at 31 December 2014, had 17
open hotels and a further 12 in the pipeline for the brand;
• launched the Holiday Inn Express brand in Russia and the
CIS (having localised the brand) with the opening of Holiday Inn
Express Voronezh - Kirova, a debut for the brand in Russia;
• continued to improve guest experience and increase satisfaction
at our hotels in the region by creating a culture focused on
quality, accelerating the rollout of innovation and building a suite
of tools that enables hotels to deliver operational excellence
(see progress against KPIs set out on pages 30 to 33); and
• embedded our revenue and sales tools at our hotels, driving
our commercial delivery and people platforms (see progress
against KPIs set out on pages 30 to 33), helping us to deliver
RevPAR outperformance in our three priority markets.
40
increasing in Germany by 3.8%. In contrast, the RevPAR in Russia
declined steeply by 14.8%, as growth was depressed by ongoing
conflict between Russia and the Ukraine and the resulting
geopolitical instability throughout this area. Although there was
a 5.1% decline in demand, supply continued to grow by 8.9%.
Europe comparable RevPAR
movement on previous year
Franchised
All brands
Managed
All brands
Owned and leased
InterContinental
12 months ended
31 December 2014
5.3%
5.4%
(4.7)%
IHG’s 2015 regional priorities
1. Continue to build IHG System size through driving growth
in our priority markets of UK, Russia and the CIS, and Germany,
localising our brands as necessary.
2. Continue to improve guest experience and increase satisfaction
by focusing on quality and driving innovation to ensure our
brands are preferred.
3. Drive operational excellence and hotel outperformance by
delivering a focused and targeted hotel support model, and
best-in-class operational tools and training.
Source: Smith Travel Research for all of the above industry facts.
Performancecontinued Europe results
Revenue
Franchised
Managed
Owned and leased
Total
Percentage of
Group Revenue
Operating profit before
exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
Percentage of Group
Operating profit before
central overheads and
exceptional items
12 months ended 31 December
2014 vs
2013 %
change
2012
$m
2013 vs
2012 %
change
2014
$m
2013
$m
104
159
111
374
104
156
140
400
–
1.9
(20.7)
(6.5)
91
147
198
436
14.3
6.1
(29.3)
(8.3)
20.1
21.0
(0.9)
23.8
(2.8)
78
30
14
122
(33)
89
79
30
30
139
(34)
105
(1.3)
–
(53.3)
(12.2)
2.9
(15.2)
65
32
50
147
(35)
112
21.5
(6.3)
(40.0)
(5.4)
2.9
(6.3)
11.0
12.8
(1.8)
14.6
(1.8)
Highlights for the year ended 31 December 2014
Comprising 647 hotels (104,208 rooms) at the end of 2014,
Europe represented 15% of the Group’s room count and 11%
of the Group’s operating profit before central overheads and
exceptional operating items for the year ended 31 December 2014.
Revenues are primarily generated from hotels in the UK and
continental European gateway cities. The largest proportion of
rooms in Europe are operated under the franchise business model
primarily in the upper midscale segment (Holiday Inn and Holiday
Inn Express). Similarly, in the upscale segment, Crowne Plaza
is predominantly franchised, whereas in the luxury segment the
majority of InterContinental branded hotels are operated under
management agreements.
Revenue and operating profit before exceptional items
decreased by $26m (6.5%) to $374m and by $16m (15.2%) to $89m
respectively. On an underlying1 basis, revenue and operating profit
increased by $4m (1.4%) and $3m (3.5%) respectively. Overall,
comparable RevPAR in Europe increased by 5.1%. The UK achieved
a particularly strong comparable RevPAR growth of 8.9%, with
double-digit growth in the first and third quarters. Comparable
RevPAR in Germany was also strong, increasing by 4.1%, driven
by continued growth in domestic output and a rise in employment,
whilst IHG hotels in the Commonwealth of Independent States
(CIS) collectively experienced a comparable RevPAR decline of
4.0%, reflecting a challenging economic climate in the region
during 2014.
Franchised revenue remained flat at $104m, whilst operating profit
decreased by $1m (1.3%) to $78m. Excluding the benefit of a $9m
liquidated damages receipt in 2013, revenue and operating profit
increased by $8m (8.4%) and $8m (11.4%) respectively at constant
currency. This underlying growth was mainly driven by an increase
in royalties of 8.0%, reflecting comparable RevPAR growth of 5.3%,
together with 5.7% rooms growth.
Managed revenue increased by $3m (1.9%) to $159m, whilst
operating profit was flat with 2013 at $30m. Revenue and
operating profit included $90m (2013 $89m) and $2m (2013 $2m)
respectively from managed leases. Excluding properties operated
under this arrangement and on a constant currency basis, revenue
increased by $3m (4.5%), whilst operating profit was flat. At the
end of 2014, IHG commenced a process to restructure the majority
of its UK managed hotels to new franchised contracts.
In the owned and leased estate, revenue decreased by $29m
(20.7%) to $111m and operating profit decreased by $16m
(53.3%) to $14m. At constant currency and excluding the impact
of the disposal of InterContinental London Park Lane (which
contributed revenue and operating profit of $22m and $8m
respectively in 2013), owned and leased revenue and operating
profit both decreased by $7m. These declines were driven by
InterContinental Paris – Le Grand due to the refurbishment
of the Salon Opera ballroom in the first half of 2014. The hotel
delivered revenue and operating profit of $111m and $15m
respectively, a decrease of 5.9% and 34.8% compared to 2013,
whilst RevPAR decreased by 4.7%.
Highlights for the year ended 31 December 2013
Revenue and operating profit before exceptional items decreased
by $36m (8.3%) to $400m and by $7m (6.3%) to $105m respectively.
On an underlying1 basis, revenue and operating profit increased
by $9m (3.4%) and $8m (10.4%) respectively. Overall, RevPAR in
Europe increased by 1.7%. The UK achieved RevPAR growth of
3.0%, with particularly strong performance in the final quarter of
2013 with RevPAR increasing 7.3%. RevPAR in Germany increased
by 0.8% despite a weaker year-on-year trade fair calendar, whilst
IHG hotels in the CIS collectively achieved RevPAR growth of 2.7%.
Franchised revenue increased by $13m (14.3%) to $104m, whilst
operating profit increased by $14m (21.5%) to $79m. Excluding the
benefit of a $9m liquidated damages receipt in 2013, revenue
and operating profit increased by $4m (4.4%) and $5m (7.7%)
respectively. Growth was mainly driven by an increase in royalties
of 7.0% (6.3% at constant currency) reflecting RevPAR growth
of 1.5%, partly offset by a 0.2% decline in available rooms.
1
Underlying excludes the impact of owned asset disposals, managed leases,
significant liquidated damages and exceptional items translated at constant
currency by applying prior year exchange rates.
41
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION Europe pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inn
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2013
2014
Rooms
Change
over 2013
2014
3
14
12
37
44
4
–
114
95
19
114
1
2
(3)
2
1
1
–
4
(2)
6
4
845
2,917
1,368
6,944
6,374
414
31
18,893
13,996
4,897
18,893
192
293
(208)
332
358
116
31
1,114
(123)
1,237
1,114
The Europe pipeline totalled 114 hotels (18,893 rooms) at
31 December 2014, representing an increase of four hotels
(1,114 rooms) over 31 December 2013. New signings of 48 hotels
(7,804 rooms), compared to 50 hotels (7,542 rooms) in 2013,
included 16 hotel signings in the UK (2,234 rooms). The Group also
signed 12 hotels (2,323 rooms) in Germany and seven new hotels
(867 rooms) in countries in the CIS. Notable signings in Europe
included the 162-room InterContinental Baku, the first for the
brand in Azerbaijan.
Nine hotels (1,337 rooms) were removed from the pipeline in 2014,
compared to 10 hotels (1,419 rooms) in 2013.
IHG Annual Report and Form 20-F 2014
Managed revenue increased by $9m (6.1%) to $156m and
operating profit decreased by $2m (6.3%) to $30m. Revenue and
operating profit included $89m (2012 $80m) and $2m (2012 $2m)
respectively from managed leases. Excluding properties operated
under this arrangement and on a constant currency basis, revenue
was flat and operating profit decreased by $1m (3.3%).
In the owned and leased estate, revenue decreased by $58m (29.3%)
to $140m and operating profit decreased by $20m (40.0%) to $30m.
At constant currency and excluding the impact of the disposal of
InterContinental London Park Lane, the owned and leased estate
delivered a revenue increase of $5m (4.6%) with RevPAR growth of
5.3%. Operating profit increased by $4m (23.5%), benefiting from a
one-off $3m property tax recovery in the year.
Europe hotel and room count
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Percentage of Group
hotel and room count
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
9,372
(1)
19,395
–
1,568
4
45,722
2
27,138
11
784
–
2
229
18 104,208
(153)
(127)
325
101
1,767
–
229
2,142
84,016
37
19,722
(19)
470
–
18 104,208
4,499
(2,357)
–
2,142
2014
30
83
17
284
226
5
2
647
565
81
1
647
13.4
–
14.7
(0.2)
1 2014 and 2013 include 2 Holiday Inn Resort properties (212 rooms).
During 2014, Europe System size increased by 18 hotels
(2,142 rooms) to 647 hotels (104,208 rooms). The Group opened
35 hotels (5,353 rooms) in Europe in 2014, compared to 21 hotels
(3,528 rooms) in 2013. 2014 openings included two landmark
InterContinental hotels; the 197-room InterContinental Dublin
and the 331-room InterContinental Lisbon. Four further Hotel
Indigo properties (325 rooms) opened in 2014, in prime city
locations of Paris, Madrid, Rome and St Petersburg. Additionally,
the Group opened Holiday Inn Express Voronezh - Kirova during
2014, a debut for the brand in Russia.
17 hotels (3,211 rooms) left the Europe System in the period,
compared to 20 hotels (3,489 rooms) in the previous year.
42
Performancecontinued
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.
Industry performance in 2014
AMEA is the largest region in geographic terms, and performance
varies across the countries that comprise the region.
The strongest of the larger markets in AMEA, in which we operate,
are Australia, Japan and the Middle East. Australia experienced
RevPAR growth of 4.1% due to both occupancy, which increased
by 2.1%, and daily rate growth, which increased by 2.0%. Despite
its economic contraction in the third quarter of 2014, Japan’s
RevPAR grew 9.4% as a result of an 8.2% increase in daily rate.
Occupancy growth was 1.1%.
IHG’s regional performance in 2014
Across this large and diverse geographic region, IHG is widely
represented both geographically and by brand, and as such
comparisons across the industry are hard to make. Overall IHG
RevPAR increased 3.8% driven predominantly through rate growth
with performance led by the Middle East (5.6% RevPAR growth) and
positive trading in our mature markets of Japan (6.7% RevPAR
growth) and Australia (3.9% RevPAR growth). India and Southeast
Asia exhibited steady growth, with the exception of Thailand, which
was impacted by political instability in the first half of 2014. Indonesia
saw RevPAR growth of 9.1%.
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
• strengthened our position in the region’s priority markets
and key gateway cities, opening 19 hotels (9 in Indonesia and
India), taking the region’s System size to a total of 253 hotels
(as at 31 December 2014) with notable openings including
InterContinental Sydney Double Bay, the second for the
brand in Sydney;
• accelerated the growth of our core brands across the region
with the signing of 32 new hotels into the pipeline – including
21 hotels for the Holiday Inn brand family (9 hotels for the Holiday
Inn Express brand) and 19 in the region’s emerging markets;
• continued to deliver operational excellence to improve guest
satisfaction and deliver high-quality revenues by embedding
our revenue tools, system delivery platforms, responsible
business practices and People Tools (see progress against
KPIs set out on pages 30 to 33); and
• accelerated a ‘winning culture’ with further alignment between
operations and corporate teams and increased leadership
capability to embed the systems, processes and competencies
to deliver high performance.
Performance in the smaller AMEA markets, in which we operate,
was less consistent. RevPAR in Saudi Arabia experienced an overall
increase of 6.0%. Indonesia saw RevPAR growth for the year of
4.3%, primarily driven by a 6.9% increase in daily rate, and RevPAR
in India grew by 0.8%.
AMEA comparable RevPAR
movement on previous year
Franchised
All brands
Managed
All brands
12 months ended
31 December 2014
1.7%
4.4%
IHG’s 2015 regional priorities
1. Continue to accelerate IHG System size growth across the
region, focusing on any brand gaps in key cities and driving
secondary city growth in our priority markets of the Middle East,
India and Indonesia.
2. Focus on strong RevPAR growth through building preferred
brands that deliver guest satisfaction.
3. Following the launch of the Hotel Indigo brand in the region,
support the growth of the brand in AMEA.
Source: Smith Travel Research for all of the above industry facts.
43
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
AMEA results
Revenue
Franchised
Managed
Owned and leased
Total
Percentage of
Group Revenue
Operating profit before
exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
Percentage of Group
Operating profit before
central overheads and
exceptional items
12 months ended 31 December
2014 vs
2013 %
change
2012
$m
2013 vs
2012 %
change
2014
$m
2013
$m
16
187
39
242
16
170
44
230
–
10.0
(11.4)
5.2
18
152
48
218
(11.1)
11.8
(8.3)
5.5
13.0
12.1
0.9
11.9
0.2
12
88
3
103
(19)
84
12
92
4
108
(22)
86
–
(4.3)
(25.0)
(4.6)
13.6
(2.3)
12
90
6
108
(20)
88
–
2.2
(33.3)
–
(10.0)
(2.3)
10.5
10.4
0.1
11.5
(1.1)
Highlights for the year ended 31 December 2014
Comprising 253 hotels (67,876 rooms) at 31 December 2014,
AMEA represented 9% of the Group’s room count and contributed
10% of the Group’s operating profit before central overheads
and exceptional operating items during the year. 82% of rooms
in AMEA are operated under the managed business model.
The region’s hotels are in the luxury, upscale and upper
midscale segments.
Revenue increased by $12m (5.2%) to $242m whilst operating
profit before exceptional items decreased by $2m (2.3%) to
$84m. On an underlying1 basis, revenue increased by $5m
(2.5%) and operating profit increased by $4m (5.1%). The results
included a $6m benefit from liquidated damages received in
2013 (2014 $nil). AMEA is a geographically diverse region and
performance was impacted by political and economic factors
affecting different countries.
Comparable RevPAR increased 3.8% driven by 2.4% rate growth.
Performance was led by the Middle East, up 5.6%, driven by a solid
performance in Saudi Arabia and a recovery in Egypt. This was
supported by positive trading in the mature markets of Japan,
which grew by 6.7%, and Australia, which grew by 3.9%.
Elsewhere, both India and South East Asia exhibited steady
growth, with the exception of Thailand which suffered from
political instability in the first half of the year.
Franchised revenue and operating profit remained flat at $16m
and $12m respectively.
Managed revenue increased by $17m (10.0%) to $187m whilst
operating profit decreased by $4m (4.3%) to $88m. Revenue and
operating profit included $41m (2013 $21m) and $4m (2013 $1m)
respectively from one managed lease property. Excluding results
from this hotel, as well as the benefit of $6m liquidated damages
in 2013 (2014 $nil), revenue increased by $7m (4.9%) whilst
operating profit increased by $2m (2.4%) on a constant currency
basis. Comparable RevPAR increased by 4.4%, with room count
increasing by 5.9%.
In the owned and leased estate, revenue and operating profit
decreased by $5m (11.4%) to $39m and by $1m (25.0%) to $3m
respectively, due to a 6.3% decrease in RevPAR.
Highlights for the year ended 31 December 2013
Revenue increased by $12m (5.5%) to $230m and operating
profit decreased by $2m (2.3%) to $86m. On an underlying1 basis,
revenue and operating profit decreased by $6m (2.8%) and
$7m (8.0%) respectively. The results included a $6m benefit
from liquidated damages in 2013 (2012 $nil). RevPAR increased
by 6.1%, with 3.0% growth in average daily rate. AMEA is a
geographically diverse region and performance is impacted
by political and economic factors affecting different countries.
The Middle East delivered RevPAR growth of 2.9%, driven by
strength in the United Arab Emirates and Saudi Arabia, whilst
continuing political uncertainty impacted some of our other markets
in the region, particularly Egypt and Lebanon. Performance in
Japan was strong, with RevPAR increasing by 9.6%, whilst Australia
also achieved solid RevPAR growth of 2.8%. RevPAR growth in
developing markets remained buoyant, led by 12.2% RevPAR
growth in Indonesia. Revenue and operating profit growth were
muted by a $6m negative year-on-year impact from the renewal
of a small number of long-standing contracts onto current
commercial terms. In addition, there was a $4m negative impact
from similar contracts that were not renewed.
Franchised revenue decreased by $2m (11.1%) to $16m, whilst
operating profit was flat at $12m.
Managed revenue and operating profit increased by $18m (11.8%)
to $170m and by $2m (2.2%) to $92m respectively. During 2013,
a new property opened under an operating lease structure, with
the same characteristics as a management contract, contributing
revenue of $21m and operating profit of $1m. Excluding this
property together with the benefit of the $6m liquidated damages
receipt in 2013, revenue and operating profit decreased by $4m
(2.6%) and $4m (4.4%) respectively at constant currency. RevPAR
increased by 5.6%, with AMEA System size up 2.6%.
In the owned and leased estate, revenue and operating profit
decreased by $4m (8.3%) to $44m and by $2m (33.3%) to $4m
respectively, driven by a 7.3% RevPAR decline.
44
Performancecontinued AMEA hotel and room count
AMEA pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Percentage of Group
hotel and room count
2014
67
69
85
24
3
5
253
50
201
2
253
5.2
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
–
2
4
8
–
(5)
9
(1)
10
–
9
–
21,424
19,688
19,750
5,295
425
1,294
67,876
11,569
55,720
587
67,876
41
610
1,286
1,795
–
(694)
3,038
(42)
3,080
–
3,038
9.5
0.2
1
Includes 14 Holiday Inn Resort properties (3,003 rooms) (2013: 14 Holiday Inn
Resort properties (2,965 rooms)).
The AMEA System size increased by nine hotels (3,038 rooms)
to 253 hotels (67,876 rooms) as at 31 December 2014. The level
of openings decreased marginally to 19 hotels (4,228 rooms) in
2014 from 20 hotels (4,495 rooms) in 2013. Openings in 2014
included two hotels (417 rooms) for the InterContinental brand,
including the 140-room InterContinental Sydney Double Bay,
the second for the brand in Sydney, and four hotels (1,039 rooms)
in India.
10 hotels (1,190 rooms) were removed from the AMEA System
in 2014, compared to eight hotels (2,394 rooms) in 2013.
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inn1
Holiday Inn Express
Staybridge Suites
Total
Analysed by ownership type
Franchised
Managed
Total
2014
22
16
10
50
39
5
142
8
134
142
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
1
2
2
1
0
(1)
5
5
–
5
5,804
4,412
1,823
13,230
8,177
900
34,346
1,754
32,592
34,346
426
364
431
889
197
(35)
2,272
1,107
1,165
2,272
1
Includes seven Holiday Inn Resort properties (1,729 rooms) (2013: six Holiday
Inn Resort properties (1,579rooms)).
At 31 December 2014, the AMEA pipeline totalled 142 hotels
(34,346 rooms) compared to 137 hotels (32,074 rooms) as at
31 December 2013. Signings in AMEA of 32 hotels (8,030 rooms)
were slightly below the level seen in 2013 (36 hotels, 8,687 rooms).
Signings in 2014 included 21 hotels (5,507 rooms) in the Holiday Inn
brand family, notably including the 1,000-room Holiday Inn
Newport City in Manila. Four InterContinental hotels (999 rooms)
were signed during 2014.
Eight hotels (1,530 rooms) were removed from the pipeline in 2014,
compared to 11 hotels (2,475 rooms) in 2013.
1
Underlying excludes the impact of owned asset disposals, managed leases,
significant liquidated damages and exceptional items translated at constant
currency by applying prior year exchange rates.
45
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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.
Industry performance in 2014
The Chinese economy achieved GDP growth of 7.4% in 2014, a
slowdown against the average of 8.9% growth in the period from
2009 to 2013. This slowdown was attributable to several factors,
including lessening domestic demand and manufacturing output,
a correction in the real estate market and declining inflation.
Growth is expected to reduce further in 2015 and 2016.
Hotel industry RevPAR in Greater China decreased by 0.9% in the
year. Whilst overall occupancy increased by 1.9%, average daily
IHG’s regional performance in 2014
IHG’s comparable RevPAR increased 1.6% in 2014, significantly
ahead of the overall industry. Trading was strongest in tier 1 cities,
whilst tier 2 and 3 cities were softer, impacted by new supply as
these markets develop. Our RevPAR growth was driven by
occupancy which increased by 2.4%, whilst rate decreased by 2.3%
– both ahead of the industry, reflecting our scale and management
strength in the region.
Progress against 2014 regional priorities
In line with our 2014 regional priorities, we:
• grew distribution of our brands in the region with 34 hotel
openings and 64 hotels signed into our pipeline;
• opened 19 hotels during the year for the Holiday Inn brand family
(Holiday Inn and Holiday Inn Express), including the opening of
the 50th Holiday Inn Express hotel, and signed a further 45 hotels
into the pipeline for the Holiday Inn brand family;
• continued to make progress with the HUALUXE Hotels and
Resorts brand, with 24 hotels in the pipeline as at 31 December
2014 – one of which we opened in February 2015 (see page 19);
• continued to grow our talent (see page 23); and
• continued to localise IHG brands, systems, tools, processes
and responsible business practices to increase efficiency and
margin performance (see progress against KPIs set out on
pages 30 to 33).
rates decreased by 2.8%. Much of this decrease in the region is due
to changes in the industry structure due to growth in tier 2 and 3
cities as well as from growth of economy brands.
RevPAR in the People’s Republic of China (excluding Taiwan)
decreased by 1.5%. Many major cities, such as Shanghai and
Guangzhou, experienced an increase in RevPAR driven by strong
occupancy gains. However, RevPAR in Beijing and surrounding
North China, East China and South China saw a decrease in
year-on-year RevPAR growth.
Greater China comparable RevPAR
movement on previous year
Managed
All brands
Owned and leased
InterContinental
12 months ended
31 December 2014
1.3%
(1.0)%
IHG’s 2015 regional priorities
1. Further increase IHG System size, with deeper penetration in
tier 2 and 3 cities and strengthen the distribution of the Holiday
Inn and Holiday Inn Express brands to capture the growing
midscale segment opportunity.
2. Build a strong pipeline for the HUALUXE Hotels and Resorts
brand and support the subsequent hotel openings.
3. Continue to grow our talent and build a strong local talent
pipeline, particularly in tier 2 and 3 cities.
46
Source: Smith Travel Research for all of the above industry facts.
Performancecontinued Greater China results
Revenue
Franchised
Managed
Owned and leased
Total
Percentage of
Group Revenue
Operating profit before
exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Total
Percentage of Group
Operating profit before
central overheads and
exceptional items
12 months ended 31 December
2014 vs
2013 %
change
2012
$m
2013 vs
2012 %
change
2014
$m
2013
$m
4
99
139
242
3
92
141
236
33.3
7.6
(1.4)
2.5
3
89
138
230
–
3.4
2.2
2.6
13.0
12.4
0.6
12.5
(0.1)
5
63
42
110
(21)
89
5
51
47
103
(21)
82
–
23.5
(10.6)
6.8
–
8.5
4
51
45
100
(19)
81
25.0
–
4.4
3.0
(10.5)
1.2
Managed revenue increased by $7m (7.6%) to $99m, whilst
operating profit increased by $12m (23.5%) to $63m, reflecting
improvements in operating margin, net rooms growth, and a
small number of one-off items that contributed approximately $5m
to the result. Comparable RevPAR increased by 1.3%, whilst the
Greater China System size grew by 14.7%, driving a 8.5% increase
in total gross revenue derived from rooms business. Total gross
revenue derived from non-rooms business increased by 7.8%.
Owned and leased revenue decreased by $2m (1.4%) to $139m,
driven by a RevPAR decrease of 1.0% at InterContinental Hong
Kong. Operating profit decreased by $5m (10.6%) to $42m.
The decrease in revenue and operating profit at the hotel was
driven primarily by the ongoing development of the area adjacent
to the hotel and protests in central Hong Kong.
Highlights for the year ended 31 December 2013
Revenue and operating profit before exceptional items increased
by $6m (2.6%) to $236m and by $1m (1.2%) to $82m respectively.
On an underlying basis, revenue and operating profit increased
by $6m (2.6%) and $2m (2.5%) respectively.
11.0
10.0
1.0
10.6
(0.6)
Franchised revenue was flat at $3m and operating profit increased
by $1m (25.0%) to $5m.
Managed revenue increased by $3m (3.4%) to $92m and operating
profit was flat at $51m. RevPAR increased by 0.6%, whilst the
Greater China System size grew by 11.8%, driving a 9.2% increase
in total gross revenue derived from rooms business. Total gross
revenue derived from non-rooms business increased by 3.0%.
Operating profit was partly offset by increased investment to
drive future growth.
Owned and leased revenue at InterContinental Hong Kong
increased by $3m (2.2%) to $141m, driven by a 4.5% increase in
total gross revenue derived from non-rooms business, although
this was partly offset by a RevPAR decline of 0.1%. Operating profit
increased by $2m (4.4%) to $47m.
Highlights for the year ended 31 December 2014
Comprising 241 hotels (78,194 rooms) at 31 December 2014,
Greater China represented 11% of the Group’s room count and
contributed 11% of the Group’s operating profit before central
overheads and exceptional operating items for the year ended
31 December 2014. 97% of rooms in Greater China are operated
under the managed business model. The region’s hotels are
in the luxury, upscale and upper midscale segments.
Revenue and operating profit before exceptional items increased
by $6m (2.5%) to $242m and by $7m (8.5%) to $89m respectively.
Overall, the region achieved comparable RevPAR growth of
1.6%, slightly stronger than the 1.0% growth achieved in 2013.
This performance was significantly ahead of the industry,
reflecting IHG’s scale and management strength in the region,
and was achieved in a challenging environment with slower
macro-economic conditions, government austerity measures
and protests in Hong Kong. Trading was strongest in tier 1 cities,
especially Shanghai and Guangzhou, with good levels of transient
and corporate business. Performance in tier 2 and 3 cities
continues to be impacted by new supply as these markets develop.
Total RevPAR in the region decreased by 3.4% as hotels opened
in these lower RevPAR markets.
Franchised revenue increased by $1m (33.3%) to $4m whilst
operating profit was flat at $5m. Operating profit was higher than
revenue in both 2014 and 2013 due to joint venture dividend income
received from a hotel in Hong Kong.
47
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Greater China hotel and room count
Greater China pipeline
At 31 December
Analysed by brand
InterContinental
HUALUXE
Crowne Plaza
Hotel Indigo
Holiday Inn1
Holiday Inn Express
Total
Analysed by ownership type
Managed
Total
2014
18
24
44
10
43
50
189
189
189
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
(4)
3
(8)
5
2
17
15
6,678
7,551
14,801
1,646
12,384
11,278
54,338
(2,714)
747
(3,668)
925
440
4,018
(252)
15
15
54,338
54,338
(252)
(252)
1
Includes two Holiday Inn Resort properties (767 rooms) (2013: three Holiday
Inn Resort properties (890 rooms)).
At 31 December 2014, the Greater China pipeline totalled 189
hotels (54,338 rooms) compared to 174 hotels (54,590 rooms) at
31 December 2013. Signings of 64 hotels (15,754 rooms) increased
from 53 hotels (15,348 rooms) in 2013. Three InterContinental hotels
(930 rooms) were signed, together with five Crowne Plaza hotels
(1,400 rooms), whilst the total pipeline for the HUALUXE Hotels
and Resorts brand increased to 24 hotels (7,551 rooms). 45 hotels
(10,860 rooms) were signed for the Holiday Inn brand family, with
the Holiday Inn Express brand pipeline increasing to 50 hotels.
15 hotels (5,358 rooms) were removed from the pipeline in 2014,
compared to 16 hotels (4,005 rooms) in 2013.
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inn1
Holiday Inn Express
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Percentage of Group
hotel and room count
2014
33
73
5
73
55
2
241
4
236
1
241
5.0
Hotels
Change
over 2013
Rooms
Change
over 2013
2014
4
8
–
6
13
2
33
–
33
–
33
13,542
26,113
612
23,407
14,076
444
78,194
2,184
75,507
503
78,194
1,800
2,879
–
1,745
2,781
444
9,649
–
9,649
–
9,649
0.6
11.0
1.0
1
Includes six Holiday Inn Resort properties (1,825 rooms) (2013: four Holiday
Inn Resort properties (1,203 rooms)).
The Greater China System size increased by 33 hotels
(9,649 rooms) in the year to 241 hotels (78,194 rooms). 34 hotels
(10,648 rooms) opened during 2014, 11 hotels and 2,979 rooms
higher than 2013 and a record year for the region. Recent growth
in the region has focused on tier 2 and 3 cities, which now
represent approximately two-thirds of IHG’s open rooms. The
InterContinental brand System size increased by four hotels
(1,800 rooms) to 33 hotels (13,542 rooms) during the year, including
the addition of the 990-room InterContinental Chengdu Global
Centre. 19 Holiday Inn brand family hotels (4,445 rooms) were
also added in the year, including the 50th Holiday Inn Express,
nine hotels (1,078 rooms) higher than in 2013. Nine Crowne Plaza
hotels (3,498 rooms) were also added during the year, including the
466-room Crowne Plaza Beijing Lido, increasing the Crowne Plaza
System size to 73 hotels (26,113 rooms).
One hotel (999 rooms) was removed in 2014, compared to two hotels
(725 rooms) in 2013.
Central
Central results
Revenue
Gross central costs
Net central costs
48
12 months ended 31 December
2013
$m
121
(276)
(155)
2014 vs
2013 %
change
6.6
(2.9)
–
2012
$m
114
(276)
(162)
2013 vs
2012 %
change
6.1
–
4.3
2014
$m
129
(284)
(155)
Highlights for the year ended 31 December 2014
Central revenue, which mainly comprises technology fee income,
increased by $8m (6.6%) to $129m, driven by increases in both
comparable RevPAR (6.1%) and IHG System size (3.4%) in 2014
compared to 2013. At constant currency, gross central costs
increased by $4m (1.4%) compared to 2013 (an $8m or 2.9%
increase at actual currency).
Highlights for the year ended 31 December 2013
Central revenue, mainly comprising technology fee income,
increased by $7m (6.1%) to $121m, driven by increases to both
RevPAR and IHG System size over 2012. Gross central costs were
flat at $276m in 2013, reflecting continued tight cost control.
Performancecontinued System Fund
System Fund assessments
12 months ended 31 December
2014 vs
2013 %
change
2012
$m
2013 vs
2012 %
change
2014
$m
2013
$m
1,271
1,154
10.1
1,106
4.3
196
153
28.1
144
1,467
1,307
12.2
1,250
6.3
4.6
Assessment fees and
contributions received
from hotels
Proceeds from sale
of IHG Rewards Club
points
Total
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 System Fund. The System Fund
also receives proceeds from the sale of IHG Rewards Club points.
The System Fund is managed for the benefit of hotels in the IHG
System with the objective of driving revenues for the hotels.
The System Fund is used to pay for marketing, the IHG Rewards
Club loyalty programme and the global reservation system.
The operation of the System Fund does not result in a profit or loss
for the Group and consequently the revenues and expenses of the
System Fund are not included in the Group Income Statement.
Highlights for the year ended 31 December 2014
In the year to 31 December 2014, System Fund income increased
by 12.2% to $1,467m primarily as a result of a 10.1% increase in
assessment fees and contributions from hotels resulting from
increased hotel room revenues, reflecting increases in RevPAR
and IHG System size. Continued strong performance in co-branded
credit card schemes drove the 28.1% increase in proceeds from
the sale of IHG Rewards Club points.
Highlights for the year ended 31 December 2013
In the year to 31 December 2013, System Fund income increased
by 4.6% to $1,307m primarily as a result of growth in hotel room
revenues due to increases in RevPAR and IHG System size. The
increase in proceeds from the sale of IHG Rewards Club points
mainly reflects the continued strong performance of co-brand
credit card schemes.
Other financial information
Exceptional operating items
Exceptional operating items totalled a net gain of $29m. The
exceptional gain of $130m related to the sale of InterContinental
Mark Hopkins San Francisco and the disposal of an 80% interest in
InterContinental New York Barclay. Exceptional charges included
$14m foreign exchange losses resulting from recent changes to
the Venezuelan exchange rate mechanisms and the adoption of
the SICAD II exchange rate; $29m relating primarily to structural
change programmes across the Global Human Resources and
Global Technology functions; $6m arising from a partial cash-out
of the UK unfunded pension arrangements; $45m relating to the
cost of securing a restructuring of the UK hotel portfolio; and
$7m Kimpton Hotels & Restaurants acquisition transaction costs.
See note 5 to the Group Financial Statements for further detail.
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 increased by $7m to $80m reflecting
an increase in average net debt levels and the translation of
interest on the two sterling bonds.
Financing costs included $2m (2013 $2m) of interest costs
associated with IHG Rewards Club where interest is charged
on the accumulated balance of cash received in advance of the
redemption of points awarded. Financing costs in 2014 also
included $19m (2013 $19m) in respect of the InterContinental
Boston finance lease.
Taxation
The effective rate of tax on operating profit excluding the impact
of exceptional items was 31% (2013 29%). Excluding the impact
of prior year items the equivalent tax rate would be 35% (2013 32%).
This rate is higher than the average UK statutory rate of 21.5%
(2013 23.25%) due mainly to certain overseas profits (particularly
in the US) being subject to statutory rates higher than the UK
statutory rate, unrelieved foreign taxes and disallowable expenses.
Taxation within exceptional items totalled a charge of $29m
(2013 $51m). In 2014 the charge comprised $56m relating to the
disposal of an 80% interest in InterContinental New York Barclay
offset by a credit of $27m relating to a restructuring of the UK
hotel portfolio and other reorganisation costs. In 2013 the charge
comprised $6m relating to the exceptional operating items
and $64m consequent upon the disposal of InterContinental
London Park Lane, offset by a credit of $19m relating to an
internal restructuring.
Net tax paid in 2014 totalled $136m (2013 $97m) including $nil
(2013 $5m) in respect of disposals. Tax paid represents an
effective rate of 23% (2013 16%) on total profits and is lower than
the effective income statement tax rate of 31% 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.
49
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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 70% of its revenues in the form of
franchise, management or similar fees, with 85% 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.
Dividends
The Board has proposed a final dividend per ordinary share of
52¢ (33.8p). With the interim dividend per ordinary share of 25¢
(14.8p), the full-year dividend per ordinary share for 2014 will
total 77¢ (48.6p), an increase of 10.0% over 2013.
On 2 May 2014, the Group announced a $750m return to
shareholders by way of special dividend and share consolidation.
The dividend was paid to shareholders on 14 July 2014.
Under the $500m share buyback programme announced on
7 August 2012, which commenced on 12 November 2012 and
completed on 29 May 2014, a total of 17.3m shares have been
repurchased for total consideration of $500m.
Earnings per ordinary share
Basic earnings per ordinary share increased by 12.3% to
158.3¢ from 140.9¢ in 2013. Adjusted earnings per ordinary
share remained unchanged at 158.3¢.
Share price and market capitalisation
The IHG share price closed at £25.95 on 31 December 2014,
up from £20.13 on 31 December 2013. The market capitalisation
of the Group at the year end was £6.4bn.
50
Liquidity and capital resources
Sources of liquidity
The Group is financed by a $1.07bn syndicated bank facility which
expires in November 2016 (the Syndicated Facility), £250m of public
bonds which are repayable on 9 December 2016 and £400m of public
bonds which are repayable on 28 November 2022. $361m was drawn
under the $1.07bn Syndicated Facility at the year end. The bonds are
issued under the Group’s £750m Medium Term Notes programme.
Short-term borrowing requirements are met from drawings under
bilateral bank facilities. Additional funding is provided by the 99-year
finance lease (of which 91 years remain) on InterContinental Boston
and other uncommitted bank facilities (see note 21 to the Group
Financial Statements). In the Group’s opinion, the available facilities
are sufficient for the Group’s present liquidity requirements.
The Syndicated Facility contains two financial covenants;
interest cover and net debt divided by earnings before interest,
tax, depreciation and amortisation. 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.
Net debt of $1,533m (2013 $1,153m) is analysed by currency
as follows:
Borrowings
Sterling
US dollar
Euros
Other
Cash and cash equivalents
Sterling
US dollar
Euros
Canadian dollar
Chinese renminbi
Other
Net debt2
Average debt levels
2014
$m
20131
$m
1,028
557
103
7
(21)
(54)
(25)
(14)
(8)
(40)
1,533
1,322
671
709
11
10
(87)
(40)
(15)
(25)
(15)
(66)
1,153
985
1
Restated for the adoption of ‘Offsetting Financial Assets and Financial
Liabilities’ (Amendments to IAS 32), see page 107.
2 Including the impact of currency derivatives.
Borrowings included bank overdrafts of $107m (2013 $114m)
which were matched by an equivalent amount of cash and cash
equivalents under the Group’s cash pooling arrangements.
Under these arrangements, each pool contains a number of bank
accounts with the same financial institution and the Group pays
interest on net overdraft balances within each pool. The cash
pools are used for day-to-day cash management purposes and
are managed daily as closely as possible to a zero balance on
a net basis for each pool. Overseas subsidiaries are typically in
a cash positive position, with the most significant balances in
the US and Canada, and the matching overdrafts are held by
the Group’s central treasury company in the UK.
Performancecontinued Cash and cash equivalents include $4m (2013 $12m) that is not
available for use by the Group due to local exchange controls.
Information on the maturity profile and interest structure
of borrowings is included in notes 20 and 21 to the Group
Financial Statements.
Contractual obligations
The Group had the following contractual obligations outstanding
as of 31 December 2014:
Total
amounts
committed
Less
than
1 year
1-3
years
3-5
years
After 5
years
Long-term debt
obligations1, 2
Interest payable2
Derivatives
Finance lease
obligations3
Operating lease
obligations
Agreed pension
scheme
contributions4
Capital contracts
placed
Kimpton
acquisition
Total
1,378
248
2
3,364
349
6
117
430
5,894
3
52
2
16
40
6
117
430
666
$m
751
76
–
32
62
–
–
–
–
47
–
32
47
–
–
–
624
73
–
3,284
200
–
–
–
921
126
4,181
1 Repayment period classified according to the related facility maturity date.
2 Excluding bank overdrafts.
3
Represents the minimum lease payments related to the 99-year lease
(of which 91 years remain) on InterContinental Boston. Payments under
the lease step up at regular intervals over the lease term.
4 Largely relates to US pension obligations.
As explained in note 33 to the Group Financial Statements,
the Group completed the acquisition of Kimpton Hotel &
Restaurant Group, LLC for $430m on 16 January 2015.
The acquisition was primarily financed by a $400m bilateral
term loan with a term of six months plus two six-month extension
periods. A variable rate of interest is payable on the loan which
has identical covenants to the Syndicated Facility.
Contingent liabilities
Contingent liabilities include performance guarantees with
possible cash outflows totalling $29m, guarantees over the debt
of equity investments of $20m and outstanding letters of credit
of $40m. See note 30 to the Group Financial Statements for
further details.
The Group had net liabilities of $717m at 31 December 2014
reflecting that its brands are not recognised in the Group statement
of financial position. At the end of 2014 the Group was trading
significantly within its banking covenants and facilities.
Cash from operating activities
Net cash from operating activities totalled $543m for the year
ended 31 December 2014 down $81m on the previous year largely
due to increased cash flows relating to exceptional operating items.
Cash flow from operating activities is the principal source of cash
used to fund the ongoing operating expenses, interest payments,
maintenance capital expenditure and normal dividend payments of
the Group. The Group believes that the requirements of its existing
business and future investment can be met from cash generated
internally, disposition of assets and external finance expected to
be available to it.
Cash from investing activities
Net cash inflows due to investing activities totalled $123m, a
decrease of $52m over 2013. Capital expenditure on property,
plant and equipment decreased from $159m in 2013 to $84m
as the prior year included significant investment in hotel
properties that were in the process of being converted to the
Group’s EVEN Hotels brand. $394m of disposal proceeds primarily
related to the disposal of InterContinental Mark Hopkins San
Francisco and the disposal of an 80% interest in InterContinental
New York Barclay.
The Group had committed contractual capital expenditure of $117m
at 31 December 2014 (2013 $83m).
Cash used in financing activities
Net cash used in financing activities totalled $736m, which was
$121m lower than in 2013. Returns to shareholders of $1,052m,
comprising ordinary dividends, special dividends and share
buybacks, were $236m higher than in 2013. $68m (2013 $44m) was
spent on share purchases in order to fulfil share incentive awards.
Overall net debt increased during the year by $380m to $1,533m
at 31 December 2014.
Off-sheet balance sheet arrangements
At 31 December 2014, the Group had no off-balance sheet
arrangements that have or are reasonably likely to have a current
or future effect on the Group’s financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources that is material to investors.
51
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Governance
Our Board and Committee governance structure
2014 Board meetings
Who is on our Board of Directors
Who is on our Executive Committee
Board composition and diversity
Director induction, training and development
Board effectiveness evaluation
Board engagement with shareholders
Audit Committee Report
Corporate Responsibility Committee Report
Nomination Committee Report
Statement of compliance with the UK Corporate Governance Code
54 Chairman’s overview
55 Corporate Governance
55
56
57
60
61
63
63
64
65
68
69
70
72 Directors’ Report
76 Directors’ Remuneration Report
76
77
79
80
82
91
Remuneration Committee Chairman’s Statement
Governance
Strategic context
Summary of our Directors’ Remuneration Policy
Annual Report on Directors’ Remuneration
Implementation of Directors’ Remuneration Policy in 2015
Plan
‘Guest Journey’ – Step two
• The Plan phase of the ‘Guest Journey’
is where our guests narrow down their
travel options.
• They do this in different ways; by
searching and learning more about
our brands online and reading guest
reviews; through IHG Rewards Club
offerings; or via interaction with call
centres, travel agents and corporate
travel departments.
52
53
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Chairman’s overview
Dear Shareholder
We are committed to maintaining the highest standards of
corporate governance. Our governance framework, led by the
Board, supports IHG’s culture, values and our commitment
to conducting business responsibly, further explained on pages
24 and 25. We have in place strong and effective practices and
conduct regular reviews to ensure we are compliant.
Governance and strategy
The Board is accountable for the long-term success of the Group,
as well as for setting the strategic priorities and objectives of the
Group and its risk appetite. We consider the interests of all of our
stakeholders at all times. Shaping and implementing IHG’s strategy
is the most critical role of the Board and therefore the Board
dedicates ample time to discussing the Group’s strategy, not least
as part of our annual strategy meeting. Further information on how
the Board spent its time during 2014 can be found on page 56.
Board changes and succession planning
A high-level structure of IHG’s Board and its Committees, along
with biographies of current Board and Executive Committee
members, can be found on pages 55 and 57 to 61.
As announced in our 2013 Annual Report, David Kappler retired on 31
May 2014 after spending over nine years as a Non-Executive Director
at IHG. He was succeeded by Dale Morrison as Senior Independent
Non-Executive Director on 31 May 2014. Ian Dyson took over David’s
duties as Chairman of the Audit Committee on 1 April 2014. We also
said goodbye to Jonathan Linen, who retired from the Board on
31 December 2014 after spending nine years with the business.
In August 2014, we announced the appointment of Jo Harlow to
the Board and Audit, Nomination and Remuneration Committees
effective as of 1 September 2014. Jo’s appointment fulfils one of
the objectives I highlighted last year, which was to enhance the
Board’s capabilities and competencies by appointing a Non-
Executive Director with specific consumer-facing technology
experience given the significance of this area in our strategy.
Finally, in December 2014, we announced Kirk Kinsell would step
down from the Board on 13 February 2015. Kirk was succeeded
as Chief Executive Officer, The Americas by Elie Maalouf, who sits
on IHG’s Executive Committee. I would like to thank Kirk for his
long-standing contribution to IHG, most recently as a Board
member and President of The Americas region.
We are also pleased to welcome Anne Busquet to the Board as
a Non-Executive Director effective as of 1 March 2015. Anne will
sit on the Audit, Corporate Responsibility and Nomination
Committees. Anne has an impressive breadth of experience
in digital commerce, hospitality, finance and marketing.
Our Board Committees
We continually review the Board’s composition to ensure we have
the right balance of skills to support the business both today and
54
in the future. This includes a regular review of the size, experience,
diversity and gender of our Board, which is conducted by our
Nomination Committee (see page 69 for its report). We value
the benefits that diversity brings, having had at least 25 per cent
female representation on our Board since 2012. Further details
on our approach to diversity from Board level and throughout
the organisation, including our policies in this area, can be found
on pages 61 and 62.
The Audit Committee plays a substantial role in ensuring
appropriate governance and challenge around our risk and
assurance processes. In line with our 2014 priorities, a major
focus area has been the risks relating to information security
and technology. More information can be found in the Audit
Committee Report on pages 65 to 67.
In 2014, the Corporate Responsibility Committee continued
to drive engagement of our three corporate responsibility
programmes and deliver against our five-year corporate
responsibility targets (see page 68 for its report).
At our 2014 AGM, our Directors’ Remuneration Policy was
approved with a 90.94 per cent vote in favour. We are not making
any changes to this Policy this year, however, we have provided
a summary of it in our Directors’ Remuneration Report, which
can be found on pages 76 to 91. This includes information about
the Committee, the Annual Report on Directors’ Remuneration
and Implementation of our Directors’ Remuneration Policy in 2015.
Board effectiveness
For 2014, we conducted an internal evaluation on Board
effectiveness. During 2014, we progressed the actions that were
highlighted from the 2013 external evaluation, which enabled us
to further inform enhancements to our Board processes. Details
of both the 2013 and 2014 evaluation, including the process and
recommendations, can be found on pages 63 and 64.
Structure of the report
This year we have restructured our Corporate Governance
Statement, setting out a review of our 2014 activities at the start,
followed by each Board Committee’s report and finally details of
how we have complied with the UK Corporate Governance Code
published in September 2012 (the Code). We have aimed to provide
greater transparency on compliance with the Code, making this
easier to follow.
I am pleased to report that, during 2014, we complied fully with
all principles and provisions of the Code, with the exception of
the provision relating to audit tendering (see page 70), as we
believe it would not be in the best interests of the Group to
undertake an audit tender at this time (see pages 66 and 67).
Objectives for the year
My objectives for the Board this year are to ensure that the focus
and composition of the Board continues to evolve to support the
execution of our strategy and the opportunities and challenges we
face. Our 2015 Board agenda will allow time for continued focus on
our technology strategy and in-depth reviews of our brands and
our priority markets. This year, our annual strategy meeting will
be held in Greater China.
Patrick Cescau
Non-Executive Chairman
16 February 2015
Compliance and our dual listing
As a dual listed company with a premium listing on the London
Stock Exchange and a secondary listing on the New York Stock
Exchange, we are required to file both an Annual Report in the
UK, which complies with the Code, and an Annual Report on
Form 20-F in the US, which complies with the NYSE rules,
US securities laws and the rules of the Securities and Exchange
Commission (SEC).
For 2014, to ensure continued consistency of information
provided to both UK and US investors, we have for the second
time produced a combined Annual Report and Form 20-F.
As required by the SEC, a statement outlining the differences
between the Group’s UK corporate governance practices and
those followed by US companies can be found on pages
173 and 174.
Corporate Governance
Our Board and Committee governance structure
The Board leads the strategic direction and long-term objectives and success of the Group through effective oversight and review,
setting the Group’s strategic aims and monitoring the performance of the Group and its risk management controls.
A number of key decisions and matters are reserved for the Board’s approval and are not delegated to management, these include
matters related to Group business and commercial strategy; 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
and governance and compliance.
The Board delegates certain responsibilities to its Committees, namely the Audit Committee, Corporate Responsibility Committee,
Nomination Committee and Remuneration Committee, to assist it in carrying out its functions.
Board
Audit
Committee
• Leads on internal
controls and risk
management; financial
reporting; internal
audit; fraud and
whistleblowing and
external audit and
compliance.
• Maintains working
relationships with
management, Global
Internal Audit,
Disclosure Committee
and the external
Auditor.
• See pages 65 to 67.
Corporate
Responsibility
Committee
• Leads on corporate
responsibility
objectives and strategy,
and our approach to
sustainable
development.
• Reviews our impact
on the environment
and communities.
• Leads on IHG’s
stakeholder
engagement.
• See page 68.
Nomination
Committee
• Leads on and examines
nominations and
appointments to
the Board and
its Committees,
and makes
recommendations
to the Board.
• Responsible for
reviewing the Group’s
leadership needs.
• See page 69.
Remuneration
Committee
• Leads on and reviews
all aspects of
remuneration of the
Executive Directors
and Executive
Committee members,
and remuneration
policy for senior
executives.
• See pages 76 to 91.
Executive
Committee
• Considers and manages
a range of strategic and
business issues facing
the Group.
• Monitors IHG’s
performance and is
authorised to approve
capital and revenue
investment within levels
agreed by the Board.
• Makes recommendations
to the Board on
significant decisions
requiring Board
approval.
• Chaired by the Chief
Executive Officer.
• For members, see
pages 60 and 61.
General
Purposes
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.
• Chaired by an Executive
Committee member
and comprises an
Executive Committee
member and senior
officer from an
agreed list.
Disclosure Committee
• Ensures proper procedures are in place for
information disclosures required pursuant to UK
and US accounting, statutory or listing requirements.
• Chaired by the Group’s Financial Controller and
comprises the Company Secretary and other
senior management.
• Reports to the Chief Executive Officer, the Chief
Financial Officer and the Audit Committee.
Committee key
Board Committees
Management Committees
Matters reserved for the Board and each Committee’s
terms of reference are available on our website at:
www.ihgplc.com/investors under corporate governance.
55
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
2014 Board meetings
The Board held eight scheduled meetings during 2014
and attendance by each Director is set out in the table below.
Attendance at Committee meetings is indicated in each
Committee report. Unless otherwise indicated, all Directors
held office throughout the year.
