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Annual Report and Form 20-F 2019
Contents
2019 key highlights
Chair’s statement
Chief Executive Officer’s review
Industry overview
Strategic Report
2
4
6
8
10 Our business model
14 Our brands
18 Our strategy
24 Our culture, responsible business and stakeholders
42 Key performance indicators (KPIs)
46 Our risk management
54 Viability statement
55 Performance
55
Key performance measures (including Non-GAAP
measures) used by management
60 Group
63 Americas
66 Europe, Middle East, Asia and Africa (EMEAA)
69 Greater China
Governance
78 Chair’s overview
79 Corporate Governance
79 Our Board and Committee governance structure
80 Our Board of Directors
82 Our Executive Committee
84 Board meetings
86 Director induction, training and development
86 Board effectiveness evaluation
88 Audit Committee Report
92 Corporate Responsibility Committee Report
93 Nomination Committee Report
94
Statement of compliance with the UK Corporate
Governance Code
96 Directors’ Remuneration Report
110 Directors’ Remuneration Policy
Group Financial Statements
120 Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
121
128
Independent Auditor’s US Report
132 Group Financial Statements
139 Accounting policies
146 New accounting standards and presentational changes
150 Notes to the Group Financial Statements
Parent Company Financial Statements
204 Parent Company Financial Statements
204 Parent Company statement of financial position
205 Parent Company statement of changes in equity
206 Notes to the Parent Company Financial Statements
Additional Information
214 Other financial information
221 Directors’ Report
225 Group information
237 Shareholder information
245 Exhibits
246 Form 20-F cross-reference guide
248 Glossary
250 Useful information
252 Forward-looking statements
The Strategic Report on pages 2 to 75
was approved by the Board on 17 February 2020.
Nicolette Henfrey, Company Secretary
Sustainable
growth
Delivering a focused
strategy designed to achieve
industry-leading net rooms
growth over the medium term
page 18
Culture
Our values, behaviours and
ethical work practices are critical
to IHG’s long-term success
page 24
Talented
people
Our engaged, diverse and
talented people are key to our
success and delivering our
purpose
page 28
Our
purpose is
to provide
True
Hospitality
for
everyone
It shapes our culture,
brings our brands to
life every day and
ensures we grow
our business in the
right way for all our
stakeholders.
Proven
business
model
A proven track record of strong
returns for our hotel owners and
shareholders
page 10
Strong
brands
Our 16 distinct brands sit at the
heart of our owner offer and deliver
rich experiences to millions of
guests every day
page 14
Responsible
business
We respect the environment and
communities we work in, and
engage and nurture our
relationships with our stakeholders
page 34
IHG | Annual Report and Form 20-F 2019
IHG | Annual Report and Form 20-F 2019
1
1
Strategic Report
2019 key highlights
Financial highlights
Strategic progress
Responsible business
Total
revenue
Revenue from reportable
segmentsb
Net system size growth
+5.6%
from +3.1% in 2016
Rooms signings
97.8k
2018: 98.8k
5.9%
Reduction in our carbon
footprint per occupied
room from a 2017 baseline
3.6%
Reduction in water
use per occupied
room in water
stressed areas
since 2018
New prototypes
launched for
Holiday Inn and
Extended Stay
brands
Two brands
added to
portfolio;
Atwell Suites™ and
Six Senses Hotels
Resorts Spas
188k
Hours volunteered by
colleagues for Giving for
Good month
200+
hotels now signed under
franchise agreements in
Greater China
15k+ people
benefited from
the IHG Academy
programme
Committed to
science-based
targets in
accordance
with climate
science
1st
Global hotel company
to commit to removing
miniature bathroom
amenities in favour of
bulk-size products
Signed key global
and regional
loyalty
partnerships to
enrich member
experiences
+11%
growth in IHG app
downloads
Trial of attribute
pricing underway
for industry-
leading Guest
Reservation
System
Top 10
FTSE 100 listing for IHG
in the Hampton-Alexander
review for female
representation among
our senior leadership
Launched
colleague
share plan
$4,627m
(+6.7%)
$2,083m
(+7.8%)
2018: $4,337m
2018: $1,933m
Operating
profit
$630m
(+8.2%)
Operating profit from
reportable segmentsb
$865m
(+4.0%)
2018: $582ma
2018: $832ma
Global RevPAR growth
(0.3)%
2018: +2.5%
Total gross revenue
in IHG’s Systemb
$27.9bn
(+1.8%)
2018: $27.4bn
Basic EPSc
Dividend per share
210.4¢
(+15%)
125.8¢
(+10%)
2018: 183.7 ¢a
2018: 114.4¢
Where we operate
Revenue from reportable
segments ($2,083m)b
Operating profit from
reportable segments ($865m)b
Number of rooms
open (883,563)
Number of rooms
in pipeline (283,043)
9%
6%
35%
50%
$700m
15%
25%
$217m
$73m
Key
-$125m
Americas
Europe, Middle East, Asia and Africa (EMEAA)
Greater China
Central
30%
41%
60%
29%
a Restated to reflect the adoption of IFRS 16 (see pages 146 to 149) in the Group Financial Statements.
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 pages 55 to 59 and reconciliations to IFRS figures, where they have been adjusted, are on pages 214 to 218.
c Adjusted EPSb 303.3¢ (+3%); 2018: 293.2¢a
2
IHG | Annual Report and Form 20-F 2019
MainstreamUpscaleLuxuryOur brands3IHG | Annual Report and Form 20-F 2019 | Strategic Report | 2019 key highlights Strategic Report
Chair’s
statement
Patrick Cescau
Chair
Final dividend
85.9¢
to be paid on 14 May 2020
(2018: 78.1¢)
Total Shareholder Return
25.1%
IHG’s Total Shareholder Return in 2019
versus the FTSE 100 Index at 17.3%
Full-year dividend
Five-year progress (¢)
2019
2018
2017
2016
2015
125.8
114.4
104.0
94.0
85.0
Return of funds
Since March 2003, the Group
has returned over $11 billion
of funds to shareholders by
way of special dividends,
capital returns and share
repurchase programmes.
Since 2014:
• $500 million special dividend
paid 29 January 2019
• $400 million special dividend
paid 22 May 2017
• $1.5 billion special dividend
paid 23 May 2016
• $500 million share buyback
completed in 2014
• $750 million special dividend
paid 14 July 2014
4
IHG | Annual Report and Form 20-F 2019
After a crucial period of transformation
across our business, teams, priorities and
processes, 2019 was a year in which a
sharper and more agile execution of IHG’s
strategy moved us closer to ambitious
levels of growth and strengthened our
long-term prospects.
The backdrop to this important work is one
of an increasingly competitive industry. All
peers are seeking to deliver on both evolving
consumer expectations and aggressive
growth strategies, focusing on system size
expansion, market consolidation and big
investments in service, loyalty, partnerships
and technology.
We are clear that what will underpin IHG’s
scale and success in key growth markets
globally is a focus on enhancing and
growing at pace, a distinct, high-quality
portfolio of brands designed for great guest
experiences and strong owner returns.
Despite a weaker RevPAR environment,
the fundamental drivers supporting our
industry remain strong, with a growing
global economy, increasing disposable
income and an expanding middle class all
fuelling long-term demand.
As a company we recognise the increasing
importance of ensuring our culture, actions
and aspirations also reflect a broader
responsibility to contribute to society, local
communities and the environment.
This is particularly important at a time of
increasing political, societal, economic and
environmental complexity. Climate change,
trade tensions, nationalism and eroding trust
in institutions represent some of the biggest
themes of our time. IHG’s ability to act with
integrity, transparency and conviction is key
to our reputation with all stakeholders and to
long-term future growth.
Accelerating growth
Over the past two years, our transformation
has sparked the change needed to take IHG
to the next level in terms of our capability
and growth aspirations. This includes a
refined structure and ways of working, and
more targeted investments that strengthen
our brands and business – be it fresh
designs, signature marketing campaigns,
new hotel tools, or new additions to our
brand portfolio, such as Six Senses Hotels
Resorts Spas (Six Senses) and Atwell Suites
in 2019. Collectively this is delivering
positive results.
On a performance level, our system size
growth continues to accelerate in line with
our aim to reach industry-leading levels,
and we have achieved record signings in
key markets that will support future growth.
“ Over the past two years, our
transformation has sparked the
change needed to take IHG to the
next level in terms of our capability
and growth aspirations.”
Together, this illustrates the attractiveness of
our evolving brand portfolio for guests and
shows the trust owners have in our ability to
listen to their needs and drive strong returns.
More broadly we have enriched the type of
company we want to be, strengthening our
environmental commitments and ties with
local communities, launching a new share
plan for corporate employees, and
increasing our focus on diversity and
inclusion at global and regional levels
through our D&I Board. We have also put
great effort into promoting the behaviours
we see as critical to driving IHG’s growth
and contributing to a workplace everyone
is proud of.
Inspiring change
I spent time in many of our markets in
2019, meeting with owners, investors
and colleagues and staying in our hotels,
and I have seen first-hand how the changes
we are making are resonating with different
stakeholders. From a conference with
Crowne Plaza owners in the Americas, to a
marquee InterContinental opening in France,
and events in China and Japan, it is clear
from my discussions that IHG is being
recognised for a real focus on
competitiveness and quality.
These results would not be possible without
a rich company culture, whereby employees
are engaged with our strategy, values and
our purpose of providing True Hospitality for
everyone. Special credit must go to Chief
Executive Officer Keith Barr and his
leadership team for uniting the business and
for leading by example on what’s required to
go above and beyond for guests, owners,
investors and each other.
The evolution of our culture and nurturing of
talent is critical to IHG’s long-term success,
and as a Board we engage regularly with
leadership on executive development,
succession planning and bench strength in
management teams. In 2019, we also
appointed a designated non-executive
director to ensure the Board’s engagement
with IHG’s workforce, with several forums
providing a valuable cross-section of views
that ensures an employee voice is
represented on key matters.
Our Board
The importance of the Board’s role in
challenging and supporting corporate
decision making during such a formative
time for IHG cannot be underestimated, and
we place great emphasis on ensuring that
we keep pace with evolving topics that are
central to our industry and organisation.
Alongside the evolution of a strong company
culture, focus areas in 2019 included audit
reform, the Greater China market, and
consumer and technology trends. The
changing cybersecurity landscape was also
considered at length, alongside progress
against our 2018 action plan, and the Board
spent time understanding different
environmental, social and governance (ESG)
factors as part of the work being done to
evolve our Corporate Responsibility strategy.
During 2019 we developed proposals for our
refreshed Directors’ Remuneration Policy,
details of which are set out in the
Remuneration Committee Chair’s Statement
on pages 96 to 98. As part of this work, we
consulted with shareholders who made up
more than 50% of the share register, as well
as shareholder representative bodies. Please
also see the Directors’ Remuneration Policy
on pages 110 to 117.
Equally important to an effective Board is the
right mix of diversity, experience and
backgrounds around the table – something
we want to ensure is felt consistently
throughout IHG. In 2019 we were delighted
to again be named in the Hampton-
Alexander Review as one of the top 10 FTSE
100 companies for female representation
across our Executive Committee and direct
reports. At a Board level, I am pleased to
report that an external evaluation found the
Board to be well functioning and effective.
During the year, we appointed
Arthur de Haast as an Independent Non-
Executive Director, effective from 1 January
2020. Chair of the Capital Markets Advisory
Council of NYSE-listed professional services
firm Jones Lang LaSalle, Arthur brings more
than 30 years of capital markets, hotels,
hospitality and sustainability experience to
IHG, as well as significant insight into
Asia. Arthur will serve on IHG’s Remuneration
and Corporate Responsibility Committees.
Shareholder returns
Continuing IHG’s long track record of
increasing shareholder returns, I am pleased
to announce the Board is recommending a
final dividend of 85.9 cents per ordinary
share, an increase of 10% on the final
dividend for 2018. This results in a full-year
dividend of 125.8 cents per share, up 10%
on 2018.
As we look to the future, our successful
strategy and cash generative business
model remains a great strength of IHG. It is
one that allows us to invest in initiatives that
drive demand for our brands and returns for
our owners, motivate colleagues for high
performance, and still deliver on our
commitment to shareholder returns.
As ever, our achievements are the result of
the hard work of everyone in our hotels and
offices. I would like to thank all colleagues
for their dedication and commitment to
bringing our brands to life, and to our owners
for their continued confidence.
Patrick Cescau
Chair
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Chair’s statement
5
98kroomssigned into IHG’s pipeline during 2019We continue to improve the strength and breadth of IHG’s brand portfolio and enterprise offer to create the rich guest experiences and owner returns that are so integral to our growth, and to delivering our purpose of True Hospitality for everyone.For the past two years, we have been united as a business behind delivering our strategy to evolve and expand our brand portfolio, sharpen our operations, loyalty and owner offer, and put our global scale and resources to greatest use. Building upon a position of great strength as one of the world’s leading hotel companies, this period has been characterised by a desire to add pace, agility and ambition to our operations, culture and enterprise offer, and ensure that IHG is well positioned to reach its full potential for the long-term. Central to this is our ability to accelerate the pace at which we sign and open more hotels in key growth markets globally. In turn, this drives our successful fee business model and generates more cash for further investment in our enterprise and to return to shareholders. The importance and effectiveness of this model is amplified at times when industry RevPAR growth slows. We saw such conditions arise in 2019, led by macro and geopolitical factors, supply growing ahead of demand in some markets, and ongoing unrest in Hong Kong SAR.Delivering resultsAgainst this backdrop and the progression of key strategic growth initiatives, we delivered a solid annual performance, with underlying operating profit increasing 6% and new openings for the year reaching record levels. Our commitment to quality remains a key ingredient in the success of our brands, with consistent investment in our design, service, technology and loyalty offer. Testament to this is our Holiday Inn Brand Family, for years IHG’s growth engine, which delivered its highest ever level of openings in 2019. Helping fuel demand has been the continued roll out of modern public space and room designs like Open Lobby and H4 for Holiday Inn, and Formula Blue for Holiday Inn Express, both of which have led to increased guest satisfaction scores and owner returns. In the year, we also launched transformative new prototypes for what are already award-winning extended stay brands in Candlewood Suites and Staybridge Suites. Underlining the commitment to quality and modern service that we share with our owners, many of our Crowne Plaza and InterContinental properties are also being refreshed with important renovations and enhancements. Chief Executive Officer’s review Keith BarrChief Executive Officer38krooms Highest ever level of openings for our Holiday Inn® Brand Family$125mInvestments being funded through group-wide efficiency programme Key 2019 highlightsNew brands5new brands launched or acquired in a period of less than two years65kroomsA record level of new openings for the year6IHG | Annual Report and Form 20-F 2019Strategic Report “ In 2019, we have taken more
important steps to be the best
long-term partner for owners, a
great place to work for employees,
and a brand of choice for guests.”
It has also been another year of impressive
demand for our boutique brands, with a best
ever year of signings for Hotel Indigo, and
the global expansion of Kimpton Hotels &
Restaurants taking the brand’s combined
system and pipeline to almost 100 hotels.
within IHG Concerto and our wifi solution IHG
Connect. In 2019, we also launched IHG Studio,
our new digital in-room guest entertainment
solution, which allows guests to stream content,
make service requests and pay with loyalty
points through their TV.
New brands
Alongside our established brands, we
have added new brands to our portfolio in
fast-growing segments to further accelerate
future growth. In a period of less than two
years we have launched or acquired five new
brands, with the acquisition of Six Senses
Hotels Resorts Spas (Six Senses) and launch
of Atwell Suites in 2019, following the
addition of Regent Hotels & Resorts and
voco in 2018, and avid in 2017.
A world-renowned wellness and sustainability
brand, Six Senses represents the very top tier
of luxury, whilst Atwell Suites offers a new
option in an $18bn US all-suites market.
Illustrating the strength of these new brands,
avid has surpassed 200 signings since
launch in September 2017, Atwell Suites
already has 10 signings, and voco is growing
ahead of expectations in EMEAA, with plans
to expand into more markets globally in
2020. In the luxury space, a redefined
Regent is attracting owner interest, and
signings for Six Senses have accelerated,
with some fantastic locations added,
including London and the Galapagos Islands.
As well as the right brands, we know our
success relies on having an attractive loyalty
offer, a rich digital guest experience, and the
tools, support and systems that unlock
greater hotel performance for our owners.
Our IHG Rewards Club partnerships in 2019
with the US Open Tennis Championships
and travel club and boutique hotel specialist,
Mr & Mrs Smith, underline our ambition to
strengthen the programme through world
class partnerships and help attract, reward
and retain high value guests.
We are heavily investing in technology too, with
the continued development of our industry-
leading cloud-based Guest Reservation System
For every priority and programme we have,
there is insight, data and expertise behind it
that makes sure we are delivering relevant and
effective solutions. Owners and guests vote
with their feet, and we have seen improved
guest satisfaction scores in the year, and
increasing owner confidence illustrated by a
growing market share of signings. Continuing
this progress in 2020 is a key priority.
As a global industry leader, we understand
how to operate in an ever-changing
macro-economic environment to drive
in-year performance and future growth.
This includes dealing with the more recent
challenges associated with the outbreak of
Covid-19 in Greater China and the impact on
other parts of the world.
Focusing on the quality of our brands and
owner offer, and investing in our culture and
the colleagues that deliver for us every day,
will continue to allow us to grow our estate
and revenues, and in turn drive our ability
to reinvest in growth and deliver returns.
Operating responsibly
Our commitment to acting in responsible
and sustainable ways is a critical component
of our purpose to provide True Hospitality for
everyone. Every day, it ensures that we do
the right thing when it comes to our culture
and operations, local communities and
the environment.
In a period of internal change, we continue to
listen carefully to employees to improve
processes and empower them to be at their
best. While there is more to do, key progress in
2019 included strengthening our commitment
to flexible working, launching a new employee
share plan, providing additional paid leave
volunteering opportunities, and introducing
conscious inclusion training as part of a focus
on diversity and inclusion.
Recognising how through our scale we
have the potential to positively impact
communities and the world around us, we
also further developed our human rights
programme, including material updates to
our Human Rights Policy and launching a
new, free e-learning module for all
colleagues to combat human trafficking.
In addition, it was fantastic to see more than
160,000 colleagues take part in our Giving for
Good month and help support IHG charity
partners. During 2019, we also started projects
including an AI technology partnership to
reduce food waste, and a programme with
Junior Achievement Worldwide to build young
people’s hospitality skills.
Proudly, IHG also became the first global
hotel group to commit to switching all
bathroom amenities to bulk-size products,
which together with our 2018 pledge to
eliminate plastic straws, will reduce plastic
waste in our hotels each year.
It is very clear that the actions we take to
grow in the right way are being evermore
closely followed. Alongside the delivery of
our 2018-2020 Responsible Business
Targets, we are working on an ambitious
and effective future Corporate Responsibility
strategy and associated targets, which
includes setting a 2030 science-based
target to reduce greenhouse gas emissions.
Thank you
In 2019, we have taken more important steps
to be the best long-term partner for owners, a
great place to work for our employees, and a
brand of choice for guests. Testament to this
is the many awards we’ve received, including
IHG being recognised as a Kincentric
(formerly a part of Aon) Global Best Employer
and as a Best Place to Work for LGBTQ
equality, EVEN Hotels named one of
hospitality’s most customer centric brands
by Forbes, and Six Senses, InterContinental
and Kimpton hotels all being recognised by
Conde Nast’s Readers’ Choice Awards.
Our 400,000 colleagues make all this
possible, and I would like to sincerely thank
everyone at IHG, and our owners, for their
contribution, passion and commitment.
Keith Barr
Chief Executive Officer
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Chief Executive Officer’s review
7
Strategic Report
Industry overview
Despite a more challenging global
economic backdrop, leading to RevPAR
growth moderating, increasing room
supply illustrates the positive fundamentals
for the industry overall, such as increasing
disposable incomes and growing appetite
for branded hotels.
The $535 billion hotel industry remains
fragmented, with 54% of rooms affiliated
with a global or regional chain. Competition
among branded players continues to
increase as companies seek growth through
acquisitions, organic expansion and
diversification in their offer.
continue to influence how the industry
operates, whilst increasing digital commerce
has led to a broader competitive landscape
involving online travel intermediaries,
serviced apartments and peer-to-peer home
rental companies.
2019 Industry performance
In terms of key performance metrics, room
supply reflects how attractive the hotel
industry is as an investment from an owner’s
perspective. RevPAR is an important indicator
of the value guests ascribe to a given hotel,
brand or market, and grows when guests stay
more often or pay higher rates.
Evolving consumer expectations in areas
such as sustainability, luxury and technology
2019 saw the industry delivering its 10th year
of consecutive RevPAR growth at +1% globally,
slower than previous years due in part to lower
growth in the global economy. In a slower
RevPAR environment, rooms supply growth
becomes an important driver of value creation
for hotel groups. In 2019, global rooms supply
grew by +2%, driven by attractive owner
returns across a number of segments.
The hotel industry is cyclical; long-term
fluctuations in RevPAR tend to reflect the
interplay between industry demand, supply
and the macroeconomic environment. At a
local level, political, economic and factors
such as terrorism, oil market conditions and
hurricanes can impact demand and supply
in the short term.
Overview of global hotel industry
Geography
The US is the largest hotel market, whilst
Greater China continues to growa
Branded hotels
The top fivec hotel groups have increased
their market share by 5 percentage pointsa
Segment
The hotel industry can be categorised by
price levela
6.2%
Americas
Rest of the world
Greater China
9.1%
39.9%
% of room
revenue
51.0%
2019
2018
2017
2016
2015
24.9%
24.4%
23.3%
22.7%
19.4%
12.9%
% rooms
15.7%
22.1%
Luxury
Upper Upscale
Upscale
Upper Midscale
Midscale
Economy
19.8%
23.7%
Hotel industry growth drivers:
10-year annual growth rate
Global GDP
+3.1
%
CAGRb
Indicator of economic growth – hotel
performance correlates with GDP
Global household disposable income
%
CAGRb
+3.0
Growing consumer spending and leisure
travel, supported by cheaper air travel
Global corporate profits
+6.1
%
CAGRb
Good indicator of business travel –
continues to grow
Global hotel industry performance
Hotel business models
Global Industry RevPAR ($)a
RevPAR growth suggests solid
lodging demand
2019
2018
2017
2016
2015
79.9
79.2
76.8
74.2
72.8
Global rooms supply (m rooms)a
Supply growth reflects the
attractiveness of the hotel industry
2019
2018
2017
2016
2015
18.7
18.3
17.9
17.5
17.2
There are two principal business models
used by branded hotel groups:
• Fee-based, asset-light model
– 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 hotel owner. The hotel owner
pays management fees and, if the hotel
uses a third-party brand name, fees to
that third-party also.
• Owner-operated, asset-heavy model
– Owned: operated and branded by the
owner who bears the costs but benefits
from all 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.
Asset-heavy business models allow tighter
control over hotel operations, whilst
asset-light models enable faster growth with
lower capital investment.
a Source: STR, Inc
b Source: Oxford Economics
c IHG, Marriott International, Inc., Hilton Worldwide
Holdings Inc., Wyndam Hotels & Resorts Inc., Accor S.A.
8
IHG | Annual Report and Form 20-F 2019
Please see pages 10 to 13 for information
on IHG’s business model.
Trends shaping our industry
Sustainability
Operating with
a social purpose
Employees, consumers, investors, governments and industry
bodies are paying closer attention to how committed
companies are to caring for communities and the
environment. Many businesses, including IHG, have aligned
their efforts to the United Nations Sustainable Development
Goals, focusing on priorities most relevant to their operations.
The goals range from wiping out poverty and delivering
decent work and economic growth, to driving gender equality
and climate action. All require creativity, commitment and
collaboration in order to drive real change at global scale.
See pages 24 to 40 for more information on how IHG is
addressing this trend.
100+
Hotels adopting IHG Studio
$5.6bn
IHG’s digital (web and mobile)
revenue in 2019, up 7% on 2018
IHG Studio uses either
the IHG app or in-room TV
connection to offer guests
easier ways to manage their
stay – from directly casting their
own content or ordering room
service, to using loyalty points to
pay for services. IHG Studio was
launched in 2019 following a
successful trial and will become
a brand standard globally.
As consumers spend
increasingly more time online
exploring and researching travel
options, IHG continues to invest
in providing engaging and
seamless digital guest
experiences. The IHG mobile app
is a critical component of our
offer, with revenues increasing
18% in 2019 and downloads
rising by 11%.
Consumer trends
Instagrammable experiences
For many guests, the hotel they choose to stay in needs to be
as much a part of their travel experience as the destination
they are preparing to explore. This requires an abundance of
boutique and lifestyle hotels with character, authentic
neighbourhood roots, and memorable designs and service
style, without compromise on quality.
Large hotel groups have seized on the opportunity to grow
these brands at pace, based on their ability to offer
consistently rich experiences in multiple locations, alongside
those all-important distinctive twists worthy of a snap for
social media.
See page 23 for more information on how IHG is addressing
this trend.
These pages should be read together with
our principal risks on pages 46 to 53
and risk factors on pages 226 to 230.
200m
IHG is significantly reducing the
200 million bathroom miniatures
used in its hotels annually
In an industry first, in 2019 IHG
committed to replacing all our
miniature bathroom amenities
with bulk-size products across all
brands. The move, which will
significantly reduce plastic
waste, has been followed by
several industry peers.
5.9%
IHG’s reduction in carbon
per occupied room from
2017 baseline
Working alongside our owners
and hotels, one of our 2018-2020
Responsible Business targets is a
commitment to reduce our
carbon footprint per occupied
room by 6-7%, and we are on
track to do so.
Technology
Enriching the digital guest
experience
As technology continues to play an increasingly important
role in our lives, the hospitality industry is investing in data,
platforms and partnerships capable of integrating digital
services and connectivity at the right moments of a stay
experience. The overarching ambition is to deliver richer,
personalised and frictionless experiences for consumers,
and to create more effective, efficient operations and greater
revenue opportunities for businesses.
See page 21 for more information on how IHG is addressing
this trend.
5,290
rooms
2019 was a record year of
signings for Hotel Indigo
Since launching in 2004, IHG’s
Hotel Indigo brand has grown to
become one of the world’s
largest branded boutique chains,
with no two properties the same.
Demand continues to increase,
with its estate set to double in
size over the next five years.
~100
hotels
Kimpton Hotels & Restaurants
has been adding exciting new
international destinations at a
rapid rate
Since acquiring Kimpton in
2015, IHG has focused on
taking the brand’s highly
personal service and playful
design from its US base to top
luxury boutique destinations
globally. From Bali and Bangkok
to London and Shanghai,
Kimpton has grown to almost
100 open and pipeline hotels.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Industry overview
9
Strategic Report
Our business model
We predominantly franchise our brands
and manage hotels on behalf of third-party
hotel owners. As an asset-light business,
we focus on growing our fee revenues and
fee margins, with limited requirements
for capital. This enables us to grow our
business whilst generating high returns
on invested capital.
Whether we franchise or manage hotels is
largely determined by market maturity, owner
preference and, in certain cases, the particular
brand. For instance, in more developed
markets such as the US and Europe, over 90%
of IHG hotels are franchised. These hotels
tend to be limited service. By contrast, in
emerging markets such as Greater China over
80% of IHG hotels are managed by IHG, where
we look after the day-to-day running of the
hotel on behalf of the owner. These hotels
tend to be full service.
Since launch, we have signed over 200
franchise hotels in Greater China, which
attract full franchise fees.
Our asset-light business model means that
we do not generally employ colleagues in
franchised hotels, nor do we control their
day-to-day operations, policies or
procedures. That being said, IHG and our
franchised hotels are committed to
delivering a consistent brand experience,
conducting business responsibly and
delivering our purpose of providing True
Hospitality for everyone. See page 28 for
more information.
IHG owner proposition
We focus on ensuring our brand portfolio,
loyalty proposition, systems and expertise
provide a rich and distinctive offer that stands
out to consumers and is attractive to owners.
Over time, we expect the Chinese market to
move towards a franchised model. We
successfully launched the first tailored
franchised offer for Holiday Inn Express® in
2016, and have since extended this to
include Holiday Inn® and Crowne Plaza®.
To keep our brands relevant to guests and
evolving trends, we commit to developing our
established brands with new designs, service
enhancements and operational support that
drive demand and returns, and keeps True
Hospitality at the heart of our offer.
In addition to our core brands, we are focused
on growing our portfolio in high-potential
areas, and have launched and acquired new
brands in the mainstream, upscale and luxury
segments in recent years.
We have also developed state-of-the-art
technology to drive hotel demand, be it
through our mobile booking app or cloud-
based hotel solutions. Our distribution channels
(booking sites and call centres through which
hotel rooms are marketed and booked) allow
hotel owners to reach potential guests at
lower costs of sale, with the proportion of
revenue from rooms booked through IHG’s
direct and indirect channels having steadily
increased over the last few years.
Our investments in development resources
has meant that we can provide outstanding
operational support to owners. We have
embedded new processes to help reduce
the time taken from hotel signing to ground
break and opening. Our hotels also have
access to a suite of applications designed to
help them manage and improve
performance, with the aim of further
boosting returns.
How we generate revenue
Franchised hotels
We receive a fixed percentage of rooms revenue following a
guest staying at a hotel. This is our fee revenue.
$
Guests
Hotel
IHG fee revenue
IHG System Fund
Hotel owner
Our fee revenue:
Rev PAR
X
Rooms
X
Royalty rate
Managed hotels
From our managed hotels, we generate
revenue through a fixed percentage of the
total hotel revenue and a proportion of
each hotel’s profit.
Owned, leased & managed lease hotels
For hotels which we own or lease, we record
the entire revenue and profit of the hotel in
our financial statements. Our owned, leased
and managed lease hotels have reduced
from over 180 hotels 18 years ago, to
26 hotels at 31 December 2019.
How we deliver value
Franchised hotels
We deliver value to our hotel owners
through the cultivation of hotel brands,
economies of scale, access to shared
systems and resources, and centralised
marketing activity to drive hotel
guest bookings.
Managed hotels and owned, leased and
managed lease hotels
As well as the benefits we deliver through
our franchise model, we drive value to our
managed hotel owners, and owned, leased
and managed lease hotels, by optimising
the performance of these hotels.
Other stakeholders
As part of our purpose to provide True
Hospitality for everyone we believe it is
important that we deliver value to all our
stakeholders. Whether it is our workforce,
hotel owners, guests, suppliers,
shareholders or society, we want to create
a positive impact on them and the world
around us. See pages 24 to 40 for more
information.
10
IHG | Annual Report and Form 20-F 2019
Revenue from reportable segmentsa
Our revenue is directly linked to the revenue
generated by the hotels in our system.
28%
Fee business
Owned, leased
and managed
lease hotels
72%
Franchised
614,974
rooms
Managed
262,253
rooms
Central
Revenue is principally
technology fee
income see page 72
Owned, leased and
managed lease
6,336
rooms
a Excludes System Fund results, hotel cost reimbusements
and exceptional items.
IHG revenue from reportable segmentsa and the System Fund
System Fund
IHG manages a System Fund on behalf
of our third-party hotel owners, who pay
contributions into it. This includes a
marketing and reservation assessment
and a loyalty assessment.
The System Fund also receives proceeds
from the sale of IHG Rewards Club
points under third-party co-branding
arrangements.
The System Fund is managed by IHG
for the benefit of hotels within the IHG
system and is run at no profit or loss
over the long-term. In 2019, IHG
recognised $1.4 billion of System
Fund revenue.
Total Gross Revenue
2019: $27.9 billion. This comprises:
• Franchised hotels =
total rooms revenue
• Managed hotels =
total hotels revenue
• Owned, leased and
managed lease hotels =
total hotels revenue
(Only owned, leased and managed lease 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 from reportable
segments
2019: $2.1 billion
Revenue attributable to IHG
comprises:
• Fee business revenue from reportable
segments: in 2019, 72% of our revenue
came from franchise and management
fees, and central revenues:
System Fund revenues
2019: $1.4 billion
The System Fund is not managed to a
profit or loss for IHG over the longer
term, but for the benefit of hotels in
the IHG system, and comprises:
• Assessments and contributions
paid by hotels.
• Revenue recognised on consumption
– Franchise fees = RevPAR x rooms
of IHG Rewards Club points.
(See page 72 for more information.)
x royalty rate.
– Management fees = fee % of total
hotels revenue plus % of profit.
– Central revenue (principally
technology fee income –
see page 72).
• All revenue from owned, leased and
managed lease hotels.
IHG reported Group revenues (excluding reimbursable revenue)
Profit from hotel revenues
After operating costs of sale, our
margin by business model is:
• Fee marginb: 54.1%.
• Owned, leased and managed
leasec: 9.1%.
Not all of our costs can be allocated
directly to revenue streams and
these are shown as central 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 2019
to support our strategic priorities,
please see pages 19 to 23.
a Excludes System Fund results, hotel cost reimbursements and exceptional items.
b Definitions for Non-GAAP measures can be found on pages 55 to 59. The reconciliation for fee margin can be found on page 216.
c The margin for owned, leased and managed lease is calculated from the results related to owned, leased and managed lease included within reportable segments (see page 214
revenue of $573m and operating profit of $52m).
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our business model
11
Strategic Report
Our business model continued
Disciplined approach to capital allocation
Our asset-light business model is highly
cash generative and enables us to invest in
our brands and strengthen our enterprise.
We have a disciplined approach to capital
allocation which ensures that the business
is appropriately invested in, whilst
maintaining an efficient balance sheet.
Beyond this, we look to return surplus cash
to shareholders through ordinary and special
dividends and share buybacks.
Our objective is to maintain an investment-
grade credit rating. One of the measures
we use to monitor this is net debt: EBITDA
and we aim for a ratio of 2.5-3.0x. This
is equivalent to our previous guidance
of 2.0-2.5x before the adoption of
IFRS 16 ‘Leases’.
Dividend policy
The Board consistently reviews the Group’s
approach to capital allocation and seeks to
maintain an efficient balance sheet and
investment-grade credit rating. IHG has a
progressive dividend policy and 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 242. When
reviewing dividend recommendations, the
Directors take into account the long-term
consequences of any recommendation.
The Company looks to ensure that any
recommendation does not harm the
long-term sustainable success of the
Company and that there are sufficient
distributable reserves to pay any
recommended dividend.
For more details on our dividend policy
and approach, see pages 4 and 73.
Our priorities for the uses of cash are
consistent with previous years and
comprise of three pillars:
Invest in the business to
drive growth
Through strategic investments and our
day-to-day capital expenditures, we
continue to drive growth.
Ordinary dividend progression (¢)
120
100
80
60
40
20
0
6
8
1
7
8
7
4
6
8
5
11% CAGR
2
5
7
4
3
4
9
3
9
2
9
2
9
2
6
2
5
3
0
1
6
0
0
2
2
1
7
0
0
2
2
1
8
0
0
2
2
1
9
0
0
2
3
1
0
1
0
2
6
1
1
1
0
2
1
2
2
1
0
2
3
2
3
1
0
2
5
2
4
1
0
2
8
2
5
1
0
2
0
3
6
1
0
2
3
3
7
1
0
2
6
3
8
1
0
2
0
4
9
1
0
2
7
1
9
1
9
1
7
3
0
0
2
8
4
0
0
2
8
5
0
0
2
Interim
Final
Return surplus funds
to shareholders
In January 2019, we paid a $500m
capital return to shareholders via a
special dividend and share
consolidation.
Capital investments net ($m)
250
225
200
175
150
125
100
75
50
25
0
-25
211
166
2018a
2019
Maintenance capex, key money and
selective investments
System Fund capital investments
Recyclable investments
Maintain sustainable growth
in the ordinary dividend
IHG has a progressive dividend policy
which means we look to grow the
dividend per ordinary share each year.
Shareholder returns 2003-19 ($bn)
5.9
13.8
7.9
Asset
disposals
Operational
cash flows
Total
a The 2018 comparatives have been restated to reflect the adoption of IFRS 16 ‘Leases’
12
IHG | Annual Report and Form 20-F 2019
Disciplined approach to capital expenditure
Capital expenditure incurred by IHG can be summarised as follows.
Type
What is it?
Recent examples
Maintenance capital expenditure, key
money and selective investment to
access strategic growth.
Maintenance capital expenditure is
devoted to the maintenance of our
systems and corporate offices along with
our owned, leased and managed lease
hotels.
Key money is expenditure used to access
strategic opportunities, particularly in
high-quality and sought-after locations
when returns are financially and/or
strategically attractive.
Examples of maintenance spend include
maintenance of our offices, systems
and our owned, leased and managed
lease hotels.
Examples of key money include
investments to secure representation
for our brands in prime city locations.
Recyclable investments to drive the
growth of our brands and our expansion
in priority markets.
Recyclable investments are capital used
to acquire real estate or investment
through joint ventures or equity capital.
This expenditure is strategic to help build
brand presence.
We would look to divest these
investments at an appropriate time and
reinvest the proceeds across
the business.
Examples of recyclable investments
in prior years include our EVEN Hotels
brand, where we used our capital to
develop three hotel properties in the
US to showcase the brand. Over time,
we expect to divest our interest in
these hotels.
System Fund capital investments for
strategic investment to drive growth
at hotel level.
