Annual Report and
Form 20-F 2016
Contents
Strategic Report
IHG at a glance
2
Chairman’s statement
4
Chief Executive Officer’s review
6
8
Industry overview
10 Our preferred brands
12 Our business model
14 Our strategy for high-quality growth
16 Our Winning Model in action:
executing our strategy
18 Doing business responsibly
20 Risk management
22
Viability statement
23 Key performance indicators (KPIs)
26 Performance
26
Key performance measures (including
Non-GAAP measures) used by management
27 Group
30 Regional highlights
The Americas
31
34
Europe
38 Asia, Middle East and Africa (AMEA)
40 Greater China
Our Board and Committee governance structure
Governance
48 Chairman’s overview
49 Corporate Governance
49
50 Our Board of Directors
52 Our Executive Committee
54 Board meetings
55
55 Board effectiveness evaluation
Engagement with shareholders
56
Audit Committee Report
57
60
Corporate Responsibility Committee Report
61 Nomination Committee Report
62
Director induction, training and development
Statement of compliance with the
UK Corporate Governance Code
64 Directors’ Remuneration Report
Group Financial Statements
84
85
90
91
98
106
Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
Independent Auditor’s US Report
Group Financial Statements
Accounting policies
Notes to the Group Financial Statements
Parent Company Financial Statements
148 Parent Company Financial Statements
148
148
149
Parent Company statement of financial position
Parent Company statement of changes in equity
Notes to the Parent Company
Financial Statements
Additional Information
156 Other financial information
160 Directors’ Report
Group information
164
Shareholder information
173
Exhibits
181
182
Form 20-F cross-reference guide
184 Glossary
186
188 Forward-looking statements
Useful information
The Strategic Report on pages 2 to 45 was
approved by the Board on 20 February 2016.
George Turner, Company Secretary
IHG Annual Report and Form 20-F 2016
Strategic Report
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
Holiday Inn Cikarang Jababeka, Indonesia,
which opened in 2016
Contents
IHG Annual Report and Form 20-F 2016
1
IHG at a glance
We have a diverse portfolio of differentiated brands that
are well known and loved by millions of guests around
the world. Whatever their needs, we have the right hotel
brands for both our guests and owners.
We are focused on strengthening our portfolio
of preferred brands, building and leveraging
scale, and delivering revenue to our hotels
through the lowest-cost, direct channels.
Our proposition to third-party hotel owners
is highly competitive and drives superior
returns for them. We execute an asset-light
strategy with a focus on 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 BRANDS
Live the InterContinental Life
A different way to stay
Making travel inspiring
Where wellness
is built in
Capturing the spirit
of Chinese hospitality
Making business
travel work
FINANCIAL HIGHLIGHTS
Group revenue
$1,715m (-4.9%)
2015: $1,803m
Group operating profit
$678m (-54.8%)
2015: $1,499m
Group operating profit before exceptional items
$707m (+4.0%)
2015: $680m
Total gross revenue in IHG’s System
$24.5bn (+2.1%)
2015: $24.0bn
Total underlying operating profit growth
$61m (+9.5%)
2015: $67m
Joy of travel for all
Simple, smart travel
The joy of lifetime vacations
Revenue per available room (RevPAR) growth
+1.8%
2015: +4.4%
Underlying fee revenue growth
+4.4%
2015: +7.7% (excluding growth arising from the
acquisition of Kimpton Hotels & Restaurants)
Driven by: +1.8% (2015: 4.4%) RevPAR growth;
and 3.1% (2015: 4.8%) net System size growth
The joy of family holidays
Feel at ease when
you stay with us
Your home base
For further information on our
brands, see pages 10 and 11.
Use of Non-GAAP measures
In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures
(described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP
measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found
on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 156 and 157.
2
IHG Annual Report and Form 20-F 2016
Strategic Report
We are one of the world’s leading hotel
companies, whose purpose is to create Great
Hotels Guests Love® through delivering our
promise of True Hospitality for everyone.
Definition System
Hotels/rooms operating under
our franchise and management
agreements, together with IHG
owned and leased hotels/rooms.
OUR SCALE
WHERE WE OPERATE
We predominantly franchise our brands to,
and manage hotels on behalf of, third-party
hotel owners; our focus is therefore on
building preferred brands and strong
revenue delivery systems.
Total hotels (rooms) in the IHG System
We operate in nearly 100 countries globally.
5,174
(767,135)
2015: 5,032 (744,368)
Franchised hotels (rooms)
4,321
(542,650)
2015: 4,219 (530,748)
Managed hotels (rooms)
845
(222,073)
2015: 806 (211,403)
Owned and leased hotels (rooms)
8
(2,412)
2015: 7 (2,217)
Total hotels (rooms) in the pipeline
1,470
(230,076)
2015: 1,330 (213,916)
Group revenue 2016 ($1,715m)
Number of rooms (767,135)
8%
7%
14%
13%
58%
12%
10%
14%
64%
Group operating profit before exceptional
items 2016 ($707m)
75m
82m
45m
-128m
633m
Americas
Europe
Asia, Middle East and Africa (AMEA)
Greater China
Central
For details on central revenue and
net central costs, see page 43.
IHG at a glance
IHG Annual Report and Form 20-F 2016
3
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
Chairman’s statement
Throughout 2016, we continued to focus on
delivering our proven strategy for high-quality
growth and enhancing our offer for guests
and owners. In what was another year of
change for both our sector and the wider
world, we once again demonstrated our
ability to deliver sustainable growth.
Shaped for success
IHG has a long track record of succeeding in
a changing world. As a global business, with
a footprint in nearly 100 countries, managing
through change and uncertainty is something
that we are very used to. Our success comes
from having a clear, proven and focused
strategy in place, which continues to deliver
value in this environment. It is also a result
of having a portfolio of brands that mean
something to our guests, strong long-term
relationships with our owners, and significant
global scale.
As the hospitality and consumer landscape
continues to evolve, with continued
digitisation, changing demographics and
further industry consolidation, coupled with
broader political, economic and societal
change, these core strengths and capabilities
will remain at the heart of our success.
“ The work being done by our
colleagues day in, day out,
to deliver the real hallmarks
of our distinctive brands,
and bring each of them to life,
is truly outstanding.”
Patrick Cescau
Chairman
Crowne Plaza Atlanta – Midtown, Georgia, US,
which completed a major renovation in 2016
4
IHG Annual Report and Form 20-F 2016
Strategic Report
Strategic priorities
Against this backdrop, we continue to make
sure that we deliver on our strategy in a way
that makes sense for different markets and
geographies, and that resources are aligned
behind the greatest opportunities. This
involves staying close to the trends shaping
our industry, something we capture each year
in our IHG Trends Report (see page 8). The
Board’s priority remains to ensure that the
business is focused on staying agile and
moving at pace, whilst at the same time
maintaining our strategic direction and
ensuring that we continue to nurture a culture
of strong values, develop world-class talent,
and maintain trust and integrity with our
stakeholders.
Our Board and our culture
Making sure our Board has the right expertise
to challenge and support the business in its
corporate decision-making is crucial, and
is something I personally take very seriously
indeed. We regularly review the composition
of the Board to ensure that our combined
skill set is aligned with the business’ strategic
priorities. At the end of 2016, the Board
comprised six Non-Executive Directors,
myself as Chairman, and two Executive
Directors. We are delighted that, effective
from 1 March 2017, Malina Ngai will be joining
the Board as a Non-Executive Director
and she will also sit on the Corporate
Responsibility, Nomination and Remuneration
Committees. Malina will bring a deep
understanding of how consumer-facing,
branded companies operate, as well as the
role that technology and digital-commerce
play in transforming the consumer
experience. She also has a truly global
perspective and significant insight into
the Asian market, which is a key focus
for the business.
We are a diverse Board in terms of gender,
nationality and age, as well as in the broad
range of skills and areas of expertise
we collectively bring to the table. Ensuring
that we strengthen this breadth, particularly
from a regional and gender diversity
perspective, will continue to be a key priority
for us. This will ensure that the Board has
the ability to maintain a high-quality level
of discussion and debate, and keep IHG
well prepared for the future.
We know that, to be truly successful, we
must also focus on how we deliver sustainable,
high-quality growth. We achieve this through
a passionate commitment to instilling IHG’s
effective culture and values in our ways of
working, and maintaining our deep
commitment to conducting business
responsibly – a principle that guides the
behaviour of our colleagues, and builds
trust with consumers and investors.
Shareholder returns
Our close, trusted relationships
with our owners, together with our
internationally-renowned brands,
people, scale and systems, is a powerful
combination that continues to deliver
outstanding long-term shareholder value.
I am pleased to announce that the Board is
recommending a final dividend of 64.0 cents
per ordinary share, an increase of 11 per cent
on the final dividend for 2015, resulting in
a full year dividend of 94.0 cents per share,
up 11 per cent on 2015. The Board has also
proposed a $400 million special dividend with
share consolidation, which will take the total
funds returned to shareholders since 2003
to $12.8 billion. With our asset-light strategy
concluding in 2015, it is important to note
that nearly $5 billion of the total returns
has come from IHG’s underlying operations,
illustrating the strength of our cash
generative business model and ability
to deliver sustained organic growth.
Thank you
I spent time in all our regions during the
year and visited brands across our portfolio.
During this time, I had the opportunity to
meet many of our colleagues and have
seen first-hand the many improvements
that we are making to our brands. I have
also spent time with our owners, as well
as representatives of the IHG Owners
Association, to share ideas, discuss new
projects and, alongside our Executive
Committee, ensure that we maintain
our excellent working relationships.
I am very proud of all the achievements we
have made in 2016. The work being done by
our colleagues day in, day out, to deliver the
real hallmarks of our distinctive brands, and
bring each of them to life, is truly outstanding.
Their passion and enthusiasm has been a
driving factor in our strong – and improving –
satisfaction scores (Guest Love), and has
fuelled further demand from our owner
community, illustrated by another strong year
of hotel openings and signings. As we head
into 2017, I would like to thank all colleagues
for their tireless efforts to create great guest
experiences, and our owners for their
continued confidence in our business
and commitment to driving success.
Patrick Cescau
Chairman
FULL-YEAR DIVIDEND
Five-year progress (¢)
2012
2013
2014
2015
2016
64.0
70.0
77.0
85.0
94.0
FINAL DIVIDEND
64.0¢ to be paid on 22 May 2017
(2015: 57.5¢)
RETURN OF FUNDS
Since March 2004, the Group has
returned over £5.9 billion of funds
to shareholders by way of special
dividends, capital returns and share
repurchase programmes. A further
return of funds of $400 million
via a special dividend with share
consolidation is proposed in 2017.
Paid during the last five years
• $500 million paid 22 October 2012
• $350 million paid 4 October 2013
• $750 million paid 14 July 2014
• $500m share buyback completed
in 2014
• $1.5 billion paid 23 May 2016,
equivalent to 632.9¢/438.2p per share
Chairman’s statement
IHG Annual Report and Form 20-F 2016
5
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
Chief Executive Officer’s review
IHG delivered another year of consistent,
high-quality growth and strong financial and
operational performance in 2016, led by the
continued execution of our Winning Model.
This focus, brought to life by our talented
colleagues and supported by strong owner
relationships, enables us to successfully
differentiate ourselves from the competition
and meet the needs of our guests in an
ever-changing consumer environment.
We made important progress against every
element of our Winning Model. We built scale
where it matters by broadening the global
footprint of our brands in key markets, made
important enhancements to our digital
channels, significantly strengthened our
direct-bookings offer for guests and owners,
and further improved our industry-leading
loyalty programme (see pages 16, 17 and 30).
Financial and operational highlights
Alongside this important work, we delivered
strong underlying operating profit growth,
signed the highest number of hotels since
2008, and closed the year with almost 5,200
open hotels in our portfolio. We remained
focused on driving growth in markets where
we see the greatest opportunities, and
continued to build important momentum in
this approach. IHG finished 2016 with a pipeline
of 230,000 rooms, with approximately 90
per cent of them situated in our 10 priority
markets. This represents a 14 per cent share
of the active industry pipeline – more than
three times our share of current supply –
and illustrates our attractive prospects for
strong, organic growth.
In what is an increasingly important space,
we made excellent progress in driving digital
growth across the business, strengthening
our booking channels and leveraging our
leading, data-driven marketing capabilities to
engage with more guests in ways that are both
relevant and most preferred. Digital revenue
grew approximately eight per cent – driven by
mobile, which delivered $1.6 billion in revenue.
This channel alone now drives more traffic to
our websites than desktop, with our award-
wining app a key driver of this shifting trend.
This is particularly important and helpful for
our owners, with increased direct bookings
delivering more low-cost revenue.
Brands-led business
The increasing global demand from guests
and owners for our portfolio of brands is
extremely encouraging. Throughout the year,
we made real progress, be it by entering new
markets or securing flagship locations, or
by introducing important enhancements to
service and design that are making a positive
difference to the guest experience and helping
attract new business.
In InterContinental Hotels & Resorts’ 70th
anniversary year, we strengthened its position
as the world’s largest luxury hotel brand with
a significant global marketing campaign,
more iconic openings, improved service
training and the highest number of hotel
and room signings since 2008.
Illustrating our ability to successfully grow
and develop some of our newer US brands,
we celebrated taking Kimpton Hotels &
Restaurants global, signing a deal in Paris and
opening a property in Grand Cayman. In 2017,
the brand will debut in Europe, opening a hotel
in Amsterdam. We also doubled the size of
our lifestyle brand, EVEN Hotels, to six open
hotels, added more to the pipeline and signed
a deal to launch the brand in Australia and
New Zealand.
For our Crowne Plaza Hotels & Resorts brand,
we established a new global identity and
service style to help to further build on its
industry-leading position in many of our
markets around the world. Using this as a
foundation, we announced the Crowne Plaza
Accelerate programme – a $200 million
investment programme designed to deliver
an improved performance in The Americas
through enhanced service and marketing
that better resonates with the modern
business traveller.
Delivering our strategy
Underpinning the success of all our brands
is a focus on digital leadership. In 2016, we
made strong progress in enhancing the Guest
Journey (Dream, Plan, Book, Stay and Share),
building more rewarding loyalty relationships,
and strengthening our competitive advantage,
by leveraging the latest technology.
Following a successful trial, we rolled out Your
Rate by IHG Rewards Club globally, providing
access to exclusive, preferential rates to loyalty
members booking through our direct channels.
This has led to higher direct bookings,
delivering better-quality revenue to our hotels,
and a rise in membership enrolments. We also
“ Underpinning the success
of all our brands is a focus
on digital leadership.
This involves us using
new technologies and
data to deliver truly
relevant experiences.”
Richard Solomons
Chief Executive Officer
KEY HIGHLIGHTS
Gross revenue delivered through mobile bookings
$1.6bn
The launch of
Your Rate
by IHG® Rewards Club
Total hotel signings
516
The highest number since 2008
6
IHG Annual Report and Form 20-F 2016
Strategic Report
increased our attractiveness to Chinese
travellers through a deal with China’s leading
third-party online payment solutions company,
Alipay, to offer their services across our hotels
and online platforms worldwide, and we made
important progress with the development
of our new Guest Reservation System (GRS),
which remains on track to begin roll-out in
2017. IHG has a rich history of innovation, and
the new GRS will provide an industry-leading
cloud-based booking platform that offers
guests a more personalised experience and
allows hotels to manage and sell rooms in
a more powerful way.
Our digital business is one of the ways in which
we build meaningful lifetime relationships
with our guests. This involves us using new
technologies and data to deliver truly relevant
experiences – be it more targeted marketing,
or through enhanced arrival information
that empowers our hotels to create a more
personal stay. Mobile check-out and our
wifi offer, IHG Connect, are all also making
important contributions in this area. All these
programmes will continue to expand across
our hotels in 2017.
Combining this commercial strength with our
unique brand propositions and outstanding
colleagues forms the bedrock of creating Great
Hotels Guests Love, which we deliver through
providing True Hospitality for everyone. This
important commitment connects us all at IHG
and centres on our passion to make everyone
feel welcome and cared for, recognised and
respected – be it guests, owners, partners,
colleagues or those in the communities in
which we work.
Our responsible business credentials
We have made excellent progress with our two
corporate responsibility programmes, IHG®
Academy and the IHG Green Engage™ system.
IHG Academy has been building hospitality
skills in local communities for more than a
decade and, in 2016, we introduced 11,985
new participants to programmes in 75
countries, while our group-wide sustainability
programme, the IHG Green Engage system,
is helping drive real improvements in how
our hotels responsibly manage things such
as water, carbon and waste.
We reached another significant milestone with
the launch of the IHG® Foundation in February
2016. The IHG Foundation builds on the positive
impact of our corporate responsibility
initiatives, and allows us to make a deeper,
more lasting change in communities beyond
Kimpton Seafire Resort + Spa, Grand Cayman,
the first Kimpton hotel outside of the US, which opened in 2016
our hotels around the world, and across areas
including disaster relief and environmental
protection. In 2016, the Foundation made 34
grants to 25 organisations, including donations
to the Sichuan Province Foundation for Poverty
Alleviation in China, and it supported
communities affected by disasters such as
flooding in France and earthquakes in Japan
and Ecuador.
Awards
External recognition is the best measure of
our progress and, in 2016, IHG won over 200
awards. This is an outstanding achievement. I
am particularly proud of the many employer
awards, including winning Best Employer
Brand in the UK at the Personnel Today
Awards, and being named on Atlanta’s Best
Places to Work list by the Atlanta Business
Chronicle. IHG was also named Britain’s most
admired company in the leisure and hotels
sector by Management Today, and 8th in their
list of all UK companies. Our brands also
picked up many coveted awards. Crowne
Plaza was voted best Upscale Hotel Brand in
North America by Business Travel News, up
from 8th in 2015, and InterContinental Hotels
& Resorts was named the World’s Leading
Hotel Brand at the World Travel Awards. The
Flyer Travel Awards named HUALUXE Hotels
and Resorts Best New Hotel Brand in China
and Holiday Inn was voted the Best Mid-
Range Hotel Brand in China at the TTG China
Travel Awards for the sixth consecutive year,
while Condé Nast also named the Kimpton
RiverPlace Hotel in Portland, Oregon, US
one of the world’s top hotels.
Strengthened position
It was a busy year, and both our industry and
the world is changing at pace. This brings both
challenges and opportunities and I remain
confident that, by executing our winning
strategy and leveraging the strength of our
business model, we will continue to deliver
sustainable, organic growth into the future.
We head into 2017 in a position of strength, and
I would once again like to thank all our owners
for their support and for the trust they place in
us. Our owners are crucial to our performance,
and we place the utmost importance on our
relationship with them. I would also like to
thank our talented, passionate and energetic
colleagues, who bring our brands to life and
remain IHG’s greatest competitive advantage.
Richard Solomons
Chief Executive Officer
Chief Executive Officer’s review
IHG Annual Report and Form 20-F 2016
7
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Industry overview
The global hotel industry
The global hotel industry is comprised of
approximately 16.4 million rooms, broadly
segmented into branded (multiple hotels
under the same brand) and independent
(non-branded) hotels. Growth in demand is
primarily driven by economic growth and
an increasing trend for domestic and global
travel. Over the long term, the lodging industry
has grown broadly in line with gross domestic
product (GDP). However, in the US, the largest
market in terms of room numbers, growth in
consumer spend on lodging has exceeded GDP
growth by 2.6 percentage points per annum
over the last 50 years.
There are several industry metrics that
are widely recognised and used to track
performance, including revenue per available
room (RevPAR) and rooms supply growth.
Driven by strong fundamentals, the global
hotel industry has seen continued growth in
these key indicators. In the last five years,
global industry RevPAR has averaged 3.9
per cent growth per year, underpinned by
high levels of demand and below-average
increases in supply.
In 2016, total industry RevPAR has continued
to grow, albeit at a slower pace, following a
record seven years of sustained growth in
demand. This trend reflects the cyclical nature
of the hotel industry, where longer-term
fluctuations in RevPAR tend to reflect the
interplay between demand and hotel supply,
and the general economic environment.
At a local market level, short-term RevPAR
trends can be affected by economic or political
events, such as the recent acts of terrorism
in Europe and challenges to the oil industry,
which can cause a significant change
in demand.
Please see pages 20 to 22 to read about
our risk management.
The branded hotel market
IHG operates within the branded hotel
market, which accounts for 53 per cent
of total rooms supply globally.
Despite recent industry consolidation, the
market remains fragmented with five of
the leading players (Marriott, Hilton, IHG,
Wyndham and AccorHotels) accounting for
only 24 per cent of total open rooms and
61 per cent of the overall development
pipeline (ie hotels in planning and under
construction, but not yet opened).
According to Smith Travel Research, branded
hotel companies have consistently increased
their share of the global hotel market over
the past 10 years, helped by consumers’ trust
in the ability of brands to deliver a consistent
stay experience. Large hotel companies
benefit from economies of scale and branded
hotel companies have shown increased
resilience throughout the economic cycle.
The different business models within
the hotel industry
There are four different business models
typically seen in the industry:
• owned hotels are operated by an owner
who bears all the cost associated with the
hotel but benefits from all of the income;
•
•
•
a leased model is similar, except the
owner-operator of a hotel does not have
outright ownership of the hotel but leases
it from the owner of the property;
under a managed model, the owner of a
hotel will use a third-party manager to
operate the hotel on its behalf, and will
pay the manager management fees and,
if the hotel is operated under a third-party
brand name, brand-licensing fees to that
third party; and
a franchised model, where the hotel is
owned and operated by a third party who
will pay a brand-licensing fee to the hotel
company to use their hotel brand.
Whilst an owner-operated hotel enables
the owner to have full control over hotel
operations, it requires high capital
investment. In contrast, for hotel-brand
owners, a franchised or managed model
enables quicker rooms growth due to lower
capital investment, but this requires strong
relationships with third-party hotel owners.
Business
model
Capital
intensity
Hotel
ownership
Hotel
operations
Brand
ownership,
marketing
and
distribution
Franchised Low
Managed
Low
Third
party
Third
party
Third
party
Brand
owner and
third
party
Brand
owner
Owned
and leased
High
Brand
owner
Brand
owner
8
IHG Annual Report and Form 20-F 2016
Strategic Report
LONG-TERM HOTEL INDUSTRY DRIVERSIn the long term, growth in the global hotel industry is driven by strong economic, demographic and social drivers.• Long-term macroeconomic growth substantially benefits the hotel industry and drives both the corporate and leisure segments of demand. GDP is forecast to grow at 2.6 per cent per annum for the next 10 years.• In addition to worldwide population growth, changes to the world’s demographic profile mean there are more people with the desire and means to travel, such as those aged over 60 – 12 per cent of the world’s population in 2015, and forecast to increase to 21 per cent by 2050.• Social factors, such as the arrival of low-cost airline carriers and the relaxation of travel restrictions, continue to make travel more viable. International tourist travel is expected to increase from 1.2 billion to 1.9 billion tourist arrivals by 2026.IHG TRENDS REPORTThe Uncompromising Customer: Addressing the Paradoxes of the ‘Age of I’Our 2017 Trends Report, 'The Uncompromising Customer: Addressing the Paradoxes of the ‘Age of I’’ identifies four paradoxes that are driving the decisions customers make today. In a landscape constantly changing through advances in technology, customers do not want ‘either/or’ solutions. The report looks at how brands can address and capitalise on conflicting needs, such as exclusivity and accessibility, in order to deliver experiences that strengthen relationships and grow brand loyalty.To read our trends report, go to www.ihgplc.com/news-and-media under IHG Trends Report. S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
Trends shaping our industry
In addition to long-term growth drivers (see box, top left), we also see a number of key trends shaping the hotel industry.
InterContinental Resort Tahiti, French Polynesia
Industry overview
IHG Annual Report and Form 20-F 2016
9
9
DIGITAL CONSUMERThe increasing use of digital, particularly mobile, technology in everyday life is now driving interactions between travellers and hotel brands. The time spent online is growing significantly; in the US, it is more than 5.5 hours per day, and the average UK consumer spends more time on digital media each day than on all other media put together. Internet use is also growing rapidly in emerging markets, where smartphone adoption is also particularly strong. Euromonitor forecasts that, by 2020, online travel sales will account for over 45 per cent of global sales (circa 38 per cent in 2015), with mobile accounting for 40 per cent of online sales (circa 20 per cent in 2015). The increasing use of digital technology is transforming the way guests plan and book their stays, which also benefits other businesses in the hospitality space, including online travel agents (OTAs) and peer-to-peer home rental companies.For IHG, digital bookings represent a growing part of our business, with already well over $4 billion per annum coming through our direct channels, and a third of those bookings being made from mobile devices. IHG’s mobile app was developed in response to this trend – see page 21.>3bninternet users across the globe, growing by almost 300 million people annuallyMEANINGFUL MEMBERSHIPLoyalty programmes continue to become more sophisticated to cater for guests’ increased desire for inclusivity and individuality, whereby people want to belong – but without losing their personal uniqueness. Transforming membership into ‘meaningful membership’ requires brands to build and grow communities where members can connect and belong, whilst also offering relevant and personal benefits. To be successful, brands need to drive real engagement with their customers, and create brand advocates, through genuine personalisation. For IHG, creating meaningful membership offers an opportunity to form long-term, profitable, loyal relationships with guests, so that our guests not only return to our hotels again and again, but also act as powerful advocates for our brands. To read about how we have created meaningful membership through our IHG Rewards Club and Your Rate programme, see page 16.64%of millennials said that loyalty programmes drove them to interact with a brandEVOLVING NEEDS OF TRAVELLERSThe needs and expectations of travellers continue to evolve across all age groups. This is exemplified by technology-conscious millennials, who are becoming more inclined to use peer-to-peer services to meet their accommodation needs than other groups, in contrast to a growing ageing population, with increasing resources and desire to travel. As a result, accommodation providers increasingly need to cater for a more diverse set of guest needs and expectations. Hotel brands need to provide, not only greater personalisation for guests, but also a feeling of humanity in travel that has faded with increasing technological advances.For IHG, these changes present a great opportunity to enhance our competitive position, and, by having preferred brands and great people to deliver unique and personalised stay experiences, we are poised to take advantage of them. IHG’s new Guest Reservation System, which gives guests more personalisation and choice, and gives hotel staff more time to interact with guests, is one of the ways we are addressing this trend – see page 17.Nearly70%of customers are willing to pay a premium for greater room choice (GB Deloitte survey)THE VALUE OF DATABy the end of the decade, IBM estimates that over 1 trillion sensors will be connected to multiple networks: everything that can benefit from a connection will have one. This will allow companies to know more about how customers use their products. The wealth of data generated by the ‘Internet of Things’, combined with the ability of big-data technology to gather intelligence from large quantities of data, presents a clear opportunity to reshape the way we interact with guests and deliver enhanced experiences.For IHG, knowing more about our guests’ preferences will help us tailor experiences and communications to our guests’ tastes, thereby making these interactions more relevant and valuable to our guests. Our wifi offer, IHG Connect, is supporting these efforts – see page 31.By 2020, people and connected objects will generate40 trilliongigabytes of data
Our preferred brands
IHG is a brands-led business, and we create Great Hotels Guests
Love® through our portfolio of complementary and differentiated
hotel brands. Our brands are trusted for meeting guests’ needs,
for rewarding loyalty and for delivering memorable experiences.
InterContinental® Hotels & Resorts:
Live the InterContinental Life
International travel should always be
alluring. As the world’s first international
luxury travel hotel brand, we have been
pioneering new international destinations
for decades. We are dedicated to those who
appreciate and enjoy ‘The InterContinental Life’
– the glamour and exhilaration of fascinating
places, mixed with our international know-how
and local cultural wisdom.
Guest stay occasions: short-break experience,
mixing business with pleasure, social identityb.
Kimpton® Hotels & Restaurants:
A different way to stay
As the industry pioneer that first introduced
the boutique concept to the US, we are
renowned for making travellers feel genuinely
cared for through thoughtful perks and
amenities, inventive meetings and events,
bold and playful design, and a sincerely
personal style of guest service.
Guest stay occasions: short-break experience,
business productivity, family time.
HUALUXE® Hotels and Resorts:
Capturing the spirit of Chinese hospitality
We are the first upscale international
hotel brand designed specifically for
Chinese guests. We have woven into every
detail of the luxury brand's service and
design an acknowledgement of Chinese
culture and heritage, with particular
emphasis on the Chinese values
of etiquette, rejuvenation in nature,
recognition of status and enabling spaces.
Guest stay occasion:
building business interactions.
187
Hotels open
62
Hotels in pipeline
61
Hotels open
18
Hotels in pipeline
4
Hotels open
22
Hotels in pipeline
75
Hotels open
75
Hotels in pipeline
6
Hotels open
6
Hotels in pipeline
408
Hotels open
90
Hotels in pipeline
Hotel Indigo®:
Making travel inspiring
We serve the curious – people who
are inspired by new places, new people
and new ideas. Each hotel is part of
the pulse and the rhythm of a place,
drawing on the story of its local area
to inspire every aspect of the hotel,
from intriguing design to distinctive
local ingredients in our menus.
Guest stay occasions: short-break experience,
business productivity, romantic getawaya.
EVEN® Hotels:
Where wellness is built in
We provide a strong lifestyle offering for
travellers seeking more options to stay
healthier and happier away from home. Our
hotels, and wellness-savvy staff, offer guests
a best-in-class fitness experience, healthier
food choices, and natural and relaxing spaces.
Beyond our hotels, we support the needs of
travellers through wellwellwell.com, a go-to
source for healthier, happier travel.
Guest stay occasion: well-being.
Crowne Plaza® Hotels & Resorts:
Making business travel work
We believe business travel should work
better. In every market in the world,
business has changed, and so has work.
It’s more digital, more flexible, more
mobile, more connected. As one of the
world's largest upscale brands, we have
properties located in major urban
centres, gateway cities and resort
destinations all around the globe.
Guest stay occasions: business productivity,
building business interactionsb.
10
IHG Annual Report and Form 20-F 2016
Strategic Report
Our hotel brands are underpinned by
the IHG® parent brand, strengthened
by our leading loyalty programme,
IHG® Rewards Club, and are brought
to life by outstanding people in great
hotels. Building upon an in-depth
understanding of what matters most
to guests, we continually enhance
our brands’ promises.
In a crowded marketplace, our
brands therefore stand out from the
competition and continue to deliver
memorable stay experiences, which
in turn drives the performance of
our business.
See page 29 for a breakdown of
IHG hotels open and in the pipeline.
Definition Guest stay occasion
We broadly segment the market into nine
globally relevant categories that align to
the different occasions for which guests
might travel, such as for family time or for
a romantic getaway. By understanding these
guest stay occasions, we are able to deliver
a differentiated brand experience that better
meets our guests’ expectations.
Holiday Inn® Hotels & Resorts:
Joy of travel for all
We believe the joy of travel is for
everyone. We pride ourselves on
delivering an affordable, enjoyable
hotel experience where guests are
always welcomed warmly. We opened
the doors of our first hotel in 1952, and
since then we have been making travel
a more enjoyable experience for all.
Guest stay occasions: family time, mixing
business with pleasure, social identityb.
Holiday Inn Express® Hotels:
Simple, smart travel
We keep it simple and smart. As IHG's
largest hotel brand, we’re the clear choice
for the increasing number of travellers
who need a simple, engaging place to rest,
recharge and get a little work done. We offer
everything guests need, and provide more
where it matters most.
Staybridge Suites Hotels®:
Feel at ease when you stay with us
As an extended-stay brand, we make
sure every space features a sense of
community, comfort and convenience,
so guests can feel at home while on the
road. Staybridge Suites is ideal for upscale
business and leisure travellers who want
to enjoy the best of home and hotel.
Guest stay occasion: rest and go.
Guest stay occasion: business productivity.
1,169
Hotels open
247
Hotels in pipeline
2,497
Hotels open
676
Hotels in pipeline
236
Hotels open
140
Hotels in pipeline
26
Resorts open
0
Resorts in pipeline
46
Resorts open
14
Resorts in pipeline
362
Hotels open
108
Hotels in pipeline
Holiday Inn Club Vacations®:
The joy of lifetime vacations
Our owners are part of a community
of people who understand the
importance of family and investing
in a lifetime of invaluable memories.
All of our properties offer spacious
villa accommodation for families in
top leisure destinations, and access
to world-class attractions such as
mountain adventures, championship
golf courses and serene beaches.
Guest stay occasion: family time.
Holiday Inn Resort®:
The joy of family holidays
We want all families to experience the joy
of great holidays together. In some of the
world’s most desirable locations – on the
beach, by the theme park, next to the golf
course, our resorts offer a wide variety of
activities and comforts, from kids’ clubs
and signature swimming pools, to informal
restaurants and quiet, fireside lounges.
Guest stay occasion: family time.
Candlewood Suites Hotels®:
Your home base
We offer a more casual kind of longer stay,
where you will always feel at home, at your best
and really productive while on the road. All of
our locations throughout The Americas are
easily accessible, and we are always opening
new hotels, so guests can book a spacious suite
whenever and wherever it works for them.
Guest stay occasion: business productivity.
a US only
b China/India only
Our preferred brands
IHG Annual Report and Form 20-F 2016
11
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Our business model
Our portfolio of 12 preferred brands are built on unique customer insights
and cater to a broad range of needs. We predominantly franchise our
hotel brands to, or manage hotels on behalf of, third-party hotel owners,
resulting in an asset-light business model.
Whether we franchise or manage hotels
to third-party hotel owners depends largely
on market maturity, owner preference and,
in certain cases, the particular brand.
• Mature markets predominantly
follow a franchise model:
- In The Americas and Europe,
over 90 per cent of IHG hotels
are franchised.
• While a managed model is typically used
in emerging markets:
- In AMEA about 80 per cent of IHG hotels
are managed by us; and
- In Greater China, that figure rises
to more than 98 per cent.
In addition, we own/lease and manage a
few select hotels, however, this figure has
dramatically reduced from over 180 owned
hotels 15 years ago, to just eight hotels at
31 December 2016.
Number of hotels
% of our operating profit
before central overheads
25%
3%
72%
845
8
4,321
Franchised
Managed
Owned and leased
Definition System Fund or Fund
assessment fees and contributions
collected from hotels within the IHG System
which fund specifically marketing, the IHG
Rewards Club loyalty programme and the
Guest Reservation System.
IHG REVENUE AND THE SYSTEM FUND
Total Gross Revenue
2016: $24.5bn. This comprises:
• Franchised hotels =
total rooms revenue
• Managed hotels =
• Owned and leased hotels =
total hotels revenue
total hotels revenue
(Only owned and leased hotel revenue is directly attributed to IHG.)
Third-party hotel owners pay:
Fees to IHG in relation to the licensing
of our brands and, if applicable,
hotel management services.
Assessments and contributions (other
than for Kimpton and InterContinental
hotels) which are collected by IHG for
specific use within the System Fund.
IHG revenue
2016: $1.7bn
Revenue attributable to IHG
and this comprises:
• Fee revenue: in 2016, 82% of our
revenue came from franchise
and management fees:
- Franchise fees = RevPAR
x rooms x royalty rate
- Management fees = fee % of total
hotels revenue plus % of profit
• All revenue from owned and
leased hotels.
• Central revenue (principally technology
fee income – see page 43).
Profit from fee revenues
After operating costs of sale, our
fee margin by business model is
as follows:
• Franchised: 86.0%
• Managed: 53.6%
• Owned and leased: 15.0%
Not all of our costs can be allocated
directly to revenue streams and these
are shown as regional or central
infrastructure costs.
Fee-based margins: 2016: 48.8%
System Fund receipts
2016: $1.7bn
• 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 43 for more information.
Key elements of System Fund
expenditure
• Marketing and sales activity.
• IHG Rewards Club loyalty
programme.
• Global distribution systems, such
as our Guest Reservation System.
For examples of how we have deployed
the System Fund in 2016 to support
our strategic priorities, please see
pages 16 and 17.
12
IHG Annual Report and Form 20-F 2016
Strategic Report
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 (see page 45), and we have three primary uses for this cash:
1.
Invest in the business to drive growth: this includes strategic investments
and our day-to-day capital expenditures – see table below, and page 107
for further details of our capital expenditure in 2016.
growth of 11 per cent since 2003.
2. Maintain sustainable growth in the ordinary dividend: compound annual
3. Return surplus funds to shareholders. In February 2017, we proposed
a further $400 million return of funds to shareholders via a special
dividend with share consolidation.
IHG’s outlook on 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
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 is now reducing as we have 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 equity capital.
We aim to recycle this capital by selling these investments when the time is right and to reinvest
elsewhere in the business and across our portfolio, as we are currently doing for our EVEN
Hotels brand.
The development of tools and systems that hotels use to drive performance, such as our new,
pioneering Guest Reservation System developed with Amadeus.
See Chairman’s statement for progress
on dividends, page 5.
Our business model
IHG Annual Report and Form 20-F 2016
13
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Our strategy for
high-quality growth
We are focused on delivering high-quality growth,
which for us means delivering consistent, sustained
growth in cash flows and profits over the long term,
via our portfolio of preferred brands.
Our strategy is unchanged. Through our
Winning Model, we focus on value-creation
by building preferred brands, delivering
a superior owner proposition, leveraging
scale and generating revenue through the
lowest-cost, direct channels. We concentrate
on a Targeted Portfolio that, together with
Disciplined Execution of our strategy and a
commitment to doing business responsibly,
will drive superior shareholder returns.
We measure our performance with a set of
carefully selected key performance indicators
(KPIs), which monitor our success in achieving
our strategy – see pages 23 to 25.
Value
creation
Superior
shareholder returns
Winning Model
Targeted Portfolio
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.
10Priority markets: US,
Middle East, Germany,
UK, Canada, Greater
China, India, Russia
and CIS, Mexico and
Indonesia.
Our priority
markets represent
87%
of the IHG System and
89%
of the IHG pipeline
Preferred brands delivered
through our people
Build and leverage scale
Strong brand portfolio
and loyalty programme
Effective channel management
Superior owner proposition
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.
Whilst doing business responsibly
See pages
18 and 19
For further information on our strategy,
go to www.ihgplc.com/about-us under
Our strategy.
14
IHG Annual Report and Form 20-F 2016
Strategic Report
Staybridge Suites Alpharetta –
North Point, Georgia, US
The individual components of IHG’s Winning Model are at the
heart of our success, and continue to align our organisation
to focus on the most important strategic initiatives, delivering
value-creation and high-quality growth for our shareholders.
A strong portfolio of preferred brands is
fundamental to our success. In a highly
competitive industry, with demanding
consumers and proliferating distribution
channels, it is vital to have brands that guests
prefer, will seek out and will pay a premium for.
To see how we strengthen our portfolio
of brands, go to:
- The InterContinental Life, on page 16;
- Holiday Inn and Holiday Inn Express:
design and guest experience, page 17;
- The Crowne Plaza Accelerate
programme, page 30.
Preferred brands delivered
through our people
Scale provides significant advantages in the
hotel industry at the global, national and city level.
The size of the IHG portfolio and our concentration
in attractive markets and key gateway cities allows us
to benefit from significant economies of scale, leading
to higher margins and greater operating leverage.
To see how we build and leverage
scale in our key markets, go to:
- Strengthening our lifestyle
and boutique presence in AMEA,
on page 30;
- Building scale in Germany, page 30.
Build and leverage scale
Having a strong loyalty programme tailored to our
guests’ needs and which drives high value revenue
across our portfolio is critical. By building lifetime
relationships with our guests, our loyalty programme
creates a revenue stream that extends out for years
to come and, if done right, turns regular travellers
into powerful advocates for our brands.
To see how we create lifetime
relationships with our guests, go to:
- A new, global, loyalty benefit –
Your Rate by IHG Rewards Club,
on page 16.
Strong brand portfolio
and loyalty programme
We drive demand to our hotels through our direct
channels by having strong brand awareness.
This reduces distribution costs and delivers better
returns for our owners. We endeavour to drive
business through our direct channels (digital
and voice) as they are less costly to owners
than third-party intermediaries.
To see how we drive demand through
our direct channels, go to:
- Guest Reservation System (GRS),
on page 17.
Effective channel
management
A strong owner proposition, preferred brands,
effective operational support and long-standing
owner relationships play a vital role in making
us the brand of choice for owners. We continue
to invest in initiatives that will deliver superior
returns for our owners.
To see how we drive superior owner
returns, go to:
- Franchise Plus in Greater China,
on page 30, for details of our new,
tailored, franchising model in
this region.
Superior owner proposition
Our strategy for high-quality growth
IHG Annual Report and Form 20-F 2016
15
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
STRENGTHENING OUR DIFFERENTIATED BRANDSBUILDING AND LEVERAGING SCALE IN KEY MARKETSCREATING LIFETIME GUEST RELATIONSHIPSDELIVERING REVENUE TO HOTELS THROUGH THE LOWEST-COST, DIRECT CHANNELSDRIVING SUPERIOR RETURNS TO OUR THIRD-PARTY OWNERS
Our Winning Model in action:
executing our strategy
We are focused on delivering across all
components of our Winning Model and,
in 2016, executed several important
global initiatives.
To see our regional highlights, please go to
the Performance section on page 30.
A NEW, GLOBAL, LOYALTY
BENEFIT – YOUR RATE BY
IHG® REWARDS CLUB
THE INTERCONTINENTAL LIFE
InterContinental Suzhou, People’s Republic of China
We celebrated the 70th anniversary of InterContinental
Hotels & Resorts, the world’s largest luxury hotel brand,
in 2016. With more than 185 hotels worldwide, we have
the international know-how and local cultural wisdom to
deliver ‘The InterContinental Life’. We have successfully
launched multiple initiatives this year, including:
• new brand-orientation training for all frontline
colleagues;
• a new multi-million dollar integrated global advertising
campaign in key markets; and
• the management of a $180 million refurbishment and
reopening of InterContinental New York Barclay.
We continued to add hotels in the world’s top destinations,
including Beijing, Doha and Shanghai. With hotels secured
in Houston, Maldives, Phuket, San Diego and Venice, it was
one of our strongest years for hotel signings. The brand
continues to excel in the luxury hotel space, being named:
• the World’s Leading Hotel brand for the eighth
consecutive year at the World Travel Awards; and
• the Best Business Hotel Chain Worldwide at the
Business Traveller Awards.
Some of our hotels also featured in the Condé Nast
Traveller Readers’ Choice awards.
187
hotels make
InterContinental
the largest luxury
chain worldwide
18
signings, our
best performance
since 2008
HUALUXE Haikou Seaview, People’s Republic of China
Building lifetime relationships with our most high-value
guests is fundamental to creating long-term revenue
for our owners.
After successful trials in Europe and The Americas, we
introduced Your Rate by IHG Rewards Club, offering loyalty
members the lowest rate available when booking direct
with us, compared with other channels.
Your Rate drives revenue because:
• our most loyal members stay at our hotels more often
and spend more while they are with us – around 30 per
cent of members pay for additional hotel services; and
• an owner’s cost of sale may decrease by as much
as 20 per cent when a guest books direct through
Your Rate rather than via an online travel agent.
Since May 2016, Your Rate has seen some exciting responses.
• Direct-channel growth has increased by 5.3 ppt.
• There has been no material impact on the average daily
rate for our owners.
Your Rate has also contributed to a record growth
(year-on-year) in IHG Rewards Club:
• a 16 per cent increase in new member enrolments; and
• an increase of around 10 per cent in revenue from
members.
+3.9 ppt
direct web growth
-20%
in owners’ costs of
sale compared to
online travel agents
16
IHG Annual Report and Form 20-F 2016
Strategic Report
GUEST RESERVATION SYSTEM (GRS)
Candlewood Suites Atlanta West I-20, Georgia, US
Jointly developed with the leading technology provider,
Amadeus, our new Guest Reservation System will give
guests a degree of choice and personalisation far beyond
that offered by the industry today. This is a part of our
strategy to provide flexible, technological systems that,
when combined with our proprietary systems (such as
revenue management and customer loyalty management),
will give us real competitive advantage.
• Guests will no longer be constrained to a limited
range of room types, allowing them to customise their
reservation based upon features they find important.
• Hotel staff will experience an interface that allows for
more effective management, so they can spend more
time with guests.
• The new Guest Reservation System will transform our
ability to categorise, sell and manage the revenue of our
room inventory and other hotel services, while driving
greater returns for our owners.
The new Guest Reservation System remains on track
to begin roll-out in 2017, with more enhancements to
the guest experience to be released over time.
Tailored options
for guests
Intuitive interface for
hotel staff
Improved
inventory
management
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
HOLIDAY INN® AND HOLIDAY INN
EXPRESS® DESIGN AND GUEST
EXPERIENCE
Holiday Inn Brentford Lock, United Kingdom
The global success of our Holiday Inn and Holiday
Inn Express brands is underpinned by consistent
improvements to ensure we continue to deliver
differentiated, relevant guest experiences.
Holiday Inn
• In Europe, the open-lobby concept, which transforms
hotel lobbies into a welcoming space to work or
socialise, has become a brand standard, and almost
60 per cent of hotels open or in the pipeline have
committed to introducing it.
• In The Americas, a new, home-like room design
launched in 2016, and is expected to feature in more
than 100 hotels by 2018.
• In Greater China, new room designs that incorporate
a popular children’s character have seen an increase
of Average Daily Rate by 22.1 per cent.
Holiday Inn Express
• Using results from guest research on ‘smart traveller’
preferences, the brand launched new design schemes
offering a combination of fresh, dynamic, and focused
design features. Tailored to each region, enhancements
include efficient check-in pods, more versatile rooms
and public spaces, and additional guest-room comforts
and conveniences.
Introducing open lobbies in
Holiday Inn hotels in Europe
has increased Guest Love
scores in those hotels by
8 ppt
886
Holiday Inn Express
hotels open or in the
pipeline featuring
the new designs
Our Winning Model in action: executing our strategy
IHG Annual Report and Form 20-F 2016
17
Crowne Plaza Borjomi, Georgia
Doing business responsibly
We genuinely care about the well-being of our guests and colleagues
– and the impact we have on local communities and businesses too.
Our responsible business culture is embedded throughout our
organisation and underpins our entire strategy.
OUR WINNING WAYS
The set of behaviours that define how we
interact with our guests and colleagues.
Do the
right thing
Aim
higher
Show
we care
Celebrate
difference
Work better
together
Our culture of responsible business
In a climate where employees, guests and
other stakeholders want confirmation that
companies uphold their values, it’s important
that the credibility and value of our brands are
maintained through a culture of responsible
business. We achieve this through:
• strong governance and leadership, which
promote responsible business attitudes
and behaviours;
• ensuring our employees understand
key legal and reputational issues and
our Winning Ways (see box to the left);
• ensuring the safety and security of
employees, guests and other visitors
to our hotels and offices;
• operating effective risk management
and internal controls; and
• engaging in responsible procurement.
Our responsible business activities are
also closely aligned to the objectives of
the United Nations Sustainable Development
Goals (SDGs), which means that we are
contributing to the UN’s aim of transforming
our world by 2030.
Corporate responsibility
Through our corporate responsibility
programmes, we are capitalising on our
unique position to help make communities
Crowne Plaza Brussels Airport, Belgium
SUPPORTING OUR COMMUNITIES IN TIMES OF NEED
In times of disaster, hotels often find themselves at the heart of their community. In March 2016,
Crowne Plaza Brussels Airport hotel, in Belgium, found itself supporting impacted people from all
around the world both during and after the terrorist attacks at Brussels Airport. The hotel acted as a
shelter for those looking for missing family and friends, and as an emergency meeting place for the
Federal Police, the Red Cross and other emergency services. Our colleagues assisted over 3,000
people that had been affected by the attacks. The hotel also protected the wellbeing of our colleagues
by ensuring that hotel staff distressed by these events received counselling.
18
IHG Annual Report and Form 20-F 2016
Strategic Report
around the world better places to be for all.
In September 2013, IHG released a number
of five-year corporate responsibility targets,
which focus on measuring the positive impact
IHG has around the globe (see page 25 for our
performance against these targets).
Our communities
Through the IHG® Academy, a collaboration
between our hotels, education providers
and community organisations in our local
communities, we are nurturing and
developing people, to improve their
employability and grow their careers in the
hospitality industry. It’s our way of opening
doors and creating opportunities for all.
Our environment
IHG Green Engage™ system is our Group-
wide, online sustainability programme, which
helps hotels manage their use of energy,
carbon, water and waste, and minimise
their overall utility costs and environmental
impact. By delivering more environmentally
sustainable hotels, we can drive cost
efficiencies for owners as well as meet
the expectations of all our stakeholders.
Human rights
IHG focuses on those areas of human
rights that are most relevant to our business
and we work to ensure our values are reflected
consistently across our business. We have
developed an e-learning module on human
rights and modern slavery. In addition,
we publish a human rights policy, which
is translated into more than 40 languages.
We report on diversity in our supply chain
and set targets to ensure that corporate
responsibility criteria, including human rights
standards, are integrated into the selection
and evaluation process for preferred
suppliers. We also require our suppliers
to adhere to our Vendor Code of Conduct.
See www.ihgplc.com/responsible-business
for details on our first Slavery and Human
Trafficking Statement, detailing the steps
we are taking to eradicate modern slavery
in our supply chain and business.
Employee Engagement
88.7%
of survey respondents in 2016 were engaged,
an improvement of
14ppt
since 2010
Awards
24
received in 2016 for our people practices
More information on our employees can
be found on page 161 and on our website
at www.ihg.com/responsible-business
under Our people.
All of you at IHG
Our people and our culture
Our colleagues live our corporate values,
and are fundamental to helping us create
Great Hotels Guests Love. To attract and
retain the best talent, we invest in our people
– we offer our people our commitment to
develop their careers, keep them involved
in the business and reward and recognise
them for their contributions. We call this
our ‘room to be yourself’ commitment.
In turn, we ask our employees to live our
Winning Ways, see box on page 18.
As we prioritise recruiting, developing and
building talent capability to lead growth, we
are progressing key initiatives in these areas.
Attracting talent
This year, we have further embedded our
employer brand identity with the ‘All of
you at IHG’ campaign, which captures
colleagues across our regions doing what
they love best, to highlight our diverse roles,
people and brands. In November, we were
recognised for our achievements by
Personnel Today, and presented with
the award for employer branding.
Continuous learning
We are evolving our learning strategy through
examining what technology we need to
support the future of learning at IHG and
improving our focus on priority content.
In 2017, we will be launching an updated
Learning Management system that will
enable us to better reach colleagues with
the right learning content at the right time.
In 2016, we launched a new-look General
Manager (GM) interactive-learning platform,
providing all GMs with social learning and
other online tools to connect them together
and share their progress with one another.
IHG’s frontline colleagues now have access
to more than 50 courses globally via IHG
Frontline. As a result, more than 100,000
colleagues worldwide are able to take charge
of their development and complete consistent
brand, service and operations training
through a single channel.
Developing a strong performance culture
Our regions and functions are aligned to the
internal performance measures that most
effectively drive business performance across
our organisation. This framework, together
with our talent and leadership programmes
for colleagues in our hotels and corporate
offices, is designed to enhance our colleagues’
performance while allowing them to focus
on what matters most. This comprises our
‘Winning Culture’.
How we measure our culture
Understanding how engaged our teams
feel is a fundamental part of how we run
our business, and we measure this through
our Employee Engagement survey. In 2017,
we will launch Colleague HeartBeat, which
incorporates a new engagement survey,
among other modules.
Diversity and inclusion
At IHG, we recognise we can drive innovation,
sustainable growth and competitive advantage
if we mirror the diverse markets in which
we operate and strive to be as inclusive and
diverse as our brands. IHG in The Americas
was recently recognised in the list of The Best
Places to Work for LGBT Equality – Corporate
Equality Index Human Rights Campaign.
We are also making strong progress in
attracting and retaining female leaders.
The Hampton-Alexander review recently
listed IHG in the top 20 of the FTSE 100 for
female representation across Executive
Committees and their direct reports.
As at 31 December 2016:
• three of the nine Directors on the Board
were female (33 per cent), however,
following the appointment of Malina Ngai
on 1 March 2017, four of the 10 Directors
on the Board will be female (40 per cent);
• 34 out of the 128 senior managers employed
by the Group (including directors of the
subsidiaries) were female (27 per cent).
• 6,890 out of the 12,021 people employed
by the Group and whose costs were borne
by the Group or the System Fund were
female (57 per cent).
Please see page 61 for more information
on Board diversity and succession planning.
Doing business responsibly
IHG Annual Report and Form 20-F 2016
19
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Risk management
We deliver on our commitment to responsible business
practices through our robust and effective risk management
system, which continues to evolve in step with our business,
and results in sustainable, long-term growth.
Our Winning Model strategy and risk
Our strategy and business model create
a number of risks and opportunities for the
business. The Board is ultimately accountable
for the effectiveness of our risk management
and internal control systems, and is supported
by the Audit Committee, Executive Committee
and delegated committees, who oversee our
risk management system to ensure that risks
are appropriately identified and managed
within IHG’s risk appetite.
Risk appetite
IHG’s risk appetite reflects the nature
and extent of risk that the Board is willing
to take in pursuit of strategic and other
business objectives. The risk appetite is
then cascaded through the goals we set,
the strategy we choose, decisions we make
and how we allocate resources. IHG’s risk
appetite is further reflected in our governance
committees, structures, policies and
targets we select, as well as in development
guidelines for new hotels. In 2016, the Audit
Committee also considered IHG’s approach
to risk appetite more generally and in relation
to the principal risk areas.
For more information,
see page 57.
IHG’s principal risks, uncertainties
and review process
The external risk environment remains
dynamic. However, the Group’s asset-light
business model, diverse brand portfolio
and wide geographical spread contribute
to IHG’s resilience to events that could affect
specific segmental or geographical areas.
Our Risk Working Group, chaired by the
General Counsel and Company Secretary
and comprised of the heads of Global Risk
Management, Global Strategy and Global
Internal Audit, provides input on, and oversight
of, the principal risk review process, which
identifies and assesses risks for ongoing
monitoring and review by senior management.
OUR RISK MANAGEMENT SYSTEM
Our risk management system is fully integrated with the way we run the business through our
culture, our controls and our reporting, and is reflected in our strategy. The Global Risk Management
function is responsible for the support, enhancement and monitoring of the effectiveness of this
system and includes the following key areas.
Risk and culture
• Our tone, attitudes, ethical values and policies.
• Our governance and committee structures.
Risk and control management
• Three lines of defence – which is comprised of: (i) day-to-day activities that identify and manage
risks; (ii) our functional specialists, such as our Business Reputation and Responsibility teams;
and (iii) independent assurance.
• Strategic risk planning.
Risk monitoring and reporting
• Risk and performance monitoring.
• Principal risk reporting (see below).
More information on our risk management system is available
at www.ihgplc.com/responsible-business under Our culture
of responsible business in the Risk management section.
Our principal risks remain unchanged,
however, reflecting the dynamic environment
in which we operate, we continue to review and
refine the approach we take to mitigating our
risk – see the table on pages 21 and 22.
These principal risks are supplemented
by a broader description of risk factors
set out on pages 164 to 167.
The Directors have carried out an
assessment of the principal risks facing
the Group, including those that would threaten
its business model, future performance,
solvency or liquidity. These risks are reviewed
formally by the Directors on a biannual basis
and are considered in more detail through
the activities of the Board and Committees.
The approach to principal risks was further
strengthened in 2016 through an increased
consideration of risks within the strategic-
planning processes and the engagement
of all Executive Committee members in the
discussion of principal risks throughout the
year. We have a standing risk working group
who provide guidance and oversight with
regard to the principal risks and risk
management system.
See pages 54 and 57 for details of the
assessment of our principal risks by
the Board and the Audit Committee.
20
IHG Annual Report and Form 20-F 2016
Strategic Report
RISK TREND
RISK IMPACT
How the external environment for each principal
risk has changed over the past year:
Increased risk
No change in risk
How each principal risk links to our strategic priorities:
WM Winning Model
TP Targeted Portfolio
DE Disciplined Execution
RB Responsible Business
Risk description
Trend
Impact
Initiatives to manage these risks
Failure to deliver preferred brands
and loyalty could impact our competitive
positioning, our growth ambitions and
our reputation with guests, owners
and investors.
Failure to recruit and retain the right
leadership and talent, and to give them
the tools, guidance and support to be
successful, could impact the delivery
of our strategic ambition.
Failure to maintain and enhance our
channel management and technology
platforms could impact on our ability
to deliver revenue.
Failure to maintain strong relationships
with owners, and to demonstrate
attractive returns on investment, which
we call our owner proposition, could
impact the retention and growth of IHG’s
System and development pipeline.
Failure to operate an appropriate
risk management system which
safeguards the safety and security
of our guests and employees could
impact our reputation.
WM
TP
WM
DE
RB
WM
DE
WM
TP
DE
RB
WM
TP
RB
• Each of the brands in our portfolio is designed, and continues to evolve, to meet specific guest
needs and occasions, through distinct and complementary brand propositions informed by guest
research and insights – see pages 10 and 11.
• We continue to innovate and evolve our hotel-room and public-space designs to ensure we deliver
differentiated, relevant guest experiences. In 2016, we introduced several new design initiatives
across our Holiday Inn and Holiday Inn Express brands – see pages 17, 31 and 34.
• 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. Tools, training and guidance assist owners and those working
at our hotels to deliver brand consistency.
• For further information on our brand-strengthening initiatives this year, see pages 16 and 17.
• We have a comprehensive, global people strategy in place, which includes a talent leadership
programme, both in hotels and at a corporate level.
• The talent development programme also reflects our culture and values. Our leadership
framework, support tools, and training and development programmes help our people
grow their careers – see page 19.
• Our HR strategy manages specific training programmes globally, catering to specific talent needs
in local markets, such as in Greater China.
• We proactively manage succession planning at all levels and consider the diversity (more broadly
than gender) of our people and leadership – see page 61.
• We recognise that technological advances, the growth of intermediaries and the sharing
economy, and changing guest expectations mean that we must continually invest in, and
improve, our technological systems to build lifetime relationships with our guests. Our focus is
on encouraging guests to use direct booking channels. However, recognising that some travellers
use intermediaries, we seek to secure improved terms with those intermediaries for our hotels.
• This year, we extended our Your Rate by IHG Rewards Club loyalty benefit (see page 16) to further
markets, allowing more guests to get the best hotel rates by booking directly through IHG’s
booking channels.
• We remain on track to roll out our new Guest Reservation System (see page 17) in 2017, providing
easier booking interfaces for both guests and hotels, enhanced digital functionality and easier
technology upgrades to better meet guest needs.
• We have a multi-award-winning mobile app, which has been downloaded over seven million times
since launching. Consistent with our philosophy and focus, our app includes the most advanced
loyalty functionality across the industry.
• Our franchise and managed owner offer includes tools, hotel solutions, revenue delivery systems,
operational support and guidance to allow us to support our hotels and maintain relationships
with owners throughout the hotel lifecycle.
• We carefully monitor net System size growth, and focus on contract renewals and renegotiations,
to ensure that our owners receive the best value with IHG franchise and management
agreements.
• Through the IHG Owners Association, we work with our owners to understand their key priorities
and perspectives, for example, in respect of the use of the System Fund (described on page 43).
• In 2016, we reviewed and enhanced the hotel budget guidance process to provide owners with
better information.
• We manage this risk by promoting a strong safety culture through our values and attitudes,
our ‘Winning Ways’ (see pages 18 and 19) and a strong governance system.
• In 2016, we enhanced oversight through the development of a Safe Hotel Advisory Group
comprising risk and standards measurement.
• We continuously monitor and refresh our brand safety standards where necessary, and work
with our hotels to ensure that brand safety standards are met throughout the hotel lifecycle
across our entire portfolio.
• Our operational safety and security teams have extensive subject matter expertise and
experience, and provide support to line management to equip them to plan for, and respond
to, incidents across all of our regions.
Risk management
IHG Annual Report and Form 20-F 2016
21
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS RISK MANAGEMENT CONTINUED
Risk description
Trend
Impact
Strategic initiatives to manage these risks
The threat faced from the risk of
cybersecurity and information
governance is constantly evolving
and, in 2016, has impacted a large
number of organisations across multiple
industries, including a number of cyber
attacks on the hospitality industry. This
threat could impact our operations,
result in fines and legal actions, and
undermine stakeholder trust in our
business. In 2016, our Kimpton Hotels &
Restaurants business in The Americas
was subject to a cyber attack, and an
investigation into another such attack at
hotels in The Americas region is ongoing
(see note 30 on page 141).
Failure to effectively manage our
programme and project delivery
could impact the value realised
from our investments.
While the hotel sector is not subject to
stringent industry-specific regulations,
failure to ensure legal, regulatory
and ethical compliance could
impact our reputation.
Increased public scrutiny, litigation
and regulatory investigation highlight
the need for companies to ensure that
their financial management and control
systems are robust.
WM
DE
RB
WM
DE
DE
RB
TP
DE
RB
• We have applied a risk-based methodology to considering the value of our information assets,
including Payment Card Information (PCI), other Personally Identifiable information (PII),
non-public financial information and employee data, to formulate a set of policies, processes,
guidance and accountabilities with regards to information security.
• We monitor the evolution of this risk through our Information Security team and our Threats
and Intelligence team, using forward-looking indicators and intelligence to inform our approach
to managing this risk.
• We are implementing a number of initiatives to address specific elements of this risk. These
include the role out of a Secure Payment System, tokenisation of key systems, the development
of a revised information-management policy and increased focus on information shared with
our suppliers and business partners.
• The approach to the risk is overseen by an Information Security Committee, who led and
sponsored a full review of all relevant policies in 2016.
• We have a clearly defined incident management capability, which we are continuously developing
and embedding across the organisation. We have deployed our incident response plan to develop
and implement investigation, containment and mitigation steps in relation to both the Kimpton
Security Incident and the Americas Security Incident (see note 30 on page 141).
• Our programme management capability is overseen by our Strategic Portfolio Governance Group
and implemented by our Strategic Portfolio Management team.
• The Strategic Portfolio Management team ensure strategic alignment and prioritisation of key
programmes, develop organisational capability through training and implement the Group’s
project delivery approaches and tools. This team is supported by regional and functional project
management teams, who manage and monitor specific programmes and projects.
• In 2016, we continue to streamline our priorities to ensure we focus on those core programmes
that have a significant impact on our business, including Crowne Plaza Accelerate (see page 30)
and our new Guest Reservation System (see page 17).
• Our regulatory compliance programme works to identify and respond to relevant regulatory
requirements. These include anti-bribery and corruption, data privacy and antitrust.
• We ensure that our corporate employees conduct annual Code of Conduct training that highlights,
on a rolling basis, key areas such as anti-bribery and competition law, to ensure that we
consistently adhere to the highest legal and ethical standards. Our hotels across the globe
also provide training to their employees to ensure they are aware of their obligations.
• The maintenance of a sound financial-reporting and control environment is achieved
through an effective policy framework, training programmes, and layered performance
and review processes.
• IHG has a mature, experienced and stable global finance function that includes, among others,
the following teams: Group Tax; Group Treasury; Procurement and Cost Efficiency; Global BSC
Operations; Global and Regional Financial Planning and Analysis; Global Financial Reporting;
and Governance and Compliance (including compliance with the Sarbanes-Oxley Act 2002 (SOX)
– see page 57 for further details of our SOX review process).