Annual strategy meeting
We held our 2014 annual two-day strategy meeting in Singapore.
This included:
• a review of industry trends, competitors and consumer trends;
• an in-depth discussion of our Group strategy and progress
on its implementation;
• an in-depth review of the performance, opportunities and
Attendance
challenges in our AMEA and Greater China regions;
Board membership and attendance
Director
Patrick Cescau (Chairman)
Richard Solomons (Chief Executive Officer)
Executive Directors
Paul Edgecliffe-Johnson1
Kirk Kinsell
Tracy Robbins
Non-Executive Directors
Ian Dyson
Jo Harlow (appointed 1 September 2014)
David Kappler (retired 31 May 2014)
Jennifer Laing
Jonathan Linen (retired 31 December 2014)
Luke Mayhew
Jill McDonald
Dale Morrison
(Senior Independent Non-Executive Director)
Ying Yeh
Total meetings held
8/8
8/8
8/8
8/8
7/82
8/8
3/3
3/3
8/8
7/82
8/8
7/82
8/8
8/8
8
1 Tom Singer resigned and Paul Edgecliffe-Johnson became Chief Financial
Officer effective as of 1 January 2014.
2 Tracy Robbins missed one Board meeting due to health reasons and
Jonathan Linen and Jill McDonald missed one Board meeting due
to a prior commitment known to the Board in advance.
What did the Board consider at its 2014 meetings
Strategy
The Board spends a substantial amount of time considering
Group strategy. In addition to its annual strategy meeting,
time was spent in 2014 discussing strategic areas and business
updates, including:
• IHG strategic updates and priorities;
• industry and consumer updates;
• brands, regional and functional updates;
• implementation of our commercial strategy, which includes
focusing on our preferred brands, our loyalty programme
and our channel management and distribution strategy;
• development of our technological platforms; and
• consideration and approval of the acquisition of Kimpton
Hotels & Restaurants, in line with our strategy.
56
• meeting with AMEA Regional Operating Committee members,
which comprises senior management in this region;
• visiting our corporate office in Singapore; and
• attending an informal evening event with the Singapore office
and 30 members of the IHG I-Grad Future Leaders Programme.
A third day was added to give the Board the opportunity to visit
hotels across our brand portfolio in Singapore and interact with
general managers of our hotels and their teams.
Governance
• Reviewed our internal controls and risk management
processes including the Major Risk Review, a Risk
Management Effectiveness Review and updates on
our global insurance programme.
• Discussed the composition and succession planning of the
Board and its Committees and approved Dale Morrison
becoming Senior Independent Non-Executive Director,
Ian Dyson becoming Chairman of the Audit Committee and
the appointment of Jo Harlow as a new Non-Executive Director.
• Reviewed the externally conducted 2013 Board performance
evaluation and agreed the action plan for 2014.
• Considered the performance of each of the Board Committees,
concluding each remained effective and reviewed each of their
terms of reference, updating these as required.
• Received updates on the deliberations of each of the Board
Committees (see each of their reports on their key activities
and priorities during 2014).
• Updated on upcoming legislative and regulatory changes
affecting our business and the Board and its Committees across
areas including corporate reporting, governance guidelines,
and institutional investor reports.
Investor relations
• Reviewed and approved a $750 million return to shareholders.
• Discussed reports on investor perceptions and shareholder
relations, and considered analysts reports and media updates.
Regular agenda items
As part of general monitoring of the Group and its compliance
with the governance framework, certain matters are regularly
included on Board meeting agendas. These include an update
on the business from the Chief Executive Officer, finance updates
from the Chief Financial Officer (which includes a financial review
of the Group), and deep dives on each region and function
presented by Executive Committee members and other senior
management.
Meetings without Executive Directors
During 2014, at the end of each Board meeting, our Non-Executive
Directors met with the Chairman without the Executive Directors
present. They also regularly met with the Chief Executive Officer
without the other Executive Directors present.
continuedCorporate Governance Who is on our Board of Directors
Patrick Cescau
Non-Executive Chairman N
Appointed to the Board: 1 January 2013
Richard Solomons
Chief Executive Officer C
Appointed to the Board: 10 February 2003
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 PLC
and 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 US, Indonesia and Portugal. He was formerly a Senior
Independent Director and Non-Executive Director of Pearson plc and
a Director at INSEAD.
Board contribution: Patrick has held board of director positions
for nearly 15 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. He is also Chairman
of the Nomination Committee.
Skills and experience: During his tenure as Chief Executive Officer,
Richard has led the continued growth of IHG, including the launch
of our two newest brands, HUALUXE Hotels and Resorts and EVEN
Hotels and IHG’s acquisition of Kimpton Hotels & Restaurants. Before
being appointed Chief Executive Officer, Richard served as Chief
Financial Officer and Head of Commercial Development. Richard was
integral in shaping and implementing IHG’s asset-light strategy, which
has helped the business grow significantly since it was formed in 2003,
as well as supporting the return of $10.4 billion to shareholders. In
2008, he served as Interim President of our Americas region. Richard
is a member of the Executive Committee of the World Travel and
Tourism Council, a member of the Industry Real Estate Financing
Advisory Council and a Governor of the Aviation and Travel Industry
Group of the World Economic Forum.
Board contribution: Richard is responsible for the executive
management of the Group and ensuring the implementation of Board
strategy and policy.
Other appointments: Currently a Non-Executive Director of
International Consolidated Airlines Group S.A. and the Senior
Independent Director of Tesco PLC. Patrick is also a trustee
of The Leverhulme Trust.
Paul Edgecliffe-Johnson
Chief Financial Officer
Appointed to the Board: 1 January 2014
Tracy Robbins
Executive Vice President,
Human Resources and
Group Operations Support
Appointed to the Board: 9 August 2011
Skills and experience: Paul is a chartered accountant and a fellow
of the Institute of Chartered Accountants. He was previously Chief
Financial Officer of IHG’s Europe and Asia, Middle East and Africa
regions, a position he held since September 2011. He joined IHG in
August 2004 and has held a number of senior level finance positions,
including Head of Investor Relations, Head of Global Corporate
Finance and Financial Planning & Tax and Head of Hotel Development,
Europe. Paul also acted as Interim Chief Executive Officer of the
Europe, Middle East and Africa regions.
Skills and experience: Tracy has nearly 30 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, she acted as Group HR Director
for Forte Group plc, a hotel company. Tracy 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: Paul is responsible, together with the Board,
for overseeing the financial operations of the Group and setting
its financial strategy.
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.
Board Committee membership key
A Audit Committee member
C Corporate Responsibility Committee member
N Nomination Committee member
R Remuneration Committee member
Denotes Chairman of a Board Committee
57
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Who is on our Board of Directors continued
Dale Morrison
Senior Independent
Non-Executive Director A C N
Appointed to the Board: 1 June 2011
Ian Dyson
Independent
Non-Executive Director A N R
Appointed to the Board: 1 September 2013
Skills and experience: Dale is 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.
He was appointed as the Board’s Senior Independent Non-Executive
Director on 31 May 2014.
Other appointments: Currently a Non-Executive Director of
International Flavors & Fragrances Inc., a producer of flavours and
fragrances, and Non-Executive Chairman of Findus Group, a frozen
food company.
Skills and experience: Ian has held a number of senior executive
and finance roles including Group Finance & Operations Director
for Marks and Spencer Group plc for five years from 2005 to 2010,
where he oversaw significant changes in the business. In addition,
Ian was Chief Executive Officer of Punch Taverns plc, a pub and bar
operator, Finance Director for the Rank Group Plc, a leading European
gaming business, and Group Financial Controller and Finance Director
for the hotels division of Hilton Group Plc.
Board contribution: Ian has gained significant experience from working
in various senior finance roles predominantly in the hospitality sector.
Ian became Chairman of the Audit Committee on 1 April 2014 and as
such is responsible for leading the Committee to ensure effective
internal controls and risk management systems are in place.
Other appointments: Currently a Non-Executive Director of Punch
Taverns plc, a Non-Executive Director and Chairman of the Audit
Committee of SSP Group plc and Senior Independent Non-Executive
Director and Chairman of the Audit Committee of ASOS Plc and Betfair
Group plc.
Jo Harlow
Independent
Non-Executive Director A N R
Appointed to the Board: 1 September 2014
Jennifer Laing
Independent
Non-Executive Director A C N
Appointed to the Board: 25 August 2005
Skills and experience: Jo has held the position of Corporate Vice
President of the Phones Business Unit at Microsoft Corporation
since May 2014. She was previously Executive Vice President of Smart
Devices at Nokia Corporation since February 2011, following a number
of senior management roles at Nokia since 2003. Prior to that, she
held marketing, sales and management roles at Reebok International
Limited from 1992 to 2003 and at Procter & Gamble Company from
1984 to 1992.
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 where she rose to Chairman of the London
office and subsequently Chief Executive Officer and Chairman of
Saatchi & Saatchi North America. Until May 2014, she was also
a Non-Executive Director of Hudson Global, Inc.
Board Contribution: Jo has over 25 years’ experience working
in various senior roles predominantly in the branded and
technology sectors.
Other appointments: None.
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 and approach to sustainable development.
Other appointments: Currently a Non-Executive Director of Premier
Foods plc, a branded food producer.
58
continuedCorporate Governance Luke Mayhew
Independent
Non-Executive Director C N R
Appointed to the Board: 1 July 2011
Jill McDonald
Independent
Non-Executive Director A N
Appointed to the Board: 1 June 2013
Skills and experience: Luke served for 12 years on the Board
of John Lewis Partnership plc, 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 WHSmith PLC
and Chairman of Pets at Home Group Plc.
Board contribution: Luke has over 30 years’ experience in senior
roles in the branded sector and was Remuneration Committee
Chairman at Brambles Limited from 2006 to 2014. As Chairman
of the IHG Remuneration Committee he is responsible for setting
the remuneration policy.
Other appointments: Currently a Non-Executive Director of DFS
Furniture Holdings plc, and a trustee of BBC Children in Need.
Skills and experience: Jill started her career at Colgate-Palmolive
Company, spent 16 years with British Airways Plc and held a number
of senior marketing positions in the UK and overseas.
Board contribution: Jill has nearly 30 years’ experience working with
high-profile international consumer-facing brands at both marketing
and operational level.
Other appointments: Currently Chief Executive Officer UK and
President for the North West Europe Division for McDonald’s.
Prior to that Jill was Chief Executive Officer UK and President for the
Northern Division (2010 to 2013) and previously Senior Vice President,
Chief Marketing Officer UK and Northern Division (2006 to 2010).
The Board is supported by the
Company Secretary:
George Turner
Executive Vice President, General
Counsel and Company Secretary
Appointed to the Executive Committee:
January 2009 (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
over 10 years with Imperial Chemical Industries 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 corporate governance,
risk management, insurance, regulatory, internal audit, legal,
corporate responsibility, public affairs and standards.
Ying Yeh
Independent
Non-Executive Director C N R
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
previously a Non-Executive Director of AB Volvo, a transportation
related products and services company, and 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 ABB Ltd,
a global leader in power and automation technologies, and Samsonite
International S.A.
Changes to the Board
Tom Singer
Tom resigned as Chief Financial Officer effective as of 1 January 2014.
Paul Edgecliffe-Johnson
Paul joined the Board as Chief Financial Officer effective as of 1 January 2014.
David Kappler
David retired as Senior Independent Non-Executive Director effective as of 31 May 2014.
Jo Harlow
Jo joined the Board as a Non-Executive Director effective as of 1 September 2014.
Jonathan Linen
Jonathan retired as a Non-Executive Director effective as of 31 December 2014.
Kirk Kinsell
Anne Busquet
Kirk resigned as President, The Americas effective as of 13 February 2015.
Anne will be joining as a Non-Executive Director effective as of 1 March 2015.
59
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Who is on our Executive Committee
In addition to the Executive Directors and the General Counsel and Company Secretary, the Executive Committee comprises:
Keith Barr
Chief Commercial Officer
Appointed to the Executive Committee:
April 2011 (Joined the Group: 2000)
Angela Brav
Chief Executive, Europe
Appointed to the Executive Committee:
August 2011 (Joined the Group: 1988)
Skills and experience: Keith has over 20 years’ experience in the
hospitality industry. He has held senior appointments at IHG including
Vice President of Sales and Revenue Management, Vice President
of Operations, Chief Operating Officer, Australia, New Zealand and
South Pacific, and Managing Director, Greater China. He became an
Executive Committee member in April 2011 and prior to becoming
Chief Commercial Officer, was Chief Executive, Greater China until
May 2013. Keith is currently a member of Leland C. and Mary M.
Pillsbury Institute for Hospitality Entrepreneurship Advisory Board.
Key responsibilities: These include global sales, marketing and brand
functions, to drive consistent brand strategies across all regions and
leverage IHG’s scale and systems to deliver continued industry
outperformance.
Skills and experience: Angela has over 25 years’ experience in the
hospitality industry, including hotel operations, franchise relations
and technology solutions. She has held various senior roles in IHG’s
North American and European regions prior to becoming Chief
Operating Officer, North America. She was appointed Chief Executive,
Europe in August 2011.
Key responsibilities: These include business development and
performance of all the hotel brands and properties in Europe.
Elie Maalouf
Chief Executive Officer,
The Americas
Appointed to the Executive Committee:
February 2015 (Joined the Group: 2015)
Kenneth Macpherson
Chief Executive, Greater China
Appointed to the Executive Committee:
April 2013 (Joined the Group: 2013)
Skills and experience: Elie was appointed Chief Executive Officer,
The Americas at IHG in February 2015, having had over 15 years’
experience working in a major global franchise business. He joined the
Group having spent six years as President and Chief Executive Officer
of HMSHost Corporation, a global travel and leisure company, where
he was also a member of the Board of Directors. Elie brings broad
experience to IHG spanning development, branding, finance, real
estate and operations management, as well as highly relevant food
and beverage expertise. He was most recently a Senior Advisor
with McKinsey & Company.
Key responsibilities: These include business development
and performance of all the hotel brands and properties in
The Americas region.
Skills and experience: Kenneth joined IHG as Chief Executive, Greater
China in April 2013. Prior to joining the Group, he worked for Diageo
plc, for nearly 20 years and has held senior management positions,
including serving as Executive Managing Director of Diageo Greater
China. Kenneth has extensive management experience, with a
background in sales, marketing strategy, business development and
operations. Kenneth also brings substantial knowledge and expertise
in Chinese and international business operations.
Key responsibilities: These include business development and
performance of all the hotel brands and properties in the Greater
China region.
There are no family relationships between any of the Board or Executive Committee members (set out on pages 57 to 61). There are
no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the Board
or Executive Committee were selected as a Director or member of the Executive Committee.
60
continuedCorporate Governance Eric Pearson
Executive Vice President
and Chief Information Officer
Appointed to the Executive Committee:
February 2012 (Joined the Group: 1997)
Jan Smits
Chief Executive,
Asia, Middle East and Africa
Appointed to the Executive Committee:
April 2011 (Joined the Group: 2002)
Skills and experience: Eric has a background in engineering and
technology and started his career at IHG nearly 20 years ago. Since
then he has held various senior positions in the field of emerging
technologies and global e-commerce. Prior to being appointed Chief
Information Officer, Eric most recently held the position of Chief
Marketing Officer for The Americas region.
Skills and experience: Jan has 33 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 global technology, including
IT systems and information management, throughout the Group.
Key responsibilities: These include business development and
performance of all the hotel brands and properties in Asia, Middle
East and Africa.
Board composition and diversity
The Board believes that, in order to be most effective, objectively challenge management and encourage different perspectives
for debate, it must have an appropriate mix of skills, experience, knowledge and diversity in line with our business. The Nomination
Committee supports the Board in respect of reviewing Board composition and continuously monitors succession planning.
See page 69 for the Nomination Committee Report.
Independence and tenure
The Board and Nomination Committee regularly review the
independence of each Non-Executive Director. Jennifer Laing
has served on the Board for over nine years and the Nomination
Committee has specifically reviewed her independence and is
satisfied that she continues to demonstrate independence in
character and judgement and is independent as required under
the Code. The Board has also considered this and reached the
same conclusion. Excluding the Chairman, 70 per cent (as at
16 February 2015) and 67 per cent (as at 31 December 2014)
of our Board comprise independent Non-Executive Directors.
As Ying Yeh has also been on the Board for over six years, both
her and Jennifer’s continued appointments were the subject of
particular review and scrutiny by the Nomination Committee and
the Board. Our current Non-Executive Directors’ lengths of tenure
as at 16 February 2015 are shown below:
Over 9 years tenure
12.5% (1)
6-9 years tenure
12.5% (1)
0-3 years tenure
50% (4)
3-6 years tenure
25% (2)
61
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Board composition and diversity continued
Board Diversity Policy (BDP) and Global Diversity and Inclusion Policy (GDIP)
With a presence in nearly 100 countries globally, we value the benefits of diversity, beyond gender, and strongly believe that our
leadership should reflect the diversity of our employees, our guests and the local communities in which we operate. Therefore,
the Board seeks diversity of skills, experience, geographical representation and gender both in its composition and throughout
all levels of our business. In 2013, we introduced a Board Diversity Policy as well as a Global Diversity and Inclusion Policy to
ensure that diversity in its broadest sense remains a key priority.
Progress against the objectives of each of these policies during 2014:
BDP and GDIP objective: Maintain a level of at least 25% female
directors on the Board over the short to medium term
We firmly believe in the importance of a diverse Board
membership and fully support the Lord Davies Report on
‘Women on boards’. Jo Harlow joined our Board on 1 September
2014. Our Board currently comprises 11 Directors, five of whom
are women. This continues our record since 2012 of having
more than 25 per cent females on the Board:
16 February 2015
31 December 2014
45% (5)
38% (5)
31 December 2013
31% (4)
31 December 2012
27% (3)
55% (6)
62% (8)
69% (9)
73% (8)
Female
Male
We remain committed to maintaining at least 25 per cent female
representation on the Board over the short to medium term,
but the Nomination Committee does recommend appointments
based on merit, ensuring there is an appropriate mix on the
Board (as set out above and in its report on page 69).
BDP objective: We will report annually against these objectives
and other initiatives taking place in the Group which promote
gender and other forms of diversity
GDIP objective: To sustain a healthy balance of gender in the
whole employee organisation
We continue to take action to sustain a healthy gender balance
and review diversity throughout our organisation. Out of the
12,772 people employed by the Group whose costs are borne
by the Group or the System Fund (see pages 23, 120 and 152),
7,069 are female (55 per cent).
In 2014, initiatives promoting diversity (beyond gender) included:
• establishing internal forums to increase support and
mentoring for female colleagues and high-potential female
employees;
• actively participating in external diversity summits,
conferences and events in all regions; and
• continuing to review ways to increase local representation
on the leadership and management teams in emerging
markets. In Greater China, our Regional Operating
Committee has three local leaders, thereby strengthening
our local leadership talent.
BDP objective: Whilst all appointments are made on merit,
we seek to ensure that the Board maintains an appropriate
balance through a diverse mix of experience, backgrounds,
skills, knowledge and insight, to further strengthen the
diversity of gender and experience already on the Board
and improve it further
Our Board members bring multinational experience to IHG,
having themselves worked across a number of countries.
The diverse nationalities of our Board are reflected below:
American
18% (2)
Chinese
9% (1)
French
9% (1)
British
64% (7)
Collectively the Board also has a broad collection of industry skills
and experience in line with IHG’s business and strategic focus, to
enable it to discharge its duties and responsibilities effectively:
11
11
10
4
4
International
Branded
Consumer
Finance
1
Sales and
Marketing
Technology
BDP objective: We commit to having diverse and inclusive
leadership which supports all colleagues in reaching their
full potential, including the development of a pipeline of
high-calibre candidates from within the business
GDIP objective: To strengthen female representation in our
global senior leadership population, with a target of reaching
25% by the end of 2015
We have 52 people comprising our senior leadership population
at our corporate offices and central reservations offices who
are employed by the Group and are part of our senior leadership
team, 14 of these people are females (27 per cent). This is in line
with our 2015 target and is an increase from the 21 per cent
in 2013. This reflects both external appointments and internal
promotions of female talent during 2014. We have also worked
with executive search firms to ensure we have better gender
balance on shortlists for senior leadership appointments.
From 2015, each of our Executive Committee members will
be mentoring our high-potential senior leaders.
62
continuedCorporate Governance Director induction, training and development
New Director induction
New Directors receive a full and formal induction
programme tailored to meet their individual needs and in
accordance with best practice. This induction, led by the
Chairman, includes the following key areas:
• familiarisation with the Group’s business, principal
activities and strategy;
• an understanding of the Group’s governance, including
the structure of the Board and its Committees and our
approach to internal controls and risk management;
• meetings with senior executives and regional and
central management from various functions across
the Group, including Business Reputation and
Responsibility, Human Resources, Corporate Affairs,
Global Strategy, Global Internal Audit and Group
Finance; and
• visits to our global corporate offices and hotels
to provide a greater insight into our business.
Ongoing Director training and development
Jo Harlow’s induction
Jo’s induction centred on providing her with an understanding of IHG
and our business to enable her to contribute her knowledge, skills
and experience effectively to the Board. The key areas included:
• information on the Group, including our history, brands, regional
structure and operations; strategy and business model; KPIs;
commercial strategy; the IHG Owners Association; and
regulatory compliance;
• information on the Board, its Committees and IHG’s governance
processes with particular focus on the Audit, Nomination and
Remuneration Committees in light of her appointment to these;
• our approach to internal controls and risk management; and
• meetings with members of the Board and the Executive Committee,
senior management from functions across the Group and the
external Auditor.
Since her appointment, Jo has had the opportunity to visit our UK
and US corporate headquarters, meet and address the Group’s senior
leaders at our Senior Leaders Meeting held in Seattle, and tour hotels
across our brands in Greater China, the US and the UK.
The updating of Directors’ skills and knowledge, ongoing training and development, and understanding of the Group’s business and
operations is a progressive exercise:
• Patrick Cescau regularly reviews and agrees training and development needs with each Director;
• the Board is made aware of training opportunities and additional information, as necessary, to enable them to keep up to date
and enhance their knowledge of the business;
• Board and Committee meetings are used to formally keep Directors up to date on developments in the environment in which the
business operates – for example, in 2014, in-depth presentations were given by senior management in the Group on key topical areas
(see page 56);
• the Company Secretary regularly updates the Board on regulatory and legal matters as part of meetings; and
• Directors are encouraged to visit hotels across our brands both formally as part of meetings and informally. For example, in 2014,
visits to our hotel were included as part of the annual Board strategy meeting (see page 56).
We also invite different Non-Executive Directors to attend our large annual conferences. In 2014, two Non-Executive Directors attended
the IHG Americas Investors & Leadership Conference which took place in Las Vegas, US. This enables Directors to interact with current
and potential owners and gain an insight first hand of the key areas of focus for the business.
Board effectiveness evaluation
IHG has always recognised the importance of evaluating the performance of the Board as a whole, its main Committees and its Directors,
in line with the Code recommendations.
Progress against our 2013 evaluation
In 2013, we conducted an externally facilitated independent evaluation as detailed in our 2013 Annual Report.
Our progress in 2014 against the actions identified is set out below:
Observations
Action taken during 2014
Increase the Board’s oversight
of new technology
Enhance the Board’s use of time
and gain a deeper understanding
of priorities and risks
Consider future Board composition
and succession
The Board was regularly updated on new technology developments. Technology was an agenda item
at Board meetings and the Board also received an evening presentation from external consultants
entitled ‘Winning with Technology’. The Audit Committee also discussed the Group approach to
information security – see page 66.
Board meeting agendas had an increased focus on industry and consumer trends, including
information on our competitors, as well as regular updates on our progress on major projects.
Five Nomination Committee meetings were held in 2014 reflecting our focus on Board and Executive
Committee succession planning and Board composition in light of IHG’s current and future focus (see
page 69). We prioritised the search for a Non-Executive Director with experience in consumer-facing
technology, which led to the appointment of Jo Harlow in September 2014.
63
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Our 2014 evaluation process
Our 2014 evaluation was conducted internally. Each member
of the Board completed an effectiveness questionnaire, which
centred around the progress against actions identified in our
2013 Board effectiveness evaluation. Key areas included the
regularity of meetings, appropriateness of location (especially
in enabling us to gain a better understanding of our business),
the decision-making process, executive management succession
planning, impact of internal and external technology
developments, and risk management and assurance oversight.
It also invited Directors to make other general or specific
observations. The results were analysed and the report was
presented for discussion at the Board’s February 2015 meeting.
The Board considered the performance of its Committees and
internal performance evaluations of Directors were undertaken
as follows:
Director being appraised
Appraiser
Chairman
Non-Executive Directors excluding the
Chairman and facilitated by the Senior
Independent Non-Executive Director
Chairman and all Non-Executive Directors
Chief Executive Officer
Chief Executive Officer
Executive Directors
Non-Executive Directors Chairman
2014 Board effectiveness evaluation
observations and action plan:
Observations
Action to be taken
Increase the Board’s
focus on brands
Enhance the Board’s
understanding of
competitors’ strategy
and performance
Increase the Board’s
exposure to the Group’s
US business
Deep dives into each brand strategy
to be provided to the Board.
Presentations on competitors’ strategies
and offerings. Competitive analysis to be
included in both financial results and
strategic reviews.
Ensure opportunities are secured for
meeting with the newly appointed Chief
Executive Officer for The Americas region.
Increase the Board’s understanding of
the Kimpton brand. Deep dives into the
strategy for core brands in the US. Firmer
understanding of the EVEN Hotels brand’s
growth strategy.
It was confirmed that the Board and its Committees were operating
effectively, and that each Director continues to bring relevant
knowledge, diversity of perspective, an ability and willingness to
challenge and retains a strong commitment to the role.
Board engagement with shareholders
The Board takes its responsibility to represent and promote
the interests of its shareholders seriously and believes it is very
important to engage with them fully. A formal external review of
investor perceptions is presented to the Board on an annual basis
and both the Executive Committee and the Board receive regular
updates on shareholder relations.
Engagement during the year
The Board engaged with shareholders in a number of ways during
2014, which included:
• meeting shareholders at the AGM;
• half-year and full-year formal reporting and telephone
conferences after the release of the first and third quarter
interim management statements;
• presentations by Richard Solomons and Paul Edgecliffe-
Johnson to institutional investors, analysts and the media
following results announcements;
• a programme of meetings with major institutional shareholders;
• an analyst presentation on Kimpton Hotels & Restaurants.
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
presentations, together with associated data and documentation.
These can be found at www.ihgplc.com/investors under
financial library.
Around 25 sell-side research analysts publish research on the
Group; their details are available at www.ihgplc.com/investors
under analysts’ details.
AGM
The AGM is an opportunity for shareholders to vote on certain
aspects of Group business. The Board values this as it provides
64
a useful forum for one-to-one communication with private
shareholders. At the AGM, shareholders receive presentations on
the Company’s performance and may ask questions of the Board.
The 2015 AGM will be held at 11:00am on Friday, 8 May 2015. The
notice convening this meeting has been sent to shareholders at the
same time as publication of this Annual Report and Form 20-F, and
is available at www.ihgplc.com/investors under financial library.
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.
Patrick Cescau, Dale Morrison and other Non-Executive Directors
are available to meet with major shareholders to understand their
issues and concerns, and to discuss governance and strategy.
Facilitated, structured meetings are encouraged with shareholders,
and any new Director is available for meetings with major
shareholders as a matter of course.
Details of the Remuneration Committee’s engagement with
shareholders is set out on page 76. During the year, Jennifer Laing
also met with shareholders to discuss our corporate responsibility
strategy.
Sharedealing programme
In 2014, we offered our small UK-resident retail shareholders a
sharedealing service to buy or sell shares in IHG. As part of this,
shareholders were given the option to donate the proceeds of any
sale of their shares to IHG Shelter in a Storm (see page 179).
Re-engaging with ‘gone away’ shareholders
We continue to be supported by ProSearch to locate shareholders
who haven’t kept their details up to date. To date, the programme
has been very successful and many asset reunifications (both in
terms of the shares themselves and unclaimed dividends) have
been made. For further information, see page 179.
continuedCorporate Governance Audit Committee Report
“ Our priority is ensuring that standards
of good governance are maintained
across all areas of the business.”
Dear Shareholder
The Audit Committee continues to focus on the integrity of internal
financial controls and risk management systems. As the new
Chairman of the Committee, I have also sought to ensure that the
Committee (i) has oversight of the Group’s risk management and
assurance processes, looking at the processes and structures in
place across the Group as a whole and how key projects are being
delivered; and (ii) probes the significant risks, particularly in the
area of technology, through a balance of presentations, papers
and discussion.
Roles and responsibilities
The Committee’s responsibilities fall into five areas: (i) internal
controls and risk management; (ii) financial reporting; (iii) internal
audit; (iv) fraud and whistleblowing; and (v) external audit and
compliance. While the Board has overall responsibility for the
management of business risks, the Committee assists the Board
in a number of ways.
Our main role and responsibilities are set out in our terms of
reference (ToR), which are reviewed annually and no changes were
made for 2015. The ToR are available on the Company’s website
at www.ihgplc.com/investors under corporate governance/
committees or from the Company Secretary’s office on request.
Governance
All members have the experience and expertise necessary
to meet the Committee’s responsibilities and all members are
independent Non-Executive Directors as required under the ToR.
During the year, Jo Harlow joined the Committee, and I replaced
David Kappler as the Chairman of the Committee on 1 April 2014.
The Board is satisfied that both David (during his time on
the Committee) and I are independent. The Code requires
the Committee has at least one member with recent and
relevant financial experience and Sarbanes-Oxley Act 2002
(SOX) necessitates a designated financial expert. The Board
is satisfied that both David and I meet these requirements –
David is a qualified accountant and former Chief Financial Officer
of Cadbury Schweppes plc and I am also a qualified accountant
and was formerly Group Finance and Operations Director at
Marks and Spencer Group plc.
As Chairman of the Committee, after each meeting, I report
to the Board on any key matters arising.
Internal controls and risk management
The Committee supports the Board in reviewing the effectiveness
of the Group’s internal control and risk management system,
having oversight of the risk and control activities in operation
across the Group. Processes have been established which test
and 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 Major Risk Review
and assurance mapping process (through reports from the
Head of Global Risk Management, the Head of Global Internal
Audit (GIA), 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.
Our approach to risk management and key risk mitigating activities in
respect of the Major Risks are set out on pages 26 to 29 and the wider
set of risk factors are set out on pages 162 to 165.
Financial reporting
The key financial controls across our business have been identified
and evaluated, in particular, to comply with our US obligations,
arising from SOX. The Committee reviews the approach to SOX
compliance each year, and, in 2014, it took into consideration
changes in legislation, and the transition from the 1992 to the 2013
Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Committee regularly reviews reports on the progress of the
SOX programme and this has enabled appropriate representations
regarding the effectiveness of internal financial controls to be
made, concluding that no material weaknesses had been found
in the internal control environment.
Internal Audit
The Committee is responsible for reviewing and monitoring
the activities of the GIA department. In December each year,
the Committee discusses the GIA Plan and approves its nature
and scope for the forthcoming year. GIA also undertakes an
agreed schedule of audits during which the Group’s internal
controls are assessed and reported back to the Committee.
Fraud and whistleblowing
Fraud and whistleblowing reports are collated from information
provided by the Group’s independent external provider, who
facilitates the Group’s confidential disclosure process for
employees with whistleblowing and fraud concerns, and fraud
data from Global Risk Management, and are presented to the
Committee biannually.
The Committee is advised, as appropriate, of any significant
matters to ensure a proportionate and independent investigation
is performed.
65
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Audit Committee Report continued
Committee membership and attendance
Members1
Attendance
Ian Dyson (Chairman from 1 April 2014)2
David Kappler (Chairman to 1 April 2014)2
Jo Harlow 4
Jennifer Laing
Jill McDonald
Dale Morrison
Total meetings held
5/5
1/2 3
2/2
5/5
4/53
5/5
5
1 For full biographies of current members see pages 58 and 59.
2 David Kappler retired from, and Ian Dyson was appointed to, the role
of Chairman of the Committee effective as of 1 April 2014.
3 David Kappler and Jill McDonald missed one meeting each due to a prior
commitment known to the Committee in advance.
4 Jo Harlow joined the Committee with effect from 1 September 2014.
At the invitation of the Committee, the Chairman of the Board, Chief
Executive Officer, Chief Financial Officer, Head of Global Internal
Audit (GIA), Group Financial Controller and external Auditor, EY,
attend meetings. EY attended all meetings in 2014 and provided a
report on progress of, and insights from, the annual audit. Other
attendees are invited to meetings as appropriate, to provide a
deeper insight into, and understanding of, key decisions.
At each meeting, GIA and EY meet without the presence
of management.
What did the Committee consider in 2014
In addition to those areas referred to above and routine items
of business, during 2014, the Committee:
Internal controls and risk management
• Discussed and assessed IHG’s approach to risk management
and assurance, looking in particular at the governance structure
in place and how our ‘Three Lines of Defence’ operate in practice
and the Major Risks affecting the Group in 2014 (the 2014 Major
Risk Review) (summarised above and on pages 26 to 29).
• Approved the Risk Working Group’s terms of reference and were
provided with minutes from its previous meetings.
• Reviewed the Group’s hotel safety and security procedures and
received regular risk management incident and threat reports.
• Received a presentation from the Group’s Chief Information
Officer (Eric Pearson) on the structure of the Global Technology
team and the major technology risks faced by the Group and
assessed the steps being taken to mitigate these risks. At
another meeting, Eric and the Head of Information Security
discussed: (i) the approach to, and the activities planned to
mitigate against, emerging information security risks; and
(ii) information security trends in the hotel industry.
• Was updated on material litigation at each meeting.
• Considered and approved a revised Gifts and Entertainment
Policy, Anti-Bribery Policy and Antitrust Policy. Provided with
an overview of IHG’s regulatory compliance programme
(covering Anti-Bribery, Antitrust/Competition Law, Data Privacy,
Sanctions and Code of Conduct), including the key projects
carried out during 2014 and the areas of focus for 2015.
• Considered the findings from the 2014 post-project review
of major capital projects, and agreed with management
the actions that would be applied to future projects.
• Received a presentation on the treasury control environment
and the Group’s financing strategy from the Group Treasurer
66
and a presentation on the Group’s tax position from the Head
of Group Tax.
Financial reporting, issues and decision making
• Reviewed the Group’s Preliminary Results, quarterly interim
management statements and Half-Year Results (see below
for the areas of significance which received increased attention).
• Considered the Group’s Annual Report and Form 20-F and
ancillary documentation (see below).
• Received an update on items discussed by the Disclosure
Committee at each meeting.
Internal audit
• Assessed the quarterly report from GIA to monitor progress
against the GIA Plan and evaluate findings, and to ensure
coverage of emerging risks.
• Considered the 2014 GIA Effectiveness Review (which contains
input from auditees, senior management and Non-Executive
Directors and assessed GIA against the Institute of Internal
Auditors Standards) and concluded that the Group’s systems
of internal controls and risk management, including internal
audit activities, were operating effectively.
• Monitored progress against outstanding actions.
• Invited the Group’s external technology co-assurance provider
to a number of meetings to discuss and review the approach
to technology assurance.
Fraud and whistleblowing
• Received the biannual reports on significant incidents of fraud
and whistleblowing, which in 2014 included an overview of the
fraud management team and the process for escalation of
reviewing serious fraud.
External audit and compliance
• Reviewed the independence and objectivity of the external
Auditor and the effectiveness of the external audit process.
• Considered EY’s key findings of audit and accounting issues,
analysing EY’s audit and non-audit fees at each meeting and
noting that fees incurred to date were in accordance with IHG’s
Audit and Non-Audit Services Pre-Approval Policy (see below).
• Reviewed and approved the 2014 Group Audit Plan.
• Evaluated and recommended the re-appointment of EY
on the basis of performance and an assessment of EY’s
independence and objectivity (see below).
External Auditor – Ernst & Young LLP (EY)
EY has been the Group’s Auditor since IHG listed in 2003. While an
audit tender has not been carried out since EY’s initial appointment,
the Committee considers the appointment of its Auditor annually,
specifically assessing EY’s performance (including its independence
and objectivity).
To ensure EY’s independence is safeguarded, lead audit partners
rotate every five years. The current lead audit partner has been
in place for four years.
The Committee reviews the independence and effectiveness of EY
on an ongoing basis, including the effectiveness of the relationship
between EY and the Group’s management, and receives reports
from it on its independence annually. An evaluation of EY takes
place annually where questionnaires on EY’s services are
completed by more than 30 senior IHG employees that work with
EY. As well as Group policies and procedures, which aim to
continuedCorporate Governance safeguard EY’s independence and effectiveness, EY has its own
protective policies and systems in place, which are explained in
a Transparency Report issued by EY on an annual basis.
Following an in-depth review for the year ended 31 December
2014, the Committee was satisfied with the independence,
objectivity and effectiveness of the relationship with EY as the
external auditor, and with the external audit process as a whole.
Audit tender
During 2014, the Committee considered the requirements for audit
tender in line with changes to legislation from the EU and the
Competition and Markets Authority. Having reviewed legislative
timescales and the effectiveness of the audit, we have concluded
that no tender will be undertaken during 2015 but we will continue
to monitor this.
Non-audit services
EY provide non-audit services to the Group, which are governed,
so as to safeguard their objectivity and independence, by IHG’s
Audit and Non-Audit Services Pre-Approval Policy:
• The policy is re-approved by the Audit Committee annually and,
for the 2014 financial year, the policy was updated and approved
at the December 2013 Audit Committee meeting.
• The policy requires that pre-approval is obtained from the Audit
Committee for all services before any work can be commenced,
in line with US SEC requirements. The Committee is prohibited
from delegating non-audit services approval to management.
• Compliance with the policy is actively managed and an analysis
of audit and non-audit services is reviewed by the Committee
at each meeting.
The Committee is aware of, and sensitive to, investor body
guidelines on non-audit fees. During 2014, 29 per cent of services
provided to the Group were non-audit services; these included
areas such as advisory work and corporate tax compliance.
For fees paid to EY for non-audit work during 2014, see page 120.
Significant matters in the 2014 Financial Statements
The Committee discussed with management the key judgements
applied in the Financial Statements, the exceptional items arising
in the year and the impact of any accounting developments or
legislative changes. The main items discussed were:
• Accounting for the System Fund: the Committee reviewed
the accounting approach adopted for the System Fund with
management and EY, and concluded that the approach and
the disclosures, including the key judgements noted on
page 112, were appropriate.
• The IHG Rewards Club points liability: given the materiality of
the IHG Rewards Club points liability, the Committee considered
the approach to the valuation of the liability, including the
results of the actuarial assessment of ‘breakage’ (see page 113)
as at December 2014 and the expected cost of redemption of
each point. Management was questioned on the consistency
and robustness of the approach and the results of EY’s audit
procedures were also considered before reaching the
conclusion on the adequacy of the liability recorded.
• Impairment testing: the Committee reviewed a detailed
management report supporting the conclusion that there were
no impairment issues on hotel assets, goodwill or other
intangible assets. It challenged the key assumptions, including
short and long-term growth rates, discount rates and
underlying performance assumptions. The Committee also
considered EY’s views on the work performed and concluded
that the position taken was supportable.
• Litigation: given the judgement required in assessing the
approach to be taken to material litigation, the Committee
considered at each meeting an update report on major litigation
matters and any provisioning for these matters. The factors
taken into account by the Committee are set out on page 113.
• Deferred tax recognition: as noted on page 113, the recognition
of deferred tax assets requires judgement and estimates
primarily around the availability of future taxable profits.
The Committee considered and approved the approach taken
to the recognition of such profits, noting in particular EY’s
reporting to the Committee in this area – deferred tax balances
are analysed in note 7.
• Exceptional items: given the importance of showing a true
underlying performance and being consistent in the definition
of this year-on-year, the Committee challenged the
appropriateness of the items disclosed as exceptional, in
particular, the calculation of the profit on disposal of 80 per cent
of our interest in InterContinental New York Barclay – focusing
on the accounting for the remaining interest. The Committee
also discussed the disclosures in note 5.
• Technology projects: as well as considering the process
controls and overall governance of these projects, and based
on discussions with management and EY’s audit findings and
control observations on those matters, the Committee also
assessed the appropriateness of the capitalisation of costs
on the main projects and the need for any impairment on
capitalised software assets.
Annual Report – Fair, balanced and understandable
At the request of the Board, a separate sub-committee meeting
was held in February 2015 to consider whether the Annual Report
and Form 20-F 2014 provided a fair, balanced and understandable
view of the Group with the necessary information for shareholders
to assess the Group’s performance, business model and strategy.
Audit Committee members provided comments on the draft report
that were then incorporated into the draft provided to the Audit
Committee and Board for final comment and approval.
Effectiveness of the Committee
Effectiveness of the Committee is dependent on its overall
efficiency as well as the efficacy of EY and GIA. The effectiveness
of the Committee, EY and GIA is monitored and assessed annually
through evaluation questionnaires and interviews.
Our priorities for 2015
During 2015, the Committee will specifically focus on: (i) the
integrity of the internal financial controls and risk management
systems; (ii) monitoring and continually assessing IHG’s
information security arrangements; and (iii) overseeing the
implementation of technology projects and the Global Finance
function’s talent and succession plans.
Ian Dyson, Audit Committee Chairman
16 February 2015
67
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Corporate Responsibility Committee Report
Committee membership and attendance
Members1
Attendance
Jennifer Laing (Chairman)
Luke Mayhew
Dale Morrison
Richard Solomons
Ying Yeh
Total meetings held
3/3
3/3
3/3
3/3
3/3
3
1 For full biographies see pages 57 to 59.
The Heads of Corporate Responsibility and the Chairman of the
Board also attend the meetings.
Communication and awareness
• Evaluating the Responsible Business Communication Plan
for 2014 and the results of the Employee Engagement survey,
which had included questions in respect of the awareness and
impact of our core corporate responsibility programmes.
Responsible business activities continue to drive very high
levels of pride in our employees, with 92 per cent of respondents
saying they felt more positive about IHG as a result of corporate
responsibility programmes.
• Considering methods to raise the levels of awareness and
adoption of our corporate responsibility programmes in
franchised hotels, such as our IHG Race Around the World event.
• Considering our corporate responsibility initiatives in the
context of our broader responsible business practices and
endorsing plans to have a broader IHG Responsible Business
Report for 2014 (published in 2015).
The Committee, along with our Corporate Responsibility team and the rest of the Board, also
took part in an IHG Race Around the World event in Hyde Park in London, a fundraising event
in support of, and building awareness for, IHG Shelter in a Storm.
Our priorities for 2015
During 2015, our priorities will be to: (i) continue to support IHG
to ensure meaningful progress on our five-year corporate
responsibility targets; (ii) further embed responsible business
in the IHG brand and help to deliver external communications to
support this; and (iii) further extend the success of IHG Shelter in
a Storm by increasing IHG’s disaster preparedness capabilities
and developing links with humanitarian agencies to grow IHG’s
disaster relief capabilities.
Jennifer Laing, Corporate Responsibility Committee Chairman
16 February 2015
“ Ensuring meaningful progress against
our five-year targets will remain a key
focus of the Committee.”
Dear Shareholder
Roles and responsibilities
The Committee advises the Board on the Group’s corporate
responsibility objectives and strategy, its approach to sustainable
development, and ensures that IHG’s responsible business
priorities deliver against our core purpose, Great Hotels
Guests Love.
Our role and responsibilities are set out in our terms of reference
(ToR), which are reviewed annually and no changes were made
for 2015. The ToR are available on the Company’s website at
www.ihgplc.com/investors under corporate governance/
committees or from the Company Secretary’s office on request.
Governance
All members have the experience and expertise necessary to meet
the Committee’s responsibilities and a majority of the Committee
members are Non-Executive Directors, as required under the ToR.
What did the Committee consider in 2014
During the year, the Committee’s key activities included:
Targets and core programmes
• Continually monitoring progress against our five-year
targets (2013-2017) – see page 33 and www.ihgplc.com/
responsiblebusiness for details.
• Receiving progress updates on the key achievements in 2014
across the three core corporate responsibility programmes:
IHG Green Engage, IHG Academy and IHG Shelter in a Storm,
including an in-depth case study of an IHG Academy set up by
a franchised hotel, Holiday Inn Stoke On Trent, and in-depth
reports on IHG Shelter in a Storm.
• Inviting external speakers to the meetings to explore key topics,
including a presentation from CARE on its strategic relationship
with IHG, and an overview of the landscape of responsible
business by the Chief Executive of Business in the Community.
• Discussing the Group’s performance against the 2014 delivery
plan and setting 2015 priorities.
• Reviewing proposals for implementing and applying a brand
standard in respect of IHG Green Engage for all hotels in the
IHG System (see page 33).
68
continuedCorporate Governance Nomination Committee Report
Committee membership and attendance
Members1
Attendance
“ The Committee keeps under
continuous review the talent pool
within the business.”
Dear Shareholder
Roles and responsibilities
The Committee considers the structure, size and composition
of the Board, advising on succession planning and making
appropriate recommendations to ensure the Board retains an
appropriate mix of skills, experience, knowledge and diversity.
It is also responsible for reviewing the Group’s leadership needs.
Our role and responsibilities are set out in our terms of reference
(ToR), which are reviewed annually and no changes were made
for 2015. The ToR are available on the Company’s website at
www.ihgplc.com/investors under corporate governance/committees
or from the Company Secretary’s office on request.
Governance
All members have the experience and expertise necessary
to meet the Committee’s responsibilities and are independent
Non-Executive Directors (excluding myself), as required under
the ToR. During 2014, David Kappler retired from, and Jo Harlow
joined, the Committee. When the Committee is considering matters
relating to my position, Dale Morrison, Senior Independent
Non-Executive Director, acts as chairman of the Committee.
What did the Committee consider in 2014
During the year, the Committee’s key activities included:
Board appointments
• Continually reviewing the tenure and qualifications of the
Non-Executive Directors to ensure the Board has an appropriate
and diverse mix of skills, experience, knowledge and diversity.
• Recommending appointments to the Board in line with our
strategic objectives. As identified in our 2013 Annual Report,
our priority for 2014 was to strengthen the Board’s existing
capabilities by looking to appoint a Non-Executive Director
with experience in consumer-facing technology. Lygon Group,
who have no connection to IHG, was engaged as an external
search agent. The search was undertaken against a detailed job
specification setting out the particular skills, knowledge and
experience required for the particular position. The Committee
nominated Jo Harlow, having considered her wealth of experience
and knowledge, particularly in connection with the role digital
technology plays in driving consumer behaviour. The Board
approved Jo’s appointment with effect from 1 September 2014.
Succession planning
• Focusing, on behalf of the Board, on Board succession planning:
– In advance of David Kappler’s plans to retire on 31 May 2014,
we recommended the appointment of Ian Dyson as Chairman
Patrick Cescau (Chairman)
Ian Dyson
Jo Harlow2
David Kappler3
Jennifer Laing
Jonathan Linen4
Jill McDonald
Luke Mayhew
Dale Morrison
Ying Yeh
Total meetings held
5/5
5/5
0/0
2/2
5/5
5/5
5/5
5/5
5/5
5/5
5
1 For full biographies of current members see pages 57 to 59.
2 Jo Harlow joined the Committee effective as of 1 September 2014.
3 David Kappler retired from the Committee effective as of 31 May 2014.
4 Jonathan Linen retired from the Committee effective as of
31 December 2014.
The Chief Executive Officer also attends the meetings.
of the Audit Committee from 1 April 2014, and Dale Morrison
as Senior Independent Non-Executive Director from 31 May
2014. As both Dale and Ian were already members of the
Board, this allowed for a smooth transition of duties upon
David’s retirement.
– On 31 December 2014, Jonathan Linen retired from the Board
after nine years’ service.
– We announced on 2 December 2014 that Kirk Kinsell would
step down from the Board and his role as President of IHG’s
Americas business on 13 February 2015. An independent
executive search agency, Egon Zehnder, was engaged to
conduct a review of prospective candidates. Accordingly,
Kirk was succeeded by Elie Maalouf as Chief Executive Officer,
The Americas, who joined IHG in January 2015 to allow for
a handover period with Kirk. While Elie does not sit on the
Board, he is a member of IHG’s Executive Committee.
• Keeping under continuous review the development, succession
planning and talent pool for the Executive Committee and other
senior executive roles to identify both talent strengths and talent
gaps. New senior hires were made in both global and regional
leadership positions, and a number of internal promotions to
the senior leader level below Executive Committee took place,
further strengthening our internal pipeline.
We have also considered Jennifer Laing and Ying Yeh’s continued
appointments on the Board, as both have been on the Board
for over six years, and specifically reviewed Jennifer’s
independence having been on the Board for over nine years.
Board diversity
We recognise the value of diversity in its broadest sense and,
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, gender and background – see page
62 for details of our Board Diversity Policy.
Our priorities in 2015
During 2015, we aim to continue to: (i) refresh the Board and
Committees in line with our priorities; and (ii) ensure we have
the right capabilities for the future.
Patrick Cescau, Nomination Committee Chairman
16 February 2015
69
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Statement of compliance with the UK Corporate Governance Code
Our statement of compliance presents a summary of how the Group has implemented the principles and provisions laid down in the
UK Corporate Governance Code as published in September 2012 (the Code). This should be read in conjunction with the Corporate
Governance Statement (pages 54 to 72) and the Directors’ Remuneration Report as a whole. The Code is available to view in full on the
Financial Reporting Council website (www.frc.org.uk).
The Board considers that the Group has complied in all material respects with the Code for the year ended 31 December 2014 with the
exception of Code provision C.3.7, which requires external audit contracts to be put to tender at least every 10 years. The Group has not
re-tendered within that period, but the Audit Committee monitors this in line with legislation (further details are provided on pages
66 and 67).
A. Leadership
A.1 The role of the Board
The Board leads IHG’s strategic direction and the long-term
objectives and success of the Group. It approves strategic plans
and capital and revenue budgets, and reviews significant
investment proposals, maintaining an overview and control of
IHG’s operating and financial performance. It monitors the Group’s
overall system of internal controls and risk management,
governance and compliance, considering regulatory changes and
developments (where appropriate), while ensuring that the
necessary financial and human resources are in place for the
Group to meet its objectives. Decisions and matters reserved for
the Board and not delegated to management are available on our
website at www.ihgplc.com/investors under corporate governance.