The development of tools and systems
that hotels use to drive performance.
This is charged back to the System Fund
over the life of the asset.
Recently, we rolled out our new
pioneering cloud-based Guest
Reservation System (GRS), one of IHG
Concerto’s comprehensive set of
capabilities, which we developed with
Amadeus (see page 224). In addition,
during the year we made a strategic
investment, alongside other large hotel
companies, in Groups360 to create an
online sourcing and booking solution
for meetings.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our business model
13
Mainstream IHG is the clear global leader in the mainstream segment, with 15% of existing global market share by rooms and 25% of the pipeline. Our mainstream brands operate across the midscale and upper midscale market segments, ranging from full-service hotels and extended stay properties, to franchising our Holiday Inn Club Vacations brand to a single timeshare operator. We are focused on using our mainstream expertise to enhance and expand our iconic established brands, and to quickly grow at scale newer ones like avid hotels and Atwell Suites in areas of high demand.Our brandsHoliday Inn Hotels & Resorts® • Delivering warm, welcoming service in environments that connect people, inspire trust and deliver exceptional value • Best year of openings for one of the world’s most iconic brand families• Global service programme launched; more than 180 Americas hotels adopting new room and public space designs; >90% of Europe estate adopting Open Lobby concept• Global rollout of ‘We’re There’ Holiday Inn & Holiday Inn Express marketing campaignHoliday Inn Express® • Delivering simple smart travel, with easy, hassle-free stays • Highest number of room openings in 11 years for the world’s largest brand by rooms• Over 70% of Americas estate committed to modern guest room and public space Formula Blue design; 95% of Europe hotels adopting next-generation guest rooms• New breakfast offer in almost 2,000 hotels across the AmericasHoliday Inn Club Vacations® • Creating meaningful travel experiences that bring families closer together • Brand’s first urban location secured in New Orleans, US• New US destinations in Tahoe added to the portfolio for our family of more than 350,000 Holiday Inn Club Members• Launched “Innsider Events” programme, tripling the number of events for membersTo drive growth at scale in high-value markets globally, we are investing in an attractive portfolio of distinct brands that generate strong demand from both guests and owners. Underpinning the continued success of our established brands is a commitment to understanding evolving consumer trends and delivering the modern designs, service, hotel tools and digital innovation needed to meet guest expectations and strengthen owner returns. We also continue to expand our portfolio, by acquiring or developing new brands in fast-growing and underserved segments with significant growth potential. Combined, this approach has seen us accelerate our rate of net system size growth over the last three years from ~3% to 5.6%.While all our brands stand for something different, they share a common purpose, which is to provide True Hospitality for everyone. Here are some highlights from across the portfolio in 2019:28 Open hotels1Pipeline hotel1,256 Open hotels274 Pipeline hotels2,875 Open hotels754 Pipeline hotelsAnnual industry global segment revenue$115bnIndustry revenue growth potential to 2025$65bn14IHG | Annual Report and Form 20-F 2019Strategic Report Atwell Suites™• A new upper-midscale all-suites brand launched for the US in 2019• Targets an $18 billion US industry segment• 10 signings in Q4 2019 following registration of franchise documents in September• First hotels expected to begin construction in 2020 and open in 2021Staybridge Suites® • Providing spacious suites and meaningful connections to help guests break from the travel norm• Highest number of hotel openings in a decade • Transformational brand prototype launched with revitalised amenities, elevated designs and greater market flexibility • New breakfast offer rolled out in US and Canada with increased hot and cold variety and daily specialsCandlewood Suites® • Providing a comfortable and familiar space to settle for US travellers on an extended stay• Opened 400th property and launched new contemporary brand logo• Unveiled refreshed brand prototype with more spacious and comfortable lobbies and suites• Strong owner interest in new designsavid™ hotels • Delivering the essentials exceptionally well at good value for guests • More than 200 hotels signed since launch in 2017• Presence secured in US, Canada and Mexico• More than 80 hotels under construction or with planning approved300 Open hotels182Pipeline hotels0 Open hotels10Pipeline hotels7 Open hotels207Pipeline hotels410 Open hotels91Pipeline hotelsHoliday Inn London – Wembley, UK15IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our brands Crowne Plaza® Hotels & Resorts • Championing a modern way of business travel through distinctive stays and meeting experiences• Best signings performance in a decade• New service programme rolled out and flagships opened in Europe, Greater China and the Americas showcasing future of the brand • Next phase of Accelerate programme launched to enhance quality of the Americas’ estate and drive commercial successUpscale IHG offers a broad range of upscale brands in what is a diverse, fast-growing segment spanning everything from business travel and wellness focused stays, to lifestyle and boutique experiences. We are focused on driving growth of our brands internationally through modern designs and distinctive style and service. Through our newest upscale brand, voco, which principally focuses on conversion opportunities, we are also offering owners a new way to quickly take advantage of IHG’s scale, systems and expertise.Our brands continuedvoco Gold Coast, Australiavoco™ hotels • A distinctive upscale brand offering hotels reliable enough to depend on, but different enough to be fun • Offering conversion opportunities to owners of high-quality unbranded hotels • Presence secured in 16 countries across EMEAA since launch in June 2018• Brand to expand into more markets globally in 2020HUALUXE® Hotels and Resorts • The first upscale international hotel brand designed for Chinese guests• Highest number of signings in six years, including Nanjing Yangtze River and Hainan Clear Water Bay • Partnered with Chinese modern artist to bring to life brand’s commitment to Chinese culture• Named Best Hotel Brand 2019 by VoyageEVEN® Hotels • Designed for travellers seeking to prioritise wellness and stay balanced when away from home• Celebrated a record signings performance in the year, alongside openings including EVEN Alpharetta, Georgia, and EVEN Ann Arbor, Michigan • New prototype and enhanced design launched to drive signings • Ranked 9th in hospitality in Forbes 2019 “100 Most Customer-Centric Companies”Hotel Indigo® • Inspiring discovery by delivering inviting guest experiences that truly reflect local neighbourhoods • Record year of signings for one of the industry’s largest branded boutique chains by number of hotels• Estate set to double in size in next five years, heading to 16 new countries • Strengthening aided brand awareness illustrates brand’s attractiveness to owners and guestsAnnual industry global segment revenue$40bnIndustry revenue growth potential to 2025$20bn118 Open hotels101 Pipeline hotels9 Open hotels22 Pipeline hotels431 Open hotels88 Pipeline hotels13 Open hotels26 Pipeline hotels12 Open hotelsa17 Pipeline hotelsaa Figures do not include three open and one pipeline hotel that will rebrand to voco.16IHG | Strategic ReportAnnual Report and Form 20-F 2019 InterContinental® Hotels & Resorts • Exhilarating the mind with a worldly perspective gained from pioneering luxury travel for more than 70 years• Reinforced position as world’s largest luxury hotel brand with nine openings in 2019• Significant owner investment with a number of properties being refurbished• Driving brand preference with InterContinental ‘ICons’ and National Geographic ‘Worldly’ campaignsSix Senses Hotels Resorts Spas • Creating perfect moments in some of the world’s most spectacular locations• A world-renowned reputation for sustainability and wellness • 10 new signings and two openings since acquisition, including London, the Galapagos Islands and Loire Valley • Long-term potential to grow estate to >60 propertiesLoyalty A rich loyalty offer allows IHG to build valuable relationships with members who are often strong advocates for our hotel brands, and seven times more likely to book directly, which helps deliver higher-value revenue to our estate.IHG® Rewards ClubOne of the industry’s leading loyalty programmes, IHG Rewards Club is our way of ensuring that travel is experienced the way it should be: personal, seamless and rewarding.All our members receive free internet worldwide, have access to exclusive rates and can select personal preferences that ensures their stays are just as they like them. On top of a stay, members can earn points on everyday activities such as shopping, dining or car rentals through our many partners globally, and Regent Hotels & Resorts • Heralding a new era of luxury where guests can experience both the serene and the sensational• 3 hotels signed since acquisition of majority stake in July 2018; renovation projects launched for existing estate• Redefining brand hallmarks, design and service based on a deep understanding of the modern luxury consumer • On track to grow portfolio to more than 40 aspirational hotels over the long termKimpton® Hotels & Restaurants • Creating heartfelt human connections through highly personal service, superlative style and playful design• Presence secured in 14 countries as part of international expansion into luxury markets, including London, Paris, Tokyo, Barcelona, Bali and Bangkok• Combined system and pipeline now at almost 100 hotels• Named 5th in Fortune 100 Best Companies to Work For 2019Luxury With a strong heritage and expertise in luxury, we are growing our offer in the world’s most desirable destinations to ensure we cater for a range of needs from the top tier of luxury through to boutique stays. Our acquisition of Six Senses Hotels Resorts Spas in 2019 followed the purchase of a majority stake in Regent Hotels & Resorts in 2018, and has helped create a comprehensive luxury offer that strengthens our loyalty proposition, attracts more corporate guests and creates a broader owner base to work with. these can be used to redeem Reward Nights or book flights with more than 400 airlines. In addition, our IHG Rewards Club Concierge can be used for access to one-of-a-kind opportunities. Further enhancing the programme, we added more world-class global and regional partnerships in 2019, and progressed important trials, including an option for members to use loyalty points to pay for amenities and services during their stay. See page 20 for more detail.Annual industry global segment revenue $60bnIndustry revenue growth potential to 2025$35bn212 Open hotels65 Pipeline hotels6 Open hotels5 Pipeline hotels18Open hotels25 Pipeline hotels66 Open hotels33 Pipeline hotelsInterContinental Maldives Maamunagau Resort, Maldives17IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our brands Our strategyOur strategy for high quality growth Our clearly defined strategy is focused on delivering industry-leading net rooms growth over the medium term. We consistently enhance and grow our mainstream, upscale and luxury brands in high-value markets with strong consumer demand to create scale positions and develop a differentiated guest and owner offer. With disciplined execution, we focus on key markets with high potential, investing ahead of demand to drive high-quality growth. This means consistent, sustained growth in cash flows and profits over the long-term.Our strategy is executed through a strong set of values, business behaviours and talented people, with a clear commitment to grow in the right way for our communities and the world around us, delivering on our purpose to provide True Hospitality for everyone. Strategic modelIndustry-leading net rooms growth over the medium termWhilst committing to responsible businessOn the following pages we set out some examples of how we implement each element of our strategic modelRobust assurance processes, business ethics, values and behavioursStrong, diverse, innovative and inclusive cultureRespect for the environment and the communities we work inEngagement with our stakeholders and nurturing relationships Build and leverage scale Strengthen loyalty programme Enhance revenue delivery Evolve owner proposition Optimise our preferred portfolio of brands for owners and guestsIHG’s Strategic Model Our strategy should be read together with our culture, responsible business and stakeholders section, pages 24 to 40, and our principal risks and uncertainties, pages 47 to 53. For further information about our strategy, go to www.ihgplc.com/about-us under Our strategy.18IHG | Annual Report and Form 20-F 2019Strategic Report Build and
leverage scale
Scale provides significant advantages in
the hospitality industry at both a global
and national level. Focusing on the highest
opportunity segments, IHG uses a diverse
brand portfolio, loyalty offer, strong
systems and depth in attractive markets
to drive significant efficiencies that lead
to increased operating leverage and
ultimately higher margins.
In 2019, our scale provided further
competitive advantage, allowing us to
accelerate our net system size growth to
5.6%. Moreover, we increased our market
share of signings in key markets, helping to
expand our high-quality pipeline and
position us well for future growth.
Illustrating the attractiveness of our
enterprise offer, our established brands
continue to expand at pace globally. This
expansion included a best ever openings
performance for our Holiday Inn Brand
Family, underscoring our leading position in
the mainstream segment.
Within upscale and luxury markets more
broadly, our Hotel Indigo estate is set to
double in size in the coming years and we
are bringing Kimpton Hotels & Restaurants to
new international destinations at an excellent
pace. We continue to use our scale to build
new brands too, including avid hotels, which
has had over 200 signings in the US, Canada
and Mexico since September 2017, with
seven hotels already open.
Increase in share
of signings in
key markets, taking
total pipeline to
283k rooms
65k
new rooms opened
in 2019
200+
avid hotel signings
with seven properties
now open
200+
Hotel Indigo to
almost double estate
in next five years
$125m
efficiency
programme on track;
fully re-invested in
growth initiatives
14
international
countries for fast-
expanding Kimpton
Hotels & Restaurants
brand
avid Oklahoma City – Quail Springs, US
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our strategy
19
Strategic Report
Our strategy continued
Strengthen
loyalty programme
Having an attractive, differentiated loyalty
offer tailored to our guests’ needs is critical
to IHG’s success. We are continually
innovating IHG Rewards Club to build
lifetime relationships with our members.
This creates a sustainable long-term
revenue source for our hotels and
transforms previously unaffiliated travellers
into powerful advocates for our brands.
In 2019, our focus on global and regional
partnerships helped deliver richer
experiences for our IHG Rewards Club
members and increased awareness of
our brands. This included our inaugural
sponsorship of the US Open Tennis
Championships, which attracted almost
21 million social media impressions, with
members able to use loyalty points to bid
for ‘money can’t buy’ experiences. We
also announced a partnership with
Mr & Mrs Smith that makes around 500
hand-selected luxury and boutique
properties exclusively available for IHG
Rewards Club members, and we extended
our InterContinental Alliance Resorts
partnership with Sands Macao to include
The Venetian Macao and The Parisian Macao
in Greater China.
Beyond this, we are piloting several
programme enhancements, including an
option for guests to pay with points for
services including spa treatments, food
and beverages.
InterContinental
Alliance Resorts
partnership with
Sands China in
Macau
~46%
Loyalty rooms night
contribution
Sponsorship of US
Open Tennis
Championships,
rewarding members
with new experiences
Partnership with
Mr & Mrs Smith:
Exclusive access to
~500 hand-selected
properties
100m+
enrolled members in
IHG Rewards Club
Hotel Borgo Pignano, Italy, part of the Mr & Mrs Smith collection
20
IHG | Annual Report and Form 20-F 2019
Enhance
revenue delivery
By striving to drive business through our
direct channels, IHG maximises returns for
our owners, delivering revenue at a lower
cost than alternatives such as third-party
intermediaries. Digital and technological
innovation, alongside strong brands and a
compelling loyalty offer, is key to ensuring
IHG continues to manage revenue
delivery effectively.
We continue to develop IHG Concerto, our
proprietary, cloud-based hotel technology
system. In 2019, we began piloting attribute
pricing for our Guest Reservation System,
which was developed with Amadeus and
rolled out in 2018. Rather than simply
choosing a room at booking, guests will be
able to customise their stay by selecting
specific attributes, whilst hotel owners will
unlock value by optimising pricing for
desirable items. In addition, our Revenue
Management for Hire programme has
now been rolled out to over 3,500 hotels,
providing owners with data-driven insights
for setting room rates.
A compelling B2B offer is also a crucial
source of revenue, and we are focused
on enhancing our leading global sales
enterprise that drives high-quality, low-cost
revenue to our hotels. In 2019, with three
industry peers, we made a strategic
investment in Groups360 to enhance the
GroupSync™ platform and make group travel
easier for meeting planners. Using an online
tool, planners will be able to source and
book meetings and events across a wide
selection of brands.
Developing updated
arrivals platform
within IHG Concerto
Attribute pricing pilot
on Guest Reservation
System underway
Price optimisation
software for Group’s
business in
IHG Concerto
+7%
growth in digital
(web and mobile)
revenue in 2019
3.5k+
hotels now have
Revenue
Management for Hire
programme
Artist’s render of voco Sydney Central, Australia
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our strategy
21
Strategic Report
Our strategy continued
Evolve our
owner proposition
Focus on
accelerating signings
into openings
Maintaining positive relationships with
long-standing owners and constantly
forging new ones is vital for IHG. Our
outstanding operational support, preferred
brands, industry-leading franchise offer
and continued investment in innovation
deliver a compelling owner proposition
and strong returns.
In the Americas, following the success
of our 2017 launch of avid hotels, which
encompassed a streamlined process for
owners from signing a hotel, to building and
running the property, we launched cost-
efficient prototypes in 2019 for Holiday Inn
and our extended stay brands, Candlewood
Suites and Staybridge Suites.
Our global procurement solutions provide
support to our owners in opening and
running their hotels. Progress in 2019
included delivering a supply chain solution
for new Holiday Inn Express hotels in Greater
China, which helps get hotels open in a
faster time period and offers high quality
products at lower costs.
In Greater China, we have provided owners
with more opportunities to work with IHG
through our franchise offer for Holiday Inn
Express, which launched in May 2016. Since
then, we have extended franchising to our
Holiday Inn and Crowne Plaza brands too,
achieving more than 200 signings to date.
200+
franchise signings for
Holiday Inn Express,
Holiday Inn and
Crowne Plaza in
Greater China since
launch in 2016
More cost-efficient
prototypes launched
for Holiday Inn,
Staybridge Suites and
Candlewood Suites
Sustainability brand
standards for new
brands such as voco,
with recycled filtered
water solutions and
recycled bedding
200
green solutions
delivered via IHG
Green Engage
2019 Americas Investors and Leadership Conference, Las Vegas, US
22
IHG | Annual Report and Form 20-F 2019
As competition intensifies, distribution
channels proliferate and consumers
become more demanding, actively building
a strong portfolio of distinct brands for
both our owners and guests is key to IHG’s
success and future growth.
As an example of this, in the mainstream
segment with Holiday Inn Express, our new
guest room designs have delivered a five
percentage points premium in guest
satisfaction and strong owner returns. We
are on track for adoption of these new
designs in over 1,600 hotels in our Americas
estate by the end of 2020, and the
successes have informed enhancements
rolling out for Holiday Inn, Crowne Plaza,
Staybridge Suites and Candlewood Suites.
In addition to enhancing our established
brands, we have added new brands in
fast-growing markets that will support future
rooms growth.
This includes using our mainstream expertise
to launch avid and Atwell Suites, targeting
underserved guests in the midscale and
all-suites segments. In upscale, our voco
brand offers owners of high-quality assets a
chance to quickly convert to a strong brand
and leverage IHG’s scale and systems to
drive improved performance. In the luxury
space, the acquisitions of Regent Hotels &
Resorts and Six Senses builds on our existing
heritage to offer a more comprehensive offer
to guests and to owners wanting to work with
IHG in the top tier of luxury.
Optimise our
preferred portfolio
of brands for owners
and guests
1,600+
Holiday Inn Express
hotels in Americas to
have adopted new
public space and
guest room designs
by end 2020
5
new brands added
to portfolio in a
period of less
than two years
10
new Six Senses
properties signed
since acquisition
33 signings for voco
in EMEAA since
launch in 2018; plan
to launch the brand
globally in 2020
200+
signings for avid
hotels since launch
in September 2017
10
signings for
Atwell Suites since
September 2019
launch in fast-growing
US all-suites market
Regent Porto Montenegro, Montenegro
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our strategy
23
Strategic Report
Our culture, responsible
business and stakeholders
Our values,
behaviours and
work practices
Our people,
diversity and
inclusion and
workforce
engagement
True
Hospitality
for
everyone
Environment
Community
Compliance
Our business
partners and
guests
Our
investors and
shareholders
24
IHG | Annual Report and Form 20-F 2019
Our purpose to provide True Hospitality for
everyone is at the centre of our culture. It
underpins, reinforces and supports our
strategy, sets the tone for our commercial
activities, drives performance, and creates
value for our stakeholders.
We are committed to:
• Robust business ethics, values and
behaviours;
• A strong, diverse, innovative and
inclusive culture;
• Respect for the environment and the
communities we work in; and
• Engaging with and nurturing relationships
with our stakeholders.
IHG believes that good culture is more than
written values, policies and principles.
It is the demonstration of our culture, the
ethical and inclusive behaviours that matter,
be it the way our Board and Executive
Committee lead us, the way our office
spaces are set out, the way we prioritise
resources, monitor performance, respond
to climate and societal change, or how our
performance support teams partner with
General Managers in our hotels.
The Company culture is driven through a
mixture of the Board leading by example,
delegating to the Executive Committee and
Senior Leadership, setting and monitoring
values, behaviour and ethical business
practices, standing Board agenda items
on key areas of culture, reviewing and
approving policies, and direct or delegated
interactions with stakeholders.
Our culture is crucial to who we are, how we
work together, how we make our strategic
decisions, how our stakeholders view us and
how we grow our business.
The following pages should be
read in conjunction with:
Our business model pages 10 to 13
Our strategy pages 18 to 23
KPIs pages 42 to 45
Our risk management pages 46 to 53
Governance on pages 78 to 117
Directors’ Report on pages 221 to 224
How we engage
Engagement with our stakeholders and
day-to-day management is a multi-layered
and delegated process. At all levels of the
business, from front line operations,
through corporate functions, Senior
Leadership, the Executive Committee,
the Board and its Committees, we engage
both internally and externally.
The Board delegates oversight of day-to-
day operations and execution of strategic
priorities through the Executive Committee
and Senior Leaders, and sets, approves,
embeds, reviews and course corrects
(where necessary) the Company’s strategy,
values, policies, principles, behaviours and
responsible business culture in line with our
purpose and business model.
Our engagement model
We use a variety of mechanisms to engage
with employees and other stakeholders,
including face-to-face meetings,
conferences, feedback and performance
reviews, employee forums and training, and
we monitor this through, for example, our
employee and investor engagement surveys,
reports and presentations to the Board. We
have an open, collaborative and inclusive
approach. We take the information we
glean from those interactions and use
it to make informed judgements in our
decision making.
We also take into consideration the views
and interests of other stakeholders, such
as regulators and industry bodies, when
determining our strategy, values and
behaviours, as well as awareness of
environmental and social concerns.
They help provide a framework against
which we measure ourselves, protect our
reputation and develop our commercial
and social awareness.
More information about our culture,
approach to responsible business and
stakeholders is set out on the following
pages. See Board agenda items on
pages 84 and 85 for more information
on which stakeholders were considered
as part of Board decisions.
Voice of the Employee
Board & Committees
Values,
Behaviour
& Work
practices
Employees
Executive Committee
Global Functions and Regions
External
stakeholders
Monitoring,
Reporting &
Assurance
InterContinental Hanoi Landmark72, Vietnam
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
25
Strategic Report
Our culture, responsible business
and stakeholders continued
Our values, behaviours
and work practices
Who leads at IHG
• Board and Committees
• Executive Committee
• Senior Leaders
• D&I Board
• Human Resources and Business
Reputation and Responsibility functions
• Functional business partners including
Corporate Affairs, Finance and Global
Commercial and Technology
How we engage
• Board and Committee oversight,
monitoring and review
• Formal reporting and escalation
processes to Senior Leadership
and management teams
• Virtual Learning Summits
• Employee engagement surveys
• Company intranet site including ‘our
people’, and ‘Code of Conduct’ portals
• E-learning relating to Code of
Conduct, Anti-bribery, Antitrust and
Handling Information Responsibly
• Cybersecurity training and awareness
• Incident handling
Our commercial success is dependent on
our values and behaviours, together with
our Code of Conduct, key policies, and
monitoring and assurance processes, to
support our decision-making. Combined
they ensure that we continue to build trust
in the Company.
Our culture is monitored and assessed
through a number of metrics, including our
employee engagement survey, employee
forum feedback, e-learning participation,
reports from our confidential reporting
hotline, and third-party consultant surveys.
10 years ago IHG became a member of
the United Nations Global Compact
(UNGC). We remain committed to
aligning our operations, culture and
strategies with its 10 universally
accepted principles in the areas of
human rights, labour, environment and
anti-corruption.
IHG Values
IHG’s Values, formerly Winning Ways, reflect
the values and beliefs of our employees and
leadership. They underpin the way we
behave, the decisions we make, our strategy
and our commitment to providing True
Hospitality for everyone. They reflect the
diversity of our colleagues, business
partners, guests and other stakeholders.
Do the right thing. We always do
what we believe is right and have
the courage and conviction to put it
into practice, even when it might be
easier not to. We are honest and
straightforward and see our
decisions through.
Show we care. We want to be the
company that understands people’s
needs better than anyone else in our
industry. This means being sensitive
to others, noticing the things that
matter and taking responsibility for
getting things right.
Aim higher. We aim to be
acknowledged leaders in our
industry, so we have built a team
of talented people who have a real
will to win. We strive for success
and value individuals who are
always looking for a better way
to do things.
Celebrate difference. We believe
that it’s the knowledge of our
people that really brings our brands
to life. Our global strength comes
from celebrating local differences
whilst understanding that some
things should be kept the same.
Work better together. When we
work together, we are stronger.
We’re at our best when we
collaborate to form a powerful,
winning team. We listen to each
other and combine our expertise to
create a strong, focused and trusted
group of people
Behaviours
We have a set of growth behaviours that
encourage corporate employees to be
decisive, work at pace, be collaborative,
develop talent and focus on performance to
deliver our strategic objectives and purpose
to provide True Hospitality for everyone.
During 2019 we continued to increase our
efforts to establish a high-performing culture
through a series of learning events across
the organisation. We also initiated a
programme to help our employees sustain
high impact and unlock performance
throughout the organisation. The
programme, focusing on holistic physical,
mental and emotional health, was rolled out
to 200 IHG employees.
26
IHG | Annual Report and Form 20-F 2019
In addition, local teams led a range of
wellbeing programmes, which will be further
enhanced during 2020.
Our Code of Conduct
IHG’s Code of Conduct (Code) is
fundamental in supporting employees
working in IHG corporate offices, reservation
centres and managed hotels in making the
right decisions, in compliance with the law
and our high ethical standards. It provides
information on our key principles and global
policies, including human rights, diversity
and inclusion, accurate reporting,
information security, anti-bribery and the
environment. It also provides employees
with guidance on where to go if they are
faced with a difficult issue and need
further help.
The Board, Executive Committee and all
employees must comply with the Code and
the policies and procedures it refers to. The
Code is reviewed and approved by the Board
on an annual basis to ensure it reflects and
responds to changes in the external
environment and continues to support IHG’s
purpose and strategy.
In 2019, new processes were put in place to
ensure the Code e-learning modules are
automatically populated in employees’
learning plans, including for all new starters.
All our Board and Executive Committee,
along with employees across the
organisation, have affirmed their
commitment to the Code.
The Code is available on our website
www.ihgplc.com/responsible-business
under Policies, and also displayed on our
Company intranet.
Information
security
During our cybersecurity
week we ran a variety of
activities to help
employees better
understand cyber threats
and mitigation strategies.
Simulated phishing
awareness exercises help
strengthen employees’
ability to recognise
suspicious emails and
promote behaviours to
help protect data.
human rights violations, financial crime
including bribery and corruption, or any other
activities which may have a reputational, legal
or ethical impact on IHG, prior to approval for
any new hotel or entry into a new market.
To help manage and monitor our corporate
supply chain, an automated procurement
system is used across many of our large
corporate offices. In addition to
acknowledging adherence to IHG’s Supplier
Code of Conduct, new suppliers onboarded
to the system are required to complete due
diligence questionnaires, which include
questions on human rights, labour,
environment and anti-corruption.
Our internal audit team aims to provide
objective and insightful assurance to the
Board and management over our control
environment. Internal audit also provides
independent oversight of the mechanisms
in place for confidential reporting across
IHG, including the design and operation of
the reporting hotline, and maintains an
ongoing dialogue with employees from
Human Resources, Ethics & Compliance
and Finance to monitor:
• the volume of reports received;
• the source and nature of allegations
received; and
• the overall environment across the Group
to promote a ‘speak-up’ culture.
The following policies and principles are
key areas within the Code, each of which
is supported by its own guidance and
training materials.
We continue to enhance our privacy
programme to address evolving privacy
requirements, such as the California
Consumer Privacy Act 2018.
Human rights and modern slavery
Helping combat human rights abuses,
including modern slavery, is an ongoing
commitment at IHG, and we continue to
develop our policies and processes. During
2019 we enhanced our human rights
programme, including significantly updating
our Human Rights Policy and making available
a new e-learning module for all colleagues to
support in preventing human trafficking.
In 2019 IHG joined the Tourism Child-
Protection Code of Conduct to benefit from
ECPAT-USA’s expertise in addressing human
trafficking and child sexual exploitation risks
within the hospitality industry.
Our Modern Slavery statement
is available on our website
www.ihgplc.com/modernslavery
Bribery and financial crime
Bribery and financial crime, including
improper payments, money laundering and
tax evasion, are not permitted at IHG under
any circumstances. This also applies to any
agents, consultants and other service
providers who do work on IHG’s behalf.
Our Anti-Bribery Policy sets out IHG’s
zero-tolerance approach and is applicable
to all Directors, IHG employees and our
managed hotels. It is accompanied by a
mandatory anti-bribery e-learning module.
Our Gifts and Entertainment Policy supports
our approach to anti-bribery and corruption.
Increased targeted engagement was
undertaken in 2019, including face-to-face
training for employees in our corporate offices.
IHG is a member of Transparency International
UK’s Business Integrity Forum and participates
in its annual Corporate Anti-Corruption
Benchmark. The results from this are used
to help measure the effectiveness of the
anti-bribery and corruption programme and
identify areas for continuous improvement.
Handling information responsibly
As set out in our Code, we want everyone,
including guests booking via our reservation
channels, members of our loyalty
programmes, colleagues, shareholders and
other stakeholders, to trust the way we
manage their information and are addressing
cybersecurity threats. We have standards,
policies and procedures in place to manage
how personal data should be used and
protected. In 2019 we relaunched our
e-learning training for employees on
handling information responsibly, covering
topics such as how to work with vendors and
transfer data securely.
Our monitoring and assurance processes
The trusted reputation of IHG and its brands
is one of IHG’s most important assets. Our
due diligence practices, monitoring of the
health and performance of our working
practices, are critical to protect this, and
support our commitment to responsible
business and drive commercial advantage
through risk identification and mitigation.
Specific monitoring arrangements are in
place for key risk areas. For example, our
operational risk specialists track a range
of indicators of safety and security risks to
assess their potential impact on hotel
operations, and to consider where additional
guidance, learning materials or adjustments
to existing controls may be required. Despite
best efforts, incidents occur across our hotel
operations. IHG management reviews
reported incidents as appropriate.
We carry out risk-based due diligence and
compliance checks on new third-party hotel
owners with whom we enter into hotel
management or licence agreements.
A central committee of senior IHG decision-
makers considers and reviews any material
issues, such as concerns or allegations of
Crisis
management
training
In 2019 crisis
management training
and awareness exercises
were run across seven
IHG offices.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
27
Strategic Report
Our culture, responsible business
and stakeholders continued
Employee engagement
At IHG we foster a culture of open and
honest feedback. Responsibility for
employee engagement is a company-wide
activity. Through our wide range of
engagement forums, management-led
performance updates and Voice of the
Employee, (see pages 32 and 33), we talk
to employees about our performance, key
metrics, values, diversity and inclusion
initiatives, and we give them the opportunity
to talk to each other and give feedback to
the Board, Executive Committee and Senior
Leaders. This information assists them in
their decision making.
Our employee engagement survey, ‘Colleague
HeartBeat’, is measured bi-annually and is
completed by our corporate, customer
reservations office and managed hotel
employees (excluding our joint ventures).
In 2019 the survey focused on key areas
associated with our business strategy. 96%
of the participants responded and our overall
employee engagement was 87%. We saw
several positive shifts across our employee
engagement, most notably in relation to
questions about our growth behaviours. Areas
for improvement include a focus on enabling
effective work processes for employees,
resource deployment, and ways of working
between regional and global teams. The
Executive Committee and Senior Leaders
continue to look for ways to appropriately
address this feedback.
Reward culture
Our reward packages aim to attract, retain
and motivate top talent, and are centred
around a set of core principles:
• Our employees are recognised and paid
competitively for their contribution to the
Group’s success;
• Reward and recognition practices are
consistent across our employee population
regardless of gender and other aspects
of diversity; and
• There is alignment between the wider
workforce and how executives are
rewarded.
Applying a consistent approach to reward
across the corporate business, which we
regularly review against our competitors,
ensures that we meet the needs of
employees by offering market-driven rewards
packages. We place great emphasis on
aligning everyone to our business strategy,
so that shareholders and employees have
a shared interest in the performance of the
Group. This alignment was further
strengthened in 2019 with the launch of an
employee share plan, which will encourage
shared ownership and align the interests of
employees with our external stakeholders.
Our wider Remuneration policies are
regularly reviewed by the Remuneration
Committee. See the Remuneration Report
and Directors Remuneration Policy on
pages 96 to 117 for more information
on how we align workforce and
executive reward.
Early talent development
Recognising the significance of people to
our business, we aim to attract the very best
talent into our hotels through our Early
Careers programme, where we provide
programmes to young people looking
for work experience, internships,
apprenticeships and graduate opportunities.
During 2019 we recruited over 15,000
participants into our Early Careers
programme globally, providing them with
first look experiences, work placements
and permanent roles with IHG.
Colleagues
worldwide
400k+
14,436
Number of employees
whose costs were borne
by the Group or the
System Fund.
IHG’s direct workforce
includes employees
working in IHG corporate
offices, reservation
centres and owned,,
managed, leased and
managed lease hotels.
Due to our business
model, we do not employ
the vast majority of
people working in IHG
branded hotels.
Franchised hotels are
independently owned
and operated.
Our people
Who leads at IHG
• Board and Committees
• Designated non-executive director
‘Voice of the Employee’
• Executive Committee
• Senior Leaders
• D&I Board
• Human Resources function
How we engage
• Board and Committee oversight,
monitoring and review
• Responsible Business Targets
2018-2020
• Colleague HeartBeat
• Town Halls, conversation series
and blogs
• Employee Resource Groups (ERGs)
and other employee forums
• Sustainable Leadership programmes
• Rise programmes
• Conscious inclusion workshops
• Virtual Learning summits
• IHG® Academy
• Careers and job portals
IHG is constantly developing, with a new
organisational structure deployed in 2018,
and a focus on accelerating our growth.
Our people are key to delivering both our
purpose of True Hospitality for everyone
and our strategic initiatives. We believe that
an engaged and diverse workforce, and
inclusive environment are necessary to
our competitiveness. We seek to employ
talented people, develop and train them,
and provide a diverse and inclusive culture
in which they can thrive. We also seek to
ensure that our approach to compensation
and benefits remains competitive.
Our activities
The Board and Executive Committee
considered the impact on employee
interests regularly during the year, including
in relation to the acquisition of Six Senses,
diversity and inclusion initiatives, such as
the adoption of a flexible working policy, and
employee engagement matters. The
Corporate Responsibility Committee reviews
progress against our people 2018-2020
Responsible Business Targets and our CEO
continues to chair our D&I Board, (see the
Governance section on pages 92 and 93
for more information).
28
IHG | Annual Report and Form 20-F 2019
As at 31 December 2019
Male
Female
Total
Directors
Executive Committee
Executive Committee
direct reports
Senior managers
(including directors
of subsidiaries)
All employees
(whose costs were
borne by the Group
or the System Fund)
7
7
4
3
11
10
40
23
63
102
34
136
6,498
7,938 14,436
We also signed a partnership with Swiss
hospitality schools Les Roches, Glion and
EHL to develop global hospitality talent. As a
result of this partnership, IHG leaders visited
the schools to participate in curriculum
development and welcomed over 100 of
their students into our hotels and support
centres to share with them our passion for
True Hospitality for everyone.
As part of our Responsible Business Targets
we are committed to increasing the number
of young people coming through IHG’s
Academy. The IHG Academy is a collaboration
between individuals, IHG hotels, corporate
offices, local education providers and
community organisations. It provides local
people with the opportunity to develop skills
and improve their employment prospects in
one of the world’s largest hotel companies.
In 2019, several improvements were made to
the programme, including first look and
internship ‘Learning Pathway’ toolkits,
designed to enhance the participant’s
experience and support consistent
execution of the programme globally.
Attracting and developing top talent
To ensure we achieve our strategic priorities
as a business, we know we need to attract,
develop and retain a diverse and talented
workforce.
In 2019 we continued to use our Learning
Management System to ensure that all
IHG employees have a more seamless
experience accessing IHG learning content.
In addition to improvements across our
Learning offer, we launched a job posting
portal (available in 13 languages) that allows
our franchisees access to IHG’s career
website and have their open positions
included in search results.
It was also a foundational year for the
development of our Talent Attraction
Strategy, which recognises that as the
business grows, we will need to develop
more creative and efficient ways to attract
people to work in our hotels. Our plans
include revitalising our Employer Brand to
create a more enduring and distinctive value
proposition and candidate experience.
General Manager
Learning Events
The events were
designed to create
engaging and dynamic
learning opportunities
for our hotel leaders.
EMEAA General Manager (GM)
Learning Events
During 2019, IHG held GM Learning Events
across EMEAA, welcoming 632 GMs to a
number of four-day events. The events were
designed to create engaging and dynamic
learning opportunities for our hotel leaders.
The IHG Learning and Development team
designed the agenda to deepen GM
knowledge across the region and provide
them with the right tools to drive
performance at their hotels. All the learning
modules were developed in support of IHG’s
growth strategy and to maximise each GM’s
personal development.
90%
of attendees would
recommend the Learning
Events to other GMs.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
29
2.
Increasing the
diversity of our
leadership
talent
3.