VIABILITY STATEMENT
In assessing the viability of the Group,
the Directors have reviewed a number
of scenarios, weighting downside risks that
would threaten the business model, future
performance, solvency and liquidity of the
Group more heavily than opportunities. The
scenario-testing focuses mostly, but not
exclusively, on the impact of declining
RevPAR on the viability of the Group, as
most of the principal risks outlined on pages
21 and 22 will cause a deterioration in
RevPAR. The scenarios included a severe
but plausible downturn, like the financial
crisis that occurred from 2008 to 2009 (when
the Board maintained the ordinary dividend
despite the severity of the downturn in
trading), a widespread cyber security breach
and a reverse stress test of the business
starting from the presumption of the Group
having insufficient liquidity to continue
trading. In the severe scenarios, the
Directors also considered actions that would
be taken if such events became a reality.
The Directors have determined that the
three-year period to 31 December 2019
is an appropriate period to be covered by
the viability statement. Although hospitality
industry business cycles are on average longer
than three years, the end of those cycles has
only resulted in declining RevPAR when that
has been caused by exogenous shocks, and
the decline in RevPAR has only lasted two
years. The Board has therefore determined
that no additional insight can be gained from
assessing these scenarios over a longer period,
particularly as each year the Group’s planning
process builds into a robust three-year plan
against which to test the scenarios.
The detailed three-year plan takes into
consideration the principal risks, the Group’s
strategy, and current market conditions.
That plan then forms the basis for strategic
actions taken across the business. The plan
is reviewed annually by the Directors, and
approved towards the end of the calendar
year. Once approved, the plan is then
cascaded to the business and used to
set performance metrics and objectives.
Performance against those metrics and
objectives is then regularly reviewed by
the Directors.
The Directors have assessed the viability
of the Group over a three-year period
to 31 December 2019, taking account
of the Group’s current position, the
Group’s strategy and the principal risks
documented in the Strategic Report. Based
on this assessment, the Directors have
a reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over the
period to 31 December 2019.
22
IHG Annual Report and Form 20-F 2016
Strategic Report
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.
KPIs
2016 status
2017 specific priorities
WINNING MODEL AND TARGETED PORTFOLIO
Net rooms supply
Net total number of rooms
in the IHG System.
LT
A
2016
2015
2014
767,135
744,368a
710,295
Growth in underlying
fee revenuesb
Group revenue excluding revenue
from owned and leased hotels,
managed leases and significant
liquidated damages.
2016
2.3%
2015
2014
7.5%
6.7%
87%
of open rooms are
in priority markets
89%
of pipeline rooms are
in priority markets
75,812
rooms signings
2016
2015
2014
$24.5bn
$24.0bn
$22.8bn
$4.3bn
digital revenues
delivered in 2016,
up by 8% on 2015
Total gross revenue from
hotels in IHG’s Systemb
Total rooms revenue from
franchised hotels and total hotel
revenue from managed, owned
and leased hotels. Other than for
owned and leased hotels, it is not
revenue wholly attributable to IHG,
as it is mainly derived from hotels
owned by third parties.
A
System contribution to revenue
The percentage of room
revenue delivered through
IHG’s direct and indirect
systems and channels.
2016
2015
2014
75%
73%
71%
49%
of hotels adopting IHG’s
revenue management
service
• Continue to accelerate growth in our
10 priority markets (such as Germany –
see page 30) and key city locations in
order to achieve further scale benefits.
• Support the expansion of Holiday Inn
Express’ Franchise Plus programme
in Greater China (see page 30 for
details) and the development of
Kimpton outside the US.
• Continue to drive strong rooms supply
growth, whilst ensuring that we maintain
a high level of guest satisfaction across
our entire portfolio of hotels with removals
from the System.
• Continue to drive adoption and impact of
our revenue management tools, systems
and processes amongst our owners.
• Keep our focus on driving a greater revenue
contribution from IHG Rewards Club
members (see page 16).
• Our new Guest Reservation System (see
page 17) is on track to begin roll-out in 2017.
• Continue to expand the language capabilities
of our online channels and call centres
across all regions.
• Drive greater food and beverage revenue,
and support brand preference, by introducing
new food and beverage concepts for our
hotels to adopt.
a Including the acquisition of Kimpton (11,325 rooms).
b Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described
as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted
IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 156 and 157.
LINK BETWEEN KPIS AND DIRECTORS’ REMUNERATION
KPIs that could have an impact on the performance measures
for 2016 remuneration plans:
A The Annual Performance Plan
LT The Long Term Incentive Plan
Key performance indicators (KPIs)
IHG Annual Report and Form 20-F 2016
23
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
KEY PERFORMANCE INDICATORS (KPIs) CONTINUED
KPIs
2016 status
2017 specific priorities
WINNING MODEL AND TARGETED PORTFOLIO CONTINUED
Global RevPAR growth
Revenue per available room:
rooms revenue divided by
the number of room nights
that are available.
LT
Guest Love
IHG’s guest satisfaction
measurement indicator.
A
2016
1.8%
2015
2014
4.4%
6.1%
105
Holiday Inn Express
hotels with the new room
design opened in 2016
2016
2015
2014
a
80.39%
a
79.49%
a
77.83%
+200
external recognitions
for our brands, hotels
and loyalty programme
in 2016
Implemented, or in the
process of installing,
IHG Connect in over
1,800
hotels in The Americas
• Continue the roll-out of our enhanced
internet connectivity and wifi offer,
IHG Connect, for guests across
our estate (see page 31).
• Embed and drive adoption of customer
relationship management systems in
our hotels to help us to build lifetime
relationships with guests.
• Continue to invest in brand innovation,
such as the new room designs for
Holiday Inn Express.
• Support the development of our high-
performing general managers.
• Focus on driving consistency and quality
across our Crowne Plaza portfolio in the
US through Crowne Plaza Accelerate
(see page 30).
• Drive adoption of our learning solutions, such
as the IHG Frontline online training platform,
and brand-orientated services training
across all IHG hotels, enabling our people to
deliver consistently great guest experiences
and maintain brand preference.
• Expand the roll-out of our China Ready
hotel accreditation in key Chinese outbound
destinations across The Americas,
Europe and AMEA to further increase
the attractiveness of our hotels to Chinese
travellers. Accredited hotels offer a
range of services and amenities catering
specifically to the Chinese traveller with
frontline teams who have received cultural
training to better serve Chinese guests.
a Changes to the method for calculating IHG’s guest satisfaction scores (previously Guest HeartBeat) were introduced in 2016. The comparatives for 2014 and 2015 have been restated on the
basis that the Guest Love methodology had always applied.
LINK BETWEEN KPIS AND DIRECTORS’ REMUNERATION
KPIs that could have an impact on the performance measures
for 2016 remuneration plans:
A The Annual Performance Plan
LT The Long Term Incentive Plan
24
IHG Annual Report and Form 20-F 2016
Strategic Report
KPIs
2016 status
2017 specific priorities
DISCIPLINED EXECUTION
Fee marginsa
Operating profit as a percentage
of revenue, excluding revenue and
operating profit from owned and
leased hotels, managed leases and
significant liquidated damages.
A
Employee Engagement
survey scores
Average of our biannual Employee
Engagement survey, completed
by employees and those who work
in our managed hotels (excluding
our joint ventures).
A
2016
2015
2014
48.8%
46.3%
44.7%
3.3ppt
growth in fee
margin in 2016
2016
2015
2014
88.7%
87.3%
84.7%
1.4ppt
increase in Employee
Engagement scores
in 2016
• Leverage our increasing scale in operations
and systems to drive economies of scale
across our portfolio of brands.
• Continue to strengthen our delivery
capabilities to ensure that critical in-hotel
initiatives are embedded on time and
on target.
• Continue to develop our ‘Winning
Culture’ (see page 19), in particular
encouraging our employees to have
more regular and open performance
conversations, and on embedding
performance-management processes.
• Drive adoption of improvements to our
human resources systems to further
our ability to develop and retain talent.
DOING BUSINESS RESPONSIBLY
Number of people participating
in IHG® Academy programmes
2016
2015
2014
11,985
9,287
6,666
A
2,145
IHG Academy
programmes across
75 countries
• Continue to provide skills and improved
employability to people through IHG Academy
(see page 18), ensuring a positive impact
for local people, our owners and IHG.
Carbon footprint per
occupied room
A
Water use per occupied room
in water-stressed areas
A
2016
2015
2014
2013
2016
2015
2014
2013
31.21KgCO2eb
31.30KgCO2eb
31.71KgCO2eb
32.88KgCO2eb
0.63m3b
0.66m3b
0.65m3b
0.67m3b
• Continue to drive quality growth in the
programme, including by increasing
engagement with our franchise hotels
and enabling the transfer of talent
between regions.
• Continue to reduce our carbon footprint
across our entire estate.
• Continue to drive quality use of the
IHG Green Engage system across
our entire estate.
• Continue to reduce water use across
our entire estate, with a particular focus
on hotels in water-stressed areas.
• Implement initiatives at hotel level to improve
water stewardship and enable further
reductions in water use.
7.4%
reduction in carbon
footprint per occupied
room (to 31.21 kgCO²e),
from 2013 –2016, on a
2012 baseline across
our entire estate
7.9%c
reduction in water use
per occupied room (by
0.06m3), from 2013 – 2016,
on a 2012 baseline in
water-stressed areas
a
Use of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-
GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures.
Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 156 and 157.
b Restated.
c We calculate water performance to 15 decimal places. Using a full decimal place calculation results in a 7.9 per cent reduction.
For full disclosure of our carbon and water data, please see
www.ihgplc.com/responsible-business under Our performance.
Key performance indicators (KPIs)
IHG Annual Report and Form 20-F 2016
25
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Performance
Key performance measures (including
Non-GAAP measures) used by management
In addition to the performance measures that are directly
observable in the Group Financial Statements, the
performance review (and Group highlights on page 2)
include the following key performance measures.
With the exception of RevPAR, these are
financial measures that are either not defined
under IFRS or are adjusted IFRS figures and are
therefore described as Non-GAAP measures.
The performance review should be read
in conjunction with the Non-GAAP
reconciliations on pages 156 and 157
and the glossary on pages 184 to 185.
Revenue per Available Room (RevPAR)
RevPAR is the primary metric used by management to track hotel performance across regions and brands. RevPAR is also a commonly used performance measure
in the hotel industry.
RevPAR comprises IHG System rooms revenue divided by the number of room nights available and can be mathematically derived from occupancy rate multiplied by
average daily rate. Occupancy rate is rooms occupied by hotel guests expressed as a percentage of rooms that are available. Average daily rate is rooms revenue divided
by the number of room nights sold.
References to RevPAR, occupancy and average daily rate are presented on a comparable basis comprising groupings of hotels that have traded in all months in both the
current and prior year. The principal exclusions in deriving this measure are new hotels, hotels closed for major refurbishment and hotels sold in either of the two years.
RevPAR and average daily rate are quoted at a constant US dollar conversion rate, in order to allow a better understanding of the comparable year-on-year trading
performance excluding distortions created by fluctuations in exchange rates.
Total gross revenue
An important measure of IHG System performance is the growth in total gross revenue which provides a measure of the overall strength of the Group’s brands.
Total gross revenue comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Other than owned
and leased hotels, total gross revenue is not revenue attributable to IHG as it is derived mainly from hotels owned by third parties. A reconciliation of total gross
revenue to the owned and leased revenue included in the Group Financial Statements is set out on page 28.
Underlying revenue
Underlying operating profit growth
Underlying fee revenue
Fee margin growth
Underlying revenue and underlying operating profit both exclude the impact of owned asset disposals, managed leases, significant liquidated damages and
current year acquisitions, all translated at constant currency using prior year exchange rates. Underlying operating profit growth also excludes the impact of
exceptional items (see below). The presentation of these additional performance measures allows a better understanding of comparable year-on-year trading
and thereby allows an assessment of the underlying trends in the Group’s financial performance. These measures also provide consistency with the Group’s
internal management reporting.
Underlying fee revenue and fee margin further exclude the revenue and operating profit of the Group’s remaining owned and leased properties, thereby providing
metrics which measure the underlying performance of the Group’s core fee-based business model.
The performance review should be read in conjunction with the Non-GAAP reconciliations on pages 156 and 157, which reconcile these alternative performance
measures to the nearest comparable GAAP measures and also show the amounts on both an actual and constant currency basis.
Total operating profit before exceptional items and tax
Adjusted earnings per ordinary share
Total operating profit before exceptional items and tax enables a better understanding of the ongoing operational performance of the Group. For example,
total operating profit including exceptional items can be significantly skewed by the profit on disposal of owned assets, as was the case in 2015 with the disposal
of InterContinental Hong Kong. In addition, taxes can be influenced by external factors such as legislative changes, and a before tax measure of operating profit
is therefore considered more reflective of the Group’s success in executing against its strategy.
Adjusted earnings per ordinary share excludes exceptional items, and their related tax impacts, and is reconciled to basic earnings per share in note 9 on page 117
of the Group Financial Statements. Adjusted earnings per share provides a per share measure that is not skewed by exceptional items.
An analysis of exceptional items for the periods covered by the performance review is included in note 5 on page 112 of the Group Financial Statements.
Exceptional items are identified by virtue of either their size or nature and are excluded from these measures so as to facilitate comparison with prior periods
and to assess underlying trends in the financial performance of the Group and its regional operating segments. Exceptional items can include, but are not
restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and restructuring costs.
Total operating profit both before and after exceptional items is shown on the face of the Group income statement on page 91, as permitted under IFRS.
Net debt
Net debt is used in the monitoring of the Group’s liquidity and capital structure, and is a number used to calculate the key ratios attached to the Group’s bank covenants.
Net debt comprises loans and other borrowings less cash and cash equivalents, and is reconciled to the amounts included in the Group Financial Statements
in note 21 on page 128.
These are Non-GAAP financial measures which should be viewed as complementary to, and not as a substitute for, the measures prescribed by GAAP.
26
IHG Annual Report and Form 20-F 2016
Strategic Report
ACCOUNTING PRINCIPLES
The Group results are prepared under
International Financial Reporting
Standards (IFRS). The application
of IFRS requires management to
make judgements, estimates and
assumptions, and those considered
critical to the preparation of the Group
results are set out on page 103 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
112 of the Group Financial Statements.
Group
Group results
Revenue
Americas
Europe
AMEA
Greater China
Central
Total
Operating profit before exceptional items
Americas
Europe
AMEA
Greater China
Central
Exceptional items
Operating profit
Net finance costs
Profit before tax
Earnings per ordinary share
Basic
Adjusted
Average US dollar to
sterling exchange rate
2016
$m
2015
$m
2016 vs 2015
% change
2014
$m
2015 vs 2014
% change
12 months ended 31 December
993
227
237
117
141
955
265
241
207
135
1,715
1,803
633
75
82
45
(128)
707
(29)
678
(87)
591
195.3¢
203.3¢
$1:
£0.74
597
78
86
70
(151)
680
819
1,499
(87)
1,412
520.0¢
174.9¢
$1:
£0.65
4.0
(14.3)
(1.7)
(43.5)
4.4
(4.9)
6.0
(3.8)
(4.7)
(35.7)
15.2
4.0
(103.5)
(54.8)
–
(58.1)
(62.4)
16.2
13.8
871
374
242
242
129
1,858
544
89
84
89
(155)
651
29
680
(80)
600
158.3¢
158.3¢
$1:
£0.61
9.6
(29.1)
(0.4)
(14.5)
4.7
(3.0)
9.7
(12.4)
2.4
(21.3)
2.6
4.5
–
120.4
(8.8)
135.3
228.5
10.5
6.6
Group fee margin was 48.8%, up 3.3
percentage points (up 2.5 percentage points
at constant currency) on 2015, after adjusting
for owned and leased hotels, managed
leases, and significant liquidated damages.
Group fee margin benefited from efficiency
improvements and by leveraging our
global scale.
Basic earnings per ordinary share decreased
by 62.4% to 195.3¢, whilst adjusted earnings
per ordinary share increased by 16.2%
to 203.3¢, reflecting the increase in operating
profit before exceptional items and the impact
of the share consolidation in May 2016.
a Underlying excludes the impact of owned asset disposals,
significant liquidated damages and the results from
managed-lease hotels, translated at constant currency
by applying prior-year exchange rates (see pages 156
and 157). Underlying operating profit growth also excludes
the impact of exceptional items.
b Underlying fee revenue is defined as Group revenue
excluding revenue from owned and leased hotels,
managed leases and significant liquidated damages
(see pages 156 and 157).
Highlights for the year ended
31 December 2016
During the year ended 31 December
2016, revenue decreased by $88m (4.9%)
to $1,715m primarily as a result of the sale
of InterContinental Paris – Le Grand and
InterContinental Hong Kong. Operating
profit and profit before tax both decreased by
$821m to $678m and $591m, primarily due to
the gain on sale of InterContinental Paris – Le
Grand and InterContinental Hong Kong during
the year ended 31 December 2015. Operating
profit before exceptional items increased by
$27m (4.0%) to $707m.
Underlyinga Group revenue and underlyinga
Group operating profit increased by $69m
(4.6%) and $61m (9.5%) respectively.
Comparable Group RevPAR increased by
1.8% (including an increase in average daily
rate of 1.2%). IHG System size increased by
3.1% to 767,135 rooms, whilst underlying
Group fee revenueb increased by 2.3%
(4.4% at constant currency).
At constant currency, the net central
operating loss before exceptional items
decreased by $12m (7.9%) to $139m compared
to 2015 (but at actual currency decreased
by $23m (15.2%) to $128m).
Performance
IHG Annual Report and Form 20-F 2016
27
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 12 months ended 31 December
2016 $bn
2015 $bn
% change
4.6
1.1
4.1
0.4
6.2
6.3
0.8
0.7
0.3
4.5
1.1
4.2
0.3
6.2
6.1
0.8
0.7
0.1
24.5
24.0
14.3
10.0
0.2
24.5
14.1
9.6
0.3
24.0
2.2
–
(2.4)
33.3
–
3.3
–
–
200.0
2.1
1.4
4.2
(33.3)
2.1
Global total gross revenue
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leasedc
Total
Total gross revenue is a Non-GAAP financial
measure, see page 26 for additional information.
Total gross revenue increased by 2.1% (4.2%
increase at constant currency) to $24.5bn,
driven by IHG System size and comparable
RevPAR growth.
a Underlying excludes the impact of owned asset disposals,
significant liquidated damages, Kimpton, and the results
from managed-lease hotels, translated at constant currency
by applying prior-year exchange rates (see pages 156 and
157). Underlying operating profit growth also excludes the
impact of exceptional items.
b Underlying fee revenue is defined as Group revenue
excluding revenue from owned and leased hotels,
managed leases and significant liquidated damages
(see pages 156 and 157).
c See note 2 of the Group Financial Statements on page 106.
PERFORMANCE CONTINUED
Group continued
Highlights for the year ended
31 December 2015
During the year ended 31 December 2015,
revenue decreased by $55m (3.0%) to $1,803m
primarily as a result of the disposal of owned
hotels in line with the Group’s asset-light
strategy. Operating profit and profit before tax
increased by $819m (120.4%) to $1,499m and
by $812m (135.3%) to $1,412m respectively,
primarily due to the gain on sale of
InetrContinental Paris – Le Grand and
InterContinental Hong Kong during the year.
Operating profit before exceptional items
increased by $29m (4.5%) to $680m.
On 16 January 2015, the Group completed the
acquisition of Kimpton Holding Group LLC
(Kimpton) for cash consideration of $430m
before working capital adjustments and cash
acquired, resulting in the addition of 62 hotels
(11,325 rooms) into the IHG System.
On 20 May 2015, the Group completed the sale
of InterContinental Paris – Le Grand for gross
proceeds of €330m and, on 30 September
2015, the Group completed the sale of
InterContinental Hong Kong for proceeds of
$928m after final working capital adjustments
and cash tax.
Underlyinga revenue and underlyinga
operating profit increased by $113m (8.0%)
and $67m (11.5%) respectively. The underlying
results exclude the impact of owned hotel
disposals in 2015 and the prior year, the
results of managed-lease hotels, Kimpton,
and significant liquidated damages receipts
(2015: $3m; 2014: $7m).
Comparable Group RevPAR increased by
4.4% (including an increase in average daily
rate of 3.1%), with growth across all regions.
IHG System size increased by 4.8% (3.2%
excluding the Kimpton acquisition) to 744,368
rooms, whilst underlying Group fee revenueb
increased by 7.5% (3.0% excluding Kimpton).
At constant currency, the net central
operating loss before exceptional items
increased by $5m (3.2%) to $160m
compared to 2014 (but at actual currency
decreased by $4m (2.6%) to $151m).
Group fee margin was 46.3%, up 1.6 percentage
points (up 1.3 percentage points at constant
currency) on 2014, after adjusting for owned
and leased hotels, managed leases, Kimpton,
and significant liquidated damages. Group fee
margin benefited from strong growth in IHG’s
scale markets, reflecting scale benefits and
tight overhead control.
Basic earnings per ordinary share increased by
228.5% to 520.0¢, whilst adjusted earnings per
ordinary share increased by 10.5% to 174.9¢.
28
IHG Annual Report and Form 20-F 2016
Strategic Report
Group hotel and room count
At 31 December
Analysed by brand
InterContinental
Kimpton
HUALUXE
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inna
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Hotels
Change
over 2015
3
–
1
2
10
3
15
72
16
21
(1)
142
102
39
1
142
2016
187
61
4
408
75
6
1,241
2,497
236
362
97
5,174
4,321
845
8
5,174
Rooms
Change
over 2015
1,610
262
298
519
1,241
564
3,656
10,603
1,646
1,864
504
22,767
11,902
10,670
195
22,767
2016
63,650
11,238
1,096
113,803
8,905
1,010
231,756
247,009
25,610
34,192
28,866
767,135
542,650
222,073
2,412
767,135
Total number of hotels
5,174
Total number of rooms
767,135
During 2016, the global IHG System (the
number of hotels and rooms which are
franchised, managed, owned or leased by
the Group) increased by 142 hotels (22,767
rooms) to 5,174 hotels (767,135 rooms).
Openings of 258 hotels (40,134 rooms)
were 5.5% lower than in 2015. Openings in
The Americas included 128 hotels (15,680
rooms) in the Holiday Inn brand family. 29
hotels (7,938 rooms) were opened in Greater
China in 2016, with the Europe and AMEA
regions contributing openings of 24 hotels
(4,188 rooms) and 17 hotels (4,473 rooms)
respectively. 116 hotels (17,367 rooms) left
the IHG System in 2016, a decrease from
the previous year (143 hotels, 21,679 rooms).
a Includes 46 Holiday Inn Resort properties (11,652 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)
(2015: 47 Holiday Inn Resort properties (11,518 rooms) and 16 Holiday Inn Club Vacations properties (5,231 rooms)).
Group pipeline
At 31 December
Analysed by brand
InterContinental
Kimpton
HUALUXE
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Hotels
Change
over 2015
10
–
1
6
12
(2)
5
74
26
10
(2)
140
134
7
(1)
140
2016
62
18
22
90
75
6
261
676
140
108
12
1,470
1,039
431
–
1,470
b Includes 14 Holiday Inn Resort properties (3,531 rooms) (2015: 14 Holiday Inn Resort properties (3,548 rooms)).
Total number of hotels in the pipeline
Rooms
Change
over 2015
1,470
2016
17,480
3,098
6,956
24,536
10,593
780
52,678
83,882
15,321
9,604
5,148
1,804
(268)
324
1,355
1,385
(482)
474
8,277
2,680
884
(273)
230,076
16,160
117,694
112,382
–
230,076
15,525
837
(202)
16,160
Total number of rooms in the pipeline
230,076
At the end of 2016, the global pipeline totalled
1,470 hotels (230,076 rooms), an increase of
140 hotels (16,160 rooms) on 31 December
2015. The IHG pipeline represents hotels
where a contract has been signed and the
appropriate fees paid. Approximately 90%
of the closing pipeline at 31 December 2016
is in our 10 priority markets.
Group signings increased from 474 hotels in
2015 to 516 hotels whilst rooms decreased
from 78,438 rooms to 75,812 rooms in 2016
due to the signing of one large hotel in the
Middle East (5,154 rooms) in 2015. This
included 328 hotels (47,842 rooms) signed for
the Holiday Inn brand family, 28.2% of which
were contributed by Greater China (63 hotels,
13,472 rooms).
Active management of the pipeline to remove
deals that have become dormant or no longer
viable reduced the pipeline by 118 hotels
(19,518 rooms), compared to 108 hotels
(17,004 rooms) in 2015.
Performance
IHG Annual Report and Form 20-F 2016
29
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS PERFORMANCE CONTINUED
Regional highlights
IHG’s Winning Model is the guiding framework for
executing our strategy across all of our regions. In 2016,
we had several important initiatives delivered regionally
to enhance our guest and owner proposition.
Please see Our Winning Model
on pages 14 to 15 to read more.
THE AMERICAS
EUROPE
Crowne Plaza Accelerate programme
Launched in 2016, the Crowne Plaza
Accelerate programme is designed to
increase guest satisfaction, improve hotel
performance, and deliver meaningful
differentiation. While the brand has seen
solid progress in The Americas over the
past two years, we see now as the time to
capitalise on the momentum it has built and
move the brand forward even faster. A $200
million investment over the next three years
(approximately $100 million of which is
System funded) will further accelerate the
trajectory of Crowne Plaza in the region by:
• deploying significant sales and marketing
investment to drive commercial
performance and build brand strength;
• executing an integrated programme
designed to deliver the essentials with
excellence (including connectivity, sleep,
service, and food and beverage); and
• strengthening the brand through
distinctive, guest-preferred innovation,
including new room and public-space
designs to meet the changing needs
of today’s modern business traveller.
AMEA
Strengthening our lifestyle and
boutique presence
Lifestyle and boutique are key, emerging
industry segments, and IHG is one of the
leaders in these segments in several regions.
We’ve gained strong momentum in these
segments in AMEA, too; following the launch
of the first Hotel Indigo in the region last year,
we opened Singapore’s first Hotel Indigo in
July. Eight more hotels are due to open in the
region in the next three years, including Hotel
Indigo Bali Seminyak, the world’s first Hotel
Indigo in a resort location.
The brand’s expansion is profiting from the
increasing demand for hotels that offer
authentic and refreshingly local experiences.
Alongside the growing boutique segment,
this year we laid solid foundations for the
debut of our lifestyle brand, EVEN Hotels,
outside of the US, by signing an agreement
to develop a portfolio of hotels across
Australia and New Zealand.
Open or due to open
10
Hotel Indigo hotels in AMEA in the next three years
Building scale in Germany
In the hotel industry, building scale provides
significant advantages and, to achieve
further targeted-scale benefits, we focus
on delivering high-quality growth in the
most attractive geographic markets.
For the third year in a row, we had a record
year of signings in Germany, one of our ten
global priority markets, with 17 hotels signed
in 2016. This achievement allowed us to
reach the important milestone of more than
100 hotels currently open or in the pipeline.
To fuel our future expansion, we have been
building a strong partner network with ten
Multiple Development Agreement (MDA)
partners who are committed to delivering
34 hotels (5,996 rooms) by 2020.
More than
100
hotels currently open or in the pipeline in Germany,
one of our priority markets
GREATER CHINA
Franchise Plus in Greater China
Since we are committed to delivering a
compelling and preferred owner offer, we
continually review and enhance our owner
proposition. This year we announced the
launch of Franchise Plus – a business model
specifically tailored for the Holiday Inn
Express brand in China. This model provides
owners with all the benefits of operating a
franchise business, but with additional
features typical of a managed model to
ensure we maintain brand integrity for our
guests – and enhance operational
performance for our owners. This new
operating model reflects our ongoing efforts
to meet our owners’ need for business
models that capture the growing demand
for mid-scale hotels outside of tier 1 cities,
driven by a rapid expansion of the middle
class in recent years.
Signed
20
hotels in 2016 under the Franchise Plus
business model
InterContinental Danang Sun Peninsula Resort, Vietnam
30
IHG Annual Report and Form 20-F 2016
Strategic Report
The Americas
Maximise the quality of growth and scale of our System, by
focusing on driving brand preference across our core upper
midscale and upscale portfolio, over the next three years.
PROGRESS AGAINST 2016
REGIONAL PRIORITIES
1. Grew System size by opening 188 hotels, and
through key signings for our InterContinental
brand (including Houston, Minneapolis, and
San Diego). Grew our EVEN Hotels brand,
including opening the first franchise in
Omaha and two openings in New York City.
Delivered a strong year of signings for
Kimpton Hotels & Restaurants, and opened
its first international hotel with the Kimpton
Seafire Resort + Spa, Grand Cayman.
2. Strengthened brand preference by
embedding the new Holiday Inn Express
room design (see page 17), which has
delivered strong performance and
penetration in the estate. Began driving
adoption of the new Holiday Inn room
design (see page 17), which became a
brand standard in the US and Canada
in 2016. Launched the Crowne Plaza
Accelerate programme (see page 30).
3. Built more meaningful relationships with
our guests by implementing IHG Connect,
which delivers a faster, more reliable and
consistent hotel internet experience. Guests
benefit from a seamless, wifi log-in across
our estate using their IHG Rewards Club
credentials. Hotels that have adopted the
system have seen wifi-related scores
increase by five points since implementation.
4. Drove superior returns for our owners
by refining our revenue toolkit, including
expansion of the newly approved standard
for revenue management, expansion of
our revenue management services and
embedding our operational model for
hotel support.
IHG’S 2017 REGIONAL PRIORITIES
1. Grow System size by opening key properties
and strengthening our upscale and luxury
portfolio (including the InterContinental
Los Angeles Downtown, Hotel Indigo
Los Angeles Downtown, and Crowne
Plaza HY36 Midtown Manhattan).
2. Drive brand preference through the Crowne
Plaza Accelerate programme (see page 30),
and through the continued scaling of Holiday
Inn Express and Holiday Inn new designs.
3. Drive superior returns for our owners by
expanding our revenue management service,
Revenue Management for Hire and, in
particular, through the expansion of our
owner-centric support model and revenue
management standard to Mexico.
Group revenue 2016 ($1,715m)
8%
7%
14%
13%
58%
Number of rooms (767,135)
12%
10%
14%
64%
Industry performance in 2016
Industry RevPAR in the Americas increased
by 3.8%, driven by a 1.5% increase in room
demand and a 4.0% increase in average
daily rate. On the supply side, the number
of available rooms increased by 1.6%, the
highest growth since 2009. All industry
segments experienced RevPAR growth,
driven by average daily rate. RevPAR in the
upper midscale segment, where the Holiday
Inn and Holiday Inn Express brands operate,
increased by 2.1%, driven by a 2.5% increase
in average daily rate. In the US, lodging
industry room demand increased by 1.7%,
continuing to outpace GDP for the past seven
years. Industry room demand set records in
all months this year as it has done, except in
one month, since March 2011. US supply
growth continued to move upwards, reaching
1.6%, (still below the 1.9% per annum historic
average). Average daily rate growth of 3.1%
drove a 3.2% increase in US RevPAR. In the
US, RevPAR increased by 2.3% in upper
midscale, 2.1% in upscale and 1.3% in luxury.
In Canada, industry RevPAR increased by
4.9%, driven by a 4.3% increase in average
daily rate, and in Mexico, RevPAR increased
by 17.2%, due to a 17.1% increase in average
daily rate.
Source
Smith Travel Research for all of the above industry facts.
IHG’s regional performance in 2016
IHG’s comparable RevPAR in the Americas
increased 2.1%, driven by 2.0% average daily
rate growth. The region is predominantly
represented by the US, where comparable
RevPAR increased 1.8%. US RevPAR growth
was impacted by our concentration in oil
producing markets, where RevPAR declined
by 7.5%; in the remainder of the estate
RevPAR increased by 3.0%. In the US, we
are most represented by our upper midscale
brands Holiday Inn and Holiday Inn Express.
The Holiday Inn brand increased RevPAR
2.5%, slightly ahead of the segment, whilst
Holiday Inn Express brand increased by
1.5%, behind the segment. However, absolute
occupancy for both brands was ahead of the
industry. In Canada, our comparable RevPAR
increased by 2.7% and Mexico increased by
12.9%, both led by rate growth.
Strong demand for IHG-branded hotels
continued, with 37,038 rooms signed during
2016. We continued to demonstrate our
commitment to quality, with 15,117 rooms
leaving the IHG System.
Americas comparable RevPAR
movement on previous year
12 months ended
31 December 2016
Franchised
Managed
Crowne
Plaza
1.5% InterContinental
2.7%
Holiday Inn
2.6% Kimpton
Holiday Inn
Express
1.7% Crowne Plaza
All brands
1.9% Holiday Inn
Staybridge Suites
Candlewood
Suites
All brands
Owned and leased
EVEN Hotels
All brands
2.9%
5.7%
4.9%
5.3%
1.2%
3.2%
15.5%
4.0%
Performance
IHG Annual Report and Form 20-F 2016
31
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS PERFORMANCE CONTINUED
The Americas continued
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
Exceptional items
Operating profit
Percentage of Group operating profit
before central overheads and
exceptional items
2016
$m
2015
$m
2016 vs 2015 %
change
2014
$m
2015 vs 2014 %
change
12 months ended 31 December
685
172
136
993
57.9
600
64
24
688
(55)
633
(29)
604
75.8
661
166
128
955
53.0
575
64
24
663
(66)
597
(41)
556
71.9
3.6
3.6
6.3
4.0
4.9
4.3
–
–
3.8
16.7
6.0
29.3
8.6
3.9
630
103
138
871
46.9
544
47
18
609
(65)
544
110
654
67.5
4.9
61.2
(7.2)
9.6
6.1
5.7
36.2
33.3
8.9
(1.5)
9.7
(137.3)
(15.0)
4.4
Highlights for the year ended
31 December 2016
With 3,925 hotels (487,993 rooms), The
Americas represented 64% of the Group’s
room count and 76% of the Group’s operating
profit before central overheads and
exceptional items for the year ended 31
December 2016. The key profit-producing
region is the US, although the Group is also
represented in Latin America, Canada,
Mexico and the Caribbean. 88% of rooms in
the region are operated under the franchise
business model, primarily in the upper
midscale segment (the Holiday Inn brand
family). In the upscale segment, Crowne
Plaza is predominantly franchised whereas,
in the upper upscale segment, Kimpton is
entirely managed. In the luxury segment,
InterContinental-branded hotels are operated
under both franchise and management
agreements. 11 of the Group’s 12 hotel
brands are represented in The Americas.
Revenue and operating profit increased by
$38m (4.0%) to $993m and by $48m (8.6%) to
$604m respectively. Operating profit before
exceptional items increased by $36m (6.0%)
to $633m. Underlyinga revenue increased
by $53m (5.8%), while underlyinga operating
profit increased by $46m (7.7%), driven
predominantly by RevPAR growth in the fee
business and an increase in net rooms. The
underlying results exclude the impact of
owned asset disposals, managed leases, and
the benefit of significant liquidated damages
receipts (2016: $nil; 2015: $3m).
Franchised revenue and operating profit
increased by $24m (3.6%) to $685m and by
$25m (4.3%) to $600m respectively. Royaltiesb
growth of 2.4% was driven by comparable
RevPAR growth of 1.9%, including 2.6%
for Holiday Inn and 1.7% for Holiday Inn
Express, together with 2.0% rooms growth.
On a constant currency basis, revenue
and operating profit increased by $29m
(4.4%) to $690m and by $30m (5.2%)
to $605m respectively.
Managed revenue increased by $6m (3.6%)
to $172m, whilst operating profit stayed flat
at $64m due to costs relating to our 20%
interest in InterContinental New York Barclay
and the ongoing impact of new supply on
RevPAR growth in New York. Revenue and
operating profit included $34m (2015: $38m)
and $nil (2015: $nil) respectively from one
managed-lease property. Excluding results
from this managed-lease hotel, the benefit of
significant liquidated damages receipts (2016:
$nil; 2015: $3m) and on a constant currency
basis, revenue increased by $16m (12.8%)
and operating profit increased by $5m
(8.2%) respectively.
Owned and leased revenue increased by
$8m (6.3%) to $136m, whilst operating
profit stayed flat at $24m.
Regional overheads decreased by $11m (16.7%)
to $55m due to a $10m year-on-year decrease
in US healthcare costs.
a Underlying excludes the impact of owned asset disposals,
significant liquidated damages and the results from
managed-lease hotels, translated at constant currency
by applying prior-year exchange rates (see pages 156
and 157). Underlying operating profit growth also excludes
the impact of exceptional items.
b Royalties are fees, based on rooms revenue, that
a franchisee pays to the brand owner for use of the
brand name.
c Underlying excludes the impact of owned asset disposals,
significant liquidated damages, Kimpton and the results
from managed-lease hotels, translated at constant
currency by applying prior-year exchange rates (see
pages 156 and 157). Underlying operating profit growth
also excludes the impact of exceptional items.
32
IHG Annual Report and Form 20-F 2016
Strategic Report
Highlights for the year ended
31 December 2015
Revenue increased by $84m (9.6%) to
$955m and operating profit decreased by
$98m (15.0%) to $556m, primarily due to the
gain on sale of InterContinental New York
Barclay and InterContinental Mark Hopkins San
Francisco during the year ended 31 December
2014. Operating profit before exceptional items
increased by $53m (9.7%) to $597m. Underlyingc
revenue increased by $71m (8.8%), while
underlyinga operating profit increased by $53m
(9.9%), driven predominantly by strong RevPAR
growth in the fee business and an increase in
net rooms. The underlying results exclude both
InterContinental Mark Hopkins San Francisco
and InterContinental New York Barclay whilst
under IHG ownership, managed leases,
Kimpton, and the benefit of significant liquidated
damages receipts (2015: $3m; 2014: $7m).
Franchised revenue increased by $31m (4.9%)
to $661m, including the impact of the $7m
liquidated damages receipts in 2014 (7.9%
excluding these liquidated damages and on
a constant currency basis). Royaltiesb growth
of 5.1% was driven by comparable RevPAR
growth of 4.6%, including 4.6% for Holiday Inn
and 4.1% for Holiday Inn Express, together with
1.2% rooms growth. Operating profit increased
by $31m (5.7%) to $575m, including an $8m
increase in fees associated with the initial
franchising and relicensing of hotels. Excluding
the benefit of significant liquidated damages
(2015: $nil; 2014: $7m), and on a constant
currency basis, operating profit increased
by $47m (8.8%) to $584m.
Managed revenue increased by $63m (61.2%)
to $166m, and operating profit increased by
$17m (36.2%) to $64m. Revenue and operating
profit included $38m (2014: $38m) and $nil
(2014: $nil) respectively from one managed-
lease property. Kimpton contributed $59m
to managed estate revenue and $18m to
operating profit, including $3m of significant
liquidated damages. Managed operating profit
was impacted by costs relating to our 20%
interest in InterContinental New York Barclay
during its refurbishment (2015: $4m; 2014:
$5m). Excluding results for both Kimpton and
managed-lease hotels and on a constant
currency basis, revenue increased by $9m
(13.8%) and operating profit increased by
$2m (4.3%).
Owned and leased revenue decreased
by $10m (7.2%) to $128m,and operating
profit increased by $6m (33.3%) to $24m,
following the disposal of two owned hotels
(InterContinental Mark Hopkins San Francisco
and an 80% interest in InterContinental New
York Barclay) during 2014. Excluding these
two hotels and on a constant currency basis,
owned and leased revenue and operating profit
increased by $13m and $5m, respectively,
reflecting improved trading at InterContinental
Boston and at Holiday Inn Aruba.
Americas hotel and room count
At 31 December
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inna
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 2015
(2)
–
(8)
6
3
2
48
15
21
–
85
85
(1)
1
85
(0.4)
2016
48
61
164
46
6
774
2,154
226
362
84
3,925
3,633
286
6
3,925
75.9
Rooms
Change
over 2015
(701)
262
(2,200)
861
564
749
5,399
1,523
1,864
97
8,418
8,636
(413)
195
8,418
(0.8)
2016
16,408
11,238
44,116
5,932
1,010
136,744
192,371
24,185
34,192
21,797
487,993
430,866
55,302
1,825
487,993
63.6
Total number of hotels
3,925
Total number of rooms
487,993
The Americas System size increased by 85
hotels (8,418 rooms) to 3,925 hotels (487,993
rooms) during 2016. 188 hotels (23,535 rooms)
opened in the year, compared to 183 hotels
(22,942 rooms) in 2015. Openings included
128 hotels (15,680 rooms) in the Holiday Inn
brand family, representing 66.6% of the
region’s openings.
103 hotels (15,117 rooms) were removed
from The Americas System in 2016,
demonstrating our continued commitment
to quality, compared to 104 hotels (14,709
rooms) in 2015. 37.3% of 2016 room removals
were Holiday Inn rooms in the US (30 hotels,
5,638 rooms) compared to 44.0% in 2015
(31 hotels, 6,466 rooms).
a Includes 25 Holiday Inn Resort properties (6,791 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)
(2015: 23 Holiday Inn Resort properties (5,902 rooms) and 16 Holiday Inn Club Vacations properties (5,231 rooms)).
Americas pipeline
Total number of hotels in the pipeline
At 31 December
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned and leased
Total
Hotels
Change
over 2015
3
(1)
2
2
(2)
3
39
26
10
(2)
80
88
(7)
(1)
80
2016
7
17
17
32
6
128
488
131
108
11
945
897
48
–
945
Rooms
Change
over 2015
945
Total number of rooms in the pipeline
102,451
At 31 December 2016, The Americas
pipeline totalled 945 hotels (102,451 rooms),
representing an increase of 80 hotels (6,067
rooms) over the prior year. Strong signings of
332 hotels (37,038 rooms) were ahead of last
year by seven hotels, but lower by 617 rooms.
The majority of 2016 signings were within the
Holiday Inn brand family (204 hotels, 21,826
rooms) and our extended-stay brands,
Staybridge Suites and Candlewood Suites
(93 hotels, 9,130 rooms).
64 hotels (7,436 rooms) were removed from
the pipeline in 2016 compared, to 69 hotels
(7,661 rooms) in 2015.
987
(417)
796
(59)
(482)
(899)
2,851
2,666
884
(260)
6,067
7,432
(1,163)
(202)
6,067
2016
2,532
2,949
3,286
3,965
780
17,304
46,796
13,896
9,604
1,339
102,451
93,295
9,156
–
102,451
b Includes three Holiday Inn Resort properties (455 rooms) (2015: seven Holiday Inn Resort properties (1,657 rooms)).
Performance
IHG Annual Report and Form 20-F 2016
33
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS IHG’s regional performance in 2016
IHG’s regional comparable RevPAR
increased by 1.7%, driven by average daily
rate growth of 1.4%. The UK achieved strong
growth of 2.6%, ahead of the industry, led
by average daily rate growth in the provinces.
In Germany, a favourable trade fair calendar
led to RevPAR growth of 6.8%, ahead of
industry in both occupancy and average
daily rate. Russia RevPAR increased by
16.4%, ahead of industry. Across the rest of
Europe, RevPAR declined by 1.4%, impacted
by challenging trading conditions in France,
Turkey and Belgium.
Europe comparable RevPAR
movement on previous year
12 months ended
31 December 2016
Franchised
All brands
Managed
2.0% All brands
(0.3)%
Europe
Continue to grow in priority markets and key cities,
whilst driving brand preference, focusing on quality and
innovation in guest experience, over the next three years.
PROGRESS AGAINST 2016
REGIONAL PRIORITIES
Group revenue 2016 ($1,715m)
8%
7%
14%
13%
58%
Number of rooms (767,135)
12%
10%
14%
64%
Industry performance in 2016
The hotel industry in Europe is influenced
by the larger markets in the region, notably
the UK and Germany. Slowing demand due
to security concerns held back European
industry RevPAR in 2016, which increased by
2.5%. Regional room demand increased 1.4%
and the average daily rate increased by 2.0%.
RevPAR growth in the UK was 1.4%, driven
by a 1.6% increase in average daily rate and
a 1.8% increase in demand. In Germany,
RevPAR saw strong growth of 4.7%, driven
by a 3.7% growth in average daily rate and a
1.5% increase in demand. Russia saw growth
of 15.7% driven by a 7.7% increase in average
daily rate.
Source
Smith Travel Research for all of the above industry facts.
1. Grew our System size, and our
potential for future growth, by focusing
on significantly increasing our scale
in Germany (see page 30). In 2016,
22 hotels were signed or opened.
2. Strengthened brand preference by
embedding the new Holiday Inn open-lobby
concept – 58 per cent of the estate has
implemented or committed to implement
it, which has already resulted in an eight
percentage-point increase in Guest
Love scores versus pre-refurbishment.
Embedded the new room design for Holiday
Inn Express – 56 per cent of the estate has
implemented or committed to implement
it, which has already resulted in a five
percentage-point increase in Guest Love
scores versus pre-refurbishment. Signed
the first two Kimpton Hotels & Restaurants
hotels in Europe’s key cities, the first to
open in Amsterdam in early 2017.
3. Drove demand through our direct channels
by rolling out Your Rate across the UK and
Ireland, Belgium, Netherlands, France
and Germany (see page 16).
IHG’S 2017 REGIONAL PRIORITIES
1. Grow System size by driving growth in
our priority markets of the UK, Germany,
and Russia and CIS, and across key cities,
localising our brands as necessary.
2. Drive brand preference through the
adoption of our innovative design concepts,
including the Holiday Inn open-lobby
concept and the new room design for
Holiday Inn Express, thereby continuing
to improve the guest experience and
increase guest satisfaction. Establish
Kimpton in the region, by building on
the momentum of our 2016 signings.
3. Drive demand through our direct channels
by completing the roll-out of Your Rate
in the whole Europe region.
34
IHG Annual Report and Form 20-F 2016
Strategic Report
PERFORMANCE CONTINUED 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
Exceptional items
Operating profit
Percentage of Group operating
profit before central overheads
and exceptional items
2016
$m
2015
$m
2016 vs 2015 %
change
2014
$m
2015 vs 2014 %
change
12 months ended 31 December
102
125
–
227
13.3
78
22
–
100
(25)
75
–
75
9.0
104
131
30
265
14.7
77
28
1
106
(28)
78
175
253
9.4
(1.9)
(4.6)
(100.0)
(14.3)
(1.4)
1.3
(21.4)
(100.0)
(5.7)
10.7
(3.8)
(100.0)
(70.4)
(0.4)
104
159
111
374
20.1
78
30
14
122
(33)
89
(56)
33
11.0
–
(17.6)
(73.0)
(29.1)
(5.4)
(1.3)
(6.7)
(92.9)
(13.1)
15.2
(12.4)
412.5
666.7
(1.6)
Highlights for the year ended
31 December 2016
Comprising 677 hotels (110,069 rooms) at the
end of 2016, Europe represented 14% of the
Group’s room count and 9% of the Group’s
operating profit before central overheads
and exceptional items for the year ended
31 December 2016. 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 decreased by $38m (14.3%) to $227m
and operating profit decreased by $178m
(70.4%) to $75m, primarily due to the gain on
sale of InterContinental Paris – Le Grand during
the year ended 31 December 2015. Operating
profit before exceptional items decreased by
$3.0m (3.8%) to $75m. Underlyinga revenue
increased by $1m (0.6%) and underlyinga
operating profit stayed flat at $76m. Overall,
comparable RevPAR in Europe increased by
1.7%, with the UK increasing by 2.6%, led by
average daily rate growth in the provinces,
Germany growing by 6.8% and Russia and
CIS growing at 14.7%.
Franchised revenue decreased by $2m (1.9%)
to $102m, whilst operating profit increased by
$1m (1.3%) to $78m. On a constant currency
basis, revenue and operating profit increased
by $6m (5.8%) and $6m (7.8%) respectively.
Managed revenue decreased by $6m (4.6%)
and operating profit decreased by $6m (21.4%).
Revenue and operating profit included $77m
(2015: $75m) and $2m (2015: $1m) respectively
from managed leases. Excluding properties
operated under this arrangement, and on a
constant currency basis, revenue decreased
by $5m (8.9%) and operating profit decreased
by $6m (22.2%). Performance was impacted
by difficult trading conditions for our hotels in
Paris, and a revenue reduction in relation to
three managed hotels; two of which have
exited the system and one of which is
undergoing a major refurbishment.
The last remaining hotel in the owned and
leased estate, InterContinental Paris – Le
Grand, was sold in 2015. Following this,
revenue and operating profit in the estate
decreased to nil.
a
Underlying excludes the impact of owned asset disposals,
significant liquidated damages and the results from
managed-lease hotels, translated at constant currency
by applying prior year exchange rates (see pages 156 and
157). Underlying operating profit growth also excludes the
impact of exceptional items.
Highlights for the year ended
31 December 2015
Revenue decreased by $109m (29.1%) to
$265m and operating profit increased by
$220m (666.7%) to $253m, primarily due to
the gain on sale of the InterContinental Paris
– Le Grand. Operating profit before exceptional
items decreased by $11m (12.4%) to $78m.
The decrease in revenue and operating profit
before exceptional items was primarily due to
InterContinental Paris – Le Grand becoming
a managed property and the negative impact
of significant foreign exchange translation
movement. Underlyinga revenue and
underlyinga operating profit increased by
$13m (7.5%) and $17m (23.3%) respectively,
with the transition of 61 UK managed hotels
to franchise contracts driving an increase
in underlying franchise fees, and cost
efficiencies reducing regional overheads.
Overall, comparable RevPAR in Europe
increased by 5.4%, with the UK increasing
by 5.1%, led by rate growth in both London and
the provinces, and Germany growing by 4.4%.
Franchised revenue remained flat at $104m,
whilst operating profit decreased by $1m
(1.3%) to $77m. On a constant currency basis,
revenue and operating profit increased by
$15m (14.4%) and $11m (14.1%) respectively,
following the transition of UK managed hotels
to franchise contracts.
Managed revenue decreased by $28m (17.6%)
and operating profit decreased by $2m (6.7%).
Revenue and operating profit included $75m
(2014: $90m) and $1m (2014: $2m) respectively
from managed leases. Excluding properties
operated under this arrangement, and on a
constant currency basis, revenue decreased
by $2m (2.9%) and operating profit increased
by $3m (10.7%), impacted by the transition of
UK managed hotels to franchise contracts.
The one remaining hotel in the owned and
leased estate, InterContinental Paris – Le
Grand, was sold on 20 May 2015 for gross
proceeds of €330m. Owned and leased
revenue decreased by $81m (73.0%) to
$30m and operating profit decreased by
$13m (92.9%) to $1m.
Performance
IHG Annual Report and Form 20-F 2016
35
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS PERFORMANCE CONTINUED
Europe continued
Europe hotel and room count
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inna
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Percentage of Group hotel
and room count
Hotels
Change
over 2015
(1)
4
2
6
6
1
(1)
17
14
3
17
–
2016
31
92
21
291
234
7
1
677
629
48
677
13.1
2016
9,724
20,887
1,910
47,829
28,578
1,000
141
110,069
97,030
13,039
110,069
14.4
Total number of hotels
Rooms
Change
over 2015
677
Total number of rooms
110,069
During 2016, Europe System size increased by
17 hotels (3,358 rooms) to 677 hotels (110,069
rooms). The Group opened 24 hotels (4,188
rooms) in Europe in 2016, compared to 36
hotels (5,493 rooms) in 2015.
Seven hotels (830 rooms) left the Europe
System in the period, compared to 23 hotels
(2,990 rooms) in the previous year.
(162)
618
120
1,679
1,053
123
(73)
3,358
2,620
738
3,358
0.1
a Includes one Holiday Inn Resort property (88 rooms) (2015: two Holiday Inn Resort properties (212 rooms)).
Europe pipeline
At 31 December
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
Holiday Inn
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2015
1
1
3
7
(2)
13
1
–
24
23
1
24
2016
6
1
14
18
35
58
5
–
137
111
26
137
2016
813
149
3,185
2,264
7,511
9,395
637
–
23,954
17,908
6,046
23,954
Total number of hotels in the pipeline
Rooms
Change
over 2015
137
(69)
149
512
861
(323)
2,197
126
(31)
3,422
3,781
(359)
3,422
Total number of rooms in the pipeline
23,954
The Europe pipeline totalled 137 hotels
(23,954 rooms) at 31 December 2016,
representing an increase of 24 hotels (3,422
rooms) over 31 December 2015. New room
signings reached their highest level since
2007 with 60 hotels (9,554 rooms), an increase
of 12 hotels (728 rooms) from the prior year.
Signings included 17 hotels (2,790 rooms) in
Germany, a record number of signings for the
third year running and 12 hotels (1,952 rooms)
in the UK.
12 hotels (1,944 rooms) were removed from
the pipeline in 2016, compared to 13 hotels
(1,694 rooms) in 2015.
36
IHG Annual Report and Form 20-F 2016
Strategic Report
Asia, Middle East and Africa (AMEA)
Focus on portfolio growth in key cities and resort
destinations, while increasing our revenue share
through enhanced guest satisfaction and greater
loyalty contribution, over the next three years.
PROGRESS AGAINST 2016
REGIONAL PRIORITIES
1. Grew System size with in-year conversions
of over 2,150 rooms in Japan, India,
Indonesia and elsewhere. We accelerated
our growth by signing over 10,500 rooms,
most for full-service brands, and many in
high RevPAR locations such as Japan,
Australia and the Republic of Maldives.
2. Strengthened brand preference in the
boutique and lifestyle segment in the
AMEA region by opening the Hotel Indigo
Singapore Katong, and entering into an
agreement to introduce EVEN Hotels
to Australia and New Zealand.
3. Supported our people strategy through
the launch of our Learning Culture for
General Managers and Corporate
colleagues, to further leadership skills
and business agility. Recognised by Great
Places to Work as the third preferred
employer in Singapore and fourth in Saudi
Arabia across all industries.
IHG’S 2017 REGIONAL PRIORITIES
1. Grow System size in key cities and resort
destinations through both new build and
conversion signings. Particular attention
to be paid to IHG’s strong portfolio of
boutique and lifestyle brands to drive
high-value growth.
2. Drive brand preference through relentless
focus on service and enhance contribution
from IHG Rewards Club, thereby continuing
to improve the guest experience and
increase guest satisfaction.
3. Drive superior returns for our owners
through improved communication and
refinement of our hotel design and opening
processes, to ensure market-leading ROI.
Group revenue 2016 ($1,715m)
8%
7%
14%
13%
58%
Number of rooms (767,135)
12%
10%
14%
64%
Industry performance in 2016
AMEA room demand growth was offset by
supply growth, resulting in flat occupancy.
Falling average daily rate in several key
countries suppressed RevPAR growth to 0.9%.
Slowing global trade and weak oil prices
impacted lodging performance in Indonesia,
United Arab Emirates (UAE) and Saudi Arabia.
Industry RevPAR declined in all three countries
by 4.0% in Indonesia, 8.5% in Saudi Arabia and
9.0% in UAE. Decreasing average daily rates
were the principal driver in Indonesia and UAE,
whilst both occupancy and average daily rate
fell in Saudi Arabia. In contrast, Japan achieved
solid RevPAR growth of 4.0% due to an
increase in average daily rate. RevPAR
increased in India by 5.9% and in Thailand by
3.7%, both led by occupancy growth. Australia
RevPAR increased by 2.2%, driven by a 1.2%
increase in average daily rate.
Source
Smith Travel Research for all of the above industry facts.
IHG’s regional performance in 2016
Across this large region, IHG is widely
represented, both geographically and
by brand, meaning comparisons with the
industry are hard to make. IHG regional
comparable RevPAR decreased by 0.2%
due to a decline in average daily rate, offset
by occupancy gains. Middle East RevPAR
declined by 7.0%, impacted by declining oil
prices. Performance outside the Middle East
was strong with 3.7% RevPAR growth overall.
Performance was led by strong positive
trading in the mature markets of Japan,
where RevPAR increased by 3.6%, and in
Australia where RevPAR increased by 2.9%
ahead of the industry. India outperformed the
market with strong RevPAR growth of 14.1%.
Total RevPAR was down 2.0% for the year
impacted by the proportion of hotel openings
in developing markets where RevPARs are
significantly lower than developed markets.
AMEA comparable RevPAR movement
on previous year
12 months ended
31 December 2016
Franchised
All brands
Managed
(0.1)% All brands
(0.2)%
Performance
IHG Annual Report and Form 20-F 2016
37
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS PERFORMANCE CONTINUED
Asia, Middle East and Africa (AMEA) continued
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
Exceptional items
Operating profit
Percentage of Group operating
profit before central overheads
and exceptional items
2016
$m
2015
$m
2016 vs 2015 %
change
2014
$m
2015 vs 2014 %
change
12 months ended 31 December
16
184
37
237
13.8
12
89
2
103
(21)
82
–
82
9.8
16
189
36
241
13.3
12
90
3
105
(19)
86
(2)
84
10.4
–
(2.6)
2.8
(1.7)
0.5
–
(1.1)
(33.3)
(1.9)
(10.5)
(4.7)
100.0
(2.4)
(0.6)
16
187
39
242
13.0
12
88
3
103
(19)
84
–
84
10.5
–
1.1
(7.7)
(0.4)
0.3
–
2.3
–
1.9
–
2.4
(100.0)
–
(0.1)
Highlights for the year ended
31 December 2016
Comprising 280 hotels (76,051 rooms) at
31 December 2016, AMEA represented 10%
of the Group’s room count and contributed 10%
of the Group’s operating profit before central
overheads and exceptional items during the
year. 83% of rooms in AMEA are operated
under the managed business model.
Revenue and operating profit decreased by
$4m (1.7%) to $237m and by $2m (2.4%) to
$82m respectively. Operating profit before
exceptional items decreased by $4m (4.7%)
to $82m. Underlyinga revenue and underlyinga
operating profit decreased by $8m (4.1%) and
$3m (3.7%) respectively.
Comparable RevPAR decreased 0.2%
primarily due to a fall in rate. Performance
was positive in India, which grew by 14.1%,
and Japan exhibited growth of 3.6%, however
the Middle East decreased by 7.0%, impacted
by declining oil prices and oversupply.
On an actual and constant currency basis
franchised revenue and operating profit
remained flat at $16m and $12m respectively.
Managed revenue and operating profit
decreased by $5m (2.6%) to $184m and
$1m (1.1%) to $89m respectively. Revenue and
operating profit included $51m (2015: $46m)
and $5m (2015: $5m) respectively from one
managed-lease property. Excluding results
from this hotel and on a constant currency
basis, revenue decreased by $9m (6.3%) to
$134m, whilst operating profit remained
flat at $85m. Good underlying growth in
our managed business was offset by a $7m
revenue reduction in relation to four hotels;
three long standing contracts being renewed
onto standard market terms and one equity
stake disposal.
In the owned and leased estate, on an actual
and constant currency basis, revenue
increased by $1m (2.8%) to $37m and operating
profit decreased by $1m (33.3%) to $2m.
a
Underlying excludes the impact of owned asset disposals,
significant liquidated damages and the results from
managed-lease hotels, translated at constant currency
by applying prior year exchange rates (see pages 156 and
157). Underlying operating profit growth also excludes the
impact of exceptional items.
Highlights for the year ended
31 December 2015
Revenue decreased by $1m (0.4%) to $241m,
whilst operating profit remained flat at
$84m. Operating before exceptional items
increased by $2m (2.4%) to $86m. Revenue
and operating profit before exceptional items
were both adversely impacted by foreign
exchange translation. Underlyinga revenue
and underlyinga operating profit increased
by $13m (6.5%) and $7m (8.7%) respectively.
Comparable RevPAR increased 4.5%,
driven by growth in both rate and occupancy.
Performance was led by strong positive
trading in the mature markets of Japan, which
grew by 14.6%, and Australia, which increased
by 4.5%. South East Asia exhibited growth
of 5.7%, however the Middle East increased
by 0.2%, impacted by declining oil prices.
Franchised revenue and operating profit
remained flat at $16m and $12m respectively.
On a constant currency basis, revenue and
operating profit increased by $1m (6.3%)
and $1m (8.3%) respectively.
Managed revenue increased by $2m (1.1%)
to $189m and operating profit increased by
$2m (2.3%) to $90m. Comparable RevPAR
increased by 5.4%, with the majority of rooms
opening in the last quarter of 2015. Revenue
and operating profit included $46m (2014:
$41m) and $5m (2014: $4m) respectively
from one managed-lease property. Excluding
results from this hotel and on a constant
currency basis, revenue increased by $9m
(6.2%), whilst operating profit increased
by $6m (7.1%).
In the owned and leased estate, revenue
decreased by $3m (7.7%) to $36m and
operating profit remained flat at $3m. On a
constant currency basis, revenue increased
by $3m (7.7%) and operating profit increased
by $1m (33.3%).
38
IHG Annual Report and Form 20-F 2016
Strategic Report
AMEA hotel and room count
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Inna
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 2015
1
2
1
2
7
–
–
13
3
10
–
13
0.1
2016
69
73
2
93
34
3
6
280
55
223
2
280
5.4
2016
21,203
20,749
323
21,312
7,583
425
4,456
76,051
12,570
62,894
587
76,051
9.9
Total number of hotels
Rooms
Change
over 2015
280
Total number of rooms
76,051
The AMEA System size increased by 13 hotels
(3,478 rooms) to 280 hotels (76,051 rooms)
as at 31 December 2016. Openings decreased
by five hotels (2,139 rooms) to 17 hotels (4,473
rooms) in 2016. Four hotels (995 rooms)
were removed from the AMEA System in
2016, compared to eight hotels (1,915 rooms)
in 2015.
(35)
738
131
328
1,697
–
619
3,478
646
2,832
–
3,478
0.1
a Includes 14 Holiday Inn Resort properties (2,953 rooms) (2015: 15 Holiday Inn Resort properties (3,169 rooms))
AMEA pipeline
At 31 December
Analysed by brand
InterContinental
Crowne Plaza
Hotel Indigo
Holiday Innb
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2015
5
2
1
3
(8)
(1)
–
2
3
(1)
2
2016
27
21
14
48
35
4
–
149
11
138
149
2016
6,681
5,554
2,582
13,022
7,486
788
3,530
39,643
2,406
37,237
39,643
b Includes five Holiday Inn Resort properties (1,256 rooms) (2015: four Holiday Inn Resort properties (1,071 rooms)).
Total number of hotels in the pipeline
Rooms
Change
over 2015
149
1,332
253
301
1,493
(1,858)
(112)
18
1,427
227
1,200
1,427
Total number of rooms in the pipeline
39,643
At 31 December 2016, the AMEA pipeline
totalled 149 hotels (39,643 rooms) compared
to 147 hotels (38,216 rooms) at 31 December
2015. Hotel signings in AMEA were at their
highest since 2008 with 42 hotels (10,551
rooms), an increase of seven hotels although
a fall in terms of rooms (1,890 rooms) from
the level seen in 2015. Signings in 2016
included 23 hotels (5,934 rooms) in the
Holiday Inn brand family and eight
InterContinental hotels (1,737 rooms).
23 hotels (4,651 rooms) were removed from
the pipeline in 2016, compared to eight hotels
(1,959 rooms) in 2015.
Performance
IHG Annual Report and Form 20-F 2016
39
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Greater China
Further grow System size, particularly in tier 2 and 3 cities
and in the growing midscale segment, whilst developing
a strong local talent pipeline for our hotels, over the next
three years.
PROGRESS AGAINST 2016
REGIONAL PRIORITIES
1. Grew System size by opening five
InterContinental hotels, including two
flagship hotels in Beijing and Shanghai.
We also signed 82 new hotels, including
four HUALUXE hotels, and increased
our pipeline to 239 hotels, out of which
around 90 per cent are in tier 2 and 3 cities.
2. Drove superior returns for our owners
through the successful introduction of
the Franchise Plus business model for
the Holiday Inn Express brand in May
(see page 30), with a dedicated support
structure to capture the growth opportunity
in the midscale segment. In 2016, a total
of 20 hotels under the Franchise Plus
business model were signed.
3. Supported our people strategy through the
resourcing and development of hotel talent.