The Board meets formally eight times each year, with additional
meetings scheduled as necessary. One of the meetings includes
a two-day strategy meeting, in which the Board considers the
Group’s strategy and related issues. Details of 2014 Board
meetings are set out on page 56. The attendance by Committee
members at Committee meetings can be found in each of their
respective reports.
All Directors are covered by the Group’s Directors’ & Officers’
Liability Insurance policy (see page 72).
A.2 Division of responsibilities
The roles of the Chairman and Chief Executive Officer are
clearly established.
Senior Independent Non-Executive Director
As Senior Independent Non-Executive Director, Dale Morrison is
available to liaise with shareholders who have concerns that they
feel have not been addressed through the normal channels of the
Chairman, Chief Executive Officer and other Executive Directors.
He also leads the annual performance review of the Chairman
with the other Non-Executive Directors, and provides advice
and judgement for the Chairman as necessary.
After each Board meeting, our Non-Executive Directors and
the Chairman meet without Executive Directors being present.
During the year, if any Director has unresolved concerns about the
running of IHG or a proposed action, these would be recorded
in the minutes of the meeting.
Further information on each of these roles can be found on our
website at www.ihgplc.com/investors under corporate governance.
B. Effectiveness
B.1 The composition of the Board
The size and composition of the Board is regularly reviewed
for the appropriate balance of skills, experience, independence
and knowledge to ensure it can carry out its duties and
responsibilities effectively.
The Board’s current composition meets the requirement under the
Code for at least half of the Board, excluding the Chairman, to be
independent Non-Executive Directors (see page 61). Further details
of the composition of the Board are available on pages 57 to 59.
Chief Executive Officer
As Chief Executive Officer, Richard Solomons leads the development
of the Company’s strategic direction and implementation of the
agreed strategy. He oversees IHG’s business operations and
manages its risks as well as building and leading an effective
Executive Committee.
Jennifer Laing has served on the Board for over nine years
and the Nomination Committee has specifically reviewed her
independence and is satisfied that she continues to demonstrate
independence in character and judgement and is independent
as required under the Code. The Board has also considered this
and reached the same conclusion.
A.3 The Chairman
As Chairman of the Board, Patrick Cescau leads the operation
and governance of the Board and its Committees as well as
building and maintaining an effective Board. This includes
ensuring that Directors receive timely, accurate and clear
information on the Group’s business and that all Directors
are fully informed of relevant matters. The Chairman oversees
corporate governance matters, ensuring they are addressed,
and leads the performance and effectiveness evaluations of
the Board, its Committees and the Directors.
The Chairman was independent on appointment.
A.4 Non-Executive Directors
As a strong source of advice and judgement for IHG, our
Non-Executive Directors constructively challenge and help develop
proposals on strategy. They provide significant external commercial
experience and a broad range of skills for the Board to draw on.
B.2 Appointments
The Board has delegated a number of responsibilities to the
Nomination Committee. The Nomination Committee leads the
appointment of new Directors to the Board and senior executives
in accordance with its terms of reference (available on our website
at www.ihgplc.com/investors under corporate governance/
committees or from the Company Secretary’s office on request)
and supports the Board in succession planning. Further details
of the role of the Nomination Committee and what it did in 2014,
including details of the appointment process of Directors, are set
out in the Nomination Committee Report on page 69. The overall
process of appointment and removal of Directors is overseen by
the Board as a whole.
As Ying Yeh and Jennifer Laing have been on the Board for over six
years, their continued appointments were the subject of particular
review and scrutiny by the Nomination Committee and the Board.
70
continuedCorporate Governance B.3 Commitment
The terms of appointment of our Non-Executive Directors
outlines the time commitment expected to fulfil their role.
On appointment, Directors are advised of, and requested to
make, the necessary time commitment required to discharge
their responsibilities effectively. IHG’s Executive Directors
are not permitted to take on more than one external
non-executive directorship or chairmanship in addition to
their role. Biographical details of all current Directors, including
their external commitments, can be found on pages 57 to 59.
Details of Directors’ service contracts and appointment terms
are set out on page 81.
The Chairman annually reviews the time each Non-Executive
Director has dedicated to IHG as part of the internal performance
evaluations of each Director (see page 64) and is satisfied that
their other duties and time commitments do not conflict with
those as Directors of the Company.
B.4 Development
A full, formal and tailored induction is developed for IHG’s new
Directors (see page 63).
The Chairman and Company Secretary ensure that Directors
continually update their skills and have the requisite knowledge
and familiarity with the Group to fulfil their roles on the Board
and its Committees (see page 63). All Directors are encouraged
to request further information as they consider necessary to fulfil
their role.
B.5 Information and support
The Chairman and the Company Secretary together ensure a good
flow of information to the Board and its Committees and between
the Executive Committee and the Non-Executive Directors. The
Company Secretary also ensures that all Directors and Board
Committees have access to independent advice when requested,
at the expense of the Group, where it is necessary to discharge
their responsibilities as Directors.
The role of the Company Secretary
George Turner, as Company Secretary, ensures a good flow
of information to the Board and its Committees and between
the Executive Committee and the Non-Executive Directors.
He facilitates all new Director inductions. He advises the Board
on corporate governance matters and keeps the Board up to date
on all relevant legal, regulatory and other developments. The
appointment and removal of the Company Secretary is a matter
for the Board as a whole.
B.6 Evaluation
The Board undertakes either an internal or external annual
Board effectiveness evaluation to inform further enhancements
to our Board processes. In 2013, this was carried out externally
and in 2014, it was carried out internally. Performance evaluations
of all Directors, including the Chairman, are also carried out and
the Board considers the effectiveness of each of its Committees.
See pages 63 and 64 for further information.
B.7 Re-election
The Company’s amended Articles of Association (the Articles)
approved by our shareholders on 28 May 2010 (see page 72) provide
that each Director is subject to election at the first Annual General
Meeting (AGM) following their appointment and re-election at least
every three years if they wish to continue serving in office.
However, in accordance with the recommendations of the Code,
all of IHG’s Directors retire and seek election or re-election at each
AGM. All of IHG’s current Directors (biographies as set out on pages
57 to 59) will retire and seek election or re-election at the 2015 AGM
(as set out in the Notice of Meeting for the AGM (see page 64)).
C. Accountability
C.1 Financial and business reporting
Our Statement of Directors’ Responsibilities (including the Board’s
statement confirming that it considers that the Annual Report and
Form 20-F, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the Group’s performance, business model and strategy)
is set out on page 94.
The status of IHG as a going concern is set out in the Directors’
Report on page 75. An explanation of the Group’s performance,
business model, strategy and the risks and uncertainties relating
to IHG’s prospects is set out in the Strategic Report on pages
2 to 51.
The statement from our Auditor, Ernst & Young LLP, about its
reporting responsibilities is set out on pages 95 to 99.
C.2 Risk management and internal control
The Board has ultimate responsibility for determining the nature
and extent of the significant risks it is willing to take in line with
the strategy.
The Board and Audit Committee monitor the Group’s risk
management and internal controls systems and conducts an
annual review of the effectiveness of the Group’s system of
internal controls and risk management, and reviews the Group’s
risk appetite. This review covers all material controls, including
financial, operational and compliance controls. Further details
are set out in the Strategic Report on pages 26 to 29, and also
in the Audit Committee Report on pages 65 to 67.
C.3 Audit Committee and Auditors
The Board has delegated a number of responsibilities to the
Audit Committee. The Committee comprises entirely of
independent Non-Executive Directors, with at least one member
having recent and relevant financial experience. Further details,
including its role, responsibilities and activities in 2014, are set
out in the Audit Committee Report on pages 65 to 67. The Audit
Committee’s terms of reference are available on our website
at www.ihgplc.com/investors under corporate governance/
committees or from the Company Secretary’s office on request.
Ernst & Young LLP has expressed its willingness to continue
in office as Auditor of the Company and its reappointment will
be put to shareholders at the AGM. Further details can be found
in the Audit Committee Report on pages 65 to 67.
71
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Statement of compliance with the UK Corporate Governance Code continued
D. Remuneration
E. Relations with shareholders
D.1 The level and components of remuneration
The activities of the Remuneration Committee during 2014,
a summary of our Directors’ Remuneration Policy approved at
our 2014 AGM, and the Annual Report on Directors’ Remuneration
and Implementation of the Directors’ Remuneration Policy are set
out in the Directors’ Remuneration Report on pages 76 to 91.
D.2 Procedure
The Board has delegated a number of responsibilities to the
Remuneration Committee including developing policy on executive
remuneration and for fixing the remuneration packages of
individual Directors. Further information can be found in the
Director’s Remuneration Report.
E.1 Dialogue with shareholders
The Board as a whole is responsible for ensuring satisfactory
dialogue with all shareholders of the Company to promote mutual
understanding of objectives. Further details of the Board’s
approach to relations with our shareholders is set out on page 64.
E.2 Constructive use of the AGM
The next AGM of the Company will take place on Friday, 8 May 2015
and will provide an opportunity for shareholders to vote on certain
aspects of Group business, as set out in the Notice of Meeting
available at www.ihgplc.com/investors under financial library
and which was sent out to shareholders at the same time as this
Annual Report and Form 20-F.
The terms of reference of the Remuneration Committee can
be found on our website at www.ihgplc.com/investors under
corporate governance/committees, or from the Company
Secretary’s office on request.
The Board ensures where possible that all Board members,
particularly the Chairmen of each of the Board Committees,
attend the AGM and are available to answer questions
from shareholders.
During 2014, no individual Director was present when their
own remuneration was discussed.
Directors’ Report
Much of the information previously provided as part of the
Directors’ Report is now required under Company Law to be
presented as part of the Strategic Report. This Directors’ Report
includes the information required to be given in line with the
Companies Act or, where provided elsewhere, an appropriate
cross reference is given. The Corporate Governance Statement
approved by the Board is provided on pages 54 to 72 and
incorporated by reference herein.
Subsidiaries, joint ventures and associated undertakings
The Group has over 300 subsidiaries, joint ventures and
associated undertakings.
Directors
During 2014 the following individuals served as Directors:
Patrick Cescau, Ian Dyson, Paul Edgecliffe-Johnson, Jo Harlow,
David Kappler, Kirk Kinsell, Jennifer Laing, Jonathan Linen, Luke
Mayhew, Jill McDonald, Dale Morrison, Tracy Robbins, Tom Singer,
Richard Solomons and Ying Yeh.
Tom Singer resigned effective as of 1 January 2014, David Kappler
retired effective as of 31 May 2014, Jo Harlow joined effective
as of 1 September 2014, Jonathan Linen retired effective as of
31 December 2014 and Kirk Kinsell resigned effective as of
13 February 2015.
For biographies of the current Directors see pages 57 to 59.
Directors’ & Officers’ (D&O) Liability Insurance
The Company maintains the Group’s D&O Liability Insurance
policy, 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 (including those who
served as Directors or officers during the year). There were no
indemnity provisions relating to the UK pension plan for the benefit
of the Directors during 2014.
72
Articles
The Company’s Articles may only be amended by special resolution
and are available on the Company’s website at www.ihgplc.com/
investors under corporate governance. A summary is provided on
pages 167 to 168.
Shares
Share capital
The Company’s issued share capital at 31 December 2014
consisted of 247,655,712 ordinary shares of 15265/329 pence each
including 11,538,456 shares held in treasury, which constitutes
4.66 per cent of the total issued share capital (including treasury
shares). There are no special control rights or restrictions on
share transfers or limitations on the holding of any class of shares.
During 2014:
• the Company’s issued share capital was subject to a share
consolidation effective as of 1 July 2014 (see page 73);
• 60,370 new shares were issued under employee share plans;
and
• the Company completed the share buyback programme
(see page 73).
As far as is known to management, IHG is not directly or indirectly
owned or controlled by another company or by any governments.
The Board focuses on shareholder value creation. When it decides
to return capital to shareholders, it considers all the options,
including share buybacks and special dividends.
continuedCorporate Governance Share issues and buybacks
On 29 May 2014, we completed our $500m share buyback
programme which was announced on 7 August 2012 and
commenced on 12 November 2012. The current share buyback
authority remains in force until the 2015 AGM, and a resolution
to renew the authority will be put to shareholders at that AGM.
The table below illustrates the transactions that took place during
2014 that affected the Company’s issued share capital:
Event
Ordinary shares
12 for 13 share consolidation1 with a special
dividend of 174.9p per share (293¢ per ADR)
Share plan exercises
Share buyback2
695,885 shares were bought back and cancelled
and 2,726,088 shares were bought back and held
in treasury
Other cancelled shares3
n/a
60,370
3,421,973
Dividends
In 2014, the Company announced a $750m return of funds to
shareholders via special dividend and share consolidation on the
basis of 12 ordinary shares of 15265/
329 pence each for 13 ordinary
shares of 14194/
329 pence each (effective as of 1 July 2014).
Dividend
Ordinary shares
ADR
Special dividend
Paid on 14 July 2014
Interim dividend
Paid 26 September 2014
Final dividend
Subject to shareholder approval, payable on
15 May 2015 to shareholders on the Register
of Members at the close of business on
7 April 2015
174.9p
293¢
14.8p
25.0¢
33.8p
52.0¢
14
For more information on IHG’s return of funds and dividends, see
note 27 on page 149.
1
The share consolidation, effective as of 1 July 2014, was on the basis of
12 ordinary shares of 15265/
14194/
329 pence each for 13 ordinary shares of
329 pence each.
2 Excludes 14 shares included in the ‘Other cancelled shares’ number below.
3 This comprises 8 shares bought-back and cancelled and 6 treasury shares
cancelled as a result of the above-mentioned share consolidation.
Major institutional shareholders
As at 16 February 2015, the Company had been notified of the following significant holdings in its ordinary shares under the UK Disclosure
and Transparency Rules:
Shareholder
Cedar Rock Capital Limited
BlackRock, Inc.
The Capital Group Companies, Inc
Boron Investments NV
As at 16 February 2015
As at 17 February 2014
As at 18 February 2013
Ordinary
shares/ADSs
14,923,417
n/a
8,557,888
7,500,000
%
5.07
n/a
3.30
3.18
Ordinary
shares/ADSs
14,923,417
13,061,9651
8,557,888
n/a
%
5.07
5.011
3.30
n/a
Ordinary
shares/ADSs
14,923,417
14,505,612
n/a
n/a
%
5.07
5.02
n/a
n/a
1 On 7 October 2013, BlackRock, Inc. notified the Company that its shareholding in the Company had increased to above 5% and this notification was announced by
the Company on 8 October 2013. Subsequently, on 8 July 2014, BlackRock, Inc. notified the Company that its 7 October 2013 notification had been made in error and
that, in fact, BlackRock, Inc. holds less than 5% in the Company. This error was announced by the Company on 8 July 2014.
The Company’s major shareholders have the same voting rights as other shareholders. The Company does not know of any
arrangements, the operation of which may result in a change in its control.
For further details on shareholder profiles, see page 178.
2014 share awards and grants to employees
No awards or grants over shares were made during 2014 that would be dilutive of the Company’s ordinary share capital. Our current
policy is to settle the majority of awards or grants under the Company’s share plans with shares purchased in the market, however, the
Board continues to review its policy. Those options, which were previously granted up to 2005, have now all been exercised and therefore,
as at 31 December 2014, no options were outstanding.
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.
Employee share ownership trust (ESOT)
IHG operates an ESOT for the benefit of employees and former employees. The ESOT purchases ordinary shares in the market and
releases them to current and former employees in satisfaction of share awards. During the year, the ESOT released 163,130 shares
and at 31 December 2014 it held 1,344,726 ordinary 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.
73
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Directors’ Report
continued
Director and Executive Committee shareholdings
Future business developments of the Group
As at 16 February 2015, Directors and Executive Committee
members had the same number of beneficial interests in
shares as at 31 December 2014, as set out in the table below.
These shareholdings include all Directors’ beneficial interests
and those held by their spouses and other connected persons.
As at 16 February 2015, no Director or Executive Committee
member held more than 0.2% of the total issued share capital.
Further details on these are set out in the Strategic Report
on pages 2 to 51.
Employees and Code of Conduct
Details of the average number of people IHG employed as at
31 December 2014 and the number of people working across
the whole estate are set out on page 23.
None of the Directors have a beneficial interest in the shares
of any subsidiary. The shareholdings set out below do not include
Executive Directors’ or Executive Committee members’ share
awards under IHG’s share plans. These are set out separately in
the Directors’ Remuneration Report on page 88 for the Executive
Directors and on page 166 for Executive Committee members.
Directors
Patrick Cescau
(Chairman)
Richard Solomons
(Chief Executive Officer)
As at
31 December 2014
ordinary shares
As at
31 December 2013
ordinary shares
-
–
382,533
371,198
Senior Independent Non-Executive Director
David Kappler1
Dale Morrison
Executive Directors
Paul Edgecliffe-Johnson3
Kirk Kinsell4
Tracy Robbins
Tom Singer3
Non-Executive Directors
Ian Dyson
Jo Harlow 7
Jennifer Laing
Jonathan Linen8
Luke Mayhew
Jill McDonald
Ying Yeh
Executive Committee
Keith Barr
Angela Brav
Elie Maalouf 9
Kenneth Macpherson
Eric Pearson
Jan Smits
George Turner
n/a
3,9072
10,583
117,6405
51,418
n/a
-
-
2,905
6,3252
1,722
-
-
22,522
32,724
-
7,472
1,998
30,476
-
1,308
4,2332
n/a
127,4446
85,703
54,386
–
n/a
3,148
6,8532
1,866
–
–
24,399
19,286
n/a
1,797
65,293
106,350
3,277
1 David Kappler retired as a Non-Executive Director effective as of 31 May 2014.
2 Shares held in the form of American Depositary Receipts.
3 Paul Edgecliffe-Johnson was appointed as Chief Financial Officer effective as
of 1 January 2014 following the resignation of Tom Singer effective as of the
same date.
4 Kirk Kinsell resigned as Executive Director effective as of 13 February 2015.
5 117,092 ordinary shares and 548 American Depositary Receipts.
6 126,850 ordinary shares and 594 American Depositary Receipts.
7 Jo Harlow was appointed as a Non-Executive Director effective as of
1 September 2014.
8 Jonathan Linen retired as a Non-Executive Director effective as of
31 December 2014.
9 Elie Maalouf was appointed to the Executive Committee effective as of
13 February 2015.
74
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 – see page 62 for our
Global Diversity and Inclusion Policy.
We also look to appoint the most appropriate person for the job
and are committed to providing equality of opportunity to all
employees without discrimination. Every effort is made to ensure
that applications for employment from disabled employees are
fully and fairly considered and that disabled employees have equal
opportunities in training, career development and promotion.
The Code of Conduct applies to all Directors, officers and
employees and complies with the NYSE rules as set out in
section 406 of the US Sarbanes-Oxley Act 2002. Further details
can be found on page 174.
For more information on the Group’s employment policies, including
equal opportunities, employee communications and development,
see pages 23 to 25.
Greenhouse gas emissions
The disclosures concerning greenhouse gas emissions required
by law are included in the Strategic Report on page 25.
Finance
Political donations
The Group made no political donations under the Companies Act
during the year and proposes to maintain this policy.
Financial risk management
The Group’s financial risk management objectives and policies,
including its use of financial instruments, are set out in note 20
to the Group Financial Statements on pages 135 to 137.
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 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 seven-year £250m 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;
• the 10-year £400m bond issued by the Company on
Going concern
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; and
• the six-month $400m term loan facility agreement dated
13 January 2015, under which a change of control of the
Company would entitle the lender to declare all amounts
due to it payable.
Further details on these are set out on pages 169 and 170.
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.
Existence of qualifying indemnity provisions
For details, see Directors’ and Officers’ Liability Insurance Policy
on page 72.
Disclosure of information to the Auditor
For details, see page 94.
Events after the reporting period
On 13 January 2015, the Group raised a $400m bilateral term loan
to help finance the acquisition of Kimpton Hotel & Restaurant
Group, LLC; the term loan expires in July 2016.
On 16 January 2015, the Group completed the acquisition of
Kimpton Hotel & Restaurant Group, LLC for $430m in cash
(see page 153).
Listing Rules – compliance with LR 9.8.4C
Section Applicable sub-paragraph within LR 9.8.4C
Location
1
2
4
5
6
7
8
9
10
11
12
13
14
Interest capitalised
Publication of unaudited
financial information
Details of long-term incentive
schemes
Waiver of emoluments by a Director
Waiver of future emoluments
by a Director
Non pre-emptive issues of equity
for cash
Item (7) in relation to major
subsidiary undertakings
Parent participation in placing
by a listed subsidiary
Contracts of significance
Provision of services by a
controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future
dividends
Agreements with controlling
shareholders
Financial Statements,
note 6, page 122
n/a
Directors’
Remuneration Report,
pages 79, 80 and
84 to 86
n/a
Directors’
Remuneration
Report, page 91
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
An overview of the business activities of IHG, including a review
of the key business risks that the Group faces, is given in the
Strategic Report on pages 2 to 51 and in the Group Information
on pages 162 to 170. Information on the Group’s treasury
management policies can be found in note 20 to the Group
Financial Statements on pages 135 to 137. 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. Subsequent to the year end the Group raised a
$400m term loan to help finance the acquisition of Kimpton Hotel
& Restaurant Group, LLC; the term loan expires in July 2016.
At the end of 2014, 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.
By order of the Board
George Turner, Company Secretary
InterContinental Hotels Group PLC
Registered in England and Wales, Company number 5134420
16 February 2015
75
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Remuneration Committee Chairman’s Statement
DR Policy were the use of relative TSR as a measure in the LTIP,
and the fact that the DR Policy did not require Executive Directors
to hold shares beyond the three-year vesting date.
I explained then that the outcome of the 2011/13 LTIP cycle
was in line with performance and reflected shareholder value
creation. I also pointed out that our Executive Directors had very
substantial shareholdings and formally requiring further holding
periods seemed unnecessary. Shareholders voted 94.01 per cent
in favour of the 2013 Directors’ Remuneration Report.
We are not making any changes to the DR Policy itself for 2015.
There is, however, one substantive change to how we will
implement the DR Policy. We have introduced a three-year
clawback clause post-vesting or payment of awards, applying
to awards made relating to 2015 and future financial years.
This will apply in addition to the existing malus provision in the
DR Policy, which allows for awards to be reduced prior to vesting.
The details are set out on pages 81 and 91 of the Annual Report.
Remuneration and business strategy
We feel strongly that we should make changes to the DR Policy in
a coherent way if it is to retain credibility with management and
serve its purpose of motivating and rewarding outstanding
performance. Reward arrangements for senior executives of a
global business are inevitably quite complicated and need to be
communicated as an intrinsic part of the business strategy. We
are keen to avoid, if possible, the introduction of ad-hoc changes,
especially where there is no link to the business strategy.
The current executive reward structure was introduced five years
ago. It includes the key performance measures at the heart
of the current business strategy; an annual plan to incentivise
and reward the delivery of good financial results, as well as
from 2013, improvements in guest satisfaction and employee
engagement; and a long-term plan to reward the delivery of strong
shareholder returns and better-than-market number of rooms
and RevPAR growth. All these measures remain relevant to
future business strategy. However, after five years, it is right to
revisit whether other measures and remuneration approaches
could even better support the strategic priorities for the coming
five years, as well as consider further questions shareholders
have raised. Therefore, during 2015, the Remuneration Committee
will revisit all aspects of the APP and LTIP to ensure they remain
fit for purpose. This will include consideration of the following:
• the mix of short and long-term incentives and what is
appropriate for different levels of senior executives;
• the performance measures most aligned with business
strategy and shareholder returns over the next five years;
• executive shareholding requirements and post-vesting
holding periods;
• how best to communicate the overall policy to senior executives
globally to ensure it helps drive performance; and
• how to further improve communication on remuneration to
shareholders, in particular the level of disclosure of targets
and outcomes.
We will consult major shareholders and shareholder organisations
during 2015 and put the new DR Policy to all shareholders at our
2016 AGM for approval.
“ Our Directors’ Remuneration Policy
rewards the successful execution of the
business strategy, as demonstrated by
this year’s outcomes. So that it remains
effective for the future, we will review it
in 2015 and seek shareholders’ approval
again in 2016.”
Dear Shareholder
2014 corporate performance and incentive outcomes
Executive Director remuneration has reflected another year
of strong performance. Annual Performance Plan (APP) awards
are comparable to last year, reflecting continued good growth of
Earnings Before Interest and Tax (EBIT) as well as encouraging
progress on guest satisfaction and Employee Engagement survey
scores. Another three years of high Total Shareholder Return (TSR)
was the main driver for the vesting under the 2012/14 Long Term
Incentive Plan (LTIP) cycle, which is marginally below last year.
Corporate performance
indicators
Operating profit before
exceptional items
Full-year dividend
per share (excluding
any special dividends
and capital returns)
Three-year total
TSR (annualised)
2014
2013
2012
-2.5%
$651m1
+10.4%
$668m2
+10.4%
$605m3,4
77.0¢
48.6p
70.0¢
43.2p
64.0¢
41.2p
+31.7%
+18.4%
+28.2%
1 Includes two liquidated damages receipts in 2014: $7m, both in
The Americas.
2 Includes three liquidated damages receipts in 2013: $31m in The Americas,
3
4
$9m in Europe and $6m in AMEA.
Includes one significant liquidated damages receipt in 2012 of $3m
in The Americas.
With effect from 1 January 2013, the Group adopted IAS 19 (Revised)
‘Employee Benefits’ resulting in the following additional charges to
operating profit: $5m for the six months ended 30 June 2012 and $9m
for the 12 months ended 31 December 2012.
Directors’ Remuneration Policy
At the 2014 AGM, shareholders approved our Directors’
Remuneration Policy (DR Policy), as set out in our 2013 Annual
Report, with 90.94 per cent support. I mentioned in the 2013
Directors’ Remuneration Report the issues we had discussed at
some depth with shareholders prior to the vote at the AGM. The
two we know prompted some shareholders to vote against the
76
Directors’ Remuneration Report Pension arrangements
For a number of years, we have been working to de-risk the
potential liabilities of the Group’s legacy UK pension arrangements.
The defined benefit pension closed to new members in 2002
and to future accrual in 2013, after which benefits were secured
with an insurer.
One of the last elements of de-risking we announced was
our intention to change the long-established enhanced early
retirement arrangements. These terms were inappropriate
in the current wider pensions context. The conditions were
changed during the year and this will be phased out over the
coming years, as explained on pages 85 and 87.
The main exceptional payment in this Directors’ Remuneration
Report relates to the decision announced last year to seek to cash
out the closed senior executive pension scheme – InterContinental
Hotels Executive Top-Up Scheme (ICETUS). This was the final stage
of the de-risking plan. I am pleased that we had a positive response
from those members of the scheme with the most potential value.
Richard Solomons was one of those who agreed to cash out this
part of the pension. The value of the pension was substantial,
reflecting his 22 years with the business. As a result, there is a
one-off additional element in his overall remuneration for 2014
only. This is explained in the single remuneration figure section
on page 82.
No other changes are proposed and the Board believes that any
remaining UK pensions risk is not significant.
Board change
Kirk Kinsell left the Board and his role as President, The Americas
on 13 February 2015, aged 60, after a total of 19 years’ service with
the business.
Mr Kinsell was succeeded by Elie Maalouf who was appointed
to the role of Chief Executive Officer, The Americas, effective
as of 13 February 2015 and who also became a member of IHG’s
Executive Committee.
The remuneration consequences of Mr Kinsell’s departure
were determined in line with the DR Policy and the rules of the
relevant incentive plans. Details of Mr Kinsell’s remuneration
arrangements on departure are included in the Directors’
Remuneration Report and have been disclosed on the Company’s
website at www.ihgplc.com/investors
About this report
This statement aims to set out the more significant parts of the
report for those who want to know the headlines, main issues
considered in 2014 and the priorities for 2015. The Annual Report
on Directors’ Remuneration contains more detailed disclosures,
many of which are prescribed by legislation or regulation, but we
have tried to make it easier to follow by also taking into account
current thinking on best practice in remuneration reporting. We
have included a summary of our approved DR Policy (see pages 80
and 81) for ease of reference only, as it provides investors with an
understanding of the detail of the remuneration outcomes that
follow. The full DR Policy is available at www.ihgplc.com/investors.
We have also looked to simplify the graphs and tables wherever
possible and ensure that the link between our strategy and
remuneration is clear.
The 2012 Directors’ Remuneration Report won the PwC ‘Building
Public Trust Award’ for Executive Remuneration Reporting in the
FTSE 100 and the 2013 Annual Report on Directors’ Remuneration
received ‘Highly Commended’.
Conclusion
This Directors’ Remuneration Report was approved by the Board
on 16 February 2015. The Board recommends this Directors’
Remuneration Report to shareholders.
The Annual Report on Directors’ Remuneration and the Chairman’s
Statement are subject to an advisory vote at the 2015 AGM.
Luke Mayhew, Remuneration Committee Chairman
16 February 2015
Governance
Roles and responsibilities
Governance
The Remuneration 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.
The Committee’s role and responsibilities are set out in the Terms
of Reference (ToR) which are available on the Company’s website
at www.ihgplc.com/investors under corporate governance/
committees or from the Company Secretary’s office on request.
The ToR are reviewed annually and there were no changes to
them during 2014.
All members are independent Non-Executive Directors, as
required under the ToR. During 2014, Jo Harlow joined the
Committee and both David Kappler and Jonathan Linen retired.
All members have the necessary experience and expertise to
meet the Committee’s responsibilities.
77
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Governance continued
Committee approach to managing risk
Our approach to remuneration is to directly link it to IHG’s strategy.
Risk management is a key part of IHG’s responsible business
practices and the Committee considers risk mitigation as
central to the way that incentive arrangements are structured,
for example:
• the APP and LTIP are 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 Group and the long-term interests of its shareholders. For
instance, in the 2014 and 2015 APP, the drive for short-term
financial results is balanced by performance measures focused
on guest satisfaction and employee engagement;
• the Committee reserves the discretion to determine that
payouts in the LTIP be adjusted if they are not consistent
with the Committee’s assessment of the Group’s earnings
and the quality of the financial performance over the relevant
performance period; and
• malus and post-vesting clawback provisions apply to certain
awards made to Executive Directors under the APP and LTIP.
Remuneration Committee
Committee membership and attendance
Members1
Attendance
Luke Mayhew
Ian Dyson
Jo Harlow2
David Kappler 3
Jonathan Linen4
Ying Yeh
Total meetings held
5/5
5/5
2/2
1/1
5/5
5/5
5
1 For full biographies of current members see pages 57 to 59.
2 Jo Harlow joined the Remuneration Committee as a Non-Executive
Director on 1 September 2014.
3 David Kappler retired as a Non-Executive Director on 31 May 2014.
4 Jonathan Linen retired as a Non-Executive Director on 31 December 2014.
The Chairman of the Board, and Tracy Robbins (Executive Vice
President, Human Resources and Group Operations Support)
attended all meetings. The Chief Executive Officer attended
four meetings.
Jean-Pierre Noël (Senior Vice President, Global Reward & HR
Capability) provided advice to the Committee on remuneration
issues as required.
What did the Committee consider in 2014
The Committee discussed the following key matters:
• setting of targets for the 2014 APP and the 2014/16 LTIP cycle;
• review of 2013 Executive Committee performance and 2014
remuneration review;
• setting key performance objectives for Executive Committee
members for 2014;
78
• pensions review including Enhanced Early Retirement Facility
(EERF) and ICETUS/Six Continents Executive Top Up Scheme
(SCETUS) buy-out;
• review of external market developments;
• monitoring achievement against targets of the 2014 APP and
ongoing LTIP cycles;
• evaluation of incentive arrangements for levels of management
below Executive Committee level and discussion of proposals
for change; and
• evaluation of achievement against targets for 2014 APP and the
2012/14 LTIP.
Remuneration advisers
The Committee continued to retain PricewaterhouseCoopers LLP
(PwC) throughout 2014 as independent advisers. Fees of £60,300
were paid to PwC in respect of advice provided to the Committee
on executive remuneration matters in 2014. This was in the form of
an agreed fee for support in preparation of papers and attendance
at meetings, with work on additional items charged at hourly
rates. PwC also provided tax and other consulting services to
the Group during the year.
The terms of engagement for PwC are available from the Company
Secretary’s office on request.
PwC was appointed following a competitive tender process.
The Committee is satisfied that the advice received from PwC
was objective and independent as PwC is a member 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.
Voting at IHG AGMs
At the 2014 AGM, under the new reporting regulations, the new
binding vote in respect of the Directors’ Remuneration Policy
was as follows:
AGM
2014
Votes for
Votes against
Abstentions
155,440,907
(90.94%)
15,483,775
(9.06%)
906,025
At IHG’s most recent AGMs, the annual advisory vote in respect
of the Directors’ Remuneration Report was as follows:
AGM
2014
2013
2012
Votes for
Votes against
Abstentions
158,131,479
(94.01%)
160,795,577
(85.73%)
203,110,989
(95.46%)
10,076,027
(5.99%)
26,762,429
(14.27%)
9,651,718
(4.54%)
3,623,200
1,226,617
1,750,533
continuedDirectors’ Remuneration Report Strategic context
Key remuneration principles
IHG’s remuneration principles are designed to drive the delivery
of its strategic objectives. To do this, we need to:
• align rewards for senior executives with the achievement of
business performance targets and strategy and with returns
for our hotel owners and shareholders;
• attract and retain high-quality executives in an environment
where compensation for multinational employers is based
on global market practice;
• support equitable treatment between members of the same
executive team; and
• facilitate global mobility 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 senior management,
including the Executive Directors, for targets achieved, provided
those targets are stretching and drive results.
Link to strategy
Our strategy for delivering high-quality growth (detailed on pages
14 to 25) and the Key performance indicators (KPIs) (set out
on pages 30 to 33) through which we monitor and measure our
success are the key drivers for the performance-related elements
of our reward structure, the APP and LTIP (see below):
Value creation: Superior shareholder returns
Winning Model
Targeted Portfolio
Superior owner
proposition
Effective channel
management
5
1
4
2
3
Strong brand portfolio
and loyalty programme
Preferred brands
delivered through
our people
Build and
leverage scale
Attractive markets
Highest opportunity
segments
Managed and
franchised model
Disciplined Execution
Scale and efficiency
of operations
Investment in developing
strong technology platforms
Investment in developing
great talent
Whilst doing business responsibly
Our short and long-term incentive plans contain targets based on three performance measures that are directly linked to our strategy, as detailed below:
Annual Performance Plan (APP)
Guest HeartBeat (20%):
This is a measure of guest satisfaction and reflects
the strength of our brands. Each brand is clearly
defined to meet the needs and occasions of our
targeted guest and deliver a consistent experience.
Link to strategic priority:
(cid:127) Preferred brands delivered through our people
(cid:127) Strong brand portfolio and loyalty programme
(cid:127) Superior owner proposition
(cid:127) Highest opportunity segments
(cid:127) Investment in developing great talent
Performance measure:
Improvement in guest satisfaction score year-
on-year; threshold = 50% achievement vs target;
maximum = 200% achievement vs target.
Employee engagement (10%):
This measures how well we are doing against
our people strategy. Engaged employees are
key to our business and our people deliver our
preferred brands.
Link to strategic priority:
(cid:127) Preferred brands delivered through our people
(cid:127) Superior owner proposition
(cid:127) Investment in developing great talent
Performance measure:
Improvement in Employee Engagement survey
score year-on-year; threshold = 50% achievement
vs target; maximum = 200% achievement vs target.
EBIT (70%):
This measure provides annual focus on earnings
growth, which is a key contributor to shareholder
returns, driven by core operating inputs of net rooms
growth, RevPAR, fee revenue and operating profit.
Link to strategic priority:
(cid:127) Winning Model
(cid:127) Targeted Portfolio
(cid:127) Scale and efficiency of operations
Performance measure:
Achievement of annual target; threshold = 90%
achievement vs target; maximum = 110%
achievement vs target.
Long Term Incentive Plan (LTIP)
Relative net rooms growth (25%):
This is a measure of success in growing the IHG
System size.
Link to strategic priority:
(cid:127) Build and leverage scale
(cid:127) Superior owner proposition
(cid:127) Attractive markets
Performance measure:
Compared to performance of global hotels index;
threshold (20%) = average of comparator group;
maximum = 1st in the comparator group.
Relative RevPAR growth (25%):
This reflects the sustainable power of our brands
and our scale, and focuses growth on quality rooms.
Link to strategic priority:
(cid:127) Preferred brands delivered through our people
(cid:127) Strong brand portfolio and loyalty programme
(cid:127) Effective channel management
(cid:127) Superior owner proposition
(cid:127) Highest opportunity segments
Performance measure:
Compared to performance of global hotels index;
threshold (20%) = average of comparator group;
maximum = 1st in the comparator group.
Relative TSR (50%):
Creates value through and provides alignment
with superior shareholder returns and provides
a direct link between shareholder returns and
executive remuneration.
Link to strategic priority:
(cid:127) Winning Model
(cid:127) Targeted Portfolio
(cid:127) Disciplined Execution
Performance measure:
Compared to performance of global hotels index;
threshold (20%) = growth equal to the global hotels
index; maximum = growth exceeds index by 8%
or more per annum.
79
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Summary of our Directors’ Remuneration Policy (DR Policy)
How to use this report
The 2014 Directors’ Remuneration Report uses
colour coding throughout to denote different
elements of remuneration, as follows:
Salary
Salary
Benefits
Benefits
APP cash
APP cash
APP deferred shares
APP deferred shares
LTIP
LTIP
Pension benefit
Pension benefit
This is a brief summary of the DR Policy, which was approved at our 2014 AGM. The full DR Policy can be found
at www.ihgplc.com/investors under corporate governance.
DR Policy table summary
Executive Directors
Element
Fixed
Salary
Benefits
Framework
Salaries increase generally in line with the range applying to the corporate
UK and US employee population. They are reviewed annually and are fixed
for 12 months from 1 April.
Newly appointed or recruited Executive Directors may, on occasion, have
their salaries set below the benchmark policy level while they become
established in role. In such cases, salary increases may be higher than
the corporate UK and US employee population until the target positioning
is achieved.
Benefits are restricted to the typical level in the relevant market for an
Executive Director. They may include the cost of independent financial
advice, car allowance/company car, private healthcare/medical
assessments and relocation and expatriate or international assignment
costs where appropriate.
Variable
APP
(50% cash and 50% IHG shares
deferred for three years)
Maximum annual award is 200% of salary; target award is 115% of salary;
threshold is 50% of target award for each measure.
This is reviewed annually with targets set in line with key strategic priorities:
• 70% EBIT
• 30% non-financial measures
They include regional or global measures or a combination of both.
The Committee may vary the relative weighting of EBIT and other metrics
from year to year. Personal performance may also be taken into account
in determining awards under the APP.
Maximum annual award is 205% of salary; 20% threshold vesting
of net rooms and RevPAR if equal to average growth of comparator group;
20% threshold vesting of TSR if equal to global hotel index growth.
Measures and targets are reviewed and may be changed by the Committee
annually to ensure alignment with strategic objectives:
• 25% relative net rooms growth
• 25% relative RevPAR growth
• 50% relative TSR
All targets are measured over a performance period of at least three years
against an appropriate comparator group of companies, which the
Committee determines annually.
Executive section of the UK Defined Contribution Plan, US 401(k) Plan and
US Deferred Compensation Plan: employee contributions with matching
Company contributions. A cash allowance in lieu of pension contributions
is offered. Salary is the only part of remuneration that is pensionable.
LTIP
(100% shares)
Pension
Pension benefit
80
continuedDirectors’ Remuneration Report
Non-Executive Directors
Element
Framework
Fixed
Fees and benefits (cash)
Maximum increase in annual fee in line with median FTSE 100 increases. Set by
the Chairman of the Board and Executive Directors. The Chairman’s fees are set by
the Committee. They are fixed for 12 months from 1 January. Non-Executive Directors
are not eligible to participate in any performance-related incentive plans. IHG pays
the cost of providing benefits as required.
Notes on DR Policy table summary
Use of discretion
The Committee reserves certain discretions under the Company’s
incentive plans. These operate in two main respects:
• enabling the Committee to ensure that outcomes under these
plans are consistent with the underlying performance of the
business and the interests of shareholders; and
• enabling the Committee to treat leavers in a way that is fair
and equitable to individuals and shareholders under the
incentive plans.
The Committee will also use its judgement as to what is appropriate
within the terms of the DR Policy to make decisions that do not
involve the exercise of discretion.
In all cases, the discretions are reserved as part of the DR
Policy in order to allow the Committee flexibility to ensure that
remuneration outcomes for Executive Directors are consistent
with business performance, at the same time as providing a high
degree of clarity for shareholders as to remuneration structure
and potential quantum. Any exercises of discretion by the
Committee will be fully disclosed and explained in the relevant
year’s Implementation of Remuneration Policy Report.
In relation to the LTIP, the Committee will review the vesting
outcomes under all of the LTIP measures at the end of each three-
year cycle against an assessment of Group earnings and the quality
of financial performance over the period, including sustainable
growth and the efficient use of cash and capital. If the Committee
determines that the vesting outcomes do not appropriately reflect
the financial performance of the Group, it may reduce the number
of shares that vest.
In relation to malus, for awards made from January 2012, the APP
and LTIP rules allow the Committee discretion to reduce the level
of unvested share awards if circumstances occur that, in the
reasonable opinion of the Committee, justify a reduction in one or
more awards granted to any one or more participants. The malus
provisions relate to unvested awards only. The circumstances
in which the Committee may consider it appropriate to exercise
its discretion include the following:
• 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 may include, where appropriate, negligence on the part
of Executive Directors.
These features help ensure alignment between executive reward
and shareholder returns.
Policy on payment for loss of office
All current Executive Directors have a rolling service contract
with a notice period from the Company of 12 months. As an
alternative, the Company may, at its discretion, pay in lieu of that
notice. Neither notice nor a payment in lieu of notice will be given
in the event of gross misconduct.
Payment in lieu of notice could potentially include up to
12 months’ salary and the cash equivalent of 12 months’ pension
contributions, and other contractual benefits. Where possible,
the Company will seek to ensure that, where a leaver mitigates
their losses by, for example, finding new employment, there
will accordingly be a corresponding reduction in compensation
payable for loss of office.
Further details on the policy for determination of termination
payments are included in the DR Policy.
Approach to recruitment remuneration
The remuneration of any new Executive Director will be determined
in accordance with the DR Policy. In addition, the Committee may,
at its discretion, compensate a newly recruited Executive Director
for incentives from a previous employment foregone as a result
of their resignation. The Committee would seek validation of the
value of any potential incentives foregone. Awards made by way
of compensation for incentives foregone would be made on a
comparable basis, taking account of performance achieved, or
likely to be achieved, the proportion of the performance period
remaining and the form of the award. Compensation would, as
far as possible, be in the form of IHG LTIP or deferred share
awards, in order to immediately align a new Executive Director
with IHG’s performance.
Details of letters of appointment and notice periods for
Non-Executive Directors
Non-Executive Directors have letters of appointment, which are
available upon request from the Company Secretary’s office.
Patrick Cescau, Non-Executive Chairman, is subject to 12 months’
notice. All other Non-Executive Directors are not subject to notice
periods.
All Non-Executive Directors’ appointments and subsequent
re-appointments are subject to election and annual re-election
by shareholders at the 2015 AGM (see page 71).
81
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Annual Report on Directors’ Remuneration
This Annual Report on Directors’ Remuneration explains how the Directors’ Remuneration Policy (DR Policy) was implemented in 2014
and the resulting payments each of the Directors received. The notes to the single figure table provide further detail, including measures
and outcomes for 2014 where relevant, for each of the elements that make up the total single figure of remuneration in respect of each of
the Executive Directors. This report is subject to an advisory vote by shareholders at the 2015 AGM.
Single total figure of remuneration – Executive Directors (audited information)
Richard Solomons,
Chief Executive Officer
£5,087
£3,570
£3,131
Value
(£000)
6000
5000
4000
3000
2000
1000
0
Paul Edgecliffe-Johnson,
Chief Financial Officer
£2,132
£1,596
5000
Value
(£000)
4000
3000
2000
1000
0
2014
potential
2014
actual
2013
actual
2014
potential
2014
actual
Excludes one-off payment received in lieu of certain pension rights,
which does not form part of usual annual remuneration; see details below.
n/a
2013
actual
Kirk Kinsell,
President, The Americas
Tracy Robbins, Executive Vice President,
Human Resources and Group Operations Support
5000
Value
(£000)
4000
3000
2000
1000
0
£3,257
£1,923
£2,073
5000
Value
(£000)
4000
3000
2000
1000
0
£2,910
£2,042
£1,843
Maximum = Fixed pay
and maximum award
under APP and LTIP
Target = Fixed pay
and on-target award
for APP (115%) and
50% of maximum
LTIP vesting
Minimum = Fixed pay
and pension benefits
Pension
Pension benefit
Variable pay
LTIP
APP deferred shares
APP cash
Fixed pay
Benefits
Salary
2014
potential
2014
actual
2013
actual
2014
potential
2014
actual
2013
actual
Fixed pay
Variable pay
Pension
Salary
Benefits
APP
LTIP
Pension benefit
Total
Executive
Directors
2014
£000
2013
£000
2014
£000
2013
£000
2014
£000
2013
£000
2012/14
cycle (value
of shares)
£0001
2011/13
cycle (value
of shares)
£0002
34
1,128
1,098
1,425
1,018
2014
£000
2013
£000
2014
£000
2013
£000
228
+ 2,9583
3,186
246
3,570
+ 2,9583
6,528
3,131
Richard
Solomons3
Paul Edgecliffe-
Johnson4
Kirk Kinsell5
Tracy Robbins
Tom Singer6
759
735
420
479
434
2
n/a
492
421
548
30
28
27
20
0
n/a
85
21
29
619
365
644
n/a
n/a
532
631
409
403
941
814
712
n/a
850
644
918
126
111
130
n/a
n/a
1,596
n/a
114
126
164
1,923
2,042
714
2,073
1,843
2,068
1 Share price of 2,449p is the average over the final quarter of 2014.
2 Restated using the VWAP (Volume Weighted Average Price) of 1,977p on the date of actual vesting on 19 February 2014. The corresponding values
shown in the 2013 report (prior to the actual vesting) were an estimate and calculated using a share price as at 31 December 2013 of 2,013p.
3 Richard Solomons received a one-off cash payment in 2014 in lieu of any future entitlement to ICETUS benefits. The amount shown (£2.958m)
is the gross cash payment (£9.405m) less amounts previously disclosed (£6.447m). It is included here but is not shown in the illustrative bar chart
above as it was a one-off payment and was in respect of benefits already accrued.
4 Paul Edgecliffe-Johnson was appointed to the Board as Chief Financial Officer effective as of 1 January 2014.
5 Kirk Kinsell was paid in US dollars and the sterling equivalents were calculated using an exchange rate of $1 = £0.61. In accordance with the APP
rules, Mr Kinsell will receive only the 50% cash portion of his 2014 APP award, as shown here.
6 As a result of Tom Singer’s resignation from IHG with effect from 1 January 2014, he only received the 50% cash portion of the 2013 APP award and will
not receive a 2014 APP award. Following Mr Singer’s resignation, the Remuneration Committee determined that the 2011/13 LTIP award would vest
without pro-ration in line with the terms of the LTIP Plan rules, as the performance period for this award would be completed by his departure date.
This award was released on the normal vesting date and only to the extent the performance conditions were met. Mr Singer’s salary for 2014 was in
respect of one day, 1 January 2014, after which his resignation took effect.
82
continuedDirectors’ Remuneration Report
Notes to single total figure of remuneration – Executive Directors (audited information)
Kirk Kinsell – remuneration arrangements on departure
Kirk Kinsell left the Board and his role as President, The Americas effective as of 13 February 2015. The Remuneration Committee
determined that Mr Kinsell would be treated as a Good Leaver for the purposes of the LTIP awards, in line with the DR Policy on termination
of employment. He therefore retained all outstanding LTIP awards which will vest on the normal vesting dates, subject to the satisfaction of
performance conditions, with the awards pro-rated to his leaving date. Mr Kinsell also received the cash portion of his 2014 APP award and
the deferred share portion of his 2011 APP on the normal vesting date. Outstanding deferred awards under the 2012 and 2013 APPs lapsed,
and no APP award will be made in respect of 2015. The Remuneration Committee has reserved the right to determine that, prior to the
vesting of shares under each outstanding LTIP cycle, Mr Kinsell’s entitlement to shares under the LTIP will be forfeited in full if Mr Kinsell
commits a breach of his continuing post-termination contractual obligations. The relevant figures will be included in next year’s report.
Fixed pay
Salary: salary paid for the year (for Kirk Kinsell, who was paid in US dollars, this shows actual salary paid converted into sterling).
Benefits: this includes taxable benefits such as company car, healthcare, life cover and other taxable benefits. Provision during 2014
was in line with previous years and the approved DR Policy, and no exceptional benefits were paid.
Variable Pay
2014 APP
The weighting, measures and targets relating to the APP are determined by the Committee, on an annual basis, in line with our strategic
objectives. A combination of global and regional targets were used in 2014. Executive Directors with only global roles were subject to
global measures. Kirk Kinsell was subject to partly regional measures, reflecting his regional role as President, The Americas.
The measures for 2014 were determined in accordance with the DR Policy and were as follows:
• Guest satisfaction as measured by the Guest HeartBeat score: year-on-year improvement;
• Employee Engagement survey score: year-on-year improvement; and
• EBIT achievement against target (corporate and regional).
Why do we use these measures?
Guest HeartBeat score
Employee Engagement survey score
EBIT vs target
• Guest HeartBeat is part of the guest
satisfaction survey.
• It is an overall guest satisfaction score
relating to hotel visits.
• It is a robust measure of the strength
of our brands.
• Inclusion in the APP provides executive
focus on this key performance metric
at global and regional level.
