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Annual Report and
Form 20-F 2017
Throughout the world, in almost
100 countries, True Hospitality
is brought to life for everyone
across our brands, every day.
Holiday Inn Express London – Park Royal, UK
Contents
Strategic Report
2
4
6
8
10
12
14
16
18
20
22
23
26
26
IHG at a glance
Chairman’s statement
Chief Executive Officer’s review
Industry overview
Our brands
Our business model
Our strategy for high-quality growth
Our Strategic Model in action
Doing business responsibly
Risk management
Viability statement
Key performance indicators (KPIs)
Performance
Key performance measures (including Non-GAAP measures)
used by management
Group
Regional highlights
Americas
Europe
Asia, Middle East and Africa (AMEA)
27
32
33
35
37
39 Greater China
Our Board and Committee governance structure
Governance
46 Chairman’s overview
47 Corporate Governance
47
48 Our Board of Directors
50 Our Executive Committee
52
53
54
55
56
60
61
62
Board meetings
Director induction, training and development
Board effectiveness evaluation
Engagement with shareholders
Audit Committee Report
Corporate Responsibility Committee Report
Nomination Committee Report
Statement of compliance with the UK Corporate
Governance Code
Directors’ Remuneration Report
64
Group Financial Statements
80
81
87
88
95
104
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
146
146
146
147
Parent Company Financial Statements
Parent Company statement of financial position
Parent Company statement of changes in equity
Notes to the Parent Company Financial Statements
Additional Information
154
160
164
173
181
182
184
186
188
Other financial information
Directors’ Report
Group information
Shareholder information
Exhibits
Form 20-F cross-reference guide
Glossary
Useful information
Forward-looking statements
The Strategic Report on pages 2 to 43 was
approved by the Board on 19 February 2018.
George Turner, Company Secretary
IHG | Annual Report and Form 20-F 2017
1
IHG at a glance
We are one of the world’s leading hotel companies, committed to
providing True Hospitality for everyone. This is a simple but powerful
purpose, centred on creating great guest experiences and recognising,
respecting and understanding people. It extends to our guests, owners,
colleagues, partners, and communities all around the world.
Our portfolio of differentiated brands are
well-known and loved by millions of people,
and we make sure we have the right hotels
for both our guests and owners, whatever
their needs. We focus on strengthening our
established brands and addressing gaps in
our portfolio, on building and leveraging our
scale, developing lifetime guest relationships,
and delivering revenue to our hotels through
the lowest-cost, direct channels. As a
manager and franchisor of hotel brands,
our proposition to third-party hotel owners
is highly competitive and has a track record
of delivering returns. To drive future growth,
we focus on building brand preference in
quality, high-potential industry segments and
geographies. This approach is supported by
disciplined processes and targeted allocation
of resources, enabling 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
Capturing the spirit
of Chinese hospitality
Making travel
inspiring
Where wellness
is built in
Making business
travel work
Joy of
travel for all
Simple,
smart travel
Feel at ease when
you stay with us
The joy of lifetime
vacations
The joy of
family holidays
Your
home base
Where the
rest is easy
Creating relevant
rewarding relationships
Financial highlights
Group revenue
$1,784m (+4.0%)
2016: $1,715m
Group operating profit
$763m (+12.5%)
2016: $678m
Group operating profit before exceptional items
$759m (+7.4%)
2016: $707m
Total gross revenue in IHG’s System
$25.7bn (+4.9%)
2016: $24.5bn
Total underlying operating profit growth
$59m (+8.4%)
2016: $61m
Revenue per available room (RevPAR) growth
+2.7%
2016: +1.8%
Underlying fee revenue growth
+5.0%
2016: +4.4%
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 154 and 155.
Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.
2
IHG | Annual Report and Form 20-F 2017
Strategic Report
1. Holiday Inn Suzhou Taihu Lake, China
2. HUALUXE Xiamen Haicang, China
1.
2.
Our brands
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
5,348
(798,075)
2016: 5,174 (767,135)
Franchised hotels (rooms)
4,433
(552,834)
2016: 4,321 (542,650)
Managed hotels (rooms)
907
(242,883)
2016: 845 (222,073)
Group revenue 2017 ($1,784m)
Number of rooms (798,075)
8%
7%
14%
13%
11%
14%
62%
Owned and leased hotels (rooms)
14%
57%
8
(2,358)
2016: 8 (2,412)
Total hotels (rooms) in the pipeline
1,655
(244,146)
2016: 1,470 (230,076)
Group operating profit before
exceptional items 2017 ($759m)
644m
Key
Americas
Europe
86m
87m
52m
-110m
Asia, Middle East and Africa (AMEA)
Greater China
Central
IHG | Annual Report and Form 20-F 2017 | Strategic Report | IHG at a glance
3
Chairman’s statement
Our ability to deliver on our proven strategy,
focused on guests and owners, laid the foundation
for further high-quality growth in 2017, in what was
another year of shifting dynamics within the global
hospitality sector.
may face, our focus remains on delivering
consistent, quality brands and experiences
that meet guest needs and build loyalty.
This commitment to quality extends to how
we grow our business too, and we take a
targeted approach, ensuring that we commit
resources against the most attractive
segments, and work with owners who
share our values.
The Board has an important responsibility
to ensure that we maintain our discipline
and strategic direction, whilst at the same
time remaining as agile and dynamic as
possible. This approach and consistent
execution of our strategy will continue to
be central to maintaining IHG’s long track
record of delivering high-quality, sustainable
growth for our stakeholders.
CEO succession
In 2017, we said goodbye to
Richard Solomons, following his decision
to retire as Chief Executive Officer (CEO)
in June, after 25 years with the business and
six as CEO. I would like to thank Richard for
his outstanding leadership, which helped
IHG become the leading global organisation
it is today, with a track record of creating
exceptional shareholder value.
We place an ongoing high importance on
succession planning and talent development,
and the appointment of Keith Barr as CEO
was the result of a rigorous evaluation.
With significant industry experience and
an excellent track record in the business,
having already transformed our Greater China
operations and more recently led our sales
and marketing function, the Board was
unanimous in its assessment that Keith was
the best candidate for the job. Following
a smooth transition into the role, Keith is
instilling great energy and passion in the
business, and has moved decisively to
introduce changes designed to accelerate
IHG’s growth, with the full support of the
Board. The foundation for these changes
has been laid over several years, successfully
completing our major asset-disposal
programme and subsequently focusing on
building a powerful global enterprise for our
fee-based business. As our industry becomes
more competitive, ensuring that we are now
best set-up to maximise the potential of our
strategy is crucially important, and will allow
us to deliver increased value and returns for
our shareholders over the long term.
Patrick Cescau
Chairman
Final dividend
71.0�
to be paid on 11 May 2018
(2016: 64.0 �)
Consumer expectations continue to evolve,
supported by ever-increasing choice and
the integration of sophisticated technology
into the guest journey, which has transformed
how people choose, experience and share
products and brands. When you combine
this changing landscape with an evolving
global economic, political and societal
backdrop, it has never been more important
for businesses to embrace change whilst
protecting what is core to their purpose
and ambition.
The global economy continued to improve
in 2017, led by Europe and Asia, and we
saw encouraging signs of positive growth
prospects for the year ahead, including the
decision to cut corporate tax in the US
towards the end of the year. On the other
hand, in many markets political volatility
and instability continued, and we saw the
devastating impact of terror attacks and
a series of natural disasters in certain parts
of the world.
As a global business operating in nearly
100 countries, we have considerable
experience of managing our business through
volatility. Whatever external challenges we
4
IHG | Annual Report and Form 20-F 2017
Strategic Report 1. InterContinental Los Angeles Downtown,
California, US
2. IHG Academy programme at InterContinental
Singapore
Full-year dividend
Five-year progress (�)
2013
2014
2015
2016
2017
70.0
77.0
85.0
94.0
104
Final dividend
71.0¢ to be paid on 11 May 2018
(2016: 64.0¢)
1.
2.
Doing business responsibly
I spent time in different parts of our business
during the year, once again seeing first-hand
the great work of colleagues in our hotels,
visiting impressive new properties such as
our InterContinental® and Hotel Indigo®
hotels in downtown Los Angeles, and also
meeting owners, representatives of the
IHG Owners Association, and shareholders.
When visiting parts of our company, one
element I am particularly proud of is our truly
global commitment to being a responsible
business. I have seen this through the
everyday behaviours of our colleagues,
through the work the IHG® Foundation does
to support people and communities when
they need it most, and through our
corporate responsibility programmes.
Thousands of people have gained valuable
skills and employment experience in our
industry through our IHG® Academy
programme, while our IHG Green Engage™
system continues to help hotels effectively
reduce things like carbon, water and energy
use. In recognition of our actions, we were
extremely proud to be ranked first in our
industry on the S&P Dow Jones Sustainability
World Index in 2017. We enter this year with
new three-year responsible business targets,
aligned to the areas where we can have the
greatest positive impact.
I would like to sincerely thank all colleagues
for their work in what has been another year
of strong progress, and our owners for their
continued confidence in IHG and our brands.
Patrick Cescau
Chairman
Supporting Keith with this work will be
a key priority for the Board in 2018,
alongside ensuring there is a continued
strong focus on risk management and
operational delivery.
Board composition and talent
Effectively challenging and supporting the
business in its corporate decision making
is a role the Board takes seriously, and we
place high importance on making sure
there is the right mix of expertise, skills and
diversity that befits a global organisation.
We focus on ensuring our actions and
processes are effective, that we regularly
review training for individual Board members
and that we seek external consultation
regarding areas for improvement. In 2017,
we were proud to be recognised by the
independent Hampton-Alexander Review as
one of the top 10 FTSE 100-listed companies
for female representation across our Board,
as well as our Executive Committee and
their direct reports.
Building a business and culture that is
representative of the markets in which we
operate is an important factor in ensuring
that, both as an organisation and as
individuals, the actions we take to serve
multiple stakeholders meet IHG’s
strong values.
At the end of 2017, the Board comprised
seven Non-Executive Directors, myself
as Chairman, and two Executive Directors.
In addition to Keith’s appointment, we were
delighted that, effective 1 January 2018,
Elie Maalouf, IHG’s Chief Executive Officer
for the Americas, joined the Board as an
Executive Director. Elie is an excellent
addition and offers substantial and highly
relevant commercial and hotel development,
branding, finance, real estate and operations
experience across multiple industries.
Shareholder returns
I am pleased to announce that the Board is
recommending a final dividend of 71.0 cents
per ordinary share, an increase of 10.9% on
the final dividend for 2016. This results in a
full-year dividend of 104.0 cents per share,
up 10.6% on 2016.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Chairman’s statement
5
Chief Executive Officer’s review
Having worked in the hospitality industry for almost three
decades, including nearly 18 years at IHG, it was a great
honour to become CEO in 2017. With the support of our
owners and hugely talented colleagues, I have worked
all around the world helping IHG and our brands grow.
with our next generation Guest Reservation
System (GRS). Following successful hotel
pilots, GRS will roll out in 2018 as part of IHG
Concerto™, our new cloud-based platform,
which over time will seamlessly bring
together all our hotels’
core systems.
Financial and operational highlights
We delivered strong underlying profit
growth and opened our highest number
of hotels since 2009, including the most
ever in both AMEA and Greater China.
We finished the year with 5,348 properties
in our portfolio and, supported by positive
industry trends such as low-cost travel and
growing middle classes, demand for our
brands remains healthy. We are focused
on targeting segments and markets with the
greatest opportunities, and we made great
progress in the year, signing our highest
number of hotels since 2008. Underlining
our organic growth potential, we closed
2017 with a pipeline of 244,146 rooms, which
represents a 13% share of the active industry
pipeline and is three times our share of
current supply.
Brands
In a world where consumers and our hotel
owners have more choice, it has never been
more important to focus on ensuring our
brands are competitive and that we have
a portfolio tailored to the highest growth
markets and segments. IHG has a proud
history of leading the way in service, design,
technology and marketing, and we continue
to ensure our actions are based on insights
that deliver rich, relevant guest experiences
and compelling propositions for our owners.
At the heart of our growth are our Holiday Inn®
and Holiday Inn Express® brands, and working
with our owners, we continued to introduce
new services and vibrant designs that are
increasing guest satisfaction scores and
revenues. Holiday Inn Express has also been
at the centre of our very successful Franchise
Plus business model in Greater China,
leading to the signing of 54 hotels in 2017.
Due to its strong performance, we took
the important step of extending our leading
franchise offer to our Holiday Inn and
Crowne Plaza® brands, which will help
drive further growth in the region.
Keith Barr
Chief Executive Officer
Key highlights
Total room signings
83,000
The highest number since 2008
Launch of avid hotels
$20bn
Market opportunity
Total room openings
48,000
The highest number since 2009
As a company, we are extremely grateful to
my predecessor, Richard Solomons, whose
legacy is a strong business, with a proven
strategy built to deliver long-term
sustainable growth.
Since my appointment in July, I have been
clear that the right foundations for success
have been carefully put in place, and that
we must now build on this and execute our
strategy at a faster pace, in order to deliver
industry-leading net rooms growth over the
medium term. Important changes to our
structure and how we operate are underway,
and with greater focus and agility we will
deliver more for our owners and guests.
In 2017, we delivered another year of
consistent, high-quality growth and strong
financial and operational performance. We
continued to expand and invest in our brands,
entering exciting markets and introducing
our newest brand, avid™ hotels. We also
further enhanced our IHG® Rewards Club
loyalty programme with new partnerships
and benefits, and made important progress
6
IHG | Annual Report and Form 20-F 2017
Strategic Report 1. Artist’s impression of avid brand hotel exterior
2. Holiday Inn Express Shanghai Puijang, China
“ The right foundations for
success have been carefully
put in place, and we must now
build on this and execute our
strategy at a faster pace.”
1.
2.
The launch of avid hotels was another
significant milestone and represents a huge
opportunity. Building on our long-standing
successful track record in the Mainstream
space, this brand will bring much-needed
consistency and quality to a segment of
14 million people, worth an estimated
$20 billion in industry revenues. Since
launching in September, we’ve seen
significant owner interest, closing the year
with 44 properties signed and one already
under construction. In the first six weeks of
2018, signings further increased to 75 hotels.
Equally exciting as launching new brands,
is taking others into new markets, and
we made important progress in 2017
with the introduction of Kimpton® Hotels
& Restaurants in China and Asia, and
EVEN® Hotels into China and Australasia.
Making sure we have the right brands in
markets and segments with the highest
potential will remain a key focus for us.
As part of this, we will be launching an
Upscale conversion brand in 2018,
leveraging the power of our system to
capture share of this significant premium-
priced market.
Technology
The role of technology increases in
importance every year, from how we use
and manage data, to the systems in place
to support our hotels, and our IHG App,
which both enhances guest experiences
and serves as a key revenue driver. Digital
revenue in 2017 was $4.6 billion, including
more than $2 billion of mobile revenues,
which have more than doubled over
three years.
Another important area of technology is the
development of IHG Concerto, which puts
IHG at the very forefront of our industry and
provides a major competitive advantage (see
page 17 for more details). Hotel colleagues
will have everything at their fingertips to
provide more personal touches and manage
reservations and revenues, and over time,
guests will benefit from an unrivalled tailored
booking experience. This is a long-term
programme, which will see increasingly
sophisticated functionality added in phases.
Accelerating growth
I strongly believe that our strategy remains
the right one for IHG and our stakeholders,
but moving with speed and focus is
important when operating in an industry
with both increasing opportunity as well
as competition. To accelerate our growth,
we will sharpen our focus on scale and
how we invest resources in the highest
opportunity markets and segments. We will
also strengthen our brand portfolio and
loyalty offer, enhance our marketing,
and prioritise digital and technological
innovations that drive hotel performance
and stronger owner returns.
Our plans rely on the support of our
passionate colleagues, who shape and deliver
outstanding guest experiences every day,
and our owners, whose trust in IHG and our
brands remains paramount to our success.
Linking us all is a commitment to a shared
purpose of providing True Hospitality for
everyone – guests, owners, colleagues
and partners. This is a simple but powerful
culture centred on recognising, respecting
and understanding people, and making
everyone feel welcome and cared for,
wherever they are in the world.
Testament to everyone’s efforts are the
hundreds of awards once again received
during the year. In particular, we were
very proud to see IHG recognised as an
Aon Global Best Employer, based on our
excellent employee engagement scores.
I would like to thank everyone who helped
make 2017 another great success for IHG
and I look to 2018 with much optimism
for another strong performance.
Keith Barr
Chief Executive Officer
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Chief Executive Officer’s review
7
Strategic Report
Industry overview
Whether for business or leisure, the world is there
to be explored. With more options, more time and
more money, millions of people are looking for
great places to stay and memorable experiences.
The global hotel industry
The global hotel industry is made up of
17.2 million rooms and can be segmented
into hotels affiliated with a global or national
chain (‘branded’), and hotels that are
unaffiliated (‘independent’). 30% of hotel
rooms are in the US, with Europe accounting
for 29%. Greater China claims 14% and
has increased rooms supply by +5.3%
Compound Annual Growth Rate (CAGR)
over the past eight years.
Several industry metrics are widely
recognised to track performance, including
revenue per available room (RevPAR) and
rooms supply. RevPAR is important as an
indicator of the value guests ascribe to
a given hotel, brand or market and grows
when guests stay more often or pay higher
rates. Rooms supply is significant because
it is reflective of the attractiveness of
investing in the hotel industry from an owner
perspective and is influenced mainly by the
profitability of a brand or market. Driven by
strong fundamentals, the global hotel industry
has seen consistent growth in both of these
indicators for the past eight years.
US industry demand growth accelerated
in 2017, and has regularly outpaced GDP
growth since 2010. US supply growth has
been below the long-term average for eight
years, and limiting factors indicate this will
not significantly change in the short term.
These dynamics have had a positive effect
on RevPAR, driving US occupancies to
an all-time high in 2017, and real average
daily rate (ADR) to three per cent above its
2007 peak. Looking ahead, US fundamentals
remain positive and industry forecasters
expect robust room demand with RevPAR
growth driven mainly by rate increases.
China has seen the fastest industry demand
and supply growth of any major hotel market
in recent history, driven by rapid expansion
and urbanisation of the middle class.
Historically, Chinese RevPAR has been
supressed by strong supply growth but grew
in 2017 as the market matured and supply
stabilised. In Europe, RevPAR has grown
steadily since 2010 as demand growth has
consistently outpaced supply growth.
The hotel industry is cyclical; long-term
fluctuations in RevPAR tend to reflect the
interplay between industry demand, supply
and the macroeconomic environment.
In the short term, at a local market level,
political, economic and natural factors such
as terrorism, oil market conditions and
hurricanes can impact demand and supply.
The branded hotel market
IHG operates within the branded hotel
market, which accounts for 53% of total
rooms supply globally. Despite ongoing
industry consolidation, with two of the
largest hotel companies acquiring sizable
players, the market remains fragmented.
According to Smith Travel Research, five of
the leading companies (IHG, Marriott, Hilton,
Wyndham and AccorHotels) only account
for 24% of global room supply and 58% of
the development pipeline (hotels in planning
and under construction, but not yet opened).
Branded hotel companies have consistently
increased their share of the global hotel
market since 2008, helped by consumers’
trust in brands to deliver consistent stay
experiences, and the advantages brands
bring to owners, such as favourable financing
and lower distribution costs. Large hotel
companies benefit from economies of scale
and have shown greater resilience during
economic downturns.
Nevertheless, competitor pressures in the
branded hotel market are intensifying as
all major players pursue a growth strategy.
Marriott has grown through acquisition
and is leveraging scale, Hilton is organically
launching new brands and Accor is
diversifying inorganically within the
travel space.
As a global business, with a footprint in
nearly 100 countries, operating in the midst
of change and uncertainty is something
IHG is very used to and continues to be one
of our greatest strengths. Our strategy of
developing a strong brand portfolio and
an industry-leading loyalty programme,
together with our fee-based income streams
and prevalent mainstream positioning,
means we remain resilient through varying
economic cycles.
Please see pages 20 to 22 to read
about our risk management process.
Business models and competitive
landscape
There are two principal business models
in the industry:
• Fee-based
– Franchised – owned and operated by
parties distinct from the brand, who pay
fees to the hotel company for the use
of their brand.
– Managed – operated by a party distinct
from the owner, who pays management
fees and, if the hotel uses a third-party
brand name, fees to that third party also.
• Owner-operated
– Owned – operated and branded by the
owner who bears all of the cost but
benefits from all of the income.
– Leased – similar to owned, except the
owner-operator does not have outright
ownership of the hotel but leases it from
the ultimate owner.
Although asset-heavy business models,
such as owner-operated hotels, allow tighter
control over hotel operations, the managed
and franchised models offer quicker
growth due to lower capital investments.
However, they require strong relationships
with third-party hotel owners.
Alongside traditional hotel providers and the
launch of new hotel brands, hotel companies
are increasingly competing with alternative
lodging propositions. These include home
rental and serviced apartments, as well as
other digitally enabled propositions, giving
consumers access to broader choice as
to where they stay and how they book.
Key industry growth drivers
There are three major drivers of global
long-term hotel industry growth:
• Long-term macroeconomic growth
– GDP growth
– Growth of disposable incomes
– Corporate profitability
• Demographic changes
– Ageing population, with greater
desire and means to travel
– Growing middle classes
• Socio/Political factors
– Growth in air travel
– Emerging markets expansion
8
IHG | Annual Report and Form 20-F 2017
InterContinental Bora Bora Resort Thalasso Spa, French Polynesia
Trends shaping our industry
Mobile expansion
Data power
Human connections
In 2017, four out of five internet users
went online via a mobile device.
Rapidly expanding mobile connectivity
continues to provide brands with the
opportunity to explore new ways of
interacting with customers across their
entire guest journey. In particular, social
media and other mobile apps foster
instant, real-time conversations
between guests, their networks and
travel brands.
At IHG, we are constantly refining our
award-winning mobile App, to offer
guests easier ways to book, industry-
leading loyalty redemption options and
a richer stay experience. This resulted
in over $2bn of mobile revenue
in 2017.
Please see Driving digital growth
case study on page 17.
Data generation continues to increase
rapidly. Capturing this, and understanding
it, can transform the level of insight
a hotel company has into its guests,
providing opportunities to enhance
personalisation, operational efficiency
and service delivery.
For IHG, cloud-based foundational
systems such as IHG Concerto™ are
being rolled out to ensure that we have
the necessary agility and processing
power to gather intelligence that can
help us shape the way we interact with
our guests and deliver more tailored
experiences.
Please see IHG Concerto
case study on page 17.
In an increasingly digital environment,
human interaction remains a vital
component of customer satisfaction.
Personalisation and the personal touch
are distinctly different. Whilst the use
of data allows brands to offer a more
personalised experience, a feeling
of humanity – a unique emotional
connection with a guest – can only
come from hotel colleagues. When
companies achieve both these
elements, they can deliver particularly
powerful experiences.
For IHG, a human connection is the most
crucial element of our commitment to
providing True Hospitality for everyone.
Over 150,000 colleagues participated
in our True Hospitality service training
in 2017, which helps hotel staff to create
personal, memorable moments with
guests, as part of a tailored service.
Meaningful connections lead to greater
customer loyalty and encourage
consumers to become powerful
advocates for our brands. For IHG,
this is extremely important, as our
most loyal guests stay at our hotels
more often and are more likely to
book direct.
The IHG® App
IHG Concerto™
Crowne Plaza London – King’s Cross, UK
4.9bn
unique mobile phone owners in 2017.
$3tn
value of the global data economy.
2.5bn
active mobile social media users in 2017.
90%
of all existing data created since 2015.
87%
of customers increase business with and
loyalty to companies who offer a real person
to talk to when they need it.
80%
of people prefer human customer service
to digital alternatives.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Industry overview
9
Our brands
IHG is a brands business built on a commitment to
providing True Hospitality for everyone. Through our family
of well-loved and distinctive brands, our talented colleagues
deliver memorable guest experiences all around the world,
every day, and we are trusted for rewarding loyalty.
Continuing to evolve with changing
consumer trends, we strengthened our
brands with enhanced services and new
designs in 2017, and expanded further into
both new and existing markets. It was also
the year we launched our newest brand,
avid™ hotels.
We plan to launch an Upscale conversion
brand in 2018, which leverages the power
of IHG’s system to capture share of this
significant premium priced market. The brand
will initially launch in our new EMEAA region
and will subsequently be extended to our
Americas and Greater China regions.
See page 29 for a breakdown of
IHG hotels open and in the pipeline.
For more information on our brands
visit www.ihgplc.com/our-brands
194
Hotels open
63
Hotels in pipeline
66
Hotels open
18
Hotels in pipeline
7
Hotels open
21
Hotels in pipeline
Live the InterContinental life
The world’s first, and largest, Luxury hotel
brand, dedicated to those who appreciate
and enjoy the InterContinental life. Offering
the glamour and exhilaration of fascinating
places, we provide our guests with a blend
of international know-how and local
cultural wisdom.
A different way to stay
Kimpton is a brand renowned for making
travellers feel genuinely cared for through
thoughtful perks, inventive meetings and
events, bold and playful design, and
sincerely personal service. Having brought
boutique to the US, we are now taking
Kimpton global.
Capturing the spirit of Chinese hospitality
The first Upscale international hotel brand
designed for Chinese guests. Every detail
of service and design is woven with Chinese
culture and heritage, emphasising values of
etiquette, rejuvenation in nature, recognition
of status and enabling spaces.
85
Hotels open
82
Hotels in pipeline
8
Hotels open
12
Hotels in pipeline
414
Hotels open
86
Hotels in pipeline
Making travel inspiring
Hotel Indigo serves the curious; people with a
passion for new places. Making travel inspiring
in the world’s most intriguing neighbourhoods,
each hotel reflects the local area, combining
thoughtful design and personal service to
create authentic experiences.
Where wellness is built in
For travellers seeking a healthier and happier
stay when away from home, EVEN Hotels
and its wellness-savvy staff give guests a
best-in-class fitness experience, nutritious
food choices, and natural, relaxing spaces.
Making business travel work
Championing a better way of business travel,
Crowne Plaza understands that today’s
business travellers need to combine the
flexibility to work, eat and connect with
others, with the opportunity to simply relax
whenever and wherever it suits.
10
IHG | Annual Report and Form 20-F 2017
Strategic Report 1,169
Hotels open
264
Hotels in pipeline
2,600
Hotels open
766
Hotels in pipeline
255
Hotels open
160
Hotels in pipeline
Joy of travel for all
An iconic brand, Holiday Inn has
championed enjoyable travel for millions
of guests since 1952. Today we have more
new and refreshed hotels than ever before,
and our guests’ love for the brand continues
to grow right across the globe.
Simple, smart travel
IHG’s largest brand has blazed a trail in
defining a simple and smart travel experience,
evolving guest room and public space
designs to offer inviting, efficient hotels
all over the world.
Feel at ease when you stay with us
At Staybridge Suites we offer a sense
of community, comfort and convenience
for guests, providing the best of home and
hotel for business and leisure travellers alike.
26
Hotels open
0
Hotels in pipeline
47
Hotels open
13
Hotels in pipeline
376
Hotels open
112
Hotels in pipeline
The joy of lifetime vacations
For families investing in a lifetime of
memories, we offer exceptional villa
accommodation in top leisure destinations,
with easy access to world-class attractions
such as mountain adventures, championship
golf courses and serene beaches.
The joy of family holidays
We want families to experience the joy of
great holidays. On the beach, or near theme
parks and golf courses, we offer a variety
of activities from kids’ clubs and swimming
pools, to informal restaurants and
fireside lounges.
Your home base
Offering a more casual kind of longer stay,
guests always feel at home and at their
best while on the road. With hotels in easily
accessible locations, guests can book
whenever and wherever it works for them.
Creating relevant,
rewarding relationships
Relationships are important
to us and we have more
than 100 million enrolled
IHG Rewards Club members
worldwide. Offering industry-
leading benefits across our
brands, we ensure travel
is experienced the way it
should be: personal, simple
and rewarding.
For more information
on our rewards club visit
www.ihgplc.com/our-brands
under Rewards Club.
0
Hotels open
44
Hotels in pipeline
Where the rest is easy
Championing everyday travel at a fair price,
Our avid hotels brand is designed for guests
who don’t want to compromise on quality
or pay more for things they don’t need.
Delivering the essentials exceptionally well,
avid experiences feel just right, every time.
IHG Annual Report and Form 20-F 2017 | Strategic Report | Our brands
11
Our business model
As an asset-light business, we are a manager and
franchisor of hotel brands. This means we can focus on
growing our fee revenues and fee margins, with limited
requirements for capital. It’s an approach that’s helped us
successfully grow our business and deliver high returns.
Whether we franchise to, or manage hotels
on behalf of 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%
of IHG hotels are franchised.
• While a managed model is typically
used in emerging markets:
– In AMEA, about 80% of IHG hotels
are managed by us.
– In Greater China, that figure rises
to more than 97%.
Our owned, leased and managed leased
hotels have dramatically reduced from over
180 hotels 16 years ago, to just 12 hotels
at 31 December 2017.
% of our operating profit before
central overheads
4%
96%
Fee business
Owned, leased and managed leases
Definition: System Fund or Fund
Assessment fees and contributions
collected from hotels within the
IHG System which fund activities that
drive revenue to our hotels including
marketing, the IHG Rewards Club
loyalty programme and our
distribution channels.
IHG revenue and the System Fund
Total Gross Revenue
2017: $25.7 billion. This comprises:
• Franchised hotels =
total rooms revenue
• Managed hotels =
total hotels revenue
• Owned and leased hotels =
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 are
collected by IHG for specific use within
the System Fund.
IHG revenue
2017: $1.8 billion
System Fund receipts
2017: $1.9 billion
No profit or loss for IHG – managed
by IHG for the benefit of hotels within
the IHG System.
• Assessments and contributions
paid by hotels.
• Proceeds from the sale of
IHG Rewards Club points.
See page 41 for more information.
Revenue attributable to IHG and
this comprises:
• Fee business revenue: in 2017,
81% of our revenue came from
franchise and management fees,
and central revenues:
– Franchise fees = RevPAR x rooms
x royalty rate.
– Management fees = fee % of total
hotels revenue plus % of profit.
– Central revenue (principally
technology fee income –
see page 41).
• All revenue from owned and
leased hotels.
Profit from fee revenues
After operating costs of sale, our
margin by business model is
as follows:
• Fee business after overheads: 50.4%
• Owned and leased: 16.8%
Not all of our costs can be allocated
directly to revenue streams and these
are shown as regional or central
infrastructure costs.
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 2017
to support our strategic priorities,
please see pages 16 and 17.
12
IHG | Annual Report and Form 20-F 2017
Strategic Report
Disciplined approach to allocation of capital
Our business is highly cash generative (see page 43), and
our focus on our brands and revenue systems is underpinned
by a disciplined long-term approach to allocated capital and
maintaining an asset-light business model. We have an efficient
balance sheet and seek to maintain an investment grade credit
rating. Our priorities for the use of free cash are consistent
with previous years and comprise of:
1. Invest in
the business
2. Maintain sustainable
growth in the
ordinary dividend
3. Return
surplus funds
Through strategic investments and
our day-to-day capital expenditures
we continue to drive growth –
see table below, and page 105
for further details of our capital
expenditure in 2017.
We continue our focus on growing
the ordinary dividend, which has
seen compound annual growth
of 11% since 2003.
In May 2017 we returned a further
$404 million to shareholders
via a special dividend and share
consolidation. Over the last 15 years
we have returned $13.0 billion
to shareholders.
IHG’s outlook on capital expenditure
Capital expenditure incurred by IHG can be summarised as follows.
Capital expenditure
Examples
Maintenance capital expenditure, key
money and selective investment to access
strategic growth
Deployment of key money and selective investment which is used to access strategic
opportunities, particularly in high-quality and sought-after locations when returns are
financially and/or strategically attractive.
Corporate infrastructure maintenance – for example, in respect of our offices and systems.
Maintenance of our owned and leased hotels, which is now reducing as we have become
increasingly asset-light.
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.
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
See Chairman’s statement for progress
on dividends, page 5.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Our business model
13
Our strategy for high-quality growth
We have a clearly defined strategy which will continue
to drive superior shareholder returns. Our focus is on
delivering high-quality growth, which for us means
consistent, sustained growth in cash flows and profits
over the long term.
Overview of strategy
IHG has an established and successful
strategy. Our focus is on unlocking ways to
execute this strategy at a faster pace, and
accelerate growth. Our Strategic Model sets
out our approach and remains central to
our commitment to delivering high-quality,
sustainable growth in cash flows and profits
over the long term.
Through our Strategic 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.
In an increasingly competitive environment,
IHG is well placed to accelerate the growth
of our core business, as well as maximise
returns on new initiatives. This includes our
new brand, avid hotels, launched in 2017,
which had 75 hotels in the pipeline as at
9 February 2018 – of which 44 hotels were
signed at 31 December 2017 – see page 16
for more information.
We measure our performance
with a set of carefully selected
key performance indicators (KPIs),
which monitor our success in
achieving our strategy, see
pages 23-25 for more details.
Value
creation
Superior
shareholder returns
Strategic Model
Targeted portfolio
Targeting the most attractive
markets and segments is critical
to maximise IHG’s growth.
We prioritise resources and
investments based on growth
potential, strategic importance
and IHG’s ability to win. This is
a key part of our ambition to
accelerate our growth trajectory,
and build on our strong global
competitive position.
• We operate in the Mainstream,
Upscale and Luxury segments
– the highest opportunity
segments based on guest
needs.
• Focused geographic markets
and key cities.
Build and leverage scale
Strengthen loyalty programme
Enhance revenue delivery
Evolve owner proposition
Optimise our preferred
portfolio of brands for owners
and guests
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 2017
Strategic Report Strategic Model
The individual components of IHG’s Strategic Model are
at the heart of our success, and continue to align our
organisation to focus on the most important strategic
initiatives and deliver our commitment to True Hospitality.
This approach helps us create value for our stakeholders
and deliver high-quality growth for our shareholders.
Build and
leverage scale
Strengthen loyalty
programme
Enhance revenue
delivery
Evolve owner
proposition
Optimise our
preferred portfolio
of brands for
owners and guests
Scale provides significant advantages
in the hospitality industry at both global
and national level. IHG uses the breadth
of its portfolio combined with our depth in
attractive markets and focus on the highest
opportunity segments, to drive significant
efficiencies, leading to increased operating
leverage and ultimately higher margins.
Having an attractive, differentiated loyalty
offering tailored to our guests’ needs is
critical to IHG’s continuing success. We are
continually innovating IHG Rewards Club to
build lifetime relationships with our guests.
This creates a sustainable long-term revenue
source and transforms previously unaffiliated
travellers into powerful advocates for
our brands.
By striving to drive business through our
direct channels, IHG maximises returns
for our owners as these channels are less
costly than alternatives such as third-party
intermediaries. Digital and technological
innovation, alongside strong brands and
compelling loyalty, is key in ensuring
IHG continues to manage revenue
delivery effectively.
Within our asset-light business model,
maintaining positive relationships with
long-standing owners and constantly forging
new owner relationships is vital for IHG.
Our outstanding operational support,
preferred brands, industry-leading franchise
offer and continued investment in innovation
delivers a compelling owner proposition
and strong returns.
As competition intensifies, distribution
channels proliferate and consumers become
more demanding, actively building a strong
portfolio of distinctive, preferred brands for
both our owners and guests, is fundamental
to IHG’s success and future growth.
To see how we build and leverage
scale, go to:
• Expanding our Upscale and
Luxury portfolio on page 32
To see how we strengthen our loyalty
programme, go to:
• Driving digital growth on page 17
To see how we enhance revenue
delivery, go to:
• IHG Concerto on page 17
• Driving digital growth on page 17
To see how we evolve our owner
proposition, go to:
• Franchise Plus in Greater China,
on page 32
To see how we are optimising our
portfolio of preferred brands, go to:
• avid hotels on page 16
• Crowne Plaza Accelerate
programme on page 32
• Transforming Holiday Inn
brand family on page 32
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Our strategy for high-quality growth
15
Strategic Report
Our Strategic Model in action
We are focused on delivering across all components
of our Strategic Model and in 2017 made progress
with several important global initiatives.
To see our regional highlights, please go
to the Performance section on page 32.
InterContinental Danang Sun Peninsula Resort, Vietnam
16
IHG | Annual Report and Form 20-F 2017
avid™ hotels
Launched in 2017, avid hotels is our
new, US Mainstream brand, which
we developed in collaboration with
an owner advisory board.
The brand has been created to target
over 14 million currently underserved
travellers, who together make up an
estimated $20 billion segment. It will
feature all-new build construction and is
designed for travellers who want a hotel
stay that meets their expectations. That
includes the basics done exceptionally
well at a price point expected about
$10-15 less than IHG’s industry-leading
Holiday Inn Express brand.
The avid hotels guest experience is
designed around these key hallmarks:
• Sound sleep from premium bedding
and noise reducing construction.
• Technological enablement through
IHG Connect Wi-Fi and smart TVs.
• High-quality breakfast, including
premium coffee and branded
grab n’ go options.
The brand was developed with an
owner advisory board, and, with a
leaner operating model and 10-15%
lower forecasted cost per key than
Holiday Inn Express, it further enhances
our proposition for owners. Leveraging
our scale, experience and leading
position in the Mainstream segment,
we expect our avid hotels brand to
be a key driver of IHG’s future System
size growth.
75
signings as at 9 February 2018 – of which
44 hotels were signed at 31 December 2017.
$20bn
size of target guest segment.
IHG Concerto™
Driving digital
growth
Accelerate
growth
Technology is an increasingly
important element of the guest
experience and offers huge potential
to deliver stronger owner returns.
Digital is IHG’s preferred channel.
It represents the lowest cost for
owners and allows us to interact with
guests at every stage of their journey.
IHG Concerto represents the next
step in our ambitious technology
roadmap. Connected through the
cloud, IHG Concerto is a user-friendly
hotel platform, combining an industry-
leading Guest Reservations System
(GRS), enhanced Revenue Management
System (RMS) and will include other
capabilities such as property
management and sales and catering
systems. Our pilots to hotels began
in 2017, and our ambition is for roll-out
to hotels to be completed by late 2018
to early 2019. IHG Concerto will bring
several benefits:
• Guests can customise their stay
based on features they find important
– made possible by new ways of
classifying and selling room inventory.
• Hotel staff have more time to devote
to delivering True Hospitality to guests
– enabled by a more efficient hotel
management system.
• Owners benefit from smarter revenue
management tools.
IHG Concerto provides our hotels with
advanced digital agility, aligning with
our strategy to leverage innovation
for real competitive advantage.
The IHG® App and Your Rate by
IHG® Rewards Club are both key
elements to ensuring the continued
growth and vitality of our direct
digital channels.
Mobile is IHG’s primary digital growth
driver, spearheaded by our award-
winning App, offering guests real
convenience and industry-leading
loyalty redemption options:
• 34% of overall IHG revenue growth
is driven by direct digital.
• 72% of direct digital revenue growth
came from IHG’s App in 2017, which
saw a 27% year-on-year increase
in visits.
• Mobile visits have now surpassed
their desktop equivalents.
Your Rate was launched in 2016 and
offers loyalty members the lowest rate
available when booking direct with us,
compared with other channels. It not
only helps build and strengthen lifetime
relationships with guests, but it also
helps reduce cost of sale and increase
long-term sustainable revenue growth
for our third-party hotel owners.
Having built a powerful and effective
global enterprise, we are now focused
on executing our proven and well-
established strategy at a faster pace
to deliver industry-leading net rooms
growth over the medium term.
This will involve us redeploying and
refocusing resources to leverage
our scale; strengthening our loyalty
programme; continuing to prioritise
digital and technological innovation;
expanding our industry-leading
franchise proposition; strengthening
our existing brands; and adding new
brands where we see the greatest
potential for growth.
We made good initial progress in 2017,
which involved:
• Establishing a new regional operating
structure whereby, effective 1 January
2018, we now have three regions
instead of four – Americas, Greater
China and the new region of EMEAA
(Europe, Middle East, Asia and Africa).
• Combining our Commercial and
Technology operations into one
function to oversee technology,
revenue management, channels
and sales, along with the many inter-
dependencies between these areas.
• Creating one global Marketing
function focused on fully integrated
brand, marketing and loyalty activities.
• Outsourcing our Central Reservation
Office (call-centre) capabilities in
the UK.
5,000+
targeted IHG hotels using IHG Concerto
by 2019.
>$1bn
IHG App revenue in 2017.
3
operating regions.
19
different countries where IHG Concerto
was in use in 2017.
72%
2017 IHG digital bookings through mobile
in China.
$125m
targeted annual savings by 2020 for
reinvestment to drive growth.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Our Strategic Model in action
17
Doing business responsibly
Our focus on responsible business is part of
everything we do at IHG, helping create a diverse
and inclusive culture that embodies our commitment
to provide True Hospitality for everyone.
In a fast-changing world, building trust with
guests, colleagues and other stakeholders,
living our core values and having a positive
impact on society and the environment is
more important than ever to IHG’s long-term
success. Our people, policies and corporate
responsibility programmes bear testimony
to a culture of responsible business that
is deep-rooted and embedded in our
strategy, including:
• Strong governance and leadership, which
promotes a culture of responsible business
attitudes and behaviours.
• Ensuring our employees understand key
legal and reputational issues and our
Winning Ways.
• Ensuring the safety and security of
employees, guests and other visitors
to our hotels and offices.
• Operating effective risk management
and internal controls.
• Engaging in responsible procurement.
We have comprehensive Group-wide
policies and approaches on key responsible
business issues. These are set out in our
Code of Conduct and include Human Rights
and Modern Slavery, Bribery and Financial
Crime, Environment, Community Activities
and Diversity and Inclusion. We regularly
review our policies to ensure we align with
best practice.
IHG® Foundation
From skills in hospitality to helping
communities prepare for disasters,
the IHG Foundation, an independent
charity, helps make our world a more
hospitable place. In support, IHG
colleagues participate in fundraising
and volunteering activities every year.
To find out more about
the IHG Foundation visit
www.ihgfoundation.org
Our targets
Following the conclusion of our five-year
targets, in March 2018 we launch new
three-year IHG Responsible Business targets
in the four areas where we can have the
greatest impact: Environmental sustainability;
Community impact; Our people and
Responsible procurement.
These targets and our approach to
responsible business help us contribute
to the objectives of the United Nations
Sustainable Development Goals (SDGs).
See page 60 for more information on
our 2013-2017 performance, and how
the Corporate Responsibility Committee
have considered Environmental, Social,
Community and Human Rights issues
during 2017.
See our IHG Responsible Business Report
for information about our new targets
www.ihgplc.com/responsible-business
Our Winning Ways
The set of behaviours that define
how we interact with our guests and
colleagues, are embedded in the way
we work, and are a vital component
of our culture.
Do the
right thing
Aim
higher
Show
we care
Celebrate
difference
Work better
together
Diversity and inclusion
At IHG, diversity is embedded in our culture.
We understand that differing backgrounds
and perspectives create a more dynamic
and inclusive environment. Our global
diversity and inclusion strategy seeks to
ensure diversity in our management teams
and wider workforce, and recognises the
importance of our business representing
the communities in which we operate.
In 2017, the Hampton-Alexander Review
listed IHG in the top 10 of FTSE 100-listed
companies for female representation across
our Board, the Executive Committee and its
direct reports.
We have also achieved a perfect score
on the Human Rights Campaign’s annual
Corporate Equality Index in the US for four
years in a row, making IHG a best place
to work for lesbian, gay, bisexual and
transgender (LGBTQ) workplace equality.
As at 31 December 2017
Male
Female
Total
Directors
Executive Committee
Executive Committee
Direct Reports
Senior Managersa
All employees
(whose costs were
borne by the Group
or the Systems Fund)
6
8
37
100
4
2
26
38
10
10
63
138
5,184
7,029
12,213
a Including directors of subsidiaries.
For more information on our Diversity
and Inclusion Policy and strategy see
pages 61 and 66.
Attracting talent
To attract and retain the best talent, we
invest in our people and support them in
developing their careers, rewarding and
recognising their contribution, whilst
ensuring diversity across the workforce.
In 2017, we introduced ‘Apply on the Go’,
which simplifies the hiring process by
enabling candidates to apply for roles
using a mobile device.
Continuous learning
We know that great service can turn an
ordinary stay into an extraordinary one.
The IHG® True Hospitality Service Skills
training ensures colleagues consistently
meet our guests’ needs. So far more than
150,000 colleagues in 90 countries from
more than 3,500 hotels have completed
the programme.
In 2017, we completed the global rollout
of our General Manager (GM) Learning
Programme via our online platform, Fuse.
Fuse brings our GMs together in an online
community to share best practice, seek
advice and complete professional
development courses.
18
IHG | Annual Report and Form 20-F 2017
Strategic Report Colleague engagement
We recognise great service during our
annual Celebrate Service Week. The 2017
campaign saw over 1,300 inspiring stories of
True Hospitality shared and over 1,200 social
media posts using #IHGCelebrateService
and #TrueHospitality.
Employee engagement is measured through
our bi-annual survey, Colleague HeartBeat
powered by Aon Hewitt. Corporate, managed
hotel and customer reservations office
employees take part. In 2017 a revised survey
delivered record-breaking participation
of 97%, earning IHG recognition from
Aon Hewitt as a Best Employer,
benchmarked against industry scores.
Human rights
Our training and awareness programme
focuses on those areas of human rights that
are most relevant to our business. Our human
rights policy has been translated into more
than 40 languages and, to ensure our values
are consistently reflected, we require all
IHG branded hotels to adopt and display a
human rights policy. We also have in place
an e-learning module on Human Rights and
Modern Slavery, which has been completed
by 40,000 colleagues to date.
Anti-corruption and anti-bribery
We are committed to operating with integrity
and complying with all relevant laws, including
all applicable anti-corruption legislation.
IHG has a zero-tolerance approach to bribery
and corruption; a position clearly set out in
our Code of Conduct, Anti-Bribery and Gifts
and Entertainment policies which apply to all
IHG employees and Directors, and our
managed hotels. In 2017, all Board and
Executive Committee members completed
the latest anti-bribery e-learning module,
along with more than 30,000 colleagues.
Responsible procurement
and due diligence
In 2015, we launched an automated
procurement system across many of
our large corporate offices. This helps
our central procurement team manage
our supply chain, and we continue to
increase corporate spend through the
system. Onboarded suppliers are required
to complete due diligence questionnaires
covering responsible business and human
rights. We have piloted a new supplier
assessment and audit programme, using
third-party risk assessment providers,
which will be developed further in 2018.
We also carry out due diligence and
compliance checks on all new parties we
enter into hotel agreements with. A central
committee considers and reviews any issues
identified, including bribery and corruption
and human rights.
Environmental sustainability
The IHG Green Engage™ system is
our Group-wide, online sustainability
programme. It supports our Environment
policy and helps hotels manage their use of
energy, carbon, water and waste. By creating
more energy-efficient hotels, we can drive
profitability for owners while minimising
environmental impact.
We are a member of FTSE4Good and were
ranked first in our industry on the 2017 S&P
Dow Jones Sustainability World Index.
Community impact
Our Supporting Our Communities Policy
aims to maximise the positive contribution
we make by creating shared value in our
communities and with our business partners.
We support and develop people working in
the hospitality industry, and have improved
the employability of 47,962 IHG® Academy
participants between 2013 and 2017.
We guide our hotels to enhance their
disaster preparedness and provide extensive
support to colleagues affected by disaster.
Our principal risk assessment process
takes into account the risks related to,
and the impact of, non-financial matters
on the business (see page 21 for a further
description of our principal risks and the
measures taken to mitigate their impact).
We also consider our impact on the wider
communities in which we operate through
our responsible business programmes
(see our Responsible Business Report).
IHG Code of Conduct
The IHG Code of Conduct supports
colleagues in making the right decisions.
It sets out the principles we must all work
by at IHG. It also provides guidance on
where to go if colleagues are faced with
a difficult issue and need further help.
For further information on our Code
of Conduct, including our Modern
Slavery Statement see Policies under
www.ihgplc.com/responsible-business
Stakeholder engagement
Listening to and building strong, long-term
relationships with our stakeholders helps
focus our priorities and strategies and
creates loyalty, trust and credibility.
We take into consideration the views of our
stakeholders at all levels of decision making.
Key stakeholder engagement
For more information see Corporate
Governance on pages 47 to 63.
See our 2017 IHG Responsible Business
Report for a full stakeholder list, which
supports our responsible business strategy
www.ihgplc.com/responsible-business
Forms of engagement include:
Outcomes and measures include:
• Executive Committee and Senior Management led employee ‘Town Halls’.
• 97% average participation in the 2017 Colleague
• Annual Celebrate Service Week.
• Bi-annual Colleague HeartBeat survey.
Colleagues
• Company intranet and employee focused events.
• IHG Rewards Club.
• HeartBeat surveys (guest satisfaction surveys).