Putting the right
decision-making
around our
actions
Strategic Report
Our culture, responsible business
and stakeholders continued
Diversity
and
Inclusion
(D&I)
Our D&I Framework
1.
Strengthening
a culture of
inclusion
IHG is a global business with a global reach
and as such D&I is fundamental for us to
succeed. Our colleagues and guests
represent multiple nationalities, cultures,
races, sexual orientation, backgrounds and
beliefs. It makes for a diverse and inclusive
culture we are proud of, underpins our
purpose to provide True Hospitality for
everyone and is key to our ‘celebrate
difference’ value.
Our special culture is crucial to who we are,
how we work together and how we grow our
business. We are proud to have been
recognised as a Kincentric (formerly a part of
Aon) Global Best Employer three years
running, Best Place to Work for LGBTQ
Equality, by the Human Rights Campaign’s
Corporate Equality Index in the US for the
past six years, and for our CEO to be
awarded third place in the HERoes awards
for advocating women in business.
We are committed to a continual review of
our practices and policies, such as raising
awareness of bias at all levels in our hiring
processes and reviewing flexible working
processes and policies. We have signed up
to the WiHTL’s Diversity in Hospitality, Travel
and Leisure Charter, a 10-point action plan
that ensures diversity and inclusion not only
remains a priority but that we openly track
progress towards our goals.
We also support the UN LGBTI Standards for
Business, which focus on tackling
discrimination against lesbian, gay, bi, trans
and intersex people. And at the beginning of
2020, IHG became signatories of the CEO
Action for Diversity and Inclusion, and
The Valuable 500.
The Nomination Committee was
accountable for our global D&I Policy during
2019, but this responsibility will move to the
Corporate Responsibility Committee in
2020. The operational D&I Board ensures
that we put the D&I policy into practice.
For more information see the Governance
section on pages 92 and 93.
30
IHG | Annual Report and Form 20-F 2019
1. Strengthening a culture of inclusion
At IHG one of the core pillars of our D&I
strategy is to foster a culture of inclusion
so all employees feel included, valued and
respected. Last year our Senior Leaders took
part in a conscious inclusion programme
to equip them to role model inclusive
leadership and champion the flexible
working guidelines that we have launched
globally. We piloted changes to our
recruitment practices which we plan to
scale globally in 2020.
We also expanded our existing Employee
Resource Groups (ERGs) globally following
regional success, and now have more than
1,700 members across groups such as Out
and Open, FAVE (field and virtual
employees), PATH (pan Asians for true
hospitality), BBX (baby boomers and Gen X),
and DAWN (disability and well-being network).
For example, Out and Open is a forum for
colleagues to get involved with LGBTQ+
focused activities and conversations. The
ERG has more than 150 active members,
who come together throughout the year to
celebrate key dates in the LGBTQ+ calendar.
Through collaboration with Hotel Indigo, Out
and Open helped launch the #ColorOfPride
campaign, which all Hotel Indigo properties
in the Americas celebrated. They continued
the theme into our Atlanta Pride
celebrations, which is the biggest event for
IHG Out and Open each year. Annually,
around 250 colleagues, friends and family
volunteer their time in the IHG booth and
walk with the IHG float in the Pride parade.
At the Holiday Inn Singapore Orchard City
Centre, approximately 12% of staff are
colleagues with disabilities. The hotel, which
has been recognised for its work in this area
by the UN, invests in providing training for
managers to adjust to the different ways
of communicating with persons with
disabilities. This includes encouraging
managers to give more regular feedback,
supervision and encouragement to
colleagues with disabilities to ensure
they always feel a part of the IHG family.
Within India, Nepal and Bangladesh,
we have close to 100 colleagues with
disabilities working for IHG branded hotels.
To cultivate a supportive environment for
them, we have partnered with the Sarthak
Educational Trust to deliver training sessions
for hotel colleagues and developed a toolkit
and a series of guidance videos on working
with colleagues with disabilities.
2. Increasing the diversity of our
leadership talent
As part of our 2018-2020 Responsible
Business Targets we made a commitment to
increase the diversity of our Senior Leaders,
as well as increase the number of females
working in General Manager and Operations
roles in managed hotels.
Although our overall percentage of female
Senior Leaders, currently 37% globally, is
the same as our 2017 baseline, we are
committed to furthering the opportunities
for female leaders. We continue to drive
increased representation through initiatives
such as the development of our Future
Leaders’ programme, which provides
graduate-level talent with the opportunity
to work across a range of departments
and geographies.
We have also extended our Rise mentoring
initiative for aspiring female General
Managers to China, India, the Middle East,
Europe and the Americas, which enabled us
to increase the percentage of women in
General Manager and Operations roles from
24% to 26%.
3. Putting the right decision-making around
our actions
In 2018 we established our Global Diversity &
Inclusion Board, (D&I Board), led by our CEO
and other Senior Leaders in IHG who are
responsible for shaping IHG’s diversity and
inclusion priorities. The D&I Board worked
with a third-party independent partner to
gain a different perspective of our business
and help us identify areas for improvement.
The key objectives of the partnership were
to identify the ‘typical profile’ of individuals
deemed to be successful at IHG, understand
real and perceived barriers to success for
women, and define actions to address those
barriers and improve leadership gender
balance. As a result of this work we took
several actions, such as the launch of our
flexible working policy.
As part of our ongoing commitment to
diversity and inclusion we also launched
Diversity & Inclusion Councils across our
regions in 2019, which represent the voice
of our regions and markets, making sure we
listen to employees and engage on local
priorities, as well as collaborating to roll
out initiatives.
For the ninth
consecutive year,
IHG has earned
a spot on the
Atlanta Journal-
Constitution’s Top
Workplaces list
IHG CEO Keith Barr
ranked within
top 3
40 Advocate Executives
The HERoes Women Role
Model List
100%
rating in the Human Rights
Campaign’s Corporate
Equality Index making IHG
a best place to work for
LGBTQ Equality in the US
or the last six years
Listed by the Hampton-
Alexander Review in the
top 10
of FTSE 100 companies
for female representation
among senior leadership
Kincentric
(formerly a part of Aon)
Global Best
Employer
for three years running
IHG Change 100
won ‘Best Initiative’ in HR
Talent & Management at
the Worldwide Hospitality
Awards
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
31
Strategic Report
Our culture, responsible business
and stakeholders continued
Workforce
engagement
Designated
non-
executive
director
Role
2019
engagement
Insights
and
learnings
Board
actions
2020 plans
32
IHG | Annual Report and Form 20-F 2019
Designated
non-
executive
director
As part of IHG’s commitment
to compliance with the UK
2018 Corporate Governance
Code, the Board asked Luke
Mayhew, Non-Executive
Director (NED), to conduct a review and
recommend the best way for the Board to
engage with, and take fully into account, the
views of employees, and how that would
align with IHG’s existing employee forums,
feedback mechanisms and monitoring by
the Board. Luke was supported in the review
by the CEO, Chief Human Resources Officer
and Company Secretary. He reported to the
Nomination Committee during the course of
the year, which in turn made a proposal to
the Board that a designated non-executive
director was the most appropriate approach
for IHG, as it aligned with existing employee
engagement forums. The Board formally
appointed Luke as the designated non-
executive director with responsibility for
workforce engagement (Voice of the
Employee) in August 2019.
Due to the global reach of IHG, Luke is
supported in his role by Jill McDonald (Chair
of the Corporate Responsibility Committee),
as well as other NEDs depending on the
forum and topic matter. All Directors engage
with employees during the course of the
year as part of hotel and office visits.
The Board will review this approach annually
in the light of any changing governance
expectations and ongoing feedback.
Luke’s role is to:
Role
• Ensure that employee
interests and feedback are
structured into the Board’s
deliberations and the setting
of KPIs;
• Support management in the design and
content of structured Board discussions on
culture and employee engagement; and
• Review the effectiveness of wider
employee engagement approaches.
His responsibilities include ensuring that:
• The Board, through the Executive, has
effective methods of receiving feedback
from employees and communicating Board
and executive decisions and priorities
throughout the organisation;
• All significant business and budget
proposals include a management
assessment on the impact on employees;
• Executives share employee feedback
openly, transparently and in a balanced
way, including reviewing employee
engagement surveys and other employee
reports including whistleblowing;
Insights
and
learnings
Insights from the forums
included understanding:
• How informal peer support
amongst employees works
across a range of topics;
• How formal management engagement
with employee forum representatives is
conducted;
• How the CEO and other Executive
Committee members communicate
performance and culture updates with
employees;
• How the D&I Board works and the
commitment to rolling out this initiative;
• How regional ERGs are launched and the
key issues they discuss;
• How culture-related initiatives resonate
most effectively with employees; and
• How our employee engagement survey,
(Colleague HeartBeat), results are analysed
and acted on by management.
As well as Luke’s activities, Jo Harlow attended
a European Employee Forum and Jill McDonald
attended an ERG and D&I overview session in
Atlanta. Patrick Cescau visited Japan with
Kenneth Macpherson in February 2019 where
he met employees, and visited Mexico with
Elie Maalouf in June 2019 and met IHG leaders
and employees in the region.
Board
actions
The Board did not consider
that any significant change of
direction or overall approach
to engagement was needed
in light of Luke’s activities.
However, following his observations and
feedback the following are being
actioned by HR:
• Improved employee dashboards and
scorecards to better enable the Board’s
appreciation of employee concerns and
engagement results;
2020 plans
With the responsibilities and
expectations agreed and fully
trialled in 2019, a plan of
meetings and review sessions
has been scheduled for 2020.
The schedule includes opportunities to meet
and talk to a range of employees in different
locations across band levels, and further
develop Luke’s understanding of employee
issues and concerns. He will meet them
at a variety of IHG’s existing employee
engagement forums, such as Town Halls,
virtual interface meetings and corporate
regional office visits. The meetings will also
give employees the opportunity to give
feedback to the Board, through Luke.
Meeting and engagement topics to include:
• Performance results – employee questions
and management responses;
• Employee feedback on the transformation
programme and IHG competitiveness;
• Manager-level employee issues and
observations;
• D&I Board perspectives;
• Lean In peer support issues and activities;
• European Employee Forum – engagement
with Forum representatives; and
• Regional ERG activities.
Planned 2020 Voice of the Employee and
Board reviews and interactions, ahead or as
part of Board meetings, include:
• Review of the engagement dashboard with
Luke and Jill;
• Review of the HR scorecard and employee
engagement dashboard, and deep-dive
into specific areas of Board interest;
• Participation in a virtual employee interface
session with Company managers in Asia;
and
• People and Culture Strategy and Voice of
• Revised and additional wording in
the Employee feedback discussion.
engagement surveys to gain more relevant
feedback on the impact and progress of
the transformation programme; and
• Active Board support for diversity and
inclusion initiatives being launched across
IHG and the optimisation by the Executive
Committee of ERGs as the most effective
touchpoint with the Voice of the Employee.
In addition:
• Luke and other NEDs will discuss any
material feedback from their meetings with
employees, as and when it is received;
• All relevant Board and budget papers will
continue to have an employee impact
assessment; and
• The Board will regularly review the
approach in line with best practice and
changes in regulation.
• The Board considers any dissonance
between what is reported to it and what
emerges from feedback to the Voice of the
Employee; and
• Other NEDs gather feedback and
perspectives from employees too.
Human Resources (HR) provides Luke
with support regarding planning and
engagement forums, and shares findings
on employee engagement surveys and HR
scorecards. Luke is expected to seek
feedback from other NEDs, in a private
session at each Board meeting, from their
meetings with employees and discuss
insights with the CEO and Board as
appropriate. In addition, he will respond to
shareholders on questions of governance in
respect of the Voice of the Employee.
2019
engagement
During 2019 a schedule of
employee forums and meetings
was agreed with Luke to attend
and appreciate the scope of
existing engagement methods,
employee concerns and points of view on
company culture, diversity and inclusion,
career opportunities, strategy and
performance, as well as to discuss the
role of the Board and its Committees.
Luke visited our corporate offices in Atlanta
in the US, and Branston and Denham in the
UK and observed a number of Town Hall
meetings, attended a variety of employee
meetings and focus groups, including
Lean In Circles and employee resource
group (ERG) meetings, with employees from
all band levels, across all IHG functions.
Those locations were chosen as they are
our main corporate headquarters where
we have 3,098 employees. Branston was
a key location in our 2018 transformation
programme, where 78 new roles
were created. In Atlanta there are
eight active employee groups reflecting
employee communities.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
33
Strategic Report
Our culture, responsible business
and stakeholders continued
Environment
Who leads at IHG
• Board and Committees
• Executive Committee
• Senior Leaders
• IHG Responsible Business Governance
Committee (represented by senior
management from across the
business)
• Corporate Responsibility function
How we engage
• Board and Committee oversight,
monitoring and review
• Responsible Business Targets
2018-2020
• Dashboards sent monthly to Executive
Committee on progress against our
hotel carbon reduction target
• Responsible Business Report
• IHG Green Engage™ system
With 5,903 hotels operating in more than
100 countries, we recognise the risks
presented by climate change, which have
the potential to impact our performance and
growth, and our responsibility to keep
adapting to meet the challenge. In 2019, the
Board considered the Company’s post-2020
environmental sustainability approach and
ambitions, and the Corporate Responsibility
Committee endorsed new sustainability
commitments, including a science-based
target for carbon reduction by 2030, and
reporting in line with the Task Force on
Climate-related Financial Disclosures.
Tackling climate change related issues
involves collaboration with our key
stakeholders to find solutions and
innovations to drive positive outcomes.
We are uniquely placed to educate and
support behavioural change amongst our
third-party hotel owners, suppliers and
millions of guests, and will continue to
develop our approach.
Our activities
Environmental sustainability
Our environmental policy sets out our
approach to measuring and managing our
environmental impact, and supports and
guides our colleagues and hotels to find
innovative ways to reduce our environmental
footprint. Our group-wide online digital
sustainability platform, the IHG Green
Engage™ system, helps hotels and
colleagues measure and reduce energy,
carbon, water and waste.
Carbon and energy
One of our Responsible Business Targets is
to reduce our carbon footprint per occupied
room by 6-7% over the period 2018-2020.
Over a two year period, we have reduced our
carbon footprint by 5.9% per occupied
room, including a 3.7% reduction in 2019,
from a 2017 baseline.
As we look at our longer-term ambitions,
we know that we have to do more, which
is why we have set a 2030 science-based
target to reduce greenhouse gas emissions.
200m
IHG is significantly
reducing the number
of bathroom miniatures
used in its hotels
each year
In July 2019 we were the
first global hotel group to
commit to removing
single use miniature
bathroom amenities from
our entire estate.
34
IHG | Annual Report and Form 20-F 2019
Waste
To help address the waste generated by our
corporate offices and hotels, from food to
plastics and linens, and make our offices and
hotels more sustainable, we have mapped
out the biggest areas of waste within our
operations and considered our global
and environmental impact, operational
requirements and guest experience. We are
proud to be the first global hotel group to
commit to switching all our bathroom
amenities to bulk-size products.
Food waste is a big challenge for our
industry and we recognise we have more to
do in this area. We have partnered with a
third-party technology company in 24 hotels
to use their AI technology to track, measure
and reduce food waste for more sustainable
and efficient restaurant and bar operations.
On average we have achieved reductions
of 35%.
Water
Following a comprehensive water risk
assessment in 2016, and reassessment in
2019 of our open hotels and pipeline, we
have identified risks related to water quantity
and quality and developed water
stewardship action plans for our hotels
in water stressed areas.
In 2018 we committed to launching two
water stewardship projects each year, and
in 2019 we launched two projects in Beijing
and Bali.
To signal our continued water stewardship
work, CEO Keith Barr has signed a
commitment of membership to the
UN Global Compact CEO Water Mandate.
This represents a pledge to six core
commitments that mobilises business
leaders on water, sanitation, and the UN
Sustainable Development Goals.
Further information about our
Responsible Business Targets and
our responsible business approach
is available on our website
www.ihgplc.com/responsible-business
See details of our greenhouse gas (GHG)
emissions on page 223.
Task Force on Climate-related
Financial Disclosures (TCFD)
Building on the work we have done
to set science-based targets, we
have made a formal commitment
to implement the recommendations
of the TCFD, and in 2020 we will be
developing a disclosure roadmap
for the coming years.
Community
Who leads at IHG
• Board and Committees
• Executive Committee
• Senior Leaders
• IHG Responsible Business Governance
Committee (Represented by Senior
Leadership from across the business)
• Corporate Responsibility function
How we engage
• Board and Committee oversight,
monitoring and review
• Responsible Business Targets
2018-2020
• True Hospitality for Good programme
• Giving for Good month
• Charitable partnerships
• Volunteering days
• Responsible Business Report
The travel and tourism industry accounts for
1 in 10 jobs globally with hotels in thousands
of communities. The resilience and the
prosperity of those communities and their
people are important factors to how we
operate and our long-term success.
Our community policy supports and guides
our hotels and colleagues on how to be a
responsible partner with our communities,
whilst ensuring that our business objectives
enhance the quality of life in the community.
Our activities
We aim to maximise the positive
contribution we make by creating shared
value in our communities through our True
Hospitality for Good programme. We form
strategic partnerships with non-government
organisations, (NGOs), and charities that can
help to make a difference in communities
and wider society, helping shape a positive
future for generations to come.
In 2019 we launched volunteering guidelines
and encouraged employees to take two paid
days each year to help charitable causes.
Our Board and Executive Committee have
evaluated our future approach to supporting
local communities, as part of our post-2020
responsible business ambitions, and
recognise that we need to keep developing
our approach.
Charitable partnerships
In 2019, through our partnerships with NGOs
and charities, we contributed more than
$1.3m to projects and causes in areas of
hospitality skills building, environmental
sustainability and disaster relief, supporting
25,000 people globally.
We work with global disaster relief agencies
to provide support and preparedness
training in the event of natural disasters for
our colleagues and local communities.
Giving for Good month
Our Giving for Good month in September
2019 brought colleagues together to make
positive change through volunteering, taking
care of the environment, and activities
focused on health, fitness and wellbeing.
A record-breaking 160,000 colleagues in
88 countries took part in 2019, volunteering
188,000 hours of their time.
For details of our IHG Academy
programme see page 29
IHG First Look
In 2019 as part of our commitment to
helping young people gain skills and
experience in hospitality, we partnered with
JA (Junior Achievement) Worldwide, one
of the world’s largest youth-serving NGOs,
which focuses on preparing people for
future employment and entrepreneurship.
Through an IHG Foundation legacy grant,
we worked to develop a curriculum to run
hotel work-experience events called IHG
First Look; providing young people with the
opportunity to receive hands-on experience
working in a hotel. Combining classroom
working and a practical hotel takeover,
students receive a close-up look at what a
career in hospitality involves. Initiated during
2019, this year-long partnership will support
more than 750 young people to gain skills
and experience in hospitality, in nine major
markets.
Building on the relationship, in early 2020
we began running a set of innovation
camps, which focus on solving a
sustainability-based problem core to
the hospitality industry.
750
young people gained
skills and experience in
nine major markets.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
35
Strategic Report
Our culture, responsible business
and stakeholders continued
Investors and
shareholders
Who leads at IHG
• Board and Committees
• Executive Committee
• Investor Relations function
• Functional business partners including
Corporate Affairs, Human Resources and
Business Reputation and Responsibility
How we engage
• Board and Committee oversight,
monitoring and review
• Annual General Meeting (AGM)
and General Meetings
• Results presentations
• Investor roadshows, face-to-face
meetings and presentations
• Annual investor perception survey
• Asset reunification programme
• Shareholder dealing programme
• Annual Report and Form 20-F,
Responsible Business and other
publications
• Website, media and regulatory
announcements
We recognise that our purpose, culture,
business model and strategy are
fundamental to attracting and retaining
investment in our Company. With a
commitment to open dialogue we maintain
a comprehensive programme of investor
relations activities.
In order to keep up-to-date with best
practice and market views, the Company
solicits independent advice and assesses
guidance provided by a number of agencies,
including the Investment Association.
Our activities
Shareholder meetings
We consider our AGM and, when we need to
hold them, General Meetings, to be
invaluable forums for communicating with
investors and shareholders, both formally as
part of the meeting, and informally
afterwards.
During 2019 we held a General Meeting in
January to approve a share consolidation
proposal, and held our AGM in May to
conduct our usual statutory business.
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 they are made aware of and understand
the views and perceptions of our major
shareholders, in order to develop a
balanced understanding.
The 2020 AGM will be held at 11:00 on
Thursday 7 May 2020. The notice convening
the meeting, including details of the
conditions of admission, will be sent to
shareholders and be available at
www.ihgplc.com/investors under
Shareholder centre in the AGMs and
meetings section, along with the results
of the 2019 AGM and General Meeting.
In addition, our Registrar, Equiniti, and
J.P. Morgan Chase Bank, N.A., custodians of
our American Depositary Receipts (ADR)
programme, have teams equipped to deal
with shareholder and ADR holder queries.
Results presentations
Each year Keith Barr and Paul Edgecliffe-
Johnson present to institutional investors,
analysts and the media following our
half-year and full-year results
announcements. Telephone conferences
are held following the release of our first
and third-quarter trading updates, including
Q&A sessions with sell-side analysts.
36
IHG | Annual Report and Form 20-F 2019
The Investor Relations team also engaged
with retail shareholders and hosted two
investor forums in London during 2019 to
help shareholders understand our strategy
and performance. The feedback and insights
from these events will help us develop and
shape future engagement.
In addition to this, we held a series of
investor consultation meetings between
our Chair of the Remuneration Committee,
Jo Harlow and major shareholders seeking
feedback on the proposed Directors’
Remuneration Policy.
The Senior Independent Director, Dale
Morrison, was and remains available to
shareholders if they have concerns they
wish to discuss.
Shareholder services
During 2019, 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
option to donate their proceeds to charity.
Investor meetings
As part of our annual cycle we have a
programme of one-to-one meetings with
major institutional shareholders, including
Non-Executive Director meetings, hosted
by the Chair.
We also attend key institutional investor
conferences and hold a series of investor
roadshow events in the UK, US, Canada and
Europe. In addition, we hold telephone
conference events with investors and
shareholders in other countries to keep
them up-to-date with IHG performance
and strategy, and engage with them on
their areas of interest.
Elie Maalouf and Kenneth Macpherson held
investor roundtables during the year and
investor hotel tours took place in both
London and Cardiff. During November we
hosted an education event about our
business in Greater China, with Keith Barr
and Jolyon Bulley outlining our competitive
position and strategy in that region.
To enable as many shareholders as
possible to access conferences and
presentations, telephone dial-in
facilities are made available in
advance and live audio webcasts
are made available after results
presentations, together with
associated data and documentation.
These can be found at
www.ihgplc.com/investors
under Results and presentations.
Details of the sell-side research
analysts who publish research
on the Group are available at
www.ihgplc.com/investors under
Analyst details and consensus.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
37
Strategic Report
Our culture, responsible business
and stakeholders continued
Suppliers
Who leads at IHG
• Board and Committees
• Oversight from the Chief
Financial Officer
• IHG Responsible Business Governance
Committee
• Procurement function, including
Strategic Supplier Management
Office (SSMO)
How we engage
• Board and Committee oversight,
monitoring and review
• Responsible Business Targets
2018-2020
• Supplier Code of Conduct
• IHG Green Supplier scorecard
• Employee education programme
on responsible procurement
• Supplier risk assurance programme
Being a trusted business with a strong
reputation is critical to our long-term
operational growth. Our scale gives hotels
under our brands the benefits of broader
supply chain opportunities and consistent
products and services, which in turn benefits
our guests. We have a complex supply chain
and work with suppliers who share our
commitment to our responsible business
agenda and ethical work practices.
The Procurement function drives IHG’s
Responsible Business agenda into our
supply chains. During 2019 the function
focused on enhancing the foundations for
responsible procurement in IHG, through
the supply chain risk assurance programme,
employee awareness of responsible
procurement and our IHG Green Supplier
programme, which evaluates prospective
suppliers across a number of
sustainability factors.
During 2019, we made progress with our
supplier risk assurance programme pilot,
with support from the British Standards
Institute. As part of the introductory pilot,
which began in 2018, we issued a desktop-
based risk assessment questionnaire to all
IHG Marketplace suppliers to help us
understand their governance, human rights
and environmental practices. In 2019, we
reviewed responses and categorised them
based on their risk profile. We will expand
the scope beyond the IHG Marketplace
suppliers group in the next phase of our
programme. The initial pilot has been an
important step in understanding our
supply base.
The Strategic Supplier Management Office,
(SSMO), supports strategic suppliers,
identified for their contractual and
operational value, via business performance
reviews to promote value realisation,
risk mitigation and create healthy
supplier partnerships.
Our activities
Our supply chain activities are split into two
categories – corporate and hotel supply
chains. Our corporate supply chain covers
items such as technology and professional
services. Procurement of goods and services
at hotel level, covers items required for
opening, renovating and operating a hotel,
such as food and beverages, furniture, linen
and electrical goods. Procurement
predominantly occurs at local hotel level as
our hotels are largely owned by independent
third-party owners, who are responsible
for managing their own independent
supply chains.
In certain cases, IHG provides a centralised
procurement programme for both managed
and franchised hotels, such as IHG®
Marketplace in the Americas region (for US,
Canada, Mexico) and IHG Mall in Greater
China. IHG also provides purchasing support
and leverages procurement platforms for
managed hotels in some countries
within EMEAA.
38
IHG | Annual Report and Form 20-F 2019
During the year our Supplier Code of
Conduct was updated and approved by the
Corporate Responsibility Committee. The
Supplier Code sets out our requirement for
suppliers to demonstrate that they act with
integrity and respect for human rights and
the environment. We expect our suppliers to
adhere to these standards, both within their
own business and across their supply chains.
IHG complies with the statutory
reporting duty on payment practices and
performance and is a signatory of the
Prompt Payment Code.
See also our business relationships
disclosure on page 224.
IHG Green
Supplier
Scorecard
introduced
in 2019
3,688
Suppliers signed
the IHG Supplier Code
of Conduct at
31 December 2019
In 2019, our
spend with
diverse suppliers
in the US,
increased by
43% to $102m
Responsible
procurement
education
programme
launched in
2019
Gender-inclusive supply chain
Following a review of our supply chain, we
identified textiles as a priority supply chain
commodity, given they are widely present in
our hotels. At IHG, we know that gender-
inclusivity is essential for a sustainable
business, leading to more productive,
resilient and secure value chains. This is why
in partnership with CARE International and
our key suppliers, we are exploring the social
impacts that can be gained through creating
more gender-inclusive workplaces via a
detailed supply-chain mapping and gender
risk analysis exercise.
Hotel owners
Who leads at IHG
• Board and Committees
• Executive Committee
• Senior Leaders
• Regional hotel lifecycle and
growth functions
• Regional hotel operational
support functions
How we engage
• Board and Committee oversight,
monitoring and review
• IHG Owners Association meetings
• International Hotel Investment Forum
(IHIF)
• Owner HeartBeat surveys
• Regional brand and owner
conferences
• Owner portfolio and hotel reviews
• Dedicated operational support
• Hotel openings
• Hospitality industry forums
Our global network of hotel owners is one of
IHG’s greatest strengths and we continually
look to evolve our owner proposition. Our
success is reliant on matching owners with
the right brands in our portfolio and markets,
sharing a common outlook on responsible
business and working together to use our
scale and resources to drive strong returns.
From meeting to discuss a new project, to
planning every facet of a hotel’s operations,
to the opening itself, we focus on building
businesses. Once open, we support owners
with world class, brand-specific resources
that help drive hotel employee performance,
improved guest satisfaction and increased
revenues.
Our activities
Across our managed estate hotel operations,
including operations leaders, General
Managers, hotel employees and corporate
operations support, regularly engage with
owners on hotel performance. Our franchise
performance support teams engage with
franchised owners and operators through
annual portfolio or hotel reviews.
For more information on the IHGOA
see www.owners.org
We also engage with the IHG Owners
Association (IHGOA), the representative
body of more than 4,500 hotel owners and
operators for nearly 3,600 IHG branded
hotels worldwide, in relation to brand
initiatives, industry topics and hotel
operations. In 2019, we worked with various
IHGOA committees to obtain owner
feedback on IHG standards, programmes
and initiatives that impact both owners and
guests. In particular, we engaged with the
IHGOA on our System Fund.
We also establish, when appropriate,
working groups with key owners in relation
to major public issues relevant to the
hospitality sector. In 2019, for example,
we formed a group to consider Brexit.
In 2019, members of the Board and
Executive Committee engaged with
a number of our key owners at
events including:
• The 2019 World Economic Forum in Davos;
• The 2019 NYU International Hospitality
Industry Conference in New York;
• Strategic Owners Gathering at the
InterContinental Zhuhai Yanheng,
celebrating Greater China’s 400th hotel
milestone;
• Hotel openings, including InterContinental
Beppu Resort and Spa in Japan,
InterContinental Houston – Medical Center
in the US, and Kimpton Da’an in Taipei;
• Dinners at the InterContinental Berlin (as
part of the IHIF), and at the InterContinental
Shanghai Wonderland;
• Face-to-face meetings during visits to
priority markets, including Mainland China,
Japan and Mexico; and
• Americas Investors and Leadership
Conference for owners and General
Managers in Las Vegas.
See page 23 for details about how we
are optimising our brand portfolio for
our owners and guests.
3,780
owners and operators at
the Americas Investors and
Leadership Conference for
owners and General
Managers, in Las Vegas
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
39
Strategic Report
Our culture, responsible business
and stakeholders continued
Hotel guests and
corporate clients
Who leads at IHG
• Board and Committees
• Executive Committee
• Senior Leaders
• Global Marketing function
• Hotel-facing operations
How we engage
• Board and Committee oversight,
monitoring and review
• Hotel visits
• Corporate and brand websites
• IHG Rewards Club
• Guest HeartBeat surveys
• Guest relations
• Social media channels
We recognise that our hotel guests and
corporate clients want to do business with
a trusted company, with a reputation for
strong business ethics, and a wide portfolio
of hotel brands, which understands and
responds to their environmental and
community concerns.
See page 23 for details about how we
are optimising our brand portfolio for
our owners and guests.
Our activities
Strengthening our loyalty programme is one
of our strategic drivers and a key foundation
for engaging with our guests. See page 20
for more information.
As part of our purpose to provide True
Hospitality for everyone we consider guest
experience extremely important:
• We have a dedicated team with a
customer-centric agenda focused on
measuring guest satisfaction through
data-driven insights derived from post-
stay surveys and social reviews, which
are validated and posted on IHG branded
websites and social media. Data collected
informs us how our hotels are performing,
and helps us to support hotels to improve
where required.
• We have nine contact centres in six
countries, with over 3,300 agents on hand
to help guests. They speak 13 different
languages and handled 26.6 million guest
30m
27m
post-stay guest surveys
social media reviews
we have
3,300
agents speaking 13
languages, helping guests
issues and questions in 2019.
• Agents assist our guests with reservations,
loyalty programme support and other
customer service enquiries via telephone,
email, on-line chat and social media.
During 2019 we continued to enhance guest
experience through several technology
initiatives, including IHG Connect, where
guests can connect to wifi in our hotels with
ease, and IHG Studio, where content from
guests’ devices can be streamed in their
individual hotel room. See page 9 for
more information.
Whether for business or leisure, we know,
through our guest insight efforts, that hotel
guests increasingly want their stays to be
more sustainable without any impact on the
quality of their experience. See page 9 for
information about our environmental
activities, including our commitment to
reducing plastic bathroom miniatures, which
has received positive guest feedback.
40
IHG | Annual Report and Form 20-F 2019
Non-financial information
Non-financial information, including a
description of policies, due diligence
processes and outcomes, where applicable,
is set out as follows:
• Environmental matters on page 34
• Social matters on page 35
• Anti-corruption and anti-bribery matters
on pages 26 and 27
• Employee matters on pages 28 to 33
• Respect for human rights on pages 26
and 27
• A description of the Group’s business
model on pages 10 to 13
• The Group’s principal risks on pages
48 to 53
• The Group’s KPIs on pages 42 to 45
Employee engagement
IHG has a number of forums, such as
Town Halls, weekly office updates and
performance metrics, through which
employees are provided with information
on matters of concern to them, including
awareness of financial and economic factors
affecting the performance of the Company,
career development opportunities and
Company policies and principles. In addition
there are opportunities to give feedback to
Senior Leaders, Executive Committee
members and the Board through Q&A
sessions, engagement surveys and the Voice
of the Employee meetings. During 2019, an
employee share plan was introduced, which
also continues to raise awareness of the
performance of the Company with
employees. Further information about how
the Board and Senior Leaders engaged with
employees during the year, and have taken
their interests into account, is set out on
pages 28 to 33, and in the Governance
section on pages 78 to 117.
Business relationships with suppliers,
customers and others
As part of our strategic growth initiatives,
the interests of our suppliers, guests and
hotel owners are taken into account in our
commercial decisions. We engage with them
at all levels of the Company. Details of our
relationship with them are set out on pages
38 to 40, and should be read together with
our disclosures in the rest of the Strategic
Report, as well as the Governance and
Directors’ Report sections on pages 78
to 117 and 221 to 224.
Compliance Statements
As a UK publicly listed company we have to
comply with numerous regulations. In
order to make it easier to assess
compliance, we have presented some of
our compliance statements below. Our
statement of compliance with the UK
Corporate Governance Code can be found
on pages 94 and 95.
Section 172(1)
A director of a company must act in the way
he or she considers, in good faith, would
most likely promote the success of the
company for the benefit of its members as a
whole, and in doing so have regard (amongst
other matters) to:
• the likely consequences of any decisions
in the long-term;
• the interests of the company’s employees;
• the need to foster the company’s business
relationships with suppliers, customers and
others;
• the impact of the company’s operations on
the community and environment;
• the desirability of the company maintaining
a reputation for high standards of business
conduct; and
• the need to act fairly as between members
of the company.
The Board considers that it has complied in
all material respects with their s172(1) duties.
Details of how the Board of Directors
discharged its duties are set out in the
Strategic Report pages 24 to 40 and should
be read in conjunction with information
disclosed in the Governance section, on
pages 78 to 117. The Board and its
Committees received Board papers,
presentations and reports, participated in
discussions and considered the impact of
the Company’s activities on its key
stakeholders, (wherever relevant), against
the backdrop of the Company’s purpose,
values and strategies.
Further information about our responsible
business approach is available on our website
www.ihgplc.com/responsible-business
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Our culture, responsible business and stakeholders
41
Strategic Report
Key performance indicators (KPIs)
Our KPIs are carefully selected to allow us to monitor the delivery
of our strategy and long-term success. They are organised around
our Strategic Model, which is underpinned by doing business
responsibly, (see page 18). KPIs are reviewed annually by senior
management to ensure continued alignment to our strategy and
Responsible Business targets and are included in internal reporting
and regularly monitored. Measures included are those considered
most relevant in assessing the performance of the business and
relate to our growth agenda and commitment to our major
stakeholders including owners, guests, colleagues, shareholders
and the communities in which we work. KPIs should be read in
conjunction with the other sections of the Strategic Report, and
where applicable, references to specific relevant topics are noted
against each KPI.
A guide to this KPI section
Link between KPIs and Director remuneration
As we continued our focus on delivering
high-quality growth as in prior years, Directors’
Remuneration for 2019 was directly related to
key aspects of our Strategic Model. The
following indicates which KPIs have impacted
Directors’ Remuneration:
A The Annual Performance Plan
LT The Long Term Incentive Plan
• 70% was linked to operating profit from
• 40% was linked to Total Shareholder Return
reportable segments
• 30% was linked to strategic measures, of which:
– 15% was linked to improvements in net System
size growth
– 15% was linked to the delivery of our
comprehensive efficiency programmea
• 20% was linked to rooms growth
• 20% was linked to Total Gross Revenue growth
• 20% was linked to cash flow generation
For more information on Directors’
Remuneration see pages 96 to 117
Link to our Strategic Model
Our Strategic Model is at the heart of our
success. The five strategic initiatives are
represented as follows:
1
Build and leverage scale
4 Evolve owner proposition
2 Strengthen loyalty programme
3 Enhance revenue delivery
5
Optimise our preferred portfolio
of brands for owners and guests
Link to Responsible Business
We consult with our stakeholders to determine
the issues that are most relevant to them and
IHG. Based on this feedback there are four
priority areas, which are indicated by the
following icons:
KPIs
Net rooms supply
Net total number of rooms in
the IHG System.
Increasing our rooms supply provides
significant advantages of scale,
including increasing the value of our
loyalty programme. This measure is a
key indicator of achievement of our
growth agenda (see page 18).
Signings
Gross total number of rooms added
to the IHG pipeline.
Continued signings secure the future
growth of our System and continued
efficiencies of scale. Signings indicate
our ability to deliver sustained growth
(see page 18).
A
LT
2019
2018
2017
2016
2015
A
2019
2018
2017
2016
2015
a See reorganisation costs on page 72 for further information.
42
IHG | Annual Report and Form 20-F 2019
Our
people
Environment
Community
Responsible
procurement
883,563
836,541
798,075
767,135
744,368
97,754
98,814
83,481
75,812
78,438
2019 status and 2020 priorities
2019 status
Increased net System size growth to 5.6%, our highest growth rate in over 10
years and acceleration from ~3% in 2016, taking total rooms supply to
883,563 rooms.