• We measure employee engagement
because our brands are, effectively,
a promise by our people, as engaged
colleagues, to deliver a great guest
experience.
• Engaged employees are key to our
business.
• Our Employee Engagement survey is
a long-established tool in our business.
• EBIT is a key measure of business
performance for our shareholders.
• It is a function of other critical measures:
net rooms growth, RevPAR, operating
profit and fee revenues.
Award levels relate to achievement against target under each of the measures. The link between our strategy and the performance
measures of the APP is explained in more detail on page 79.
Threshold, target and maximum opportunity are shown on the graph on page 84, along with actual achievement on a global basis
and further detail.
The actual award level was determined on a straight-line basis between threshold and target, and target and maximum, and relates
to achievement vs target under each measure:
• Threshold is the minimum level that must be achieved for there to be an award in relation to that measure; for achievement below
this, no award is made.
• Target is the target level of achievement and results in a target award for that measure (115% of salary).
• Maximum is the level of achievement at which a maximum award for that measure is received (200% of salary).
Threshold award was subject to a global EBIT affordability gate such that:
• if global EBIT was below 85% of target, no award would be made; and
• if global EBIT was between 85% and 90% of target, half of any award relating to the Guest HeartBeat and/or Employee Engagement
survey measures would be made.
83
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Annual Report on Directors’ Remuneration continued
Performance measure
Weighting
Target as a
% of salary
Illustrative achievement against
target for that measure
Award as a
% of salary
Maximum as a
% of salary
No
payout
Threshold
Target
Maximum
Guest HeartBeat1
20%
23%
Employee Engagement survey
10%
11.5%
EBIT1
Total as a % of salary
Actual No payout
70%
80.5%
115%
31.0%
46%
23.0%
23%
93.4%
161%
147.4%
230%
capped at 200%2
1 The EBIT element of Kirk Kinsell’s award was based 50/50 on Group/The Americas results; the EBIT achievement for the Americas was 99.0% against target.
The Guest HeartBeat element of Mr Kinsell’s award was based wholly on The Americas results; achievement was 29.4% of target. The total award as a % of salary
for Mr Kinsell was 151.4% and in accordance with the APP Plan rules he will only receive the 50% cash portion.
2 Maximum achievement under all three measures would result in an award of 230% of total salary. However, under the DR Policy, awards are capped at 200%
of salary.
Outcome for 2014 (audited information)
Based on performance, the following table shows the level of 2014 awards for which 50% will be paid in cash and 50% in deferred IHG
shares. These will vest after three years in February 2018. The deferred share awards are made in the form of forfeitable shares that
receive dividends during the three-year vesting period and include the right to vote at shareholder meetings.
Executive Director
Richard Solomons
Paul Edgecliffe-Johnson
Kirk Kinsell
Tracy Robbins
Award as
% of salary
Total value of award
£0001
147.4
147.4
75.7
147.4
1,128
619
3652
644
1 As shown in the single figure of remuneration on page 82.
2 In accordance with the rules of the APP, Kirk Kinsell will receive only the 50% cash portion of his 2014 APP award, as shown here.
In relation to the APP 2014 measures, we have disclosed percentage achievement against target for each measure in the graph at the
top of this page. We have also shown outcome vs opportunity. For the Guest HeartBeat and Employee Engagement survey measures,
the 2014 outcome scores are detailed on pages 31 and 32 of the Annual Report. Detail on the financial targets set is not disclosed at this
stage as it is, in the opinion of the Directors, commercially sensitive. Disclosure would risk providing IHG’s major competitors with an unfair
commercial advantage as these companies are either unlisted or listed on a stock exchange other than the London Stock Exchange and,
therefore, not subject to the same regulations. During 2015, we will consider what further transparency we can provide to shareholders
without disadvantaging the business.
2012/14 LTIP
The performance measures for each three-year LTIP cycle are set by the Committee. Awards are made annually and eligible executives
will receive shares at the end of that cycle, subject to achievement of the performance measures. The performance measures for the
2012/14 cycle were as follows and in line with the DR Policy:
• relative growth in net rooms over three years;
• relative like-for-like RevPAR growth over three years; and
• IHG’s TSR relative to a global hotels index (see page 89 for further details).
Growth in net rooms and RevPAR is measured on a relative basis against the comparator group, comprising the following major, globally
branded competitors: Accor, Choice Hotels, Hilton Worldwide, Hyatt, Marriott International Inc., Starwood Hotels and Wyndham Worldwide.
Why do we use these measures?
Net rooms growth
RevPAR growth
Relative TSR
This measures the net growth in the 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 revenue
per available room 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 appropriate comparator group of global
hotels, as per data sourced from Thomson
Datastream.
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 increasing RevPAR for those rooms.
84
continuedDirectors’ Remuneration Report
By focusing 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.
These performance measures are also used for the 2013/15 and 2014/16 LTIP cycles, granted in 2013 and 2014 respectively. Threshold,
target and maximum opportunity for the 2012/14 cycle is shown in the graph below, along with actual achievement for 2014.
Performance
measure
Weighting
Maximum
opportunity
at grant as a
% of salary
Relative net
rooms growth
Relative RevPAR
growth
25%
51.25%
25%
51.25%
Relative TSR
50%
102.5%
Achievement relative to maximum
for that measure
No
payout Threshold
Target
Maximum
% of
maximum
opportunity
vested
Commentary
0%
6.1%
Outcome below average
of comparator group
Outcome slightly above average
of comparator group
50.0%
Outperformed index by 15.8%
Maximum as % salary at grant 205%
% of maximum opportunity vested
56.1%
Actual No payout
Performance was below the average of the comparator group on the relative net rooms growth measure and therefore this element
will not vest.
Outcome for 2012/14 cycle (audited information)
This cycle will vest on 18 February 2015, as follows:
Executive Director
Richard Solomons
Paul Edgecliffe-Johnson
Kirk Kinsell2
Tracy Robbins
Tom Singer3
Maximum opportunity at grant
(number of shares)
% of maximum opportunity
vested
Outcome (number of shares
awarded at vest)
Total value of award1
£000
103,722
29,322
68,463
59,270
77,684
56.1
56.1
56.1
56.1
56.1
58,188
16,449
38,407
33,250
29,053
1,425
403
941
814
712
1 As shown in the single figure of remuneration. Share price used of 2,449p is the average over the final quarter of 2014.
2 In line with the DR Policy, the Remuneration Committee determined that Kirk Kinsell would retain his 2012/14 LTIP award in accordance with and subject to
the terms of the LTIP Plan rules, as the performance period for this award was completed when Kirk Kinsell resigned effective as of 13 February 2015.
3 The Remuneration Committee determined that the 2012/14 LTIP award would vest in line with the terms of the LTIP Plan rules on a pro-rated basis for the
proportion of the performance period in which Tom Singer remained in employment. This award will be released on the normal vesting date and only to the extent
the performance conditions were fulfilled.
Net rooms and RevPAR growth were measured by reference to the three years ending 30 September 2014; TSR was measured by
reference to the three years ending 31 December 2014.
Pensions
Pension benefit: the value of Company contributions to pension plans and any cash allowances paid in lieu of pension contributions.
As published in the 2013 Annual Report, the Group commenced the phasing out of potential enhanced early retirement terms related
to those defined benefit pensions in 2014 (see page 87 for further details). In addition, the planned cash out offer was made to the
participants of the unfunded, unregistered, defined benefit top-up arrangement, ICETUS, which had previously provided the balance of
any benefit accrual that was restricted in the tax-registered plan due to the annual or lifetime allowances. Payments associated with the
cash out were made in the financial year and are therefore disclosed appropriately in this year’s Annual Report.
For 2014, the pension benefits for Richard Solomons include the payment of a cash out value in respect of his accrued, unfunded
ICETUS benefit. Richard Solomons received a one-off gross cash payment of £9,405,362 in lieu of any future entitlement to ICETUS
benefits. An amount of £6,447,000 in respect of his ICETUS benefit was included as part of the disclosure of his total accrued benefits
in the 2013 Directors’ Remuneration Report based on the HM Revenue & Customs methodology of valuing pensions at 20 times their
annual amounts, hence only the balance in excess of this (i.e. £2.958m) is shown in the single figure table. The actual payment was
greater than 20 times the annual pension because the ICETUS benefit was valued using a more accurate actuarial calculation method,
in line with that used for valuing the total ICETUS liabilities for accounting purposes. Following the cash out, Richard Solomons has no
future entitlement to any benefit from ICETUS.
85
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Annual Report on Directors’ Remuneration continued
Scheme interests awarded during 2014 (audited information)
During 2014, awards relating to shares were granted under the 2014/16 LTIP. Awards were made to each Executive Director over shares
with a value of 205% of salary using the closing mid-market share price on 7 April 2014. These are in the form of conditional awards over
IHG shares and do not carry the right to dividends or dividend equivalents during the vesting period.
These awards will vest, and the shares will be transferred to the award holder, in February 2017 to the extent performance targets are
met. See pages 84 and 85 for an explanation of the performance measures.
Executive Director
2014/16 cycle
Richard Solomons
Paul Edgecliffe-Johnson
Kirk Kinsell3
Tracy Robbins
Award date
Maximum shares
awarded
Market price per
share at grant1
£
Face value of
award at grant
£000
Number of shares
received if minimum
performance achieved2
8 April 2014
8 April 2014
8 April 2014
8 April 2014
82,193
45,125
18,570
46,952
19.08
19.08
19.08
19.08
1,568
861
981
896
16,439
9,025
3,714
9,390
1 Share price was the closing mid-market share price on 7 April 2014.
2 Minimum performance is equal to 20% of maximum award.
3 Following Kirk Kinsell’s resignation with effect from 13 February 2015, his award will vest in line with the LTIP Plan rules. His initial maximum shares awarded of
51,426 have been reduced accordingly on a pro-rated basis for the proportion of the performance period in which he remained in employment, as determined by
the Committee. The pro-rated award is shown in the table above. Vesting will not be accelerated.
The vesting date for these awards is the day after the announcement of our Annual 2016 Preliminary Results in February 2017. Net rooms
growth and RevPAR growth will be measured by reference to the three years ending 30 September 2016; TSR will be measured by
reference to the three years ending 31 December 2016.
Other outstanding awards
During 2013, awards relating to shares were granted under the 2013/15 LTIP (shown below) on the same basis as the 2014/16 LTIP
cycle (shown above). These awards will vest in February 2016 to the extent performance targets are met. See pages 84 and 85 for an
explanation of the performance measures.
Executive Director
2013/15 cycle
Award date
Maximum shares
awarded
Market price per
share at grant1
£
Face value of
award at grant
£000
Number of shares
received if minimum
performance achieved2
Richard Solomons
Paul Edgecliffe-Johnson3
Kirk Kinsell4
Tracy Robbins
Tom Singer5
5 April 2013
24 February 2014
5 April 2013
5 April 2013
5 April 2013
76,319
9,454
36,839
43,819
56,883
19.85
19.25
19.85
19.85
19.85
1,515
182
1,053
870
1,129
15,263
1,891
7,367
8,763
0
1 Share price was the closing mid-market share price on 4 April 2013. For Paul Edgecliffe-Johnson, this was the closing mid-market share price on 21 February 2014.
2 Minimum performance is equal to 20% of maximum award.
3 Paul Edgecliffe-Johnson received an increased award, pro-rated from 1 January 2014, for the 2013/15 LTIP in accordance with the DR Policy as a result of his
appointment to the Board. He was awarded 18,322 shares on 5 April 2013 with a market price per share at grant of £19.85 prior to his appointment to the Board.
4 Following Kirk Kinsell’s resignation with effect from 13 February 2015, his award will vest in line with the LTIP Plan rules. His initial maximum shares awarded of
53,049 have been reduced accordingly on a pro-rated basis for the proportion of the performance period in which he remained in employment, as determined by
the Committee. The pro-rated award is shown in the table above. Vesting will not be accelerated.
5 Tom Singer’s award lapsed as a result of his resignation with effect from 1 January 2014.
The vesting date for these awards is the day after the announcement of our Annual 2015 Preliminary Results in February 2016. Net rooms
growth and RevPAR growth will be measured by reference to the three years ending 30 September 2015; TSR will be measured by
reference to the three years ending 31 December 2015.
Current position on outstanding awards
Details of the performance measures and potential vesting outcomes for outstanding awards as at 31 December 2014 are as follows:
Performance
measure
Threshold
performance
Maximum
performance
Threshold/
maximum
vesting
Weighting
Maximum
award
(% of salary)
Net rooms
growth
Average of the
comparator group
1st in the
comparator group
RevPAR growth
Average of the
comparator group
1st in the
comparator group
20%/100%
20%/100%
25%
25%
51.25%
51.25%
Relative TSR
Growth equal to
the global hotels
index
Growth exceeds
the index by 8%
per year or more
20%/100%
50%
102.5%
Potential vesting outcome
2014/16 cycle
2013/15 cycle
Below
threshold
Above
average
Below
threshold
Above
average
Maximum
performance
Maximum
performance
86
continuedDirectors’ Remuneration Report Total pension entitlements (audited information)
The InterContinental Hotels UK Pension Plan (IC Plan) is a funded final salary occupational pension scheme with an additional defined
contribution section.
Richard Solomons’ defined benefit pension accrual in both ICETUS and the IC Plan ceased on 30 June 2013 and the Trustee of the IC Plan
subsequently entered into an insurance contract in August 2013 under which all defined benefit liabilities of the plan, plus the provision
of increases to pensions which were previously only provided at the discretion of the Company, were fully insured (known as a ‘buy-in’).
During 2014, arrangements were made to fully transfer the responsibility for the provision of benefits from the Trustee of the IC Plan
to the insurance company, Rothesay Life. This process (known as a ’buy-out’) was completed on 31 October 2014.
Following the buy-out, Richard Solomons has no future benefit entitlement from the IC Plan and it is not considered necessary to
make these disclosures in the future. In last year’s Annual Report, we published the Board’s plans to phase out the Company’s Enhanced
Early Retirement Facility (EERF). However, during the period over which it is phased out, Richard Solomons remains eligible to benefit
from the EERF, albeit at a reduced level. Under the EERF, executive participants of the defined benefit section of the IC Plan had an option,
with the Company’s agreement, to retire without reduction to their pension if they are within five years of their normal retirement date
and to retire on improved early retirement terms before this. As set out in the Remuneration Committee Chairman’s 2013 Statement,
the phasing out of this facility commenced on 1 March 2014. As a result of the phasing out of the EERF, Mr Solomons could retire, with
no reduction in his pension, from approximately age 58 and no earlier. Prior to the phasing out, Richard Solomons was eligible to retire
without reduction from age 55. The terms of the EERF require an executive to obtain Company consent and would also require the
payment by the Group of an additional insurance premium to secure the benefit entitlement for that executive.
Richard Solomons’ IC Plan pension, which formed part
of the buy-out, was as follows:
£pa
Accrued annual pension at 1 January 2014,
assuming retirement at normal pension age
(9 October 2021)
Accrued annual pension at 31 December 2014,
assuming retirement at normal age
(9 October 2021)
The increase in accrued pension represents the standard
inflation increase provided for deferred pensions in the IC
Plan rules. It does not, therefore, constitute a pension
input amount and there is no requirement to disclose the
value of this increase in the single figure.
73,680
71,950
For 2014, Richard Solomons received a cash allowance
in lieu of pension contributions. The breakdown of the
pension element of the single figure for 2013 and 2014
for Mr Solomons is as follows:
Pension benefit under defined
benefit section of IC Plan
ICETUS cash-out
Cash allowance in lieu of pension contribution
Total
2014
£000
2013
£000
–
135
2,9581
228
3,186
–
111
246
1 Richard Solomons received a one-off cash payment in 2014 in lieu
of any future entitlement to ICETUS benefits. See page 85.
Paul Edgecliffe-Johnson participated in the defined contribution
section of the IC Plan until March 2014, during which time he
paid contributions of £7,875 and received Company contributions
of £4,625 and a cash allowance in lieu of pension contributions
of £26,875. For the period from April 2014, he did not participate
in any IHG pension plan and instead received a cash allowance
of £94,500.
Kirk Kinsell participated in the US 401(k) Plan and the US
Deferred Compensation Plan. The US 401(k) Plan is a tax qualified
plan providing benefits on a defined contribution basis, with the
member and 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.
Tracy Robbins did not participate in any IHG pension plan
in 2014. Instead she received a cash allowance of £130,148.
Contributions made by, and in respect of, Kirk Kinsell in these
plans for the year ended 31 December 2014 were:
Life assurance cover of four times pensionable salary was also
provided for Tracy Robbins and Paul Edgecliffe-Johnson and,
in accordance with the terms of the closure of the IC Plan to future
defined benefit accrual, life assurance cover of six times salary
was provided for Richard Solomons.
Director’s contributions to US Deferred
Compensation Plan
Director’s contributions to US 401(k) Plan
Company contributions to US Deferred
Compensation Plan
Company contributions to US 401(k) Plan
Age at 31 December 2014
£1
136,199
14,030
105,047
6,280
59
1 Sterling values have been calculated using an exchange rate of $1=£0.61.
87
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Annual Report on Directors’ Remuneration continued
Statement of Directors’ shareholdings and share interests (audited information)
The Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individual’s
personal interests and those of shareholders.
Guideline Executive Director shareholding requirement
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. As can be seen from the graph below, with the exception of Paul Edgecliffe-Johnson,
the shareholdings for the other Executive Directors are substantial and the guideline requirement exceeded. Percentages are based
on shareholding and a share price of 2,595p per share as at 31 December 2014.
Shares and awards held by Executive Directors as at 31 December 2014: % of salary
Richard Solomons
300
Paul Edgecliffe-Johnson
1,298
2,463
65
200
Kirk Kinsell
200
Tracy Robbins
200
305
0
% of salary
250
776
631
1,824
1,487
500
750
1000
1250
1500
1750
2000
2250
2500
Shares held outright
Total shares and awards
Guideline shareholding requirement
Shares held by Executive Directors as at 31 December 2014: number of shares (audited information)
Executive Director
Number of shares
held outright1
2014
2013
Richard Solomons
Paul Edgecliffe-Johnson4
Kirk Kinsell
Tracy Robbins
382,533
10,583
117,6405
51,418
371,198
n/a
127,4446
85,703
APP deferred
share awards2
LTIP share awards
(unvested)3
Total number of
shares and awards held
2014
81,240
12,860
49,580
48,932
2013
90,068
n/a
66,502
55,905
2014
262,234
102,223
172,938
150,041
2013
267,275
n/a
194,384
158,337
2014
726,007
125,666
340,158
250,391
2013
728,541
n/a
388,330
299,945
1 These shareholdings include all Directors’ beneficial interests and those held by their spouses and other connected persons.
2 Awards not subject to performance conditions.
3 Awards still subject to performance conditions as set out on pages 84 and 85.
4 Paul Edgecliffe-Johnson was appointed to the Board on 1 January 2014.
5 Comprised 117,092 ordinary shares and 548 American Depositary Receipts.
6 Comprised 126,850 ordinary shares and 594 American Depositary Receipts.
Percentage change in remuneration of Chief Executive Officer
The table below shows the percentage change in the remuneration of the Chief Executive Officer compared with UK employees between
2013 and 2014:
Salary
Taxable benefits2
Annual incentive
Chief Executive Officer
UK employees
+3.5%
-11.8%
+2.7%
+3.0%1
+4.5%
+7.6%
1 The percentage change for UK employees shown is the budget for the 2014
annual pay review and promotions/market adjustments during 2014.
2 Based on P11D taxable benefits for tax year ending 5 April in relevant year.
We believe that an appropriate comparator group for salary and
taxable benefits comparison is UK-based employees because the
structure and composition of remuneration for that group most
closely reflects that of the UK-based Chief Executive Officer.
Therefore, the same UK market dynamics will apply to salary
movements providing a like-for-like comparison.
For the annual incentive, the comparator group used is the
grade of executives at and immediately below Executive
Committee level, who are subject to the same performance
measures as the Chief Executive Officer, and with a “very good”
individual performance rating.
88
continuedDirectors’ Remuneration Report
Relative performance graph and table
Throughout 2014, IHG was a member of the FTSE 100 share index and for LTIP purposes used a TSR comparator group of a global
hotels index. This consists of the companies that made up the Dow Jones Global Hotels index (DJGH). It continues to comprise the same
companies, following the cessation of the former Dow Jones Index in 2014, and is sourced directly from Thomson Datastream for IHG.
Accordingly, the Committee has determined that these are the most appropriate market indices against which to test the Group’s
performance. The graph below shows IHG’s TSR performance from 31 December 2008 to 31 December 2014, assuming dividends are
reinvested, compared with the TSR performance achieved by the FTSE 100 and global hotels indices. All indices are shown in sterling.
TSR: InterContinental Hotels Group PLC vs FTSE 100 and global hotels index
InterContinental Hotels Group PLC
Global hotels index
FTSE 100 index
Source:
Thomson Datastream
600
550
500
450
400
350
300
250
200
150
100
50
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Chief Executive Officer’s remuneration
The table below shows the single figure of total remuneration for the incumbent Chief Executive Officer for the six years
to 31 December 2014:
Single figure
£000
Annual incentive
received
(% of maximum)
Shares received
under the LTIP
(% of maximum)
Chief Executive Officer
Richard Solomons
Andrew Cosslett
Richard Solomons
Andrew Cosslett
Richard Solomons
Andrew Cosslett
2009
n/a
1,953
n/a
nil3
n/a
46.0
2010
n/a
5,430
n/a
100.0
n/a
73.8
Financial year ended 31 December
20111
4,724
3,770
83.0
43.04
73.9
61.6
2012
4,881
n/a
68.0
n/a
100.0
n/a
2013
3,149
n/a
74.0
n/a
59.0
n/a
2014
6,5282
n/a
74.0
n/a
56.1
n/a
1 Andrew Cosslett retired on 30 June 2011 and Richard Solomons was appointed Chief Executive Officer effective as of 1 July 2011, having previously held the position
of Chief Financial Officer and Head of Commercial Development; the single figure value is the total remuneration received by each of them for that year.
2 Includes a one-off cash payment in lieu of any future entitlement to ICETUS benefits. The amount included in respect of this (£2.958m) is the gross cash payment
(£9.405m) less amounts previously disclosed (£6.447m).
3 There was no annual incentive award paid in respect of financial year ended 31 December 2009.
4 No deferred shares were awarded in respect of the 2011 Annual Bonus Plan (ABP). Andrew Cosslett received his award as 100% cash pro-rated to 30 June 2011.
Relative importance of spend on pay
The table below sets out the actual expenditure of the Group in 2012, 2013 and 2014 on corporate employee remuneration and
distributions to shareholders and shows the difference in spend between those years:
Item
Remuneration paid to all corporate
employees
Distributions:
Final dividend (previous year)
Ordinary (interim) dividend
Special dividend
Repurchase of own shares
Total distributions
2014
$m
657
122
57
7632
1105
1,052
% change
0.2
28.9
2013
$m
656
115
63
3553
2836
816
% change
5.0
3.8
2012
$m
6261
113
61
5054
1077
786
1 Restated for the adoption of IAS 19R ’Employee Benefits’.
2 A special dividend of $2.93 per share was paid to shareholders on 14 July 2014.
3 A special dividend of $1.33 per share was paid to shareholders on 4 October 2013.
4 A special dividend of $1.72 per share was paid to shareholders on 22 October 2012.
5 Under the authority granted by shareholders at the AGMs held on 24 May 2013 and 8 May 2014, 3,421,973 shares were purchased in the period 1 January 2014 to
29 May 2014 (the date on which the share buyback programme was completed) for a total consideration of $110m.
6 Under the authority granted by shareholders at the General Meeting held on 8 October 2012 and the AGM held on 24 May 2013, 9,773,912 shares were purchased in
the period 1 January 2013 to 31 December 2013 for a total consideration of $283m.
7 Under the authority granted by shareholders at the General Meeting held on 8 October 2012, 4,143,960 shares were purchased in the period 12 November 2012 (the
date on which the share buyback programme commenced) to 31 December 2012 for a total consideration of $107m.
89
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Annual Report on Directors’ Remuneration continued
Dividends paid to Executive Directors
An interim dividend of 14.8p per ordinary share (25¢ per ADR)
was paid on 26 September 2014 to shareholders on the Register
of members at the close of business on 22 August 2014.
A special interim dividend of 174.9p per ordinary share (293¢ per
ADR) was paid on 14 July 2014 to shareholders on the Register of
members at the close of business on 30 June 2014.
The 2014 special dividend was accompanied by a share consolidation
to maintain comparability (as far as possible) of the share price
before and after the payment of the special dividend. Neither LTIP
award holders nor IHG Executive Share Option Plan holders were
entitled to receive the special dividend. Executive Directors holding
forfeitable shares under previous years’ annual incentive awards
received the special dividend, and their share awards were subject
to the share consolidation.
Kirk Kinsell’s deferred shares are held in the form of conditional
awards, which were not eligible to receive the special dividend,
rather than forfeitable shares. To ensure equity of treatment with
other Executive Committee members, a dividend equivalent was
paid in respect of these awards to Mr Kinsell, and his awards were
subject to the share consolidation.
Payments for loss of office (audited information)
Tom Singer stepped down from the Board and his role as Group
Chief Financial Officer on 1 January 2014. In line with his contractual
agreement and the Remuneration Committee’s policy on termination
of employment, Mr Singer was not paid any salary or benefits
(or compensation in lieu) in respect of the period after 1 January
2014, and did not receive any compensation for loss of office.
The footnotes to the single total figure table on page 82 set out the
impact of Mr Singer’s resignation on his APP and LTIP awards.
Payments to past directors – benefits
(audited information)
Sir Ian Prosser, who retired as a Director on 31 December 2003,
had an ongoing healthcare benefit of £1,379 during the year.
Payments to past directors – ICETUS cash out
(audited information)
In 2014, the Company looked to reduce the risks and volatility from
the remaining unfunded ICETUS pension arrangement by offering
members an opportunity to cash out the ICETUS element of their
pension on a basis that is fair and reasonable, both to them and to
shareholders. This is part of the process of redrawing IHG’s pension
arrangements and minimising the future risks to the Company.
A number of past directors received one-off payments, following
which they will have no future entitlement to any benefit from
ICETUS:
Former Director
Andrew Cosslett1
Richard Hartman2
Richard North3
Sir Ian Prosser
Value in 2014
£
No value to disclose
74,968
3,386,296
8,597
1 A gross cash payment of £5,114,920 was made in lieu of any future entitlement
to ICETUS benefits, in respect of which £5,266,788 had been disclosed in the
2011 Annual Report on Directors’ Remuneration based on the Cash Equivalent
Transfer Value methodology of valuing pensions applicable at the time.
2 A gross cash payment of £497,987 in lieu of any future entitlement to ICETUS
benefits, in respect of which £423,019 had been disclosed in the 2007 Annual
Report on Directors’ Remuneration based on the Cash Equivalent Transfer
Value methodology of valuing pensions applicable at the time.
3 A gross cash payment of £6,444,041 was made in lieu of any future entitlement
to ICETUS benefits, in respect of which £3,057,744 had been disclosed in the
2004 Annual Report on Directors’ Remuneration based on the Cash Equivalent
Transfer Value methodology of valuing pensions applicable at the time.
Share options
In 2013, the gain before tax, made by Richard Solomons on the
exercise of options was £4,663,884.
Single total figure of remuneration: Non-Executive Directors (audited information)
Non-Executive Director Committee appointments1
Date of original appointment
2014
Patrick Cescau
Ian Dyson3
Jo Harlow 4
David Kappler5
Jennifer Laing
Jonathan Linen6
Jill McDonald7
Luke Mayhew
Dale Morrison8
Ying Yeh
N
A N R
A N R
A N R
A C N
N R
A N
C N R
A C N
C N R
1 January 2013
1 September 2013
1 September 2014
21 June 2004
25 August 2005
1 December 2005
1 June 2013
1 July 2011
1 June 2011
1 December 2007
412
88
23
47
83
71
71
94
84
71
Fees (£000)
2013
400
23
n/a
109
80
69
40
91
69
69
Taxable benefits2
(£000)
2014
2013
15
2
0
1
3
81
2
3
22
72
14
1
n/a
2
2
90
3
2
22
72
Total (£000)
2013
414
24
n/a
111
82
159
43
93
91
141
2014
427
90
23
48
86
152
73
97
106
143
1 See page 57 for Board Committee membership key.
2 Benefits include taxable travel and accommodation expenses to attend Board meetings away from home location; under concessionary HM Revenue & Customs
rules, non-UK based Non-Executive Directors are not subject to tax on travel expenses for the first five years. This is reflected in the taxable benefits figures for
Jonathan Linen, Dale Morrison and Ying Yeh.
3 Ian Dyson was appointed as a Non-Executive Director on 1 September 2013 and became Chairman of the Audit Committee on 1 April 2014. His fee increased
accordingly from that date.
4 Jo Harlow was appointed as a Non-Executive Director on 1 September 2014. Her fee was pro-rated accordingly from her start date.
5 David Kappler retired as a Non-Executive Director on 31 May 2014.
6 Jonathan Linen retired as a Non-Executive Director on 31 December 2014.
7 Jill McDonald was appointed as a Non-Executive Director on 1 June 2013. Her fee was pro-rated accordingly from her start date.
8 Dale Morrison became Senior Independent Non-Executive Director with effect from 31 May 2014 and his fee increased accordingly from that date.
90
continuedDirectors’ Remuneration Report Implementation of Directors’ Remuneration Policy in 2015
This section explains how the DR Policy will be applied in 2015. It is subject to an advisory vote by shareholders at the 2015 AGM.
Salary: Executive Directors
Fees: Non-Executive Directors
Directors’ salaries are agreed annually in line with the DR Policy.
The following salaries will apply from 1 April 2015:
Non-Executive Directors’ fees are reviewed and agreed annually
in line with the DR Policy.
Executive Director
Richard Solomons
Paul Edgecliffe-
Johnson1
Kirk Kinsell2
Tracy Robbins
%
increase
2015
£
2015
$
2014
£
2014
$
3.5 792,000
9.5 460,000
n/a
2.5 448,000
765,000
420,000
n/a
793,500
437,000
1 Paul Edgecliffe-Johnson was appointed to the Board and the role of Group Chief
Financial Officer effective as of 1 January 2014. In line with the DR Policy for
newly appointed or promoted Executive Directors, he was appointed on a salary
set below benchmark policy level and, following strong performance in his first
year in role, an increase higher than that of the corporate UK and US employee
population has been agreed by the Remuneration Committee for 2015.
2 Kirk Kinsell was paid in US dollars and his annual salary for 2014 is shown
in US dollars above. The equivalent sterling value calculated using an
exchange rate of $1=£0.61 is £484,035. Mr Kinsell left the Board and IHG
on 13 February 2015.
The overall budget for salary increases for 2015 for UK and US
corporate employees is 3.0% and 3.5% respectively.
APP and LTIP performance measures and targets
The performance measures and targets for the 2015 APP
and the 2015/17 LTIP cycle are the same as for the 2014 APP
and the 2014/16 LTIP cycle respectively.
The actual targets under the performance measures for the APP
for 2015 are not disclosed at this stage, as they are, in the opinion
of the Directors, commercially sensitive. Disclosure would risk
providing IHG’s major competitors with an unfair advantage as
these companies are either unlisted or listed on a stock exchange
other than the London Stock Exchange and therefore not subject
to the same obligation to disclose incentive plan targets. We will
consider during 2015 what further transparency we can provide
shareholders without disadvantaging the business.
A clawback provision will be introduced in respect of the 2015
APP cash awards and 2015/17 LTIP cycle awards made to
Executive Directors. The clawback provision will apply for three
years from the date of payment (for the APP cash award) and the
date of vesting (for the LTIP award). Clawback may be operated in
the event of gross misconduct on the part of the employee and/or
material misstatement in Company or Group financial statements.
These new provisions apply in addition to the existing malus
provisions on the LTIP and APP deferred awards that provide
for unvested awards to be reduced at the discretion of the
Remuneration Committee in circumstances including:
• discovery of a material misstatement or restatement in
the Company’s or any Group Company’s audited financial
accounts (other than as a result of a change in accounting
practice) for a period that was wholly or partly before
the end of the performance period by reference to which
the APP cash award was determined; and/or
• action or conduct of a participant that, in the reasonable opinion
of the Committee, amounts to fraud or gross misconduct that
causes significant damage or potential damage to IHG’s
prospects, finances or brand reputation.
Patrick Cescau waived any fee increase for 2015. The following
annual fee levels will apply from 1 January 2015:
Non-Executive
Director
Patrick Cescau
Ian Dyson1
Jo Harlow2
David Kappler1
Jennifer Laing
Role
Chairman of the Board
Chairman of Audit Committee
Non-Executive Director
Senior Independent
Non-Executive Director and
Chairman of Audit Committee
Chairman of Corporate
Responsibility Committee
Luke Mayhew
Jonathan Linen3 Non-Executive Director
Non-Executive Director
Jill McDonald
Chairman of Remuneration
Committee
Senior Independent
Non-Executive Director
Non-Executive Director
Dale Morrison1
Ying Yeh
2015
£
2014
£
412,000
96,550
72,600
412,000
93,750
68,500
n/a
111,750
85,000
82,500
n/a
72,600
70,500
70,500
96,550
93,750
96,550
93,750
72,600
70,500
1 David Kappler stepped down as Chairman of the Audit Committee on 1 April
2014, succeeded by Ian Dyson, and retired as Senior Independent
Non-Executive Director on 31 May 2014, succeeded by Dale Morrisson.
2 Jo Harlow was appointed as Non-Executive Director effective as of
1 September 2014. Her % salary increase for 2015 brings her remuneration
in line with the other Non-Executive Directors with similar roles.
3 Jonathan Linen retired as a Non-Executive Director on 31 December 2014.
Luke Mayhew, Remuneration Committee Chairman
16 February 2015
91
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Group Financial Statements
Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
Independent Auditor’s US Report
94
95
99
100 Group Financial Statements
100
101
102
105
106
107
114
Group income statement
Group statement of comprehensive income
Group statement of changes in equity
Group statement of financial position
Group statement of cash flows
Accounting policies
Notes to the Group Financial Statements
Book
‘Guest Journey’ – Step three
• The Book phase of the ‘Guest Journey’
involves guests actually making a
reservation.
• They can do this using a variety of
methods; both direct (through digital and
voice) and indirect (through online travel
intermediaries, and business and leisure
travel agents).
92
93
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Financial Statements and accounting records
The Directors are required to prepare financial statements for
the Company and the Group at the end of each financial year
in accordance with all applicable laws and regulations. Under
company law the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the profit or loss of the
Group for that period. In preparing these Financial Statements,
the Directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgements and accounting estimates that are
reasonable;
• state whether the Consolidated Financial Statements have
been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), for use in the EU and
Article 4 of the EU IAS Regulation;
• state for the Company Financial Statements whether applicable
UK accounting standards have been followed; 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 proper accounting records which disclose with reasonable
accuracy the financial position of the Group and the Company
to enable them to ensure that the Financial Statements comply
with the Companies Act 2006 and, as regards the Consolidated
Financial Statements, Article 4 of the EU IAS Regulation. The
Directors are also responsible for the system of internal control,
for safeguarding the assets of the Company and the Group, and
taking reasonable steps to prevent and detect fraud and other
irregularities.
Disclosure and Transparency Rules
The Board confirms that to the best of its knowledge:
• the Financial Statements have been prepared in accordance
with IFRS as issued by the IASB and IFRS as adopted by the
EU, give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Group taken as a whole; and
• the Annual Report, including the Strategic Report, includes a
fair review of the development and performance of the business
and the position of the Group taken as a whole, together with a
description of the principal risks and uncertainties that it faces.
UK Corporate Governance Code
Having taken advice from the Audit Committee, the Board
considers that this Annual Report and Form 20-F, taken as a
whole is fair, balanced and understandable and that it provides
the information necessary for shareholders to assess the
Company’s performance, business model and strategy.
Disclosure of information to Auditor
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 (as defined by Section 418(3)
of the Companies Act 2006). None of the Directors are aware
of any relevant audit information which has not been disclosed
to the Company’s Auditor.
94
Management’s report on internal control over
financial reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting for the Group,
as defined in Rule 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934 as a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with IFRS. The Group’s internal control over financial
reporting includes policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the Group’s transactions and
dispositions of assets;
• are designed to provide reasonable assurance that transactions
are recorded as necessary to permit the preparation of the
Financial Statements in accordance with IFRS as issued by
the IASB and the IFRS adopted by the EU, and that receipts
and expenditure are being made only in accordance with
authorisation of management and the Directors of the
Company; and
• provide reasonable assurance regarding prevention or timely
detection of unauthorised acquisition, use or disposition of
the Group’s assets that could have a material effect on the
Financial Statements.
Any internal control framework has inherent limitations and
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or the degree of
compliance with the policies or procedures may deteriorate.
Management has undertaken an assessment of the
effectiveness of the Group’s internal control over financial
reporting at 31 December 2014 based on criteria established
in the Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (2013 Framework) (the COSO criteria). Based
on this assessment, management has concluded that as at
31 December 2014 the Group’s internal control over financial
reporting was effective.
During the period covered by this document the Group transitioned
from the 1992 to the 2013 Internal Control-Integrated Framework
criteria issued by COSO. There were no other changes in the
Group’s internal control over financial reporting that have
materially affected or are reasonably likely to materially affect
the effectiveness of the internal controls over financial reporting.
The Group’s internal control over financial reporting at
31 December 2014, together with the Group’s Consolidated
Financial Statements, were audited by Ernst & Young LLP, an
independent registered public accounting firm. Their report
on internal control over financial reporting can be found on
page 99.
For and on behalf of the Board
Richard Solomons
Chief Executive Officer
16 February 2015
Paul Edgecliffe-Johnson
Chief Financial Officer
16 February 2015
Statement of Directors’ Responsibilities
Independent Auditor Report to the members
of InterContinental Hotels Group PLC
Opinion on financial statements
In our opinion:
• the Financial Statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs as
at 31 December 2014 and of the Group’s profit for the year
then ended;
• the Group Financial Statements have been properly prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company Financial Statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• the Financial Statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group Financial Statements, Article 4 of the
IAS Regulation.
What we have audited
We have audited the Financial Statements of InterContinental
Hotels Group PLC (the Group and IHG) for the year ended
31 December 2014 which comprise the:
Company
Parent company balance
sheet
related notes 1 to 10
Group
Group income statement
Group statement of
comprehensive income
Group statement of changes in equity
Group statement of financial position
Group statement of cash flows
related notes 1 to 34
The financial reporting framework that has been applied in the
preparation of the Group Financial Statements is applicable law
and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the Parent Company Financial Statements is applicable law
and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
Overview of our audit approach
Materiality
Audit scope
Areas
of focus
• Overall Group materiality of $28m which represents
5% of profit before tax adjusted for pre-tax
exceptional items.
• We performed an audit of the complete financial
information of 21 components and audit procedures
on specific balances for a further 11 components.
• The reporting components where we performed full
or specific audit procedures accounted for 77% of
revenue and 86% of profit before tax adjusted for
pre-tax exceptional items.
• Accounting for the hotel assessments collected
as part of the revenue cycle and the allocation of
expenditures related to the marketing, advertising
and loyalty point programmes (the System Fund).
• The valuation of the future redemption of IHG
Rewards Club points liability.
• Recognition of deferred tax assets relating to losses.
• Capitalisation of software assets and carrying value
of legacy systems.
• Disposal of the 80% interest in the InterContinental
New York Barclay hotel.
Our application of materiality
For the purposes of determining whether the accounts are free
from material error, we define materiality as the magnitude of
an omission or misstatement that, individually or in the aggregate,
in light of the surrounding circumstances, could reasonably be
expected to influence the economic decisions of the users of the
financial statements. In assessing whether errors are material,
either individually or in aggregate, we consider qualitative as well
as quantitative factors.
Based on our professional judgement, we determined materiality
for the financial statements as a whole to be $28m (2013 $27m).
How we determined materiality:
Starting
basis
Profit before tax $600m
Adjustment
Adjust for pre-tax exceptional income of $29m
to determine adjusted profit before tax
Materiality
Take 5% of the adjusted profit before tax
Rationale for basis
We believe that profit before tax adjusted for pre-tax exceptional
items provides us with a consistent year on year basis for
determining materiality and is the most relevant performance
measure to the stakeholders of the entity. Detailed audit
procedures are performed on material exceptional items.
On the basis of our risk assessment, together with our assessment
of the Group’s overall control environment, our judgement was
that overall performance materiality (i.e., our tolerance for
misstatement in an individual account or balance) for the Group
should be 75% (2013 75%) of planning materiality, namely $21m
(2013 $20m). Our objective in adopting this approach was to ensure
that total uncorrected and undetected audit differences
in all accounts did not exceed our materiality level.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of $1.4m (2013 $1.4m),
as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
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 and 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 and Form 20-F 2014 to identify
material inconsistencies with the audited Financial Statements
and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become
aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
95
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATIONIndependent Auditor’s UK Report IHG Annual Report and Form 20-F 2014
The scope of our audit
Following our assessment of the risk of material misstatement to
the Group Financial Statements, we selected 32 components which
represent the principal business units within the Group. 21 of these
components were subject to a full audit and 11 were subject to a
specific scope audit where the extent of audit work was based on
our assessment of the risks of material misstatement and the
materiality of the component’s business operations relative to the
Group. The audit scope of these components may not have included
testing of all significant accounts of the location but will have
contributed to the coverage of significant accounts tested for the
Group. The four Group audit significant risks in relation to System
Fund, IHG Rewards Club points liability, capitalisation and carrying
value of capitalised software assets, and deferred tax asset
recognition were subject to full scope audit procedures.
For the remaining components not subject to full or specific
scope audits, we performed other procedures to test or assess
that there were no significant risks of material misstatement in
these components in relation to the Group Financial Statements.
The components subject to full audit or specific audit procedures
account for 77% of Group revenue and 86% of the Group’s profit
before tax before pre-tax exceptional items.
Audit work at the individual components is undertaken based on a
percentage of our total performance materiality. The performance
materiality set for each component is based on the relative size of
the component and our view of the risk of misstatement at that
component. In the current year the range of performance
materiality allocated to components was $1m to $21m. The upper
end of the range was allocated to those components which
reflected 100% of a single line item within the Group statement
of financial position or the related notes.
The Group audit team directs the component teams at all stages
of the audit. The audit engagement partner, or her designate,
visited with the key locations in the Americas and IHG’s global
accounting centre in India during planning, interim and at year end.
In addition, the audit engagement partner visited Greater China,
including the Group’s owned hotel in Hong Kong.
These visits involved discussing the audit strategy and any issues
arising from our work, reviewing key workpapers, as well as
meeting local management.
This, together with additional procedures performed at the Group
level, gave us the evidence we needed for our opinion on the
Financial Statements as a whole.
Our assessment of risk of material misstatement
We identified the following risks of material misstatement which
had the greatest effect on the audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team, including the more senior members of the team. This is not
a complete list of all the risks identified in our audit.
References
Refer to page 49
(Strategic Report),
page 67 (Audit
Committee Report),
page 112 (Critical
accounting policies
and the use of
estimates and
judgements), and
page 152 (notes).
Area of focus
How our audit addressed the area of focus
We have tested internal financial controls over the calculation of hotel
assessments, charges to the Fund, allocation of expenses (in addition to those
over the Group’s procurement process), related IT systems, and exclusion from
IHG’s ledgers.
For a sample of hotel assessments and expenses recorded in the Fund, we
agreed that they are supported by appropriate documentation and, based on
our inspection of that supporting documentation, we have made an independent
assessment of whether the hotel assessments and contributions and expenses
relate to the Fund.
Given the accounting treatment adopted for the Fund is a key judgement; we have
considered the appropriateness of the related disclosures provided in the Group
Financial Statements.
Accounting for the hotel
assessments collected as part
of the revenue cycle and the
allocation of expenditures
related to the marketing,
advertising and loyalty point
programmes (the System Fund)
As outlined in the Strategic
Report on page 49, the System
Fund (the Fund) is a key part
of the Group’s business model.
For the year ended 31 December
2014, and as detailed in Note 32,
the Fund has assessment fees
and contributions of $1,271m
and expenses of $1,485m. These
amounts are not included in
IHG’s income statement.
We focus on this area because
there is a risk that the hotel
assessments could be included
in IHG’s reported revenue, which
would overstate IHG’s revenues;
or that Group costs are
incorrectly charged to the Fund,
improperly reducing IHG’s
expenses and leading to a
misstatement of IHG’s income
statement.
96
continuedIndependent Auditor’s UK Report Area of focus
How our audit addressed the area of focus
The valuation of the future
redemption of IHG Rewards Club
points liability
We focused on this area due to
the size of the liability, ($725m
at 31 December 2014), and its
sensitivity, in particular, to the
breakage estimate (as defined
on page 113).
We tested the effectiveness of internal financial controls, including IT controls,
over the liability valuation process, including controls over validation of the
completeness and accuracy of data provided to IHG’s external actuarial adviser
and management’s internal review process of the inputs and the overall estimate
of the rewards point liability.
For the three key inputs into the liability valuation we undertook the following
audit procedures:
(1) Outstanding loyalty points at 31 December 2014
We tested controls over the complete and accurate recording of points data and
tested the roll forward of the points balance to 31 December 2014, and traced
to underlying records.
References
Refer to page 67 (Audit
Committee Report),
page 113 (Critical
accounting policies
and the use of
estimates and
judgements), and
page 152 (notes).
(2) The outstanding points redemption ratio (breakage)
We engaged our own actuarial specialists to assist us in challenging and
evaluating the appropriateness of the methodology, data and assumptions
applied by management in determining key redemption ratio/breakage
assumption for member’s outstanding loyalty points at the balance sheet date.
In addition to testing the integrity and accuracy of the company’s model, we
developed our own model to form an independent view on an acceptable range
for the redemption ratio and assess the reasonableness of key assumptions
applied by management in valuing the liability.
(3) Redeemed point cost (‘RPC’)
We undertook substantive and analytical procedures to validate the RPC to be
applied to the liability calculation.
We challenged and applied professional scepticism to management’s rationale
for the re-assessment of forecast models and considered the appropriateness
of management’s assumptions and estimates in relation to the likelihood of
generating suitable future profits to support the recognition of deferred
tax assets.
We evaluated the historical accuracy of forecasting and the integrity of the
forecast models and as a result of these procedures, we formed our own view
on the Group’s capacity to obtain effective relief for tax losses and other assets
over the forecast period.
In particular, we considered the interaction between the recognition of tax losses
in the UK and overseas jurisdictions to ensure consistency, since these are both
impacted by the application of the UK controlled foreign company legislation.
Refer to page 67 (Audit
Committee Report),
page 113 (Critical
accounting policies
and the use of
estimates and
judgements), and
pages 122 to 124
(notes).
We tested the internal controls over the approval, acquisition and development
of new software and the controls surrounding the capitalisation and
determination of the useful lives of newly capitalised software assets
and remaining useful lives for legacy software.
We obtained a listing of new projects initiated in the year, and agreed a sample
to underlying documentation to test they had been reviewed and approved in line
with the Group’s delegation of authority.
We assessed that the costs capitalised were in compliance with the requirements
of IAS 38 ‘Intangible Assets’.
Refer to page 22
(Strategic Report),
page 67 (Audit
Committee Report),
page 113 (Critical
accounting policies
and the use of
estimates and
judgements), and
page 129 (notes).
We undertook tests of details by vouching specific expenditures to supporting
documentation to validate a sample of software additions in the year.
We performed a detailed assessment of capitalised software to evaluate the
remaining useful lives remain appropriate given the evolution of the technology
environment.
Recognition of deferred tax
assets relating to losses
We focused on this area due to:
• the judgement and estimates
required to determine the
level of future taxable profits
that support recognition; and
• the size of the recognised
and unrecognised deferred
tax assets relating to losses
at the balance sheet date,
$154m and $256m,
respectively.
(New in 2014)
Capitalisation of software assets
and carrying value of legacy
systems
Our audit approach and
assessment of key areas of audit
focus changes in response to
circumstances affecting the
Group. Given the Group’s
continued development of the
technology environment and the
size of the capitalised software
balance ($264m as at 31
December 2014), we have
focused on this area in 2014.
Software projects can have
complex development cycles,
often over many phases,
spanning two to three years,
or more. New technology also
brings a risk of impairment
of legacy systems.
97
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Independent Auditor’s UK Report
continued
In addition to the risks identified as part of our audit planning, the Group undertook the following material non-routine transaction in the
year which affected the allocation of resources and the direction of our audit efforts and for which our audit response was as follows:
Area of focus
How our audit addressed the area of focus
Disposal of the 80% interest in
the InterContinental New York
Barclay hotel
We focused on this area due to
the complexity of the transaction.
In particular, we focused on:
• the Group’s remaining equity
interest in the related entity;
• the calculation of the fair
value attributed to the hotel
management agreement; and
• IHG’s contractual
commitments to the
joint venture.
We evaluated all key contracts in relation to the sale, including the sale and
purchase agreement and the related hotel management agreements, to ensure
that de-recognition of the hotel was appropriate.
As part of our assessment, we concluded IHG no longer controls the
operations of the hotel; however, given the remaining equity interest and IHG’s
representation on the Board of Directors of the joint venture entity, IHG has
significant influence over the entity, and equity accounts for its investment.
We agreed the calculation of the accounting gain recognised on disposal,
including the fair value attributed to the hotel management agreement. We
challenged the appropriateness of the assumptions applied to the discounted
cash flow models used in determining the valuation of the management contract.
Given the size and nature of the disposal gain, we considered the appropriateness
of its classification as an exceptional item in line with the Group’s accounting
policy for such items as set out on page 112.
References
Refer to page 67
(Audit Committee
Report), and pages
121 and 127 (notes).
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the Directors’ statement that they consider
the Annual Report is fair, balanced and understandable and
whether the Annual Report appropriately discloses those matters
that we communicated to the Audit Committee which we consider
should have been disclosed.
Under the Companies Act 2006 we are required 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.
Under the Listing Rules we are required to review:
• the Directors’ statement, set out on page 75, 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.