• Dedicated Guest Relations teams.
Guests and
corporate clients
• AGM.
• Presentations following results announcements.
• Annual investor perception survey.
Shareholders
• Programme of one-to-one meetings with major institutional shareholders.
• Supplier registration form and onboarding process included in our IHG Vendor
Code of Conduct.
• US supplier diversity data collection.
Suppliers
• Global and regional branches of the IHG Owners Association.
• Asian American Hotels Owner’s Association.
• Regional conferences.
Hotel Owners
• Owner HeartBeat surveys (owner satisfaction surveys).
HeartBeat survey.
• 3.7 million completed HeartBeat surveys and
7 million text and social media guest comments
captured and analysed in 2017.
• IHG True Hospitality Service Skills training
delivered to more than 150,000 colleagues.
• Average of 98% votes in favour across all
resolutions at 2017 AGM.
• Increased diverse supplier spend in the US
to $66 million, up from $59 million in 2016.
• avid hotels launched following collaboration
with an owner advisory board as part of the
brand development (see page 16).
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Doing business responsibly
19
Risk management
Our risk management system continues to evolve; we have an
established process to manage the risks we face as a business.
Our Strategic 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 is visible through the
nature and extent of risk taken by the Board
in pursuit of strategic and other business
objectives. This risk appetite is cascaded
through the goals we set, decisions we make
and how we allocate resources. IHG’s appetite
and tolerance for risk is further implemented
through our governance committees,
structures, policies and targets we select,
as well as in development guidelines for
new hotels. In 2017, the Board and Board
Committees have reviewed many of these
aspects directly through their meetings
and discussions of principal risks.
Our risk management system
Our risk management system is fully integrated with the way we run the business
through our culture, our processes and 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 focuses
on culture, process and control and monitoring and reporting.
Risk in culture
• Our tone, attitudes, ethical values and policies.
• Our governance and committee structures.
Risk in process 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).
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 comprising the Group Financial
Controller and 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.
Throughout 2017 the Global Risk team have
performed continuous assessments of the
principal risks facing the Group, including
those which would threaten its business
model, future performance, solvency or
liquidity. These risks are formally reviewed
with the Group’s Directors on a bi-annual
basis and considered in more detail through
the activities of the Board and Committees.
As part of our reviews we have consolidated
a previously identified risk relating to our
owner proposition into other factors listed.
As outlined on page 7, we are now focused
on executing our strategy at a faster pace.
This emphasises the importance of the
steps we take to consider risk explicitly
as part of decision making, for example in
the reprioritisation of resources, as well as
considering the effect of any operational or
functional changes on our risk management
system described above.
Our principal risks remain structurally
similar to those reported in previous years.
However, we have noted the potential
impact of the initiatives we are putting in
place to accelerate growth both as a specific
risk and also with the inherent trends and
measures we undertake to mitigate other
risks to a residual level appropriate to our
risk tolerance, given a more dynamic
organisational context.
In addition, we continue to conclude that
the potential impact of Brexit on IHG will
have no material impact on our strategy
or operations.
See pages 52 and 57 for details of
the assessment of our principal risks
by the Board and the Audit Committee.
These principal risks are supplemented
by a broader description of risk factors
set out on pages 164 to 167.
Risk trend and speed of impact
Through the principal risk process
we assess whether the risk area
is stable or dynamic (inherent risk
trend), and the rate at which there
could be a material impact on
IHG (speed of potential impact).
The trend and unmitigated speed
of impact are summarised in the
following diagram with further
detail on the initiatives undertaken
to manage each of these risks
in the table on the next page.
d
n
e
r
t
k
s
i
r
t
n
e
r
e
h
n
I
i
c
m
a
n
y
D
l
e
b
a
t
S
Principal risk – assessment of trend and speed of impact
More gradual
Rapid
Speed of potential impact
• Channel management and technology
• Cybersecurity and information governance
platforms
• Accelerate growth
• Preferred brands and loyalty
• Leadership and talent
• Programmes and project delivery
• Safety and security
• Legal, regulatory and ethical compliance
• Financial management and control systems
20
IHG | Annual Report and Form 20-F 2017
Strategic Report
Principal risks descriptions
Inherent risk trend
Risk impact
D Dynamic
S Static
How each principal risk links to our strategic priorities:
SM Strategic Model
TP Targeted Portfolio
DE Disciplined Execution
RB Responsible Business
Risk description
Trend
Impact
Initiatives to manage these risks
D
D
D
D
Inherent threats to cybersecurity
and information governance
continue to evolve at pace and,
in 2017, created dynamic risks to
multiple industries, evidenced by
reported cyber incidents across
the hospitality industry and by
IHG (see page 139). This risk could
impact our operations; lead to
loss of sensitive data; undermine
stakeholder trust; and result in
fines and legal/regulatory action.
Failure to deliver preferred brands
and loyalty could impact our
competitive positioning, our growth
ambitions and our reputation with
guests and owners. The rapid rate
of recent consolidation activity;
brand launches and loyalty
programme developments across
the hospitality industry creates
both risk and opportunity.
Leadership and talent risk is
inherent to all businesses and
failure to effectively attract,
develop and retain talent in key
areas could impact our ability
to achieve growth ambitions
and execute effectively.
Failure to capitalise on innovation
in booking technology and
maintain and enhance our channel
management and technology
platforms and to respond to
changing guest and owner needs
remains a dynamic risk to IHG’s
revenues and growth ambitions,
particularly with the emergence
of both evolutionary and
disruptive technologies.
SM
DE
RB
SM
TP
SM
DE
RB
SM
DE
• We apply a risk-based methodology to identify, and consider the value and threats to, our key
information assets. These include Payment Card Information (PCI), Personally Identifiable Information
(PII), as well as sensitive financial and employee information. We monitor and update our information
security policies and practices to respond to the risks we face, including those relating to evolving
privacy requirements across IHG, including our increasingly third-party hosted infrastructure
and systems.
• Our approach to monitoring this dynamic risk combines IHG specialist teams in information security,
technology and cyber enabled crime, supplemented by external insight and relationships to enhance
our capability to analyse, prevent and detect potential threats.
• During 2017, we continued our initiative to tokenise credit card data in key systems through
implementation of our secure payment technology in more than 86% of our US franchised estate.
• Despite our information security programme, we also recognise the need for rapid and appropriate
response to data incidents. We have a clearly developed incident management capability which
clarifies accountabilities and processes across the organisation, and works closely with our insurers.
These also consider data reporting obligations, for example in relation to the EU General Data
Protection Regulation (GDPR).
• In 2017 we continued our investment of $200m in the refresh of the Crowne Plaza estate in the Americas;
extended the implementation of our Holiday Inn Open Lobby; and updated room design concepts in
several brands. (See page 32 for further details.) We launched avid hotels to positive reactions from
owners, signed deals to extend other brands in new territories and built brand recognition across the
portfolio, (see pages 6-7, 10-11, 16 and 32 for further details). In January 2018 we also integrated our
Kimpton Karma members into the IHG Rewards Club programme.
• The creation of one Global Marketing function will enable us to focus on fully integrated brand,
marketing and loyalty activities, strengthening our existing brands and adding new brands where we
see greatest potential for growth. For further information on initiatives to manage the opportunities
and risks in our brand strategy, see pages 16 and 17.
• In 2017, we have enhanced our ability to attract, retain and develop the best talent (see pages 18-19)
within the hospitality sector, including GM and senior corporate positions.
• Our focus on accelerating growth will increase opportunities for our people and our ambitions will
place demands on key leadership and hotel talent. As we begin to redeploy and reprioritise resources,
our human resources team are reviewing our performance management framework to promote
interdependence and to incentivise team and individual performance. We have a global diversity
and inclusion strategy (see pages 61 and 66), which will be led by a Diversity and Inclusion Board,
with specific and targeted actions to address any inequalities in the workplace.
• Technology innovation in the hotel industry continues to accelerate, with established and new
competitors launching new solutions leveraging technology to enhance guest and owner experience.
The speed of technological development and implementation in key markets such as China requires
constant focus.
• Our Commercial and Technology team continues to develop on and above property capabilities
and functionality, including responsive website design and mobile check out, while undertaking
controlled pilots in more complex areas such as mobile key solutions. In mid-2017 we began to pilot
IHG Concerto (see page 17) which, as well as increased functionality, will increase the resilience
of our revenue systems. We have also implemented our centrally controlled and high-performing
IHG Connect solution to benefit owners and guests.
• Changes to accelerate our growth will enable us to prioritise resources and streamline technology
governance practices to drive efficiency and pace in our innovation and project delivery.
IHG’s focus to accelerate
growth will require significant
reprioritisation of activities and
refocusing of resources. Given
the importance and scope of the
multi-faceted initiatives that will
be undertaken to accelerate
growth there are inherent risks
which will require appropriate
planning, project management,
governance and clearly defined
success factors.
D
SM
TP
DE
RB
• Our executive team, supported by our programme office, is providing direct leadership and steering
a portfolio of activities to accelerate growth, engaging our wider senior leader team to clarify and
align on objectives, key drivers and associated behaviours required in the future; and to provide
regular visibility to the Board to ensure that the scope and timing of delivery remains within our risk
appetite framework.
• We are also supported by third -party expertise to enable us to reprioritise resources and sequence
activities in the most impactful way across the organisation, whilst mitigating and assuring risk to
an acceptable level.
• Our focus on accelerating growth involves evolving our risk management system, governance and
assurance arrangements to enable effective and agile decision making during the organisational
change, in alignment with our appetite and tolerance for risk.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Risk management
21
Risk management continued
Risk description
Trend
Impact
Initiatives to manage these risks
Failure to maintain an effective
safety and security system and
to respond appropriately in the
event of an issue could result in
an adverse impact to IHG; such
as reputational and/or financial
damage and undermining
stakeholder confidence.
Whilst the hotel sector is not
subject to stringent industry
specific regulations, the global
business regulatory environment
is continuously evolving and failure
to ensure legal, regulatory and
ethical compliance would impact
IHG financially, operationally
and reputationally.
A material breakdown in our
financial management and
control systems would lead
to increased public scrutiny,
regulatory investigation
and litigation.
The inability to realise value from
our programme and project
delivery may result in failure to
improve commercial performance,
financial loss and undermining
of stakeholder confidence.
S
SM
TP
RB
DE
RB
DE
RB
TP
SM
DE
S
S
S
Viability statement
The Group’s annual planning process
builds a robust three-year plan. The detailed
three-year plan takes into consideration
the principal risks, the Group’s strategy,
and current market conditions. That plan
then forms the basis for strategic actions
taken across the business. The plan is
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 key assumptions included in
the three-year plan relate to RevPAR, System
size and no change to our stated dividend
policy. There are no significant debt
maturities in the period under consideration
and therefore no assumptions have been
included in relation to refinancing.
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
• The environment in which IHG develops and operates hotels continues to evolve, creating continued
inherent challenges to the safety and security expectations of our guests and owners. Although we
assess this risk to be stable overall, our Risk team coordinates and monitors a management system
designed to provide an appropriate level of control of safety and security in IHG branded hotels and
IHG offices.
• Our design & engineering, hotel opening and operations teams work together with our operational
safety and security experts to evaluate our standards and provide guidance and training to our
owners and hotel colleagues. We also have internal and external threat intelligence expertise
to monitor potential impacts on IHG from, for example, terrorism.
• Our regulatory compliance specialists work to identify and respond to relevant regulatory and
societal expectations. This is a particular imperative in relation to new privacy and cyber legislation,
such as the EU GDPR and China’s new cybersecurity law, and continued scrutiny of the hospitality
industry in relation to the environment and human rights.
• Our regulatory compliance programme focuses on bribery, sanctions, data privacy and competition
compliance, with expectations defined within our Code of Conduct and related policies and training
and awareness tools. Our development and legal teams work closely during owner due diligence
procedures and escalate any identified ‘red flags’ for senior leadership review and decision. We also
have in place a whistleblower hotline to report any concerns and defined controls which are routinely
monitored. For example, we regularly review our gift and entertainment processes and registers to
ensure these remain appropriate and are complied with.
• For details on our culture of responsible business and out approach to issues such as human rights,
anti-bribery and environmental sustainability, please refer to pages 18-19).
• This risk has not experienced any material change in 2017, however IHG continues to operate a
strong set of processes across its financial, operational and compliance processes. See page 42 for
details of our approach to taxation, page 56 for details of our approach to internal financial control
and pages 126-129 for specific details on financial risk management policies. Our finance team has
worked to understand and prepare for changes to revenue recognition reporting
under IFRS 15.
• We continue to develop a scalable finance operating model, with increasing use of analytical
capabilities, to enable us to adapt to future changes in the industry landscape and as we redeploy
and refocus resources.
• IHG is currently delivering multiple high value and complex business change programmes.
Resource prioritisation across these initiatives is overseen by our executive team, and processes,
education and support have been provided throughout 2017 to increase the quality and consistency
of programme delivery. Our plans to accelerate our growth will build on these capabilities during
2018 to review end-to-end processes and manage delivery interdependencies across IHG.
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 cybersecurity 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. These actions
include a reduction in capital expenditure,
salary freezes and suspension of bonus
plans and the ordinary dividend. The results
confirmed that the Group would be able
to withstand the impact of each scenario.
The Directors have determined that the
three-year period to 31 December 2020
is an appropriate period to be covered by
the viability statement. Although hospitality
industry business cycles are on average
longer than three years, the end of those
cycles has only resulted in declining RevPAR
when that has been caused by exogenous
shocks, and the decline in RevPAR has only
lasted two years. The Board has therefore
determined that no additional insight can
be gained from assessing these scenarios
over a longer period.
The Directors have assessed the viability
of the Group over a three-year period to
31 December 2020, 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 2020.
22
IHG | Annual Report and Form 20-F 2017
Strategic Report Key performance indicators (KPIs)
Our carefully selected set of KPIs allow us to
effectively monitor our performance by measuring
our success in delivering against our strategy,
and in driving high-quality growth.
Our KPIs are organised around the framework of our strategy – our Strategic Model and targeted portfolio – underpinned by disciplined
execution and doing business responsibly.
KPIs
2017 status
2018 specific priorities
Strategic Model and targeted portfolio
Net rooms supply
Net total number of rooms
in the IHG System.
A LT
2017
2016
2015
798,075
767,135
744,368a
Growth in underlying
fee revenuesb
Group revenue excluding
revenue from owned and leased
hotels, managed leases and
significant liquidated damages.
2017
4.1%
2016 2.3%
2015
7.5%
4.0%
increase in
net system size
31%
pipeline as a %
of system size
83,481
rooms signings
2017
2016
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
booked through IHG’s direct and
indirect systems and channels.
2017
2016
2015
a Including the acquisition of Kimpton (11,325 rooms).
$25.7bn
$24.5bn
$24.0bn
$4.6bn
digital revenues
delivered in 2017,
up by 9%c on 2016
76%
75%
73%
22%
More hotels using
IHG’s revenue
management service
in 2017, vs 2016
• Launch and scale our new mainstream brand,
avid hotels (see page 16 for details).
• Leverage the expansion of our franchise
offer for Holiday Inn, Holiday Inn Resort®
and Crowne Plaza in Greater China, alongside
Holiday Inn Express Franchise Plus model
(see page 32 for details).
• Continue to build international scale for
Kimpton, accelerating the growth of the brand
outside the Americas.
• Ensure that, whilst driving strong rooms supply
growth, we maintain a high level of guest
satisfaction across our entire portfolio with
removals from the system.
• Maintain our focus on increasing contribution
from IHG Rewards Club members, and through
direct bookings via our website or call centres.
• Further grow our share of bookings through the
IHG App, whilst also increasing engagement
within the App.
• 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.
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 154 and 155.
Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.
c Based on a restating of 2016 digital revenues at 2017 FX rates.
Link between KPIs and
Directors’ remuneration
As we continued our focus on delivering
high-quality growth, Directors’
Remuneration for 2017 was directly
related to key aspects of our Strategic
Model and targeted portfolio. The
following indicates which KPIs have
impacted Directors’ Remuneration:
A The Annual Performance Plan
LT The Long Term Incentive Plan
• 70% was linked to EBIT
• 50% was linked to Total Shareholder Return
• 30% was linked to non-financial measures,
• 25% was linked to rooms growth
of which:
– 20% was linked to improvements
in Guest Love scores
– 10% was linked to the delivery of other individual
objectives; for Executive Directors, the majority
of these objectives related to our KPIs
• 25% was linked to RevPAR growth
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Key performance indicators (KPIs)
23
Key performance indicators (KPIs) continued
KPIs
2017 status
2018 specific priorities
Strategic 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
2017
2.7%
2016
1.8%
2015
4.4%
Guest Love
IHG’s guest satisfaction
measurement indicator.
A
2017
2016
2015
80.9%
80.4%a
79.5%a
77%
of Europe
Holiday Inn hotels
have implemented
or committed to
Open Lobby
3.0ppt
growth in
Guest Love over
the last three years
Disciplined execution
Fee marginsb
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 revisedc bi-annual
Colleague HeartBeat survey,
completed by our corporate and
managed hotel colleagues
(excluding our joint ventures).
A
Free cash flowb, d
Cash flow from operating
activities (after interest and tax
paid), less purchase of shares
by employee share trusts
and maintenance capital
expenditure, including key
money paide.
LT
2017
2016
2015
2017
2016
2015
2017
2016
2015
50.4%
48.8%
46.3%
1.6ppt
growth in fee
margin in 2017
85.0%c
88.7%
87.3%
97%
2017 Colleague
HeartBeat
participation rate
$516m
$551m
$466m
7.3%
growth in EBITDA
in 2017
• Drive 2018 rollout of IHG Concerto amongst our
owners, across the entire estate (see page 17).
• Continue to drive adoption of customer
relationship management systems in our hotels
to help build lifetime relationships with guests.
• Progress the rollout of our enhanced internet
connectivity and wifi offer, IHG Connect,
across our estate.
• Broaden consistency and quality across our
Crowne Plaza portfolio in the US through the
now established Crowne Plaza Accelerate
programme (see page 32).
• Continue to invest in brand innovation,
including room design and finding new
ways to use public spaces such as
Holiday Inn Open Lobby (see page 32).
• Support the recruitment and development
of our high-performing General Managers.
• Drive adoption of our learning solutions, such
as the IHG Frontline online training platform,
and brand-orientated services training across
all IHG hotels.
• 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.
• Enhance our supplier management capabilities to
drive further efficiencies throughout the business.
• Improve and simplify performance
management processes, in order to focus on
productive development conversations.
• Drive adoption of improvements to our human
resources systems, including online colleague
training, to further our ability to develop and
retain talent.
• Continue to deliver consistent, sustained
growth in profits and cash flow.
• Control capital deployment in line with
business priorities.
• Continue programme to recycle capital
invested in minor equity positions and joint
ventures, over time, when conditions
are favourable.
a Changes to the method for calculating IHG’s guest satisfaction scores (previously Guest HeartBeat) were introduced in 2016. The comparative for 2015 has been restated.
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 154 and 155.
Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.
c In 2017, the employee engagement survey was revised and relaunched as the Colleague HeartBeat survey. The 2016 and 2015 figures relate to previous survey results, which could
not be restated and are not comparable.
d Cash flow was introduced as a new measure for the 2017/19 LTIP cycle. Cumulative free cash flow over the three-year performance period forms part of the measure, with some
adjustments. The target for each successive cycle is determined annually, taking into account IHG’s long-range business plan, market expectations and circumstances at the time.
e In 2016, free cash flow excluded the $95m cash receipt from renegotiation of long-term partnership agreements.
24
IHG | Annual Report and Form 20-F 2017
Strategic Report
KPIs
2017 status
2018 specific priorities
Doing business responsibly
Number of people participating
in IHG® Academy programmes
A
Carbon footprint per
occupied room
A
Water use per occupied room
in water-stressed areas
A
a Restated.
2017
2016
2015
2017
2016
2015
2017
2016
2015
13,633
11,985
9,287
2,599
IHG Academy programmes
across 74 countries
27.28kgCO2e
29.36kgCO2ea
30.84kgCO2ea
0.67m3
0.68m3 a
0.67m3 a
15%
reduction in carbon
footprint per occupied
room from 2013–2017
on a 2012 baseline
5.3%
reduction in water use
per occupied room
in water-stressed areas
from 2013–2017 on
a 2012 baseline
• Continue to provide skills and improved
employability to people through
IHG Academy (see page 19), ensuring
a positive impact for local people,
our owners and IHG.
• Continue to drive quality growth in the
programme, including by increasing
engagement with our hotels.
• 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 two water projects to improve
water stewardship and enable further
reductions in water use.
Please see www.ihgplc.com/responsible-business for full disclosure of our carbon and water data,
as well as more information on our new set of Responsible Business targets for 2018-2020.
Final dividend
The Board has proposed a final dividend per ordinary share of 71.0¢. With the interim dividend per ordinary share of 33.0¢, the full-year
dividend per ordinary share for 2017 will total 104.0¢.
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.
In determining the dividend, 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 2017 was
2.1x. The Directors will also take into account,
and ensure there are sufficient, distributable
reserves. For more details on our dividend
policy and approach, see pages 5 and 42.
Ordinary dividend progression (¢)
100
80
60
40
20
0
11%
39
35
29 29 29
71
64
58
52
47
43
26
17 19 19
7 8 8 10 12 12 12 13 16 21 23 25 28 30
33
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
7
1
0
2
Interim
Final
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Key performance indicators (KPIs)
25
Performance
Key performance measures (including Non-GAAP measures)
used by management.
As well as the performance measures found in the Group Financial
Statements, the following key performance measures are included
in the performance review (and IHG at a glance on pages 2–3).
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.
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 (ADR). Occupancy rate is rooms occupied
by hotel guests expressed as a percentage of rooms that are available. ADR is
rooms revenue divided by the number of room nights sold.
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
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 ADR 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.
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.
Total operating profit before exceptional items and tax Adjusted earnings per ordinary share Underlying 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. 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.
Underlying earnings per ordinary share provides a per share measure based
on comparable year-on-year trading and reflects underlying trends in the
Group’s financial performance.
An analysis of exceptional items for the periods covered by the performance
review is included in note 5 on page 110 of the Group Financial Statements.
Adjusted earnings per ordinary share excludes exceptional items, and their
related tax impacts, and is reconciled to basic earnings per ordinary share in note
9 on page 115 of the Group Financial Statements. Adjusted earnings per ordinary
share provides a per share measure that is not skewed by exceptional items.
Underlying earnings per ordinary share is calculated by dividing underlying
profit for the period available for IHG equity holders by the weighted average
number of ordinary shares, excluding investment in own shares, in issue
during the period.
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 capital expenditure
Net capital expenditure is defined as cash flow from investing activities,
excluding tax paid on disposals and adjusted for System Fund depreciation
and amortisation (recovery of previous System Fund capital expenditure).
For internal management reporting, capital expenditure is reported as either
maintenance, recyclable, or System Fund.
Free cash flow
Free cash flow is defined as cash flow from operating activities (after
interest and tax paid), less purchase of shares by employee share trusts
and maintenance capital expenditure, including key money paid. In 2016,
free cash flow excluded the $95m cash receipt from renegotiation of
long-term partnership agreements.
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 88, as permitted under IFRS.
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 126.
The disaggregation of net capital expenditure provides useful information as
it enables users to distinguish between System Fund capital investments and
recyclable investments (such as investments in associates and joint ventures),
which are intended to be recoverable in the medium term, compared with
maintenance capital expenditure (including key money paid), which
represents a permanent cash outflow.
Free cash flow is a useful measure for investors, as it represents the cash
available to invest back into the business to drive growth, pay the ordinary
dividend, with any surplus being available for additional returns to shareholders.
These are Non-GAAP financial measures which should be viewed as complementary to, and not as a substitute for, the measures prescribed by GAAP.
The performance review should be read in conjunction with the Non-GAAP
reconciliations on pages 154 and 155 and the glossary on pages 184 to 185.
26
IHG | Annual Report and Form 20-F 2017
Strategic Report 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 financial expenses
Profit before tax
Earnings per ordinary share
Basic
Adjusted
Average US dollar to sterling exchange rate
Highlights for the year ended
31 December 2017
During the year ended 31 December 2017,
revenue increased by $69m (4.0%) to
$1,784m primarily resulting from 4.0% rooms
growth and 2.7% comparable RevPAR
growth. Operating profit and profit before
tax increased by $85m (12.5%) and $87m
(14.7%) respectively. Operating profit before
exceptional items increased by $52m (7.4%)
to $759m.
Underlyinga Group revenue and underlyinga
Group operating profit increased by $80m
(5.2%) and $59m (8.4%) respectively.
Comparable Group RevPAR increased by
2.7% (including an increase in average daily
rate of 1.1%). IHG System size increased by
4.0% to 798,075 rooms, whilst Group fee
revenueb increased by 4.1% (5.0% at
constant currency).
The net central operating loss before
exceptional items decreased by $18m (14.1%)
to $110m and by $15m (11.7%) to $113m at
constant currency due to an increase in
central revenues and the impact of our
strategic cost management programme.
2017
$m
1,025
241
244
126
148
1,784
644
86
87
52
(110)
759
4
763
(85)
678
2016
$m
993
227
237
117
141
1,715
633
75
82
45
(128)
707
(29)
678
(87)
591
306.7¢
244.6¢
$1:
£0.78
195.3¢
203.3¢
$1:
£0.74
Group fee margin was 50.4%, up 1.6
percentage points (up 1.4 percentage points
at constant currency) on 2016, 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 increased
by 57.0% to 306.7¢, whilst adjusted earnings
per ordinary share increased by 20.3% to
244.6¢, reflecting the increase in operating
profit before tax and the impact of the share
capital reduction as a result of the share
consolidation in May 2017.
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 154 and 155). 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 154 and 155).
2017 vs 2016
% change
3.2
6.2
3.0
7.7
5.0
4.0
1.7
14.7
6.1
15.6
14.1
7.4
113.8
12.5
2.3
14.7
57.0
20.3
5.4
12 months ended 31 December
2015
$m
955
265
241
207
135
1,803
597
78
86
70
(151)
680
819
1,499
(87)
1,412
520.0¢
174.9¢
$1:
£0.65
2016 vs 2015
% change
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
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 100 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 110
of the Group Financial Statements.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
27
Group total gross revenue
12 months ended 31 December
2017
$bn
4.8
1.1
4.3
0.4
6.3
6.7
0.9
0.8
0.4
25.7
14.9
10.6
0.2
25.7
2016
$bn
4.6
1.1
4.1
0.4
6.2
6.3
0.8
0.7
0.3
24.5
14.3
10.0
0.2
24.5
% change
4.3
–
4.9
–
1.6
6.3
12.5
14.3
33.3
4.9
4.2
6.0
–
4.9
Performance continued
Group continued
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.
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Underlyinga Group revenue and underlyinga
Group operating profit increased by $69m
(4.6%) and $61m (9.5%) respectively.
Other
Total
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).
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.
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 4.9%
(5.7% increase at constant currency) to
$25.7bn, driven by IHG System size and
comparable RevPAR growth.
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 154
and 155). 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 154 and 155).
c See note 2 of the Group Financial Statements on page 104.
28
IHG | Annual Report and Form 20-F 2017
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 2016
7
5
3
6
10
2
1
103
19
14
4
174
112
62
–
174
2017
65,998
12,516
2,089
114,800
10,645
1,238
232,693
262,398
27,745
35,424
32,529
798,075
552,834
242,883
2,358
798,075
2017
194
66
7
414
85
8
1,242
2,600
255
376
101
5,348
4,433
907
8
5,348
Rooms
Change
over 2016
Total number of hotels
5,348
2,348
1,278
993
997
1,740
228
937
15,389
2,135
1,232
3,663
30,940
10,184
20,810
(54)
30,940
Total number of rooms
798,075
During 2017, the global IHG System (the
number of hotels and rooms which are
franchised, managed, owned or leased by
the Group) increased by 174 hotels (30,940
rooms) to 5,348 hotels (798,075 rooms).
Openings of 285 hotels (48,817 rooms) were
20.1% higher than in 2016. Openings in the
Americas included 124 hotels (12,949 rooms)
in the Holiday Inn brand family. 43 hotels
(10,570 rooms) were opened in Greater
China in 2017, with the Europe and AMEA
regions contributing openings of 26 hotels
(4,917 rooms) and 26 hotels (11,085 rooms)
respectively. 111 hotels (17,247 rooms) left
the IHG System in 2017, a decrease from
the previous year (116 hotels, 17,367 rooms).
a Includes 47 Holiday Inn Resort properties (11,954 rooms) and 26 Holiday Inn Club Vacations properties (7,676 rooms)
(2016: 46 Holiday Inn Resort properties (11,652 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)).
Group pipeline
At 31 December
Analysed by brand
InterContinental
Kimpton
HUALUXE
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
avid hotels
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2016
1
–
(1)
(4)
7
6
16
90
44
20
4
2
185
184
1
185
2017
17,353
2,796
6,289
23,047
11,301
2,110
53,556
93,360
4,043
17,941
10,009
2,341
244,146
139,348
104,798
244,146
2017
63
18
21
86
82
12
277
766
44
160
112
14
1,655
1,223
432
1,655
b Includes 13 Holiday Inn Resort properties (3,620 rooms) (2016: 14 Holiday Inn Resort properties (3,531 rooms)).
Total number of hotels in the pipeline
Rooms
Change
over 2016
1,655
(127)
(302)
(667)
(1,489)
708
1,330
878
9,478
4,043
2,620
405
(2,807)
14,070
21,654
(7,584)
14,070
Total number of rooms in the pipeline
244,146
At the end of 2017, the global pipeline
totalled 1,655 hotels (244,146 rooms),
an increase of 185 hotels (14,070 rooms)
on 31 December 2016. The IHG pipeline
represents hotels where a contract has
been signed and the appropriate fees paid.
Group signings increased from 516 hotels
in 2016 to 605 hotels and rooms increased
from 75,812 to 83,481 in 2017. This included
391 hotels (52,592 rooms) signed for the
Holiday Inn brand family, 32.1% of which were
contributed by Greater China (90 hotels,
16,904 rooms).
Active management of the pipeline to
remove deals that have become dormant
or no longer viable reduced the pipeline
by 135 hotels (21,224 rooms), compared
to 118 hotels (19,518 rooms) in 2016.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
29
Performance continued
Progress against our 2017 regional priorities
Group revenue 2017 ($1,784m)
Americas
Greater China
8%
7%
14%
14%
Number of rooms (798,075)
13%
11%
14%
Americas
Europe
57%
62%
• Strengthened our Upscale and Luxury
portfolio by opening the iconic
InterContinental Los Angeles Downtown,
Hotel Indigo Los Angeles Downtown and
Crowne Plaza HY36 Midtown. In 2017, we
signed a total of 365 hotels in the Americas.
• Drove brand preference through signifcant
investment in Crowne Plaza, Holiday Inn
and Holiday Inn Express. 78% of the
Crowne Plaza estate participated in the
Accelerate programme in 2017, and over
1,000 new design Holiday Inn Express
hotels were open or in the pipeline as
of year end.
• Enhanced owner returns by expanding
use of our revenue mangement service,
Revenue Management for Hire, across the
region. Currently 67% of the Americas
estate uses the service, up from 57%
in 2016.
• Leveraged our Franchise Plus business
model and grew significantly in tier 2
and 3 cities. Franchise Plus delivered 54
signings in 2017. More broadly, over 87%
of openings for the region were outside tier
1 cities. We also expanded our franchise
model to our Holiday Inn and Crowne Plaza
brands.
• Debut signings for: Kimpton Hotels &
Restaurants (Taipei and Sanya); and EVEN
Hotels (three properties). HUALUXE had
21 hotels in the pipeline as of year-end.
• Drove a consistent guest experience
through the rollout of True Hospitality
Service training to 272 of our 328 hotels.
Guest Love increased by 1.2ppts in 2017.
• Strengthened our talent acquisition and
development through the GM Ready
programme, to create immediate GM
resource pool for new opening hotels.
Continued building hotel commercial and
revenue management capability through
a Sales Transformation project.
Asia, Middle East and Africa (AMEA)
Asia, Middle East and Africa (AMEA)
Europe
Greater China
Central
See page 32 for our
Regional highlights.
• Signings increased 20% year-on-year to
12,620, and included regional firsts for
both Kimpton Hotels & Restaurants and
EVEN Hotels. Our Upscale and Luxury
presence was enhanced by the opening
of Hotel Indigo Bali Seminyak – the world’s
first Hotel Indigo in a resort location – as
well as InterContinental properties in Perth,
Singapore, Hanoi and Fujairah Resort.
• Drove brand preference and our promise
of True Hospitality through new service
training, rolled out to 84% of AMEA hotels.
Guest satisfaction in AMEA increased in
2017, with Guest Love 0.8ppts higher than
last year.
• Enhanced our owner proposition through
new ways of working for our hotel opening
teams, establishing relationship directors
who serve as an owner’s single point of
contact post-deal signing, through
to opening.
• Grew system size in Europe’s most
attractive markets and highest opportunity
segments, with particular focus on the
UK and Germany. In 2017, over half of the
region’s signings and openings were in
either the UK or Germany.
• Strengthened brand preference through
continued rollout of Holiday Inn Open Lobby,
which 77% of the estate has now installed
or is commited to installing, driving a 7ppts
Guest Love uplift. The Holiday Inn Express
Generation 4 guestroom, which 87% of
Generation 1 and 2 properties have now
installed or are comitted to, has driven a
4ppt Guest Love uplift post-refurbishment.
We also enhanced brand awareness of
Kimpton Hotels & Restaurants with the
opening of Amsterdam De Witt, the first
for the brand in the region.
• YourRate by IHG Rewards Club has now
rolled out to all our European markets
except Israel and is having a positive impact
on direct bookings. IHG Rewards Club
enrolments increased by 16% this year,
against 2016.
30
IHG | Annual Report and Form 20-F 2017
Strategic Report Industry performance in 2017
IHG’s regional performance in 2017
Americas Industry RevPAR in the Americas increased by 3.8%, driven by a 2.8% average
daily rate growth and 0.6pts occupancy growth. Occupancy achieved its
highest level ever recorded, topping the record set in 2015. Room demand
was up 2.9%, its highest since 2014, led by increasing business and consumer
confidence in the US. Demand was further propelled in the US by two
hurricanes in the latter part of the year, while supply growth remained robust
(1.9%) despite a fall from its seven year high in 2016.
US lodging industry room demand advanced 2.7% in 2017, its largest increase
since 2014, whilst supply growth edged up to 1.8%. US industry RevPAR
increased by 3.0%, led by an average daily rate growth of 2.1%. RevPAR in the
US Mainstream chain scale, where the Holiday Inn and Holiday Inn Express
brands operate, increased by 2.2%.
In Canada, industry RevPAR increased by 7.7%, driven by a 5.2% increase in
average daily rate, and in Mexico, RevPAR increased by 6.4% with average
daily rate advancing 6.0%.
IHG’s comparable RevPAR in the Americas increased by
1.6%, driven by 1.2% average daily rate growth. The region
is predominantly represented by the US, where comparable
RevPAR increased by 1.2%, with 3.0% growth in the fourth
quarter led by demand in hurricane impacted areas. In the
US, we are most represented by our Mainstream brands
Holiday Inn and Holiday Inn Express. RevPAR in our
Mainstream brands increased slightly behind the segment,
with RevPAR for the Holiday Inn brand increasing by 1.9%
whilst that for the Holiday Inn Express brand increased
by 1.7%.
Canada achieved strong growth of 6.1%, whilst Mexico
grew 5.1%, led by rate growth.
Europe
Asia,
Middle
East and
Africa
(AMEA)
Greater
China
Strong demand and solid average daily rate growth propelled European industry
RevPAR in 2017 up 7.2%, its largest gain since 2000. Demand rebounded in
Continental Europe as certain markets recovered from terror incidents in
2016 and inbound tourism increased. Regional room demand grew 4.4% with
average daily rate advancing 3.6%. UK industry RevPAR was up 4.1%, led by a
3.6% rate increase. UK room demand increased by 2.3% in 2017. In Germany,
industry RevPAR was up 3.0%, driven by a 2.0% growth in average daily rate
and a 2.1% increase in demand. A number of countries in the region including
Italy, Russia and Spain, saw industry RevPAR rise in 2017 through increasing
demand and average daily rate.
IHG’s regional comparable RevPAR in Europe increased
by 6.3%, driven by both occupancy and average daily
rate growth. The UK grew by 4.5%, ahead of the industry,
led by average daily rate driven growth in the provinces.
In London, RevPAR increased by 4.3% driven by strong
demand growth in the first half of the year. Germany
achieved growth of 2.1%, and Russia increased by 7.1%,
both led by rate growth. Across the rest of Europe, RevPAR
achieved strong growth of 7.6%, led by recovery in markets
previously impacted by terror attacks.
AMEA room demand growth increased by its fastest rate of the past five years
resulting in rising occupancy across most countries in the region. Average daily
rate was also on the rise, driving up regional RevPAR growth to 3.0%; its highest
for the past four years. RevPAR was up in several countries in the region, including
Japan (3.0%), Australia (2.8%), India (3.8%) and Thailand (4.2%) with growth in
both demand and average daily rate.
Egypt drove RevPAR growth in the Middle East (3.4%). Excluding Egypt,
Middle East RevPAR fell 5.2% as Saudi Arabia, the United Arab Emirates,
and others were impacted by weak oil prices and high supply growth.
Room demand was up in all but two of the 11 Middle East countries excluding
Egypt, as declining average daily rate was the principal driver of the weaker
performance. Supply growth remained robust, up 5.4% in 2017, excluding
Egypt, and it has been above 5% for the past decade.
Lodging industry RevPAR in Greater China increased by 5.2% via strong
demand gains and the first average daily rate increase of the past seven years.
While RevPAR declined from 2010 to 2016, demand has been robust, but
performance had been held back by falling average daily rate and increasing
supply. Supply gains in 2017 (3.5%) were the smallest of the past 18 years.
The two largest sub-regions (North & East) saw RevPAR gains of greater than
5% each, whereas the South and Central, the next two largest sub-regions,
reported growth of more than 8% each. RevPAR growth in all four of the
sub-regions was driven primarily by demand increases with supporting average
daily rate gains. While supply growth slowed in Greater China overall, certain
areas continued to see strong increases, including Macau (9.6%), the West
(6.2%) and Central China (5.1%). Demand was also strongest in those three
sub-regions, up more than 10% each.
Across this large region, IHG is widely represented both
geographically and by brand, and comparisons across
the industry are hard to make. Overall, IHG regional
comparable RevPAR increased by 1.5%, driven by
occupancy growth. Performance outside the Middle East
was strong with 4.4% RevPAR growth overall, led by strong
trading in the mature markets of Australia, where RevPAR
increased by 4.5%, ahead of the industry, and in Japan
where RevPAR increased by 2.7%. The Middle East RevPAR
was down 4.1%, impacted by low oil prices and industry
wide supply growth. Total RevPAR declined by 3.0% for the
year impacted by the proportion of hotel openings in
developing markets where RevPARs are significantly lower
than developed markets.
IHG’s regional comparable RevPAR in Greater China
increased by 6.0% in 2017, slightly ahead of the industry.
Our RevPAR was driven by better than the industry
occupancy, which increased by 5.5%, whilst average daily
rate grew by 0.4%. Mainland China RevPAR increased by
6.6%, led by growth of 6.9% in tier 1 cities due to strong
transient, corporate and meeting demand. RevPAR grew
in Hong Kong and Macau by 2.7% and 11.4%, respectively.
Source: Smith Travel Research for all of the above industry facts.
Comparable RevPAR movements on previous year (12 months ended 31 December 2017)
Region
Franchised
Managed
Owned and leased
1.9% InterContinental
(0.9)% All brands
6.6%
Americas
Crowne Plaza
Holiday Inn
1.9% Kimpton
Holiday Inn Express
1.7% Crowne Plaza
All brands
1.8% Holiday Inn
Europe
AMEA
Greater China
All brands
All brands
Staybridge Suites
Candlewood Suites
All brands
6.1% All brands
(1.6)% All brands
All brands
0.4%
1.2%
0.0%
(0.7)%
0.4%
0.2%
7.2%
2.1%
6.1%
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
31
Strategic Report
Performance continued
Regional highlights
In 2017, we delivered several important initiatives
regionally, to enhance both our guest and
owner proposition.
Americas
Europe
Crowne Plaza Accelerate programme
Now in its second year, Crowne Plaza Accelerate
is a $200m investment in our Americas portfolio,
designed to improve guest experience, brand
awareness and commercial performance.
The programme centres on delivering distinctive
service, refurbishments and innovation to
differentiate the brand. Owner enthusiasm
is demonstrated by widespread adoption,
with 114 hotels (78% of the Americas estate),
participating in 2017. These properties have
seen an average RevPAR uplift of 2.3% vs
non-participating hotels.
Plaza Workspace is one innovative way we are
differentiating the brand; both for guests and
for owners. Guests enjoy public spaces designed
to meet the needs of their modern business-
leisure balance, whilst owners benefit from
new sources of F&B revenue, driving a payback
period of just two years.
AMEA
Expanding our Upscale and Luxury portfolio
Expanding our Upscale and Luxury portfolio is
a key part of IHG’s growth strategy, particularly
in AMEA. IHG’s brands in this space deliver
enriching, authentic, local experiences that
guests increasingly seek out. 2017 saw several
landmark signings and openings:
• Kimpton Bali, a resort in the Nusa Dua area,
was our first Kimpton signing in AMEA;
• EVEN Hotels Auckland was signed, the first
of several EVEN Hotels to be developed
across key Australasian cities;
• Hotel Indigo Bali Seminyak opened – the
world’s first Hotel Indigo resort – alongside
growing the AMEA pipeline to 14 hotels; and
• InterContinental Hanoi Landmark 72 opened
– Vietnam’s tallest hotel – as well as
InterContinental hotels in Singapore, Perth
and an InterContinental Resort in Fujairah.
Transforming Holiday Inn brand family
Our Holiday Inn Express and Holiday Inn estate
in Europe is undergoing a major transformation.
Two key elements of this are re-engineered
guest bedrooms and re-imagined public spaces.
The Holiday Inn Express Generation 4
guestroom utilises modern, flexible design
to meet the evolving needs of the smart
traveller. Driving a 4ppt Guest Love uplift
post-refurbishment, rollout has now reached
87% of all Generation 1 and 2 properties.
The rollout of Holiday Inn Open Lobby, a
concept which transforms hotel lobbies into
revenue-generating welcoming areas to work
or socialise, is continuing at pace – 77% of
open and pipeline hotels have installed or are
now committed to Open Lobby. Guests are
responding well, with uplifts in Guest Love
(+7ppts) and F&B profit (+20%).
Greater China
Franchise Plus in Greater China
The Chinese hotel market is maturing and IHG
is adapting to ensure our owner proposition
in the region remains compelling.
In 2016, we launched our Franchise Plus model,
specifically for Holiday Inn Express. This
provides all the benefits of operating a
franchise hotel, with several features typical
of a managed model, to ensure a high-quality
guest experience and maximise owner returns.
Franchise Plus has significantly accelerated
Holiday Inn Express growth in China, with 54
signings in 2017, well over double the number
of managed signings.
Building on this momentum, in 2017 we
extended our franchise offer to Crowne Plaza,
Holiday Inn and Holiday Inn Resort. We will
grow the franchise business in China through
established strategic partners with proven
records of superior hotel management.
Please see Our Strategic Model
on pages 14 to 15 to read more.
32
IHG | Annual Report and Form 20-F 2017
Holiday Inn Incheon Sogdo, Republic of Korea
Americas
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
2017
$m
2016
$m
2017 vs 2016
% change
2015
$m
2016 vs 2015
% change
12 months ended 31 December
703
172
150
1,025
57.4
606
65
29
(56)
644
37
681
685
172
136
993
57.9
600
64
24
(55)
633
(29)
604
2.6
–
10.3
3.2
(0.5)
1.0
1.6
20.8
(1.8)
1.7
227.6
12.7
661
166
128
955
53.0
575
64
24
(66)
597
(41)
556
3.6
3.6
6.3
4.0
4.9
4.3
–
–
16.7
6.0
29.3
8.6
74.1
75.8
(1.7)
71.9
3.9
Highlights for the year ended
31 December 2017
With 4,029 hotels (497,460 rooms), the
Americas represented 62% of the Group’s
room count and 74% of the Group’s operating
profit before central overheads and exceptional
items for the year ended 31 December 2017.
The key profit producing market 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 Mainstream segment
(including the Holiday Inn brand family).
In the Upscale segment, Crowne Plaza is
predominantly franchised whereas, in the
Luxury segment, InterContinental-branded
hotels are operated under both franchise and
management agreements, whilst Kimpton is
managed. 12 of the Group’s 13 hotel brands
are represented in the Americas.
Revenue and operating profit increased by
$32m (3.2%) to $1,025m and by $77m (12.7%)
to $681m respectively. Operating profit
before exceptional items increased by $11m
(1.7%) to $644m. On an underlyinga basis,
revenue increased by $37m (3.9%), while
operating profit increased by $16m (2.5%),
driven predominantly by RevPAR growth in
the fee business and an increase in net rooms.
Franchised revenue and operating profit
increased by $18m (2.6%) to $703m and by
$6m (1.0%) to $606m respectively. On a
constant currency basis, revenue increased
by $17m (2.5%) and operating profit
increased by $6m (1.0%) as incremental
royaltiesb growth from RevPAR and net
rooms growth were partly offset by a delay
in the recognition of a payroll tax credit,
the implementation of the previously
disclosed Crowne Plaza Accelerate financial
incentives, and the annualisation of our
investment in the Americas development
team. Royalties growth of 3.3% was driven
by comparable RevPAR growth of 1.8%,
including 1.9% for Holiday Inn and 1.7%
for Holiday Inn Express, together with 1.5%
rooms growth.
Managed revenue remained flat at $172m,
whilst operating profit increased by $1m
(1.6%) to $65m. Revenue and operating
profit included $34m (2016: $34m) and $nil
(2016: $nil) respectively from one managed-
lease property. Excluding results from this
managed-lease hotel and on a constant
currency basis, revenue increased by $6m
(4.3%) and operating profit increased by
$7m (10.9%) respectively.
Owned and leased revenue increased by
$14m (10.3%) to $150m, whilst operating
profit increased by $5m (20.8%) to $29m
due to North American inbound business
to Holiday Inn Aruba and the ramp up of
EVEN Hotels Brooklyn.
Highlights for the year ended
31 December 2016
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 increased 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 154 and 155). 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.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
33
Performance continued
Americas continued
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 2016
2
4
(8)
5
2
(1)
63
18
14
5
2017
17,578
12,242
41,278
6,828
1,238
135,604
199,410
26,156
35,424
21,702
104
497,460
94
10
–
104
437,292
58,343
1,825
497,460
2017
50
65
156
51
8
773
2,217
244
376
89
4,029
3,727
296
6
4,029
Rooms
Change
over 2016
Total number of hotels
4,029
1,170
1,004
(2,838)
896
228
(1,140)
7,039
1,971
1,232
(95)
9,467
6,426
3,041
–
9,467
Total number of rooms
497,460
Americas System size increased by
104 hotels (9,467 rooms) to 4,029 hotels
(497,460 rooms) during 2017. 190 hotels
(21,615 rooms) opened in the year, compared
to 188 hotels (23,535 rooms) in 2016.
Openings included 124 hotels (12,949 rooms)
in the Holiday Inn brand family, representing
59.9% of the region’s openings.
86 hotels (12,148 rooms) were removed from
the Americas System in 2017, demonstrating
our continued commitment to quality,
compared to 103 hotels (15,117 rooms) in
2016. 26.3% of 2017 room removals were
Holiday Inn rooms in the US (17 hotels,
3,189 rooms) compared to 37.3% in 2016
(30 hotels, 5,638 rooms).
a Includes 25 Holiday Inn Resort properties (6,787 rooms) and 26 Holiday Inn Club Vacations properties (7,676 rooms)
(2016: 25 Holiday Inn Resort properties (6,791 rooms) and 26 Holiday Inn Club Vacations properties (7,601 rooms)).
75.3
(0.6)
62.3
(1.3)
Americas pipeline
At 31 December
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
avid hotels
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2016
–
(3)
(3)
1
2
–
36
44
15
4
1
97
105
(8)
97
2017
1,893
2,238
2,719
4,026
1,114
16,375
49,607
4,043
15,432
10,009
1,648
109,104
102,844
6,260
109,104
2017
7
14
14
33
8
128
524
44
146
112
12
1,042
1,002
40
1,042
b Includes one Holiday Inn Resort property (165 rooms) (2016: three Holiday Inn Resort properties (455 rooms)).