Signings decreased -1%, with a record performance in Greater China and
EMEAA offset by a decline in the Americas where 2018 signings were
boosted by the launch of avid hotels. We increased our share of signings in
key markets globally, driven by the addition of five new brands in the last two
years.
2019 performance was driven by:
• Further growth of our established brands:
– Our highest ever number of openings for the Holiday Inn Brand Family.
– InterContinental Hotels & Resorts reinforcing its position as the largest
global luxury hotel brand with nine openings in 2019.
• Record openings and signings in Greater China and record signings
in EMEAA.
• The acquisition of Six Senses and signing of a further ten deals
post-acquisition.
• Launch of new mainstream brand Atwell Suites with ten signings in 2019.
• Scaling of recently launched brands with:
– avid hotels adding six openings and 54 signings in 2019.
– voco hotels growing to 12 hotels opened by the end of 2019, with a total
of 33 signed since launch.
2020 priorities
• Continued focus on delivering industry-leading net System size growth.
• Further scale avid hotels in the US and voco hotels globally.
• Grow the footprint of our new luxury brands Regent and Six Senses.
• Expand Kimpton and Hotel Indigo’s international presence.
• Drive Atwell Suites signings and prepare for the first openings in the US.
KPIs
2019 status and 2020 priorities
2019
2.0%
• Grew digital (web and mobile) revenue by 7% to $5.6 billion.
2019 status
• Net System size growth of 5.6% supported growth in underlying fee
revenue of 2% in a weaker RevPAR environment.
6.4%
• Revenue Management for hire now adopted in over 3,500 hotels across
our estate.
2018
2017
A
LT
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
Growth in underlying
fee revenuesa, b
Group revenue from reportable
segments excluding revenue from
owned, leased and managed lease
hotels, significant liquidated damages
and current year acquisitions, stated
at constant currency.
Underlying fee revenue growth
demonstrates the continued
attractiveness to owners and guests
of IHG’s franchised and managed
business (see page 10).
Total gross revenue from
hotels in IHG’s Systemb
Total rooms revenue from franchised
hotels and total hotel revenue from
managed, owned, leased and
managed lease hotels. Other than
for owned, leased and managed
lease hotels, it is not revenue wholly
attributable to IHG, as it is mainly
derived from hotels owned by
third parties.
The growth in gross revenue from
IHG’s System illustrates the value of
our overall System to our owners
(see page 11).
System contribution to revenue
The percentage of room revenue
booked through IHG’s direct and
indirect systems and channels.
System contribution is an indicator of
IHG value-add and the success of our
marketing distribution channels
(see page 10).
Global RevPAR growth
Revenue per available room: rooms
revenue divided by the number of
room nights that are available.
RevPAR growth indicates the
increased value guests ascribe to our
brands in the markets in which we
operate and is a key measure widely
used in our industry (see page 8).
-0.3%
2019
2018
2017
2.5%
2.7%
2016
1.8%
2015
4.4%
Guest Love
IHG’s guest satisfaction
measurement indicator.
Guest satisfaction is fundamental to
our continued success and is a key
measure to monitor the risk of failing
to deliver preferred brands that meet
guests’ expectations (see page 49
for details).
A
2019
2018
2017
2016
2015
82.4%
81.7%
80.9%
80.4%
79.5%c
$27.9bn
$27.4bn
$25.7bn
$24.5bn
$24.0bn
79%
78%
76%
75%
73%
• IHG Connect, our seamless wifi guest login, is now implemented or being
installed in over 4,500 hotels globally.
• Continued to innovate through use of technology including initiation
of a pilot for attribute pricing through our Guest Reservation System
(see page 21).
• Further strengthened loyalty offer with new partnerships including the
addition of Mr & Mrs Smith luxury and boutique properties to IHG Rewards
Club and sponsorship of the US Open Tennis Championship (see page 20).
• Extended our InterContinental Alliance Resorts and Sands partnership to
new hotels in Macau SAR, providing additional opportunities for guests to
earn and redeem points in highly desirable locations.
• Conducted pilots of variable points pricing for redemption nights and pay
with points for additional services during guest stays.
2020 priorities
• Commence roll out of attribute pricing via IHG Concerto.
• Continue to innovate our loyalty offering including in-hotel experiences
and brand integrations, to provide greater opportunities for our members
to earn and redeem IHG Rewards Club points.
• Maintain our focus on increasing contribution from IHG Rewards Club
members and through direct bookings via our website or call centres.
• Continue to develop strategic partnerships to enhance the value of our
loyalty programme for members.
2019 status
• RevPAR declined slightly in 2019 as industry growth slowed, impacted by
macro and geopolitical uncertainties, increased supply growth in some
markets, and ongoing unrest in Hong Kong SAR.
• We continued to undertake activities to position our brands for
future success:
– Rolled out new prototypes and designs for Holiday Inn and Holiday Inn
Express in Americas and Europe.
– Continued Crowne Plaza Accelerate programme, a multi-year
programme to transform Crowne Plaza in the Americas region, including
flagship hotels showcasing the reinvention of the brand, with the first
opening in Atlanta.
– Modernised Staybridge Suites and Candlewood Suites brands with
launch of new prototypes.
2020 priorities
• Continue to invest in brand innovation, including room design and hotel
layout to meet evolving guest needs.
• 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.
a In 2019 the underlying fee revenue calculation was restated for 2017 onwards following a change in the definition of how we calculate constant currency. The 2017 growth figure is not
comparable and thus excluded from comparison.
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 pages 55 to 59 and reconciliations to IFRS figures, where they have been adjusted, are on pages 214 to
218. A reconciliation of total gross revenue to owned, leased and managed lease revenue as recorded in the Group Financial Statements can be found on page 61.
c 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.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Key performance indicators
43
Strategic Report
Key performance indicators (KPIs) continued
KPIs
Fee margina,b
Operating profit as a percentage
of revenue, excluding System Fund,
reimbursement of costs, revenue
and operating profit from owned,
leased and managed lease hotels,
significant liquidated damages,
the results of the Group’s captive
insurance company and
exceptional items.
Our fee margin progression indicates
the profitability of our fee revenue
growth and benefit of our asset-light
business model (see page 10).
Free cash flowb,c
Cash flow from operating activities
excluding payments of contingent
purchase consideration, less
purchase of shares by employee
share trusts, maintenance
capital expenditure and
lease payments.
Free cash flow provides funds to
invest in the business, sustainably
grow the dividend and return any
surplus to shareholders (see page 12).
It is a key component in measuring
the ongoing viability of our business
(see page 54).
A
2019
2018
2017
2015
LT
2019
2018
2017
2016
2015
2019 status and 2020 priorities
2019 status
• Grew fee margin by 80bps.
• Continued to embed our new operating structures and leverage
operational efficiencies.
• Cost efficiency programme to deliver ~$125m in annual savings, including
System Fund, by 2020 substantially complete, with savings fully reinvested
in growth initiatives.
54.1%
53.3%
53.4%
2020 priorities
• Continuation of our strong cost and efficiency focus.
• Leverage our growth and systems infrastructure to drive economies
of scale.
• Continue to leverage AI to drive process efficiency, enhance revenue
generation, and improve guest experience.
• Provide procurement solutions to help lower owner cost of sale.
• Continue to look for further operational efficiencies through greater
application of technology.
2019 status
• Free cash flow of $509m was down $102m year-on-year with higher levels
of cash tax and working capital offsetting lower levels of exceptional items.
2020 priorities
• Continue to deliver consistent, sustained growth in cash flow.
• Control capital deployment in line with business priorities.
• Continue programme to recycle capital invested in minor equity positions,
over time, when conditions are favourable.
$509m
$611m
$516m
$551m
$466m
a In 2019 the fee margin calculation was restated for 2017 onwards following implementation of IFRS 16 ‘Leases’. The 2016 figure is not comparable and is thus excluded
from comparison.
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 55 to 59 and reconciliations to IFRS figures, where they have been adjusted, are on
pages 214 to 218.
C 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.
44
IHG | Annual Report and Form 20-F 2019
KPIs
Responsible Business
IHG® Academy
Number of people participating in IHG
Academy programmes.
Sustained participation in the IHG
Academy indicates the strength of our
progress in creating career building
opportunities and engagement with
the communities in which we operate
(see page 29).
Carbon footprint per occupied room
We work with our hotels to drive
reductions in carbon emissions to
reduce our overall carbon footprint
(see page 34).
Employee Engagement survey scores
Average of our revisedb bi-annual
Colleague HeartBeat survey,
completed by our corporate,
customer reservations office
and managed hotel employees
(excluding our joint ventures).
We measure employee engagement
to monitor risks relating to talent (see
page 28) and to help us understand the
issues that are relevant to our people
as we build a diverse and inclusive
culture (see page 30).
2019
2018
2017
2016
2015
A
2019
2018
2017
2016
2015
A
2019
2018
2017
2016
2015
15,081
13,531
13,633
11,985
9,287
26.70kgCO2ea
27.71kgCO2ea
28.37kgCO2ea
29.36kgCO2e
30.84kgCO2e
87.0%
86.0%
85.0%
88.7%
87.3%
2019 status and 2020 priorities
2019 status
• Hosted a range of IHG Academy programmes globally throughout the year,
including internships and other experiences.
• Formed a global partnership with Junior Achievement Worldwide offering
young people opportunities to gain skills and experience, empowering
them to consider career opportunities in the industry.
• Reviewed and refreshed supporting material to drive greater participation
and deliver an engaging candidate experience.
2020 priorities
• Continue to provide skills and improved employability through IHG
Academy, ensuring a positive impact for local communities, our owners
and IHG. This will enable IHG to achieve our longer-term target of 30,000
– 40,000 IHG Academy participants in 2020.
• Realign focus of the IHG Academy programme, prioritising an increase in
the length of the IHG Academy opportunities and placements to drive
conversion of participants to permanent employment.
• Build on the IHG Academy programme offering through launching an
internship toolkit in 16 hotel-ready languages.
• Continue to drive quality growth in the programme through enabling our
regional teams to measure impact through a robust reporting solution and
convert IHG Academy hires into employees for 2021 and beyond.
2019 status
• Achieved 5.9% reduction in our carbon footprint per occupied room from
2017 baseline.
2020 priorities
• Continue to reduce our carbon footprint across our entire estate.
• Partner with owners and our hotels to share best practices to help drive
greater carbon reductions.
• Work to meet the requirements of Task Force on Climate-related Financial
Disclosures (TCFD).
2019 status
• Commenced Non-Executive Director-led employee interface sessions
across geographies to better understand workforce engagement (Voice
of the Employee, see pages 32 and 33 for further information).
• Launched starters and leavers survey with employees (in managed hotels
and corporate offices) to understand their feedback on these critical
employee life cycle events.
2020 priorities
• Improve our talent acquisition systems and services to position IHG as a
leading employer and deliver a great hiring experience for candidates.
• Continue to drive a high-performance culture across IHG through
embedding performance and reward practices.
• Further drive the adoption of improvement to our human resources
systems, to further our ability to attract, develop and retain talent.
• Support the recruitment and development of General Managers for our
managed hotels.
• Embed a diverse and inclusive culture across our places of work, through
key initiatives such as RISE and ERGs, to further our promise to provide
True Hospitality for everyone.
a In 2018 the carbon reduction measure was restated in line with a new baseline for the 2018-2020 target. The 2018 and 2019 impacts from the 2017 baseline year have been restated,
aligned to annual changes to IHG’s System size and increase in number of hotels reporting data to the IHG Green Engage system, to enable comparisons to be made for our
2018-2020 target. The 2016 and 2015 figures could not be restated and are not comparable.
b 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.
Please see www.ihgplc.com/responsible-business
for our 2018-2020 Responsible Business targets.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Key performance indicators
45
Strategic Report
Our risk management
Our growth ambition in a fast-moving and
innovative business environment means that
we must consider risk as a central part of
the definition and execution of our strategy.
The Board and Executive Committee have
collaborated closely throughout 2019 to
ensure that risk assessment, mitigation
strategies and plans are integrated into
broader consideration of our short-term
goals and longer-term strategic initiatives
and key projects.
The Board’s role in risk management –
stewardship and partnership
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. Our regional and
functional leaders, supported by the Risk &
Assurance team, conduct strategic planning
and business performance reviews
throughout the year which monitor
emerging risks – new or changing factors
which require further consideration to
determine the potential significance to our
business. Our governance framework and
committee agendas establish procedures for
Board members to receive information from
the Executive Committee and Senior
Leaders and a range of other internal and
external sources on emerging risks. More
detail on the topics covered by the Board
and committees is available in the Corporate
Governance section, pages 78 to 117.
During 2019 the topics have included:
• many long-term industry and
macroeconomic risk factors (within
Board strategy meeting and committee
discussions), often alongside management’s
own presentations of plans and projects;
• discussion of risks relating to longer-term
sustainability, shifting societal
expectations, human rights and our
evolving responsibilities across our supply
chain (Corporate Responsibility
Committee);
• emerging tax, treasury and regulatory risks,
for example relating to privacy and data
protection (Audit Committee);
• cultural, succession and retention risks and
the competitiveness of director and
executive remuneration (Remuneration and
Nomination Committees).
While the Board oversees the risk
management system to ensure that risks and
opportunities are appropriately identified
and managed to an acceptable level, it
works in partnership with the Executive
Committee and Senior Leaders to maintain
and, where necessary, accelerate the
understanding of key risk topics. This is
particularly relevant in relation to
cybersecurity, where the Board have met
regularly with management outside of formal
meetings to enable a more detailed
appreciation of the risks and risk
management strategies available to us to
manage them.
Our enterprise risk management framework
adopts a mitigate/transfer/accept approach,
taking into account the potential impact on
the ability of the Group to execute and
deliver our objectives and strategy.
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. We cascade this appetite through
the goals and targets we set, our Code of
Conduct and other global policies, our
formal Delegation of Authority policy
including the governance structure of
approval committees, decisions we make
and how we allocate resources. It evolves
with the IHG strategy. Our Annual Report
and Form 20-F describes risk appetite in a
number of places. For example, our appetite
for financial risk is described in note 24 to
the Group Financial Statements, see page
182. As a day-to-day example, decision
makers in the business can refer to
guidelines which articulate parameters for
new hotel development deals.
This section should be read together
with the rest of the Strategic Report,
Governance on pages 78 to 117, the going
concern statement on page 224, and Risk
Factors on pages 226 to 230.
Risk management supports
decision making
Our risk management and internal control
system is fully integrated with the way we
run the business and how we create and
protect value in pursuit of our objectives.
Our culture, values and behaviours, see
pages 26 and 27, establish authorities,
capabilities and appropriate incentives for
empowered and agile decision-making
across our portfolio of risks by teams across
IHG, supported by functional expertise.
Formal and informal monitoring, reporting
and assurance arrangements, see page 27,
enable the Board and Executive Committee
to maintain ongoing oversight of key areas of
uncertainty and the effectiveness of our risk
management and internal control
arrangements.
Culture,
Values and
Behaviour
Feedback &
Challenge
Board & Committees
Executive Committee
Global Functions and Regions
Monitoring,
Reporting
& Assurance
Policies,
procedures,
systems,
governance,
reporting
applied by our
people
to decisions
made in business
planning and
delivery
optimising
the way we
manage risk
improving
transparency and
the likelihood of
strategic success.
46
IHG | Annual Report and Form 20-F 2019
Our programme to realise savings for
reinvestment has led to a range of changes
to organisation, accountabilities and
processes, and a wide portfolio of initiatives
is in place to pursue growth opportunities.
Our approach to risk management has
therefore also evolved as part of our
organisational focus on growth and how we
take informed decisions in a fast moving
environment. The Risk and Assurance team
has continued to coordinate assessments of
the principal risks facing the Group,
including those which would threaten its
business model, future performance,
solvency or liquidity and reputation. 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,
however risks are also discussed as an
integral part of decision making across the
year. In addition, focus on the behaviours
necessary to drive growth has included
cross-business participation in virtual
learning summits, including how to make
decisions at pace with the right governance
and structure to maintain control.
Our strategy requires us to work increasingly
with partners, intermediaries and other third
parties, and access expertise and services
which enable us to anticipate and respond
to the needs of our owners, guests and
colleagues, and to work efficiently and at
scale. Many of our risks therefore reflect the
changing nature of our extended enterprise
and our responsibilities to our stakeholders.
Some of these responsibilities, particularly
in relation to our stewardship of data, are
subject to significant changes in law and
therefore highlighted as dynamic and
demanding regular attention by senior
management and the Board.
We continue to conclude that the potential
impact of Brexit on IHG is not likely to have
a material impact on our overall strategy or
operations although, as with other external
factors, this is considered as part of
operational risk management and resilience
planning, and a standing group reviews our
preparedness for operational disruption.
The impact of a potential movement in the
value of sterling is articulated in note 24
of the Group Financial Statements,
see pages 182 to 185.
IHG’s principal risks and uncertainties
Our risk profile is structurally similar to that
of a year ago, although the context within
which we operate is highly dynamic
reflecting the cyclical nature of our industry
and global macroeconomic uncertainties.
Our discussions of risk also take place within
a context of increasing scrutiny of the
impact of our business on our stakeholders,
and our longer-term sustainability. We have
therefore split out our consideration of
external factors to recognise both the risks
relating to political and economic headwinds
on our growth ambitions (for example
disruption in key markets and trade wars)
and also the requirement to anticipate and
respond appropriately to the risks and
opportunities relating to our environmental
and social responsibilities.
We have also refreshed our crisis and
incident management procedures during
2019, with the Executive Committee and
many regional and functional leadership
teams working through training and tabletop
crisis scenarios to review and practice ways
of working. The Risk and Assurance team
provides support and intelligence on
emerging threats and will continue to
provide advice to management on
procedures for risk identification and
mitigation and control. We are continuing
to monitor the evolving situation relating
to Covid-19 and its impact on both our
business and the industry as a whole, and we
are working closely with relevant authorities.
The Group’s asset-light business model,
diverse brand portfolio and wide
geographical spread contribute to IHG’s
overall resilience to events that could affect
specific segmental or geographical areas.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Risk management
47
Strategic Report
Risk management continued
Risk trend and speed of impact
We assess whether the risk area
is stable or dynamic in its impact
and/or likelihood (inherent risk
trend), and the rate at which there
could be a material impact on
IHG. The trend and speed of
impact are summarised in the
diagram with further detail on
activities to manage each of these
risks in the table below.
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
Speed of potential impact
Rapid
• Channel management and technology
• Cybersecurity and information governance
• Accelerate growth
• Macro external factors
• Preferred brands and loyalty
• Leadership and talent
• Environmental and social mega trends
• Legal, regulatory and ethical compliance
• Safety and security
• Financial management and control systems
Principal risks descriptions
Inherent risk trend
Risk impact – link to our strategic priorities
Dynamic/Rapid
Dynamic/Gradual
Stable/Rapid
Build and leverage scale
Strengthen loyalty programme
Enhance revenue delivery
Evolve owner proposition
Optimise our preferred portfolio of brands for owners and guests
Risk description
Trend
Impact
Initiatives to manage these risks
Inherent threats to
cybersecurity and
information governance
remain significant and
dynamic. We are aware of our
responsibilities in relation to a
range of high-value assets
(critical systems & guest,
employee and other sensitive
data) which may be targeted
by various threat ‘actors’
(including organised
criminals, third parties and
‘threat actor-employees’), and
rapid evolution in societal,
regulatory and media scrutiny
of privacy arrangements mean
that the potential impact of
data loss to IHG financially,
reputationally or operationally
remains a dynamic risk factor.
• Effective and appropriate leveraging of data that we have a right to use is a key aspect
of the interface between our marketing and our commercial and technology activity.
We take account of regulatory and ethical factors as part of the decision-making
processes in relation to marketing and technological initiatives, and we also rely on
appropriate governance and control arrangements to mitigate risks that the validity of
data that we use is undermined by cyber-attacks or operational failures.
• Our 2019 focus has been on progressing a Board-endorsed roadmap of the highest
priority and highest-value initiatives to build and maintain core elements of our
cybersecurity posture.
• During the year our Chief Information Security Officer has worked with teams across IHG
to increase sophistication in how we identify, protect, detect, respond and recover in
relation to cyber risks. This has involved developments in our security governance and
risk tracking, including discussion and assessment of an approach to high-value assets
with the Executive Committee.
• We have continued to drive awareness of cybersecurity risk, including an anti-phishing
campaign which tested corporate employees on phishing attacks. We also developed a
cybersecurity incident response playbook which is aligned with wider IHG resilience and
incident preparation protocols.
• The nature of our operating model means that significant amounts of IHG’s confidential
information assets are also held by or shared with third-party suppliers and owners, and
we review those risks as part of our broader supply chain risk management arrangements.
• Our information security programme is supported and reviewed by internal and external
assurance activities, including our Internal Audit and SOX teams and PCI assessments.
• During 2019 we have reported regularly to the Board and the Executive Committee on the
information security roadmap using key risk indicators to track trends in risk and mitigation
initiatives. We also continue to work closely with our insurers to review the adequacy of
protection for our risks and have assessed potential cyber incident scenarios, including
quantification of value at risk, to better aid in risk-based discussions on remediation
investment against risk acceptance and available risk transfer opportunities.
48
IHG | Annual Report and Form 20-F 2019
Risk description
Trend
Impact
Initiatives to manage these risks
Failure to deliver preferred
brands and loyalty could
impact our competitive
positioning, our growth
ambitions and our reputation
with guests and owners.
Competitor and intermediation
activity creates inherent risks
and opportunities for the
hospitality industry and is
relevant to the longer-term
value of IHG’s franchised/
managed proposition and our
ability to deliver returns to
current and potential owners
of our various brands.
In a fast growth environment,
it is essential that we attract,
develop and retain leadership
and talent and failure to do
this could impact our ability to
achieve growth ambitions and
execute effectively. Our
people are essential to
delivering our objectives, and
our ability to develop talent is
a key way we can deliver value
to our existing and potential
owners of both managed and
franchised hotels. It is also
essential that we retain key
executive talent, both at the
corporate and hotel levels, in
the face of attractive roles and
competitive rewards available
in the global markets where
we operate and compete.
• To enable our growth ambitions, we need to continuously strengthen our portfolio of
brands to build an industry-leading offer which delivers leading-edge guest preference,
and competitive owner returns. For a description of our brands and brand initiatives see
pages 14 to 17, and page 23.
• We are building the underlying capabilities to achieve our vision by: strengthening our
new brand development; enhancing our marketing capability; refining our brand
portfolio strategy; building improved data analytics capabilities; and scaling the
production and efficiency of our global marketing assets.
• During 2019, our Global Marketing team has continued to evolve an operating framework
to provide additional clarity and alignment on prioritisation and focus areas. We have
also implemented changes to several ways of working between our global functions and
regional operations teams to drive commercial performance, supported by learning
events and engagement sessions.
• We are also executing a loyalty roadmap that includes tactical improvements to drive
short-term performance and foundational levers to enable a longer-term step change to
improve member benefits, owner economics and programme technology. See page 20
for more details on our 2019 initiatives.
• Our approach to managing our people is outlined in detail on pages 28 to 31 and our
annual business planning process includes a review of workforce risks. We consider
workforce risks when designing business initiatives and we regularly review talent and
succession across the organisation. Our Human Resources team partners across IHG,
and performs regular reviews including in relation to the diversity of our talent and
competitiveness of our compensation and benefits plan.
• IHG has the ability to manage the risk directly in relation to IHG employees but relies on
owners and third-party suppliers to manage the risk in related activities. Our Procurement,
Legal and Risk teams also consider more indirect workforce risks relating to our third-
party relationships.
• During 2019, we have continued to refine and streamline our performance management
systems and embed a common set of leadership behaviours across IHG through
employee participation in various virtual learning summits.
• Several policies supporting our Code of Conduct (for example our Human Rights Policy
which is reviewed annually) relate to the management of our people, describing our
intolerance for inappropriate behaviours, and appropriate adherence to those helps
manage our risk.
• As our business expands through mergers and acquisition, we also undertake due
diligence prior to transactions, and as part of integration activities, to evaluate and adapt
relevant people practices.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Risk management
49
Strategic Report
Risk management continued
Risk description
Trend
Impact
Initiatives to manage these risks
• Our global Ethics and Compliance team (E&C team) are focused on ensuring IHG has a
globally coordinated approach to material ethical and compliance risks, taking into account
the regulatory environment, stakeholder expectations and IHG’s commitment to a culture
of responsible business.
• The overarching framework for Ethics and Compliance is the IHG Code of Conduct (Code),
(see pages 26 and 27). In addition to the Code, the E&C team manage the global
compliance programmes for Anti-Bribery and Corruption, Antitrust/Competition Law,
Sanctions and Human Rights.
• A number of processes and initiatives are used by the E&C team to manage ethical and
compliance risks. For example, IHG is a member of Transparency International UK’s
Business Integrity Forum and participates in its annual Corporate Anti-Corruption
Benchmark. The findings from the Benchmark assessment are utilised predominantly
by the E&C team to identify improvements to the design of the IHG Anti-Bribery and
Corruption programme.
• The E&C team are also responsible for, and have oversight of, the owner legal due diligence
process. This is designed to ensure that risk-based due diligence is carried out on third-
parties with whom IHG enters into hotel relationships. This includes sanctions monitoring,
third-party screening and internal communications – for example, an annual update is
communicated to the Legal, Development and Strategy teams and other relevant
colleagues providing a reminder of ‘No Go’ countries and sanctions issues that may
restrict IHG.
• The E&C team currently monitor training completions, gifts & entertainment reporting and
owner due diligence escalations. These areas help demonstrate whether the design of the
Ethics & Compliance framework and core processes of the underlying programmes are
operating effectively. The E&C team monitor activity of the Confidential Disclosure Channel
and have regular discussions with regional Legal teams to help identify emerging issues.
In addition, the E&C team receive informal queries/escalation of issues via an Ethics and
Compliance email channel, which is publicised in training and awareness materials, and
directly from employees, for example in face-to-face training sessions.
• The Board receives regular reports on the Confidential Reporting Channel and matters
directly related to our responsible business agenda.
• Our comprehensive channels strategy is a key driver and enabler of accelerated growth.
We continue to seek opportunities to align and innovate our channels and technology
platforms (see page 21). Our IHG Concerto™ platform is operating at all IHG hotels, and
we are continuing to add more capabilities to the platform to enhance revenue delivery.
• Our Guest Reservation System (GRS) is hosted by a third-party vendor, Amadeus,
in the cloud and supported by infrastructure which serves to decrease the likelihood
of downtime. Availability of GRS and other key systems continues to be monitored on
a 24/7 basis by the Network Operations Centre. Metrics are regularly reported to
Commercial and Technology leaders so they can monitor performance.
• As our industry evolves, and with our acquisition of new brands, we have continued to
review the capabilities of our systems in relation to market trends and expectations.
• In 2019, we also introduced regional revenue forums to focus on forecasting future
business and determining integrated commercial plans to address challenges.
The global business regulatory
and contractual environment
and societal expectations
continue to evolve. Failure to
ensure legal, regulatory and
ethical compliance would
impact IHG operationally and
reputationally. Regulators are
moving to impose significant
fines for non-compliance, most
notably in relation to privacy
obligations and data security,
and there is increasing
attention on environmental,
social and governance matters
(for example relating to
consumer protection, human
rights including modern
slavery, human trafficking and
labour laws, and financial
crime) from a range of external
stakeholders such as corporate
sales clients, investors and
NGOs. With trading headwinds
in some markets, increased
pressure can be placed on
compliance programmes, and
a heightened risk of liabilities
relating to our franchise model
both in relation to brand
reputation issues as well
as litigation.
Failure to capitalise on
innovation in booking
technology and to maintain
and enhance the functionality
and resilience of our channel
management and technology
platforms (including those of
third-parties on which we rely
directly or indirectly), and to
respond to changing guest
and owner needs remains a
dynamic risk to IHG’s revenues
and growth ambitions. The
pace of change in the
hospitality industry continues
to accelerate and IHG must
evolve to effectively grow and
compete in the marketplace.
Technology is crucial to our
strategy as we face increasing
competition from both existing
and new players in the travel
space.
50
IHG | Annual Report and Form 20-F 2019
Risk description
Trend
Impact
Initiatives to manage these risks
IHG’s continuing agenda to
accelerate growth gives rise
to inherent risks, for example
as we transition systems,
operating models and
processes. The potential
exists to impact commercial
performance and financial
loss, and undermine
stakeholder confidence.
As we move towards larger,
more strategic outsourcing
relationships for business-
critical services, inherent risk
levels are also raised.
Macro external factors such
as political and economic
disruption, the emerging risk
of infectious diseases, actual
or threatened acts of terrorism
or war, natural or man-made
disasters could have an impact
on our ability to perform and
grow. Heightening of macro-
economic tensions could lead
to a downturn impacting our
ability to grow.
• The progress of our Group-wide efficiency programme has been tracked by the Board
and Executive Committee, and the majority of our centrally driven transformation
activity has now transitioned to Senior Leaders.
• Following the changes to our organisational structure in 2018, in 2019 we conducted
corporate-wide virtual learning summits and we maintain a central digital hub for
process and learning materials to enable our employees to find details about processes,
learning content and key process owners.
• Our focus on accelerating growth has included review of risks relating to offshoring and
outsourcing by Senior Leaders and the Board. Our Strategic Supplier Management
Office has been established to manage existing critical supplier relationships as well as
new outsourcing and/or business-critical relationships driving our strategic objectives.
Our legal teams review contracts and provide advice on litigation, where required,
and our insurance programme also provides a degree of protection in the event of
supplier failure.
• Oversight teams, including our finance experts, have evolved governance and control
frameworks and we also regularly review delegated approval authorities and processes
to enable decisions on investments to be made quickly and efficiently with consideration
of the risks involved. HR Business Partners continue to work with Senior Leaders to
identify and retain key individuals across the business, and succession planning
practices are in place to ensure continuity of key initiatives and business operations.
• During 2019 we reviewed our financial governance and controls relating to the integration
of our acquisitions. For example, the integration of Six Senses into IHG’s financial control
environment has been overseen by a dedicated governance committee.
• We have an established approach to System Development Lifecycle, and specific risks
to delivery of the Global Reservations System have been managed throughout the
programme of implementation (including those relating to technical delivery, business
process testing and operation readiness testing).
• While these factors are mostly outside our direct control, we track uncertainties which
may impact the hospitality industry and which need to be considered in our strategic
and financial planning. These types of risks are addressed in strategic review, including
our market participation choices, particularly in emerging and key growth markets.
• During 2019, many leadership teams have used formal and informal scenario planning
to anticipate the potential impact of these risks. The Board and Executive Committee
receive regular updates on these types of factors from both operational and subject
matter experts so that possible implications for IHG can be considered.
• Our in-house threat intelligence capability, supplemented by third-party expertise and
methodology, supports development, hotel operations and customer-facing sales teams
with planning and response to macro factors, for example concerns relating to terrorism,
extreme weather events, or infectious diseases such as Covid-19. We are also
increasingly able to complement more traditional sources with digital intelligence to
anticipate potential impacts on IHG’s interests.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Risk management
51
Strategic Report
Risk management continued
Risk description
Trend
Impact
Initiatives to manage these risks
As a global business, we are
conscious of greater focus
from a wider range of
stakeholders on
environmental and social
mega-trends. These include
regulators and investor groups
(such as the Task Force on
Climate-related Financial
Disclosures (TCFD), and
emerging risks presented by
climate change which have the
potential to impact
performance and growth in
key markets.
Failure to maintain an effective
safety and security system
and to respond appropriately
in the event of disruption or
incidents affecting our
operations more broadly could
result in an adverse impact to
IHG, such as reputational and/
or financial damage and
undermining confidence from
our colleagues, guests, major
sales accounts and wider
stakeholders. This risk relates
both to our direct operations
in hotels and other locations
where we have management
responsibility, and also to
outsourced activities and
others with whom we
collaborate and trade,
including the owners of our
franchised hotels which
operate as independent
businesses.
• During 2019, our Corporate Responsibility team worked collaboratively with teams
across IHG (including Human Resources, Business Reputation and Responsibility and
Procurement) to consider the broader environmental and social risks associated with our
business. These risks and opportunities are considered as an integral part of Board
strategy discussions in relation to our commitment to responsible business. In 2019, this
culminated with the approval of a science-based target relating to carbon reduction.
• As part of our responsible business strategy refresh work, we are also working with
third-party experts to develop our responsible business targets for post 2020 and have
made a formal commitment to implement the recommendations of the TCFD. In 2020
we will be developing a disclosure roadmap for the coming years. More broadly we
recognise that continued collaboration across the wider industry is required to
collectively combat climate change. We are taking an active role in this via our
membership and active participation in several industry bodies, including the
International Tourism Partnership (ITP) and the World Travel and Tourism Council (WTTC).
• Our values and behaviours, underpinned by our Code of Conduct, inform our decision-
making at all levels. For example, specific elements of our Code of Conduct define
expectations for IHG employees in relation to human rights and the environment. Our
Supplier Code of Conduct and Human Rights Policy have been updated during 2019 and
our Procurement, Legal and Risk teams monitor supply chain and human rights risks, see
pages 26 and 27.
• The environment in which IHG develops and operates hotels continues to evolve and
impacts the safety and security risks faced by IHG. These risks are assessed as stable
overall, but our approach is reviewed continuously to ensure that it remains fit for
purpose, and able to anticipate and respond to the risk of an incident damaging the
Group’s reputation.
• Our design and engineering, hotel opening and operations teams work together with
our risk management experts to evaluate standards and develop capability to respond to
an incident via training, intelligence tracking and standard operating procedures, and
also deploy crisis management procedures where required for less predictable events.
• For example, the risks of epidemics such as Covid-19, earthquakes and extreme weather
events continue to pose a threat to IHG’s operations, and are managed through refresher
training, advanced monitoring and warning and standard operating procedures.
• In relation to geopolitical and terrorism risks, we deploy external industry benchmarking
to allocate all pipeline and operational hotels a threat category. The category definitions
are designed to guide hotels to make their own risk-based decisions on how to mitigate
local security threats. Categories are reviewed regularly to adjust to the dynamic threat
environment in which IHG develops and operates hotels.
• We continue to monitor UK Government and Local Authority investigations into the
Grenfell tragedy. We will review our own fire and safety requirements once any changes
and/or recommendations to building regulations and best practice are published, and
will work with owners and operators of IHG branded hotels to provide appropriate
support and guidance.
• IHG has also created a toolkit and resources for hotels to use to provide guests with
menu allergen information, making it easier for them to identify ingredients they
need to avoid.
52
IHG | Annual Report and Form 20-F 2019
Risk description
Trend
Impact
Initiatives to manage these risks
A material breakdown in
financial management and
control systems would lead
to increased public scrutiny,
regulatory investigation and
litigation. This risk includes
our ongoing (and stable)
operational risks relating to
our financial management
and control systems; the
continuing expectations of
IHG’s management decision
making and financial
judgements, in response
to evolving accounting
standards, which have added
complexity to our control
responsibilities; and our own
business model and
transactions.
• We continue to operate an established set of processes across our financial control
systems, which is verified through testing relating to our Sarbanes-Oxley compliance
responsibilities. See pages 73 and 160 to 163 for details of our approach to taxation,
page 73 for details of our approach to internal financial control, and pages 182 to 185 for
specific details on financial risk management policies. These processes and our financial
planning continue to evolve to reflect the changes in our management structure and
business targets.
• To mitigate risks from adoption of the new accounting standard, IFRS 16 ‘Leases’,
existing controls were modified and new controls added. Controls are revisited at least
once a year for modification or addition.
• As our hotel estate evolves and grows, we also adapt our approach to financial control.
Given the differences in the culture and ways of working across our regions, we apply
globally and/or regionally consistent policies and procedures to manage the risks, such
as fraud and reporting risks, wherever possible.
• Our Group insurance programmes are also maintained to support financial stability.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Risk management
53
Strategic Report
Risk management continued
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 approved
annually by the Directors. 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, no change to
our stated dividend policy and existing debt
facilities are being renewed as they mature.
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
Scenarios Modelled
Widespread cybersecurity breach
This scenario models the impact of a specific material incident, which could relate to
cybersecurity or an alternative material impact on the cash flow and income statement.
Changes in RevPAR
This scenario models a prolonged decrease in RevPAR, which may be driven by external or
internal factors.
performance, solvency and liquidity of the
Group more heavily than opportunities.
The scenarios modelled and their link to our
principal risks outlined on pages 48 to 53
are set out below:
Link to Principal Risk(s)
• Cybersecurity and information governance
• Legal, regulatory and ethical compliance
• Accelerate growth
• Preferred brands and loyalty
• Leadership and talent
• Channel management and technology
• Accelerate growth
• Environmental and social mega-trends
• Safety and security system
• Financial management and control systems
2008-2009 Financial Crisis
This represents the downturn that occurred from 2008 to 2009 (when the Board maintained
the dividend despite the severity of the downturn in trading).
• Macro external factors
A reverse stress test of the business starting
from the presumption of the Group having
insufficient liquidity to continue trading was
also modelled.
In each of the 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 2022 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 2022, 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 2022.