Rolled out the IHG Frontline programme
to drive consistent and effective frontline
training, with almost 150 hotels actively
adopting the system.
IHG’S 2017 REGIONAL PRIORITIES
1. Grow System size, under both the managed
and franchised business models, through a
deeper penetration in tier 2 and 3 cities and
a strengthened Holiday Inn and Holiday Inn
Express presence to capture the growing
midscale segment opportunity.
2. Maximise System size growth potential
by further expanding IHG’s brand portfolio
in the market. Continue to build brand
awareness and drive performance of
opened hotels for the HUALUXE brand.
3. Drive brand preference by focusing
on the delivery of consistent guest
experiences for our brands. Further
tailor IHG enterprise platforms to
better meet evolving market needs.
4. Support our people strategy by developing
a strong local talent pipeline, particularly
in tier 2 and 3 cities. Continue to develop
and strengthen capabilities to support
the needs of the franchise business.
Group revenue 2016 ($1,715m)
8%
7%
14%
13%
58%
Number of rooms (767,135)
12%
10%
14%
IHG’s regional performance in 2016
IHG’s regional comparable RevPAR increased
2.2% in 2016, significantly ahead of the
industry. Our RevPAR growth was driven
by better than industry occupancy, which
increased by 4.4%, whilst average daily rate
decreased by 2.2%. Mainland China RevPAR
increased by 3.9% led by growth of 6.3%
in tier 1 cities driven by strong corporate
demand. The rest of mainland China grew by
2.2%. Hong Kong RevPAR declined by 2.3%,
slightly below the industry. Taiwan and Macau
experienced significant trading declines
of 10.5% and 13.5% respectively.
Greater China comparable RevPAR
movement on previous year
12 months ended
31 December 2016
3.0%
64%
Managed
All brands
Industry performance in 2016
Lodging industry RevPAR growth in Greater
China was flat in the year, an improvement
on a 2.4% decline in 2015. Industry occupancy
increased 1.6 points driven by a 6.4% increase
in room demand. Average daily rate decreased
by 2.5%. RevPAR in mainland China increased
by 1.6%, driven by a 6.9% increase in room
demand and an occupancy increase of 1.8
points. The average daily rate decreased by
1.3%. The country’s two largest city markets
in terms of hotel rooms, Beijing and Shanghai,
both increased RevPAR due to rising room
demand. Shanghai RevPAR growth of 3.1% was
due to an occupancy increase. Beijing RevPAR
growth of 5.0% was due to both occupancy
and a moderate average daily rate increase
of 2.0%. RevPAR in Hong Kong and Macau
declined by 2.1% and 9.1% respectively,
both driven by average daily rate declines
as room demand increased.
Source
Smith Travel Research for all of the above industry facts.
40
IHG Annual Report and Form 20-F 2016
Strategic Report
PERFORMANCE CONTINUED Greater China results
2016
$m
2015
$m
2016 vs 2015 %
change
2014
$m
2015 vs 2014 %
change
12 months ended 31 December
Revenue
Franchised
Managed
Owned and leased
Total
Percentage of Group revenue
Operating profit before exceptional items
Franchised
Managed
Owned and leased
3
114
–
117
6.8
3
64
–
67
4
105
98
207
11.5
5
59
29
93
Regional overheads
(22)
(23)
Exceptional items
Operating profit
Percentage of Group operating
profit before central overheads
and exceptional items
45
–
45
5.4
70
698
768
8.4
(25.0)
8.6
(100.0)
(43.5)
(4.7)
(40.0)
8.5
(100.0)
(28.0)
4.3
(35.7)
(100.0)
(94.1)
(3.0)
4
99
139
242
13.0
5
63
42
110
(21)
89
–
89
11.0
–
6.1
(29.5)
(14.5)
(1.5)
–
(6.3)
(31.0)
(15.5)
(9.5)
(21.3)
100.0
762.9
(2.6)
Highlights for the year ended
31 December 2016
Comprising 292 hotels (93,022 rooms) at
31 December 2016, Greater China represented
approximately 12% of the Group’s room count
and contributed approximately 5% of the
Group’s operating profit before central
overheads and exceptional items for the
year ended 31 December 2016. 98% of
rooms in Greater China are operated
under the managed business model.
Revenue decreased by $90m (43.5%) to
$117m and operating profit decreased by
$723m (94.1%) to $45m, primarily due to the
gain on sale of InterContinental Hong Kong
in 2015. Operating profit before exceptional
items decreased by $25m (35.7%) to $45m.
Underlyinga revenue and underlyinga operating
profit increased by $14m (12.8%) and by $6m
(14.6%) respectively. Overall, the region
achieved comparable RevPAR growth
of 2.2%. Trading in mainland tier 1 cities
was particularly strong, whilst the rest of
mainland China showed slower growth.
On an actual and constant currency basis,
franchised revenue and operating profit
decreased by $1m (25.0%) and by $2m
(40.0%) respectively.
Managed revenue and operating profit
increased by $9m (8.6%) to $114m and by
$5m (8.5%) to $64m respectively. Comparable
RevPAR increased by 3.0%, whilst the Greater
China System size grew by 9.0%, driving a 7.0%
increase in total gross revenue derived from
rooms business. Total gross revenue derived
from non-rooms business increased by
6.8%, primarily due to increased food and
beverage revenue. On a constant currency
basis, revenue and operating profit increased
by $15m (14.3%) to $120m and by $8m (13.6%)
to $67m respectively, with ongoing investment
in growth initiatives more than offset by scale
efficiencies and strategic cost management.
The last remaining hotel in the owned and
leased estate, InterContinental Hong Kong,
was sold in 2015. Following this, revenue and
operating profit in the estate decreased to nil.
a
Underlying excludes the impact of owned asset disposals,
significant liquidated damages and the results from
managed-lease hotels, translated at constant currency
by applying prior year exchange rates (see pages 156 and
157). Underlying operating profit growth also excludes the
impact of exceptional items.
Highlights for the year ended
31 December 2015
Revenue decreased by $35m (14.5%) to
$207m and operating profit increased by
$679m to $768m due to the gain on sale of
InterContinental Hong Kong. Operating profit
before exceptional items decreased by
$19m (21.3%) to $70m. Underlyinga revenue
increased by $8m (7.8%) due to the addition
of over 20,000 rooms into the managed estate
over the last two years. Underlyinga operating
profit decreased by $5m (10.6%), impacted
by $5m of ongoing investment into building
long-term people capability, as well as the
year-on-year impact from $5m of previously
disclosed one-off upsides in 2014. Overall,
the region achieved comparable RevPAR
growth of 0.3%, significantly ahead of the
industry, reflecting our scale and management
strength in the region. Trading in mainland tier
1 cities was particularly strong, whilst the rest
of mainland China showed marginal increases.
Trading in Hong Kong and Macau significantly
declined. Total RevPAR in Greater China
decreased by 2.3% as more hotels opened
into developing markets.
Franchised revenue and operating profit
remained flat at $4m and $5m respectively.
Managed revenue increased by $6m (6.1%)
to $105m, whilst operating profit decreased
by $4m (6.3%) to $59m, impacted by the
above-mentioned investment in people
capability and previously disclosed one-off
upsides in 2014. Comparable RevPAR
increased by 1.1%, whilst the Greater China
System size grew by 10.4%, driving a 4.8%
increase in total gross revenue derived from
rooms business. Total gross revenue derived
from non-rooms business increased by 7.9%,
due primarily to increased food and beverage
revenue. On a constant currency basis,
revenue increased by $8m (8.1%) to $107m,
whilst operating profit decreased by $3m
(4.8%) to $60m.
The one remaining hotel in the owned
and leased estate, InterContinental Hong
Kong, was sold on 30 September 2015 for
proceeds of $928m after final working capital
adjustments and cash tax. Owned and leased
revenue decreased by $41m (29.5%) to $98m
and operating profit decreased by $13m
(31.0%) to $29m.
Performance
IHG Annual Report and Form 20-F 2016
41
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS PERFORMANCE CONTINUED
Greater China continued
Greater China hotel and room count
Total number of hotels
At 31 December
Analysed by brand
InterContinental
HUALUXE
Crowne Plaza
Hotel Indigo
Holiday Inna
Holiday Inn Express
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Percentage of Group hotel
and room count
Hotels
Change
over 2015
5
1
4
1
5
11
–
27
–
27
27
0.3
2016
39
4
79
6
83
75
6
292
4
288
292
5.6
2016
16,315
1,096
28,051
740
25,871
18,477
2,472
93,022
2,184
90,838
93,022
12.1
a Includes six Holiday Inn Resort properties (1,820 rooms) (2015: seven Holiday Inn Resort properties (2,235 rooms)).
Rooms
Change
over 2015
292
2,508
298
1,363
129
900
2,454
(139)
7,513
–
7,513
7,513
0.6
Total number of rooms
93,022
The Greater China System size increased
by 27 hotels (7,513 rooms) in the year to 292
hotels (93,022 rooms). 29 hotels (7,938 rooms)
opened during 2016, three hotels and 1,442
rooms lower than 2015. Recent growth in
the region has focused on tier 2 and 3 cities,
which now represent approximately 65%
of our open rooms. 17 Holiday Inn brand
family hotels (3,773 rooms) were also added
in the year, compared to 19 hotels (4,567
rooms) in 2015.
Two hotels (425 rooms) were removed
in 2016 compared to eight hotels (2,065
rooms) in 2015.
Greater China pipeline
Total number of hotels in the pipeline
At 31 December
Analysed by brand
InterContinental
HUALUXE
Crowne Plaza
Hotel Indigo
Holiday Innb
Holiday Inn Express
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2015
1
1
(1)
2
1
30
–
34
20
14
34
2016
22
22
38
11
50
95
1
239
20
219
239
2016
7,454
6,956
12,511
1,782
14,841
20,205
279
64,028
4,085
59,943
64,028
b Includes six Holiday Inn Resort properties (1,820 rooms) (2015: three Holiday Inn Resort properties (820 rooms)).
Rooms
Change
over 2015
239
(446)
324
(206)
282
203
5,087
–
5,244
4,085
1,159
5,244
Total number of rooms in the pipeline
64,028
At 31 December 2016, the Greater China
pipeline totalled 239 hotels (64,028 rooms)
compared to 205 hotels (58,784 rooms)
at 31 December 2015. Signings (82 hotels
(18,669 rooms)) were the highest since 2007
in terms of hotel count but decreased from
19,516 rooms in 2015. 63 hotels (13,472 rooms)
were signed for the Holiday Inn brand family,
including 20 franchised Holiday Inn Express
hotels since launching the new franchise
model in May. Overall, the Holiday Inn
Express brand pipeline increased to 95
hotels (20,205 rooms).
19 hotels (5,487 rooms) were removed from
the pipeline in 2016, compared to 18 hotels
(5,690 rooms) in 2015.
42
IHG Annual Report and Form 20-F 2016
Strategic Report
Central
Central results
Revenue
Gross costs
Operating loss before
exceptional items
Exceptional items
Operating loss
12 months ended 31 December
2016
$m
141
(269)
(128)
–
(128)
2015
$m
135
(286)
(151)
(11)
(162)
2016 vs 2015 %
change
4.4
5.9
15.2
100.0
21.0
2014
$m
129
(284)
(155)
(25)
(180)
2015 vs 2014 %
change
4.7
(0.7)
2.6
56.0
10.0
Highlights for the year ended
31 December 2016
The net operating loss decreased by $34m
(21.0%) compared to 2015. Central revenue,
which mainly comprises technology fee
income, increased by $6m (4.4%) to $141m
(an increase of $9m (6.7%) at constant
currency), driven by increases in both
comparable RevPAR (1.8%) and IHG System
size (3.1%). At constant currency, gross costs
decreased by $3m (1.0%) compared to 2015
(a $17m or 5.9% decrease at actual currency)
driven by a continued focus on strategic
cost management. Net operating loss before
exceptional items decreased by $23m (15.2%)
to $128m (a $12m or 7.9% decrease to $139m
at constant currency).
Highlights for the year ended
31 December 2015
The net operating loss decreased by $18m
(10.0%) compared to 2014. Central revenue,
which mainly comprises technology fee
income, increased by $6m (4.7%) to $135m,
driven by increases in both comparable
RevPAR (4.4%) and IHG System size (4.8%,
3.2% excluding Kimpton). At constant
currency, gross costs increased by $13m
(4.6%) compared to 2014 (a $2m or 0.7%
increase at actual currency). Net operating
loss before exceptional items decreased by
$4m (2.6%) to $151m (a $5m or 3.2% increase
to $160m at constant currency).
System Fund
System Fund assessments
2016
$m
2015
$m
2016 vs 2015 %
change
2014
$m
2015 vs 2014 %
change
12 months ended 31 December
Assessment fees and contributions
received from hotels
Proceeds from sale of IHG Rewards
Club points
1,439
1,351
6.5
1,271
283
222
27.5
196
Total
1,722
1,573
9.5
1,467
6.3
13.3
7.2
Highlights for the year ended
31 December 2016
In the year to 31 December 2016, System Fund
income increased by 9.5% to $1,722m primarily
as a result of a 6.5% 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 27.5% increase in proceeds from the sale
of IHG Rewards Club points.
In addition to franchise or management
fees, hotels within the IHG System pay
assessments and contributions (other than
for Kimpton and InterContinental) 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 Guest 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 2015
In the year to 31 December 2015, System Fund
income increased by 7.2% to $1,573m primarily
as a result of a 6.3% 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
13.3% increase in proceeds from the sale of
IHG Rewards Club points.
Performance
IHG Annual Report and Form 20-F 2016
43
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Other financial information
Exceptional items
Exceptional items totalled a loss of $29m
which included $13m relating to the cost
of integrating Kimpton into the operations
of the Group and a $16m impairment charge
relating to the Barclay associate which owns
InterContinental New York Barclay, a hotel
managed by the Group. The impairment
charge reflects the currently depressed
trading outlook for the New York market and
the high cost of renovation of the hotel. See
note 5 to the Group Financial Statements which
provides further detail.
Exceptional 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
(for more information see page 26).
Net financial expenses
Net financial expenses were flat at $87m,
reflecting the issue of £350m 2.125% public
bonds in August 2016, and a full year of interest
on the £300m 3.75% bonds issued in August
2015, offset by the impact of a weaker pound
on translation of sterling interest expense.
Financing costs included $3m (2015: $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 2016 also included $20m
(2015: $20m) in respect of the InterContinental
Boston finance lease.
Taxation
The effective rate of tax on operating profit
excluding the impact of exceptional items
was 30% (2015: 30%). Excluding the impact
of prior-year items, the equivalent tax rate
would be 31% (2015: 36%). This rate is higher
than the average UK statutory rate of 20%
(2015: 20.25%), due mainly to certain overseas
profits (particularly in the US) being subject
to statutory tax rates higher than the UK
statutory rate, unrelieved foreign taxes
and disallowable expenses.
Taxation within exceptional items totalled a
credit of $12m (2015: charge of $8m). In 2016,
the credit included a $6m deferred tax credit in
respect of the impairment charge relating to
the Barclay associate and a $5m deferred tax
credit representing future tax relief on $13m
of Kimpton integration costs. In 2015, the
charge comprised $56m relating to the
disposal of InterContinental Hong Kong and
InterContinental Paris – Le Grand, a credit
of $21m in respect of the 2014 disposal of an
80% interest in InterContinental New York
Barclay reflecting the judgement that state
tax law changes would now apply to the
deferred gain and credits of $27m for current
and deferred tax relief on other operating
exceptional items of current and prior years.
Net tax paid in 2016 totalled $130m (2015:
$110m, including $1m in respect of disposals).
Tax paid represents an effective rate of 22%
(2015: 8%) on total profits and is lower than the
effective income statement tax rate of 30%
(2015: 30%), primarily due to the timing of US
tax payments and the impact of deferred taxes.
IHG pursues an approach to tax that is
consistent with its business strategy and
its overall business conduct principles. This
approach 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 IHG Audit Committee.
The Group’s Approach to Tax document is
available on IHG’s website at www.ihgplc.
com/responsible-business under Policies.
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
material 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 80%
of its revenues in the form of franchise,
management or similar fees, with almost
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 64.0¢. With the interim
dividend per ordinary share of 30.0¢, the
full-year dividend per ordinary share for 2016
will total 94.0¢, an increase of 11% over 2015.
In February 2017, the Board proposed a $400m
return of funds to shareholders by way of a
special dividend and share consolidation.
IHG pays its dividends in pounds sterling and
US dollars. The sterling amount of the final and
special dividend will be announced on 11 May
2017 using the average of the daily exchange
rates from 8 May 2017 to 10 May 2017 inclusive.
Earnings per ordinary share
Basic earnings per ordinary share decreased
by 62.4% to 195.3¢ from 520.0¢ in 2015. Adjusted
earnings per ordinary share increased by 16.2%
to 203.3¢ from 174.9¢ in 2015.
Share price and market capitalisation
The IHG share price closed at £36.38 on
31 December 2016, up from £26.58 on
31 December 2015. The market capitalisation
of the Group at the year end was £7.2bn.
DIVIDEND POLICY
The Group’s business is highly cash-
generative and the Group has three primary
uses for its cash; investing to drive growth,
maintaining sustainable growth in the
ordinary dividend and returning surplus
funds to shareholders. These are kept
under constant review by the Board.
IHG has a progressive dividend policy, which
means growing dividend per ordinary share
each year. The Group has an excellent track
record of returning funds to shareholders
through ordinary and special dividends and
share buybacks, with the ordinary dividend
seeing 11% CAGR since 2003. This is in addition
to special returns of funds detailed on page 178.
The Group seeks to maintain an efficient
balance sheet and investment grade credit
rating and aims to maintain a net debt:EBITDA
ratio of 2.0 – 2.5x. The ratio at 31 December
2016 was 1.9x, however, this is before the
payment of the $400 return of funds to
shareholders via a special dividend with
share consolidation proposed by the
Board in February 2017.
44
IHG Annual Report and Form 20-F 2016
Strategic Report
Ordinary dividend
progression (¢)
11%
52
47
43
39
35
29 29 29
26
17
19 19
7 8 8 10 12 12 12 13 16 21 23 25 28 30
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Interim
Final
100
80
64
60
58
s
t
n
e
C
40
20
0
PERFORMANCE CONTINUED
Liquidity and capital resources
Sources of liquidity
In August 2016, the Group issued a £350m,
10-year bond at a 2.125% coupon rate, the
lowest funding rate the Group has achieved
in the sterling bond market. The bonds are
repayable in 2026, extending the maturity
profile of the Group’s debt.
This is in addition to £400m of public bonds
which are repayable on 28 November
2022 and £300m of public bonds which are
repayable on 14 August 2025. On 9 December
2016, the Group repaid £250m of maturing
public bonds which were issued in 2009.
The Group is further financed by a
$1.275bn revolving syndicated bank facility
(the Syndicated Facility) and a $75m revolving
bilateral facility (the Bilateral facility) which
mature in March 2021, with a one-year
extension option exercisable in 2017. $110m
was drawn under the Syndicated Facility
at the year end.
The Syndicated and Bilateral facilities contain
the same terms and two financial covenants;
interest cover; and net debt divided by
earnings before interest, tax, depreciation
and amortisation (EBITDA). The Group is in
compliance with all of the financial covenants
in its loan documents, none of which is
expected to present a material restriction
on funding in the near future.
Additional funding is provided by the 99-year
finance lease (of which 89 years remain)
on InterContinental Boston and other
uncommitted bank facilities (see note
20 to the Group Financial Statements).
In the Group’s opinion, the available
facilities are sufficient for the Group’s
present liquidity requirements.
Net debt of $1,506m (2015: $529m)
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 debt
Average debt level
2016
$m
2015
$m
1,289
418
2
3
(27)
(127)
(12)
(8)
(7)
(25)
1,506
1,235
1,405
253
4
4
(619)
(460)
(15)
(8)
(4)
(31)
529
1,420
Borrowings included bank overdrafts of
$89m (2015: $39m), 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, Canada,
and Singapore, and the matching overdrafts
are held by the Group’s central treasury
company in the UK.
Cash used in financing activities
Net cash used in financing activities totalled
$1,456m, which was $1,346m higher than
2015, mainly due to the $1.5bn special
dividend paid in May 2016. Net cash inflows
from borrowings were $150m higher than
in 2015.
Overall net debt increased during the year
by $977m to $1,506m as at 31 December 2016.
Off-balance sheet arrangements
At 31 December 2016, the Group had no
off-balance sheet arrangements that have
or are reasonably likely to have a current or
future material effect on the Group’s financial
condition, revenues or expenses, results
of operations, liquidity, capital expenditures
or capital resources.
Cash and cash equivalents include $3m (2015:
$1m) that is not available for use by the Group
due to local exchange controls.
Contractual obligations
The Group had the following contractual
obligations outstanding as of 31 December 2016.
Information on the maturity profile and interest
structure of borrowings is included in notes
20 and 22 to the Group Financial Statements.
The Group had net liabilities of $759m at
31 December 2016, (net assets of $319m at
31 December 2015), with the decrease due
to the $1.5bn special dividend paid in May 2016.
Cash from operating activities
Net cash from operating activities totalled
$752m for the year ended 31 December 2016,
up $124m on the previous year largely due
to cash receipts on behalf of the System Fund
of approximately $95m from renegotiation
of long-term partnership agreements.
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 outflows from investing activities
totalled $216m. In 2015 net cash inflows
totalled $589m, including $1,277m of disposal
proceeds primarily related to the disposal
of InterContinental Paris – Le Grand and
InterContinental Hong Kong and $438m
on the acquisition of Kimpton Hotels &
Restaurants. Excluding the effect of these
major acquisitions and disposals, net cash
outflows from investing activities decreased
by $34m, primarily driven by proceeds from
other financial assets in 2016.
The Group had committed contractual capital
expenditure of $97m at 31 December 2016
(2015: $76m).
$m
Total
amounts
committed
Less
than
1
year
1–3
years
3–5
years
After 5
years
1,402
–
–
110 1,292
320
42
84
84
110
3
3,333
3
17
–
32
–
–
32 3,252
590
53
92
99
346
5
5
–
–
97
97
–
–
–
–
5,750
217
208
325 5,000
Long-term
debt
obligationsa, b
Interest
payableb
Derivatives
Finance lease
obligationsc
Operating
lease
obligations
Agreed
pension
scheme
contributions
Capital
contracts
placed
Total
a Repayment period classified according to the related
facility maturity date.
b Excluding bank overdrafts.
c Mainly represents the minimum lease payments related
to the 99-year lease (of which 89 years remain) on
InterContinental Boston. Payments under the lease
step up at regular intervals over the lease term.
Contingent liabilities
Contingent liabilities include performance
guarantees with possible cash outflows
totalling $14m, guarantees over the debt
of equity investments of $33m, outstanding
letters of credit of $37m, and an indemnity
over a $43m bank loan made to an associate.
The Group may also be exposed to additional
liabilities resulting from security incidents.
See note 30 to the Group Financial Statements
for further details.
Performance
IHG Annual Report and Form 20-F 2016
45
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Governance
48 Chairman’s overview
49 Corporate Governance
49
Our Board and Committee
governance structure
50 Our Board of Directors
52 Our Executive Committee
54 Board meetings
55
Director induction, training
and development
55 Board effectiveness evaluation
Engagement with shareholders
56
Audit Committee Report
57
60
Corporate Responsibility Committee Report
61 Nomination Committee Report
62
Statement of compliance with the
UK Corporate Governance Code
64 Directors’ Remuneration Report
Remuneration Committee
64
Chairman’s statement
66 At a glance
68
69
76
Remuneration at IHG – the wider context
Annual Report on Directors’ Remuneration
Directors’ Remuneration Policy
46
IHG Annual Report and Form 20-F 2016
Governance
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
Shaker + Spear, a Kimpton restaurant, Seattle, Washington, US
Governance
IHG Annual Report and Form 20-F 2016
47
Chairman’s overview
“As a Board, we instil a culture of strong values,
ethics and integrity in our business.”
Training, development and Board performance review
The Board’s training needs are reviewed regularly as part of our
agenda-setting and the annual Board effectiveness evaluation.
In 2016, the Directors received training on a variety of topics,
including updates on technology trends, changes in accounting
regulations, and key areas of our Responsible Business ethics and
compliance programme, in addition to regular briefings on legal and
corporate governance developments. Further information about our
ongoing training arrangements for Directors can be found on page 55.
We recognise the importance of regularly evaluating the Board and
how this contributes to an effective Board that adds real value to the
Group. In 2016, we engaged an independent external facilitator to lead
our Board effectiveness evaluation. An evaluation plan has been devised,
and will be carried out in early 2017. More information on the evaluation,
including our performance against the 2015 action plan, is on pages 55
and 56.
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 and a Form
20-F in the US. Our statement of compliance with the UK Corporate
Governance Code (the Code) is located on pages 62 and 63.
I am pleased to report that, during 2016, we complied fully with
all principles and provisions of the Code, with the exception of
the provision relating to audit tendering (see page 63). However,
we have established a sub-committee of the Audit Committee to
oversee the audit tender process and recommend a detailed plan,
to be presented to that Committee in 2017 (see page 59).
To ensure continued consistency of information provided to both
UK and US investors for 2016, we have again produced a combined
Annual Report and Form 20-F this year. 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 page 176.
We recognise the importance of governance in creating long-term,
sustainable value, and in 2017 we will continue to drive the execution
of our strategy and enhance our governance framework.
Patrick Cescau
Non-Executive Chairman
20 February 2017
We embrace good governance, which we see both as a product of good
leadership and as key in creating long-term value.
The Board is responsible for ensuring leadership through effective
oversight and review of the Group’s activities. The Board considers
what we aim to deliver as a company and how we deliver it, recognising
the importance of instilling a culture of strong values, ethics and integrity
in our business.
Governance framework
Governance for us is about our values, our ethics, and doing the right
thing. Led by the Board, and supported by its principal Committees
(Audit, Corporate Responsibility, Nomination and Remuneration
Committees), effective corporate governance is embedded in our
corporate culture and permeates throughout the business. Together
with our ways of working, rigorous structures of reporting, sound
system of controls, and commitment to conducting business
responsibly, our practices and policies not only ensure the smooth
operation of our business but also effectively safeguard our reputation.
Board culture and composition
Good governance at IHG begins with the Board. We carefully plan
our annual agenda, allowing time to consider and review strategic,
operational, governance, and financial and performance-related agenda
items. Effective meetings also depend on the dynamics of the Board,
and we strive to create an inclusive environment, where every Director
is encouraged to contribute to the discussion, and where constructive
challenge is welcomed. See pages 54 and 55 for details of the items
discussed by the Board during the year, and the information and support
provided to the Board to ensure meetings are run effectively.
As of 31 December 2016, the Board comprised six Non-Executive
Directors, myself as Chairman, and two Executive Directors, including
33 per cent female representation. In February 2017, we approved
the appointment of Malina Ngai to the Board as a Non-Executive
Director, with effect from 1 March 2017. Malina will bring to the Board
considerable experience in consumer-facing, branded operations,
and will provide significant insight into the Asian market, and her
appointment will also increase the level of female representation
on the Board from 33 to 40 per cent. We are proud to be a diverse
company and value the benefits that this brings. By ensuring that
different genders, backgrounds, ages and nationalities are appropriately
represented, both in the composition of the Board and throughout the
organisation as a whole, we ensure that corporate decision-making
is informed by the widest possible range of knowledge, skills
and experience.
In 2016, we said goodbye to Tracy Robbins, Jennifer Laing and Ying Yeh,
after four, 10 and eight years on the Board respectively. Jill McDonald,
a Non-Executive Director, succeeded Jennifer as Chairman of the
Corporate Responsibility Committee. Details about her induction
are set out on page 55.
Further details of our Board structure and composition can be found on
pages 49 to 51, and details of our approach to succession planning and
diversity are located in the Nomination Committee Report on page 61.
48
IHG Annual Report and Form 20-F 2016
Governance
Corporate Governance
Our Board and Committee governance structure
The Group’s governance framework, which supports our culture and
our values, and underpins our long-term performance, is directed by
the Board and through the Group’s Board and Management Committees.
The Board and its Committees
The Board is accountable for the long-term success of the Group. It
leads the Group’s strategic direction and long-term objectives, and
monitors Group performance, and risk and internal management
controls through effective oversight and review. Supported by its
principal Committees (Audit, Corporate Responsibility, Nomination
and Remuneration Committees), the Board sets the Group’s strategic
direction, oversees how it delivers these objectives and aims to deliver
sustainable shareholder value for the long term. See page 54 for
details on the Board and how it spent its time during 2016.
Management Committees
Operational matters, routine business and information disclosure
procedures are delegated by the Board to Management Committees.
BOARD AND COMMITTEE MEMBERSHIP AND ATTENDANCE IN 2016
The Executive Committee has responsibility for implementing operational
decisions. Day-to-day management of the business is delegated to the
Chief Executive Officer and the Executive Committee. There is clear
delegation and oversight from the Board to the Executive Committee,
which strengthens decision-making across key areas of the business.
The General Purposes Committee attends to business of a routine
nature with parameters set by the Board or an appropriate Committee.
The Disclosure Committee ensures proper procedures are in place for
information disclosures required pursuant to UK and US accounting,
statutory and listing requirements.
More information on our Board and Committees, including the schedule
of matters reserved for the Board (which sets out those areas that are
not delegated by the Board to its Committees), is available on our
website at www.ihgplc.com/investors under Corporate governance.
Appointment
date
Committee
appointments
Board
Total meetings held
Chairman
Patrick Cescau
Chief Executive Officer
Richard Solomons
Executive Directors
01/01/13
10/02/03
C
Paul Edgecliffe-Johnson
01/01/14
Senior Independent
Non-Executive Director
Dale Morrison
Non-Executive Directors
Anne Busquet
Ian Dyson
Jo Harlow
Jennifer Laing
Luke Mayhew
Jill McDonald
Ying Yeh
01/06/11
A N R
01/03/15
01/09/13
01/09/14
25/08/05
01/07/11
01/06/13
01/12/07
A C N
N R
A N R
A C N
C N
A
N
C N R
8
8
8
8
8
8
8
8
2
8
8
2
Audit
Committee
5
5
5
5
5
2
5
Meetings
Corporate
Responsibility
Committee
Nomination
Committee
Remuneration
Committee
3
3
3
1
3
3
1
2
2
2
2
2
2
1
2
2
1
6
6
6
6
6
2
Board Committee membership key
A Audit Committee member
N Nomination Committee member
Chairman of a Board Committee
C Corporate Responsibility Committee member
R Remuneration Committee member
Corporate Governance
IHG Annual Report and Form 20-F 2016
49
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
Our Board of Directors
Patrick Cescau
Non-Executive Chairman
Appointed to the Board: 1 January 2013
C
Richard Solomons
Chief Executive Officer
Appointed to the Board: 10 February 2003
Paul Edgecliffe-Johnson
Chief Financial Officer
Appointed to the Board: 1 January 2014
A N R
Dale Morrison
Senior Independent Non-Executive Director
Appointed to the Board: 1 June 2011
CHANGES TO THE BOARD
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. He was formerly
a Senior Independent Director and Non-Executive
Director of Pearson plc and Tesco PLC, and a
Director at INSEAD.
Board contribution: Patrick has held board
positions for nearly 15 years in leading global
businesses and brings extensive international
experience in strategy, brands, consumer products,
and finance. As Chairman, Patrick is responsible
for leading the Board and ensuring it operates in
an effective manner, and promoting constructive
relations with shareholders. As Chairman of the
Nomination Committee, he is responsible for
reviewing and making recommendations on
the Group’s leadership needs.
Other appointments: Currently Senior Independent
Director of International Airlines Group, Patrick is
also a trustee of The Leverhulme Trust, Patron of
the St Jude India Children’s Charity and Member
of the Temasek European Advisory Panel.
Skills and experience: Richard has led the
continued growth of IHG, including the launch of
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 over $12
billion to shareholders. Richard is 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 Marks and Spencer Group plc.
Skills and experience: Paul is a fellow of the
Institute of Chartered Accountants and a member
of the Association of Corporate Treasurers. 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 region (prior to the reconfiguration of
our operating regions).
Board contribution: Paul is responsible,
together with the Board, for overseeing the
financial operations of the Group and setting
its financial strategy.
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.
Other appointments: Currently a Non-Executive
Director of International Flavors & Fragrances Inc.,
and Non-Executive Chairman of Marlin 1 (holding
company for Young's Seafood International
Holdings Ltd.).
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. Dale’s role as Senior Independent
Non-Executive Director is fundamental to
the successful operation of the Board.
Tracy Robbins
Tracy resigned from the Board and her role as Executive Vice President, Human Resources on 15 January 2016.
Jennifer Laing
Jennifer retired from the Board following the AGM on 6 May 2016.
Jill McDonald
Jill was appointed to the Chair of the Corporate Responsibility Committee on 6 May 2016.
Ying Yeh
Ying retired from the Board following the AGM on 6 May 2016.
50
IHG Annual Report and Form 20-F 2016
Governance
CORPORATE GOVERNANCE CONTINUED A C N
Anne Busquet
Independent Non-Executive Director
Appointed to the Board: 1 March 2015
N R
Ian Dyson
Independent Non-Executive Director
Appointed to the Board: 1 September 2013
A
N R
Jo Harlow
Independent Non-Executive Director
Appointed to the Board: 1 September 2014
NC
Luke Mayhew
Independent Non-Executive Director
Appointed to the Board: 1 July 2011
Skills and experience: Anne began her career
at Hilton International in Paris, before joining
American Express Company in New York, where
she held several executive positions and served for
23 years. Anne was also the Chief Executive Officer
of Local and Media Services at InterActiveCorp,
an internet commerce conglomerate.
Other appointments: Anne is currently the
President of AMB Advisors, an independent
consulting firm, and Managing Director at Golden
Seeds LLC, an angel investment company. She
also serves on the boards of Pitney Bowes, MTBC,
Elior Group and Provista Diagnostics, Inc. and
on the advisory boards of JEGI and SheSpeaks.
Board contribution: Anne brings more than 20 years’
experience in senior positions in multinational
companies, predominantly in the financial, branded
and digital-commerce sectors.
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, 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, Senior Independent
Non-Executive Director and Chairman of
the Audit Committee of ASOS plc, and Senior
Independent Non-Executive Director of Paddy
Power Betfair plc.
Skills and experience: Jo most recently held the
position of Corporate Vice President of the Phones
Business Unit at Microsoft Corporation. She was
previously Executive Vice President of Smart
Devices at Nokia Corporation, following a number
of senior management roles at Nokia from 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.
Board contribution: Jo has over 25 years’ experience
working in various senior roles, predominantly in
the branded and technology sectors.
Other appointments: Currently a Non-Executive
Director of Halma plc.
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 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 Brambles Limited where he
chaired the Remuneration Committee. He was
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 Senior Independent
Director of DFS Furniture Holdings plc, and a
trustee of BBC Children in Need.
A
N
Jill McDonald
Independent Non-Executive Director
Appointed to the Board: 1 June 2013
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.
Jill was previously Chief Executive Officer UK
and President for the North West Europe division
for McDonald’s, and held a number of other senior
roles in the company from 2006. Jill became Chief
Executive Officer of the Halfords Group plc in
May 2015.
Board contribution: Jill has nearly 30 years’
experience working with high-profile international
consumer-facing brands at both marketing and
operational level. As Chairman of the Corporate
Responsibility Committee she is responsible for
corporate responsibility objectives and strategy
and approach to sustainable development.
Other appointments: Currently Chief Executive
Officer of Halfords Group plc.
Corporate Governance
IHG Annual Report and Form 20-F 2016
51
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Our Executive Committee
In addition to Paul Edgecliffe-Johnson and Richard Solomons, the Executive Committee comprises:
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 Officer, Greater China until May 2013.
Keith is currently a member of The 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 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 Officer, Europe
in August 2011.
Key responsibilities: These include business
development and performance of all the hotel
brands and properties in Europe.
Skills and experience: Prior to IHG, Federico
worked for 20 years at The Boston Consulting
Group (BCG). From 2004 he was Partner
and Managing Director, focusing on Consumer
Practice and active across retail, consumer
and luxury goods, travel and tourism sectors.
Among other responsibilities, Federico was part
of BCG’s global leadership teams for Retail and
for Social Impact. Before joining BCG Federico
developed his own business, offering high-end
art-related travel services in Italy.
Key responsibilities: These include shaping
and overseeing the execution of corporate
strategy, exploring global business development
opportunities, enhancing our owner proposition and
delivering IHG’s major transformation programmes.
Skills and experience: Yasmin was Director of
Communications at the Home Office, where she
advised the Home Secretary, Ministers and senior
officials on the strategic development and daily
management of all the Home Office's external
and internal communications. She was previously
Director of Communications at the Department
for Environment, Food and Rural Affairs and Head
of Communications for Welfare to Work and New
Deal and Head of Marketing at the Department for
Education and Skills. Before joining government
communications, Yasmin was Publicity
Commissioner for the BBC. In 2011, Yasmin was
awarded a Companion of the Order of the Bath
(CB) in the New Year's honours list in recognition
of her career in government communications.
Key responsibilities: These include all global
internal and external communications activity,
as well as key public affairs work, ensuring
that it supports and enables IHG’s broader
strategic priorities.
Skills and experience: Elie was appointed Chief
Executive Officer, The Americas at IHG in February
2015, with over 14 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.
Keith Barr
Chief Commercial Officer
Appointed to the Executive Committee:
April 2011 (Joined the Group: 2000)
Angela Brav
Chief Executive Officer, Europe
Appointed to the Executive Committee:
August 2011 (Joined the Group: 1988)
Federico Lalatta Costerbosa
Executive Vice President, Global Strategy
and Corporate Development,
Appointed to the Executive Committee:
April 2016 (Joined the Group: 2014)
Yasmin Diamond
Executive Vice President,Global Corporate Affairs
Appointed to the Executive Committee:
April 2016 (Joined the Group: 2012)
Elie Maalouf
Chief Executive Officer, The Americas
Appointed to the Executive Committee:
February 2015 (Joined the Group: 2015)
CHANGES TO THE EXECUTIVE COMMITTEE
Federico Lalatta Costerbosa
Federico was appointed to the Executive Committee on 4 April 2016.
Yasmin Diamond
Lori Gaytan
Ranjay Radhakrishnan
Yasmin was appointed to the Executive Committee on 4 April 2016.
Lori was Interim Executive Vice President of Human Resources from January 2016.
Ranjay was appointed to the Executive Committee on 1 December 2016.
52
IHG Annual Report and Form 20-F 2016
Governance
CORPORATE GOVERNANCE CONTINUED Skills and experience: Kenneth joined IHG as
Chief Executive Officer, Greater China in April 2013.
Prior to joining the Group, he worked for Diageo plc
for nearly 20 years and 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.
Skills and experience: Eric has a background in
engineering and technology and started his career
with IHG 20 years ago, building IHG’s internet
business. Since then, he has held various senior
positions in global e-commerce, distribution
marketing and global brands. Prior to being
appointed Chief Information Officer, Eric most
recently held the position of Chief Marketing
Officer for The Americas region.
Skills and Experience: Ranjay joined IHG as
Chief Human Resources Officer in December 2016.
He previously spent 23 years at Unilever, in a range
of senior leadership roles at global, regional and
country levels. At Unilever, Ranjay was most
recently Executive Vice President Global HR
(Categories & Market Clusters), where he led HR
for Unilever’s eight regions (Market Clusters) and
four global Product Categories under a unified
global HR leadership role. Ranjay has worked
and lived in several countries, including the UK,
The Netherlands, Singapore, UAE, and India.
Skills and experience: Jan has more than 30
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 Officer, Asia, Middle
East and Africa in April 2011.
Key responsibilities: These include global
technology, including technology strategy,
application development and global operations for
IHG corporate systems and hotels around the world.
Key responsibilities: These include global talent
management, learning and capability building,
diversity, organisation development, reward
and benefit programmes, employee relations,
and all aspects of the people and organisation
strategy for the Group.
Key responsibilities: These include business
development and performance of all the hotel
brands and properties in Asia, Middle East
and Africa.
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 PLC, where he held a number
of key positions including Deputy Company
Secretary and Senior Legal Counsel.
Key responsibilities: These include corporate
governance, risk management, insurance,
regulatory compliance, internal audit, legal,
corporate responsibility, public affairs and
hotel standards.
Kenneth Macpherson
Chief Executive Officer, Greater China
Appointed to the Executive Committee:
April 2013 (Joined the Group: 2013)
Eric Pearson
Executive Vice President and Chief Information Officer
Appointed to the Executive Committee:
February 2012 (Joined the Group: 1997)
Ranjay Radhakrishnan
Chief Human Resources Officer
Appointed to the Executive Committee:
December 2016 (Joined the Group: 2016)
Jan Smits
Chief Executive Officer, Asia, Middle East and Africa
Appointed to the Executive Committee:
April 2011 (Joined the Group: 2002)
George Turner
Executive Vice President, General Counsel
and Company Secretary
Appointed to the Executive Committee:
January 2009 (Joined the Group: 2008)
Corporate Governance
IHG Annual Report and Form 20-F 2016
53
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Board meetings
The Group’s performance and compliance with the governance
framework, and other key matters are overseen and monitored by the
Board. The Company Secretary maintains an annual agenda schedule
for Board meetings that tracks routine matters and updates on both
strategic and operational matters. Meetings begin with an update from
the Chairman and Chief Executive Officer, and the Chief Financial
Officer provides a financial review of the Group. Executive Committee
members and other senior management present deep dives on key
initiatives and developments in each region and function throughout
the year.
In addition to the business discussed and considered at Board
meetings, the Board allows time for more informal presentations
and discussion at pre-dinner meetings during the evenings before
Board meetings.
The Board held eight scheduled meetings during the year, and individual
attendance is set out on page 49. Time is set aside at the start and end of
meetings for the Chief Executive Officer to meet with the Chairman and
Non-Executive Directors, and for the Chairman to meet privately with the
Senior Independent Non-Executive Director and Non-Executive
Directors. Careful agenda planning allows the Board sufficient time
to consider key matters at appropriate stages across the year.
So that the Board makes the best possible use of its time at meetings,
all Directors are provided with detailed briefing papers (available
electronically) at least one week in advance of every meeting to
ensure that discussions are focused and relevant.
Strategic and operational matters
The Board continued to focus on matters of strategic and operational
importance in 2016, which included:
• our commercial strategy (see pages 14 to 17);
• guest loyalty (see page 16);
• information governance and the information security landscape;
• strategic portfolio management and priorities agreed at the
March Board strategy day;
• regional updates on The Americas, AMEA, Europe and
Greater China regions (see pages 31 to 42);
• online travel agents and distribution;
• an in-depth trends review (see page 9);
• progress against the development of our next-generation
Guest Reservation System (see page 17);
• in-depth brand reviews for Holiday Inn, Holiday Inn Express
(see page 17), Kimpton and Crowne Plaza; and
• finance and procurement update.
The Board also discussed the UK’s EU referendum result and the
impact of Brexit on IHG. As IHG is a global business, with operations
in nearly 100 countries, the Board concluded that the result would
have no material impact on our strategy or operations.
Governance and investor relations
The Board routinely considers shareholder relations and deals
with corporate governance matters, including:
Governance:
• updates from each of the Board Committees;
• quarterly corporate governance and regulatory updates, including
reviews of regulatory developments and any upcoming legislative
changes affecting the business, our Board and/or its Committees;
• the Annual Report and Form 20-F;
• internal controls and risk management systems, our risk appetite
and our global insurance programme;
• Board effectiveness evaluation; and
• the terms of reference for each Board Committee.
Investor relations and communications:
• the review and approval of shareholder returns strategies for 2016;
• updates on investor perceptions and shareholder relations,
consideration of analysts’ reports and media updates;
• preparations for the AGM; and
• our share register movements during 2016, share price
performance, relative share price performance and the
investor road show (including investor feedback).
ANNUAL STRATEGY MEETING – MARCH 2016
In addition to the routine financial and operating reports and updates
that the Board considers, substantial time is also spent considering
Group strategy, performance and oversight, including a dedicated
annual strategy meeting.
As well as reviewing and discussing our global strategy in detail, we
also spent time focusing on the European market. We visited three of
our priority markets in the region, UK (London), Germany (Frankfurt and
Berlin) and Russia (Moscow), giving the Board the opportunity to see at
first-hand the diversity of the European market and the progress we are
making in cementing our foothold. More details of this, and more key
trends affecting our industry, can be found on pages 8 and 9.
Each Board member received a full briefing in advance of the visit to
familiarise them with the cities and hotels that they were visiting and
the specifics of, and recent developments in, the European market.
The briefing also included an overview of the key macroeconomic
figures, trends (including technology), and our key international
competitors’ business in the region.
The Board had the opportunity to meet with senior executives in the
region, key-market experts and some of the owners to hear about the
dynamics at play in the hospitality sector in the region and discuss
more specifically IHG’s position.
54
IHG Annual Report and Form 20-F 2016
Governance
CORPORATE GOVERNANCE CONTINUED Director induction, training and development
New Director inductions
There were no new Director appointments in 2016. However, all new
Directors, upon appointment, undergo a comprehensive and formal
induction programme which is tailored to meet their individual needs.
We believe this is crucial in ensuring our Directors have an in-depth
understanding of the Group’s business and our business model,
our principal activities, and our strategy, which is key to enabling all
Directors to contribute to the Board effectively with their knowledge,
skills, experience and expertise.
During 2016, our induction focus supported Jill McDonald upon
her appointment as Chair of the Corporate Responsibility (CR)
Committee following Jennifer Laing’s retirement from the Board on
6 May, 2016. An induction programme was put in place and entailed:
• a detailed handover from Jennifer Laing; and
• a series of meetings with the heads of Corporate Responsibility
and the Company Secretary, which included planning and setting
the meeting agendas and a deep dive on the CR programmes, their
background and development.
governance and legal matters, or relevant changes, as part of meetings.
Individual meetings are also set up with senior management, as
necessary, to enable the Board to keep up to date with, and enhance
their knowledge of, the business.
Board meetings are intentionally held at IHG hotels in different locations
to provide first-hand experience of the different brands across our
portfolio, to broaden the Board’s exposure to the geographical markets
in which we operate and to provide opportunities to meet frontline staff
and other colleagues. In 2016, Board members attended Board and
Committee meetings held at InterContinental London Park Lane and
Crowne Plaza Gerrards Cross in the UK, and InterContinental New York
Barclay in the US, in addition to meetings held at the Group’s head offices
in Denham, UK. As part of our annual strategy meeting, Board members
visited hotels in Frankfurt, Moscow and London prior to assembling
at InterContinental Berlin. Whilst in New York, Board members visited
the Hotel Indigo Lower East Side, EVEN Times Square South and Hotel
Kimpton Eventi. Directors are also encouraged to visit hotels across our
brands informally.
Malina Ngai will receive a full induction programme during 2017,
details of which will be reported in the 2017 Annual Report.
Training focus areas in 2016
How we delivered the training
Audit and governance developments
Ernst & Young LLP presentation
Quarterly Board reports
Regulatory developments including:
• Corporate governance
and stewardship;
• EU Market Abuse Regulation;
• Sanctions updates; and
• General Data Protection Regulation.
Embedding responsible business
in our practices
Human rights eLearning;
Competition law eLearning
Technology trends
Accenture presentation
Data and information governance
PricewaterhouseCoopers presentation
Ongoing Director training and development
At IHG, we believe that updating skills and knowledge through a
progressive and continual training programme is of great importance
because it facilitates a better understanding of the Group’s business and
its operations. The Chairman regularly reviews and agrees any training
and development needs with each Director and the Board is made aware
of training opportunities.
Board and Committee meetings are regularly used to keep Directors
formally up to date on developments in the environment in which the
business operates, with in-depth discussion and presentations provided
by senior management on key topical areas as required. The Company
Secretary provides updates to the Board on regulatory, corporate
Board effectiveness evaluation
IHG continues to recognise the importance of evaluating the performance of the Board as a whole, its main Committees and its Directors, in line with the
Code recommendations.
2015 EVALUATION OBSERVATIONS AND ACTION TAKEN DURING 2016
2015 observations
Action taken
during 2016
The Board was much more focused on brands, although the Board would
still benefit from regular reviews of the progress of each brand against
its strategy.
Regular brand updates were provided at Board meetings with performance
reports and deep-dives held on the Holiday Inn, Holiday Inn Express, Crowne
Plaza and Kimpton brands (see page 54).
The Board’s understanding of competitors’ strategy and performance
had been achieved through enhanced analysis.
No further enhancements to the current practice were required.
Increased exposure to the Group’s US business was requested, including
a review of the Kimpton integration.
The Americas review was presented at the June Board meeting and an update
on the Kimpton integration was presented at the December Board meeting.
Increase the Board’s understanding of consumer trends and behaviour.
Industry reports have been provided to the Board as well as consumer
trends reports.
Corporate Governance
IHG Annual Report and Form 20-F 2016
55
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Board effectiveness evaluation continued
Directors’ performance evaluation
During 2016, internal performance evaluations of Directors
were undertaken as follows:
Director being appraised
Appraiser
External evaluation
In 2014 and 2015, IHG conducted internal evaluations of the Board,
its Committees and the performance of individual Directors, with
guidance and assistance from independent external facilitators
with no connection to IHG.
Chairman
Non-Executive Directors, excluding the Chairman,
and facilitated by the Senior Independent
Non-Executive Director
In accordance with our three-year cycle, Dr Tracy Long of Boardroom
Review Limited, an independent external facilitator with no connection
to IHG, was engaged to lead our 2016 external evaluation.
Chief Executive Officer
Chairman and all Non-Executive Directors
Executive Director
Chief Executive Officer
Non-Executive Directors Chairman
Directors’ additional appointments and time commitments were
also considered as part of the internal performance evaluations,
and we concluded that all Directors continue to be able to perform
their duties effectively. Particular attention was paid to Ian Dyson
and Anne Busquet’s commitments, and we determined that these
do not adversely impact their ability to fulfil their roles as Non-
Executive Directors.
Dr Long met with the Chairman and the Company Secretary to review
the previous evaluation processes and outcomes, and devised an
in-depth evaluation process, comprising:
• confidential one-on-one interviews with each Board member
and certain attendees at meetings;
• observation of a Board meeting in February 2017; and
• individual feedback interviews with all Directors.
Following this process, a detailed report will be presented to the
Board in May 2017. Initial observations and feedback shared with the
Chairman indicate that the Board and its Committees were operating
effectively, and the Board will consider the detailed recommendations
at its meeting in May 2017. During 2017, the Board will focus on the key
recommendations of the evaluation and will report on the observations
and actions taken in the 2017 Annual Report.
Engagement with shareholders
The Board takes its responsibility to represent and promote the
interests of its shareholders seriously and believes in the importance
of shareholder engagement. We maintain an active programme
of dialogue with our shareholders, through our investor relations
activities, and our Registrar, Equiniti, has a team of people to deal
with shareholder queries. 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’s engagement with shareholders in 2016 included:
• meeting shareholders at the AGM;
• presentations by Richard Solomons and Paul Edgecliffe-Johnson
to institutional investors, analysts and the media following half-year
and full-year results announcements;
• first and third-quarter telephone conferences after trading updates,
including Q&A sessions with sell-side analysts;
• hosting two capital market events focusing on The Americas region
and our commercial strategy, attended by the Executive Committee;
• seeking feedback via an annual investor perception survey,
facilitated by our capital markets advisers;
• attendance at key institutional investor conferences; and
• a programme of one-to-one meetings with major institutional
shareholders, including Non-Executive Director meetings hosted
by the Chairman and Remuneration Committee Chairman.
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 Results and
Presentations. Around 25 sell-side research analysts publish research
on the Group; their details are available at www.ihgplc.com/investors
under Analysts’ details and consensus.
AGM
The AGM is an opportunity for shareholders to vote on certain aspects
of Group business. The Board values the AGM as it provides a useful
forum for one-to-one communication with private shareholders.
At each AGM, shareholders receive presentations on the Group’s
performance and may ask questions of the Board, both during
the meeting and more informally over lunch after the meeting.
The 2017 AGM will be held at 11:00am on Friday 5 May 2017. The
notice convening this meeting will be sent to shareholders and will
be available at www.ihgplc.com/investors under Shareholder centre
in the AGMs and meetings section.
Shareholder services
During the third quarter of 2016, IHG ran its annual share-dealing
programme for shareholders with shareholdings of up to 200 shares,
giving them the option to sell or increase their shareholdings at
a preferable set fee. Shareholders who sold their shares had the
further option to donate their proceeds to the IHG Foundation.
56
IHG Annual Report and Form 20-F 2016
Governance
CORPORATE GOVERNANCE CONTINUED Audit Committee Report
“ We play a crucial role in ensuring that IHG
maintains a strong control environment.”
Key duties and role of the Committee
Key objectives and summary of responsibilities
The Audit Committee plays a crucial role in ensuring that IHG
maintains a strong control environment. It influences the culture
of the organisation through its oversight and review of our risk
management systems, the processes and controls in place to manage
risk, the Group’s internal controls, and the behaviours expected of
IHG’s employees through the Group’s Code of Conduct and other
related policies. The Committee’s role and responsibilities are set
out in its Terms of Reference (ToR), which are reviewed annually
and approved by the Board. The Committee’s key responsibilities
and focus over the year have been:
• ensuring the robustness of the Group’s internal controls
and risk management, including, in particular, financial controls;
• reviewing, challenging (where necessary), and ensuring
accurate financial and narrative reporting;
• overseeing the relationship with the Group’s external Auditor;
• monitoring and reviewing the role of Internal Audit; and
• overseeing and ensuring the effectiveness of the Group’s
regulatory compliance policies, procedures and controls
including whistleblowing and fraud.
The ToR are available on IHG’s website at
www.ihgplc.com/investors under Corporate governance.
Membership and attendance at meetings
Details of the Committee’s membership and attendance at meetings
are set out on page 49. The Chief Executive Officer, Chief Financial
Officer, Chairman of the Remuneration Committee, Head of Global
Internal Audit (GIA), Group Financial Controller, Head of Global Risk
Management and our external Auditor, Ernst & Young LLP (EY),
attended all meetings in 2016. The Chairman of the Board attended
four out of five meetings. Other attendees are invited to meetings
as appropriate. To ensure open dialogue, transparency, independence
and feedback, the Committee Chairman held private sessions (together
with and separately to the Committee) with the Auditors and Head of
GIA without the presence of management. The Committee Chairman
has recent and relevant financial experience and all members are
independent Non-Executive Directors, with a range of financial and
commercial experience relevant to both the hospitality industry and
the broader commercial environment we operate in.
Reporting to the Board
Following each Committee meeting, the Board receives an update from
the Committee Chairman on the key issues discussed. The papers and
minutes for each meeting are circulated to all Board members, who
are invited to request further information if required and to provide
any challenge where considered necessary.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by the Chairman of the Committee and the Chairman (who
attended most Committee meetings) and will also be reviewed as part
of the in-depth external evaluation process conducted by Boardroom
Review Limited (see pages 55 and 56).
Focus areas and activities
Internal controls and risk management
The Committee supports the Board by reviewing and interrogating
the effectiveness of the Group’s risk management and internal control
systems, and by having oversight of the risk and control activities in
operation. The Committee supports this process by regularly reviewing
the principal risks, risk trends, the risk environment and the operation
of the risk management systems. It seeks assurance that, in light of
the Group’s risk appetite, the Group’s current and emerging risks are
identified, assessed, prioritised, and appropriately managed and
mitigated in day-to-day decision-making (see pages 20 to 22).
The key financial controls across the business are continually
monitored and tested throughout the year. The Committee considers
the Group’s treasury and tax strategy and policies annually and, to
ensure that an appropriate framework exists to ensure compliance
with our US obligations arising from the Sarbanes-Oxley Act 2002
(SOX), assesses the approach to SOX compliance each year, reviewing
reports on the progress of the SOX programme at each meeting.
The Committee continues to conclude that the Group has in place
an effective system of risk management and internal controls,
and, through its review, has concluded that there are no material
weaknesses in the control environment and that there are no
significant failings or weaknesses.
In addition to the regular review of the Group’s risk management
framework and assessment of the principal risks, the Committee
has a schedule for in-depth reviews over the year, where senior
management provide more detailed insight into specific risk, financial,
compliance and operational areas. During 2016, the Committee met
with senior risk and finance management, the Chief Information Officer
and the Head of Information Security, considering, in particular:
• the financial controls relating to the System Fund and significant
technology projects;
• the progress made against the opportunities identified to enhance
the Group’s SOX control processes, following the external review
conducted in 2015;
• the Group’s revenue systems, and related risk-management
processes and controls;
• the principal risk areas, the risk review process and how this is
supported by the Group’s culture and organisational governance,
and the Group’s approach to risk appetite;
• technology and cyber risks, IHG’s information-security strategy,
processes and controls, and, with specific reference to cyber
incidents, the Group’s incident response and the containment
and mitigation plans, including assurance that there was no
impact on the Group’s financial systems;
• safety and security practices at hotels; and
• the review and approval of the Group’s Approach to Tax document
required to be published under the Finance Act 2016.
The Group’s Approach to Tax document is available on IHG’s website
at www.ihgplc.com/responsible-business under Policies.
Corporate Governance
IHG Annual Report and Form 20-F 2016
57
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Audit Committee Report continued
Financial and narrative reporting
During the year, the Committee reviewed the interim and annual
Financial Statements (considering the relevant accounting and
reporting matters) and the Group’s quarterly trading updates.
The Committee recognises the importance of understanding
changes in accounting policies and practice, and receives an annual
update from EY on key changes in this area. In 2016, the Committee
undertook an in-depth review of the future impact on the Group
of the implementation of IFRS 15 concerning revenue recognition –
see page 104.
It also challenged the key judgements applied in the Financial
Statements as described below and considered the basis of, and
assumptions underlying, the going concern statement and the viability
statement. A letter from the SEC containing comments on the Annual
Report 2015 was discussed, and the Group’s proposed response to the
SEC agreed. As a result of this process, additional disclosures have
been made (see page 26 for details of the key performance measures
used by management, and pages 156 and 157 for reconciliations
of the Non-GAAP measures used in this Annual Report).
Where appropriate, the Committee sought input and guidance from
EY and, to gain further assurance over the process of preparation of
the Financial Statements, the Committee also received regular reports
from the Chairman of the Disclosure Committee and copies of the
minutes of that Committee.
The Committee received early drafts of the Annual Report and Form
20-F 2016 (Annual Report) in order to provide timely comment, and
considered: (i) the process for preparing and verifying the Annual
Report, which included review by members of the Executive Committee
and input from senior colleagues in Operations, Strategy, HR, Finance,
GIA, Risk and Legal; (ii) a report from the Chairman of the Disclosure
Committee; and (iii) the checklist prepared by the Annual Report team
confirming compliance with the relevant regulatory requirements.
The Committee (and a sub-committee specifically convened for
this purpose) also considered management’s analysis of how the
content benchmarked against the ‘fair, balanced and understandable’
communication principles, and whether it contained the necessary
information for shareholders to assess the Group’s position
and performance, business model and strategy. It reported its
recommendation to approve the Annual Report to the Board.
SIGNIFICANT MATTERS IN THE 2016 FINANCIAL STATEMENTS
The Committee discussed with management and the Auditors 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:
Issue
Why it’s important
What we did
Accounting for
the System Fund
Given the unique nature of the System
Fund, the Committee reviews the
controls and judgements related
to system Fund accounting.
In forming a conclusion on the appropriateness of the System Fund accounting, the
Committee met with senior finance management to review and evaluate the risk areas
associated with the System Fund. The Committee further reviewed a paper from management
outlining the accounting approach for the System Fund. The Committee concluded that good
progress has been made in strengthening the financial oversight of the System Fund, and
that judgements in respect of the accounting treatment of the System Fund, and related
disclosures, were appropriate.
IHG Rewards
Club points liability
Impairment testing
Litigation and
contingencies
Exceptional items
Capitalisation of
software projects
The IHG Rewards Club points liability
represents a material liability for the
Group and in determining the liability
the Committee challenges judgements
and estimations used to determine
the liability.
The Committee reviewed the approach to the valuation of the liability and, in particular, the
judgements used in evaluating the points expiry policy introduced in 2015. Management was
questioned on the consistency of the valuation approach adopted, the results of the external
actuarial review and the increased judgement required as a result of the expiration policy.
The results of EY’s audit procedures were also taken into account in reaching the conclusion
that the liability is appropriately stated.
Impairment reviews require
significant judgement and the
Committee therefore scrutinises
the methodologies applied and the
inherent sensitivities in determining
any potential asset impairment.
The Committee reviewed a management report outlining the approach taken on impairment
testing, in particular, the key assumptions and sensitivities supporting the conclusion on
the various asset categories. The Committee examined the assumptions related to assets
previously impaired, management contract valuations resulting from asset sales, and the
assets acquired as part of the Kimpton acquisition. The impairments recorded in the year
on a joint venture in The Americas (see note 14 on page 121 and page 103) were discussed in
detail. The Committee agreed with the conclusions reached on impairment.
From time to time, the Group is subject
to legal proceedings with the ultimate
outcome of each being subject to many
uncertainties. The Committee reviews
and evaluates the need for any
provisioning on a case-by-case basis.
At each meeting, the Committee considered a report detailing all material litigation matters,
and discussed and agreed any provisioning requirements for these matters based on the
factors set out in page 103. The Committee also evaluated the need for, and the amount of,
a provision in respect of the Kimpton Security Incident (assessing the information currently
available) and the disclosure in relation to the Americas Security Incident (see note 30
on page 141).
The Group exercises judgement in
presenting exceptional items. The
Committee reviews and challenges
the classification of items as exceptional
based on their materiality or nature.
The Committee considered the consistency of the treatment and nature of items classified
as exceptional over the last five years, and discussed the items disclosed as exceptional. The
Committee reviewed and challenged the significance, timing and nature of the exceptional
items disclosed in note 5 on page 112. EY’s audit procedures were also taken into
consideration in reaching the conclusion that the disclosures and the treatment of
the items shown as exceptional were appropriate.
The Group is making a significant
investment developing a robust
technology platform. The Committee
reviews the appropriateness of
capitalising the investment and the
strength of the control environment.
In forming a conclusion on the appropriateness of software capitalisation, the Committee
considered the following: a presentation from senior finance management regarding financial
controls and financial oversight of the technology investment; a review of software assets
from an impairment perspective; the conclusions from the SOX control testing in this area;
EY’s audit procedures and GIA review. The Committee concluded that capitalisation is
adequately controlled, and that the controls on impairment are appropriate.
58
IHG Annual Report and Form 20-F 2016
Governance
CORPORATE GOVERNANCE CONTINUED EXTERNAL AUDITOR – APPOINTMENT OF ERNST & YOUNG
LLP (EY) AND AUDIT TENDER
The Committee considered the appointment of its Auditor after assessing
EY’s performance (including its independence, effectiveness and
objectivity) and the requirements for putting the audit out to tender
as set out in the Code and EU and Competition and Markets Authority
legislation. EY has been our Auditor since IHG’s listing in April 2003.
As part of its annual review, the Committee reviewed the effectiveness
of the relationship between EY and the Group’s management (including
the responses to questionnaires on EY’s audit process completed by
more than 52 senior IHG employees who work with EY and members of
the Audit Committee), and received reports from EY on its independence.
Having reviewed the effectiveness of the external audit processes,
the Committee is 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. The Committee has considered the
Group’s position on its audit services contract and the process for audit
tender in the context of the regulations. Although there is no immediate
intention to tender the audit contract, the Group will re-tender at the
latest by the end of 2020 in compliance with the regulations requiring
a mandatory audit tender for the 2021 financial year. The Committee
has approved the establishment of a sub-committee to oversee the
audit tender process, and a detailed plan (including the applicable
supplier-selection criteria), will be presented to the Committee in 2017.