34
IHG | Annual Report and Form 20-F 2017
Total number of hotels in the pipeline
Rooms
Change
over 2016
1,042
(639)
(711)
(567)
61
334
(929)
2,811
4,043
1,536
405
309
6,653
9,549
(2,896)
6,653
Total number of rooms in the pipeline
109,104
At 31 December 2017, the Americas pipeline
totalled 1,042 hotels (109,104 rooms),
representing an increase of 97 hotels
(6,653 rooms) over the prior year. Strong
signings of 365 hotels (37,419 rooms) were
ahead of last year by 33 hotels (381 rooms).
The majority of 2017 signings were within the
Holiday Inn brand family (220 hotels, 21,829
rooms) and our extended-stay brands,
Staybridge Suites and Candlewood Suites
(70 hotels, 6,977 rooms). Launched in the US
in September 2017, avid hotels is making
good progress towards becoming IHG’s next
brand of scale with signings of 44 hotels
(4,043 rooms).
78 hotels (9,151 rooms) were removed from
the pipeline in 2017 compared to 64 hotels
(7,436 rooms) in 2016.
Strategic Report Europe
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
2017
$m
109
132
–
241
13.5
85
26
–
(25)
86
(2)
84
12 months ended 31 December
2016
$m
2017 vs 2016
% change
2015
$m
2016 vs 2015
% change
102
125
–
227
13.3
78
22
–
(25)
75
–
75
6.9
5.6
–
6.2
0.2
9.0
18.2
–
–
14.7
–
12.0
104
131
30
265
14.7
77
28
1
(28)
78
175
253
(1.9)
(4.6)
(100.0)
(14.3)
(1.4)
1.3
(21.4)
(100.0)
10.7
(3.8)
(100.0)
(70.4)
9.9
9.0
0.9
9.4
(0.4)
Highlights for the year ended
31 December 2017
Comprising 692 hotels (113,415 rooms) at
the end of 2017, Europe represented 14%
of the Group’s room count and 10% of the
Group’s operating profit before central
overheads and exceptional items for the
year ended 31 December 2017. 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 Mainstream segment
(Holiday Inn and Holiday Inn Express).
Similarly, in the Upscale segment, Crowne
Plaza is predominantly franchised, whereas,
in the Luxury segment, the majority of
InterContinental-branded hotels are
operated under management agreements.
Revenue and operating profit increased by
$14m (6.2%) to $241m and by $9.0m (12.0%)
to $84m respectively. Operating profit
before exceptional items increased by $11m
(14.7%) to $86m. On an underlyinga basis,
revenue increased by $15m (10.0%) and
operating profit increased by $12m (16.4%)
driven by strong trading, 3.0% rooms growth
and effective cost control to maintain
overheads in line with the prior year.
Overall, comparable RevPAR in Europe
increased by 6.3%, with the UK and Germany
increasing by 4.5% and 2.1% respectively.
Recovery in markets previously impacted
by terror attacks led to RevPAR growth
in the year of 7.1% in France and double
digit growth in Belgium and Turkey.
Franchised revenue increased by $7m
(6.9%) to $109m, whilst operating profit
increased by $7m (9.0%) to $85m.
On a constant currency basis, revenue and
operating profit increased by $8m (7.8%)
and $7m (9.0%) respectively, positively
impacted by strong US inbound tourism
to the UK in the first half of the year.
Managed revenue increased by $7m (5.6%)
and operating profit increased by $4m
(18.2%). Revenue and operating profit included
$77m (2016: $77m) and $nil (2016: $2m)
respectively from managed leases.
Excluding properties operated under this
arrangement, and on a constant currency
basis, revenue increased by $7m (14.6%) and
operating profit increased by $5m (25.0%).
Highlights for the year ended
31 December 2016
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 154 and 155). Underlying operating profit
growth also excludes the impact of exceptional items.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
35
Performance continued
Europe continued
Europe hotel and room count
At 31 December
Analysed by brand
InterContinental
Kimpton
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 2016
1
1
5
3
(5)
10
–
–
15
7
8
15
2017
9,889
274
22,477
2,182
46,928
30,508
1,000
157
113,415
98,302
15,113
113,415
Total number of hotels
Rooms
Change
over 2016
692
Total number of rooms
113,415
During 2017, Europe System size increased
by 15 hotels (3,346 rooms) to 692 hotels
(113,415 rooms). The Group opened 26 hotels
(4,917 rooms) in Europe in 2017, compared to
24 hotels (4,188 rooms) in 2016. In Germany,
we opened a record 11 hotels (2,101 rooms).
11 hotels (1,571 rooms) left the Europe System
in the period, compared to seven hotels
(830 rooms) in the previous year.
165
274
1,590
272
(901)
1,930
–
16
3,346
1,272
2,074
3,346
(0.1)
14.2
(0.2)
2017
32
1
97
24
286
244
7
1
692
636
56
692
13.0
a Includes one Holiday Inn Resort property (88 rooms) (2016: one Holiday Inn Resort property (88 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 2016
(1)
–
2
2
4
9
2
1
2017
779
149
3,199
2,353
7,781
10,410
921
396
19
25,988
24
(5)
19
20,774
5,214
25,988
2017
5
1
16
20
38
67
7
1
155
135
20
155
Total number of hotels in the pipeline
Rooms
Change
over 2016
155
(34)
–
14
89
512
1,015
284
396
2,276
2,866
(590)
2,276
Total number of rooms in the pipeline
25,988
The Europe pipeline totalled 155 hotels
(25,988 rooms) at 31 December 2017,
representing an increase of 19 hotels
(2,276 rooms) over 31 December 2016.
Signings of 59 hotels (9,241 rooms), a
decrease of one hotel (313 rooms) from the
prior year, included 19 hotels (3,690 rooms)
in Germany, a record number of signings
for the fourth year running, and 14 hotels
(1,497 rooms) in the UK.
14 hotels (2,048 rooms) were removed from
the pipeline in 2017, compared to 12 hotels
(1,944 rooms) in 2016.
36
IHG | Annual Report and Form 20-F 2017
Strategic Report AMEA
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
2017
$m
17
193
34
244
13.7
14
91
2
(20)
87
(2)
85
12 months ended 31 December
2016
$m
2017 vs 2016
% change
2015
$m
2016 vs 2015
% change
16
184
37
237
13.8
12
89
2
(21)
82
–
82
6.3
4.9
(8.1)
3.0
(0.1)
16.7
2.2
–
4.8
6.1
–
3.7
16
189
36
241
13.3
12
90
3
(19)
86
(2)
84
–
(2.6)
2.8
(1.7)
0.5
–
(1.1)
(33.3)
(10.5)
(4.7)
(100.0)
(2.4)
10.0
9.8
0.2
10.4
(0.6)
Highlights for the year ended
31 December 2017
Comprising 299 hotels (85,661 rooms) at
31 December 2017, AMEA represented 11%
of the Group’s room count and contributed
10% of the Group’s operating profit before
central overheads and exceptional items
during the year. The majority of rooms in
AMEA are operated under the managed
business model.
Revenue and operating profit increased by
$7m (3.0%) to $244m and by $3m (3.7%) to
$85m respectively. Operating profit before
exceptional items increased by $5m (6.1%)
to $87m. On an underlying basisa, revenue
and operating profit increased by $9m
(4.8%) and $9m (11.7%) respectively.
Comparable RevPAR increased 1.5%
primarily due to an increase in occupancy.
Performance was positive in Japan and
Australia, which grew by 2.7% and 4.5%
respectively, however the Middle East
decreased by 4.1%, impacted by low oil
prices and industry wide oversupply.
Franchised revenue increased by $1m (6.3%)
to $17m, whilst operating profit increased by
$2m (16.7%) to $14m. On a constant currency
basis, revenue stayed flat at $16m and
operating profit increased by $2m (16.7%).
Managed revenue and operating profit
increased by $9m (4.9%) to $193m and $2m
(2.2%) to $91m respectively. Comparable
RevPAR increased by 2.1%, with average
daily rate declines offset by occupancy
gains. Australasia benefitted from strong
domestic travel, whilst growth in South East
Asia was driven by international arrivals in
Indonesia and Thailand. Revenue and
operating profit included $52m (2016: $51m)
and $4m (2016: $5m) respectively from one
managed-lease property. Excluding results
from this hotel and on a constant currency
basis, revenue increased by $12m (9.0%)
to $145m, whilst operating profit increased
by $6m (7.1%) to $90m.
In the owned and leased estate, on an
actual and constant currency basis, revenue
decreased by $3m (8.1%) to $34m and
operating profit stayed flat at $2m.
Highlights for the year ended
31 December 2016
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 154 and 155). Underlying operating profit
growth also excludes the impact of exceptional items.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
37
Performance continued
AMEA continued
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 2016
3
6
1
4
4
1
–
19
4
15
–
19
2017
21,902
22,097
612
23,502
8,667
589
8,292
85,661
13,476
71,652
533
85,661
0.2
10.8
2017
72
79
3
97
38
4
6
299
59
238
2
299
5.6
Total number of hotels
Rooms
Change
over 2016
299
699
1,348
289
2,190
1,084
164
3,836
9,610
906
8,758
(54)
9,610
0.9
Total number of rooms
85,661
The AMEA System size increased by
19 hotels (9,610 rooms) to 299 hotels
(85,661 rooms) as at 31 December 2017.
Openings increased by nine hotels
(6,612 rooms) to 26 hotels (11,085 rooms)
in 2017 including 3,512 rooms in Makkah,
Saudi Arabia which relate to the remaining
portion of the signing that was announced
in 2015.
Seven hotels (1,475 rooms) were removed
from the AMEA System in 2017, compared
to four hotels (995 rooms) in 2016.
a Includes 15 Holiday Inn Resort properties (3,259 rooms) (2016: 14 Holiday Inn Resort properties (2,953 rooms)).
Total number of hotels in the pipeline
Rooms
Change
over 2016
164
(980)
50
(98)
(195)
200
1,020
200
800
(3,512)
(2,515)
1,648
(4,163)
(2,515)
Total number of rooms in the pipeline
37,370
At 31 December 2017, the AMEA pipeline
totalled 164 hotels (37,370 rooms) compared
to 150 hotels (39,885 rooms) at 31 December
2016. Hotel signings in AMEA were the
highest since 2007 with 63 hotels (12,620
rooms), an increase of 21 hotels (2,069 rooms)
from 2016. The AMEA pipeline decreased
by 2,515 rooms partly due to the opening
of 3,512 rooms in Makkah, Saudi Arabia.
The majority of 2017 signings were within
the Holiday Inn brand family (42 hotels,
7,787 rooms) including the rebranding of
a portfolio of 14 properties in India to the
Holiday Inn Express brand as well as three
InterContinental hotels (730 rooms).
23 hotels (4,050 rooms) were removed from
the pipeline in 2017, compared to 23 hotels
(4,651 rooms) in 2016.
AMEA pipeline
At 31 December
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
Staybridge Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2016
(4)
1
(1)
–
1
8
6
3
–
14
7
7
14
2017
23
1
20
14
1
57
41
7
–
164
18
146
164
2017
5,701
50
5,456
2,387
200
14,284
7,686
1,588
18
37,370
4,054
33,316
37,370
b Includes five Holiday Inn Resort properties (1,075 rooms) (2016: five Holiday Inn Resort properties (1,256 rooms)).
38
IHG | Annual Report and Form 20-F 2017
Strategic Report Greater China
Greater China results
Revenue
Franchised
Managed
Owned and leased
Total
Percentage of Group revenue
Operating profit before
exceptional items
Franchised
Managed
Owned and leased
Regional overheads
Exceptional items
Operating profit
Percentage of Group operating
profit before central overheads
and exceptional items
2017
$m
2016
$m
2017 vs 2016
% change
2015
$m
2016 vs 2015
% change
12 months ended 31 December
4
122
–
126
7.1
2
73
–
(23)
52
–
52
3
114
–
117
6.8
3
64
–
(22)
45
–
45
33.3
7.0
–
7.7
0.3
(33.3)
14.1
–
(4.5)
15.6
–
15.6
4
105
98
207
11.5
5
59
29
(23)
70
698
768
(25.0)
8.6
(100.0)
(43.5)
(4.7)
(40.0)
8.5
(100.0)
4.3
(35.7)
(100.0)
(94.1)
6.0
5.4
0.6
8.4
(3.0)
On an actual and constant currency basis,
franchised revenue increased by $1m
(33.3%) to $4m, whereas operating profit
decreased by $1m (33.3%) to $2m due to
additional investment in growth initiatives.
Managed revenue and operating profit
increased by $8m (7.0%) to $122m and
by $9m (14.1%) to $73m respectively.
Comparable RevPAR increased by 6.1%,
whilst the Greater China System size grew
by 7.6%. RevPAR in mainland tier 1 cities
benefitted from strong transient, corporate
and meetings demand. On a constant
currency basis, revenue and operating
profit increased by $10m (8.8%) to $124m
and by $10m (15.6%) to $74m respectively.
Highlights for the year ended
31 December 2017
Comprising 328 hotels (101,539 rooms)
at 31 December 2017, Greater China
represented approximately 13% of the
Group’s room count and contributed
approximately 6% of the Group’s operating
profit before central overheads and
exceptional items for the year ended
31 December 2017. The majority of rooms
in Greater China are operated under the
managed business model.
Revenue and operating profit increased by
$9m (7.7%) to $126m and by $7m (15.6%) to
$52m respectively. On an underlyinga basis,
revenue increased by $11m (9.4%) and
operating profit increased by $7m (15.6%),
driven by strong trading in mainland China
and 9.2% rooms growth as well as robust
cost control as we continue to leverage the
scale of the operational platform we have
built in Greater China.
Highlights for the year ended
31 December 2016
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 154 and 155). Underlying operating profit growth
also excludes the impact of exceptional items.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
39
Greater China pipeline
Total number of hotels in the pipeline
Performance continued
Greater China continued
Greater China hotel and room count
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 2016
1
3
3
1
3
26
(1)
36
7
29
36
0.5
2017
40
7
82
7
86
101
5
328
11
317
328
6.1
2017
16,629
2,089
28,948
1,023
26,659
23,813
2,378
101,539
3,764
97,775
101,539
12.7
a Includes six Holiday Inn Resort properties (1,820 rooms) (2016: six Holiday Inn Resort properties (1,820 rooms)).
At 31 December
Analysed by brand
InterContinental
Kimpton
HUALUXE
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2016
6
2
(1)
(2)
4
3
4
39
–
55
48
7
55
2017
28
2
21
36
15
3
54
134
1
294
68
226
294
2017
8,980
359
6,289
11,673
2,535
796
15,116
25,657
279
71,684
11,676
60,008
71,684
b Includes seven Holiday Inn Resort properties (2,380 rooms) (2016: six Holiday Inn Resort properties (1,820 rooms)).
40
IHG | Annual Report and Form 20-F 2017
Total number of hotels
Rooms
Change
over 2016
328
314
993
897
283
788
5,336
(94)
8,517
1,580
6,937
8,517
0.6
Total number of rooms
101,539
The Greater China System size increased
by 36 hotels (8,517 rooms) in the year
to 328 hotels (101,539 rooms). 43 hotels
(10,570 rooms) opened during 2017,
14 hotels and 2,632 rooms higher than 2016.
Recent growth in the region has focused
on tier 2 and 3 cities, which now represent
approximately 65% of our open rooms.
33 Holiday Inn brand family hotels (7,184
rooms) were also added in the year,
compared to 17 hotels (3,773 rooms) in
2016 with Holiday Inn Express passing
a significant milestone, with more than
100 hotels now open.
Seven hotels (2,053 rooms) were removed
in 2017 compared to two hotels (425 rooms)
in 2016.
Rooms
Change
over 2016
294
1,526
359
(667)
(838)
753
796
275
5,452
–
7,656
7,591
65
7,656
Total number of rooms in the pipeline
71,684
At 31 December 2017, the Greater China
pipeline totalled 294 hotels (71,684 rooms)
compared to 239 hotels (64,028 rooms)
at 31 December 2016. Signings (118 hotels,
24,201 rooms) were the highest ever in terms
of hotel count since 2007 and highest in
terms of rooms since 2008, representing
an increase of 29.6% (5,532 rooms) from
the prior year. 90 hotels (16,904 rooms)
were signed for the Holiday Inn brand family,
including 54 franchised Holiday Inn
Express hotels.
20 hotels (5,975 rooms) were removed from
the pipeline in 2017, compared to 19 hotels
(5,487 rooms) in 2016.
Strategic Report Central
Central results
Revenue
Gross costs
Exceptional items
Operating loss
12 months ended 31 December
2017
$m
148
(258)
(110)
(29)
(139)
2016
$m
2017 vs 2016
% change
141
(269)
(128)
–
(128)
5.0
4.1
14.1
–
(8.6)
2015
$m
135
(286)
(151)
(11)
(162)
2016 vs 2015
% change
4.4
5.9
15.2
100.0
21.0
Highlights for the year ended
31 December 2017
The net operating loss increased by $11m
(8.6%) compared to 2016. Central revenue,
which mainly comprises technology fee
income, increased by $7m (5.0%) to $148m
(an increase of $8m (5.7%) at constant
currency), driven by increases in both
comparable RevPAR (2.7%) and IHG System
size (4.0%). At constant currency, gross costs
decreased by $7m (2.6%) compared to 2016
(an $11m or 4.1% decrease at actual currency)
benefitting from the impact of our cost
management programme. Net operating
loss before exceptional items decreased
by $18m (14.1%) to $110m (a $15m or 11.7%
decrease at constant currency).
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).
System Fund
System Fund assessments
Assessment fees and contributions
received from hotels
Proceeds from sale of
IHG Rewards Club points
Total
2017
$m
2016
$m
2017 vs 2016
% change
2015
$m
2016 vs 2015
% change
12 months ended 31 December
1,562
1,439
324
1,886
283
1,722
8.5
14.5
9.5
1,351
222
1,573
6.5
27.5
9.5
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 2017
In the year to 31 December 2017, System
Fund income increased by 9.5% to $1,886m
primarily as a result of an 8.5% 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 14.5% increase in
proceeds from the sale of IHG Rewards
Club points.
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.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
41
Performance continued
Other financial information
Exceptional items
Pre-tax exceptional items totalled a net gain
of $4m. (Exceptional tax items are described
below). The gain included $73m from the
sale of IHG’s 6.29% interest in Avendra, LLC,
a North American hospitality procurement
services provider, in December 2017.
Exceptional charges included $15m relating
to the cost of integrating Kimpton into the
operations of the Group, which has now
been completed, $36m relating to
reorganisation costs (see below) and an $18m
impairment charge relating to an associate
investment in the Americas region resulting
from the currently depressed trading
outlook for the New York hotel market.
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).
Reorganisation costs
In September 2017, the Group launched a
comprehensive efficiency programme which
will fund a series of new strategic initiatives
to drive an acceleration in IHG’s future
growth. The programme is centred around
strengthening the Group’s organisational
structure to redeploy resources to leverage
scale in the highest opportunity markets
and segments. The organisational changes
include combining Europe and Asia, Middle
East and Africa into one business unit, and
creating a new Global Marketing organisation
and a new Commercial and Technology
function. The strategic initiatives will involve
strengthening our loyalty programme,
continuing to prioritise digital and
technological innovation, enhancing our
industry-leading franchise proposition,
strengthening our existing brands and also
adding new brands where we see the
greatest potential for growth.
The programme is expected to realise
c.$125m in annual savings by 2020, of
which c.$75m will benefit the System Fund.
These savings, primarily in administrative
expenses, are planned to be reinvested as
they are realised to accelerate medium-term
revenue growth. There will be an estimated
$200m cost to achieve these savings, (of
which $45m was incurred in 2017), including
amounts charged to the System Fund.
The exceptional cost charged to the Group
income statement in 2017 of $36m includes
consultancy fees of $24m and severance
costs of $8m.
Net financial expenses
Net financial expenses reduced by $2m to
$85m, due to the impact of a weaker pound
on translation of sterling interest expense
and a reduction in the average interest rate
payable on bond debt following the 2016
refinancing, offset by higher average net
debt levels in 2017.
Financing costs included $7m (2016: $3m)
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. The increase in 2017 is due
to US base rate increases in 2016 and 2017.
Financing costs in 2017 also included
$20m (2016: $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% (2016: 30%). Excluding the impact
of prior-year items, the equivalent tax rate
would be 31% (2016: 31%). This rate is higher
than the average UK statutory rate of 19.25%
(2016: 20%), 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 $116m (2016: credit of $12m).
In 2017, this included a $108m credit,
comprising a $140m deferred tax credit net
of a $32m current tax charge, as a result of
significant US tax reform that was enacted
in December 2017, a current tax charge of
$28m arising on the sale of Avendra, a
current tax credit of $13m on reorganisation
costs, a $7m (2016: $6m) deferred tax credit
in respect of the impairment charge relating
to the InterContinental Barclay associate,
a $10m deferred tax credit representing a
reduction in the Group’s unremitted earnings
provision and a $6m (2016: $5m) deferred
tax credit on Kimpton integration costs.
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
83% 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 71.0¢. With the interim
dividend per ordinary share of 33.0¢, the
full-year dividend per ordinary share for 2017
will total 104.0¢, an increase of 11% over 2016.
On 21 February 2017, the Group announced
a $0.4bn return of funds to shareholders
by way of a special dividend and share
consolidation. The special dividend (202.5¢
per ordinary share) was paid on 22 May 2017.
Net tax paid in 2017 totalled $172m (2016:
$130m). Tax paid represents an effective rate
of 25% (2016: 22%) on total profits (excluding
exceptionals) and is lower than the effective
income statement tax rate of 30% (2016:
30%), primarily due to the timing of US tax
payments and the impact of deferred taxes.
IHG pays its dividends in pounds sterling and
US dollars. The sterling amount of the final
dividend will be announced on 23 April 2018
using the average of the daily exchange
rates from 18 April 2018 to 20 April 2018
inclusive. See page 25 for details of IHG’s
dividend policy.
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.
Earnings per ordinary share
Basic earnings per ordinary share increased
by 57.0% to 306.7¢ from 195.3¢ in 2016.
Adjusted earnings per ordinary share
increased by 20.3% to 244.6¢ from 203.3¢
in 2016.
Share price and market capitalisation
The IHG share price closed at £47.19 on
31 December 2017, up from £36.38 on
31 December 2016. The market capitalisation
of the Group at the year end was £9.0bn.
42
IHG | Annual Report and Form 20-F 2017
Strategic Report Liquidity and capital resources
Sources of liquidity
The Group is primarily financed by public
bonds, £400m of which are repayable
on 28 November 2022, £300m repayable
on 14 August 2025 and £350m repayable
on 24 August 2026. This is in addition to a
$1.275bn revolving syndicated bank facility
(the Syndicated Facility) and a $75m
revolving bilateral facility (the Bilateral
Facility) which mature in March 2022.
$264m was drawn under the Syndicated
and Bilateral Facilities 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 88 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. Borrowings included bank
overdrafts of $110m (2016: $89m), which
were matched by an equivalent amount
of cash and cash equivalents under the
Group’s cash pooling arrangements.
Net debt of $1,851m (2016: $1,506m) is
analysed by currency as follows:
2017
$m
2016
$m
1,289
418
2
3
Borrowings
Sterling
US dollar
Euros
Other
Cash and cash
equivalents
Sterling
US dollar
Euros
Canadian dollar
Chinese renminbi
Other
Net debt
Average debt level
1,416
601
2
–
(13)
(75)
(13)
(13)
(12)
(42)
1,851
1,810
Under these arrangements, each pool
contains a number of bank accounts with
the same financial institution, and the Group
pays interest on net overdraft balances
within each pool. The cash pools are used
for day-to-day cash management purposes
and are managed daily as closely as possible
to a zero balance on a net basis for each
pool. Overseas subsidiaries are typically
in a cash-positive position, with the most
significant balances in the US and Canada,
and the matching overdrafts are held by the
Group’s central treasury company in the UK.
Cash and cash equivalents include $3m
(2016: $3m) that is not available for use by
the Group due to local exchange controls.
Information on the maturity profile
and interest structure of borrowings is
included in notes 20 and 22 to the Group
Financial Statements.
The Group had net liabilities of $851m
at 31 December 2017, ($759m at
31 December 2016).
Cash from operating activities
Net cash from operating activities totalled
$634m for the year ended 31 December
2017, down $118m on the previous year
largely due to cash received in 2016 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
increased by $47m to $263m.
The Group had committed contractual
capital expenditure of $104m at
31 December 2017 (2016: $97m).
Cash used in financing activities
Net cash used in financing activities totalled
$446m, which was $1,010m lower than
2016, reflecting the difference between the
$400m special dividend paid in May 2017
and the $1.5bn special dividend paid in
May 2016. Net cash inflows from borrowings
were $100m lower than in 2016.
Overall net debt increased during the year by
$345m to $1,851m as at 31 December 2017.
Off-balance sheet arrangements
At 31 December 2017, 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.
Contingent liabilities
Contingent liabilities include performance
guarantees with possible cash outflows
totalling $31m, guarantees over the debt of
equity investments of $54m and outstanding
letters of credit of $35m. The Group may
also be exposed to additional liabilities
resulting from security incidents. See note
30 to the Group Financial Statements for
further details.
Contractual obligations
The Group had the following contractual
obligations outstanding as of
31 December 2017. See table below.
Total amounts
committed
$m
Less than
1 year
$m
1–3
years
$m
(27)
Long-term debt obligationsa, b
(127)
Interest payableb
(12)
Finance lease obligationsc
(8)
(7)
(25)
1,506
1,235
Operating lease obligations
Agreed pension
scheme contributions
Capital contracts placed
Total
1,683
306
3,317
534
9
104
5,953
–
47
16
56
9
104
232
–
92
32
91
–
–
215
3–5
years
$m
805
91
35
90
–
–
After
5 years
$m
878
76
3,234
297
–
–
1,021
4,485
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 88 years remain)
on InterContinental Boston. Payments under the lease step up at regular intervals over the lease term.
IHG | Annual Report and Form 20-F 2017 | Strategic Report | Performance
43
Governance
Governance
Board meetings
Board effectiveness evaluation
Engagement with shareholders
Audit Committee Report
46 Chairman’s overview
47 Corporate Governance
47 Our Board and Committee governance structure
48 Our Board of Directors
50 Our Executive Committee
52
53 Director induction, training and development
54
55
56
60 Corporate Responsibility Committee Report
61
62
Nomination Committee Report
Statement of compliance with the
UK Corporate Governance Code
64 Directors’ Remuneration Report
Remuneration Committee Chairman’s statement
64
At a glance
65
67
Remuneration at IHG – the wider context
68 Directors’ Remuneration Policy summary
70
Annual Report on Directors’ Remuneration
44
IHG | Annual Report and Form 20-F 2017
It’s the unique spirit of
every colleague that makes
True Hospitality real every
day – for our guests,
owners and partners.
Hotel Indigo London – Kensington, UK
IHG | Annual Report and Form 20-F 2017 | Governance
45
Chairman’s overview
Good governance is integral to IHG’s
success and our ability to create a culture
built on strong ethics, values and diversity.
We are committed to maintaining the highest standards of corporate
governance. Our governance framework supports our culture,
values and our commitment to conducting business responsibly.
finance, real estate and operations, across multiple industries.
Details of the induction process for new Directors can be found
on page 53.
Good corporate governance underpins a successful business.
The Board oversees the long-term strategic aims of the Group and is
responsible for the leadership of the Group and ensuring our actions
are in keeping with the strong ethics and values that shape our culture,
while also recognising the significance of serving our stakeholders.
Focus areas and activities
The Board has continued to focus on creating long-term sustainable
value for our shareholders and the wider communities in which we
operate. During the year, the Board took full responsibility for the
CEO succession to ensure a smooth transition whilst continuing to
deliver against our strategy. Further details on the CEO succession
can be found on page 61.
The Board has continued to develop strategy through the
Annual Strategy Meeting. This involves the whole Board as well
as senior executives and provides a valuable opportunity for
detailed discussion on the long-term strategic aims of the Group.
The Board regularly monitors progress against the agreed strategy.
Further details can be found on page 52.
In order to deliver the strategy at pace, the Board has been focused
on changes to the operating structure to accelerate growth and
has provided input and guidance throughout the year. The Board
has considered how this agenda reflects our values and purpose,
and the performance behaviours required to continue to deliver
against our strategy, while ensuring that the Group’s risk appetite
is continually taken into account. Further details can be found
on pages 52 and 57.
Governance framework
The Board delegates certain responsibilities to the Audit,
Corporate Responsibility, Nomination and Remuneration Committees
(the Principal Committees) to assist in ensuring that effective corporate
governance permeates throughout the business.
The Audit Committee has this year been focused on cybersecurity
and new reporting standards, the Corporate Responsibility Committee
has overseen the delivery of our five-year Responsible Business
targets and the setting of new measures, the Nomination Committee
has been focused on the appointment of a new CEO, and the
Remuneration Committee has continued to monitor the changing
remuneration landscape as a priority area.
Board culture and composition
We regularly review the composition, diversity and size of the
Board to ensure that we have the right talent to support our strategy.
As we announced last year, Malina Ngai was appointed as an
Independent Non-Executive Director on 1 March 2017, bringing
considerable experience in consumer-facing, branded operations
and significant insight into the Asian market. In July 2017, Keith Barr
was appointed the new CEO following Richard Solomons’ decision
to retire after 25 years with the business, including six as CEO.
During the year, we also announced the appointment of Elie Maalouf
to the Board as an Executive Director with effect from 1 January 2018,
bringing considerable experience in hotel development, branding,
46
IHG | Annual Report and Form 20-F 2017
We recognise that diversity and inclusion is essential to our success.
By ensuring that different genders, backgrounds, ages and
nationalities are represented throughout the organisation, we ensure
that decision making is informed by a range of skillsets, experience
and cultural perspectives. Details of our approach to succession
planning and diversity can be found on page 61.
We are aware that effective meetings depend on the dynamics of
the Board, and our high-performance culture is driven by creating
an engaging and inclusive environment where different perspectives
are welcomed. Directors actively contribute to discussions, helping
to develop proposals and deliver against our strategy. Details of
items discussed by the Board in 2017 can be found on page 52.
Training, development and Board performance review
The training and development needs of each Director are regularly
reviewed. During 2017, Directors received training on a variety of
topics; further details of which can be found on page 53.
Our external evaluation was carried out in early 2017. This proved
a highly informative experience and I am delighted to report that
the review concluded the Board is well-functioning and effective.
Further details on these findings are set out on page 54.
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 an Annual Report in the UK and a
Form 20-F in the US. To ensure consistency of information provided
to both UK and US investors, we have produced a combined Annual
Report and Form 20-F. Our statement of compliance with the 2016
UK Corporate Governance Code (the Code) is located on pages 62
and 63. I am pleased to report that, during 2017, we complied fully
with all principles and provisions of the Code. 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.
Looking forward
We recognise that good corporate governance facilitates
effective management that can deliver the long-term success of
our organisation. We are looking to the new governance reforms
and will ensure that our ways of working, structures of reporting,
systems of control and commitment to conducting business
responsibly comply with the revised governance regime and
continue to deliver our strategy with integrity and transparency.
Patrick Cescau
Chairman of the Board
19 February 2018
Governance Corporate Governance
Our Board and Committee governance structure
The Group’s governance framework, which is directed by the Board
and through the Group’s Board and Management Committees,
supports our culture, values, and our commitment to conducting
business responsibly.
The Board and its Committees
The Board is responsible for the long-term success of the Group
and ensures that there are effective risk and internal management
controls in place. It leads the strategic direction and long-term
objectives of the Group, and monitors its performance. The Board
is supported by its Principal Committees in carrying out its functions,
overseeing the delivery of the Group’s strategic objectives and driving
sustainable shareholder value for the long term, whilst considering
the interests and impacts on key stakeholders. See pages 52 to 53
for details on the Board and how it spent its time during 2017.
The Executive Committee is chaired by the CEO and manages
a range of day-to-day strategic and operational issues facing the
Group, with clear oversight from the Board.
The General Purposes Committee attends to business of a
routine nature and to the administration of matters, the principles
of which have been agreed previously by the Board or an
appropriate Committee.
The Disclosure Committee ensures that proper procedures are in
place for information disclosures required pursuant to UK and US
accounting, statutory and listing requirements and reports to the
CEO, the Chief Financial Officer and the Audit Committee.
More information on our Board and Committees is available on our
website at www.ihgplc.com/investors under Corporate governance.
Management Committees
The schedule of matters reserved exclusively to the Board was
reviewed at the December 2017 Board meeting and is available
on our website. Operational matters, routine business and
information disclosure procedures are delegated by the Board
to Management Committees.
Board and Committee membership and attendance in 2017
Total meetings held
Chairman
Patrick Cescau
Chief Executive Officer
Keith Barr
Richard Solomons
Executive Directors
Appointment
date
Committee
appointments
01/01/13
N
01/07/17
10/02/03
Paul Edgecliffe-Johnson
01/01/14
Senior Independent
Non-Executive Director
Dale Morrison
Non-Executive Directors
Anne Busquet
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Malina Ngai
01/06/11
A N R
01/03/15
01/09/13
01/09/14
01/07/11
01/06/13
01/03/17
A C N
A N R
A N R b
A C N R c
A C N
C N R
Board
8
8/8
4/4
4/4
8/8
8/8
8/8
8/8a
8/8
8/8
8/8
7/7
Audit
Committee
Corporate
Responsibility
Committee
Nomination
Committee
Remuneration
Committee
Meetings
5
–
–
–
–
5/5
5/5
5/5
3/3b
2/2c
5/5
–
3
–
–
–
–
–
3/3
–
–
3/3
3/3
2/2
3
3/3
–
–
–
3/3
3/3
2/3a
3/3
3/3
3/3
3/3
6
–
–
–
–
6/6
–
5/6a
6/6
4/4c
–
5/5
a Ian Dyson was unable to attend one Nomination Committee meeting and one Remuneration Committee meeting due to a prior commitment.
b Jo Harlow stepped down from the Audit Committee and became Chairman of the Remuneration Committee on 1 October 2017.
c Luke Mayhew stepped down from the Remuneration Committee and became a member of the Audit Committee on 1 October 2017.
Board Committee membership key
A Audit Committee member
C Corporate Responsibility Committee member
N Nomination Committee member
R Remuneration Committee member
Chairman of a Board Committee
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
47
Corporate Governance continued
Our Board of Directors
N
Patrick Cescau
Non-Executive Chairman
Appointed to the Board: 1 January 2013
Keith Barr
Chief Executive Officer
Appointed to the Board: 1 July 2017
Paul Edgecliffe-Johnson
Chief Financial Officer
Appointed to the Board: 1 January 2014
Elie Maalouf
Chief Executive Officer, Americas
Appointed to the Board: 1 January 2018
A N R
Dale Morrison
Senior Independent Non-Executive Director
Appointed to the Board: 1 June 2011
A C N
Anne Busquet
Independent Non-Executive Director
Appointed to the Board: 1 March 2015
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 a Senior
Independent Non-Executive 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: Keith has spent more
than 25 years working in the hospitality industry
across a wide range of roles. He started his
career in hotel operations and joined IHG in 2000.
Since April 2011 he has been a member of IHG’s
Executive Committee. Directly before being
appointed Chief Executive Officer, Keith served
as Chief Commercial Officer for four years. He led
IHG’s global brand, loyalty, sales and marketing
functions, and oversaw IHG’s loyalty programme,
IHG® Rewards Club. Prior to this, Keith was CEO
Skills and experience: Paul is a chartered
accountant and a fellow of the Institute of
Chartered Accountants. He was previously Chief
Financial Officer of IHG’s Europe and Asia, Middle
East and Africa regions, a position he held since
September 2011. He joined IHG in August 2004
and has held a number of senior-level finance
positions, including Head of Investor Relations,
Head of Global Corporate Finance and Financial
Planning & Tax, and Head of Hotel Development,
Europe. Paul also acted as Interim Chief Executive
of IHG’s Greater China business for four years,
setting the foundations for growth in a key market.
Board contribution: Keith is responsible for the
executive management of the Group and ensuring
the implementation of Board strategy and policy.
Other appointments: Member of
Cornell University’s School of Hotel Administration
Leland C. and Mary M. Pillsbury Institute for
Hospitality Entrepreneurship Advisory Board.
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.
Other appointments: Currently a Non-Executive
Director of Thomas Cook Group plc.
Skills and experience: Elie was appointed Chief
Executive Officer, Americas in February 2015,
with nearly 15 years’ experience working in a major
global franchise business. He joined the Group
having spent six years as President and Chief
Executive Officer of HMSHost Corporation, a
global travel and leisure company. Elie brings
broad experience spanning hotel development,
branding, finance, real estate and operations
management as well as food and beverage
expertise. Prior to joining IHG, Elie was Senior Advisor
with McKinsey & Company from 2012 to 2014.
Board contribution: Elie is responsible for
business development and performance of all
hotel brands and properties in the Americas region
and brings a deep understanding of the global
hospitality sector to the Board.
Other appointments: Currently a member of the
American Hotel & Lodging Association Executive
Committee of the Board, the U. S. Travel Association
CEO Roundtable, the Atlanta Committee for
Progress and the Global Advisory Council at the
University of Virginia Darden School of Business.
Skills and experience: Dale is a founding partner
of TriPointe Capital Partners, a private equity firm.
In 2016 he also founded Twin Ridge Capital, a
private equity firm. Dale was previously President
and Chief Executive Officer of McCain Foods
Limited and President and Chief Executive Officer
of Campbell Soup Company.
Board contribution: Dale has over 10 years’
experience in sales and marketing positions, and
over 25 years’ experience in general management,
having held senior positions in the branded
foods sector. Dale’s role as Senior Independent
Non-Executive Director is fundamental to the
successful operation of the Board.
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.).
Skills and experience: Anne began her career
at Hilton International in Paris, before joining
American Express 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: Currently the President
of AMB Advisors, an independent consulting firm,
and Managing Director at Golden Seeds LLC, an
angel investment company. Anne 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.
48
IHG | Annual Report and Form 20-F 2017
Governance A N R
Ian Dyson
Independent Non-Executive Director
Appointed to the Board: 1 September 2013
R N
Jo Harlow
Independent Non-Executive Director
Appointed to the Board: 1 September 2014
A C N
Luke Mayhew
Independent Non-Executive Director
Appointed to the Board: 1 July 2011
A C N
Jill McDonald
Independent Non-Executive Director
Appointed to the Board: 1 June 2013
C N R
v
Malina Ngai
Independent Non-Executive Director
Appointed to the Board: 1 March 2017
Skills and experience: Ian has held a number
of senior executive and finance roles, including
Group Finance & Operations Director for
Marks and Spencer 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 retail, leisure and
hospitality sectors. 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 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. Jo became Chairman of the Remuneration
Committee on 1 October 2017, and as such she is
responsible for setting the remuneration policy.
Other appointments: Currently a Non-Executive
Director of Halma plc and J Sainsbury plc and a
member of the Supervisory Board of Ceconomy AG.
Skills and experience: Luke served for 12 years
on the Board of John Lewis Partnership plc,
including as Managing Director of the
Department Store division. Luke also spent
five years at British Airways Plc and seven years
at Thomas Cook Group plc in senior positions.
He was also a Non-Executive Director of
WH Smith PLC and Chairman of Pets at
Home Group Plc.
Board contribution: Luke has over 30 years’
experience in senior roles in the branded sector
and was Remuneration Committee Chairman
at Brambles Limited from 2006 to 2014 and
at IHG from July 2011 to September 2017.
Other appointments: Currently a Senior
Independent Director of DFS Furniture plc,
a trustee of BBC Children in Need and a
Governor of the Southbank Centre.
Skills and experience: Jill started her career at
Colgate-Palmolive Company, spent 16 years with
British Airways Plc and has held a number of senior
marketing positions in the UK and overseas. Jill was
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. From May 2015 until September 2017,
Jill served as Chief Executive Officer of the
Halfords Group plc.
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 Managing
Director, Clothing, Home and Beauty, at
Marks and Spencer plc.
Skills and experience: Malina is Group Chief
Operating Officer of A.S. Watson Group, which
is part of Hong Kong-based conglomerate CK
Hutchison Holdings Limited. A.S. Watson Group is
the largest international health and beauty retailer
in Asia and Europe with thirteen brands including
Watsons, Superdrug, Savers, The Perfume Shop,
Kruidvat, ICI Paris XL and ParknShop. In addition,
Malina is Vice Chairman of the Hong Kong Retail
Management Association and was previously
a member of the Board of Directors of the
Hong Kong Sports Institute Limited.
Board contribution: Malina has over 20 years’
experience gained from working in senior
positions in global organisations across a broad
range of sectors, with particular understanding
of consumer-facing branded companies and the
role that technology and digital commerce play
in transforming the consumer experience.
Other appointments: Currently Group Chief
Operating Officer of A.S.Watson Group and
Vice Chairman of the Hong Kong Retail
Management Association.
Changes to the Board
Keith Barr
Jo Harlow
Elie Maalouf
Luke Mayhew
Keith was appointed Chief Executive Officer on 1 July 2017.
Jo was appointed Chairman of the Remuneration Committee and stepped down as a member of the Audit Committee
on 1 October 2017.
Elie was appointed to the Board on 1 January 2018.
Luke was appointed a member of the Audit Committee and stepped down as Chairman and member of the Remuneration
Committee on 1 October 2017.
Malina Ngai
Malina was appointed to the Board on 1 March 2017.
Richard Solomons
Richard retired from the Board and his role as Chief Executive Officer on 30 June 2017.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
49
Corporate Governance continued
Our Executive Committee
In addition to Keith Barr, Paul Edgecliffe-Johnson and Elie Maalouf, the Executive Committee from 1 January 2018 comprises:
Claire Bennett
Chief Marketing Officer
Appointed to the Executive Committee:
October 2017 (joined the Group: 2017)
Jolyon Bulley
Chief Executive Officer, Greater China
Appointed to the Executive Committee:
November 2017 (joined the Group: 2001)
Yasmin Diamond
Executive Vice President,Global Corporate Affairs
Appointed to the Executive Committee:
April 2016 (joined the Group: 2012)
Kenneth Macpherson
Chief Executive Officer, EMEAA
Appointed to the Executive Committee:
April 2013 (joined the Group: 2013)
Skills and experience: Claire previously spent
11 years at American Express in a range of senior
leadership roles across marketing, consumer
travel and loyalty. Most recently, Claire was
General Manager (GM), Global Travel & Lifestyle,
where she led a team responsible for delivering
premium lifestyle services. Prior to this, Claire
held roles as Executive Vice President for
Consumer Loyalty, and Senior Vice President,
Global Marketing and Brand Management,
where she led worldwide advertising, media,
sponsorship and marketing research teams.
Skills and experience: Jolyon has held a number
of significant roles at IHG and was appointed CEO
for Greater China in November 2017.
Prior to that he was Chief Operating Officer (COO)
for the Americas, leading the region’s operations
for franchised and managed hotels, in addition to
cultivating franchisee relationships and enhancing
hotel operating performance. Jolyon has also
served as COO for Greater China for almost four
years, with oversight of the region’s hotel portfolio
and brand performance, food and beverage brand
solutions, new hotel openings and owner relations.
Skills and experience: Before joining IHG in
April 2012, 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; 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.
Before joining American Express, Claire also held
senior marketing roles at Dell and Quaker Oats/
Pepsico Company, building significant industry
expertise across technology, consumer packaged
goods, financial services, and travel and
hospitality sectors.
Claire has been an Executive Board Member of the
World Travel and Tourism Council (WTTC), served
as a Board Member of Tumi Inc. and participated
on multiple industry advisory boards.
Key responsibilities: These include all aspects
of our brands, loyalty, partnerships, and
marketing execution.
Jolyon joined IHG in 2001, as Director of
Operations, New South Wales in Australia, and
then held roles of increasing responsibility across
IHG’s Asia-Pacific region. He became Regional
Director Sales & Marketing for Australia, New
Zealand & South Pacific in 2003, relocated to
Singapore in 2005 and held positions of Vice
President Operations South East Asia & India,
Vice President Resorts, and Vice President
Operations, South East & South West Asia.
Key responsibilities: These include the
management, growth and profitability of IHG’s
fastest growing region, which includes mainland
China, Hong Kong SAR, Macau SAR and Taiwan.
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. In addition, Yasmin sits on the
Board of Trustees for the British Council, the UK’s
international organisation for cultural relations
and educational opportunities.
Key responsibilities: These include all global
communications activity, ensuring that it supports
and enables IHG’s broader strategic priorities.
This includes all external and internal activity,
covering both corporate and brand communications,
as well as leading IHG’s Corporate Responsibility
strategy and key public affairs work.
Skills and experience: Prior to taking up the
position of CEO, EMEAA in January 2018, Kenneth
was IHG’s Chief Executive Officer for Greater
China for over four years.
Director of Diageo Asia Venture in Singapore,
where he was responsible for commercial and
brand strategy, as well as sales and marketing,
and new brand development.
Kenneth has extensive management experience,
with a background in sales, marketing strategy,
business development, and operations. He joined
IHG from Diageo, where he worked for over
20 years in senior management positions,
including Managing Director of Diageo Greater
China. Prior to being based in China in 2005,
Kenneth led the development of Diageo’s China
strategy. He has also served as the Commercial
In 2017, Kenneth received the Shanghai Magnolia
Gold Award for expatriates for his outstanding
contribution to the city’s social and economic
development.
Key responsibilities: These include business
development and performance of all the hotel
brands and properties in the EMEAA region.
50
IHG | Annual Report and Form 20-F 2017
Governance Skills and experience: Eric joined IHG in 1997,
and has held roles of increasing responsibility
throughout his tenure. As Chief Marketing Officer
for IHG’s Americas region, Eric was accountable
for all sales and marketing activities across brands,
driving top-line revenue into more than 3,300
hotels. In addition to these responsibilities,
Eric became interim Head of Global Brands
in 2011 before being appointed IHG’s Chief
Information Officer in 2012.
Eric has also served as Senior Vice President,
Distribution Marketing, where he was responsible
for overseeing digital marketing, reservation
channels, and global revenue management.
Before joining IHG, Eric worked for The Walt Disney
Company, IBM and NASA in different management
and technical capacities.
Key responsibilities: These include global sales,
distribution, revenue management, property
systems, digital and voice, and technology.
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 in a number of specialist
areas of HR such as Talent, Learning, Reward,
Change and Organisational Effectiveness,
complementing large generalist roles in both
mature and developing markets. His other roles
at Unilever included Executive Vice President
Human Resources in Europe; Vice President Talent,
Learning and Organisation for Global Markets;
Vice President Leadership Development & Reward
for Asia, Africa and Central Eastern Europe; and
Vice President HR for North Africa and
The Middle East.
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.
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
various key positions including Deputy Company
Secretary and Senior Legal Counsel.
Key responsibilities: These include corporate
governance, risk management, information
security, insurance, regulatory compliance,
internal audit, legal and hotel standards.
Eric Pearson
Chief Commercial and Technology 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)
George Turner
Executive Vice President, General Counsel
and Company Secretary
Appointed to the Executive Committee:
January 2009 (joined the Group: 2008)
Changes to the Executive Committee
Claire Bennett
Angela Brav
Jolyon Bulley
Claire was appointed to the Executive Committee on 1 October 2017.
Angela stepped down from the Executive Committee and left IHG on 31 December 2017.
Jolyon was appointed to the Executive Committee on 1 November 2017.
Federico Lalatta Costerbosa
Federico stepped down from the Executive Committee and left IHG on 31 December 2017.
Kenneth Macpherson
Kenneth took up the new position of Chief Executive Officer, EMEAA on 1 January 2018.
Eric Pearson
Jan Smits
Eric took up the new position of Chief Commercial and Technology Officer on 1 October 2017.
Jan stepped down from the Executive Committee and left IHG on 31 December 2017.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
51
Corporate Governance continued
Board meetings
The Chairman and Company Secretary operate a rigorous process
for Board agenda setting which includes collaboration with all Board
members to ensure that the agendas strike the appropriate balance
between short-term business and the longer term. In addition, the
Chairman, CEO and Company Secretary meet in advance of Board
and Committee meetings to finalise the agendas. The Company
Secretary maintains an annual agenda schedule for Board meetings
that sets out strategic and operational matters to be considered
throughout the year. A set of Board papers is circulated at least one
week in advance of each meeting, to ensure that Directors have
sufficient time to fully prepare for effective, focused and relevant
discussions. Meetings begin with an update from the Chairman
and CEO, and the Chief Financial Officer provides a financial review
of the Group. Executive Committee members and other members
of senior management present ‘deep dives’ on key initiatives and
developments throughout the year, facilitating a strong overall
understanding of Group operations.
The Board also receives presentations in the less formal context
of pre-dinner meetings, scheduled the day before certain
Board meetings.
Strategic and
operational
matters
Area of discussion
Commercial Delivery
Changes to operating structure to accelerate growth
Operating regions
Brands
Our People
The Board held eight scheduled meetings during the year, and
individual attendance is set out on page 47. All Directors are
expected to attend all Board meetings and relevant Committee
meetings unless prevented by prior commitments, illness or a
conflict of interest. Directors unable to attend Board or Committee
meetings are sent the relevant papers and asked to provide
comments to the Chairman of the Board or Committee in advance.