Alison Duncan (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
16 February 2015
Changes from the prior year
In the prior year we also considered the purchase of a qualifying
insurance policy by the UK defined benefit pension scheme to
be a key area of audit focus. This is no longer applicable in the
current year.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors’
Responsibilities set out on page 94, the Directors are responsible
for the preparation of the 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 Financial Statements in
accordance with applicable law and International Standards on
Auditing (ISAs) (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
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.
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 Strategic Report and the Directors’
Report for the financial year for which the Financial Statements
are prepared is consistent with the Financial Statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report
to you if, in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited
Financial Statements; or
98
Independent Auditor’s US Report
Report of independent registered public accounting
firm on internal control over financial reporting
To the Board of Directors and Shareholders of InterContinental
Hotels Group PLC.
We have audited InterContinental Hotels Group PLC’s internal
control over financial reporting as of 31 December 2014, based
on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 Framework) (the COSO criteria).
InterContinental Hotels Group PLC’s management is responsible
for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over
financial reporting included in the Annual Report and Form 20-F
2014. Our responsibility is to express an opinion on the Group’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that
a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorisations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection
of unauthorised acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
In our opinion, InterContinental Hotels Group PLC maintained,
in all material respects, effective internal control over financial
reporting as of 31 December 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
the accompanying Group statement of financial position of
InterContinental Hotels Group PLC as of 31 December 2014 and
2013, and the related Group income statement, Group statement
of comprehensive income, Group statement of changes in equity
and Group statement of cash flows for each of the three years in
the period ended 31 December 2014, and our report dated
16 February 2015 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, England
16 February 2015
Report of independent registered public
accounting firm
To the Board of Directors and Shareholders of InterContinental
Hotels Group PLC.
We have audited the accompanying Group statement of financial
position of InterContinental Hotels Group PLC as of 31 December
2014 and 2013, and the related Group income statement, Group
statement of comprehensive income, Group statement of changes
in equity and Group statement of cash flows for each of the three
years in the period ended 31 December 2014. These Financial
Statements are the responsibility of the Group’s management.
Our responsibility is to express an opinion on these Financial
Statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Financial Statements referred to above present
fairly, in all material respects, the consolidated financial position
of InterContinental Hotels Group PLC at 31 December 2014
and 2013, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
31 December 2014, in conformity with International Financial
Reporting Standards as issued by the International Accounting
Standards Board.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
InterContinental Hotels Group PLC’s internal control over
financial reporting as of 31 December 2014, based on criteria
established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 Framework), and our report dated 16 February
2015 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, England
16 February 2015
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.
99
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Group income statement
For the year ended 31 December 2014
Note
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
Revenue
Cost of sales
Administrative expenses
Share of (losses)/profits of associates
and joint ventures
Other operating income and expenses
Depreciation and amortisation
Impairment reversal
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
1,858
(741)
(382)
(4)
16
747
(96)
–
651
3
(83)
571
(179)
392
391
1
392
–
–
(101)
–
130
29
–
–
29
–
–
29
(29)
–
–
–
–
2
2
2
2
2
6
6
7
9
2014
Total
$m
1,858
(741)
(483)
(4)
146
776
(96)
–
680
3
(83)
600
(208)
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
1,903
(784)
(374)
2
6
753
(85)
–
668
5
(78)
595
(175)
–
–
(167)
6
166
5
–
–
5
–
–
5
(51)
2013
Total
$m
1,903
(784)
(541)
8
172
758
(85)
–
673
5
(78)
600
(226)
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
1,835
(772)
(372)
3
5
699
(94)
–
605
3
(57)
551
(151)
–
–
(16)
–
(11)
(27)
–
23
(4)
–
–
(4)
142
2012
Total
$m
1,835
(772)
(388)
3
(6)
672
(94)
23
601
3
(57)
547
(9)
392
420
(46)
374
400
138
538
391
1
392
418
2
420
(46)
–
(46)
372
2
374
399
1
400
138
–
138
537
1
538
158.3¢
156.4¢
140.9¢
139.3¢
187.1¢
183.9¢
Notes on pages 107 to 153 form an integral part of these Financial Statements.
100
Group Financial Statements Group statement of comprehensive income
For the year ended 31 December 2014
Profit for the year
Other comprehensive income
Items that may be subsequently reclassified to profit or loss:
Gains on valuation of available-for-sale financial assets, net of related tax charge of $1m (2013 $nil, 2012 $nil)
Losses relating to cash flow hedges reclassified to financial expenses
Exchange gains/(losses) on retranslation of foreign operations, net of related tax credit of $1m
(2013 $2m, 2012 $3m)
Exchange losses reclassified to profit on hotel disposal
Items that will not be reclassified to profit or loss:
Re-measurement (losses)/gains on defined benefit plans, net of related tax credit of $7m
(2013 charge of $20m, 2012 credit of $5m)
Tax related to pension contributions
Total other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Notes on pages 107 to 153 form an integral part of these Financial Statements.
2014
$m
392
2013
$m
374
2012
$m
538
11
–
42
–
53
(18)
2
(16)
37
28
–
(35)
46
39
20
–
20
59
1
1
24
–
26
(10)
18
8
34
429
433
572
428
1
429
433
–
433
571
1
572
101
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Group statement of changes in equity
At 1 January 2014
Profit for the year
Other comprehensive income:
Items that may be subsequently reclassified
to profit or loss:
Gains on valuation of available-for-sale
financial assets
Exchange differences on retranslation
of foreign operations
Items that will not be reclassified to profit
or loss:
Re-measurement losses on defined
benefit plans
Tax related to pension
contributions
Total other comprehensive income
Total comprehensive income for the year
Repurchase of shares
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
Exchange adjustments
At 31 December 2014
All items above are shown net of tax.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11)
178
Equity
share
capital
$m
Capital
redemption
reserve
$m
189
–
12
–
Shares
held by
employee
share
trusts
$m
Unrealised
gains and
losses
reserve
$m
Other
reserves
$m
Currency
translation
reserve
$m
Retained
earnings
$m
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
100
–
227
2,334
–
391
(82)
391
(38)
(2,906)
–
–
–
–
–
–
–
–
–
–
–
(58)
60
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11
–
11
–
–
–
11
11
–
–
–
–
–
–
–
–
–
42
42
–
–
–
42
42
–
–
–
–
–
–
–
–
–
–
–
11
42
53
(18)
(18)
2
(16)
(16)
375
(110)
(1)
–
(60)
28
12
(942)
–
2
(16)
37
428
(110)
(1)
(58)
–
28
12
(942)
–
(725)
12
(35)
(2,896)
111
269
1,636
Total
equity
$m
(74)
392
11
42
53
(18)
2
(16)
37
429
(110)
(1)
(58)
–
28
12
(943)
–
(717)
8
1
–
–
–
–
–
–
–
1
–
–
–
–
–
–
(1)
–
8
Notes on pages 107 to 153 form an integral part of these Financial Statements.
102
continuedGroup Financial Statements IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
Group statement of changes in equity continued
At 1 January 2013
Profit for the year
Other comprehensive income:
Items that may be subsequently reclassified
to profit or loss:
Gains on valuation of available-for-sale
financial assets
Exchange differences on retranslation
of foreign operations
Exchange losses reclassified to profit
on hotel disposal
Items that will not be reclassified to profit
or loss:
Re-measurement gains on defined benefit
plans
Total other comprehensive income
Total comprehensive income for the year
Issue of ordinary shares
Repurchase of 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
Equity
share
capital
$m
Capital
redemption
reserve
$m
179
–
11
–
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
Shares
held by
employee
share
trusts
$m
Unrealised
gains and
losses
reserve
$m
Currency
translation
reserve
$m
Other
reserves
$m
(48)
(2,901)
–
–
–
–
–
–
–
–
–
–
–
(53)
64
–
–
–
(1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
72
–
28
–
–
28
–
–
28
28
–
–
–
–
–
–
–
–
214
–
–
(33)
46
13
–
–
13
13
–
–
–
–
–
–
–
–
Retained
earnings
$m
2,781
372
–
–
–
–
20
20
20
392
–
(283)
(61)
27
11
(533)
–
At 31 December 2013
189
12
(38)
(2,906)
100
227
2,334
All items above are shown net of tax.
Notes on pages 107 to 153 form an integral part of these Financial Statements.
308
372
28
(33)
46
41
20
20
61
433
5
(283)
3
27
11
(533)
–
(82)
–
(53)
9
2
–
(2)
–
(2)
–
–
(2)
–
–
–
–
–
–
–
(1)
–
8
Total
equity
$m
317
374
28
(35)
46
39
20
20
59
433
5
(283)
(53)
3
27
11
(534)
–
(74)
103
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION Total
equity
$m
555
538
1
1
24
26
(10)
18
8
34
572
10
(107)
–
(2)
(84)
–
27
20
(679)
5
–
317
8
1
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
9
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
IHG Annual Report and Form 20-F 2014
Group statement of changes in equity continued
At 1 January 2012
Profit for the year
Other comprehensive income:
Items that may be subsequently reclassified
to profit or loss:
Gains on valuation of available-for-sale
financial assets
Losses reclassified to financial expenses
on cash flow hedges
Exchange differences on retranslation
of foreign operations
Items that will not be reclassified to profit
or loss:
Re-measurement losses on defined
benefit plans
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
Equity
share
capital
$m
Capital
redemption
reserve
$m
162
–
10
–
–
–
–
–
–
–
–
–
–
10
(1)
–
–
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
Shares
held by
employee
share
trusts
$m
Unrealised
gains and
losses
reserve
$m
Currency
translation
reserve
$m
Other
reserves
$m
(27)
(2,893)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(84)
63
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8)
71
–
189
–
1
1
(1)
1
–
–
–
1
1
–
–
–
–
–
–
–
–
–
–
–
–
–
25
25
–
–
–
25
25
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
$m
3,035
537
–
–
–
–
(10)
18
8
8
545
–
(106)
(1)
(2)
–
(63)
27
20
(679)
5
–
547
537
1
1
24
26
(10)
18
8
34
571
10
(107)
–
(2)
(84)
–
27
20
(679)
5
–
At 31 December 2012
179
11
(48)
(2,901)
72
214
2,781
308
All items above are shown net of tax.
Notes on pages 107 to 153 form an integral part of these Financial Statements.
104
continuedGroup Financial Statements Group statement of financial position
31 December 2014
ASSETS
Property, plant and equipment
Goodwill
Intangible assets
Investment in associates and joint ventures
Trade and other receivables
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
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 (liabilities)/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
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Signed on behalf of the Board
Paul Edgecliffe-Johnson
16 February 2015
Notes on pages 107 to 153 form an integral part of these Financial Statements.
2013
(restated1)
$m
2012
(restated1)
$m
2014
$m
Note
10
12
13
14
16
25
15
7
16
22
15
17
11
2
21
18
19
21
22
25
18
19
7
11
2
27
27
27
27
27
27
27
741
74
569
116
3
8
252
34
87
1,169
80
438
85
–
7
236
16
108
1,884
2,139
3
448
4
2
5
162
624
310
4
423
12
1
12
248
700
228
1,056
93
354
84
–
99
155
24
204
2,069
4
422
31
2
6
387
852
534
2,818
3,067
3,455
(126)
(769)
(1)
(47)
(943)
(1,569)
–
(146)
(627)
(9)
(147)
(130)
(748)
(3)
(47)
(928)
(1,269)
(11)
(184)
(574)
–
(175)
(208)
(709)
(1)
(54)
(972)
(1,242)
(19)
(187)
(563)
(1)
(93)
(2,498)
(2,213)
(2,105)
(94)
–
(61)
(3,535)
(3,141)
(3,138)
(717)
(74)
317
178
12
(35)
(2,896)
111
269
1,636
(725)
8
(717)
189
12
(38)
(2,906)
100
227
2,334
(82)
8
(74)
179
11
(48)
(2,901)
72
214
2,781
308
9
317
105
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Group statement of cash flows
For the year ended 31 December 2014
Profit for the year
Adjustments for:
Net financial expenses
Income tax charge
Depreciation and amortisation
Impairment reversal
Other exceptional operating items
Equity-settled share-based cost
Dividends from associates and joint ventures
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 in other trade and other payables
Utilisation of provisions
Retirement benefit contributions, net of costs
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
Loan advances to associates and joint ventures
Capitalised interest paid
Disposal of hotel assets, net of costs
Proceeds from other financial assets
Distribution from associate on sale of hotel
Proceeds from other associates and joint ventures
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
Dividend paid to non-controlling interests
Transaction costs relating to shareholder returns
Issue of long-term bonds
Increase/(decrease) in other borrowings
Close-out of currency swaps
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 107 to 153 form an integral part of these Financial Statements.
106
Note
7
5
26
14
32
19
7
11
7
8
17
17
2014
$m
392
80
208
96
–
(29)
21
2
4
774
(18)
58
61
(2)
(6)
(114)
753
(76)
2
(136)
543
(84)
(162)
(5)
(15)
(3)
(2)
345
49
–
–
–
123
–
(110)
(68)
(942)
(1)
(1)
–
382
4
(736)
(70)
134
(9)
55
2013
$m
374
73
226
85
–
(5)
22
5
2
782
(9)
61
8
(3)
(18)
(33)
788
(74)
2
(92)
624
(159)
(86)
(154)
(10)
–
–
460
109
17
3
(5)
175
5
(283)
(44)
(533)
(1)
–
–
(1)
–
(857)
(58)
195
(3)
134
2012
$m
538
54
9
94
(23)
27
22
1
(3)
719
(50)
57
26
(12)
(95)
(6)
639
(50)
2
(119)
472
(44)
(84)
(2)
(3)
–
–
4
4
–
–
(3)
(128)
10
(107)
(84)
(679)
–
(2)
632
(99)
–
(329)
15
182
(2)
195
continuedGroup Financial Statements Accounting policies
General information
This document constitutes the Annual Report and Financial
Statements in accordance with UK Listing Rules requirements
and the Annual Report on Form 20-F in accordance with the US
Securities Exchange Act of 1934. Prior to 2013 the Group issued
separate documents.
The Consolidated Financial Statements of InterContinental Hotels
Group PLC (the Group or IHG) for the year ended 31 December
2014 were authorised for issue in accordance with a resolution
of the Directors on 16 February 2015. InterContinental Hotels
Group PLC (the Company) is incorporated and domiciled in
Great Britain and registered in England and Wales.
Changes in accounting policies
With effect from 1 January 2014, the Group has adopted ‘Offsetting
Financial Assets and Financial Liabilities’ (Amendments to IAS 32).
The amendments clarify that to offset financial assets and financial
liabilities, the Group’s right of offset must be legally enforceable
in the normal course of business, in the event of default, and in
the event of insolvency or bankruptcy of the Group and all of the
counterparties. Following a detailed review of the Group’s cash
pooling arrangements which have previously been presented net
within cash and cash equivalents (see note 17), management have
determined that the right of offset is not enforceable in all of the
above circumstances. As a result, the overdrafts within the cash
pools are now presented as current loans and other borrowings.
The amendments to IAS 32 are applicable retrospectively, requiring
the restatement of prior year comparatives and the presentation
of a third statement of financial position as at 31 December 2012
as required by IAS 1 ‘Presentation of Financial Statements’.
The adoption of the amendments to IAS 32 increases cash and
cash equivalents and current loans and other borrowings by $107m
in 2014 (2013 $114m, 2012 $192m) but has no impact on the net
financial position of the Group nor the reporting of net debt. Cash
and cash equivalents presented in the Group statement of cash
flows continue to be presented net of overdrafts as permitted by
IAS 7 ‘Statement of Cash Flows’.
In addition, with effect from 1 January 2014, the Group has adopted
Amendment to IAS 36 ‘Impairment of Assets – Recoverable
Amount Disclosures for Non-Financial Assets’, Amendment to IAS
39 ‘Novation of Derivatives and Continuation of Hedge Accounting’
and IFRIC 21 ‘Levies’. The adoption of these amendments to
standards and interpretations has had no material impact on the
Group’s financial performance or position and there has been no
requirement to restate prior year comparatives.
Summary of significant accounting policies
Basis of preparation
The Consolidated Financial Statements of IHG have been prepared
on a going concern basis and under the historical cost convention,
except for available-for-sale equity securities and derivatives
which are measured at fair value. The Consolidated Financial
Statements have been prepared in accordance with International
Financial Reporting Standards (IFRSs) as issued by the IASB and
in accordance with IFRS as adopted by the European Union (EU)
and as applied in accordance with the provisions of the Companies
Act 2006. IFRS as adopted by the EU differs in certain respects
from IFRS as issued by the IASB. However, the differences have
no impact on the Consolidated Financial Statements for the
years presented.
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 sterling dividends
and of interest on sterling denominated external borrowings and
inter-company balances.
Basis of consolidation
The Consolidated Financial Statements comprise the Financial
Statements of the parent company and entities controlled by
the Group. Control exists when the Group has:
• power over an investee (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement
with the investee; and
• the ability to use its power over the investee to affect its returns.
All intra-group balances and transactions are eliminated
on consolidation.
The assets, liabilities and results of those businesses acquired
or disposed of are consolidated for the period during which they
were under the Group’s control.
The Group operates a deferred compensation plan in the US
which allows certain employees to make additional provision for
retirement, through the deferral of salary with matching company
contributions. Employees can draw down on the plan in certain
limited circumstances during employment. The assets of the plan
are held in a company-owned trust which is not consolidated as
the relevant activity of the trust, being the investment of the funds
in the trust, is directed by the participating employees of the plan
and the company has no exposure to the gains and losses resulting
from those investment decisions. The assets of the trust are held
solely for the benefit of the participating employees and to pay plan
expenses, other than in the case of a company insolvency in which
case they can be claimed by the general creditors of the company.
At 31 December 2014, the trust had assets with a fair value of
$148m (2013 $135m).
107
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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
of disposal and value in use. Value in use is assessed based on
estimated future cash flows discounted to their present value using
a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
Impairment losses, and any subsequent reversals, are recognised
in the income statement.
On adoption of IFRS, the Group retained previous revaluations of
property, plant and equipment 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. Transaction costs are expensed and
are 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 and internally developed software 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 on a straight-line basis over the life of the contract
including any extension periods at IHG’s option up to a maximum
of 50 years.
Other intangible assets
Amounts paid to hotel owners to secure management contracts
and franchise agreements are capitalised and amortised on
a straight-line basis over their estimated useful lives up to a
maximum of 50 years. In prior years this has been determined to
be the shorter of the contracted period and 10 years. Following a
detailed review in early 2014 and based on the Group’s experience
of the actual contractual periods secured by these payments, the
estimate of useful life has been re-assessed to comprise the full
contract term, which is also consistent with the stated policy of
other companies in the hotel industry. This revision to the estimate
of expected useful lives has been applied prospectively in
accordance with IAS 38 and results in the following (decrease)/
increase in the original amortisation profile of assets capitalised
at 1 January 2014: 2014 $(5)m, 2015 $(5)m, 2016 $(4)m, 2017 $(3)m,
2018 and after $17m in total.
Intangible assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may
not be recoverable.
108
continuedAccounting policies 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 significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the entity, but is not
control or joint control over those policies.
A joint venture exists when two or more parties have joint control
over, and rights to the net assets of, the venture. Joint control is
the contractually agreed sharing of control which only exists when
decisions about the relevant activities require the unanimous
consent of the parties sharing control.
Associates and joint ventures are accounted for using the equity
method unless the associate or joint venture 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
joint venture.
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.
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. 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.
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
Assets and 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 and expected to complete within one year. For a sale
to be highly probable, management need to be committed to a plan
to sell the asset and the asset must be actively marketed for sale
at a price that is reasonable in relation to its current fair value.
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
is cancelled.
Offsetting of financial assets and financial liabilities
Financial assets and financial liabilities are offset and the net
amount is reported in the Group statement of financial position if
there is a currently enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net basis or to
realise the assets and settle the liabilities simultaneously. To meet
this criteria, the right of set-off must not be contingent on a future
event and must be legally enforceable in all of the following
circumstances: the normal course of business, the event of default
and the event of insolvency or bankruptcy of the Group and all of
the counterparties.
109
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Trade payables
Trade payables are non-interest-bearing and are stated at their
nominal value.
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.
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 re-measured
at fair value. The method of recognising the re-measurement
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.
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 at 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 subsidiaries,
gains rolled over into replacement assets, gains on previously
revalued properties and other short-term temporary differences.
Deferred tax assets are recognised to the extent that it is regarded
as probable that the deductible temporary differences can
be realised. The recoverability of all deferred tax assets is
re-assessed 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.
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.
Retirement benefits
Defined contribution plans
Payments to defined contribution schemes are charged to the
income statement as they fall due.
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 using a current pre-tax discount rate
that reflects the risks specific to the liability.
Defined benefit plans
Plan assets, including qualifying insurance policies, 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.
110
continuedAccounting policies The service cost of providing pension benefits to employees,
together with the net interest expense or income for the year, is
charged to the income statement within ‘administration expenses’.
Net interest is calculated by applying the discount rate to the net
defined benefit asset or liability, after any asset restriction. Past
service costs and gains, which are the change in the present value
of the defined benefit obligation for employee service in prior
periods resulting from plan amendments, are recognised
immediately the plan amendment occurs. Settlement gains and
losses, being the difference between the settlement cost and the
present value of the defined benefit obligations being settled, are
recognised when the settlement occurs.
Re-measurements comprise actuarial gains and losses, the
return on plan assets (excluding amounts included in net interest)
and changes in the amount of any asset restrictions. Actuarial
gains and losses may result from: 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.
Re-measurement gains and losses, and taxation thereon,
are recognised in other comprehensive income and are not
reclassified to profit or loss in subsequent periods.
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.
Revenue is recorded (excluding VAT and similar taxes) net of
discounts. The following is a description of the composition
of revenues of the Group:
Franchise fees – received in connection with the licence 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 the
fee is earned in accordance with 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, generally a percentage of
hotel revenue, which is recognised when earned in accordance
with the terms of the contract and an incentive fee, generally
based on the hotel’s profitability or cash flows and recognised
when the related performance criteria are met 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.
Franchise fees and management fees include liquidated damages
received from the early termination of contracts.
Other revenues are recognised when earned in accordance with
the terms of the contract.
Government grants
Government grants are recognised in the period to which they
relate when there is reasonable assurance that the grant will
be received and that the Group will comply with the attached
conditions. Government grants are recognised within other
operating income and expenses in the Group income statement.
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.
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.
111
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Fair value measurement
The Group measures available-for-sale equity securities and
derivatives at fair value on a recurring basis and other assets
when impaired by reference to fair value less costs of disposal.
Additionally, the fair value of other financial assets and liabilities
require disclosure.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants. Fair value is measured by reference to the
principal market for the asset or liability assuming that market
participants act in their economic best interests.
The fair value of a non-financial asset assumes the asset is used
in its highest and best use, either through continuing ownership
or by selling it.
The Group uses valuation techniques that maximise the use of
relevant observable inputs using the following valuation hierarchy:
Level 1:
quoted (unadjusted) prices in active markets for
identical assets or liabilities.
Level 2:
Level 3:
other techniques for which all inputs which have
a significant effect on the recorded fair value are
observable, either directly or indirectly.
techniques which use inputs which have a significant
effect on the recorded fair value that are not based
on observable market data.
Further disclosures on the particular valuation techniques used
by the Group are provided in note 23.
For impairment testing purposes and where significant assets
(such as property) are valued by reference to fair value less
costs of disposal, an external valuation will normally be obtained
using professional valuers who have appropriate market
knowledge, reputation and independence.
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.
Treasury shares
Own shares repurchased by the Company and not cancelled
(treasury shares) are recognised at cost and deducted from
retained earnings. If reissued, any excess of consideration over
carrying amount is recognised in the share premium reserve.
Critical accounting policies and the use of judgements,
estimates and assumptions
In determining and applying the Group’s accounting policies,
management are required to make judgements, estimates and
assumptions. An accounting policy is considered to be critical if
its selection or application could materially 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. Management consider accounting for the System Fund
to be a critical judgement and that critical estimates and
assumptions are used in impairment testing and for measuring
the loyalty programme liability, tax assets and liabilities, and
litigation provisions, as discussed in further detail below.
Estimates and assumptions are evaluated by management using
historical experience and other factors believed to be reasonable
based on current circumstances. Actual results could differ under
different policies, judgements, estimates and assumptions or
due to unforeseen circumstances.
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 IHG Rewards Club 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 IHG Rewards Club 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 IHG
Rewards Club 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 32.
112
continuedAccounting policies Loyalty programme – the hotel loyalty programme, IHG
Rewards Club, 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 calculated by
multiplying the number of points expected to be redeemed by the
redemption cost per point. On an annual basis the Group engages
an external actuary who uses statistical formulas to assist in the
estimate of the number of points that will never be redeemed
(‘breakage’). 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. The future redemption liability,
which is included in trade and other payables, was $725m at
31 December 2014. Based on the conditions existing at the
balance sheet date, a 1% decrease in the breakage estimate
would increase this liability by approximately $7m.
Impairment testing – intangible assets, property, plant
and equipment are tested for impairment when events or
circumstances indicate that their carrying value may not be
recoverable. Goodwill is subject to an impairment test on an
annual basis or more frequently if there are indicators of
impairment. Assets that do not generate independent cash
flows are combined into cash-generating units.
The impairment testing of individual assets or cash-generating
units requires an assessment of the recoverable amount of the
asset or cash-generating unit. If the carrying value of the asset
or cash-generating unit exceeds its estimated recoverable
amount, the asset or cash-generating unit is written down to its
recoverable amount. Recoverable amount is the greater of fair
value less costs of disposal 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 is based on the
Group’s weighted average cost of capital adjusted to reflect the
risks specific to the business model and territory of the cash-
generating unit or asset being tested. The outcome of such an
assessment is subjective, and the result sensitive to the assumed
future cash flows to be generated by the cash-generating units or
assets and discount rates applied in calculating the value in use.
At 31 December 2014, the Group had intangible assets of $569m
and property, plant and equipment of $741m, none of which were
subject to an impairment charge during the year. In respect of
those assets requiring an impairment test and depending on how
recoverable amount was assessed, a 10% reduction in fair value or
estimated future cash flows would have resulted in an impairment
loss of $7m.
Information on impairment testing of goodwill, which had a net
book value of $74m at 31 December 2014, is included in note 12.
Income taxes – deferred tax assets are recognised to the
extent that it is regarded as probable that deductible temporary
differences can be realised. The Group estimates deferred tax
assets and liabilities based on current tax laws and rates,
and in certain cases, business plans, including management’s
expectations regarding the manner and timing of recovery of the
related assets. Changes in these estimates may affect the amount
of deferred tax liabilities or the valuation of deferred tax assets
and therefore the tax charge in the income statement.
Provisions for tax liabilities require judgements on the
interpretation of tax legislation, developments in case law and
the potential outcomes of tax audits and appeals which may be
subject to significant uncertainty. Therefore the actual results
may vary from expectations resulting in adjustments to provisions,
the valuation of deferred tax assets, cash tax settlements, and
therefore the tax charge in the income statement.
Exceptional tax charges and credits arose in 2013 and 2012
as explained in note 7.
Litigation – 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. A provision for
litigation is made when it is considered probable that a payment
will be made and the amount of the loss can be reasonably
estimated. Significant judgement is made when evaluating,
amongst other factors, the probability of unfavourable outcome
and the ability to make a reasonable estimate of the amount
of potential loss. Litigation provisions are reviewed at each
accounting period and revisions made for changes in facts
and circumstances.
New standards issued but not effective
The new and amended accounting standards discussed below are
those which are expected to be relevant to the Group’s financial
statements.
From 1 January 2015, the Group will apply the amendments
to existing standards arising from the 2010-2012 and 2011-2013
annual improvements cycles.
From 1 January 2016, the Group will apply Amendments to
IAS 16 and IAS 38 ‘Clarification of Acceptable Methods of
Depreciation and Amortisation’ and Amendments to IFRS 11
‘Accounting for Acquisition of Interests in Joint Operations’.
The above amendments are not expected to have a material
impact on the Group’s reported performance or financial position.
IFRS 15 ‘Revenue from Contracts with Customers’ introduces
a new five-step approach to measuring and recognising revenue
and is effective from 1 January 2017.
IFRS 9 ‘Financial Instruments’ was issued as a final standard
in July 2014 and is effective from 1 January 2018. The standard
introduces new requirements for classification and measurement
of financial assets and financial liabilities, impairment and hedge
accounting.
The Group is currently assessing the impacts of IFRS 15 and
IFRS 9 and plans to adopt both standards on the required
effective dates.
113
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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=£0.61 (2013 $1=£0.64, 2012 $1=£0.63).
In the case of the euro, the translation rate is $1=€0.75 (2013
$1=€0.75, 2012 $1=€0.78).
Assets and liabilities have been translated into US dollars at the
rates of exchange on the last day of the year. In the case of sterling,
the translation rate is $1=£0.64 (2013 $1=£0.60, 2012 $1=£0.62).
In the case of the euro, the translation rate is $1=€0.82 (2013
$1=€0.73, 2012 $1=€0.76).
2. Segmental information
The management of the Group’s operations, excluding Central
functions, is organised within four geographical regions:
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; central revenue arises principally from
technology fee income. Central liabilities include the loyalty
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.
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
630
103
138
–
871
104
159
111
–
374
16
187
39
–
242
4
99
139
–
242
–
–
–
129
129
754
548
427
129
1,858
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
544
47
18
(65)
544
110
654
78
30
14
(33)
89
(56)
33
12
88
3
(19)
84
–
84
5
63
42
(21)
89
–
89
–
–
–
(155)
(155)
(25)
(180)
639
228
77
(293)
651
29
680
Group
$m
651
29
680
(80)
600
(208)
392
Year ended 31 December 2014
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.
114
Notes to the Group Financial Statements 2. Segmental information continued
31 December 2014
Assets and liabilities
Segment assets
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
Total liabilities
Year ended 31 December 2014
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisation1
Share-based payments cost
Share of losses/(profits) of associates and joint ventures
Americas
$m
Europe
$m
AMEA
$m
919
–
919
316
310
626
244
–
244
Greater
China
$m
394
–
394
Central
$m
Group
$m
346
–
346
2,219
310
2,529
34
87
4
2
162
2,818
(430)
–
(430)
(199)
(94)
(293)
(61)
–
(61)
(66)
–
(66)
(796)
–
(796)
(1,552)
(94)
(1,646)
(47)
(147)
(1,695)
(3,535)
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
75
22
–
6
37
18
–
–
11
8
–
(2)
6
15
–
–
123
252
33
21
–
96
21
4
1
Included in the $96m of depreciation and amortisation is $41m relating to administrative expenses and $55m relating to cost of sales.
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
Reconciliation of capital expenditure
Capital expenditure per management reporting
Management contracts acquired on disposal of hotels
Capital contributions to associates
Other financial assets relating to deferred consideration on disposals
Timing differences
Additions per the Financial Statements
Comprising additions to:
Property, plant and equipment
Assets classified as held for sale
Intangible assets
Investment in associates and joint ventures
Other financial assets
75
50
15
27
–
167
45
1
78
15
28
167
37
–
–
25
–
62
12
3
22
–
25
62
11
–
–
–
–
11
2
–
5
–
4
11
6
–
–
–
(1)
5
5
–
–
–
–
5
123
–
–
–
–
123
15
–
108
–
–
123
252
50
15
52
(1)
368
79
4
213
15
57
368
115
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
576
128
212
–
916
104
156
140
–
400
16
170
44
–
230
3
92
141
–
236
–
–
–
121
121
699
546
537
121
1,903
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
499
74
30
(53)
550
6
556
79
30
30
(34)
105
19
124
12
92
4
(22)
86
–
86
5
51
47
(21)
82
(10)
72
–
–
–
(155)
(155)
(10)
(165)
595
247
111
(285)
668
5
673
Group
$m
668
5
673
(73)
600
(226)
374
IHG Annual Report and Form 20-F 2014
2. Segmental information continued
Year ended 31 December 2013
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.
116
continuedNotes to the Group Financial Statements 2. Segmental information continued
31 December 2013
Assets and liabilities
Segment assets
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
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
(restated1)
$m
851
228
1,079
654
–
654
253
–
253
392
–
392
304
–
304
2,454
228
2,682
16
108
12
1
248
3,067
(364)
(286)
(56)
(62)
(741)
(1,509)
(47)
(175)
(1,399)
(11)
(3,141)
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Year ended 31 December 2013
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisation1
Share-based payments cost
Share of profits of associates and joint ventures
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
116
19
–
5
37
18
–
–
17
10
–
3
8
15
–
–
91
23
22
–
269
85
22
8
1
Included in the $85m of depreciation and amortisation is $34m relating to administrative expenses and $51m relating to cost of sales.
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
Reconciliation of capital expenditure
Capital expenditure per management reporting
Management contract acquired on disposal of hotel
Other financial assets relating to pensions
Timing differences
Additions per the Financial Statements
Comprising additions to:
Property, plant and equipment
Assets classified as held for sale
Intangible assets
Investment in associates and joint ventures
Other financial assets
116
–
–
8
124
93
5
6
6
14
37
40
48
–
125
22
3
45
–
55
17
–
–
–
17
8
–
5
4
–
124
125
17
8
–
–
(1)
7
7
–
–
–
–
7
91
–
92
8
191
20
–
79
–
92
191
269
40
140
15
464
150
8
135
10
161
464
117
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
2. Segmental information continued
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.
Year ended 31 December 2012
Other segmental information
Capital expenditure
Non-cash items:
Depreciation and amortisation1
Reversal of previously recorded impairment
Write-off of software
Demerger liability released
Share-based payments cost
Share of profits of associates and joint ventures
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
653
485
583
114
1,835
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
466
48
24
(52)
486
23
509
65
32
50
(35)
112
(4)
108
12
90
6
(20)
88
(5)
83
4
51
45
(19)
81
–
81
–
–
–
(162)
(162)
(18)
(180)
547
221
125
(288)
605
(4)
601
Group
$m
605
(4)
601
(54)
547
(9)
538
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
25
20
(23)
–
–
–
–
19
23
–
–
–
–
–
6
14
–
–
–
–
(3)
7
15
–
–
–
–
–
76
133
22
–
18
(9)
22
–
94
(23)
18
(9)
22
(3)
1
Included in the $94m of depreciation and amortisation is $31m relating to administrative expenses and $63m relating to cost of sales.
118
continuedNotes to the Group Financial Statements 2. Segmental information continued
Geographical information
Revenue
United Kingdom
United States
People’s Republic of China (including Hong Kong)
Rest of World
Year ended
31 December
2014
$m
Year ended
31 December
2013
$m
Year ended
31 December
2012
$m
75
786
254
743
90
843
247
723
152
769
238
676
1,858
1,903
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
2014
$m
31 December
2013
$m
136
811
–
318
238
131
705
342
326
268
1,503
1,772
For the purposes of the above table, non-current assets comprise property, plant and equipment, goodwill, intangible assets,
investments in associates and joint ventures and trade and other receivables. In addition to the United Kingdom, 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.
119
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
3. Staff costs and Directors’ emoluments
Staff
Costs:
Wages and salaries
Social security costs
Pension and other post-retirement benefits:
Defined benefit plans1 (note 25)
Defined contribution plans
1 Before exceptional items.
Average number of employees, including part-time employees:
Americas
Europe
Asia, Middle East and Africa
Greater China
Central
2014
$m
2013
$m
2012
$m
577
42
10
28
657
580
41
10
25
656
547
44
13
22
626
2014
2013
2012
2,191
1,557
1,451
1,092
1,506
7,797
2,548
1,602
1,545
1,083
1,401
8,179
2,552
1,866
1,195
1,051
1,317
7,981
The costs of the above employees are borne by IHG. Of these, 92% were employed on a full-time basis and 8% were employed on a
part-time basis.
In addition to the above, the Group has employees who work directly on behalf of the System Fund and whose costs are borne by the
Fund as disclosed in note 32. In line with IHG’s business model, IHG also employs 602 (2013 578, 2012 587) General Managers who work
in the managed hotels and whose total costs of $142m (2013 $135m, 2012 $132m) are borne by those hotels and, in the US predominantly,
there are 11,848 (2013 10,834, 2012 11,053) other hotel workers in the managed hotels who have contracts or letters of service with
IHG whose total costs of $449m (2013 $383m, 2012 $437m) are borne by those hotels.
Directors’ emoluments
Base salaries, fees, performance payments and benefits¹
Pension benefits under defined contribution plans
¹ Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85).
2014
$m
9.0
0.2
2013
$m
8.5
0.4
2012
$m
9.7
0.2
More detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Directors’
Remuneration Report on pages 76 to 91.
4. Auditor’s remuneration paid to Ernst & Young LLP
Audit of the Financial Statements
Audit of subsidiaries
Audit-related assurance services
Other assurance services
Tax compliance
Tax advisory
Other non-audit services not covered by the above
Audit fees in respect of the pension scheme were not material.
120
2014
$m
2.4
2.0
0.2
0.9
0.2
0.3
0.1
6.1
2013
$m
2.0
1.4
0.5
1.2
0.2
0.4
0.1
5.8
2012
$m
2.8
1.5
1.0
1.4
0.3
0.2
–
7.2
continuedNotes to the Group Financial Statements 5. Exceptional items
Exceptional operating items
Administrative expenses:
Venezuelan currency loss
Pension settlement cost
Reorganisation costs
UK portfolio restructuring
Kimpton acquisition costs
Litigation
Loyalty programme rebranding costs
Share of profits of associates and joint ventures:
Share of gain on disposal of a hotel (note 14)
Other operating income and expenses:
Gain/(loss) on disposal of hotels (note 11)
Write-off of software
Demerger liability released
Reversals of previously recorded impairment:
Property, plant and equipment
Tax
Tax on exceptional operating items
Exceptional tax
All items above relate to continuing operations.
Note
2014
$m
2013
$m
2012
$m
a
b
c
d
e
f
g
h
i
j
k
l
(14)
(6)
(29)
(45)
(7)
–
–
(101)
–
(147)
–
–
–
(10)
(10)
(167)
–
6
130
–
–
130
–
–
29
(29)
–
(29)
166
–
–
166
–
–
5
(6)
(45)
(51)
–
–
(16)
–
–
–
–
(16)
–
(2)
(18)
9
(11)
23
23
(4)
1
141
142
The above items are treated as exceptional by reason of their size or nature, as further described on page 112.
a Relates to the introduction of the SICAD II exchange rate on 24 March 2014 and its adoption by the Group. Of the three exchange rate mechanisms that currently
exist in Venezuela, SICAD II is the most accessible to the Group for converting its bolivar earnings into US dollars. The exceptional loss arises from the one-off
re-measurement of the Group’s bolivar assets and liabilities from the ‘official’ exchange rate ($1=6.3 VEF) to the SICAD II exchange rate (approximately
$1=50 VEF). The Group has used the SICAD II exchange rate for translating the results of its Venezuelan operations since 1 April 2014.
b In 2014, results from a partial cash-out of the UK unfunded pension arrangements and, in 2013, resulted from a buy-in (and subsequent buy-out in 2014)
of the Group’s UK funded defined benefit obligations with the insurer, Rothesay Life. See note 25 for further details.
c In 2014, relates primarily to costs incurred in introducing a new HR operating model across the business to provide enhanced management information and
more efficient processes, and to implement more efficient processes and procedures in the Group’s Global Technology infrastructure to help mitigate future
cost increases. In 2012, arose from a reorganisation of the Group’s support functions together with a restructuring within the AMEA region.
d Relates to the costs of securing a restructuring of the UK hotel portfolio which will result in the transfer of 61 managed hotels to franchise contracts.
e Relates to acquisition transaction costs incurred in the period to 31 December 2014 on the acquisition of Kimpton, which completed on 16 January 2015
(see note 33).
f Related to an agreed settlement in respect of a lawsuit filed against the Group in the Greater China region.
g Related to costs incurred in support of the worldwide rebranding of IHG Rewards Club that was announced 1 July 2013.
h Software disposals in 2012 included an exceptional write-off of $18m resulting from a re-assessment of the ongoing value of elements of the technology
i
j
infrastructure.
Resulted from a release of a liability no longer required which arose on the demerger of the Group from Six Continents PLC.
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.
k In 2014, the charge comprises $56m relating to the disposal of an 80.1% interest in the InterContinental New York Barclay offset by a credit of $27m relating
to a restructuring of the UK hotel portfolio and other reorganisation costs.
l In 2013, comprised a deferred tax charge of $63m consequent on the disposal of the InterContinental London Park Lane hotel, together with charges and credits
of $38m and $19m respectively from associated restructurings (including intra-group dividends) and refinancings, offset by the recognition of $37m of previously
unrecognised tax credits. In 2012, represented the recognition of $104m of deferred tax assets, principally relating to pre-existing overseas tax losses, whose value
had 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.
121
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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
Capitalised interest
2014
$m
2013
$m
2012
$m
2
1
3
66
–
19
(2)
83
4
1
5
59
–
19
–
78
2
1
3
37
1
19
–
57
Interest income and expense relate to financial assets and liabilities held at amortised cost, calculated using the effective interest rate method.
Included within interest expense is $2m (2013 $2m, 2012 $2m) payable to the IHG Rewards Club loyalty programme relating to interest
on the accumulated balance of cash received in advance of the redemption of points awarded.
The rate used for capitalisation of interest was 4.4%.
7. Tax
Tax on profit
Income tax
UK corporation tax at 21.50% (2013 23.25%, 2012 24.50%):
Current period
Benefit of tax reliefs on which no deferred tax previously recognised
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:
Exceptional operating items (note 5)
Exceptional tax (note 5)
Note
2014
$m
2013
$m
2012
$m
a
b
c
b
5
–
2
7
156
(2)
(26)
128
135
68
2
1
2
73
208
62
(49)
–
13
184
(42)
(17)
125
138
122
(1)
(39)
6
88
226
21
–
(34)
(13)
170
(31)
(27)
112
99
7
(2)
(105)
10
(90)
9
179
175
151
29
–
208
6
45
226
(1)
(141)
9
All items above relate to continuing operations.
a In 2013, included $45m in respect of the utilisation of unrecognised capital losses against the gain on disposal of the InterContinental London Park Lane hotel.
b In 2012, included $37m of exceptional credits included within exceptional tax (see note 5) together with other releases relating to tax matters which have been
settled or in respect of which the relevant statutory limitation period has expired.
c Represents corporate income taxes on profit taxable in foreign jurisdictions, a significant proportion of which relates to the Group’s US subsidiaries.
122
continuedNotes to the Group Financial Statements 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
Non-recoverable withholding taxes
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
Deferred tax provision on unremitted earnings
Other
1 Calculated in relation to total profits including exceptional items.
2 Calculated in relation to profits excluding exceptional items.
2014
%
21.5
4.9
0.4
11.5
0.3
(0.4)
0.2
(3.7)
–
–
34.7
2013
%
23.3
16.6
1.2
11.6
(0.1)
(15.0)
(6.4)
(2.2)
10.5
(1.8)
37.7
Total1
2012
%
24.5
2.0
2.0
7.7
(0.3)
(5.6)
(19.4)
(9.8)
–
0.4
1.5
Before exceptional items2
2014
%
21.5
1.0
0.4
12.8
0.1
(0.3)
(0.2)
(3.9)
–
–
31.4
2013
%
23.3
1.9
1.2
11.9
(0.1)
(1.1)
(4.9)
(2.1)
–
(0.6)
29.5
2012
%
24.5
1.0
2.0
7.8
(0.1)
(5.6)
(0.2)
(2.5)
–
0.5
27.4
Tax paid
Total net tax paid during the year of $136m (2013 $97m, 2012 $122m) comprises $136m (2013 $92m, 2012 $119m) paid in respect
of operating activities and $nil (2013 $5m, 2012 $3m) paid in respect of investing activities.
Tax paid represents an effective rate of 23% (2013 16%, 2012 22%) on total profits and is lower than the effective income statement
tax rate of 31% (2013 29%, 2012 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.
Corporation tax liabilities did not arise in 2014 in the UK and are not expected to arise for a number of years thereafter due to expenses
and associated tax losses attributable principally to employment matters, in particular additional shortfall contributions made to the
UK pension plan in the years 2007 to 2013.
Deferred tax
Property,
plant and
equipment
$m
Deferred
gains on
loan notes
$m
Deferred
gains on
investments
$m
Losses
$m
Employee
benefits
$m
Intangible
assets
$m
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differences1
$m
At 1 January 2013
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2013
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2014
236
1
–
–
3
240
(55)
–
–
(11)
174
114
(8)
–
–
1
107
–
–
–
(2)
105
–
–
–
–
–
–
108
–
–
–
108
(215)
20
–
–
9
(186)
17
–
–
15
(154)
(63)
2
24
–
–
(37)
3
(8)
–
1
(41)
33
2
–
–
(1)
34
22
–
–
(4)
52
–
63
–
–
3
66
(19)
–
–
(3)
44
1 Primarily relates to provisions, accruals, amortisation and share-based payments.
Analysed as:
Deferred tax assets
Deferred tax liabilities
Liabilities held for sale
(155)
8
–
4
(14)
(157)
(3)
1
(3)
–
(162)
2014
$m
(87)
147
66
126
Total
$m
(50)
88
24
4
1
67
73
(7)
(3)
(4)
126
2013
$m
(108)
175
–
67
Deferred gains on loan notes includes $55m (2013 $55m) which is expected to fall due for payment in 2016.
The deferred tax asset recognised in respect of losses of $154m (2013 $186m) includes $50m (2013 $53m) in respect of capital losses
available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and $104m (2013 $133m)
in respect of revenue tax losses. Deferred tax assets of $20m (2013 $17m) 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. Deferred gains on investments represent taxable gains which would crystallise upon a sale of a related joint venture,
associate or other equity investment. The balance relates to the Barclay associate described in note 14.
123
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
7. Tax continued
The Group has unrecognised deferred tax assets as follows:
Revenue losses
Capital losses
Total losses1
Employee benefits
Other2
Total
2014
$m
126
130
256
5
58
319
2013
$m
127
85
212
16
55
283
1
These may be carried forward indefinitely other than $11m which expires after two years, $1m which expires after six years, $8m which expires after seven years,
$1m which expires after eight years and $2m which expires after nine years (2013 $12m which expires after three years and $1m which expires after seven years,
$1m which expires after eight years and $9m which expires after nine years).
2 Primarily relates to provisions, accruals, amortisation and share-based payments.
These 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 the assets more certain.
The Group has provided deferred tax in relation to temporary differences associated with post-acquisition undistributed earnings of
subsidiaries only to the extent that it is either probable that it will reverse in the foreseeable future or where the Group cannot control
the timing of the reversal. The remaining unprovided liability that would arise on the reversal of these temporary differences is not
expected to exceed $10m (2013 $10m).
Tax risks, policies and governance
Information concerning the Group’s tax governance can be found in the Taxation section of the Strategic Report on page 49.
8. Dividends and shareholder returns
Paid during the year:
Final (declared for previous year)
Interim
Special (note 27)
2014
cents per
share
2013
cents per
share
2012
cents per
share
47.0
25.0
293.0
365.0
43.0
23.0
133.0
199.0
39.0
21.0
172.0
232.0
2014
$m
122
57
763
942
2013
$m
115
63
355
533
2012
$m
113
61
505
679
Proposed (not recognised as a liability at 31 December):
Final
52.0
47.0
43.0
122
121
115
The final dividend of 33.8p (52.0¢ converted at the closing exchange rate on 13 February 2015) is proposed for approval at the Annual
General Meeting (AGM) on 8 May 2015 and is payable on the shares in issue at 7 April 2015.
Under the $500m share repurchase programme announced 7 August 2012, in the year to 31 December 2014, 3.4m (2013 9.8m, 2012 4.1m)
shares were repurchased for a consideration of $110m (2013 $283m, 2012 $107m), increasing the total amount repurchased to $500m.
Of the 3.4m (2013 9.8m, 2012 4.1m) shares repurchased in 2014, 2.7m (2013 9.8m, 2012 nil) are held as treasury shares and 0.7m (2013 nil,
2012 4.1m) were cancelled. The cost of treasury shares has been deducted from retained earnings.
On 2 May 2014, the Company announced a $750m return to shareholders by way of a special dividend and share consolidation. On 30 June
2014, shareholders approved the share consolidation at a General Meeting of the Company on the basis of 12 new ordinary shares of
15265/329p per share for every 13 existing ordinary shares of 14194/329p each, which became effective on 1 July 2014. The special dividend
of 293.0¢ per share was paid to shareholders on 14 July 2014.
124
continuedNotes to the Group Financial Statements 9. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted
average number of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise
of the weighted average number of dilutive ordinary share awards outstanding during the year.
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more
meaningful comparison of the Group’s performance.
Continuing and total operations
Basic earnings per ordinary share
Profit available for equity holders ($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 ($m)
Adjusted earnings ($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
2014
2013
2012
391
247
158.3
391
250
156.4
372
264
140.9
372
267
139.3
537
287
187.1
537
292
183.9
391
372
537
(29)
29
–
391
247
158.3
391
250
156.4
(5)
6
45
418
264
158.3
418
267
156.6
4
(1)
(141)
399
287
139.0
399
292
136.6
2014
millions
2013
millions
2012
millions
247
3
250
264
3
267
287
5
292
125
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
10. Property, plant and equipment
Cost
At 1 January 2013
Additions
Disposals
Exchange and other adjustments
At 31 December 2013
Additions
Transfers to non-current assets classified as held for sale
Disposals
Exchange and other adjustments
At 31 December 2014
Depreciation and impairment
At 1 January 2013
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2013
Provided
System Fund expense
Transfers to non-current assets classified as held for sale
Disposals
Exchange and other adjustments
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
At 1 January 2013
Land and
buildings
$m
Fixtures,
fittings and
equipment
$m
995
96
(2)
12
1,101
27
(276)
(144)
(8)
700
(146)
(11)
–
2
(1)
(156)
(11)
–
8
37
–
824
54
(8)
1
871
52
(171)
(61)
(20)
671
(617)
(35)
(4)
8
1
(647)
(32)
(4)
107
58
10
Total
$m
1,819
150
(10)
13
1,972
79
(447)
(205)
(28)
1,371
(763)
(46)
(4)
10
–
(803)
(43)
(4)
115
95
10
(122)
(508)
(630)
578
945
849
163
224
207
741
1,169
1,056
The Group’s property, plant and equipment mainly comprises hotels, but also offices, throughout the world. In addition to the hotels
included above, there was one hotel (2013 one hotel) classified as held for sale at 31 December 2014 (see note 11). Including the hotels
classified as held for sale, 75% (2013 81%) of the net book value relates to the three (2013 four) largest owned and leased hotels (in
terms of net book value) of a total of 10 hotels (2013 12 hotels), nine of which are open (2013 nine open). At 31 December 2014, there
was one hotel (2013 three hotels) with a net book value of $36m (2013 $70m) which is under construction, not yet in use and therefore
not being depreciated.