To ensure the external Auditor’s independence is safeguarded, lead
audit partners are required to rotate every five years. A new audit partner,
Sarah Kokot, was appointed for 2016 onwards. The Committee reviewed
the new audit partner’s induction and transfer plan with her, and assessed
the effectiveness of the handover.
The Group confirms that it has complied with the requirements of
The Competition and Market’s Authority Statutory Audit Services for
Large Companies Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee Responsibilities) Order 2014,
which relates to the frequency and governance of tenders for the
appointment of the external auditor and the setting of a policy on
the provision of non-audit services.
Relationship with external auditor
A detailed audit plan was received from EY at the beginning of the
audit cycle for the 2016 financial year, which gave an overview of the
audit risk assessment, the audit materiality and scope, and the key
areas of the proposed audit approach.
The Committee reviewed the significant audit risks to ensure they
were appropriate and regularly assessed the progress of the 2016
audit through both the Committee meetings and private meetings
with the partner in charge.
Non-audit services
The independence and objectivity of the non-audit services provided
by EY to the Group are safeguarded by IHG’s Audit and Non-Audit
Services Pre-Approval Policy. The policy is reviewed by the Audit
Committee annually, and, for the 2016 financial year, the policy was
updated and approved at the December 2015 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 quarterly.
The Committee also considered the increased scope of prohibited
services following the EU audit regulation. While the Committee
was satisfied that the Group would not be materially impacted by
the regulations, the Committee did consider those areas where a
transition plan would be required for certain tax compliance services.
The Committee is aware of, and sensitive to, investor advisory bodies
guidelines on non-audit fees. During 2016, 31 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 2016, and for fees paid for statutory
audit work during 2016, see page 111.
Global Internal Audit (GIA)
The Committee discusses and approves the GIA plan in December.
The 2016 plan took into account both the Group’s principal risks
and key strategic objectives and included reviews of System Fund
controls, programme and project delivery (including assurance
over the development of our new Guest Reservation System), the
IHG Rewards Club loyalty programme, and technology-related
processes and controls. The Committee actively monitors progress
against the GIA plan, which is reported on a quarterly basis and
includes the results of completed audits and the management
action plans to address any unsatisfactory findings. The Committee
confirmed its agreement to the key control themes identified by
GIA, and the scope and extent of GIA’s activity.
An effectiveness review of GIA is undertaken annually and reported
to the Committee. In 2016, GIA undertook an externally facilitated
assessment, which concluded that GIA continues to operate effectively.
The assessment confirmed GIA’s approach to audit coverage and its
hotel assurance strategy, and highlighted how GIA could extend their
use of data analytics as part of audit activity.
Compliance, whistleblowing and fraud
The Committee is responsible for reviewing the Group’s Code of
Conduct (which is reviewed and approved annually) and related
policies. In 2016, the Committee considered and approved a revised
antitrust policy and received the annual in-depth report on the
Group’s regulatory compliance activities and programme. In
addition to competition laws, the key focus areas for review, training
and awareness in 2016 included data privacy, bribery and corruption.
The Committee receives a separate report on matters raised
through the Group’s confidential disclosure channel and any related
investigations each year, reviewing both the reporting and investigation
process and the number, and potential impact, of substantiated
and unsubstantiated cases. Any significant claims are brought
to the immediate attention of the Committee by the Head of GIA.
As well as monitoring incidents of fraud, the Group’s approach
to fraud risk management was reviewed in 2016. The Committee
approved proposals to further enhance IHG’s fraud prevention
and detection programme through more formal articulation of the
applicability of the Group’s existing controls in fraud-risk management.
Looking forward, the Committee will continue to focus on the integrity
of the control environment and oversee the management of the
principal risk areas.
Ian Dyson
Audit Committee Chairman
20 February 2017
Corporate Governance
IHG Annual Report and Form 20-F 2016
59
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Corporate Responsibility Committee Report
“ We ensure that IHG’s corporate responsibility
priorities help us to deliver our core purpose:
to create Great Hotels Guests Love.”
Key duties and role of the Committee
Key objectives and summary of responsibilities
The Committee advises the Board on the Group’s corporate
responsibility objectives and strategy, and its approach to sustainable
development. It also ensures that IHG’s corporate responsibility
priorities deliver our core purpose: Great Hotels Guests Love
through true hospitality.
I was appointed Chair of the Committee on 6 May 2016. I would like to thank
Jennifer Laing for her significant contribution to the Committee and the
wealth of experience and skill she brought to it. Significant progress has
been made over recent years, and there is clear alignment between the
Group’s corporate responsibility, brand and operational strategies.
The Committee’s role and responsibilities are set out in its Terms of
Reference (ToR), which are reviewed annually and approved by the Board.
In 2016, they were amended to state that the duties of the Committee do
not extend to providing advice or oversight to the IHG Foundation, given
the independent nature of that charitable organisation. The Committee’s
key responsibilities and focus over the year have been:
• reviewing IHG’s impact on the environment;
• monitoring and reviewing social, community and human-rights
issues that have a bearing on the Group; and
• overseeing stakeholder engagement.
The ToR are available on IHG’s website at
www.ihgplc.com/investors under Corporate governance.
Membership and attendance at meetings
Details of the Committee’s membership and attendance at meetings
are set out on page 49. The Heads of Corporate Responsibility and the
Chairman of the Board also attended all meetings. The full Board were
invited to join the Committee’s meeting in June at InterContinental
New York Barclay, where members of the hotel’s team shared their
experiences of our Corporate Responsibility programmes and provided
insight into how these programmes are being brought to life in hotels.
Reporting to the Board
The Committee Chairman provides an update to the Board following
each meeting on the key issues discussed at the Committee meetings.
The papers and minutes for each meeting are circulated to all Board
members, who are invited to request further information if required
and to provide any challenge where considered necessary.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by the Chairman of the Committee and the Chairman
(who attended all Committee meetings) and will also be reviewed
as part of the in-depth external evaluation process conducted
by Boardroom Review Limited (see pages 55 and 56).
Focus areas and activities
Impact on the environment
The Committee regularly monitored and assessed progress against
IHG’s five-year targets (2013–2017), and considered the scope and
effectiveness of the Group’s IHG Green Engage system, progress
60
IHG Annual Report and Form 20-F 2016
Governance
against the Group’s carbon and water-reduction goals, and the
Group’s water stewardship efforts. Recognising the impact of water
use, the Committee also considered sustainability concerns in this
area, and the Group’s response to such concerns, which included
risk assessments, reviews of our processes, and targeted actions.
Social, community and human rights issues
We received detailed progress updates on key achievements across the
Group’s social and community programmes and assessed the strategy
to increase engagement in IHG Academy and the Group’s disaster relief
and preparedness programme. The Humanitarian Director from Care
International UK also presented on their collaboration with IHG on sharing
best practice in disaster preparedness and response. Recognising the
importance of responsible procurement, the Committee received a
presentation from the Head of Global Procurement and Head of Global
Risk Management, and evaluated the Group’s approach to suppliers
and ethical sourcing.
More information on our responsible business programmes,
and our approach to human rights, is on page 18.
In support of the Group’s sixth annual charitable fundraising week,
an event held in hotels and corporate offices across the globe, the
Committee was joined by the remaining members of the Board, the
members of our Corporate Responsibility team and the team from
InterContinental London Park Lane for a sponsored walk in Hyde
Park, London to raise funds for the IHG Foundation. In total, there
were more than 726,000 acts of participation in this year’s event.
Stakeholder engagement
The Committee assessed the 2015 communications activity and
stakeholder engagement, and reviewed the 2016 communication
plan, including the approach to crisis and issue management. The
Committee also spent time reviewing and providing feedback on
the 2016 Responsible Business Report.
Visit www.ihgplc.com/responsible-business under Reporting
and performance to view the Responsible Business Report.
Other key issues reviewed by the Committee
On 3 February 2016, we launched the IHG Foundation, an independent
charitable trust founded to help local communities address the key
social, economic and environmental challenges affecting them. As
part of its review of the establishment of the IHG Foundation, the
Committee reviewed and challenged the Foundation’s governance
systems and controls programme. It also received a report, for noting
only, on the projects supported by the IHG Foundation in 2016. The
IHG Foundation will continue to operate independently.
As we head into 2017 and come to the end of our five-year target
period, we will consider new targets in the context of our corporate
responsibility strategy and continue to monitor progress against
delivery of our 2013–2017 targets.
Jill McDonald
Corporate Responsibility Committee Chairman
20 February 2017
CORPORATE GOVERNANCE CONTINUED Nomination Committee Report
“ We ensure IHG’s Board and senior management
retains an appropriate mix of skills, experience,
knowledge and diversity, in line with our strategy.”
Key duties and role of the Committee
Key objectives and summary of responsibilities
The Nomination 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, in line with our strategy. It is also
responsible for reviewing the Group’s senior leadership needs.
The Committee’s role and responsibilities are set out in its Terms
of Reference (ToR), which are reviewed annually and approved by
the Board. The Committee’s key responsibilities and focus over
the year have been:
• reviewing the structure, size, skill set, experience, diversity and
composition required of the Board, linking the strategy to future
changes in the Board;
• managing the appointment process for new Directors and changes
in Committees;
• overseeing the executive and talent pipeline, and succession and
development plans; and
• induction, training, and continuous development of Directors.
The ToR are available on IHG’s website at
www.ihgplc.com/investors under Corporate governance.
Membership and attendance at meetings
Details of the Committee’s membership and attendance at meetings
are set out on page 49. The Chief Executive Officer also attended
appropriate agenda items at all meetings in 2016.
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. When the
Committee considers matters relating to my position, Dale Morrison,
the Senior Independent Non-Executive Director, acts as Chairman
of the Committee.
Reporting to the Board
The Committee makes recommendations to the Board for all
Non-Executive Director appointments, and minutes of meetings
are circulated to all Board members.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by myself as the Chairman of the Committee and the
Chairman of the Board, and will also be reviewed as part of the
in-depth external evaluation process conducted by Boardroom
Review Limited (see pages 55 and 56).
Focus areas and activities
Board and Committee composition and appointments
To ensure the Board has an appropriate mix of skills, experience,
knowledge and diversity, the Committee keeps under review the
tenure and qualifications of the Non-Executive Directors and the
composition of the Board. The Committee also concentrates on
strengthening the Board’s existing capabilities and matching the right
skills and experience to those required by the Board’s Committees.
In particular, we plan to further strengthen diversity and regional
representation (focusing on Asia) in the Board’s composition.
During the year, Jill McDonald, a Non-Executive Director, was
appointed Chairman of the Corporate Responsibility (CR) Committee.
Jill’s notable marketing and operational skills and experience, and
her interest in, as well as already being an active member of, the CR
Committee, made her the ideal candidate. Details of Jill’s induction
can be found on page 55. Following a review of the composition of the
Board, in February 2017 we recommended the appointment of Malina
Ngai as a Non-Executive Director. Our search was supported by
Spencer Stuart, who have no connection to IHG. Malina will bring
considerable experience in consumer-facing, branded operations,
and will provide significant insight into the Asian market.
Diversity
IHG recognises the value of diversity in its broadest sense and,
while all appointments to the Board are based on merit, experience
and performance, we strongly believe that our leadership should
reflect the diversity of our employees, our guests and the local
communities in which we operate.
The Board has made great progress in recent years to broaden the
diversity of its members and senior management, and we review our
policies regularly to ensure that they continue to drive the benefits
of having a diverse Board and a diverse workforce across the Group
(see page 18). As well as continuing to deliver on our commitment to
maintain a minimum of at least 25 per cent female Directors on the
Board over the short to medium term (a position we have maintained
since 2012), we were also recognised in the Hampton-Alexander report
for the number of women who hold senior-management level positions
throughout the Group.
Development and succession planning
Recognising the importance of strong and effective development
and succession plans to support the continuous improvement of our
leadership teams, and in line with talent and development initiatives
throughout the organisation, the Committee oversaw a detailed talent
and development review for senior leaders. Following discussion with
the Chief Executive Officer, we have finalised a tailored plan to support
key senior leaders in their future development.
The Committee reviews the talent pipeline at senior levels within the
organisation. Over the last 12 months, the majority of appointments to
regional and functional leadership roles have been internal, and we have
also attracted high performers from global, blue-chip organisations
to improve the strength of our talent pipeline.
In December 2016, Ranjay Radhakrishnan joined the Group as Chief
Human Resources Officer from Unilever, following the resignation of
Tracy Robbins from the Board and her role as Executive Vice President,
Human Resources in January 2016.
The Committee is satisfied that we have in place appropriate
development and succession plans to ensure that IHG has a strong
leadership pipeline and that the Board has the appropriate mix of
skills, experience, knowledge and diversity.
Patrick Cescau
Nomination Committee Chairman
20 February 2017
Corporate Governance
IHG Annual Report and Form 20-F 2016
61
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Statement of compliance with the UK Corporate Governance Code
Our statement of compliance summarises how the Group has
implemented the principles and provisions of the UK Corporate
Governance Code as published in April 2014 (the Code). This should
be read in conjunction with the corporate governance statement on
pages 49 to 63 and the Directors’ Remuneration Report as a whole.
The Board considers that the Group has complied in all material
respects with the Code for the year ended 31 December 2016
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 and the current
Auditor’s performance, and a sub-committee of the Audit Committee
has been approved to oversee the auditor tender process and
recommend a detailed plan to be presented to that Committee
in 2017 (further details are provided on pages 59).
A. Leadership
A.1 The role of the Board
B. Effectiveness
B.1 The composition of the Board
The Board leads IHG’s strategic direction, long-term objectives
and success of the Group. Further responsibilities of the Board
are set out on page 49.
The size and composition of the Board and its Committees is kept under
review by the Nomination Committee to ensure the appropriate
balance of skills, experience, independence and knowledge.
The Board met eight times this year. Further details of 2016
Board meetings are set out on page 54, attendance information
on page 49 and biographical information on pages 50 and 51.
All Directors are covered by the Group’s directors’ and officers’
liability insurance policy (see page 160).
A.2 Divisions of responsibility
The separate roles of the Chairman and Chief Executive Officer are
clearly established, set out in writing and are agreed by the Board.
Chief Executive Officer
Richard Solomons leads the development of the Group’s strategic
direction and implementation of the agreed strategy. As well as
building and leading an effective Executive Committee, he
oversees IHG’s business operations and manages its risks.
See page 50 for more details.
A.3 The Chairman
As well as building and maintaining an effective Board, Patrick
Cescau leads the operation and governance of the Board and its
Committees. The Chairman was independent on appointment.
See page 50 for more details.
A.4 Non-Executive Directors
Senior Independent Non-Executive Director
Dale Morrison was appointed as Senior Independent Non-
Executive Director on 31 May 2014. He 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 (see page 56), and as necessary provides
advice and judgement to the Chairman, and serves
as an intermediary for other Directors when necessary.
After each Board meeting, Non-Executive Directors and the
Chairman meet without Executive Directors being present
(see page 54). 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 in the Committees section.
Potential conflicts of interest are reviewed annually. At least half of
the Board, excluding the Chairman, are independent Non-Executive
Directors (see page 49). Further details of the composition of the
Board and its Committees are available on pages 50 and 51.
B.2 Appointments
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 in the Committees section
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 2016 are in the
Nomination Committee Report on page 61. The overall process
of appointment and removal of Directors is overseen by the Board
as a whole. All Non-Executive Directors have served for less than
six years – see pages 50 and 51.
B.3 Commitment
Non-Executive Director terms of appointment outline IHG’s time
commitment expectations required to fulfil their role. Executive
Directors are not permitted to take on more than one external
non-executive directorship or chairmanship in addition to their
role. The commitments of each Director are included in the
Directors’ biographical details on pages 50 and 51. Details
of Directors’ service contracts and appointment terms are
set out on pages 75, 81 and 167.
The Chairman annually reviews the time each Non-Executive Director
dedicates to IHG as part of the internal performance evaluation of
each Director (see page 56) and is satisfied that their other duties and
time commitments do not conflict with those as Directors.
B.4 Development
The Chairman and Company Secretary ensure that new Directors
are fully inducted and that all Directors continually update their
skills and have the requisite knowledge and familiarity with the
Group to fulfil their role (see page 55).
B.5 Information and support
The Chairman and Company Secretary ensure that the Board
and its Committees receive timely and appropriate information,
and a flow of information between the Executive Committee
and Non-Executive Directors. The Board and Committees also
have access to the Company Secretary and General Counsel,
independent advice and necessary resources, at the Company’s
expense. They receive administrative and logistical support of
a full-time executive assistant. See page 54 for more details.
62
IHG Annual Report and Form 20-F 2016
Governance
CORPORATE GOVERNANCE CONTINUED B.6 Evaluation
C.2 Risk management and internal control continued
In 2016, we engaged Dr Tracy Long of Boardroom Review Limited,
an external facilitator with no connection to IHG, to lead the Board
effectiveness evaluation. More information on the evaluation,
including our performance against the 2015 action plan, is on
pages 55 and 56.
B.7 Re-election
All of the Directors retire and seek election or re-election at
each AGM. Directors biographies are set out on pages 50 and 51
and will be included in the Notice of Meeting (see paragraph E.2).
Details of their performance evaluation are on page 56.
C. Accountability
C.1 Financial and business reporting
The 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 position and performance, business model
and strategy) is set out on page 84.
The status of IHG as a going concern is set out in the Directors’
Report on page 163. An explanation of the Group’s performance,
business model, strategy and the risks and uncertainties relating
to IHG’s prospects, including the viability of the Group, is set out
in the Strategic Report on pages 2 to 47.
The statement from our Auditor, Ernst & Young LLP, about its
reporting responsibilities is set out on pages 85 to 89.
C.2 Risk management and internal control
The Board determines the nature and extent of the risk the
organisation is willing to take in achieving its strategic objectives.
A robust assessment of the principal risks facing the Group was
carried out, including those risks that would threaten the Group’s
business model, financial performance, solvency or liquidity (see
pages 20 to 22 for further details of the principal risks). The Board
and Audit Committee monitor the Group’s risk management and
internal controls systems and conduct an annual review of their
effectiveness. Throughout the year, the Board has directly, and
through delegated authority to the Executive Committee and the
Audit Committee, overseen and reviewed all material controls,
including financial, operational and compliance controls. See
pages 49, 54, and 57 to 59.
The Board confirms that, in respect of the Group’s risk management
and internal control systems: (i) there is an ongoing process for
identifying, evaluating and managing the principal risks faced by
the Group; (ii) the systems have been in place for 2016 and up to
21 February 2017; (iii) they are regularly reviewed by the Board
and Audit Committee; and (iv) the systems accord with
FRC guidance on risk management, internal control and related
financial and business reporting. Further details are set out in
the Strategic Report on pages 25 to 27 and also in the Audit
Committee Report on pages 57 to 59.
Details of the Directors’ assessment of the prospects of the
Group are set out on page 27.
C.3 Audit Committee and Auditor
The Audit Committee is comprised entirely of Independent
Non-Executive Directors (see page 49 for membership details).
Ian Dyson, the Chairman of the Committee has recent and
relevant financial experience. Details of the Committees’ role,
responsibilities and activities are set out on pages 57 to 59.
The Committee has reviewed the effectiveness and independence
of Ernst & Young LLP during 2016 and has concluded that it would
not undertake an Auditor tender during 2016. However, we have
approved the establishment of a sub-committee of the Audit
Committee to oversee the audit tender process and recommend
a detailed plan to be presented to that Committee in 2017.
See page 56 for more details.
D. Remuneration
D.1 The level and components of remuneration
The Remuneration Committee’s activities during 2016 are set
out on pages 64 to 75 and its membership details are on page 49.
The proposed Directors Remuneration Policy is set out on pages
76 to 81 and an ordinary resolution to approve the Policy will be
proposed at the AGM in 2017.
D.2 Procedure
The Remuneration Committee is responsible for developing policy
on executive remuneration and fixing remuneration packages
of Directors. Further details are set out on page 64 to 75.
During 2016, no individual Director was present when his or her
own remuneration was discussed.
E. Relations with shareholders
E.1 Dialogue with shareholders
The Board engage actively with both institutional and retail
shareholders to promote mutual understanding of objectives
and ensure that their views are communicated to the Board
as a whole. See page 56 for details of meetings with major
institutional investors and other shareholders.
E.2 Constructive use of the AGM
The AGM is a key opportunity for the Board to engage
with Shareholders. The Notice of Meeting will be sent to
shareholders and will be available at www.ihgplc.com/investors
under Shareholder centre in the AGMs and meetings section.
The Board will be available to answer questions during the
AGM and after the formal business has concluded. See
page 56 for more details.
Corporate Governance
IHG Annual Report and Form 20-F 2016
63
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Directors’ Remuneration Report
Remuneration Committee Chairman’s statement
“The updated Directors' Remuneration Policy aims to set the
right remuneration framework for delivering strong sustainable
returns to shareholders while recognising the responsibility to
be transparent, fair and accountable to all our stakeholders.”
TABLE OF CONTENTS
64
64
66
68
Directors’ Remuneration Report
Remuneration Committee Chairman’s statement
At a glance
Remuneration at IHG – the wider context
69
76
Annual Report on Directors’ Remuneration
(subject to advisory vote at 2017 AGM)
Directors’ Remuneration Policy
(subject to binding vote at 2017 AGM)
In 2016, IHG delivered target results for EBIT, record guest satisfaction
scores and continued to deliver strong shareholder returns.
As a result, the Executive Directors received Annual Performance Plan
(APP) awards of 127.7 and 124.8 per cent of salary; this is 63.9 and 62.4
per cent of their maximum potential payouts respectively. The Long
Term Incentive Plan (LTIP) 2014/16 cycle, granted in 2014, vested at a
level of 49.4 per cent of the maximum potential payout due to the Total
Shareholder Return achievement. However, the three-year threshold
targets for relative RevPAR and rooms growth were just missed.
Overall, this reflects good results in a more challenging market.
While the vesting levels were lower than last year, the total
remuneration increased on the back of an increase of over
71% in IHG's share price since the LTIP shares were awarded.
Looking back over the three years that the current Directors’
Remuneration Policy (DR Policy) has been in place, IHG has returned
$2,933m to shareholders and its Total Shareholder Return has been
90.6 per cent. Payouts under the APP have varied between 62.4
and 75.0 per cent of the maximum opportunity, and vesting of the
LTIP between 49.4 and 56.1 per cent.
The Board has reviewed the DR Policy in depth over the past 18 months
in light of the strategic priorities for the business going forward.
IHG has effectively finished its major asset disposal programme.
We have concluded that, while the current APP remains appropriate
and effective, there should be modest changes in some of the
measures in the LTIP. In particular, there needs to be even more
emphasis on operational metrics to drive shareholder value-creation.
At the same time, with the industry going through a period of change,
we consider that the current use of only relative measures in the
LTIP will not be appropriate. We are therefore proposing a reduced
weighting for the relative Total Shareholder Return measure and
are introducing a mix of absolute growth and cash flow targets. Total
revenue and system size are key lead indicators of business growth.
Quality, organic growth in revenue and room numbers is central to
IHG’s business strategy, building the strength and reach of the global
brands IHG manages. We are introducing cash flow targets because
cash generation and efficient capital allocation are at the heart of our
business model and ensure sustainable growth. In addition, we have
amended our approach to discretion underlying the LTIP payouts,
to reflect the use of absolute measures and give the Committee
the ability to ensure that vesting levels are not inappropriate.
64
IHG Annual Report and Form 20-F 2016
Governance
We have had significant shareholding guidelines in place for many
years for our Executive Directors, with the CEO’s actual shareholding
being very much higher. We consider it a key element of aligning the
interests of Executive Directors with shareholder returns. Although
such requirements are beyond the DR Policy, we will be introducing
shareholding guidelines to the rest of the senior management team.
Furthermore, the Board also proposes the introduction of a
requirement for Executive Directors to hold shares for a period
of 12 months after leaving IHG. This contractual change will
be introduced over the next 12 months.
As part of the review, the Remuneration Committee have consulted
with shareholders and representative groups regarding the proposed
changes to the DR Policy. We have also listened to the wide-ranging
debate on executive pay and considered how best to reflect that
in our arrangements. We have contributed to the consultation on the
Government's corporate governance reform green paper. We have
pointed out that, for a global business based in the UK with much of
its executive team based elsewhere, we need to ensure that there
is a coherent remuneration approach and a clear and attractive
progression path to the senior roles in the business. We also need
to ensure that we do not undermine our ability to recruit good talent
globally. We take our lead from the UK market and shareholder
expectations in setting Executive Director remuneration levels.
However, for instance, our major competitors for talent are mainly
based in the US, where regulation and market practice can be
different, particularly in areas such as executive share plan
structure and related vesting and holding periods.
This updated policy aims to set the right remuneration framework
for recruiting and retaining high-quality management across our
global operations and delivering strong sustainable returns to
shareholders, while recognising the responsibility to be transparent,
fair and accountable to all our stakeholders and compliant with
UK good practice and regulations.
The Board is very conscious that remuneration on its own does not
drive good performance. It is not a substitute for strong leadership,
a competitive business model and good governance. However, it is
an important part of the mix and the Board recommends the revised
Directors' Remuneration Policy to shareholders.
Element
LTIP measures
Discretion
Proposed changes to Directors’ Remuneration Policy from 2017a
Vesting will be subject to achievement of Total Shareholder Return (TSR) measured against a comparator group of companies
(40%), total gross revenue (20%), net System size growth (20%) and cash flow targets (20%) over a three-year period.
We have reduced the TSR component to 40% and, following a robust review process, updated the comparator group
of companies against which outcomes are measured. TSR remains a key measure of long-term success and aligns the
interests of Executive Directors with those of shareholders. The targets for total gross revenue, net System size growth
and cash flow will be absolute rather than relative to competitors as we feel that this provides the best opportunity to set
challenging and meaningful objectives for quality, organic growth over a three-year period given the changing structure
of the market.
We disclose the parameters of the TSR measure in this report. The targets under the cash flow measure were not available
at the time of writing this report, but will be disclosed in the next Directors' Remuneration Report. Targets under the other
measures are, in the opinion of the Directors, commercially sensitive, and will therefore be disclosed retrospectively at the
end of the LTIP cycle.
We have updated this discretion in light of the introduction of absolute measures. The Remuneration Committee can
therefore ensure that LTIP outcomes are aligned with shareholder considerations and, in particular, take into account
the quality of financial performance and growth over the period and the efficient use of capital.
Shareholding
A new shareholding requirement will be introduced from 2018 covering the 12-month period after cessation of employment.
The existing guideline shareholding requirements for our Executive Directors are 300% of salary for the Chief Executive
Officer and 200% of salary for other Executive Directors. These requirements will continue for six months after cessation
of employment and 50% of these requirements will continue for an additional six months.
a The full details of the proposed changes are set out on pages 76 to 81.
We always aim to make the remuneration report as clear and
accessible as possible, given regulation. The last Report received
a Highly Commended recognition at the Building Public Trust in
Corporate Reporting Awards. We have tried this year to make the
proposed changes to the DR Policy clear and easy to understand.
The full details of the proposed changes are set out on pages 76 to
81. We have again included an at-a-glance summary of the key points
from this year’s report on pages 66 and 67. We have also provided
an overview of the wider context of remuneration at IHG on page 68.
This includes how performance-related pay works for teams across
the business and wider pension arrangements.
The sections of this report that are subject to a formal vote by
shareholders are the Annual Report on Directors’ Remuneration
starting on page 69 and the revised Directors’ Remuneration
Policy starting on page 76, which will be put to advisory and
binding shareholder votes respectively at the May 2017 Annual
General Meeting.
Luke Mayhew
Chairman of the Remuneration Committee
20 February 2017
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
65
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS DIRECTORS’ REMUNERATION REPORT CONTINUED
At a glance
How to use this report
Within the Directors’ Remuneration
Report we have used colour coding
to denote different elements of
remuneration. The colours used
and the corresponding remuneration
elements are:
Salary
Benefits
Pension benefit
Annual Performance Plan (APP) cash
APP deferred shares
Long Term Incentive Plan (LTIP)
Shareholding
A
U
D
I
T
E
D
Audited information
Content contained within a tinted panel
highlighted with an ‘Audited’ tab indicates
that all the information within the panel
is audited.
HOW WE PERFORMED IN 2016
The 2016 outcomes reflect the progress made as a result of our focus on high-quality growth and superior value-creation through our brands,
our people and our systems. We achieved our targets for EBIT and guest satisfaction and delivered strong shareholder returns but we fell just
short of our three-year threshold target for rooms and RevPAR growth. These financial and business measures make up 90 per cent of our
APP (with individual performance making up the final 10 per cent) and 100 per cent of our LTIP.
Measures used for APP
Measures used for LTIP
Total Shareholder Return (TSR)
(50% weighting) (rebased 2014=100)
EBIT ($m) (70% weighting)
Rooms (25% weighting)
Threshold
626.3
Target
695.9
Maximum
765.5
Threshold
Maximum
Actual
698.9
Actual
Guest Love (ppt) (20% weighting)
RevPAR (25% weighting)
Threshold
+0.26
Target
+0.52
Maximum
+1.52
Threshold
Maximum
300
250
200
150
100
50
0
2014
2015
IHG PLC
FTSE 100 index
Global
Hotel
Index
2016
Actual
+0.68
Actual
The TSR element of 2014/16 LTIP cycle depended on the three-year
TSR performance to 31 December 2016.
EXECUTIVE DIRECTOR REMUNERATION
2016 remuneration
The table below shows the 2016 potential opportunity and actual achievement compared to 2015 actual achievement. Although vesting and
performance levels were slightly lower in 2016, overall remuneration is higher than 2015 due to an increase of over 71% in IHG's share price since
the 2014/16 LTIP shares were awarded. The comparable increase last year was just under 27%. The relevant figures for each of the elements
that make up the single total figure of remuneration, as shown below for the current Executive Directors, can be found in the table on page 69.
Value
(£000)
Richard Solomons,
Chief Executive Officer
Value
(£000)
Paul Edgecliffe-Johnson,
Chief Financial Officer
7
6
5
4
3
2
1
0
5,401
3,450
3,197
2016
potential
2016
actual
2015
actual
7
6
5
4
3
2
1
0
3,177
2,044
1,647
2016
potential
2016
actual
2015
actual
Key for potential
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
Current Directors’ shareholdings
For further details of shares and awards held and guideline shareholdings, see page 72.
Director
Richard Solomons
Paul Edgecliffe-Johnson
Number of shares held outright
Number of shares held as % of salary
Guideline shareholding %
211,594
26,034
943
185
300
200
66
IHG Annual Report and Form 20-F 2016
Governance
Summary of proposed Directors’ Remuneration Policy (DR Policy) and remuneration architecture from 2017 – Executive Directors
Following the completion of our major asset disposal programme, our strategic business objectives are focused on the delivery
of further high-quality growth through preferred brands, strong direct channels and lifetime relationships. A sharpened focus
on operational excellence informed our review of the DR Policy.
Implementation in 2017
Framework
Link to strategy
Fixed
Salary
2017
2018
2019
2020
Benefits
Pension benefit
Variable
Annual incentive cash (APP)
Annual incentive
deferred shares (APP)
Long Term Incentive
Plan (LTIP)
Share-
holdings
Shareholding
Generally in line with the range applying to the
corporate population. Reviewed annually and
fixed for 12 months from 1 April.
Recognises the value of the role and the individual’s skills,
performance and experience.
Relevant benefits are restricted to the typical
level for the role/location.
Competitive and consistent with role/location;
helps recruit and retain.
Defined Contribution. Employee contributions
with matching employer contributions. A maximum
cash allowance of 30% is offered in lieu of pension
contributions. Salary is the only part of
remuneration that is pensionable.
Competitive and consistent with role/location;
helps recruit and retain.
APP: maximum annual opportunity is 200%
of salary with 70% EBIT and 30% non-financial
measures; 50% of award is deferred into shares
for three years. Awards are subject to global EBIT
affordability gate. Full vesting after three years.
Malus and clawback apply.
The KPIs that directly link remuneration to our business
strategy include:
• EBIT and TSR – fundamental measures of our financial
health and the returns for shareholders and represent
the financial outcomes of the KPI goals;
• Guest satisfaction – a key measure of the delivery of
our brand strategy;
• Overall Performance Rating (OPR) – measures individual
delivery of annual objectives aligned to our Winning Model;
• Net System size growth – a KPI and measure of our leverage
and scale; and
• Total gross revenue and cash flow – key measures
of how we execute our strategy to deliver high-quality,
sustainable growth.
LTIP: maximum annual opportunity is 205%
of salary; vesting subject to achievement of TSR
(40%) measured against an appropriate comparator
group of companies; total gross revenue (20%),
net System size growth (20%) and cash flow (20%)
targets over a three-year period. Full vesting, to the
extent performance conditions are met, after three
years. Malus and clawback apply.
The following guideline shareholding requirements for our Executive Directors, together with the inclusion
of a TSR measure in our LTIP, align the interests of Executive Directors with those of shareholders:
• 300% of salary for the Chief Executive Officer; and
• 200% of salary for other Executive Directors.
• From 2018, full requirements to continue for six months, and 50% of requirements for a further six months,
post-cessation of employment.
2017 Directors’ Remuneration Policy – link to strategy
See pages 14 and 15 for further
information on our strategy.
EBIT
Guest Love
Overall Performance Rating (OPR)
TSR
Net System size growth
Total gross revenue
Cash flow
Strengthening our
portfolio of brands
Building and
leveraging scale
Creating lifetime guest
relationships
Delivering revenue
through direct channels
Driving superior
returns
Pay at risk
Malus and clawback arrangements apply to the APP and LTIP. Malus allows for awards to be reduced prior to vesting; clawback allows
for awards to be reduced and applies for three years after payment of cash or vesting of shares.
Period subject to clawback
LTIP
Performance period
Period subject to clawback
Award
granted
Award
vests
Award date
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
APP
cash
Performance
period
Cash
award
paid
APP
deferred
shares
Performance
period
Period subject to malus
Deferred
award
granted
Deferred
award
vests
Year -1
Award date
Year 1
Year 2
Year 3
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
67
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Remuneration at IHG – the wider context
Our reward philosophy
We will drive high-quality growth and financial returns for our
shareholders by attracting and retaining high-quality talent through
the following reward principles, making IHG a truly great place to work:
• rewarding competitively within the market in which each
employee is located;
• providing reward opportunities which are appropriate in each
location reflecting the differing legal frameworks and relevance
of benefits to specific markets; and
• ensuring rewards promote a ‘Winning Culture’ based on delivery,
engagement and collaboration.
Reward and business strategy
IHG has a clear purpose: to create Great Hotels Guests Love. We have
established our Winning Model (page 14) to maintain focus on the key
areas of our strategy and our Winning Ways and Winning Culture
(pages 18 and 19) to drive the right values and behaviours which will
help us deliver this. Our employees are rewarded in line with these
fundamental aims and principles as part of our Winning Culture:
• A range of stretching and measurable core performance metrics,
aligned to our strategic priorities, are set each year for our senior
management and hotel teams and form a first-stage gate for
our performance management process; employees’ overall
performance is then measured by reference to the delivery of
individual key performance objectives, aligned to our strategic
priorities, and the day-to-day application of the values and
behaviours expected at that employee’s level of seniority. Together,
these contribute to an employee’s remuneration as part of the
annual salary review process and as both a measure and a
minimum performance condition of annual incentive plans.
• In addition to the individual performance measure described above,
the remaining measures in the annual and long-term incentive
plans are also aligned with the business’ strategic approach so that
employees are only rewarded under these arrangements through
the successful delivery of the short and long-term objectives set
by the Committee, including the delivery of superior shareholder
returns and value.
Remuneration for other employees
Decisions on the remuneration of Executive Directors are taken in
the context of wider remuneration at IHG. However, the composition
of remuneration and annual incentives differs between employees in
a number of ways, and this generally relates to measures relevant
to the individual’s role and seniority. For example:
• A greater proportion of performance-related variable pay and
share-based incentives applies for more senior executives,
including Executive Directors, who will have a greater degree
of influence over performance outcomes. Incentive plans for
other corporate employees are typically based on a combination
of individual performance and the Group’s EBIT.
• Role-specific specialist plans apply in certain areas such as
corporate reservations, sales and hotel development. Incentive
plans for General Managers of IHG owned, leased and managed
hotels commonly include targets based on gross operating profit,
guest satisfaction and employee engagement.
• Eligibility for, and participation in, benefits and incentive plans differs
depending on location, seniority, length of service and other factors,
such as local taxation and legislative arrangements.
Fixed elements
Variable elements
All employees
• Base salary
• Pension
• Benefits
Mid – senior (or role
dependent) only
All employees
Mid – senior (or role
dependent) only
• Enhanced
pension
• Enhanced
benefits
• Car/allowance
• Short-term
• Deferred
incentive relevant
to role (APP for
senior executives)
share-based
element to
short-term incentive
• Long-term incentive
68
IHG Annual Report and Form 20-F 2016
Governance
Pension
Our global retirement benefit policy is to provide access to an appropriate
defined contribution retirement savings plan where such a vehicle is
typically offered, and with benefit levels in line with the local market.
UK pension plan contribution rates differ for various employee grades
within the Group, including Executive Directors. The current rates were
set following a review of UK pension benefits in light of the closure of
the previous defined benefit pension arrangement. Increased employer
contribution rates at higher seniority levels are prevalent in the wider
market; and reflect to an extent the accelerated accrual rates in place
under the old defined benefit arrangement. Where employees would
otherwise exceed relevant tax limits on pension contribution or accrual,
a cash equivalent may be offered in lieu of pension at an equivalent value
to the maximum company matching contribution.
Employee
contribution (%)
Matching
contribution
multiple
Maximum
matching
contribution
(up to %)
3–7.5
3–5
3–5
3–5
3–5
4
4
2.5
2
1.5
30
20
12.5
10
7.5
Employee grade
Corporate band 1
(Executive Directors)
Corporate bands 2 and 3
Corporate band 4
Corporate band 5
Corporate bands 6–8
and hotel employees
Chief Executive Officer’s pay
We recognise that there is currently greater pressure than ever
for increased clarity on executive remuneration and, in particular,
in relation to the justification of CEO pay in the context of business
performance and the wider employee population.
In light of the recent Corporate Governance Reform Green Paper, we
have shown below the change in total CEO remuneration, from the first
full year in which the current CEO was in office to date, alongside the
performance of the IHG PLC share price and, for comparison, that of
the FTSE 100 share index. We do not think that share price alone is an
ideal proxy for company performance, however, this shows the relative
increases in the Company’s share price over this period to have been
higher than those in respect of the CEO’s remuneration.
CEO pay and share price (rebased 2012 = 100)
s
e
u
l
a
v
d
e
s
a
b
e
R
300
250
200
150
100
50
0
IHG PLC
FTSE 100 index
2012
CEO PAY
2013
2014a
2015
2016
a Excludes one-off payment in respect of pension arrangement as this related to benefits
already accrued.
Use of discretion
The use of discretion enables the Committee to ensure that
outcomes are consistent with business performance and the
interests of shareholders. It also enables the Committee to treat
Executive Directors who leave IHG in a fair and equitable manner.
The discretion applied in relation to Tracy Robbins in respect of her
stepping down as a Director and subsequent cessation of employment is
set out on page 74. There have been no other cases of discretion applied
within the terms of the DR Policy set out in the 2013 Annual Report.
DIRECTORS’ REMUNERATION REPORT CONTINUED
Annual Report on Directors’ Remuneration
This Annual Report on Directors’ remuneration explains how the
Directors’ Remuneration Policy (DR Policy) was implemented in 2016
and the resulting payments each of the Executive Directors received.
This report is subject to an advisory vote by shareholders at the 2017 AGM. The notes to the single-figure table provide further detail,
where relevant, for each of the elements that make up the total single figure of remuneration in respect of each of the Executive Directors.
SINGLE TOTAL FIGURE OF REMUNERATION – EXECUTIVE DIRECTORS
Salary
Fixed pay
Benefits
Pension benefit
APP
LTIP
Total
Variable pay
Executive Directors
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2016
£000
2015
£000
2014/16
cycle
(value of
shares)
£000a
2013/15
cycle
(value of
shares)
£000
2016
£000
2015
£000
Richard Solomons
Paul Edgecliffe-Johnson
Tracy Robbinsb
810
500
18
785
450
445
26
24
1
31
23
30
243
150
5
236
135
134
1,042
640
14
1,187
690
672
1,329
730
31
958
349
550
3,450
2,044
69
3,197
1,647
1,831
a While vesting for this cycle was slightly lower than the 2013/15 cycle, outcomes are higher due to a greater increase in share price over the period since shares were granted.
b 2016 figures for Tracy Robbins relate to the period 1 January 2016 to 15 January 2016.
A
U
D
I
T
E
D
The threshold award was subject to a global EBIT affordability
gate and Overall Performance Rating (OPR) such that:
• if global EBIT was below 85% of target, no awards relating
to the Guest Love and OPR would be made;
• if global EBIT was between 85% and 90% of target, half of any
award relating to the Guest Love and OPR would be made;
• if OPR was 2, EBIT and Guest Love awards were reduced
by 50%; and
• if OPR was 2.5, EBIT and Guest Love awards were reduced by 25%.
Outcome for 2016
The performance measures for the 2016 APP were EBIT (70%), Guest
Love (20%) and OPR (10%) and were determined in accordance with
the DR Policy. The table below shows threshold, target and maximum
opportunity, as well as weighting and actual 2016 achievement for the
EBIT and Guest Love performance measures:
% of target award
200
150
100
50
0
45
10
35
180
40
140
90
20
70
96.1
23.3
72.8
Threshold
Target
Actual
Maximum
Guest Love
EBIT
Fixed pay
Salary: salary paid for the year. The 2016 figure shown for Tracy
Robbins is the actual amount earned for the portion of the year
she remained an Executive Director before she stepped down
from the Board on 15 January 2016.
Benefits: for Executive Directors, this includes, but is not limited
to, taxable benefits such as company car, healthcare and life
cover. Provision during 2016 was in line with previous years and
the approved DR Policy. No extraordinary payments were made.
Pension benefit: for current Executive Directors, in line with
DR Policy, the value of IHG contributions to pension plans and
any cash allowances, equalling 30% of salary, paid in lieu of
pension contributions.
• Richard Solomons did not participate in any IHG pension plan
in 2016 and instead received a cash allowance of 30% of salary
equal to £242,946. Mr Solomons also received life assurance
cover of six times pensionable salary.
• Neither Paul Edgecliffe-Johnson nor Tracy Robbins participated
in any IHG pension plan in 2016 and instead they both received
a cash allowance of 30% of salary equal to £149,902.50 and £5,419
respectively – the latter being the amount received in respect of
the period to 15 January 2016. They both also received life
assurance cover of four times pensionable salary.
Variable pay
APP (cash and deferred shares)
Operation
Award levels were determined based on salary as at 31 December
2016 on a straight-line basis between threshold and target, and
target and maximum, and are based on 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 (57.5% of salary);
for achievement below threshold, 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 (capped at 200% of salary).
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
69
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
Annual Report on Directors’ Remuneration continued
A
U
D
I
T
E
D
APP
Weighted
achievement
Weighting
Achievement
$626.3m
$695.9m
$698.9m
$765.5m
Performance
EBIT: performance relative to target
Threshold
Target
Actual
Maximum
Guest Love: improvement in guest survey score from prior year’s baseline
score of 79.71%
Threshold
Target
Actual
Maximum
+0.26ppt
+0.52ppt
+0.68ppt
+1.52ppt
50.0%
100.0%
116.3%
200.0%
50.0%
100.0%
104.0%
200.0%
23.3%
72.8%
20.0%
70.0%
The remaining 10% weighting of the APP is based on a personal
overall performance rating (OPR).
EBIT is operating profit before exceptional items. Budgeted
exchange rates for the year are used in determining EBIT for APP
purposes. However, no adjustments were made to the underlying
operating profit before exceptional items for 2016 APP purposes.
Operating profit before exceptional items (at actual exchange rates) $706.7m
($7.8m)
Difference due to exchange rates
$698.9m
Operating profit before exceptional items (at 2016 budget
exchange rates)
OPR results are determined by reference to individual employee
performance relating to the delivery of a range of measurable annual
objectives aligned to our Winning Model. 2016 objectives included a
range of financial targets, such as revenue and fee margins; strategic
aims, including brand developments and growth in key markets;
and targets for our Responsible Business agenda.
When combined with the EBIT and Guest Love results, the total
weighted achievement was 111.0 per cent for Richard Solomons
and 108.5 per cent for Paul Edgecliffe-Johnson of a target bonus
of 115% of salary. The APP award for 2016 was therefore 127.7
per cent of salary for Richard Solomons and 124.8 per cent for
Paul Edgecliffe-Johnson.
Awards for 2016 will be paid 50 per cent in cash and 50 per cent
in deferred shares, vesting three years after the date of grant,
in February 2020. 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. They are not subject to any further
performance conditions.
Salary as at
31 December
2016
£000
816
513
Award as
% of salary
127.7
124.8
Total value
of award
£000
1,042
640
Executive
Director
Richard Solomons
Paul Edgecliffe-Johnson
2014/16 LTIP (shares)
Operation
Awards are made annually and eligible executives will receive
shares at the end of that cycle, subject to achievement of the
performance measures. Growth in net rooms supply and
RevPAR is measured on a relative basis against the comparator
group. This group comprises the following major, globally branded
competitors: Accor Hotels; Choice Hotels International Inc.; Hilton
Worldwide; Hyatt Hotels Corporation; Marriott International Inc.;
Starwood Hotels and Resorts; and Wyndham Worldwide Corp. In
respect of Marriott’s acquisition of Starwood in September 2016,
70
IHG Annual Report and Form 20-F 2016
Governance
Starwood was retained as a part of the comparator group for
the period up to the date of the acquisition and was removed only
for the period after which the transaction had completed. TSR
measures the return to shareholders by investing in IHG relative
to our competitors in the appropriate comparator group of global
hotel companies, as per the data sourced from Thomson
Reuters Datastream.
The share price of 3,273p used to calculate the 2014/16 LTIP cycle
value shown in the single-figure table is the average over the final
quarter of 2016. The share price in respect of the 2013/15 LTIP
cycle has been restated using the volume weighted average price
of 2,511p on the date of actual vesting on 24 February 2016. The
corresponding values shown in the 2015 report (prior to the actual
vesting) were an estimate calculated using an average share price
over the final quarter of 2015 of 2,515p.
Outcome for 2014/16 cycle
The performance measures for the 2014/16 three-year LTIP cycle
were in line with the DR Policy. The table below shows threshold
and maximum opportunity, as well as weighting and actual
achievement, for each performance measure.
100
25
25
50
% of maximum opportunity
100
49.4
49.4
75
50
25
0
LTIP
20
5
5
10
Threshold
RevPAR
Net rooms
supply growth
TSR
Actual
Maximum
Weighted
achievement
Weighting
Achievement
Performance
Total Shareholder Return: three-year growth relative to average of
competitors
Threshold
Actual
Maximum
Net rooms supply: three-year growth relative to average of competitors
0%
Actual
20%
98.8%
100%
49.4%
50%
25%
20%
100%
Threshold
Maximum
RevPAR: three-year growth relative to average of competitors
Actual
Threshold
Maximum
Total achievement (% of maximum opportunity vested)
0%
20%
100%
25%
0%
0%
49.4%
Net rooms supply and RevPAR growth were measured by reference
to the three years ending 30 September 2016; TSR was measured
by reference to the three years ending 31 December 2016. This cycle
will vest on 22 February 2017 and the individual outcomes for this
cycle are shown below:
Maximum
opportunity
at grant
(number of
shares)
% of
maximum
opportunity
vested
Outcome
(number
of shares
awarded at
vest)
Total value
of award
£000
82,193
45,125
46,952
49.4
49.4
49.4
40,603
22,291
1,329
730
23,194
759
Executive
Director
Richard Solomons
Paul Edgecliffe-
Johnson
Tracy Robbins
DIRECTORS’ REMUNERATION REPORT CONTINUED Other information relating to Directors’ remuneration
Non-executive directorships of other companies
As permitted under the DR Policy, Richard Solomons, Chief Executive
Officer, serves as a Non-Executive Director of Marks and Spencer PLC
and in 2016 received fees of £70,000 accordingly.
No other current Executive Director holds any non-executive director
appointments at any other company.
Service contracts and notice periods for Executive Directors
In accordance with the UK Corporate Governance Code, all Executive
Directors have rolling service contracts with a notice period of 12
months and are subject to election and annual re-election by
shareholders at the AGM.
Dividends paid to Executive Directors
A final dividend for 2015 of 40.3p per ordinary share (57.5¢ per ADR)
was paid on 13 May 2016 to shareholders on the Register of members
at the close of business on 1 April 2016.
An interim dividend of 22.6p per ordinary share (30.0¢ per ADR) was
paid on 7 October 2016 to shareholders on the Register of members
at the close of business on 2 September 2016.
A special interim dividend of 438.2p per ordinary share (632.9¢
per ADR) was paid on 23 May 2016 to shareholders on the Register
of members at the close of business on 6 May 2016.
The 2016 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. LTIP award
holders were not entitled to receive the special dividend. Executive
Directors holding forfeitable shares under annual incentive awards
received the special dividend, and their share awards were subject
to the share consolidation.
A
U
D
I
T
E
D
Pension entitlements
Richard Solomons built up defined benefit pension entitlements
in the InterContinental Hotels UK Pension Plan (IC Plan) and IC
Executive Top-Up Scheme (ICETUS) as a member of both plans,
during his service as an Executive Director prior to the closure
of both plans to future accrual of pension on 30 June 2013. As
disclosed in the 2014 Annual Report, his ICETUS pension was
cashed out and his IC Plan pension was transferred to an
insurance company as part of the buy-out of that plan.
Mr Solomons is no longer entitled to any Defined Benefit
pension or related benefit from IHG.
Scheme interests awarded during 2016
During 2016, awards were granted under the 2016/18 LTIP cycle.
Awards were made to each Executive Director over shares with
a maximum value of 205% of salary using the closing mid-market
share price of 2,854p at the date of grant on 4 April 2016. These
are in the form of conditional awards over Company shares and
do not carry the right to dividends or dividend equivalents during
the vesting period.
A
U
D
I
T
E
D
Market
price per
share at
grant
£
Face
value
of award
at grant
£000
Number
of shares
received
if minimum
performance
achieved
Award
date
Maximum
shares
awarded
5 April
2016
5 April
2016
5 April
2016
58,595
28.54
1,672
11,719
36,841
28.54
1,051
8,480
28.54
242
7,368
1,696
Executive
Director
2016/18 cycle
Richard
Solomons
Paul Edgecliffe-
Johnson
Tracy Robbinsa
a Pro-rated to 15 months at grant.
The vesting date for these awards is the day after the
announcement of our Annual 2018 Preliminary Results in February
2019. These awards will vest and shares will be transferred to the
award-holder in February 2019, to the extent performance targets
are met. The performance measures are the same as for the
2014/16 cycle as shown on page 70. Relative growth in net rooms
supply and RevPAR will be measured by reference to the three
years ending 30 September 2018; TSR will be measured by
reference to the three years ending 31 December 2018. Minimum
performance is equal to 20% of the maximum award.
Other outstanding awards
During 2015, awards were granted under the 2015/17 LTIP cycle (shown
below) on the same basis as the 2016/18 LTIP cycle. Share price was
the closing mid-market share price of 2,670p at the date of grant on
30 March 2015. These awards will vest in February 2018 to the extent
performance targets are met.
Executive
Director
2015/17 cycle
Richard Solomons
Paul Edgecliffe-
Johnson
Tracy Robbins
Market
price per
share at
grant
£
Face
value
of award
at grant
£000
Number
of shares
received
if minimum
performance
achieved
Award
date
Maximum
shares
awarded
60,808
26.70
1,624
12,162
35,318
26.70
943
7,064
34,397
26.70
918
6,879
31
March
2015
31
March
2015
31
March
2015
The vesting date for these awards is the day after the announcement
of our Annual 2017 Preliminary Results in February 2018. The
performance measures are the same as for the 2014/16 cycle as
shown on page 70. Relative growth in net rooms supply and RevPAR
will be measured by reference to the three years ending 30 September
2017; TSR will be measured by reference to the three years ending
31 December 2017.
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
71
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Annual Report on Directors’ Remuneration continued
Current position on outstanding awards
Details of the performance measures and potential vesting outcomes for outstanding awards as at 31 December 2016 are as follows:
Threshold
performance
Maximum
performance
Threshold (%)/
maximum vesting (%)
Weighting (%)
Maximum award
(% of salary)
Performance
measure
Relative TSR
Growth equal to the
global hotels index
Growth exceeds
the index by 8%
per year or more
Net rooms
supply growth
Average of the
comparator group
First in the
comparator group
RevPAR growth
Average of the
comparator group
First in the
comparator group
20 /100
20 /100
20 /100
50
25
25
102.5
51.25
51.25
Potential vesting outcome
2015/17 cycle
2016/18 cycle
Between threshold
and maximum based
on current
performance
Between threshold
and maximum based
on current
performance
Improved
performance
needed to achieve
threshold
Improved
performance
needed to achieve
threshold
Improved
performance
needed to achieve
threshold
Improved
performance
needed to achieve
threshold
A
U
D
I
T
E
D
Statement of Directors’ shareholdings and share interests
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 required to hold shares equal to 300% of salary for the Chief Executive Officer and 200% for any other Executive
Directors within five years of their appointment. The number of shares held outright includes all Directors’ beneficial interests and those
held by their spouses and other connected persons. The APP deferred share awards are not subject to performance conditions. Details
on the performance conditions to which the unvested LTIP awards are still subject can be found on page 70. Percentages are calculated
using the number of shares held outright and the 30 December 2016 share price of 3,638p.
Shares and awards held by Executive Directors as at
31 December 2016: % of salary
Shares and awards held by Executive Directors as at
31 December 2016a: number of shares
300
Richard Solomons
200
Paul Edgecliffe-Johnson
185
0
% of salary
500
943
2,105
1,191
1,000
1,500
2,000
2,500
Number
of shares
held outright
2015
2016
APP
deferred
share awards
2015
2016
LTIP
share awards
(unvested)
2015
2016
Total number
of shares and
awards held
2015
2016
211,594 365,625
59,032
71,552 201,596 219,320 472,222 656,497
26,034
22,014
24,621
19,821 117,284 108,219 167,939 150,054
37,726
37,726
41,808
41,808 125,168 125,168 204,702 204,702
Executive
Director
Richard
Solomons
Paul
Edgecliffe-
Johnson
Tracy
Robbinsa
a Number of shares held by Tracy Robbins is as at 15 January 2016, when she stepped
Shares held outright
Total shares and awards
Guideline shareholding
down as an Executive Director.
72
IHG Annual Report and Form 20-F 2016
Governance
DIRECTORS’ REMUNERATION REPORT CONTINUED Chief Executive Officer’s remuneration
The table below shows the Chief Executive Officer’s single figure
of total remuneration for the eight years to 31 December 2016.
For Richard Solomons, the 2014 figure includes a one-off cash
payment in respect of pension entitlements which was fully
explained in the 2014 report.
2016
2015
2014
2013
2012
2011
Richard Solomons
Richard Solomons
Richard Solomons
Richard Solomons
Richard Solomons
Richard Solomons
Andrew Cosslett
2010
Andrew Cosslett
2009
Andrew Cosslett
Single figure
£000
3,450
3,197
6,528
3,149
4,881
4,724
3,770
5,430
1,953
Annual incentive
received (% of
maximum)
63.9
75.0
74.0
74.0
68.0
83.0
43.0
100.0
Shares received
under the LTIP
(% of maximum)
49.4
50.0
56.1
59.0
100.0
73.9
61.6
73.8
0
46.0
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
2015 and 2016. We believe that a group comprised of UK-based
employees is an appropriate comparator for salary and taxable
benefits 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 for a better like-for-like comparison.
The salary figure for the UK employee population has been calculated
using the 2016 budget for the annual pay review, taking into account
any promotions/marked adjustments made during the year. The
taxable benefits figure is based on P11D taxable benefits for tax
year ending 5 April in the relevant year.
For the annual incentive, a group of executives, who sit directly
below Executive Committee level, is used as a comparator group
as they are subject to the same performance measures as the
Chief Executive Officer.
Salary
Taxable benefits
Annual incentive
Chief Executive Officer
(% change)
UK employees
(% change)
+3.0
+5.6
-12.2
+3.0
+2.3
-9.9
Relative importance of spend on pay
The table below sets out the actual expenditure of the Group in 2016
and 2015 on corporate employee remuneration and distributions to
shareholders, and shows the difference in spend between those years.
For 2016, total distributions included a special and final dividend, and
a share consolidation, neither of which were applicable in 2015.
($m)
2000
1600
1200
+800.53%
1693
188
3.97%
800
707
680
– 5.41%
594
628
400
0
2015
2016
Total operating
profit before
exceptionals
2016
2015
Total
distributions to
shareholders
2015
2016
Remuneration
paid to all corporate
employees
Relative performance graph
For LTIP purposes, a TSR comparator group of a global hotels index
was used. InterContinental Hotels Group PLC is a member of the
FTSE 100 share index, and the graph below shows the Company’s
TSR performance from 31 December 2008 to 31 December 2016,
assuming dividends are reinvested, compared with the TSR
performance achieved by the FTSE 100 and global hotels indices.
All indices are shown in sterling. This data is sourced directly
from Thomson Reuters Datastream for IHG.
TSR: the Company vs FTSE 100 and global hotels index
(rebased 2008 = 100)
1000
800
600
400
200
0
IHG PLC
Global hotels index
FTSE 100 index
2008
2009
2010
2011
2012
2013
2014
2015
2016
Implementation of Directors’ Remuneration Policy in 2017
This section explains how the DR Policy will be applied in 2017,
subject to a binding vote by shareholders at the 2017 AGM.
Salary: Executive Directors
Directors’ salaries are agreed annually in line with the DR Policy.
The following salaries will apply from 1 April 2017:
Executive Director
Richard Solomons
Paul Edgecliffe-Johnson
%
increase
+2.5
+4.5
2017
836,150
536,000
2016
815,760
512,900
The 2.5 per cent increase for Richard Solomons is in line with the
range of increases applying to the UK and US population.
Paul Edgecliffe-Johnson was promoted internally on 1 January 2014
on a salary significantly below the level of a proven CFO. The DR
Policy provides that salary increases for newly appointed or promoted
Executive Directors may be higher than that of the corporate UK or
US employee population until the appropriate positioning is achieved.
Following strong performance again this year, a further increment
of 4.5 per cent has been agreed by the Remuneration Committee
for 2017; this increase brings the salary to the appropriate level
and it is not expected that further exceptional adjustments will
be made in future years.
LTIP and APP performance measures and targets
From 2017, we will be limiting LTIP awards for the top levels of
executives, currently 31 employees in total. A proportion of the
awards for these executives, who currently receive LTIP awards,
will move to smaller, restricted stock units with a three-year time
vesting. The executives and awards impacted are not covered by the
DR Policy. This move will bring us more in line with the market and
help recruitment and retention in key markets such as the US.
Further details of the measures and targets for the 2017 APP and
2017/19 LTIP cycle are contained in the separate DR Policy section
on pages 77 and 78 of this report.
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
73
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Annual Report on Directors’ Remuneration continued
A
U
D
I
T
E
D
Payments to past Directors – benefits
Sir Ian Prosser
Sir Prosser, who retired as a Director on 31 December 2003,
had an ongoing healthcare benefit of £1,879 during the year.
Tracy Robbins
Ms Robbins stepped down as Executive Vice President, Human
Resources and from the Board on 15 January 2016 due to health
reasons. In line with her contract, Ms Robbins will continue
employment on notice for the 12 months to 31 March 2017, when
she will cease employment with the Group. As disclosed at the
time of the announcement and in last year’s Annual Report,
the remuneration arrangements will be as follows:
• Ms Robbins will receive contractual sick pay (100% of
annual salary to 31 March 2016 and then 50% of salary
to 31 March 2017).
• Benefits entitlements will continue in full until 31 March 2017
and, given the circumstances, healthcare cover will be extended
for a further year following that.
• The Remuneration Committee has agreed that, on leaving
the Group, Ms Robbins will be treated as a good leaver for the
purposes of the APP and LTIP under the ill-health provisions
as set out in the DR Policy.
• Ms Robbins will remain eligible for APP while still an employee
of the Group. In light of the circumstances, the Committee will
exercise its discretion permitted under the rules of the APP and
the DR Policy to pay any 2015, 2016 and pro-rated 2017 APP
awards in cash, and to allow any outstanding APP deferred
shares to vest in full on 31 March 2017.
• The grant of the 2016 LTIP award will be based on actual salary
paid in that year. No LTIP award will be made in 2017.
• Any LTIP awards outstanding on the date Ms Robbins ceases
employment will vest in line with the terms of the plan rules
on the usual vesting date, only to the extent performance
conditions are fulfilled, and will be pro-rated for the time
she remained employed.
• Malus and clawback provisions will apply to all APP and
LTIP awards.
Remuneration payments made to Ms Robbins in 2016 in respect of
the period to 15 January 2016 are shown in the single figure table on
page 69. Remuneration paid in respect of the period 16 January 2016
to 31 December 2016 was as follows:
Fixed pay
Variable pay
Salary
£000
Benefits
£000
Pension
benefit
£000
APP
£000
LTIP
£000
Total
£000
265
18
129
332
728
1,472
In line with the discretion exercised by the Committee outlined
above, the whole APP award of £345,586 was paid in cash.
Payments for loss of office
No payments were made to any Executive Directors during 2016
for loss of office.
74
IHG Annual Report and Form 20-F 2016
Governance
Single total figure of remuneration: Non-Executive Directors
Fees
(£000)
Taxable
benefits
(£000)
Total
(£000)
Date of
original
appointment 2016 2015 2016 2015 2016 2015
431 446
412
412
34
19
1 January
2013
1 March
2015
1 September
2013
1 September
2014
25 August
2005
1 July
2011
1 June
2013
1 June
2011
73
61
97
97
73
73
30
85
97
97
81
73
4
3
3
1
3
3
5
3
3
2
1
4
77
66
100
100
76
76
31
87
100
98
84
77
97
97
31
14
128
111
1 December
2007
26
73
37
83
63
156
Non-
Executive
Director
Patrick
Cescau
Committee
appointments
Anne
Busquet
Ian
Dyson
Jo
Harlow
Jennifer
Laing
Luke
Mayhew
Jill
McDonald
Dale
Morrison
Ying
Yeh
See page 49 for Board and Committee
membership key and attendance.
Fees: The fees for Jennifer Laing and Ying Yeh are to the point
of their retirement as a Non-Executive Director on 6 May 2016.
The fee for Jill McDonald reflects her appointment as Chairman of
the Corporate Responsibility Committee from 6 May 2016 and the
related increase in responsibility.
Benefits: For Non-Executive Directors, benefits include taxable
travel and accommodation expenses to attend Board meetings
away from the designated 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 for 2015 and 2016 for Anne
Busquet and for the period up to 31 May 2016 for Dale Morrison.
Incentive awards: Non-Executive Directors are not eligible for
any incentive awards.
Pension benefit: Non-Executive Directors are not eligible for any
pension contributions or benefit.
Further details on changes to the
Board can be found on page 50.
Shares held by Non-Executive Directors as at 31 December 2016a:
number of shares
The only Non-Executive Directors who held shares are listed
in the table below.