Time continues to be set aside at the start and end of meetings for
the CEO 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 to discuss any
matters arising. The Senior Independent Non-Executive Director is
available to discuss concerns with shareholders, in addition to the
normal channels of shareholder communication.
During 2017, the Board continued to focus on strategic and
operational matters, corporate governance, investor relations and
risk management, whilst considering relevant stakeholders. The key
focus areas for the Board during 2017 are outlined below:
Discussion topic
Updates on IHG Connect (the Group’s wifi initiative), GRS, and our
Distribution and Revenue Management strategy.
Review, assess and endorse the Group’s operating structure. Refinement of
the Group’s purpose, ambition, values and behaviours reflecting the growth
agenda, taking into consideration risk appetite and assessing risk
mitigation strategies.
Operating performance, competitive positioning and outlook in each region
considered at each Board meeting and a deep-dive session on the Americas
was presented.
Brand performance and initiatives for the InterContinental brand, the launch
of avid hotels and initiatives for our master brand – the IHG brand.
Chief Human Resources Officer review of the Group’s culture, behaviours
and drivers of performance.
Competitive marketplace review
Mergers and acquisitions activity in the industry.
Corporate
governance
Updates from each of the Board Committees
Details of Committee activities during 2017 can be found on pages 56 to 61
and 64 to 77.
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
Internal quarterly updates are provided to the Board covering key regulatory
and corporate governance developments and how the Group is responding.
Further information can always be obtained from the Company Secretary
in line with ongoing director training and development.
Annual Report and Form 20-F
Board effectiveness evaluation
Internal controls and risk management systems, our risk
appetite and our global insurance programme
Terms of Reference for each Board Committee
Details of the review process of the Annual Report and Form 20-F can be
found on page 57.
Details of the process and outputs of the external Board effectiveness review
can be found on page 54.
The Board receives regular updates on internal controls, risk management
systems, our risk appetite and our global insurance programme and reports
on risk topics were delivered by the Chair of each Committee and considered
by the Board.
Minor changes to the Terms of Reference of the Committees were approved
during the year, in line with best practice. The Terms of Reference for all
Committees and the Matters Reserved for the Board can be found on our website.
Investor
relations and
communications
Updates on investor perceptions and shareholder
relations, consideration of analysts’ reports and
media updates
The Board receives a regular report outlining relative share price performance,
share register movement and Investor Relations activity and engagement
with shareholders.
Global communications updates
The Board receives a regular report on the global communications landscape
and communications activity across key regions, our brands and our people.
Review and approval of shareholder returns strategies
for 2017
During the year, the Board considered and approved the dividends and
additional shareholder returns paid during 2017.
Preparations for the AGM
Details of the 2018 AGM can be found on page 55.
52
IHG | Annual Report and Form 20-F 2017
Governance Director induction, training and development
New Director inductions
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 to ensure our Directors
have an in-depth understanding of the Group’s business model,
key stakeholders, 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.
Malina Ngai was appointed as an Independent Non-Executive
Director in March 2017. The key areas of Malina’s induction included:
• Information regarding the Group’s structure, strategy, business
model and KPIs, key regions and operations, a financial overview,
details of the Group’s principal assets, liabilities and significant
contracts, and an overview of our brands and their competition;
• The Group’s risk management strategy and approach to
corporate responsibility;
• Recent Board and Committee updates including commercial
strategy, global technology trends, the Group Internal Audit
plan and various Investor Relations presentations;
• Meetings with members of the Board, the Executive Committee
and senior management;
On 1 October 2017, Luke Mayhew stepped down as Chairman of the
Remuneration Committee and joined the Audit Committee. Given
that Luke had routinely attended the Audit Committee as a guest,
a formal induction was considered unnecessary. An induction
programme was created for Jo Harlow to support her transition to
Chair of the Remuneration Committee. The programme included:
• A detailed handover, coaching and support from Luke Mayhew
covering a variety of matters including agendas for Remuneration
Committee meetings and determining the remuneration terms
associated with Board resignations and appointments;
• Introductory meetings with a number of shareholders during the
development of the remuneration policy;
• Induction meetings with PricewaterhouseCoopers, independent
advisers to the Remuneration Committee, to provide commentary
and advice on the executive remuneration landscape, investor
sentiment and key pay trends;
• Private meetings with other Remuneration Committee members,
the Chairman and the CEO; and
• Ongoing meetings with Remuneration Committee chairs of other
UK-based multinational companies and attendance at various
Remuneration Committee forums.
• Meetings with the external Auditor, brokers and capital advisers; and
Elie Maalouf will receive a full induction programme during 2018.
• Visits to various IHG hotels and corporate offices.
On 1 July 2017, Keith Barr was appointed CEO. While Keith had held
numerous senior leadership positions within IHG since joining in
2000, he had not previously served on a board. As such, his induction
was tailored to provide a thorough outline of his responsibilities and
duties as a Director of a public limited company. This included:
• A briefing pack and Board induction meetings with the
Company Secretary, Deputy Company Secretary and the external
Corporate Legal Adviser focusing on Director’s duties under the
Companies Act, compliance with listing rules and relevant regulations;
• The rules relating to inside information and restrictions in dealing in
IHG shares, together with a briefing of the policies and procedures
IHG has in place to ensure compliance with such rules;
• Corporate governance standards followed by companies
operating in the UK and US regulatory environment, including the
UK Corporate Governance Code (the Code) and the current reform
process covering remuneration, stakeholder engagement and the
new Code;
• Meeting the lead Audit Partner to discuss key financial
considerations and responsibilities;
• Meetings with all Committee Chairs, the Senior Independent
Non-Executive Director and one to one meetings with all other
Non-Executive Directors to understand and discuss key focus
areas and priorities; and
• Strategy meetings with the Chairman as well as regular meetings
with the Company Secretary and Group Financial Controller
scheduled ahead of each Board and Committee meeting after
the release of the papers for the first 12 months.
Ongoing Director training and development
We believe that an ongoing and progressive training programme
facilitates a better understanding of the Group’s business and
operations for all Board members. The Chairman reviews the training
and development needs with each Director on a regular basis and
the Board is made aware of training opportunities.
Board and Committee meetings are regularly used to update
Directors on developments in the environment in which the business
operates and in-depth presentations are provided on key topical
areas. The Company Secretary provides regular updates on
regulatory, corporate governance and legal matters and individual
meetings with senior management are arranged if necessary.
Training focus areas in 2017 included technology and information
security, General Data Protection Regulation, anti-bribery, IFRS 15
and financial reporting controls and regulatory developments.
Board meetings continue to be held at IHG hotels around the world
to provide first-hand experience of the different brands we operate.
We believe that this opportunity to meet an array of stakeholders
across the business broadens the Board’s understanding of the
markets in which we operate. In 2017, Board members attended
Board and Committee meetings at InterContinental London Park Lane
in the UK, Kimpton Palomar Hotel in Los Angeles and Ravinia Offices
in Atlanta, in addition to meetings held at the Group’s head offices
in Denham, UK. While in Atlanta, the Board also had dinner with
a broad group of senior management as part of their continuing
engagement with employees across the Group. Directors are also
encouraged to visit hotels across our brands informally.
In addition, Directors are encouraged to attend external training
events to update their skills and knowledge.
Annual Strategy Meeting – March 2017
The Board maintains overall responsibility for the establishment and review
of the long-term strategic aims and objectives of the Group. Substantial time
is spent considering Group strategy, performance and oversight during the
regular Board meetings and, in addition, the Board holds an Annual Strategy
Meeting, dedicated to reviewing and discussing our global strategy in detail.
The 2017 Annual Strategy Meeting was held in Los Angeles and the Board
undertook a strategic assessment of the competitive landscape and the
commercial strategy and priorities for the Group. Given its scale, the Board
spent significant time focusing on our Americas region, and across the
American market more generally. The Board took the opportunity to visit
several of our hotels across all market segments whilst in Los Angeles,
updating their knowledge and familiarity with the Group’s brands.
This included visits to our then soon to be opened InterContinental
Los Angeles Downtown and our recently opened Hotel Indigo Los Angeles
Downtown. In addition the Board took the opportunity to spend time at
BCG Digital to gain an understanding of the latest developments in the
digital arena and consumer-facing technology.
Each Board member received a full briefing in advance of the visit to
Los Angeles to ensure a deeper understanding of the cities and hotels
they were visiting and were provided details of recent developments
in the American market.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
53
Corporate Governance continued
Board effectiveness evaluation
IHG recognises the benefits of the Board undertaking a rigorous
evaluation of its own performance and that of its main Committees
and individual Directors on an annual basis, in line with the UK
Corporate Governance Code recommendations.
External Evaluation
As we reported last year, and in accordance with our three-year
cycle, Dr Tracy Long of Boardroom Review Limited, an external
facilitator with no connection to IHG, was engaged to lead our
external evaluation in 2016. This process continued into 2017,
resulting in a detailed report being presented to the Board in
May 2017.
The evaluation consisted of a mix of confidential individual interviews,
Board meeting observation and individual feedback sessions with
all Directors. A detailed report was then presented and the Board
discussed the outcome of the evaluation process, its proposed
actions and progress with the actions of previous years.
The external evaluation concluded that good progress had
been made on the 2014 external review and the Board is diverse,
well-functioning and effective. Dr Long noted that the Board is
value-adding and there is a high level of engagement and participation
with good alignment between the Executive Directors and the
Non-Executive Directors.
The review also noted a good level of interaction with shareholders
and a strong understanding of the industry landscape and the
Group’s wider stakeholders.
The review identified three interconnected challenges and areas
of focus for the future, details of which can be found below.
Challenges
Actions taken
The transition to a new CEO and the implications for the Board
and Company culture
A rapidly changing competitive landscape demanding even more
agility and speed
Continue to develop Board dynamics
Directors’ peer-to-peer reviews
Following the external evaluation the focus of the Board in 2017 was
to address the challenges highlighted. As part of this the Chairman
and Senior Independent Non-Executive Director facilitated a
peer-to-peer review which comprised:
• Interviews with each of the Directors to allow them to provide
feedback regarding (i) the performance of fellow Board members,
including their relative strengths and development areas
(ii) progress following the recommendations made as part of the
external evaluation (iii) Board engagement (iv) Director induction
processes (v) diversity (vi) culture and (vii) the overall performance
of the Board and its Committees;
• Individual feedback sessions conducted by the Chairman as part
of each Board member’s annual performance evaluation; and
• Agreement on areas of focus for 2018.
The Chairman highlighted some of the general themes emerging
from the peer-to-peer review during the February 2018 Board
meeting, such as company culture, ethics and compliance, and
risk appetite and agreed to continue to consider these, particularly
in light of recent Corporate Governance developments.
Company culture is a key area of focus. The Group’s purpose, ambition, values
and behaviours have been refined reflecting the growth vision of the new
Executive Committee, led by the CEO and with full engagement and support
from the Board. Regular updates are planned during the year, led by the
Chief Human Resources Officer.
The Board agenda for 2018 will reflect a new strategic approach with a
shorter strategy day and several strategic updates and external contributors
during the year. Deep dive areas have been identified and will be presented
to the Board.
Peer-to-peer evaluation of the Directors performance has taken place during
the year to ensure a process of continuous improvement and that Board
dynamics continue to develop. A collaborative process has been agreed for
Chairman and CEO evaluations and there is a continuous dialogue between
the Chairman and CEO. In addition, customised induction plans for new
Directors have been devised and implemented.
Directors’ performance evaluation
During 2017, internal performance evaluations of Directors were
undertaken with the Chairman appraising the Directors, the CEO
appraising the Executive Directors, the Chairman and Non-Executive
Directors appraising the CEO and the Non-Executive Directors,
facilitated by the Senior Independent Non-Executive Director,
appraising the Chairman.
The length of tenure of Non-Executive Directors forms part of the
performance evaluation process. As a result of Luke Mayhew and
Dale Morrison having served on the Board for more than six years,
they had a particularly rigorous review of their continued Board
membership. It was concluded that both Luke and Dale continue to
constructively challenge management and help develop proposals
on strategy and as such, contribute effectively to the Board.
Directors’ additional appointments and time commitments also form
part of the internal performance evaluation process. Any additional
appointments are thoroughly discussed with the Chairman before
being accepted, with any time commitment required for each
role carefully assessed. This year, particular attention was paid
to Ian Dyson, Anne Busquet and Jo Harlow’s commitments, as well
as Paul Edgecliffe-Johnson’s time commitment to his Non-Executive
Director duties at Thomas Cook Group plc. Following a thorough
review process, we determined that their additional appointments
do not adversely impact their performance and that all Directors
continue to perform their duties effectively.
54
IHG | Annual Report and Form 20-F 2017
Governance Engagement with shareholders
We are committed to maintaining an active dialogue with our
shareholders and the Board takes its responsibility to promote the
success of the Company for the benefit of our members seriously.
We encourage strong engagement with investors and other
stakeholders through our planned programme of investor relations
activities, as well as responding to queries from shareholders and
analysts. Our Registrar, Equiniti, and JP Morgan, as custodians of
our American Depositary Receipts (ADR) programme, have teams
equipped to deal with shareholder and ADR holder 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 to ensure that
the issues and concerns of major shareholders are understood.
Engagement during the year
The Board’s engagement with shareholders in 2017 included:
• Meeting shareholders and responding to queries at the AGM.
• Presentations by Richard Solomons, Keith Barr and Paul Edgecliffe-
Johnson to institutional investors, analysts and the media following
half-year and full-year results announcements.
• Telephone conferences after the release of the first and
third-quarter trading updates, including Q&A sessions with
sell-side analysts.
• Seeking feedback via an annual investor perception survey,
facilitated by our capital markets advisers.
• Attendance at key institutional investor conferences.
• A programme of one-to-one meetings with major institutional
shareholders, including Non-Executive Director meetings hosted
by the Chairman.
The Senior Independent Non-Executive Director remains available
to shareholders if they have concerns they wish to discuss.
In addition to the Board’s formal engagement with shareholders,
Elie Maalouf attended an investor conference in the US and hosted
an investor roundtable in London to discuss our business in the
Americas region. Kenneth Macpherson hosted an investor roundtable
meeting in Shanghai to discuss our Greater China business.
To enable as many shareholders as possible to access conferences
and presentations, telephone dial-in facilities were made available
in advance and live audio webcasts were made available after
results presentations in 2017, together with associated data and
documentation. These can be found at www.ihgplc.com/investors
under Results and presentations. Around 24 sell-side research
analysts publish research on the Group; their details are available
at www.ihgplc.com/investors under Analyst details and consensus.
AGM
The AGM is an opportunity for shareholders to vote on certain
aspects of Group business and to discuss matters with the Board.
A summary presentation of the Group’s performance and financial
results is given before the Chairman deals with the formal business
of the meeting. All shareholders present can ask questions of
the Board, during the meeting and more informally over lunch.
The Board values the AGM as it provides an invaluable forum for
communication with investors and we encourage participation
at this meeting.
The 2018 AGM will be held at 11:00am on Friday 4 May 2018.
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 fourth quarter of 2017, IHG ran its annual share-dealing
programme for shareholders with shareholdings of up to 225 shares,
giving them the option to sell or increase their shareholdings at a
preferable set fee. Shareholders who sold their shares had the further
option to donate their proceeds to the IHG Foundation, resulting in
over £9,700 being donated.
InterContinental Los Angeles Downtown, California, US. The Board visited
the hotel shortly before its opening in 2017.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
55
Corporate Governance continued
Audit Committee Report
Key duties and role of the Committee
Key objectives and summary of responsibilities
The Audit Committee is responsible for ensuring that IHG maintains
a strong control environment. It provides effective governance over
the Group’s financial reporting, including oversight and review of our
systems of internal control and risk management, the performance
of internal and external audit functions, as well as the behaviours
expected of IHG’s employees through the Code of Conduct and
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:
• Regular reviews of the Group’s information technology controls
and information security risks.
• Ongoing implementation of our Guest Reservation System (GRS)
(part of IHG Concerto).
• Reviewing, challenging and ensuring accurate financial and
narrative reporting, including the Annual Report and Form 20-F.
• Preparing for the implementation of new accounting standards,
including IFRS 15 concerning revenue recognition.
• Reviewing the Group’s approach to tax, including the implications
of the US Tax Reform.
• In-depth reviews of specific principal risk areas.
• Ensuring the robustness of the Group’s internal control and risk
management systems.
• Overseeing the relationship with and appraisal of the Group’s
external Auditor.
• Monitoring and reviewing the role of Internal Audit.
• Overseeing and ensuring the effectiveness of the Group’s
regulatory compliance policies, procedures and controls.
The ToR are available at www.ihgplc.com/investors
under Corporate governance in the Committees section.
Membership and attendance at meetings
Details of the Committee’s membership and attendance at meetings
are set out on page 47. The Chairman, 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 2017. Other attendees are invited
to meetings as appropriate and all Directors are expected to attend
the Committee meetings that discuss principal risks and risk
management systems and the approval of financial reporting.
The Committee continues to hold private sessions with the Auditor
and Head of GIA without the presence of management to ensure
that a culture of transparency is maintained. The Committee
Chairman continues to have recent and relevant financial experience
and all members of the Committee are Independent Non-Executive
Directors. In accordance with the Code, the Board also considers
that the Committee as a whole possesses competence relevant to
the Company’s sector, having a range of financial and commercial
experience in the hospitality industry and the broader commercial
environment in which we operate.
56
IHG | Annual Report and Form 20-F 2017
We continue to play a vital role in
maintaining IHG’s robust corporate
governance framework, by supporting the
Board in matters relating to internal control,
risk management and financial reporting.
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 necessary.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by the Chairman of the Committee and the Chairman.
The Committee was also reviewed as part of the in-depth external
evaluation process conducted by Boardroom Review Limited
(see page 54). The external evaluation noted that the Audit Committee
is professional and well run with a clearly defined role and it has
completed detailed work on risk and control. The Committee also
undertook a thorough and robust internal evaluation during the
year and concluded that it remains effective.
Focus areas and activities
Internal controls and risk management
In accordance with the Code, the Board is responsible for
determining the nature and extent of the principal risks it is willing
to take to achieve its strategic objectives and ensuring that an
appropriate culture has been embedded throughout the organisation.
The Committee supports the Board by regularly reviewing the
effectiveness of the Group’s internal control and risk management
systems, the wider risk environment, and overseeing the risk and
control activities in operation.
In order to effectively review the internal control and risk
management systems, the Committee:
• Reviews the process by which risks are identified and assessed,
including regular reports and presentations from management
on the Company’s overall risk management system and principal
risks, mitigating actions and internal controls.
• Receives regular reports from GIA and the external Auditor
on the effectiveness of the systems for risk management and
internal control.
• Receives additional reports throughout the year relevant to internal
control and risk management to ensure that current and emerging
risks, both financial and non-financial, are identified, assessed and
appropriately managed in day-to-day decision making (see pages
20 to 22 for more detail on our principal risks and our approach
to managing them).
As part of the review of the internal control and risk management
systems, key financial, operational and compliance controls
across the business are monitored and tested throughout the year.
The Committee assesses the approach to Sarbanes-Oxley Act 2002
(SOX) compliance in accordance with our US obligations and
reviews reports on the progress of the SOX programme at each
meeting. The Committee considers the Group’s treasury and tax
strategy and policies annually and, during 2017 approved changes
to the Group Treasury Policy and the Group’s “Approach to Tax”.
Our Approach to Tax document is available at
www.ihgplc.com/responsible-business under Policies.
Governance Having reviewed the internal control and risk management systems
throughout the year, the Committee continues to conclude that
the Group has an effective system of risk management and internal
controls in place, and has concluded that there are no material
weaknesses in the control environment and that there are no
significant failings or weaknesses.
Principal risk areas
In addition to the regular risk management framework review and
assessment of the principal risks, the Committee has a schedule
for in-depth reviews into specific principal risk areas over the year.
During 2017, the Committee met with senior risk and finance
management, the Chief Commercial and Technology Officer
and the Head of Information Security, considering, in particular:
• Cybersecurity and information governance. During the year,
the Committee considered the Group’s response to potential
cybersecurity incidents.
• Risk management controls and assurances in relation to the
Group’s channels and technology platforms, and in particular
the development of GRS (part of IHG Concerto).
• Financial Management and Controls, including cyber fraud
and fraud risk awareness, the Group’s Approach to Tax and the
Treasury Policy, the key performance measures and methodology
for determining breakage levels of the Loyalty Programme and
the risk management controls and approach to determining
IHG Rewards Club points liability.
• Safety and security in hotels including the Group’s approach
to incident handling in light of geopolitical factors and natural
catastrophes experienced during 2017.
• Risk appetite assessment and risk management measures
in relation to the Group’s changes to accelerate growth.
• Developments in data privacy regulation and the Group’s
compliance programme.
Further details of our principal risks, uncertainties and review
process can be found on pages 20 to 22.
Financial and narrative reporting
During the year, the Committee reviewed and recommended
approval of the interim and annual Financial Statements (considering
the relevant accounting and reporting matters such as impairment
reviews, the going concern and viability statements) and the Group’s
quarterly trading updates. All members of the Board are asked to
attend these meetings.
As part of its review, the Committee interrogated the key judgements
and accounting policies applied and considered the basis of the
estimates and assumptions underlying the Financial Statements.
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 2017, the Committee
continued their in-depth review of the impact on the Group of the
implementation of IFRS 15 concerning revenue recognition, IFRS 9
concerning financial instruments and IFRS 16 concerning leases –
see pages 101 to 103 for further details.
A letter from the Financial Reporting Council’s Corporate Reporting
Review team (FRCCRRT) was received during the year, requesting
further information regarding an investment disclosed in our
2016 Annual Report and Form 20-F. This was a limited review,
based on our Annual Report and Form 20-F and did not benefit
from detailed knowledge of our business or an understanding
of the underlying transactions entered into. A thorough response
was provided, which enabled the FRCCRRT to close their enquiries.
We acknowledge and welcome the observations made on our
2016 Annual Report and Form 20-F and these have been duly
considered in the preparation of this year’s Annual Report and
Form 20-F.
The Committee continued to seek input and guidance from
EY where appropriate to gain further assurance over the process
of preparation of the Financial Statements. In addition, the
Committee received regular reports from the Chairman of the
Disclosure Committee and copies of all minutes of that Committee
were duly circulated.
The Committee received early drafts of the Annual Report and
Form 20-F 2017 (Annual Report), and when providing comments
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. In order to reach this
conclusion, a dedicated project team worked on the contents of
the Annual Report and a detailed verification process to confirm
the accuracy of the information contained within the Annual Report
was undertaken by the Financial, Planning & Analysis department.
The Committee then considered both the structure and content of
the Annual Report to ensure that the key messages were effectively
and consistently communicated and that meaningful links between
the business model, strategy, KPIs, principal risks and remuneration
were clearly identified throughout the Annual Report.
Following a review of the contents of the Annual Report alongside
the aforementioned criteria, the Committee reported its
recommendation to approve the Annual Report to the Board.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
57
Corporate Governance continued
Audit Committee Report continued
Significant matters in the 2017 Financial Statements
The Committee discussed with management and the Auditor 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
are outlined below.
Area of focus
Issue/Role of the Committee
Conclusions/Action taken
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 progress made on strengthening
the financial controls related to the IHG Rewards Programme. The Committee further reviewed
the progress made on the Sarbanes-Oxley continuous improvement project and the results of
control testing. 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 for the System Fund and related disclosures were appropriate.
IHG Rewards
Club points
liability
Impairment
testing
Litigation
Exceptional
items
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
financial management of the overall programme. Senior finance management presented progress
made in strengthening the financial management of the programme and was questioned on the
valuation approach, the results of the external actuarial review and the increased judgement due
to the expiration policy. The results of EY’s audit procedures were also considered 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 and 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 transaction. The impairment recorded in the year for the Barclay associate (note 14
on page 120) was 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.
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.
At each meeting during the year, the Committee considered a report detailing all material litigation
matters. The Committee discussed and agreed any provisioning requirements for these matters.
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 110, including Kimpton integration costs, reorganisation costs,
and the tax credit arising from the US tax reform. 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.
Capitalisation of
software projects
The Group is making a significant
investment developing a strong
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: Global Internal Audit reporting on the project and programme
management of GRS; a review of software assets from an impairment perspective; the
conclusions from the SOX control testing in this area; and conclusions from EY’s audit procedures.
The Committee concluded that capitalisation is adequately controlled and that the controls
on impairment are appropriate.
Relationship with external auditor
A detailed audit plan was received from EY at the beginning of
the audit cycle for the 2017 financial year, which gave an overview
of the audit risk assessment, the approach to materiality and scoping
of the audit, and the significant risk areas.
The Committee reviewed the significant audit risks and regularly
assessed the progress of the audit throughout the year.
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 2017 financial year, the
policy was updated and changes to reflect a de minimus threshold
for certain prescribed services were approved.
Other than as reflected above, the policy requires that pre-approval
is obtained from the Audit Committee for all services provided by
the external Auditor before any work can commence, in line with
US SEC requirements. During the year, the Committee analysed
the audit and non-audit fees incurred with EY on a quarterly basis
and noted there had been no prohibited services (as defined by the
Sarbanes-Oxley Act of 2002) provided to the Group in each period.
The Committee is prohibited from delegating non-audit services
approval to management and compliance with the policy is
actively managed.
IHG is committed to maintaining non-audit fees at a low level and
the Committee is sensitive to investor advisory bodies’ guidelines on
non-audit fees. During 2017, 23% of services provided to the Group
were non-audit services (2016: 31%); these included tax advisory
work and corporate tax compliance. For fees paid to EY for non-audit
work during 2017, and for statutory audit work during 2017, see page
109. The Committee is satisfied that the Company was compliant
during the year with the FRC’s Ethical and Auditing Standards in
respect of the scope and maximum permitted level of fees incurred
for non-audit services provided by EY. Where non-audit work is
performed by EY, both the Company and EY ensure adherence
to robust processes to prevent the objectivity and independence
of the external auditor from being compromised.
58
IHG | Annual Report and Form 20-F 2017
Governance Global Internal Audit (GIA)
The Committee discusses the GIA plan in December each year.
The 2017 plan presented to the Committee considered the Group’s
principal risks and key controls and included reviews over the
following areas: cybersecurity, programme and project delivery
(including assurance over the development of GRS), disaster recovery
and business continuity, and technology-related processes and
controls. Following discussion and consideration, the Committee
confirmed its agreement to the key control themes identified by GIA.
The Committee then actively monitors progress against the GIA
plan, which is reported to the Committee on a quarterly basis.
This includes reviewing the results of completed audits and the
findings raised through these audits, as well as management
action plans to address any issues raised.
An effectiveness review of GIA is undertaken each year and reported
to the Committee. In 2017, GIA undertook an internal assessment
following the external review conducted in 2016. The effectiveness
of GIA was assessed according to five categories: Purpose and
Remit; Position and Organisation; Process and Technology; People
and Knowledge; and Performance and Communication. The review
was conducted by assessing the functional activities of GIA,
progress made against the recommendations from last year’s
external review, the quality assurance process and obtaining
feedback from a cross sector of business stakeholders. As a result
of the internal review, it was concluded that GIA continues to
be effective in providing independent assurance activities.
Governance and compliance
The Committee is responsible for reviewing the Group’s Code of
Conduct (which is reviewed and approved annually) and related
policies. In 2017, the Code of Conduct was updated to reflect
management changes as well as updating the following areas in line
with regulatory changes and best practice: bribery and corruption,
antitrust, competition law, and human rights. The e-learning module
associated with the Code of Conduct was also updated and was
launched on the new IHG learning platform, improving tracking
and reporting capability. In addition, the Committee reviewed and
considered the planning and implementation work related to the
upcoming EU General Data Protection Regulation and China’s new
cybersecurity legislation, as well as the launch of an updated
Anti-Bribery e-learning module.
In 2017, IHG became a member of Transparency International UK’s
Business Integrity Forum. Transparency International is the world’s
leading anti-corruption NGO and the Business Integrity Forum is
a network of major international companies, committed to high
anti-corruption and ethical standards in business practices.
Whistleblowing and fraud
The Committee reviews the Group’s whistleblowing arrangements
and its reporting and investigation process to ensure that
arrangements are in place for proportionate and independent
investigation of such matters. The Committee also reviews the
number and potential impact of both substantiated and
unsubstantiated cases and ensures that appropriate follow-up
action is taken. 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 cyber fraud and fraud risk awareness was reviewed in 2017.
As we head into 2018, the Committee will continue to focus on
the integrity of the control and risk management environment
and progress with the audit tender process.
Ian Dyson
Chairman of the Audit Committee
19 February 2018
External auditor – Appointment of Ernst & Young LLP (EY)
and audit tender
The Committee considered the appointment of its Auditor and, 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 EU and Competition and Markets Authority legislation, the
Committee recommended the re-appointment of EY as the Auditor of
the Group. EY has been our Auditor since IHG’s listing in April 2003 and
of the Group’s predecessor businesses dating back to 1988.
In determining EY’s independence we consider, among other things, its
challenge to management and level of professional scepticism, the amount
of time passed since a rotation of audit partner and the level of non-audit
work that it undertakes, details of which can be found on page 58.
To ensure the external Auditor’s independence is safeguarded, lead audit
partners are required to rotate every five years. Sarah Kokot, who was
appointed lead audit partner in 2016, has continued her role during 2017.
The US audit partner rotated during 2017.
As part of its review, the Committee considered the effectiveness of the
relationship between EY and management. This included the completion
of feedback questionnaires by 44 senior IHG employees and members of
the Committee. Feedback was requested on a number of topics including
independence, assignment management, quality and communication.
The Committee also received reports from EY on its independence.
No significant issues were raised in the review of the auditor performance
and effectiveness and as a result, the Committee concluded that EY
continues to provide an effective audit and maintain independence and
objectivity. The Committee is satisfied with the external audit process as a
whole and therefore recommended the reappointment of EY to the Board.
Pursuant to regulations mandating a tender for the 2021 financial year,
the Group will complete the audit contract tender and transition any
strictly prohibited services by 2020. The Committee has established a
sub-committee to oversee the audit tender process and an overview of
the proposed approach and timings for the audit tender process has been
agreed by the Committee. The sub-committee will convene in 2018 to
review and recommend a detailed plan, including the applicable supplier-
selection criteria, for approval by the Committee. It will be the responsibility
of the Committee to make overall decisions in relation to the selection
process. The Committee considers this timeframe to be appropriate to
ensure that a robust process is undertaken and all required criteria are duly
considered. The Committee is committed to ensuring that the selection
procedure is conducted in a fair manner and that auditor independence
requirements are effectively managed throughout the process.
The Group confirms that it has complied with the requirements of
The Competition and Markets 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.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
59
Corporate Governance continued
Corporate Responsibility Committee Report
We understand the vital role corporate
responsibility plays in building meaningful
relationships with our stakeholders, and
in delivering our purpose of providing
True Hospitality for everyone.
Key duties and role of the Committee
Key objectives and summary of responsibilities
The Committee reviews and advises the Board on the Group’s
corporate responsibility objectives and strategy, including its
approach to sustainable development, environmental sustainability,
community impact, human rights issues, and stakeholder
engagement. It ensures that IHG’s corporate responsibility priorities
align with our core purpose – to provide True Hospitality for everyone.
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 ToR are available at www.ihgplc.com/investors
under Corporate governance in the Committees section.
The Committee’s key responsibilities and focus areas over the year
have been:
• Monitoring delivery of the Group’s Responsible Business targets
for 2013-2017, and establishing new targets for 2018–2020.
• Reviewing Environmental, Social, Community and Human Rights
issues including the Group’s Modern Slavery Statement and the
Group’s approach to responsible procurement; and
• Overseeing responsible business stakeholder engagement.
Membership and attendance at meetings
The Committee’s membership and attendance at meetings are set
out on page 47. The Heads of Corporate Responsibility attended
all meetings and the Chairman of the Board also attended two out
of the three meetings held during the year.
Reporting to the Board
The Committee Chairman updates the Board on all key issues raised
at Committee meetings. Papers and minutes for each meeting are
also circulated to all Board members, who are invited to request
further information where necessary.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by the Chairman of the Committee and the Chairman.
The effectiveness of the Committee was also reviewed as part of the
external evaluation process conducted by Boardroom Review Limited
during 2016 and 2017 (see page 54 for further details). The external
review concluded that the Committee has a clearly defined role and
remit allowing it to add value. The Committee also undertook an
assessment against its own ToR and the external environment and
concluded that no changes were necessary.
Focus areas and activities
Responsible Business targets for 2018-2020
During 2017, the Committee assessed the progress made towards
the achievement of IHG’s five-year external Responsible Business
targets. The Committee also assessed the Group’s strategic
approach to new targets for 2018-2020.
An in-depth competitor analysis was completed as part of this
process, together with a review of the UN Sustainable Development
Goals and IHG’s initiatives which support these.
The Committee also welcomed insight offered by the Chief
Operating Officer of the Americas who shared how the region is
delivering the Responsible Business targets and engaging with
colleagues, guests and owners.
Environmental, social, community and human rights issues
Detailed progress updates on key achievements across the
Group’s environmental, social and community programmes
continued to be received during 2017 and community outreach
activities were reviewed.
Recognising the continued importance of responsible procurement,
the Committee undertook a deep dive into supply chain responsibility
and the Group’s Modern Slavery Statement, evaluating the Group’s
approach to these matters. The Committee also considered a number
of the Group’s human rights initiatives during the year, including the
approach to targeted training in high risk areas and embedding our
suite of Human Rights and Modern Slavery awareness raising material.
Further information on our responsible business programmes and
our approach to human rights can be found on pages 18 and 19.
Stakeholder engagement
The Committee assessed the effectiveness of the 2016 corporate
responsibility communications and stakeholder engagement activity,
and reviewed the 2017 communication plan, considering in
particular, the engagement plan for key stakeholder groups,
including guests, colleagues, owners and suppliers.
Information on our responsible business commitments
can be found at www.ihgplc.com/responsible-business
Other key issues reviewed by the Committee
The Committee continued to receive updates from the IHG
Foundation, an independent charity providing vital support to
communities, with a focus on hospitality skills and disaster relief.
In support of IHG Foundation Week, our annual awareness and
fundraising initiative, the Committee attended an event which
illustrated the positive impact of the IHG Foundation on vulnerable
communities worldwide. The Committee heard first hand about the
collaboration between the IHG Foundation and The Passage, which
runs London’s largest voluntary resource for the homeless – helping
them regain confidence and transform their lives.
Recognising the importance of corporate responsibility, we were
pleased to be listed on the S&P Dow Jones Sustainability Indices
in September 2017, having achieved first place in RobecoSAM’s
Consumer Services industry group (see page 19).
We have completed the 2013-2017 target cycle, achieving four out of
our five external targets, and have gathered learnings and feedback
to help inform our new targets for 2018-2020. In 2018 we start this
new cycle and will work on further engaging with our hotel owners
worldwide to embed our Corporate Responsibility programmes into
day-to-day operations within our hotels. We recognise the continued
and growing importance of environmental, social and governance
considerations to all our stakeholders.
Jill McDonald
Chairman of the Corporate Responsibility Committee
19 February 2018
60
IHG | Annual Report and Form 20-F 2017
Governance Nomination Committee Report
We review the Board’s structure, size and
composition; overseeing appointments
to ensure diversity of experience,
knowledge and background in our
Board and senior management.
Key duties and role of the Committee
Key objectives and summary of responsibilities
The Committee reviews the composition of the Board and Principal
Committees, considering skills, knowledge, experience and
diversity requirements before making appropriate recommendations
to the Board as to any changes. It also manages succession planning
for Directors and other Senior Executives and is 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 ToR are available at www.ihgplc.com/investors
under Corporate governance in the Committees section.
The Committee’s key focus areas during the year have been the
CEO succession, leadership development, executive succession
planning and Board and Committee composition.
Membership and attendance at meetings
Details of the Committee’s membership and attendance at meetings
are set out on page 47. All members are Non-Executive Directors
(myself excluded). When the Committee considers matters relating
to my position, Dale Morrison, the Senior Independent Non-Executive
Director, acts as Committee Chairman.
Reporting to the Board
The Committee makes recommendations to the Board for all Board
appointments, and minutes are circulated to all Board members.
As Chairman, I report back to the Board on the activities of the
Committee at each Board meeting following a Committee meeting.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by myself, as Chairman of the Committee and Chairman
of the Board. During 2017, the Committee was also reviewed as part
of Boardroom Review Limited’s external evaluation (see page 54).
Per the review’s recommendation, the Board met with high-potential
leaders during their visit to Atlanta, as outlined on page 53.
Focus areas and activities
CEO succession
The Committee led the thorough process of finding Richard Solomons’
successor, supported by an independent external consultant,
Korn Ferry. Building on our approach of developing talent, we
assessed internal candidates against a success and readiness
profile and opportunities were identified for further development.
Having also benchmarked external talent, the Board was unanimous
in its decision to appoint Keith Barr. To enable a smooth transition
and provide relevant onboarding, a comprehensive induction plan
was implemented, details of which can be found on page 53.
Leadership development and executive succession planning
Building on the 2016 assessment of senior leadership, the
Committee continued to review the development plans for
the Executive Committee. In addition, the Committee reviewed
the executive pipeline and oversaw talent succession at senior
levels within the organisation.
Board and Committee composition
During the year, the Committee discussed the current and future
composition of the Board in light of the Company’s strategy and it
was proposed that a new Executive Director should be appointed.
Elie Maalouf was identified at the beginning of the search as
a talented leader with substantial and highly relevant industry
experience and his appointment was recommended to the Board.
In addition to reviewing the Board composition, the Committee also
looks to ensure appropriate appointments are made to the Board’s
Principal Committees, based on overall suitability.
To ensure that Committee membership is refreshed, Luke Mayhew
stepped down as Remuneration Committee Chairman during the
year. Jo Harlow was appointed his successor; her experience and
prior involvement making her the ideal candidate to replace him.
Details of Jo’s onboarding process can be found on page 53.
Diversity
With a presence in almost 100 countries globally, we recognise
the value of diversity both in our Board composition and throughout
all levels of our business. All appointments are based on merit,
experience and performance and the Board actively seeks diversity
of skills, culture, gender, race, age, nationality and background.
The manner in which diversity is considered is non-exhaustive and
subject to regular review to reflect the diversity of our employees,
guests and communities in which we operate.
Our Global Diversity and Inclusion Policy (D&I Policy) applies to
all people directly employed by an IHG group company and we
encourage our franchised operations and those managed hotels
where we do not directly employ people to follow the same
principles. The objective of our D&I Policy is to celebrate difference,
recognising that this underpins external, as well as internal,
relationships. Operating around the globe, with a wide range of
stakeholders, it is vital that we remain flexible in accommodating
different cultures, lifestyles and preferences.
During the year, we have implemented the D&I Policy through the
development of our diversity and inclusion strategy and have agreed
to establish a Diversity and Inclusion Board. This Board will be
responsible for continuously developing our diversity and inclusion
strategy, including setting any targets and measures and reviewing
initiatives to enhance the development of our inclusive culture.
We continue to deliver against our D&I Policy and maintain a
minimum of at least 25% female Directors on the Board, per
Lord Davies’ guidance. As of 31 December 2017, 40% of the Board
were female. The appointment of Elie Maalouf brings this figure
to 36%, still well above the specified minimum. In addition, two of
our Board Committees are chaired by women. Further details on our
diversity and inclusion strategy can be found on pages 18 and 66.
The Committee is satisfied that we have appropriate plans in place
for orderly succession of appointments to the Board and to senior
management, so that an appropriate balance of skills, experience,
knowledge and diversity is maintained.
Patrick Cescau
Chairman of the Nomination Committee
19 February 2018
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
61
Corporate Governance continued
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 2016 UK Corporate
Governance Code (available at www.frc.org.uk/directors under UK
Corporate Governance Code) as published in April 2016 (the Code).
This should be read in conjunction with the Corporate Governance
statement on pages 47 to 61 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 2017.
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 47.
The Board met eight times this year and all directors continue
to act in what they consider to be in the best interests of the
Company, consistent with their statutory duties. Further details
of 2017 Board meetings are set out on page 52, attendance
information on page 47 and biographical information on pages
48 and 49.
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
Keith Barr 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 48 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 48 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 54), 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 52). 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.
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.
Potential conflicts of interest are reviewed annually and powers
of authorisation are exercised in accordance with the 2006 Act
and the Company’s Articles of Association. At least half of the
Board, excluding the Chairman, are Independent Non-Executive
Directors (see page 47). Further details of the composition of
the Board and Committees are available on pages 47 to 49.
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 2017 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. Two Non-Executive
Directors have served for six years and were subject to a rigorous
review during the year. All other Non-Executive Directors have
served for less than six years – see pages 48 and 49.
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 48 and 49.
Details of Directors’ service contracts and appointment terms
are set out on pages 73, 76 and 168.
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 54) 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 53).
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, independent advice and
necessary resources, at the Company’s expense. They receive
administrative and logistical support of a full-time executive
assistant. See page 52 for more details.
62
IHG | Annual Report and Form 20-F 2017
Governance B.6 Evaluation
C.3 Audit Committee and Auditor
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. This evaluation
concluded during 2017. More information on the evaluation
is on page 54.
B.7 Re-election
All of the Directors retire and seek election or re-election at
each AGM. Director’s biographies are set out on pages 48
and 49 and details of their performance evaluations are
on page 54.
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 80.
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 43.
The statement from our Auditor, Ernst & Young LLP, about its
reporting responsibilities is set out on pages 81 to 86.
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 47, 52, and 56 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
2017 and up to 19 February 2018; (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 2 to 43 and also in the
Audit Committee Report on pages 56 to 59.
Details of the Directors’ assessment of the prospects of the
Group are set out on page 22.
The Audit Committee is comprised entirely of Independent
Non-Executive Directors (see page 47 for membership details).
Ian Dyson, the Chairman of the Committee has recent and
relevant financial experience and the Committee has a whole
has competence relevant to the sector in which we operate.
Details of the Committee’s role, responsibilities and activities
are set out on pages 56 to 59.
The Committee reviewed the effectiveness and independence
of Ernst & Young LLP during 2017 and also concluded that it
would complete the audit contract tender and transition any
strictly prohibited services by 2020. A sub-committee of the
Audit Committee to oversee the audit tender process has been
established and further details can be found on page 59.
D. Remuneration
D.1 The level and components of remuneration
The Remuneration Committee’s activities during 2017 are set
out on page 64 and its membership details are on page 47.
The Directors’ Remuneration Report is set out on pages 64 to 77.
The annual report on remuneration for 2017 (pages 70 to 77) is
subject to the annual advisory vote at the AGM in 2018.
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 pages
64 to 77.
During 2017, 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 55 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 55 for
more details.
IHG | Annual Report and Form 20-F 2017 | Governance | Corporate Governance
63
Directors’ Remuneration Report
Remuneration Committee Chairman’s statement
Our new Directors’ Remuneration Policy has
played a key role in supporting both the change
and transition that we have seen this year, as well
as our continued focus on the delivery of strong,
sustainable returns for our shareholders.
Table of Contents
64 Directors’ Remuneration Report
64
65
66
Remuneration Committee Chairman’s statement
At a glance
Remuneration at IHG – the wider context
68 How we implemented our Directors’ Remuneration
70
Policy in 2017
Annual Report on Directors’ Remuneration
(subject to an advisory vote at the 2018 AGM)
2017 results
2017 saw another good year of performance for IHG, as well as
being a year of transition at the Board level with the retirement
of Richard Solomons and appointment of Keith Barr as CEO.
The business performed well, resulting in above target outcomes
for Earnings Before Interest and Tax (EBIT) and the continued
delivery of strong shareholder returns.
Our Guest Love result was just above threshold. The Committee
recognised that progress against IHG’s long-term Guest Love targets
has been faster than expected over recent years and that it would
be challenging to keep up this rate of improvement, particularly
given the pace of hotel renovations. Further detail on the approach
taken for Guest Love targets and awards is shown on page 68.
As a result, awards for the Executive Directors under the 2017
Annual Performance Plan (APP) were 69.7% for both Keith Barr and
Paul Edgecliffe-Johnson and 66.8% for Richard Solomons of their
respective maximum potential payout. The 2015/17 Long Term
Incentive Plan (LTIP), granted in 2015, vested at a level of 46.1%
of the maximum potential award due to achievements in relative
Total Shareholder Return and rooms growth. However, we narrowly
missed the three-year threshold target for relative RevPAR. As noted
last year, the 2017/19 LTIP cash flow target is disclosed in this report
on page 75.
Changes to the Board
As detailed on pages 46, 49 and 53, there have been a number of
changes to IHG’s Board during the year, including my own appointment
as Chair of the Remuneration Committee after three years on both
the Board and the Committee. I would like to thank the outgoing
Chairman, Luke Mayhew, who has successfully overseen the
Committee through periods of significant change and increasing
focus on the Executive Remuneration landscape.
The remuneration arrangements for all Board changes are in line
with our approved Directors’ Remuneration Policy (DR Policy) and
full details of how the DR Policy was applied during the year are
shown in a separate section of the report on pages 68 and 69.
Other areas of focus for the Remuneration Committee
During the year, the Committee reviewed the short-term incentive
measures for 2018. Whilst there has been no need to change
DR Policy in this area, the non-financial measures of Guest Love
and Overall Performance Rating, which together make up 30% of
the APP target, will be replaced by an annual System size growth
target and a range of other key strategic initiatives. Full details of the
2018 APP measures for Executive Directors are shown on page 75.
In addition, the Committee reviewed the structure and alignment
of arrangements below Executive Director level.
The Committee has reviewed the Group’s global diversity and
inclusion strategy and the related initiatives to build and foster a
culture of inclusion. In respect of gender diversity, our UK Gender
Pay Gap analysis will be published on the Government’s website in
accordance with the regulations, as well as on the IHG PLC website.
We have contributed to the dialogue on executive remuneration
and wider corporate governance. These issues continued to be
a focus for the Government, shareholders and other stakeholders.
In response to the Government’s consultation on corporate
governance reform, the Financial Reporting Council launched
a consultation on an updated UK Corporate Governance Code
(the Code).
We recognise the importance given to factors such as CEO pay
ratios and have included commentary on CEO pay in this and last
year’s report. As a large multinational organisation with different
operating models under which employees may be either employed
directly by a Group company or by the hotel owner, there are
a number of different approaches that could be taken to the
calculation of a pay ratio. We will therefore adopt new reporting
requirements on the pay ratio once a clear and consistent approach
has been set out in legislation and guidance.
On the remuneration aspects of the proposed new Code, we
strengthened the position of the Committee to adjust outcomes
which do not truly reflect the performance of the Company; we
explain in this report on page 67 how executive remuneration aligns
with wider Company pay policy; and the Committee takes on a
broader oversight than simply for Executive Directors. We continue
to consider our approach in relation to all areas of new guidance and
practice and our alignment with shareholder expectations, bearing
in mind the unique nature of our organisation and the competitive
environment in which we operate.
About this report
We strive to make this report as easy to read as possible, given
regulation. This year, we have simplified the ‘At a glance’ section on
page 65; updated the ‘Wider context’ section on pages 66 and 67;
and included a separate section on pages 68 and 69 to highlight
aspects of DR Policy applied during the year. The full DR Policy is
available at www.ihgplc.com/investors under Corporate governance
and was approved at the Annual General Meeting (AGM) on 5 May 2017.
The section of this report which is subject to a formal advisory
shareholder vote at May 2018 AGM is the Annual Report on Directors’
Remuneration starting on page 70.
Jo Harlow
Chairman of the Remuneration Committee
19 February 2018
64
IHG | Annual Report and Form 20-F 2017
Governance 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)
50% cash and 50% deferred shares
Long Term Incentive Plan (LTIP)
Shareholding
AUDITED
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 2017
The 2017 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 exceeded our target for EBIT and achieved threshold performance for Guest Love (see page 71).
We continued to deliver strong shareholder returns and met our threshold performance level for rooms but fell short of our three-year
threshold target for RevPAR growth (see page 72). These financial and business measures make up 90% of our APP (with individual
performance making up the final 10%) and 100% of our LTIP.
Measures used for APP
Measures used for LTIP
EBIT before exceptional items ($m)
(70% weighting)
Rooms
(25% weighting)
Total Shareholder Return (TSR)
(50% weighting) (rebased 2015 = 100)
Threshold
648.5
Target
720.5
Maximum
792.6
Threshold
Maximum
200
150
100
50
0
2015
2016
2017
IHG PLC
FTSE 100 index
Global hotels index
Actual
746.0
Actual
RevPAR
(25% weighting)
Maximum
+1.00
Threshold
Maximum
Guest Love (ppt)
(20% weighting)
Threshold
+0.17
Target
+0.40
Actual
+0.25
Actual
The TSR element of 2015/17 LTIP cycle depended on
the three-year TSR performance to 31 December 2017.