The carrying value of property, plant and equipment held under finance leases at 31 December 2014 was $186m (2013 $187m).
Including assets classified as held for sale, 40% (2013 55%) of hotel properties by net book value were directly owned, with 22%
(2013 39%) held under leases having a term of 50 years or longer.
All impairment charges and reversals are included within impairment on the face of the Group income statement.
There are no charges over the Group’s property, plant and equipment.
The table below analyses the net book value of the Group’s property, plant and equipment by operating segment at 31 December 2014:
Americas
$m
Europe
$m
AMEA
$m
302
40
342
–
–
–
7
11
18
Greater
China
$m
254
44
298
Central
$m
15
68
83
Total
$m
578
163
741
Land and buildings
Fixtures, fittings and equipment
126
continuedNotes to the Group Financial Statements 11. Assets sold and held for sale
Assets sold
Principal disposals during the year ended 31 December 2014 were the sale of the InterContinental Mark Hopkins San Francisco on
27 March 2014 and the disposal of an 80.1% interest in the InterContinental New York Barclay on 31 March 2014. The Group’s 19.9%
retained interest is accounted for as an associate as described in note 14. Both transactions took place in the Americas region.
During the year ended 31 December 2013, the Group sold one hotel in the Europe region, the InterContinental London Park Lane.
During the year ended 31 December 2012, the Group sold an interest in a hotel in the Europe region.
Consideration
Current year disposals:
Cash consideration, net of costs paid
Other financial assets¹
Intangible assets – management contracts
Investment in associate
Net assets disposed:
Property, plant and equipment
Non-current assets held for sale
Other financial asset
Net current liabilities
Exchange losses recycled from currency translation reserve
Gain/(loss) on disposal of hotels from continuing operations
Net cash inflow
Current year disposals:
Cash consideration, net of costs paid
Distribution from associate on sale of hotel
Tax
Prior year disposals:
Tax
2014
$m
2013
$m
2012
$m
345
52
50
22
469
(110)
(228)
(5)
4
(339)
–
130
345
–
–
–
345
460
–
40
–
500
–
(294)
–
6
(288)
(46)
166
460
17
(5)
–
472
4
–
–
–
4
(6)
–
–
–
(6)
–
(2)
4
–
–
(3)
1
¹ Includes $27m deferred consideration subsequently received and included within Proceeds from other financial assets in the Group statement of cash flows.
Assets held for sale
One hotel, the InterContinental Paris – Le Grand, met the held for sale criteria of IFRS 5 at 31 December 2014. More information can be
found in the performance section of the Strategic Report on page 34. One hotel, the InterContinental New York Barclay, was held for sale
at 31 December 2013.
Assets and liabilities held for sale
Assets classified as held for sale:
Property, plant and equipment
Other assets
Liabilities classified as held for sale:
Deferred tax (note 7)
Other liabilities
2014
$m
2013
$m
306
4
310
(66)
(28)
(94)
228
–
228
–
–
–
127
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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
2014
$m
221
(6)
215
2013
$m
234
(13)
221
(141)
(141)
74
80
80
93
Goodwill arising on business combinations that occurred before 1 January 2005 was not restated on adoption of IFRS as permitted by IFRS 1.
All cumulative impairment losses relate to the Americas managed cash-generating unit (CGU).
Goodwill has been allocated to CGUs for impairment testing as follows:
AMEA franchised and managed operations
Americas managed operations
2014
$m
74
141
215
Cost
2013
$m
80
141
221
Net book value
2014
$m
74
–
74
2013
$m
80
–
80
Asia, Middle East and Africa (AMEA) goodwill
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 using growth
rates based on management’s past experience and industry growth forecasts.
At 31 December 2014, the recoverable amount of the CGU has been assessed based on the approved budget for 2015 and strategic plans
covering a five-year period, a perpetual growth rate of 3.5% (2013 3.5%) and a discount rate of 13.7% (2013 15.5%). The perpetual
growth rates 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.
Impairment was not required at either 31 December 2014 or 31 December 2013 and management have determined that the carrying value
of the CGU would only exceed its recoverable amount in the event of highly unlikely changes in the key assumptions.
128
continuedNotes to the Group Financial Statements 13. Intangible assets
Cost
At 1 January 2013
Additions
Disposals
Exchange and other adjustments
At 31 December 2013
Additions
Disposals
Exchange and other adjustments
At 31 December 2014
Amortisation and impairment
At 1 January 2013
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2013
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
At 1 January 2013
Software
$m
Management
contracts
$m
Other
intangibles
$m
325
79
(8)
(1)
395
108
(31)
(1)
471
(163)
(21)
(12)
8
(1)
(189)
(33)
(15)
31
(1)
235
40
–
2
277
50
–
(17)
310
(126)
(7)
–
–
2
(131)
(9)
–
–
6
(207)
(134)
264
206
162
176
146
109
151
16
(7)
(1)
159
55
(5)
(2)
207
(68)
(11)
–
7
(1)
(73)
(11)
–
4
2
(78)
129
86
83
Substantially all software additions are internally developed.
Additions to management contracts relate to contract values recognised as part of the proceeds for hotels sold (see note 11).
The weighted average remaining amortisation period for management contracts is 30 years (2013 24 years).
Total
$m
711
135
(15)
–
831
213
(36)
(20)
988
(357)
(39)
(12)
15
–
(393)
(53)
(15)
35
7
(419)
569
438
354
129
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
14. Investment in associates and joint ventures
Cost
At 1 January 2013
Additions
Capital returns
Share of profits
Dividends
Exchange and other adjustments
At 31 December 2013
Initial retained interest in Barclay associate (note 11)
Additions
Share of (losses)/profits
Dividends
At 31 December 2014
Impairment
At 1 January 2013, 31 December 2013 and 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
At 1 January 2013
Associates
$m
Joint
ventures
$m
Total
$m
59
8
–
2
(5)
(3)
61
22
15
(4)
(2)
92
(3)
89
58
56
28
2
(3)
–
–
–
27
–
–
–
–
27
–
27
27
28
87
10
(3)
2
(5)
(3)
88
22
15
(4)
(2)
119
(3)
116
85
84
Barclay associate
The Group held one material associate investment at 31 December 2014, a 19.9% interest in 111 East 48th Street Holdings, LLC (‘the Barclay
associate’) which owns the InterContinental New York Barclay, a hotel managed by the Group. The investment is classified as an associate
and equity accounted as the Group has the ability to exercise significant influence through its involvement in the redevelopment of the hotel
and certain decision rights.
Summarised financial information in respect of the Barclay associate is set out below:
Non-current assets
Net current assets
Non-current liabilities
Equity
Group carrying amount (19.9%)
Revenue
Loss for the period
Group’s share of loss for the period (19.9%)
The Barclay associate classification was effective 31 March 2014.
31 December
2014
$m
339
2
(182)
159
32
9 months to
31 December
2014
$m
24
(26)
(5)
Other associates and joint ventures
The summarised aggregated financial information for individually immaterial associates and joint ventures is set out below. These are
mainly investments in entities that own hotels which the Group manages.
Share of profit/(loss)
Operating profit/(loss) before exceptional items
Exceptional items
Associates
Joint ventures
2014
$m
2013
$m
2012
$m
2014
$m
2013
$m
2012
$m
2014
$m
2013
$m
1
–
1
2
6
8
3
–
3
–
–
–
–
–
–
–
–
–
1
–
1
2
6
8
Total
2012
$m
3
–
3
The exceptional profit in 2013 arose on the sale of a hotel owned by an associate investment that was classified as held for sale at
31 December 2012. Following completion of the sale, the Group received a $17m cash distribution from the associate, being the
Group’s share of the net disposal proceeds.
130
continuedNotes to the Group Financial Statements 15. Other financial assets
Equity securities available-for-sale:
Quoted equity shares
Unquoted equity shares
Loans and receivables:
Trade deposits and loans
Restricted funds
Bank accounts pledged as security
Total other financial assets
Analysed as:
Current
Non-current
2014
$m
16
128
144
43
21
49
113
257
5
252
257
2013
$m
9
127
136
20
40
52
112
248
12
236
248
Equity securities available-for-sale are measured at fair value (see note 23) and loans and receivables are held at amortised cost.
Equity securities available-for-sale were denominated in the following currencies: US dollars $94m (2013 $84m), Hong Kong dollars
$34m (2013 $27m) and other currencies $16m (2013 $25m). Unlisted equity shares are mainly investments in entities that own hotels
which the Group manages. Dividend income from available-for-sale equity securities of $10m (2013 $6m) is reported as other operating
income and expenses in the Group income statement.
Trade deposits and loans include a deposit of $37m 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 $13m (2013 $12m); the discount unwinds to the income statement within financial income over the period to repayment.
Restricted funds include cash held in bank accounts which is pledged as collateral to insurance companies for risks retained by the Group
and other amounts held in escrow.
The bank accounts pledged as security (£31m) are subject to a charge in favour of the members of the UK unfunded pension arrangement
(see note 25).
The movement in the provision for impairment of other financial assets during the year is as follows:
At 1 January
Amounts written off
Exchange and other adjustments
At 31 December
2014
$m
(25)
–
(3)
(28)
2013
$m
(26)
1
–
(25)
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.
131
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
16. Trade and other receivables
Current
Trade receivables
Other receivables
Prepayments
Receivables from associates
Non-current
Loans to associates
2014
$m
327
47
63
11
448
2013
$m
336
20
65
2
423
3
–
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:
2014
$m
221
76
53
38
388
Gross
$m
Provision
$m
236
66
57
42
401
2014
$m
(43)
(22)
9
9
(47)
–
(4)
(3)
(36)
(43)
2013
$m
(47)
(18)
14
8
(43)
2013
$m
193
78
53
34
358
2013
Net
$m
236
62
54
6
358
2012
$m
(46)
(18)
10
7
(47)
Americas
Europe
Asia, Middle East and Africa
Greater China
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
Provision
$m
275
57
57
46
435
–
(3)
(3)
(41)
(47)
2014
Net
$m
275
54
54
5
388
The credit risk relating to balances not past due is not deemed to be significant.
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
132
continuedNotes to the Group Financial Statements 17. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2013
(restated1)
$m
2012
(restated1)
$m
177
71
248
249
138
387
2014
$m
157
5
162
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Cash at bank and in hand includes bank balances of $108m (2013 $114m, 2012 $194m) which are matched by bank overdrafts of $107m
(2013 $114m, 2012 $192m) under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number
of bank accounts with the same financial institution and the Group pays interest on net overdraft balances within each pool. The cash
pools are used for day-to-day cash management purposes and are managed as closely as possible to a zero balance on a net basis for
each pool. Overseas subsidiaries are typically in a cash positive position with the matching overdrafts held by the Group’s central treasury
company in the UK.
For the purposes of the Group statement of cash flows, cash and cash equivalents comprise the following:
Cash at bank and in hand
Short-term deposits
Bank overdrafts (note 21)
2013
(restated1)
$m
2012
(restated1)
$m
177
71
248
(114)
134
249
138
387
(192)
195
2014
$m
157
5
162
(107)
55
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Short-term deposits are highly liquid investments with an original maturity of three months or less.
Cash and cash equivalents includes $4m (2013 $12m, 2012 $7m) that is not available for use by the Group due to local exchange controls
in Venezuela and Argentina.
133
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
18. Trade and other payables
Current
Trade payables
Other tax and social security payable
Other payables
Accruals
Non-current
Other payables
2014
$m
88
49
317
315
769
2013
$m
97
32
335
284
748
627
574
Trade payables are non-interest-bearing and are normally settled within an average of 45 days.
Other payables include $725m (2013 $649m) relating to the future redemption liability of the Group’s loyalty programme, of which $132m
(2013 $120m) is classified as current and $593m (2013 $529m) as non-current.
19. Provisions
At 1 January 2013
Provided
Utilised
At 31 December 2013
Provided
Utilised
At 31 December 2014
Analysed as:
Current
Non-current
Onerous
management
contracts
$m
Litigation
$m
Total
$m
2
–
(1)
1
–
(1)
–
–
4
(2)
2
9
(1)
10
2
4
(3)
3
9
(2)
10
2014
$m
2013
$m
1
9
10
3
–
3
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.
Litigation during 2014 relates to actions brought against the Group in the Americas region relating to System Fund activity and, during
2013, largely relates to the Greater China region.
134
continuedNotes to the Group Financial Statements 20. 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 risks faced by 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 swaps, interest
rate swaps 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.
Most significant exposures of the Group are in currencies that are freely convertible.
A general strengthening of the US dollar (specifically a five cent fall in the sterling: US dollar rate) would increase the Group’s profit
before tax by an estimated $4.5m (2013 $4.1m, 2012 $2.8m) and increase net assets by an estimated $29.1m (2013 $16.0m, 2012 $1.8m).
Similarly, a five cent fall in the euro:US dollar rate would reduce the Group’s profit before tax by an estimated $2.2m (2013 $2.6m, 2012
$2.3m) and decrease net assets by an estimated $10.9m (2013 $14.8m, 2012 $16.1m).
Interest rate exposure is managed, using interest rate swaps if appropriate, within set parameters depending on the term of the debt,
with a minimum fixed proportion of 25% of borrowings for each major currency. No interest rate swaps were used during 2013 or 2014.
Based on the year-end net debt position plus the $400m bilateral term loan drawn in 2015 to finance the Kimpton acquisition (see note
21), a one percentage point rise in US dollar interest rates would increase the annual net interest charge by $6.7m. A similar rise in euro
interest rates would increase the annual net interest charge by approximately $0.9m, and a similar rise in sterling interest rates would
reduce the annual net interest charge by approximately $0.7m. 100% of borrowings in major currencies were fixed rate debt at
31 December 2013.
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 bonds were issued under the Group’s £750m Medium Term Notes programme. 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 has been in compliance with all of the financial covenants in its loan documents throughout the
year, 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 $162m which is predominantly held in short-term deposits and cash funds which allow daily
withdrawals of cash. The Group also had overdrafts of $107m as part of cash pooling arrangements (see note 17). Most of the Group’s
funds are held in the UK or US, although $4m (2013 $12m) is held in countries where repatriation is restricted as a result of foreign
exchange regulations.
The Group had net liabilities of $717m at 31 December 2014 reflecting that its brands, in accordance with accounting standards, are not
recorded on the balance sheet.
135
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
20. Financial risk management continued
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. In order to manage the Group’s credit risk
exposure, the treasury function sets counterparty exposure limits using metrics including credit ratings, the relative placing of credit
default swap pricings, Tier 1 capital and share price volatility of the relevant counterparty.
The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit
terms are subject to credit verification procedures.
In respect of credit risk arising from financial assets, the Group’s exposure to credit risk arises from default of the counterparty,
with a maximum exposure equal to the carrying amount of these instruments.
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern. The capital structure consists of net debt,
issued share capital and reserves totalling $808m at 31 December 2014 (2013 $1,071m). 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 ensuring that interest flows are fixed on at least 25% of its borrowings in major currencies.
If required, the Group uses interest rate swaps to manage the exposure although none were held during 2013 or 2014. The Group designates
interest rate swaps as cash flow hedges.
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 2014 or 31 December 2013.
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. The interest on these financial instruments
is taken through financial income or expense.
At 31 December 2014, the Group held no currency swaps (2013 $415m) and short dated foreign exchange swaps with principals of €220m
(2013 €75m) and $31m (2013 $100m) (see note 22 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 (2013 $415m) and
short dated foreign exchange swaps with principals of €220m (2013 €75m) and $165m (2013 $310m).
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.
136
continuedNotes to the Group Financial Statements 20. Financial risk management continued
Liquidity risk
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:
31 December 2014
Non-derivative financial liabilities:
Bank overdrafts
Unsecured bank loans
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
31 December 2013 (restated1)
Non-derivative financial liabilities:
Bank overdrafts
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
Less than
1 year
$m
Between 1 and
2 years
$m
Between 2 and
5 years
$m
More than
5 years
$m
Total
$m
107
361
3
23
24
16
769
1
(2)
–
–
–
414
24
16
174
9
–
–
–
–
–
73
48
194
–
–
–
–
–
–
697
3,284
345
–
107
361
3
437
818
3,364
1,482
10
–
(2)
Less than
1 year
$m
Between 1 and
2 years
$m
Between 2 and
5 years
$m
More than
5 years
$m
114
–
25
26
16
748
3
(1)
26
(25)
–
4
25
26
16
162
–
–
26
(25)
–
–
438
77
48
193
–
–
441
(438)
–
–
–
764
3,300
289
–
–
–
–
Total
$m
114
4
488
893
3,380
1,392
3
(1)
493
(488)
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Trade and other payables includes the cash flows relating to the future redemption liability of the Group’s loyalty programme. The repayment
profile has been determined by actuaries based on expected redemption profiles and could in reality be different from expectations.
Credit risk
The carrying amount of financial assets represents the maximum exposure to credit risk.
Cash and cash equivalents
Equity securities available-for-sale
Derivative financial instruments
Loans and receivables:
Other financial assets
Trade and other receivables, excluding prepayments
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
2014
$m
162
144
2
113
388
809
2013
(restated1)
$m
248
136
1
112
358
855
137
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
21. Loans and other borrowings
Bank overdrafts
Unsecured bank loans
Secured bank loan
Finance lease obligations
£250m 6% bonds 2016
£400m 3.875% bonds 2022
Total borrowings
Denominated in the following currencies:
Sterling
US dollars
Euros
Other
Current
$m
Non-current
$m
Current
$m
Non-current
$m
2014
Total
$m
107
359
3
218
390
618
–
359
–
202
390
618
1,569
1,695
1,008
470
91
–
1,569
1,028
557
103
7
1,695
107
–
3
16
–
–
126
20
87
12
7
126
2013
(restated1)
Total
$m
114
–
4
215
412
654
–
–
4
199
412
654
1,269
1,399
1,066
199
–
4
1,269
1,083
295
11
10
1,399
114
–
–
16
–
–
130
17
96
11
6
130
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
Bank overdrafts
Bank overdrafts are matched by equivalent amounts of cash and cash equivalents under the Group’s cash pooling arrangements
(see note 17 for further details).
Unsecured bank loans
Unsecured bank loans are borrowings under the Group’s Syndicated Facility. Amounts are classified as non-current when the
facilities have more than 12 months to expiry. A variable rate of interest is payable on amounts drawn under the facility, which was
1.2% at 31 December 2014.
Secured bank loan
The secured bank loan relates to a New Zealand dollar mortgage which is secured on the related hotel property. $3m is repayable
by instalments (2013 $4m).
Finance lease obligations
Finance lease obligations, which relate to the 99-year lease (of which 91 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
2014
Minimum
lease
payments
$m
Present
value of
payments
$m
Minimum
lease
payments
$m
2013
Present
value of
payments
$m
16
64
3,284
3,364
(3,146)
218
16
48
154
218
–
218
16
64
3,300
3,380
(3,165)
215
16
48
151
215
–
215
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. Interest is payable on the obligation at a fixed rate of 9.7%.
£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 and were subsequently closed out during 2014 (see note 22 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.
138
continuedNotes to the Group Financial Statements 21. Loans and other borrowings continued
Facilities provided by banks
Committed
Uncommitted
Unutilised facilities expire:
Within one year
After two but before five years
Utilised
$m
Unutilised
$m
364
4
368
709
62
771
2014
Total
$m
1,073
66
1,139
Utilised
$m
Unutilised
$m
4
–
4
1,070
80
1,150
2014
$m
62
709
771
2013
Total
$m
1,074
80
1,154
2013
$m
80
1,070
1,150
Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.
Kimpton acquisition
Subsequent to the year end, a $400m bilateral term loan was drawn down to finance the acquisition of Kimpton (see note 33). The loan
has a term of six months plus two six-month extension periods. A variable rate of interest is payable on the loan which has identical
covenants to the Syndicated Facility.
22. Derivative financial instruments
Currency swaps
Forward foreign exchange contracts
Analysed as:
Current assets
Non-current liabilities
2014
$m
–
(2)
(2)
(2)
–
(2)
2013
$m
11
(1)
10
(1)
11
10
Derivatives are recorded at their fair values as set out in note 23.
Currency swaps
At 31 December 2014, the Group held no currency swaps. The currency swaps held at 31 December 2013 (with a principal of $415m) 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 currency swaps were closed out in full during 2014 due to a reduction in the value of assets available for net investment
hedging with $4m received as consideration on close of out the swaps. The interest expense and principal on the £250m 6% bonds are
now subject to currency fluctuations. At 31 December 2013, the fair value of the currency swap comprised two components: $2m relating
to the repayment of the underlying principal and $9m relating to interest payments. The element relating to the underlying principal was
disclosed as a component of net debt in 2013 (see note 24). The currency swaps were designated as net investment hedges.
Forward foreign exchange contracts
At 31 December 2014, the Group held short dated foreign exchange swaps with total principal values of €220m (2013 €75m) and $31m
(2013 $100m). 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.
139
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
23. Fair value measurement
Fair values
The following table compares carrying amounts and fair values of the Group’s financial assets and liabilities:
Financial assets
Cash and cash equivalents
Equity securities available-for-sale2
Loans and receivables:
Other financial assets
Trade and other financial receivables, excluding prepayments
Derivatives2
Financial liabilities
£250m 6% bonds 2016
£400m 3.875% bonds 2022
Finance lease obligations
Unsecured bank loans
Secured bank loan
Bank overdrafts
Trade and other payables
Derivatives2
Provisions
Carrying
value
$m
Note
17
15
15
16
22
21
21
21
21
21
21
18
22
19
162
144
113
388
2
809
(390)
(618)
(218)
(359)
(3)
(107)
(1,396)
–
(10)
2014
Fair
value
$m
162
144
113
388
2
809
(423)
(659)
(277)
(359)
(3)
(107)
(1,396)
–
(10)
2013
(restated¹)
Carrying
value
$m
Fair
value
$m
248
136
112
358
1
855
(412)
(654)
(215)
–
(4)
(114)
(1,322)
(11)
(3)
248
136
112
358
1
855
(461)
(650)
(233)
–
(4)
(114)
(1,322)
(11)
(3)
(3,101)
(3,234)
(2,735)
(2,798)
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
2 Financial assets and liabilities which are measured at fair value.
There are no other assets or liabilities measured at fair value on a recurring or non-recurring basis, or for which fair value is disclosed.
The fair value of cash and cash equivalents and bank overdrafts approximates book value due to the short maturity of the investments
and deposits, and the fair value of other financial assets approximates book value based on prevailing market rates. The fair value of the
secured and unsecured bank loans approximates book value as interest rates reset to market rates on a frequent basis. 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 following table provides the fair value measurement hierarchy of the above assets and liabilities, other than those with carrying
amounts which are reasonable approximations of their fair values:
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 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:
Quoted equity shares
Unquoted equity shares
Derivatives
Liabilities
£250m 6% bonds 2016
£400m 3.875% bonds 2022
Finance lease obligations
Derivatives
Level 1
$m
Level 2
$m
Level 3
$m
16
–
–
(423)
(659)
–
–
–
–
2
–
–
(277)
–
–
128
–
–
–
–
–
2014
Total
$m
16
128
2
(423)
(659)
(277)
–
Level 1
$m
Level 2
$m
Level 3
$m
9
–
–
(461)
(650)
–
–
–
–
1
–
–
(233)
(11)
–
127
–
–
–
–
–
2013
Total
$m
9
127
1
(461)
(650)
(233)
(11)
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.
140
continuedNotes to the Group Financial Statements 23. Fair value measurement continued
The fair value of quoted equity shares and the bonds is based on their quoted market price.
Derivatives are fair valued using discounted future cash flows, taking into consideration exchange rates prevailing on the last day of
the reporting period and interest rates from observable swap curves. As the Group’s derivatives are not cash collaterised, a valuation
adjustment is made for credit risk, being counterparty risks in respect of derivative assets and own credit risks in respect of derivative
liabilities. At 31 December 2013, the interest rates used to fair value the currency swaps ranged from 1.4% to 2.5%, depending on the
currency and the term of the derivative contract.
Finance lease obligations relate to the lease of the InterContinental Boston and are fair valued by discounting the future cash flows
payable under the loan, which are fixed, at a risk adjusted long-term interest rate. The interest rate used to discount the cash flows
at 31 December 2014 was 7.4% (2013 8.4%).
Unquoted equity shares are fair valued using the International Private Equity and Venture Capital Valuation Guidelines either 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 if the investment is currently loss-making or a recent property valuation is available. The average P/E ratio for the year was 24.0
and a non-marketability factor of 30% is applied. A 10% increase in the average P/E ratio would result in a $3m increase (2013 $5m) in the
fair value of the investments and a 10% decrease in the average P/E ratio would result in a $3m decrease (2013 $5m) in the fair value of
the investments. A 10% increase in net assets would result in a $7m increase (2013 $5m) in the fair value of the investments and a 10%
decrease in net assets would result in a $7m decrease (2013 $5m) in the fair value of the investments.
The following table reconciles the movements in the fair values of investments classified as Level 3 during the year:
At 1 January
Additions
Repaid
Valuation gains recognised in other comprehensive income
Exchange and other adjustments
At 31 December
24. Net debt
Cash and cash equivalents
Loans and other borrowings – current
Derivatives hedging debt values (note 22)
Net debt
– non-current
Movement in net debt
Net decrease in cash and cash equivalents, net of overdrafts
Add back cash flows in respect of other components of net debt:
(Increase)/decrease in other borrowings
Close-out of currency swaps
Increase in net debt arising from cash flows
Non-cash movements:
Finance lease obligations
Exchange and other adjustments
Increase in net debt
Net debt at beginning of the year
Net debt at end of the year
2014
$m
127
5
(8)
7
(3)
128
2013
$m
94
8
–
25
–
127
2014
$m
162
(126)
(1,569)
–
(1,533)
2013
(restated1)
$m
248
(130)
(1,269)
(2)
(1,153)
(70)
(58)
(382)
(4)
(456)
(3)
79
(380)
(1,153)
(1,533)
1
–
(57)
(3)
(19)
(79)
(1,074)
(1,153)
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
In 2013, net debt included the exchange element of the fair value of currency swaps that fixed 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 was included in non-current loans
and other borrowings. The currency swaps were closed out in 2014 (see note 22).
141
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
25. Retirement benefits
UK
Historically UK retirement and death in service benefits have been provided for eligible employees in the UK principally by the
InterContinental Hotels UK Pension Plan, which has both defined benefit and defined contribution sections. The defined benefit section
was subject to a buy-in transaction on 15 August 2013 whereby the assets of the plan were invested in a bulk purchase annuity policy
with the insurer Rothesay Life under which the benefits payable to defined benefit members became fully insured. On 31 October 2014,
the plan completed the move to a full buy-out of the defined benefit section, following which Rothesay Life has become fully and directly
responsible for the pension obligations. On completion of the buy-out, the defined benefit assets (comprising the Rothesay Life insurance
policy) and matching defined benefit liabilities were derecognised from the Group statement of financial position. The buy-out transaction
also triggered the return to the Company of the £3m that remained in the IHG Funding Trust.
On 6 August 2014, members of the defined contribution section of the plan were transferred to a new mirror plan, the IHG UK Defined
Contribution Pension Plan. Existing and new employees who are eligible for pension benefits in the UK, including those who have been
auto-enrolled since 1 September 2013, are provided with defined contribution arrangements under this plan; benefits are based on each
individual member’s personal account.
Both plans are HM Revenue & Customs registered and governed by a Trustee Board which comprises a combination of independent
and company nominated trustees, assisted by professional advisers as and when required. The overall operation of the plans is subject
to the oversight of The Pensions Regulator. The Trustee Board is currently in the process of winding-up the InterContinental Hotels UK
Pension Plan.
In addition to the above, additional benefits are provided to members of an unfunded pension arrangement who were affected by lifetime
or annual allowances under the former defined benefit arrangements. Accrual under this arrangement ceased with effect from 1 July
2013. In March 2014, the Company made an offer to each member to cash-out their pension entitlement by means of a one-off lump sum
cash payment. Members had until 30 June 2014 to accept the offer with the Company reserving the right to revoke any acceptances up
to the date of payment. In the event, cash payments totalling £27m were made to the accepting members on 28 July 2014 (with an additional
£7m deferred for payment until 2015), thereby extinguishing approximately 70% of the unfunded pension obligations. A charge over certain
ring-fenced bank accounts totalling £31m at 31 December 2014 (see note 15) is currently held as security on behalf of the remaining
members of the unfunded arrangement.
US and other
The Group also maintains the following US-based defined benefit plans; the funded Inter-Continental Hotels Pension Plan, unfunded
Inter-Continental Hotels Non-qualified Pension Plans and unfunded Inter-Continental Hotels Corporation Postretirement Medical,
Dental, Vision and Death Benefit Plan. All plans are closed to new members. In respect of the funded plan, an Investment Committee has
responsibility for the oversight and management of the plan’s assets, which are held in a separate trust. The Committee comprises senior
company employees and is assisted by professional advisers as and when required. The company currently makes contributions that equal
or exceed the minimum funding amounts required by the Employee Retirement Income and Security Act of 1974 (‘ERISA’). The investment
objective is to achieve full funding over time by following a specified ‘glide path approach’ which results in a progressive switching from
return seeking assets to liability-matching assets as the funded status of the plan increases. During the year, the funded status reached
85% which triggered a further de-risking of the investment portfolio.
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
Past service cost
Net interest expense
Administration costs
Operating profit before exceptional items
Exceptional items:
Settlement cost
2014
$m
2013
$m
UK
2012
$m
–
–
2
3
5
2
–
–
1
3
6
11
147
150
5
–
1
1
7
–
7
Pension plans
US and other
Post-employment
benefits
2014
$m
2013
$m
2012
$m
2014
$m
2013
$m
2012
$m
2014
$m
2013
$m
1
–
3
–
4
–
4
1
1
3
1
6
–
6
1
–
3
1
5
–
5
–
–
1
–
1
–
1
–
–
1
–
1
–
1
–
–
1
–
1
–
1
1
–
6
3
10
6
16
3
1
4
2
10
147
157
Total
2012
$m
6
–
5
2
13
–
13
142
continuedNotes to the Group Financial Statements 25. Retirement benefits continued
The settlement cost in 2014 results from the partial cash-out of the UK unfunded pension arrangements and comprises transaction and
related social security costs of $9m, offset by the $3m difference between the accounting value of the liabilities extinguished and the amount
of the committed cash-out payments. In 2014, related cash payments of $53m are included in cash flows relating to exceptional operating
items in the Group statement of cash flows.
The settlement cost in 2013 resulted from the buy-in transaction described on the previous page and comprised a past service cost of
$5m relating to additional benefits secured by the transaction, the $137m difference between the cost of the insurance policy and the
accounting value of the liabilities secured and transaction costs of $5m. As the policy was structured to enable the plan to move to a
buy-out and the intention was to proceed on that basis, the buy-in transaction was accounted for as a settlement with the loss arising
recorded in the income statement. The full buy-out was completed on 31 October 2014.
Re-measurement gains and losses recognised in the Group statement of comprehensive income are:
Plan
assets
$m
Plan
obligations
$m
2014
Total
$m
Plan
assets
$m
Plan
obligations
$m
2013
Total
$m
Plan
assets
$m
Plan
obligations
$m
2012
Total
$m
–
2
22
–
22
Return on plan assets (excluding amounts included
in interest)
Actuarial gains and losses arising from changes in:
Demographic assumptions
Financial assumptions
Experience adjustments
Change in asset restriction (excluding amounts
included in interest)
Other comprehensive income
88
–
88
–
–
–
(1)
87
(3)
(113)
4
–
(112)
(3)
(113)
4
(1)
(25)
2
–
–
–
89
91
12
(57)
(6)
–
(51)
12
(57)
(6)
89
40
–
–
–
(23)
(1)
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:
Retirement benefit assets
Fair value of plan assets
Present value of benefit obligations
Surplus in schemes
Asset restriction
Total retirement benefit assets
Retirement benefit obligations
Fair value of plan assets
Present value of benefit obligations
Total retirement benefit obligations
Total fair value of plan assets
Total present value of benefit obligations
2014
$m
8
–
8
(3)
5
–
(31)
(31)
8
(31)
UK
2013
$m
582
(577)
5
(2)
3
–
(82)
(82)
582
(659)
Pension plans
US and other
2014
$m
2013
$m
Post-employment
benefits
2014
$m
2013
$m
16
(13)
3
–
3
151
(242)
(91)
167
(255)
17
(13)
4
–
4
142
(220)
(78)
159
(233)
–
–
–
–
–
–
(24)
(24)
–
(24)
–
–
–
–
–
–
(24)
(24)
–
(24)
(6)
(25)
17
–
(14)
2014
$m
24
(13)
11
(3)
8
151
(297)
(146)
175
(310)
The ‘US and other’ surplus of $3m (2013 $4m) relates to a defined benefit pension scheme in Hong Kong. Included within the ‘US
and other’ deficit is $1m (2013 $2m) relating to a defined benefit pension plan in the Netherlands.
(6)
(25)
17
(23)
(15)
Total
2013
$m
599
(590)
9
(2)
7
142
(326)
(184)
741
(916)
143
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
25. Retirement benefits continued
Assumptions
The principal financial assumptions used by the actuaries to determine the benefit obligations are:
Wages and salaries increases
Pensions increases
Discount rate
Inflation rate
Healthcare cost trend rate assumed for next year:
Pre 65 (ultimate rate reached in 2021)
Post 65 (ultimate rate reached in 2024)
Ultimate rate that the cost trend rate trends to
2014
%
–
3.3
3.7
3.3
2013
%
–
3.6
4.6
3.6
UK
2012
%
4.5
3.0
4.5
3.0
Pension plans
2014
%
–
–
3.6
–
2013
%
–
–
4.5
–
US
2012
%
–
–
3.5
–
Post-employment
benefits
2013
%
–
–
4.6
–
8.5
17.5
5.2
2012
%
4.0
–
3.5
–
9.0
11.8
5.0
2014
%
–
–
3.7
–
8.0
12.5
5.0
Mortality is the most significant demographic assumption. The current assumptions for the UK 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 three years for pensioners
and non-pensioners. In the US, the current assumptions are based on the RP-2014 Employee/Healthy Annuitant Generationally Projected
with Scale MP-2014 mortality tables.
In both territories, the assumptions have been revised during the year to reflect increased life expectancy at retirement age as follows:
Current pensioners at 651
Future pensioners at 652
– male
– female
– male
– female
2014
Years
2013
Years
26
29
28
31
24
27
27
30
UK
2012
Years
24
27
27
30
Pension plans
2014
Years
2013
Years
22
24
23
25
21
23
22
25
US
2012
Years
19
21
21
22
1 Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period.
2 Relates to assumptions based on longevity (in years) relating to an employee retiring in 2034.
The assumptions allow for expected increases in longevity.
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 key assumptions are the pension increases, discount rate, the rate of inflation
and the assumed mortality rate. The sensitivity analysis below is based on extrapolating reasonable changes in these assumptions,
using year-end conditions and assuming no interdependency between the assumptions.
Discount rate
Pension increases – 0.25% decrease
– 0.25% increase
– 0.25% decrease
– 0.25% increase
– 0.25% increase
– 0.25% decrease
– one year increase
Mortality rate
Inflation rate
UK
US
Higher/
(lower)
pension cost
$m
Increase/
(decrease)
in liabilities
$m
Higher/
(lower)
pension cost
$m
Increase/
(decrease)
in liabilities
$m
–
–
–
–
–
–
–
(1.1)
1.2
1.6
(1.6)
1.2
(1.1)
0.6
–
–
–
–
–
–
0.3
–
–
7.4
(7.0)
–
–
9.4
A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit
obligations as at 31 December 2014 by $2.4m (2013 $2.8m, 2012 $2.6m) and a one percentage point decrease would decrease the
obligations by $2.2m (2013 $2.3m, 2012 $2.3m).
144
continuedNotes to the Group Financial Statements
25. Retirement benefits continued
Movement in benefit obligation
Benefit obligation at 1 January
Current service cost
Past service cost
Interest expense
Settlement gain before costs
Benefits paid
Committed cash-out payments
Re-measurement losses/(gains)
Derecognised on buy-out
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
Benefits paid
Interest income
Settlement loss
Re-measurement gains/(losses)
Administration costs
Derecognised on buy-out
Exchange adjustments
Fair value of plan assets at 31 December
2014
$m
659
–
–
24
(3)
(18)
(57)
86
(640)
(20)
31
–
31
31
2014
$m
582
3
(18)
22
–
83
(3)
(640)
(21)
8
UK
2013
$m
569
2
5
26
–
(22)
–
62
–
17
659
577
82
659
UK
2013
$m
695
20
(22)
29
(137)
(7)
(1)
–
5
582
Pension plans
US and other
2014
$m
233
1
–
10
–
(14)
–
26
–
(1)
255
199
56
255
2013
$m
247
1
1
7
–
(13)
–
(10)
–
–
233
182
51
233
Pension plans
US and other
2014
$m
159
11
(14)
7
–
5
–
–
(1)
167
2013
$m
149
10
(13)
4
–
9
(1)
–
1
159
Company contributions are expected to be $6m in 2015.
The plan assets are measured at fair value and comprise the following:
Investments quoted in active markets
Investment funds:
Global equities
Corporate bonds
Property
Unquoted investments
Qualifying insurance policy
Cash and other
Post-employment
benefits
2014
$m
2013
$m
24
–
–
1
–
(1)
–
–
–
–
24
–
24
24
25
–
–
1
–
(1)
–
(1)
–
–
24
–
24
24
Post-employment
benefits
2014
$m
2013
$m
–
1
(1)
–
–
–
–
–
–
–
2014
$m
–
–
–
–
8
8
–
1
(1)
–
–
–
–
–
–
–
UK
2013
$m
–
–
–
577
5
582
2014
$m
916
1
–
35
(3)
(33)
(57)
112
(640)
(21)
310
199
111
310
2014
$m
741
15
(33)
29
–
88
(3)
(640)
(22)
175
Total
2013
$m
841
3
6
34
–
(36)
–
51
–
17
916
759
157
916
Total
2013
$m
844
31
(36)
33
(137)
2
(2)
–
6
741
US and other
2014
$m
2013
$m
21
131
2
11
2
167
33
107
4
10
5
159
In accordance with accounting standards, the fair value of a qualifying insurance policy is deemed to be the present value of the pension
obligations secured by that policy.
145
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
25. Retirement benefits continued
Movement in asset restriction
Balance at 1 January
Interest expense
Re-measurement gains/(losses)
Exchange adjustments
Balance at 31 December
2014
$m
2
–
1
–
3
UK
2013
$m
91
3
(89)
(3)
2
Pension plans
US and other
2014
$m
2013
$m
Post-employment
benefits
2014
$m
2013
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2014
$m
2
–
1
–
3
Total
2013
$m
91
3
(89)
(3)
2
The asset restriction relates to tax that would be deducted at source in respect of a refund of a surplus taking into account amounts
payable under funding commitments. As a result of the buy-in transaction, substantially all of the asset restriction was released through
other comprehensive income during 2013.
2014
$m
–
2
11
13
22.0
UK
2013
$m
19
84
123
226
21.6
Pension plans
US and other
2014
$m
15
58
78
151
11.9
2013
$m
14
57
76
147
11.8
Post-employment
benefits
2014
$m
2013
$m
1
5
7
13
11.9
1
5
7
13
11.3
2014
$m
16
65
96
177
Total
2013
$m
34
146
206
386
Estimated future benefit payments
Within one year
Between one and five years
After five years
Average duration of obligation (years)
26. Share-based payments
Annual Performance Plan
Under the IHG Annual Performance Plan (APP), formerly the Annual Bonus Plan (ABP), eligible employees (including Executive
Directors) can 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 awards that are referred to in this note, a fixed percentage of the award is made in the form of
shares with no voluntary deferral and no matching shares. Awards under the APP are conditional on the participants remaining in the
employment of a participating company or leaving for a qualifying reason as per the plan rules. The award of deferred shares under the
APP 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 award 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 APP during the year and conditional rights over 305,345 (2013 318,911, 2012 340,924) shares were awarded to participants. New
plan rules for the APP were approved by shareholders at the Annual General Meeting on 2 May 2014, and will apply to awards made
in respect of the 2015 subsequent and financial years. The new plan rules contain substantially the same terms as the existing plan rules.
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.
More detailed information on performance measures is shown in the Directors’ Remuneration Report on pages 76 to 91. 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 2,171,390 (2013 2,227,293, 2012 2,698,714)
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. New plan rules for the LTIP were approved by shareholders at the Annual General Meeting on 2 May 2014, and
will apply to awards made in respect of the 2015-17 and subsequent LTIP cycles. The new plan rules contain substantially the same terms
as the existing rules; one minor change is to limit the maximum award to three times salary for all employees.
Executive Share Option Plan
The plan was not operated during 2014 and no options were granted in the year under the plan, neither will any further options be granted
under the plan. All options have now been exercised.
146
continuedNotes to the Group Financial Statements 26. Share-based payments continued
The Group recognised a cost of $21m (2013 $22m, 2012 $22m) in operating profit 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 $nil (2013 $5m, 2012 $10m).
The following table sets forth awards and options granted during 2014:
Number of shares awarded in 2014
APP
305,345
LTIP
2,171,390
The Group uses separate option pricing models and assumptions depending on the plan. The following tables set out information about
awards granted in 2014, 2013 and 2012:
APP
LTIP
2014
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility1
Term (years)
2013
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility1
Term (years)
2012
Valuation model
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatility1
Term (years)
Binomial
1,925.0p
n/a
3.0
APP
Binomial
1,928.0p
2.63%
3.0
ABP
Binomial
1,440.0p
2.95%
3.0
Monte Carlo
Simulation and
Binomial
1,916.0p
2.55%
1.29%
28%
3.0
LTIP
Monte Carlo
Simulation and
Binomial
1,913.0p
2.59%
0.27%
28%
3.0
LTIP
Monte Carlo
Simulation and
Binomial
1,440.0p
2.99%
0.59%
31%
3.0
1 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.
147
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
26. Share-based payments continued
Movements in the awards and options outstanding under the schemes are as follows:
Outstanding at 1 January 2012
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2012
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2013
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2014
Fair value of awards granted during the year
2014
2013
2012
Weighted average remaining contract life (years)
At 31 December 2014
At 31 December 2013
At 31 December 2012
The above awards do not vest until the performance and service conditions have been met.
Executive Share Option Plan
Outstanding at 1 January 2012
Exercised
Lapsed or cancelled
Outstanding at 31 December 2012
Exercised
Outstanding at 31 December 2013
Exercised
Outstanding at 31 December 2014
Options exercisable
At 31 December 2014
At 31 December 2013
At 31 December 2012
APP
Number of
shares
thousands
950
341
(643)
(18)
(8)
622
319
(72)
(29)
840
305
(310)
(38)
(29)
768
3,134.6¢
2,873.4¢
2,199.8¢
1.1
1.1
1.6
LTIP
Number of
shares
thousands
9,030
2,699
(2,621)
–
(1,948)
7,160
2,227
(2,206)
(406)
6,775
2,171
(1,447)
–
(1,379)
6,120
1,202.1¢
1,127.9¢
792.5¢
1.1
1.1
1.2
Number of
shares
thousands
Range of
option prices
pence
Weighted
average
option price
pence
308.5–619.8
2,170
(1,365) 308.5–619.8
434.2
(107)
698
438.0–619.8
(638) 438.0–619.8
60
494.2–619.8
(60) 494.2–619.8
–
n/a
–
60
698
n/a
494.2–619.8
438.0–619.8
497.0
492.8
434.2
514.8
512.3
541.3
541.3
–
n/a
541.3
514.8
The weighted average share price at the date of exercise for share options vested during the year was 1,966.5p. The closing share price on
31 December 2014 was 2,595.0p and the range during the year was 1,866.0p to 2,710.0p per share.
148
continuedNotes to the Group Financial Statements
27. Equity
Equity 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
Exchange adjustments
At 31 December 2012 (ordinary shares of 14194⁄ 329p each)
Issued on exercise of share options
Exchange adjustments
At 31 December 2013 (ordinary shares of 14194⁄ 329p each)
Share capital consolidation
Repurchased and cancelled under repurchase programme
Exchange adjustments
At 31 December 2014 (ordinary shares of 15265⁄329p each)
Number of
shares
millions
Nominal
value
$m
Share
premium
$m
Equity
share
capital
$m
290
(19)
1
(4)
–
268
1
–
269
(20)
(1)
–
248
61
–
1
(1)
2
63
–
2
65
–
–
(4)
61
101
–
9
–
6
116
5
3
124
–
–
(7)
117
162
–
10
(1)
8
179
5
5
189
–
–
(11)
178
The Company was incorporated and registered in England and Wales with registered number 5134420 on 21 May 2004 as a limited
company under the Companies Act 1985 with the name Hackremco (No. 2154) Limited. On 24 March 2005 Hackremco (No. 2154)
Limited changed its name to New InterContinental Hotels Group Limited. On 27 April 2005 New InterContinental Hotels Group Limited
re-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC. On 27 June 2005 New
InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC.
On 7 August 2012, the Company announced a $1bn return of funds to shareholders comprising a $500m special dividend with share
consolidation and a $500m 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 on 8 October 2012, the share repurchase programme commenced. In the
year to 31 December 2014, 3.4m (2013 9.8m, 2012 4.1m) shares were repurchased for a consideration of $110m (2013 $283m, 2012 $107m),
increasing the total amount repurchased to $500m and completing the programme. Of the 3.4m (2013 9.8m, 2012 4.1m) shares repurchased
in 2014, 2.7m (2013 9.8m, 2012 nil) are held as treasury shares and 0.7m (2013 nil, 2012 4.1m) were cancelled. The cost of treasury shares has
been deducted from retained earnings.
The authority given to the Company at the GM held on 30 June 2014 to purchase its own shares was still valid at 31 December 2014.
A resolution to renew the authority will be put to shareholders at the Annual General Meeting on 8 May 2015.
On 6 August 2013, the Company announced a special dividend of 133.0¢ per share amounting to $355m which was paid to shareholders
on 4 October 2013.
On 2 May 2014, the Company announced a $750m return to shareholders by way of a special dividend and share consolidation. On 30 June
2014, shareholders approved the share consolidation at a GM of the Company on the basis of 12 new ordinary shares of 15265/329p per share
for every 13 existing ordinary shares of 14194/329p each, which became effective on 1 July 2014. The special dividend of 293.0¢ per share was
paid to shareholders on 14 July 2014, at a total cost of $763m.
As a result of the 2014 share consolidation, the number of shares held in treasury reduced from 12.5m to 11.5m.
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 15265/329p 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.
149
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
27. Equity continued
The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 102 to 104 of the Financial
Statements is as follows:
Capital redemption reserve
This reserve maintains the nominal value of the equity share capital of the Company when shares are repurchased or cancelled.
Shares held by employee share trusts
Comprises $34.5m (2013 $37.6m, 2012 $48.0m) in respect of 0.9m (2013 1.2m, 2012 1.8m) InterContinental Hotels Group PLC ordinary
shares held by employee share trusts, with a market value at 31 December 2014 of $38.2m (2013 $39.8m, 2012 $50.1m).
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 107), 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.
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 2014
was a $2m net asset (2013 $10m net liability, 2012 $17m net liability).
The currency translation reserve includes a cumulative loss of $3m relating to assets classified as held for sale.
Treasury shares
At 31 December 2014, 11.5m shares (2013 9.8m, 2012 nil) with a nominal value of $2.8m (2013 $2.4m, 2012 $nil) were held as treasury
shares at cost and deducted from retained earnings.
Non-controlling interest
A non-controlling interest is equity in a subsidiary of the Group not attributable, directly or indirectly, to the Group. Non-controlling interests
are not material to the Group.
150
continuedNotes to the Group Financial Statements 28. Operating leases
During the year ended 31 December 2014, $72m (2013 $67m, 2012 $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 $27m
(2013 $24m, 2012 $19m). $4m (2013 $4m, 2012 $4m) was recognised as income from sub-leases.
Future minimum lease payments under non-cancellable operating leases are as follows:
Due within one year
One to two years
Two to three years
Three to four years
Four to five years
More than five years
2014
$m
40
34
28
27
20
200
349
2013
$m
42
33
29
23
23
202
352
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 17 years (2013 18 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 $8m (2013 $10m).
29. Capital and other commitments
Contracts placed for expenditure not provided for in the Group Financial Statements:
Property, plant and equipment
Intangible assets
2014
$m
2013
$m
70
47
117
70
13
83
The Group has also committed to invest in a number of its associates, with an estimated outstanding commitment of $89m at 31 December
2014 (2013 $20m) based on current forecasts.
30. Contingencies and guarantees
At 31 December 2014, the Group had no contingent liabilities (2013 $nil).
In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts.
At 31 December 2014, the amount provided in the Financial Statements was $2m (2013 $6m) and the maximum unprovided exposure
under such guarantees was $29m (2013 $48m).
At 31 December 2014, the Group had outstanding letters of credit of $40m (2013 $41m) mainly relating to self insurance programmes.
The Group may guarantee loans made to facilitate third-party ownership of hotels in which the Group has an equity interest.
At 31 December 2014, there were guarantees of $20m in place (2013 $20m).
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 a claim by Pan American Life Insurance Company, a Competition and
Markets Authority enquiry in the UK and a class action lawsuit in the US (see ‘Legal proceedings’ on page 170). 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.