Non-Executive Director
Jennifer Lainga
Luke Mayhew
Dale Morrisonb
Shares held outright
2015
2,905
1,722
3,907
2016
2,905
1,435
3,255
a Number of shares held by Jennifer Laing is as at 6 May 2016, when she retired
as a Non-Executive Director.
b Shares held in the form of American Depository Receipts.
DIRECTORS’ REMUNERATION REPORT CONTINUED
A
U
D
I
T
E
D
Fees: Non-Executive Directors
The fees for Non-Executive Directors are reviewed and agreed
annually in line with the DR Policy. The fee levels for 2017 will
be as follows:
Non-Executive
Director
Role
Patrick Cescau Chairman of the Board
Anne Busquet Non-Executive Director
Ian Dyson
Jo Harlow
Luke Mayhew
Chairman of Audit Committee
Non-Executive Director
Chairman of Remuneration
Committee
Chairman of Corporate
Responsibility Committee
Senior Independent Non-Executive
Director
Jill McDonald
Dale Morrison
2017
£000
422
74
99
74
99
87
107
2016
£000
412
73
97
73
97
73a
97
a Jill McDonald's 2016 fee relates to Non-Executive Director position prior to new role
of Chairman of the Corporate Responsibility Committee.
Non-Executive Directors’ letters of appointment and notice periods
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. No other Non-Executive Directors are subject to notice
periods. All Non-Executive Directors are subject to election
and annual re-election by shareholders at the AGM.
Remuneration Committee details
Key objectives and summary of responsibilities
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 Group’s ability to meet its strategic objectives.
The Committee’s role and responsibilities are set out in its Terms
of Reference (ToR). These are reviewed annually and available on
the Company’s website at www.ihgplc.com/investors under Corporate
governance in the Committees section.
Membership and attendance at meetings
In addition to the Committee members, the CEO and Chairman, the
Committee's remuneration advisers and the Group's heads of HR and
Reward attended meetings.
Details of Committee attendance
can be found on page 49.
Reporting to the board
The CEO and Chairman attend meetings and the Committee Chairman
provides an update to the Board following each meeting on the key
issues discussed. Meeting papers and minutes are circulated to all
Board members for review and comment.
Effectiveness of the Committee
All members are independent Non-Executive Directors, as required
under the ToR. All members have the necessary experience and
expertise to meet the Committee’s responsibilities. The effectiveness
of the Committee is monitored and assessed annually through the
Board's evaluation questionnaires and interviews and informally
by the Committee's advisers.
Details of the Board's effectiveness
evaluation can be found on pages 55 and 56.
Remuneration advisers
The Committee continued to retain PricewaterhouseCoopers LLP
(PwC) throughout 2016 as independent advisers. Fees of £159,830
were paid to PwC in respect of advice provided to the Committee on
executive remuneration matters during the year. 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 2016. 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 to which they have committed
to adhere when advising remuneration committees.
Focus areas and activities
The Committee’s main consideration in 2016 was the review of the
Directors' Remuneration Policy. This was reviewed to ensure that IHG
continues to remunerate its Executive Directors in a way that is aligned
with business needs, is consistent with its reward philosophy, is fair to
colleagues yet competitive in the market, and rewards behaviours and
outcomes that deliver shareholder value. The following key matters
were also discussed: shareholding requirements and post-cessation
holding, IHG’s approach to diversity and gender pay-gap reporting.
Voting at the Company’s AGMs
There was no binding vote in respect of the DR Policy at the 2016 AGM
as it remained unchanged from 2014. There will be a binding vote in
respect of the new DR Policy in 2017. The outcome of the binding vote
in respect of the DR Policy voted on at the 2014 AGM is shown below:
AGM
2014
Votes for
Votes against
Abstentions
155,440,907
(90.94%)
15,483,775
(9.06%)
906,025
At the Company’s AGMs in 2014, 2015 and 2016, the annual advisory
vote in respect of the Directors’ Remuneration Report was as follows:
AGM
2016
2015
2014
Votes for
Votes against
167,998,487
(98.58%)
149,415,662
(96.99%)
158,131,479
(94.01%)
2,427,740
(1.42%)
4,633,208
(3.01%)
10,076,027
(5.99%)
Abstentions
5,056,017
3,642,496
3,623,200
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
75
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Directors’ Remuneration Policy
Subject to the approval by shareholders at the 2017 AGM, the policy for Executive Directors, as set out below, will apply from 2017
and will be available to view at www.ihgplc.com/investors under Corporate governance.
The Committee will consider the Remuneration Policy annually to ensure it remains aligned with strategic objectives. However, it is intended that
the policy set out below will apply for three years from the 2017 AGM; if any amendments need to be made to the policy within that time frame, it
will first be presented to be voted upon by shareholders.
Future policy table
Salary
Link to strategy
(100% cash)
To attract and retain the key talent responsible for delivering our strategic objectives. Recognises the value of the role and the
individual’s skill, performance and experience.
Operation
Base salary is reviewed annually and fixed for 12 months from 1 April.
In reviewing salaries, the Committee may consider:
• business performance;
• personal performance;
• the average salary increases for the wider IHG workforce; and
Maximum opportunity
• current remuneration assessed against comparable opportunities for an individual to ensure competitiveness.
Over the policy period, salaries for current Executive Directors will increase, subject to individual performance, in line with the range
of increases applying to the corporate UK and US employee population, except where there is a change in role or responsibility
or another need arises to reassess the competitiveness of salary which warrants either a lesser or a more significant increase.
Any such change will be fully explained.
Newly promoted or recruited Executive Directors may, on occasion, have their salaries set below the conventional remuneration
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.
Performance framework
The results of an individual’s annual performance appraisal give an overall personal performance rating (OPR), which is considered
when reviewing salary levels.
Benefits
Link to strategy
To attract and retain the key talent responsible for delivering our strategic objectives with competitive benefits which are consistent
with an individual’s role and location.
Operation
IHG pays the cost of providing the benefits on a monthly basis or as required for one-off events.
Maximum opportunity
The value of benefits is dependent on location and market factors.
Benefits may include the cost of independent financial advice, car allowance/company car, private healthcare/medical assessments
and other benefits provided from time to time. Benefits would be restricted to the typical level for the role and location of an
Executive Director.
Benefits may also include relocation and expatriate or international assignment costs where appropriate, including for example:
• cost of living allowance;
• travel costs;
• housing allowance;
• professional advice;
• education allowances;
• tax equalisation;
• medical expenses; and
• relocation allowance.
Relocation and expatriate or international assignment costs would be restricted to the typical level for the role and location
of an Executive Director.
Performance framework
None.
Pension
Link to strategy
Operation
To attract and retain the key talent responsible for delivering our strategic objectives with appropriate contribution rates to provide
funding for retirement.
UK Executive Directors are eligible to join the IHG UK Defined Contribution Pension Plan (IC Plan). A cash allowance in lieu of pension
contributions is offered, for example, where pension contributions would be less tax efficient than cash.
Non UK Executive Directors may be eligible for an alternative local company retirement plan, for example, a DC 401(k) Plan
and a DC Deferred Compensation Plan currently operating in the US.
Maximum opportunity
Salary is the only element of remuneration that is pensionable, and the current maximum employer contribution level for executives
in the IC Plan is 30% of salary.
Other contribution rates may apply in alternative local retirement plans and the Committee has the discretion to reduce or increase
employer contribution rates for Executive Directors in exceptional circumstances where conditions so warrant.
Performance framework
None.
76
IHG Annual Report and Form 20-F 2016
Governance
DIRECTORS’ REMUNERATION REPORT CONTINUED Annual Performance
Plan (APP)
(50% cash and 50% IHG PLC shares deferred for three years)
Link to strategy
• Drives and rewards annual performance against both financial and non-financial metrics.
• Aligns individuals and teams with key strategic priorities.
• Aligns short-term annual performance with strategy to generate long-term returns to shareholders.
Operation
• Awards are made annually, 50% in cash after the end of the relevant financial year and 50% in the form of share awards which
vest after three years subject to leaver provisions.
• The Committee has discretion to make awards wholly in cash rather than part-cash and part-shares, in exceptional circumstances.
• The share awards are made in the form of conditional awards or forfeitable shares, the latter having the right to receive dividends
and vote at general meetings.
• Malus and clawback apply to the awards. See page 80 for details.
• The Committee may exercise reasonable discretion to adjust an award made under the APP upwards or downwards after
application of the performance measures to take into account any relevant factors, including but not limited to, performance
relative to IHG’s competitors and extent of achievement across all measures, provided that in no case will an award exceed
the maximum opportunity stated.
Maximum opportunity
Maximum annual award is 200% of salary.
Performance framework
• 70% is based on EBIT achievement vs target.
• 30% is based on a mixture of personal and strategic measures which are reviewed annually and the weighting, measures and targets
determined by the Committee and set in line with key strategic priorities.
• Measures for 2017 will be as per 2016 ie EBIT (70%), Guest Love (20%) and OPR (10%) – see page 78 for further detail.
• Target award is 115% of salary; threshold is up to 50% of target award for each measure.
• Overall performance ratings of less than 3 affect the outcome of the APP award. An OPR of less than 2 results in no award being
made; an OPR of 2 (threshold) reduces awards by 50%; and an OPR of 2.5 reduces awards by 25%.
Long Term Incentive Plan
(LTIP)
(100% IHG PLC shares)
Link to strategy
Drives and rewards delivery of sustained long-term performance on measures that are aligned with the interests of shareholders.
Operation
• Annual conditional awards of shares which vest after a period of three years, or such longer period as the Committee determines,
subject to the achievement of corporate performance targets.
• The Committee may also impose such post-vesting holding periods as it may, at its discretion, determine.
• The Committee also has discretion to make awards in cash rather than shares, in exceptional circumstances.
• Malus and clawback applies to awards. See page 80 for details.
Maximum opportunity
The maximum annual award is 205% of salary. The Committee has no current intention to award more than the policy maximum, but if
exceptional and unforeseen circumstances arise that warrant it, the Committee has discretion to increase this to 300% of salary under
the LTIP rules. Any such award will be fully explained.
Performance framework
• The measures are reviewed and may be changed by the Committee annually to ensure alignment with strategic objectives.
• Minimum performance results in 20% vesting and all targets measured over a performance period of at least three years.
• The Committee may make adjustments to targets and/or measures if a significant one-off event occurs that makes one or more
of the existing targets and/or measures no longer appropriate. The Committee may also adjust awards if a significant one-off
event happens that makes the original performance measures no longer appropriate. Any such adjustments would be disclosed
at the first appropriate opportunity.
New for 2017 policy
• Measures for the 2017/19 cycle are Total Shareholder Return (TSR), total gross revenue, net System size growth and cash flow – see
pages 78 and 79 for further detail.
• The Committee will review the vesting outcomes under the absolute measures (for the 2017/19 LTIP this will be total gross revenue,
net System size growth and cash flow measures) at the end of each three-year cycle against an assessment of Group earnings, the
quality of financial performance and growth over the period, including relative growth against the market, and the efficient use of
capital. If the Committee determines that the vesting outcomes do not appropriately reflect the performance of the Group, it will
consider reducing the number of shares that vest. The performance and vesting outcomes and any use of discretion will be fully
disclosed and explained in the relevant Directors' Remuneration Report.
Shareholding requirements
• The guideline shareholding requirement is 300% of salary for the Chief Executive Officer and 200% for other Executive Directors
• Executive Directors are expected to hold all shares earned (net of any shares sales required to meet personal tax liabilities), until the guideline shareholding
requirement is achieved. See page 72 for details.
New for 2017 policy
• From 2018, the full guideline shareholding requirements will continue for six months, and 50% of the requirements for a further
six months, post-cessation of employment.
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
77
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Directors’ Remuneration Policy continued
Illustrative scenarios
Below is an illustration of the value that could be received by each Executive Director under the Directors’ Remuneration Policy in respect
of 2017, showing:
• minimum, which includes salary, benefits and employer pension contributions only (total fixed pay);
• on-target, which includes total fixed pay and assumes an on-target award for the APP (115% of salary) and 50% of maximum LTIP award vesting; and
• maximum, which includes total fixed pay and a maximum award under the APP and LTIP.
The salaries included are those that will apply from 1 April 2017. The benefit values included are estimates. The amounts shown in relation to APP
and LTIP do not take account of any potential share price appreciation.
Richard Solomons, Chief Executive Officer
£000
Paul Edgecliffe-Johnson, Chief Financial Officer
£000
5000
4000
3000
2000
1000
0
£2,932
29%
33%
38%
£1,114
100%
£4,500
38%
37%
25%
2017
(minimum)
2017
(target)
2017
(maximum)
Notes to future policy table
Measures for 2017 APP
5000
4000
3000
2000
1000
0
£2,892
38%
37%
25%
2017
(maximum)
£1,887
29%
33%
38%
2017
(target)
£721
100%
2017
(minimum)
Key
LTIP
APP
Salary, benefits and pension
Definition
Weighting (%) Performance objective
Measure
EBIT
Earnings Before Interest and Tax –
a measure of IHG’s operating profit before exceptional items for the year.
Guest Love
Guest satisfaction rating.
OPR
Personal performance measure of individual’s contribution to the
business and the results.
70
20
10
Achievement against target.
Year-on-year improvement in score.
Achievement against targets.
Why have we chosen these measures?
EBIT is a key measure of business performance for our shareholders and is a function of other critical measures, such as net rooms growth,
RevPAR, profit margin and fee revenues. Guest Love is an important and robust measure of the strength of our brands and our ability to grow
lifetime relationships with guests. OPR reflects an individual’s contribution towards the achievement of specific and measurable targets based on
a range of the most important financial and strategic objectives for the year.
How are performance targets set?
Targets may be set relative to budget and/or by reference to prior results and may contain a performance range to incentivise outperformance and
minimum performance levels relative to budget and/or prior experience to ensure that poor performance is not rewarded. The 2017 targets are set
by the Committee and senior management, taking into account IHG’s growth ambitions, market expectations and the circumstances and relative
performance at the time, with the aim of setting stretching achievement targets for senior executives which will reflect successful outcomes for
the business based on its strategic objectives for the year.
Measures for 2017/19 LTIP cycle
Measure
Definition
Weighting (%) Vesting
Total Shareholder
Return (TSR)
IHG’s performance against a comparator group
of global hotel companies. TSR is the aggregate
of share price growth and dividends paid,
assuming reinvestment of dividends in the
Company’s shares during the three-year
performance period.
Total gross revenue Cumulative increase over three-year
performance period.
Net System
size growth
Increase in number of IHG rooms over
three-year performance period.
Cash flow
Cumulative annual cash generation
over three-year performance period.
40
Threshold – median of comparator group (20% of TSR element vests).
Maximum – upper quartile of comparator group (100% of TSR element vests).
Vesting will be on a straight-line basis in between the two points above.
20
20
20
The targets for these measures are, in the opinion of the Directors, commercially
sensitive, and will therefore be disclosed in full retrospectively at the end of the
LTIP cycle. Disclosure in advance would give IHG’s major competitors an unfair
commercial advantage, providing them with access to key financial and growth
targets from IHG’s three-year plan. These competitors would not be subject to the
same obligation to make such information available, as they are either unlisted or
listed on a stock exchange other than the London Stock Exchange. We will provide
updates on an annual basis to give an indication of actual performance against
targets and full disclosure of targets and performance will be provided
retrospectively after the end of the performance period.
Targets for the three years from 2017 are due to be set at the Board’s annual
strategy meeting in March 2017 and are not, therefore, available at the time
of writing this report. The agreed targets, which will apply in respect of the 2017–19
LTIP cycle, will be disclosed in full in the 2017 Directors’ Remuneration Report.
78
IHG Annual Report and Form 20-F 2016
Governance
DIRECTORS’ REMUNERATION REPORT CONTINUED Why have we chosen these measures?
We believe that TSR continues to be a key measure of long-term success and aligns the interests of Executive Directors with those of shareholders.
However, there is an increased focus on ongoing operational excellence under our asset light business model and TSR will therefore reduce from
a 50% to a 40% weighting in the LTIP. A rooms measure will remain in the form of net System size growth, reflecting the importance of building
and leveraging our scale. Two new measures will be introduced: total gross revenue, which includes food and beverage income from owned and
managed hotels and reflects our diverse income sources; and cash flow, to support our focus on delivering high-quality organic growth, which
means delivering consistent, sustained growth in cash flows and profits over the long term. Together, we believe these measures represent the
right balance of focus on growth and quality and position our executive remuneration in line with both our long-term strategic aims and the
expectations of our shareholders.
How are performance targets set?
Targets may be set relative to the expected outcomes of IHG’s long-range business plan and other long-term strategic objectives and may contain a
performance range to incentivise outperformance and minimum performance levels to ensure that poor performance is not rewarded. The targets
for the 2017/19 LTIP are set by the Committee, taking into account IHG’s long-range business plan, market expectations and the circumstances
and relative performance at the time, with the aim of setting stretching achievement targets for senior executives which will reflect successful
outcomes for the business based on its long-term strategic objectives. After completing a robust review process, the comparator group of
companies against which outcomes are measured for the 2017/19 cycle has been updated and comprises the following: Accor Hotels; Choice
Hotels International Inc.; Hilton Worldwide; Hyatt Hotels Corporation; Marriott International Inc.; Melia Hotels International; Millennium &
Copthorne Hotels; NH Hotel Group; and Wyndham Worldwide Corp.
Dilution of Company shares
Incentive plan rules provide that issuance of new shares or re-issued treasury shares, when aggregated with all other share schemes, must not
exceed 10% of issued share capital in any rolling 10-year period.
Policy on payment for loss of office
As per the DR Policy, Executive Directors have a notice period from the Group of 12 months. However, neither notice nor a payment in lieu of notice
will be given in the event of gross misconduct. In the event of an Executive Director terminating employment, any compensation payable will be
determined in accordance with the terms of their service contract and the rules of any relevant incentive plan. Where possible, the Group will seek
to ensure that, if a leaver mitigates their losses, for example, by finding new employment, there will be a corresponding reduction in compensation
payable for loss of office. An Executive Director may have an entitlement to compensation in respect of their statutory rights under employment
protection legislation in the UK or other relevant jurisdiction.
The following table sets out the basis on which payments for loss of office may be made:
Remuneration
component
Salary and contractual
benefits, including
pension
APP award for year
of termination
Unvested APP deferred
share awards
Circumstances and approach taken (including but not limited to):
Good leaver: Paid up to date of termination or in lieu of notice, if applicable.
Other leaver: Paid up to date of termination or in lieu of notice, if applicable.
Death: Paid up to date of death.
Good leaver: Pro-rated award for year up to date of termination, or later date in exceptional circumstances subject to Committee
discretion. No accelerated payment, other than in exceptional circumstances and where permitted under the plan rules subject
to Committee discretion. Award made 50% cash and 50% in shares deferred for three years from grant, other than in exceptional
circumstances and where permitted under the plan rules subject to Committee discretion.
Other leaver: No award for year of termination, other than in case of termination after end of performance period but before award date
(in which case cash portion only of award will be paid); and in exceptional circumstances subject to Committee discretion.
Death: Pro-rated award for year up to date of death, paid fully in cash and accelerated, other than in exceptional circumstances subject
to Committee discretion.
Good leaver: Vest on usual vesting date, other than in exceptional circumstances subject to Committee discretion.
Other leaver: Forfeited, other than in exceptional circumstances subject to Committee discretion; and in the event of a termination in
connection with a takeover or reconstitution (in which case unvested APP deferred share awards will have accelerated vesting on the
date of termination, unless the Committee determines otherwise).
Death: Accelerated vesting unless Committee decides otherwise.
Unvested LTIP awards
Good leaver: Vest on usual vesting date to extent performance conditions met, other than in exceptional circumstances subject to
Committee discretion. Number of shares vesting is pro-rated to date of termination, or other date subject to Committee discretion.
Other leaver: Forfeited, other than in exceptional circumstances subject to Committee discretion. No shares awarded or cash paid
under any circumstances in the event of termination due to gross misconduct.
Death: Accelerated vesting: Committee has discretion to determine number of shares vesting, taking into account proportion of
performance period elapsed and extent to which performance conditions are satisfied.
Good leaver status will be applied in accordance with the rules of incentive plans, where applicable, and may include retirement, ill-health,
transfer of undertaking or redundancy. In the case of the LTIP rules, the Committee has discretion to apply good leaver status and, in doing so,
will consider factors such as personal performance and conduct, overall Group performance and the specific circumstances of the Executive
Director’s departure including, but not restricted to, whether the Executive Director is leaving by mutual agreement. The Committee would only
seek to exercise this and its other discretions under the APP and LTIP plan rules in exceptional circumstances and the application of any such
discretion would be disclosed in full as required in the relevant announcement and Annual Report on Directors’ Remuneration.
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
79
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Directors’ Remuneration Policy continued
Use of discretion by the Remuneration Committee
1. Malus and clawback in incentive plans
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.
A clawback provision applies to Executive Directors in respect of
the APP cash awards and LTIP cycle awards from 2015/17 onwards.
The provision applies 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 features help ensure alignment between executive reward
and shareholder returns.
2. Other uses of discretion
The Committee reserves certain discretions in relation to the
outcomes for Executive Directors under the Group’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 experience of shareholders, at the same time as providing a high
degree of clarity for shareholders as to remuneration structure and
potential quantum; and
• enabling the Committee to treat leavers in a way that is fair and
equitable to individuals and shareholders under the incentive plans.
The discretions that can be applied in the case of leavers under the
APP and LTIP are set out in the section ‘Policy on payment for loss
of office’ on page 79.
The discretions that can be applied in respect of the APP and LTIP in
the event of a corporate transaction, such as a takeover or merger,
include the ability to determine:
• the period for which awards may be pro-rated;
• whether awards are payable as cash or shares;
• the vesting date for awards and whether or not they may
be accelerated;
• if a transaction occurs prior to the end of a performance period,
the extent to which performance conditions have been met;
• in the event that a transaction involves the exchange of IHG PLC
shares for shares in another company, whether existing share
awards may be replaced by an appropriate proportion of shares
in a new company; and
• any such action as it may think appropriate if other events happen
which may have an effect on awards.
Any exercises of discretion by the Committee will be fully disclosed
and explained in the relevant year’s Annual Report on Directors’
Remuneration.
Approach to recruitment remuneration
The remuneration of any new Executive Director will be determined
in accordance with the Directors’ Remuneration Policy on pages 76
to 77 and the elements that would be considered by the Group for
inclusion are:
• salary and benefits, including defined contribution pension
participation;
• participation in the APP with 50% cash and 50% deferred share
elements:
- pro-rated for the year of recruitment to reflect the proportion
of the year remaining after the date of commencement of
employment; and
- if commencement date is after 1 October in the year, no award
would normally be made for that year; and
• participation in the LTIP:
- pro-rated awards would be made in relation to LTIP cycles
outstanding at the time of recruitment; but
- no pro-rated award would be made for an LTIP cycle that has less
than nine months to run at the date of commencement of employment.
In addition, the Committee may, in its discretion, compensate a newly
recruited Executive Director for incentives foregone from previous
employment 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 LTIP or deferred share awards in order
to immediately align a new Executive Director with IHG performance.
The maximum annual level of variable remuneration that may be
granted to a newly-recruited Executive Director would be in line
with that of the existing Executive Directors:
• APP award: 200% of salary, of which 50% of any award will be paid
in cash and 50% in the form of shares deferred for three years; and
• LTIP award: 205% of salary for a full LTIP cycle commencing
after appointment, plus pro-rated awards in relation to LTIP
cycles outstanding at the time of recruitment (up to a further
205% of salary).
This excludes any remuneration that constitutes compensation for
incentives foregone and any relocation and expatriate or international
assignment costs.
Consideration of shareholder views
Shareholder interests are central to decisions on remuneration.
Recruiting and retaining quality management is important to the
generation of shareholder return. At the same time, IHG does not
operate in a vacuum and remuneration decisions need to take account
of the practices in the sector, the remuneration of IHG employees
overall and of course business performance. We were pleased to
see the substantial support for our 2015 Annual Report on Directors’
Remuneration, approved by a majority of 98.58%. As part of the review
of incentive plans undertaken in 2015 and 2016, the Chairman of
the Remuneration Committee met with a number of our largest
shareholders, proxy voting agencies and industry bodies, such
as the Investment Association, to discuss our remuneration policy
design and its links to business strategy. The feedback from these
meetings, while not always consistent, has helped us to refine
the small number of changes proposed to DR Policy from 2017,
specifically the new absolute measures in the LTIP and the
related sharpening of Committee discretion designed to
strengthen the focus on operational excellence.
80
IHG Annual Report and Form 20-F 2016
Governance
DIRECTORS’ REMUNERATION REPORT CONTINUED Consideration of employment conditions elsewhere in the Group
The Committee takes into consideration the pay and conditions of
employees throughout the Group when determining remuneration
for its Executive Directors. In addition to the review of DR Policy during
2015 and 2016, the Committee reviewed the remuneration structure
of other senior employees and agreed changes which were designed
to ensure a clear and consistent approach to remuneration that is
aligned to the business needs; consistent with the Group’s reward
philosophy, strategy and objectives; fair and attractive to colleagues;
and rewards the behaviours and outcomes which will deliver
shareholder value.
Employees’ pay across the Group is compared to cross-industry
standards to ensure fair pay for each job. The Group does not consult
with employees as part of the process of determining the DR Policy.
However, selected senior employees were consulted as part
of the remuneration review referred to above; and questions on
the performance of Executive Committee members, including the
Executive Directors, are included in annual employee engagement
surveys. While formal internal comparison measurements are not
used in determining Executive Directors’ remuneration, the Committee
makes decisions in the knowledge of pay and incentive arrangements
of the rest of the Group, upon which the Committee is briefed regularly.
Service contracts and notice periods for Executive Directors
The Committee’s policy is for all Executive Directors to have
rolling service contracts with a notice period of 12 months. All
new appointments will have 12-month notice periods, unless,
on an exceptional basis to complete an external recruitment
successfully, a longer initial notice period reducing to 12 months is
used. This is in accordance with the UK Corporate Governance Code.
All Executive Directors’ appointments and subsequent
re-appointments are subject to election and annual re-election
by shareholders at the AGM.
Details of current Executive Directors’ contracts
Fees and benefits (cash)
Link to
strategy
• To attract Non-Executive Directors who have a broad range of
skills and experience that add value to our business and help
oversee and drive our strategy.
Operation
Maximum
opportunity
• Recognises the value of the role and the individual’s skill,
performance and experience.
• Non-Executive Directors’ fees and benefits are set by
the Chairman of the Board and Executive Directors;
the Chairman’s fees are set by the Committee.
• Fees are reviewed annually and fixed for 12 months
from 1 January.
• Consideration is given to business performance, current
remuneration competitiveness and average salary increases
for the wider IHG employee population.
• Benefits include travel and accommodation in connection
with attendance at Board and Committee meetings.
• Non-Executive Directors are not eligible to participate
in IHG incentive or pension plans.
• A single fee is determined for each Non-Executive Director
role rather than different elements being applied to
directorship, Committee and chair roles.
• Fee increases will be in line with median FTSE 100 increases,
taking into account the circumstances of the business and
increases in remuneration across the Group, other than
where there is a change in role or responsibility or another
need arises to reassess the competitiveness of fee level that
warrants either a lesser or a more significant increase. Any
such change will be fully explained.
• IHG pays the cost of providing benefits as required.
Performance
framework
• Non-Executive Directors are not eligible to participate in
any performance-related incentive plans.
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, appointed Non-Executive Chairman on 1 January 2013,
is subject to 12 months’ notice. Other Non-Executive Directors are not
subject to notice periods.
Executive
Director
Richard Solomons
Paul Edgecliffe-Johnson
Date of
original appointment
10 February 2003
1 January 2014
Notice
period
12 months
12 months
All Non-Executive Directors’ appointments and subsequent
re-appointments are subject to election and annual re-election
by shareholders at the AGM.
Non-executive directorships of other companies
The Group recognises that its Executive Directors may be invited to
become Non-Executive Directors of other companies and that such
duties can broaden their experience and knowledge, and benefit the
Group. IHG therefore permits its Executive Directors to accept one
non-executive appointment (in addition to any positions where the
Director is appointed as the Group’s representative), subject to Board
approval and as long as this is not, in the reasonable opinion of the
Board, likely to lead to a conflict of interest. Any fees from such
appointments may be retained by the individual Executive Director.
Non-Executive
Director
Patrick Cescau
Anne Busquet
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Dale Morrison
Committee
appointments
Date of original
appointment
1 January 2013
1 March 2015
1 September 2013
1 September 2014
1 July 2011
1 June 2013
1 June 2011
Notice period
12 months
n/a
n/a
n/a
n/a
n/a
n/a
Remuneration Policy for Non-Executive Directors
The policy for Non-Executive Directors, set out below, will apply
for three years from the date of the 2017 AGM.
Luke Mayhew
Chairman of the Remuneration Committee
20 February 2017
The policy for Non-Executive Directors is available to view
at www.ihgplc.com/investors under Corporate governance
in the Committees section.
If any changes are made to the Policy within that time frame, it will be
presented to be voted upon by shareholders. Non-Executive Directors
are not eligible to participate in the APP, LTIP nor any IHG pension plan.
Directors’ Remuneration Report
IHG Annual Report and Form 20-F 2016
81
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
Group
Financial
Statements
Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
Independent Auditor’s US Report
84
85
90
91 Group Financial Statements
91 Group income statement
92
93 Group statement of changes in equity
96 Group statement of financial position
97 Group statement of cash flows
98 Accounting policies
106
Notes to the Group Financial Statements
Group statement of comprehensive income
82
IHG Annual Report and Form 20-F 2016
Group Financial Statements
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
InterContinental Samui Baan Taling Ngam Resort, Thailand
Group Financial Statements
IHG Annual Report and Form 20-F 2016
83
Statement of Directors’ Responsibilities
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.
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 IFRS
as 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
2016 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 2016 the Group’s internal control over financial
reporting was effective.
During the period covered by this document there were no 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
2016, 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 90.
For and on behalf of the Board
Richard Solomons
Chief Executive Officer
20 February 2017
Paul Edgecliffe-Johnson
Chief Financial Officer
20 February 2017
84
IHG Annual Report and Form 20-F 2016
Group Financial Statements
Independent Auditor’s UK Report
Independent Auditor’s Report to the
members of InterContinental Hotels
Group PLC
Our opinion on the Financial Statements
In our opinion:
• InterContinental Hotels Group PLC’s Group
Financial Statements and Parent Company
Financial Statements (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 2016
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 including FRS 101
‘Reduced Disclosure Framework’; 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
InterContinental Hotels Group PLC’s (IHG’s, the Group’s) Financial Statements for the year
ended 31 December 2016 comprise:
Group
Company
Group income statement
Parent Company statement of financial position
Group statement of comprehensive income
Parent Company statement of changes in equity
Group statement of changes in equity
Related notes 1 to 10 to the Financial Statements
Group statement of financial position
Group statement of cash flows
Related notes 1 to 33 to the Financial Statements
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), including FRS 101 ‘Reduced Disclosure Framework’.
Overview of our audit approach
Risks of material
misstatement
• Accounting for the hotel assessments collected as part of the revenue cycle
and the allocation of expenditures related to the marketing, advertising and
loyalty programmes (the System Fund).
• The valuation of the future redemption of IHG Rewards Club points liability.
• Capitalisation of software assets and carrying value of legacy systems.
Audit scope
• We performed an audit of the complete financial information of 21 components
and audit procedures on specific balances for a further 24 components.
• The components where we performed full or specific audit procedures
accounted for 89% of profit before tax adjusted for pre-tax exceptional items
and 77% of revenue.
Materiality
• Overall Group materiality of $31m which represents 5% of profit before tax
adjusted for pre-tax exceptional items.
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which
were designed in the context of the Group Financial Statements as a whole and, consequently, we do not express any opinion on these individual areas.
Risk
Direction Our response to the risk
We understood the principal streams of income and expenditure in the Fund.
For a sample of hotel assessments and expenses recorded in the Fund,
we agreed that they are in accordance with the principles as agreed with
the IHG Owners Association; supported by appropriate documentation and,
based on our inspection of that supporting documentation, have made an
independent assessment of whether the hotel assessments and
contributions and expenses relate to the Fund.
We have tested the controls over the calculation of hotel assessments,
allocation of expenses, related IT systems and eliminations from
IHG’s ledgers.
Given the accounting treatment adopted for the Fund is a key judgement;
we verified the appropriateness of the related disclosures provided in critical
accounting policies and the use of judgements, estimates and assumptions
(page 103) and note 32 of the Group Financial Statements.
In addressing this area of focus, audit procedures were performed
by the component team in the United States.
Key observations
communicated to
the Audit Committee
We are satisfied that
System Fund hotel
related assessment
fees, contributions and
expenses have been
appropriately identified
in accordance with the
principles agreed with
the IHG Owners
Association, and
excluded from IHG’s
Group income
statement.
Risk
Accounting for the hotel assessments collected
as part of the revenue cycle and the allocation
of expenditures related to the marketing,
advertising and loyalty programmes (the
System Fund)
Refer to the Strategic Report (page 43); the Audit
Committee Report (page 58); Critical accounting
policies and use of judgements, estimates and
assumptions (page 103): and note 32 of the
Group Financial Statements (page 142).
As outlined in the Strategic Report on page 12,
the System Fund (the Fund) is a key part of the
Group’s business model.
For the year ended 31 December 2016, and as
detailed in note 32, the Fund has assessment fees
and contributions of $1,439m, and a surplus for the
year of $41m. The Fund income and expenditure
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.
Independent Auditor’s UK Report
IHG Annual Report and Form 20-F 2016
85
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S UK REPORT CONTINUED
Risk
The valuation of the future redemption
of IHG Rewards Club (IRC) points liability
Refer to the Audit Committee Report (page 58);
Critical accounting policies and the use of
judgements, estimates and assumptions
(page 103); and note 32 of the Group Financial
Statements (page 142).
We focused on this area due to the size of the
liability ($685m at 31 December 2016), and its
sensitivity, in particular, to the breakage estimate
(as defined on page 103). Changes in the valuation
of the liability are charged to the System Fund
surplus/deficit and not to IHG’s income statement.
Capitalisation of software assets and carrying
value of legacy systems
Refer to the Strategic Report (page 17); the Audit
Committee Report (page 58); Critical accounting
policies and the use of judgements, estimates and
assumptions (page 103); and note 13 of the Group
Financial Statements (page 119).
Given the Group’s continued development of its
technology environment and the size of the capitalised
software balance ($360m as at 31 December 2016), of
which $127m has been capitalised in the year, we
continue to focus on this area. 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.
Risk
Direction Our response to the risk
Key observations
communicated to the
Audit Committee
We tested 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 points
liability.
The valuation of the
future redemption of the
IRC points liability at 31
December 2016 is within
an acceptable range.
For the three key inputs into the liability valuation we undertook the following
audit procedures:
(1) Outstanding loyalty points at 31 December 2016
We tested controls over the complete and accurate recording of point data and
tested the roll forward of the points balance to 31 December 2016, and verified
to underlying records.
We obtained a listing of expired points, and agreed a sample to underlying
records to confirm they had no activity in the last 12 months. We also tested
a sample of non-expired points, and agreed that these had activity.
(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 the redemption ratio/breakage for
members’ outstanding loyalty points at the balance sheet date, in particular
regarding the impact from the expiration policy.
In addition to testing the integrity of the company’s model, we developed our own
model to form an independent view on an acceptable range for the redemption
ratios to assess the reasonableness of key assumptions applied by management
in valuing the liability.
(3) Redeemed point cost (RPC)
We have challenged the assumptions made in the determination of the RPC, by
corroborating with historical data and contractual commitments with hotels and
other third party providers. In addition, we have assessed the reasonableness of
the split of the expected redemption of points between hotel and other awards.
In addressing this area of focus, audit procedures were performed by the
component team in the United States.
We tested internal financial controls, including IT controls, over the approval,
acquisition, development of new software and management’s assessment
of impairment.
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.
For both existing and new projects, we assessed the costs capitalised as
compared to the requirements of IAS 38 ‘Intangible Assets’. We performed
tests of details by vouching specific expenditures to supporting documentation
to validate a sample of software additions in the year.
We inspected management’s impairment review and considered the
appropriateness of the conclusions reached through inspection of the
underlying supporting work papers, inquiries of management, independent
validation that no carrying value was attributed to legacy systems no longer
in use, and the inspection of a full asset listing.
In addressing this area of focus, audit procedures were performed by the
component team in the United States.
We concluded that
the carrying value
of software assets
at 31 December 2016
is appropriate.
In addition to the risks identified as part of our audit planning, the following areas affected the allocation of resources and the direction of our audit
efforts and for which our audit response was as follows:
Risk
Carrying value of non-current assets
Refer to the Audit Committee Report (page 58);
Critical accounting policies and the use of
judgements, estimates and assumptions (page 103);
and notes 12, 13 and 14 of the Group Financial
Statements (pages 118 –121).
At 31 December 2016 the carrying value of
non-current assets was $2,149m. The Group
recognised impairment charges in respect of the
investment in InterContinental New York Barclay
during the year of $16m.
Risk
Direction Our response to the risk
We tested internal financial controls over management’s assessment and
measurement of impairment, including over the underlying projections, the
assumptions applied, and the completeness and accuracy of data provided to
IHG’s external experts and management’s internal review process of the inputs
and overall outcome.
We tested the integrity of the models used and carried out audit procedures
on management’s sensitivity calculations. We assessed the historical accuracy
of management’s budgets and forecasts, through the comparison of current
performance with forecasts. Assisted by our business valuation specialists, we
challenged management’s assumptions with reference to historical data and,
where applicable, external benchmarks noting the assumptions used fell within
an acceptable range.
Key observations
communicated to the
Audit Committee
The carrying value
of non-current assets
is supported at 31
December 2016, and
appropriate disclosures
have been provided.
The impairments
recognised have
been calculated on
a reasonable basis.
86
IHG Annual Report and Form 20-F 2016
Group Financial Statements
Risk
Carrying value of non-current assets continued
In accordance with IAS 36, page 103 discloses
the impairments which would arise after a
further reduction in fair value or estimated
future cash flows.
We focused on this area due to the significance
of the carrying value of the assets, the inherent
judgements involved and some recent trading
challenges in some specific jurisdictions where
the Group operates.
Data security incidents
Refer to the Strategic Report (page 22); the Audit
Committee Report (pages 57 and 58) Critical
accounting policies and the use of judgements,
estimates and assumptions (page 103); and note 30
of the Group Financial Statements (page 141).
During the year the Group became aware of
separate cyber-attacks on point-of-sale systems
within certain hotels in the IHG system. These
attacks resulted in unauthorised access to payment
card data from cards used at those hotels.
We focused on this area to assess whether the
principal financial systems used in the preparation
of the Group Financial Statements were
compromised during the attacks. In addition, we
focused on the judgements made by management
in their assessment of both the potential related
liability and the adequacy of contingent liability
disclosures related to the known security incidents.
Risk
Direction Our response to the risk
Key observations
communicated
to the Audit Committee
The main assumptions we challenged included fee margins and average daily
room rates. We corroborated that management had been consistent in its
approach to valuation when compared to prior years.
We considered the appropriateness of the disclosures provided in the Group
Financial Statements. In particular we considered the completeness of the
disclosures regarding material non-current assets where a reasonably possible
change in assumptions could lead to impairment.
In addressing this area of focus, audit procedures were performed mainly by
the Primary Team, with the exception of certain specific inputs to management’s
models for which we engaged our business valuation specialists.
We have made inquiries with IHG’s Risk Management team and with the Chief
Information Officer to understand their assessment of the cyber security risk
and the measures in place to mitigate this risk, focussing on the principal
financial systems used in the preparation of the Group Financial Statements.
With regards to the security incidents disclosed by IHG in note 30 of the
Group Financial Statements, we have reviewed, with the assistance of our
specialists, management’s assessment of the potential impact on the
principal financial systems used in the preparation of the Group Financial
Statements. We have also considered information from third party
investigations and the evidence from our other audit procedures, in order
to assess whether any contradictory evidence exists which suggests these
financial systems have been compromised.
We have challenged management’s estimate of the financial impact arising
from the security incidents and compared the assumptions they used in
measuring the liability to information from third party investigators where
available. We have considered the appropriateness of the related disclosures
provided in the Group Financial Statements.
Through our
understanding of the
control environment and
our procedures on the
known data incidents,
we did not identify any
evidence that the
principal financial
systems used in the
preparation of the Group
Financial Statements
had been compromised
as a result of the data
security incidents. We
consider the accounting
and related disclosures
in the Group Financial
Statements to be
appropriate.
In the prior year, our auditor’s report included risks of material misstatement as follows: ‘Kimpton acquisition – purchase price accounting’ and
‘Disposal of owned hotels’. These are no longer applicable in the current year.
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope for
each entity within the Group. Taken together, this enables us to form
an opinion on the Group Financial Statements. We take into account
size, risk profile, the organisation of the Group, including IHG’s global
accounting centre in India, and effectiveness of group-wide controls,
changes in the business environment and other factors such as Global
Internal Audit review findings when assessing the level of work to be
performed at each entity.
In assessing the risk of material misstatement to the Group Financial
Statements, and to ensure we had adequate quantitative coverage of
significant accounts in the Group Financial Statements, we selected
45 components within IHG’s global accounting centre in India, the
United States, the United Kingdom and China, which represent the
principal business units within the Group.
The Primary Audit Engagement Team (the Primary Team) performs
the audit on those areas of accounting performed centrally such as
litigation and consolidation adjustments.
Of the 45 components selected, we performed an audit of the complete
financial information of 21 components (‘full scope components’) which
were selected based on their size or risk characteristics. For the
remaining 24 components (‘specific scope components’), we performed
audit procedures on specific accounts within that component that we
considered had the potential for the greatest impact on the significant
accounts in the Group Financial Statements either because of the
size of these accounts or their risk profile. The risks of material
misstatement included in the table above were subject to full
audit procedures.
The table below illustrates the coverage obtained from the work
performed by our audit teams.
2016
2015
% profit
before tax
adjusted for
pre-tax
exceptional
items
%
revenue
See
note Number
19
20
39
72
17
67
10
89
77
11
100
23
100
1
2
3
% profit
before tax
adjusted for
pre-tax
exceptional
items
%
revenue
59
29
60
19
88
79
12
100
21
100
Number
21
24
45
Full scope
Specific scope
Full and
specific scope
coverage
Remaining
components
Total
Notes
1. The Group audit risks included in the tables on pages 85 to 87 were subject to full
audit procedures.
2. The audit scope of these components may not have included testing of all significant
accounts of the component but will have contributed to the coverage of significant
accounts tested for the Group.
3. Of the remaining components that together represent 11% of the Group’s profit before tax
adjusted for pre-tax exceptional items; none are individually greater than 5% of the Group’s
profit before tax adjusted for pre-tax exceptional items. For three (2015: three)
components, we performed review scope procedures. For the remaining components;
none of which are individually greater than 2% of the Group’s profit before tax adjusted for
pre-tax exceptional items, we performed other procedures, including analytical review at
both regional levels and at owned hotels, inquiry of management, and testing of journals
across the Group to respond to any potential risks of material misstatement to the Group
Financial Statements.
Independent Auditor’s UK Report
IHG Annual Report and Form 20-F 2016
87
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S UK REPORT CONTINUED
Changes from the prior year
Following the disposal of InterContinental Hong Kong in the prior year,
the entity is no longer part of the IHG Group (2015: specific scope).
Involvement with component teams
In establishing our overall approach to the Group audit, we determined
the type of work that needed to be undertaken at each of the components
by us, as the Primary Team, or by component auditors from other EY
global network firms operating under our instruction. Of the 21 full scope
components, audit procedures were performed on three of these directly
by the Primary Team and 18 by the component audit teams. For the 24
specific scope components, audit procedures were performed on these
by component audit teams. We determined the appropriate level of
involvement to enable us to determine that sufficient audit evidence
had been obtained as a basis for our opinion on the Group as a whole.
The Primary Team continued to follow a programme of planned visits
that has been designed to ensure that the Senior Statutory Auditor, or her
delegate, visits each of the key locations at both the interim and year-end
stages of the audit process. During the current year’s audit cycle, visits
were undertaken, at least twice, by the Primary Team to the component
teams at key locations in the United States and IHG’s global accounting
centre in India.
These visits involved discussing the audit approach with the component
team and any issues arising from their work, meeting with local
management, and reviewing key audit working papers on the Group risk
areas. The Primary Team interacted regularly with the component teams,
where appropriate, during various stages of the audit, reviewed key
working papers and were responsible for the scope and direction of the
audit process. This, together with the additional procedures performed
at Group level, gave us appropriate evidence for our opinion on the Group
Financial Statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit,
in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or
in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the Group Financial Statements. Materiality
provides a basis for determining the nature and extent of our audit
procedures.
We determined materiality for the Group to be $31m (2015: $30m),
which is 5% (2015: 5%) of profit before tax adjusted for pre-tax exceptional
items. 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.
Starting basis
Profit before tax of $591m
Adjustments
Adjust for pre-tax exceptional items of $29m
to determine adjusted profit before tax
Materiality
Totals $620m (materiality basis)
Materiality of $31m (5% of materiality basis)
During the course of our audit, we reassessed initial materiality and
the only change in final materiality was to reflect the actual reported
performance of the Group in the year.
Performance materiality
The application of materiality at the individual account or balance level.
It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement was that
performance materiality was 75% (2015: 75%) of our planning materiality,
namely $23m (2015: $23m). We have set performance materiality at this
percentage to ensure that the total uncorrected and undetected audit
differences in all accounts did not exceed our materiality.
Audit work at component locations for the purpose of obtaining audit
coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance
materiality set for each component is based on the relative scale and risk
of the component to the Group as a whole and our assessment of the risk
of misstatement at that component. In the current year, the range of
performance materiality allocated to components was $1m to $23m
(2015: $1m to $23m).
Reporting threshold
An amount below which identified misstatements are considered as being
clearly trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of $1.6m (2015: $1.5m), which
is set at 5% of planning materiality, as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
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 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.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement set
out on page 84, 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 (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.
88
IHG Annual Report and Form 20-F 2016
Group Financial Statements
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
• based on the work undertaken in the course of the audit:
- 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; and
- the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
ISAs
(UK and Ireland)
reporting
We are required to report to you if, in our opinion, financial and non-financial information in the Annual Report is:
• materially inconsistent with the information in the audited Financial Statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired
We have no
exceptions
to report.
in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the
course of performing the audit and the Directors’ statement that they consider the Annual Report and accounts taken as a
whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the entity’s
performance, business model and strategy; and whether the Annual Report appropriately addresses those matters that we
communicated to the Audit Committee that we consider should have been disclosed.
Companies Act
2006 reporting
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have
identified no material misstatements in the Strategic Report or Directors’ Report.
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.
We are required to review:
• the Directors’ statement in relation to going concern, set out on page 163, and longer-term viability, set out on page 22; and
• the part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Listing Rules review
requirements
Statement on the Directors’ Assessment of the Principal Risks that Would Threaten the Solvency or Liquidity of the Entity
ISAs
(UK and Ireland)
reporting
We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:
• the Directors’ confirmation in the Annual Report that they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
• the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated;
• the Directors’ statement in the Financial Statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability
to continue to do so over a period of at least twelve months from the date of approval of the Financial Statements; and
• the Directors’ explanation in the Annual Report as to how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have no
exceptions
to report.
We have no
exceptions
to report.
We have
nothing
material to
add or to draw
attention to.
Sarah Kokot (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor, London
20 February 2017
Independent Auditor’s UK Report
IHG Annual Report and Form 20-F 2016
89
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Independent Auditor’s US Report
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 2016
and 2015, and the related Group statements of income, comprehensive
income, changes in equity and cash flows for each of the three years in
the period ended 31 December 2016. 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 2016 and 2015,
and the consolidated results of its operations and its cash flows for
each of the three years in the period ended 31 December 2016, 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 2016, 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 20 February 2017 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, England
20 February 2017
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 2016, 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 accompanying Management’s report on internal control over
financial reporting. 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 2016, 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 2016 Consolidated Financial Statements of
InterContinental Hotels Group PLC, and our report dated
20 February 2017 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
London, England
20 February 2017
90
IHG Annual Report and Form 20-F 2016
Group Financial Statements
Group Financial Statements
Group income statement
For the year ended 31 December 2016
Revenue
Cost of sales
Administrative expenses
Share of losses of associates and joint
ventures
Other operating income
and expenses
Depreciation and amortisation
Impairment charges
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
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
1,715
(580)
(339)
(2)
9
803
(96)
–
707
6
(93)
620
(186)
434
431
3
434
–
–
(13)
–
–
(13)
–
(16)
(29)
–
–
(29)
12
(17)
(17)
–
(17)
Note
2
2
2
2
2
6
6
7
9
2016
Total
$m
1,715
(580)
(352)
(2)
9
790
(96)
(16)
678
6
(93)
591
(174)
417
414
3
417
195.3¢
193.5¢
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
1,803
(640)
(395)
(3)
11
776
(96)
–
680
5
(92)
593
(180)
–
–
(25)
–
880
855
–
(36)
819
–
–
819
(8)
2015
Total
$m
1,803
(640)
(420)
(3)
891
1,631
(96)
(36)
1,499
5
(92)
1,412
(188)
413
811
1,224
411
2
413
811
–
811
1,222
2
1,224
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
1,858
(741)
(382)
(4)
16
747
(96)
–
651
3
(83)
571
(179)
392
391
1
392
–
–
(101)
–
130
29
–
–
29
–
–
29
(29)
–
–
–
–
520.0¢
513.4¢
2014
Total
$m
1,858
(741)
(483)
(4)
146
776
(96)
–
680
3
(83)
600
(208)
392
391
1
392
158.3¢
156.4¢
Notes on pages 98 to 145 form an integral
part of these Financial Statements.
Group Financial Statements
IHG Annual Report and Form 20-F 2016
91
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP FINANCIAL STATEMENTS CONTINUED
Group statement of comprehensive income
For the year ended 31 December 2016
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 $nil
(2015: $nil, 2014: $1m)
Exchange gains/(losses) on retranslation of foreign operations, net of related tax charge of $3m
(2015: charge of $1m, 2014: credit of $1m)
Fair value gain reclassified to profit on disposal of available-for-sale financial asset
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 $4m
(2015: charge of $4m, 2014: credit of $7m)
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 98 to 145 form an integral
part of these Financial Statements.
2016
$m
417
2015
$m
1,224
2014
$m
392
5
182
(7)
–
180
–
–
–
180
597
594
3
597
2
(2)
–
2
2
9
7
16
18
1,242
1,240
2
1,242
11
42
–
–
53
(18)
2
(16)
37
429
428
1
429
92
IHG Annual Report and Form 20-F 2016
Group Financial Statements
Equity
share
capital
$m
Capital
redemption
reserve
$m
Shares
held by
employee
share trusts
$m
169
–
11
–
(18)
–
Unrealised
gains and
losses
reserve
$m
Currency
translation
reserve
$m
113
–
269
–
Retained
earnings
$m
2,653
414
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
Total equity
$m
309
414
10
3
319
417
Group statement of changes in equity
At 1 January 2016
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 gains on retranslation
of foreign operations
Fair value gain reclassified to profit
on disposal of available-for-sale
financial asset
Total other comprehensive income
for the year
Total comprehensive income
for the year
Transfer of treasury shares
to employee share trusts
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
Transaction costs relating
to shareholder returns
Exchange adjustments
At 31 December 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(28)
141
(2)
9
Other
reserves
$m
(2,888)
–
–
–
–
–
–
–
–
–
–
–
–
–
28
–
–
–
–
–
(24)
(10)
39
–
–
–
–
2
5
–
(7)
(2)
(2)
–
–
–
–
–
–
–
–
–
182
–
182
182
–
–
–
–
–
–
–
–
–
–
–
–
414
24
–
(39)
23
11
5
182
(7)
180
594
–
(10)
–
23
11
–
–
–
–
3
–
–
–
–
–
5
182
(7)
180
597
–
(10)
–
23
11
(1,693)
(1,693)
(5)
(1,698)
(1)
–
(1)
–
–
–
8
(1)
–
(759)
(11)
(2,860)
111
451
1,392
(767)
All items above are shown net of tax.
Notes on pages 98 to 145 form an integral
part of these Financial Statements.
Group Financial Statements
IHG Annual Report and Form 20-F 2016
93
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP FINANCIAL STATEMENTS CONTINUED
Group statement of changes in equity continued
Equity
share
capital
$m
Capital
redemption
reserve
$m
Shares
held by
employee
share trusts
$m
178
–
12
–
(35)
–
Unrealised
gains and
losses
reserve
$m
Currency
translation
reserve
$m
111
–
269
–
Retained
earnings
$m
1,636
1,222
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
At 1 January 2015
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 losses 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
Tax related to pension contributions
Total other comprehensive income
for the year
Total comprehensive income
for the year
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 2015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9)
169
(1)
11
Other
reserves
$m
(2,896)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
–
–
–
–
–
–
–
–
–
(47)
62
–
–
–
2
(725)
1,222
2
(2)
2
2
9
7
16
18
–
24
5
(188)
–
309
2
–
–
2
–
–
–
2
2
–
–
–
–
–
–
–
(2)
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
7
16
16
(62)
24
5
(188)
–
1,238
1,240
–
(47)
Total equity
$m
(717)
1,224
2
(2)
2
2
9
7
16
18
1,242
(47)
–
24
5
(188)
–
319
8
2
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
10
(18)
(2,888)
113
269
2,653
All items above are shown net of tax.
Notes on pages 98 to 145 form an integral
part of these Financial Statements.
94
IHG Annual Report and Form 20-F 2016
Group Financial Statements
Equity
share
capital
$m
Capital
redemption
reserve
$m
Shares
held by
employee
share trusts
$m
189
–
12
–
(38)
–
Unrealised
gains and
losses
reserve
$m
Currency
translation
reserve
$m
100
–
227
–
Retained
earnings
$m
2,334
391
11
–
11
–
–
–
11
11
–
–
–
–
–
–
–
–
–
42
42
–
–
–
42
42
–
–
–
–
–
–
–
–
–
–
–
(18)
2
(16)
(16)
375
(110)
(1)
–
(60)
28
12
(942)
–
Other
reserves
$m
(2,906)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
(82)
391
11
42
53
(18)
2
(16)
37
428
(110)
(1)
(58)
–
28
12
(942)
–
(725)
8
1
–
–
–
–
–
–
–
1
–
–
–
–
–
–
(1)
–
8
Total
equity
$m
(74)
392
11
42
53
(18)
2
(16)
37
429
(110)
(1)
(58)
–
28
12
(943)
–
(717)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(58)
60
–
–
–
1
12
(35)
(2,896)
111
269
1,636
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 gains 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
for the year
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.
Notes on pages 98 to 145 form an integral
part of these Financial Statements.
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(11)
178
Group Financial Statements
IHG Annual Report and Form 20-F 2016
95
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP FINANCIAL STATEMENTS CONTINUED
Group statement of financial position
31 December 2016
ASSETS
Property, plant and equipment
Goodwill and other intangible assets
Investment in associates and joint ventures
Trade and other receivables
Other financial assets
Non-current tax receivable
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Current tax receivable
Other financial assets
Cash and cash equivalents
Total current assets
Total assets
LIABILITIES
Loans and other borrowings
Derivative financial instruments
Loyalty programme liability
Trade and other payables
Provisions
Current tax payable
Total current liabilities
Loans and other borrowings
Retirement benefit obligations
Loyalty programme liability
Trade and other payables
Provisions
Deferred tax liabilities
Total non-current liabilities
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
Signed on behalf of the Board
Paul Edgecliffe-Johnson
20 February 2017
Notes on pages 98 to 145 form an integral
part of these Financial Statements.
96
IHG Annual Report and Form 20-F 2016
Group Financial Statements
Note
12
13
14
16
15
7
16
15
17
2
20
32
18
19
20
25
32
18
19
7
2
27
27
27
27
27
27
27
2016
$m
419
1,292
111
8
248
23
48
2,149
3
472
77
20
206
778
2,927
(106)
(3)
(291)
(681)
(3)
(50)
(1,134)
(1,606)
(96)
(394)
(200)
(5)
(251)
(2,552)
(3,686)
(759)
141
9
(11)
2015
$m
428
1,226
136
3
284
37
49
2,163
3
462
4
–
1,137
1,606
3,769
(427)
(3)
(223)
(616)
(15)
(85)
(1,369)
(1,239)
(129)
(426)
(152)
–
(135)
(2,081)
(3,450)
319
169
11
(18)
(2,860)
(2,888)
111
451
1,392
(767)
8
(759)
113
269
2,653
309
10
319
Group statement of cash flows
For the year ended 31 December 2016
Profit for the year
Adjustments reconciling profit for the year to cash flow from operations
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 associates and joint ventures
Loan advances to associates and joint ventures
Investment in other financial assets
Acquisition of business, net of cash acquired
Capitalised interest paid
Disposal of hotel assets, net of costs and cash disposed
Repayments related to intangible assets
Loan repayments by associates and joint ventures
Proceeds from associates and joint ventures
Repayments of other financial assets
Tax paid on disposals
Net cash from investing activities
Cash flow from financing activities
Purchase of own shares
Purchase of own shares by employee share trusts
Dividends paid to shareholders
Dividend paid to non-controlling interest
Transaction costs relating to shareholder returns
Issue of long-term bonds
Other new borrowings
Long-term bonds repaid
New borrowings repaid
Increase/(decrease) in other borrowings
Proceeds from foreign exchange swaps
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 98 to 145 form an integral
part of these Financial Statements.
Note
24
24
7
10
7
2016
$m
417
536
953
(75)
4
(130)
752
(32)
(175)
(14)
(2)
(13)
–
(5)
(5)
3
–
2
25
–
2015
$m
1,224
(414)
810
(75)
2
(109)
628
(42)
(157)
(30)
(25)
(28)
(438)
(4)
2014
$m
392
361
753
(76)
2
(136)
543
(84)
(162)
(15)
(3)
(5)
–
(2)
1,277
345
–
22
9
6
(1)
(216)
589
–
(10)
8
(1,693)
(5)
(1)
459
–
(315)
–
109
–
–
(1,456)
(920)
1,098
(61)
117
17
17
–
(47)
(188)
–
–
458
400
–
(400)
(355)
22
–
(110)
1,107
55
(64)
1,098
–
–
–
49
–
123
(110)
(68)
(942)
(1)
(1)
–
–
–
–
382
–
4
(736)
(70)
134
(9)
55
Group Financial Statements
IHG Annual Report and Form 20-F 2016
97
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY 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.
The Consolidated Financial Statements of InterContinental Hotels
Group PLC (the Group or IHG) for the year ended 31 December 2016
were authorised for issue in accordance with a resolution of the
Directors on 20 February 2017. InterContinental Hotels Group PLC
(the Company) is incorporated and domiciled in Great Britain and
registered in England and Wales.
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.
With effect from 1 January 2016, the Group has adopted amendments
to existing standards arising from the Annual Improvements to IFRSs
2012–2014 cycle, 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 adoption of these amendments has had
no impact on the Group’s financial performance or position.
The Group also adopted Amendments to IAS 1 ‘Disclosure Initiative’
during the year, resulting in the presentation of the loyalty programme
liability separately on the statement of financial position and the
separate presentation of deferred revenue in note 18.
Presentational currency
The Consolidated Financial Statements are presented in millions
of US dollars reflecting the profile of the Group’s revenue and
operating profit which are primarily generated in US dollars or
US dollar-linked currencies.
In the Consolidated Financial Statements, 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 is 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 (ie 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 2016, the trust had assets with a fair value of $161m
(2015: $148m).
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 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.
98
IHG Annual Report and Form 20-F 2016
Group Financial Statements
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’.
Business combinations and goodwill
On the acquisition of a business, identifiable assets and liabilities
acquired are measured at their fair value. Contingent liabilities
assumed are measured at fair value unless this cannot be measured
reliably, in which case they are not recognised but are disclosed in
the same manner as other contingent liabilities. The measurement of
deferred tax assets and liabilities arising on acquisition is as described
in the general principles detailed within the ‘Taxes’ accounting policy
note on page 101 with the exception that no deferred tax is provided
on taxable temporary differences in connection with the initial
recognition of goodwill.
Goodwill is recorded at cost, being the difference between the fair
value of the consideration and the fair value of net assets acquired.
Following initial recognition, goodwill is measured at cost less any
accumulated impairment losses and is not amortised.
Goodwill is tested for impairment at least annually by comparing
carrying values of cash-generating units with their recoverable
amounts. Impairment losses relating to goodwill cannot be
subsequently reversed.
Transaction costs are expensed and are not included in the cost
of acquisition.
Intangible assets
Brands
Externally acquired brands are initially recorded at cost if separately
acquired or fair value if acquired as part of a business combination,
provided the brands are controlled through contractual or other legal
rights, or are separable from the rest of the business, and the fair
value can be reliably measured. Brands are amortised over their
estimated useful lives (and tested for impairment if there are indicators
of impairment) or tested for impairment at least annually if determined
to have indefinite lives.
The costs of developing internally generated brands are expensed
as incurred.
Management contracts
Management contracts acquired as part of a business combination
are initially recorded at the fair value attributed to those contracts
on acquisition.
When hotel 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.
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.
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, being the full contractual term,
up to a maximum of 50 years.
Intangible assets are reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be recoverable.
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.
Accounting policies
IHG Annual Report and Form 20-F 2016
99
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS ACCOUNTING POLICIES CONTINUED
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.
If there is objective evidence that an associate or joint venture
is impaired, an impairment charge is recognised if the carrying
amount of the investment exceeds its recoverable amount.
Upon loss of significant influence over an associate or joint control of
a joint venture, any retained investment is measured at fair value with
any difference to carrying value recognised in the income statement.
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.
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 these 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.
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.
Changes in the fair value of derivatives which have either not been
designated as hedging instruments or relate to the ineffective portion
of hedges are recognised immediately in the income statement.
Documentation outlining the measurement and effectiveness
of any hedging arrangement 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.
100
IHG Annual Report and Form 20-F 2016
Group Financial Statements
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.
Retirement benefits
Defined contribution plans
Payments to defined contribution schemes are charged to the income
statement as they fall due.
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.
An onerous contract provision is recognised when the unavoidable
costs of meeting the obligations under a contract exceed the economic
benefits expected to be received under it.
In respect of litigation, provision is made when management consider
it probable that payment may occur even though the defence of the
related claim may still be ongoing through the court process.
Taxes
Current tax
Current income tax assets and liabilities for the current and prior
periods are measured at the amount expected to be recovered from, or
paid to, the tax authorities, including interest. The tax rates and tax laws
used to compute the amount are those that are enacted or substantively
enacted 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.
Judgement is used when assessing the extent to which deferred tax
assets, particularly in respect of tax losses, should be recognised.
Deferred tax assets are therefore recognised to the extent that it is
regarded as probable that there will be sufficient and suitable taxable
profits (including the future release of deferred tax liabilities) in the
relevant legal entity or tax group against which such assets can be
utilised in the future. For this purpose, forecasts of future taxable
profits are considered by assessing the Group’s forecast revenue
and profit models, taking into account future growth predictions and
operating cost assumptions. Accordingly, changes in assumptions
to the Group’s forecasts may have an impact on the amount of future
taxable profits and therefore the period over which any deferred
tax assets might be recovered.
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.
Where deferred tax assets and liabilities arise in the same entity or
group of entities and there would be a legal right to offset the assets
and liabilities were they to reverse, the assets and liabilities are also
offset on the Group statement of financial position. Similarly, if there
is no legal right to offset assets against liabilities, the assets and
liabilities are not offset.