Executive Director remuneration
2017 remuneration
The chart below shows the 2017 potential opportunity and actual achievement for Keith Barr and Richard Solomons, and the 2017 potential
opportunity and actual achievement compared to 2016 actual achievement for Paul Edgecliffe-Johnson. The relevant figures for each of the
elements shown are included in the single total figure of remuneration which can be found in the table on page 70.
Keith Barr,
Chief Executive Officer Value (£000)
Richard Solomons,
Chief Executive Officer Value (£000)
Paul Edgecliffe-Johnson,
Chief Financial Officer Value (£000)
4,000
3,000
2,000
1,000
0
2,536
1,627
4,000
3,720
3,000
2,000
1,000
0
2,179
3,313
2,165
2,160
4,000
3,000
2,000
1,000
0
2017
potential
2017
actual
2017
potential
2017
actual
2017
potential
2017
actual
2016
actual
The potential and actual LTIP values for Richard Solomons are pro-rated for the 32 months
of the 2015/17 cycle in which he was employed. The remaining potential and actual amounts
for both Richard Solomons and Keith Barr are shown only for the respective six-month
period in which each served as CEO during 2017; and hence no prior year comparison is
shown for either. The 2017 amounts for Keith Barr exclude the localisation payment detailed
on page 69.
Key for potential
Maximum = Fixed pay and maximum award
under APP and LTIP
Target = Fixed pay and on-target award for
APP (112%) and 50% of maximum LTIP vesting
Minimum = Fixed pay
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
65
Directors’ Remuneration Report continued
Remuneration at IHG – the wider context
We recognise that there is continued regulatory and shareholder focus on executive remuneration and particularly in relation to the justification
of CEO pay in the context of business performance and the wider employee population. Our reward philosophy is to ensure reward
arrangements are competitive, drive the creation of value for our stakeholders and make us think and act as one team. When considering
remuneration matters, the Committee takes account a range of factors, for example:
The link to business strategy and performance
Our employees are rewarded in line with our strategic business objectives and principles:
Strategy
Reward
Our Strategic Model (see pages 14 and 15) has
been established to maintain focus on the key
areas of our strategy for high-quality growth.
• Performance conditions for annual and long-term incentive awards are aligned to the strategic priorities
over the performance period.
• A range of strategic metrics is set each year for our senior management and hotel teams, which can
reduce annual incentive payouts if minimum conditions are not met.
• Additional financial performance underpins, and Remuneration Committee discretions are in place,
to ensure poor performance is not rewarded.
Our Winning Ways (see page 18) are designed
to drive the right values and behaviours to
deliver our strategy.
• Stretching and measurable targets for all performance conditions only reward employees for the
successful delivery of the objectives set by the Committee, including the delivery of superior shareholder
returns and value.
• Individual performance is measured by reference to the day-to-day application of the values and
behaviours expected at each employee’s position in the organisation.
• Malus and clawback terms apply in respect of the annual and long-term incentive plans for
Executive Directors.
Remuneration outcomes are linked to our strategic business objectives, which are focused on the delivery of further high-quality,
sustainable growth and value-creation through preferred brands, delivering a superior owner proposition, leveraging scale and generating
revenue through the lowest-cost direct channels:
Measures used for APP
Measures used for LTIP
EBIT
(70%)
Guest Love
(20%)
Overall
Performance
Rating (OPR)
(10%)
TSR
(40%)
Net System
size growth
(20%)
Total gross
revenue
(20%)
Cash flow
(20%)
Strategic Model components
Build and leverage scale
Strengthen loyalty programme
Enhance revenue delivery
Evolve owner proposition
Optimise our preferred portfolio
of brands for owners and guests
See pages 14 and 15 for further
information on our Strategic Model.
The business and its competitive landscape
Diversity and inclusion
IHG is a global business with much of its senior management based
outside its UK base. We need to ensure that there is a globally 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 great talent globally. We take
our lead from the UK market and shareholder expectations in setting
Executive Director remuneration levels while being mindful, for
instance, that 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.
We have a global diversity and inclusion strategy, to be led by a
Global Diversity and Inclusion Board, with specific and targeted
actions to address any inequalities in the workplace, including:
• Addressing hotspots of under-representation in operational
and senior leadership roles;
• Targeted leadership programmes aimed at accelerating the
development of diverse leadership and talent;
• Maintaining a culture of inclusion through support networks,
resource groups, awareness campaigns and training for our
people; and
• Active senior leader engagement as part of the Global Diversity
and Inclusion Board.
66
IHG | Annual Report and Form 20-F 2017
Governance Remuneration for all employees
The quantum and composition of remuneration and annual incentives differs between employees throughout the Group in a number of ways,
most notably based on their role and position in the organisation. An internal leadership framework outlines what is expected of employees
at all levels, from leading yourself to leading the business. There is a strong alignment at all levels within this framework between remuneration
and the delivery of outcomes that are key to the continued success of the business. As responsibility increases, so too does an employee’s
potential total remuneration, with the most significant aspects of the remuneration in more senior roles being dependant on the successful
delivery of these outcomes.
Internal leadership framework
Leading the business
Deciding what business the
Company should be in and creating a
compelling vision for the organisation.
Leading an Area/Function
Translating the business strategy into
local long-term plans. Leading the
delivery of the plans and the changes
required for the future.
Leading the strategy
Developing the strategic direction
and leading for the full business.
Building the engagement for major
organisation change.
Leading managers
Leading a direct or matrix
management team to deliver larger,
long-term goals. Leading upwards
and collaborating broadly to
contribute to the wider business.
Leading others
Getting great results through the
team and developing people to
deliver even better results in the future.
Leading yourself
Mastering your own delivery of
objectives, supporting the team results
and setting a great example to others.
How remuneration plans evolve as responsibility increases
• 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.
• Additional and enhanced benefit provision, such as company
car, pension and healthcare benefits apply as roles and
responsibilities increase throughout the organisation.
• 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.
• Incentive plans for other corporate employees are typically
based on a combination of individual performance and the
Group’s EBIT.
The Chief Executive Officer’s pay
Pension provision
In last year’s report, we showed that the relative increases in the
Company’s share price over the period from the first full year in which
the then CEO was in office were significantly higher than those in
respect of the CEO’s remuneration. 2017 saw Richard Solomons’
retirement and a transition to a new, internally-appointed CEO,
Keith Barr. Keith’s salary and benefits from appointment are in line
with the approved DR Policy and, as is common practice for a new
appointment, have been set at an overall level below those of the
outgoing CEO.
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.
The UK pension plan applies for UK-based Executive Directors and
current contribution rates are shown below. In a similar way to other
employee benefits, the pension plan provides for increased employer
contribution rates at higher seniority levels. This structure is also
prevalent in the wider market.
Minimum, target and maximum remuneration opportunity
for the outgoing and new CEO as at the date of transition
Value (£000)
Following his appointment as CEO, Keith Barr became eligible for
a maximum Company pension contribution of 25% of salary, lower
than that in place for previous Executive Director appointments.
5,000
4,000
3,000
2,000
1,000
0
2,906
857
936
2,665
794
868
1,113
1,003
4,499
1,714
4,142
1,589
1,672
1,550
1,113
1,003
1,113
1,003
1,113
1,003
Richard
Solomons
Keith
Barr
Richard
Solomons
Keith
Barr
Richard
Solomons
Keith
Barr
Minimum
Target
Maximum
Salary, benefits and pension
APP
LTIP
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
Employee
contribution
(%)
Matching
contribution
multiple
3–7.5
3–5
3–5
3–5
3–5
4
4
2.5
2
1.5
Maximum
matching
contribution
(up to %)
30
(25 for new CEO)
20
12.5
10
7.5
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.
The 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 areas of the
DR Policy applied in 2017, and any associated use of discretion, are set out on pages 68 to 69.
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
67
Directors’ Remuneration Report continued
How we implemented our Directors’ Remuneration Policy in 2017
The table below summarises the key areas of the Directors’
Remuneration Policy (DR Policy) which were applied in 2017.
The full DR Policy, which was approved by shareholders at the 2017
Annual General Meeting is available on the Company’s website at
www.ihgplc.com/investors under Corporate governance.
Annual Performance Plan
DR Policy area
Targets may be set relative to budget and/or by reference to prior results and may contain a performance range to incentivise out-performance and minimum
performance levels to ensure that poor performance is not rewarded. The 2017 targets are set by the Committee, taking into account IHG’s growth ambitions,
market expectations and the competitive environment at the time. The aim is to set stretching achievement targets for senior executives which will reflect
successful outcomes for the business based on its strategic objectives for the year.
Remuneration component
How this was implemented in 2017
Annual Performance Plan (APP)
Progress against IHG’s long-term Guest Love targets has been faster than expected over recent
years. The Committee recognised that it would be challenging to keep up the current improvement
trajectory and that it was appropriate to reduce the incremental improvements target compared to
those set under the APP last year. The Committee decided in this transition year to reduce the level of
award for achieving threshold and target Guest Love performance from 11.5% to 10%, and from 23%
to 20% of salary respectively for Executive Directors. The remaining APP measures and their respective
level of award remains as per 2016. This reduced the overall APP target payout from 115% to 112%
of salary. A proportionate reduction also applied for the remainder of the Executive Committee.
Policy on payment for loss of office
DR Policy area
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.
Remuneration component
How this was implemented in 2017
Salary, benefits and pension
Annual Performance Plan (APP)
Cash
Richard Solomons left the Board and his role as Chief Executive Officer effective as of 30 June 2017
and retired from the Company on 30 August 2017. All payments made to Richard are consistent with
the approved Directors’ Remuneration Policy on retirement.
Richard continued to receive his base salary, benefits and pension contributions as normal for the
period up to 30 August 2017. In addition, healthcare cover continued to 31 December 2017.
Richard was eligible to participate in the 2017 Annual Performance Plan and payment was pro-rated
to 30 August 2017. There will be no accelerated payment of the 2017 APP. The award was subject
to the normal performance conditions and payment will be made 50% in cash and 50% in shares
deferred for three years from grant.
Clawback provisions apply for a period of three years after the date of payment of the APP cash award.
Annual Performance Plan (APP)
Richard’s unvested APP deferred shares will vest on the usual vesting dates.
Shares
Based on the share price on 29 December 2017 of 4,719p and the number of deferred shares as
at 30 June 2017, the value of these shares is £2,315,472 (49,067 shares as detailed on page 73).
These awards have previously been disclosed in the single figure table in the relevant year.
Malus provisions will continue to apply for a period of three years after the grant of the APP share awards.
Long Term Incentive Plan (LTIP)
Richard was not eligible for an LTIP grant in 2017.
All outstanding LTIP awards will vest in line with the terms of the plan rules on the normal vesting date
and only to the extent the performance conditions are fulfilled, and will be pro-rated for the time up
to 30 August 2017. This is for 32 months under the 2015/17 LTIP cycle and 20 months for the 2016/18
LTIP cycle.
LTIP awards will remain subject to malus provisions under the terms of the plan until the end of the
performance period. Clawback provisions will continue to apply for a period of three years after
vesting of the awards.
68
IHG | Annual Report and Form 20-F 2017
Governance
Approach to recruitment remuneration
DR Policy area
The remuneration of any new Executive Director will be determined in accordance with the Directors’ Remuneration Policy and the maximum annual level
of variable remuneration that may be granted to a newly-recruited Executive Director will be in line with that of the existing Executive Directors, excluding
any pro-rated awards in relation to LTIP cycles outstanding at the time of recruitment (up to a further 205% of salary) and any remuneration that constitutes
compensation for incentives foregone and relocation, expatriate or international assignment costs.
Remuneration component
How this was implemented in 2017
Salary, benefits and pension
Annual Performance Plan (APP)
Long Term Incentive Plan (LTIP)
Shareholding requirements
Keith Barr was appointed to the Board as Chief Executive Officer of InterContinental Hotels Group PLC
on 1 July 2017. His remuneration is in line with the DR Policy.
Upon appointment, Keith’s salary was £775,000 per annum and benefits were provided in line with
the DR Policy. Company pension provision comprised a cash allowance in lieu of employer pension
contributions of 25% of salary.
Prior to his appointment to the Board, Keith was on international assignment from the US to the UK
and therefore in receipt of certain expatriate allowances and benefits under the terms of IHG’s
international assignment programme, including items such as housing costs, school fees and tax
equalisation between the UK and US whilst on assignment. From the date of appointment to the
Board, Keith was localised to a UK remuneration package and so will no longer be entitled to future
assignment benefits or tax equalisation. In order to cover the transitional and transactional costs of
him and his family localising to the UK, Keith will receive two lump sum localisation payments of
£500,000 paid on appointment and £150,000 in 2018. Any outstanding APP and LTIP share awards
granted to him whilst he was on assignment from the US and prior to his appointment to the Board
will be subject to tax equalisation at the time of vesting in line with his legacy expatriate status at the
time of grant. With the exception of these legacy awards, no further tax equalised payments or
awards will be made to Keith.
Keith participates in the APP on the same terms as existing Executive Directors and in line with the
DR Policy. His maximum incentive opportunity as a percentage of salary is therefore 200% under
the APP. His 2017 award was pro-rated in respect of his terms before and after appointment as an
Executive Director.
Keith participates in the LTIP on the same terms as existing Executive Directors and in line with the
DR Policy. His maximum incentive opportunity as a percentage of salary is therefore 205% under
the LTIP. In line with the recruitment policy, Keith has been pro-rated into the 2017/19 LTIP based
on his salary on appointment.
In line with the DR Policy, Keith’s shareholding requirement is 300% of salary and he is required to
meet this within five years of appointment. He is expected to hold all shares earned (net of any share
sales required to meet tax liabilities), until the shareholding requirement is achieved.
Non-Executive Directors
Remuneration component
How this was implemented in 2017
Fees and benefits (cash)
Pension
APP and LTIP
Malina Ngai was appointed as Non-Executive Director from 1 March 2017 and serves on the
Corporate Responsibility, Nomination and Remuneration Committees. Jo Harlow was appointed as
Chairman of the Remuneration Committee and Luke Mayhew was appointed as a member of the
Audit Committee, both with effect from 1 October 2017. All of their terms are in line with the policy
for Non-Executive Directors.
Malina and Luke’s new appointments were on a single fee of £74,400 per annum, in line with other
Non-Executive Directors and Jo’s fee increased to £99,000 per annum, in line with the existing
structure for Committee chairs. Travel and accommodation in connection with attendance at Board
and Committee meetings is payable.
Malina, Luke and Jo are not eligible to participate in the IHG pension plan.
Malina, Luke and Jo are not eligible to participate in the IHG Annual Performance Plan or Long Term
Incentive Plan.
Letter of appointment and notice period
Malina, Luke and Jo’s respective letters of appointment are available from the Company Secretary’s
office and their reappointment is subject to election and annual re-election by shareholders at the AGM.
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
69
Governance
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 2017
and the resulting payments each of the Executive Directors received.
This report is subject to an advisory vote by shareholders at the 2018 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.
AUDITED
Single total figure of remuneration – Executive Directors
Fixed pay
Variable pay
Other
Salary
Benefits
Pension benefit
APP
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2017
£000
2016
£000
2015/17
cycle
(value of
shares)
£000
LTIP
2014/16
cycle
(value of
shares)
£000c
2017
£000
2016
£000
17
13
27
–
26
24
97
–
545
–
580
–
500
124
243
554
1,042
1,075
1,541
159
150
747
640
702
846
–
–
–
–
–
Executive
Directors
Keith Barra
Richard
Solomonsb
Paul Edgecliffe-
Johnson
2017
£000
388
–
413
810
530
500
Total
2017
£000
2,127
2016
£000
–
2,179
3,662
2,165
2,160
a 2017 figures (excluding LTIP) for Keith Barr relate to the period 1 July to 31 December 2017.
b 2017 figures (excluding LTIP) for Richard Solomons relate to the period 1 January to 30 June 2017. Further information can be found on page 68.
c Figures for 2014/16 LTIP cycle have been restated using actual share price on date of vesting.
Notes to single figure table
Fixed pay
Salary: salary paid for the year. Keith Barr succeeded
Richard Solomons as Chief Executive Officer on 1 July 2017,
with an annual base salary of £775,000 effective from this date.
The 2017 figure in the table above is for the period 1 July to
31 December 2017. There is no comparative data for 2016 as
Keith did not serve as an Executive Director before this date.
Richard Solomons stepped down from the role of Chief Executive
Officer and from the Board on 30 June 2017, and retired from the
Company on 30 August 2017. Further information can be found
on page 68. The 2017 figure in the table above is for the period
1 January to 30 June 2017.
Benefits: for Executive Directors, this includes, but is not limited
to, taxable benefits such as company car, healthcare and life
cover. Provision during 2017 was in line with previous years and
the approved DR Policy.
Pension benefit: for current Executive Directors, in line with
DR Policy, the value of IHG contributions to pension plans and
any cash allowances, paid in lieu of pension contributions.
The Executive Directors did not participate in any IHG pension
plan in 2017 and instead all received cash allowances and life
assurance cover.
Executive Director
Keith Barr
Richard Solomons
Paul Edgecliffe-Johnson
Cash allowance
% of
salary
Amount
£000
25
30
30
97a
124b
159
Life cover
(multiple of
base salary)
Four times
Six times
Four times
a In respect of the period 1 July to 31 December 2017.
b In respect of the period 1 January to 30 June 2017.
Other: Keith received a lump sum of £500,000 in July 2017
to cover the transitional and transactional costs of localising
to the UK. Further information can be found on page 69.
Variable pay
APP (cash and deferred shares)
Operation
Award levels are determined based on salary as at 31 December 2017
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; no award is made
for achievement below threshold. For 2017, the Remuneration
Committee set a threshold award level of 56% of salary.
• Target is the target level of achievement and results in a target
award for that measure. For 2017, the Remuneration Committee
set a target award of 112% of salary. Further details can be found
on page 68.
• Maximum is the level of achievement at which a maximum
award for that measure is received (capped at 200% of salary).
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%.
70
IHG | Annual Report and Form 20-F 2017
AUDITED
Outcome for 2017
The performance measures for the 2017 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 2017
achievement for the EBIT and Guest Love performance measures:
Awards for 2017 are payable 50% in cash and 50% in deferred
shares, vesting three years after the date of grant, in February 2021.
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.
200
% of target award
150
100
50
0
90.0
20.0
70.0
45.0
35.0
10.0
108.0
13.5
94.5
180.0
40.0
140.0
Executive Director
Keith Barr
Richard Solomons
Paul Edgecliffe-Johnson
Salary as at
31 December
2017
Award
as %
of salary
Total value
of award
£000
775
836b
536
70.3a
66.3c
139.4
545
554
747
a In respect of period 1 July to 31 December 2017.
b Salary as at 30 June 2017.
Threshold
Target
Actual
Maximum
c In respect of period 1 January to 30 June 2017.
EBIT
Guest Love
APP
Performance
Achievement
Weighting
Weighted
achievement
EBIT: performance relative to target
Threshold
$648.5m
Target
Actual
Maximum
$720.5m
$746.0m
$792.6m
50.0%
100.0%
135.0%
200.0%
70.0%
94.5%
Guest Love: improvement in guest survey score from prior year’s
baseline score of 80.61%
Threshold
Actual
Target
Maximum
+0.17ppt
+0.25ppt
+0.40ppt
+1.0ppt
50.0%
67.4%
100.0%
200.0%
20.0%
13.5%
EBIT is operating profit before exceptional items. However, in
determining EBIT for APP purposes, budgeted exchange rates for the
year are used and certain adjustments to reported 2017 operating
profit were agreed by the Committee in order to ensure a like-for-like
comparison with the APP EBIT target set at the start of the year:
Operating profit before exceptional items
(at actual exchange rates)
Net benefit of unbudgeted items
Difference due to exchange rates
Operating profit before exceptional items,
after adjustments (at 2017 budget exchange rates)
$758.7m
($9.1m)
($3.6m)
$746.0m
The remaining 10% weighting of the APP is based on a personal
overall performance rating (OPR). OPR results are determined
by reference to individual employee performance relating to
the delivery of a range of measurable annual objectives aligned
to our Strategic Model. The 2017 objectives for the Executive
Directors included a range of financial and efficiency measures;
key strategic growth initiatives; and targets for our Responsible
Business agenda.
When combined with the EBIT and Guest Love results, the total
weighted achievement was 123.0% for Keith Barr, 118.0% for
Richard Solomons and 123.0% for Paul Edgecliffe-Johnson, of
target bonus. The APP award for 2017, pro-rated for the six-month
period each served as CEO, was therefore 70.3% of salary for
Keith Barr and 66.3% for Richard Solomons. The 2017 award
for Paul Edgecliffe-Johnson was 139.4% of salary.
2015/17 LTIP (shares)
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 room openings 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, Starwood was retained as a separate entity
for the period up to its last independently published results.
TSR measures the return to shareholders by investing in IHG
relative to a broader set of appropriate hotel and lodging
competitors, as per data provided by our corporate bankers
sourced from Thomson Reuters Datastream.
The share price of 4,317p used to calculate the 2015/17 LTIP cycle
value shown in the single-figure table is the average over the final
quarter of 2017.
The share price in respect of the 2014/16 LTIP cycle has been
restated using the volume weighted average price of 3,796p on
the date of actual vesting on 22 February 2017. The corresponding
values shown in the 2016 report (prior to the actual vesting) were
an estimate calculated using an average share price over the final
quarter of 2016 of 3,273p.
Outcome for 2015/17 cycle
The performance measures for the 2015/17 three-year LTIP
cycle were in line with the 2014 DR Policy. The table below shows
threshold and maximum opportunity, as well as weighting and
actual achievement, for each performance measure.
100
% of maximum opportunity
75
50
25
0
46.1
5.0
41.1
20.0
10.0
5.0
5.0
100.0
25.0
25.0
50.0
Threshold
Actual
Maximum
TSR
Net rooms supply growth
RevPAR
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
71
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration continued
AUDITED
LTIP
Performance
Vesting achievement
Weighting
Weighted
achievement
Total Shareholder Return: three-year growth relative to average
of competitors
Threshold
Actual
Maximum
20%
82.1%
100%
50%
41.1%
Net rooms supply: three-year growth relative to average
of competitors
Threshold
Actual
Maximum
20%
20%
100%
25%
5%
RevPAR: three-year growth relative to average of competitors
Actual
Threshold
Maximum
0%
20%
100%
25%
0%
Total achievement (% of maximum opportunity vested)
46.1%
Executive
Director
2016/18
cycle
Keith Barra
Richard
Solomons
Paul
Edgecliffe-
Johnson
Other outstanding awards
During 2016, awards were granted under the 2016/18 LTIP cycle
on the same basis as the 2015/17 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
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.
Award
date
Maximum
shares
awarded
Market
price per
share at
grant
£
Face value
of award
at grant
£000
Number
of shares
received
if minimum
performance
achieved
5 April
2016
5 April
2016
5 April
2016
29,367
28.54
32,552b
28.54
838
929
5,873
6,510
36,841
28.54
1,051
7,368
a Granted prior to appointment as CEO.
b Originally awarded 58,595 shares, pro-rated to 20 months. Further information can
be found on page 68.
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 2015/17 cycle.
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.
Net rooms supply and RevPAR growth were measured by
reference to the three years ending 30 September 2017;
TSR was measured by reference to the three years ending
31 December 2017. This cycle will vest on 21 February 2018
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
29,157
46.1
13,441
580
54,051b
46.1
24,917
1,075
35,318
46.1
16,281
702
Executive
Director
Keith Barra
Richard
Solomons
Paul Edgecliffe-
Johnson
a Granted prior to appointment as CEO.
b Originally awarded 60,808 shares, pro-rated to 32 months. Further information
can be found on page 68.
AUDITED
Scheme interests awarded during 2017
During 2017, awards were granted under the 2017/19 LTIP cycle. Awards were made to each Executive Director over shares with a
maximum value of 205% of salary using an average of the closing mid-market share price for the five days prior to grant. At the date
of grant on 22 May 2017, this was 4,257p. 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. No award was made to Richard Solomons.
Executive Director
2017/19 cycle
Keith Barra
Paul Edgecliffe-Johnson
Award date
Maximum
shares awarded
Market price
per share at grant
£
Face value of
award at grant
£000
Number of shares
received if minimum
performance achieved
9 August 2017
22 May 2017
12,481
25,811
43.14
42.57
538
1,099
2,496
5,162
a Keith Barr received an increased award, pro-rated from 1 July 2017, for the 2017/19 LTIP in accordance with the DR Policy as a result of his appointment to the Board. Prior to this,
he was granted 17,822 shares and 2,160 restricted stock units on 22 May 2017 with a market price of £42.57 per share.
The vesting date for these awards is the day after the announcement of our Annual 2019 Preliminary Results in February 2020.
These awards will vest and shares will be transferred to the award-holder in February 2020, to the extent performance targets are met.
The performance measures are as agreed in the 2017 Remuneration Policy. Total gross revenue, net System size growth, cash flow and
Total Shareholder Return are measured by reference to the three years ending 31 December 2019. Minimum performance is equal to
20% of the maximum award.
72
IHG | Annual Report and Form 20-F 2017
AUDITED
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.
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.
Percentages are calculated using the number of shares held
outright and the 29 December 2017 share price of 4,719p.
Shares and awards held by Executive Directors
as at 31 December 2017: % of salary
Keith Barra
189
Richard Solomons
3
Paul Edgecliffe-Johnson
242
893
954
1,354
0
300
600
900
1,200
1,500
Shares held outright
Total shares and awards
Guideline shareholding
a In line with Policy, Keith Barr’s shareholding requirement will be 300% of salary,
and he is required to meet this within five years of appointment. Keith is expected
to hold all shares earned (net of any share sales required to meet tax liabilities),
until the shareholding requirement is achieved.
Current Directors’ shareholdings
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 75.
Shares and awards held by Executive Directors as at 31 December 2017: number of shares
Number of shares held outright
APP deferred share awards
LTIP share awards (unvested)
Total number of
shares and awards held
Keith Barr
Richard Solomonsa
2017
31,116
614
Paul Edgecliffe-Johnson
27,443
2016
–
211,594
26,034
2017
24,586
49,067
28,384
2016
–
59,032
24,621
2017
90,987
119,403
97,970
2016
–
201,596
117,284
2017
146,689
169,084
153,797
2016
–
472,222
167,939
a As at 30 June 2017.
AUDITED
Payments for loss of office
The information on page 68 sets out the treatment in relation
to Richard Solomons who stepped down from the role of Chief
Executive Officer and from the Board on 30 June 2017 and retired
from the Company on 30 August 2017. All payments made to
Richard are consistent with the approved Directors’ Remuneration
Policy on retirement.
Payments to past Directors – benefits
Sir Ian Prosser
Sir Ian Prosser, who retired as a Director on 31 December 2003,
had an ongoing healthcare benefit of £2,011 during the year.
Richard Solomons
Richard had an ongoing healthcare benefit of £1,735 in respect
of the period 1 July to 31 December 2017.
Pension entitlements
No Executive Director is entitled to any Defined Benefit pension
or related benefit from IHG.
Other information relating to Directors’ remuneration
Non-executive directorships of other companies
Paul Edgecliffe-Johnson has served as a Non-Executive Director of
Thomas Cook plc since 26 July 2017. Paul received fees of £25,952
during 2017 in respect of this appointment.
Richard Solomons, Chief Executive Officer continued to serve as
a Non-Executive Director of Marks and Spencer plc and in 2017
received fees of £70,000 per annum.
These appointments are permitted under the DR Policy and the
amounts are not included in the single figure table of remuneration
table on page 70. 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 2016 of 49.4p per ordinary share (64.0¢ per ADR)
was paid on 22 May 2017 to shareholders on the Register of members
at the close of business on 5 May 2017. A special dividend of 156.4p
per ordinary share (202.5¢ per ADR) was paid on 22 May 2017 to
shareholders on the Register of members at the close of business
on 5 May 2017.
The 2017 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.
An interim dividend of 24.4p per ordinary share (33.0¢ per ADR) was
paid on 6 October 2017 to shareholders on the Register of members
at the close of business on 1 September 2017.
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
73
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration continued
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 2017,
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 by Bank of America Merrill Lynch for IHG.
1,100
1,000
900
800
700
600
500
400
300
200
100
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
IHG PLC
Global Hotel Index
FTSE 100 Index
Chief Executive Officer’s remuneration
The table below shows the Chief Executive Officer’s single figure of total remuneration for the nine years to 31 December 2017.
Single figure
CEO
2009
2010
2011
2012
2013
2014
2015
2016
Single figure
of remuneration
£000
Keith Barr
Richard Solomons
Andrew Cosslett
1,953
5,430
Annual incentive
received
(% of maximum)
Keith Barr
Richard Solomons
Andrew Cosslett
0.0
100.0
Shares received
under the LTIP
(% of maximum)
Keith Barr
Richard Solomons
Andrew Cosslett
46.0
73.8
4,724
3,770
83.0
43.3
73.9
61.6
4,881
3,131
6,611b
3,197
3,662
68.0
74.0
74.0
75.0
63.9
2017
2,127a
2,179c
69.7
66.8
100.0
59.0
56.1
50.0
49.4
46.1
a For Keith Barr, the 2017 figure, in respect of the period 1 July to 31 December 2017, includes a one-off cash payment for relocation costs in lieu of benefits received whilst on international
assignment prior to CEO position, as detailed on page 69.
b 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.
c In respect of period 1 January to 30 June 2017.
Percentage change in remuneration of Chief Executive Officer
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.
Relative importance of spend on pay
The table below sets out the actual expenditure of the Group in 2017
and 2016 on corporate employee remuneration and distributions
to shareholders, and shows the difference in spend between
those years.
The table below shows the percentage change in the remuneration
of the Chief Executive Officer compared with UK employees
between 2016 and 2017 and therefore relates to Richard Solomons.
The salary figure for the UK employee population has been
calculated using the 2017 budget for the annual pay review, taking
into account any promotions/market adjustments made during the
year. The taxable benefits figure is based on P11D taxable benefits
for year ending 5 April 2017. For Richard, the only taxable benefit
was healthcare.
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. To ensure consistency of the comparison, an
annual incentive percentage change is also calculated for Richard.
Salary
Taxable benefits
Annual incentive
Chief Executive Officer
(% change)
UK employees
(% change)
+2.5
+11.0
+7.3
+2.7
+7.2
+16.7
For 2016, the total distributions to shareholders included a special
dividend of 438.2p following the completion of the asset-light
strategy in 2015.
$m
+7.4%
-65.0%
+8.6%
2,000
1,500
1,000
500
0
1,693
759
707
593
645
594
2017
2016
2017
2016
2017
2016
Total operating
profit before
exceptionals
Total
distributions
to shareholders
Remuneration paid
to all corporate
employees
74
IHG | Annual Report and Form 20-F 2017
Implementation of Directors’ Remuneration Policy in 2018
This section explains how the DR Policy will be applied in 2018.
Salary: Executive Directors
Directors’ salaries are agreed annually in line with the DR Policy.
The following salaries will apply from 1 April 2018.
Executive Director
Keith Barr
Paul Edgecliffe-Johnson
Increase
%
3.0
4.5
2018
£
2017
£
798,250
775,000a
560,200
536,000
In line with policy, increases for the Executive Directors are
consistent with the range of increases applying to the UK and US
employee population, including for Paul Edgecliffe-Johnson where
the increase reflects very strong individual performance during 2017.
Elie Maalouf was appointed to the Board with effect from
1 January 2018 as detailed on page 46. Elie’s remuneration on
appointment is in line with the DR Policy and a salary of $752,000
will apply from 1 April 2018. Elie has share awards granted in respect
of his role prior to becoming a Board director which are due to vest
over the coming years.
a Per annum salary on appointment to CEO on 1 July 2017.
LTIP and APP performance measures and targets
LTIP
The measures for the 2018/20 LTIP cycle are as per the 2017/19 cycle and the Directors’ Remuneration Policy available on the Company
website, www.ihgplc.com/investors under Corporate governance. The performance measures and weightings, together with the full cash
flow target disclosures for the 2017/19 cycle as referenced in last year’s report, are shown below.
Performance
measure
Definition
Relative
TSR
Cash flow
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.
Cumulative annual cash
generation over three-year
performance period.
Threshold
(%)/
maximum
vesting (%)
20/100
Maximum
award
(% of
salary)
Weighting
(%)
40
82
2017/19 cycle
Threshold
performance
Maximum
performance
Median of
comparator
group
Upper quartile of
comparator
group
Threshold
performance
Median of
comparator
group
2018/20 cycle
Maximum
performance
Upper quartile
of comparator
group
20/100
20
41
USD
1.29 bn
USD
1.72 bn
As a result of work to accelerate the
Group’s growth, cash flow targets
for the three years from 2018 are not
available at the time of writing.
These will be disclosed in next
year’s report.
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.
20/100
20/100
20
20
41
41
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. Full disclosure of targets and performance
will be provided retrospectively after the end of the performance period.
APP
The 2018 APP measures are in line with the approved DR Policy and will be 70% based on EBIT achievement vs target, 15% based on net
System size growth and 15% based on other key strategic measures that are reviewed annually and set in line with business priorities.
EBIT is a focal measure of business performance for our shareholders and is a function of other critical measures, such as RevPAR, profit
margin and fee revenues. The Committee has determined that it is particularly important to incentivise and reward management for
achieving a stretching target for net System size growth over the next year, so this will make up 15% of the 2018 APP. The remaining 15%
will be made up of other key objectives for the year, based on strategic initiatives being implemented to support IHG’s future growth.
Further detail and rationale in respect of the key strategic objectives will be disclosed in the 2018 remuneration report.
The Committee has determined that the targets under the EBIT, net System size growth and other strategic measures are commercially
sensitive at this time. However, the targets set and the outcomes against those targets will be disclosed in full in the 2018 remuneration
report and are in line with the DR Policy.
Definition
Weighting (%)
Performance objective
Measure
EBIT
Earnings Before Interest and Tax – a measure of IHG’s
operating profit before exceptional items for the year
Net System size growth
Increase in absolute number of rooms
Strategic measures
Key strategic measures which are reviewed annually
and set in line with strategic priorities
70
15
15
Achievement against target
Achievement against target
Achievement against target
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
75
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration continued
AUDITED
Single total figure of remuneration: Non-Executive Directors
Non- Executive Director
Patrick Cescau
Anne Busquet
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Dale Morrison
Malina Ngai
Committee
appointments
N
A C N
A N R
A N R
A C N R
A C N
A N R
C N R
Date of
original
appointment
01/01/13
01/03/15
01/09/13
01/09/14
01/07/11
01/06/13
01/06/11
01/03/17
See page 47 for Board and Committee
membership key and attendance.
Fees
£000
2016
412
73
97
73
97
81
97
–
2017
422
74
99
81
93
87
107
62
Taxable benefits
£000
2017
21
6
3
3
2
5
55
7
2016
19
4
3
3
3
3
31
–
2017
443
80
102
84
95
92
162
69
Total
£000
2016
431
77
100
76
100
84
128
–
Fees: Luke Mayhew stepped down as Chairman of the Remuneration Committee on 30 September 2017 and was replaced by
Jo Harlow. The fee for Malina Ngai reflects her appointment from 1 March 2017.
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 and 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 Anne Busquet and Malina Ngai,
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 49.
Shares held by Non-Executive Directors as at 31 December 2017: number of shares
The Non-Executive Directors who held shares are listed in the table below:
Non-Executive Director
Luke Mayhew
Dale Morrisona
Jo Harlowa
a Shares held in the form of American Depository Receipts.
b The shares held in 2017 are lower due to the share consolidation on 8 May 2017.
2017
1,373b
3,116b
1,000
2016
1,435
3,255
–
Fees: Non-Executive Directors
The fees for Non-Executive Directors are reviewed and agreed annually in line with the DR Policy. All of the Non-Executive Directors waived
any fee increase for 2018. The fee levels for 2018 will therefore remain unchanged from 2017 as follows:
Non-Executive Director
Role
Patrick Cescau
Anne Busquet
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Dale Morrison
Malina Ngai
Chairman of the Board
Non-Executive Director
Chairman of Audit Committee
Chairman of Remuneration Committee
Non-Executive Director
Chairman of Corporate Responsibility Committee
Senior Independent Non-Executive Director
Non-Executive Director
2018
£000
422
74
99
99
74
87
107
74
2017
£000
422
74
99
74a
99b
87
107
62c
a Jo Harlow’s 2017 fee relates to Non-Executive Director position prior to new role of Chairman of Remuneration Committee.
b Luke Mayhew’s 2017 fee relates to his position as Chairman of Remuneration Committee.
c Malina Ngai’s annual fee for 2017 is pro-rated to her start date of 1 March 2017.
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.
76
IHG | Annual Report and Form 20-F 2017
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 the 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), which are reviewed annually and
approved by the Board.
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. The annual review included assessment
of the effectiveness of the Committee using a guide prepared by
PwC. This guide covers both the Committee’s behaviours and
its processes.
The ToR are available on IHG’s website at
www.ihgplc.com/investors under Corporate governance.
The Committee’s key focus area during the year was the
implementation of the revised Remuneration Policy as the Group
initiates plans to accelerate its growth.
Membership and attendance at meetings
The Committee met six times during 2017 and details of the
Committee’s membership and attendance at the meetings are
set out on page 47. During 2017 there were some changes to the
Committee membership and this is detailed on pages 49 and 69.
During 2017 the Committee was supported internally by the
Chairman, the Group’s CEO and CFO, and the heads of HR and
Reward as necessary. All attend by invitation to provide further
background information and context to assist the Committee in its
duties. They are not present for any discussions that relate directly
to their own remuneration or where their attendance would not
be appropriate.
Details of Committee attendance
can be found on page 47.
Reporting to the Board
The Committee Chairman updates the Board on all key issues raised
at Committee meetings. Papers and minutes for each meeting are
also circulated to all Board members for review and comment.
Shareholder engagement
The top 20 shareholders, as per the Share Register on
7 November 2017, were contacted regarding the change in
Chairman of the Remuneration Committee and invited to discuss
any matters pertaining to the Remuneration Policy.
Other focus areas and activities
The focus areas and activities discussed by the Committee during
2017 were: Review and approval of performance outcomes and set
targets for 2017; Executive Committee changes and remuneration;
diversity and inclusion including the UK gender pay disclosure;
and consideration of external remuneration developments and
best practice.
Remuneration advisers
The Committee continued to retain PricewaterhouseCoopers LLP
(PwC) throughout 2017 as independent advisers. Fees of £85,835
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. The terms of engagement for PwC are available from
Company Secretary’s office on request.
PwC also provided other consulting services to the Group during
2017. In respect of the services for the CEO succession, fees of
£127,500 were paid to PwC in 2017. Much work had to be done
confidentially which, in other roles and circumstances, would have
been done in-house. The period of work commenced before the
appointment of the Chief Human Resources Officer.
PwC is a member of the Remuneration Consultants Group and as
such, voluntarily operates under the code of conduct in relation
to executive remuneration consulting in the UK and the professional
standards to which they have committed to adhere when advising
remuneration committees. PwC was appointed following a
competitive tender process and the Committee is satisfied that
the advice received from PwC is objective and independent.
Voting at the Company’s AGMs
There is no binding vote in respect of the DR Policy at the 2018 AGM as it remains unchanged from 2017.
The outcome of the votes in respect of the DR Policy and Report for 2014 to 2017 are shown below:
AGM
2017
2016
2015
2014
Directors’ Remuneration Policy (binding vote)
Directors’ Remuneration Report (advisory vote)
Votes for
Votes against
120,328,350
(95.76%)
5,332,320
(4.24%)
–
–
–
–
Abstentions
261,819
–
–
155,440,907
(90.94%)
15,483,775
(9.06%)
906,025
Votes for
Votes against
119,155,451
(96.42%)
167,998,487
(98.58%)
149,415,662
(96.99%)
158,131,479
(94.01%)
4,426,549
(3.58%)
2,427,740
(1.42%)
4,633,208
(3.01%)
10,076,027
(5.99%)
Abstentions
2,340,489
5,056,017
3,642,496
3,623,200
Jo Harlow
Chairman of the Remuneration Committee
19 February 2018
IHG | Annual Report and Form 20-F 2017 | Governance | Directors’ Remuneration Report
77
Group Financial Statements
Group Financial
Statements
Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
Independent Auditor’s US Report
80
81
87
88 Group Financial Statements
88 Group income statement
89
90 Group statement of changes in equity
93 Group statement of financial position
94 Group statement of cash flows
95 Accounting policies
104
Notes to the Group Financial Statements
Group statement of comprehensive income
Crowne Plaza London – Kings Cross, United Kingdom
78
IHG | Annual Report and Form 20-F 2017
True Hospitality is what
sets IHG apart, and it’s
why our brands have
something for everyone
and are loved the
world over.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements
79
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 Guidance 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
2017 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 2017 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
2017, 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 87.
For and on behalf of the Board
Keith Barr
Chief Executive Officer
19 February 2018
Paul Edgecliffe-Johnson
Chief Financial Officer
19 February 2018
80
IHG | Annual Report and Form 20-F 2017
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 2017 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’.
• 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 2017 comprise:
Group
Company
Group income statement
Group statement of
comprehensive income
Group statement of changes
in equity
Parent Company statement
of financial position
Parent Company 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’.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s
responsibilities for the audit of the Financial Statements section
of our report below. We are independent of the Group and Parent
Company in accordance with the ethical requirements that are
relevant to our audit of the Financial Statements in the UK, including
the FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Use of our report
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.
Conclusions relating to principal risks, going concern
and viability statement
We have nothing to report in respect of the following information
in the annual report, in relation to which the ISAs (UK) require us
to report to you whether we have anything material to add or draw
attention to:
• The disclosures in the annual report set out on page 21 that
describe the principal risks and explain how they are being
managed or mitigated.
• The directors’ confirmation set out on page 80 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 directors’ statement set out on page 80 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.
• Whether the directors’ statement in relation to going concern
required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained
in the audit; or
• The directors’ explanation set out on page 163 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.
Overview of our audit approach
Key audit matters
• 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.
• The carrying value of Property, Plant and Equipment, Intangible assets and Investment in associates and joint ventures.
Audit scope
• We performed an audit of the complete financial information of 22 components and audit procedures on specific balances for
a further 22 components.
• The components where we performed full or specific audit procedures accounted for 92% of profit before tax adjusted for pre-tax
exceptional items and 77% of revenue.
Materiality
• Overall Group materiality of $32m was applied, which represents 5% of profit before tax adjusted for pre-tax exceptional items.
We considered it appropriate to maintain our planning materiality rather than increasing it to $34m based on the final reported results.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Independent Auditor’s UK Report
81
Independent Auditor’s UK Report continued
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement
team. These matters were addressed in the context of our audit
of the Group Financial Statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these matters.
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 41); the
Audit Committee Report (page 58); Critical
accounting policies and use of judgements,
estimates and assumptions (page 100): and
note 32 of the Group Financial Statements
(page 140).
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 2017, and as
detailed in note 32, the Fund has assessment
fees and contributions of $1,562m, and a
surplus as of year-end of $158m. 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.
The valuation of the future redemption
of IHG Rewards Club points liability
Refer to the Audit Committee Report (page 58);
Critical accounting policies and the use of
judgements, estimates and assumptions
(page 101); and note 32 of the Group Financial
Statements (page 140).
We focused on this area due to the size of the
liability ($760m at 31 December 2017), and
its sensitivity, in particular, to the breakage
estimate (as defined on page 101). Changes in
the valuation of the liability are charged to the
System Fund surplus/deficit and not to IHG’s
income statement.
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 101) 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 under our supervision.
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.
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.
For the three key inputs into the liability valuation we undertook the
following audit procedures:
(1) Outstanding loyalty points at 31 December 2017
We concluded that
the valuation of the
future redemption
of the IHG Rewards
Club points liability
at 31 December
2017 is within an
acceptable range.
We tested controls over the complete and accurate recording of point
data and tested the roll forward of the points balance from the prior year
to 31 December 2017, and verified to underlying records.
We tested the controls over the awards/redemption process and we
performed detailed tests of transactions on earned, redeemed and expired
points throughout the year.
(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 assessed 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 under our supervision.
82
IHG | Annual Report and Form 20-F 2017
Group Financial Statements Risk
Capitalisation of software assets and
carrying value
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 101); and note 13 of the Group Financial
Statements (page 118).
Given the Group’s continued development
of its technology environment and the size
of the capitalised software balance ($464m
as at 31 December 2017), of which $168m
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.
Carrying value of Property, Plant and
Equipment, Intangible assets and
Investment in associates and joint ventures
Refer to the Audit Committee Report (page 58),
Critical accounting policies and the use
of judgements, estimates and assumptions
(page 101); and notes 12, 13 and 14 of the
Group Financial Statements (pages 116–120).
Impairment of Property, Plant and Equipment,
Intangible assets and Investment in
associates and joint ventures remains a
subjective area. At 31 December 2017 the
carrying value of non-current assets,
excluding software assets, was $1,303m.
Given the impairment charges recorded by
the Group in 2016, we have re assessed the
risk of material misstatement with regards to
the carrying value of these non-current assets.
The risk of impairment of software assets is
addressed in the “Capitalisation of software
assets and carrying value” section above.
The Group recognised impairment charges in
respect of the investment in InterContinental
New York Barclay during the year of $18m.
Risk
direction
Our response to the risk
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 that 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 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 under our supervision.
We tested internal financial controls over management’s assessment and
measurement of impairment. These included controls over the underlying
projections prepared through the forecasting process, the assumptions
applied and the completeness and accuracy of the data provided to IHG’s
external specialist.
We tested the integrity of the impairment models and the appropriateness
of the methodology used including comparability to prior periods.
We performed our own sensitivities on the key assumptions used by
management and determined whether adequate headroom remained.
We performed detailed testing to assess the key inputs to the model including:
• Assessing the historical accuracy of management’s budgets and
forecasts through comparison with actual performance.
• Corroborating management’s assumptions with reference to historical
data and, where applicable, external benchmarks to assess if the
assumptions used are within an acceptable range. The main assumptions
include discount rates, fee margins, average daily room rates,
comparable room key sales data and occupancy.
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.
Key observations
communicated to
the Audit Committee
We concluded that
the carrying value
of software assets
at 31 December 2017
is appropriate.
We concluded that
the carrying value
of non-current
assets is supported
at 31 December 2017,
and appropriate
disclosures have
been provided.
The impairment
charges recognised
at 31 December 2017
have been
calculated on a
reasonable basis.
In addition to the risks identified as part of our audit planning, the following area affected the allocation of resources and the direction
of our audit efforts and for which our audit response was as follows:
Risk
Impact of the US tax reform
Refer to the Audit Committee Report
(page 56) and note 7 of the Group Financial
Statements (pages 111–114).
On 22 December 2017, the US government
enacted widespread changes to the US tax
system. The changes have resulted in a tax
benefit of $108m recognised in exceptional
items in the 2017 Group Income Statement.
We focused on this area due to the
complexity of the changes in the tax law,
the proximity of the announcement to the
year end and the materiality to the group.
Risk
direction
Our response to the risk
We tested internal financial controls over management’s assessment
and measurement of the Federal and State Tax implications of tax reform,
including the accuracy of the underlying information on which the
calculation is based.
We assessed whether the methodology used to calculate the estimated
liability was based on an acceptable interpretation of the legislation,
considering both Federal and State tax laws.
We verified that the existing deferred tax liabilities have been remeasured
through the income statement, other comprehensive income or equity,
according to where they gave rise to tax in the first place.
We tested the accuracy and completeness of the inputs to the calculation,
and the mathematical accuracy of the calculation itself.
We have considered the appropriateness of the related disclosures
provided in the Group Financial Statements.
In addressing this area of focus, audit procedures were principally performed
by the component team in the United States under our supervision.
Key observations
communicated to
the Audit Committee
We concluded that
the impact of US tax
reform is calculated
on a reasonable
basis and is
appropriately
recorded in the
Group Financial
Statements at
31 December 2017.
We consider the
accounting and
related disclosures
in the Group
Financial Statements
to be in line with the
relevant reporting
requirements.
“Data security incidents” was included as an area of audit focus last year in view of the time spent by senior members of the audit team
following the data breaches. This year, in the absence of material breach, our procedures on data security have been more routine in nature.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Independent Auditor’s UK Report
83
Independent Auditor’s UK Report continued
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 44 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.
Of the 44 components selected, we performed an audit of the
complete financial information of 22 components (‘full scope
components’) which were selected based on their size or risk
characteristics. For the remaining 22 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 table below illustrates the coverage obtained from the work
performed by our audit teams.
Number
% profit before tax adjusted
for pre-tax exceptional items
%
revenue
Full scope
Specific scope
Full and specific scope coverage
Remaining components
22
22
44
81
11
92
8
69
8
77
23
2017
See
note
1
2
3
Number
% profit before tax adjusted
for pre-tax exceptional items
21
24
45
72
17
89
11
2016
%
revenue
67
10
77
23
Total
Notes
100
100
100
100
1 The Group audit risks included in the tables on pages 82 to 83 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 8% 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. We performed specified procedures over System Fund revenue for two components. For three (2016: 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.