151
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
31. Related party disclosures
Total compensation of key management personnel¹
Short-term employment benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
2014
$m
2013
$m
2012
$m
21.5
0.7
–
7.9
30.1
20.7
0.8
–
8.1
29.6
20.0
0.8
0.6
8.6
30.0
Total
2012
$m
5
–
2
1 Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85).
There were no other transactions with key management personnel during the years ended 31 December 2014, 2013 or 2012.
Key management personnel comprises the Board and Executive Committee.
Related party disclosures for associates and joint ventures are as follows:
Revenue from associates and joint ventures
Loans to associates
Other amounts owed by associates and
joint ventures
2014
$m
4
3
11
Associates
2013
$m
2012
$m
Joint ventures
2014
$m
2013
$m
2012
$m
4
–
2
5
–
2
–
–
–
–
–
–
–
–
–
2014
$m
4
3
11
2013
$m
4
–
2
In addition, loans both to and from the Barclay associate of $237m are offset in accordance with the provisions of IAS 32 and presented
net in the Group statement of financial position. Interest payable and receivable under the loans is equivalent (average interest rate of
1.8% in 2014) and presented net in the Group income statement.
32. 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 IHG Rewards Club 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 112 of the Financial Statements.
The following information is relevant to the operation of the Fund:
Income1:
Assessment fees and contributions received from hotels
Proceeds from sale of IHG Rewards Club points
Key elements of expenditure1:
Marketing
IHG Rewards Club
Payroll costs
Net (deficit)/surplus for the year1
Interest payable to the Fund
1 Not included in the Group income statement in accordance with the Group’s accounting policies.
The payroll costs above relate to 4,975 (2013 4,615, 2012 4,431) 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
2014
$m
2013
$m
2012
$m
1,271
196
1,154
153
1,106
144
267
296
267
(18)
2
2014
$m
68
725
793
245
219
239
35
2
2013
$m
86
649
735
250
250
221
12
2
2012
$m
51
623
674
The net change in the loyalty programme liability and Fund surplus contributed an inflow of $58m (2013 $61m, 2012 $57m) to the Group’s
cash flow from operations.
152
continuedNotes to the Group Financial Statements 33. Events after the reporting period
On 16 January 2015, the Group completed the acquisition of Kimpton Hotel & Restaurant Group, LLC (‘Kimpton’), an unlisted company
based in the US, for $430m paid in cash. Kimpton is the world’s largest independent boutique hotel operator which, together with IHG’s
Hotel Indigo and EVEN brands, creates a leading boutique and lifestyle hotel business.
The assets and liabilities acquired largely comprise intangible assets, being the Kimpton brand and management contracts, deferred tax
assets and goodwill. Due to the close proximity of the acquisition date to the date of these financial statements, the initial accounting for
the business combination is incomplete and the Group is unable to provide a quantification of the fair values of these assets. The fair value
exercise is ongoing and it is expected that the Group will include an acquisition balance sheet with its interim results for 2015.
Acquisition transaction costs of $7m were incurred in the year to 31 December 2014 (see note 5).
If the acquisition had taken place on 1 January 2014, it is estimated that Group revenue and Group EBITDA for the year ended
31 December 2014 would have been $37m and $20m higher respectively.
34. Principal operating subsidiary undertakings
InterContinental Hotels Group PLC was the beneficial owner of all of the equity share capital, indirectly through subsidiary undertakings,
of the following companies during the year:
Six Continents Limited1
IHG Hotels Limited1
Six Continents Hotels, Inc.2
Inter-Continental Hotels Corporation2
InterContinental Hotels Group Resources, Inc.2
InterContinental Hong Kong Limited3
Société Nouvelle du Grand Hotel SA4
The companies listed above include those which principally affect the amount of profit and assets of the Group.
1
2
3
4
Incorporated in Great Britain and registered in England and Wales.
Incorporated in the US.
Incorporated in Hong Kong.
Incorporated in France.
153
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Parent Company Financial Statements
156 Parent company balance sheet
157
Notes to the Parent Company Financial Statements
Stay
‘Guest Journey’ – Step four
• The Stay phase of the ‘Guest Journey’
is where we welcome guests to our
hotels and deliver our brand promise
through our talented people.
• This step includes the arrival and
departure of our guests, as well as
the stay in the hotel room itself; its
public areas; food and beverage;
and guest services.
Page 154: Crowne Plaza London – The City, UK
Page 155: Hotel Indigo Paris – Opera, France
154
155
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Parent Company Financial Statements
Parent company balance sheet
31 December 2014
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
Paul Edgecliffe-Johnson
16 February 2015
Note
2014
£m
2013
£m
3
4
5
5
6
7
7
7
7
2,985
2,968
23
(1,133)
(1,110)
1,875
(646)
1,229
39
75
7
218
890
1,229
28
(484)
(456)
2,512
(645)
1,867
39
75
7
201
1,545
1,867
No profit and loss account is presented for InterContinental Hotels Group PLC as permitted by Section 408 of the Companies Act 2006.
Loss on ordinary activities after taxation amounts to £34m (2013 profit £1,487m).
Notes on pages 157 to 159 form an integral part of these Financial Statements.
156
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 26 of the Group Financial Statements on pages 146 to 148.
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 20 of the Group Financial Statements on pages 135 and 136.
Capital risk management
The Group’s capital risk management policy is set out in note 20 of the Group Financial Statements on page 136.
Related party transactions
The Company takes advantage of the exemption under FRS 8 and does not disclose transactions with wholly owned subsidiaries.
Treasury shares
Own shares repurchased by the Company and not cancelled (treasury shares) are recognised at cost and deducted from retained
earnings. If reissued, any excess of consideration over carrying amount is recognised in the share premium reserve.
2. Directors
Number of Directors
Directors’ emoluments¹
Base salaries, fees, performance payments and benefits
Pension benefits under defined contribution plan
¹ Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85).
2014
13
2013
13
2014
£m
2013
£m
5.5
0.1
5.5
0.2
Detailed information on the emoluments, pensions, option holdings and shareholdings for each Director is shown in the Directors’
Remuneration Report on pages 76 to 91.
3. Investments
At 1 January 2014
Share-based payments capital contribution
At 31 December 2014
The Company is the beneficial owner of all of the equity share capital of InterContinental Hotels Limited. The principal operating
subsidiary undertakings of that company are listed in note 34 of the Group Financial Statements.
£m
2,968
17
2,985
157
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
4. Debtors
Amounts due from subsidiary undertakings
Corporate taxation
5. Creditors
Amounts falling due within one year
Bank overdraft
Amounts due to subsidiary undertakings
Amounts falling due after more than one year
£250m 6% bonds 2016
£400m 3.875% bonds 2022
2014
£m
8
15
23
2013
£m
14
14
28
2014
£m
2013
£m
1
1,132
1,133
250
396
646
–
484
484
250
395
645
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 2014 (ordinary shares of 14194⁄ 329p each)
Share capital consolidation
Repurchased and cancelled under repurchase programme
At 31 December 2014 (ordinary shares of 15265⁄329p each)
Number
of shares
millions
269
(20)
(1)
248
£m
39
–
–
39
Under the authority granted by shareholders at the General Meeting (GM) held on 8 October 2012, the share repurchase programme
commenced in November 2012. 3.4m shares were repurchased in the year to 31 December 2014 for a total consideration of £67m.
The authority given to the Company at the GM held on 30 June 2014 to purchase its own shares was still valid at 31 December 2014.
A resolution to renew the authority will be put to shareholders at the Annual General Meeting (AGM) on 8 May 2015.
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 £nil (2013 £3m).
Further details of the share capital consolidation are set out in note 27 of the Group Financial Statements on page 149.
Options to subscribe for ordinary shares
At 1 January 2014
Exercised1
At 31 December 2014
Option exercise price per ordinary share (pence)
1 The weighted average option price was 541.3p for shares exercised under the Executive Share Option Plan.
Thousands
60
(60)
–
494.2–619.8
158
continuedNotes to the Parent Company Financial Statements 1,545
–
(67)
(34)
(1)
–
(553)
890
2013
£m
1,487
(342)
1,145
3
(181)
–
17
984
883
1,867
7. Movements in reserves
At 1 January 2014
Premium on allotment of ordinary shares
Repurchase of shares
Loss after tax
Transaction costs relating to shareholder returns
Share-based payments capital contribution
Dividends
At 31 December 2014
Share
premium
account
£m
Capital
redemption
reserve
£m
Share-based
payments
reserve
£m
Profit and
loss account
£m
75
–
–
–
–
–
–
75
7
–
–
–
–
–
–
7
201
–
–
–
–
17
–
218
At 31 December 2014, 11,538,456 shares with a nominal value of £1,823,707 were held as treasury shares at cost.
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
9. Profit and dividends
2014
£m
(34)
(553)
(587)
–
(67)
(1)
17
(638)
1,867
1,229
Loss on ordinary activities after tax amounts to £34m (2013 profit £1,487m).
A final dividend, declared in the previous year, of 28.1p (2013 27.7p) per share was paid during the year, amounting to £72m (2013 £74m).
An interim dividend of 14.8p (2013 15.1p) per share was paid during the year, amounting to £35m (2013 £40m). A special interim dividend
of 174.9p (2013 87.1p) per share was paid during the year, amounting to £446m (2013 £228m). A final dividend of 33.8p (2013 28.1p) per
share, amounting to £79m (2013 £72m), is proposed for approval at the AGM. The proposed final dividend is payable on shares in issue
at 7 April 2015.
The audit fee of £0.02m (2013 £0.02m) was borne by a subsidiary undertaking in both years.
10. Contingencies
Contingent liabilities of £231m (2013 £nil) in respect of the guarantees of the liabilities of subsidiaries have not been provided for in these
financial statements.
On 16 January 2015, the Company entered into a further guarantee of £256m in relation to a loan drawn down by a subsidiary to finance
the acquisition of Kimpton Hotel & Restaurant Group, LLC (see note 33 to the Group Financial Statements).
159
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Additional Information
History and developments
Risk factors
Executive Committee members’ shareholdings
Description of securities other than equity securities
Articles of Association
Working Time Regulations 1998
Material contracts
Legal proceedings
Group information
162
162
162
166
166
167
169
169
170
171 Shareholder information
171
171
173
173
174
176
176
177
177
178
179 Useful information
179
180
180
181
182
184
186
Investor information
Financial calendar
Contacts
Exhibits
Form 20-F cross-reference guide
Glossary
Forward-looking statements
Exchange controls and restrictions on payment of dividends
Taxation
Disclosure controls and procedures
Summary of significant corporate governance differences from NYSE listing standards
Selected five-year consolidated financial information
Return of funds
Purchases of equity securities by the Company and affiliated purchasers
Share price information
Dividend history
Shareholder profiles
Share
‘Guest Journey’ – Step five
The Share phase of the ‘Guest Journey’
is when our guests share feedback about
their experience, for example via social
networks and directly with IHG and
our hotels.
Page 160: Cypress, A Kimpton Hotel, Cupertino, California, US
Page 161: Hotel Indigo New Orleans Garden District, Louisiana, US
160
161
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
History and developments
The Company was incorporated and registered in England and
Wales with registered number 5134420 on 21 May 2004 as a limited
company under the Companies Act 1985 with the name Hackremco
(No. 2154) Limited. In 2004/05, as part of a scheme of arrangement
to facilitate the return of capital to shareholders, the following
structural changes were made to the Group: (i) on 24 March 2005,
Hackremco (No. 2154) Limited changed its name to New
InterContinental Hotels Group Limited; (ii) on 27 April 2005, New
InterContinental Hotels Group Limited re-registered as a public
limited company and changed its name to New InterContinental
Hotels Group PLC; and (iii) on 27 June 2005, New InterContinental
Hotels Group PLC changed its name to InterContinental Hotels
Group PLC and became the holding company of the Group.
The Group, formerly known as Bass and, more recently, Six
Continents, was historically a conglomerate operating as, among
other things, a brewer, soft drinks manufacturer, hotelier, leisure
operator, and restaurant, pub and bar owner. In the last several
years, the Group has undergone a major transformation in its
operations and organisation, as a result of the separation (as
discussed below) and a number of significant disposals during
this period, which has narrowed the scope of its business.
On 15 April 2003, following shareholder and regulatory approval,
Six Continents PLC (as it then was) separated into two new listed
groups, InterContinental Hotels Group PLC (as it then was),
comprising the hotels and soft drinks businesses, and Mitchells
& Butlers plc, comprising the retail and standard commercial
property developments business.
The Group disposed of its interests in the soft drinks business
by way of an initial public offering of Britvic (Britannia Soft Drinks
Limited for the period up to 18 November 2005, and thereafter,
Britannia SD Holdings Limited (renamed Britvic plc on 21 November
2005), which became the holding company of the Britvic Group on
18 November 2005), a manufacturer and distributor of soft drinks
in the UK, in December 2005.
Following separation, the Group has undertaken an asset-disposal
programme, realising, by the end of 2014, proceeds of $6.0 billion.
This programme has significantly reduced the capital requirements
of the Group whilst largely retaining the hotels in the IHG System.
A small number of hotels have been sold since the end of 2013,
the most significant of which are set out below.
Recent acquisitions and divestitures
• The Group disposed of InterContinental Mark Hopkins
San Francisco on 27 March 2014 for $120 million;
• the Group completed its disposal of 80 per cent of its interest
in InterContinental New York Barclay on 31 March 2014 for
$274 million (the Group continues to hold the remaining
20 per cent interest by way of a joint venture);
• the Group agreed to sell its 100 per cent interest in
InterContinental Paris – Le Grand on 7 December 2014
for €330 million;
• the Group agreed to acquire Kimpton Hotels & Restaurants
for $430 million on 15 December 2014, and the transaction
was completed on 16 January 2015; and
• the Group also divested a number of investments for total
proceeds of $16 million in 2014.
Capital expenditure
• Capital expenditure in 2014 totalled $271 million compared
with $269 million in 2013 and $133 million in 2012;
• at 31 December 2014, capital committed, being contracts placed
for expenditure on property, plant and equipment, and intangible
assets not provided for in the Group Financial Statements,
totalled $117 million; and
• the Group has also committed to invest in a number of its
associates, with an estimated outstanding commitment of
$89 million, based on current forecasts.
Risk factors
Strategic risks
The Group is subject to a variety of inherent risks that may
have an adverse impact on its business operations, financial
condition, turnover, profits, brands and reputation. This 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 the Group
and some that the Group does not currently believe to be
material could later turn out to be material.
The risk factors below are listed in accordance with the
strategic, tactical and operational risk framework explained
on page 27. Although the Group has classified each risk under
a single aspect of the framework, some risks relate to multiple
aspects and accordingly should be read in the context of the
whole framework. The risk factors should also be considered
in connection with any financial and forward-looking
information in this Annual Report and Form 20-F and the
cautionary statements regarding forward-looking statements
on page 186.
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 and
availability of credit and currency fluctuations that could lower
revenues and reduce income. The outlook for 2015 may worsen
due to uncertainty in the Eurozone, impact of declining
commodity prices on economies dependent on such exports
and continued unrest in Russia, Ukraine, and parts of the
Middle East and Africa. The interconnected nature of
economies suggests any of these or other events could trigger
a recession that 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 that
could adversely impact their solvency and the Group’s ability
162
Group information to retain and secure franchise or management agreements.
Specifically, the Group is most exposed to the US market and,
increasingly, to Greater China.
Accordingly, the Group is particularly susceptible to adverse
changes in these economies as well as changes in their
currencies. 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.
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 or threats
thereof, 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 specific countries, cities or 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 planning,
preparation, response or recovery in relation to a major
incident or crisis may cause loss of life, prevent operational
continuity, or result in financial loss and consequently impact
the value of the 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. These conditions could result
in reductions in room rates and occupancy levels, which would
adversely impact the financial performance of the Group.
The Group is subject to a competitive and changing industry
The Group operates in a competitive industry and must
compete effectively against traditional competitors such
as other global hotel chains, local hotel companies and
independent hotels to win the loyalty of guests, employees
and owners. The competitive landscape also includes other
types of businesses, such as web-based booking channels
(which include online travel agents and intermediaries), and
alternative sources of accommodation such as short-term
lets of private property. In order to grow and maintain its
competitiveness, the Group may consider undertaking strategic
transactions, including acquisitions. Failure to compete
effectively in traditional and emerging areas of the business
could impact the Group’s market share, System size,
profitability and relationships with owners and guests.
The Group is exposed to risks related to executing
and realising benefits from strategic transactions,
including acquisitions
The Group announced the acquisition of Kimpton Hotels &
Restaurants in December 2014 and may seek to make other
strategic transactions, including acquisitions, in the future.
The Group may not be able to identify opportunities or complete
transactions on commercially reasonable terms or at all and
may not realise the anticipated benefits from such transactions.
Strategic transactions come with inherent valuation, financial
and commercial risks, and regulatory and insider information
risks during the execution of the transactions. In addition, the
Group may face unforeseen costs and liabilities, divergence of
management attention, as well as longer-term integration and
operational risks, which could result in failure to realise benefits,
financial losses, fall in employee morale and loss of talent.
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, online travel agents, third-party intermediaries
and other business partners which may have different ethical
values, interests and priorities. Further, the number and
complexity of interdependencies with stakeholders is evolving.
Breakdowns in relationships, contractual disputes, poor vendor
performance, insolvency, stakeholder behaviours or adverse
reputations, which may be outside of the Group’s control,
could adversely impact on the Group’s performance and
competitiveness, delivery of projects, guest experiences
or the reputation of the Group or its brands.
The Group is exposed to increasing competition from online
travel agents and intermediaries
A proportion of the Group’s bookings originate from large
multinational, regional and local online travel agents and
intermediaries with which the Group has contractual
arrangements and to which it pays commissions. These
websites offer a wide breadth of products, often across multiple
brands, have growing booking and review capabilities, and may
create the perception that they offer the lowest prices. Some of
these online travel agents and intermediaries have strong
marketing budgets and aim to create brand awareness and
brand loyalty among consumers and may seek to commoditise
hotel brands through price and attribute comparison. Further,
if these companies continue to gain market share, they will
impact the Group’s profitability, undermine the Group’s own
booking channels and value to its hotel owners and may be able
to increase commission rates and negotiate other favourable
contract terms.
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.
163
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
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 the overall
IHG System size and the Group’s financial performance.
The Group is exposed to inherent risks in relation to changing
technology and systems
As the use of internet and mobile technology grows and
customer needs evolve at pace, the Group may find that its
evolving technology capability is not sufficient and may have
to make substantial additional investments in new technologies
or systems to remain competitive. Failure to keep pace with
developments in technologies or systems may put the Group
at a competitive disadvantage. In addition, the technologies
or systems that the Group chooses to deploy may not be
commercially successful or the technology or system strategy
may not be sufficiently aligned with the needs of the business.
As a result, this could adversely affect guest experiences, and
the Group may lose customers, fail to attract new customers,
incur substantial costs or face other losses. This could further
impact the Group’s reputation in regards to innovation.
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, strategic acquisitions 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 Group’s 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.
or proceedings could have a material adverse 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.
Operational risks
The Group is reliant on the reputation of its brands and
exposed to inherent reputation risks, including those
associated with intellectual property
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 and owners may have an adverse impact
on the value of that brand and subsequent revenues from that
brand or business. In particular, if the Group is unable to create
consistent, valued, and quality products and guest experiences
across the owned, managed and franchised estates, or if
the Group, its franchisees or business partners fail to act
responsibly, this could result in an adverse impact on its brand
reputation. In addition, the value of the Group’s brands could
be influenced by a number of external factors outside the
Group’s control, such as, but not limited to, changes in
sentiments against global brands, changes in applicable
regulations related to the hotel industry or to franchising,
successful commoditisation of hotel brands by online travel
agents and intermediaries, or changes in owners’ perceptions
of the value of the Group. Furthermore, 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
changes in 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 Group is reliant upon the resilience of its reservations
system and other key technology platforms and is exposed
to risks that could cause the failure of these systems
The value of the Group is partly derived from the ability to drive
reservations through its reservations system and technology
platforms which are highly integrated with internal processes
and linked to multiple sales channels, including the Group’s
own websites, call centres, hotels, third-party intermediaries
and travel agents.
Lack of resilience and operational availability of these
systems provided by the Group or third-party technology
providers could lead to prolonged service disruption and might
result in significant business interruption, impact the guest
booking experience and subsequently adversely impact
Group revenues.
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 claims made by many parties, including
but not limited to: guests, customers, joint-venture partners,
suppliers, employees, regulatory authorities, franchisees
and/or the owners of the hotels it manages. Claims filed in
the US may include requests for punitive damages as well as
compensatory damages. Unfavourable outcomes of claims
The Group is exposed to the risks related to information
security and data privacy
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; and business performance, financial reporting
and commercial development. The information is sometimes
held in different formats such as digital, paper, voice recordings
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, and include
164
continuedGroup information 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 reputational damage.
The Group is exposed to risks related to ethics and responsible
business practices
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 guests, owners, suppliers and
communities in which the Group operates. The social and
environmental impacts of its business are under increasing
scrutiny, and the Group is exposed to the risk of damage to
its reputation if it fails to (or fails to influence its business
partners to) undertake responsible practices and engage
in ethical behaviour, or fails to comply with relevant
regulatory requirements.
The Group may face difficulties insuring its business
Historically, the Group has maintained insurance at levels
determined to be appropriate in light of the cost of cover and the
risk profile of the business. 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.
cyber attacks, fraudulent use, loss or misuse by employees
and breaches of our vendors’ security arrangements amongst
others. The legal and regulatory environment around data
privacy and requirements set out by the payment card industry
surrounding information security 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 appropriate use
and release of information through the appropriate channels
in a timely and accurate manner, IHG System performance,
guest experience and the reputation of the Group may be
adversely affected. This can lead to revenue losses, fines,
penalties, legal fees and other additional costs.
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, pandemics, 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 reputational damage.
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 a 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
Government regulations affect countless aspects of the Group’s
business ranging from corporate governance, health and safety,
the environment, bribery and corruption, employment law and
diversity, disability access, 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 Group’s strategy, including the markets the
165
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Executive Committee members’ shareholdings
Shares held by Executive Committee members (excluding the Executive Directors) as at 31 December
Executive
Committee
member
Keith Barr
Angela Brav
Kenneth
Macpherson
Eric Pearson
Jan Smits
George Turner
Number of shares held outright
APP deferred share awards
LTIP share awards (unvested)
Total number of shares held
2014
22,522
32,724
7,472
1,998
30,476
0
2013
24,399
19,286
1,797
65,293
106,350
3,277
2014
29,829
24,473
8,330
25,021
32,037
30,896
2013
27,695
22,501
8,421
22,356
28,738
35,893
2014
106,630
97,462
64,713
102,940
104,445
95,399
2013
111,079
99,650
41,654
103,553
116,234
106,100
2014
158,981
154,659
2013
163,173
141,437
80,515
51,872
129,959
166,958
126,295
191,202
251,322
145,270
Details of the shares held by the Executive Directors can be found on page 74. These shareholdings include all beneficial interests and
those held by Executive Committee members’ spouses and other connected persons.
For further details on the APP deferred share award and for the LTIP share award, see pages 80 and 82 to 85.
Description of securities other than equity securities
Fees and charges payable to a depositary
Category (as defined by SEC) Depositary actions
Associated fee
(a) Depositing or substituting
the underlying shares
Each person to whom ADRs are issued against deposits
of shares, including deposits and issuances in respect of:
$5 for each 100 ADSs (or portion thereof)
• share distributions, stock split, rights, merger; and
• exchange of securities or any other transactions or event
or other distribution affecting the ADSs or the deposited
securities
(b) Receiving or distributing
Distribution of stock dividends
dividends
(c) Selling or exercising
rights
Distribution of cash
Distribution or sale of securities, the fee being in an amount
equal to the fee for the execution and delivery of ADSs which
would have been charged as a result of the deposit of such
securities
$5 for each 100 ADSs (or portion thereof)
$0.02 or less per ADS (or portion thereof)
$5 for each 100 ADSs (or portion thereof)
(d) Withdrawing an
underlying security
Acceptance of ADRs surrendered for withdrawal of deposited
securities
$5 for each 100 ADSs (or portion thereof)
Transfers, combining or grouping of depositary receipts
$1.50 per ADS
(e) Transferring, splitting
or grouping receipts
(f) General depositary
services, particularly
those charged on an
annual basis
Other services performed by the depositary in administering
the ADRs
$0.02 per ADS (or portion thereof)1 not more
than once each calendar year and payable at the
sole discretion of the ADR Depositary by billing
ADR holders or by deducting such charge from
one or more cash dividends or other cash
distributions
Expenses payable at the sole discretion of
the Depositary by billing ADR holders or by
deducting charges from one or more cash
dividends or other cash distributions are
$20 per transaction
(g) Expenses of the
Expenses incurred on behalf of ADR holders in connection with:
depositary
•
•
compliance with foreign exchange control regulations
or any law or regulation relating to foreign investment;
the ADR Depositary’s or its custodian’s compliance with
applicable law, rule or regulation;
• stock transfer or other taxes and other governmental
•
•
charges;
cable, telex, facsimile transmission/delivery;
transfer or registration fees in connection with the deposit
and withdrawal of deposited securities;
• expenses of the ADR Depositary in connection with the
conversion of foreign currency into US dollars (which
are paid out of such foreign currency); and
• any other charge payable by the ADR Depositary
or its agents
1 These fees are not currently being charged by the ADR Depositary.
166
continuedGroup information Fees and charges payable by a depositary
Direct payments
JPMorgan Chase Bank N.A. (JPMorgan or the ADR Depositary)
is the depositary for IHG’s ADR Programme. The ADR Depositary’s
principal executive office is at: J.P. Morgan Depositary Receipts,
4 New York Plaza, 12th Floor, New York, NY 10004 United States
of America. The ADR Depositary has agreed to reimburse certain
reasonable Company expenses related to the Company’s ADR
Programme and incurred by the Company in connection with the
ADR Programme. During the year ended 31 December 2014, the
Company received $490,478.87 from the ADR Depositary in
respect of legal, accounting and other fees incurred in connection
with preparation of the Annual Report and Form 20-F, ongoing
SEC compliance and listing requirements, investor relations
programmes, and advertising and public relations expenditure.
Indirect payments
As part of its service to the Company, the ADR Depositary has
agreed to waive fees for the standard costs associated with
the administration of the ADR Programme, associated operating
expenses and investor relations advice. In the year ended
31 December 2014, the ADR Depositary agreed to waive fees
and expenses amounting to $20,000.
Articles of Association
The Company’s articles of association (the Articles) were adopted
at the AGM held on 28 May 2010 and are available on the Company’s
website at www.ihgplc.com/investors under corporate governance.
The following summarises material rights of holders of the
Company’s ordinary shares under the material provisions
of the Articles and English law. This summary is qualified in
its entirety by reference to the Companies Act and the Articles.
The Company’s shares may be held in certificated or uncertificated
form. No holder of the Company’s shares will be required to make
additional contributions of capital in respect of the Company’s
shares in the future.
In the following description, a ‘shareholder’ is the person
registered in the Company’s register of members as the holder
of the relevant share.
Principal objects
The Company is incorporated under the name InterContinental
Hotels Group PLC and is registered in England and Wales with
registered number 5134420. The Articles do not restrict its
objects or purposes.
Directors
Under the Articles, a Director may have an interest in certain
matters (Permitted Interest) without the prior approval of the
Board provided he has declared the nature and extent of such
Permitted Interest at a meeting of the Directors or in the manner
set out in Section 184 or Section 185 of the Companies Act.
Any matter which does not comprise a Permitted Interest must
be authorised by the Board in accordance with the procedure and
requirements contained in the Articles, including the requirement
that a Director may not vote on a resolution to authorise a matter
in which he is interested, nor may he count in the quorum of the
meeting at which such business is transacted.
Further, a Director may not vote in respect of any proposal in
which he, or any person connected with him, has any material
interest other than by virtue of his interests in securities of, or
otherwise in or through, the Company, nor may he count in the
quorum of the meeting at which such business is transacted.
This is subject to certain exceptions, including in relation to
proposals: (a) indemnifying him in respect of obligations incurred
on behalf of the Company; (b) indemnifying a third party in respect
of obligations of the Company for which the Director has assumed
responsibility under an indemnity or guarantee; (c) relating to an
offer of securities in which he will be interested as an underwriter;
(d) concerning another body corporate in which the Director is
beneficially interested in less than one per cent of the issued
shares of any class of shares of such a body corporate; (e) relating
to an employee benefit in which the Director will share equally
with other employees; and (f) relating to liability insurance that
the Company is empowered to purchase for the benefit of
Directors of the Company in respect of actions undertaken
as Directors (or officers) of the Company.
The Directors have authority under the Articles to set their
own remuneration (provided certain criteria is met). While an
agreement to award remuneration to a Director is an arrangement
with the Company that comprises a Permitted Interest (and
therefore does not require authorisation by the Board in that
respect), it is nevertheless a matter that would be expected to give
rise to a conflict of interest between the Director concerned and
the Company, and such conflict must be authorised by a resolution
of the Board. The Director that is interested in such matter may
neither vote on the resolution to authorise such conflict, nor count
in the quorum of the meeting at which it was passed. Furthermore,
as noted above, the interested Director is not permitted to vote in
respect of any proposal in which he has any material interest
(except in respect of the limited exceptions outlined above) nor
may he count in the quorum of the meeting at which such
business is transacted.
As such, a Director has no power, in the absence of an independent
quorum, to vote on compensation to himself, but may vote on a
resolution (and may count in the quorum of the meeting at which
it was passed) to award compensation to Directors provided those
arrangements do not confer a benefit on him.
The Directors are empowered to exercise all the powers of the
Company to borrow money, subject to the limitation that the
aggregate amount of all monies borrowed by the Company and
its subsidiaries shall not exceed an amount equal to three times
the Company’s share capital and consolidated reserves, unless
sanctioned by an ordinary resolution of the Company.
Under the Articles, there are no age-limit requirements relating to
a person’s qualification to hold office as a Director of the Company.
Directors are not required to hold any shares of the Company
by way of qualification.
Rights attaching to shares
Dividend rights and rights to share in the Company’s profits
Under English law, dividends are payable on the Company’s
ordinary shares only out of profits available for distribution, as
determined in accordance with accounting principles generally
accepted in the UK and by the Companies Act. No dividend will
bear interest as against the Company.
167
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Holders of the Company’s ordinary shares are entitled to receive
such dividends as may be declared by the shareholders in general
meeting, rateably according to the amounts paid up on such
shares, provided that the dividend cannot exceed the amount
recommended by the Directors.
The Company’s Board of Directors may declare and pay to
shareholders such interim dividends as appear to them to be
justified by the Company’s financial position. If authorised by an
ordinary resolution of the shareholders, the Board of Directors
may also direct payment of a dividend in whole or in part by the
distribution of specific assets (and in particular of paid-up
shares or debentures of any other company).
Any dividend unclaimed by a member (or by a person entitled by
virtue of transmission on death or bankruptcy or otherwise by
operation of law) after six years from the date the dividend was
declared, or became due for payment, will be forfeited and will
revert to the Company.
Voting rights
The holders of ordinary shares are entitled, in respect of their
holdings of such shares, to receive notice of general meetings
and to attend, speak and vote at such meetings in accordance
with the Articles.
Voting at any general meeting of shareholders is by a show of
hands unless a poll, which is a written vote, is duly demanded.
On a show of hands, every shareholder who is present in person
or by proxy at a general meeting has one vote regardless of the
number of shares held. On a poll, every shareholder who is
present in person or by proxy has one vote for every share held by
that shareholder. A poll may be demanded by any of the following:
• the chairman of the meeting;
• at least five shareholders present in person or by proxy and
entitled to vote at the meeting;
• any shareholder or shareholders present in person or by proxy
representing in the aggregate not less than one-tenth of the total
voting rights of all shareholders entitled to vote at the meeting; or
• any shareholder or shareholders present in person or by proxy
holding shares conferring a right to vote at the meeting and on
which there have been paid up sums in the aggregate at least
equal to one-tenth of the total sum paid up on all the shares
conferring that right.
A proxy form will be treated as giving the proxy the authority to
demand a poll, or to join others in demanding one.
The necessary quorum for a general meeting is three persons
carrying a right to vote upon the business to be transacted,
whether present in person or by proxy.
Matters are transacted at general meetings of the Company by the
proposing and passing of resolutions, of which there are two kinds:
• an ordinary resolution, which includes resolutions for the
election of Directors, the approval of financial statements,
the cumulative annual payment of dividends, the appointment
of the auditor, the increase of authorised share capital or the
grant of authority to allot shares; and
• a special resolution, which includes resolutions amending
the Articles, disapplying statutory pre-emption rights,
modifying the rights of any class of the Company’s shares
at a meeting of the holders of such class or relating to certain
matters concerning the Company’s winding up or changing
the Company’s name.
168
An ordinary resolution requires the affirmative vote of a majority
of the votes of those persons present and entitled to vote at a
meeting at which there is a quorum.
Special resolutions require the affirmative vote of not less than
three quarters of the persons present and entitled to vote at a
meeting at which there is a quorum.
AGMs must be convened upon advance written notice of 21 days.
Subject to law, other meetings must be convened upon advance
written notice of 14 days. The days of delivery or receipt of the
notice are not included. The notice must specify the nature of
the business to be transacted. The Board of Directors may, if they
choose, make arrangements for shareholders who are unable to
attend the place of the meeting to participate at other places.
The Articles specify that each Director shall retire every three
years at the AGM and, unless otherwise decided by the Directors,
shall be eligible for re-election. However, the Code recommends
that all directors of FTSE 350 companies submit themselves for
election or re-election (as appropriate) by shareholders every
year. Therefore, all Directors will retire and offer themselves
for election or re-election at the 2015 AGM.
Variation of rights
If, at any time, the Company’s share capital is divided into different
classes of shares, the rights attached to any class may be varied,
subject to the provisions of the Companies Act, with the consent in
writing of holders of three-quarters in nominal value of the issued
shares of that class or upon the adoption of a special resolution
passed at a separate meeting of the holders of the shares of that
class. At every such separate meeting, all of the provisions of the
Articles relating to proceedings at a general meeting apply, except
that the quorum is to be the number of persons (which must be
two or more) who hold or represent by proxy not less than
one-third in nominal value of the issued shares of that class.
Rights in a winding-up
Except as the Company’s shareholders have agreed or may
otherwise agree, upon the Company’s winding up, the balance
of assets available for distribution:
• after the payment of all creditors including certain preferential
creditors, whether statutorily preferred creditors or normal
creditors; and
• subject to any special rights attaching to any class of shares,
is to be distributed among the holders of ordinary shares
according to the amounts paid up on the shares held by them.
This distribution is generally to be made in cash. A liquidator
may, however, upon the adoption of a special resolution of the
shareholders, divide among the shareholders the whole or
any part of the Company’s assets in kind.
Limitations on voting and shareholding
There are no limitations imposed by English law or the Articles
on the right of non-residents or foreign persons to hold or vote
the Company’s ordinary shares or ADSs, other than the limitations
that would generally apply to all of the Company’s shareholders.
continuedGroup information Working Time Regulations 1998
Under EU law, many employees of Group companies are now
covered by the Working Time Regulations which came into force
in the UK on 1 October 1998. These regulations implemented the
European Working Time Directive and parts of the Young Workers
Directive, and lay down rights and protections for employees in
areas such as maximum working hours, minimum rest time,
minimum days off and paid leave.
In the UK, there is in place a national minimum wage under the
National Minimum Wage Act. At 31 December 2014, the minimum
wage for individuals between 18 and under the age of 21 was
£5.13 per hour and £6.50 per hour for individuals age 21 and
above (in each case, excluding apprentices aged under 19 years
or, otherwise, in the first year of their apprenticeships). This
particularly impacts businesses in the hospitality and retailing
sectors. Compliance with the National Minimum Wage Act is being
monitored by the Low Pay Commission, an independent statutory
body established by the UK government.
Less than five per cent of the Group’s UK employees are covered
by collective bargaining agreements with trade unions.
Continual attention is paid to the external market in order to ensure
that terms of employment are appropriate. The Group believes the
Group companies will be able to conduct their relationships with
trade unions and employees in a satisfactory manner.
Material contracts
The following contracts have been entered into otherwise than
in the course of ordinary business by members of the Group:
(i) in the two years immediately preceding the date of this
document in the case of contracts which are or may be material;
or (ii) that contain provisions under which any Group member has
any obligation or entitlement that is material to the Group
as at the date of this document. To the extent that these
agreements include representations, warranties and indemnities,
such provisions are considered standard in an agreement of that
nature, save to the extent identified below.
Disposal of 80 per cent interest in InterContinental
New York Barclay
On 19 December 2013, Constellation Barclay Holding US, LLC,
which is an affiliate of Constellation Hotels Holding Limited,
agreed to acquire, pursuant to a contribution agreement, an
80 per cent interest in a joint venture with IHG’s affiliates to own
and refurbish the InterContinental New York Barclay hotel. The
80 per cent interest was acquired for gross cash proceeds of
$274 million. IHG’s affiliates hold the remaining 20 per cent
interest. The disposal was completed on 31 March 2014.
IHG’s management affiliate has also secured a 30-year
management contract on the hotel, which commenced in 2014,
with two 10-year extension rights at IHG’s discretion, giving an
expected contract length of 50 years.
Constellation Barclay Holding US, LLC and IHG’s affiliates
have agreed to invest through the joint venture in a significant
refurbishment, repositioning and extension of the hotel.
This commenced in 2014 and will take place over a period
of approximately 18 months.
Under the contribution agreement, IHG’s affiliates gave certain
customary warranties and indemnities to Constellation Barclay
Holding US, LLC.
Disposal of interest in InterContinental Paris –
Le Grand
On 7 December 2014, a share sale and purchase agreement was
entered into between BHR Holdings BV (part of IHG) and
Constellation Hotels France Grand SA. Under the agreement, BHR
Holdings BV agreed to sell its 100 per cent interest in Société Des
Hotels InterContinental France, the owner of InterContinental
Paris – Le Grand, to Constellation Hotels France Grand SA. The
gross sale proceeds agreed are €330 million in cash.
In connection with the sale, IHG secured a 30-year management
contract on the hotel, with three 10-year extension rights at IHG’s
discretion, giving an expected contract length of 60 years.
Under the agreement, BHR Holdings BV gave certain customary
warranties and indemnities to Constellation Hotels France
Grand SA.
Acquisition of the Kimpton Hotels & Restaurants
business
On 15 December 2014, a share sale and purchase agreement
was entered into between Kimpton Group Holding LLC and
Dunwoody Operations, Inc., an affiliate of IHG. Under the
agreement, Dunwoody Operations, Inc. agreed to buy a 100 per
cent interest in Kimpton Hotel & Restaurant Group, LLC, the
principal trading company of the Kimpton group, from Kimpton
Group Holding LLC. The purchase completed on 16 January 2015.
Under the agreement, Dunwoody Operations, Inc. gave certain
customary warranties and indemnities to the seller.
The purchase price payable by Dunwoody Operations, Inc. in
respect of the acquisition was $430 million paid in cash.
£750 Million Euro Medium Term Note Programme
In 2012, the Group updated its Euro Medium Term Note
programme (Programme) and issued a tranche of £400 million
3.875% notes due 28 November 2022.
On 9 November 2012, an amended and restated trust deed (Trust
Deed) was executed by InterContinental Hotels Group PLC as
issuer (Issuer), Six Continents Limited and InterContinental Hotels
Limited as guarantors (Guarantors) and HSBC Corporate Trustee
Company (UK) Limited as trustee (Trustee), pursuant to which the
trust deed dated 29 November 2009, as supplemented by the first
supplemental trust deed dated 7 July 2011 between the same
parties relating to the Programme, was amended and restated.
Under the Trust Deed, the Issuer may issue notes (Notes)
unconditionally and irrevocably guaranteed by the Guarantors,
up to a maximum nominal amount from time to time outstanding
of £750 million (or its equivalent in other currencies). Notes are to
be issued in series (each a Series) in bearer form. Each Series may
comprise one or more tranches (each a Tranche) issued on different
issue dates. Each Tranche of Notes will be issued on the terms and
conditions set out in the updated base prospectus dated 9 November
2012 (Base Prospectus) as amended and/or supplemented by a
document setting out the final terms (Final Terms) of such Tranche
or in a separate prospectus specific to such Tranche.
Under the Trust Deed, each of the Issuer and the Guarantors
has given certain customary covenants in favour of the Trustee.
Final Terms were issued (pursuant to the previous base prospectus
dated 27 November 2009) on 9 December 2009 in respect of the
issue of a Tranche of £250 million 6% Notes due 9 December 2016
(2009 Issuance). Final Terms were issued pursuant to the Base
Prospectus on 26 November 2012 in respect of the issue of a
169
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Tranche of £400 million 3.875% Notes due 28 November 2022
(2012 Issuance).
The Final Terms issued under each of the 2009 Issuance and the
2012 Issuance provide that the holders of the Notes have the right
to repayment if the Notes: (a) become non-investment grade
within the period commencing on the date of announcement of a
change of control and ending 90 days after the change of control
(Change of Control Period) and are not subsequently, within the
Change of Control Period, reinstated to investment grade; (b) are
downgraded from a non-investment grade and are not reinstated
to its earlier credit rating or better within the Change of Control
Period; or (c) are not credit rated and do not become investment-
grade credit rated by the end of the Change of Control Period.
Further details of the Programme and the Notes are set out in the
Base Prospectus, a copy of which is available (as is a copy of each
of the Final Terms dated 7 December 2009 relating to the 2009
Issuance and the Final Terms dated 26 November 2012 relating to
the 2012 Issuance) on the Company’s website at www.ihgplc.com/
investors under financial library for 2009. The Notes issued
pursuant to the 2009 Issuance and the Notes issued pursuant
to the 2012 Issuance are referred to as ‘£250 million 6% bonds’
and the ‘£400 million 3.875% bonds’ respectively in the Group
Financial Statements.
On 27 November 2009, the Issuer and the Guarantors entered into
an agency agreement (Agency Agreement) with HSBC Bank plc
as principal paying agent and the Trustee, pursuant to which the
Issuer and the Guarantors appointed paying agents and calculation
agents in connection with the Programme and the Notes.
Under the Agency Agreement, each of the Issuer and the
Guarantors has given a customary indemnity in favour of the
paying agents and the calculation agents. There was no change
to the Agency Agreement in 2011 or 2012.
On 9 November 2012, the Issuer and the Guarantors entered into
a dealer agreement (Dealer Agreement) with HSBC Bank plc as
arranger and Citigroup Global Markets Limited, HSBC Bank plc,
Lloyds TSB Bank plc, Merrill Lynch International, Mitsubishi UFJ
Securities International plc and The Royal Bank of Scotland plc
as dealers (Dealers), pursuant to which the Dealers were
appointed in connection with the Programme and the Notes.
Under the Dealer Agreement, each of the Issuer and the
Guarantors has given customary warranties and indemnities
in favour of the Dealers.
Syndicated Facility
On 7 November 2011, the Company signed a five-year $1.07
billion bank facility agreement with The Royal Bank of Scotland
plc, NB International Finance B.V., Citigroup Global Markets
Limited, HSBC Bank plc, Lloyds TSB Bank plc and The Bank of
Tokyo-Mitsubishi UFJ, Ltd., all acting as mandated lead arrangers
and Banc of America Securities Limited as facility agent
(Syndicated Facility).
The interest margin payable on borrowings under the Syndicated
Facility is linked to IHG’s consolidated net debt to consolidated
EBITDA ratio. The margin can vary between LIBOR + 0.90%
and LIBOR + 1.70% depending on the level of the ratio. At
31 December 2014, tranches in the sums of US$270m and
€75m had been drawn down under the Syndicated Facility.
$400 Million Term Loan Facility
On 13 January 2015, the Company signed a six-month $400 million
term loan facility agreement with Bank of America Merrill Lynch
International Limited as arranger, facility agent and lender. The
Company may elect to extend the repayment date by up to two
further periods of six months.
The interest margin payable on borrowings is LIBOR + 0.6%,
increasing to LIBOR + 0.8% and LIBOR +1.0% for the first and
second six-month extension periods respectively. The facility
was fully drawn at 16 February 2015.
Legal proceedings
Group companies have extensive operations in the UK, as well as
internationally, and are involved in a number of legal claims and
proceedings incidental to those operations. It is the Company’s view
that such proceedings, either individually or in the aggregate, have
not in the recent past and are not likely to have a significant effect
on the Group’s financial position or profitability. Notwithstanding
the above, the Company notes the matters set out below. Litigation
is inherently unpredictable and, as at 16 February 2015, the
outcome of these matters cannot be reasonably determined.
A claim was filed on 9 July 2013 by Pan-American Life
Insurance Company against Louisiana Acquisitions Corp. and
InterContinental Hotels Corporation (IHC). The claimant identified
eight causes of action: breach of contract; breach of partnership,
fiduciary duties and good faith obligations; fraud; civil conspiracy;
conversion; unfair trade practices; unjust enrichment; and alter
ego. As at 16 February 2015, the likelihood of a favourable or
unfavourable result cannot be reasonably determined and it is
not possible to determine whether any loss is probable or to
estimate the amount of any loss.
On 31 July 2012, the UK’s Office of Fair Trading (OFT) issued a
Statement of Objections alleging that the Company (together with
Booking.com B.V. and Expedia, Inc.) had infringed competition law
in relation to the online supply of room-only hotel accommodation
by online travel agents.
The Company has co-operated fully with the investigation. On
31 January 2014, the OFT announced its decision to accept a series
of commitments and to conclude its investigation without any
finding of infringement or wrongdoing, or the imposition of any fine.
On 26 September 2014, the Competition Appeal Tribunal allowed
an appeal brought by Skyscanner Limited and quashed the decision
to accept the commitments. The Competition and Markets
Authority (the OFT’s successor) has decided not to appeal the
judgment of the Competition Appeal Tribunal. As at 16 February
2015, the likelihood of a favourable or unfavourable result cannot
be reasonably determined and it is not possible to determine
whether any loss is probable or to estimate the amount of any loss.
A class-action claim was filed on 3 July 2012 by two claimants
alleging that InterContinental Hotels of San Francisco, Inc. and
InterContinental Hotels Group Resources, Inc. violated California
Penal Code 632.7, based upon the alleged improper recording of
cellular phone calls originating from California to IHG customer care
and reservations centres. The claimants subsequently amended the
claim to include Six Continents Hotels, Inc. We are currently involved
in settlement discussions with respect to this claim.
170
continuedGroup information Shareholder information
Exchange controls and restrictions
on payment of dividends
There are no restrictions on dividend payments to US citizens.
Although there are currently no UK foreign exchange control
restrictions on the export or import of the capital or the payment
of dividends on the ordinary shares or the ADSs, economic
sanctions which may be in force in the UK from time to time
impose restrictions on the payment of dividends to persons
resident (or treated as so resident) in or governments of (or
persons exercising public functions in) certain countries.
Other than economic sanctions which may be in force in the UK
from time to time, there are no restrictions under the Articles
or under English law that limit the right of non-resident or foreign
owners to hold or vote the ordinary shares or the ADSs. In addition,
the Articles contain certain limitations on the voting and other
rights of any holder of ordinary shares whose holding may, in the
opinion of the Directors, result in the loss or failure to secure the
reinstatement of any licence or franchise from any US governmental
agency held by Six Continents Hotels, Inc. or any subsidiary thereof.
Taxation
This section provides a summary of material US federal income
tax and UK tax consequences to the US holders, described below,
of owning and disposing of ordinary shares or ADSs of the
Company. This section addresses only the tax position of
a US holder who holds ordinary shares or ADSs as capital
assets. This section does not, however, discuss all of the tax
considerations that may be relevant to any particular US holder,
such as the provisions of the Internal Revenue Code of 1986,
as amended (IR Code) known as the Medicare Contribution tax or
tax consequences to US holders subject to special rules, such as:
• certain financial institutions;
• insurance companies;
• dealers and traders in securities who use a mark-to-market
method of tax accounting;
• persons holding ordinary shares or ADSs as part of a straddle,
conversion transaction, integrated transaction or wash sale, or
persons entering into a constructive sale with respect to the
ordinary shares or ADSs;
• persons whose functional currency for US federal income tax
purposes is not the US dollar;
• partnerships or other entities classified as partnerships for
US federal income tax purposes;
• persons liable for the alternative minimum tax;
• tax-exempt organisations;
As used herein, a ‘US holder’ is a person who, for US federal
income tax purposes, is a beneficial owner of ordinary shares
or ADSs and is: (i) a citizen or individual resident of the US;
(ii) a corporation, or other entity taxable as a corporation,
created or organised in or under the laws of the US or any
political subdivision thereof; (iii) an estate whose income is
subject to US federal income tax regardless of its source;
or (iv) a trust, if a US court can exercise primary supervision
over the trust’s administration and one or more US persons
are authorised to control all substantial decisions of the trust.
This section is based on the IR Code, its legislative history, existing
and proposed regulations, published rulings and court decisions,
and on UK tax laws and the published practice of HM Revenue and
Customs (HMRC), all as of the date hereof. These laws, and that
practice, are subject to change, possibly on a retroactive basis.
This section is further based in part upon the representations of
the ADR Depositary and assumes that each obligation in the deposit
agreement and any related agreement will be performed in
accordance with its terms. For US federal income tax purposes,
an owner of ADRs evidencing ADSs will generally be treated as the
owner of the underlying shares represented by those ADSs. For UK
tax purposes, in practice, HMRC will also regard holders of ADSs as
the beneficial owners of the ordinary shares represented by those
ADSs (although case law has cast some doubt on this). The discussion
below assumes that HMRC’s position is followed.
Generally, exchanges of ordinary shares for ADSs, and ADSs for
ordinary shares, will not be subject to US federal income tax or UK
taxation on capital gains, although UK stamp duty reserve tax (SDRT)
may arise as described below.
The US Treasury has expressed concerns that parties to whom ADRs
are pre-released may be taking actions that are inconsistent with the
claiming of foreign tax credits by US holders of ADSs. Such actions
would also be inconsistent with the claiming of the preferential rates
of tax, described below, for qualified dividend income. Accordingly,
the availability of the preferential rates of tax for qualified dividend
income described below could be affected by actions taken by parties
to whom the ADRs are pre-released.