Defined benefit plans
Plan assets are measured at fair value and plan liabilities are
measured on an actuarial basis, using the projected unit credit method
and discounting at an interest rate equivalent to the current rate of
return on a high-quality corporate bond of equivalent currency and term
to the plan liabilities. The difference between the value of plan assets
and liabilities at the period-end date is the amount of surplus or deficit
recorded in the statement of financial position as an asset or liability.
An asset is recognised when the employer has an unconditional right
to use the surplus at some point during the life of the plan or on
its wind-up.
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 ‘administrative 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 carried out on a regular basis 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.
Accounting policies
IHG Annual Report and Form 20-F 2016
101
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS ACCOUNTING POLICIES CONTINUED
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.
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.
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:
other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either
directly or indirectly.
Level 3:
techniques which use inputs which have a significant effect
on the recorded fair value that are not based on observable
market data.
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
the financial performance of the Group and its regional operating
segments. Exceptional items can include, but are not restricted to,
gains and losses on the disposal of assets, impairment charges and
reversals and restructuring costs.
102
IHG Annual Report and Form 20-F 2016
Group Financial Statements
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 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 (other than for Kimpton and InterContinental
hotels) 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 Guest
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.
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 before they expire by the redemption cost
per point. On an annual basis the Group engages an external actuary
who uses statistical formulae to assist in the estimate of the number
of points that will never be redeemed (‘breakage’).
Following the introduction of a points expiration policy in 2015,
breakage has become more judgemental due to there being limited
historical data on the impact of such a change. 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.
At 31 December 2016, the future redemption liability was $685m
(2015: $649m). Based on the conditions existing at the balance sheet
date, a one percentage point decrease in the breakage estimate
would increase this liability by approximately $9m.
Impairment testing – intangible assets with definite useful lives, and
property, plant and equipment are tested for impairment when events or
circumstances indicate that their carrying value may not be recoverable.
Goodwill and intangible assets with indefinite useful lives are 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. Associates and joint
ventures are tested for impairment when there is objective evidence
that they might be impaired.
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 2016, the Group had goodwill of $232m (2015: $233m)
and brands of $193m (2015: $193m), both of which are subject to annual
impairment testing. Information on the impairment tests performed is
included in note 13.
At 31 December 2016, the Group also had property, plant and equipment,
other intangible assets and investments in associates and joint ventures
with a net book value of $419m, $867m and $111m (2015: $428m, $800m
and $136m) respectively. In 2016, an impairment charge of $16m was
recognised in relation to an associate investment as described in detail
in note 14. In respect of those other 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 a further impairment charge of $18m.
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 an 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.
Accounting policies
IHG Annual Report and Form 20-F 2016
103
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS ACCOUNTING POLICIES CONTINUED
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 Financial Statements.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 introduces a new five-step approach to measuring and
recognising revenue from contracts with customers and will be
adopted by the Group with effect from 1 January 2018. Under IFRS 15,
revenue is recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for transferring
goods or services to a customer.
Management are continuing to assess the impact of IFRS 15 and have
reached initial conclusions on all key implementation issues, with the
exception of accounting for the Group’s loyalty programme. Based on
the work completed to date and excluding the loyalty programme, the
key impacts are expected to be as follows:
1. System Fund reservation and marketing assessments
Under IFRS 15, an entity is a principal if it controls a service prior to
transfer to the customer. As reservations and marketing expenses
currently recognised in the System Fund primarily comprise payroll
and marketing expenses under contracts entered into by the Group,
management have determined that the Group controls these
services. Assessment fees will therefore be shown as revenue
with a corresponding matching expense, representing the obligation
to spend funds for the benefit of the System. Whilst this will result in
the reporting of significant additional revenue and costs, there will
be no profit impact.
2. Employee cost reimbursements
Under IFRS 15, the provision of employees to managed hotels is
not considered to be a service that is distinct from the general hotel
management service. Reimbursements for the costs of IHG employees
working in managed hotels will therefore be shown as revenue with
an equal matching cost, with no profit impact.
Under current accounting policies, no revenue is recorded in the
Group income statement for either of 1 or 2.
3. Initial franchise and re-licensing fees
Under current accounting, application and re-licensing fees are
recognised as revenue when billed as the monies received are not
refundable and IHG has no further obligations to satisfy. Under IFRS 15,
there is a requirement to consider whether the payment of these fees
transfers a distinct good or service to the customer that is separate
from the promise to provide franchise services. As this is not the
case, IFRS 15 requires initial franchise and re-licensing fees to be
recognised over the life of the related contract. The spreading of
these fees is expected to result in a reduction to revenue and
operating profit, and the recognition of deferred revenue on the
balance sheet, reflecting the profile of increasing amounts received
in recent years. In a period when application and re-licensing fees
are constant from year to year, this accounting change would not be
expected to have a material profit impact.
4. Amounts paid to hotel owners to secure management contracts
and franchise agreements
Under current accounting, key money payments are capitalised as
intangible assets and amortised over the life of the related contracts.
Under IFRS 15, these payments are treated as ‘consideration payable
to a customer’ and therefore recognised as a deduction to revenue
over the contract term. This change is not expected to have a material
impact on reported results but will result in the reporting of higher
operating margins and lower EBITDA.
5. Owned hotel disposals subject to a management contract
Under current accounting, when hotels are sold and the Group retains
management of the hotel, the consideration recognised includes both
the cash received and the fair value of the management contract which
is capitalised as an intangible asset and subsequently amortised to
the income statement. This accounting is governed by the ‘exchange
of assets’ criteria included in IAS 16 ‘Property, Plant and Equipment’
and IAS 38 ‘Intangible Assets’. IFRS 15 specifically includes property
sales in its scope and results in the sales consideration being recorded
at the fair value of the encumbered hotel, which generally will be
equivalent to the cash received. This change is expected to result in
the de-recognition of historic intangible asset balances and a lower
amortisation charge in the income statement.
6. Presentation and disclosure
The presentation and disclosure requirements of IFRS 15 represent a
significant change from current practice and will increase the volume
of disclosures required in the notes to the financial statements.
The Group plans to apply the full retrospective approach when
transitioning to the new standard which will result in restated
comparatives for 2017 and 2016 on the basis that IFRS 15 had
always applied.
The Group is currently in the process of quantifying the financial
impacts of the above adjustments which are expected to result in
the reporting of significantly higher revenues (of at least $1.6bn)
and an immaterial reduction in operating profit. Resolution of
loyalty programme accounting could result in the reporting of
additional revenue but is not expected to have any further impact
on operating profit.
104
IHG Annual Report and Form 20-F 2016
Group Financial Statements
IFRS 9 ‘Financial Instruments’
IFRS 9, which will be adopted by the Group with effect from 1 January
2018, introduces new requirements for classification and measurement
of financial assets and financial liabilities, impairment and hedge
accounting. Management have made good progress with their
assessment of the impact of IFRS 9 and currently do not expect
there to be a material financial impact on the financial statements.
The new rules for hedge accounting will be applied prospectively in
line with the requirements of the standard.
IFRS 16 ‘Leases’
The Group plans to adopt IFRS 16 with effect from 1 January 2019.
The standard eliminates the classification of leases as either operating
or finance leases and introduces a single accounting model. Lessees will
be required to recognise assets and liabilities in respect of the minimum
lease payment for all leases with a term of more than 12 months, and
show depreciation of leased assets and interest on lease liabilities
separately in the income statement. IFRS 16 will require the Group to
recognise substantially all of its current operating lease commitments
on the balance sheet and the financial impact of this, together with other
implications of the standard, are currently being assessed.
Other
From 1 January 2017, the Group will apply Amendments to IAS 7
‘Disclosure Initiative’ which requires an entity to provide disclosures
around the nature of changes in liabilities arising from financing
activities. Application of these amendments is expected to result in
additional disclosures in the notes to the Group Financial Statements
but will not affect the reported performance or financial position of
the Group.
From 1 January 2018, the Group will apply Amendments to
IFRS 2 ‘Classification and Measurement of Share-Based Payment
Transactions’. The amendments address the effects of vesting
conditions on the measurement of cash-settled share-based payment
transactions; the classification of a share-based payment transaction
with net settlement features for withholding tax obligations and
accounting where a modification to the terms and conditions of a
share-based payment transaction changes its classification from
cash-settled to equity-settled. Adoption of this amendment is not
expected to have a material impact on the financial statements.
Accounting policies
IHG Annual Report and Form 20-F 2016
105
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Notes to the Group Financial Statements
1. Exchange rates
The results of operations have been translated into US dollars at the average rates of exchange for the year. In the case of sterling, the translation
rate is $1=£0.74 (2015: $1=£0.65, 2014: $1=£0.61). In the case of the euro, the translation rate is $1=€0.90 (2015: $1=€0.90, 2014: $1=€0.75).
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=£0.81 (2015: $1=£0.68, 2014: $1=£0.64). In the case of the euro, the translation rate is $1=€0.95 (2015: $1=€0.92, 2014: $1=€0.82).
2. Segmental information
The management of the Group’s operations, excluding Central functions, is organised within four geographical regions:
• The 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 programme liability and the cumulative System
Fund surplus.
Each of the geographical regions is led by its own Chief Executive Officer and derives its revenues from either franchising, managing or owning
hotels and additional segmental disclosures are provided accordingly.
Management monitors the operating results of the geographical regions and Central functions separately for the purpose of making decisions
about resource allocation and performance assessment. Segmental performance is evaluated based on operating profit or loss and is measured
consistently with operating profit or loss in the Consolidated Financial Statements, excluding exceptional items. Group financing activities and
income taxes are managed on a group basis and are not allocated to reportable segments.
Year ended 31 December 2016
Revenue
Franchised
Managed
Owned and leased
Central
Segmental result
Franchised
Managed
Owned and leased
Regional and central
Reportable segments’ operating profit
Exceptional items (note 5)
Operating profit
Reportable segments’ operating profit
Exceptional items (note 5)
Operating profit
Net finance costs
Profit before tax
Tax
Profit for the year
All items above relate to continuing operations.
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
685
172
136
–
993
102
125
–
–
227
16
184
37
–
237
3
114
–
–
117
–
–
–
141
141
806
595
173
141
1,715
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
600
64
24
(55)
633
(29)
604
78
22
–
(25)
75
–
75
12
89
2
(21)
82
–
82
3
64
–
(22)
45
–
45
–
–
–
(128)
(128)
–
(128)
693
239
26
(251)
707
(29)
678
Group
$m
707
(29)
678
(87)
591
(174)
417
106
IHG Annual Report and Form 20-F 2016
Group Financial Statements
2. Segmental information continued
31 December 2016
Assets and liabilities
Segment assets
Unallocated assets:
Non-current tax receivable
Deferred tax assets
Current tax receivable
Cash and cash equivalents
Total assets
Segment liabilities
Unallocated liabilities:
Current tax payable
Deferred tax liabilities
Derivative financial instruments
Loans and other borrowings
Total liabilities
Year ended 31 December 2016
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(profits) of associates and joint ventures
Impairment charges
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
1,417
321
249
147
439
2,573
23
48
77
206
2,927
(438)
(128)
(68)
(39)
(997)
(1,670)
(50)
(251)
(3)
(1,712)
(3,686)
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
67
25
–
7
16
15
10
–
–
–
7
5
–
(5)
–
1
3
–
–
–
148
238
53
17
–
–
96
17
2
16
a Included in the $96m of depreciation and amortisation is $54m relating to administrative expenses and $42m relating to cost of sales.
Reconciliation of capital expenditure
Capital expenditure per management reporting
Timing differences and other adjustments
Additions per the Financial Statements
Comprising additions to:
Property, plant and equipment
Intangible assets
Investment in associates and joint ventures
Other financial assets
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
67
1
68
13
36
14
5
68
15
–
15
–
15
–
–
15
7
(1)
6
2
2
–
2
6
1
(1)
–
–
–
–
–
–
148
(7)
141
14
127
–
–
141
238
(8)
230
29
180
14
7
230
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
107
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 2. Segmental information continued
Year ended 31 December 2015
Revenue
Franchised
Managed
Owned and leased
Central
Segmental result
Franchised
Managed
Owned and leased
Regional and central
Reportable segments’ operating profit
Exceptional items (note 5)
Operating profit
Reportable segments’ operating profit
Exceptional items (note 5)
Operating profit
Net finance costs
Profit before tax
Tax
Profit for the year
All items above relate to continuing operations.
31 December 2015
Assets and liabilities
Segment assets
Unallocated assets:
Non-current tax receivable
Deferred tax assets
Current tax receivable
Cash and cash equivalents
Total assets
Segment liabilities
Unallocated liabilities:
Current tax payable
Deferred tax liabilities
Derivative financial instruments
Loans and other borrowings
Total liabilities
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
661
166
128
–
955
104
131
30
–
265
16
189
36
–
241
4
105
98
–
207
–
–
–
135
135
Group
$m
785
591
292
135
1,803
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
575
64
24
(66)
597
(41)
556
77
28
1
(28)
78
175
253
12
90
3
(19)
86
(2)
84
5
59
29
(23)
70
698
768
–
–
–
(151)
(151)
(11)
(162)
669
241
57
(287)
680
819
1,499
Group
$m
680
819
1,499
(87)
1,412
(188)
1,224
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
1,355
383
260
148
396
2,542
37
49
4
1,137
3,769
(449)
(156)
(76)
(46)
(834)
(1,561)
(85)
(135)
(3)
(1,666)
(3,450)
108
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 2. Segmental information continued
Year ended 31 December 2015
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(profits) of associates and joint ventures
Impairment charges
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
87
23
–
5
27
45
10
–
–
–
8
6
–
(2)
9
4
8
–
–
–
118
262
49
19
–
–
96
19
3
36
a Included in the $96m of depreciation and amortisation is $50m relating to administrative expenses and $46m relating to cost of sales.
Reconciliation of capital expenditure
Capital expenditure per management reporting
Management contracts acquired on disposal of hotels
Timing differences and other adjustments
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
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 items (note 5)
Operating profit
Reportable segments’ operating profit
Exceptional items (note 5)
Operating profit
Net finance costs
Profit before tax
Tax
Profit for the year
All items above relate to continuing operations.
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
87
–
(5)
82
19
–
25
30
8
82
45
33
–
78
–
–
64
–
14
78
8
–
–
8
1
–
4
–
3
8
4
64
–
68
1
2
65
–
–
68
118
–
–
118
21
–
97
–
–
118
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
630
103
138
–
871
104
159
111
–
374
16
187
39
–
242
4
99
139
–
242
–
–
–
129
129
262
97
(5)
354
42
2
255
30
25
354
Group
$m
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
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
109
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 2. Segmental information continued
Year ended 31 December 2014
Other segmental information
Capital expenditure
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(profits) of associates and joint ventures
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
a Included in the $96m of depreciation and amortisation is $41m relating to administrative expenses and $55m relating to cost of sales.
Geographical information
Revenue
United Kingdom
United States
People’s Republic of China (including Hong Kong)
Rest of World
Year ended
31 December
2016
$m
Year ended
31 December
2015
$m
Year ended
31 December
2014
$m
66
923
133
593
67
876
223
637
75
786
254
743
1,715
1,803
1,858
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
Rest of World
31 December
2016
$m
31 December
2015
$m
105
1,343
382
1,830
126
1,265
402
1,793
For the purposes of the above table, non-current assets comprise property, plant and equipment, goodwill and other intangible assets,
investments in associates and joint ventures and non-current 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.
110
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 3. Staff costs and Directors’ emoluments
Staff
Costs:
Wages and salaries
Social security costs
Pension and other post-retirement benefits:
Defined benefit plans (note 25)
Defined contribution plans
Average number of employees, including part-time employees:
Americas
Europe
Asia, Middle East and Africa
Greater China
Central
2016
$m
2015
$m
2014
$m
537
29
5
23
594
562
33
5
28
628
577
42
10
28
657
2016
2015
2014
2,121
782
1,598
299
1,787
6,587
2,082
1,041
1,658
865
1,665
7,311
2,191
1,557
1,451
1,092
1,506
7,797
The costs of the above employees are borne by IHG. Of these, 89% were employed on a full-time basis and 11% 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 General Managers and, in the US predominantly, other hotel workers who
work in the managed hotels and who have contracts or letters of service with IHG. The total number of these employees is 22,002 (2015: 20,452,
2014: 12,450) and their costs of $1,002m (2015: $936m, 2014: $591m) are borne by those hotels.
Directors’ emoluments
Base salaries, fees, performance payments and benefitsa
Pension benefits under defined contribution plans
a In 2014, excludes ICETUS cash-out payment of £9.4m.
More detailed information on the emoluments, pensions, share awards and shareholdings
for each Director is shown in the Directors’ Remuneration Report on pages 64 to 81.
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.
2016
$m
6.1
–
2016
$m
2.4
2.2
0.2
1.2
0.4
0.1
0.1
6.6
2015
$m
7.9
–
2015
$m
2.5
2.1
0.2
0.9
0.2
0.1
0.4
6.4
2014
$m
9.0
0.2
2014
$m
2.4
2.0
0.2
0.9
0.2
0.3
0.1
6.1
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
111
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 5. Exceptional items
Exceptional items before tax
Administrative expenses:
Kimpton integration costs
Venezuelan currency losses
Reorganisation costs
Corporate development costs
Kimpton acquisition costs
Pension settlement cost
UK portfolio restructuring
Other operating income and expenses:
Gain on disposal of hotels (note 11)
Gain on disposal of investment in associate (note 14)
Impairment charges:
Associates (note 14)
Property, plant and equipment (note 12)
Tax
Tax on exceptional items
All items above relate to continuing operations.
The above items are treated as exceptional by reason of
their size or nature, as further described on page 102.
Note
2016
$m
2015
$m
2014
$m
a
b
c
d
e
f
g
(13)
–
–
–
–
–
–
(10)
(4)
(6)
(5)
–
–
–
(13)
(25)
–
–
–
(16)
–
(16)
(29)
871
9
880
(9)
(27)
(36)
819
–
(14)
(29)
–
(7)
(6)
(45)
(101)
130
–
130
–
–
–
29
h
12
(8)
(29)
a Relates to the cost of integrating Kimpton into the operations of the Group. The integration programme remains in progress and will be substantially completed in 2017.
b Arose from changes to the Venezuelan exchange rate mechanisms and the adoption of the SIMADI exchange rate in 2015 and the SICAD II exchange rate in 2014, these being the most
accessible exchange rates open to the Group for converting its bolivar earnings into US dollars. The exceptional losses arose from the re-measurement of the Group’s bolivar assets and
liabilities to the relevant exchange rates, being approximately $1=190VEF on adoption of SIMADI and approximately $1=50VEF on adoption of SICAD II. Subsequent changes to the exchange
rate mechanism have not resulted in material losses.
c Related to the implementation of more efficient processes and procedures in the Group’s Global Technology infrastructure to help mitigate future cost increases, together with, in 2014,
costs incurred in introducing a new HR operating model across the business to provide enhanced management information and more efficient processes. These restructuring programmes
have now been completed.
d Primarily legal costs related to development opportunities.
e Related 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 10).
f Resulted from a partial cash-out of the UK unfunded pension arrangements. See note 25 for further details.
g Related to the costs of securing a restructuring of the UK hotel portfolio which resulted in the transfer of 61 managed hotels to franchise contracts.
h In 2016, comprises a $6m deferred tax credit in respect of the associate investment impairment, a $5m deferred tax credit representing future tax relief on Kimpton integration costs and $1m
credit in respect of other items. In 2015, comprised a charge of $56m relating to disposal of hotels, a credit of $21m in respect of the 2014 disposal of an 80.1% interest in InterContinental New
York Barclay reflecting the judgement that state tax law changes would now apply to the deferred gain, and credits of $27m for current and deferred tax relief on other operating exceptional
items of current and prior periods. In 2014, the charge comprised $56m relating to the disposal of an 80.1% 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.
112
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 6. Finance costs
Financial income
Interest income on deposits
Interest income on loans and receivables
Financial expenses
Interest expense on borrowings
Finance charge payable under finance leases
Capitalised interest
2016
$m
2015
$m
2014
$m
3
3
6
74
20
(1)
93
2
3
5
74
20
(2)
92
2
1
3
66
19
(2)
83
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 $3m (2015: $2m, 2014: $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 3.8% (2015: 3.4%, 2014: 4.4%).
7. Tax
Tax on profit
Income tax
UK corporation tax at 20.00% (2015: 20.25%, 2014: 21.50%):
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 and tax laws
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:
Tax on exceptional items (note 5)
Note
2016
$m
2015
$m
2014
$m
a
b
c
a
d
10
(7)
(1)
2
151
–
(97)
54
56
55
(2)
(25)
90
118
174
186
(12)
174
7
–
(17)
(10)
196
(1)
(27)
168
158
60
(21)
(13)
4
30
188
180
8
188
5
–
2
7
156
(2)
(26)
128
135
68
2
1
2
73
208
179
29
208
All items above relate to continuing operations.
a In 2016, includes $83m in respect of a change in tax treatment being approved by the US tax authority.
b In 2015, predominantly reflected the judgement that state tax law changes would now apply to the deferred gain from the 2014 disposal of InterContinental New York Barclay.
c In 2015 and 2016, represents a reassessment of the recovery of recognised and off-balance sheet deferred tax assets in line with the Group's profit forecasts.
d This includes $156m (2015: $116m, 2014: $144m) in respect of US taxes.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
113
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 7. Tax continued
Reconciliation of tax charge, including gain on disposal of assets
UK corporation tax at standard rate
Tax credits
Differences in tax gains and accounting gains on asset disposals
Other permanent differences
Non-recoverable withholding taxes
Net effect of different rates of tax in overseas businessesc
Effect of changes in tax rates and tax lawsd
Benefit of tax reliefs on which no deferred tax previously recognised
Effect of adjustments to estimated recoverable deferred tax assets
Adjustment to tax charge in respect of prior periods
Other
2016
%
20.0
(2.4)
–
3.8
0.7
13.7
0.4
(1.2)
(4.3)
(1.3)
–
29.4
2015
%
20.3
(0.2)
(9.8)
1.1
0.1
7.1
(1.5)
(0.1)
(0.9)
(2.8)
0.1
13.4
Totala
2014
%
21.5
(0.3)
3.2
2.0
0.4
11.5
0.3
(0.4)
0.2
(3.7)
–
34.7
Before exceptional itemsb
2016
%
20.0
(2.2)
–
3.6
0.7
13.9
0.3
(1.1)
(4.1)
(1.1)
–
30.0
2015
%
20.3
(0.4)
–
2.0
0.3
15.3
0.1
(0.1)
(1.7)
(5.4)
–
30.4
2014
%
21.5
(0.3)
–
1.3
0.4
12.8
0.1
(0.3)
(0.2)
(3.9)
–
31.4
a Calculated in relation to total profits including exceptional items.
b Calculated in relation to profits excluding exceptional items.
c Before exceptional items includes 12.6%pt (2015: 13.5%pt, 2014: 12.2%pt) in connection with the US.
d In 2015, total of (1.5)% predominantly reflects the judgement that state tax law changes would now apply to the deferred gain from the 2014 disposal of InterContinental New York Barclay.
Tax paid
Total net tax paid during the year of $130m (2015: $110m, 2014: $136m) comprises $130m (2015: $109m, 2014: $136m) paid in respect of operating
activities and $nil (2015: $1m, 2014: $nil) paid in respect of investing activities.
A reconciliation of tax paid to the total tax charge in the income statement follows:
Current tax charge in the income statement
Current tax charge in the statement of comprehensive income
Current tax charge taken directly to equity
Total current tax charge
Movements to tax contingencies within the income statement
Timing differences of cash tax paid and foreign exchange differences
Tax paid per cash flow
Cash tax rate on total profits
Note
a
b
c
2016
$m
56
(12)
(8)
36
11
83
130
22%
2015
$m
158
(2)
(8)
148
(7)
(31)
110
8%
2014
$m
135
(3)
(9)
123
(18)
31
136
23%
a Tax contingency movements are included within the current tax charge but do not impact cash tax paid in the year.
b The timing difference in 2016 is predominantly in respect of the US where the payment regulations have resulted in a large overpayment in the year.
c Calculated as total cash paid divided by total accounting profit.
The cash tax rate of 8% for 2015 is low owing to the impact of exceptional accounting gains taxable on a deferred basis, without which the rate
would have been 20% and thus broadly consistent with the cash tax rates for 2014 and 2016.
Material corporation tax liabilities did not arise in 2016 in the UK due to availability of brought forward tax losses. These losses arose principally
due to employment matters, in particular additional shortfall contributions made to the UK pension plan in the years 2007 to 2013. Rules
restricting UK loss usage have been announced, but are not yet enacted. These rules will likely increase the amount of UK cash tax paid in
the near future, although this is not expected to be significant in the context of the Group’s cash tax payable.
Current Tax
Within current tax payable is $39m (2015: $63m) in respect of uncertain tax positions and offset against current tax receivable there is $5m
(2015: $nil) in respect of uncertain tax positions.
The calculation of the Group’s total tax charge involves consideration of applicable tax laws and regulations in many jurisdictions throughout
the world. From time to time, the Group is subject to tax audits and uncertainties in these jurisdictions. The issues involved can be complex
and disputes may take a number of years to resolve.
Where the interpretation of local tax law is not clear, management relies on judgement and accounting estimates to ensure all uncertain tax
positions are adequately provided for in the Group Financial Statements. This may involve consideration of some or all of the following factors:
• strength of technical argument, impact of case law and clarity of legislation;
• professional advice;
• experience of interactions, and precedents set, with the particular taxing authority; and
• agreements previously reached in other jurisdictions on comparable issues.
The largest single item within the balance does not exceed $8m (2015: $20m).
114
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 7. Tax continued
Deferred tax
At 1 January 2015
Income statement
Statement of comprehensive income
Statement of changes in equity
Assets of business sold
Exchange and other adjustments
At 31 December 2015
Income statement
Statement of comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2016
Property,
plant and
equipment
$m
Deferred
gains on
loan notes
$m
Deferred
gains on
investments
$m
174
18
–
–
(88)
(5)
99
22
–
–
(1)
120
105
(50)
–
–
–
–
55
(3)
–
–
–
52
108
(21)
–
–
–
–
87
(9)
–
–
–
78
Losses
$m
(154)
62
–
–
21
4
(67)
19
–
–
4
(44)
Employee
benefits
$m
Intangible
assets
$m
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differencesa
$m
(41)
6
(2)
–
1
4
(32)
(3)
12
–
(4)
(27)
52
22
–
–
–
(4)
70
(7)
–
–
(3)
60
44
29
–
–
–
(3)
70
–
–
–
(11)
59
(162)
(36)
–
3
–
(1)
(196)
99
(1)
(3)
6
(95)
Total
$m
126
30
(2)
3
(66)
(5)
86
118
11
(3)
(9)
203
a Primarily relates to provisions, accruals, amortisation and share-based payments.
Deferred gains on investments represent taxable gains which would crystallise upon a sale of a related joint venture, associate or other equity
investment. Deferred gains on loan notes includes $52m (2015: $55m) which is expected to fall due for payment in 2025 (2015: 2025). The deferred
tax asset recognised in respect of losses of $44m (2015: $67m) is wholly in respect of revenue losses. Deferred tax assets of $nil (2015: $nil) are
recognised in relation to legal entities which suffered a tax loss in the current or preceding period. Within deferred tax liabilities is $10m (2015:
$10m) in respect of uncertain tax positions and offset against deferred tax assets is $2m (2015: $nil) in respect of uncertain tax positions.
The closing balance is further analysed by key territory as follows:
UK
US
Other
Property,
plant and
equipment
$m
Deferred
gains on
loan notes
$m
Deferred
gains on
investments
$m
(4)
125
(1)
120
–
52
–
52
–
78
–
78
Losses
$m
Employee
benefits
$m
Intangible
assets
$m
(19)
(10)
(15)
(44)
(5)
(21)
(1)
(27)
–
44
16
60
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differences
$m
–
59
–
59
(2)
(109)
16
(95)
Total
$m
(30)
218
15
203
The analysis of the deferred tax balance after considering the offset of assets and liabilities within entities where there is a legal right to do so is
as follows:
Analysed as:
Deferred tax assets
Deferred tax liabilities
2016
$m
(48)
251
203
2015
$m
(49)
135
86
The Group does not recognise deferred tax assets if it cannot anticipate being able to offset them against future profits or gains. The total
unrecognised deferred tax position is as follows:
Revenue losses
Capital losses
Total losses
Employee benefits
Othera
Total
a Primarily relates to provisions, accruals, amortisation and share-based payments.
2016
$m
518
475
993
–
27
1,020
Gross
2015
$m
257
561
818
23
153
994
Unrecognised
deferred tax
2016
$m
94
83
177
–
5
182
2015
$m
47
114
161
5
28
194
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
115
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
7. Tax continued
There is no expiry date to any of the above unrecognised assets other than for the losses as shown in the table below:
Expiry date:
2016
2020
2021
2022
2023
After 2023
2016
$m
–
3
27
11
3
125
Gross
2015
$m
38
4
28
12
2
–
Unrecognised
deferred tax
2016
$m
2015
$m
–
1
7
3
1
25
9
1
7
3
1
–
The Group has provided deferred tax of $59m (2015: $70m) in relation to temporary differences associated with post-acquisition undistributed
earnings of subsidiaries 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. No deferred tax liability has been recognised in respect of a further $90m (2015: $70m) of undistributed earnings of
subsidiaries because the Group is in a position to control the timing of the reversal of these temporary differences and it is probable that such
differences will not reverse in the foreseeable future. The remaining unprovided liability that would arise on the reversal of these temporary
differences is not expected to exceed $15m (2015: $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 44.
Factors that may affect the future tax charge
Many factors will affect the Group’s future tax rate, the key ones being future legislative developments, future profitability of underlying
subsidiaries and tax uncertainties.
There are many potential future changes to worldwide taxation systems as a result of the potential adoption by individual territories
of recommendations of the OECD’s Base Erosion and Profit Shifting project, and other similar initiatives being driven by governments
and tax authorities. The Group continues to monitor activity in this area.
The new US administration has indicated wide-ranging reform of the taxation system including significant cuts in the US headline rate;
the Group will assess the impact of this when solid proposals are announced by the relevant US authorities.
Rules restricting UK loss usage and interest deductibility have been announced, but are not yet enacted. These rules will likely increase the
amount of UK cash tax paid in the near future, although this is not expected to be significant in the context of the Group’s cash tax payable.
The forthcoming reductions to the UK corporation tax rate (to 19%, effective 1 April 2017 and to 17%, effective 1 April 2020) are not expected
to have a material effect on the Group.
8. Dividends
Paid during the year:
Final (declared for previous year)
Interim
Special (note 27)
2016
cents per
share
2015
cents per
share
2014
cents per
share
57.5
30.0
632.9
720.4
52.0
27.5
–
79.5
47.0
25.0
293.0
365.0
2016
$m
137
56
1,500
1,693
2015
$m
125
63
–
188
2014
$m
122
57
763
942
Proposed (not recognised as a liability at 31 December):
Final
64.0
57.5
52.0
126
135
122
The final dividend of 64.0¢ per ordinary share is proposed for approval at the Annual General Meeting (AGM) on 5 May 2017 and is payable on the
shares in issue at 5 May 2017.
In February 2017, the Board proposed a $400m return of funds to shareholders by way of a special dividend of 202.5¢ per ordinary share, together
with a share consolidation.
116
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 9. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number
of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted
average number of dilutive ordinary share awards outstanding during the year.
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful
comparison of the Group’s performance.
Information concerning non-GAAP measures can
be found in the Strategic Report on page 26.
Continuing and total operations
Basic earnings per ordinary share
Profit available for equity holders ($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 items before tax ($m)
Tax on exceptional items ($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
2016
2015
2014
414
212
195.3
414
214
193.5
1,222
235
520.0
1,222
238
513.4
414
1,222
29
(12)
431
212
(819)
8
411
235
391
247
158.3
391
250
156.4
391
(29)
29
391
247
203.3
174.9
158.3
431
214
201.4
411
238
172.7
391
250
156.4
2016
millions
2015
millions
2014
millions
212
2
214
235
3
238
247
3
250
10. Acquisition of business
On 16 January 2015, the Group acquired a 100% interest in Kimpton Hotel & Restaurant Group, LLC (Kimpton), an unlisted company based
in the US, for cash consideration of $438m, net of $3m cash acquired. The fair value of the net assets acquired was $441m, including goodwill
of $167m, brands of $193m and management contracts of $71m. No subsequent adjustments were made to the initial acquisition date fair values
of the net assets acquired.
11. Assets sold and held for sale
Assets sold
The Group did not dispose of any hotels during 2016 but incurred $5m of costs relating to prior year disposals.
During the year ended 31 December 2015, the Group sold one hotel in the Europe region, InterContinental Paris – Le Grand on 20 May 2015 and
one hotel in the Greater China region, InterContinental Hong Kong on 30 September 2015. On 30 November 2015, the Group disposed of its share
of assets and liabilities in a joint operation in the AMEA region. Total consideration received in respect of these disposals amounted to $1,276m,
net of costs paid and cash and cash equivalents disposed, and total gains of $871m were recognised during the year ended 31 December 2015.
During the year ended 31 December 2014, the Group sold InterContinental Mark Hopkins on 27 March 2014 and disposed of 80.1% of its interest
in InterContinental New York Barclay on 31 March 2014. Both transactions took place in The Americas region. Total consideration received
amounted to $345m, net of costs paid. Total gains on disposal of $130m were recognised during the year ended 31 December 2014. The Group's
19.9% retained interest in InterContinental New York Barclay is accounted for as an associate as described in note 14.
Assets held for sale
There were no assets held for sale at either 31 December 2016 or 31 December 2015.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
117
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 12. Property, plant and equipment
Cost
At 1 January 2015
Additions
Capitalised interest
Acquisition of business (note 10)
Transfers to non-current assets classified as held for sale
Reclassification from intangible assets
Disposals
Exchange and other adjustments
At 31 December 2015
Additions
Capitalised interest
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2016
Depreciation and impairment
At 1 January 2015
Provided
System Fund expense
Transfers to non-current assets classified as held for sale
Impairment charges
Disposals
Exchange and other adjustments
At 31 December 2015
Provided
System Fund expense
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Land and
buildings
$m
Fixtures,
fittings and
equipment
$m
700
13
2
–
(329)
–
(9)
–
377
2
1
–
–
(2)
378
(122)
(8)
–
79
(27)
3
1
(74)
(5)
–
–
–
1
671
29
–
3
(120)
7
(3)
(11)
576
27
–
(162)
(3)
(9)
429
(508)
(27)
(3)
78
–
3
6
(451)
(25)
(5)
162
2
7
Total
$m
1,371
42
2
3
(449)
7
(12)
(11)
953
29
1
(162)
(3)
(11)
807
(630)
(35)
(3)
157
(27)
6
7
(525)
(30)
(5)
162
2
8
(78)
(310)
(388)
300
303
578
119
125
163
419
428
741
The Group’s property, plant and equipment mainly comprises hotels, but also offices and computer hardware, throughout the world. 44%
(2015: 43%) of the net book value relates to the largest owned and leased hotel, of a total of eight open hotels (2015: eight hotels, seven of
which were open). At 31 December 2016, there were no hotels under construction (2015: one hotel with a net book value of $53m).
The carrying value of property, plant and equipment held under finance leases at 31 December 2016 was $182m (2015: $184m).
25% (2015: 22%) of hotel properties by net book value were directly owned, with 58% (2015: 59%) held under leases having a term of 50 years or longer.
Due to localised adverse market conditions, an impairment charge of $27m was recognised during 2015 relating to two hotels in North America
following a re-assessment of their recoverable amounts to $37m, based on value in use calculations. Estimated future cash flows were discounted
at a pre-tax rate of 11.75%. All impairment charges are included within ‘impairment charges’ on the face of the Group income statement.
The table below analyses the net book value of the Group’s property, plant and equipment by operating segment at 31 December 2016:
Land and buildings
Fixtures, fittings and equipment
Americas
$m
Europe
$m
AMEA
$m
287
45
332
–
–
–
–
11
11
Greater
China
$m
–
–
–
Central
$m
13
63
76
Total
$m
300
119
419
118
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 13. Goodwill and other intangible assets
Cost
At 1 January 2015
Additions
Capitalised interest
Acquisition of business (note 10)
Reclassification of property, plant and equipment
Disposals
Exchange and other adjustments
At 31 December 2015
Additions
Capitalised interest
Disposals
Exchange and other adjustments
At 31 December 2016
Amortisation and impairment
At 1 January 2015
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2015
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Goodwill
$m
Brands
$m
Software
$m
Management
contracts
$m
Other
intangibles
$m
215
–
–
167
–
–
(11)
371
–
–
–
(1)
370
(141)
–
–
–
3
(138)
–
–
–
–
(138)
232
233
74
–
–
–
193
–
–
–
193
–
–
–
–
193
–
–
–
–
–
–
–
–
–
–
–
193
193
–
471
94
2
2
(7)
(62)
(2)
498
127
4
(45)
(1)
583
(207)
(40)
(18)
62
1
(202)
(41)
(26)
45
1
(223)
360
296
264
Total
$m
1,203
255
2
433
(7)
(66)
(30)
1,790
180
4
(52)
(36)
1,886
(560)
(61)
(18)
65
10
(564)
(66)
(26)
48
14
310
97
–
71
–
–
(13)
465
–
–
–
(21)
444
(134)
(10)
–
–
5
(139)
(11)
–
–
9
207
64
–
–
–
(4)
(4)
263
53
–
(7)
(13)
296
(78)
(11)
–
3
1
(85)
(14)
–
3
4
(141)
(92)
(594)
303
326
176
204
178
129
1,292
1,226
643
Goodwill and brands
During 2015, the Group acquired Kimpton (see note 10) resulting in the recognition of goodwill of $167m and brands of $193m, together with
management contracts of $71m.
The Kimpton brands are considered to have an indefinite life given their strong brand awareness and reputation in the upscale boutique hotel
sector, and management’s commitment to continued investment in their growth. The brands are protected by trademarks and there are not
believed to be any legal, regulatory or contractual provisions that limit the useful lives of the brands. In the hotel industry there are a number
of brands that have existed for many years and IHG has brands that are over 60 years old.
The Group tests goodwill and indefinite life intangible assets for impairment annually, or more frequently if there are any indicators that an
impairment may have arisen. The year-end carrying value of goodwill and indefinite life brands have been allocated to cash-generating units
(CGUs) for impairment testing purposes as follows:
CGU
Americas Managed
Americas Franchised
Europe Managed
Europe Franchised
AMEA Managed and Franchised
Goodwill
$m
2016
Brands
$m
Goodwill
$m
2015
Brands
$m
63
37
21
10
101
232
193
–
–
–
–
193
63
37
21
10
102
233
193
–
–
–
–
193
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
119
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 13. Goodwill and other intangible assets continued
The recoverable amounts of the CGUs are determined from value in use calculations. These calculations cover a five-year period using pre-tax
cash flow forecasts derived from the most recent financial budgets and strategic plans approved by management incorporating growth rates
based on management’s past experience and industry growth forecasts. A terminal value is added using growth rates that do not exceed the
average long-term growth rates for the relevant markets. The cash flows are discounted using pre-tax rates that are 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.
The terminal growth rates and discount rates used in the impairment tests are as follows:
Americas Managed
Americas Franchised
Europe Managed
Europe Franchised
AMEA Managed and Franchised
Terminal growth rate
Discount rate
2016
%
2.0
2.0
2.0
2.0
3.5
2015
%
2.5
2.5
2.5
2.5
3.5
2016
%
9.8
8.8
9.3
8.4
13.0
2015
%
10.2
9.2
9.9
8.9
12.5
Impairment was not required at either 31 December 2016 or 31 December 2015.
At 31 December 2016, the Americas Managed and Europe Managed CGUs had recoverable amounts that exceeded their carrying amounts by $81m
and $48m respectively; this headroom would be eroded if the discount rate assumptions were increased to 10.8% and 11.7% respectively. In
respect of the other CGUs, the headroom is of a magnitude that reasonably possible changes to key assumptions would not result in the
recoverable amounts falling below their carrying amounts.
Software
Software includes $151m relating to the development of the next-generation Guest Reservation System with Amadeus. This asset is not yet in
use and therefore not being amortised.
Substantially all software additions are internally developed.
Management contracts
In addition to the management contracts acquired with the Kimpton acquisition in 2015, additions to management contracts relate to contract
values recognised as part of the proceeds for hotels sold.
At 31 December 2016, the net book value and remaining amortisation period of the principal management contracts were as follows:
Hotel
InterContinental Hong Kong
InterContinental New York Barclay
InterContinental London Park Lane
InterContinental Paris – Le Grand
2016
Net book
value
$m
Remaining
amortisation
period
Years
2015
Remaining
amortisation
period
Years
Net book
value
$m
62
38
29
31
36
47
46
48
64
39
36
32
37
48
47
49
The weighted average remaining amortisation period for all management contracts is 31 years (2015: 32 years).
120
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 14. Investment in associates and joint ventures
Cost
At 1 January 2015
Additions
Share of (losses)/profits
Capitalisation of a receivable
Dividends
Exchange and other adjustments
At 31 December 2015
Additions
Share of (losses)/profits
Capital return
Transfer to financial assets
Dividends
At 31 December 2016
Impairment
At 1 January 2015
Charge for the year
At 31 December 2015
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
At 1 January 2015
Associates
$m
Joint
ventures
$m
Total
$m
92
29
(2)
10
(5)
(3)
121
14
(3)
–
(14)
(5)
113
(3)
(9)
(12)
(16)
(28)
85
109
89
27
1
(1)
–
–
–
27
–
1
(2)
–
–
26
–
–
–
–
–
26
27
27
119
30
(3)
10
(5)
(3)
148
14
(2)
(2)
(14)
(5)
139
(3)
(9)
(12)
(16)
(28)
111
136
116
All associates and joint ventures are accounted for using the equity method.
During the year, an investment for which the Group has a 30% interest was transferred to other financial assets following loss of significant
influence over the operating and financial policy decisions of the entity.
The impairment charge of $16m in 2016 relates to the Barclay associate (see following page) and results from the currently depressed trading
outlook for the New York hotel market and the high costs of renovating the hotel. The recoverable amount of the investment has been measured at
its fair value less costs of disposal, based on the Group’s share of the market value of the hotel less debt in the associate. The hotel was appraised
by a professional external valuer using an income capitalisation approach which is a discounted cash flow technique that measures the present
value of projected income flows (over a 10-year period) and the reversion of the property sale. Within the fair value hierarchy, this is categorised as
a Level 3 fair value measurement. In addition to the projected income flows, the key assumptions used were a discount rate of 7.3% and a terminal
capitalisation rate of 6.0%.
Due to localised adverse market conditions, an impairment charge of $9m was recognised during 2015 relating to an associate investment in the
AMEA region following a re-assessment of its recoverable amount to $nil, based on value in use calculations. Estimated future cash flows were
discounted at a pre-tax rate of 13.2%.
On 20 November 2015, the Group disposed of an associate investment in the AMEA region realising a gain on disposal of $9m. At the time
of disposal, the investment had a $nil net book value.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
121
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 14. Investment in associates and joint ventures continued
Barclay associate
The Group held one material associate investment at 31 December 2016, a 19.9% interest in 111 East 48th Street Holdings, LLC (the Barclay
associate) which owns InterContinental New York Barclay, a hotel managed by the Group. The hotel reopened for trading in April 2016 following
a major renovation. The investment is classified as an associate and equity accounted as the Group has the ability to exercise significant influence
through certain decision rights and its involvement in the hotel renovation and financing of the entity.
Summarised financial information in respect of the Barclay associate is set out below:
Non-current assets
Net current liabilities
Non-current liabilities
Net assets
Group share of reported net assets at 19.9%
Adjustments to reflect capitalised costs, and additional rights and obligations under the shareholder agreement
Carrying amount
Revenue
Loss for the period
Group’s share of loss for the period
31 December
2016
$m
31 December
2015
$m
552
(264)
(39)
249
50
(7)
43
480
(7)
(226)
247
49
10
59
12 months to
31 December
2016
$m
12 months to
31 December
2015
$m
45
(34)
(8)
–
(21)
(4)
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.
2016
$m
Associates
2014
$m
2015
$m
2016
$m
Joint ventures
2015
$m
2014
$m
2016
$m
2015
$m
Total
2014
$m
Share of profits/(losses)
Operating profits/(losses) before
exceptional items
5
3
1
1
(1)
–
6
2
1
122
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 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
2016
$m
2015
$m
14
142
156
43
31
38
112
268
20
248
268
14
136
150
54
34
46
134
284
–
284
284
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 $121m (2015: $102m), Hong Kong dollars $24m
(2015: $28m) and other currencies $11m (2015: $20m). Unlisted equity shares are mainly investments in entities that own hotels which the Group
manages. Dividend income from available-for-sale equity securities of $7m (2015: $9m) is reported as ‘other operating income and expenses’
in the Group income statement.
Trade deposits and loans include deposits of $46m made to a hotel owner in connection with a portfolio of management contracts. The deposits
are non-interest-bearing and repayable at the end of the management contract terms, and are therefore held at a discounted value of $19m
(2015: $14m); the discount unwinds to the income statement within ‘financial income’ over the period to repayment.
Restricted funds comprise cash ring-fenced to satisfy insurance claims.
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
Disposals
At 31 December
2016
$m
(28)
6
(22)
2015
$m
(28)
–
(28)
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.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
123
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 16. Trade and other receivables
Current
Trade receivables
Other receivables
Prepayments
Loans to and receivables from associates
Non-current
Loans to associates
2016
$m
368
25
77
2
472
8
2015
$m
354
28
74
6
462
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:
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
289
58
64
61
472
Provision
$m
(1)
(3)
(7)
(58)
(69)
2016
Net
$m
288
55
57
3
403
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
Exchange adjustments
At 31 December
2016
$m
256
43
61
43
403
Provision
$m
(1)
(3)
(5)
(47)
(56)
2015
$m
(47)
(28)
12
7
–
(56)
Gross
$m
280
64
52
51
447
2016
$m
(56)
(25)
5
5
2
(69)
2015
$m
233
54
66
38
391
2015
Net
$m
279
61
47
4
391
2014
$m
(43)
(22)
9
9
–
(47)
124
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 17. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Repurchase agreements
2016
$m
131
75
–
206
2015
$m
145
703
289
1,137
Cash at bank and in hand includes bank balances of $91m (2015: $41m) which are matched by bank overdrafts of $89m (2015: $39m) 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
Repurchase agreements
Bank overdrafts (note 20)
Short-term deposits and repurchase agreements are highly liquid investments with an original maturity of three months or less.
18. Trade and other payables
Current
Trade payables
Other tax and social security payable
Deferred revenue
Other payables
Accruals
Non-current
Deferred revenue
Other payables
2016
$m
131
75
–
206
(89)
117
2016
$m
94
38
37
206
306
681
78
122
200
2015
$m
145
703
289
1,137
(39)
1,098
2015
$m
87
45
39
138
307
616
7
145
152
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
125
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 19. Provisions
At 1 January 2015
Provided
At 31 December 2015
Provided
Utilised
At 31 December 2016
Analysed as:
Current
Non-current
Kimpton
Security
Incident
$m
Litigation
$m
Total
$m
–
–
–
5
–
5
10
5
15
–
(12)
3
2016
$m
3
5
8
10
5
15
5
(12)
8
2015
$m
15
–
15
See note 30 for a description of and further information
on the Kimpton Security Incident provision.
The amount provided in the year in respect of the Kimpton Security Incident has been recognised within Central costs in the Group
income statement.
Litigation largely relates to actions brought against the Group in The Americas region. In relation to the $12m settled during the year, an insurance
recovery of $8m was also recorded by the System Fund.
20. Loans and other borrowings
Bank overdrafts
Unsecured bank loans
Finance lease obligations
£250m 6% bonds 2016
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
Total borrowings
Denominated in the following currencies:
Sterling
US dollars
Euros
Other
Current
$m
Non-current
$m
89
–
17
–
–
–
–
–
107
210
–
489
370
430
2016
Total
$m
89
107
227
–
489
370
430
Current
$m
Non-current
$m
39
–
17
371
–
–
–
–
–
207
–
588
444
–
2015
Total
$m
39
–
224
371
588
444
–
106
1,606
1,712
427
1,239
1,666
–
101
2
3
1,289
317
–
–
1,289
418
2
3
373
46
4
4
1,032
207
–
–
1,405
253
4
4
106
1,606
1,712
427
1,239
1,666
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 and Bilateral facilities. Amounts are classified as non-current when
the facilities have more than 12 months to expiry.
The Syndicated Facility comprises a $1,275m five-year revolving credit facility maturing in March 2021, with a one-year extension option
exercisable in 2017.
The Bilateral Facility comprises a $75m revolving credit facility maturing in March 2021, with a one-year extension option exercisable in 2017.
The Bilateral Facility contains the same terms and covenants as the Syndicated Facility.
A variable rate of interest is payable on amounts drawn under both facilities, which was 1.37% at 31 December 2016.
126
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 20. Loans and other borrowings continued
Finance lease obligations
Finance lease obligations, which relate primarily to the 99-year lease (of which 89 years remain) on the InterContinental Boston hotel, are payable
as follows:
Less than one year
Between one and five years
More than five years
Less: amount representing finance charges
Minimum
lease
payments
$m
17
64
3,252
3,333
(3,106)
227
2016
Present
value of
payments
$m
17
48
162
227
–
227
Minimum
lease
payments
$m
17
65
3,268
3,350
(3,126)
224
2015
Present
value of
payments
$m
17
49
158
224
–
224
The Group has the option to extend the term of the InterContinental Boston 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 were repaid in full on 9 December 2016.
£400m 3.875% bonds 2022
The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable in full on 28 November 2022. Interest is payable
annually on 28 November. The bonds were initially priced at 98.787% of face value and are unsecured.
£300m 3.75% bonds 2025
The 3.75% fixed interest sterling bonds were issued on 14 August 2015 and are repayable in full on 14 August 2025. Interest is payable annually
on 14 August. The bonds were initially priced at 99.014% of face value and are unsecured.
£350m 2.125% bonds 2026
The 2.125% fixed interest sterling bonds were issued on 24 August 2016 and are repayable in full on 24 August 2026. Interest is payable annually
on 24 August. The bonds were initially priced at 99.45% of face value and are unsecured.
Facilities provided by banks
Committed
Uncommitted
Unutilised facilities expire:
Within one year
After two but before five years
Utilised
$m
Unutilised
$m
110
–
110
1,240
70
1,310
2016
Total
$m
1,350
70
1,420
Utilised
$m
Unutilised
$m
–
–
–
1,350
64
1,414
2016
$m
70
1,240
1,310
2015
Total
$m
1,350
64
1,414
2015
$m
64
1,350
1,414
Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
127
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 21. Net debt
Cash and cash equivalents
Loans and other borrowings – current
– non-current
Net debt
Movement in net debt
Net (decrease)/increase in cash and cash equivalents, net of overdrafts
Add back cash flows in respect of other components of net debt:
Issue of long-term bonds
Other new borrowings
Long-term bonds repaid
New borrowings repaid
(Increase)/decrease in other borrowings
(Increase)/decrease in net debt arising from cash flows
Non-cash movements:
Finance lease obligations
Increase in accrued interest
Exchange and other adjustments
(Increase)/decrease in net debt
Net debt at beginning of the year
Net debt at end of the year
Information concerning non-GAAP measures can
be found in the Strategic Report on page 26.
2016
$m
206
(106)
(1,606)
(1,506)
2015
$m
1,137
(427)
(1,239)
(529)
(920)
1,107
(459)
–
315
–
(109)
(1,173)
(4)
(6)
206
(977)
(529)
(1,506)
(458)
(400)
–
400
355
1,004
(6)
(7)
13
1,004
(1,533)
(529)
22. Financial risk management
Overview
The Group is exposed to financial risks that arise in relation to underlying business activities. These risks include: foreign exchange risk, liquidity
risk, interest rate risk, credit risk and capital risk. There are Board approved policies in place to manage these risks. Treasury activities to manage
these risks may include money market investments, repurchase agreements, spot and forward foreign exchange instruments, currency swaps,
interest rate swaps and forward rate agreements.
Foreign exchange risk
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. The most significant exposures of the Group are in currencies that are freely convertible.
The Group’s reported debt has an exposure to borrowings held in pounds sterling.
Foreign exchange hedging
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 2016 or 31 December 2015.
The Group also uses short-dated foreign exchange swaps to manage sterling surplus cash and reduce US dollar borrowings whilst maintaining
operational flexibility. At 31 December 2016, the Group held short-dated foreign exchange swaps with principals of $120m (2015: $481m).
The fair value of these derivative financial instruments at 31 December 2016 was a $3m liability (2015: $3m liability).
Hedge of net investment in foreign operations
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. However US dollars are only borrowed to the extent that hedge
accounting can be achieved.
The Group designates certain 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.
The maximum amount of foreign exchange derivatives held during the year as net investment hedges and measured at calendar quarter ends were
short-dated foreign exchange swaps with principals of €nil (2015: €285m) and $325m (2015: $315m).
Hedge effectiveness is measured at calendar quarter ends. No ineffectiveness arose in respect of the Group’s net investment hedges during the
current or prior year.
128
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED
22. Financial risk management continued
Interest rate risk
The Group is exposed to interest rate risk in relation to its fixed and floating rate borrowings. The Group’s policy requires a minimum of 50% fixed
rate debt over the next 12 months. With the exception of overdrafts, 93% of borrowings were fixed rate debt at 31 December 2016 (2015: 100%).
Interest rate hedging
If required, the Group uses interest rate swaps to manage the exposure. The Group designates interest rate swaps as cash flow hedges.
No interest rate swaps were used during 2016, 2015 or 2014.
Interest and foreign exchange risk sensitivities
The following table shows the impact of a general strengthening in the US dollar against sterling and euro on the Group’s profit before tax
and net assets, and the impact of a rise in US dollar, euro and sterling interest rates on the Group’s profit before tax.
Increase/(decrease) in profit before tax
Sterling: US dollar exchange rate
Euro: US dollar exchange rate
US dollar interest rates
Euro interest rates
Sterling interest rates
Increase/(decrease) in net assets
Sterling: US dollar exchange rate
Euro: US dollar exchange rate
5¢ fall
5¢ fall
1% increase
1% increase
1% increase
5¢ fall
5¢ fall
2016
$m
5.2
(2.2)
(1.8)
–
1.3
47.2
(5.5)
2015
$m
4.8
(1.9)
(0.9)
–
7.9
23.7
(7.6)
2014
$m
4.5
(2.2)
(6.7)
(0.9)
0.7
29.1
(10.9)
The impact of a weakening in the US dollar or a fall in interest rates would be the reverse of the above values.
Interest rate sensitivities are calculated based on the year-end net debt position plus, in 2014, the $400m bilateral term loan drawn in 2015
to finance the Kimpton acquisition.
Liquidity risk
The Group policy ensures sufficient liquidity is maintained to meet all foreseeable medium-term cash requirements and provide headroom against
unforeseen obligations.
Cash and cash equivalents is held in short-term deposits and cash funds which allow daily withdrawals of cash. Most of the Group’s funds are held in the
UK or US, although $3m (2015: $1m) is held in countries where repatriation is restricted as a result of foreign exchange regulations.
Medium and long-term borrowing requirements are met through committed bank facilities and bonds as detailed in note 20. Short-term borrowing
requirements may be met from drawings under uncommitted overdrafts and facilities.
The Syndicated and Bilateral facilities contain 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 and expects
to continue to have significant headroom for the foreseeable future.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
129
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 22. Financial risk management continued
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:
31 December 2016
Non-derivative financial liabilities:
Bank overdrafts
Unsecured bank loans
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
Finance lease obligations
Trade and other payables, excluding deferred revenue
Provisions
Derivative financial liabilities:
Forward foreign exchange contracts
31 December 2015
Non-derivative financial liabilities:
Bank overdrafts
£250m 6% bonds 2016
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
Finance lease obligations
Trade and other payables
Provisions
Derivative financial liabilities:
Forward foreign exchange contracts
Less than
1 year
$m
Between 1
and 2 years
$m
Between 2
and 5 years
$m
More than
5 years
$m
Total
$m
89
110
19
14
9
17
644
3
3
39
393
23
17
17
839
15
3
–
–
19
14
9
16
–
–
57
42
28
48
173
210
5
–
–
–
23
17
17
178
–
–
–
–
–
–
69
50
48
263
–
–
–
–
510
419
473
3,252
192
–
–
–
–
638
521
3,268
192
–
–
89
110
605
489
519
3,333
1,219
8
3
39
393
753
605
3,350
1,472
15
3
Trade and other payables above 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
Credit risk on treasury transactions is minimised by operating a policy on the investment of surplus cash that generally restricts counterparties to
those with a BBB credit rating or better or those providing adequate security. The Group uses long-term credit ratings from Standard and Poor’s,
Moody’s and Fitch Ratings as a basis for setting its counterparty limits.
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.
The carrying amount of financial assets represents the maximum exposure to credit risk.
Cash and cash equivalents
Equity securities available-for-sale
Loans and receivables:
Other financial assets
Trade and other receivables, excluding prepayments
Note
17
15
15
16
2016
$m
206
156
112
403
877
2015
$m
1,137
150
134
391
1,812
130
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 22. Financial risk management continued
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 $739m at 31 December 2016 (2015: $838m). 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.
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-salea
Loans and receivables:
Other financial assets
Trade and other financial receivables, excluding prepayments
Financial liabilities
£250m 6% bonds 2016
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
Finance lease obligations
Unsecured bank loans
Bank overdrafts
Loyalty programme liability
Trade and other payables
Derivativesa
Provisions
Carrying
value
$m
Note
17
15
15
16
20
20
20
20
20
20
20
32
18
19
206
156
112
403
877
–
(489)
(370)
(430)
(227)
(107)
(89)
(685)
(881)
(3)
(8)
2016
Fair
value
$m
206
156
112
403
877
–
(541)
(408)
(411)
(297)
(107)
(89)
(685)
(881)
(3)
(8)
Carrying
value
$m
1,137
150
134
391
1,812
(371)
(588)
(444)
–
(224)
–
(39)
(649)
(768)
(3)
(15)
2015
Fair
value
$m
1,137
150
134
391
1,812
(386)
(608)
(443)
–
(305)
–
(39)
(649)
(768)
(3)
(15)
(3,289)
(3,430)
(3,101)
(3,216)
a 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, other than
as described in note 14.
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 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, the future redemption liability of the Group's loyalty programme and current provisions approximates to their carrying value.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
131
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 23. Fair value measurement continued
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
Liabilities
£250m 6% bonds 2016
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
Finance lease obligations
Derivatives
Level 1
$m
Level 2
$m
Level 3
$m
14
–
–
(541)
(408)
(411)
–
–
–
–
–
–
–
–
(297)
(3)
–
142
–
–
–
–
–
–
2016
Total
$m
14
142
–
(541)
(408)
(411)
(297)
(3)
Level 1
$m
Level 2
$m
Level 3
$m
14
–
(386)
(608)
(443)
–
–
–
–
–
–
–
–
–
(305)
(3)
–
136
–
–
–
–
–
–
2015
Total
$m
14
136
(386)
(608)
(443)
–
(305)
(3)
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.
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.
Finance lease obligations relate primarily to the lease of InterContinental Boston, which is 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 2016
was 7.2% (2015: 7.0%).
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 24.5 (2015: 21.9)
and a non-marketability factor of 30% (2015: 30%) is applied. A 10% increase in the average P/E ratio would result in a $2m increase (2015: $3m)
in the fair value of the investments and a 10% decrease in the average P/E ratio would result in a $2m decrease (2015: $3m) in the fair value of
the investments. A 10% increase in net assets would result in a $7m increase (2015: $8m) in the fair value of the investments and a 10% decrease
in net assets would result in a $7m decrease (2015: $8m) 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
Disposals
Reclassification of associate (note 14)
Valuation gains recognised in other comprehensive income
Exchange and other adjustments
At 31 December
2016
$m
136
2
(15)
14
5
–
142
2015
$m
128
5
–
–
4
(1)
136
132
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 24. Reconciliation of profit for the year to cash flow from operations
For the year ended 31 December 2016
Profit for the year
Adjustments for:
Net financial expenses
Income tax charge
Depreciation and amortisation
Impairment
Other exceptional items
Equity-settled share-based cost
Dividends from associates and joint ventures
(Increase)/decrease in trade and other receivables
Net change in loyalty programme liability and System Fund surplus
System Fund depreciation and amortisation
Increase/(decrease) in other trade and other payables
Utilisation of provisions, net of insurance recovery
Retirement benefit contributions, net of costs
Cash flows relating to exceptional items
Other items
Total adjustments
Cash flow from operations
Note
7
5
5
26
14
32
19
2016
$m
417
87
174
96
16
13
17
5
(24)
65
31
102
(4)
(32)
(19)
9
536
953
2015
$m
1,224
87
188
96
36
(855)
19
5
3
42
21
(13)
–
(4)
(45)
6
(414)
810
2014
$m
392
80
208
96
–
(29)
21
2
(18)
58
20
41
(2)
(6)
(114)
4
361
753
25. Retirement benefits
UK
Since 6 August 2014, UK retirement and death in service benefits are provided for eligible employees by the IHG UK Defined Contribution Pension
Plan. Members, 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. The plan is HM Revenue & Customs registered and governed by
an independent trustee, assisted by professional advisers as and when required. The overall operation of the plan is subject to the oversight
of The Pensions Regulator.
The former defined benefit plan, the InterContinental Hotels UK Pension Plan, was wound up on 21 July 2015 following the completion
of the buy-out and transfer of the defined benefit obligations to Rothesay Life on 31 October 2014.
Residual defined benefit obligations remain in respect of additional benefits 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 and a cash-out offer in 2014 resulted in the extinguishment of approximately 70% of the unfunded pension obligations. The Company
meets the benefit payment obligations of the remaining members as they fall due. A charge over certain ring-fenced bank accounts totalling £31m
at 31 December 2016 (see note 15) is currently held as security on behalf of the remaining members.
US
The Group also maintains the following US-based defined benefit plans: the funded Inter-Continental Hotels Pension Plan (the 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 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.
During 2016, the Group made a funding contribution of $32m to the Plan which has enabled it to achieve full funding. The assets of the Plan have
subsequently been invested 100% in liability-matching assets.
During 2015, the Group made a lump sum cash-out offer to the terminated vested members of the Inter-Continental Hotels Pension Plan.
Members accepting the offer received lump sum cash payments totalling $11m on 1 November 2015.
Other
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.
The Group previously maintained defined benefit pension plans in Hong Kong and the Netherlands. During 2015, the Hong Kong plan was
transferred to the new owner of InterContinental Hong Kong (see note 11) and the Dutch pension obligations became fully insured resulting
in the cessation of defined benefit accounting.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
133
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 25. Retirement benefits continued
In respect of the defined benefit plans, the amounts recognised in the Group income statement, in ‘administrative expenses’, are:
Current service cost
Net interest expense
Administration costs
Settlement gain
Operating profit before exceptional items
Exceptional items:
Settlement cost
2016
$m
2015
$m
–
1
–
–
1
–
1
–
1
1
–
2
–
2
UK
2014
$m
–
2
3
–
5
6
11
Pension plans
US and other
US Post-employment
benefits
2016
$m
2015
$m
2014
$m
2016
$m
2015
$m
2014
$m
2016
$m
2015
$m
–
2
1
–
3
–
3
–
3
1
(2)
2
–
2
1
3
–
–
4
–
4
–
1
–
–
1
–
1
–
1
–
–
1
–
1
–
1
–
–
1
–
1
–
4
1
–
5
–
5
–
5
2
(2)
5
–
5
Total
2014
$m
1
6
3
–
10
6
16
The settlement gain in 2015 resulted from the partial cash-out of the US Inter-Continental Hotels Pension Plan and comprised the difference
between the accounting value of the liabilities extinguished and the amount of the lump sum payments.