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 22 full scope components, audit procedures were
performed on three of these directly by the Primary Team and 19 by
the component audit teams. For the 22 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 and once to the regional
head office in China.
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 $32m (2016: $31m),
which is 5% (2016: 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 $678m
Adjustments
• Adjust for pre-tax exceptional items of $4m
to determine adjusted profit before tax
Materiality
• Totals $674m (materiality basis)
• Materiality maintained at planning level
at $32m (versus $34m based on 5%
of final reported results)
84
IHG | Annual Report and Form 20-F 2017
Group Financial Statements During the course of our audit, we reassessed initial materiality and
the actual profit before tax adjusted for pre-tax exceptional items
was 5% higher than the Group’s initial estimates used in planning.
However, due to the status of our procedures we did not change
our materiality assessment to reflect this.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of
the other information where we conclude that those items meet the
following conditions:
We determined materiality for the Parent Company to be £11m
(2016: £11m), which is 1% (2016: 1%) of equity.
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% (2016: 75%) of our planning
materiality, namely $24m (2016: $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 $24m (2016: $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 (2016: $1.6m),
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.
Other information
The other information comprises the information included in the
annual report and accounts set out on pages 2–80 and pages
154–188, other than the Financial Statements and our auditor’s report
thereon. The Directors are responsible for the other information.
Our opinion on the Financial Statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the Financial Statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we identify
such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement
in the Financial Statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
• Fair, balanced and understandable set out on page 80 – the
statement given by the Directors that they consider the Annual
Report and Financial Statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Group’s performance, business model
and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
• Audit committee reporting set out on pages 56 to 59 – the section
describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 62-63 – the parts of the
Directors’ Statement required under the Listing Rules relating to
the Company’s compliance with the UK Corporate Governance
Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R (2) do not properly disclose
a departure from a relevant provision of the UK Corporate
Governance Code.
Opinions 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.
In our opinion, 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
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course
of the audit, we have not identified material misstatements in the
Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• Adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• The Parent Company Financial Statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• Certain disclosures of directors’ remuneration specified by law
are not made; or
• We have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the Directors’ Responsibilities Statement
set out on page 80, the Directors are responsible for the preparation
of the Financial Statements and for being satisfied that they give
a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether
due to fraud or error.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Independent Auditor’s UK Report
85
Independent Auditor’s UK Report continued
In preparing the Financial Statements, the Directors are responsible
for assessing the Group and Parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these Financial Statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and
assess the risks of material misstatement of the Financial Statements
due to fraud; to obtain sufficient appropriate audit evidence
regarding the assessed risks of material misstatement due to fraud,
through designing and implementing appropriate responses; and to
respond appropriately to fraud or suspected fraud identified during
the audit. However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance
of the entity and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined that
the most significant frameworks which are directly relevant to
specific assertions in the Financial Statements are those that relate
to the reporting framework (IFRS, FRS 101, the Companies Act
2006 and UK Corporate Governance Code) and the relevant tax
compliance regulations in the jurisdictions in which the Group
operates. In addition, we concluded that there are certain
significant laws and regulations which may have an effect on the
determination of the amounts and disclosures in the Financial
Statements being the Listing Rules of the UK Listing Authority,
and those laws and regulations relating to health and safety and
employee matters.
• We understood how the Group is complying with those
frameworks by making enquiries of management, internal audit,
those responsible for legal and compliance procedures and the
Company Secretary. We corroborated our enquiries through our
review of Board minutes, papers provided to the Audit Committee
and correspondence received from regulatory bodies.
• We assessed the susceptibility of the Group’s Financial Statements
to material misstatement, including how fraud might occur, by
meeting with management from various parts of the business to
understand where it considered there was susceptibility to fraud.
We also considered performance targets and their influence on
efforts made by management to manage earnings or influence the
perceptions of analysts. We considered the programs and controls
that the Group has established to address risks identified, or that
otherwise prevent, deter and detect fraud; and how senior
management monitors those programs and controls. Where the
risk was considered to be higher, we performed audit procedures
to address each identified fraud risk. These procedures included
testing manual journals and were designed to provide reasonable
assurance that the Financial Statements were free from fraud
or error.
• Based on this understanding we designed our audit procedures to
identify non-compliance with such laws and regulations identified
in the paragraphs above. Our procedures involved: journal entry
testing, with a focus on manual consolidation journals and journals
indicating large or unusual transactions based on our
understanding of the business; enquiries of legal counsel, Group
management, internal audit, divisional management and all full and
specific scope management; and focused testing, as referred to
in the key audit matters section above.
A further description of our responsibilities for the audit of the
Financial Statements is located on the Financial Reporting Council’s
website at www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the Company on 31 May 2017 to audit the
Financial Statements for the year ending 31 December 2017 and
subsequent financial periods.
• We have served as auditors since IHG’s listing in April 2003 and
the period of total uninterrupted engagement, including previous
renewals and reappointments with the Group’s predecessor
businesses, is at least 30 years since 1988.
• The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company and we
remain independent of the Group and the Parent Company in
conducting the audit.
• The audit opinion is consistent with the additional report to the
Audit Committee.
Sarah Kokot (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor, London
19 February 2018
Notes
1 The maintenance and integrity of the InterContinental Hotels Group Plc web site is
the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the financial statements since they were
initially presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
86
IHG | Annual Report and Form 20-F 2017
Group 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.
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of InterContinental
Hotels Group PLC.
Opinion on Internal Control over Financial Reporting
We have audited InterContinental Hotels Group PLC’s internal
control over financial reporting as of 31 December 2017, 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). In our opinion,
InterContinental Hotels Group PLC (the Company) maintained,
in all material respects, effective internal control over financial
reporting as of 31 December 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the accompanying 2017 Consolidated Financial
Statements of InterContinental Hotels Group PLC, and our report
dated 19 February 2018 expressed an unqualified opinion thereon.
Basis for opinion
The Company’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 Company’s
internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
ERNST & YOUNG LLP
London, England
19 February 2018
Opinion on the Financial Statements
We have audited the accompanying Group statement of financial
position of InterContinental Hotels Group PLC (the Company) as
of 31 December 2017 and 2016, 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
2017, and the related notes (collectively referred to as the “Financial
Statements”). In our opinion, the financial statements present
fairly, in all material respects, the consolidated financial position of
InterContinental Hotels Group PLC at 31 December 2017 and 2016,
and the consolidated results of its operations and its cash flows
for each of the three years in the period ended 31 December 2017,
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)
(PCAOB), the Company’s internal control over financial reporting
as of 31 December 2017, 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 19 February 2018 expressed
an unqualified opinion thereon.
Basis for Opinion
These Financial Statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s Financial Statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the Financial Statements.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
ERNST & YOUNG LLP
We have served as auditors since IHG’s listing in April 2003
and of the Group’s predecessor businesses since 1988.
London, England
19 February 2018
Notes
1 The maintenance and integrity of the InterContinental Hotels Group Plc web site is
the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility
for any changes that may have occurred to the financial statements since they were
initially presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Group Financial Statements
87
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
2017
Total
$m
1,784
(608)
(379)
3
84
884
(103)
(18)
763
4
(89)
678
(85)
1,715
(580)
(339)
(2)
9
803
(96)
–
707
6
(93)
620
(186)
2016
Total
$m
1,715
(580)
(352)
1,803
(640)
(395)
(2)
(3)
9
790
(96)
(16)
678
6
(93)
591
(174)
11
776
(96)
–
680
5
(92)
593
(180)
2015
Total
$m
1,803
(640)
(420)
(3)
891
1,631
(96)
(36)
1,499
5
(92)
1,412
(188)
–
–
(25)
–
880
855
–
(36)
819
–
–
819
(8)
593
434
592
1
593
431
3
434
417
413
811
1,224
414
3
417
411
2
413
811
–
811
1,222
2
1,224
–
–
(13)
–
–
(13)
–
(16)
(29)
–
–
(29)
12
(17)
(17)
–
(17)
306.7¢
305.2¢
195.3¢
193.5¢
520.0¢
513.4¢
Group Financial Statements
Group income statement
Before
exceptional
items
$m
Exceptional
items
(note 5)
$m
1,784
(608)
(328)
3
11
862
(103)
–
759
4
(89)
674
(201)
473
472
1
473
–
–
(51)
–
73
22
–
(18)
4
–
–
4
116
120
120
–
120
Note
2
2
2
2
2
6
6
7
9
For the year ended
31 December 2017
Revenue
Cost of sales
Administrative expenses
Share of gains/(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
Notes on pages 95 to 143 form an integral
part of these Financial Statements.
88
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
Group statement of comprehensive income
For the year ended 31 December 2017
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 $3m
(2016: $nil, 2015: $nil)
Fair value gains reclassified to profit on disposal of available-for-sale financial assets
Exchange (losses)/gains on retranslation of foreign operations, net of related tax credit of $1m
(2016: charge of $3m, 2015: charge of $1m)
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, including related tax credit of $nil
(2016: credit of $4m, 2015: charge of $4m)
Deferred tax charge on defined benefit plans arising from significant US tax reform
Tax related to pension contributions
Total other comprehensive (loss)/income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Notes on pages 95 to 143 form an integral
part of these Financial Statements.
2017
$m
593
2016
$m
417
2015
$m
1,224
41
(73)
(77)
–
(109)
(4)
(11)
–
(15)
(124)
469
467
2
469
5
(7)
182
–
180
–
–
–
–
180
597
594
3
597
2
–
(2)
2
2
9
–
7
16
18
1,242
1,240
2
1,242
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Group Financial Statements
89
Group Financial Statements continued
Group statement of changes in equity
Equity
share
capital
$m
Capital
redemption
reserve
$m
141
–
9
–
Shares
held by
employee
share trusts
$m
(11)
–
Unrealised
gains and
losses
reserve
$m
111
–
Currency
translation
reserve
$m
451
–
Retained
earnings
$m
1,392
592
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
Other
reserves
$m
(2,860)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
(20)
(3)
29
–
–
–
–
(767)
592
41
(73)
(78)
(110)
–
–
–
–
(4)
(4)
(11)
(15)
(11)
(15)
(15)
(125)
577
467
20
–
(29)
29
9
–
(3)
–
29
9
(593)
(593)
–
–
(858)
41
(73)
–
(32)
–
–
–
(32)
(32)
–
–
–
–
–
–
–
–
–
(78)
(78)
–
–
–
(78)
(78)
–
–
–
–
–
–
–
10
(5)
(2,874)
79
373
1,405
Total
equity
$m
(759)
593
41
(73)
(77)
(109)
(4)
(11)
(15)
(124)
469
–
(3)
–
29
9
(596)
–
(851)
8
1
–
–
1
1
–
–
–
1
2
–
–
–
–
–
(3)
–
7
At 1 January 2017
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
Fair value gain
reclassified to profit on
disposal of available-for-
sale financial asset
Exchange losses
on retranslation of
foreign operations
Items that will not be
reclassified to profit
or loss:
Re-measurement losses
on defined benefit plans
Deferred tax charge on
defined benefit plans
arising from significant
US tax reform
Total other
comprehensive (loss)/
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
Exchange adjustments
At 31 December 2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
154
All items above are shown net of tax.
Notes on pages 95 to 143 form an integral
part of these Financial Statements.
90
IHG | Annual Report and Form 20-F 2017
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
309
414
10
3
Total
equity
$m
319
417
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 95 to 143 form an integral
part of these Financial Statements.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Group Financial Statements
91
Group Financial Statements continued
Group statement of changes in equity continued
Equity
share
capital
$m
Capital
redemption
reserve
$m
178
–
12
–
Shares
held by
employee
share trusts
$m
(35)
–
Unrealised
gains and
losses
reserve
$m
111
–
Currency
translation
reserve
$m
269
–
Other
reserves
$m
(2,896)
–
Retained
earnings
$m
1,636
1,222
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
(725)
1,222
2
(2)
2
2
9
7
16
18
Total
equity
$m
(717)
1,224
2
(2)
2
2
9
7
16
18
1,242
8
2
–
–
–
–
–
–
–
–
2
1,238
1,240
–
(47)
–
(47)
–
24
5
(188)
–
309
–
–
–
–
–
10
–
24
5
(188)
–
319
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9)
169
(1)
11
–
–
–
–
–
–
–
–
–
(47)
62
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
2
–
–
2
–
–
–
2
2
–
–
–
–
–
–
–
(2)
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
7
16
16
(62)
24
5
(188)
–
(18)
(2,888)
113
269
2,653
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
All items above are shown net of tax.
Notes on pages 95 to 143 form an integral
part of these Financial Statements.
92
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
Group statement of financial position
31 December 2017
ASSETS
Property, plant and equipment
Goodwill and other intangible assets
Investment in associates and joint ventures
Trade and other receivables
Retirement benefit assets
Other financial assets
Non-current tax receivable
Deferred tax assets
Total non-current assets
Inventories
Trade and other receivables
Current tax receivable
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
Non-current tax payable
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net liabilities
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
19 February 2018
Notes on pages 95 to 143 form an integral
part of these Financial Statements.
Note
12
13
14
16
25
15
7
16
15
17
2
20
32
18
19
20
25
32
18
19
7
2
27
27
27
27
27
27
27
2017
$m
425
1,467
141
–
3
228
16
56
2016
$m
419
1,292
111
8
–
248
23
48
2,336
2,149
3
551
101
16
168
839
3,175
(126)
–
(343)
(768)
(3)
(64)
(1,304)
(1,893)
(104)
(417)
(121)
(5)
(25)
(157)
(2,722)
(4,026)
(851)
154
10
(5)
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)
(2,874)
(2,860)
79
373
1,405
(858)
7
(851)
111
451
1,392
(767)
8
(759)
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Group Financial Statements
93
Note
24
24
7
10
15
7
2017
$m
593
263
856
(76)
1
(147)
634
(44)
(229)
(47)
–
(30)
–
(6)
14
–
–
9
–
20
75
(25)
(263)
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)
–
1,277
–
22
9
6
–
(1)
(216)
589
(3)
(10)
8
(593)
(1,693)
(3)
–
–
–
–
–
153
–
(5)
(1)
459
–
(315)
–
109
–
(446)
(1,456)
(75)
117
16
58
(920)
1,098
(61)
117
20
17
17
(47)
(188)
–
–
458
400
–
(400)
(355)
22
(110)
1,107
55
(64)
1,098
Group Financial Statements continued
Group statement of cash flows
For the year ended 31 December 2017
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
Landlord contributions to property, plant and equipment
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
Disposal of equity securities available-for-sale
Tax paid on disposals
Net cash from investing activities
Cash flow from financing activities
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
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 95 to 143 form an integral
part of these Financial Statements.
94
IHG | Annual Report and Form 20-F 2017
Group 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 2017
were authorised for issue in accordance with a resolution of the
Directors on 19 February 2018. 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 2017, the Group has adopted:
• ‘Amendments to IAS 7 Statement of Cash Flows: Disclosure
Initiative’, which requires disclosure of changes in liabilities arising
from financing activities, including both changes arising from
cash flows and non-cash changes, such as foreign exchange
adjustments. This new disclosure is provided in note 20 to the
Group Financial Statements.
• ‘Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax
Assets for Unrealised Losses’. Application of these amendments
has had no impact on the Group Financial Statements.
• Amendments to existing standards arising from the Annual
Improvements to IFRSs 2014-2016 cycle. These amendments have
not impacted the Group Financial Statements.
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 (i.e. existing rights that give it the current
ability to direct the relevant activities of the investee);
• Exposure, or rights, to variable returns from its involvement
with the investee; and
• The ability to use its power over the investee to affect its returns.
All intra-group balances and transactions are eliminated
on consolidation.
The assets, liabilities and results of those businesses acquired or
disposed of are consolidated for the period during which they were
under the Group’s control.
The Group operates a deferred compensation plan in the US which
allows certain employees to make additional provision for
retirement, through the deferral of salary with matching company
contributions. Employees can draw down on the plan in certain
limited circumstances during employment. The assets of the plan
are held in a company-owned trust which is not consolidated as
the relevant activity of the trust, being the investment of the funds
in the trust, is directed by the participating employees of the plan
and the company has no exposure to the gains and losses resulting
from those investment decisions. The assets of the trust are held
solely for the benefit of the participating employees and to pay plan
expenses, other than in the case of a company insolvency in which
case they can be claimed by the general creditors of the company.
At 31 December 2017, the trust had assets with a fair value of $197m
(2016: $161m).
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Group Financial Statements
95
Accounting policies continued
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 98 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 generally 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.
96
IHG | Annual Report and Form 20-F 2017
Group Financial Statements Associates and joint ventures
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the entity, but is not
control or joint control over those policies.
A joint venture exists when two or more parties have joint control
over, and rights to the net assets of, the venture. Joint control is
the contractually agreed sharing of control which only exists when
decisions about the relevant activities require the unanimous
consent of the parties sharing control.
Associates and joint ventures are accounted for using the equity
method unless the associate or joint venture is classified as held for
sale. Under the equity method, the Group’s investment is recorded
at cost adjusted by the Group’s share of post-acquisition profits and
losses and other movements in the investee’s reserves. When the
Group’s share of losses exceeds its interest in an associate or
joint venture, the Group’s carrying amount is reduced to $nil and
recognition of further losses is discontinued except to the extent
that the Group has incurred legal or constructive obligations or
made payments on behalf of an associate or joint venture.
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Accounting policies
97
Accounting policies continued
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.
Self insurance
Liabilities in respect of self insured risks include projected
settlements for known and incurred but not reported claims.
Projected settlements are estimated based on historical trends
and actuarial data.
Provisions
Provisions are recognised when the Group has a present obligation
as a result of a past event, it is probable that a payment will be
made and a reliable estimate of the amount payable can be made.
If the effect of the time value of money is material, the provision is
discounted using a current pre-tax discount rate that reflects the
risks specific to the liability.
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.
Retirement benefits
Defined contribution plans
Payments to defined contribution schemes are charged to the
income statement as they fall due.
Defined benefit plans
Plan assets are measured at fair value and plan liabilities are measured
on an actuarial basis, using the projected unit credit method and
discounting at an interest rate equivalent to the current rate of return
on a high-quality corporate bond of equivalent currency and term
to the plan liabilities. The difference between the value of plan assets
and liabilities at the period-end date is the amount of surplus or
deficit recorded in the statement of financial position as an asset or
liability. An asset is recognised when the employer has an unconditional
right to use the surplus at some point during the life of the plan
or on its wind-up.
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.
98
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 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.
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 hotel
rooms revenue and recognises the fees as the hotel revenues occur.
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
as the hotel revenues occur and an incentive fee, generally based
on the hotel’s annual profitability or cash flows, which is recognised
over time when it is considered probable that the related
performance criteria will be met.
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Accounting policies
99
Accounting policies continued
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.
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, 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.
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.
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.
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.
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.
100
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
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 2017, the future redemption liability was $760m
(2016: $685m). 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 $10m.
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 2017, the Group had goodwill of $237m (2016:
$232m) and brands of $193m (2016: $193m), both of which are
subject to annual impairment testing. Information on the impairment
tests performed is included in note 13.
At 31 December 2017, the Group also had property, plant and
equipment, other intangible assets and investments in associates
and joint ventures with a net book value of $425m, $1,037m and
$141m (2016: $419m, $867m and $111m) respectively. In 2017,
an impairment charge of $18m (2016: $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 $13m.
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’s assessment of the
impact of IFRS 15 is substantially complete and a summary of the
main changes and impacts on IHG are as follows:
1. 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, no revenue or matching cost is recognised.
2. 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 good or service to the customer that is distinct 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 as franchise services are provided, over the life of the
related contract. The spreading of these fees will result in an initial
reduction to revenue and operating profit, and the recognition
of deferred revenue on the balance sheet, reflecting the profile
of increased amounts received in recent years.
3. Contract acquisition costs
Contract acquisition costs related to securing management and
franchise contracts are currently charged to the income statement
as incurred. Under IFRS 15, certain costs qualify to be capitalised as
the cost of obtaining a contract and are amortised over the initial
term of the related contract. This change results in an increase to
operating profit and the capitalisation of contract costs on the
balance sheet.
4. Amounts paid to hotel owners to secure management contracts
and franchise agreements (‘Key money’)
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 will result in a reduction to
revenue, no change to operating profit, and the reclassification
of key money on the balance sheet from intangible assets to
contract assets.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Accounting policies
101
7. System Fund surplus or deficit
Under current accounting, the Fund surplus or deficit is carried
forward on the Group statement of financial position as set out on
page 100. Under IFRS 15, the Fund surplus or deficit will be recognised
in the Group income statement. Both the current accounting
treatment and the change on applying IFRS 15, and the equivalent
US GAAP standard, are consistent with current and expected future
practice across the hotel industry. The Fund surplus of $158m at
31 December 2017 will be derecognised resulting in a reduction
in the Group’s net liabilities.
The changes detailed in 6 and 7 above will result in an increase
in recorded revenue and reduction in operating profit in 2017.
8. 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.
9. Quantification of impacts
The Group will apply the full retrospective approach when
transitioning to the new standard which will result in restated
comparatives on the basis that IFRS 15 had always applied.
The estimated impacts of adjustments 1. to 5. on the 2017 results are
as follows:
Impact
1. Employee cost reimbursements
2. Initial franchise and re-licensing fees
3. Contract acquisition costs
4. Key money
5. Derecognition of management
contracts
Other
Group
revenue
$m
1,103
(14)
–
(17)
–
2
Group
operating
profit
$m
Group net
liabilities
$m
–
(14)
5
–
8
–
–
(111)
43
–
(192)
1
1,074
(1)
(259)
The impact of deferring revenue in relation to the loyalty programme
and recognising System Fund revenues and expenses in the Group
income statement (items 6. and 7.) is expected to increase Group
revenue by an additional $1.2bn. The impact on Group operating
profit and Group net liabilities is still being assessed. The Group
has an agreement with the IHG Owners Association to spend Fund
income for the benefit of hotels in the IHG System such that the
Group does not make a profit or loss from operating the Fund
over the medium term.
Accounting policies continued
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 will result in the derecognition of historic
intangible asset balances and a lower amortisation charge in
the income statement.
6. System Fund revenues and expenses
The Group operates a System Fund (the Fund) to collect and
administer cash assessments from hotel owners for the specific
purpose of use in marketing, the guest reservation systems and
hotel loyalty programme. The Fund also receives proceeds from the
sale of loyalty points under third-party co-branding arrangements.
The Fund is planned to break even and is managed for the benefit
of hotels in the System with the objective of driving revenues for the
hotels. Under current accounting, these receipts and expenses are
not recorded in the Group income statement as set out on page 100.
Under IFRS 15, an entity is regarded as a principal if it controls
a service prior to transfer to the customer. As marketing and
reservations expenses primarily comprise payroll and marketing
costs incurred under contracts entered into by the Group,
management have determined that the Group controls these
services. Fund revenues and expenses will therefore be recognised
on a gross basis in the Group income statement. Assessment fees
from hotel owners are generally levied as a percentage of hotel
revenues and will be recognised as those hotel revenues occur.
In respect of the loyalty programme, the Group has determined
that the related performance obligation is not satisfied in full until
the member has redeemed the points at a participating hotel.
Accordingly, revenue related to loyalty points earned by members
or sold under co-branding arrangements will be deferred in an
amount that reflects the stand-alone selling price of the future
benefit to the member. As materially all of the points will be
redeemed at IHG managed or franchised hotels owned by third
parties, IHG is deemed to be acting as agent on redemption and will
therefore recognise the related revenue net of the cost of reimbursing
the hotel that is providing the hotel stay. The deferred revenue
balance under IFRS 15 will be significantly higher than the points
redemption cost liability that is recognised under current accounting
resulting in an increase in the Group’s net liabilities.
Management has also determined that in addition to the performance
obligation for the redemption of points, co-branding arrangements
contain other performance obligations including marketing services
and the right to access the loyalty programme. Revenue attributable
to the stand-alone selling price of these additional services is
recognised over the term of the co-branding arrangement.
Certain travel agency commission revenues within the Fund will
continue to be recognised on a net basis, where it has been
determined that IHG acts as agent under IFRS 15.
102
IHG | Annual Report and Form 20-F 2017
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’s assessment of the impact of
IFRS 9 is substantially complete and a summary of the changes and
impacts on IHG are as follows:
1. Financial assets at fair value through other comprehensive income
The Group holds equity investments which it currently classifies as
available-for-sale financial assets. Changes in fair value are
accumulated in equity and on disposal are recycled through the
income statement. Under IFRS 9, these assets will be recorded at fair
value through other comprehensive income with no recycling to the
income statement.
IFRS 9 will not be applied to assets derecognised prior to 1 January
2018 and therefore there will be no change to the gain of $73m
recognised on disposal of an available-for-sale equity investment
in 2017 (see note 5).
2. Trade receivables and loans issued to hotel owners to secure
management contracts and franchise agreements
Trade receivables, trade deposits and loans issued to hotel owners
to secure management contracts and franchise agreements are held
to collect contractual cash flows and are expected to give rise to
cash flows representing solely payments of principal and interest.
Management have therefore concluded that they continue to meet
the criteria for amortised cost measurement under IFRS 9.
3. Impairment
The Group will apply the three-stage expected credit loss model
introduced by IFRS 9 in respect of trade deposits and loans issued
to hotel owners to secure management contracts and franchise
agreements. The expected credit loss model is based on the
concepts of ’12-month expected credit losses’ or ‘lifetime expected
credit losses’ depending on the performance of the underlying
asset. Management’s current assessments do not indicate any
material change in impairment provisions as a result of IFRS 9.
The Group will apply the simplified version of the expected credit
loss model permitted by IFRS 9 in respect of trade receivables, which
involves assessing lifetime expected credit losses on all balances.
To estimate the required impairment provision, management has
assessed historical collection rates by geographical region,
incorporating adjustments for future expectations. No material
impact on the financial statements is expected from application
of the expected credit loss model to trade receivables.
4. Hedge accounting
Management have determined that all existing hedge relationships
that are currently designated effective hedging relationships will
continue to qualify for hedge accounting under IFRS 9. As IFRS 9
does not change the general principles of how an entity accounts
for effective hedges, applying the hedging requirements of IFRS 9
will not impact the Group Financial Statements.
5. Financial liabilities
Management’s initial assessments indicate no impact on the Group’s
accounting for financial liabilities as the rules on classification and
measurement of financial liabilities remain largely unchanged
compared with IAS 39.
Except for hedge accounting, retrospective application of IFRS 9
is required. The new rules for hedge accounting will be applied
prospectively in line with the requirements of the new standard.
The Group does not plan to restate prior periods as allowed by
the transition provisions of IFRS 9.
IFRS 16 ‘Leases’
The Group will 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 which is similar to the current accounting model for finance
leases under IAS 17.
Lessees will be required to recognise on the balance sheet ‘right-of-
use’ assets which represent the right to use underlying assets during
the lease term and a lease liability representing the minimum lease
payment for all leases. Depreciation of ‘right-of-use’ assets and
interest on lease liabilities will be charged to the income statement,
replacing the corresponding operating lease rentals.
The Group will take the elections available under IFRS 16 not to apply
the lease accounting model to leases which are considered low
value or which have a term of less than 12 months.
The Group currently plans to apply the full retrospective method of
application. Management are currently quantifying the impact of
adopting IFRS 16 which is expected to result in an increase in lease
liabilities of $350m–$400m at 31 December 2017, and an immaterial
impact on profit after tax.
Other
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.
From 1 January 2019, the Group will apply the amendments to:
• IAS 28 ‘Investments in Associates and Joint Ventures’ relating to
long-term interests to which the equity method is not applied;
• IFRS 9 ‘Financial Instruments’ relating to prepayment features
with negative compensation;
• IFRIC 23 ‘Uncertainty over Income Tax Treatments’; and
• Other existing standards arising from the Annual Improvements
to IFRSs 2015–2017 cycle.
The amendments are not expected to have a material impact
on the Group’s reported financial performance or position.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Accounting policies
103
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=£0.78 (2016: $1=£0.74, 2015: $1=£0.65). In the case of the euro, the translation rate is $1=€0.89 (2016: $1=€0.90, 2015:
$1=€0.90).
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=£0.74 (2016: $1=£0.81, 2015: $1=£0.68). In the case of the euro, the translation rate is $1=€0.83 (2016: $1=€0.95, 2015:
$1=€0.92).
2. Segmental information
The management of the Group’s operations, excluding Central functions, is organised within four geographical regions:
• 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 2017
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.
104
IHG | Annual Report and Form 20-F 2017
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
703
172
150
–
1,025
109
132
–
–
241
17
193
34
–
244
4
122
–
–
126
–
–
–
148
148
833
619
184
148
1,784
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
606
65
29
(56)
644
37
681
85
26
–
(25)
86
(2)
84
14
91
2
(20)
87
(2)
85
2
73
–
(23)
52
–
52
–
–
–
(110)
(110)
(29)
(139)
707
255
31
(234)
759
4
763
Group
$m
759
4
763
(85)
678
(85)
593
Group Financial Statements 2. Segmental information continued
31 December 2017
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
Non-current tax payable
Deferred tax liabilities
Loans and other borrowings
Total liabilities
Year ended 31 December 2017
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(gains) of associates and joint ventures
Impairment charges
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
1,525
350
264
154
541
2,834
16
56
101
168
3,175
(470)
(146)
(86)
(60)
(999)
(1,761)
(64)
(25)
(157)
(2,019)
(4,026)
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
120
31
–
1
18
18
10
–
–
–
8
6
–
(4)
–
2
3
–
–
–
188
336
53
21
–
–
103
21
(3)
18
a Included in the $103m of depreciation and amortisation is $53m relating to administrative expenses and $50m relating to cost of sales.
Reconciliation of capital expenditure
Capital expenditure per management reporting
Landlord contributions to property, plant and equipment
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
120
–
–
120
10
51
47
12
120
18
–
–
18
–
15
–
3
18
8
–
–
8
–
6
–
2
8
2
–
–
2
2
–
–
–
2
188
14
(1)
201
32
169
–
–
201
336
14
(1)
349
44
241
47
17
349
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
105
Notes to the Group Financial Statements continued
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
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)
2. Segmental information continued
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.
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
106
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 2. Segmental information continued
31 December 2016
Other segmental information
Capital expenditure (see below)
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(gains) of associates and joint ventures
Impairment charges
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
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.
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
Americas
$m
Europe
$m
AMEA
$m
Greater
China
$m
Central
$m
Group
$m
661
166
128
–
955
104
131
30
–
265
16
189
36
–
241
4
105
98
–
207
–
–
–
135
135
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
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
107
Notes to the Group Financial Statements continued
2. Segmental information continued
Year ended 31 December 2015
Other segmental information
Capital expenditure
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(gains) 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
49
19
–
–
262
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.
Geographical information
Revenue
United Kingdom
United States
China
Rest of World
Year ended
31
December
2017
$m
Year ended
31
December
2016
$m
Year ended
31
December
2015
$m
68
948
141
627
66
923
133
593
67
876
223
637
1,784
1,715
1,803
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
2017
$m
31
December
2016
$m
108
1,511
414
2,033
105
1,343
382
1,830
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.
108
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 3. Staff costs and Directors’ emoluments
Staffa
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
AMEA
Greater China
Central
2017
$m
2016
$m
2015
$m
583
33
5
24
645
537
29
5
23
594
562
33
5
28
628
2017
2016
2015
2,149
813
1,454
294
1,948
6,658
2,121
782
1,598
299
1,787
6,587
2,082
1,041
1,658
865
1,665
7,311
a Includes $13m (2016: $1m, 2015: $3m) classified as exceptional.
The costs of the above employees are borne by IHG. Of these, 91% were employed on a full-time basis and 9% 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 22,577 (2016: 22,002, 2015: 20,452) and their costs of $1,056m (2016: $1,002m, 2015: $936m) are borne by those hotels.
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 77.
4. Auditor’s remuneration paid to Ernst & Young LLP
Audit of the Financial Statementsa
Audit of subsidiaries
Audit-related assurance services
Other assurance services
Tax compliance
Tax advisory
Other non-audit services not covered by the above
a Includes $0.5m of additional fees for specific procedures performed in relation to the implementation of new accounting standards.
Audit fees in respect of the pension scheme were not material.
2017
$m
2016
$m
2015
$m
4.9
6.1
7.9
2017
$m
3.0
2.2
0.2
1.0
0.1
–
0.2
6.7
2016
$m
2.4
2.2
0.2
1.2
0.4
0.1
0.1
6.6
2015
$m
2.5
2.1
0.2
0.9
0.2
0.1
0.4
6.4
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
109
Notes to the Group Financial Statements continued
5. Exceptional items
Exceptional items before tax
Administrative expenses:
Kimpton integration costsa
Reorganisation costsb
Venezuelan currency lossesc
Corporate development costsd
Other operating income and expenses:
Gain on disposal of equity securities available-for-sale (note 15)
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 itemse
Exceptional taxf
2017
$m
2016
$m
2015
$m
(15)
(36)
–
–
(51)
73
–
–
73
(18)
–
(18)
4
(2)
118
116
(13)
–
–
–
(13)
–
–
–
–
(16)
–
(16)
(29)
12
–
12
(10)
(6)
(4)
(5)
(25)
–
871
9
880
(9)
(27)
(36)
819
(8)
–
(8)
a Relates to the cost of integrating Kimpton into the operations of the Group, which has now been completed.
b In September 2017, the Group launched a comprehensive efficiency programme which will fund a series of new strategic initiatives to drive an acceleration in IHG’s future growth.
The programme is centred around strengthening the Group’s organisational structure to redeploy resources to leverage scale in the highest opportunity markets and segments.
The programme is expected to be completed in 2019. Included in the $36m cost are consultancy fees of $24m and severance costs of $8m. An additional $9m has been charged
to the System Fund.
c Arose from changes to the Venezuelan exchange rate mechanisms and the adoption of the SIMADI exchange rate in 2015, this being the most accessible exchange rate open to
the Group for converting its bolivar earnings into US dollars. The exceptional loss arose from the re-measurement of the Group’s bolivar assets and liabilities to the relevant exchange
rate, being approximately $1=190VEF on adoption of SIMADI. Subsequent changes to the exchange rate mechanism have not resulted in material losses.
d Primarily legal costs related to development opportunities.
e In 2017, comprises a $7m (2016: $6m) deferred tax credit in respect of an associate investment impairment, a $6m (2016: $5m) deferred tax credit representing future tax relief on
Kimpton integration costs, a $13m current tax credit in respect of reorganisation costs and a $28m current tax charge relating to the gain on disposal of Avendra (see note 15). In 2016,
there was also a $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.
f Includes $108m relating to the impact of significant US tax reform that was enacted on 22 December 2017. This includes a current tax charge of $32m, relating predominantly to the
Group’s estimated ‘transition tax’ liability on previously undistributed earnings of foreign subsidiaries of US entities, and a deferred tax credit of $140m, being principally the impact
of the US federal tax rate reduction from 35% to 21% (effective 1 January 2018) on the Group’s US deferred tax liabilities, as well as the release of liabilities related to the Group’s
undistributed post-acquisition earnings of subsidiaries that are no longer required as a result of the US transition tax. In addition, a deferred tax credit of $10m arises on the release
of a contingency, previously charged as an exceptional item, which is no longer required due to statute of limitations expiry.
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 100.
110
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
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
2017
$m
2016
$m
2015
$m
1
3
4
69
20
–
89
3
3
6
74
20
(1)
93
2
3
5
74
20
(2)
92
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 $7m (2016: $3m, 2015: $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 3.0% (2016: 3.8%, 2015: 3.4%).
7. Tax
Tax on profit
Income tax
UK corporation tax at 19.25% (2016: 20.00%, 2015: 20.25%):
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 periodsa
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Changes in tax rates and tax lawsb
Adjustments to estimated recoverable deferred tax assetsc
Adjustments in respect of prior periodsa
Total deferred tax
Total income tax charge for the year
Further analysed as tax relating to:
Profit before exceptional itemsd
Exceptional items:
Tax on exceptional items (note 5)
Exceptional tax (note 5)
2017
$m
2016
$m
2015
$m
10
–
(2)
8
210
(13)
2
199
207
(10)
(87)
(9)
(16)
(122)
85
10
(7)
(1)
2
151
–
(97)
54
56
55
(2)
(25)
90
118
174
7
–
(17)
(10)
196
(1)
(27)
168
158
60
(21)
(13)
4
30
188
201
186
180
2
(118)
85
(12)
–
174
8
–
188
a In 2016, included $83m in respect of a change in tax treatment being approved by the US tax authority.
b In 2017, predominantly reflects a change in US tax rates following significant US tax reforms. In 2015, predominantly reflected the judgement that state tax law changes applied to the
deferred gain from the 2014 disposal of a controlling interest in InterContinental New York Barclay.
c Represents a re-assessment of the recovery of recognised and off-balance sheet deferred tax assets in line with the Group’s profit forecasts.
d Includes $156m (2016: $162m, 2015: $123m) in respect of US taxes.
All items above relate to continuing operations.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
111
Notes to the Group Financial Statements continued
7. Tax continued
Reconciliation of tax charge
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
Effects of changes in tax rates resulting from significant US tax reform
Release of provision for taxation on unremitted earnings following significant
US tax reform
Transition tax liability arising from significant US tax reform
Effect of other 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
2017
%
19.3
(0.5)
–
0.8
0.3
14.1
(13.2)
(7.6)
4.7
0.3
(1.9)
(1.3)
(2.5)
–
12.5
2016
%
20.0
(2.4)
–
3.8
0.7
13.7
–
–
–
0.4
(1.2)
(4.3)
(1.3)
–
29.4
Totala
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
Before exceptional itemsb
2016
%
2015
%
20.0
(2.2)
–
3.6
0.7
13.9
–
–
–
0.3
(1.1)
(4.1)
(1.1)
–
20.3
(0.4)
–
2.0
0.3
15.3
–
–
–
0.1
(0.1)
(1.7)
(5.4)
–
2017
%
19.3
(0.5)
–
0.6
0.3
14.1
–
–
–
0.3
(1.9)
(1.3)
(1.1)
–
29.8
30.0
30.4
a Calculated in relation to total profits including exceptional items.
b Calculated in relation to profits excluding exceptional items.
c Before exceptional items includes 13.8%pt (2016: 12.6%pt, 2015: 13.5%pt) driven by the relatively high US federal tax rate.
d In 2015, total of (1.5)% predominantly reflected the judgement that state tax law changes applied to the deferred gain from the 2014 disposal of a controlling interest
in InterContinental New York Barclay.
Tax paid
Total net tax paid during the year of $172m (2016: $130m, 2015: $110m) comprises $147m (2016: $130m, 2015: $109m) paid in respect of
operating activities and $25m (2016: $nil, 2015: $1m) 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 credit in the statement of comprehensive income
Current tax credit taken directly to equity
Total current tax charge
Movements to tax contingencies within the income statementa
Timing differences of cash tax paid and foreign exchange differencesb
Tax paid per cash flow
Cash tax rate on total profitsc
2017
$m
207
–
(12)
195
3
(26)
172
25%
2016
$m
56
(12)
(8)
36
11
83
130
22%
2015
$m
158
(2)
(8)
148
(7)
(31)
110
8%
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 was predominantly in respect of the US where the payment regulations resulted in a large overpayment in the year.
c Calculated as total cash paid divided by total accounting profit before tax.
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 2016 and 2017.
Current tax
Within current tax payable is $42m (2016: $39m) in respect of uncertain tax positions and offset against current tax receivable is $nil
(2016: $5m) 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 contingency item within the current tax payable balance does not exceed $8m (2016: $8m).
112
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 7. Tax continued
Deferred tax
At 1 January 2016
Income statement
Statement of
comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2016
Income statementb
Statement of
comprehensive income
Statement of changes in equity
Exchange and other adjustments
At 31 December 2017
Property,
plant and
equipment
$m
Deferred
gains on
loan notes
$m
Deferred
gains on
investments
$m
99
22
–
–
(1)
120
(22)
–
–
–
98
55
(3)
–
–
–
52
(18)
–
–
–
34
87
(9)
–
–
–
78
(24)
–
–
–
54
Losses
$m
(67)
19
–
–
4
(44)
1
–
–
3
Employee
benefits
$m
Intangible
assets
$m
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differencesa
$m
(32)
(3)
12
–
(4)
(27)
(4)
10
–
1
70
(7)
–
–
(3)
60
(4)
–
–
2
58
70
–
–
–
(11)
59
(61)
(1)
–
3
–
(196)
99
(1)
(3)
6
(95)
10
4
3
(5)
(83)
(40)
(20)
Total
$m
86
118
11
(3)
(9)
203
(122)
13
3
4
101
a Primarily relates to provisions, accruals, amortisation and share-based payments.
b Movements largely reflect the impact of significant US tax reform enacted on 22 December 2017.
Deferred gains on investments represent tax which would crystallise upon a sale of a related joint venture, associate or other equity
investment. The Group released its deferred tax provision (2016: $59m) in relation to temporary differences associated with post-acquisition
undistributed earnings of subsidiaries largely as a result of the impact of the new US transition tax charge. Deferred gains on loan notes
represent tax which is expected to fall due for payment in 2025 (2016: 2025). The deferred tax asset recognised in respect of losses of
$40m (2016: $44m) is wholly in respect of revenue losses. A deferred tax asset of $2m (2016: $nil) is recognised in a legal entity which
suffered a tax loss in the current or preceding period; this asset is recognised based on the profit forecast of the entity in question.
Within deferred tax liabilities is $nil (2016: $10m) in respect of uncertain tax positions and offset against deferred tax assets is $5m
(2016: $2m) 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
Losses
$m
Employee
benefits
$m
Intangible
assets
$m
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differences
$m
(5)
103
–
98
–
34
–
34
–
54
–
54
(17)
(15)
(8)
(40)
(5)
(15)
–
(20)
(3)
29
32
58
–
–
–
–
(19)
(60)
(4)
(83)
Total
$m
(49)
130
20
101
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
2017
$m
(56)
157
101
2016
$m
(48)
251
203
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
Othera
Total
a Primarily relates to provisions, accruals and amortisation.
Gross
Unrecognised deferred tax
2017
$m
452
515
967
35
2016
$m
518
475
993
27
1,002
1,020
2017
$m
76
99
175
9
184
2016
$m
94
83
177
5
182
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
113
Notes to the Group Financial Statements continued
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:
2020
2021
2022
2023
2024
After 2024
Gross
Unrecognised deferred tax
2017
$m
2016
$m
2017
$m
2016
$m
–
21
11
1
20
118
3
27
11
3
20
125
–
5
3
–
1
1
7
3
1
1
26
25
No deferred tax liability has been recognised in respect of $0.5bn (2016: $0.9bn) of taxable temporary differences relating to subsidiaries
(comprising undistributed earnings and net inherent gains) 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.
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 42.
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.
Significant US tax reform was enacted on 22 December 2017, which notably included a reduction in the US federal tax rate from 35% to 21%,
with effect from 1 January 2018 for IHG. Although most of the new provisions only take effect from 2018, some aspects have a direct impact
on the Group’s 2017 position and are detailed in note 5. The Group continues to evaluate the impact of the provisions that will take effect
during 2018, noting that new regulations and guidance on US state and federal tax are anticipated to be released during the year. At this
stage, we are anticipating an overall Group tax rate reduction of mid to high single digit percentage points for 2018 onwards.
Rules restricting UK loss usage and interest deductibility were enacted in 2017. These rules will 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 overall cash tax payable. The forthcoming
reduction to the UK corporation tax rate (to 17%, effective 1 April 2020) is 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)
2017
cents
per share
2016
cents
per share
2015
cents
per share
64.0
33.0
202.5
299.5
57.5
30.0
632.9
720.4
52.0
27.5
–
79.5
2017
$m
127
62
404
593
2016
$m
137
56
1,500
1,693
2015
$m
125
63
–
188
Proposed (not recognised as a liability at 31 December):
Final
71.0
64.0
57.5
135
126
135
The final dividend of 71.0¢ per ordinary share is proposed for approval at the Annual General Meeting (AGM) on 4 May 2018 and is payable
on the shares in issue at 3 April 2018.
114
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
9. Earnings per ordinary share
Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average
number of ordinary shares, excluding investment in own shares, in issue during the year.
Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted
average number of dilutive ordinary share awards outstanding during the year.
Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful
comparison of the Group’s performance.
Information concerning non-GAAP measures
can be found in the Strategic Report on page 26.
Continuing and total operations
Basic earnings per ordinary share
Profit available for equity holders ($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)
Exceptional tax ($m)
Adjusted earnings ($m)
Basic weighted average number of ordinary shares (millions)
Adjusted earnings per ordinary share (cents)
Adjusted diluted earnings per ordinary share
Adjusted earnings ($m)
Diluted weighted average number of ordinary shares (millions)
Adjusted diluted earnings per ordinary share (cents)
Diluted weighted average number of ordinary shares is calculated as:
Basic weighted average number of ordinary shares
Dilutive potential ordinary shares
2017
2016
2015
592
193
414
212
306.7
195.3
592
194
414
214
305.2
193.5
1,222
235
520.0
1,222
238
513.4
592
414
1,222
(4)
2
(118)
472
193
29
(12)
–
431
212
244.6
203.3
472
194
431
214
243.3
201.4
(819)
8
–
411
235
174.9
411
238
172.7
2017
millions
2016
millions
2015
millions
193
1
194
212
2
214
235
3
238
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
The Group did not dispose of any hotels during either 2017 or 2016 but incurred $5m of costs relating to prior year disposals in 2016.
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
115
Notes to the Group Financial Statements continued
12. Property, plant and equipment
Cost
At 1 January 2016
Additions
Capitalised interest
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2016
Additions
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2017
Depreciation and impairment
At 1 January 2016
Provided
System Fund expense
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2016
Provided
System Fund expense
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
At 1 January 2016
Fixtures,
fittings
and
equipment
$m
Land and
buildings
$m
377
2
1
–
–
(2)
378
9
–
–
1
576
27
–
(162)
(3)
(9)
429
35
(19)
(4)
8
Total
$m
953
29
1
(162)
(3)
(11)
807
44
(19)
(4)
9
388
449
837
(74)
(5)
–
–
–
1
(78)
(7)
–
–
–
(1)
(86)
302
300
303
(451)
(25)
(5)
162
2
7
(310)
(28)
(6)
19
3
(4)
(525)
(30)
(5)
162
2
8
(388)
(35)
(6)
19
3
(5)
(326)
(412)
123
119
125
425
419
428
The Group’s property, plant and equipment mainly comprises hotels, but also offices and computer hardware, throughout the world.
43% (2016: 44%) of the net book value relates to the largest owned and leased hotel, of a total of eight open hotels (2016: eight open hotels).
At 31 December 2017 and 31 December 2016, there were no hotels under construction.
The carrying value of property, plant and equipment held under finance leases at 31 December 2017 was $181m (2016: $182m).
26% (2016: 25%) of hotel properties by net book value were directly owned, with 57% (2016: 58%) 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 2017:
Land and buildings
Fixtures, fittings and equipment
Americas
$m
Europe
$m
AMEA
$m
289
43
332
–
1
1
–
10
10
Greater
China
$m
–
–
–
Central
$m
13
69
82
Total
$m
302
123
425
116
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 13. Goodwill and other intangible assets
Goodwill
$m
Brands
$m
Software
$m
Management
contracts
$m
Other
intangibles
$m
Cost
At 1 January 2016
Additions
Capitalised interest
Disposals
Exchange and other adjustments
At 31 December 2016
Additions
Capitalised interest
Disposals
Exchange and other adjustments
At 31 December 2017
Amortisation and impairment
At 1 January 2016
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2016
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
At 1 January 2016
371
193
–
–
–
(1)
–
–
–
–
370
193
–
–
–
7
–
–
–
–
377
193
(138)
–
–
–
–
(138)
–
–
–
(2)
(140)
237
232
233
–
–
–
–
–
–
–
–
–
–
–
193
193
193
498
127
4
(45)
(1)
583
168
6
(14)
2
745
(202)
(41)
(26)
45
1
(223)
(40)
(30)
14
(2)
(281)
464
360
296
465
–
–
–
(21)
444
–
–
–
22
466
(139)
(11)
–
–
9
(141)
(10)
–
–
(8)
(159)
307
303
326
Total
$m
1,790
180
4
(52)
(36)
1,886
241
6
(17)
41
263
53
–
(7)
(13)
296
73
–
(3)
10
376
2,157
(85)
(14)
–
3
4
(92)
(18)
–
2
(2)
(110)
266
204
178
(564)
(66)
(26)
48
14
(594)
(68)
(30)
16
(14)
(690)
1,467
1,292
1,226
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
2017
Brands
$m
Goodwill
$m
2016
Brands
$m
63
37
21
10
106
237
193
–
–
–
–
193
63
37
21
10
101
232
193
–
–
–
–
193
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
117
Notes to the Group Financial Statements continued
13. Goodwill and other intangible assets continued
The recoverable amounts of the CGUs are determined from value in use calculations. These calculations include a three-year period using
pre-tax cash flow forecasts derived from the most recent financial budgets approved by management, incorporating growth rates based on
management’s past experience and industry growth forecasts. The key assumptions that underpin the financial budgets are RevPAR growth
and net System size growth. Cash flows beyond the three-year period are extrapolated using terminal growth rates that do not exceed the
average long-term growth rates for the relevant markets. A 10% contingency factor is applied to reduce all cash flow projections before
being 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, which are considered to be key assumptions, are as follows:
Americas Managed
Americas Franchised
Europe Managed
Europe Franchised
AMEA Managed and Franchised
Terminal growth rate
Discount rate
2017
%
2.0
2.0
2.0
2.0
3.5
2016
%
2.0
2.0
2.0
2.0
3.5
2017
%
10.4
9.4
10.8
9.8
14.1
2016
%
9.8
8.8
9.3
8.4
13.0
Impairment was not required at either 31 December 2017 or 31 December 2016.