The following discussion assumes that the Company is not, and
will not become, a passive foreign investment company (PFIC),
as described below.
Investors should consult their own tax advisors regarding the
US federal, state and local, the UK and other tax consequences
of owning and disposing of ordinary shares or ADSs in their
particular circumstances.
Taxation of dividends
UK taxation
Under current UK tax law, the Company will not be required
to withhold tax at source from dividend payments it makes.
• persons who acquired the Company’s ADSs or ordinary shares
pursuant to the exercise of any employee stock option or
otherwise in connection with employment; or
• persons who, directly or indirectly, own 10 per cent or more
A US holder who is not resident for UK tax purposes in the UK
and who is not trading in the UK will generally not be liable for
UK taxation on dividends received in respect of the ADSs or
ordinary shares.
of the Company’s voting stock.
This section does not generally deal with the position of a US
holder who is resident in the UK for UK tax purposes or who
is subject to UK taxation on capital gains or income by virtue
of carrying on a trade, profession or vocation in the UK through
a branch, agency or permanent establishment to which such
ADSs or ordinary shares are attributable (‘trading in the UK’).
US federal income taxation
A US holder is subject to US federal income taxation on the gross
amount of any dividend paid by the Company out of its current or
accumulated earnings and profits (as determined for US federal
income tax purposes). Distributions in excess of the Company’s
current and accumulated earnings and profits, as determined for
US federal income tax purposes, will be treated as a return of
171
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
capital to the extent of the US holder’s basis in the shares or ADSs
and thereafter as capital gain. Because the Company has not
historically maintained, and does not currently maintain, books in
accordance with US tax principles, the Company does not expect
to be in a position to determine whether any distribution will be in
excess of the Company’s current and accumulated earnings and
profits as computed for US federal income tax purposes. As a
result, it is expected that amounts distributed will be reported
to the Internal Revenue Service (IRS) as dividends.
Subject to applicable limitations and the discussion above regarding
concerns expressed by the US Treasury, dividends paid to certain
non-corporate US holders will be taxable at the preferential rates
applicable to long-term capital gain if the dividends constitute
“qualified dividend income”. The Company expects that dividends
paid by the Company with respect to the ADSs will constitute
qualified dividend income. US holders should consult their own tax
advisors to determine whether they are subject to any special rules
that limit their ability to be taxed at these preferential rates.
Dividends must be included in income when the US holder, in the
case of shares, or the ADR Depositary, in the case of ADSs, actually
or constructively receives the dividend, and will not be eligible
for the dividends-received deduction generally allowed to US
corporations in respect of dividends received from other US
corporations. For foreign tax credit limitation purposes, dividends
will generally be income from sources outside the US.
The amount of any dividend paid in pounds sterling will be the
US dollar value of the sterling payments made, determined at the
spot sterling/US dollar rate on the date the dividend distribution
is includible in income, regardless of whether the payment is in
fact converted into US dollars. If the dividend is converted into
US dollars on that date, a US holder should not be required to
recognise foreign currency gain or loss in respect of the dividend
income. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date the
dividend payment is includible in income to the date the payment
is converted into US dollars will be treated as ordinary income
or loss, from sources within the US.
Taxation of capital gains
UK taxation
A US holder who is not resident for UK tax purposes in the UK
and who is not trading in the UK will not generally be liable for UK
taxation on capital gains, or eligible for relief for allowable losses,
realised or accrued on the sale or other disposal of ADSs or
ordinary shares. A US holder of ADSs or ordinary shares who is an
individual and who, broadly, has temporarily ceased to be resident
in the UK or has become temporarily treated as non-resident for
UK tax purposes for a period of not more than five years (or, for
departures before 6 April 2013, ceases to be resident or ordinarily
resident or becomes treated as non-resident for less than five
years of assessment) and who disposes of ordinary shares or
ADSs during that period may, for the year of assessment when
that individual becomes resident again in the UK, be liable to UK
tax on capital gains (subject to any available exemption or relief),
notwithstanding the fact that such US holder was not treated as
resident in the UK at the time of the sale or other disposal.
172
US federal income taxation
A US holder who sells or otherwise disposes of ordinary shares or
ADSs will recognise a capital gain or loss for US federal income tax
purposes equal to the difference between the amount realised and
its tax basis in the ordinary shares or ADSs, each determined in US
dollars. Such capital gain or loss will be long-term capital gain or
loss where the US holder has a holding period greater than one
year. Losses may also be treated as long-term capital losses to the
extent of certain “extraordinary dividends” that qualified for the
preferential tax rates on qualified dividend income described above.
The capital gain or loss will generally be income or loss from
sources within the US for foreign tax credit limitation purposes.
The deductibility of capital losses is subject to limitations.
PFIC rules
The Company believes that it was not a PFIC for US federal income
tax purposes for its 2014 taxable year. However, this conclusion
is an annual factual determination and thus may be subject to
change. If the Company were to be treated as a PFIC, gain realised
on the sale or other disposition of ordinary shares or ADSs would,
in general, not be treated as capital gain. Instead, gain would be
treated as if the US holder had realised such gain rateably over
the holding period for the ordinary shares or ADSs and, to the
extent allocated to the taxable year of the sale or other exchange
and to any year before the Company became a PFIC, would be
taxed as ordinary income. The amount allocated to each other
taxable year would be taxed at the highest tax rate in effect for
each such year to which the gain was allocated, together with an
interest charge in respect of the tax attributable to each such year.
In addition, similar rules would apply to any “excess distribution”
received on the ordinary shares or ADSs (generally, the excess
of any distribution received on the ordinary shares or ADSs
during the taxable year over 125 per cent of the average amount
of distributions received during a specified prior period), and the
preferential rates for qualified dividend income received by certain
non-corporate US holders would not apply.
Certain elections may be available (including a market-to-market
election) to US holders that would result in alternative treatments
of the ordinary shares or ADSs. If the Company were to be treated
as a PFIC in any taxable year in which a US holder held ordinary
shares or ADSs, a US holder will generally be required to file
IRS Form 8621 with their annual US federal income tax returns,
subject to certain exceptions.
Additional tax considerations
UK inheritance tax
An individual who is neither domiciled nor deemed domiciled in
the UK (under certain UK rules relating to previous domicile or
long residence) is only chargeable to UK inheritance tax to the extent
the individual owns assets situated in the UK. As a matter of UK law,
it is not clear whether the situs of an ADS for UK inheritance tax
purposes is determined by the place where the depositary is
established and records the entitlements of the deposit holders,
or by the situs of the underlying share which the ADS represents,
but the UK tax authorities may take the view that the ADSs, as well
as the ordinary shares, are or represent UK situs assets.
Shareholder informationcontinued However, an individual who is domiciled in the US (for the purposes
of the Estate and Gift Tax Convention (Convention), and is not a UK
national as defined in the Convention will not be subject to UK
inheritance tax (to the extent UK inheritance tax applies) in respect
of the ordinary shares or ADSs on the individual’s death or on a
transfer of the ordinary shares or ADSs during their lifetime,
provided that any applicable US federal gift or estate tax is paid,
unless the ordinary shares or ADSs are part of the business
property of a UK permanent establishment or pertain to a UK fixed
base of an individual used for the performance of independent
personal services. Where the ordinary shares or ADSs have been
placed in trust by a settlor, they may be subject to UK inheritance
tax unless, when the trust was created, the settlor was domiciled
in the US and was not a UK national. If no relief is given under the
Convention, inheritance tax may be charged on death and also on
the amount by which the value of an individual’s estate is reduced
as a result of any transfer made by way of gift or other undervalue
transfer, broadly within seven years of death, and in certain other
circumstances. Where the ordinary shares or ADSs are subject
to both UK inheritance tax and to US federal gift or estate tax,
the Convention generally provides for either a credit against
US federal tax liabilities for UK inheritance tax paid or for a credit
against UK inheritance tax liabilities for US federal tax paid,
as the case may be.
UK stamp duty and SDRT
Neither stamp duty nor SDRT will generally be payable in the
UK on the purchase or transfer of an ADS, provided that the ADS
and any separate instrument or written agreement of transfer are
executed and remain at all times outside the UK. UK legislation
does however provide for stamp duty (in the case of transfers)
or SDRT to be payable at the rate of 1.5 per cent on the amount
or value of the consideration (or, in some cases, the value of the
ordinary shares) where ordinary shares are issued or transferred
to a person (or a nominee or agent of a person) whose business
is or includes issuing depositary receipts or the provision of
clearance services. In accordance with the terms of the deposit
agreement, any tax or duty payable on deposits of ordinary shares
by the depositary or by the custodian of the depositary will typically
be charged to the party to whom ADSs are delivered against
such deposits.
Following litigation on the subject, HMRC has accepted that it will
no longer seek to apply the 1.5 per cent SDRT charge when new
shares are issued to a clearance service or depositary receipt
system on the basis that the charge is not compatible with EU law.
In HMRC’s view, the 1.5 per cent SDRT or stamp duty charge will
continue to apply to transfers of shares into a clearance service
or depositary receipt system unless they are an integral part of
an issue of share capital. This view is currently being challenged
in further litigation. Accordingly, specific professional advice
should be sought before paying the 1.5 per cent SDRT or stamp
duty charge in any circumstances.
A transfer of the underlying ordinary shares will generally be
subject to stamp duty or SDRT, normally at the rate of 0.5 per cent
of the amount of value of the consideration (rounded up to the next
multiple of £5 in the case of stamp duty). A transfer of ordinary
shares from a nominee to its beneficial owner, including the
transfer of underlying ordinary shares from the depositary to an
ADS holder, under which no beneficial interest passes, will not be
subject to stamp duty or SDRT.
US backup withholding and information reporting
Payments of dividends and other proceeds with respect to ADSs
and ordinary shares may be reported to the IRS and to the US
holder. Backup withholding may apply to these reportable
payments if the US holder fails to provide an accurate taxpayer
identification number or certification of exempt status or fails to
report all interest and dividends required to be shown on its US
federal income tax returns. Certain US holders (including, among
others, corporations) are not subject to information reporting and
backup withholding. The amount of any backup withholding from
a payment to a US holder will be allowed as a credit against the
holder’s US federal income tax liability and may entitle the holder
to a refund, provided that the required information is timely
furnished to the IRS. US holders should consult their tax advisors
as to their qualification for exemption from backup withholding
and the procedure for obtaining an exemption.
Disclosure controls and procedures
As of the end of the period covered by this report, the Group
carried out an evaluation under the supervision and with the
participation of the Group’s management, including the Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Group’s disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act 1934). These are defined as those
controls and procedures designed to ensure that information
required to be disclosed in reports filed under the Securities
Exchange Act 1934 is recorded, processed, summarised and
reported within the specified periods. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded
that the Group’s disclosure controls and procedures were effective.
Summary of significant corporate
governance differences from NYSE
listing standards
The Group’s statement of compliance with the principles and
provisions specified in the UK Corporate Governance Code issued
by the Financial Reporting Council in the UK in 2012 (the Code) is
set out on pages 70 to 72.
IHG has also adopted the corporate governance requirements
of the US Sarbanes-Oxley Act and related rules and of the NYSE,
to the extent that they are applicable to it as a foreign private
issuer. As a foreign private issuer, IHG is required to disclose any
significant ways in which its corporate governance practices differ
from those followed by US companies. These are as follows:
Basis of regulation
The Code contains a series of principles and provisions. It is not,
however, mandatory for companies to follow these principles.
Instead, companies must disclose how they have applied them
and disclose, if applicable, any areas of non-compliance along with
an explanation for the non-compliance. In contrast, US companies
listed on the NYSE are required to adopt and disclose corporate
governance guidelines adopted by the NYSE.
173
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Independent Directors
The Code’s principles recommend that at least half the Board,
excluding the Chairman, should consist of independent
Non-Executive Directors. As at 16 February 2015, the Board
consisted of the Chairman, independent at the time of his
appointment, three Executive Directors and seven independent
Non-Executive Directors. NYSE listing rules applicable to US
companies state that companies must have a majority of
independent directors. The NYSE set out five bright line tests
for director independence. The Board’s judgement is that all of
its Non-Executive Directors are independent. However, it did
not explicitly take into consideration the NYSE’s tests in reaching
this determination.
Chairman and Chief Executive Officer
The Code recommends that the Chairman and Chief Executive
Officer should not be the same individual to ensure that there is
a clear division of responsibility for the running of the Company’s
business. There is no corresponding requirement for US
companies. The roles of Chairman and Chief Executive Officer
were, as at 16 February 2015 and throughout 2014, fulfilled
by separate individuals.
Committees
The Company has a number of Board Committees which are
similar in purpose and constitution to those required for domestic
companies under NYSE rules. The NYSE requires US companies
to have both remuneration and nominating/corporate governance
committees composed entirely of independent directors, as
defined under the NYSE rules. The Company’s Nomination
Committee consists only of Non-Executive Directors and the
Company’s Audit and Remuneration Committees consists entirely
of Non-Executive Directors who are independent under the
standards of the Code, which may not necessarily be the same as
the NYSE independence standards. The nominating/governance
committee is responsible for identifying individuals qualified to
become Board members and to recommend to the Board a set
of corporate governance principles. As the Company is subject
to the Code, the Company’s Nomination Committee is only
responsible for nominating, for approval of the Board, candidates
for appointment to the Board, though it also assists in developing
the role of the Senior Independent Director. The Company’s
Nomination Committee consists of the Chairman of the Company
and all the independent Non-Executive Directors.
The Chairman of the Company is not a member of either of the
Remuneration or the Audit Committees. As set out on page 65,
the Audit Committee is chaired by an independent Non-Executive
Director who, in the Board’s view, has the experience and
qualifications to satisfy the criteria under US rules for an
“audit committee financial expert”.
Non-Executive Director meetings
Non-management directors of US companies must meet on
a regular basis without management present, and independent
directors must meet separately at least once per year. The Code
requires: (i) the Board Chairman to hold meetings with the
Non-Executive Directors without the Executive Directors present;
and (ii) the Non-Executive Directors to meet at least annually
without the Chairman present to appraise the Chairman’s
performance. The Company’s Non-Executive Directors have met
without Executive Directors being present, and intend to continue
this practice, after every Board meeting if possible.
Shareholder approval of equity compensation plans
The NYSE rules require that shareholders must be given
the opportunity to vote on all equity compensation plans and
material revisions to those plans. The Company complies with
UK requirements which are similar to the NYSE rules. The
Board does not, however, explicitly take into consideration
the NYSE’s detailed definition of “material revisions”.
Code of Conduct
The NYSE requires companies to adopt a code of business
conduct and ethics, applicable to directors, officers and
employees. Any waivers granted to directors or officers under
such a code must be promptly disclosed. As set out on page 74,
IHG’s Code of Conduct is applicable to all Directors, officers and
employees, and further information on the Code of Conduct is
available on the Company’s website at www.ihgplc.com/investors
under corporate governance. No waivers have been granted under
the Code of Conduct.
Compliance certification
Each Chief Executive of a US company must certify to the NYSE
each year that he or she is not aware of any violation by the
Company of any NYSE corporate governance listing standard.
As the Company is a foreign private issuer, the Company’s
Chief Executive Officer is not required to make this certification.
However, he is required to notify the NYSE promptly in writing
after any of the Company’s executive officers become aware of
any non-compliance with those NYSE corporate governance
rules applicable to the Company.
Selected five-year consolidated financial information
The selected consolidated financial data set forth in the table on the next page for the years ended 31 December 2010, 2011, 2012, 2013 and
2014 has been prepared in accordance with IFRS as issued by the IASB and in accordance with IFRS as adopted by the EU, and is derived
from the Group Financial Statements, which have been audited by its independent registered public accounting firm, Ernst & Young LLP.
IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the
Group Financial Statements for the years presented. The selected consolidated financial data set forth on the next page should be read
in conjunction with, and is qualified in its entirety by reference to, the Group Financial Statements and Notes thereto included elsewhere
in this Annual Report and Form 20-F.
174
Shareholder informationcontinued Group income statement data
For the year ended 31 December
Revenue1
Total operating profit before exceptional operating items
Exceptional operating items1
Total operating profit1
Financial income
Financial expenses
Profit before tax
Tax:
On profit before exceptional items
On exceptional operating items
Exceptional tax
Profit after tax:
Gain on disposal of discontinued operations, net of tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Profit for the year
Earnings per ordinary share:
Continuing operations:
Basic
Diluted
Total operations:
Basic
Diluted
1 Relates to continuing operations.
Group statement of financial position data
31 December
Goodwill and intangible assets
Property, plant and equipment
Investments and other financial assets
Non-current trade and other receivables
Retirement benefit assets
Non-current tax receivable
Deferred tax assets
Current assets
Assets classified as held for sale
Total assets
Current liabilities
Long-term debt
Net (liabilities) / assets
Equity share capital
IHG shareholders’ equity
Number of shares in issue at end of the year (millions)
1 Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
2014
2013
2012
2011
2010
($m, except earnings per ordinary share)
1,858
1,903
1,835
1,768
1,628
651
29
680
3
(83)
600
(179)
(29)
–
(208)
392
–
392
391
1
392
668
5
673
5
(78)
600
(175)
(6)
(45)
(226)
374
–
374
372
2
374
605
(4)
601
3
(57)
547
(151)
1
141
(9)
538
–
538
537
1
538
548
57
605
2
(64)
543
(117)
(4)
43
(78)
465
–
465
465
–
465
158.3¢
156.4¢
140.9¢
139.3¢
187.1¢
183.9¢
160.9¢
157.1¢
158.3¢
156.4¢
140.9¢
139.3¢
187.1¢
183.9¢
160.9¢
157.1¢
438
(7)
431
2
(64)
369
(96)
1
–
(95)
274
2
276
276
–
276
95.1¢
92.6¢
95.8¢
93.2¢
2014
643
741
368
3
8
34
87
624
310
2,818
943
1,569
(717)
178
(725)
248
2013
(restated1)
2012
(restated1)
2011
(restated1)
2010
(restated1)
($m, except number of shares)
518
1,169
321
–
7
16
108
700
228
3,067
928
1,269
(74)
189
(82)
269
447
1,056
239
–
99
24
204
852
534
3,455
972
1,242
317
179
308
268
400
1,362
243
–
21
41
106
784
217
3,174
1,066
670
555
162
547
290
358
1,690
178
–
5
–
88
659
–
2,978
1,136
776
278
155
271
289
175
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Return of funds
Since March 2004, the Group has returned over £4.8bn of funds to shareholders by way of special dividends, capital returns and share
repurchase programmes.
On 2 May 2014, the Company announced a $750m return of funds to shareholders via special dividend with share consolidation.
The special dividend was paid on 14 July 2014.
Return of funds programme
£501m special dividend1
£250m share buyback
£996m capital return1
£250m share buyback
£497m special dividend1
£250m share buyback
£709m special dividend1
£150m share buyback
$500m special dividend1,3
$500m share buyback
$350m special dividend
$750m special dividend1
Total
Timing
Paid in December 2004
Completed in 2004
Paid in July 2005
Completed in 2006
Paid in June 2006
Completed in 2007
Paid in June 2007
n/a2
Paid in October 2012
Completed in 2014
Paid in October 2013
Paid in July 2014
Total return
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£150m
£315m4 ($500m)
£315m4 ($500m)
£229m7 ($350m)
£447m9 ($750m)
£4,909m
Returned to date
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£120m
£315m ($505m)5
£315m ($500m)6
£228m ($355m)8
£446m ($763m)10
£4,877m
1 Accompanied by a share consolidation.
2 This programme was superseded by the share buyback programme announced on 7 August 2012.
3 IHG changed the reporting currency of its Consolidated Financial Statements from sterling to US dollars effective from the Half-Year Results as at 30 June 2008.
The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate of $1=£0.63, as set out in the circular
4
detailing the special dividend and share buyback programme published on 14 September 2012.
Sterling dividend translated at $1=£0.624.
Translated into US dollars at the average rates of exchange for the relevant years (2014 $1=£0.61; 2013 $1=£0.64; 2012 $1 = £0.63).
The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate of $1=£0.65, as announced in the Half-Year
Results to 30 June 2013.
Sterling dividend translated at $1=£0.644.
5
8
6
7
9 The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate translated at $1=£0.597.
10 Sterling dividend translated at $1=£0.5845.
Purchases of equity securities by the Company and affiliated purchasers
The Group’s $500m share repurchase programme was announced on 7 August 2012 and completed on 29 May 2014. As at 31 December
2014, 17,339,845 shares had been repurchased at an average price of 1,811.7674 pence per share (approximately £314m).
Period of financial year
Month 1
Month 2
Month 3
Month 4 (no purchases this month)
Month 5
Month 6
Month 7 (no purchases this month)
Month 8 (no purchases this month)
Month 9 (no purchases this month)
Month 10 (no purchases this month)
Month 11 (no purchases this month)
Month 12
(a) Total number of shares
(or units) purchased
(b) Average price paid
per share (or unit)
(c) Total number of shares
(or units) purchased as
part of publicly announced
plans or programmes
(d) Maximum number
(or approximate dollar value)
of shares (or units) that may yet
be purchased under the plans
or programmes
350,249
1,617,551
2,354,577
nil
296,984
8
nil
nil
nil
nil
nil
461,815
2,007.8500
1,950.2062
1,914.9212
nil
2,259.9608
2,311.0000
nil
nil
nil
nil
nil
2,580.3724
nil
770,412
2,354,577
nil
296,984
nil
nil
nil
nil
nil
nil
nil
18,855,0081
18,084,5961
15,730,0191
15,730,0191
25,620,0462
23,611,7253
23,611,7253
23,611,7253
23,611,7253
23,611,7253
23,611,7253
23,611,7253
1 Reflects the resolution passed at the Company’s AGM held on 24 May 2013.
2 Reflects the resolution passed at the Company’s AGM held on 2 May 2014.
3 Reflects the resolution passed at the Company’s General Meeting held on 30 June 2014.
During the financial year ended 31 December 2014, 1,659,203 ordinary shares were purchased by the Company’s Employee Share Ownership
Trust, at prices ranging from 1,928 pence to 2,633 pence per share, for the purpose of satisfying future share awards to employees.
176
Shareholder informationcontinued Share price information
The principal trading market for the Company’s ordinary shares is the London Stock Exchange (LSE). The ordinary shares are also listed
on the NYSE trading in the form of ADSs evidenced by ADRs. Each ADS represents one ordinary share. The Company has a sponsored
ADR facility with JPMorgan as ADR Depositary. The following table shows, for the financial periods indicated, the reported high and low
middle market quotations (which represent an average of closing bid and ask prices) for the ordinary shares on the LSE, as derived from
the Official List of the UK Listing Authority, and the highest and lowest sales prices of the ADSs as reported on the NYSE composite tape.
£ per ordinary share
$ per ADS1
Year ended 31 December
2010
2011
2012
2013
2014
Quarters in the year ended 31 December
2013
First quarter
Second quarter
Third quarter
Fourth quarter
2014
First quarter
Second quarter
Third quarter
Fourth quarter
2015
First quarter (to 16 February 2015)
Month ended
August 2014
September 2014
October 2014
November 2014
December 2014
January 2015
February 2015 (to 16 February 2015)
high
12.66
14.35
17.25
20.39
27.10
20.22
20.39
20.30
20.25
20.47
24.21
24.75
27.10
27.56
23.75
24.45
23.69
27.10
26.39
27.56
26.76
low
8.87
9.55
11.57
17.07
18.66
17.07
17.37
17.88
17.63
18.66
19.04
21.99
21.20
25.33
21.99
22.85
21.20
24.03
24.17
25.33
25.88
high
20.04
23.28
27.82
33.54
42.51
30.64
30.61
31.08
33.54
34.08
41.51
42.51
42.38
41.57
40.02
39.85
38.01
42.38
41.30
41.57
41.37
low
13.84
15.27
17.99
26.90
30.88
27.82
26.90
27.77
28.27
30.88
31.60
36.84
34.03
38.32
37.15
36.84
34.03
38.25
37.63
38.32
39.24
1
Fluctuations in the exchange rates between sterling and the US dollar will affect the dollar equivalent of the sterling price of the ordinary shares on the LSE
and, as a result, are likely to affect the market price of ADSs.
Dividend history
The table below sets forth the amounts of ordinary dividends on each ordinary share and special dividends, in respect of each financial
year indicated.
Interim dividend
Final dividend
Total dividend
Special dividend
2014
2013
2012
2011
2010
2009
20082
2007
2006
2005
2004
2003
pence
cents
pence
cents
pence
cents
14.8
15.1
13.5
9.8
8.0
7.3
6.4
5.7
5.1
4.6
4.3
4.05
25.0
23.0
21.0
16.0
12.8
12.2
12.2
11.5
9.6
8.1
7.7
6.8
33.8
28.1
27.7
24.7
22.0
18.7
20.2
14.9
13.3
10.7
10.0
9.45
52.0
47.0
43.0
39.0
35.2
29.2
29.2
29.2
25.9
18.7
19.1
17.4
48.6
43.2
41.2
34.5
30.0
26.0
26.6
20.6
18.4
15.3
14.3
13.5
77.0
70.0
64.0
55.0
48.0
41.4
41.4
40.7
35.5
26.8
26.8
24.2
pence
174.91
87.1
108.41
–
–
–
–
2001
1181
–
72.01
–
cents
293.01
133.0
172.01
–
–
–
–
–
–
–
–
–
1
2
Accompanied by a share consolidation.
IHG changed the reporting currency of its Consolidated Financial Statements 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.
177
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Shareholder profiles
Shareholder profile by type as at 31 December 2014
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
Percentage total of
shareholders
Number of ordinary
shares
41,572
1,428
1,647
159
7
44,813
92.77
3.18
3.68
0.35
0.02
100
13,885,472
194,775,369
12,813,041
14,004,127
639,247
236,117,256
Shareholder profile by size as at 31 December 2014
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
Number of ordinary
shares
28,412
8,696
4,029
2,808
237
306
95
146
42
42
44,813
63.40
19.41
8.99
6.27
0.53
0.68
0.21
0.33
0.09
0.09
100
1,801,918
2,774,193
2,820,987
5,309,076
1,666,106
7,239,768
6,746,779
31,810,194
30,898,339
145,049,896
236,117,256
Shareholder profile by geographical location as at 31 December 2014
Country/
Jurisdiction
UK
Rest of Europe
US (including ADRs)
Rest of world
Total
Percentage
of issued
share capital
See chart
5.88
82.49
5.43
5.93
0.27
100
Percentage
of issued
share capital
See chart
0.76
1.17
1.19
2.25
0.71
3.07
2.86
13.47
13.09
61.43
100
Percentage
of issued
share capital1
See chart
50.3
12.1
33.6
4.0
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 88.8% of total issued share capital. Therefore, the known
percentage distributions have been multiplied by 100⁄88.8 (1.126) to achieve the figures shown in the table above.
As of 13 February 2015, 15,835,637 ADSs equivalent to 15,835,637 ordinary shares, or approximately 6.7 per cent
of the total issued share capital, were outstanding and were held by 685 holders. Since certain ordinary shares
are registered in the names of nominees, the number of shareholders on record may not be representative of
the number of beneficial owners.
As of 13 February 2015, there were a total of 44,627 record holders of ordinary shares, of whom 249 had registered
addresses in the US and held a total of 670,170 ordinary shares (0.27 per cent of the total issued share capital).
178
Shareholder informationcontinued Useful information
Investor information
Website and electronic communication
As part of IHG’s commitment to reduce the cost and environmental
impact of producing and distributing printed documents in
large quantities, this Annual Report and Form 20-F 2014 has
been made available to shareholders through our website
at www.ihgplc.com/investors under financial library.
Individual Savings Account (ISA)
Equiniti offers a Stocks and Shares ISA that can invest in
IHG shares. For further information, please contact Equiniti
on 0871 384 22441,2.
Share dealing services
Equiniti offers the following share dealing facilities:
Shareholders may electronically appoint a proxy to vote on
their behalf at the 2015 AGM. 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.
Postal dealing
For more information, call 0871 384 22481,2
Telephone dealing
For more information, call 0845 603 70371,3
Shareholder hotel discount
IHG offers discounted hotel stays (subject to availability) for
registered shareholders only, through a controlled access website.
This is not available to shareholders who hold shares through
nominee companies, ISAs or ADRs. For further details please
contact the Company Secretariat department (see page 180).
Responsible Business Report
In line with our commitment to responsible business practices, this
year we have decided to produce a broader Responsible Business
Report showcasing our approach to responsible business and
progress against our corporate responsibility targets. This can be
viewed at www.ihgplc.com/responsiblebusiness
IHG® Shelter in a Storm
IHG Shelter in a Storm enables IHG to support our hotels and local
communities, employees and guests when a disaster occurs, by
providing immediate and vital assistance.
To make a donation to the programme, visit the secure payment
page at 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 21321,2 (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 22681,2.
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 clearance of funds on the payment date. For further
information, please contact our Registrar (see page 180).
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 (see page 180).
Internet dealing
For more information, visit 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 from
April 2003 to December 2014, for UK Capital Gains Tax purposes,
may be found on our website at www.ihgplc.com/investors under
shareholder centre/tax information.
‘Gone away’ 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
Conduct Authority website at www.fca.org.uk/consumers/scams.
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 NYSE 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 Bank, N.A.,
our ADR Depositary bank (contact details shown on page 180).
Documents on display
Documents referred to in this Annual Report and Form 20-F
that are filed with the SEC can be found at the SEC’s public
reference room located at 100 F Street, NE Washington, D.C.
20549, for further information and copy charges please call
the SEC at 1-800-SEC-0330. The Company’s SEC filings since
22 May 2002 are also publicly available through the SEC’s website
at www.sec.gov. Copies of the Company’s Articles can be obtained
via the website at www.ihgplc.com/investors under corporate
governance or from the Company’s registered office on request.
1 Calls cost 8p per minute plus network extras.
2 Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK
public holidays.
3 Lines are open from 8.00am to 4.30pm Monday to Friday, excluding UK
public holidays.
179
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Useful information
Financial calendar
continued
Special dividend of 174.9p per share (293¢ per ADR):
Interim dividend of 14.8p per share (25.0¢ per ADR):
Financial year end
Announcement of Preliminary Results for 2014
2014 Final dividend of 33.8p per share (52.0¢ per ADR):
Announcement of 2015 First Quarter Interim Management Statement
Annual General Meeting
2014 Final dividend of 33.8p per share (52.0¢ per ADR):
Announcement of Half-Year Results for 2015
2015 Interim dividend:
Announcement of 2015 Third Quarter Interim Management Statement
Financial year end
Announcement of Preliminary Results for 2015
Payment date
Payment date
Ex-dividend date
Record date
Payment date
Payment date
2014
14 July
26 September
31 December
2015
17 February
2 April
7 April
8 May
8 May
15 May
30 July
October
20 October
31 December
2016
February
Contacts
Registered office
Broadwater Park, Denham,
Buckinghamshire, UB9 5HR, UK
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, UK
Telephone:
0871 384 21321,2 (UK calls)
+44 (0) 121 415 7034 (non-UK calls)
www.shareview.co.uk
ADR Depositary
JPMorgan Chase Bank N.A.
PO Box 64504, St. Paul
MN 55120-0854, USA
Telephone:
+1 800 990 1135 (US calls) (toll-free)
+1 651 453 2128 (non-US calls)
Email: jpmorgan.adr@wellsfargo.com
www.adr.com
Auditor
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
IHG® Rewards Club
If you wish to enquire about,
or join IHG Rewards Club, visit
www.ihg.com/rewardsclub or telephone:
0871 226 11113 (Europe)
+1 888 211 98744 (US and Canada)
+1 800 272 92734 (Mexico)
+1 801 975 30635 (English) (Central
and South America)
+1 801 975 30135 (Spanish)
(Central and South America)
+971 4 429 05305 (Middle East and Africa)
+02 9935 83625 (Australia)
+86 21 2033 48485 (Mandarin and
Cantonese) (China and Hong Kong)
+81 3 5767 93255 (Japan)
+63 2 857 87785 (Korea)
+63 2 857 87885 (all other countries
in Asia Pacific)
1 For those with hearing difficulties a text phone is available on 0871 384 22552 for UK callers with compatible equipment.
2 Calls cost 8p per minute plus network extras. Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK public holidays.
3 Telephone calls to this number are charged at 10p per minute. Standard network rates apply. Calls from mobiles will be higher.
4 Toll free.
5 Toll charges apply.
180
Exhibits
The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC:
Exhibit 11
Exhibit 4(a)(i)
Exhibit 4(a)(ii)
Exhibit 4(a)(iii)
Exhibit 4(a)(iv)1
Exhibit 4(a)(v)1
Exhibit 4(a)(vi)1
Exhibit 4(a)(vii)1
Exhibit 4(a)(viii)1
Exhibit 4(c)(i)1
Exhibit 4(c)(ii)1
Exhibit 4(c)(iii)1
Exhibit 4(c)(iv)1
Exhibit 4(c)(v)1
Exhibit 4(c)(vi)1
Exhibit 4(c)(vii)1
Exhibit 4(c)(ix)
Exhibit 4(c)(x)
Exhibit 8
Exhibit 12(a)
Exhibit 12(b)
Exhibit 13(a)
Exhibit 15(a)
1 Incorporated by reference.
Articles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC
Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)
$400 million bank facility agreement dated 13 January 2015, among InterContinental Hotels Group PLC and certain of
its subsidiaries, and Bank of America Merrill Lynch International Limited
Share sale and purchase agreement between Kimpton Group Holding LLC and Dunwoody Operations, Inc. dated
15 December 2014
Share sale and purchase agreement relating to InterContinental Paris – Le Grand, between BHR Holdings BV and
Constellation Hotels France Grand SA dated 7 December 2014
Contribution agreement relating to InterContinental New York Barclay, between Barclay Operating Corp.,
InterContinental Hotels Group Resources, Inc., Constellation Barclay Holding US, LLC, and 111 East 48th Street
Holdings, LLC dated 19 December 2013 (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group
PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2014)
Asset sale and purchase agreement relating to Intercontinental Hotel, Park Lane, London, between Hotel
Inter-Continental London Limited, Constellation Hotel (Opco) UK S.A., and Six Continents Limited dated 27 March 2013
(incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F
(File No. 1-10409) dated 26 February 2014)
Five-year $1,070 million bank facility agreement dated 7 November 2011, among The Royal Bank of Scotland plc,
NB International Finance B.V., Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc and The Bank
of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC
Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
First supplemental trust deed dated 7 July 2011 modifying and restating the Euro Medium Term Note programme
governed by a trust deed dated 29 November 2009 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental
Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Amended and restated trust deed dated 9 November 2012 relating to a £750 million Euro Medium Term Note
Programme, among InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited
and HSBC Corporate Trustee Company (UK) Limited (incorporated by reference to Exhibit 4(a)(iii) of the
InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)
Paul Edgecliffe-Johnson’s service contract dated 6 December 2013, commencing on 1 January 2014 (incorporated by
reference to Exhibit 4(c)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409)
dated 26 February 2014)
Tracy Robbins’ service contract dated 9 August 2011 (incorporated by reference to Exhibit 4(c)(i) of the InterContinental
Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Tom Singer’s service contract dated 26 July 2011 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental
Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Kirk Kinsell’s service contract commencing on 1 August 2010, as amended by a letter dated 5 July 2010 (incorporated
by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409)
dated 11 April 2011)
Richard Solomons’ service contract dated 16 March 2011, commencing on 1 July 2011 (incorporated by reference
to Exhibit 4(c)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated
11 April 2011)
Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 26 September 2012 (incorporated
by reference to Exhibit 4(c)(v) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409)
dated 26 March 2013)
Rules of the InterContinental Hotels Group Annual Bonus Plan as amended on 26 September 2012 (incorporated by
reference to Exhibit 4(c)(vi) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409)
dated 26 March 2013)
Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 2 May 2014
Rules of the InterContinental Hotels Group Annual Performance Plan as amended on 2 May 2014
List of subsidiaries as at 31 December 2014
Certification of Richard Solomons filed pursuant to 17 CFR 240.13a-14(a)
Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a-14(a)
Certification of Richard Solomons and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a-14(b) and
18 U.S.C.1350
Consent of independent registered public accounting firm, Ernst & Young LLP
181
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Form 20-F cross-reference guide
Item Form 20-F caption
Identity of directors, senior management
and advisers
Location in this document
Not applicable
Offer statistics and expected timetable
Not applicable
Key information:
3A – Selected financial data
3B – Capitalisation and indebtedness
3C – Reason for the offer and use
of proceeds
3D – Risk factors
Information on the Company
4A – History and development
of the Company
4B – Business overview
4C – Organisational structure
4D – Property, plants and equipment
Shareholder information: Selected five-year consolidated financial information
Shareholder information: Dividend history
Not applicable
Not applicable
Group information: Risk factors
162
Group information: History and developments
176
Shareholder information: Return of funds
180
Useful information: Contact details
2-51
Strategic Report
Group information: Working Time Regulations 1998
169
Group Financial Statements: Note 34 – Principal operating subsidiary undertakings 153
25
Strategic Report: Doing business responsibly – IHG’s global greenhouse
gas (GHG) emissions
Group Financial Statements: Note 10 – Property, plant and equipment
126
4A Unresolved staff comments
None
Operating and financial review and prospects
5A – Operating results
5B – Liquidity and capital resources
5C – Research and development;
intellectual property
Strategic Report: Performance
Group Financial Statements: Accounting policies
Strategic Report: Performance – Liquidity and capital resources
Group Financial Statements: Note 17 – Cash and cash equivalents
Group Financial Statements: Note 20 – Financial risk management
Group Financial Statements: Note 21 – Loans and other borrowings
Group Financial Statements: Note 22 – Derivative financial instruments
Group Financial Statements: Note 23 – Fair value measurement
Not applicable
5D – Trend information
5E – Off-balance sheet arrangements
5F – Tabular disclosure of contractual
Strategic Report: Performance
Strategic Report: Performance – Liquidity and capital resources
Strategic Report: Performance – Liquidity and capital resources
obligations
5G – Safe harbour
Additional Information: Forward-looking statements
Directors, senior management and employees
6A – Directors and senior management
6B – Compensation
6C – Board practices
6D – Employees
6E – Share ownership
Major shareholders and related party transactions
7A – Major shareholders
7B – Related party transactions
7C – Interests of experts and counsel
Financial Information
8A – Consolidated statements and other
financial information
8B – Significant changes
Corporate Governance: Who is on our Board of Directors
and Who is on our Executive Committee
Directors’ Remuneration Report
Group Financial Statements: Note 25 – Retirement benefits
Group Financial Statements: Note 26 – Share-based payments
Corporate Governance
Strategic Report: Disciplined Execution – Investment in developing great talent
Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments
Group information: Working Time Regulations 1998
Directors’ Report: Director and Executive Committee shareholdings
Directors’ Remuneration Report: Annual Report on Directors’ Remuneration –
Scheme interests awarded during 2014
Directors’ Remuneration Report: Annual Report on Directors’ Remuneration –
Statement of Directors’ shareholdings and share interests
Group Financial Statements: Note 26 – Share-based payments
Group information: Executive Committee members’ shareholdings
Directors’ Report: Major institutional shareholders
Shareholder information: Shareholder profiles
Group Financial Statements: Note 14 – Investment in associates and joint ventures
Group Financial Statements: Note 31 – Related party disclosures
Not applicable
Directors’ Report: Dividends
Group Financial Statements
Group information: Rights attaching to shares
None
Page
–
–
174-175
177
–
–
162-165
–
34-51
107-113
50-51
133
135-137
138-139
139
140-141
–
34-51
50-51
50-51
186
57-61
76-91
142-146
146-148
54-72
23
120
169
74
86
88
146-148
166
73
178
130
152
–
73
92-153
167-168
–
1
2
3
4
5
6
7
8
182
Item Form 20-F caption
Location in this document
9
The offer and listing
9A – Offer and listing details
9B – Plan of distribution
9C – Markets
9D – Selling shareholders
9E – Dilution
9F – Expenses of the issue
10
Additional information
10A – Share capital
10B – Memorandum and articles
of association
10C – Material contracts
10D – Exchange controls
10E – Taxation
10F – Dividends and paying agents
10G – Statement by experts
10H – Documents on display
10I – Subsidiary information
11
12
Quantitative and qualitative disclosures
about market risk
Description of securities other than equity
securities
12A – Debt securities
12B – Warrants and rights
12C – Other securities
12D – American depositary shares
Shareholder information: Share price information
Not applicable
Shareholder information: Share price information
Not applicable
Not applicable
Not applicable
Not applicable
Group information: Articles of Association
Group information: Material contracts
Shareholder information: Exchange controls and restrictions on payment
of dividends
Shareholder information: Taxation
Not applicable
Not applicable
Useful information: Investor information – Documents on display
Not applicable
Group Financial Statements: Note 20 – Financial risk management
Not applicable
Not applicable
Not applicable
Group information: Description of securities other than equity securities
13
Defaults, dividend arrearages
and delinquencies
Not applicable
14 Material modifications to the rights of
Not applicable
security holders and use of proceeds
15
Controls and Procedures
15A – Controls and Procedures
15B – Management’s annual report
on internal control over financial
reporting
Shareholder information: Disclosure controls and procedures
Group Financial Statements: Statement of Directors’ Responsibilities –
Management’s report on internal control over financial reporting
15C – Attestation report
15D – Changes in internal controls over
financial reporting
Group Financial Statements: Independent Auditor’s US Report
Group Financial Statements: Statement of Directors’ Responsibilities:
Management’s report on internal control over financial reporting
16
16A – Audit committee financial expert
16B – Code of ethics
16C – Principal accountant fees
and services
16D – Exemptions from the listing
standards for audit committees
16E – Purchase of equity securities by
the issuer and affiliated purchasers
16F – Change in registrant’s certifying
accountant
16G – Corporate governance
16H – Mine safety disclosure
17
18
19
Financial statements
Financial statements
Exhibits
Corporate Governance: Audit Committee Report
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards – Committees
Strategic Report: Doing business responsibly
Corporate Governance: Audit Committee Report – External Auditor
Corporate Governance: Audit Committee Report – Non-audit services
Group Financial Statements: Note 4 – Auditor’s remuneration paid
to Ernst & Young LLP
Not applicable
Shareholder information: Purchases of equity securities by the Company
and affiliated purchasers
Not applicable
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards
Not applicable
Not applicable
Group Financial Statements
Additional information: Exhibits
Page
177
–
177
–
–
–
–
167-168
169-170
171
171-173
–
–
179
–
135-137
–
–
–
166-167
–
–
173
94
99
94
65
174
24-25, 74
66-67
67
120
–
176
–
173-174
–
–
92-153
181
183
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION
IHG Annual Report and Form 20-F 2014
Glossary
adjusted
excluding the effect of exceptional items
and any relevant tax.
ADR
an American Depositary Receipt, being
a receipt evidencing title to an ADS.
ADR Depositary (JPMorgan)
JPMorgan Chase Bank N.A.
ADS
an American Depositary Share as
evidenced by an ADR, being a registered
negotiable security, listed on the New York
Stock Exchange, representing one
ordinary share of 15 265/329 pence each
of the Company.
AGM
Annual General Meeting.
AMEA
Asia, Middle East and Africa.
Annual Report
The Annual Report and Form 20–F in
relation to the years ending 31 December
2013 or 2014, as relevant.
APP
Annual Performance Plan.
Articles
the Articles of Association of the Company
for the time being in force.
average daily rate or average room rate
rooms revenue divided by the number
of room nights sold.
basic earnings per ordinary share
profit available for IHG equity holders
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.
cash-generating units (CGUs)
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.
Code
UK Corporate Governance Code issued
in September 2012 by the Financial
Reporting Council in the UK.
Companies Act
the Companies Act 2006, as amended from
time to time.
Company
InterContinental Hotels Group PLC.
184
comparable RevPAR
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
an exchange of a deposit and a borrowing,
each denominated in a different currency,
for an agreed period of time.
derivatives
a financial instrument used to reduce risk,
the price of which is derived from an
underlying asset, index or rate.
direct channels
digital and voice.
discontinued operations
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.
Employee Engagement survey
twice a year, we ask our employees and
those who work in our managed hotels
(excluding our joint venture hotels) to
participate in an Employee Engagement
survey, to measure employee engagement.
EU
the European Union.
euro or €
the currency of the European Economic
and Monetary Union.
exceptional items
items that are disclosed separately
because of their size or nature.
extended-stay
hotels designed for guests staying
for periods of time longer than a few nights
and tending to have a higher proportion of
suites than normal hotels (Staybridge
Suites and Candlewood Suites).
fee margin
operating profit as a percentage
of revenue, excluding revenue and
operating profit from owned and leased
hotels, managed leases and significant
liquidated damages.
fee revenue
Group revenue excluding revenue
from owned and leased hotels,
managed leases and significant
liquidated damages.
franchisee
an operator who uses a brand under
licence from the brand owner, IHG.
franchisor
the brand owner, 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.
Group or IHG
the Company and its subsidiaries.
Guest Heartbeat
IHG’s guest satisfaction measurement
tool to measure brand preference and
guest satisfaction.
hedging
the reduction of risk, normally in
relation to foreign currency or interest
rate movements, by making offsetting
commitments.
IASB
International Accounting Standards Board.
ICETUS
InterContinental Executive Top-Up Scheme.
IC Plan
InterContinental Hotels UK Pension Plan.
IFRS
International Financial Reporting
Standards as adopted by the EU and
issued by the IASB.
IHG System
Hotels operating under franchise and
management agreements together with
IHG owned and leased hotels.
IHG System size
the number of hotels/rooms franchised,
managed, owned and leased by IHG.
indirect channels
online travel intermediaries and business
and leisure travel agents.
interest rate swap
an agreement to exchange fixed for floating
interest rate streams (or vice versa) on a
notional principal.
liquidated damages
payments received in respect of the early
termination of management and franchise
contracts, where applicable.
LTIP
Long Term Incentive Plan.
managed leases
properties structured for legal reasons
as operating leases but with the same
characteristics as management contracts.
management contract
a contract to operate a hotel on behalf
of the hotel owner.
market capitalisation
the value attributed to a listed company
by multiplying its share price by the
number of shares in issue.
net debt
borrowings less cash and cash equivalents,
including the exchange element of the
fair value of currency swaps hedging
the borrowings.
net rooms supply
net total number of IHG hotel rooms.
NYSE
New York Stock Exchange.
occupancy rate
rooms occupied by hotel guests,
expressed as a percentage of rooms
that are available.
ordinary share
from 9 October 2012 until 30 June 2014,
the ordinary shares of 14194/329 pence each
in the Company; and from 1 July 2014,
the ordinary shares of 15265/329 pence each
in the Company.
owner
the ultimate owner of a hotel property.
pipeline
hotels/rooms that will enter the IHG
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.
RevPAR or revenue per available room
rooms revenue divided by the number of
room nights that are available (can be
mathematically derived from occupancy
rate multiplied by average daily rate).
room count
number of rooms franchised, managed,
owned or leased by IHG.
rooms revenue
revenue generated from the sale
of room nights.
royalty revenues
rooms revenue that a franchisee pays
to the brand owner for use of the
brand name.
SCETUS
Six Continents Executive Top-Up Scheme.
SEC
US Securities and Exchange Commission.
Six Continents
Six Continents Limited; previously Six
Continents PLC and re-registered as a
private limited company on 6 June 2005.
sterling or pounds sterling, £, pence or p
the pound sterling, the currency of the
United Kingdom.
subsidiary undertaking
a company over which the Group
exercises control.
system contribution to revenue
per cent of rooms revenue delivered
through IHG’s direct and indirect systems
and channels.
System Fund or Fund
assessment fees and contributions
collected from hotels within the IHG
System for the specific use of marketing,
the IHG Rewards Club loyalty programme
and the global reservations system.
technology income
income received from hotels under
franchise and management agreements
for the use of IHG’s proprietary
reservations system.
total gross revenue
total rooms revenue from franchised hotels
and total hotel revenue from managed,
owned and leased hotels. It is not revenue
attributable to IHG, as it is derived from
hotels owned by third parties.
TSR or Total Shareholder Return
the theoretical growth in value of a
shareholding over a period, by reference to
the beginning and ending share price, and
assuming that dividends, including special
dividends, are reinvested to purchase
additional units of the equity.
UK
the United Kingdom.
UK DB Plan
the Defined Benefit section of the IC Plan.
UK DC Plan
the Defined Contribution section of the
IC Plan.
UK GAAP
United Kingdom Generally Accepted
Accounting Practice.
US
the United States of America.
US 401(k) Plan
the Defined Contribution 401(k) plan.
US Deferred Compensation Plan
the Defined Contribution Deferred
Compensation Plan.
US dollars, US$, $ or ¢
the currency of the United States
of America.
working capital
the sum of inventories, receivables
and payables of a trading nature,
excluding financing and taxation items.
185
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSPARENT COMPANY FINANCIAL STATEMENTSADDITIONAL INFORMATION IHG Annual Report and Form 20-F 2014
Forward-looking statements
The Annual Report and Form 20-F 2014 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 Officer’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 being subject to a
competitive and changing industry; the Group’s exposure to risks related to executing and realising benefits from strategic transactions,
including acquisitions; the Group’s dependence upon a wide range of external stakeholders and business partners; the Group’s exposure
to increasing competition from online travel agents and intermediaries; the risks related to identifying, securing and retaining franchise
and management agreements; the risks in relation to changing technology and systems; the risks associated with the Group’s financial
stability and its ability to borrow and satisfy debt covenants; the risk of litigation; the Group’s reliance on the reputation of its brands and
exposure to inherent reputation risks, including those associated with intellectual property; the risks involved in the Group’s reliance
upon its reservations system and other key technology platforms, and the risks that could cause the failure of these systems; 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 risks related to ethics and responsible business practices; and the risks associated
with insuring its business.
The main factors that could affect the business and financial results are described in the Strategic Report of the Annual Report
and Form 20-F 2014.
Designed and produced
by Addison Group
www.addison-group.net
Managed by RR Donnelley
This Report is printed on Satimatt Green
which is manufactured using 75%
post-consumer recycled fibre and 25%
FSC® certified virgin fibre. Both the
manufacturing mills and printer are
ISO 14001 and FSC® certified.
186
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
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Annual Report and Form 20-F 2014