The settlement cost in 2014 resulted from the partial cash-out of the UK unfunded pension arrangements and comprised 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 items in the Group
statement of cash flows.
Re-measurement gains and losses recognised in the Group statement of comprehensive income are:
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
Plan
assets
$m
Plan
obligations
$m
–
–
–
–
–
–
–
6
(11)
1
–
(4)
2016
Total
$m
–
6
(11)
1
–
(4)
Plan
assets
$m
Plan
obligations
$m
2015
Total
$m
Plan
assets
$m
Plan
obligations
$m
2014
Total
$m
(7)
88
–
88
(7)
–
–
–
3
(4)
–
5
10
2
–
17
5
10
2
3
13
–
–
–
(1)
87
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:
Retirement benefit obligations
Fair value of plan assets
Present value of benefit obligations
Total retirement benefit obligations
2016
$m
–
(27)
(27)
UK
2015
$m
–
(27)
(27)
Pension plans
US and other
2016
$m
148
(195)
(47)
2015
$m
121
(202)
(81)
US Post-employment
benefits
2016
$m
2015
$m
–
(22)
(22)
–
(21)
(21)
134
IHG Annual Report and Form 20-F 2016
Group Financial Statements
(3)
(113)
4
–
(112)
2016
$m
148
(244)
(96)
(3)
(113)
4
(1)
(25)
Total
2015
$m
121
(250)
(129)
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 25. Retirement benefits continued
Assumptions
The principal financial assumptions used by the actuaries to determine the benefit obligations are:
Pensions increases
Discount rate
Inflation rate
Healthcare cost trend rate assumed for next year:
Pre 65 (ultimate rate reached in 2023)
Post 65 (ultimate rate reached in 2025)
Ultimate rate that the cost trend rate trends to
2016
%
3.3
2.7
3.3
2015
%
3.2
4.0
3.2
UK
2014
%
3.3
3.7
3.3
Pension plans
2016
%
–
3.7
–
2015
%
–
3.9
–
US
2014
%
–
3.6
–
US Post-employment
benefits
2016
%
2015
%
–
3.8
–
7.0
8.3
4.5
–
3.9
–
7.5
9.0
4.5
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 S2PA 'light' year of birth tables
with projected mortality improvements using the CMI_2015 model and a 1.25% per annum long-term trend with age rated down by 0.7 and 2.3
years for pensioners and 0.5 and 2.6 years for non-pensioners, male and female respectively. In the US, the current assumptions are based on
the RP-2014 Employee/Healthy Annuitant Generationally Projected with Scale MP-2016 mortality tables.
In both the UK and US, the assumptions have been revised during the year to reflect reduced life expectancy at retirement age as follows:
Current pensioners at 65a
Future pensioners at 65b
– male
– female
– male
– female
a Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period.
b Relates to assumptions based on longevity (in years) relating to an employee retiring in 2036.
The assumptions allow for expected increases in longevity.
2016
Years
2015
Years
24
26
25
28
26
29
28
31
UK
2014
Years
26
29
28
31
Pension plans
2016
Years
2015
Years
21
23
22
24
21
23
23
25
US
2014
Years
22
24
23
25
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.
Pensions increases
– 0.25% decrease
– 0.25% increase
Discount rate
– 0.25% decrease
Inflation rate
– 0.25% increase
– 0.25% increase
– 0.25% decrease
Mortality rate
– one year increase
UK
US
Higher/
(lower)
pension cost
$m
Increase/
(decrease)
in liabilities
$m
Higher/
(lower)
pension cost
$m
Increase/
(decrease)
in liabilities
$m
(0.1)
–
0.1
–
–
(0.1)
–
(1.0)
1.2
1.4
(1.2)
1.2
(1.0)
0.7
–
–
–
–
–
–
0.3
–
–
5.6
(5.3)
–
–
8.7
A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit obligations
as at 31 December 2016 by $1.9m (2015: $2.0m, 2014: $2.4m) and a one percentage point decrease would decrease the obligations by $1.7m
(2015: $1.8m, 2014: $2.2m).
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
135
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
25. Retirement benefits continued
Movement in benefit obligation
Benefit obligation at 1 January
Interest expense
Settlement gain before costs
Benefits paid
Committed cash-out payments
Re-measurement losses/(gains)
Derecognised on buy-out
Transfers to non-current assets classified as held for sale
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
Re-measurement losses
Administration costs
Derecognised on buy-out
Transfer to defined contribution plan
Transfers to non-current assets classified as held for sale
Fair value of plan assets at 31 December
2016
$m
27
UK
2015
$m
31
1
–
–
–
4
–
–
(5)
27
–
27
27
1
–
–
–
(4)
–
–
(1)
27
–
27
27
2016
$m
UK
2015
$m
–
–
–
–
–
–
–
–
–
–
8
–
–
–
–
(1)
–
(7)
–
–
Pension plans
US and other
US Post-employment
benefits
2016
$m
202
7
–
(13)
–
(1)
–
–
–
2015
$m
255
8
(2)
(14)
(11)
(10)
(11)
(12)
(1)
195
202
145
50
195
150
52
202
Pension plans
US and other
2016
$m
121
36
(13)
5
–
(1)
–
–
–
148
2015
$m
167
8
(14)
5
(7)
(1)
(22)
–
(15)
121
2016
$m
21
1
–
(1)
–
1
–
–
–
22
–
22
22
2015
$m
24
1
–
(1)
–
(3)
–
–
–
21
–
21
21
US Post-employment
benefits
2016
$m
2015
$m
–
1
(1)
–
–
–
–
–
–
–
–
1
(1)
–
–
–
–
–
–
–
Company payments are expected to be $5m in 2017.
The plan assets are measured at fair value and comprise the following:
Investments quoted in active markets
Investment funds:
Global equities
Bonds
Property
Unquoted investments
Cash
2016
$m
250
9
–
(14)
–
4
–
–
(5)
244
145
99
244
2016
$m
121
37
(14)
5
–
(1)
–
–
–
148
2016
$m
–
146
–
2
Total
2015
$m
310
10
(2)
(15)
(11)
(17)
(11)
(12)
(2)
250
150
100
250
Total
2015
$m
175
9
(15)
5
(7)
(2)
(22)
(7)
(15)
121
US
2015
$m
17
101
2
1
148
121
136
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 25. Retirement benefits continued
Estimated future benefit payments
Within one year
Between one and five years
After five years
2016
$m
–
2
13
15
UK
2015
$m
–
2
16
18
Average duration of obligation (years)
21.0
22.0
Pension plans
US
2015
$m
14
54
65
133
10.1
US Post-employment
benefits
2016
$m
2015
$m
1
5
7
13
10.2
1
5
7
13
10.5
2016
$m
14
54
63
131
10.3
2016
$m
15
61
83
159
Total
2015
$m
15
61
88
164
26. Share-based payments
Annual Performance Plan
Under the IHG Annual Performance Plan (APP), eligible employees (including Executive Directors) can receive all or part of their bonus in the
form of deferred shares. 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. 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 335,775 (2015: 265,285, 2014: 305,345) shares were awarded to participants. In 2016
this number included 103,071 (2015: 58,338, 2014: 58,455) shares awarded as part of recruitment terms or for one-off individual performance-
related awards.
New plan rules for the APP were approved by shareholders at the AGM on 2 May 2014, and apply to awards made in respect
of the 2015 and subsequent financial years. The new plan rules contain substantially the same terms as the superseded plan rules.
Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) allows Executive Directors and eligible employees to receive conditional share awards, which normally
have a vesting period of three years.
• Performance-related awards: Awards to the Executive Directors, and some awards to other eligible employees, are granted subject to
the achievement of performance conditions set by the Remuneration Committee, which are normally measured over the vesting period.
• Restricted stock units: Awards to eligible employees are granted subject to continued employment.
Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for eligible employees. The
plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards. During the year, conditional rights
over 1,355,721 (2015: 1,803,308, 2014: 2,171,390) shares were awarded to employees under the plan, comprising 888,518 (2015: 1,803,308,
2014: 2,171,390) performance-related awards and 467,203 (2015: nil, 2014: nil) restricted stock units.
New plan rules for the LTIP were approved by shareholders at the AGM on 2 May 2014, and 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 superseded plan rules.
More detailed information on the performance measures for awards to Executive
Directors is shown in the Directors’ Remuneration Report on pages 64 to 81.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
137
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 26. Share-based payments continued
The Group recognised a cost of $17m (2015: $19m, 2014: $21m) 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 (2015: $nil, 2014: $nil).
The Group uses separate option pricing models and assumptions depending on the plan. The following table sets out information about awards
granted in 2016, 2015 and 2014:
Weighted average share price
Expected dividend yield
Risk-free interest rate
Volatilitya
Term (years)
APP
LTIP
Binomial valuation model
Monte Carlo Simulation and
Binomial valuation model
2016
2015
2014
2016
2015
2014
2,725.0p
2,565.0p
1,925.0p
2,846.0p
2,634.0p
1,916.0p
n/a
n/a
n/a
3.0
3.0
3.0
2.55%
0.36%
24%
3.0
2.34%
0.59%
22%
3.0
2.55%
1.29%
28%
3.0
a 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.
Movements in the awards outstanding under the schemes are as follows:
Outstanding at 1 January 2014
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2014
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2015
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2016
Fair value of awards granted during the year (cents)
2016
2015
2014
Weighted average remaining contract life (years)
At 31 December 2016
At 31 December 2015
At 31 December 2014
APP
Performance-
related awards
Number
of shares
thousands
Number
of shares
thousands
LTIP
Restricted
stock units
Number
of shares
thousands
840
305
(310)
(38)
(29)
768
265
(307)
(37)
689
336
(229)
(104)
(7)
685
6,775
2,171
(1,447)
–
(1,379)
6,120
1,803
(1,278)
(1,370)
5,275
889
(915)
–
(1,048)
4,201
–
–
–
–
–
–
–
–
–
–
467
–
–
(18)
449
3,671.9
3,874.5
3,134.6
1,768.0
1,734.5
1,202.1
1.2
1.2
1.1
0.9
1.1
1.1
3,624.5
–
–
2.2
–
–
The above awards do not vest until the performance and service conditions have been met.
The weighted average share price at the date of exercise for share awards vested during the year was 2,511.1p (2015: 2,592.1p). The closing share
price on 31 December 2016 was 3,638.0p and the range during the year was 2,193.0p to 3,638.0p per share.
138
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 27. Equity
Equity 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
Exchange adjustments
At 31 December 2014 (ordinary shares of 15265⁄329p each)
Exchange adjustments
At 31 December 2015 (ordinary shares of 15265⁄329p each)
Share capital consolidation
Exchange adjustments
At 31 December 2016 (ordinary shares of 18318⁄329p each)
Number
of shares
millions
Nominal
value
$m
Share
premium
$m
Equity
share
capital
$m
269
(20)
(1)
–
248
–
248
(42)
–
206
65
–
–
(4)
61
(3)
58
–
(10)
48
124
–
–
(7)
117
(6)
111
–
(18)
93
189
–
–
(11)
178
(9)
169
–
(28)
141
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. Between 8 October 2012 and 31 December 2014,
17.3m shares were repurchased for a consideration of $500m. Of the 17.3m shares repurchased, 12.5m were held as treasury shares and 4.8m
were cancelled. The cost of treasury shares was deducted from retained earnings.
The authority given to the Company at the AGM held on 6 May 2016 to purchase its own shares was still valid at 31 December 2016. A resolution to
renew the authority will be put to shareholders at the AGM on 5 May 2017.
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.
On 23 February 2016, the Group announced a $1.5bn return of funds to shareholders by way of a special dividend and share consolidation. On
6 May 2016, shareholders approved the share consolidation on the basis of 5 new ordinary shares of 18 318/329p per share for every 6 existing
ordinary shares of 15 265/329p, which became effective on 9 May 2016. The special dividend was paid to shareholders on 23 May 2016, at a total cost
of $1.5bn. The dividend and share consolidation had the same economic effect as a share repurchase at fair value, therefore previously reported
earnings per share has not been restated.
During 2016, 0.9m treasury shares were transferred to the employee share trusts. As a result of the 2016 share consolidation, the number of
shares held in treasury reduced from 10.6m to 8.9m.
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 18318/329p shares. The share premium reserve represents the amount of proceeds received for shares in excess
of their nominal value.
In February 2017, the Board proposed a $400m return of funds to shareholders by way of a special dividend of 202.5¢ per ordinary share, together
with a share consolidation.
The Company no longer has an authorised share capital.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
139
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 27. Equity continued
The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 93 to 95 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 $10.5m (2015: $18.3m, 2014: $34.5m) in respect of 0.3m (2015: 0.5m, 2014: 0.9m) InterContinental Hotels Group PLC ordinary shares
held by employee share trusts, with a market value at 31 December 2016 of $15.0m (2015: $19.8m, 2014: $38.2m).
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, this reserve also includes
exchange differences arising on 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 2016 was
a $3m net liability (2015: $3m net liability, 2014: $2m net asset).
Treasury shares
At 31 December 2016, 8.9m shares (2015: 11.5m, 2014: 11.5m) with a nominal value of $2.1m (2015: $2.7m, 2014: $2.8m) 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.
28. Operating leases
During the year ended 31 December 2016, $84m (2015: $77m, 2014: $72m) 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 $32m (2015: $29m,
2014: $27m). $2m (2015: $3m, 2014: $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
2016
$m
53
49
43
41
58
346
590
2015
$m
47
42
42
38
37
402
608
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 (2015: 17 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 $4m (2015: $5m).
140
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 29. Capital and other commitments
Contracts placed for expenditure not provided for in the Financial Statements:
Property, plant and equipment
Intangible assets
2016
$m
2015
$m
11
86
97
29
47
76
The Group has also committed to invest in a number of its associates, with an estimated outstanding commitment of $36m at 31 December 2016
(2015: $45m) based on current forecasts.
30. Contingencies and guarantees
Security incidents
During the first half of 2016, the Group was notified of a security incident at a number of Kimpton hotels that resulted in unauthorised access to
guest payment card data (the Kimpton Security Incident). Based on the estimated number of cards affected and opinion of external advisers, an
amount of $5m has been provided in the Financial Statements (see note 19) to cover the estimated cost of reimbursing the impacted payment card
networks for counterfeit fraud losses and related expenses. This estimate involves significant judgement based on currently available information
and is subject to change as actual claims are made and new information becomes available.
In December 2016, the Group was notified of a security incident at a number of hotels in The Americas region (the Americas Security Incident).
The Group issued a Substitute Notice on 3 February 2017 notifying guests that malware was installed on servers that processed payment cards
used at restaurants and bars of 12 IHG managed properties. An investigation of other properties in The Americas region is ongoing. It is not
practicable to make a reliable estimate of the possible financial effect of any claims concerning the Americas Security Incident at this time.
The Group may be exposed to investigations regarding compliance with applicable State and Federal data security standards, although no claims
have been received to date. In addition, the Group is exposed to legal action from individuals and organisations impacted by the security incidents.
A class action has been filed in the courts in relation to the Kimpton Security Incident, although alleged damages have not been specified. It is not
practicable to make a reliable estimate of the possible financial effect of any claims on the Group at this time.
In respect of the $5m provided in the Financial Statements, it is expected that a proportion will be recoverable under the Group’s insurance
programmes although this, together with any potential recoveries in respect of the contingent liabilities detailed above, will be subject to specific
agreement with the relevant insurance providers.
Other
In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts. At 31 December
2016, the amount provided in the Financial Statements was $5m (2015: $1m) and the maximum unprovided exposure under such guarantees was
$14m (2015: $13m).
At 31 December 2016, the Group had outstanding letters of credit of $37m (2015: $37m) 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 2016,
there were guarantees of $33m in place (2015: $30m).
In connection with the Barclay associate (see note 14), the Group has provided an indemnity to its joint venture partner for 100% of the obligations
related to a $43m supplemental bank loan made to the Barclay associate on 31 December 2015.
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 the claims listed under ‘Legal proceedings’ on page 172. 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.
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
141
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 31. Related party disclosures
Total compensation of key management personnela
Short-term employment benefits
Contributions to defined contribution pension plans
Equity compensation benefits
a In 2014, excludes ICETUS cash-out payment of £9.4m.
2016
$m
19.2
0.8
7.4
27.4
2015
$m
19.5
0.7
6.2
26.4
There were no other transactions with key management personnel during the years ended 31 December 2016, 2015 or 2014.
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
2016
$m
2015
$m
5
9
1
3
7
2
Associates
2014
$m
4
3
11
2016
$m
1
–
–
Joint ventures
2015
$m
2014
$m
2016
$m
2015
$m
–
–
–
–
–
–
6
9
1
3
7
2
2014
$m
21.5
0.7
7.9
30.1
Total
2014
$m
4
3
11
In addition, loans both to and from the Barclay associate of $237m (2015: $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 1.4% in 2016 (2015: 1.7%)) and presented net in the Group income statement.
During 2015, short-term advances of $22m were made to the Barclay associate which were repaid on 31 December 2015.
32. System Fund
The Group operates a System Fund (the Fund) to collect and administer assessments and contributions from hotel owners (other than for Kimpton
and InterContinental hotels) for specific use in marketing, the IHG Rewards Club loyalty programme and the Guest Reservation System. The
Fund and loyalty programme are accounted for in accordance with the accounting policies set out on page 103 of the Financial Statements.
Following the announcement on 14 April 2015 of the introduction of an expiration policy for points earned under the loyalty programme, the Group
released $156m from the programme’s future redemption liability in 2015. The amount released was based on the advice of an external actuary
using statistical models to estimate the impact of the programme change on members’ behaviour. The liability release resulted in a corresponding
increase in the System Fund surplus which was also recorded in the Group statement of financial position.
The following information is relevant to the operation of the Fund:
Incomea:
Assessment fees and contributions received from hotels
Proceeds from sale of IHG Rewards Club points
Key elements of expenditurea:
Marketing
IHG Rewards Club
Payroll costs
Net surplus/(deficit) for the yeara
Interest payable to the Fund
a Not included in the Group income statement in accordance with the Group’s accounting policies.
The payroll costs above relate to 5,434 (2015: 5,416, 2014: 4,975) employees whose costs are borne by the Fund.
The following liabilities relating to the Fund are included in the Group statement of financial position:
System Fund surplusa
Loyalty programme liabilityb
a The System Fund surplus is included in Trade and other payables.
b Comprising current liabilities of $291m and non-current liabilities of $394m.
2016
$m
2015
$m
2014
$m
1,439
283
1,351
222
1,271
196
335
360
311
41
3
2016
$m
227
685
912
308
345
295
118
2
2015
$m
186
649
835
267
296
267
(18)
2
2014
$m
68
725
793
The net change in the loyalty programme liability and Fund surplus contributed an inflow of $65m (2015: $42m, 2014: $58m) to the Group’s cash
flow from operations.
142
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 33. Group companies
In accordance with Section 409 of the Companies Act 2006 a full list of entities in which the Group has an interest of greater than or equal to 20%,
the registered office and effective percentage of equity owned as at 31 December 2016 are disclosed below. Unless otherwise stated the share
capital disclosed comprises ordinary shares which are indirectly held by InterContinental Hotels Group PLC.
Fully owned subsidiaries
“IHG Management” d.o.o. Beograd (j)
24th Street Operator Sub, LLC (g) (k)
36th Street IHG Sub, LLC (g) (k)
426 Main Ave LLC (g) (k)
46 Nevins Street Associates, LLC (g) (k)
2250 Blake Street Hotel, LLC (g) (k)
Allegro Management LLC (g) (l)
Alpha Kimball Hotel LLC (g) (k)
American Commonwealth Assurance Co. Ltd. (m)
Asia Pacific Holdings Limited (n)
Barclay Operating Corp. (k)
BHMC Canada Inc. (o)
BHR Holdings B.V. (p)
BHR Luxembourg SARL (q)
BHR Pacific Holdings, Inc. (k)
BHTC Canada Inc. (o)
BOC Barclay Sub LLC (g) (k)
Bristol Oakbrook Tenant Company (k)
Café Biarritz (n)
Cambridge Lodging LLC (g) (l)
Capital Lodging LLC (g) (l)
Compañia Inter-Continental De Hoteles
El Salvador SA (n)
Crowne Plaza Amsterdam (Management)
B.V. (r)
Crowne Plaza LLC (g) (k)
Cumberland Akers Hotel LLC (g) (k)
Dunwoody Operations, Inc. (k)
Edinburgh IC Limited (s)
EVEN Real Estate Holding LLC (g) (k)
General Innkeeping Acceptance Corporation (b) (k)
Guangzhou SC Hotels Services Ltd. (t)
H.I. (Ireland) Limited (u)
HI Sugarloaf, LLC (g) (k)
Hale International Ltd. (v)
HC International Holdings, Inc. (w)
HH France Holdings SAS (x)
HH Hotels (EMEA) B.V. (p)
HH Hotels (Romania) SRL (y)
HIM (Aruba) NV (z)
Hoft Properties LLC (g) (k)
Holiday Hospitality Franchising, LLC (g) (k)
Holiday Inn Cairns Pty. Ltd (aa)
Holiday Inn Mexicana S.A. de C.V. (ab)
Holiday Inns (China) Ltd (ac)
Holiday Inns (Chongqing), Inc. (k)
Holiday Inns (Courtalin) Holdings SAS (x)
Holiday Inns (Courtalin) SAS (b) (x)
Holiday Inns (England) Ltd. (n)
Holiday Inns (Germany), LLC (g) (k)
Holiday Inns (Guangzhou), Inc. (k)
Holiday Inns (Jamaica) Inc. (k)
Holiday Inns (Malaysia) Ltd. (ac)
Holiday Inns (Middle East) Ltd. (ac)
Holiday Inns (Philippines), Inc. (k)
Holiday Inns (Saudi Arabia), Inc. (k)
Holiday Inns (South East Asia) Inc. (k)
Holiday Inns (Thailand) Ltd. (ac)
Holiday Inns (UK), Inc. (k)
Holiday Inns Crowne Plaza (Hong Kong), Inc. (k)
Holiday Inns Holdings (Australia) Pty Ltd (aa)
Holiday Inns Inc. (k)
Holiday Inns Investment (Nepal) Ltd. (ac)
Holiday Inns of America (UK) Ltd. (n)
Holiday Inns of Belgium N.V. (ad)
Holiday Pacific Equity Corporation (k)
Holiday Pacific LLC (g) (k)
Holiday Pacific Partners, LP (k)
Hotel InterContinental London (Holdings) Limited (n)
Hotel Inter-Continental London Limited (n)
Hoteles Y Turismo HIH SRL (n)
IC Hotelbetriebsfuhrungs GmbH (ae)
IC Hotels Management (Portugal) Unipessoal,
Lda (af)
IC International Hotels Limited Liability Company (ag)
IHC (Thailand) Limited (ah)
IHC Buckhead, LLC (g) (k)
IHC Edinburgh (Holdings) (n)
IHC Hopkins (Holdings) Corp. (k)
IHC Hotel Limited (n)
IHC Inter-Continental (Holdings) Corp. (k)
IHC London (Holdings) (n)
IHC May Fair (Holdings) Limited (n)
IHC May Fair Hotel Limited (n)
IHC M-H (Holdings) Corp.(k)
IHC Overseas (U.K.) Limited (n)
IHC UK (Holdings) Limited (n)
IHC United States (Holdings) Corp. (b) (k)
IHC Willard (Holdings) Corp. (k)
IHG (Australasia) Limited (d) (ai)
IHG (Marseille) SAS (x)
IHG (Thailand) Limited (aj)
IHG Bangkok Ltd (v)
IHG Brasil Administracao de Hoteis e Servicos
Ltda (ak)
IHG Community Development, LLC (g) (k)
IHG Cyprus Limited (bw)
IHG de Argentina SA (al)
IHG ECS (Barbados) SRL (am)
IHG Franchising Brasil Ltda (bc)
IHG Franchising DR Corporation (k)
IHG Franchising, LLC (g) (k)
IHG Hotels (New Zealand) Limited (an)
IHG Hotels Limited (n)
IHG Hotels Management (Australia) Pty
Limited (d) (aa)
IHG Hotels Nigeria Limited (ao)
IHG Hotels South Africa (Pty) Ltd (ap)
IHG International Partnership (n)
IHG Istanbul Otel Yönetim Limited Sirketi (bx)
IHG IT Services (India) Private Limited (aq)
IHG Japan (Management) LLC (ar)
IHG Japan (Osaka) LLC (ar)
IHG Management (Maryland) LLC (g) (as)
IHG Management (Netherlands) B.V. (p)
IHG Management MD Barclay Sub LLC (g) (k)
IHG Orchard Street Member, LLC (g) (k)
IHG PS Nominees Limited (n)
IHG Systems Pty Ltd (d) (aa)
IHG Szalloda Budapest Szolgaltato Kft. (at)
IND East Village SD Holdings, LLC (g) (k)
InterContinental (Branston) 1 Limited (c) (n)
InterContinental (PB) 1 (n)
InterContinental (PB) 2 (n)
InterContinental (PB) 3 Limited (n)
InterContinental Brasil Administracao
de Hoteis Ltda (ak)
Inter-Continental D.C. Operating Corp. (k)
Inter-Continental Florida Investment Corp. (k)
Inter-Continental Florida Partner Corp. (k)
InterContinental Gestion Hotelera S.L. (by)
Inter-Continental Hospitality Corporation (k)
InterContinental Hotel Berlin GmbH (au)
InterContinental Hotel Düsseldorf GmbH
(Germany) (av)
Inter-Continental Hoteleira Limitada (aw)
Inter-Continental Hotels (Montreal) Operating
Corp. (ax)
Inter-Continental Hotels (Montreal) Owning
Corp. (ax)
Inter-Continental Hotels (Overseas) Limited (ay)
InterContinental Hotels (Puerto Rico) Inc. (az)
Inter-Continental Hotels (Singapore) Pte. Ltd. (ai)
Inter-Continental Hotels Corporation (k)
Inter-Continental Hotels Corporation de Venezuela
C.A. (ba)
Intercontinental Hotels Corporation Limited (d) (m)
InterContinental Hotels Group (Asia Pacific)
Pte Ltd (ai)
InterContinental Hotels Group (Australia) Pty
Limited (aa)
InterContinental Hotels Group (Canada) Inc. (o)
InterContinental Hotels Group (España) SA (by)
InterContinental Hotels Group (Greater China)
Limited (ac)
InterContinental Hotels Group (India) Pvt. Ltd (aq)
InterContinental Hotels Group (Japan) Inc. (k)
InterContinental Hotels Group (New Zealand)
Limited (an)
InterContinental Hotels Group (Shanghai) Ltd. (bb)
InterContinental Hotels Group Customer Services
Ltd. (n)
InterContinental Hotels Group do Brasil Limitada (bd)
InterContinental Hotels Group Healthcare Trustee
Limited (n)
InterContinental Hotels Group Operating Corp. (e) (k)
InterContinental Hotels Group Resources Inc. (b) (k)
InterContinental Hotels Group Services Company (n)
InterContinental Hotels Italia, S.r.L. (be)
InterContinental Hotels Limited (a) (n)
InterContinental Hotels Management GmbH (bf)
InterContinental Hotels Nevada Corporation (k)
Inter-Continental Hotels of San Francisco Inc. (k)
Inter-Continental IOHC (Mauritius) Limited (bg)
Inter-Continental Management (Australia) Pty
Limited (aa)
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
143
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 33. Group companies continued
Fully owned subsidiaries (continued)
InterContinental Management France SAS (x)
InterContinental Overseas Holding Corporation (k)
KG Benefits LLC (g) (l)
KG Gift Card Inc. (l)
KG Liability LLC (g) (l)
KG Technology, LLC (g) (l)
KHP Washington Operator LLC (g) (l)
KHRG 11th Avenue Hotel LLC (g) (l)
KHRG 851 LLC (g) (l)
KHRG Aertson LLC (g) (l)
KHRG Alexandria LLC (g) (l)
KHRG Alexis, LLC (g) (l)
KHRG Allegro, LLC (g) (l)
KHRG Argyle, LLC (g) (l)
KHRG Austin Beverage Company, LLC (g) (l)
KHRG Baltimore, LLC (g) (l)
KHRG Born LLC (g) (l)
KHRG Boston Hotel, LLC (g) (l)
KHRG Canary LLC (g) (l)
KHRG Cayman LLC (g) (l)
KHRG Cayman Employer Ltd. (l)
KHRG DC 1731 LLC (g) (l)
KHRG DC 2505 LLC (g) (l)
KHRG Donovan LLC (g) (l)
KHRG Employer, LLC (g) (l)
KHRG Goleta LLC (g) (l)
KHRG Gray LLC (g) (l)
KHRG Gray U2 LLC (g) (l)
KHRG Hillcrest, LLC (g) (l)
KHRG Huntington Beach LLC (g) (l)
KHRG King Street, LLC (g) (l)
KHRG La Peer LLC (g) (l)
KHRG Miami Beach LLC (g) (l)
KHRG Muse LLC (g) (l)
KHRG NPC LLC (g) (l)
KHRG Onyx LLC (g) (l)
KHRG Palladian LLC (g) (l)
KHRG Palomar Phoenix LLC (g) (l)
KHRG Philly Monaco LLC (g) (l)
KHRG Pittsburgh LLC (g) (l)
KHRG Reynolds LLC (g) (l)
KHRG Riverplace LLC (g) (l)
KHRG Sacramento LLC (g) (l)
KHRG Savannah LLC (g) (l)
KHRG Schofield LLC (g) (l)
KHRG Sedona LLC (g) (l)
KHRG SFD LLC (g) (l)
KHRG State Street LLC (g) (l)
KHRG Sutter LLC (g) (l)
KHRG Sutter Union LLC (g) (l)
KHRG Taconic LLC (g) (l)
KHRG Texas Hospitality, LLC (g) (l)
KHRG Texas Operations, LLC (g) (l)
KHRG Tryon LLC (g) (l)
KHRG Vero Beach, LLC (g) (l)
KHRG Vintage Park LLC (g) (l)
KHRG VZ Austin LLC (g) (l)
KHRG Westwood, LLC (g) (l)
KHRG Wilshire LLC (g) (l)
KHRG WPB LLC (g) (l)
KHRG Zamora LLC (g) (l)
Kimpton Hollywood Licenses LLC (g) (l)
Kimpton Hotel & Restaurant Group, LLC (g) (l)
Kimpton Phoenix Licenses Holdings LLC (g) (l)
Kimpton Sedona Licenses LLC (g) (l)
Louisiana Acquisitions Corp. (k)
Mercer Fairview Holdings LLC (g) (k)
MH Lodging LLC (g) (l)
PML Services LLC (g) (as)
Pollstrong Limited (n)
Powell Pine, Inc. (k)
Priscilla Holiday of Texas, Inc. (k)
PT SC Hotels & Resorts Indonesia (bh)
Resort Services International (Cayo Largo) L.P. (k)
RM Lodging LLC (g) (l)
SBS Maryland Beverage Company LLC (g) (as)
SC Cellars Limited (n)
SC Hotels International Services, Inc. (k)
SC Leisure Group Limited (n)
SC Luxembourg Investments SARL (q)
SC NAS 2 Limited (n)
SC NAS 3 (ay)
SC Quest Limited (n)
SC Reservations (Philippines) Inc. (k)
SCH Insurance Company (bi)
SCIH Branston 3 (n)
Semiramis for training of Hotel Personnel and Hotel
Management SAE (ci)
SF MH Acquisition LLC (g) (k)
Six Continents Corporate Services (n)
Six Continents Holdings Limited (n)
Six Continents Hotels de Colombia SA (bj)
Six Continents Hotels International Limited (n)
Six Continents Hotels, Inc. (k)
Six Continents International Holdings B.V. (p)
Six Continents Investments Limited (f) (n)
Six Continents Limited (n)
Six Continents Overseas Holdings Limited (n)
Six Continents Restaurants Limited (n)
SixCo North America, Inc. (w)
Solamar Lodging LLC (g) (l)
Southern Pacific Hotel Corporation (BVI) Ltd. (v)
Southern Pacific Hotels Properties Limited (v)
SPHC Group Pty Ltd. (aa)
SPHC Management Ltd. (ch)
Universal de Hoteles SA (bj)
White Shield Insurance Company Limited (bk)
Subsidiaries where the effective interest
is less than 100%
H.I. Soaltee Management Company Ltd (76.5%) (ac)
IHG ANA Hotels Group Japan LLC (74.66%) (ar)
IHG ANA Hotels Holdings Co., Ltd. (66%) (ar)
World Trade Centre Montreal Hotel Corporation
(74.11%) (bl)
Associates and joint ventures
111 East 48th Street Holdings LLC (19.9%) (g) (h) (bz)
Alkoer, S. de R.L. de C.V. (50%) (h) (cg)
BCRE IHG 180 Orchard Holdings LLC (49%) (g) (cf)
Beijing Orient Express Hotel Co., Ltd. (16.24%) (bm)
Blue Blood (Tianjin) Equity Investment Management
Co., Limited (30.05%) (bn)
Carr Clark SWW Subventure, LLC (26.67%) (g) (ca)
Carr Waterfront Hotel, LLC (11.46%) (g) (h) (ca)
China Hotel Investment Limited (30.05%) (i) (am)
Desarrollo Alkoer Irapuato S. de R.L. de C.V.
(50%) (cg)
Desarrollo Alkoer Silao S. de R.L. de C.V. (50%) (cg)
D.I.H. (Cyprus) SPV (No.2) Limited (24%) (bo)
D.I.H. (Cyprus) SPV (No.4) Limited (24%) (bo)
D.I.H. (Cyprus) SPV (No.6) Limited (24%) (bo)
D.I.H. (Cyprus) SPV (No.7) Limited (24%) (bo)
D.I.H. (Cyprus) SPV (No.12) Limited (24%) (bo)
Duet India Hotels (Ahmedabad) Private Ltd (24%) (bp)
Duet India Hotels (Bangalore) Private Ltd (24%) (bp)
Duet India Hotels (Chennai OMR) Private Ltd
(24%) (bp)
Duet India Hotels (Chennai) Private Ltd (24%) (bp)
Duet India Hotels (Hyderabad) Private Ltd (24%) (bp)
Duet India Hotels (Mumbai) Private Ltd (24%) (bp)
Duet India Hotels (Nagpur) Private Ltd (24%) (bp)
Duet India Hotels (Navi Mumbai) Private Ltd
(24%) (bq)
Duet Smart Hotels (India) Limited (24%) (bo)
Duet Smart Hotels (India) SPV (No. 1) Limited
(24%) (bo)
Duet Smart Hotels (India) SPV (No. 3) Limited
(24%) (bo)
Gestion Hotelera Gestel, C.A. (50%) (c) (h) (ba)
H.I. Soaltee Hotel Company Private Ltd (33.4%) (br)
Hotel JV Services LLC (16.67%) (c) (g) (cb)
Inter-Continental Hotels Saudi Arabia Limited
(40%) (bs)
Maya Baiduri Sdn Bhd (49%) (bt)
NF III Seattle, LLC (25%) (g) (cc)
Nuevas Fronteras S.A. (23.66%) (cd)
Panacon (33.33%) (ce)
President Hotel & Tower Co Ltd. (30%) (bu)
Tianjin ICBCI IHG Equity Investment Fund
Management Co., Limited (21.04%) (bv)
144
IHG Annual Report and Form 20-F 2016
Group Financial Statements
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUED 33. Group companies continued
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Directly owned by InterContinental
Hotels Group PLC
Ordinary shares and preference shares
Ordinary A and ordinary B shares
Ordinary shares and redeemable
preference shares
1/4 vote ordinary shares and ordinary
shares
Ordinary shares, 5% cumulative
preference shares and 7% cumulative
preference shares
The entities do not have share capital and
are governed by an operating agreement
Accounted for as associates and joint
ventures due to IHG’s decision-making
rights contained in the partnership
agreement
Accounted for as an other financial asset
due to IHG being unable to exercise
significant influence over the financial and
operating policy decisions of the entity
Registered addresses
(j)
(k)
Beograd, Cincar, Jankova 3, Serbia
Three Ravinia Drive, Suite 100, Atlanta, GA
30346, USA
222 Kearny Street – Suite 200, San
Francisco, CA 94108, USA
Clarendon House, Church Street West,
Bermuda
Broadwater Park, Denham,
Buckinghamshire, UB9 5HR, UK
199 Bay Street, Suite 2800, Commerce
Court West, Toronto, ON M5L 1A9, Canada
Kingsfordweg 151, 1043 GR Amsterdam,
The Netherlands
26 Blvd. Royal, L-2449, Luxembourg
Nieuwezijds Voorburgwal 5, 1012 RC
Amsterdam, The Netherlands
Caledonian Exchange, 19a Canning Street,
Edinburgh, EH3 8HE, UK
Building 4, No. 13 Xiao Gang Zhong Ma
Road, Zhuhai District, Guangzhou,
Guangdong, P.R.China
29 Earlsfort Terrace, Dublin 2, D02 AY28,
Ireland
Craigmuir Chambers, Road Town, Tortola
VG1110, British Virgin Islands
Wilmington Trust SP Services, Inc. 1105
North Market Street, Suite 1300,
Wilmington, DE 19801, USA
31–33 rue Mogador – 75009 Paris, France
Bucharest, 1st District, 50–52 Buzesti St,
83 module, 11 floor, Romania
230 J E Irausquin Boulevard, Palm Beach,
Aruba
Level 11, 20 Bond Street, Sydney NSW
2000, Australia
Ontario # 1050, Col. Providencia.
Guadalajara, Jalisco CP 44630, Mexico
Level 54, Hopewell Center, 183 Queen’s
Road East, Hong Kong
Rond Punt Schumanplein 11, 1040
Brussels, Belgium
Johannesgasse 28, 1030 Wien, Am
Heumarkt 4, 1030 Wien, Austria
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
(aa)
(ab)
(ac)
(ad)
(ae)
(af)
(ag)
(ah)
(ai)
(aj)
(ak)
(al)
(am)
(an)
(ao)
(ap)
(aq)
(ar)
(as)
(at)
(au)
(av)
(aw)
(ax)
(ay)
(az)
(ba)
(bb)
(bc)
(bd)
(be)
(bf)
(bg)
(bh)
Avenida da Republica, no 52 – 9, 1069 – 211,
Lisbon, Portugal
24, Rusakovskaya Str., Moscow 107014,
Russian Federation
967 Rama I Road, Patumwan, Bangkok,
Thailand
230 Victoria Street, #13-00 Bugis Junction
Towers, 188024, Singapore
973 President Tower, 7th Floor, Units 7A,
7B, 7C, 7D, 7I, 7F, 7G and 7H, Ploenchit
Road, Khwaeng Lumpini, Khet
Pathumwan, Bangkok Metropolis, 10330,
Thailand
Alameda Jau 536 #3S-B, Sao Paulo, Brazil
Avenida Cordoba 1547, piso 8, oficina A,
Buenos Aires, Argentina
The Phoenix Centre, George Street,
Belleville St. Michael, Barbados
Floor 9, 36 Kitchener Street, Auckland
Central, Auckland 1010, New Zealand
1, Murtala Muhammed Drive, Ikoyi, Lagos,
Nigeria
Central Office Park Unit 4, 257 Jean
Avenue, Centurion 0157, South Africa
11th Floor, Building No. 10, Tower C, DLF
Phase-II, DLF Cyber City, Gurgaon,
Haryana-122002, India
20th Floor, Toranomon Kotohira Tower,
2–8, Toranomon 1-chome, Minato-ku,
Tokyo, Japan
HIQ Corporate Services Inc., 715 St. Paul
Street, Baltimore, MD 21202, USA
1052 Budapest, Apáczai Csere János u.
12–14, Hungary
Budapester Str. 2, D-107887, Berlin,
Germany
Koenigsallee 59, D-40215, Dusseldorf,
Germany
Av Das Americas 500, Bloco 3, Sala 316,
Barra da Tijuca CEP 22640-100, Rio de
Janeiro, Brazil
InterContinental Montreal, 360 St. Antoine
Street West, Montreal, Quebec H2Y 3X4,
Canada
BDO LLP, Two Snowhill, Birmingham, B4
6GA, UK
361 San Francisco Street Penthouse, San
Juan, PR 00901, Puerto Rico
Hotel Tamanaco Inter-Continental, Final
Av. Ppal, Mercedes, Caracas, Venezuela
2nd Floor, Citigroup Tower, No. 33
Huayuanshiqiao Road, Pudong, Shanghai,
P.R. China
Almeda Santos 1893 – 3o Andar, Cerqueira
Cesar, Sao Paulo, Brazil
Alameda Santos, 1893, 3rs Floor, Sao
Paulo, Brazil
Via Settembrini 35, Milano, Italy
Am Hauptbahnhof, D-60329, Frankfurt,
Germany
JurisTax Services Ltd, Level 12,
NeXTeracom Tower II, Ebene, Mauritius
Menara Impreium 22nd Floor, Suite D, JI.
HR. Rasuna Said Kav.1, Guntur Sub-
district, Setiabudi District, South Jakarta
12980, Indonesia
(bi)
(bj)
(bk)
(bl)
(bm)
(bn)
(bo)
(bp)
(bq)
(br)
(bs)
(bt)
(bu)
(bv)
(bw)
(bx)
(by)
(bz)
(ca)
(cb)
(cc)
(cd)
(ce)
(cf)
(cg)
(ch)
(ci)
150 South Champlain Street, Burlington,
VT 05401, USA
Calle 16, No28–51, Variante las Palmas,
Colombia
Suite B, Ground Floor, Regal House,
Queensway, Gibraltar
Suite 2500, 1000 De La Gauchetiere St.
West, Montreal QC H3B 0A2, Canada
Room 311, Building 1, No 16 East Wen Hua
Yuan Road, Beijing Economy and
Technology Development Zone, Beijing,
P.R.China
Room N306, 3rd Floor, Building 6, Binhai
Financial Street, No. 52 West Xincheng
Road, Tianjin Economy and Technology
Development Zone, Tianjin, P.R.China
36, Byron Avenue,Nicosia Tower Center,
8th floor, 1096 Nicosia, Cyprus
No 1, Unitech Trade Centre, Sector-43,
Gurgaon HR 122002, India
146, 14th Floor, Makers Chambers 6,
Nariman Point, Mumbai MH 400021, India
Tahachal, Kathmandu, Nepal
Madinah Road, Jeddah, P.O Box 9456, Post
Code 21413, Jeddah, Saudi Arabia
20th Floor Menara Haw Par, Jalan Sultan
Ismail, Kuala Lumpur, Wilayah
Persekutuan, 50250, Malaysia
971, 973 Ploenchit Road, Lumpini,
Pathumwan, Bangkok 10330, Thailand
Room R316, 3rd Floor, Building 6, Binhai
Financial Street, No. 52 West Xincheng
Road, Tianjin Economy and Technology
Development Zone, Tianjin, P.R.China
195 Arch. Markarios III Ave., Neocleous
House, 3030 Limassol, Cyprus
Eski Büyükdere Cd. Park Plaza No:14 K:4
Maslak – Sarıyer, Istanbul, Turkey
Paseo de la Castellana 49, 28046 Madrid,
Spain
111 East 48th Street, New York NY 10017,
USA
Carr Hospitality, LLC, 1455 Pennsylvania
Avenue, NW, Suite 100, Washington DC
20004, USA
3811 Turtle Creek Blvd., Suite 1450, Dallas,
TX 75219, USA
2000 Monarch Tower, 3424 Peachtree
Road, N.E., Atlanta GA 30326, USA
Moreno 809 2 Piso, Buenos Aires,
Argentina
Pan-American Life Insurance Company,
601 Poydras Street, New Orleans LA 70130,
USA
Brack Capital Real Estate Ltd., 885 Third
Avenue, 24th Floor, New York NY 10022,
USA
Campos Elíseos 223, piso 7, Colonia
Polanco, 11560, Mexico City, Mexico
Port Moresby Travelodge, Hunter Street,
Section 27, Allotments 26 and 27, Granville,
Port Moresby, National Capital District,
Papua New Guinea
Ground Floor, Al Kamel Law Building, Plot
52-b, Banks Area, Six of October City, Egypt
Notes to the Group Financial Statements
IHG Annual Report and Form 20-F 2016
145
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
Parent
Company
Financial
Statements
148 Parent Company
Financial Statements
148 Parent Company statement
of financial position
148 Parent Company statement
149
of changes in equity
Notes to the Parent Company
Financial Statements
146
IHG Annual Report and Form 20-F 2016
Parent Company Financial Statements
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
Parent Company Financial Statements
IHG Annual Report and Form 20-F 2016
147
The Kimpton Hotel Wilshire, Los Angeles, California, US
Parent Company Financial Statements
Parent Company statement of financial position
31 December 2016
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
Total equity
Signed on behalf of the Board
Paul Edgecliffe-Johnson
20 February 2017
Note
2016
£m
2015
£m
3
4
5
6
8
3,019
3,001
24
(917)
(893)
2,126
(1,047)
1,079
39
75
7
252
706
1,079
30
(551)
(521)
2,480
(697)
1,783
39
75
7
234
1,428
1,783
The profit on ordinary activities after taxation amounts to £455m (2015: £659m).
Parent Company statement of changes in equity
At 1 January 2015
Profit for the year
Total comprehensive income for the year
Share-based payments capital contribution
Equity dividends paid
At 31 December 2015
Profit for the year
Total comprehensive income for the year
Transaction costs relating to shareholder returns
Share-based payments capital contribution
Equity dividends paid
At 31 December 2016
Notes on pages 149 to 153 form an integral
part of these Financial Statements.
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Share-based
payment
reserve
£m
Profit
and loss
account
£m
39
–
–
–
–
39
–
–
–
–
–
39
75
–
–
–
–
75
–
–
–
–
–
75
7
–
–
–
–
7
–
–
–
–
–
7
218
–
–
16
–
234
–
–
–
18
–
252
890
659
659
–
(121)
1,428
455
455
(1)
–
(1,176)
706
Total
equity
£m
1,229
659
659
16
(121)
1,783
455
455
(1)
18
(1,176)
1,079
148
IHG Annual Report and Form 20-F 2016
Parent Company Financial Statements
Notes to the Parent Company
Financial Statements
1. Accounting policies
Authorisation of Financial Statements and statement of compliance with FRS 101
The Parent Company Financial Statements of InterContinental Hotels Group PLC (the Company) for the year ended 31 December 2016 were
authorised for issue by the Board of Directors on 20 February 2017 and the statement of financial position was signed on the Board’s behalf
by Paul Edgecliffe-Johnson. The Company is a public limited company incorporated and domiciled in the UK. The Company’s ordinary shares
are publicly traded on the London Stock Exchange and it is not under the control of any single shareholder.
The Directors have assessed, in the light of current and anticipated economic conditions, the Company’s ability to continue as a going concern.
The Directors confirm they have a reasonable expectation that the Company has adequate resources to continue in operational existence for
the foreseeable future, and accordingly, they continue to adopt the going concern basis in preparing the Parent Company Financial Statements.
For further consideration of the going concern position
of the Group see page 163 of the Directors’ Report.
The Parent Company Financial Statements are presented in sterling and all values are rounded to the nearest million pound (£m) except
when otherwise indicated.
These Financial Statements have been prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101).
No income statement is presented for the Company as permitted by Section 408 of the Companies Act 2006. There were no gains or losses
either in the current or preceding years recognised in other comprehensive income.
The audit fee of £0.02m (2015: £0.02m) was borne by a subsidiary undertaking in both years.
Basis of preparation
The Parent Company Financial Statements have been prepared in accordance with FRS 101, as applied in accordance with the provisions of the
Companies Act 2006. FRS 101 sets out a reduced disclosure framework for a ‘qualifying entity’ as defined in the standard which addresses the
financial reporting requirements and disclosure exemptions in the individual financial statements of qualifying entities that otherwise apply the
recognition, measurement and disclosure requirements of IFRS as adopted by the EU.
FRS 101 sets out amendments to IFRS as adopted by the EU that are necessary to achieve compliance with the Companies Act and related
Regulations.
The following disclosures have not been provided as permitted by FRS 101:
• a Cash Flow Statement and related notes as required by IAS 7 ‘Statement of Cash Flows’;
• a comparative period reconciliation for share capital as required by IAS 1 ‘Presentation of Financial Statements’;
• disclosures in respect of transactions with wholly owned subsidiaries as required by IAS 24 ‘Related Party Disclosures’;
• disclosures in respect of capital management as required by paragraphs 134 to 136 of IAS 1 ‘Presentation of Financial Statements’;
• the effects of new but not yet effective IFRSs as required by paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting
Estimates and Errors’; and
• disclosures in respect of the compensation of Key Management Personnel as required by paragraph 17 of IAS 24 ‘Related Party Disclosures’.
As the Consolidated Financial Statements of the Company include the equivalent disclosures, the Company has also taken the exemptions
under FRS 101 available in respect of the following disclosures:
• the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 ‘Share-based Payment’ in respect of group settled share-based payments; and
• the requirements of paragraphs 91 to 99 of IFRS 13 ‘Fair Value Measurement’ and the disclosures required by IFRS 7 ‘Financial Instruments:
Disclosures’.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
Financial Statements.
Notes to the Parent Company Financial Statements
IHG Annual Report and Form 20-F 2016
149
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1. Accounting policies continued
Foreign currency
Transactions in foreign currencies are translated to the Company’s 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.
Where dividends have been proposed in US dollars, the supplementary information included in note 9 to the Financial Statements details the
exchange rates which will be used to calculate the sterling dividend payable.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity securities, amounts due from and amounts due to Group undertakings
and loans and borrowings.
Investments in equity securities
Investments in subsidiaries are carried at cost plus deemed capital contributions arising from share-based payment transactions less any
provision for impairment. The carrying amount is reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of
an asset exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement.
Amounts due from and amounts due to Group undertakings
Amounts due from and amounts due to Group undertakings are initially recognised at fair value. Subsequent to initial recognition they are
measured at amortised cost using the effective interest method, less any impairment losses. The carrying value is assessed at each reporting
date to determine whether there is objective evidence that it is impaired. An impairment loss is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.
Interest-bearing borrowings
Interest-bearing 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 due after more than one year 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.
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.
Where the Company grants options over its own shares to the employees of its subsidiaries, it recognises, in the Parent Company Financial
Statements, an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment charge recognised
in its Consolidated Financial Statements with the corresponding credit being recognised directly in equity.
150
IHG Annual Report and Form 20-F 2016
Parent Company Financial Statements
2. Directors’ remuneration
The average number of Directors employed by the Company during the year, analysed by category, was as follows:
Non-Executive Directors
Executive Directors
Directors’ emoluments
Base salaries, fees, performance payments and benefits
More detailed information on the emoluments, pensions, share awards and shareholdings
for each Director is shown in the Directors’ Remuneration Report on pages 64 to 81.
Pension benefits are accruing to the following number of Directors under defined contribution plans
The number of Directors in respect of whose qualifying services shares were received or receivable
under long-term incentive schemes was
3. Investments
Cost and net book value
At 1 January 2016
Share-based payments capital contribution
At 31 December 2016
2016
2015
8
2
10
9
3
12
2016
£m
2015
£m
4.5
5.2
Number of Directors
2016
2015
–
4
1
4
£m
3,001
18
3,019
The Company is the beneficial owner of all the equity share capital of InterContinental Hotels Limited, a company registered in England and Wales.
A full list of subsidiary and other related undertakings is given in
note 33 of the Group Financial Statements on pages 143 to 145.
4. Debtors
Amounts owed by Group undertakings
Corporate taxation
2016
£m
10
14
24
2015
£m
18
12
30
Notes to the Parent Company Financial Statements
IHG Annual Report and Form 20-F 2016
151
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
5. Creditors: amounts falling due within one year
£250m 6% bonds 2016 (note 6)
Amounts due to Group undertakings
6. Creditors: amounts falling due after more than one year
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
2016
£m
–
917
917
2016
£m
397
301
349
1,047
2015
£m
251
300
551
2015
£m
397
300
–
697
The 6% fixed interest sterling bonds were issued on 9 December 2009 and were repaid in full on 9 December 2016.
The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable in full on 28 November 2022. Interest is payable
annually on 28 November. The bonds were initially priced at 98.787% of face value and are unsecured.
The 3.75% fixed interest sterling bonds were issued on 14 August 2015 and are repayable in full on 14 August 2025. Interest is payable annually
on 14 August. The bonds were initially priced at 99.014% of face value and are unsecured.
The 2.125% fixed interest sterling bonds were issued on 24 August 2016 and are repayable in full on 24 August 2026. Interest is payable annually
on 24 August. The bonds were initially priced at 99.45% of face value and are unsecured.
7. Employee benefits
Share-based payments
The Company operates the Annual Performance Plan and Long Term Incentive Plan (performance-related awards and restricted stock units).
More detailed information on the plans is shown in note 26
of the Group Financial Statements on pages 137 to 138.
The weighted average share price at the date of exercise for share awards vested during the year was 2,511.1p (2015: 2,592.1p).
The share awards outstanding at the year end have a weighted average contractual life of 1.2 years (2015: 1.2 years) for the Annual Performance
Plan, 0.9 years (2015: 1.1 years) for performance-related awards and 2.2 years (2015: n/a) for restricted stock units.
152
IHG Annual Report and Form 20-F 2016
Parent Company Financial Statements
8. Capital and reserves
Allotted, called up and fully paid
At 1 January 2015 and 31 December 2015 (ordinary shares of 15 265/329p each)
Share capital consolidation
At 31 December 2016 (ordinary shares of 18318/329p each)
Number
of shares
millions
248
(42)
206
Equity
share
capital
£m
39
–
39
The authority given to the Company at the Annual General Meeting (AGM) held on 6 May 2016 to purchase its own shares was still valid at 31
December 2016. A resolution to renew the authority will be put to shareholders at the AGM on 5 May 2017.
The Company no longer has an authorised share capital.
At 31 December 2016, 8,862,380 (2015: 11,538,456) shares with a nominal value of £1,680,889 (2015: £1,823,707) were held as treasury shares
at cost.
The share premium reserve represents the amount of proceeds received for shares in excess of their nominal value.
9. Dividends and shareholder returns
Paid during the year:
Final (declared for previous year)
Interim
Special
2016
pence per
share
2015
pence per
share
2016
£m
2015
£m
40.3
22.6
438.2
501.1
33.8
17.7
–
51.5
95
45
1,036
1,176
79
42
–
121
On 23 February 2016, the Group announced a $1.5bn return of funds to shareholders by way of a special dividend and share consolidation.
On 6 May 2016, shareholders approved the share consolidation on the basis of 5 new ordinary shares of 18 318/329p per share for every 6 existing
ordinary shares of 15265/329p, which became effective on 9 May 2016. The special dividend was paid to shareholders on 23 May 2016, at a total cost
of £1.0bn. The dividend and share consolidation had the same economic effect as a share repurchase at fair value, therefore previously reported
earnings per share has not been restated.
The final dividend of 64.0¢ per ordinary share (amounting to $126m) is proposed for approval at the AGM on 5 May 2017 and is payable on shares
in issue at 5 May 2017.
In February 2017, the Board proposed a $400m return of funds to shareholders by way of a special dividend of 202.5¢ per ordinary share,
together with a share consolidation. IHG pays its dividends in pounds sterling and US dollars. The final and special sterling dividends will
be paid at a rate per share calculated using the average of the daily exchange rates from 8 May 2017 to 10 May 2017 inclusive, and will be
announced on 11 May 2017.
10. Contingencies
Contingent liabilities of £89m (2015: £1m) in respect of the guarantees of the liabilities of subsidiaries have not been provided for in these
Financial Statements.
Notes to the Parent Company Financial Statements
IHG Annual Report and Form 20-F 2016
153
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Additional
Information
156 Other financial information
160 Directors’ Report
Group information
164
164 History and developments
164 Risk factors
167
169
168
Directors' and Executive Committee
members’ shareholdings
Executive Directors’ benefits upon
termination of office
Description of securities other
than equity securities
169 Articles of Association
170 Working Time Regulations 1998
171 Material contracts
172 Legal proceedings
172
Exchange controls and restrictions
on payment of dividends
Shareholder information
173
173 Taxation
175 Disclosure controls and procedures
176
Summary of significant corporate
governance differences from NYSE
listing standards
Selected five-year consolidated
financial information
177
178 Return of funds
178
Purchases of equity securities by the
Company and affiliated purchasers
Exhibits
Form 20-F cross-reference guide
179 Share price information
179 Dividend history
180 Shareholder profiles
181
182
184 Glossary
Useful information
186
186
Investor information
187 Financial calendars
187 Contacts
188
Forward-looking statements
154
IHG Annual Report and Form 20-F 2016
Additional Information
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
G
R
O
U
P
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
P
A
R
E
N
T
C
O
M
P
A
N
Y
F
N
A
N
C
I
I
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
HUALUXE Hotels & Resorts Nanchang High-Tech Zone, People’s Republic of China
Additional Information
IHG Annual Report and Form 20-F 2016
155
Other financial information
Use of Non-GAAP measures
In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional measures (described
as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either
not defined under IFRS or are adjusted IFRS figures.
Further explanation in relation to these measures can be found on page 26.
Underlying revenue and underlying operating profit Non-GAAP reconciliations
The following tables:
• show underlying revenue and underlying operating profit on both an actual and constant currency basisa;
• reconcile segmental underlying revenue and underlying operating profit to Group underlying revenue and operating profit;
• show underlying Group fee revenue and Group fee margin on both an actual and constant currency basisa; and
• reconcile Group underlying revenue and underlying operating profit to the GAAP measures included in the Group Financial Statements.
Highlights for the year ended 31 December 2016
Underlying revenue
Americas
Europe
AMEA
Greater China
Central
Underlying Group revenue
Owned and leased revenue included above
Underlying Group fee revenue
Underlying operating profit
Americas
Europe
AMEA
Greater China
Central
Underlying Group operating profit
Owned and leased profit included above
Underlying Group fee profit
At actual exchange rates
At constant currency
2016
$m
2015
$m
Change
$m
Change
%
2016
$m
2015
$m
Change
$m
Change
%
959
150
186
117
141
1,553
(173)
1,380
633
73
77
45
(128)
700
(26)
674
914
160
195
109
135
1,513
(164)
1,349
594
76
81
41
(151)
641
(27)
614
45
(10)
(9)
8
6
40
(9)
31
39
(3)
(4)
4
23
59
1
60
4.9%
(6.3)%
(4.6)%
7.3%
4.4%
2.6%
(5.5)%
2.3%
6.6%
(3.9)%
(4.9)%
9.8%
15.2%
9.2%
3.7%
9.8%
967
161
187
123
144
1,582
(173)
1,409
640
76
78
47
(139)
702
(26)
676
914
160
195
109
135
1,513
(164)
1,349
594
76
81
41
(151)
641
(27)
614
53
1
(8)
14
9
69
(9)
60
46
–
(3)
6
12
61
1
62
5.8%
0.6%
(4.1)%
12.8%
6.7%
4.6%
(5.5)%
4.4%
7.7%
–
(3.7)%
14.6%
7.9%
9.5%
3.7%
10.1%
Group fee margin
48.8%
45.5%
–
3.3ppts
48.0
45.5%
–
2.5ppts
Underlying at actual exchange rates
Owned asset disposals
Managed leases
Liquidated damages
Exceptional items
Per Group income statement
Revenue
Operating profit
2016
$m
1,553
–
162
–
–
2015
$m
1,513
128
159
3
–
1,715
1,803
2016
$m
700
–
7
–
(29)
678
2015
$m
641
30
6
3
819
1,499
a IHG’s method for calculating the constant currency amounts of entities reporting in currencies other than US dollars is to translate the current period results into US dollars using the prior
period’s exchange rate. For example, if a UK entity generated revenue of £100m in 2016 and 2015, the Group Financial Statements would report revenue of $135m in 2016 and $154m in 2015,
using the respective average exchange rates for the year of $1=£0.74 and $1=£0.65. For constant currency reporting, 2016 revenue would be translated at $1=£0.65 giving a US dollar value of
$154m, thereby showing that underlying revenue was flat year-on-year.
156
IHG Annual Report and Form 20-F 2016
Additional Information
Highlights for the year ended 31 December 2015
Underlying revenue
Americas
Europe
AMEA
Greater China
Central
Underlying Group revenue
Owned and leased revenue included above
Underlying Group fee revenue (exc Kimpton)
Kimpton
Underlying Group fee revenue (inc Kimpton)
Underlying operating profit
Americas
Europe
AMEA
Greater China
Central
Underlying Group operating profit
Owned and leased profit included above
Underlying Group fee profit (exc Kimpton)
Kimpton
Underlying Group fee profit (inc Kimpton)
2015
$m
858
160
195
109
135
1,457
(164)
1,293
56
1,349
579
76
81
41
(151)
626
(27)
599
15
614
At actual exchange rates
2014
$m
Change
$m
Change
%
803
173
201
103
129
1,409
(154)
1,255
–
1,255
538
73
80
47
(155)
583
(22)
561
–
561
55
(13)
(6)
6
6
48
(10)
38
56
94
41
3
1
(6)
4
43
(5)
38
15
53
6.8%
(7.5)%
(3.0)%
5.8%
4.7%
3.4%
(6.5)%
3.0%
–
7.5%
7.6%
4.1%
1.3%
(12.8)%
2.6%
7.4%
(22.7)%
6.8%
–
9.4%
2015
$m
874
186
214
111
137
1,522
(170)
1,352
56
1,408
591
90
87
42
(160)
650
(28)
622
15
637
At constant currency
2014
$m
Change
$m
Change
%
803
173
201
103
129
1,409
(154)
1,255
–
1,255
538
73
80
47
(155)
583
(22)
561
–
561
71
13
13
8
8
113
(16)
97
56
153
53
17
7
(5)
(5)
67
(6)
61
15
76
8.8%
7.5%
6.5%
7.8%
6.2%
8.0%
(10.4)%
7.7%
–
12.2%
9.9%
23.3%
8.7%
(10.6)%
(3.2)%
11.5%
(27.3)%
10.9%
–
13.5%
Group fee margin (exc Kimpton)
46.3%
44.7%
–
1.6 ppts
46.0%
44.7%
–
1.3 ppts
Underlying at actual exchange rates
Owned asset disposals
Managed leases
Kimpton (excluding liquidated damages)
Liquidated damages
Exceptional items
Per Group income statement
Revenue
Operating profit
2015
$m
1,457
128
159
56
3
–
2014
$m
1,409
273
169
–
7
–
1,803
1,858
2015
$m
626
30
6
15
3
819
1,499
2014
$m
583
55
6
–
7
29
680
Other financial information
IHG Annual Report and Form 20-F 2016
157
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS OTHER FINANCIAL INFORMATION CONTINUED
RevPAR, average daily rate and occupancy
RevPAR, a key performance measure used by management (see page 26 for further information) comprises IHG System rooms revenue divided
by the number of room nights available and can be mathematically derived from occupancy multiplied by average daily rate. Occupancy is rooms
occupied by hotel guests expressed as a percentage of rooms that are available. Average daily rate is rooms revenue divided by the number of
room nights sold. RevPAR is a key indicator of performance as it measures period-over-period change in rooms revenue for comparable hotels.