54
IHG | Annual Report and Form 20-F 2019
Performance
Key performance measures (including Non-GAAP measures) used by management
The Annual Report and Form 20-F presents certain financial measures when discussing the Group’s performance which are not measures of
financial performance or liquidity under International Financial Reporting Standards (IFRS). In management’s view these measures provide
investors and other users with an enhanced understanding of IHG’s operating performance, profitability, financial strength and funding
requirements. These measures do not have standardised meanings under IFRS, and companies do not necessarily calculate these in the
same way. Accordingly, they should be viewed as complementary to, and not as a substitute for, the measures prescribed by IFRS and as
included in the Group Financial Statements (see pages 132 to 138).
Linkage of performance measures to Directors’ remuneration and KPIs
A The Annual Performance Plan
LT The Long Term Incentive Plan
KPI Key Performance Indicators
See pages 96 to 117
for more information on
Directors’ remuneration
and pages 42 to 45 for
more information on KPIs.
Measure
Commentary
Global revenue per available
room (RevPAR) growth
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.
KPI
RevPAR, average daily rate and
occupancy statistics are
disclosed on pages 219 to 220.
Total gross revenue in
IHG’s System
A LT KPI
Owned, leased and managed
lease revenue as recorded in
the Group Financial Statements
is reconciled to total gross
revenue on page 61.
Revenue and operating profit
measures
The reconciliation of the most
directly comparable line item
within the Group Financial
Statements (i.e. total revenue
and operating profit,
accordingly) to the non-IFRS
revenue and operating profit
measures are included on
pages 214 to 216.
RevPAR comprises IHG’s System (see Glossary, page 249) rooms revenue divided by the number of
room nights available and can be derived from occupancy rate multiplied by average daily rate (ADR).
ADR is rooms revenue divided by the number of room nights sold.
References to RevPAR, occupancy and ADR 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 (including those acquired), hotels closed for major
refurbishment and hotels sold in either of the two years.
RevPAR and ADR are quoted at a constant US$ conversion rate, in order to allow a better understanding
of the comparable year-on-year trading performance excluding distortions created by fluctuations in
exchange rates.
Total gross revenue is revenue not wholly attributable to IHG, however, management believes this
measure is meaningful to investors and other users as it provides a measure of System performance,
giving an indication of the strength of IHG’s brands and the combined impact of IHG’s growth strategy
and RevPAR performance.
Total gross revenue refers to revenue which IHG has a role in driving and from which IHG derives an
income stream. IHG’s business model is described on pages 10 to 13. Total gross revenue comprises:
• total rooms revenue from franchised hotels;
• total hotel revenue from managed hotels including food and beverage, meetings and other revenues
and reflects the value IHG drives to managed hotel owners by optimising the performance of their
hotels; and
• total hotel revenue from owned, leased and managed lease hotels.
Other than total hotel revenue from owned, leased and managed lease hotels, total gross hotel revenue
is not revenue attributable to IHG as these managed and franchised hotels are owned by third-parties.
Revenue and operating profit from (1) fee business and (2) owned, leased and managed lease hotels,
are described as ‘revenue from reportable segments’ and ‘operating profit from reportable segments’,
respectively, within note 2 to the Group’s Financial Statements. These measures are presented for each
of the Group’s regions.
Management believes revenue and operating profit from reportable segments is meaningful to
investors and other users as it excludes the following elements and reflects how management monitors
the business:
• System Fund – the Fund is not managed to generate a profit or loss for IHG over the longer term, but
is managed for the benefit of the hotels within the IHG System. As described within the Group’s
accounting policies (page 144), the System Fund is operated to collect and administer cash
assessments from hotel owners for the specific purpose of use in marketing, the Guest Reservation
System and hotel loyalty programme.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
55
Strategic Report
Performance continued
Measure
Commentary
Revenue and operating profit
measures continued
Underlying revenue and
underlying operating profit
• Revenues related to the reimbursement of costs – as described within the Group’s accounting policies
(page 144), there is a cost equal to these revenues so there is no profit impact. Cost reimbursements
are not applicable to all hotels and growth in these revenues is not reflective of growth in the
performance of the Group. As such, management do not include these revenues in their analysis
of results.
• Exceptional items are identified by virtue of either their size or nature and can include, but are not
restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and
reorganisation costs. As each item is different in nature and scope, there will be little continuity in the
detailed composition and size of the reported amounts which affect performance in successive
periods. Separate disclosure of these amounts facilitates the understanding of performance including
and excluding such items.
In further discussing the Group’s performance in respect of revenue and operating profit, additional
non-IFRS measures are used and explained further below:
• Underlying revenue;
• Underlying operating profit;
• Underlying fee revenue; and
• Fee margin.
Operating profit measures are, by their nature, before interest and tax. Management believes such
measures are useful for investors and other users when comparing performance across different
companies as interest and tax can vary widely across different industries or among companies within
the same industry. For example, interest expense can be highly dependent on a company’s capital
structure, debt levels and credit ratings. In addition, the tax positions of companies can vary because of
their differing abilities to take advantage of tax benefits and because of the tax policies of the various
jurisdictions in which they operate.
Although management believe these measures are useful to investors and other users in assessing the
Group’s ongoing financial performance and provide improved comparability between periods, there
are limitations in their use as compared to measures of financial performance under IFRS. As such, they
should not be considered in isolation or viewed as a substitute for IFRS measures. In addition, these
measures may not necessarily be comparable to other similarly titled measures of other companies due
to potential inconsistencies in the methods of calculation.
These measures adjust revenue from reportable segments and operating profit from reportable
segments, respectively, to exclude revenue and operating profit generated by owned, leased and
managed lease hotels which have been disposed and significant liquidated damages, which are not
comparable year-on-year and are not indicative of the Group’s ongoing profitability. The revenue and
operating profit of current year acquisitions are also excluded as these obscure underlying business
results and trends when comparing to the prior year. In addition, in order to remove the impact of
fluctuations in foreign exchange, which would distort the comparability of the Group’s operating
performance, prior year measures are restated at constant currency using current year exchange rates.
Management believe these are meaningful to investors and other users to better understand
comparable year-on-year trading and enable assessment of the underlying trends in the Group’s
financial performance.
Underlying fee revenue growth
KPI
Underlying fee revenue is used to calculate underlying fee revenue growth. Underlying fee revenue is
calculated on the same basis as underlying revenue as described above but for the fee business only.
Management believes underlying fee revenue is meaningful to investors and other users as an indicator
of IHG’s ability to grow the core fee-based business, aligned to IHG’s asset-light strategy.
56
IHG | Annual Report and Form 20-F 2019
Measure
Fee margin
A KPI
Commentary
Fee margin is presented at actual exchange rates and is a measure of the profit arising from fee
revenue. Fee margin is calculated by dividing ‘fee operating profit’ by ‘fee revenue’. Fee revenue and
fee operating profit are calculated from the revenue from reportable segments and operating profit
from reportable segments, as defined above, adjusted to exclude the revenue and operating profit from
the Group’s owned, leased and managed lease hotels and significant liquidated damages.
In addition, fee margin is adjusted for the results of the Group’s captive insurance company, where
premiums are intended to match the expected claims (see page 144 to the Group Financial
Statements), and as such these amounts are adjusted from the fee margin to better depict the
profitability of the fee business.
Management believes fee margin is meaningful to investors and other users as an indicator of the
sustainable long-term growth in the profitability of IHG’s core fee-based business, as the scale of IHG’s
operations increases with growth in IHG’s System size.
Adjusted interest
Financial income and financial
expenses as recorded in the
Group Financial Statements is
reconciled to adjusted interest
on page 218.
Adjusted interest excludes the following items of interest which are recorded within the System Fund:
• IHG records an interest charge on the outstanding cash balance relating to the IHG Rewards Club
programme. These interest payments are recognised as interest income for the Fund and interest
expense for IHG.
• The System Fund also benefits from the capitalisation of interest related to the development of the
next-generation Guest Reservation System.
As the Fund is included on the Group income statement, these amounts are included in the reported
net Group financial expenses, reducing the Group’s effective interest cost. Given results related to the
System Fund are excluded from adjusted measures used by management, these are excluded from
adjusted interest and adjusted earnings per share (see below).
Management believes adjusted interest is a meaningful measure for investors and other users as it
provides an indication of the comparable year-on-year expense associated with financing the business
including the interest on any balance held on behalf of the System Fund.
As outlined above, exceptional items can vary year-on-year and, where subject to tax at a different rate
than the Group as a whole, they can therefore impact the current year’s tax charge. The System Fund is
not managed to a profit or loss for IHG over the long term and is, in general, not subject to tax either.
Management believes removing these provides a better view of the Group’s underlying tax rate on
ordinary operations and aids comparability year-on-year, thus providing a more meaningful
understanding of the Group’s ongoing tax charge.
Adjusted earnings per ordinary share adjusts the profit available for equity holders used in the
calculation of basic earnings per share to remove System Fund revenue and expenses, the items of
interest related to the System Fund as excluded in adjusted interest (above), change in fair value of
contingent purchase consideration, exceptional items, and the related tax impacts of such
adjustments.
Management believes that adjusted earnings per share is a meaningful measure for investors and other
users as it provides a more comparable earnings per share measure aligned with how management
monitors the business.
Tax excluding the impact
of exceptional items and
System Fund
A reconciliation of the tax
charge as recorded in the
Group Financial Statements to
tax excluding the impact of
exceptional items and System
Fund can be found in note 8 to
the Group Financial Statements
on page 161.
Adjusted earnings per
ordinary share
Basic earnings per ordinary
share as recorded in the Group
Financial Statements is
reconciled to adjusted earnings
per ordinary share in note 10 to
the Group Financial Statements
on page 164.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
57
Strategic Report
Performance continued
Measure
Commentary
Net debt
Net debt is included in
note 23 to the Group
Financial Statements.
Net debt is used in the monitoring of the Group’s liquidity and capital structure and is used by
management in the calculation of the key ratios attached to the Group’s bank covenants and in
maintaining an investment grade credit rating (see page 12 for further discussion). Net debt is used by
investors and other users to evaluate the financial strength of the business.
Gross capital expenditure,
net capital expenditure,
free cash flow
The reconciliation of the
Group’s statement of cash
flows (i.e. net cash from
investing activities, net cash
from operating activities,
accordingly) to the non-IFRS
capital expenditure and cash
flow measures are included
on page 217.
Gross capital expenditure
Net capital expenditure
Net debt comprises loans and other borrowings, lease liabilities, the exchange element of the fair value
of derivatives hedging debt values, less cash and cash equivalents.
These measures have limitations as they omit certain components of the overall cash flow statement.
They are not intended to represent IHG’s residual cash flow available for discretionary expenditures, nor
do they reflect the Group’s future capital commitments. These measures are used by many companies,
but there can be differences in how each company defines the terms, limiting their usefulness as a
comparative measure. Therefore, it is important to view these measures only as a complement to the
Group statement of cash flows.
Gross capital expenditure represents the consolidated capital expenditure of IHG inclusive of
System Fund capital investments (see page 13 for a description of System Fund capital investments
and recent examples).
Gross capital expenditure is defined as net cash from investing activities, adjusted to include contract
acquisition costs (key money). In order to demonstrate the capital outflow of the Group, cash flows
arising from any disposals or distributions from associates and joint ventures are excluded. The
measure also excludes any material investments made in acquiring businesses, including any
subsequent payments of deferred or contingent purchase consideration included within investing
activities, which represent ongoing payments for acquisitions.
Gross capital expenditure is reported as either maintenance, recyclable, or System Fund. This
disaggregation provides useful information as it enables users to distinguish between:
• System Fund capital investments which are strategic investments to drive growth at hotel level;
• recyclable investments (such as investments in associates and joint ventures), which are intended to
be recoverable in the medium term and are to drive the growth of the Group’s brands and expansion
in priority markets; and
• maintenance capital expenditure (including contract acquisition costs), which represents a
permanent cash outflow.
Management believe gross capital expenditure is a useful measure as it illustrates how the Group
continues to invest in the business to drive growth. It also allows for comparison year-on-year.
Net capital expenditure provides an indicator of the capital intensity of IHG’s business model. Net capital
expenditure is derived from net cash from investing activities, adjusted to include contract acquisition
costs (net of repayments) and to exclude any material investments made in acquiring businesses,
including any subsequent payments of deferred or contingent purchase consideration included within
investing activities, which represent ongoing payments for acquisitions. Net capital expenditure includes
the inflows arising from any disposal receipts, or distributions from associates and joint ventures.
In addition, System Fund depreciation and amortisation relating to property, plant and equipment and
intangible assets, respectively, is added back, reducing the overall cash outflow. This reflects the way in
which System Funded capital investments are re-charged to the System Fund, over the life of the asset
(see page 13).
Management believes net capital expenditure is a useful measure as it illustrates the net capital
investment by IHG, after taking into account capital recycling through asset disposal and the funding of
strategic investments by the System Fund. It provides investors and other users with visibility of the
cash flows which are allocated to long-term investments to drive the Group’s strategy.
58
IHG | Annual Report and Form 20-F 2019
Measure
Free cash flow
LT KPI
Commentary
Free cash flow is net cash from operating activities adjusted to exclude: (1) the cash outflow arising
from the purchase of shares by employee share trusts reflecting the requirement to satisfy incentive
schemes which are linked to operating performance; (2) maintenance capital expenditure (excluding
contract acquisition costs); (3) the principal element of lease payments; and (4) payments of deferred or
contingent purchase consideration included within net cash from operating activities.
In 2016, free cash flow was also adjusted for the cash receipt arising from the renegotiation of a
long-term partnership agreement.
Management believe free cash flow is a useful measure for investors and other users, as it represents
the cash available to invest back into the business to drive future growth and pay the ordinary dividend,
with any surplus being available for additional returns to shareholders.
The performance review should be read in conjunction with the Non-GAAP
reconciliations on pages 214 to 220 and the glossary on pages 248 to 249.
The following definitions have been amended and the prior year comparatives restated accordingly:
• The adoption of IFRS 16 ‘Leases’ (see pages 146 to 149 for further information) has impacted all but the revenue derived Non-GAAP
measures. Prior year measures have therefore been restated to provide year on year comparability. The definitions of free cash flow
and net debt have been amended following the adoption of IFRS 16:
– Free cash flow: has been amended to include the principal element of lease payments, reflecting the non-discretionary nature of
these lease payments.
– Net debt: has been amended to include lease liabilities, providing consistency with metrics used by investors and rating agencies.
• The application of constant currency which impacts underlying revenue, underlying operating profit and underlying fee revenue has
been amended so that prior period results are now restated using current year exchange rates, rather than restating current year
results at prior period exchange rates. Management considers this to be a simplified approach and provides consistency between
underlying results and the associated revenue and operating profit from reportable segments from which they are derived.
• Fee margin has been amended to exclude the results of the Group’s captive insurance company. Over the longer term, premiums are
intended to match the expected claims, and as such these amounts are adjusted from the fee margin in order to provide a more
comparable analysis of IHG’s year-on-year fee margin progression.
• Adjusted earnings per ordinary share have been amended to exclude the change in fair value of contingent purchase consideration.
Since the changes in fair value are prone to volatility and are not necessarily reflective of the performance of the Group, excluding
these amounts provides a more comparable year-on-year measure for investors and other users, aligned to how management
monitor the business.
• Gross capital expenditure, net capital expenditure and free cash flow have been amended to adjust for payments of contingent and
deferred purchase consideration, as applicable. As payments relate to prior year acquisitions the exclusion of these amounts provides
a more representative year-on-year measure for investors and other users, aligned to how management monitor the business.
• Net capital expenditure has been amended to treat repayment of contract acquisition costs consistently with how this is reported
internally.
The following Non-GAAP measure has been removed:
• Underlying earnings per ordinary share. This measure has been removed in order to rationalise the number of non-IFRS earnings per
share measures.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
59
Strategic Report
Performance continued
Group
Group results
Revenuea
Americas
EMEAA
Greater China
Central
Revenue from reportable segments
System Fund revenues
Reimbursement of costs
Total revenue
Operating profita
Americas
EMEAA
Greater China
Central
Operating profit from reportable segments
System Fund result
Operating profit before exceptional items
Operating exceptional items
Operating profit
Net financial expenses
Fair value gains/(losses) on contingent purchase
consideration
Profit before tax
Earnings per ordinary share
Basic
Adjusted
Average US dollar to sterling exchange rate
Highlights for the year ended
31 December 2019
During the year ended 31 December 2019,
total revenue increased by $290m (6.7%) to
$4,627m, whilst revenue from reportable
segments increased by $150m (7.8%) to
$2,083m, primarily resulting from 5.6%
rooms growth and the annualised benefit of
an addition of a portfolio of hotels in the UK
in mid-2018. Operating profit and profit
before tax increased by $48m (8.2%) and
$60m (12.4%) respectively, due in part to a
$97m lower in-year System Fund deficit,
partially offset by an $82m increase in
operating exceptional items, driven by
$131m impairment charges ($81m
recognised in relation to the UK leased
portfolio and $50m in relation to Kimpton
management agreements) as described in
note 13 to the Group Financial Statements
and on pages 139 and 140. Operating profit
from reportable segments increased by
$33m (4.0%) to $865m.
2018
Restated
$m
2019 vs 2018
% change
2017
Restated
$m
2018 vs 2017
% change
12 months ended 31 December
2019
$m
1,040
723
135
185
2,083
1,373
1,171
4,627
700
217
73
(125)
865
(49)
816
(186)
630
(115)
27
542
1,051
569
143
170
1,933
1,233
1,171
4,337
673
206
70
(117)
832
(146)
686
(104)
582
(96)
(4)
482
210.4¢
303.3¢
$1:
£0.78
183.7¢
293.2¢
$1:
£0.75
Underlyingb revenue and underlyingb
operating profit increased by $123m (6.5%)
and $47m (5.8%) respectively.
Comparable RevPAR decreased by 0.3%
(including a decrease in average daily rate of
0.4%). IHG System size increased by 5.6% to
883,563 rooms, whilst underlying fee
revenueb increased by 2.0%.
Fee marginb increased by 0.8% percentage
points to 54.1%.
Basic earnings per ordinary share increased
by 14.5% to 210.4¢, whilst adjusted earnings
per ordinary share increased by 3.4% to
303.3¢.
(1.0)
27.1
(5.6)
8.8
7.8
11.4
–
6.7
4.0
5.3
4.3
6.8
4.0
(66.4)
19.0
78.8
8.2
19.8
(775.0)
12.4
14.5%
3.4%
4.0
999
457
117
157
1,730
1,242
1,103
4,075
648
175
53
(102)
774
(34)
740
4
744
(91)
–
653
276.7¢
243.0¢
$1:
£0.78
5.2
24.5
22.2
8.3
11.7
(0.7)
6.2
6.4
3.9
17.7
32.1
14.7
7.5
329.4
(7.3)
(2700.0)
(21.8)
5.5
–
(26.2)
(33.6)
20.7%
(3.8)
For discussion of 2018 results, and the
changes compared to 2017, prior to the
restatements of those years in 2019 to
reflect the adoption of IFRS 16, refer to
the 2018 Annual Report and Form 20-F.
The 2018 and 2017 results have been
restated for IFRS 16 in the current year
(see pages 146 to 149).
On a restated basis, profit before tax
decreased by 26.2% from 2017 to 2018
(as previously reported: a decrease of
26.1%).
a Americas and EMEAA include revenue and operating
profit before exceptional items from both fee business
and owned, leased and managed lease hotels. Greater
China includes revenue and operating profit before
exceptional items from fee business.
b Definitions for Non-GAAP revenue and operating profit
measures can be found on pages 55 to 59.
Reconciliations of these measures to the most directly
comparable line items with the Group Financial
Statements can be found on pages 214 to 216.
60
IHG | Annual Report and Form 20-F 2019
Accounting principles
The Group results are prepared under
International Financial Reporting
Standards (IFRS) and following the
adoption of IFRS 16 ‘Leases’ the 2018
comparatives have been restated.
The application of IFRS requires
management to make judgements,
estimates and assumptions, and those
considered critical to the preparation of
the Group results are set out on pages
139 to 140 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.
An analysis of exceptional items is
included in note 6 on page 158 of the
Group Financial Statements.
Total gross revenue in IHG’s System
Analysed by brand
InterContinental
Kimpton
HUALUXE
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inn
Holiday Inn Express
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Fee business
Owned, leased and managed lease
Total
2019
$bn
5.1
1.4
0.1
4.3
0.6
0.1
6.3
7.3
1.0
0.9
0.8
27.9
27.3
0.6
27.9
12 months ended 31 December
2018
$bn
%
change
5.1
1.3
0.1
4.5
0.5
0.1
6.5
7.1
0.9
0.8
0.5
27.4
27.0
0.4
27.4
–
7.7
–
(4.4)
20.0
–
(3.1)
2.8
11.1
12.5
60.0
1.8
1.1
50.0
1.8
Total gross revenue in IHG’s System increased by 1.8% (3.3% increase at constant currency) to
$27.9bn, driven by a RevPAR decline of 0.3% more than offset by IHG System size growth.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
61
Total number of hotels in the pipeline1,918Total number of rooms in the pipeline283,043At the end of 2019, the global pipeline totalled 1,918 hotels (283,043 rooms), an increase of 59 hotels (12,095 rooms) on 31 December 2018. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid. Group signings decreased from 691 hotels in 2018 to 623 hotels and rooms decreased from 98,814 rooms to 97,754 rooms. This included 295 hotels (43,856 rooms) signed for the Holiday Inn Brand Family, 42.6% of which were contributed by Greater China (108 hotels, 18,667 rooms).Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 153 hotels (20,439 rooms), compared to 125 hotels (15,669 rooms) in 2018.Group pipelineHotelsRoomsAt 31 December2019Change over 20182019Change over 2018Analysed by brandSix Senses25251,7701,770Regent52944430InterContinental65517,0181,223Kimpton3366,2031,729HUALUXE2216,18081Crowne Plaza88924,5062,372Hotel Indigo101915,1482,070EVEN Hotels2684,3421,158vocoa1796,2204,710Holiday Innb275(13)52,909(2,742)Holiday Inn Express754(30)95,874(2,550)avid hotels2073619,0683,257Staybridge Suites182–20,734(115)Candlewood Suites91(11)8,186(935)Atwell Suites10101,0001,000Other17(7)2,941(1,363)Total1,91859283,04312,095Analysed by ownership typeFranchised1,41113166,6415,298Managed50646116,2476,797Owned, leased and managed lease1–155–Total1,91859283,04312,095Performance continuedGroup continuedTotal number of hotels5,903Total number of rooms883,563During 2019, the global IHG System (the number of hotels and rooms which are franchised, managed, owned, leased or managed lease) increased by 300 hotels (47,022 rooms) to 5,903 hotels (883,563 rooms).Openings of 411 hotels (65,220 rooms) were 13.5% higher than in 2018. Openings in the Americas included 150 hotels (16,993 rooms) in the Holiday Inn Brand Family. 90 hotels (15,335 rooms) were opened in EMEAA in 2019, with the Greater China region also contributing openings of 88 hotels (23,764 rooms). 111 hotels (18,198 rooms) left the IHG System in 2019, compared to 107 hotels (17,877 rooms) in 2018.Group hotel and room countHotelsRoomsAt 31 December2019Change over 20182019Change over 2018Analysed by brandSix Senses18181,4481,448Regent6–2,003(2)InterContinental212870,9811,700Kimpton66–13,046131HUALUXE912,710375Crowne Plaza4312120,582414Hotel Indigo1181614,5741,825EVEN Hotels1331,949398voco12104,2933,762Holiday Inna1,28433239,8946,042Holiday Inn Express2,875149299,23419,718avid hotels76635548Staybridge Suites3002432,6332,416Candlewood Suites4101438,3321,122Other1421641,2497,125Total5,903300883,56347,022Analysed by ownership typeFranchised4,870255614,97437,995Managed1,00742262,2538,687Owned, leased and managed lease2636,336340Total5,903300883,56347,022a Does not include three open hotels and one pipeline hotel that will be re-branded to voco.b Includes 29 Holiday Inn Resort properties (6,335 rooms) and one Holiday Inn Club Vacations property (110 rooms), (2018: 19 Holiday Inn Resort properties (5,229 rooms) and zero Holiday Inn Club Vacations properties (zero rooms)).a Includes 46 Holiday Inn Resort properties (11,502 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms), (2018: 45 Holiday Inn Resort properties (11,301 rooms) and 27 Holiday Inn Club Vacations properties (7,927 rooms)).62IHG | Annual Report and Form 20-F 2019Strategic Report Americas revenue 2019 ($1,040m)50%Americas number of rooms (524,647)60%“ 2019 was a year of growth for IHG’s largest region as we marked our highest number of new hotel openings in eight years. We also strengthened our established brands, drove continued growth of avid hotels including the first new property in Mexico, and launched the Atwell Suites brand, which now has projects signed across the US.”Elie MaaloufChief Executive Officer, AmericasRegional priorities• Strengthen our established brands through the adoption of the Formula Blue design for Holiday Inn Express and the introduction of new design prototypes for multiple other mainstream brands. • Deliver on our upscale and luxury proposition with growth across brands, including adding 17 hotels to our pipeline in 2019. We’re also looking forward to bringing Six Senses to the region, with locations coming soon to New York City and the Galapagos Islands. • Continue transformation of the Crowne Plaza brand with the Accelerate Ahead programme.• Continue momentum for avid hotels with new hotels opened across the US in 2019, the first property under construction in Mexico and more than 200 in the pipeline.Regional highlightsLaunch of Atwell Suites • Atwell Suites was created to target an estimated $18 billion industry segment which has grown by 70 percent over the last four years and is a complement to IHG’s established brands. The prototype for the all-suites hotel brand features 96 guest rooms with distinct zones for living and sleeping, public spaces such as a double-height, open lobby that suits guests’ transition from work to leisure, and inspiring food and beverage options.• Atwell Suites has received strong owner interest with 10 signings in Q4 2019. The first hotels are expected to begin construction in 2020 and open in 2021. Comparable RevPAR movement on previous year (12 months ended 31 December 2019)Fee businessInterContinental0.7%Kimpton2.2%Crowne Plaza(1.6%)Hotel Indigo0.2%EVEN Hotels(5.3%)Holiday Inn(0.7%)Holiday Inn Express0.1%Staybridge Suites0.1%Candlewood Suites(1.1%)All brands(0.1%)Owned, leased and managed leaseInterContinental3.0%EVEN Hotels0.9%Holiday Inn6.2%All brands4.1% AmericasIndustry performance in 2019Industry RevPAR in the Americas increased by 1.0%, driven by 1.3% average daily rate growth that was partially offset by a 0.2ppt decline in occupancy. Occupancy levels remain high, falling just below the record set in 2018. Room demand grew 1.7%, a lower rate of growth than 2018. Supply growth remained broadly in line with 2018 at 2.0%.US lodging industry room demand advanced 2.0% in 2019, whilst supply growth also increased 2.0%, remaining the highest it has been in ten years. US industry RevPAR increased by 0.9% in 2019, driven by average daily rate growth of 1.0%. RevPAR in the US upper midscale chain scale, where the Holiday Inn and Holiday Inn Express brands operate, declined by 0.2%, impacted by supply growth.In Canada, industry RevPAR declined by 0.2%, driven by a 0.9ppt occupancy decline, and in Mexico, RevPAR declined by 5.1%, led by a 2.6% decline in average daily rate. IHG’s regional performance in 2019IHG’s comparable RevPAR in the Americas declined by 0.1%, driven by a 0.2ppt occupancy decline, impacted by lower group business, despite growth in average daily rate. The region is predominantly represented by the US, where comparable RevPAR declined by 0.2%. In the US, we are most represented by our mainstream brands Holiday Inn and Holiday Inn Express. RevPAR in our mainstream brands declined, due to increased supply in the upper midscale segment, whilst outperforming the segment overall. US RevPAR for the Holiday Inn Express brand increased by 0.4%, whilst the Holiday Inn brand declined by 1.1%.Canada RevPAR declined by 1.4%, whilst Mexico RevPAR declined by 2.2%, led by occupancy declines.63IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance Strategic Report
Performance continued
Americas continued
Americas results
Revenue from the
reportable segmenta
Fee business
Owned, leased and managed lease
Total
Operating profit from the
reportable segmenta
Fee business
Owned, leased and managed lease
Operating exceptional items
Operating profit
12 months ended 31 December
2019
$m
2018
Restated
$m
2019 vs
2018
% change
2017
Restated
$m
2018 vs
2017
% change
853
187
1,040
663
37
700
(62)
638
853
198
1,051
638
35
673
(36)
637
–
(5.6)
(1.0)
3.9
5.7
4.0
72.2
0.2
811
188
999
613
35
648
37
685
5.2
5.3
5.2
4.1%
–
3.9
(197.3)
(7.0)
Revenue and operating profit from the
reportable segment are further analysed by
fee business and owned, leased and managed
lease hotels.
Fee business revenueb remained in line with
2018 at $853m, partly impacted by adverse
foreign exchangec ($2m), whilst fee business
operating profitb increased by $25m (3.9%) to
$663m, also partly impacted by adverse
foreign exchangec ($2m).
Owned, leased and managed lease revenueb
decreased by $11m (5.6%) to $187m, whilst
operating profitb increased by $2m (5.7%) to
$37m, benefiting from strong trading across a
number of hotels and the mitigation of losses
by business interruption insurance at one
hotel. There was no material impact of foreign
exchangec on either revenue or
operating profit.
For discussion of 2018 results, and the
changes compared to 2017, prior to the
restatements of those years in 2019 to
reflect the adoption of IFRS 16, refer to
the 2018 Annual Report and Form 20-F.
The 2018 and 2017 results have been
restated for IFRS 16 in the current year
(see pages 146 to 149).
On a restated basis, operating profit
decreased by 7.0% from 2017 to 2018 (as
previously reported: a decrease of 7.1%).
a Americas reportable segment includes revenue and
operating profit before exceptional items, excluding
System Fund revenues and expenses and
reimbursement of costs, for both fee business and
owned, leased and managed lease hotels.
b Definitions for Non-GAAP revenue and operating profit
measures can be found on pages 55 to 59.
Reconciliations of these measures to the most directly
comparable line items with the Group Financial
Statements can be found on pages 214 to 216.
c The impact of movements between the previous year’s
average exchange rates and actual average exchange
rates in 2019.
Highlights for the year ended
31 December 2019
With 4,307 hotels (524,647 rooms), the
Americas represented 60% of the Group’s
room count. The key profit-generating region
is the US, although the Group is also
represented in Latin America, Canada, Mexico
and the Caribbean. 89% of rooms in the
region are operated under the franchise
business model, primarily under our
mainstream brands (including the Holiday Inn
Brand Family). In the upscale market segment,
Crowne Plaza is predominantly franchised
whereas, in the luxury market segment,
InterContinental-branded hotels are operated
under both franchise and management
agreements, whilst Kimpton is predominantly
managed. 12 of the Group’s 16 hotel brands
are represented in the Americas.
Revenue from the reportable segmenta
decreased by $11m (1.0%) to $1,040m, whilst
operating profit increased by $1m (0.2%) to
$638m, impacted by a $26m increase in
operating exceptional items. Operating profit
from the reportable segment increased by
$27m (4.0%) to $700m. On an underlyingb
basis, revenue decreased by $9m (0.9%), as
growth from net room additions was held
back by $9m of one-off marketing
assessments in the prior year, whilst
underlying operating profit increased by
$29m (4.3%), benefiting from a continued
focus on maintaining an efficient cost base.
64
IHG | Annual Report and Form 20-F 2019
Americas hotel and room count
At 31 December
Analysed by brand
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Inna
Holiday Inn Express
avid hotels
Staybridge Suites
Candlewood Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Owned, leased and
managed lease
Total
Percentage of Group hotel
and room count
Hotels
Change
over 2018
–
(3)
(7)
7
3
9
79
6
22
14
16
2019
17,896
11,997
39,875
8,267
1,949
135,286
214,993
635
30,244
38,332
25,173
2019
51
61
149
64
13
783
2,368
7
283
410
118
4,307
146
524,647
4,008
292
7
4,307
155
(9)
–
146
465,265
57,160
2,222
524,647
Rooms
Change
over 2018
Total number of hotels
4,307
Total number of rooms
524,647
Americas System size increased by 146
hotels (14,518 rooms) to 4,307 hotels
(524,647 rooms) during 2019. 233 hotels
(26,121 rooms) opened in the year, compared
to 208 hotels (22,248 rooms) in 2018.
Openings included 150 hotels (16,993
rooms) in the Holiday Inn Brand Family,
representing 64.4% of the region’s hotel
openings.
87 hotels (11,603 rooms) were removed from
the Americas System in 2019, demonstrating
our continued commitment to quality,
compared to 76 hotels (9,579 rooms)
in 2018.
143
(310)
(1,624)
772
398
794
8,373
548
2,212
1,122
2,090
14,518
15,163
(644)
(1)
14,158
73.0
(1.3)ppt
59.4
(1.6)ppt
a Includes 22 Holiday Inn Resort properties (6,003 rooms) and 28 Holiday Inn Club Vacations properties (8,592 rooms),
(2018: 23 Holiday Inn Resort properties (6,184 rooms) and 27 Holiday Inn Club Vacations properties (7,927 rooms)).
Americas pipeline
Total number of hotels in the pipeline
At 31 December
Analysed by brand
Six Senses
InterContinental
Kimpton
Crowne Plaza
Hotel Indigo
EVEN Hotels
Holiday Innb
Holiday Inn Express
avid hotels
Staybridge Suites
Candlewood Suites
Atwell Suites
Other
Total
Analysed by ownership type
Franchised
Managed
Total
Hotels
Change
over 2018
5
1
5
(1)
2
5
(28)
(51)
35
(1)
(11)
10
(6)
(35)
(38)
3
(35)
2019
422
1,549
3,459
1,093
5,172
1,866
12,506
43,103
18,853
16,874
8,186
1,000
2,779
116,862
109,986
6,876
116,862
2019
5
7
21
5
37
15
98
448
206
162
91
10
16
1,121
1,077
44
1,121
Rooms
Change
over 2018
1,121
422
72
1,124
(170)
649
570
(3,546)
(4,517)
3,042
(28)
(935)
1,000
(1,103)
(3,420)
(3,671)
251
(3,420)
Total number of rooms in the pipeline
116,862
At 31 December 2019, the Americas pipeline
totalled 1,121 hotels (116,862 rooms),
representing a decrease of 35 hotels (3,420
rooms) over the prior year. Signings of 305
hotels (32,956 rooms) were behind last year
by 111 hotels (9,810 rooms). The majority of
2019 signings were within our mainstream
brands including the Holiday Inn Brand Family
(117 hotels, 12,982 rooms), our extended stay
brands, Staybridge Suites and Candlewood
Suites (61 hotels, 5,856 rooms) and avid hotels
(53 hotels, 4,819 rooms), which continues to
make good progress towards becoming IHG’s
next brand of scale.
107 hotels (10,255 rooms) were removed from
the pipeline in 2018 compared to 94 hotels
(9,340 rooms) in 2018.
b Includes three Holiday Inn Resort property (490 rooms) and one Holiday Inn Club Vacations property (110 rooms),
(2018: one Holiday Inn Resort property (165 rooms) and zero Holiday Inn Club Vacations properties (zero rooms)).