Given the contingency factor applied to the cash flow projections and the significant amounts by which the recoverable amounts of the
CGUs exceed their carrying amounts, management have determined that impairment charges would not arise from reasonably possible
changes in the key assumptions.
Software
Software includes $234m relating to the development of the next-generation Guest Reservation System with Amadeus. The asset was
not amortised during the year as the roll-out to hotels is expected to commence in 2018.
Substantially all software additions are internally developed.
Management contracts
In addition to the management contracts acquired with the Kimpton acquisition in 2015 (see note 10), management contracts relate
to contract values recognised as part of the proceeds for hotels sold.
At 31 December 2017, 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
2017
Remaining
amortisation
period
Years
Net book
value
$m
2016
Remaining
amortisation
period
Years
Net book
value
$m
61
37
31
34
35
46
45
47
62
38
29
31
36
47
46
48
The weighted average remaining amortisation period for all management contracts is 30 years (2016: 31 years).
118
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 14. Investment in associates and joint ventures
Cost
At 1 January 2016
Additions
Share of (losses)/profits
Capital return
Transfer of financial assets
Dividends
At 31 December 2016
Additions
Share of profits/(losses)
Disposals
Dividends
Exchange and other adjustments
At 31 December 2017
Impairment
At 1 January 2016
Charge for the year
At 31 December 2016
Charge for the year
Disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
At 1 January 2016
Associates
$m
Joint
ventures
$m
Total
$m
121
14
(3)
–
(14)
(5)
113
47
2
(9)
(4)
2
151
(12)
(16)
(28)
(18)
9
(37)
114
85
109
27
–
1
(2)
–
–
26
–
1
–
–
–
27
–
–
–
–
–
–
27
26
27
148
14
(2)
(2)
(14)
(5)
139
47
3
(9)
(4)
2
178
(12)
(16)
(28)
(18)
9
(37)
141
111
136
All associates and joint ventures are accounted for using the equity method.
During 2016, 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 charges of $18m and $16m in 2017 and 2016 respectively, relate to the Barclay associate (see following page) and result
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% (2016: 7.3%) and a terminal capitalisation rate of 6.3% (2016: 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%. During 2017, the investment was disposed of for $nil proceeds.
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
119
Notes to the Group Financial Statements continued
14. Investment in associates and joint ventures continued
Barclay associate
The Group held one material associate investment at 31 December 2017, a 19.9% interest in 111 East 48th Street Holdings, LLC (the Barclay
associate) which owns InterContinental New York Barclay (the hotel), 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. Whilst the Group has the ability
to exercise significant influence through certain decision rights, approval rights relating to the hotel’s operating and capital budgets rest
solely with the 80.1% majority member. The Group’s ability to receive cash dividends is dependent on the hotel generating sufficient income
to satisfy specified owner returns.
In March 2017, the Group invested $43m in the Barclay associate in conjunction with a refinancing of the hotel. The cash was used to repay
a $43m supplemental bank loan for which the Group had previously provided an indemnity for 100% of the related obligations. As a
consequence, the indemnity has been extinguished.
Summarised financial information in respect of the Barclay associate is set out below:
Non-current assets
Current assets
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 2017
$m
31 December 2016
$m
540
41
(19)
(287)
275
55
10
65
552
19
(283)
(39)
249
50
(7)
43
12 months to
31 December 2017
$m
12 months to
31 December 2016
$m
90
(16)
(4)
45
(34)
(8)
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.
Associates
Joint ventures
2017
$m
2016
$m
2015
$m
2017
$m
2016
$m
2015
$m
2017
$m
2016
$m
Total
2015
$m
Share of profits/(losses)
Operating profits/(losses)
before exceptional items
6
5
3
1
1
(1)
7
6
2
120
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 15. Other financial assets
Equity securities available-for-sale
Quoted equity shares
Unquoted equity shares
Loans and receivables
Trade deposits and loans
Restricted funds
Bank accounts pledged as security
Total other financial assets
Analysed as:
Current
Non-current
2017
$m
10
117
127
43
32
42
117
244
16
228
244
2016
$m
14
142
156
43
31
38
112
268
20
248
268
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 $93m (2016: $121m), Hong Kong dollars $25m
(2016: $24m) and other currencies $9m (2016: $11m). Unlisted equity shares are mainly investments in entities that own hotels which the
Group manages. Dividend income from available-for-sale equity securities of $10m (2016: $7m) is reported as ‘other operating income
and expenses’ in the Group income statement.
On 13 December 2017, the sale of Avendra, LLC (Avendra) to Aramark Services, Inc., resulted in the Group receiving cash proceeds of $75m
from its 6.29% interest in Avendra and the recording of a $73m exceptional gain in the Group income statement (see note 5). Prior to the
sale, the Group’s investment in Avendra was included in unquoted equity securities available-for-sale. Avendra is a North American
hospitality procurement services provider.
Trade deposits and loans include deposits of $66m 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 $28m (2016: $19m); 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
2017
$m
(22)
4
(18)
2016
$m
(28)
6
(22)
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
121
Notes to the Group Financial Statements continued
16. Trade and other receivables
Current
Trade receivables
Other receivables
Prepayments
Loans to and receivables from associates
Non-current
Loans to associates
2017
$m
452
23
74
2
551
2016
$m
368
25
77
2
472
–
8
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
AMEA
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
333
68
82
71
554
Provision
$m
(1)
(2)
(7)
(67)
(77)
2017
Net
$m
332
66
75
4
477
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
2017
$m
305
51
71
50
477
Provision
$m
(1)
(3)
(7)
(58)
(69)
2016
$m
(56)
(25)
5
5
2
Gross
$m
289
58
64
61
472
2017
$m
(69)
(15)
2
6
(1)
2016
$m
256
43
61
43
403
2016
Net
$m
288
55
57
3
403
2015
$m
(47)
(28)
12
7
–
(77)
(69)
(56)
122
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 17. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
2017
$m
164
4
168
2016
$m
131
75
206
Cash at bank and in hand includes bank balances of $116m (2016: $91m) which are matched by bank overdrafts of $110m (2016: $89m)
under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number of bank accounts with the same
financial institution and the Group pays interest on net overdraft balances within each pool. The cash pools are used for day-to-day cash
management purposes and are managed as closely as possible to a zero balance on a net basis for each pool. Overseas subsidiaries are
typically in a cash-positive position with the matching overdrafts held by the Group’s central treasury company in the UK.
For the purposes of the Group statement of cash flows, cash and cash equivalents comprise the following:
Cash at bank and in hand
Short-term deposits
Bank overdrafts (note 20)
Short-term deposits 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
2017
$m
164
4
168
(110)
58
2017
$m
81
48
49
230
360
768
85
36
121
2016
$m
131
75
206
(89)
117
2016
$m
94
38
37
206
306
681
78
122
200
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
123
Notes to the Group Financial Statements continued
19. Provisions
At 1 January 2016
Provided
Utilised
At 31 December 2016 and 31 December 2017
Analysed as:
Current
Non-current
See note 30 for a description of and further
information on the Security Incidents provision.
Security
Incidents
$m
Litigation
$m
–
5
–
5
15
–
(12)
3
2017
$m
3
5
8
Total
$m
15
5
(12)
8
2016
$m
3
5
8
The amount provided in 2016 in respect of the Security Incidents was 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 2016, an insurance
recovery of $8m was also recorded by the System Fund.
20. Loans and other borrowings
Unsecured bank loans
Finance lease obligations
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
Bank overdrafts
Total loans and other borrowings
Denominated in the following currencies:
Sterling
US dollars
Euros
Other
Current
$m
Non-current
$m
–
16
–
–
–
16
110
126
–
124
2
–
262
215
538
406
472
1,893
–
1,893
1,416
477
–
–
2017
Total
$m
262
231
538
406
472
1,909
110
2,019
1,416
601
2
–
126
1,893
2,019
Current
$m
Non-current
$m
–
17
–
–
–
17
89
106
–
101
2
3
106
107
210
489
370
430
1,606
–
1,606
1,289
317
–
–
2016
Total
$m
107
227
489
370
430
1,623
89
1,712
1,289
418
2
3
1,606
1,712
Loans and other borrowings, excluding bank overdrafts, comprise the liabilities included in the financing activities section of the Group
statement of cash flows and their movements are analysed as follows:
Unsecured bank loans
Finance lease obligations
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
At 1 January
2017
$m
107
227
489
370
430
Cash flows
$m
153
–
–
–
–
1,623
153
Exchange
adjustments
$m
Other
$m
At 31 December
2017
$m
1
–
48
36
42
127
1
4
1
–
–
6
262
231
538
406
472
1,909
124
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
20. Loans and other borrowings continued
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 2022.
The Bilateral Facility comprises a $75m revolving credit facility maturing in March 2022. 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 2.15% at 31 December 2017.
Finance lease obligations
Finance lease obligations, which relate primarily to the 99-year lease (of which 88 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
16
67
3,234
3,317
(3,086)
231
2017
Present
value of
payments
$m
16
49
166
231
–
231
Minimum
lease
payments
$m
17
64
3,252
3,333
(3,106)
227
2016
Present
value of
payments
$m
17
48
162
227
–
227
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%.
£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.
Bank overdrafts
Bank overdrafts are matched by equivalent amounts of cash and cash equivalents under the Group’s cash pooling arrangements (see note 17).
Facilities provided by banks
Committed
Uncommitted
Unutilised facilities expire:
Within one year
After two but before five years
Utilised
$m
Unutilised
$m
264
1
265
1,086
69
1,155
2017
Total
$m
1,350
70
1,420
Utilised
$m
Unutilised
$m
110
–
110
1,240
70
1,310
2017
$m
69
1,086
1,155
2016
Total
$m
1,350
70
1,420
2016
$m
70
1,240
1,310
Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
125
Notes to the Group Financial Statements continued
21. Net debt
Cash and cash equivalents
Loans and other borrowings – current
– non-current
Net debt
Movement in net debt
Net decrease in cash and cash equivalents, net of overdrafts
Add back cash flows in respect of other components of net debt:
Issue of long-term bonds
Long-term bonds repaid
Increase in other borrowings
Increase in net debt arising from cash flows
Non-cash movements:
Finance lease obligations
Decrease/(increase) in accrued interest
Exchange and other adjustments
Increase 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.
2017
$m
168
(126)
(1,893)
(1,851)
2016
$m
206
(106)
(1,606)
(1,506)
(75)
(920)
–
–
(153)
(228)
(4)
1
(114)
(345)
(1,506)
(1,851)
(459)
315
(109)
(1,173)
(4)
(6)
206
(977)
(529)
(1,506)
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 liabilities 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 2017 or 31 December 2016.
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 2017, the Group held short-dated foreign exchange swaps with principals of $30m
(2016: $120m).
The fair value of these derivative financial instruments at 31 December 2017 was $nil (2016: $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 $160m (2016: $325m).
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.
126
IHG | Annual Report and Form 20-F 2017
Group Financial Statements
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, 86% of borrowings were fixed rate debt at 31 December 2017
(2016: 93%).
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 2017, 2016 or 2015.
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 liabilities, 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
Sterling interest rates
5¢ fall
5¢ fall
1% increase
1% increase
Decrease/(increase) in net liabilities
Sterling: US dollar exchange rate
Euro: US dollar exchange rate
5¢ fall
5¢ fall
2017
$m
4.0
(2.1)
(2.9)
0.3
44.1
(4.1)
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)
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.
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 (2016: $3m) 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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
127
Notes to the Group Financial Statements continued
22. Financial risk management continued
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:
31 December 2017
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
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
Less than
1 year
$m
Between
1 and 2
years
$m
Between
2 and 5
years
$m
More than
5 years
$m
110
264
21
15
10
16
719
3
–
–
21
15
10
16
138
5
–
–
601
46
30
51
189
–
–
–
–
445
510
3,234
176
–
Less than
1 year
$m
Between
1 and 2
years
$m
Between
2 and 5
years
$m
More than
5 years
$m
89
110
19
14
9
17
–
–
19
14
9
16
–
–
57
42
28
48
–
–
510
419
473
3,252
192
–
–
Total
$m
110
264
643
521
560
3,317
1,222
8
Total
$m
89
110
605
489
519
3,333
1,219
8
3
Trade and other payables, excluding deferred revenue
644
173
210
Provisions
Derivative financial liabilities:
Forward foreign exchange contracts
3
3
5
–
–
–
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
128
IHG | Annual Report and Form 20-F 2017
Note
17
15
15
16
2017
$m
168
127
117
477
889
2016
$m
206
156
112
403
877
Group Financial Statements 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 $993m at 31 December 2017 (2016: $739m). 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 receivables, excluding prepayments
Financial liabilities
£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
32
18
19
168
127
117
477
889
(538)
(406)
(472)
(231)
(262)
(110)
(760)
(889)
–
(8)
2017
Fair
value
$m
168
127
117
477
889
(593)
(441)
(454)
(318)
(262)
(110)
(760)
(889)
–
(8)
Carrying
value
$m
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)
(3,676)
(3,835)
(3,289)
(3,430)
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
129
Notes to the Group Financial Statements continued
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
£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
10
–
(593)
(441)
(454)
–
–
–
–
–
–
–
(318)
–
–
117
–
–
–
–
–
2017
Total
$m
10
117
(593)
(441)
(454)
(318)
–
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)
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 2017 was 6.9% (2016: 7.2%).
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 30.7 (2016: 24.5)
and a non-marketability factor of 30% (2016: 30%) is applied. A 10% increase in the average P/E ratio would result in a $2m increase
(2016: $2m) in the fair value of the investments and a 10% decrease in the average P/E ratio would result in a $2m decrease (2016: $2m) in
the fair value of the investments. A 10% increase in net assets would result in a $7m increase (2016: $7m) in the fair value of the investments
and a 10% decrease in net assets would result in a $7m decrease (2016: $7m) 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
Valuation gains reclassified to the income statement on disposal
Exchange and other adjustments
At 31 December
2017
$m
142
2
(3)
–
48
(73)
1
117
2016
$m
136
2
(15)
14
5
–
–
142
130
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 24. Reconciliation of profit for the year to cash flow from operations
For the year ended 31 December 2017
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
19
2017
$m
593
85
85
103
18
(22)
21
4
(71)
8
36
44
–
(1)
(44)
(3)
263
856
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
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 and 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 2017 (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 enabled it to achieve full funding. The assets of the
Plan were subsequently invested in liability-matching assets. In November 2017, the Company received approval from the Internal Revenue
Service to proceed with a plan termination and distribution of the assets from the Plan in 2018. This will involve certain members being
offered lump-sum payments with remaining plan interests subject to the expected purchase of annuity contracts.
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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
131
Notes to the Group Financial Statements continued
25. Retirement benefits continued
In respect of the defined benefit plans, the amounts recognised in the Group income statement, in ‘administrative expenses’, are:
Net interest expense
Administration costs
Settlement gain
Operating profit
Pension plans
2017
$m
2016
$m
1
–
–
1
1
–
–
1
UK
2015
$m
1
1
–
2
2017
$m
2016
$m
2
1
–
3
2
1
–
3
US
2015
$m
3
1
(2)
2
US Post-employment benefits
2017
$m
2016
$m
2015
$m
2017
$m
2016
$m
1
–
–
1
1
–
–
1
1
–
–
1
4
1
–
5
4
1
–
5
Total
2015
$m
5
2
(2)
5
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.
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
9
–
–
–
(3)
6
–
1
(9)
(2)
–
(10)
2017
Total
$m
9
1
(9)
(2)
(3)
(4)
Plan
assets
$m
Plan
obligations
$m
2016
Total
$m
Plan
assets
$m
Plan
obligations
$m
–
–
–
–
–
–
–
–
(7)
6
(11)
1
–
(4)
6
(11)
1
–
(4)
–
–
–
3
(4)
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:
Retirement benefit assets
Fair value of plan assets
Present value of benefit obligations
Surplus in schemes
Asset restriction
Total retirement benefit assets
Retirement benefit obligations
Fair value of plan assets
Present value of benefit obligations
Total retirement benefit obligations
Total fair value of plan assets
Total present value of benefit obligations
2017
$m
UK
2016
$m
–
–
–
–
–
–
(29)
(29)
–
(29)
–
–
–
–
–
–
(27)
(27)
–
(27)
2017
$m
152
(146)
6
(3)
3
–
(51)
(51)
152
(197)
Pension plans
US
2016
$m
US Post-employment
benefits
2017
$m
2016
$m
–
–
–
–
–
148
(195)
(47)
148
(195)
–
–
–
–
–
–
(24)
(24)
–
(24)
–
–
–
–
–
–
(22)
(22)
–
(22)
132
IHG | Annual Report and Form 20-F 2017
2015
Total
$m
(7)
5
10
2
3
13
Total
2016
$m
–
–
–
–
–
148
(244)
(96)
148
(244)
–
5
10
2
–
17
2017
$m
152
(146)
6
(3)
3
–
(104)
(104)
152
(250)
Group Financial Statements 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 2025)
Post-65 (ultimate rate reached in 2024)
Ultimate rate that the cost trend rate
trends to
2017
%
3.2
2.6
3.2
2016
%
3.3
2.7
3.3
UK
2015
%
3.2
4.0
3.2
Pension plans
US
2015
%
–
3.9
–
2017
%
–
3.3
–
2016
%
–
3.7
–
US Post-employment benefits
2017
%
–
3.3
–
7.7
8.7
4.5
2016
%
–
3.8
–
7.0
8.3
4.5
2015
%
–
3.9
–
7.5
9.0
4.5
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_2016 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-2017 mortality tables.
In both the UK and US, the assumptions have been revised during the year to reflect life expectancy at retirement age as follows:
Current pensioners at 65a
– male
Future pensioners at 65b
– male
– female
– female
2017
Years
2016
Years
24
26
25
28
24
26
25
28
UK
2015
Years
26
29
28
31
Pension plans
US
2015
Years
21
23
23
25
2017
Years
2016
Years
21
23
22
24
21
23
22
24
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 2037.
The assumptions allow for expected increases in longevity.
Sensitivities
Changes in assumptions used for determining retirement benefit costs and obligations may have a material impact on the income statement
and the statement of financial position. The key assumptions are the pension increases, discount rate, the rate of inflation and the assumed
mortality rate. The sensitivity analysis below is based on extrapolating reasonable changes in these assumptions, using year-end conditions
and assuming no interdependency between the assumptions.
Pensions increases
– 0.25% decrease
Discount rate
Inflation rate
– 0.25% increase
– 0.25% decrease
– 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)
–
(1.1)
1.4
1.5
(1.4)
1.4
(1.1)
0.8
–
–
(0.1)
–
–
–
0.2
–
–
2.9
(2.7)
–
–
9.7
A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit
obligations as at 31 December 2017 by $1.9m (2016: $1.9m, 2015: $2.0m) and a one percentage point decrease would decrease the
obligations by $1.8m (2016: $1.7m, 2015: $1.8m).
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
133
Notes to the Group Financial Statements continued
25. Retirement benefits continued
Movement in benefit obligation
Benefit obligation at 1 January
Interest expense
Benefits paid
Re-measurement losses
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 gains
Administration costs
Fair value of plan assets at 31 December
2017
$m
27
1
(1)
–
2
29
–
29
29
2017
$m
–
1
(1)
–
–
–
–
UK
2016
$m
27
1
–
4
(5)
27
–
27
27
UK
2016
$m
–
–
–
–
–
–
–
Pension plans
US
2016
$m
202
7
(13)
(1)
–
195
145
50
195
US Post-employment
benefits
2017
$m
22
1
(1)
2
–
24
–
24
24
2016
$m
21
1
(1)
1
–
22
–
22
22
Pension plans
US
2016
$m
121
36
(13)
5
–
(1)
148
US Post-employment
benefits
2017
$m
2016
$m
–
1
(1)
–
–
–
–
–
1
(1)
–
–
–
–
2017
$m
195
7
(13)
8
–
197
146
51
197
2017
$m
148
4
(13)
5
9
(1)
152
Company payments are expected to be $9m in 2018.
The plan assets are measured at fair value and comprise the following:
Investments quoted in active markets
Investment funds: fixed income securities
Unquoted investments
Cash
Movement in asset restriction
Balance at 1 January
Re-measurement losses
Balance at 31 December
2017
$m
–
–
–
UK
2016
$m
–
–
–
Pension plans
US
2016
$m
–
–
–
2017
$m
–
3
3
US Post-employment
benefits
2017
$m
2016
$m
–
–
–
–
–
–
2017
$m
244
9
(15)
10
2
Total
2016
$m
250
9
(14)
4
(5)
250
244
146
104
250
2017
$m
148
6
(15)
5
9
(1)
152
2017
$m
150
2
152
2017
$m
–
3
3
145
99
244
Total
2016
$m
121
37
(14)
5
–
(1)
148
US
2016
$m
146
2
148
Total
2016
$m
–
–
–
134
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 25. Retirement benefits continued
Estimated future benefit payments
Within one year
Between one and five years
After five years
2017
$m
–
3
17
20
UK
2016
$m
–
2
13
15
Average duration of obligation (years)
20.5
21.0
Pension plans
US
2016
$m
14
54
63
131
10.3
2017
$m
14
53
62
129
10.3
US Post-employment
benefits
2017
$m
1
6
7
14
10.4
2016
$m
1
5
7
13
10.2
2017
$m
15
61
82
158
Total
2016
$m
15
61
83
159
The above table assumes a continuation of the US Inter-Continental Hotels Pension Plan.
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 and/or receive one-off awards of 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 234,918 (2016: 335,775, 2015: 265,285) shares were awarded to participants. In 2017
this number included 79,471 (2016: 103,071, 2015: 58,338) shares awarded as part of recruitment terms or for one-off individual 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 805,045 (2016: 1,355,721, 2015: 1,803,308) shares were awarded to employees under the plan, comprising
280,458 (2016: 888,518, 2015: 1,803,308) performance-related awards and 524,587 (2016: 467,203, 2015: 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 77.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
135
Notes to the Group Financial Statements continued
26. Share-based payments continued
The Group recognised a cost of $21m (2016: $17m, 2015: $19m) in operating profit and $2m (2016: $nil, 2015: $nil) within exceptional
administrative expenses related to equity-settled share-based payment transactions during the year, net of amounts borne by the
System Fund.
No aggregate consideration was received in respect of ordinary shares issued under option schemes during 2017, 2016 or 2015.
The Group uses separate option pricing models and assumptions depending on the plan. The following table sets out information about
awards granted in 2017, 2016 and 2015:
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
2017
2016
2015
2017
2016
2015
3,781.0p
2,725.0p
2,565.0p
4,300.0p
2,846.0p
2,634.0p
n/a
n/a
n/a
3.0
3.0
3.0
2.05%
0.10%
24%
3.0
2.55%
0.36%
24%
3.0
2.34%
0.59%
22%
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:
APP
Number of shares
thousands
Performance-related
awards
Number of shares
thousands
LTIP
Restricted
stock units
Number of shares
thousands
Outstanding at 1 January 2015
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2015
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2016
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2017
Fair value of awards granted during the year (cents)
2017
2016
2015
Weighted average remaining contract life (years)
At 31 December 2017
At 31 December 2016
At 31 December 2015
768
265
(307)
(37)
689
336
(229)
(104)
(7)
685
235
(263)
(21)
(20)
616
4,959.3
3,671.9
3,874.5
1.2
1.2
1.2
6,120
1,803
(1,278)
(1,370)
5,275
889
(915)
–
(1,048)
4,201
280
(928)
–
(1,160)
2,393
4,133.2
1,768.0
1,734.5
0.6
0.9
1.1
–
–
–
–
–
467
–
–
(18)
449
525
–
–
(58)
916
5,251.0
3,624.5
–
1.7
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 3,804.7p (2016: 2,511.1p). The closing
share price on 31 December 2017 was 4,719.0p and the range during the year was 3,655.4p to 4,719.0p per share.
136
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 27. Equity
Equity share capital
Allotted, called up and fully paid
At 1 January 2015 (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)
Share capital consolidation
Exchange adjustments
At 31 December 2017 (ordinary shares of 1917⁄21p each)
Number
of shares
millions
Nominal
value
$m
Share
premium
$m
248
–
248
(42)
–
206
(9)
–
197
61
(3)
58
–
(10)
48
–
5
53
117
(6)
111
–
(18)
93
–
8
101
Equity
share
capital
$m
178
(9)
169
–
(28)
141
–
13
154
The authority given to the Company at the AGM held on 5 May 2017 to purchase its own shares was still valid at 31 December 2017.
A resolution to renew the authority will be put to shareholders at the AGM on 4 May 2018.
The Company no longer has an authorised share capital.
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.
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.
On 21 February 2017, the Group announced a $400m return of funds to shareholders by way of a special dividend and share consolidation.
On 5 May 2017, shareholders approved the share consolidation on the basis of 45 new ordinary shares of 19 17/21p per share for every
47 existing ordinary shares of 18 318/329p, which became effective on 8 May 2017. The special dividend was paid to shareholders on 22 May 2017.
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 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 19 17/21p shares. The share premium reserve represents the amount of proceeds received for
shares in excess of their nominal value.
The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 90 to 92 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 $5.4m (2016: $10.5m, 2015: $18.3m) in respect of 0.2m (2016: 0.3m, 2015: 0.5m) InterContinental Hotels Group PLC ordinary
shares held by employee share trusts, with a market value at 31 December 2017 of $12.1m (2016: $15.0m, 2015: $19.8m).
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 2017
was $nil (2016: $3m net liability, 2015: $3m net liability).
Treasury shares
During 2017, 0.9m (2016: 0.9m) treasury shares were transferred to the employee share trusts. As a result of the 2017 share consolidation,
the number of shares held in treasury reduced by 0.4m (2016: reduced by 1.7m as a result of the 2016 share consolidation). At 31 December
2017, 7.6m shares (2016: 8.9m, 2015: 11.5m) with a nominal value of $2.0m (2016: $2.1m, 2015: $2.7m) 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.
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
137
Notes to the Group Financial Statements continued
28. Operating leases
During the year ended 31 December 2017, $86m (2016: $84m, 2015: $77m) 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
(2016: $32m, 2015: $29m). $2m (2016: $2m, 2015: $3m) 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
2017
$m
56
46
45
60
30
297
534
2016
$m
53
49
43
41
58
346
590
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 15 years (2016: 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 (2016: $4m).
29. Capital and other commitments
Contracts placed for expenditure not provided for in the Financial Statements:
Property, plant and equipment
Intangible assets
2017
$m
18
86
104
2016
$m
11
86
97
The Group has also committed to invest in a number of its associates, with an estimated outstanding commitment of $33m at 31 December
2017 (2016: $36m) based on current forecasts. A loan facility of $5m (2016: $nil) has also been made available to a hotel owner which was
undrawn at 31 December 2017.
138
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 30. Contingencies and guarantees
Security incidents
In 2016, the Group was notified of (a) a security incident at a number of Kimpton hotels that resulted in unauthorised access to guest payment
card data (the Kimpton Security Incident), and (b) a security incident that involved malware being installed on servers that processed
payment cards used at restaurants and bars of 12 IHG managed properties (the Americas Security Incident), together the Security Incidents.
A provision of $5m was made at 31 December 2016, and remains in place at 31 December 2017 (see note 19), to cover the estimated cost
of reimbursing the impacted card networks for counterfeit fraud losses and related expenses. At 31 December 2017, this estimate relates
to both the Kimpton and Americas Security Incidents whereas at 31 December 2016 it was Kimpton related only. The estimates continue
to involve significant judgement based on currently available information and remain subject to change as actual claims are made and
new information comes to light.
The Group may be exposed to investigations regarding compliance with applicable State and Federal data security standards, and legal
action from individuals and organisations impacted by the Security Incidents. Due to the general nature of the regulatory enquiries received
and class action filings to date, it is not practicable to make a reliable estimate of the possible financial effects of any such claims on the
Group at this time. To date, four lawsuits have been filed against IHG entities relating to the Security Incidents, all of which are in the early
stages of litigation.
In respect of the $5m provision, 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.
Tax
In November 2017, the European Commission (EC) gave formal notice of a preliminary view it had reached that the Group Financing
Exemption, included in the UK’s Controlled Foreign Company rules, is in breach of the EU’s State Aid rules. The EC will conduct its detailed
investigation during 2018, with a final decision expected later in the year, or even in 2019. Should the EC conclude that the State Aid rules
are breached, the UK can appeal before the General Court (and possibly the Court of Justice thereafter). The Group and its advisors
consider that it is unlikely that a finding of State Aid will ultimately be upheld.
Other
In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts.
At 31 December 2017, the amount provided in the Financial Statements was $6m (2016: $5m) and the maximum unprovided exposure
under such guarantees was $31m (2016: $14m).
At 31 December 2017, the Group had outstanding letters of credit of $35m (2016: $37m) mainly relating to self insurance programmes.
The Group may guarantee bank loans made to facilitate third-party ownership of hotels under IHG management or franchise contracts.
At 31 December 2017, there were guarantees of $54m in place (2016: $33m).
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.
At 31 December 2017, the Group had no other contingent liabilities (2016: $nil).
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
139
Notes to the Group Financial Statements continued
31. Related party disclosures
Total compensation of key management personnel
Short-term employment benefits
Contributions to defined contribution pension plans
Equity compensation benefits
Termination benefits
2017
$m
21.3
0.6
10.2
1.9
34.0
2016
$m
19.2
0.8
7.4
–
27.4
There were no other transactions with key management personnel during the years ended 31 December 2017, 2016 or 2015.
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
Associates
Joint ventures
2017
$m
2016
$m
2015
$m
2017
$m
2016
$m
2015
$m
2017
$m
2016
$m
8
–
2
5
9
1
3
7
2
1
–
–
1
–
–
–
–
–
9
–
2
6
9
1
2015
$m
19.5
0.7
6.2
–
26.4
Total
2015
$m
3
7
2
In addition, loans both to and from the Barclay associate of $237m (2016: $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 2.0% in 2017 (2016: 1.4%)) 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 100 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 (deficit)/surplus 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 5,555 (2016: 5,434, 2015: 5,416) 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 $343m and non-current liabilities of $417m.
2017
$m
158
760
918
The net change in the loyalty programme liability and Fund surplus contributed an inflow of $8m (2016: $65m, 2015: $42m) to the Group’s
cash flow from operations.
140
IHG | Annual Report and Form 20-F 2017
2017
$m
2016
$m
1,562
324
1,439
283
321
452
339
(69)
7
335
360
311
41
3
2016
$m
227
685
912
2015
$m
1,351
222
308
345
295
118
2
2015
$m
186
649
835
Group Financial Statements 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 2017 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) (k)
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) (cj)
Bristol Oakbrook Tenant Company (k)
Café Biarritz (n)
Cambridge Lodging LLC (g) (k)
Capital Lodging LLC (g) (k)
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) (l)
Guangzhou SC Hotels Services Ltd. (t)
H.I. (Ireland) Limited (u)
HI Sugarloaf, LLC (g) (ci)
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 Mexicana S.A. de C.V. (ab)
Holiday Inns (China) Ltd (ac)
Holiday Inns (Chongqing), Inc. (l)
Holiday Inns (Courtalin) Holdings SAS (x)
Holiday Inns (Courtalin) SAS (b) (x)
Holiday Inns (England) Ltd. (n)
Holiday Inns (Germany), LLC (g) (l)
Holiday Inns (Guangzhou), Inc. (l)
Holiday Inns (Jamaica) Inc. (l)
Holiday Inns (Malaysia) Ltd. (ac)
Holiday Inns (Middle East) Ltd. (ac)
Holiday Inns (Philippines), Inc. (l)
Holiday Inns (Saudi Arabia), Inc. (l)
Holiday Inns (South East Asia) Inc. (l)
Holiday Inns (Thailand) Ltd. (ac)
Holiday Inns (UK), Inc. (l)
Holiday Inns Crowne Plaza (Hong Kong), Inc. (l)
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) (ci)
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 Commission Services SRL (co)
IHG Community Development, LLC (g) (ci)
IHG Cyprus Limited (bw)
IHG de Argentina SA (al)
IHG ECS (Barbados) SRL (co)
IHG Franchising Brasil Ltda (bd)
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 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) (cj)
IHG Management SL d.o.o (bo)
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 Berlin Service Company
GmbH (au)
InterContinental (Branston) 1 Limited (c) (n)
InterContinental (PB) 1 (n)
InterContinental (PB) 2 (ay)
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)
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. (l)
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 (bc)
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 (ck)
Inter-Continental Hotels of San Francisco Inc. (k)
Inter-Continental IOHC (Mauritius) Limited (bg)
Inter-Continental Management (Australia) Pty
Limited (aa)
InterContinental Management AM LLC (cm)
InterContinental Management Bulgaria EOOD (bp)
InterContinental Management France SAS (x)
InterContinental Management Poland sp. z.o.o (cn)
InterContinental Overseas Holding Corporation (k)
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
141
Notes to the Group Financial Statements continued
33. Group companies continued
Fully owned subsidiaries continued
KG Benefits LLC (g) (k)
KG Gift Card Inc. (bz)
KG Liability LLC (g) (k)
KG Technology, LLC (g) (k)
KHP Washington Operator LLC (g) (k)
KHRG 11th Avenue Hotel LLC (g) (k)
KHRG 851 LLC (g) (k)
KHRG Aertson LLC (g) (k)
KHRG Alexandria LLC (g) (k)
KHRG Alexis, LLC (g) (k)
KHRG Allegro, LLC (g) (k)
KHRG Argyle, LLC (g) (k)
KHRG Austin Beverage Company, LLC (g) (k)
KHRG Baltimore, LLC (g) (k)
KHRG Born LLC (g) (k)
KHRG Boston Hotel, LLC (g) (k)
KHRG Canary LLC (g) (k)
KHRG Cayman LLC (g) (k)
KHRG Cayman Employer Ltd. (k)
KHRG DC 1731 LLC (g) (k)
KHRG DC 2505 LLC (g) (k)
KHRG Donovan LLC (g) (k)
KHRG Employer, LLC (g) (k)
KHRG Goleta LLC (g) (k)
KHRG Gray LLC (g) (k)
KHRG Gray U2 LLC (g) (k)
KHRG Hillcrest, LLC (g) (k)
KHRG Huntington Beach LLC (g) (k)
KHRG King Street, LLC (g) (k)
KHRG La Peer LLC (g) (k)
KHRG Miami Beach LLC (g) (k)
KHRG Muse LLC (g) (k)
KHRG NPC LLC (g) (k)
KHRG Onyx LLC (g) (k)
KHRG Palladian LLC (g) (k)
KHRG Palomar Phoenix LLC (g) (k)
KHRG Philly Monaco LLC (g) (k)
KHRG Pittsburgh LLC (g) (k)
KHRG Reynolds LLC (g) (k)
KHRG Riverplace LLC (g) (k)
KHRG Sacramento LLC (g) (k)
KHRG Savannah LLC (g) (k)
KHRG Schofield LLC (g) (k)
KHRG Sedona LLC (g) (k)
KHRG SFD LLC (g) (k)
KHRG State Street LLC (g) (k)
KHRG Sutter LLC (g) (k)
KHRG Sutter Union LLC (g) (k)
KHRG Taconic LLC (g) (k)
KHRG Tariff LLC (g) (k)
KHRG Texas Hospitality, LLC (g) (k)
KHRG Texas Operations, LLC (g) (k)
KHRG Tryon LLC (g) (k)
KHRG Vero Beach, LLC (g) (k)
KHRG Vintage Park LLC (g) (k)
KHRG VZ Austin LLC (g) (k)
KHRG Wabash LLC (g) (k)
KHRG Westwood, LLC (g) (k)
KHRG Wilshire LLC (g) (k)
KHRG WPB LLC (g) (k)
KHRG Zamora LLC (g) (k)
Kimpton Hollywood Licenses LLC (g) (k)
Kimpton Hotel & Restaurant Group, LLC (g) (k)
Kimpton Phoenix Licenses Holdings LLC (g) (k)
Kimpton Sedona Licenses LLC (g) (k)
Louisiana Acquisitions Corp. (k)
Mercer Fairview Holdings LLC (g) (k)
MH Lodging LLC (g) (k)
PML Services LLC (g) (as)
Pollstrong Limited (n)
Powell Pine, Inc. (k)
Priscilla Holiday of Texas, Inc. (cl)
PT SC Hotels & Resorts Indonesia (bh)
Resort Services International (Cayo Largo) L.P. (ci)
RM Lodging LLC (g) (k)
SBS Maryland Beverage Company LLC (g) (as)
SC Cellars Limited (ay)
SC Hotels International Services, Inc. (k)
SC Leisure Group Limited (n)
SC NAS 2 Limited (n)
SC Quest Limited (n)
SC Reservations (Philippines) Inc. (l)
SCH Insurance Company (bi)
SCIH Branston 3 (n)
Semiramis for training of Hotel Personnel
and Hotel Management SAE (ch)
SF MH Acquisition LLC (g) (k)
Six Continents Corporate Services (ay)
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) (k)
Southern Pacific Hotel Corporation (BVI) Ltd. (v)
Southern Pacific Hotels Properties Limited (v)
SPHC Group Pty Ltd. (aa)
SPHC Management Ltd. (bq)
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) (k)
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)
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)
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)
142
IHG | Annual Report and Form 20-F 2017
Group Financial Statements 33. Group companies continued
Key
(a)
Directly owned by InterContinental
Hotels Group PLC
(e)
(f)
(g)
(b) Ordinary shares and preference shares
(c) Ordinary A and ordinary B shares
Ordinary shares and redeemable
(d)
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
(h)
(i)
Registered addresses
(j)
(k)
Beograd, Cincar, Jankova 3, Serbia
1209 Orange Street, Wilmington, DE 19801,
USA
800 S. Gay Street, Suite 201, Knoxville,
TN 37929, 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
(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)
(bi)
(bj)
Johannesgasse 28, 1030 Wien,
Am Heumarkt 4, 1030 Wien, Austria
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-10787, 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
Alameda Jau 536, Suite 3S-C, Sao Paulo,
Brazil
Alameda Jau 536, Suite 3S-D, Sao Paulo,
Brazil
Bastioni di Porta Nuova 21, 20121 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
150 South Champlain Street, Burlington,
VT 05401, USA
Calle 16, No 28–51, Variante las Palmas,
Colombia
(bl)
(bk)
(bn)
Suite B, Ground Floor, Regal House,
Queensway, Gibraltar
Suite 2500, 1000 De La Gauchetiere St.
West, Montreal QC H3B 0A2, Canada
(bm) 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
Cesta v Mestni log 1, 1000 Ljubljana,
Slovenia
4fl. 51B Bulgaria Blvd., Triaditsa, Sofia,
Bulgaria
C/o Holiday Inn & Suites, Cnr Waigani Drive
& Wards Road, Port Moresby, National
Capital District, Papua New Guinea
(bq)
(bp)
(bo)
(br) Tahachal, Kathmandu, Nepal
(bs)
(bt)
(bu)
(bv)
(bw)
(bx)
(by)
(bz)
(ca)
(cb)
(cc)
(cd)
(ce)
(cf)
(cg)
(ch)
(ci)
(cj)
(ck)
(cl)
(cm)
(cn)
(co)
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
818 West 7th Street, Los Angeles, CA 90017,
USA
Carr Hospitality, LLC, 1455 Pennsylvania
Avenue, NW, Suite 100, Washington,
DC 20004, USA
2711 Centerville Road, Suite 400,
Wilmington, DE 19805, 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
Ground Floor, Al Kamel Law Building, Plot
52-b, Banks Area, Six of October City, Egypt
289 S. Culver Street, Lawrenceville, GA
30046, USA
111 Eighth Avenue, New York, NY 10011, USA
701 S. Carson Street, Suite 200, Carson City,
NV 89701, USA
11003 Onion Creek Court, Austin, TX 78747,
USA
10, V. Sargsyan Str, office 114, Yerevan 0010,
Armenia
Al. Jerozolimskie 56C, 00-803 Warsaw,
Poland
Suite 1, Ground Floor, The Financial Services
Centre, Bishops Court Hill, St. Michael,
Barbados, BB14004
IHG | Annual Report and Form 20-F 2017 | Group Financial Statements | Notes
143
Parent Company Financial Statements
Parent Company
Financial Statements
146
146
146
147
Parent Company Financial Statements
Parent Company statement of financial position
Parent Company statement of changes in equity
Notes to the Parent Company Financial Statements
Holiday Inn London – Watford Junction, UK
144
IHG | Annual Report and Form 20-F 2017
IHG | Annual Report and Form 20-F 2017 | Parent Company Financial Statements
145
Parent Company Financial Statements
Parent Company statement of financial position
31 December 2017
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
19 February 2018
The profit on ordinary activities after taxation amounts to £460m (2016: £455m).
Parent Company statement of changes in equity
Note
2017
£m
2016
£m
3
4
5
6
8
3,042
3,019
13
(898)
(885)
2,157
(1,049)
1,108
39
75
7
275
712
1,108
24
(917)
(893)
2,126
(1,047)
1,079
39
75
7
252
706
1,079
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
39
75
–
–
–
–
–
39
–
–
–
–
39
–
–
–
–
–
75
–
–
–
–
75
7
–
–
–
–
–
7
–
–
–
–
7
Share-
based
payment
reserve
£m
234
–
–
–
18
–
252
–
–
23
–
275
Profit
and loss
account
£m
1,428
455
455
(1)
–
(1,176)
706
460
460
–
(454)
712
Total
equity
£m
1,783
455
455
(1)
18
(1,176)
1,079
460
460
23
(454)
1,108
At 1 January 2016
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
Profit for the year
Total comprehensive income for the year
Share-based payments capital contribution
Equity dividends paid
At 31 December 2017
Notes on pages 147 to 151 form an integral
part of these Financial Statements.
146
IHG | Annual Report and Form 20-F 2017
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 2017
were authorised for issue by the Board of Directors on 19 February
2018 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 pounds (£m) except
when otherwise indicated.
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’;
These Financial Statements have been prepared in accordance with
Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(FRS 101).
• 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
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 (2016: £0.02m) was borne by a subsidiary
undertaking in both years.
• 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 herein have, unless otherwise stated,
been applied consistently to all periods presented in these
Financial Statements.
IHG | Annual Report and Form 20-F 2017 | Parent Company Financial Statements | Notes
147
Notes to the Parent Company Financial Statements continued
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.
148
IHG | Annual Report and Form 20-F 2017
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 77.
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 2017
Share-based payments capital contribution
At 31 December 2017
2017
2016
8
2
10
8
2
10
2017
£m
2016
£m
3.8
4.5
Number of Directors
2017
2016
3
4
£m
3,019
23
3,042
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 141 to 143.
4. Debtors
Amounts owed by Group undertakings
Corporate taxation
5. Creditors: amounts falling due within one year
Amounts due to Group undertakings
2017
£m
1
12
13
2017
£m
898
2016
£m
10
14
24
2016
£m
917
IHG | Annual Report and Form 20-F 2017 | Parent Company Financial Statements | Notes
149
Notes to the Parent Company Financial Statements continued
6. Creditors: amounts falling due after more than one year
Loans and other borrowings
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
2017
£m
398
301
350
2016
£m
397
301
349
1,049
1,047
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 135 to 136.
The weighted average share price at the date of exercise for share awards vested during the year was 3,804.7p (2016: 2,511.1p).
The share awards outstanding at the year end have a weighted average contractual life of 1.2 years (2016: 1.2 years) for the Annual
Performance Plan, 0.6 years (2016: 0.9 years) for performance-related awards and 1.7 years (2016: 2.2 years) for restricted stock units.
8. Capital and reserves
Allotted, called up and fully paid
At 1 January 2016 (ordinary shares of 15 265/329p each)
Share capital consolidation
At 31 December 2016 (ordinary shares of 18318/329p each)
Share capital consolidation
At 31 December 2017 (ordinary shares of 1917/21p each)
Number
of shares
millions
Equity
share
capital
£m
248
(42)
206
(9)
197
39
–
39
–
39
The authority given to the Company at the Annual General Meeting (AGM) held on 5 May 2017 to purchase its own shares was still valid
at 31 December 2017. A resolution to renew the authority will be put to shareholders at the AGM on 4 May 2018.
The Company no longer has an authorised share capital.
At 31 December 2017, 7,607,430 (2016: 8,862,380) shares with a nominal value of £1,506,996 (2016: £1,680,889) 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.
150
IHG | Annual Report and Form 20-F 2017
Parent Company Financial Statements
9. Dividends and shareholder returns
Paid during the year:
Final (declared for previous year)
Interim
Special
2017
pence per
share
2016
pence per
share
49.4
24.4
156.4
230.2
40.3
22.6
438.2
501.1
2017
£m
98
46
310
454
2016
£m
95
45
1,036
1,176
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.
On 21 February 2017, the Group announced a $400m return of funds to shareholders by way of a special dividend and share consolidation.
On 5 May 2017, shareholders approved the share consolidation on the basis of 45 new ordinary shares of 19 17/21p per share for every
47 existing ordinary shares of 18 318/329p, which became effective on 8 May 2017. The special dividend was paid to shareholders on 22 May 2017.
The final dividend of 71.0¢ per ordinary share (amounting to $135m) is proposed for approval at the AGM on 4 May 2018 and is payable
on shares in issue at 3 April 2018. The final dividend will be paid at a rate per share calculated using the average of the daily exchange rates
from 18 April 2018 to 20 April 2018 inclusive, and will be announced on 23 April 2018.
10. Contingencies
Contingent liabilities of £196m (2016: £89m) in respect of the guarantees of the liabilities of subsidiaries have not been provided for in these
Financial Statements.
IHG | Annual Report and Form 20-F 2017 | Parent Company Financial Statements | Notes
151
Additional Information
Additional
Information
154 Other financial information
160 Directors’ Report
164 Group information
164 History and developments
164 Risk factors
167 Directors’ and Executive Committee
members’ shareholdings
168 Executive Directors’ benefits
upon termination of office
168 Description of securities other
than equity securities
169 Articles of Association
170 Working Time Regulations 1998
171 Material contracts
Legal proceedings
172
172 Exchange controls and restrictions
on payment of dividends
173 Shareholder information
173 Taxation
175 Disclosure controls and procedures
176 Summary of significant corporate
governance differences from
NYSE listing standards
177 Selected five-year consolidated
financial information
178 Return of funds
178 Purchases of equity securities
by the Company and
affiliated purchasers
179 Share price information
179 Dividend history
180 Shareholder profiles
181 Exhibits
182 Form 20-F cross-reference guide
184 Glossary
186 Useful information
186
Investor information
187 Financial calendars
187 Contacts
188 Forward-looking statements
Hotel Indigo London – Kensington, UK
152
IHG | Annual Report and Form 20-F 2017
IHG | Annual Report and Form 20-F 2017 | Additional Information
153
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 tables on pages 154 and 155:
• 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 2017
At actual exchange rates
Per Group income statement
Managed leases
Exceptional items
Underlying at actual exchange rates
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
2017
$m
1,784
(163)
–
1,621
2017
$m
991
164
192
126
148
1,621
(184)
1,437
644
86
83
52
(110)
755
(31)
724
2016
$m
1,715
(162)
–
1,553
Change
$m
Revenue
Change
%
69
(1)
–
68
4.0
(0.6)
–
4.4
At actual exchange rates
2016
$m
Change
$m
Change
%
959
150
186
117
141
1,553
(173)
1,380
633
73
77
45
(128)
700
(26)
674
32
14
6
9
7
68
(11)
57
11
13
6
7
18
55
(5)
50
3.3
9.3
3.2
7.7
5.0
4.4
(6.4)
4.1
1.7
17.8
7.8
15.6
14.1
7.9
(19.2)
7.4
2017
$m
763
(4)
(4)
755
2017
$m
996
165
195
128
149
1,633
(184)
1,449
649
85
86
52
(113)
759
(31)
728
2016
$m
678
(7)
29
700
Operating profit
Change
$m
Change
%
85
3
(33)
55
12.5
42.9
(113.8)
7.9
At constant currency
2016
$m
Change
$m
Change
%
959
150
186
117
141
1,553
(173)
1,380
633
73
77
45
(128)
700
(26)
674
37
15
9
11
8
80
(11)
69
16
12
9
7
15
59
(5)
54
3.9
10.0
4.8
9.4
5.7
5.2
(6.4)
5.0
2.5
16.4
11.7
15.6
11.7
8.4
(19.2)
8.0
Group fee margin
50.4%
48.8%
–
1.6ppts
50.2%
48.8%
–
1.4ppts
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 2017 and 2016, the Group Financial Statements would report revenue of $128m in 2017 and
$135m in 2016, using the respective average exchange rates for the year of $1=£0.78 and $1=£0.74. For constant currency reporting, 2017 revenue would be translated at $1=£0.74
giving a US dollar value of $135m, thereby showing that underlying revenue was flat year-on-year.