The following tables present RevPAR statistics for the year ended December 31, 2016 and a comparison to 2015. Franchised, managed, owned and
leased statistics are for comparable hotels, and include only those hotels in the Group’s system at December 31, 2016 and franchised, managed,
owned or leased by the Group since January 1, 2015.
The comparison with 2015 is at constant US$ exchange rates.
Americas
InterContinental
Franchised
Managed
Owned and leased
Franchised
Managed
Owned and leased
2016
Change vs
2015
Change vs
2015
2016
2016
Change
vs 2015
Europe
2016
Change vs
2015
Change vs
2015
2016
2016
Change
vs 2015
InterContinental
Occupancy
68.7%
(0.0)ppt
78.1%
(1.3)ppt
81.5% 1.0ppt
Occupancy
66.4%
(4.3)ppt
69.6%
(1.0)ppt
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Average daily rate $147.42
6.3% $232.80
4.4% $319.06
$101.32
6.3% $181.81
2.7% $260.05
RevPAR
Kimpton
Occupancy
Average daily rate
RevPAR
Crowne Plaza
–
–
–
–
82.4%
1.7ppt
– $233.90
– $192.85
0.8%
2.9%
Occupancy
68.0%
(0.2)ppt
80.7%
(0.5)ppt
Average daily rate $119.91
1.9% $140.52
RevPAR
$81.56
1.5% $113.46
6.4%
5.7%
Hotel Indigo
Occupancy
71.6%
(0.9)ppt
86.0%
(0.3)ppt
Average daily rate $143.44
0.4% $192.70
(1.0)%
RevPAR
$102.76
(0.8)% $165.74
(1.3)%
EVEN Hotels
Occupancy
Average daily rate
RevPAR
Holiday Inn
–
–
–
–
–
–
–
–
–
–
–
–
2.2%
3.4%
Average daily rate $189.65
(0.5)% $217.49
(0.9)%
RevPAR
$125.93
(6.6)% $151.33
(2.4)%
–
–
–
–
–
–
–
–
–
Crowne Plaza
Occupancy
69.9%
(1.7)ppt
78.0%
3.7ppt
Average daily rate $121.67
2.2% $142.41
RevPAR
$85.06
(0.2)% $111.09
1.0%
6.1%
Hotel Indigo
Occupancy
78.1%
1.0ppt
75.7%
(2.5)ppt
Average daily rate $148.81
2.9% $171.48
RevPAR
$116.21
4.2% $129.77
(5.5)%
(8.6)%
Holiday Inn
Occupancy
71.5%
0.3ppt
70.3%
8.1ppt
Average daily rate $103.16
1.7% $69.27
(1.4)%
RevPAR
$73.79
2.1% $48.71
11.5%
Holiday Inn Express
–
–
–
–
–
–
–
–
–
69.5% 9.0ppt
Occupancy
77.3%
1.2ppt
61.9%
1.5ppt
$130.02
0.5%
Average daily rate $95.94
2.6% $56.22
$90.34
15.5%
RevPAR
$74.14
4.3% $34.78
Staybridge Suites
Occupancy
66.5%
0.1ppt
72.8%
1.9ppt
73.2% 2.1ppt
Occupancy
81.8%
(1.6)ppt
Average daily rate $111.59
2.5% $134.89
2.1% $155.99
(1.2)%
Average daily rate $124.47
RevPAR
$74.25
2.6% $98.25
4.9% $114.18
1.7%
RevPAR
$101.77
7.2%
5.2%
–
–
–
Holiday Inn Express
Occupancy
68.8%
0.2ppt
Average daily rate $111.52
RevPAR
$76.74
1.4%
1.7%
–
–
–
–
–
–
Staybridge Suites
Occupancy
75.9%
(0.3)ppt
82.3%
0.8ppt
Average daily rate $112.37
1.7% $137.74
RevPAR
$85.26
1.2% $113.38
4.2%
5.3%
Candlewood Suites
Occupancy
72.4%
(0.3)ppt
80.4%
(0.6)ppt
Average daily rate $82.25
0.8%
$81.74
RevPAR
$59.53
0.3% $65.69
2.0%
1.2%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
158
IHG Annual Report and Form 20-F 2016
Additional Information
1.4%
4.0%
–
–
–
Franchised
Managed
Owned and leased
Franchised
Managed
Owned and leased
Asia, Middle East
and Africa (AMEA)
2016
Change vs
2015
Change vs
2015
2016
2016
Change
vs 2015
Greater China
2016
Change vs
2015
Change vs
2015
2016
2016
Change
vs 2015
InterContinental
InterContinental
Occupancy
76.9%
2.4ppt
70.0%
0.4ppt
53.4% (1.3)ppt
Occupancy
83.6%
(0.6)ppt
60.5%
1.8ppt
Average daily rate $178.97
0.2% $204.64
0.5% $118.79
1.8%
Average daily rate $206.81
(4.1)% $132.63
(1.3)%
RevPAR
$137.55
3.4% $143.20
1.0%
$63.38
(0.6)%
RevPAR
$172.80
(4.7)% $80.19
1.7%
Crowne Plaza
Occupancy
73.6%
(2.3)ppt
72.4%
(0.2)ppt
Average daily rate $93.39
4.8% $120.03
RevPAR
$68.78
1.5% $86.95
(1.0)%
(1.3)%
–
–
–
–
–
–
Holiday Inn
Crowne Plaza
Occupancy
Average daily rate
RevPAR
Hotel Indigo
Occupancy
67.6%
0.6ppt
74.0%
0.7ppt
95.5%
1.5ppt
Occupancy
Average daily rate $102.73
(3.2)% $98.26
(2.8)% $114.04
RevPAR
$69.40
(2.4)% $72.68
(1.9)% $108.90
2.8%
4.5%
Average daily rate
RevPAR
Holiday Inn
–
–
–
–
–
–
–
–
–
–
59.9%
3.4ppt
$84.36
(1.5)%
$50.53
4.5%
67.9%
(2.3)ppt
– $178.21
0.9%
– $120.95
(2.4)%
Holiday Inn Express
Occupancy
66.8%
(1.0)ppt
70.6%
5.8ppt
Average daily rate $64.37
(6.6)% $64.64
(6.1)ppt
RevPAR
$42.97
(7.9)% $45.63
2.3%
Staybridge Suites
Occupancy
Average daily rate
RevPAR
Other
–
–
–
–
71.8%
(4.2)ppt
– $162.21
3.3%
–
$116.41
(2.4)%
Occupancy
79.5%
(3.3)ppt
88.9%
(1.3)ppt
Average daily rate $68.07
0.6% $93.69
12.3%
RevPAR
$54.12
(3.4)% $83.28
10.7%
Occupancy
75.2%
(5.0)ppt
66.4%
3.9ppt
Average daily rate $111.48
(8.5)% $73.75
(3.2)%
RevPAR
$83.82
(14.2)% $48.93
2.9%
Holiday Inn Express
Occupancy
72.1%
(10.5)ppt
72.7%
2.1ppt
Average daily rate $36.15
13.5% $51.24
RevPAR
$26.06
(1.0)% $37.26
0.6%
3.5%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Other financial information
IHG Annual Report and Form 20-F 2016
159
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Directors’ 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 48 to 63
and incorporated by reference herein.
Dividends
In 2016, the Company announced a $1,500m return of funds to
shareholders via special dividend and share consolidation on the basis
of five ordinary shares of 18 318/329 pence per share for every six existing
ordinary shares of 15 265/329 pence each (effective as of 9 May 2016).
Subsidiaries, joint ventures and associated undertakings
The Group has over 300 subsidiaries, joint ventures and associated
undertakings. A complete list of these entities is provided at note
33 of the Group Financial Statements on pages 143 and 145.
Directors
For biographies of the current Directors see pages 50 and 51.
Directors’ and officers’ (D&O) liability insurance and existence
of qualifying indemnity provisions
The Company maintains the Group’s D&O liability insurance policy,
which covers Directors and officers of the Company defending civil
proceedings brought against them in their capacity as Directors or
officers 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 2016.
Articles of Association
The Company’s Articles of Association 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 169 and 170.
Shares
Share capital
The Company’s issued share capital at 31 December 2016 consisted
of 206,379,760 ordinary shares of 18318/329 pence each, including
8,862,380 shares held in treasury, which constitute 4.3 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 2016:
• 903,600 shares were transferred from treasury to the employee
share ownership trust; and
• the Company's issued share capital was subject to a five for six share
consolidation effective as of 9 May 2016 (see page 153).
As far as is known to management, IHG is not directly or indirectly
owned or controlled by another company or by any government. The
Board focuses on shareholder value-creation. When it decides to
return capital to shareholders, it considers all of its options, including
share buybacks and special dividends.
Share issues and buybacks
In 2016, the Company did not issue any new shares, nor did it buy back
any existing shares.
Dividend
Special dividend
A special dividend was paid to shareholders
on the register on 6 May 2016
Interim dividend
An interim dividend was paid on 7 October 2016
to shareholders on the register at the close of
business on 2 September 2016
Final dividend
Subject to shareholder approval, payable on
22 May to shareholders on the register at the
close of business on 5 May
Ordinary shares
ADRs
438.2p
632.9¢
22.6p
30.0¢
64.0¢a
64.0¢
a The sterling amount of the final dividend will be announced on 11 May 2017 using
the average of the daily exchange rates from 8 May 2017 to 10 May 2017 inclusive.
Major institutional shareholders 31 December 2016
As at 31 December 2016, the Company had been notified of the
following significant holdings in its ordinary shares under the
UK Disclosure and Transparency Rules (DTRs):
As at
31 December
2016
As at
22 February
2016
Ordinary
shares
/ADSsa
%a
Ordinary
shares
/ADSsa
%a
10,930,440b
5.53
12,916,001b 5.47
As at
16 February
2015
Ordinary
shares
/ADSsa
n/a
%a
n/a
11,850,000
5.02
11,850,000
5.02
7,500,000
3.18
14,923,417
5.07
14,923,417
5.07
14,923,417
5.07
10,222,246
5.18
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
8,557,888
3.30
Shareholder
BlackRock,
Inc.
Boron
Investments
BV
Cedar Rock
Capital
Limited
Fundsmith
LLP
The Capital
Group
Companies,
Inc.
a The number of shares and percentage of voting rights was determined at the time of the
relevant disclosures made in accordance with Rule 5 of the DTRs and doesn’t reflect the
impact of any share consolidation or any changes in shareholding subsequent to the date
of notification that are not required to be notified to us under the DTRs.
b Total shown includes 473,742 contracts for difference and 523,127 qualifying financial
instruments to which voting rights are attached.
In the period from 31 December 2016 to 20 February 2017 no further
notifications have been received. 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 180.
160
IHG Annual Report and Form 20-F 2016
Additional Information
2016 share awards and grants to employees
Our current policy is to settle the majority of awards or grants under
the Company’s share plans with shares purchased in the market or
from shares held in treasury; however, the Board continues to review
this policy. The Company's share plans incorporate the current
Investment Associations' guidelines on dilution which provide that
commitments to new shares or re-issue treasury shares under
executive plans should not exceed 5% of the issued ordinary share
capital of the company (adjusted for share issuance and cancellation) in
any 10 year period. During the financial year ended 31 December 2016,
the Company transferred 903,600 treasury shares (0.4% of issued
share capital) to satisfy obligations under its share plans.
The estimated maximum dilution from awards made under the
Company's shareplans over the last 10 years is 1.9%.
As at 31 December 2016, 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 receives treasury shares from the Company and
purchases ordinary shares in the market and releases them to current
and former employees in satisfaction of share awards. During 2016, the
ESOT released 1,290,460 shares and at 31 December 2016 it held
846,236 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.
Future business developments of the Group
Further details on these are set out in the Strategic Report on pages
2 to 45.
Employees and Code of Conduct
Having a predominantly franchised and managed business model
means that not all of those people who work at hotels operated under
our brands 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 2016.
IHG employed the following as at 31 December 2016:
• 6,587 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;
• 5,434 people who worked directly on behalf of the System Fund
and whose costs were borne by the System Fund; and
• 22,002 General Managers and (in the US predominantly) other hotel
workers, who work in managed hotels, who have contracts or letters
of service with IHG and whose costs are borne by those hotels.
See notes 3 and 32 of the Group Financial Statements on pages 111 and
162 for more information.
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 pages 14 and 15.
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 to 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 176.
For more information on the Group’s employment policies, including
equal opportunities, employee communications and development,
see pages 18 and 19.
Directors’ Report
IHG Annual Report and Form 20-F 2016
161
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS DIRECTORS’ REPORT CONTINUED
Greenhouse gas (GHG) emissions
By delivering more environmentally sustainable hotels, we can drive cost
efficiencies for owners and meet the expectations of all our stakeholders.
We recognise the importance of reducing our global GHG emissions for
corporate offices and hotels – our target is to reduce our carbon footprint
per occupied room by 12 per cent across our entire estate by 31
December 2017 (against a 2012 baseline). See page 25 for progress.
Reporting
boundary
Global – corporate
offices and
franchised,
managed,
owned and
leased hotelsb
(a KPI and part
of our five-year
targets)
Global – corporate
offices and managed,
owned and
leased hotelsb
(as required under
the Companies
Act 2006)
Measure
Scope 1 Direct
emissions (tCO2e)
Scope 2 Indirect
emissions (tCO2e)
Total GHG
emissions (tCO2e)
IHG’s chosen intensity
measurement GHG
emissions per occupied
room (kgCO2e per
occupied room)
Scope 1 Direct
emissions (tCO2e)
Scope 2 Indirect
emissions (tCO2e)
Total GHG
emissions (tCO2e)
IHG’s chosen intensity
measurement GHG
emissions per occupied
room (kgCO2e per
occupied room)
2016a
2015a
1,523,036.72
1,421,059.96
3,965,854.95
3,802,419.31
5,488,891.67
5,223,479.27
31.30
31.39
557,848.94
514,546.74
1,922,767.88
1,817,196.67
2,480,616.83
2,331,743.40
52.19
53.20
a 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.
b Includes all of our branded hotels but does not include emissions from 105 hotels. We do
not have sufficient data to estimate their emissions and believe them to be immaterial.
Scope
We report Scope 1 and Scope 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 to assess our performance over
the past few years. The external consultants use a sampling and
extrapolation methodology to estimate our GHG emissions. For 2016,
in line with the methodology set out in the GHG Protocol Corporate
Standard, the sample covered 4,267 (86%) of our 4,970 hotels. As IHG’s
System size is continually changing and the number of 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.
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 128 to 131.
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 10-year £400m bond issued by the Company on 28 November
2012, under which, if the bond’s credit rating was downgraded in
connection with a change of control, the bond holders would have the
option to require the Company to redeem or, at the Company’s option,
repurchase the outstanding notes together with interest accrued;
• the $1.275bn syndicated loan facility agreement dated
30 March 2015 and maturing in March 2021, 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 10-year £300m bond issued by the Company on 14 August 2015,
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 10-year £350 million bond issued by the Company on 24 August
2016, 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.
Further details on material contracts are set out on page 171 .
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 Guest Reservation System. Otherwise, there are no specific
individual contracts or arrangements considered to be essential
to the business of the Group as a whole.
Disclosure of information to Auditor
For details, see page 85.
Events after the reporting period
In February 2017, we proposed a further $400 million return of funds
to shareholders via a special dividend with share consolidation.
Listing Rules – compliance with LR 9.8.4C
Section Applicable sub-paragraph within LR 9.8.4C
Location
1
4
Interest capitalised
Details of long-term incentive schemes
Group Financial
Statements, note 6,
page 113
Directors’ Remuneration
Report, pages 66 to 75
The above table sets out only those sections of LR 9.8.4C which are relevant. The remaining
sections of LR 9.8.4 are not applicable.
162
IHG Annual Report and Form 20-F 2016
Additional Information
Going concern
An overview of the business activities of IHG, including a review of the
key business risks that the Group faces, is given in the Strategic Report
on pages 2 to 47 and in the Group information on pages 128 to 131.
Information on the Group’s treasury management policies can be found
in note 22 to the Group Financial Statements on pages 91 to 97. In
February 2016, the Group extended the maturity of its $1.275bn facility
to March 2021 and a further one-year extension is exercisable in 2017.
In August 2016, the Group issued a ten-year £350m bond which replaces
the £250m bond that matured in December 2016.
At the end of 2016, the Group was trading significantly within its
banking covenants and debt facilities.
The Group’s fee-based model and wide geographic spread mean 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
Consolidated Financial Statements.
Please see page 22 for the Directors’ assessment of the viability
of the Group.
By order of the Board,
George Turner
Company Secretary
InterContinental Hotels Group PLC
Registered in England and Wales, Company number 5134420
20 February 2017
Directors’ Report
IHG Annual Report and Form 20-F 2016
163
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Group information
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.
Risk factors
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 risks that the Group does not
currently believe to be material could later turn out to be material.
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 188.
Recent acquisitions and divestitures
• The Group agreed to sell InterContinental Paris – Le Grand
on 7 December 2014 for €330 million, and the transaction
was completed on 20 May 2015.
• The Group agreed to acquire Kimpton Hotels & Restaurants
on 15 December 2014, and the transaction was completed
on 16 January 2015 for $430 million (before working capital
adjustments and cash acquired).
• The Group agreed to sell InterContinental Hong Kong on
10 July 2015 for $938 million, and the transaction was
completed on 30 September 2015.
• The Group also divested a number of investments for total proceeds
of $25 million in 2016.
Capital expenditure
• Capital expenditure in 2016 totalled $241 million compared
with $264 million in 2015 and $271 million in 2014.
• At 31 December 2016, capital committed (being contracts placed
for expenditure on property, plant and equipment, and intangible
assets not provided for in the Group Financial Statements) totalled
$97 million.
• The Group has also committed to invest in a number of its
associates, with an estimated outstanding commitment of
$36 million, based on current forecasts.
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 2017 may worsen due to uncertainty in Greater China
and the Eurozone, the impact of declining commodity prices (including
oil) on economies dependent on such exports, and continued unrest in
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. 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
to secure and retain 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 the health of the pipeline.
164
IHG Annual Report and Form 20-F 2016
Additional Information
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 or
industrial action, natural disasters, or other local factors impacting
specific countries, cities or individual hotels, as well as increased
transportation and fuel costs. 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 our
brands and/or the reputation of the Group.
The Group is exposed to the risks of the hotel industry
supply-and-demand cycle
The future operating results of the Group could be adversely affected
by industry overcapacity (by number of rooms) and weak demand due,
in part, to the cyclical nature of the hotel industry, or other differences
between planning assumptions and actual operating conditions. 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. 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 completed the acquisition of Kimpton Hotels & Restaurants
in January 2015 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, diversion of
management attention, as well as longer-term integration and
operational risks, which could result in a failure to realise benefits,
financial losses, lower employee morale and loss of talent.
The Group is dependent upon a wide range of external stakeholders
and business partners
The Group relies on 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 platforms 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 may
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.
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 the franchise
business model. Competition with other hotel companies may
generally reduce the number of suitable franchise, management
and investment opportunities offered to the Group and increase
the bargaining position of property owners seeking to become a
franchisee or engage a manager. The terms of new franchise or
management agreements may not be as favourable as current
arrangements; the Group may not be able to renew existing
arrangements on similarly favourable terms, or at all.
There can also be no assurance that the Group will be able to identify,
retain or add franchisees to the IHG System or to secure management
contracts. For example, the availability of suitable sites, market
saturation, planning and other local regulations or the availability
and affordability of finance may 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 the 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. Any
such failure 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.
Group information
IHG Annual Report and Form 20-F 2016
165
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP INFORMATION CONTINUED
Risk factors continued
The Group is reliant on the reputation of its brands and is exposed
to inherent reputation risks
Any event that materially damages the reputation of one or more
of the Group’s brands and/or fails to sustain the appeal of the Group’s
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.
The Group is exposed to risks associated with its intellectual property
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 reservation 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 reservation 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, reputation and
relationships with hotel owners.
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 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 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 IHG System through
activities that do not involve significant amounts of its own capital, the
Group does require capital to fund some development opportunities,
technological innovations and 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.
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
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.
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
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 could lead to revenue
losses, fines, penalties, litigation and other additional costs.
During the first half of 2016, the Group was notified of a security
incident at a number of Kimpton hotels that resulted in unauthorised
access to guest payment card data (the Kimpton Security Incident) and
166
IHG Annual Report and Form 20-F 2016
Additional Information
in December 2016 the Group was notified of a security incident at
a number of hotels in the Americas region (the Americas Security
Incident). In both instances, we launched an investigation and engaged
third-party cyber security experts. The investigation concerning the
Kimpton Security Incident identified unauthorised access to payment
card information and is now closed. A class action has been filed in the
courts in relation to the Kimpton Security Incident, although alleged
damages have not been specified. The Americas Security Incident
investigation is on-going. The Group may be exposed to investigations
and fines for non-compliance with applicable data security standards
and State and Federal regulatory fines and to legal action from
individuals and organisations impacted by the incidents. We may
be subject to future cyber threats including attempts to breach our
systems and other similar incidents. Because of the dynamic nature of
cyber threats, the scope and complexity of our information technology
infrastructure and our reliance on third parties to support and protect
our infrastructure and our data, we may be vulnerable to cyber threats.
In addition, although we carry insurance that is designed to protect us
against certain losses related to cyber risks, such insurance coverage
may be insufficient to cover the Group in respect of all losses or all
types of claims that may arise in connection with cyber attacks,
security breaches and other related breaches.
The Group is required to comply with existing and changing
regulations and societal expectations 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 Group operates in, brand protection, and use
or transmittal of personal 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 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.
Directors’ and Executive Committee members’ shareholdings
As at 20 February 2017: (i) Executive Directors had the number of beneficial interests in shares (including Directors’ share awards under
IHG’s share plans) set out in the table on page 72; (ii) Non-Executive Directors had the number of beneficial interests in shares set out in the table
on page 74; and (iii) Executive Committee members had the number of beneficial interests in shares (including members’ share awards under IHG’s
share plans) set out in the table below. These shareholdings indicate all Directors’ or Executive Committee members’ beneficial interests and those
held by their spouses and other connected persons. As at 20 February 2017, no Director or Executive Committee member held more than 0.3 per cent
of the total issued share capital. None of the Directors have a beneficial interest in the shares of any subsidiary.
Executive Committee member
20 Feb
2017
31 Dec
2016
31 Dec
2015
20 Feb
2017
31 Dec
2016
31 Dec
2015
20 Feb
2017
31 Dec
2016
31 Dec
2015
20 Feb
2017
31 Dec
2016
31 Dec
2015
Number of shares
held outright
APP
deferred share awards
LTIP
share awards (unvested)
Total
number of shares held
Keith Barr
Angela Brav
Federico Lalatta Costerbosa
Yasmin Diamond
Elie Maalouf
Kenneth Macpherson
Eric Pearson
Ranjay Radhakrishnan
Jan Smits
George Turner
18,767
18,767
27,270
27,270
22,522
32,724
–
–
–
–
2,481
7,600
2,481
7,600
n/a
n/a
–
–
–
–
–
–
–
–
18,000
–
n/a
30,476
17,975
26,876
26,876
23,996
23,996
18,401
18,401
6,351
6,351
10,810
10,810
7,472
24,569
24,569
24,636
24,636
29,557
25,569
n/a
n/a
–
31,279
28,748
92,902
92,902
96,044
138,545
138,545
148,123
80,709
80,709
86,969
131,975
131,975
145,262
59,202
59,202
38,363
38,363
n/a
n/a
77,603
44,714
77,603
44,714
n/a
n/a
96,052
96,052
74,344
74,344
73,662
73,861
109,343
109,343
73,622
106,513
106,513
112,612
86,264
86,264
90,087
110,900
110,900
118,835
25,061
25,061
n/a
31,836
31,836
23,724
23,724
21,815
21,815
28,742
26,047
71,755
76,744
71,755
76,744
n/a
86,177
80,914
56,897
95,479
56,897
n/a
95,479
145,395
98,559
116,559
124,936
Group information
IHG Annual Report and Form 20-F 2016
167
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP INFORMATION CONTINUED
Executive Directors’ benefits upon termination of office
All current Executive Directors have a rolling service contract with a notice period from the Group of 12 months. As an alternative, the Group
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 Group 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 Directors’ Remuneration Policy, which
is available on IHG’s website at www.ihgplc.com/investors under Corporate governance in the Directors' Remuneration Policy section.
Description of securities other than equity securities
Fees and charges payable to a depositary
Category (as defined by SEC)
Depositary actions
Depositing or substituting
the underlying shares
Each person to whom ADRs are issued against deposits of shares,
including deposits and issuances in respect of:
• share distributions, stock splits, rights, mergers; and
•
exchange of securities or any other transactions or event or
other distribution affecting the ADSs or the deposited securities
Receiving or distributing dividends
Distribution of stock dividends
Distribution of cash
Selling or exercising rights
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
Withdrawing an underlying security Acceptance of ADRs surrendered for withdrawal of deposited securities
Transferring, splitting
or grouping receipts
General depositary services,
particularly those charged
on an annual basis
Expenses of the depositary
Transfers, combining or grouping of depositary receipts
Other services performed by the depositary in administering the ADRs
Expenses incurred on behalf of ADR holders in connection with:
•
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
laws, rules or regulations;
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
•
•
Associated fee
$5 for each 100 ADSs
(or portion thereof)
$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)
$5 for each 100 ADSs
(or portion thereof)
$1.50 per ADS
$0.02 per ADS (or portion thereof)a 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 ADR Depositary by billing ADR holders
or by deducting charges from one or
more cash dividends or other cash
distributions are $20 per transaction
a These fees are not currently being charged by the ADR Depositary.
Fees and charges payable by a depositary
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, US. 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 2016, the Company received $300,000 from the ADR
Depositary in respect of legal, accounting and other fees incurred in
connection with the preparation of the Annual Report and Form 20-F,
ongoing SEC compliance and listing requirements, investor relations
programmes, and advertising and public relations expenditure.
168
IHG Annual Report and Form 20-F 2016
Additional Information
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.
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 solely 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.
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.
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.
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 in which a Director has a material interest, and which
does not comprise a Permitted Interest, must be authorised by the
Board in accordance with the procedure and requirements contained
in the Articles. In particular, this includes 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 are 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 a 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
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.
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.
Group information
IHG Annual Report and Form 20-F 2016
169
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP INFORMATION CONTINUED
Articles of Association continued
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 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.
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.
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
Working Time Regulations 1998
re-election (as appropriate) by shareholders every year. Therefore,
all Directors will retire and offer themselves for election or
re-election at the 2017 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 is to be distributed among the holders of ordinary
shares according to the amounts paid up on the shares held by them:
• 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.
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.
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 1998, as amended. At 31 December 2016,
the minimum wage for individuals aged 18 to 20 was £5.55 per hour, aged
21 to 24 was £6.95 per hour and for those aged 25 or over was £7.20 per
hour 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.
None 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.
170
IHG Annual Report and Form 20-F 2016
Additional Information
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 a previous base prospectus
dated 9 November) on 26 November 2012, in respect of the issue of a
Tranche of £400 million 3.875% Notes due 28 November 2022 (2012
Issuance). Final Terms were issued pursuant to the Base Prospectus
on 12 August 2015 in respect of the 2015 Issuance. Final Terms were
issued pursuant to the Base Prospectus on 22 August 2016 in respect
of the 2016 Issuance.
The Final Terms issued under each of the 2012 Issuance, the 2015
Issuance and 2016 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 26 November 2012 relating to the 2012 Issuance, the Final
Terms dated 12 August 2015 relating to the 2015 Issuance and the Final
Terms dated 22 August 2016 relating to the 2016 Issuance) on the
Company’s website at www.ihgplc.com. The Notes issued pursuant
to the 2012 Issuance, the Notes issued pursuant to the 2015 Issuance
and the Notes issued pursuant to the 2016 Issuance are referred to as
'£400 million 3.875% bonds’, ‘£300 million 3.750% bonds’ and '£350
million 2.125% bonds’ respectively in the Group Financial Statements.
On 11 August 2016, the Issuer and the Guarantors entered into an
amended and restated 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.
On 11 August 2016, the Issuer and the Guarantors entered into a dealer
agreement (Dealer Agreement) with HSBC Bank plc as arranger and
Barclays Bank PLC, HSBC Bank plc, SunTrust Robinson Humphrey, Inc.,
Merrill Lynch International, MUFG Securities EMEA 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.
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.
Syndicated Facility
On 30 March 2015, the Company signed a five-year $1.275 billion bank
facility agreement (Syndicated Facility) with Bank of America Merrill
Lynch International Limited, Barclays Bank plc, HSBC Bank PLC,
SunTrust Robinson Humphrey, The Bank of Tokyo-Mitsubishi UFJ, Ltd
and The Royal Bank of Scotland plc, all acting as joint bookrunners and
The Bank of Tokyo-Mitsubishi UFJ, Ltd as facility agent. The Company
may request to extend the term of the Syndicated Facility by up to two
additional periods of 12 months, and exercised the first extension option
in February 2016. 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 + 0.40%
and LIBOR + 1.00% depending on the level of the ratio. The Syndicated
Facility was drawn as to $110m as at 31 December 2016.
Disposal of InterContinental Hong Kong
On 10 July 2015, a share sale and purchase agreement was entered
into between Hotel InterContinental London (Holdings) Limited (a
Group company) and Supreme Key Limited. Under the agreement,
Hotel InterContinental London (Holdings) Limited agreed to sell Trifaith
Investments Limited, the owner of InterContinental Hong Kong Limited,
which in turn is the owner of InterContinental Hong Kong, to Supreme
Key Limited. The gross sale proceeds agreed were $938 million in
cash. The disposal completed on 30 September 2015.
In connection with the sale, IHG secured a 37-year management
contract on the hotel, with three 10-year extension rights at IHG’s
discretion, giving an expected contract length of 67 years.
Under the agreement, Hotel InterContinental London (Holdings)
Limited gave certain customary warranties and indemnities to
Supreme Key Limited.
£2 billion Euro Medium Term Note programme
In 2016, the Group updated its Euro Medium Term Note programme
(Programme) and issued a tranche of £350 million 2.125% notes
due 24 August 2026 (2016 Issuance).
On 11 August 2016, 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 27 November 2009, as supplemented by three supplemental
trust deeds dated 7 July 2011, 9 November 2012 and 16 June 2015
between the same parties relating to the Programme, were 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 £2 billion
(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 11 August 2016 (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.
Group information
IHG Annual Report and Form 20-F 2016
171
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS GROUP INFORMATION CONTINUED
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 of 20 February 2017, 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. The claimant originally identified eight causes of
action with the respect to the management and sale of InterContinental
New Orleans. The following claims remain pending: claims for breach
of fiduciary duty, fraud, civil conspiracy, alter ego, and unfair trade
practices. As of 20 February 2017, 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 claim was filed on 5 July 2016 by CPTS Hotel Lessee, LLC against
Holiday Hospitality Franchising, LLC (HHF). The claimant alleges breach
of the license agreement and seeks a declaratory judgment from the
court that it has the right to terminate its license with HHF. HHF and
InterContinental Hotels Group Resources, Inc. filed a claim against CPTS
Hotel Lessee, LLC also seeking a declaratory judgment and alleging
breach of contract and fraud. As of 20 February 2017, 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 claim was filed on 20 September 2016 against Kimpton Hotel and
Restaurant Group, LLC, seeking class action status and alleging breach
of implied contract, negligence, and deceptive business practices related
to an alleged data breach. As of 20 February 2017, the likelihood of a
favourable or unfavourable result cannot be reasonably determined
and it is not possible to determine whether any loss is likely or to make
a reliable estimate of the possible financial effect of any claims.
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 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.
172
IHG Annual Report and Form 20-F 2016
Additional Information
Shareholder information
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;
• 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
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’).
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, any state therein or the District of Columbia;
(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
ADSs are pre-released before shares are delivered to the depositary,
or intermediaries in the chain of ownership between holders and the
issuer of the securities underlying the ADSs, 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 ADSs are pre-released.
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.
The following disclosures assumes that the Company is not, and
will not become, a positive foreign investment company (PFIC),
as described below.
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.
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.
US federal income taxation
A US holder is generally 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 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.
Shareholder information
IHG Annual Report and Form 20-F 2016
173
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS SHAREHOLDER INFORMATION CONTINUED
Taxation continued
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.
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
Based on the manner in which the Group operates its business and
estimates of the value of its assets (which estimates are based, in part,
on the market value of the Company’s ADSs) the Company believes that
it was not a PFIC for US federal income tax purposes for its 2016 taxable
year. However, this conclusion is an annual factual determination and
thus may be subject to change. If the Company were a PFIC for any
taxable year during which a US holder owned ordinary shares or ADSs,
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 disposition 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 individuals or corporations, as
applicable) 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 described above 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 a PFIC for any
taxable year in which a US holder held ordinary shares or ADSs, a US
holder would 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 existing UK rules relating to previous domicile or long
residence, or under proposed expanded UK rules expected to take
effect from 6 April 2017) 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.
However, an individual who is domiciled in the US (for the purposes
of the Estate and Gift Tax Convention (the 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.
174
IHG Annual Report and Form 20-F 2016
Additional Information
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 sales proceeds with respect to ADSs
and ordinary shares may be reported to the Internal Revenue Service
(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.
Certain US holders who are individuals, or entities closely held by
individuals, may be required to report information relating to their
ownership of non-US securities unless the securities are held in
accounts at financial institutions (in which case the accounts may be
reportable if maintained by non-US financial institutions). US holders
should consult their tax advisers regarding any reporting obligations
they may have with respect to the Company’s ordinary shares or ADSs.
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.
Shareholder information
IHG Annual Report and Form 20-F 2016
175
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS SHAREHOLDER INFORMATION CONTINUED
Summary of significant corporate governance
differences from NYSE listing standards
The Chairman of the Company is not a member of either the
Remuneration or the Audit Committee. As set out on page 57,
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 criterion under US rules for an
‘audit committee financial expert’.
Non-Executive Director meetings
NYSE rules require that 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 frequently
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 161, 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.
The Group’s statement of compliance with the principles and provisions
specified in the UK Corporate Governance Code issued in September
2014 by the Financial Reporting Council (the Code) is set out on pages
62 and 63.
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.
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 20 February 2017, the Board consisted of the Chairman,
independent at the time of his appointment, two Executive Directors
and six 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 20 February 2017
and throughout 2016, 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 audit,
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 by the Board, candidates
for appointment to the Board, although it also assists in developing
the role of the Senior Independent Non-Executive Director. The
Company’s Nomination Committee consists of the Chairman and
all the Independent Non-Executive Directors.
176
IHG Annual Report and Form 20-F 2016
Additional Information
Selected five-year consolidated financial information
The selected consolidated financial data set forth in the table below for the years ended 31 December 2012, 2013, 2014, 2015 and 2016 have
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 below 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.
Group income statement data
For the year ended 31 December
Revenue
Total operating profit before exceptional items
Exceptional items
Total operating profit
Financial income
Financial expenses
Profit before tax
Tax:
On profit before exceptional items
On exceptional items
Exceptional 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
Group statement of financial position data
31 December
Goodwill and other 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)
$m, except earnings per ordinary share
2016
1,715
707
(29)
678
6
(93)
591
(186)
12
–
(174)
417
414
3
2015
1,803
680
819
1,499
5
(92)
1,412
(180)
(8)
–
(188)
1,224
1,222
2
2014
1,858
2013
1,903
2012
1,835
651
29
680
3
(83)
600
(179)
(29)
–
(208)
392
391
1
668
5
673
5
(78)
600
(175)
(6)
(45)
(226)
374
372
2
605
(4)
601
3
(57)
547
(151)
1
141
(9)
538
537
1
195.3
193.5
¢520.0¢
¢513.4¢
158.3¢
156.4¢
140.9¢
139.3¢
187.1¢
183.9¢
$m, except number of shares
2016
1,292
419
359
8
–
23
48
778
–
2,927
1,134
1,606
(759)
141
(767)
206
2015
1,226
428
420
3
–
37
49
1,606
–
3,769
1,369
1,239
319
169
309
248
2014
643
741
368
3
8
34
87
624
310
2,818
943
1,569
(717)
178
(725)
248
2013
518
1,169
321
–
7
16
108
700
228
3,067
928
1,269
(74)
189
(82)
269
2012
447
1,056
239
–
99
24
204
852
534
3,455
972
1,242
317
179
308
268
Shareholder information
IHG Annual Report and Form 20-F 2016
177
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS SHAREHOLDER INFORMATION CONTINUED
Return of funds
Since March 2004, the Group has returned over £5.9bn of funds to shareholders by way of special dividends, capital returns and share
repurchase programmes. On 23 February 2016, the Company announced a $1,500m return of funds to shareholders via special dividend
with share consolidation. The special dividend was paid on 23 May 2016.
Return of funds programme
£501m special dividenda
£250m share buyback
£996m capital returna
£250m share buyback
£497m special dividenda
£250m share buyback
£709m special dividenda
£150m share buyback
$500m special dividenda, c
$500m share buyback
$350m special dividend
$750m special dividenda
$1,500m special dividenda
Total
Timing
Total return
Returned to date
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/ab
Paid in October 2012
Completed in 2014
Paid in October 2013
Paid in July 2014
Paid in May 2016
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£150m
£315md
($500m)
£315md
($500m)
£229mg
($350m)
£447mi
($750m)
£1,038mk
($1,500m)
£5,947m
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£120m
£315me
($505m)
£315m
($500m)f
£228m
($355m)h
£446m
($763m)j
£1,036m
($1,500m)
£5,913m
a Accompanied by a share consolidation.
b This programme was superseded by the share buyback programme announced on 7 August 2012.
c 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.
d 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 detailing the special dividend
and share buyback programme published on 14 September 2012.
e Sterling dividend translated at $1=£0.624.
f 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).
g 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.
h Sterling dividend translated at $1=£0.644.
i The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate translated at $1=£0.597.
j Sterling dividend translated at $1=£0.5845.
k The dividend was first determined in US dollars and converted to sterling at the rate of $1 =£0.6923, as announced on 12 May 2016.
Purchases of equity securities by the Company and affiliated purchasers
During the financial year ended 31 December 2016, 269,935 ordinary shares were purchased by the Company’s employee share ownership trust,
at prices ranging from 2,577 pence to 2,593 pence per share, for the purpose of satisfying future share awards to employees.
Month 1
Month 2
Month 3 (no purchases this month)
Month 4 (no purchases this month)
Month 5 (no purchases this month)
Month 6 (no purchases this month)
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 (no purchases this month)
Total number of shares
(or units) purchased
Average price paid
per share (or unit)
200,000
69,935
2,593.0763
2,576.8975
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
a Reflects the resolution passed at the Company’s AGM held on 8 May 2015.
b Reflects the resolution passed at the Company’s AGM held on 6 May 2016.
Total number of shares
(or units) purchased as
part of publicly announced plans
or programmes
Maximum number
of shares (or units) that may
be purchased under the plans or
programmes
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
23,611,725a
23,611,725a
23,611,725a
23,611,725a
19,751,738b
19,751,738b
19,751,738b
19,751,738b
19,751,738b
19,751,738b
19,751,738b
19,751,738b
178
IHG Annual Report and Form 20-F 2016
Additional Information
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.
Year ended 31 December
2012
2013
2014
2015
2016
Quarters in the year ended 31 December
2015
First quarter
Second quarter
Third quarter
Fourth quarter
2016
First quarter
Second quarter
Third quarter
Fourth quarter
2017
£ per ordinary share
$ per ADSa
high
17.25
20.39
27.10
28.80
36.38
27.56
28.80
27.43
27.74
28.71
29.28
33.65
36.38
low
11.60
17.37
18.66
22.09
21.84
25.33
25.66
22.09
22.87
21.84
25.25
27.59
30.21
high
27.82
33.54
42.51
43.55
44.67
41.59
43.55
42.68
40.41
41.27
41.86
44.67
44.33
low
18.25
26.90
30.88
33.52
32.11
38.32
38.90
33.52
34.91
32.11
35.14
36.81
38.16
First quarter (to 20 February)
38.89
36.66
48.33
44.96
Month ended
August 2016
September 2016
October 2016
November 2016
December 2016
January 2017
February 2017 (to 20 February)
33.65
32.85
33.22
33.31
36.38
37.85
38.89
30.14
30.98
31.30
30.21
32.17
36.66
36.81
44.67
43.95
42.47
41.94
44.33
47.43
48.33
40.31
40.66
38.81
38.16
41.14
44.96
46.45
a 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.
2016
2015
2014
2013
2012
2011
2010
2009
2008b
2007
2006
2005
2004
Interim dividend
Final dividend
Total dividend
Special dividend
pence
cents
22.6
17.7
14.8
15.1
13.5
9.8
8.0
7.3
6.4
5.7
5.1
4.6
4.3
30.0
27.5
25.0
23.0
21.0
16.0
12.8
12.2
12.2
11.5
9.6
8.1
7.7
pence
N/Aa
40.3
33.8
28.1
27.7
24.7
22.0
18.7
20.2
14.9
13.3
10.7
10.0
cents
64.0
57.5
52.0
47.0
43.0
39.0
35.2
29.2
29.2
29.2
25.9
18.7
19.1
pence
N/Aa
58.0
48.6
43.2
41.2
34.5
30.0
26.0
26.6
20.6
18.4
15.3
14.3
cents
94.0
85.0
77.0
70.0
64.0
55.0
48.0
41.4
41.4
40.7
35.5
26.8
26.8
pence
438.2b
174.9b
87.1
108.4b
–
–
–
–
200b
118b
–
72.0b
cents
632.9b
293.0b
133.0
172.0b
–
–
–
–
–
–
–
–
a The sterling amount of the final dividend will be announced on 11 May 2017 using the average of the daily exchange rates from 8 May 2017 to 10 May 2017 inclusive.
b Accompanied by a share consolidation.
c 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 prior to payment.
Shareholder information
IHG Annual Report and Form 20-F 2016
179
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS SHAREHOLDER INFORMATION CONTINUED
Shareholder profiles
Shareholder profile by type as at 31 December 2016
Category of shareholder
Private individuals
Nominee companies
Limited and public limited companies
Other corporate bodies
Pension funds, insurance companies and banks
Total
Shareholder profile by size as at 31 December 2016
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
Shareholder profile by geographical location as at 31 December 2016
Country/Jurisdiction
UK
Rest of Europe
US (including ADRs)
Rest of world
Total
Number of
shareholders
Percentage
of total
shareholders
37,186
1,322
771
154
7
39,440
94.29
3.35
1.95
0.39
0.02
100
Number of
shareholders
Percentage
of total
shareholders
26,328
7,255
3,093
2,037
200
273
80
112
32
30
39,440
66.75
18.40
7.84
5.16
0.51
0.69
0.20
0.28
0.08
0.08
100
Number
of ordinary
shares
10,731,170
171,537,462
12,399,108
2,787,306
62,334
197,517,380
Number
of ordinary
shares
1,600,862
2,263,937
2,136,043
3,903,056
1,401,141
6,049,459
5,868,279
25,611,958
22,940,558
125,742,087
197,517,380
Percentage
of issued
share capital
5.43
86.85
6.28
1.41
0.03
100
Percentage
of issued
share capital
0.81
1.15
1.08
1.98
0.71
3.06
2.97
12.97
11.61
63.66
100
Percentage
of issued
share capitala
53.0
15.2
29.4
2.4
100
a 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
90.3% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100⁄90.3 (1.107) to achieve the figures shown in the table above.
As of 20 February 2017, 14,821,077 ADSs equivalent to 14,821,077 ordinary shares, or approximately 7.18 per cent of the total issued share capital,
were outstanding and were held by 573 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 20 February 2017, there were a total of 39,268 recorded holders of ordinary shares, of whom 261 had registered addresses in the US
and held a total of 427,456 ordinary shares (0.21 per cent of the total issued share capital).
180
IHG Annual Report and Form 20-F 2016
Additional Information
Exhibits
The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC.
Exhibit1a
Exhibit 4(a)(i)
Exhibit 4(a)(ii)a
Exhibit 4(a)(iii)a
Exhibit 4(a)(iv)a
Exhibit 4(c)(i)a
Exhibit 4(c)(ii)a
Exhibit 4(c)(iii)a
Exhibit 4(c)(iv)a
Exhibit 4(c)(v)a
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)
Amended and restated trust deed dated 11 August 2016 relating to a £2 billion Euro Medium Term Note Programme, among InterContinental
Hotels PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company (UK) Limited.
Share sale and purchase agreement relating to InterContinental Hong Kong, between Hotel InterContinental London (Holdings) Limited and
Supreme Key Limited dated 10 July 2015 (incorporated by reference to Exhibit 4a(i) of the InterContinental Hotels Group plc Annual Report on
Form 20-F (File No. 1 – 1040.9) dated 3 March 2016)
Five-year $1.275 billion bank facility agreement dated 30 March 2015, among InterContinental Hotels Group PLC and certain of its
subsidiaries, and Bank of America Merrill Lynch International Limited, Barclays Bank PLC, Citibank, N.A. London Branch, Commerzbank
Aktiengesellschaft, London Branch, DBS Bank Ltd., London Branch, HSBC Bank plc, SunTrust Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
The Royal Bank Of Scotland plc, U.S. Bank National Association and Wells Fargo Bank N.A., London Branch (incorporated by reference to
Exhibit 4a(iii) of the InterContinental Hotels Group plc Annual Report on Form 20-F (File No. 1 – 1040.9) dated 3 March 2016)
$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 (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 2015)
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)
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 2 May 2014 (incorporated by reference to Exhibit 4(c)(ix) of
the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)
Rules of the InterContinental Hotels Group Annual Performance Plan as amended on 2 May 2014 (incorporated by reference to Exhibit 4(c)(x) of
the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)
Exhibit 8
List of subsidiaries as at 31 December 2016 (can be found on pages 143 to 145)
Exhibit 12(a)
Certification of Richard Solomons filed pursuant to 17 CFR 240.13a–14(a)
Exhibit 12(b)
Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a–14(a)
Exhibit 13(a)
Certification of Richard Solomons and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a–14(b) and 18 U.S.C.1350
Exhibit 15(a)
Consent of independent registered public accounting firm, Ernst & Young LLP
a Incorporated by reference.
Exhibits
IHG Annual Report and Form 20-F 2016
181
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Form 20-F cross-reference guide
Item Form 20-F caption
Location in this document
1
2
3
Identity of directors, senior management and advisers Not applicable
Offer statistics and expected timetable
Not applicable
Key information
3A – Selected financial data
Shareholder information: Selected five-year consolidated financial information
3B – Capitalisation and indebtedness
Not applicable
3C – Reason for the offer and use of proceeds
Not applicable
3D – Risk factors
Group information: Risk factors
Shareholder information: Dividend history
4
Information on the Company
4A – History and development of the Company
Group information: History and developments
Shareholder information: Return of funds
Useful information: Contacts
4B – Business overview
Strategic Report
4C – Organisational structure
Group Financial Statements: Note 33 – Group companies
4D – Property, plants and equipment
Strategic Report: Key performance indicators
Group information: Working Time Regulations 1998
Group Information: Risk factors
Directors’ Report: Greenhouse gas (GHG) emissions
Group Financial Statements: Note 12 – Property, plant and equipment
4A
5
Unresolved staff comments
None
Operating and financial review and prospects
5A – Operating results
Strategic Report: Performance
5B – Liquidity and capital resources
Strategic Report: Performance – Liquidity and capital resources
Group Financial Statements: Accounting policies
Group Financial Statements: Note 17 – Cash and cash equivalents
Group Financial Statements: Note 20 – Loans and other borrowings
Group Financial Statements: Note 22 – Financial risk management
Group Financial Statements: Note 23 – Fair value measurement
Group Financial Statements: Note 24 – Reconciliation of profit for the year to cash flow from operations
5C – Research and development; intellectual property Not applicable
5D – Trend information
Strategic Report: Performance
5E – Off-balance sheet arrangements
Strategic Report: Performance – Liquidity and capital resources
5F – Tabular disclosure of contractual obligations
Strategic Report: Performance – Liquidity and capital resources
5G – Safe harbour
Additional Information: Forward-looking statements
5H – Non-GAAP financial measures
Strategic Report: Performance
Other financial information
Group Financial Statements: Note 9 – Earnings per ordinary share
Group Financial Statements: Note 21 – Net debt
6
Directors, senior management and employees
6A – Directors and senior management
Corporate Governance: Our Board of Directors and Our Executive Committee
6B – Compensation
Directors’ Remuneration Report
6C – Board practices
6D – Employees
6E – Share ownership
Group Financial Statements: Note 25 – Retirement benefits
Group Financial Statements: Note 31 – Related Party Disclosures
Group Financial Statements: Note 26 – Share-based payments
Corporate Governance
Executive Directors' benefits upon termination of office
Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments
Group information: Working Time Regulations 1998
Directors' Report: Employees and Code of Conduct
Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Scheme interests
awarded during 2016
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: Directors and Executive Committee members’ shareholdings
7
Major shareholders and related party transactions
7A – Major shareholders
Directors’ Report: Major institutional shareholders
Shareholder information: Shareholder profiles
7B – Related party transactions
Group Financial Statements: Note 14 – Investment in associates and joint ventures
Group Financial Statements: Note 31 – Related party disclosures
7C – Interests of experts and counsel
Not applicable
182
IHG Annual Report and Form 20-F 2016
Additional Information
Page
–
–
177
179
–
–
164 – 167
164
178
187
2 – 45
170
164 – 167
143 – 145
23-25
162
118
–
26 – 45
98 – 105
22, 45
125
126 – 127
128 – 131
131 – 132
133
–
26 – 45
45
45
188
26
156 – 157
117
128
50 – 53
64 – 81
133 – 137
142
137 – 138
49 – 63
168
111
170
161
71
72
137 – 138
167
160
180
121 – 122
142
–
Page
160
91 – 145
172
44
–
179
–
179
–
–
–
–
169 – 170
169
171
172
173 – 175
–
–
186
–
–
–
–
168
–
–
175
84
90
57
176
161
Item Form 20-F caption
8
Financial Information
8A – Consolidated statements and
other financial information
Location in this document
Directors’ Report: Dividends
Group Financial Statements
Group Information: Legal proceedings
Strategic Report: Performance – other financial information
8B – Significant changes
None
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
Shareholder information: Share price information
Not applicable
Shareholder information: Share price information
Not applicable
Not applicable
Not applicable
Not applicable
10B – Memorandum and articles of association
Group information: 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
Quantitative and qualitative disclosures about
market risk
Description of securities other than equity securities
Group information: Rights attaching to shares
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 22 – Financial risk management
128 – 131
11
12
13
14
15
12A – Debt securities
12B – Warrants and rights
12C – Other securities
Not applicable
Not applicable
Not applicable
12D – American depositary shares
Group information: Description of securities other than equity securities
Defaults, dividend arrearages and delinquencies
Not applicable
Material modifications to the rights of security
holders and use of proceeds
Not applicable
Controls and Procedures
Shareholder information: Disclosure controls and procedures
Group Financial Statements: Statement of Directors’ Responsibilities – Management’s report
on internal control over financial reporting
Group Financial Statements: Independent Auditor’s US Report
16
16A – Audit committee financial expert
Corporate Governance: Audit Committee Report
16B – Code of ethics
Directors' Report: Employees and Code of Conduct
Shareholder information: Summary of significant corporate governance differences from NYSE listing
standards – Committees
Strategic Report: Doing business responsibly
18 – 19
16C – Principal accountant fees and services
Corporate Governance: Audit Committee Report – External Auditor
Shareholder information: Summary of significant corporate governance differences from NYSE
listing standards
Corporate Governance: Audit Committee Report – Non-audit services
Group Financial Statements: Note 4 – Auditor’s remuneration paid to Ernst & Young LLP
16D – Exemptions from the listing standards for
Not applicable
audit committees
16E – Purchase of equity securities by the issuer
Shareholder information: Purchases of equity securities by the Company and affiliated purchasers
and affiliated purchasers
16F – Change in registrant’s certifying accountant
Not applicable
16G – Corporate governance
16H – Mine safety disclosure
17
18
19
Financial statements
Financial statements
Exhibits
Shareholder information: Summary of significant corporate governance differences from NYSE
listing standards
Not applicable
Not applicable
Group Financial Statements
Additional Information: Exhibits
176
59
59
111
–
178
–
176
–
–
91 – 145
181
Form 20-F cross-reference guide
IHG Annual Report and Form 20-F 2016
183
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 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 18318/329 pence each of the Company.
AGM
Annual General Meeting of InterContinental
Hotels Group PLC.
AMEA
Asia, Middle East and Africa.
Annual Report
The Annual Report and Form 20–F in relation
to the years ending 31 December 2015 or 2016
as relevant.
APP
Annual Performance Plan.
Articles
the Articles of Association of the Company
for the time being in force.
average daily 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.
Board
The Board of Directors of InterContinental
Hotels Group plc.
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 2014 by the Financial Reporting
Council in the UK.
comparable RevPAR
a comparison for a grouping of hotels that
have traded in all months in financial years
being compared. Principally excludes new
hotels, hotels closed for major refurbishment
and hotels sold in either of the two years.
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).
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.
Deferred Compensation Plan
the Defined Contribution Deferred
Compensation Plan
derivatives
financial instruments used to reduce risk, the
price of which is derived from an underlying
asset, index or rate.
direct channels
methods of booking hotel rooms (both digital
and voice) not involving third party
intermediaries.
Director
a director of InterContinental Hotels
Group PLC.
DR Policy
Directors’ Remuneration Policy. The revised
DR Policy is on pages 76 to 81 of this Report.
EBIT
earnings before interest and tax.
EBITDA
earning before interest, tax, depreciation
and amortisation.
Employee Engagement survey
we ask our employees and those who work
in our managed hotels (excluding our joint
venture hotels) to participate in a survey to
measure employee engagement.
EU
the European Union.
euro or €
the currency of the European Economic
and Monetary Union.
fee margin or fee-based margin
operating profit as a percentage of revenue,
excluding revenue and operating profit from
owned and leased hotels, managed leases,
Kimpton in 2015 only, and significant
liquidated damages.
franchisee
an owner who uses a brand under licence
from IHG.
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 Love
IHG’s guest satisfaction measurement tool
used to measure brand preference and
guest satisfaction.
Guest Reservation System or GRS
our global electronic guest reservation
system, currently HOLIDEX, IHG’s
proprietary system.
hedging
the reduction of risk, normally in relation to
foreign currency or interest rate movements,
by making offsetting commitments.
hotel revenue
revenue from all revenue-generating activity
undertaken by managed and owned and
leased hotels, including room nights, food
and beverage sales.
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 PLC
InterContinental Hotels Group PLC.
indirect channels
online travel intermediaries and business
and leisure travel agents.
Companies Act
the Companies Act 2006, as amended
from time to time.
exceptional items
items that are disclosed separately
because of their size or nature.
Company or Parent Company
InterContinental Hotels Group PLC.
184
IHG Annual Report and Form 20-F 2016
Additional Information
technology fee income
income received from hotels under franchise
and management agreements for the use
of IHG’s Guest Reservation System.
total gross revenue
total rooms revenue from franchised hotels
and total hotel revenue from managed, owned
and leased hotels. Other than owned and
leased hotels, it is not revenue wholly
attributable to IHG, as it is mainly derived
from hotels owned by third parties.
Total Shareholder Return or TSR
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 GAAP
United Kingdom Generally Accepted
Accounting Practice.
underlying fee revenue
Group revenue excluding revenue from
owned and leased hotels, managed leases,
and significant liquidated damages.
US
the United States of America.
US 401(k) Plan
the Defined Contribution 401(k) 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.
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 franchise and
management contracts.
LTIP
Long Term Incentive Plan.
managed leases
properties structured 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 system hotel rooms.
NYSE
New York Stock Exchange.
ppt
a percentage point is the unit for the
arithmetic difference of two percentages.
revenue management
the employment of pricing and segment
strategies to optimise the revenue generated
from the sale of room nights.
revenue per available room or RevPAR
rooms revenue divided by the number
of room nights that are available (can be
mathematically derived from occupancy
rate multiplied by average daily rate).
room count
number of rooms franchised, managed,
owned or leased by IHG.
rooms revenue
revenue generated from the sale
of room nights.
royalties
fees, based on rooms revenue, that
a franchisee pays to the Group.
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.
occupancy rate
rooms occupied by hotel guests, expressed
as a percentage of rooms that are available.
subsidiary
a company over which the Group
exercises control.
ordinary share
from 9 October 2012 until 30 June 2014, the
ordinary shares of 14194/329 pence each in the
Company; from 1 July 2014, the ordinary
shares of 15265/329 pence each in the Company;
and from 6 May 2016 the ordinary shares of
18 318/329 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.
System
hotels/rooms operating under franchise
and management agreements together
with IHG owned and leased hotels/rooms,
globally (the IHG System) or on a regional
basis, as the context requires.
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 which fund
specifically marketing, the IHG Rewards Club
loyalty programme and the global reservation
system.
Glossary
IHG Annual Report and Form 20-F 2016
185
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS 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 2016 has been made
available to shareholders through our website at www.ihgplc.com/
investors under Annual Report.
Individual Savings Account (ISA)
Equiniti offers a Stocks and Shares ISA that can invest in IHG shares.
For further information, please contact Equiniti on 0371 384 2244a.
Share dealing services
Equiniti offers the following share-dealing facilities.
Shareholders may electronically appoint a proxy to vote on their behalf
at the 2017 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 0371 384 2248a.
Telephone dealing
For more information, call 0345 603 7037b.
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 Secretary’s office (see page 187).
Responsible Business Report
In line with our commitment to responsible business practices, this
year we have produced a Responsible Business Report showcasing our
approach to responsible business and progress against our corporate
responsibility targets. Visit www.ihgplc.com/responsible-business
for details.
The IHG® Foundation
Launched in 2016, the IHG Foundation is an independent charitable
trust that sets the foundations for stronger, healthier and more
prosperous communities around the world. Visit www.ihgfoundation.
com to learn more.
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
0371 384 2132a (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 0371 384 2268a.
See www.shareview.co.uk/info/drip for a DRIP application form
and information booklet.
Bank mandate
We encourage shareholders to have their dividends paid directly into
their UK bank or building society accounts, to ensure efficient payment
and clearance of funds on the payment date. For further information,
please contact our Registrar (see page 187).
Overseas payment service
It is also possible for shareholders to have their dividends paid
directly to their bank accounts in a local currency. Charges are
payable for this service.
Go to www.shareview.co.uk/info/ops for further information.
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 187).
Internet dealing
Visit www.shareview.co.uk for more information.
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 2016, for UK Capital Gains Tax purposes, may be
found on our website at www.ihgplc.com/investors under Shareholder
centre in the Tax information section.
‘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. Please contact
ProSearch on +44 (0) 800 612 3664 or email info@prosearchassets.
com for further details.
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 at www.fca.org.uk/consumers/ on the
Financial Conduct Authority website.
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 187).
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.
a Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK public holidays.
b Lines are open from 8.00am to 4.30pm Monday to Friday, excluding UK public holidays.
186
IHG Annual Report and Form 20-F 2016
Additional Information
Financial calendars
Dividends
2016 Special dividend of 438.2p per ordinary share
(632.9¢ per ADR)
Record date
Ex-dividend date
Payment date
2016 Interim dividend of 22.6p per share
(30.0¢ per ADR)
Payment date
2016 Final dividend of 64.0¢ per ordinary sharea
Ex-dividend date
Record date
Payment date
Other dates
Financial year end
Announcement of Preliminary Results for 2016
Announcement of 2017 First Quarter
Interim Management Statement
Annual General Meeting
Announcement of Half-Year Results for 2017
Announcement of 2017 Third Quarter
Interim Management Statement
Financial year end
Announcement of Preliminary Results for 2017
2016
6 May
9 May
23 May
7 October
2017
4 May
5 May
22 May
2016
31 December
2017
21 February
5 May
5 May
8 August
20 October
31 December
2018
February
a The sterling amount of the final dividend will be announced on 11 May 2017 using the average of the daily exchange rates from 8 May 2017 to 10 May 2017 inclusive.
Contacts
Registered office
Broadwater Park, Denham, Buckinghamshire, UB9 5HR,
United Kingdom
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 Secretary’s office at the above address.
Registrar
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex,
BN99 6DA, United Kingdom
Telephone:
0371 384 2132 (UK calls)
+44 (0) 121 415 7034 (non-UK calls)
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 1111a (UK)
+44 20 3349 9033b (Europe and Africa)
+1 888 211 9874c (US and Canada)
+1 800 272 9273c (Mexico)
For those with hearing difficulties a text phone is available
on 0371 384 2255 for UK callers with compatible equipment.
+1 801 975 3063d (English) (Central and South America)
+1 801 975 3013d (Spanish) (Central and South America)
www.shareview.co.uk
ADR Depositary
JPMorgan Chase Bank N.A., PO Box 64504, St. Paul, MN 55120-0854,
United States of America
+971 4 429 0530d (Middle East)
+02 9935 8362d (Australia)
+86 21 2033 4848d (Mandarin and Cantonese) (China and Hong Kong)
Telephone:
+1 800 990 1135 (US calls) (toll-free)
+1 651 453 2128 (non-US calls)
Email: jpmorgan.adr@wellsfargo.com
www.adr.com
+81 3 5767 9325d (Japan)
+63 2 857 8778d (Korea)
+63 2 857 8788d (all other countries in Asia Pacific)
a Telephone calls to this number are charged at 13p per minute. Standard network rates
apply. Calls from mobiles will be higher.
b International calling rates apply.
c Toll-free.
d Toll charges apply.
Useful information
IHG Annual Report and Form 20-F 2016
187
STRATEGIC REPORTGOVERNANCEGROUP FINANCIAL STATEMENTSADDITIONAL INFORMATIONPARENT COMPANY FINANCIAL STATEMENTS Forward-looking statements
The Annual Report and Form 20-F 2016 contains 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 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 Group’s reliance on the
reputation of its brands and is exposed to inherent reputation risks; the
Group’s exposure to risks associated with its intellectual property; the
risks involved in the Group’s reliance upon its reservation system and
other key technology platforms, and the risks that could cause the failure
of these systems; 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; the risks associated with the
Group’s financial stability and its ability to borrow and satisfy debt
covenants; the risk of litigation; the risks related to information security
and data privacy; compliance with existing and changing regulations
and societal expectations across numerous countries, territories and
jurisdictions; 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 2016.
Designed and produced by Addison Group
www.addison-group.net
Managed by RR Donnelley
InterContinental Hotels Group PLC’s commitment to environmental
issues is reflected in this Annual Report.
This report has been printed on Symbol Matt Plus. Environmental
friendly ECF (Elemental Chlorine Free Guaranteed) paper, certified
by the FSC® (Forest Stewardship Council). Containing a High content
of selected recycled materials (minimum 25% guaranteed).
The FSC® (Forest Stewardship Council) is a worldwide label which
identifies products obtained from sustainable and responsible
forest management.
Printed by CPI Colour in the UK, using the latest environmental
printing technology and vegetable based inks.
CPI Colour is a CarbonNeutral® company. Registered with the
Environmental Management System ISO14001 and are Forest
Stewardship Council (FSC®) chain-of-custody certified.
The unavoidable carbon emissions generated during the
manufacturing and delivery of this document have been reduced
to net zero through a verified carbon offsetting project.
188
IHG Annual Report and Form 20-F 2016
Additional Information
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
InterContinental Lijiang Ancient Town Resort,
People’s Republic of China
InterContinental Hotels & Resorts
The world’s largest luxury hotel brand,
celebrated its 70th anniversary in 2016.
With more than 185 InterContinental
hotels worldwide, we have the international
know-how and local cultural wisdom to
deliver ‘The InterContinental Life’.