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
65
EMEAA revenue 2019 ($723m)35%EMEAA number of rooms (223,370)25%“ 2019 was another year of strong growth for EMEAA, setting new records for hotel openings and signings through the expansion of both our established and newer brands in high-potential markets. Our agile business unit model continues to bring our teams closer to market and deliver benefits for guests and owners.”Kenneth MacphersonChief Executive Officer, EMEAAIndustry performance in 2019Industry RevPAR in EMEAA increased by 2.0%, driven by 1.5% average daily rate growth. In Europe room demand grew 1.9% and average daily rate advanced 2.6%, resulting in RevPAR growth of 3.2%. UK industry RevPAR increased 0.4% driven by 0.8% average daily rate growth. UK room demand was up 2.0%, slower growth than last year due to Brexit concerns, while supply growth was up from last year at 2.4% growth. In Germany, industry RevPAR was up 1.2%, driven by 0.7% growth in average daily rate and a 3.1% increase in demand.RevPAR declined 1.8% in the Middle East. Excluding Egypt, RevPAR declined 5.3% in the Middle East, as supply increased 6.1%. India saw RevPAR increase 4.1%.Elsewhere in EMEAA, several major markets saw RevPAR declines in 2019, including Japan (0.2%), Australia (1.9%), and Thailand (5.9%), driven by occupancy declines.Regional priorities• Accelerate levels of growth across both our core and newly expanded brand portfolio, with a focus on luxury, lifestyle and resorts and our new upscale brand voco.• Continue successful execution of our strategic plan in the UK and Germany, two economically mature markets where we are building on existing scale positions.• Further embed our EMEAA operating model, which is key to unlocking growth in some of the world’s most established and mature travel markets. Investment in General Manager talent programmes and recruitment.• Continue to embed Regent and Six Senses into a strengthened luxury offer in what is an important segment for EMEAA – home to 18 of the top 25 luxury travel destinations.• Continue to roll-out our Holiday Inn Open Lobby concept across Europe, as part of our strategic focus on improving guest satisfaction and owner returns through enhanced hotel designs. Regional highlights• Achieved another year of strong growth, with net system size increasing 5.8% and a record 29.1k rooms signed, an 8.2% year-on-year increase. Holiday Inn Brand Family continues to be our engine of growth representing 45% of rooms openings.• Excellent response from owners for our new upscale brand voco, with 33 hotels (11.1k rooms) now open or signed within 18 months of the brand’s creation. Signed world’s largest voco (4.2k rooms) and opened first tower (1.9k rooms) in 2019; remainder in 2020.• Built great momentum for InterContinental, with 10 signings up 67% on the previous year and flagship openings in Lyon, Beppu, Maldives, Hayman Island and Phuket. • Relaunched flagship Crowne Plaza hotels in Paris and Hamburg.• Adoption of our Europe-wide Holiday Inn Open Lobby transformation programme by more than 90% of hotels. IHG’s regional performance in 2019EMEAA RevPAR grew 0.3%, driven by a 0.7ppt growth in occupancy. In the UK, where IHG has the largest regional presence, RevPAR increased 0.6%, led by growth in London of 2.5%. Germany achieved RevPAR growth of 2.2% driven by average daily rate and occupancy growth, whilst France declined by 0.7%, impacted by social unrest in Paris. RevPAR in the Middle East declined 2.8%, due to increased supply. Excluding Egypt, RevPAR declined by 3.1%. India RevPAR grew 6.1% driven by average daily rate.Japan RevPAR grew 1.2% driven by average daily rate whilst Australia RevPAR declined 1.2% due to oversupply in certain cities.Comparable RevPAR movement on previous year (12 months ended 31 December 2019)Fee businessInterContinental1.5%Crowne Plaza(0.6%)Hotel Indigo1.5%Holiday Inn(0.5%)Holiday Inn Express1.2%Staybridge Suites(3.9%)All brands0.3%Owned, leased and managed leaseInterContinental1.5%Holiday Inn2.6%All brands1.6%Performance continuedEMEAA66IHG | Annual Report and Form 20-F 2019Strategic Report EMEAA continued
EMEAA results
Revenue from the
reportable segmenta
Fee business
Owned, leased and managed lease
Total
Operating profit from the
reportable segmenta
Fee business
Owned, leased and managed lease
Operating exceptional items
Operating profit
12 months ended 31 December
2019
$m
2018
Restated
$m
2019 vs
2018
% change
2017
Restated
$m
2018 vs
2017
% change
337
386
723
202
15
217
(109)
108
320
249
569
202
4
206
(12)
194
5.3
55.0
27.1
–
275.0
5.3
808.3
(44.3)
294
163
457
167
8
175
(4)
171
8.8
52.8
24.5
21.0
(50.0)
17.7
200.0
13.5
Revenue and operating profit from the
reportable segment are further analysed by
fee business and owned, leased and
managed lease hotels.
Fee business revenueb increased by $17m
(5.3%) to $337m, partly impacted by adverse
foreign exchangec ($8m), whilst fee business
operating profitb remained in line with 2018
at $202m, but was also impacted by adverse
foreign exchangec ($6m). Comparable
RevPAR increased by 0.3%, driven by gains
in occupancy.
Owned, leased and managed lease revenueb
increased by $137m (55.0%) to $386m, due
to the annualisation of the UK portfolio
transaction, that completed in July 2018,
and was partly impacted by adverse foreign
exchangec ($7m). Owned, leased and
managed lease operating profitb increased
by $11m to $15m, (foreign exchangec impact
$nil), driven by solid trading conditions outside
the UK for a number of hotels and benefiting
from partial usage of the IFRS 16 lease liability
for the German lease hotels. Trading
conditions in the UK in the second half of the
year resulted in $17m of rental guarantee
lease payments being charged against the
IFRS 16 lease liability.
For discussion of 2018 results, and the
changes compared to 2017, prior to the
restatements of those years in 2019 to
reflect the adoption of IFRS 16, refer to
the 2018 Annual Report and Form 20-F.
The 2018 and 2017 results have been
restated for IFRS 16 in the current year
(see pages 146 to 149).
On a restated basis, operating profit
increased by 13.5% from 2017 to 2018
(as previously reported: an increase of
13.8%).
a EMEAA reportable segment includes revenue and
operating profit before exceptional items, excluding
System Fund revenues and expenses and
reimbursement of costs, for both fee business and
owned, leased and managed lease hotels.
b Definitions for Non-GAAP revenue and operating profit
measures can be found on pages 55 to 59.
Reconciliations of these measures to the most directly
comparable line items with the Group Financial
Statements can be found on pages 214 to 216.
c The impact of movements between the previous year’s
average exchange rates and actual average exchange
rates in 2019.
Highlights for the year ended
31 December 2019
Comprising 1,126 hotels (223,370 rooms) at
the end of 2019, EMEAA represented 25% of
the Group’s room count. Revenues are
primarily generated from hotels in the UK
and gateway cities in continental Europe, the
Middle East and Asia. The largest portion of
rooms in the UK and continental Europe are
operated under the franchise business
model, primarily under our mainstream
brands (Holiday Inn and Holiday Inn Express).
Similarly, in the upscale market segment,
Crowne Plaza is predominantly franchised,
whereas, in the luxury market segment, the
majority of InterContinental-branded hotels
are operated under management
agreements. The majority of hotels in
markets outside of Europe are operated
under the managed business model.
Revenue from the reportable segmenta
increased by $154m (27.1%) to $723m and
operating profit decreased by $86m (44.3%)
to $108m, impacted by a $97m increase in
operating exceptional items, whilst both
included the benefit of $11m significant
liquidated damages (2018: $7m). Operating
profit from the reportable segmenta
increased by $11m (5.3%) to $217m. On an
underlying basisb, revenue increased by
$112m (20.5%), and underlying operating
profit increased by $19m (9.8%), driven by
increases in net rooms supply and the
annualisation of the UK portfolio transaction,
that completed in July 2018.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
67
EMEAA hotel and room countHotelsRoomsAt 31 December2019Change over 20182019Change over 2018Analysed by brandSix Senses17171,3261,326Regent 3–7712InterContinental113733,5151,216Kimpton42920312Crowne Plaza186446,411152Hotel Indigo4164,439691voco12104,2933,762Holiday Inna394973,4322,079Holiday Inn Express3242046,4542,722Staybridge Suites1722,389204Other15(2)9,420(195)Total1,12675223,37012,271Analysed by ownership typeFranchised77347126,4558,333Managed3342592,8013,597Owned, leased and managed lease1934,114341Total1,12675223,37012,271Percentage of Group hotel and room count19.10.3ppt25.30.1ppta Includes 17 Holiday Inn Resort properties (3,604 rooms), (2018: 16 Holiday Inn Resort properties (3,391 rooms)).Total number of hotels1,126Total number of rooms223,370During 2019, EMEAA System size increased by 75 hotels (12,271 rooms) to 1,126 hotels (223,370 rooms). 90 hotels (15,335 rooms) opened in EMEAA in 2019, compared to 77 hotels (15,283 rooms) in 2018. 15 hotels (3,064 rooms) left the EMEAA System in the period, compared to 17 hotels (3,260 rooms) in the previous year.Total number of hotels in the pipeline404Total number of rooms in the pipeline81,106The EMEAA pipeline totalled 404 hotels (81,106 rooms) at 31 December 2019, representing an increase of 42 hotels (8,363 rooms) over 31 December 2018. Signings of 160 hotels (29,125 rooms), represented an increase of 27 hotels (2,207 rooms) from the prior year. 28 hotels (5,427 rooms) were removed from the pipeline in 2019, compared to 13 hotels (2,250 rooms) in the previous year.EMEAA pipelineHotelsRoomsAt 31 December2019Change over 20182019Change over 2018Analysed by brandSix Senses17171,1791,179Regent41664150InterContinental3127,507588Kimpton7–1,2477Crowne Plaza3519,415399Hotel Indigo40–5,652(109)EVEN Hotels–(1)–(200)vocoa1796,2204,710Holiday Innb1191325,9361,597Holiday Inn Express112(2)19,049(105)avid hotels11215215Staybridge Suites2013,860(87)Other1–16219Total4044281,1068,363Analysed by ownership typeFranchised165627,3311,650Managed2383653,6206,713Owned, leased and managed lease1–155–Total4044281,1068,363a Does not include three open hotels and one pipeline hotel that will be re-branded to voco.b Includes 18 Holiday Inn Resort properties (3,662 rooms), (2018: 10 Holiday Inn Resort properties (2,353 rooms)).Performance continuedEMEAA continued68IHG | Annual Report and Form 20-F 2019Strategic Report Greater China revenue 2019 ($135m)6%Greater China number of rooms (135,546)15%“ 2019 marked IHG’s 35th anniversary of operating in Greater China with 800 opened and pipeline hotels. We continue our growth strategy focusing on quality and disciplined execution to build an ‘in China for China’ business, leveraging the benefit of IHG’s expertise and global scale.”Jolyon BulleyChief Executive Officer, Greater ChinaIndustry performance in 2019Industry RevPAR in Greater China declined by 4.9% due to both average daily rate and occupancy declines. The rate of supply growth reduced compared with 2018 but weaker demand growth drove occupancy declines for the first time since 2015. Tier 1 cities RevPAR declined 5.3% led by a decline in average daily rate. Tiers 2, 3 and 4 also saw RevPAR declines. Tier 4 saw the largest increase in demand (5.4%) while tier 1 saw the smallest (0.0%). Demand in Mainland China was dampened by trade disputes and a broader economic slowdown, whilst ongoing unrest resulted in Hong Kong SAR RevPAR declining 25.7%. Macau SAR RevPAR marginally declined, with modest gains in average daily rate.Regional priorities• Align the region’s development plans with the China Government’s 5 and 10 year plans to build and accelerate long-term growth in key target markets.• Accelerate Franchise growth across our mainstream and upscale brands based on a solid franchise owner offer and performance support operating foundation.• Continuous improvement in our portfolio of 10 brands in improving guest preference, delivering local brand experiences and a focus on hotel performance and optimising our owners’ return on investment.• Strengthen our IHG Rewards Club programme with localised member benefits, strategic partnership programmes and mobile-led digital solutions through well-established local digital platforms.• Continue our investment in talent and learning to attract people to our industry through the IHG Academy, grow future leaders and build competencies required to support our future growth. Regional highlights• Opened our 400th hotel in Greater China, with in-year milestones including our growth in Holiday Inn Express from 100 to 150 open hotels in just 18 months, opened our 100th Holiday Inn, and opened the first Kimpton Hotel and Restaurant in Asia Pacific, Kimpton Da’an Taipei. • Achieved record new hotel signings and openings, with over 800 open and pipeline hotels.• Announced the InterContinental Alliance with Sands Macao including The Venetian Macao, The Parisian Macao and the soon to be launched Londoner Hotel.• Launched partnerships with China Southern and regional digital and distribution partners.• Launched next generation People strategy that supports accelerated growth, the franchise model, and digital and technology roadmaps. • Recognition as a “Best Employer” for the eighth year in succession.IHG’s regional performance in 2019IHG’s regional comparable RevPAR in Greater China decreased by 4.5% in 2019, driven by a 4.7% decline in average daily rate, significantly impacted by political unrest in Hong Kong SAR with RevPAR declining 27.1%. Mainland China outperformed the industry, with RevPAR decreasing only 0.6%, due to lower corporate and meetings business. RevPAR declined in Macau SAR by 1.3%.Comparable RevPAR movement on previous year (12 months ended 31 December 2019)Fee businessInterContinental(4.6%)HUALUXE6.6%Crowne Plaza(4.9%)Hotel Indigo(8.1%)Holiday Inn(4.0%)Holiday Inn Express(4.7%)All brands(4.5%)Greater China69IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance Strategic Report
Performance continued
Greater China continued
Greater China results
Revenue from the
reportable segmenta
Fee business
Total
Operating profit from the
reportable segmenta
Fee business
Operating exceptional items
Operating profit
12 months ended 31 December
2019
$m
2018
Restated
$m
2019 vs
2018
% change
2017
Restated
$m
2018 vs
2017
% change
135
135
73
–
73
143
143
70
(1)
69
(5.6)
(5.6)
4.3
–
5.8
117
117
53
–
53
22.2
22.2
32.1
–
30.2
Highlights for the year ended
31 December 2019
Comprising 470 hotels (135,546 rooms)
at 31 December 2019, Greater China
represented approximately 15% of the
Group’s room count. The majority of rooms
in Greater China operate under the managed
business model.
Revenue from the reportable segmenta
decreased by $8m (5.6%) to $135m and
operating profit increased by $4m (5.8%)
to $73m, both impacted by a reduction in
significant liquidated damages to $nil
(2018: $6m). Operating profit from the
reportable segmenta increased by $3m (4.3%)
to $73m. On an underlyingb basis, revenue
increased by $3m (2.3%), and underlyingb
operating profit increased by $10m (15.9%),
driven by 17.5% net rooms growth and cost
efficiencies partially offset by a 4.5% decline
in comparable RevPAR, impacted by ongoing
unrest in Hong Kong SAR.
For discussion of 2018 results, and the
changes compared to 2017, prior to the
restatements of those years in 2019 to
reflect the adoption of IFRS 16, refer to
the 2018 Annual Report and Form 20-F.
The 2018 and 2017 results have been
restated for IFRS16 in the current year
(see pages 146 to 149).
On a restated basis, operating profit
increased by 30.2% from 2017 to 2018
(as previously reported: an increase
of 30.8%).
a Greater China reportable segment includes revenue and
operating profit before exceptional items, excluding
System Fund revenues and expenses and
reimbursement of costs, for the fee business.
b Definitions for Non-GAAP revenue and operating profit
measures can be found on pages 55 to 59.
Reconciliations of these measures to the most directly
comparable line items with the Group Financial
Statements can be found on pages 214 to 216.
70
IHG | Annual Report and Form 20-F 2019
Greater China hotel and room count
At 31 December
Analysed by brand
Six Senses
Regent
InterContinental
Kimpton
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
2019
1
3
48
1
9
96
13
107
183
9
470
89
381
470
8.0
Hotels
Change
over 2018
1
–
1
1
1
5
3
15
50
2
79
53
26
79
2019
122
1,232
19,570
129
2,710
34,296
1,868
31,176
37,787
6,656
Total number of hotels
Rooms
Change
over 2018
470
122
(4)
341
129
375
1,886
362
3,169
8,623
5,230
Total number of rooms
135,546
The Greater China System size increased by
79 hotels (20,233 rooms) in 2019 to 470
hotels (135,546 rooms). 88 hotels (23,764
rooms) opened, our highest ever and 11
hotels (4,952 rooms) higher than 2018.
Recent growth in the region has focused
on tier 2 and 3 cities, which now represent
approximately 54% of our open rooms.
70 Holiday Inn Brand Family hotels (14,130
rooms) were added in the year, compared to
47 hotels (9,090 rooms) in 2018.
9 hotels (3,531 rooms) were removed in 2019
compared to 14 hotels (5,038 rooms) in 2018.
135,546
20,233
23,254
112,292
135,546
14,499
5,734
20,233
1.0ppt
15.3
1.5ppt
a Includes seven Holiday Inn Resort properties (1,895 rooms), (2018: six Holiday Inn Resort properties (1,726 rooms)).
Greater China pipeline
Total number of hotels in the pipeline
At 31 December
Analysed by brand
Six Senses
Regent
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 2018
3
1
2
1
1
9
7
4
2
23
(1)
52
45
7
52
2019
3
1
27
5
22
48
24
11
58
194
–
393
169
224
393
2019
169
280
7,962
1,497
6,180
13,998
4,324
2,476
14,467
33,722
–
85,075
29,324
55,751
85,075
Rooms
Change
over 2018
393
Total number of rooms in the pipeline
85,075
At 31 December 2019, the Greater China
pipeline totalled 393 hotels (85,075 rooms)
compared to 341 hotels (77,923 rooms) at
31 December 2018. Signings (158 hotels,
35,673 rooms) were the highest ever,
representing an increase of 22% (6,543
rooms) from the prior year. 108 hotels
(18,667 rooms) were signed for the Holiday
Inn Brand Family, including 76 franchised
Holiday Inn Express hotels.
18 hotels (4,757 rooms) were removed from
the pipeline in 2019, compared to 18 hotels
(4,079 rooms) in 2018.
169
280
563
598
81
2,143
1,530
788
(793)
2,072
(279)
7,152
7,319
(167)
7,152
b Includes eight Holiday Inn Resort properties (2,183 rooms), (2018: eight Holiday Inn Resort properties (2,711 rooms)).
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
71
Strategic Report
Performance continued
Central
Central results
Revenue
Gross costs
Operating exceptional items
Operating loss
12 months ended 31 December
2018
Restated
$m
2019
vs 2018
% change
2017
Restated
$m
2018
vs 2017
% change
170
(287)
(117)
(55)
(172)
8.8
8.0
6.8
(72.7)
(18.6)
157
(259)
(102)
(29)
(131)
8.3
10.8
14.7
89.7
31.3
2019
$m
185
(310)
(125)
(15)
(140)
Highlights for the year ended
31 December 2019
Net operating loss decreased by $32m
(18.6%) compared to 2018, driven by a $40m
(72.7%) decrease in operating exceptional
items. Central revenue, which mainly
comprises technology fee income,
increased by $15m (8.8%) to $185m, driven
by IHG System size growth (5.6%) and partly
impacted by adverse foreign exchangea
($2m). Gross costs increased by $23m
(8.0%), driven by reinvestment of a
substantial portion of growth investment
funded by savings elsewhere in the business,
also benefiting from the impact of $5m
foreign exchangea.
Net operating loss before exceptional
items increased by $8m (6.8%) to $125m,
benefiting from the impact of $3m foreign
exchangea, as an increase in central
revenues was offset by continued
investments in growth initiatives.
a The impact of movements between the previous year’s
average exchange rates and actual average rates in 2019.
Other financial information
System Fund
The Group operates a System Fund to collect
and administer cash assessments from hotel
owners for the specific purpose of use in
marketing, the Guest Reservation System,
and hotel loyalty programme, IHG Rewards
Club. The Fund also receives proceeds from
the sale of loyalty points under third-party
co-branding arrangements. The Fund is not
managed to generate a profit or loss for IHG
over the longer term, although an in-year
surplus or deficit can arise. The Fund is
managed for the benefit of hotels in the
IHG System with the objective of driving
revenues for the hotels.
In the year to 31 December 2019, System
Fund revenue increased by $140m (11.4%) to
$1,373m. The primary driver was a favourable
adjustment relating to a change in the
actuarial assumptions around the ultimate
rate of consumption of IHG Rewards Club
points (‘breakage’) leading to increased
revenue recognition year-over-year. The
increase in non-loyalty revenue was driven
by increased assessment fees and
contributions from hotels, reflecting
increased System size.
Reimbursement of costs
In the year to 31 December 2019,
reimbursable revenue remained in line with
2018 at $1,171m.
Cost reimbursements revenue represents
reimbursements of costs incurred on behalf
of managed and franchised properties and
relates, predominantly, to payroll costs at
managed properties where we are the
employer. As we record cost reimbursements
based upon costs incurred with no added
mark up, this revenue and related expenses
has no impact on either our operating profit
or net income.
Exceptional items
Pre-tax 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 as well
as other Non-GAAP measures (see pages 55
to 59) in order to provide a more meaningful
comparison of performance and can include,
but are not restricted to, gains and losses on
the disposal of assets, impairment charges
and reversals, and restructuring costs (for
more information see page 158).
2019 pre-tax exceptional items totalled a
charge of $148m. The charge included:
$28m relating to management’s best
estimate of a settlement in respect of a
lawsuit filed against the Group in the
Americas region, together with the cost of
an arbitration award made against the Group
in the EMEAA region (see note 6 to the
Group Financial Statements); $20m relating
to reorganisation costs (see below); $131m
arising from impairment charges further
discussed below, the impact of which was
partially offset by a corresponding fair value
gain on contingent purchase consideration
of $38m, and $7m relating to acquisition and
integration costs arising from the Group’s
recent acquisitions.
Impairment
Impairment of $131m comprises a $50m
impairment on the Kimpton management
agreements and an $81m impairment relating
to the UK portfolio, comprising $49m related
to goodwill and $32m related to right-of-use
assets (see note 13 to the Group Financial
Statements and pages 139 and 140 for further
details). The impact of the impairment arising
on the UK portfolio is partially offset by the
fair value gain of $38m, see note 25 to the
Group Financial Statements.
Reorganisation costs
In September 2017, the Group launched a
comprehensive efficiency programme funding
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 was completed in 2019.
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.
Costs incurred since 2017 to achieve these
savings, including amounts charged to the
System Fund, total $196m. The exceptional
cost charged to the Group income
statement in 2019 of $20m includes
severance costs of $8m and consultancy
fees of $6m.
72
IHG | Annual Report and Form 20-F 2019
Performance continued
Other financial information
Net financial expenses
Net financial expenses, which were restated
for IFRS 16, increased by $19m to $115m and
adjusted interest, as reconciled on page 164,
increased by $18m to $133m. The increase is
primarily due to interest on the €500m bond
issued in November 2018, and related
currency swaps.
Financial expenses included $63m (2018:
$48m) of interest costs on the public bonds,
which are fixed rate debt. Interest expense
on lease liabilities was $41m (2018: $39m).
Fair value gains / losses on contingent
purchase consideration
Contingent purchase consideration arose
on the acquisitions of Regent, the UK
portfolio and Six Senses (see note 25 to the
Group Financial Statements). The net gain of
$27m (2018: loss of $4m) comprises an
exceptional gain of $38m in respect of the
UK portfolio (see above), offset by a loss of
$11m in respect of Regent. The total
contingent purchase consideration liability
at 31 December 2019 is $91m.
Taxation
The effective rate of tax on profit before
exceptional items and System Fund was 24%
(2018: 22%). Excluding the impact of prior
year items, the equivalent tax rate would be
26% (2018: 24%). The effective rate is higher
than the UK Corporation Tax rate of 19%
(2018: 19%), 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 $20m (2018: credit of $27m). This
predominantly included a current tax credit
of $4m on reorganisation costs, a $6m
deferred tax credit in respect of future tax
relief available on litigation costs and a $12m
deferred tax credit in respect of impairment
and adjustments to contingent purchase
consideration (see above).
Net tax paid in 2019 totalled $141m (2018:
$68m). The 2019 tax paid was more than
2018 principally due to material amounts of
tax recovered in 2018.
IHG pursues an approach to tax that is
consistent with its business strategy and its
overall business conduct principles. The
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
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. As a result
of its business profile as a hotel manager,
and also as a residual legacy from prior
acquisitions, IHG does have a small number
of subsidiaries in jurisdictions commonly
portrayed as tax havens. IHG manages such
subsidiaries on a basis consistent with its
business principles (for example, by making
some foreign incorporated companies UK tax
resident or by operating others so that local
profits are commensurate with local activity).
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 over 70% of its revenues in the form of
franchise, management or similar fees, with
over 80% 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 85.9¢. With the interim
dividend per ordinary share of 39.9¢, the
full-year dividend per ordinary share for
2019 will total 125.8¢, an increase of 10%
over 2018.
On 19 October 2018, the Group announced
a $500m return of funds to shareholders
by way of a special dividend and share
consolidation. The special dividend
(262.1¢ per ordinary share) was paid on
29 January 2019.
IHG pays its dividends in pounds sterling and
US dollars. The sterling amount of the final
dividend will be announced on 24 April 2020
using the average of the daily exchange rates
for the three working days commencing
21 April 2020. See page 12 for details of
IHG’s dividend policy.
Earnings per ordinary share
Basic earnings per ordinary share increased
by 14.5% to 210.4¢ from 183.7¢ in 2018 whilst
adjusted earnings per ordinary share
increased by 3.4% to 303.3¢.
Share price and market capitalisation
The IHG share price closed at £52.08 on
31 December 2019, up from £42.49 on
31 December 2018. The market capitalisation
of the Group at the year-end was £9.5bn.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
73
Strategic Report
Performance continued
Liquidity and capital resources
Sources of liquidity
In November 2018, the Group issued a
€500m, 2.125% euro bond repayable in May
2027. The bond extends the maturity profile
of the Group’s debt. Currency swaps were
transacted at the same time the bonds were
issued in order to swap the proceeds and
interest flows into pounds sterling. The
currency swaps fix the bond debt at £436m,
with interest payable semi-annually at a rate
of 3.5%. This is in addition to £400m of
public bonds which are repayable on
28 November 2022, £300m repayable on
14 August 2025 and £350m repayable on
24 August 2026.
The Group is further financed by a
$1.275bn revolving syndicated bank
facility (the Syndicated Facility) and a
$75m revolving bilateral facility (the
Bilateral Facility) which mature in March
2022, under which $125m was drawn
at 31 December 2019 (31 December 2018:
$nil). The Syndicated and Bilateral Facilities
contain the same terms and two financial
covenants: interest cover; and net debt
divided by operating profit before
exceptional items, depreciation and
amortisation and System Fund revenue
and expenses. The Group is in compliance
with all of the financial covenants in its loan
documents, none of which are expected to
present a material restriction on funding
in the near future.
The Group has started to review and plan for
the expected discontinuation of LIBOR after
2021. The Group’s main exposure to LIBOR
is the underlying reference rate in the
Syndicated and Bilateral Facilities. The terms
of this agreement will need to be
renegotiated to address the discontinuation
of LIBOR. The replacement of LIBOR with
alternative reference rates is not expected to
have a material impact on the group at
this stage.
Additional funding is provided by other
uncommitted bank facilities (see note 22
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
$87m (2018: $104m), which were matched
by an equivalent amount of cash and cash
equivalents under the Group’s cash pooling
arrangements. Under these arrangements,
each pool contains a number of bank
accounts with the same financial institution,
and the Group pays interest on net overdraft
balances within each pool. The cash pools
are used for day-to-day cash management
purposes and are managed daily as closely
as possible to a zero balance on a net basis
for each pool. Overseas subsidiaries are
typically in a cash-positive position, with the
most significant balances in the US, and the
matching overdrafts are held by the Group’s
central treasury company in the UK.
Net debt of $2,665m (2018: $1,965m
restated) is analysed by currency as follows:
2019
$m
2018
Restated
$m
Borrowings
Sterling*
US dollar
Euros
Other
Cash and cash
equivalents
Sterling
US dollar
Euros
Canadian dollar
Chinese renminbi
Other
Net debt
Average debt level
2,022
721
44
73
(25)
(91)
(13)
(7)
(17)
(42)
2,665
2,720
1,956
620
37
56
(479)
(91)
(23)
(12)
(58)
(41)
1,965
2,174
* Including the impact of currency swaps.
Cash and cash equivalents include $16m
(2018: $2m) 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 22 and 24 to the
Group Financial Statements.
Information on the Group’s approach to
allocation of capital resources can be
found on pages 12 and 13.
The Group had net liabilities of $1,465m
at 31 December 2019, (2018: $1,131m
restated).
Cash from operating activities
Net cash from operating activities totalled
$653m for the year ended 31 December 2019,
a decrease of $56m on the previous year,
reflecting an increase of $75m in tax paid.
Cash flow from operations 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 $296m to $493m, primarily
reflecting the acquisition of Six Senses.
Other movements in investing activities
include property, plant and equipment
refurbishment works involved in re-branding
the UK portfolio hotels in 2019.
The Group had committed contractual
capital expenditure of $197m at
31 December 2019, (2018: $137m restated),
including $3m of commitments for leases.
74
IHG | Annual Report and Form 20-F 2019
Liquidity and capital resources continued
Long-term debt obligationsa,b
Interest payableb
Derivatives
Lease liabilities
Agreed pension scheme contributions
Capital contracts placedc
Deferred and contingent
purchase considerationd
Total
Total amounts
committed
$m
Less than
1 year
$m
2,074
315
70
3,857
6
197
162
6,681
–
58
7
97
6
197
3
368
1–3
years
$m
654
114
16
188
–
–
22
994
3–5
years
$m
–
73
17
121
–
–
17
228
After
5 years
$m
1,420
70
30
3,451
–
–
120
5,091
a Repayment period classified according to the related facility maturity date.
b Excluding bank overdrafts.
c See note 30 to the Group Financial Statements for futher details. Also includes $3m related to leases that have not
yet commenced.
d Relates to the acquisitions of Six Senses, the UK portfolio and Regent (see note 11 to the Group Financial Statements for
further details).
Cash used in financing activities
Net cash used in financing activities totalled
$660m, which was $711m higher than 2018,
primarily due to a cash outflow from the
$500m special dividend paid in 2019, and
the issue of the long-term bonds in 2018.
Off-balance sheet arrangements
At 31 December 2019, 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 guarantees over
the debt of equity investments of $55m and
outstanding letters of credit of $33m. The
Group may also be exposed to additional
liabilities resulting from litigation and security
incidents. See note 31 to the Group Financial
Statements for further details.
Contractual obligations
The Group had the following contractual
obligations outstanding as of 31 December
2019. See table opposite.
IHG | Annual Report and Form 20-F 2019 | Strategic Report | Performance
75
Governance
Governance
78 Chair’s overview
79 Corporate Governance
79 Our Board and Committee governance structure
80 Our Board of Directors
82 Our Executive Committee
84 Board meetings
86 Director induction, training and development
86 Board effectiveness evaluation
88 Audit Committee Report
92 Corporate Responsibility Committee Report
93 Nomination Committee Report
94 Statement of compliance with the UK Corporate
Governance Code
96 Directors’ Remuneration Report
96 Remuneration Committee Chair’s statement
99 At a glance
100 Remuneration at IHG – the wider context
101 Annual Report on Directors’ Remuneration
110 Directors’ Remuneration Policy
Regent Porto Montenegro, Montenegro
76
IHG | Annual Report and Form 20-F 2019
IHG | Annual Report and Form 20-F 2019 | Governance
77
At IHG, we recognise the critical role that strong corporate governance plays in achieving long-term sustainable success. Our purpose, culture, values and strategy are all underpinned by our commitment to conducting business responsibly. The Board oversees the long-term strategic aims of the Group and is responsible for the leadership of the Group, ensuring our actions are in keeping with the strong ethics and values that shape our culture and deliver long-term, sustainable value for all our stakeholders.Focus areas and activitiesDuring 2019, the Board monitored and reviewed progress against strategic and operational objectives, with particular focus on growth. The Board had regard to levels of risk taken and shareholder and stakeholder interests in its decision making.The ongoing challenge of cybersecurity was a particular area of focus, with the Board engaging with, and receiving regular presentations and updates from, management on the Group’s approach to cybersecurity risk management. The Board also assessed the progress of the cybersecurity action plan put in place in 2018.Culture and talent continued to feature prominently on the Board agenda, reflecting the Board’s belief that continuing to evolve our culture in support of our purpose, values and strategic objectives, and continuing to focus on diversity and the talent pipeline, is essential for the long-term success of the Group. The Board recognises the importance of setting the tone of IHG’s culture.The Board’s engagement and dialogue with the Group’s workforce and other stakeholders was a further key area of focus during the year. The Board appointed a designated non-executive director to lead and coordinate its engagement with the workforce, approved an engagement plan, and actively engaged with employees through various forums (see pages 32 and 33 for further details).Governance frameworkThe Board delegates certain responsibilities to the Audit, Corporate Responsibility, Nomination and Remuneration Committees to assist in ensuring that effective corporate governance pervades the business.We have considered our governance framework in light of the evolving governance landscape and to ensure that our governance structure and processes align with the 2018 UK Corporate Governance Code and the Companies (Miscellaneous Reporting) Regulations 2018.During the year, the composition of the Nomination Committee was reviewed and adjusted so that it now consists of only one representative from each of the Board Committees as well as the Senior Independent Non-Executive Director, allowing for more focused discussion on Board composition, performance and succession.A key area of focus for the Audit Committee this year has been overseeing the external audit tender process and the ongoing assessment of the Group’s governance and risk control processes; the Corporate Responsibility Committee has been focused on the refresh of the Group’s Corporate Responsibility strategy and the delivery of ongoing targets; the Nomination Committee has been focused on the approach to Board engagement with the workforce, the composition (including diversity) of the Board and succession planning, and the continuing development of our diversity and inclusion framework; and the Remuneration Committee has been focused on developing a new Remuneration Policy and approval of the Colleague Share Plan.Board culture and compositionWe have a disciplined approach to Board composition and succession to ensure that we continue to have around the table the right mix of skills, experience, behaviours and knowledge as well as gender and geographical representation to add value as the Company pursues its strategic objectives.In December 2019, we announced in this respect the appointment of Arthur de Haast as an independent Non-Executive Director. Previously a Senior Director of Jones Lang LaSalle Inc., Arthur brings more than 30 years’ experience of capital markets and the hotel and hospitality sectors. Arthur joined the Board with effect from 1 January 2020 and serves on the Remuneration and Corporate Responsibility Committees.Training, development and Board performance review The training and development needs of each Director continue to be reviewed regularly. During 2019, Directors received training on a variety of topics, further details of which can be found on page 86.An external Board evaluation was carried out during the year. I am pleased to report that the key conclusion of the review was that the Board is well-functioning and operates effectively. Further details of the evaluation can be found on page 86. We also conducted another peer-to-peer Chair and Non-Executive Director assessment, where Directors provide structured feedback on each of their fellow Directors. Further details can be found on page 87.Compliance and our dual listingIHG continues to operate as a dual-listed company with a premium listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange. As such, 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 again produced a combined Annual Report and Form 20-F. Our statement of compliance with the 2018 UK Corporate Governance Code (the Code) is located on pages 94 and 95. I am pleased to report that, during 2019, we complied in all material respects with all principles and provisions of the Code. A statement outlining the differences between the Group’s UK corporate governance practices and those followed by US companies can be found on page 240.Looking forwardIn 2020, the Board will continue to progress the actions arising from the external evaluation and we look forward to continuing to engage with, and foster our regard for the interests of, shareholders, the workforce and other key stakeholders. We see this as essential to building and maintaining a successful and sustainable business.Patrick CescauChair of the Board17 February 2020Chair’s overview78IHG | Annual Report and Form 20-F 2019Governance Corporate Governance
Our Board and Committee governance structure
We remain committed to maintaining the highest standards of
corporate governance. Our governance framework is led and
directed by the Board, which in turn delegates certain
responsibilities to its Committees to support IHG’s purpose,
values and strategy, as well as our commitment to conducting
business responsibly.
The Board and its Committees
The Board establishes the Group’s purpose, values and strategy, and
is responsible for promoting the long-term sustainable success of
the Group. A number of key decisions and matters are reserved for
the Board and are not delegated to management. The schedule of
matters reserved was reviewed for the Board at the February 2020
Board meeting and is available on our website. The Board has
responsibility for reviewing the means for the workforce to raise
concerns in confidence and the reports arising from its operation,
which was previously undertaken by the Audit Committee.
The Board is supported by its Principal Committees, namely the
Audit Committee, Corporate Responsibility Committee, Nomination
Committee and Remuneration Committee, to assist it in carrying out
its functions, overseeing the delivery of strategic objectives and
driving sustainable value for shareholders and considering the
impacts on, and interests of, other stakeholders. Details of how the
Board spent its time during 2019 can be found on pages 84 and 85.
Management Committees
Operational matters, routine business and information disclosure
procedures are delegated by the Board to Management
Committees.
The Executive Committee is chaired by the CEO and considers and
manages a range of day-to-day strategic and operational issues
facing the Group, including the development of the Group’s strategy
and budget for the Board’s approval, executing the strategic plan
once agreed by the Board, monitoring the Group’s performance and
providing assurance to the Board in relation to overall performance
and risk management.
The General Purposes Committee is chaired by an Executive
Committee member and 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 is chaired by the Group’s Financial
Controller and ensures that proper procedures are in place for
statutory and listing requirements. This Committee reports to the
Chief Executive Officer, 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.
Board and Committee membership and attendance in 2019
Appointment
date
Committee
appointments
Total meetings held
Chair
Patrick Cescaua
01/01/13
N
Chief Executive Officer
Keith Barr
Executive Directors
Paul Edgecliffe-Johnson
Elie Maalouf
Senior Independent
Non-Executive Director
Dale Morrison
Non-Executive Directors
Anne Busquet
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Malina Ngai
01/07/17
01/01/14
01/01/18
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
A R
N R
A C N
A C N
C R
Board
7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
6/7d
Audit
Committee
Corporate
Responsibility
Committee
Nomination
Committee
Remuneration
Committee
Meetings
5
–
–
–
–
5/5
5/5
5/5
–
5/5
5/5
–
3
–
–
–
–
–
3/3
–
–
2/3c
3/3
3/3
6
6/6
–
–
–
6/6
2/6b
2/6b
6/6
6/6
6/6
2/6b
6
–
–
–
–
6/6
–
6/6
6/6
–
–
5/6d
a In principle the Chair attends all Committee meetings, and the full Board attends the relevant sections of the Audit Committee meetings when results, and risk management
processes and controls are discussed and considered.
b The composition of the Nomination Committee was adjusted during the year to comprise one member of each Board Committee and the Senior Independent Non-Executive Director.
Accordingly Anne Busquet, Ian Dyson and Malina Ngai resigned from the Nomination Committee in July 2019.
c Luke Mayhew was unable to attend a Corporate Responsibility Committee meeting due to prior engagement.
d Malina Ngai was unable to attend a Board meeting and a Remuneration Committee meeting due to a prior commitment.