154
IHG | Annual Report and Form 20-F 2017
Additional Information Highlights for the year ended 31 December 2016
At actual exchange rates
Per Group income statement
Owned asset disposals
Managed leases
Liquidated damages
Exceptional items
2016
$m
1,715
–
(162)
–
–
2015
$m
1,803
(128)
(159)
(3)
–
Underlying at actual exchange rates
1,553
1,513
Change
$m
(88)
128
(3)
3
–
40
Revenue
Change
%
(4.9)
100.0
(1.9)
100.0
–
2.6
Underlying revenue
Americas
Europe
AMEA
Greater China
Central
Underlying Group revenue
Owned and leased revenue included above
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 (inc Kimpton)
2016
$m
959
150
186
117
141
1,553
(173)
1,380
633
73
77
45
(128)
700
(26)
674
At actual exchange rates
2015
$m
Change
$m
Change
%
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
2016
$m
678
–
(7)
–
29
700
2016
$m
967
161
187
123
144
1,582
(173)
1,409
914
160
195
109
135
1,513
(164)
1,349
640
594
76
78
47
(139)
702
(26)
676
76
81
41
(151)
641
(27)
614
2015
$m
1,499
(30)
(6)
(3)
(819)
641
Operating profit
Change
$m
Change
%
(821)
30
(1)
3
848
59
(54.8)
100.0
(16.7)
100.0
103.5
9.2
At constant currency
2015
$m
Change
$m
Change
%
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
IHG | Annual Report and Form 20-F 2017 | Additional Information | Other financial information
155
Other financial information continued
Underlying earnings per ordinary share reconciliation
The following table reconciles basic earnings per ordinary share to underlying earnings per ordinary share.
Basic earnings per ordinary share
Profit available for equity holders
Basic weighted average number of ordinary shares (millions)
Basic earnings per ordinary share (cents)
Underlying earnings per ordinary share
Profit available for equity holders
Adjusted for:
Exceptional items before tax
Tax on exceptional items
Exceptional tax credit
Managed leases
Tax on managed leases
Currency effect
Underlying profit available for equity holders
Underlying earnings per ordinary share (cents)
12 months ended
31 December
2017
$m
592
193
2016
$m
414
212
306.7
195.3
592
414
(4)
2
(118)
(4)
1
4
29
(12)
–
(7)
2
–
473
245.1
426
200.9
Net capital expenditure reconciliation
The following table reconciles net cash from investing activities to net capital expenditure as included in the Group Financial Statements.
Net cash from investing activities
Adjusted for:
Tax paid on disposals
System Fund depreciation and amortisation
Net capital expenditure
Add back:
Disposal receipts
System Fund depreciation and amortisation
Gross capital expenditure
Analysed as:
Capital expenditure: maintenance and key money
Capital expenditure: recyclable investments
Capital expenditure: System Fund investments
Gross capital expenditure
Free cash flow reconciliation
The following table reconciles net cash from operating activities to free cash flow.
Net cash from operating activities
Less:
Purchase of shares by employee share trusts
Capital expenditure: maintenance and key money
Cash receipt from renegotiation of long-term partnership agreements
Free cash flow
156
IHG | Annual Report and Form 20-F 2017
12 months ended
31 December
2017
$m
(263)
25
36
2016
$m
(216)
–
31
(202)
(185)
(104)
(36)
(342)
(115)
(85)
(142)
(342)
(25)
(31)
(241)
(96)
(40)
(105)
(241)
12 months ended 31 December
2017
$m
634
(3)
(115)
–
516
2016
$m
752
(10)
(96)
(95)
551
2015
$m
628
(47)
(115)
–
466
Additional Information RevPAR, average daily rate and occupancy
RevPAR, a key performance measure used by management (see page 26 for further information) comprises IHG System rooms revenue
divided by the number of room nights available and can be mathematically derived from occupancy multiplied by average daily rate.
Occupancy is rooms occupied by hotel guests expressed as a percentage of rooms that are available. Average daily rate is rooms revenue
divided by the number of room nights sold. RevPAR is a key indicator of performance as it measures period-over-period change in rooms
revenue for comparable hotels.
The following tables present RevPAR statistics for the year ended 31 December 2017 and a comparison to 2016. Franchised, managed,
owned and leased statistics are for comparable hotels, and include only those hotels in the Group’s system at 31 December 2017 and
franchised, managed, owned or leased by the Group since 1 January 2016.
The comparison with 2016 is at constant US$ exchange rates.
Americas
InterContinental
Occupancy
Average daily rate
RevPAR
Kimpton
Occupancy
Average daily rate
RevPAR
Crowne Plaza
Occupancy
Average daily rate
RevPAR
Hotel Indigo
Occupancy
Average daily rate
RevPAR
EVEN Hotels
Occupancy
Average daily rate
RevPAR
Holiday Inn
Occupancy
Average daily rate
RevPAR
Holiday Inn Express
Occupancy
Average daily rate
RevPAR
Staybridge Suites
Occupancy
Average daily rate
RevPAR
Candlewood Suites
Occupancy
Average daily rate
RevPAR
Franchised
Change vs
2016
2017
Managed
Change vs
2016
2017
Owned and leased
2017
Change vs
2016
68.8%
1.6ppt
78.6%
0.4ppt
83.0%
1.4ppt
$138.68
(0.7)%
$233.31
(1.3)%
$324.33
$95.41
1.6%
$183.35
(0.9)%
$269.05
1.7%
3.5%
–
–
–
–
–
–
81.9%
0.2ppt
$231.43
$189.46
0.2%
0.4%
67.8%
(0.2)ppt
79.0%
0.3ppt
$121.65
$82.42
2.2%
$138.22
1.9%
$109.20
0.9%
1.2%
70.5%
1.5ppt
83.7%
7.7ppt
$144.37
(0.8)%
$235.89
$101.75
1.3%
$197.33
1.4%
11.6%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
91.0%
4.8ppt
66.4%
(3.1)ppt
$236.20
(5.0)%
$132.10
$215.03
0.4%
$87.74
1.6%
(2.9)%
66.6%
0.2ppt
71.3%
0.3ppt
80.1%
6.9ppt
$111.58
$74.29
1.5%
$129.74
(0.4)%
$160.26
1.9%
$92.54
(0.0)%
$128.39
2.7%
12.4%
68.7%
0.3ppt
$112.64
$77.43
1.3%
1.7%
–
–
–
–
–
–
75.7%
0.1ppt
81.6%
(0.7)ppt
$114.40
$86.60
1.5%
$138.75
1.7%
$113.28
0.1%
(0.7)%
72.6%
1.0ppt
79.8%
(0.5)ppt
$84.31
$61.25
2.2%
3.6%
$82.63
$65.98
1.1%
0.4%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
IHG | Annual Report and Form 20-F 2017 | Additional Information | Other financial information
157
Other financial information continued
RevPAR, average daily rate and occupancy continued
Europe
InterContinental
Occupancy
Average daily rate
RevPAR
Crowne Plaza
Occupancy
Average daily rate
RevPAR
Hotel Indigo
Occupancy
Average daily rate
RevPAR
Holiday Inn
Occupancy
Average daily rate
RevPAR
Holiday Inn Express
Occupancy
Average daily rate
RevPAR
Staybridge Suites
Occupancy
Average daily rate
RevPAR
Asia, Middle East and Africa (AMEA)
InterContinental
Occupancy
Average daily rate
RevPAR
Crowne Plaza
Occupancy
Average daily rate
RevPAR
Hotel Indigo
Occupancy
Average daily rate
RevPAR
Holiday Inn
Occupancy
Average daily rate
RevPAR
Holiday Inn Express
Occupancy
Average daily rate
RevPAR
Staybridge Suites
Occupancy
Average daily rate
RevPAR
Other
Occupancy
Average daily rate
RevPAR
158
IHG | Annual Report and Form 20-F 2017
Franchised
Change vs
2016
2017
Managed
Change vs
2016
2017
Owned and leased
2017
Change vs
2016
73.3%
1.5ppt
70.6%
1.9ppt
$163.80
10.6%
$220.38
$120.00
12.9%
$155.60
3.3%
6.2%
73.5%
3.1ppt
74.1%
3.0ppt
$113.16
$83.20
2.0%
$135.86
6.6%
$100.72
4.1%
8.5%
79.0%
1.8ppt
78.2%
2.5ppt
$136.97
$108.26
1.2%
$170.82
3.6%
$133.52
9.8%
13.4%
73.1%
2.0ppt
74.7%
4.7ppt
$95.04
$69.52
2.8%
$82.81
5.6%
$61.89
4.7%
11.7%
78.1%
1.3ppt
68.0%
6.2ppt
$88.49
$69.09
4.5%
6.3%
$57.71
$39.26
5.7%
16.2%
81.1%
(1.6)ppt
$120.21
$97.53
4.4%
2.3%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
78.4%
1.6ppt
72.2%
2.0ppt
47.4%
(5.9)ppt
$180.20
(1.9)%
$198.85
(0.1)%
$114.41
(3.7)%
$141.31
0.1%
$143.57
2.8%
$54.26
(14.4)%
75.4%
(0.1)ppt
72.7%
$100.87
$76.00
1.5%
1.4%
$119.24
$86.68
1.1ppt
(1.5)%
0.1%
–
–
–
–
–
–
73.8%
(2.9)ppt
$101.26
$74.78
13.0%
8.7%
–
–
–
–
–
–
–
–
–
–
–
–
67.2%
0.9ppt
75.7%
2.1ppt
97.1%
1.6ppt
$107.44
(5.9)%
$94.03
(0.6) %
$125.25
8.2%
$72.18
(4.7)%
$71.18
2.3%
$121.58
10.0%
71.1%
2.3ppt
72.3%
4.4ppt
$62.38
$44.36
(6.2)%
$67.36
(3.0)%
$48.66
0.6%
7.1%
–
–
–
83.6%
$77.71
–
–
–
73.8%
2.0ppt
$133.08
$98.18
4.8%
7.7%
4.7ppt
88.6%
(0.3)ppt
3.9%
$104.80
6.6%
6.2%
$64.98
10.1%
$92.87
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Additional Information Greater China
InterContinental
Occupancy
Average daily rate
RevPAR
HUALUXE
Occupancy
Average daily rate
RevPAR
Crowne Plaza
Occupancy
Average daily rate
RevPAR
Hotel Indigo
Occupancy
Average daily rate
RevPAR
Holiday Inn
Occupancy
Average daily rate
RevPAR
Holiday Inn Express
Occupancy
Average daily rate
RevPAR
Franchised
Change vs
2016
2017
Managed
Change vs
2016
2017
Owned and leased
2017
Change vs
2016
86.8%
3.3ppt
65.7%
3.2ppt
$212.78
$184.79
3.0%
$125.25
7.0%
$82.29
(1.2)%
3.9%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
49.2%
$51.61
$25.41
8.3ppt
0.8%
21.2%
63.2%
4.7ppt
$79.03
$49.98
0.4%
8.5%
74.7%
3.2ppt
$175.48
$131.02
(2.5)%
1.8%
83.4%
8.2ppt
68.2%
3.2ppt
$107.95
(3.3)%
$69.27
$90.01
7.3%
$47.21
0.7%
5.7%
56.8%
(13.0)ppt
70.3%
2.0ppt
$29.46
8.0%
$49.53
$16.74
(12.1)%
$34.82
2.7%
5.7%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
IHG | Annual Report and Form 20-F 2017 | Additional Information | Other financial information
159
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 47 to 63
and incorporated by reference herein.
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 141 to 143.
Directors
For biographies of the current Directors see pages 48 and 49.
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 2017.
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 2017 consisted
of 197,597,610 ordinary shares of 1917/21 pence each, including
7,607,430 shares held in treasury, which constitute 3.8% 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 2017:
• 916,835 shares were transferred from treasury to the employee
share ownership trust; and
• The Company’s issued share capital was subject to a 45 for 47
share consolidation effective as of 8 May 2017 (see page 151),
seven treasury shares were cancelled and 338,108 treasury shares
were consolidated.
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
At the AGM held on 5 May 2017, shareholders authorised the
Directors to issue new shares and the Company to buy back existing
shares. During 2017 these routine authorities were not exercised.
Dividends
In 2017, the Company announced a $400 million return of funds to shareholders via special dividend and share consolidation on the basis
of 45 ordinary shares of 19 17/21 pence per share for every 47 existing ordinary shares of 18 318/329 pence each (effective as of 8 May 2017).
Dividend
Ordinary shares
ADRs
Special dividend
A special dividend was paid on 22 May 2017 to shareholders on the register at the
close of business on 5 May 2017
Interim dividend
An interim dividend was paid on 6 October 2017 to shareholders on the register
at the close of business on 1 September 2017
Final dividend
Subject to shareholder approval, payable on 11 May 2018 to shareholders on the
register at the close of business on 3 April 2018
156.4p
202.5¢
24.4p
33.0¢
71.0¢a
71.0¢
a The sterling amount of the final dividend will be announced on 23 April 2018 using the average of the daily exchange rates from 18 April 2018 to 20 April 2018 inclusive.
Major institutional shareholders
As at 19 February 2018, the Company had been notified of the following significant holdings in its ordinary shares under the UK Disclosure
Guidance and Transparency Rules (DTRs):
Shareholder
BlackRock, Inc.
Boron Investments BV
Cedar Rock Capital Limited
Fiera Capital Corporation
Fundsmith LLP
The Capital Group Companies, Inc.
As at 19 February 2018
As at 20 February 2017
As at 22 February 2016
Ordinary
shares/ADSsa
11,280,241b
11,850,000
14,923,417
7,707,008
10,222,246
9,670,450
%a
5.92
5.02
5.07
4.06
5.18
5.09
Ordinary
shares/ADSsa
10,930,440
11,850,000
14,923,417
n/a
10,222,246
9,864,894
%a
5.53
5.02
5.07
n/a
5.18
4.99
Ordinary
shares/ADSsa
12,916,001
11,850,000
14,923,417
n/a
n/a
n/a
%a
5.47
5.02
5.07
n/a
n/a
n/a
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 508,807 contracts for difference and 1,171,293 qualifying financial instruments to which voting rights are attached.
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 2017
Additional Information 2017 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 2017, the Company transferred 916,835 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 2.2%.
As at 31 December 2017, 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 2017, the ESOT released 1,249,660 shares and at
31 December 2017 it held 624,683 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.
Where shares held in the ESOT have been allocated to share plan
participants on terms that entitle those participants to request or
require the trustee of the ESOT to exercise the voting rights relating
to those shares, the trustee shall exercise those votes in accordance
with the directions of the participants. In respect of shares in the
ESOT that have not been allocated to share plan participants,
or have not been allocated on such terms, the trustee may vote
or abstain from exercising their voting rights in relation to those
shares, or accept or reject any offer relating to the shares, in any
way it sees fit.
Unless otherwise requested by the Company, the trustee of the
ESOT waives all ordinary dividends on the shares held in the ESOT,
other than shares which have been allocated to participants on
terms which entitle them to the benefit of dividends, except for such
amount per share as shall, when multiplied by the number of shares
held by it on the relevant date, equal one pence.
Future business developments of the Group
Further details on these are set out in the Strategic Report on pages
2 to 43.
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 375,000 people worked globally across IHG’s
brands as at 31 December 2017.
IHG employed the following as at 31 December 2017:
• 6,658 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;
• 5,555 people who worked directly on behalf of the System Fund
and whose costs were borne by the System Fund; and
• 22,577 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 109 and 140 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 18 and 19.
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 eq ual 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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Director’s Report
161
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 15 per cent across our entire estate by 31 December 2017 (against a 2012 baseline). See page 25
for progress.
Reporting boundary
Measure
Global – corporate offices and franchised, managed,
owned and leased hotelsb (a KPI and part of our
five-year targets)
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)
Global – corporate offices and managed, owned
and leased hotelsb (as required under the Companies
Act 2006)
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)
2017ª
2016a
1,199,544.40
1,212,547.84
3,770,639.15
3,837,518.39
4,970,183.55
5,050,066.23
27.39
29.48
451,247.09
426,869.82
1,898,679.62
1,914,276.33
2,349,926.71
2,341,146.15
45.77
49.76
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 90 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.
• 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 2017, in line
with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 4,011 (78%) of our 5,137 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 22
to the Group Financial Statements on pages 126 to 129.
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 £400 million 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 $1.275 billion 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 £300 million 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 pages 171 to 172.
Business relationships
The Group is party to a 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. Unless extended, this agreement is due
to expire on 31 December 2018.
The Group is party to a technology agreement with Amadeus
Hospitality Americas, Inc. (Amadeus), for the development and
hosting of the Group’s next generation Guest Reservation System.
The initial term of 10 years will expire in 2028, and the Group has
the right to extend this agrement for two additional periods of
up to 10 years each on the same terms, conditions and pricing.
The financial and performance obligations in this agreement are
guaranteed by Amadeus IT Group S.A., the parent company
of Amadeus Hospitality Americas, Inc.
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 80.
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IHG | Annual Report and Form 20-F 2017
Additional Information Listing Rules – compliance with LR 9.8.4C
Section
Applicable sub-paragraph within LR 9.8.4C
Location
1
4
6
Interest capitalised
Group Financial Statements, note 6, page 111
Details of long-term incentive schemes
Directors’ Remuneration Report, pages 64 to 77
Waiver of future emoluments by a Director
Directors’ Remuneration Report, page 76
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.
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 43 and in the Group information on
pages 164 to 172. Information on the Group’s treasury management
policies can be found in note 22 to the Group Financial Statements
on pages 126 to 129. In March 2017, the Group extended the maturity
of its $1.275 billion facility to March 2022.
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.
At the end of 2017, 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.
By order of the Board,
George Turner
Company Secretary
InterContinental Hotels Group PLC
Registered in England and Wales, Company number 5134420
19 February 2018
IHG | Annual Report and Form 20-F 2017 | Additional Information | Director’s Report
163
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.
The Group formerly known as Bass, and then Six Continents,
was historically a conglomerate operating as, among other things,
a brewer, soft drinks manufacturer, hotelier, leisure operator,
and restaurant, pub and bar owner. In 1988 Bass acquired
Holiday Inn International and the remainder of the Holiday Inn
brand in 1990. The InterContinental brand was acquired by Bass
in 1998 and the Candlewood Suites brand was acquired by
Six Continents in 2003.
On 15 April 2003, following shareholder and regulatory approval,
Six Continents PLC separated into two new listed groups,
InterContinental Hotels Group PLC, comprising the hotels and
soft drinks businesses, and Mitchells & Butler plc, comprising the
retail and standard commercial property developments business.
The Group disposed of its interests in the soft drinks business
by way of an initial public offering of Britvic (Britannia Soft Drinks
Limited for the period up to 18 November 2005, and thereafter,
Britannia SD Holdings Limited (renamed Britvic plc on 21 November
2005), which became the holding company of the Britvic Group
on 18 November 2005), a manufacturer and distributor of soft
drinks in the UK in December 2005. The Group now continues
as a standalone hotels business.
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.
164
IHG | Annual Report and Form 20-F 2017
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 and $95 million in 2017.
Capital expenditure
• Capital expenditure in 2017 totalled $342 million compared with
$241 million in 2016 and $264 million in 2015.
• At 31 December 2017, capital committed (being contracts placed
for expenditure on property, plant and equipment, and intangible
assets not provided for in the Group Financial Statements) totalled
$104 million.
• The Group has also committed to invest in a number of its associates,
with an estimated outstanding commitment of $33 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 2018 may worsen due to continued
uncertainty in Greater China and the Eurozone, the impact of
fluctuating commodity prices (including oil) on economies dependent
on such exports, and continued unrest in parts of the Middle East,
Africa and Asia. 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.
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 may seek to make 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
range 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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Group information
165
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.
166
IHG | Annual Report and Form 20-F 2017
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.
For details of incidents relating to information security
and data privacy during 2017, see pages 139 and 172.
Additional Information
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.
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.
Directors’ and Executive Committee members’ shareholdings
As at 19 February 2018: (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 73; (ii) Non-Executive Directors had the number of beneficial interests in shares set out in
the table on page 76; 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 19 February 2018, no Director or Executive Committee
member held more than 1.0% of the total issued share capital. None of the Directors have a beneficial interest in the shares of any subsidiary.
Executive
Committee member
Claire Bennett
Angela Brav
Number of shares held outright
APP deferred share awards
LTIP share awards (unvested)
Total number of shares held
19 Feb
2018
–
31 Dec
2017
31 Dec
2016
19 Feb
2018
31 Dec
2017
31 Dec
2016
19 Feb
2018
31 Dec
2017
31 Dec
2016
19 Feb
2018
31 Dec
2017
–
n/a
13,105
13,105
n/a
13,019
13,019
n/a
26,124
26,124
31 Dec
2016
n/a
n/aa
68,669
27,270
n/aa
22,303
23,996
n/aa
67,364
80,709
n/aa
158,336
131,975
Jolyon Bulley
50,275
50,275
n/a
8,180
8,180
n/a
38,413
38,413
n/a
96,868
96,868
n/a
Federico Lalatta
Costerbosa
Yasmin Diamond
Kenneth
Macpherson
Eric Pearson
Ranjay
Radhakrishnan
Jan Smits
n/aa
–
–
–
–
–
–
–
–
–
n/aa
9,772
–
–
n/aa
6,561
6,977
6,561
18,401
n/aa
54,570
59,202
n/aa
61,547
77,603
6,351
35,209
35,209
38,363
41,770
41,770
44,714
7,600
29,057
29,057
24,569
59,675
59,675
74,344
88,732
88,732
106,513
–
–
–
22,979
22,979
24,636
72,633
72,633
86,264
95,612
95,612
110,900
31,836
31,836
25,061
41,851
41,851
31,836
73,687
73,687
56,897
n/aa
18,618
23,724
n/aa
55,045
71,755
n/aa
81,956
95,479
George Turner
11,507
11,507
18,000
18,683
18,683
21,815
61,511
61,511
76,744
91,701
91,701
116,559
a Angela Brav, Federico Lalatta Costerbosa and Jan Smits left the Company on 31 December 2017.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Group information
167
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.
• 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
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)
Withdrawing an
underlying security
Transferring, splitting
or grouping receipts
General depositary
services, particularly
those charged on an
annual basis
Expenses of
the depositary
Acceptance of ADRs surrendered for withdrawal of deposited securities
$5 for each 100 ADSs (or portion thereof)
Transfers, combining or grouping of depositary receipts
$1.50 per ADS
$0.02 per ADS (or portion thereof) 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 distributionsa
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
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).
• Any other charge payable by the ADR Depositary or its agents.
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 2017, the Company received $437,724
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 2017
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.
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.
respect of any proposal in which they have any material interest
(except in respect of the limited exceptions outlined above) nor
may they 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 themselves, 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 them.
The Directors are empowered to exercise all the powers of the
Company to borrow money, subject to the limitation that the
aggregate amount of all monies borrowed by the Company and its
subsidiaries shall not exceed an amount equal to three times the
Company’s share capital and consolidated reserves, unless
sanctioned by an ordinary resolution of the Company.
Under the Articles, there are no age-limit requirements relating to
a person’s qualification to hold office as a Director of the Company.
Directors are not required to hold any shares of the Company by
way of qualification.
Directors
Under the Articles, a Director may have an interest in certain matters
(Permitted Interest) without the prior approval of the Board, provided
they have 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 they are interested, nor may they 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
they, or any person connected with them, has any material interest
other than by virtue of their interests in securities of, or otherwise
in or through, the Company, nor may they 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 them 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 they 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
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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Group information
169
Group information continued
Articles of Association continued
• Any shareholder or shareholders present in person or by proxy
representing in the aggregate not less than one-tenth of the total
voting rights of all shareholders entitled to vote at the meeting; or
• Any shareholder or shareholders present in person or by proxy
holding shares conferring a right to vote at the meeting and on
which there have been paid up sums in the aggregate at least
equal to one-tenth of the total sum paid up on all the shares
conferring that right.
A proxy form will be treated as giving the proxy the authority
to demand a poll, or to join others in demanding one.
The necessary quorum for a general meeting is three persons
carrying a right to vote upon the business to be transacted,
whether present in person or by proxy.
Matters are transacted at general meetings of the Company by the
proposing and passing of resolutions, of which there are two kinds:
• An ordinary resolution, which includes resolutions for the election
of Directors, the approval of financial statements, the cumulative
annual payment of dividends, the appointment of the Auditor, the
increase of share capital or the grant of authority to allot shares.
• 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
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.
• 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.
Working Time Regulations 1998
Under EU law, many employees of Group companies are now
covered by the Working Time Regulations which came into force
in the UK on 1 October 1998. These regulations implemented the
European Working Time Directive and parts of the Young Workers
Directive, and lay down rights and protections for employees in
areas such as maximum working hours, minimum rest time,
minimum days off and paid leave.
In the UK, there is in place a national minimum wage under the
National Minimum Wage Act 1998, as amended. At 31 December 2017,
the minimum wage for individuals aged 18 to 20 was £5.60 per hour,
aged 21 to 24 was £7.05 per hour and for those aged 25 or over
was £7.50 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 2017
Additional Information 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 has exercised its ability to extend the term
of the Syndicated Facility by two additional periods of 12 months,
taking the term of the Syndicated Facility to 2022. 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 $240 million as at 31 December 2017.
£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.
A Tranche of Notes may be issued on the terms and conditions set
out in a base prospectus as amended and/or supplemented by a
document setting out the final terms (Final Terms) of such Tranche
or in a separate prospectus specific to such Tranche.
Under the Trust Deed, each of the Issuer and the Guarantors has
given certain customary covenants in favour of the Trustee.
Final Terms were issued (pursuant to a base prospectus dated
9 November 2012) 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 a base
prospectus dated 16 June 2015) on 12 August 2015 in respect of the
issue of a Tranche of £300 million 3.75% Notes due 14 August 2025
(2015 Issuance). Final Terms were issued (pursuant to the base
prospectus dated 11 August 2016) 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.
Disposal of InterContinental Paris – Le Grand
On 7 December 2014, a share sale and purchase agreement was
entered into between BHR Holdings B.V. (part of IHG) and
Constellation Hotels France Grand SA. Under the agreement,
BHR Holdings B.V. agreed to sell Société Des Hotels InterContinental
France, the owner of InterContinental Paris – Le Grand, to
Constellation Hotels France Grand SA. The gross sale proceeds
agreed were €330 million in cash. The disposal was completed
on 20 May 2015.
In connection with the sale, IHG secured a 30-year management
contract on the hotel, with three 10-year extension rights at IHG’s
discretion, giving an expected contract length of 60 years.
Under the agreement, BHR Holdings B.V. gave certain customary
warranties and indemnities to Constellation Hotels France Grand SA.
Acquisition of the Kimpton Hotels & Restaurants business
On 15 December 2014, a share sale and purchase agreement was
entered into between Kimpton Group Holding LLC and Dunwoody
Operations, Inc., an affiliate of IHG. Under the agreement, Dunwoody
Operations, Inc. agreed to buy Kimpton Hotel & Restaurant Group,
LLC, the principal trading company of the Kimpton Group, from
Kimpton Group Holding LLC. The purchase completed on
16 January 2015.
The purchase price payable by Dunwoody Operations, Inc.
in respect of the acquisition was $430 million paid in cash.
Under the agreement, Dunwoody Operations, Inc. gave certain
customary warranties and indemnities to the seller.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Group information
171
Group information continued
Material contracts continued
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.
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 19 February 2018, 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 Inter-Continental
Hotels Corporation. The claimant originally identified eight
causes of action with respect to the management and sale of the
InterContinental New Orleans. On 21 August 2017, the Court granted
summary judgment to defendants on all of claimant’s remaining
claims. Claimant appealed the ruling. As of 19 February 2018,
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 19 February 2018,
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 19 February 2018,
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.
A claim was filed on 5 May 2017 against InterContinental Hotels Group,
PLC, Inter-Continental Hotels Corporation, and InterContinental
Hotels Group Resources, Inc. seeking class action status and alleging
breach of implied contract, negligence, and unjust enrichment
regarding an alleged data breach. As of 19 February 2018, 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.
A claim was filed on 26 June 2017 against Inter-Continental Hotels
Corporation, InterContinental Hotels Group Resources, Inc., and
InterContinental Hotels Group (Canada), Inc. seeking class action
status and alleging breach of fiduciary duty, negligence, breach of
confidence, intrusion upon seclusion, breach of contract, breach
of privacy legislation, and unjust enrichment regarding an alleged
data breach. As of 19 February 2018, 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.
A claim was filed on 26 January 2018 against InterContinental
Hotels Group, PLC, Inter-Continental Hotels Corporation, and
InterContinental Hotels Group Resources, Inc. alleging negligence
and seeking class action status, declaratory judgment, injunctive
relief and unspecified damages regarding an alleged data breach.
As of 19 February 2018, 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 2017
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.
• Persons who, directly or indirectly, own ordinary shares or ADSs
representing 10% or more of the Company’s voting power or value.
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 advisers 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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Shareholder information
173
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 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 2017 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% of the average
amount of distributions received during a specified prior period).
The preferential rates for qualified dividend income described
above would not apply if the Company were a PFIC in the taxable
year of the distribution or the preceding taxable year.
174
IHG | Annual Report and Form 20-F 2017
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 expanded UK rules taking 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% 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.
Additional Information Following litigation on the subject, HMRC has accepted that it will
no longer seek to apply the 1.5% 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. The 2017
Autumn Budget included a statement that the Government will not
reintroduce the 1.5% charge on the issue of shares (and transfers
integral to the raising of capital) into clearance service or depositary
receipt systems following the UK’s exit from the EU. In HMRC’s view,
the 1.5% 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.
Specific professional advice should be sought before paying the
1.5% 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% 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 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 (and certain specified entities),
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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Shareholder information
175
Shareholder information continued
Summary of significant corporate governance differences from NYSE listing standards
The Group’s statement of compliance with the principles and
provisions specified in the UK Corporate Governance Code issued
in April 2016 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 19 February 2018, the Board consisted
of the Chairman, independent at the time of his appointment,
three Executive Directors and seven Independent Non-Executive
Directors. NYSE listing rules applicable to US companies state that
companies must have a majority of independent directors. The NYSE
set out five bright line tests for director independence. The Board’s
judgement is that all of its Non-Executive Directors are independent.
However, it did not explicitly take into consideration the NYSE’s tests
in reaching this determination.
Chairman and Chief Executive Officer
The Code recommends that the Chairman and Chief Executive
Officer should not be the same individual to ensure that there is
a clear division of responsibility for the running of the Company’s
business. There is no corresponding requirement for US companies.
The roles of Chairman and Chief Executive Officer were, as at
19 February 2018 and throughout 2017, 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.
The Chairman of the Company is not a member of either the
Remuneration or the Audit Committee. As set out on page 56,
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.
176
IHG | Annual Report and Form 20-F 2017
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 2013, 2014, 2015, 2016
and 2017 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 audited Group Financial Statements.
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
For the year ended 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)
2017
1,784
759
4
763
4
(89)
678
(201)
116
–
(85)
593
592
1
$m, except earnings per ordinary share
2016
1,715
707
(29)
678
6
(93)
591
2015
1,803
680
819
1,499
5
(92)
1,412
(186)
(180)
12
–
(174)
417
414
3
(8)
–
(188)
1,224
1,222
2
2014
1,858
651
29
680
3
(83)
600
(179)
(29)
–
(208)
392
391
1
2013
1,903
668
5
673
5
(78)
600
(175)
(6)
(45)
(226)
374
372
2
306.7¢
305.2¢
195.3¢
193.5¢
520.0¢
513.4¢
158.3¢
156.4¢
140.9¢
139.3¢
$m, except number of shares
2017
1,467
425
369
-
3
16
56
839
–
3,175
1,304
1,893
(851)
154
(858)
197
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
IHG | Annual Report and Form 20-F 2017 | Additional Information | Shareholder information
177
Shareholder information continued
Return of funds
Since March 2004, the Group has returned over £6.2 billion of funds to shareholders by way of special dividends, capital returns and share
repurchase programmes. On 21 February 2017, the Company announced a $400 million return of funds to shareholders via special dividend
with share consolidation. The special dividend was paid on 22 May 2017.
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
$400m 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
Paid in May 2017
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£150m
£315md
($500m)
£315md
($500m)
£229mg
($350m)
£447mi
($750m)
£1,038mk
($1,500m)
£309ml
($400m)
£6,256m
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£120m
£315me
($505m)
£315m
($500m)f
£228m
($355m)h
£446m
($763m)j
£1,038m
($1,500m)
£309m
($400m)
£6,224m
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.
l The dividend was first determined in US dollars and converted to sterling at the rate of $1 = £0.7724, as announced on 11 May 2017.
Purchases of equity securities by the Company and affiliated purchasers
During the financial year ended 31 December 2017, no ordinary shares were purchased by the Company and the Company’s employee share
ownership trust.
Total number of shares
(or units) purchased
Average price paid
per share (or unit)
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
Month 1 (no purchases this month)
Month 2 (no purchases this month)
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)
a Reflects the resolution passed at the Company’s AGM held on 6 May 2016.
b Reflects the resolution passed at the Company’s AGM held on 5 May 2017.
178
IHG | Annual Report and Form 20-F 2017
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
19,751,738a
19,751,738a
19,751,738a
19,751,738a
18,999,018b
18,999,018b
18,999,018b
18,999,018b
18,999,018b
18,999,018b
18,999,018b
18,999,018b
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
2013
2014
2015
2016
2017
Quarters in the year ended 31 December
2016
First quarter
Second quarter
Third quarter
Fourth quarter
2017
First quarter
Second quarter
Third quarter
Fourth quarter
2018
£ per ordinary share
$ per ADSa
high
20.39
27.10
28.80
36.38
47.19
28.71
29.28
33.65
36.38
39.37
44.68
44.11
47.19
low
17.37
18.66
22.09
21.84
36.66
21.84
25.25
27.59
30.21
36.66
38.42
36.68
39.87
high
33.54
42.51
43.55
44.67
63.51
41.27
41.86
44.67
44.33
49.06
57.66
57.06
63.51
low
26.90
30.88
33.52
32.11
44.96
32.11
35.14
36.81
38.16
44.96
48.29
49.14
52.84
First quarter (to 19 February)
49.28
44.98
68.90
62.17
Month ended
August 2017
September 2017
October 2017
November 2017
December 2017
January 2018
February 2018 (to 19 February)
44.11
39.48
41.83
44.06
47.19
49.28
47.20
38.12
36.68
39.87
42.10
43.67
46.85
44.98
57.04
52.95
55.59
58.76
63.51
68.90
67.34
49.43
49.14
52.84
55.73
58.99
63.27
62.17
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.
Interim dividend
Final dividend
Total dividend
Special dividend
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008c
2007
2006
2005
pence
24.4
22.6
17.7
14.8
15.1
13.5
9.8
8.0
7.3
6.4
5.7
5.1
4.6
cents
33.0
30.0
27.5
25.0
23.0
21.0
16.0
12.8
12.2
12.2
11.5
9.6
8.1
pence
N/Aa
49.4
40.3
33.8
28.1
27.7
24.7
22.0
18.7
20.2
14.9
13.3
10.7
cents
71.0
64.0
57.5
52.0
47.0
43.0
39.0
35.2
29.2
29.2
29.2
25.9
18.7
pence
N/Aa
72.0
58.0
48.6
43.2
41.2
34.5
30.0
26.0
26.6
20.6
18.4
15.3
cents
104.0
94.0
85.0
77.0
70.0
64.0
55.0
48.0
41.4
41.4
40.7
35.5
26.8
pence
156.4b
438.2b
–
174.9b
87.1
108.4b
–
–
–
–
200b
118b
–
cents
202.5b
632.9b
–
293.0b
133.0
172.0b
–
–
–
–
–
–
–
a The sterling amount of the final dividend will be announced on 23 April 2018 using the average of the daily exchange rates from 18 April 2018 to 20 April 2018 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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Shareholder information
179
Shareholder information continued
Shareholder profiles
Shareholder profile by type as at 31 December 2017
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 2017
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 2017
Country/Jurisdiction
UK
Rest of Europe
US (including ADRs)
Rest of world
Total
Number of
shareholders
Percentage of
total shareholders
34,948
1,451
812
147
10
37,368
93.53
3.88
2.17
0.39
0.03
100
Number of
ordinary shares
9,468,586
162,026,026
15,560,735
10,431,329
110,934
197,597,610
Percentage of
issued share capital
4.79
82.00
7.87
5.28
0.06
100
Number of
shareholders
Percentage of
total shareholders
Number of
ordinary shares
Percentage of
issued share capital
25,075
6,775
2,831
1,883
221
323
93
119
22
26
37,368
67.10
18.13
7.58
5.04
0.59
0.86
0.25
0.32
0.06
0.07
100
1,514,320
2,123,354
1,968,555
3,630,490
1,560,634
6,957,954
6,746,735
27,636,466
15,829,002
129,630,100
197,597,610
0.77
1.07
1.00
1.84
0.79
3.52
3.41
13.99
8.01
65.60
100
Percentage of
issued share capitala
48.1
17.5
32.1
2.3
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 90.4% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100⁄90.4 (1.106) to achieve the figures shown in the table above.
As of 19 February 2018, 13,494,031 ADSs equivalent to 13,494,031 ordinary shares, or approximately 7.10% of the total issued share capital,
were outstanding and were held by 512 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 19 February 2018, there were a total of 37,199 recorded holders of ordinary shares, of whom 269 had registered addresses in the US
and held a total of 410,801 ordinary shares (0.21% of the total issued share capital).
180
IHG | Annual Report and Form 20-F 2017
Additional Information Exhibits
The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC.
Exhibit 1a
Exhibit 4(a)(i)a
Exhibit 4(a)(ii)a
Exhibit 4(a)(iii)a
Exhibit 4(a)(iv)a
Exhibit 4(a)(v)a
Exhibit 4(a)(vi)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)
Exhibit 4(c)(vi)
Exhibit 8
Exhibit 12(a)
Exhibit 12(b)
Exhibit 13(a)
Exhibit 15(a)
Exhibit 101
a Incorporated by reference.
Articles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC Annual
Report on Form 20-F (File No. 1-10409) dated 11 April 2011)
Amended and restated trust deed dated 11 August 2016 relating to a £2 billion Euro Medium Term Note Programme, among
InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company
(UK) Limited (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F
(File No. 1 – 10409) date 2 March 2017)
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 – 10409) 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)
Share sale and purchase agreement relating to InterContinental Paris – Le Grand, between BHR Holdings BV and Constellation
Hotels France Grand SA dated 7 December 2014 (incorporated by reference to Exhibit 4(a)(iii) of the InterContinental Hotels Group
PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)
Share sale and purchase agreement between Kimpton Group Holding LLC and Dunwoody Operations, Inc. dated 15 December 2014
(incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409)
dated 26 February 2015)
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 4(a)(i) of the InterContinental Hotels
Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 3 March 2016)
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)
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)
Keith Barr’s service contract dated 5 May 2017, commencing on 1 July 2017
Elie Maalouf’s service contract dated 19 October 2017, commencing on 1 January 2018
List of subsidiaries as at 31 December 2017 (can be found on pages 141 to 143)
Certification of Keith Barr filed pursuant to 17 CFR 240.13a–14(a)
Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a–14(a)
Certification of Keith Barr and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a–14(b) and 18 U.S.C.1350
Consent of independent registered public accounting firm, Ernst & Young LLP
XBRL Instance Document and related items
IHG | Annual Report and Form 20-F 2017 | Additional Information | Exhibits
181
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
Shareholder information: Dividend history
3B – Capitalisation and indebtedness
3C – Reason for the offer and use of proceeds
Not applicable
Not applicable
3D – Risk factors
Group information: Risk factors
4
Information on the Company
4A – History and development of the Company
Group information: History and developments
4B – Business overview
Shareholder information: Return of funds
Useful information: Contacts
Strategic Report
Group information: Working Time Regulations 1998
Group Information: Risk factors
4C – Organisational structure
Group Financial Statements: Note 33 – Group companies
4D – Property, plants and equipment
Strategic Report: Key performance indicators
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
Viability statement
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
Not applicable
5C – Research and development; intellectual property
5D – Trend information
Strategic Report: Performance
5E – Off-balance sheet arrangements
5F – Tabular disclosure of contractual obligations
5G – Safe harbour
5H – Non-GAAP financial measures
Strategic Report: Performance – Liquidity and capital resources
– Off-balance sheet arrangements
Strategic Report: Performance – Liquidity and capital resources
Additional Information: Forward-looking statements
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
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 2017
Page
–
–
177
179
–
–
164–167
164
178
187
2–43
170
164–167
141–143
23-25
162
116
–
26–43
95–103
22
43
123
124–125
126–129
129–130
131
–
26–43
43
43
188
26
154–156
115
126
48–51
64–77
131–135
140
135–136
47–63
109
170
161
72
7
Major shareholders and related party transactions
7A – Major shareholders
Directors’ Remuneration Report: Annual Report on Directors’ Remuneration
– Statement of Directors’ shareholdings and share interests
Group Financial Statements: Note 26 – Share-based payments
73,76
135–136
Group information: Directors and Executive Committee members’ shareholdings
167
Directors’ Report: Major institutional shareholders
Shareholder information: Shareholder profiles
160
180
7B – Related party transactions
Group Financial Statements: Note 14 – Investment in associates and joint ventures
119–120
7C – Interests of experts and counsel
Not applicable
Group Financial Statements: Note 31 – Related party disclosures
140
–
182
IHG | Annual Report and Form 20-F 2017
Additional Information Item Form 20-F caption
8
Financial Information
8A – Consolidated statements and
other financial information
8B – Significant changes
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
Location in this document
Directors’ Report: Dividends
Group Financial Statements
Group Information: Legal proceedings
Strategic Report: Performance – Other financial information
None
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
126–129
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
Controls and Procedures
Not applicable
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
16C – Principal accountant fees and services
16D – Exemptions from the listing standards
for audit committees
16E – Purchase of equity securities by the issuer
and affiliated purchasers
16F – Change in registrant’s certifying accountant
16G – Corporate Governance
16H – Mine safety disclosure
17
18
19
Financial statements
Financial statements
Exhibits
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards – Committees
Directors’ Report: Employees and Code of Conduct
Strategic Report: Doing business responsibly
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards
Corporate Governance: Audit Committee Report – External auditor
Corporate Governance: Audit Committee Report – Non-audit services
Group Financial Statements: Note 4 – Auditor’s remuneration paid
to Ernst & Young LLP
Not applicable
Shareholder information: Purchases of equity securities by the Company
and affiliated purchasers
Not applicable
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards
Not applicable
Not applicable
Group Financial Statements
Additional Information: Exhibits
Page
160
78–143
172
42
–
179
–
179
–
–
–
–
169–170
169
171–172
172
173–175
–
–
186
–
–
–
–
168
–
–
175
80
87
56
176
161
18–19
176
59
58
109
–
178
–
176
–
–
78–143
181
IHG | Annual Report and Form 20-F 2017 | Additional Information | Form 20-F cross-reference guide
183
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.
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.
euro or €
the currency of the European Economic
and Monetary Union.
exceptional items
items that are disclosed separately
because of their size or nature.
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 18 318/329pence 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 2016 or
2017 as relevant.
APP
Annual Performance Plan.
Compound Annual Growth Rate (CAGR)
the annual growth rate over a period of
years, calculated on the basis that each
year’s growth is compounded, that is, the
amount of growth in each year is included
in the following year’s number, which in
turn grows further.
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.
Articles
the Articles of Association of the Company
for the time being in force.
Deferred Compensation Plan
the Defined Contribution Deferred
Compensation Plan.
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.
Companies Act
the Companies Act 2006, as amended from
time to time.
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 not included in this year’s report,
but can be found on our website. A summary
can be found in the Remuneration 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.
Company or Parent Company
InterContinental Hotels Group PLC.
EU
the European Union.
extended-stay
hotels designed for guests staying for
periods of time longer than a few nights and
tending to have a higher proportion of suites
than normal hotels (Staybridge Suites and
Candlewood Suites).
fee business
IHG’s franchise and managed
businesses combined.
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.
184
IHG | Annual Report and Form 20-F 2017
Additional Information IHG PLC
InterContinental Hotels Group PLC.
indirect channels
online travel intermediaries and business
and leisure travel agents.
interest rate swap
an agreement to exchange fixed for
floating interest rate streams (or vice versa)
on a notional principal.
liquidated damages
payments received in respect of the
early termination of 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.
occupancy rate
rooms occupied by hotel guests, expressed
as a percentage of rooms that are available.
ordinary share
from 9 October 2012 until 30 June 2014,
the ordinary shares of 14 194/329 pence each
in the Company; from 1 July 2014, the
ordinary shares of 15 265/329 pence each in
the Company; and from 9 May 2016 the
ordinary shares of 18 318/329 pence each in the
Company; and from 8 May 2017 the ordinary
shares of 19 17/21 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.
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.
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.
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.
sterling or pounds sterling, £, pence or p
the pound sterling, the currency of the
United Kingdom.
subsidiary
a company over which the Group
exercises control.
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
percentage 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 activities that drive revenue to our
hotels including marketing, the IHG Rewards
Club loyalty programme and our distribution
channels.
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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Glossary
185
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
2017 has been made available to shareholders through our website
at www.ihgplc.com/investors under Annual Report.
Shareholders may electronically appoint a proxy to vote on their
behalf at the 2018 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.
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).
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).
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.
Postal dealing
For more information, call 0371 384 2248a.
Telephone dealing
For more information, call 0345 603 7037b.
Internet dealing
Visit www.shareview.co.uk for more information.
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.
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 2017, 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.
Visit www.ihgplc.com/responsible-business
for details.
The IHG® Foundation
Launched in 2016, the IHG Foundation is an independent charity
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.
‘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 8671 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, DC 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 2017
Additional Information Financial calendars
Dividends
2017 Special dividend of 156.4p per ordinary share
(202.5¢ per ADR)
Record date
Ex-dividend date
Payment date
2017 Interim dividend of 24.4p per share
(33.0¢ per ADR)
Payment date
2017 Final dividend of 71.0¢ per ordinary sharea
Ex-dividend date
Record date
Payment date
2017
5 May
8 May
22 May
6 October
2018
29 March
3 April
11 May
Other dates
Financial year end
2017
31 December
2018
Announcement of Preliminary Results for 2017
20 February
Announcement of 2018 First Quarter Interim
Management Statement
Annual General Meeting
4 May
4 May
Announcement of Half-Year Results for 2018
7 August
Announcement of 2018 Third Quarter Interim
Management Statement
Financial year end
19 October
31 December
2019
Announcement of Preliminary Results for 2018
February
a The sterling amount of the final dividend will be announced on 23 April 2018 using the average of the daily exchange rates from 18, 19, 20 April 2018 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
Auditor
Ernst & Young LLP
Investment bankers
Bank of America Merrill Lynch
Goldman Sachs
Solicitors
Freshfields Bruckhaus Deringer LLP
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.
Stockbrokers
Bank of America Merrill Lynch
Goldman Sachs
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)
For those with hearing difficulties a text phone is available
on 0371 384 2255 for UK callers with compatible equipment.
www.shareview.co.uk
ADR Depositary
JPMorgan Chase Bank N.A., PO Box 64504,
St. Paul, MN 55164-0504,
United States of America
Telephone:
+1 800 990 1135 (US calls) (toll-free)
+1 651 453 2128 (non-US calls)
Email: jpmorgan.adr@wellsfargo.com
www.adr.com
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)
+1 801 975 3013d (Spanish) (Central and South America)
+971 4 429 0530d (Middle East)
+61 2 9935 8362d (Australia)
+86 21 2033 4848d (Mandarin and Cantonese) (China)
+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.
IHG | Annual Report and Form 20-F 2017 | Additional Information | Useful information
187
Forward-looking statements
The Annual Report and Form 20-F 2017 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 2017.
188
IHG | Annual Report and Form 20-F 2017
Additional Information Designed and produced by Superunion
(formerly Addison Group), London.
www.superunion.com
Managed by Donnelley Financial Solutions
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.
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
Crowne Plaza Harbin Songbei, China
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