Board Committee membership key
A Audit Committee member
R Remuneration Committee member
C Corporate Responsibility Committee member
Chair of a Board Committee
N Nomination Committee member
IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance
79
NSkills and experience: From 2005 to 2008, Patrick was Group Chief Executive of Unilever Group, having previously been Chair of Unilever PLC, Vice-Chair of Unilever NV and Foods Director, following a progressive career with the company, which began in France in 1973. Prior to being appointed to the board of Unilever PLC and Unilever NV in 1999, as Finance Director, he was Chair of a number of the company’s major operating companies and divisions, including in the US, Indonesia and Portugal. He was formerly a Senior Independent Director and Non-Executive Director of Pearson plc, Tesco PLC and International Airlines Group, and a Director at INSEAD.Board contribution: Patrick has held board positions for more than 20 years in leading global businesses and brings extensive international experience in strategy, brands, consumer products, and finance. As Chair, Patrick is responsible for leading the Board and ensuring it operates in an effective manner, and promoting constructive relations with shareholders and wider stakeholders. As Chair of the Nomination Committee, he is responsible for reviewing and making recommendations on the Group’s leadership needs.Other appointments: Patrick is a trustee of The Leverhulme Trust, Patron of the St Jude India Children’s Charity and Member of the TEMASEK European Advisory Panel.Patrick Cescau Non-Executive ChairAppointed to the Board: 1 January 2013Skills 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 CEO, Keith served as Chief Commercial Officer for four years. In this role, 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 of IHG’s Greater China business for four years, setting the foundations for growth in a key marketand overseeing the launch of the HUALUXE® Hotels and Resorts brand. Board contribution: Keith is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.Other appointments: Keith is a Non-Executive Director of Yum! Brands. He also sits on the Board of WiHTL (Women in Hospitality Travel & Leisure). Keith is a graduate of Cornell University’s School of Hotel Administration and is currently a member of the Dean’s Advisory Board for The School of Hotel Administration, Cornell SC Johnson College of Business.Keith BarrChief Executive Officer (CEO)Appointed to the Board: 1 July 2017Skills and experience: Paul is a fellow of the Institute of Chartered Accountants and is a graduate of the Harvard Business School Advanced Management Programme. He was previously CFO 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 alsoacted as Interim CEO 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 for leading Group strategy.Paul Edgecliffe-JohnsonChief Financial Officer (CFO) and Group Head of Corporate StrategyAppointed to the Board: 1 January 2014Skills and experience: Elie was appointed CEO, Americas at IHG in February 2015 and has 20 years’ experience of working in major global franchise businesses. He joined the Group having spent six years as President and CEO of HMSHost Corporation, where he was also a member of the board of directors. Elie brings broad experience spanning hotel development, branding, finance, real estate and operations management as well as food and beverage expertise. Elie was Senior Advisor with McKinsey & Company from 2012 to 2014.Board contribution: Elie brings a deep understanding of the global hospitality sector to the Board. He is responsible for business development andperformance of all hotel brands and properties in the Americas region and has global responsibility for customer development, providing oversight of the Global Sales organisation, as well as our owner management and services strategy.Other appointments: Elie is a member of the American Hotel & Lodging Association Executive committee of the Board, and the U.S. Travel Association CEO Roundtable. In addition, Elie serves as a member of the Global Advisory Council at the University of Virginia Darden School of Business and is a board member of the Atlanta Committee for Progress.Elie MaaloufChief Executive Officer, AmericasAppointed to the Board: 1 January 2018A N RSkills and experience: Dale is a founding partner of TriPointe Capital Partners and subsequently Twin Ridge Capital, both private equity firms. Dale was previously President and CEO of McCain Foods Limited, President and CEO of Campbell Soup Company and Non-Executive Chair of Marlin 1 (holding company for Young’s Seafood International Holdings Ltd.).Board contribution: Dale has over 10 years’ experience in sales and marketing positions, and over 25 years’ experience in general management, having held senior positions in the branded foods sector. Dale’s role as Senior Independent Non-Executive Director is fundamental to the successful operation of the Board.Other appointments: Currently a Non-Executive Director of International Flavors & Fragrances Inc.Dale MorrisonSenior Independent Non-Executive Director (SID)Appointed to the Board: 1 June 2011A C Skills and experience: Anne began her career at Hilton International in Paris, before joining American Express Company in New York, where she held several executive positions and served for 23 years. Anne was also the CEO of Local and Media Services at InterActiveCorp.Board contribution: Anne brings more than 20 years’ experience in senior positions inmultinational companies, predominantly in the financial, branded and digital-commerce sectors. Other appointments: Anne is currently the President of AMB Advisors, an independent consulting firm, and Managing Director at Golden Seeds LLC, an angel investment company. She also serves on the boards of Pitney Bowes, MTBC and Elior Group and on the advisory boards of JEGI and SheSpeaks.Anne BusquetIndependent Non-Executive DirectorAppointed to the Board: 1 March 2015 Corporate Governance continuedOur Board of Directors80IHG | Annual Report and Form 20-F 2019Governance C RSkills and experience: Arthur has held several senior roles in the Jones Lang LaSalle (JLL) group, where he is currently Chair of JLL’s Capital Markets Advisory Council, having previously acted as Chair and Global CEO of JLL’s Hotels and Hospitality Group. Arthur is also a former Chair of the Institute of Hospitality.Board contribution: Arthur has more than 30 years’ experience in the capital markets, hotels and hospitality sectors, along with significant Board-level knowledge around sustainability. Arthur serves on the Remuneration and Corporate Responsibility Committees.Other appointments: Arthur is Chair of JLL’s Capital Markets Advisory Council, a member of JLL’s Global Sustainability Board, an Independent Non-Executive Director of Chalet Hotels Limited and a member of the Advisory Board of the Scottish Business School, University of Strathclyde, Glasgow.Arthur de HaastIndependent Non-Executive DirectorAppointed to the Board: 1 January 2020A RSkills and experience: Ian has held a number of senior executive and finance roles, including Group Finance and Operations Director for Marks and Spencer Group plc for five years from 2005 to 2010, where he oversaw significant changes in the business. In addition, Ian was CEO 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 financeroles, predominantly in the retail, leisure and hospitality sectors. Ian became Chair 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 Chair of the Audit Committee of SSP Group plc, Senior Independent Non-Executive Director and Chair of the Audit Committee of ASOS plc and Senior Independent Non-Executive Director of Flutter Entertainment plc.Ian DysonIndependent Non-Executive DirectorAppointed to the Board: 1 September 2013N RSkills 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 Chair of the Remuneration Committee on 1 October 2017, and as such she is responsible for setting the remuneration policy. Jo is also a member of the Nomination Committee.Other appointments: Currently a member of the Supervisory Board of Ceconomy AG and a Non-Executive Director of Halma plc and J Sainsbury plc.Jo HarlowIndependent Non-Executive DirectorAppointed to the Board: 1 September 2014 A C NSkills 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 Chair of Pets At Home Ltd, a Non-Executive Director of WH Smith PLC and until recently Senior Independent Director of DFS Furniture plc.Board contribution: Luke has over 40 years’ experience in senior roles and directorships in the branded service sector. As the designated Non-Executive Director for workforceengagement, he is responsible for leading on, and the consideration of, employee perspective in Board deliberations and for ensuring effective channels of feedback between IHG employees and the Board. Luke was the Remuneration Committee Chair at Brambles Limited from 2006 to 2014 and at IHG from July 2011 to September 2017.Other appointments: Currently a trustee of BBC Children in Need and the National Youth Orchestra of Great Britain and a Governor of the Southbank Centre.Luke MayhewIndependent Non-Executive DirectorAppointed to the Board: 1 July 2011A C NSkills 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 CEO 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 CEO of the Halfords Group plc. From 2017-2019, Jill served as Managing Director, Clothing, Home and Beauty, at Marks and Spencer plc.Board contribution: Jill has over 30 years’ experience working with high-profile international consumer-facing brands at both marketing and operational level. As Chair of the Corporate Responsibility Committee, she is responsible for corporate responsibility objectives and strategy and approach to sustainable development.Other appointments: Currently CEO of Costa Coffee.Jill McDonaldIndependent Non-Executive DirectorAppointed to the Board: 1 June 2013C RSkills and experience: Malina is CEO of A.S. Watson (Asia & Europe) Limited, and Group Chief Operating Officer of A.S. Watson Group, which is part of Hong Kong-based conglomerate CK Hutchison Holdings Limited. A.S. Watson is the world’s largest international health and beauty retailer with thirteen brands including Watsons, Superdrug, Savers, The Perfume Shop, Kruidvat, ICI Paris XL and ParknShop. In addition, Malina is Vice Chair 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 CEO of A.S. Watson (Asia & Europe) Limited, Group Chief Operating Officer of A.S. Watson and Vice Chair of the Hong Kong Retail Management Association.Malina NgaiIndependent Non-Executive DirectorAppointed to the Board: 1 March 201781IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance In addition to Keith Barr, Paul Edgecliffe-Johnson and Elie Maalouf, the Executive Committee comprises:Skills and experience: Claire joined IHG with an in-depth knowledge of the hospitality industry having spent 11 years at American Express in a range of senior leadership roles across marketing, consumer travel and loyalty. In her tenure there, Claire was General Manager (GM), Global Travel and Lifestyle, where she led a team responsible for delivering luxury lifestyle services, and she held additional roles including GM for Consumer Loyalty, GM for US Consumer Travel, and Senior Vice President, Global Marketing and Brand Management. Claire has also held senior marketing positions at Dell, as well as finance and general management roles at PepsiCo/Quaker Oats Company, building significant expertise across technology, retail e-commerce, 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. Claire is a Certified Public Accountant and holds an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University.Key responsibilities: These include all aspects of brand design and commercial delivery, loyalty, partnerships, customer experience, and marketing execution.Claire BennettGlobal Chief Marketing OfficerAppointed to the Executive Committee: October 2017 (joined the Group: 2017)Skills and experience: Prior to his appointment as CEO for Greater China, Jolyon 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.Jolyon joined IHG in 2001, as Director of Operations in New South Wales, Australia, and then held roles of increasing responsibility across IHG’s Asia-Pacific region. He became Regional Director Sales and Marketing for Australia, New Zealand and South Pacific in 2003, relocated to Singapore in 2005 and held positions of Vice President Operations South East Asia and India, Vice President Resorts, and Vice President Operations, South East and South West Asia. Jolyon graduated from William Angliss Institute in Melbourne with a concentration on Tourism and Hospitality.Key responsibilities: These include the management, growth and profitability of IHG’s fastest growing region, Greater China. Jolyon BulleyChief Executive Officer, Greater ChinaAppointed to the Executive Committee: November 2017 (joined the Group: 2001)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, where she led communications activity around the launch of a new digital learning channel and around the BBC’s educational output for both adults and children.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 and is a Board member of the International Tourism Partnership. Key responsibilities: She is responsible for 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. Yasmin DiamondExecutive Vice President, Global Corporate AffairsAppointed to the Executive Committee: April 2016 (joined the Group: 2012)Skills and experience: Nicolette joined IHG in 2001, and was appointed Deputy Company Secretary in August 2011, during which time she worked very closely with the Board, Executive Committee and wider organisation to ensure best-in-class delivery and compliance across our legal and regulatory areas. Nicolette is a solicitor and prior to joining IHG worked for Linklaters in London and Findlay & Tait (now Bowman Gilfillan) in South Africa. Nicolette was appointed as Company Secretary on 1 March 2019.Key responsibilities: These include overseeing our approach to corporate governance, risk management, insurance, regulatory compliance, internal audit, legal and hotel standards.Nicolette Henfrey Executive Vice President, General Counsel and Company SecretaryAppointed to the Executive Committee: February 2019 (joined the Group: 2001)Corporate Governance continuedOur Executive Committee82IHG | Annual Report and Form 20-F 2019Governance Skills and experience: Kenneth Macpherson became CEO, EMEAA in January 2018. Kenneth was previously IHG’s CEO for Greater China, a role he held from 2013 to 2017. Kenneth has extensive experience across sales, marketing strategy, business development and operations. In addition to 12 years living and working in China, Kenneth’s career includes experience in Asia, the UK, France and South Africa. Before IHG, Kenneth worked for 20 years at Diageo, one of the UK’s leading branded companies. His senior management positions included serving as Managing Director of Diageo Greater China, where he helped to build the company’s presence and led the landmark deal to acquire ShuiJingFang, a leading manufacturer of China’s national drink, and one of the first foreign acquisitions of a Chinese listed company.Key responsibilities: Kenneth is responsible for the management, growth and profitability of the EMEAA region. He also manages a portfolio of hotels in some of the world’s most exciting destinations, in both mature and emerging markets.Kenneth MacphersonChief Executive Officer, EMEAAAppointed to the Executive Committee: April 2013 (joined the Group: 2013)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 and Market Clusters), where he led HR for Unilever’s eight regions (Market Clusters) and four global Product Categories under a unified global HR leadership role. Ranjay has worked and lived in several countries, including the UK, the Netherlands, Singapore, UAE and India.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.Ranjay has resigned as Chief Human Resources Officer with effect from the end of February 2020.Ranjay RadhakrishnanChief Human Resources OfficerAppointed to the Executive Committee: December 2016 (joined the Group: 2016)Skills and experience: George joined IHG in 2008 and spent over a decade as IHG’s EVP, General Counsel and Company Secretary, with responsibility for corporate governance, risk and assurance, legal, corporate responsibility and information security. He 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. In February 2019 George was appointed as Chief Commercial and Technology Officer, continuing as Company Secretary until 1 March 2019.Key responsibilities: As EVP, General Counsel and Company Secretary, these included corporate governance, risk management, information security, insurance, regulatory compliance, internal audit, legal and hotel standards. As EVP, Chief Commercial and Technology Officer, these include global sales, distribution, revenue management, hotel and owner solutions, reservations and customer care, digital, information security and technology.George TurnerExecutive Vice President, Chief Commercial and Technology OfficerAppointed to the Executive Committee: January 2009 (joined the Group: 2008)Changes to the Board and its Committees, and Executive Committee Arthur de HaastArthur was appointed to the Board from 1 January 2020Anne BusquetAnne stepped down from the Nomination Committee in July 2019Ian DysonIan stepped down from the Nomination Committee in July 2019Malina NgaiMalina stepped down from the Nomination Committee in July 2019Ranjay RadhakrishnanRanjay has resigned as Chief Human Resources Officer with effect from the end of February 202083IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance Governance
Corporate Governance continued
Board meetings
The Chair and Company Secretary continue to operate a thorough
two-tiered collaborative process for setting the Board agenda to
ensure that the focus and discussion strikes the appropriate balance
between short-term needs of the business and the longer-term. The
Chair, CEO and Company Secretary also meet in advance of each
Board and Committee meeting to finalise the agendas and ensure
that sufficient time is allocated and in which order each matter is
considered. The Company Secretary maintains an annual agenda
schedule for Board meetings that sets out strategic and operational
matters to be considered. Board papers are circulated to all Board
members at least one week in advance of each meeting, to ensure
that Directors have sufficient time to fully prepare for the meetings
and ensure that effective, focused and relevant discussions take
place. Each Board meeting begins with an update from the Chair
and CEO, and the CFO then provides a review of the Group’s
financial performance. Executive Committee members and other
members of senior management present updates and ‘deep-dives’
on key initiatives and developments throughout the year, including
functional, market and brand reviews, enabling all Directors to
engage with senior management, have a strong understanding of
Group operations, challenges and successes and contribute to
strategic discussions.
The Board continues to receive presentations in the less formal
context of pre-dinner meetings, scheduled the day before Board
meetings, and invites external experts to provide ‘outside-in’
perspectives. This year the Board discussed the Greater China
market and consumer and technology trends with external experts.
The Board held seven scheduled meetings during the year, and
individual attendance is set out on page 79. All Directors are
expected to attend all Board meetings and relevant Committee
meetings unless they are prevented from doing so by prior
commitments, illness or a conflict of interest. If Directors are unable
to attend Board or Committee meetings, they are sent the relevant
papers and asked to provide comments to the Chair of the Board or
Committee in advance of the meeting so that their comments can
be duly considered.
Time is set aside at the start and end of each Board meeting for the
CEO to meet with the Chair and Non-Executive Directors, and for the
Chair to meet privately with the Senior Independent Non-Executive
Director (SID) and Non-Executive Directors to discuss any matters
arising. The SID continues to be available to discuss concerns
with shareholders, in addition to the normal channels of
shareholder communication.
During 2019, the Board focused on strategic and operational
matters, corporate governance, investor relations and risk
management. Board papers expressly reference the relevant
stakeholder considerations and the interests of key stakeholders
were considered throughout discussions. The Board is committed to
maintaining an active and effective dialogue with all of our key
stakeholders, as well as taking their interests into consideration in
our decision making. Details of the Board’s engagement with the
Group’s employees (pursuant to the ‘Voice of the Employee’
approach approved by the Board during the year) is set out on pages
32 and 33. Information in relation to our regard for the environment
and local communities is provided on pages 34 and 35. Details of
our engagement with suppliers, hotel owners and guests are
included on pages 38 to 40, and information about our engagement
with shareholders and investors is on pages 36 and 37.
The key focus areas for the Board during 2019 are outlined below:
Strategic and
operational
matters
Area of discussion
Accelerating our growth
Strategic initiatives
Operating regions
Commercial delivery
Brands
Our people and culture
Finance
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IHG | Annual Report and Form 20-F 2019
Discussion topic
Regular updates were received on progress against key strategic initiatives,
including ongoing refinement of IHG’s operating model and key processes,
benefit realisation, and risk management.
Consideration of merger and acquisition activity, including the acquisition of
the Six Senses brand and business. In considering the acquisition, the Board
had regard to the value proposition for our owners and our guests and for
shareholders and reviewed the conclusions of the due diligence across a
number of areas, including in relation to employees, human rights and the
environment.
Operating performance, competitive positioning, and outlook and strategy
for all regions, including progress against KPIs, were reviewed at each Board
meeting. Deep-dive sessions on strategy, performance, risks and
opportunities in each region including key market development opportunities
were presented during the year. Hotel lifecycle management, with a particular
focus on the Group’s owner proposition, was also considered.
Review of long-term channels and sales strategy and the plans for
omnichannel revenue delivery, digital experiences, and data enterprise
capabilities.
Brand performance and initiatives for all brands, including approving the
launch of Atwell Suites and monitoring the integration and delivery of the
voco, avid, Regent and Six Senses brands. In considering the Atwell Suites
brand, the Board took into account the brand proposition for guests and for
our owners, including, for example, owner cost to build.
The Board reviewed and adopted a ‘Voice of the Employee’ plan designed to
strengthen the understanding of employee engagement and the impact of
business proposals on employees, where relevant. Following such adoption,
the Board reviewed various employee feedback channels, and members of
the Board actively engaged with employees at various meetings and forums.
Further information is set out on pages 28 and 32 to 33.
In addition to approving the budget, review of the Group’s funding and
liquidity position. In approving the budget, the Board considered a number of
factors, including long-term viability, employee considerations, the need for
investment in our business and the expectations of shareholders.
Area of discussion
Discussion topic
Corporate
governance
Updates from each of the Board Committees
Details of Committee activities during 2019 can be found on pages 88 to 93
and 96 to 117.
Confidential Disclosure Channel Reports
Having assumed responsibility for overseeing the Group’s Confidential
Disclosure Channel, the Board received reports of confidential matters
disclosed.
Quarterly corporate governance and regulatory updates,
including reviews of regulatory developments and any
upcoming legislative changes affecting the business, the
Board and/or its Committees
Internal quarterly updates are provided to the Board covering key regulatory
and corporate governance developments in areas such as audit reform, the
role of the Board in cyber risk, remuneration trends, and ESG considerations,
and how the Group is responding.
Year-end matters, including the Annual Report and
Form 20-F
Details of the review process of the Annual Report and Form 20-F can be
found on page 88.
Board effectiveness evaluation
Risk
management
Cybersecurity
Internal controls and risk management systems, our risk
appetite and our global insurance programme
Terms of Reference for each Board Committee
Investor
relations and
communications
Updates on investor perceptions and shareholder
relations, consideration of analysts’ reports and
media updates
Global communications updates
Review and approval of shareholder returns strategies
for 2019
Details of the process and outcome of the external Board effectiveness review
can be found on page 86.
Presentations and updates were received on cybersecurity, including the
overall threat landscape, IHG’s multi-year plan to enhance security capability,
and the status of 2019 initiatives. The Board further considered the approach
to cybersecurity risk management, key risk areas, and enhanced governance,
including approval of an updated information security governance policy.
Regular updates were received on internal controls, risk management systems,
principal and emerging risks, our risk appetite and global insurance programme.
Reports on risk topics were delivered by the Chair of each Committee.
Changes to the composition and Terms of Reference of the Nomination
Committee were considered and approved during the year. The Terms of
Reference for all Committees and the Matters Reserved for the Board can be
found on our website.
The Board receives a regular report outlining share register movement,
relative share price performance, Investor Relations activities and
engagement with shareholders. The Board also considered feedback from
the regular investor and analyst perception survey as well as individual
meetings with investors.
The Board receives a regular report on global communications covering areas
including the changing external landscape, trends on consumption of
information, communications priorities, activity across key regions, our
brands, people, and owners.
During the year, the Board considered and, after taking into account
stakeholder interests, distributable reserves and long-term success of the
Company, recommended two dividends.
Preparations for the AGM
Details of the 2020 AGM can be found on page 36.
Annual Strategy Meeting – June 2019
The 2019 Annual Strategy Meeting was held in New York and the
Board undertook a detailed review of the performance and
achievements of the business in the broader context of the changing
competitive environment, as well as completing an assessment of
the key strategic choices and priorities required to deliver long-term
success for the Group. Members of the Executive Committee
attended and discussed with the Board various topics, including
hospitality market dynamics, IHG’s brand portfolio and loyalty
strategy, market opportunities and choices, and opportunities for
investment in capabilities and platforms in areas such as distribution
and channels, loyalty, and owner and hotel lifecycle. The Board
received updates on the Group’s People and Culture roadmap and
its Corporate Responsibility strategy. Board members also had the
opportunity to engage directly with our owners at a reception hosted
at the InterContinental Times Square hotel as part of the NYU
International Hospitality Industry Conference.
Each Board member received a full briefing in advance of the Annual
Strategy Meeting to ensure they had the time to reflect on the key
information ahead of engaging in the discussions at the meeting.
IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance
85
Governance
Corporate Governance continued
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 a full understanding of all aspects of our business and
familiarity with the Group’s purpose, culture and values, to ensure
they are able to contribute effectively to the Board.
Ongoing Director training and development
We understand the importance of an ongoing training programme
for Directors to enable them to fully understand the Group’s
business and operations in the context of the rapidly developing
environment in which it operates. The Chair continues to review 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 Directors
are able to meet individually with senior management if necessary.
Focus trends and areas in 2019 included audit reform and
environmental, social and governance (ESG) considerations, as well
as cybersecurity developments. Directors are also encouraged to
attend external training events to update their skills and knowledge.
Board meetings continue to be held at IHG hotels around the world
to provide first-hand experience of our different brands. We believe
that this opportunity to meet our workforce, suppliers and owners
across the business broadens the Board’s understanding of the
markets in which we operate. In 2019, Board members attended
Board and Committee meetings at the InterContinental® London
Park Lane and the Kimpton Fitzroy Hotel London in the UK, the
Barclay InterContinental Hotel in New York, USA as well as meetings
at the Group’s head offices in Denham, UK. Directors are also
encouraged to continue to visit hotels across our brands on an
informal basis.
The review’s findings and recommendations were reported to and
discussed by the Board and its Committees in December 2019.
Overall, the review concluded that the Board is well-led and operates
effectively to high standards of professionalism. It found that the
Board Committees are well integrated into the Board decision-
making process and that the relationship between the Executive and
Non-Executive Directors is constructive. The Nomination Committee
is also effectively overseeing Board composition and succession.
The review identified some areas where changes could appropriately
be made and the Board agreed to take the actions outlined on the
following page, recognising the benefits of continuous
improvement:
A tailored induction plan was prepared for Arthur de Haast in
advance of his appointment to the Board from 1 January 2020.
This includes:
• Information on the Group’s purpose, culture, values and strategy,
including its business model, brands and the markets in which
it operates;
• An overview of how the Group generates value for its shareholders,
has regard for its stakeholders and the environment and how it
contributes to wider society;
• Our approach to internal controls and our risk management
strategy;
• Information on the Board, its Committees and IHG’s governance
processes, with a particular focus on the Remuneration and
Corporate Responsibility Committees in light of Arthur’s
appointment to these Committees;
• A reminder of the rules relating to maintaining the confidentiality
of inside information and restrictions in dealing in IHG shares,
together with a briefing on the policies and procedures IHG has
in place to ensure compliance with such rules;
• Meetings with members of the Board and the Executive
Committee, senior management from functions across the Group,
the external Auditor and other key external advisors; and
• Visits to IHG hotels across our brands, meeting owners and
spending time with our General Managers.
Board effectiveness evaluation
External evaluation
Following an internal evaluation in 2018, in 2019 the Board undertook
a full external evaluation. The Nomination Committee considered
proposals for the conduct of the evaluation and recommended to
the Board that the evaluation be carried out by Mr. Christopher Saul
of Christopher Saul Associates. As Mr. Saul and the Chair both serve
as Board members of The Leverhulme Trust, the Chair excluded
himself from the decision to appoint Mr. Saul, who has no other
connection with the Company or the Directors.
Mr. Saul met with the Chair and the Company Secretary to devise a
detailed evaluation process, which comprised:
• Reviewing the Terms of Reference for the Board and each of its
Committees, minutes of Board and Committee meetings for the
previous two years, various Board papers and notes from the
Chair’s discussions with large shareholders;
• Individual face-to-face interviews with each Board member,
covering Board dynamics and culture; Board focus and discussion;
Board processes; Board engagement with management,
performance and strategy and areas for improvement;
• Face-to-face interviews with the General Counsel and Company
Secretary and other members of the Executive Committee and
senior risk, finance and HR management, as well as key external
advisers (including the external audit partner); and
• Attendance at, and observation of, Board and Committee meetings
held in October 2019.
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IHG | Annual Report and Form 20-F 2019
Area for focus
Actions agreed
Board processes, dynamics and
engagement with management:
• revising the cadence of meetings
over the year and re-shaping the
meeting agendas to allow (i) for
extended discussion of key
strategic and operational initiatives
and (ii) the CEO to engage more
with Non-Executive Directors.
• further enhancing and streamlining
the information provided to the
Board to include more forward-
looking information.
Board Committees:
• revising the Terms of Reference
of the Committees to avoid the
overlap in remit, particularly around
Diversity and Inclusion and Voice of
the Employee.
• refreshing the approach to agenda
items for Audit Committee
meetings, given the broad scope
of its remit.
The number of Board meetings for 2020 will be reduced from seven to six face-to-face meetings (with more time
allowed for each meeting), and two CEO Board update calls focusing on operational and performance matters will
be added.
The balance between time spent on updating the Board and discussion items will be reviewed to ensure that there is
continued appropriate distribution between providing the Board with essential information and allowing time for
Board in-depth discussion and debate.
More time will be allocated for the CEO to meet alone with Non-Executive Directors in an informal environment outside
the full Board meeting, in addition to the private sessions with the CEO on the agenda.
The information pack provided to the Board in advance of meetings will be reviewed and revised as appropriate to
ensure there is sufficient key trend data and balance between performance to date and forward-looking information.
The Directors will continue to suggest agenda items for deeper dive consideration and the Chair and Company
Secretary will continue to set the agenda to ensure that sufficient time is dedicated to key strategic and operational
projects and priorities and the meeting cadence allows for appropriate discussion.
The Terms of Reference of the Nomination and Corporate Responsibility Committees have been amended so that from
1 March 2020, the Nomination Committee will continue to lead the process for Board composition, appointments and
succession planning, while the Corporate Responsibility Committee (which is to be renamed the Responsible Business
Committee) shall assume responsibility for overseeing the Group’s Diversity and Inclusion agenda and the Board’s
engagement with the Group’s workforce.
The Audit Committee agendas will be evaluated to ensure that the pre-read information pack and agenda items allow
for an improved balance between areas for discussion and regular routine updates.
Directors’ performance evaluation
In addition to the external Board evaluation process outlined above,
internal performance evaluations of Directors were undertaken
during 2019 in order to enhance the accountability and
effectiveness of each Director. Feedback was collected for each
Director’s peer review by the Chair and the SID through an interview
format, combining structured interview questions and a more
open-ended discussion. Board members were asked to provide
comments on their fellow Directors’ preparedness, contribution,
strengths and weaknesses, industry and company understanding
and opportunity for development.
The summary of the feedback was reviewed by the Chair and the SID
before being communicated to each Director.
The assessment of the performance of the Chair was led by the SID.
The Chair’s evaluation consisted of interviews with the Non-
Executive Directors, together with feedback provided by Mr. Saul as
part of the external evaluation detailed above. The evaluation
focused on:
• The relationship between the CEO and Chair;
• Board succession;
• Board culture and the Chair’s ability to promote and maintain an
open, transparent and constructive atmosphere, encouraging
co-operation and communication;
• Managing the Board in accordance with high standards of
corporate governance; and
• The effectiveness of the analysis and action taken from the results
of last year’s evaluation.
The CEO evaluation was led by the Chair in a process involving all
Directors by means of a structured interview process. Key areas of
focus included:
• IHG’s performance;
• Effectiveness in developing and implementing strategy, talent
and culture;
• Effectiveness in shaping IHG’s reputation and relationships with
key stakeholders;
• Value stewardship;
• Leadership of the Executive Committee; and
• Areas for further development.
The length of tenure of Non-Executive Directors continues to be
reviewed as part of the Directors’ performance evaluation process.
Dale Morrison and Luke Mayhew have served on the Board for more
than eight years, and accordingly they were subject to particular
review. It was concluded that each Director continues to contribute
effectively and to demonstrate commitment to the role including
devoting the necessary time. Given the tenure of some Directors, it
was noted that succession planning would be a particular focus area
for the Board and the Nomination Committee in 2020.
Directors’ additional appointments and time commitments also form
part of the internal performance evaluation process. Any potential
additional appointments are thoroughly discussed with the Chair
before being accepted, with the time commitment required for each
role being carefully assessed. During 2019, particular consideration
was given to Jill McDonald and Malina Ngai’s commitments in light of
their appointments to new roles. It was concluded that their
additional appointments should not adversely impact their
performance, but should enhance their ability to provide
constructive challenge and strategic guidance.
IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance
87
Key duties and role of the CommitteeKey objectives and summary of responsibilitiesThe Audit Committee is responsible for ensuring that IHG maintains a strong control environment. It monitors the integrity of IHG’s financial reporting, including significant financial reporting judgements, maintains oversight and reviews our systems of internal control and risk management, monitors and reviews the effectiveness and performance of internal and external audit functions, as well as reviewing the behaviours expected of IHG’s employees through the Code of Conduct and related policies. The Committee’s role, responsibilities and authority delegated to it by the Board 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.The Committee’s key responsibilities and focus over the year have been:• Regular reviews of the Group’s information security risks and controls, including review and recommending to the Board for approval of the Group’s Information Security Governance Policy;• Reviewing, challenging and ensuring accurate financial and narrative reporting, including reviewing the Annual Report and Form 20-F and assessing the Group’s approach to accounting for acquisitions, System Fund accounting as well as the implementation of the IFRS 16 standard;• Reviewing and assessing the robustness of the Group’s internal control and risk management systems and reviews of specific principal risk areas including the approach to strategic supplier management, System Fund accounting, and hotel safety and security;• Overseeing the relationship with and appraisal of the Group’s external Auditor, including regular analysis of audit and non-audit services;• Overseeing the external audit tender process; and• Monitoring and reviewing the role of Internal Audit.Membership and attendance at meetingsDetails of the Committee’s membership and attendance at meetings are set out on page 79. The CFO, Group Financial Controller, Head of Risk and Assurance and our external Auditor, Ernst & Young LLP (EY), attended all meetings in 2019. Other attendees are invited to meetings as appropriate; and the CEO and all other Directors attended Committee meetings where the principal risks and risk management systems and the approval of financial reporting were considered and discussed. The Committee continues to hold private sessions with the internal and external Auditors without the presence of management to ensure that a culture of transparency is maintained. The Committee Chair 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. Further details of the skills and experience of the Board can be found on pages 80 to 81.Reporting to the BoardFollowing each Committee meeting, the Committee Chair updates the Board on 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 CommitteeThe effectiveness of the Committee is monitored and assessed regularly by the Chair of the Committee and the Chair of the Board. During 2019, the Committee was also reviewed as part of the external Board evaluation process where it was concluded that the Committee remains effective (see page 86). As Chair, given the broad scope of the Committee’s remit, I will continue to monitor the balance between areas for discussion and regular routine updates.Focus areas and activitiesFinancial and narrative reportingDuring 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, key judgement areas, acquisition accounting, the going concern and viability statements) and the Group’s quarterly trading updates. All members of the Board are asked to attend these meetings.The Committee recognises the importance of understanding changes in accounting policies and practice, and continues to receive an annual update from EY on key changes in this area. In 2019, the Committee continued its review of the implementation of IFRS 16 ‘Leases’ and reviewed and recommended approval of the restatement of the 2018 Financial Statements for its adoption.The Committee continued to seek input and guidance from the external Auditor where appropriate to gain further assurance over the process of preparation of the Financial Statements. In addition, the Committee received regular reports from the Chair of the Disclosure Committee and copies of all minutes of that Committee were circulated to the Committee. The Committee received early drafts of the Annual Report and Form 20-F 2019 (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 employees in the Operations, Strategy, Human Resources, Finance, Risk and Assurance and Legal teams; (ii) a report from the Chair of the Disclosure Committee; and (iii) the checklist prepared by the Annual Report team confirming compliance with the relevant regulatory requirements. The Committee also considered management’s analysis of how the content taken as a whole, was ‘fair, balanced and understandable’, 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 and 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. The Committee specifically considered the Non-GAAP measures which have been enhanced to improve both the clarity of the descriptions and the explanation of the usefulness of the measures to different stakeholder groups.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.Corporate Governance continuedAudit Committee Report88IHG | Annual Report and Form 20-F 2019Governance During the year, the Group was selected by the Financial Reporting
Council (FRC) for inclusion in a thematic review of companies’
disclosures following the first full year of adoption of IFRS 15
‘Revenue from Contracts with Customers’. Following completion of
the FRC enquiries, we have provided additional disclosures in
this Annual Report and Form 20-F relating to the accounting policy
for technology fee income and the judgements involved in the
accounting for the System Fund.
Significant matters in the 2019 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/Actions taken
Accounting
for IHG
Rewards Club
Accounting for IHG Rewards Club requires
significant use of estimation techniques
and represents a material deferred revenue
balance. Accordingly, the Committee
reviews the controls, judgements and
estimates related to accounting for the IHG
Rewards Club programme.
Accounting
for the
System Fund
Given the unique nature of the System
Fund, the Committee reviews the controls
and processes related to System Fund
accounting.
Impairment
testing
Impairment reviews require significant
judgement in estimating recoverable
values of assets or cash-generating units
and the Committee therefore scrutinises
the methodologies applied and the
inherent sensitivities in determining any
potential asset impairment and the
adequacy of the related disclosures.
Litigation and
contingencies
Exceptional
items
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 and considers the
adequacy of the disclosure.
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.
Acquisition of
Six Senses
Acquisition accounting involves
judgement in establishing the fair values of
the assets and liabilities acquired. The
Committee reviews the accounting and
challenges the appropriateness of the
inputs and judgements to these valuations.
In forming a conclusion on the appropriateness of the accounting for the IHG Rewards Club
programme, the Committee reviewed the deferred revenue balance and questioned the
valuation approach, the results of the external actuarial review and procedures completed, to
determine the breakage assumption for outstanding IHG Rewards Club points. The Committee
concluded that the deferred revenue balance is appropriately stated.
In forming a conclusion on the appropriateness of the System Fund accounting, the Committee
met with senior finance management to review and evaluate the risk areas associated with the
System Fund. The Committee reviewed a paper from management outlining the financial
oversight of the System Fund, the principles determining the allocation of revenues and
expenses to the System Fund, and the related internal control environment. The Committee
concluded that the accounting treatment of the System Fund, and related disclosures, were
appropriate.
The Committee reviewed a management report outlining the approach taken on impairment
testing and key assumptions and sensitivities supporting the conclusion on the various asset
categories. The Committee examined the assumptions related to non-current assets, assets
previously impaired, and the assets acquired as part of the Kimpton and UK portfolio
transactions in 2015 and 2018 respectively. The impairments (see pages 139 and 140, and note
13 on page 168), recorded in the year for the Kimpton management agreements ($50m), the UK
portfolio goodwill ($49m) and IFRS 16 right-of-use asset ($32m) and the related fair value
adjustment to contingent purchase consideration ($38m) were discussed in detail. The
Committee concluded that it agreed with the determinations reached on impairment, and the
related change in the fair value of the UK portfolio contingent purchase consideration, the
classification of these as exceptional items and that the related disclosures were appropriate.
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 based on the factors set out on page 236. The Committee reviewed the need for,
and the amount of, a provision in respect of a lawsuit filed against the Group in the Americas
region, and the cost of an arbitration award in the EMEAA region, and the classification of these
as exceptional items.
The Committee reviewed papers prepared by management and considered the consistency
of treatment and nature of items classified as exceptional. The Committee reviewed and
challenged the significance, timing and nature of the exceptional items disclosed in note 6,
comprising reorganisation costs, acquisition and integration costs primarily relating to Six
Senses, impairment, fair value adjustments to contingent purchase consideration and litigation.
The Committee concluded that the disclosures and the treatment of the items shown as
exceptional were appropriate.
The Committee considered the work done to establish the fair value of the assets acquired. The
Committee questioned the assumptions underlying the significant assets recognised and took
into consideration a report from a third-party valuation expert. The Committee concluded that
the fair values recognised were appropriate.
Adoption of
IFRS 16
IFRS 16 ‘Leases’ was adopted from 1
January 2019. Accordingly, the Committee
reviewed the accounting, considered the
adequacy of the disclosure and the related
processes and controls.
Having previously reviewed the accounting under IFRS 16 in 2018, the Committee considered
the work done to restate the 2018 results, the application of IFRS 16 and related disclosures in
the Annual Report and Form 20-F 2019 and the refreshed internal control environment. The
Committee concluded that the impact of the adoption of IFRS 16 on the financial statements
was appropriate.
Internal control and risk management
The Board is responsible for establishing procedures to manage risk,
overseeing the internal control framework and determining the
nature and extent of the principal risks the Company is willing to take
to achieve its long-term objectives. The Committee supports the
Board by reviewing the effectiveness of the Group’s internal control
and risk management systems and assessing emerging and
principal risks.
In order to effectively review the internal control and risk
management systems, the Committee:
• Receives regular reports from management, Risk and Assurance
and the external Auditor on the effectiveness of the systems for
risk management and internal control, including financial,
operational and compliance controls.
IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance
89
Governance
Corporate Governance continued
Audit Committee Report continued
• Reviews the process by which risks are identified (including
procedures in place to identify emerging risks) and assesses the
timeliness and effectiveness of corrective action taken by
management, including regular reports and presentations on the
Company’s overall internal control, risk management system and
principal risks.
• Receives additional reports throughout the year relevant to internal
control and risk management, both financial and non-financial, to
ensure that current and emerging risks are identified, assessed and
appropriately managed (see pages 47 to 53 for further detail on our
risks and initiatives to manage them).
As part of the Committee’s review of the internal control and risk
management systems, key financial, operational and compliance
controls across the business continue to be 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 policies annually and, during 2019
approved minor changes to the Group Treasury Policy and the
Group’s published ‘Approach to Tax’.
Our Approach to Tax document is available at
www.ihgplc.com/responsible-business
Having reviewed the internal control and risk management systems
throughout the year, the Committee concluded that the Group
continues to have an effective system of risk management and
internal controls, and that there are no material weaknesses in the
control environment and no significant failings or weaknesses.
Principal risk areas
The Committee’s agenda complements those of other committees
and it schedules reviews of specific risk areas not covered
elsewhere, in addition to the regular risk management review.
During 2019, the Committee considered the following areas:
• Information security and privacy continued to be key areas of
focus for the Committee during the year.
• Ethical and social considerations, as stakeholder and societal
expectations and regulatory requirements in these areas
develop rapidly.
• Financial management and controls, including ongoing
improvements to the framework for internal control at the
managed and owned, leased and managed lease hotel level.
• Risk management and internal control arrangements for key
reservations-related outsourced processes and general oversight
of our strategic supplier relationships.
• Reports from management on preparation for Brexit scenarios.
Further details of our principal risks, uncertainties and review
process can be found on pages 47 to 53.
Relationship with external auditor
A detailed audit plan was received from EY at the beginning of the
audit cycle for the 2019 financial year, which gave an overview of
their approach to the audit, outlining the significant risk areas and
in particular the approach to materiality and scoping of the audit.
The Committee regularly reviewed the significant audit risks and
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 minor changes were approved in 2019.
90
IHG | Annual Report and Form 20-F 2019
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 without any de
minimis threshold. The Committee reviewed the audit and non-audit
fees incurred with EY on a quarterly basis during 2019. Following
these reviews, the Committee noted that 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 cognisant of investor advisory bodies’ guidelines
on non-audit fees. During 2019, 21% of services provided to the
Group were non-audit services (2018: 21%), primarily related to SOC
Reports. Details of the fees paid to EY for non-audit work during
2019, and for statutory audit work during 2019 can be found on
page 157. 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 being compromised. The
Committee notes the revised FRC Ethical and Accounting Standards
issued in December 2019, effective March 2020, and will incorporate
any changes required in the next review of IHG’s Audit and Non-
Audit Services Pre-Approval Policy.
Risk and Assurance – Internal Audit
The Committee discusses the Internal Audit annual plan in December
each year, which aims to provide objective and insightful assurance
that our growth ambitions are delivered in a responsible and
controlled manner. The 2020 plan presented to the Committee
included a balanced portfolio of internal audit activities to focus on
key assurance objectives and themes, for example new ways of
working between centralised functions and front-line teams; data
integrity controls over financial and non-financial metrics; and
programme delivery and benefits realisation controls. Following
consideration, the Committee confirmed its agreement to the 2020
Internal Audit plan, including the key control themes identified.
Progress against the Internal Audit plan is reported to the Committee
at each meeting and is actively monitored by the Committee. 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.
A functional effectiveness review of Internal Audit is undertaken
each year and reported to the Committee. Internal Audit has again
undertaken an internal assessment using feedback from auditees and
senior leadership. This highlighted positive feedback on the support
provided to key programmes and outsourcing decisions in 2019,
alignment with Global Institute of Internal Audit standards, and
identified opportunities for continuous improvement in 2020.
Governance and compliance
The Committee is responsible for reviewing the Group’s Code
of Conduct (which is reviewed and approved annually) and
related policies.
Looking forward
During 2020, the Committee will focus on preparation for the orderly
transition of audit services to PwC and maintaining oversight of the
Group’s control environment.
Ian Dyson
Chair of the Audit Committee
17 February 2020
External auditor – Re-appointment of Ernst & Young LLP (EY)
The Committee assessed EY’s performance during the year,
including its independence, effectiveness and objectivity, and
considered the appointment of its external Auditor, including the
requirements for putting the audit out to tender as set out in EU
and Competition and Markets Authority legislation. After due
consideration, 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.
As part of its annual review, the Committee determines the
independence of the external auditor, considering, 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 90.
• Due diligence activities conducted as part of the tender
process included:
– Consideration of the Competition and Market Authority’s
review of the effectiveness of competition in the audit market
and Sir John Kingman’s independent review of the FRC;
– A review of audit quality reports on the firms issued by the
FRC and the Public Company Accounting Oversight Board;
– Each firm completed an independence return, which were
reviewed to assess consistency with the Company’s own
assessment; and
– Reference checks with comparable companies were
completed.
• Written proposals were received in June 2019 and the
participating firms presented their proposals to the sub-
committee in July 2019.
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 2019. Another audit partner, Colin
Brown, rotated following completion of the 2018 audit and is
replaced for 2019 by Helen McLeod-Jones.
The Committee also considered the effectiveness of the
relationship between EY and management as part of the annual
review process. This included the completion of feedback
questionnaires by the Committee members and 46 senior
IHG employees. Feedback was requested on a number of
topics including independence, assignment management
and communication. The Committee also received reports
from EY on its independence.
No significant issues were raised in the annual 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.
Audit tender
In accordance with regulations mandating a tender for the 2021
financial year, the Group conducted an audit contract tender in
2019. A sub-committee, including members of the Audit
Committee, was established to manage and govern the audit
tender process and was accountable to the Audit Committee,
which maintained overall ownership of the tender process and
ensured that it was run in a fair and balanced manner. The
sub-committee was supported by a project team, led by the
Group Financial Controller. A summary of the timeline and key
activities carried out during the tender process is set out below:
• The request for proposal was issued to firms in May 2019.
A data room was established to provide the firms with sufficient
information to be able to establish an audit plan. A Q&A process
was also set up through a centralised mailbox, allowing the firms
to ask questions on the content of the data room or request
further information.
• The audit firms participated in a series of meetings with
management, which provided a forum for the firms to ask
questions arising from their review of the data room, as well as
enabling management to interact directly with each proposed
audit team.
• Each firm met with the Chair of the Audit Committee.
The principal evaluation criteria used to assess the firms were:
• Audit Quality, including the firm’s internal and external audit
inspection results, the ongoing work in respect of quality being
undertaken by the firm, how the firm will execute group
oversight in areas of significant risk, and how the firm will
challenge management; and
• Experience and Capability of each firm to address IHG’s
structure and its areas of uniqueness.
Following a detailed review of the performance of each firm and
an evaluation against all of the criteria, the sub-committee
recommended Pricewaterhouse Coopers LLP (PwC) as its
preferred candidate. The factors contributing to the selection of
PwC as the preferred candidate included its understanding of the
complexities specific to IHG including IHG Rewards Club and the
impact of a shared service centre structure on the audit; external
quality ratings across the past six years, and the firm’s response to
quality findings; internal quality ratings for the proposed team;
clear insight into IHG’s control environment; and a robust
approach to the audit of IT.
In accordance with statutory requirements, a report on the tender
selection procedure and conclusions was prepared and validated
by the Audit Committee. The Audit Committee and subsequently
the Board approved the recommendation to appoint PwC. In
August 2019, the Company announced the Board’s intention to
propose to shareholders at the 2021 AGM that PwC be appointed
as the Company’s statutory auditor for the financial year ending
31 December 2021.
EY will remain the Group’s auditor for the financial year ending
31 December 2020. Over the intervening period PwC and IHG will
run the transition process. The principal activities completed so
far include reviewing non-audit services provided to the Group
and taking appropriate steps to achieve audit independence
during the first half of 2020.
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.
See page 232 for further disclosure under Item 16F of Form 20-F.
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91
Key duties and role of the CommitteeKey objectives and summary of responsibilitiesThe Committee reviews and advises the Board on the Group’s corporate responsibility objectives and strategy, including its impact on the environment, social, community and human rights issues, its approach to sustainable development, and stakeholder engagement in relation to the Group’s approach to responsible business.The Committee’s role, responsibilities and authority delegated to it by the Board 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.The Committee’s key responsibilities and focus areas over the year have been:• Considering the Group’s Corporate Responsibility Strategy, given developments in environmental, social and governance (ESG) considerations and the need to look beyond the Group’s 2018-2020 targets;• Monitoring the delivery of the Responsible Business targets for the year, with a focus on the Group’s environmental, community and diversity targets;• Reviewing the Group’s approach to responsible business in the supply chain, including supplier audits and the Supplier Code of Conduct; • Reviewing the Group’s Human Rights programme and approving the Human Rights Policy; and• Overseeing responsible business stakeholder engagement.From March 2020, the Committee will also be renamed the ‘Responsible Business Committee’.Membership and attendance at meetingsThe Committee’s membership and attendance at meetings are set out on page 79. The Head of Corporate Responsibility and the Chair of the Board attended all meetings held during the year. Reporting to the BoardThe Committee Chair 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 CommitteeThe effectiveness of the Committee is monitored and assessed regularly by the Chair of the Committee and the Chair of the Board. During 2019, the Committee was also reviewed as part of the external Board evaluation process, where it was concluded that the Committee remains effective (see page 86).Focus areas and activitiesResponsible Business targetsDuring 2019, the Committee assessed progress against the Responsible Business targets for 2018-2020.The Committee discussed the Group’s diversity and inclusion initiatives, including the work of the D&I Board, with the Chief Human Resources Officer. The Chief Procurement Officer provided an update to the Committee on the Group’s approach to responsible procurement, including progress on supplier audits, and the Committee endorsed the initiatives proposed for 2020 which include supply chain diversity and value chain mapping.Approach to corporate responsibilityIn 2019, the Committee regularly reviewed and considered the Group’s approach to corporate responsibility and its post-2020 responsible business ambitions. The Committee endorsed new sustainability commitments for the Group including setting stretching science-based targets, plans to meet the requirements of the Task Force on Climate-related Financial Disclosures (TCFD) and commitment to the CEO Water Mandate.The Committee also endorsed management’s establishment of a Responsible Business Governance Committee, comprising senior executives.Community and human rights issuesThe Committee throughout the year continued to evaluate the Group’s support to communities across the globe through the ‘True Hospitality for Good’ programme, which is funded by a $1 million annual commitment from the business to support community impact projects. In 2019, the Group launched a new partnership with Junior Achievement Worldwide to open doors to young people in nine markets through their ‘IHG First Look’ work experience days. Community impact is brought to life across the hotel estate through ‘Giving for Good’ month, which took place in September and encouraged fundraising and volunteering for our colleagues with nearly 160,000 participating in 2019. The Committee reviewed and considered the proposed approach to the Group’s human rights programme, following completion of a human rights impact assessment. The Committee endorsed the programme, which focuses on human trafficking training and embedding the ITP Forced Labour Principles. The Committee also approved an updated Human Rights policy. The Group’s Modern Slavery Statement was also reviewed and recommended for approval to the Board.Stakeholder engagementThe Committee assessed the Group’s stakeholder engagement activity, including our partnerships with NGOs and community partnerships. Committee members engaged with shareholders, including on environmental, social and governance matters. Information on our responsible business commitments can be found at www.ihgplc.com/responsible-businessRecognising the importance of corporate responsibility, we were pleased to be listed again on the S&P Dow Jones Sustainability Indices.Looking forwardIn February 2020, the Board approved the expansion of the Committee’s remit to include overseeing the Board’s workforce engagement (an overview of which is set out on pages 32 and 33) and the Group’s diversity and inclusion agenda (set out on pages 30 and 31). Accordingly in 2020, the Committee will focus on the activities in these areas as well as supporting the creation of our post-2020 responsible business strategy and ambition, taking into account the importance of environmental, social and governance considerations to all our stakeholders and the importance of ensuring responsible business is core to our broader strategy.Jill McDonaldChair of the Corporate Responsibility Committee17 February 2020 Corporate Governance continuedCorporate Responsibility Committee Report92IHG | Annual Report and Form 20-F 2019Governance Key duties and role of the CommitteeKey objectives and summary of responsibilitiesThe Committee reviews the composition of the Board and its Principal Committees, evaluating the balance of skills, experience, independence, knowledge and diversity requirements before making appropriate recommendations to the Board as to any changes. It also ensures plans are in place for orderly succession for both Directors and other Senior Executives and is responsible for reviewing the Group’s senior leadership needs.The Committee’s role, responsibilities and authority delegated to it by the Board are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. During 2019, the composition of the Committee was reviewed and adjusted to comprise one member of each of the Board Committees as well as the Senior Independent Non-Executive Director, to allow for more focused discussion on Board composition and succession. The Committee’s key responsibilities and focus areas during the year have been:• Board and Committee composition and recommendations on appointments to the Board;• Leadership development and succession planning including evaluating gender balance; • Board engagement with the workforce; • Overseeing the performance evaluation of the Board, its Committees and individual Directors; and• Monitoring development in all matters relating to Corporate Governance.Membership and attendance at meetingsThe Committee’s membership and attendance at meetings are available on page 79. All members of the Committee are Non-Executive Directors. When the Committee considers matters relating to my position, Dale Morrison, the Senior Independent Non-Executive Director, acts as Committee Chair.Reporting to the BoardThe Committee makes recommendations to the Board for all Board appointments. Minutes are circulated to Board members and I report back to the Board on the activities of the Committee following each meeting.Effectiveness of the Committee and External EvaluationDuring 2019, the Committee was reviewed as part of the external Board evaluation process. Details of the external evaluation, including how it was conducted, the nature and extent of the evaluator’s contact with the Board and the actions arising from the evaluation, are set out on pages 86 to 87. The evaluation concluded that the Committee remains effective.Focus areas and activitiesBoard and Committee compositionThe Committee continued to review the current and future composition of the Board and Committees, particularly in light of the Group’s focus on accelerated growth. Having reviewed the skills, experience and knowledge of the Board, and taking into account progressive refreshing of the Board, the Committee determined that additional expertise in the hotels and hospitality sectors would be beneficial, and recommended the appointment of Arthur de Haast as a Non-Executive Director, with effect from 1 January 2020. An external search consultancy was not used in relation to this appointment. Arthur’s biography is set out on page 81, and details of Arthur’s induction plan can be found on page 86.Leadership development and executive succession planningDuring the year, the Committee continued to review the development plans for the Executive Committee and succession plans for senior management positions in order to ensure the development of a diverse pipeline for succession.Board engagement with the workforceDuring 2019, the Committee reviewed a proposal for the Board’s engagement with employees, concluding that the most effective approach would be to designate a Non-Executive Director as having responsibility for employee engagement. Luke Mayhew was appointed to the role in August 2019. Luke’s role is to work with Executive Directors and the Company Secretary to coordinate Board activities and interests in relation to employees, including undertaking a detailed review of employee engagement reporting, gaining a greater insight into the culture of the Company and ensuring robust methods of receiving feedback and communicating with employees are established. An outline of Luke’s activities during 2019 is given on pages 32 and 33.Diversity & Inclusion/Gender BalanceWe recognise that diversity and inclusion is essential, across all levels of our business. All appointments are based on merit, experience and performance and the Board actively seeks diversity of skills, gender, social and ethnic backgrounds, cognitive and personal strengths. Our Global Diversity and Inclusion Policy (D&I Policy) applies to all people employed by IHG 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. During 2019, the Committee reviewed and discussed our commitments, the progress made and the work of the D&I Board (see pages 30 and 31).We continue to deliver against our D&I Policy and are committed to our 2018-2020 Responsible Business Diversity target, as noted on page 31. As of 31 December 2019, 36% of the Board were female and two of our Principal Committees are chaired by women. In addition, 37% of senior operational leaders are now women, indicating our continued commitment to diversity at all levels of our business. Going forward, the Corporate Responsibility Committee (to be renamed the Responsible Business Committee) will assume responsibility for the Group’s diversity and inclusion agenda.Looking forwardIn 2020, the Committee will continue to ensure 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 CescauChair of the Nomination Committee 17 February 2020Nomination Committee Report93IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance Governance
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 2018 UK Corporate
Governance Code (available at www.frc.org.uk/directors under UK
Corporate Governance Code) as published in July 2018 (the Code).
This should be read in conjunction with the Strategic Report on
pages 2 to 75, Corporate Governance on pages 76 to 93,
the Directors’ Remuneration Report on pages 96 to 109, and
Directors’ Remuneration Policy on pages 110 to 117, as a whole.
The Board considers that the Group has complied in all material
respects with the Code for the year ended 31 December 2019.
1. Board Leadership and Company Purpose
A. The role of the Board
E. Workforce Policies and Practices
The Board continues to lead IHG’s strategic direction, long-term
objectives and success of the Group. Further responsibilities of
the Board are set out on page 79.
The Board met seven times during 2019 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 2019 Board meetings, including information on the
Board’s assessment of strategic and operational matters, are set
out on pages 84 and 85, attendance information on page 79,
skills and experience and biographical information on
pages 80 and 81.
A description of IHG’s business model is set out on pages 10 to
13. An assessment of the principal risks facing the Group is
included on pages 47 to 53.
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.
During the year, if any Director has unresolved concerns about
the operation of the Board or the management of the Company,
these would be recorded in the minutes of the meeting.
B. The Company’s purpose, values and strategy
Our purpose is to provide True Hospitality for everyone.
A description of IHG’s culture is included on pages 24 to 27
and an overview of our values is on page 26. Culture features
prominently on the Board agenda and a summary of the Board’s
activities in relation to the ‘Voice of the Employee’ is included on
pages 32 to 33. An outline of the Group’s approach to rewarding
its workforce is contained on page 28.
C. Resources
The Board delegates oversight of the allocation of day-to-day
resources to management (principally through the Executive
Committee).
Information on the Group’s Key performance indicators,
including the measures used to monitor them, are included on
pages 42 to 45.
A summary of the framework of controls which enable risk to be
assessed and managed is set out on page 46.
D. Shareholders and Stakeholders
The Board engaged actively throughout 2019 with shareholders
and other stakeholders. The Chair hosted a number of one-to-
one meetings with major institutional shareholders to promote
mutual understanding of objectives, following which the Chair
ensured that their views were communicated to the Board as a
whole. The Chair of the Remuneration Committee also held a
series of investor consultation meetings to seek investors’ input
on the proposed Directors’ Remuneration Policy.
Further details of the Board’s engagement with shareholders
can be found on pages 36 and 37. Information on the Board’s
engagement with other stakeholders, including suppliers, hotel
owners and guests is included on pages 38 to 40.
The Board has overarching responsibility for the Group’s
workforce policies and practices and delegates day-to-day
responsibility to the CEO and Chief Human Resources Officer to
ensure that they are consistent with the Company’s values and
support its long-term success.
Employees are able to report matters of concern confidentially
through our Confidential Disclosure Channel. The Board
routinely reviews reports generated from the disclosures and
ensures that arrangements are in place for investigation and
follow-up action as appropriate.
2. Division of Responsibilities
F. The Chair
Patrick Cescau leads the operation and governance of the
Board and its Committees. The Chair has been in post for seven
years and was independent on appointment. See page 80 for
more details.
G. Board Composition
The size and composition of the Board and its Committees is
kept under review by the Nomination Committee to ensure the
appropriate combination of Executive and Non-Executive
Directors. Details of the responsibilities, skills and experience on
the Board can be found on pages 80 and 81.
At least half of the Board, excluding the Chair, are Independent
Non-Executive Directors. Further details of the composition of
the Board and Committees are available on pages 79 to 81.
H. Non-executives
Non-Executive Director terms of appointment outline IHG’s time
commitment expectations required to fulfil their role. The
commitments of each Director are included in the Directors’
biographical details on pages 80 and 81. Details of Non-
Executive Director appointment terms are set out on page 117.
The Chair annually reviews the time each Non-Executive
Director dedicates to IHG as part of the internal performance
evaluation of each Director (see page 87) and is satisfied that
their other duties and time commitments do not conflict with
those as Directors.
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 Chair, Chief
Executive Officer and other Executive Directors. He also leads
the annual performance review of the Chair with the other
Non-Executive Directors (see page 87), and as necessary,
provides advice and judgement to the Chair, and serves as an
intermediary for other Directors when necessary.
After each Board meeting, Non-Executive Directors and the
Chair meet without Executive Directors being present
(see page 84).
94
IHG | Annual Report and Form 20-F 2019
I.
Policies, Processes, Information and Resources
The Chair and Company Secretary ensure that the Board and its
Committees have the necessary policies and processes in place
and that they receive timely, accurate and clear information.
The Board and its Committees also have access to the
Company Secretary, independent advice and other necessary
resources, at the Company’s expense. They receive
administrative and logistical support of a full-time executive
assistant. See page 84 for more details.
3. Composition, Success and Evaluation
J. Appointments
Appointments to the Board are led by the Nomination
Committee in accordance with its Terms of Reference
(available on our website at www.ihgplc.com/investors under
Corporate governance or from the Company Secretary’s office
on request). The Nomination Committee also supports the
Board in succession planning for the Board and senior
management. Further details of the role of the Nomination
Committee and what it did in 2019 are in the Nomination
Committee Report on page 93. The overall process of
appointment and removal of Directors is overseen by the
Board as a whole.
All of the Directors retire and seek election or re-election at
each AGM.
K. Skills
Details of the skills, experience and biographical information of
the Board are set out on pages 80 and 81.
The Chair and Company Secretary ensure that new Directors
receive a full induction and that all Directors continually update
their skills and have the requisite knowledge and familiarity with
the Group to fulfil their role (see page 86).
The length of service of Directors is reviewed regularly, details
of the review in 2019 are included on page 87.
L. Annual evaluation
The Board undertakes either an internal or external annual
Board effectiveness evaluation. In 2019, an external Board
evaluation was carried out. A summary of the evaluation is set
out on page 86.
Performance evaluations of all Directors, including the Chair, are
also carried out on an annual basis. Directors’ biographies are
set out on pages 80 to 81 and details of their performance
evaluations are on page 87.
N. Assessment of the company’s position and prospects
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 120.
The status of IHG as a going concern is set out in the
Directors’ Report on page 224. 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 75.
O. Risk management
The Board determines the nature and extent of the principal
risks the organisation is willing to take to achieve its strategic
objectives. A robust assessment of the principal and emerging
risks facing the Group was carried out during the year, including
those risks that would threaten the Group’s business model,
future performance, solvency or liquidity and reputation (see
pages 47 to 53 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 79, 85, and 88 to 91.
5. Remuneration
P. Remuneration policies and practices
The Remuneration Committee is responsible for developing
policy on executive remuneration and determining remuneration
packages of Directors and senior management. The Directors’
Remuneration Report is set out on pages 96 to 117. Details of the
Remuneration Committee’s activities during 2019 are set out on
pages 96 and 97 and its membership details are on page 79.
The Remuneration Committee undertook a detailed review of the
Director’s Remuneration Policy (the DR Policy) in 2018, which
continued in 2019. The revised DR Policy (which is subject to
approval by shareholders at the Company’s 2020 AGM), including
a description of how each element of the DR Policy links to the
Company’s strategy, is set out on pages 110 to 117.
A description of how the Remuneration Committee addressed
factors of the Code when determining the DR Policy is set out
on page 114.
4. Audit, Risk and Internal Control
Q. Procedure for developing policy on executive remuneration
M. Audit functions
The Audit Committee is comprised entirely of Independent
Non-Executive Directors (see page 79 for membership details).
Ian Dyson, the Chair of the Committee has recent and relevant
financial experience and the Committee as 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 88 to 91.
The Audit Committee reviewed the effectiveness and
independence of the Group’s internal audit function and Ernst &
Young LLP during 2019. Details of these reviews are set out in
the Audit Committee report on pages 88 to 91.
In connection with the review of the DR Policy referred to above,
the Chair of the Remuneration Committee held a series of
consultation meetings with major shareholders to seek their
views on the proposed DR Policy. The Remuneration Committee
will consider the DR Policy annually.
During 2019, no individual Director was present when his or her
own remuneration was discussed.
R.
Independent judgement and discretion
The Remuneration Committee has formal discretions in place in
relation to outcomes under the APP and LTIP, and these are
disclosed as part of the Directors’ Remuneration Policy. When
determining outcomes under these plans, the Committee
considers whether it is appropriate to adjust outcomes under
these discretions, taking account of the Group’s performance,
relative performance against competitors, and other relevant
factors. Any use of discretion would be fully disclosed and
explained in the relevant Director’s Remuneration Report.
IHG | Annual Report and Form 20-F 2019 | Governance | Corporate Governance
95
We have updated our Directors’ Remuneration Policy, taking into account our governance and stewardship responsibilities and the views of our major shareholders, to balance the risks and rewards for all of our stakeholders and to continue to support the Company’s strategy for quality growth and returnsOn behalf of the Board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2019. In a year characterised by a softening industry RevPAR environment, our System Size growth has continued to accelerate in line with our aim to reach industry-leading levels, supported by a strong and consistent increase in the pace of openings over the last three years. We have achieved record signings in key markets that will support future growth.Executive Director incentive plan awards reflect our resilient business performance during 2019:• APP award was 58.7% of the capped maximum pay-out, having achieved close to target operating profit from reportable segmentsa (referred to as EBIT in our 2018 and earlier reports), target savings for reinvestment and above target NSSG objectives;• the 2017-19 Long Term Incentive Plan (LTIP) cycle award was 78.9% of maximum as the business continued to deliver strong shareholder returns and exceeded expectations for growth in System Size, Cash Flow and Total Gross Revenue over the three years to 31 December 2019; and• the total average of short and long-term incentive plan awards for the respective period ending 2019 was therefore 68.8% of maximum.2019 was also an important year for the wider workforce as the new Colleague Share Plan was launched.Directors’ Remuneration Policy reviewAs indicated last year, the Committee commenced a detailed review of the Directors’ Remuneration Policy (DR Policy) in 2018. We have consulted extensively with our major shareholders during 2019 to refine proposed areas of change. The key policy changes are summarised in the table after this statement on page 98, as well as in more detail on pages 110 to 117 of the Annual Report. IHG has always had a strong ‘pay for performance’ culture. Our approach to executive remuneration has always been aligned with the interests of shareholders and the UK corporate governance environment. This is reflected in the highly stretching performance targets we set for our APP and LTIP. The total of short and long-term incentive plan awards for Executive Directors have averaged around 60% of maximum for the previous five years. Over the same period our Total Shareholder Returns have been top quartile amongst our key hotel competitors and more than double that of the average of the FTSE 100.IHG is a global business in a global industry driven by US-based global competitors, including Marriott International, Inc., Hilton Worldwide Holdings Inc., Wyndham Hotels & Resorts Inc. and Choice Hotels International Inc. The remuneration structures in the US often drive more significant outcomes, as they are comprised of more elements; the total variable pay for similar performance of a Chief Executive Officer (CEO) at a US-based global hotel group can be three times or more than that of IHG. The quantum difference in US and UK executive pay is not a new phenomenon. IHG’s approach in this environment has always been to attract and retain key talent in its succession plan, as Keith Barr’s appointment to the CEO role in 2017 illustrates.However, the US market is also IHG’s largest source of revenue, and US-based hotel competitors and other US-based global companies are our most important source of talent. The Americas region represents 59.4% of our current System Size and around 50% of our corporate workforce is based in the region. From a long-term risk-management perspective, recruitment and retention of talent in IHG’s succession plan is an increasing challenge. Since the last DR Policy update in 2017, we have seen an intensification of risk as we have lost high-potential talent in our succession plan to competitors and we have seen increased difficulty and subsequent delay in recruiting. The resulting internal pay compression impacts both our high-potential talent and our experienced leaders in key positions and is not sustainable. Over recent months, I have discussed these challenges with a number of our shareholders.To address these increasing risks, we are proposing an increase in maximum LTIP quantum available to Executive Directors for the outperformance of our goals. The aim in doing this is not to materially reduce the gap in remuneration between IHG’s Executive Directors and their US competitor peers, but rather to ensure IHG has a remuneration structure which provides differentiation between the CEO, other Executive Directors, Executive Committee members and high-potential talent in the succession plan.A number of other changes to our DR Policy will further strengthen the alignment with shareholders:• In light of the increased maximum potential LTIP quantum, we will significantly increase the shareholding requirements for Executive Directors.• In line with recommended guidance, we have also extended the potential triggers under which the reduction and/or recovery of awards from Executive Directors may be sought through clawback.• Last year, we introduced a two-year post-vest holding period for Executive Directors under our LTIP and this will now be formally adopted in our DR Policy.Table of Contents96 Directors’ Remuneration Report96 Remuneration Committee Chair’s statement99 At a glance100 Remuneration at IHG – the wider context101 Annual Report on Directors’ Remuneration (subject to an advisory vote at the 2020 AGM)110 Directors’ Remuneration Policy (subject to a binding vote at the 2020 AGM)Directors’ Remuneration ReportRemuneration Committee Chair’s statementa See page 55 for Non-GAAP definitions.96IHG | Annual Report and Form 20-F 2019Governance • In 2018, in advance of such a requirement becoming a part of the
Corporate Governance Code, we introduced a post-employment
shareholding requirement. The full guideline employment
shareholding requirements will apply for six months following
cessation of employment, and 50% of the requirements for a
further six months after that. In an asset-light business, key
decisions can be implemented and changes reflected quickly in
business performance and shareholder value as we have seen in
practice to our benefit. Our post-employment shareholding
requirement therefore holds former Executive Directors to account
for the decisions they made and strategies they implemented. In
the Committee’s view, any longer period would unnecessarily
subject them to decisions out of their control.
The pension benefit for any new UK Executive Director appointments
will be aligned with the maximum employer contribution rate
available to all other participants in the UK pension plan, which
include UK corporate and eligible hotel employees. In addition,
UK Executive Directors have agreed to a voluntary reduction in their
company pension benefit by the end of 2022, so they will align on
the same basis with effect from 1 January 2023.
Since implementing the 2017 DR Policy, IHG has seen the
appointment of Keith Barr as CEO and a new organisational structure
which is designed to leverage scale and accelerate growth. We have
increased the pace of execution of our strategic initiatives with the
aim of delivering industry-leading net System Size growth in the
medium term. In this context, we have reviewed our LTIP measures
with a focus on alignment with our strategy and this aim. The
balance of absolute and relative growth and return measures has
been carefully considered to ensure that growth, sound returns and
responsible cash management are measured in determining reward.
As set out on page 113, we are therefore proposing an increased
weighting for Net System Size Growth, measured on a relative basis
to our key competitors. This will be balanced by a Return on Capital
Employed underpin to incentivise system size and fee income
growth at a sustainable rate, taking account of the impact of capital
investment to support growth of returns over time.
The Committee considered environmental, social and governance
(ESG) measures in relation to the LTIP, such as carbon reduction.
Although we are not recommending introducing such measures
in our LTIP in 2020, we consider it important to have the flexibility
within the DR Policy to do so once we are satisfied that performance
targets can be set robustly and effectively in relation to long-term
objectives. In doing this, we will build on the work carried out in
setting stretching science-based targets that we have announced
in the Corporate Responsibility Committee Report on page 92.
Wider workforce remuneration and employee engagement
In line with Corporate Governance Code guidance, the Committee
has reviewed aspects of the Company’s wider workforce
remuneration policy over the course of 2019. The Company takes a
fully aligned approach to remuneration throughout the organisation
to support succession and career-planning and regularly engages
directly with the workforce through a number of channels and on
a wide range of topics, including pay. The Company’s twice-yearly
global engagement survey addresses employee satisfaction,
covering a number of areas including competitive pay and benefits.
In 2019, the Company successfully launched its Colleague Share
Plan, which brings a share-based benefit to most of its global
corporate workforce and significantly widens the alignments of
interests of its shareholders, executives and the wider workforce.
Take-up in this first year of the plan’s operation was 49% of
eligible employees.
In addition, a full market review of the Company’s UK pension
benefit was carried out. Market practice has moved significantly
since this was last reviewed, following initiatives such as the phased
introduction of automatic enrolment minimum contribution rates
and changes to pension tax relief for higher earners. As a result of
this, during 2020, the Company will be increasing the maximum
contribution rate available to current and future participants from at
least 7.5% of salary to 12% of salary. Future Executive Directors will
receive this same rate.
The Company’s new UK pension contribution structure significantly
closes the gap between existing Executive Directors’ pension
benefit and that of other employees, from a minimum difference of
17.5% to 13% of salary. Furthermore, given the agreement of the UK
Executive Directors to a voluntary reduction in pension, the gap will
reduce by the end of 2022, bringing it in line with all other IHG UK
pension plan participants, as shown on page 100.
Shareholder engagement
Whilst our current DR Policy was approved by 96% of shareholders
at the 2017 AGM, the advisory vote on the Directors’ Remuneration
Report at the 2018 and 2019 AGMs received a lower level of support
(82.33% and 83.95% respectively). We committed to understanding
and addressing these concerns and engaged with those
shareholders who voted against the Report to understand their
reasons for doing so. Based on the feedback received, we have
taken steps to clarify and to refine aspects of our remuneration
structures to better reflect the long-term interests of shareholders.
Summary of key changes to our Directors’ Remuneration Policy
In line with the required three-year cycle, we are seeking approval of
our updated DR Policy, which can be found in full on pages 110 to 117,
at the 2020 AGM. A high-level summary of the proposed changes is
shown on the next page.
Our APP structure remains appropriate, with a 70% weighting for
operating profit from reportable segments and 30% weighting for
strategic measures. For 2020, the latter element will consist of a
single absolute NSSG target. In a potentially more muted RevPAR
environment, this aligns with our focus on System Size growth to
drive our continued success. Whilst there is also an NSSG element in
the LTIP, it is of a different nature due to the three-year timescale and
relative measurement approach, and aligns with our strategic focus
on accelerating growth in both the short and long-term. It is
important to note that for 2020, targets for both operating profit
from reportable segments and NSSG are set in an environment of
greater uncertainty than in recent years. Further detail on incentive
plan measures under the new DR Policy is shown on pages 112 to 113.
For 2020, the Executive Directors will receive a 2% salary increase,
which reflects the overall budget available for salary increases to the
UK and US wider corporate employee population.
About this report
As always, we strive to make this report as easy to read as possible.
The ‘At a glance’ section on page 99 highlights the key points on
2019 performance and outcomes and further background on
remuneration at IHG for the wider workforce is on page 100.
The Annual Report on Directors’ Remuneration on pages 101 to 109
will be put to an advisory vote by shareholders and the revised
Directors’ Remuneration Policy, starting on page 110, will be put to a
binding shareholder vote at the May 2020 Annual General Meeting.
Jo Harlow
Chair of the Remuneration Committee
17 February 2020
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
97
Governance
Directors’ Remuneration Report continued
Remuneration Committee Chair’s statement continued
Summary of DR Policy and proposed changes
2023
Element
2020
2022
2021
2024
Framework
Link to Strategy
Fixed
Base salary
Benefit
Pension
Variable
Annual
Performance
Plan (cash)
Annual
Performance
Plan (deferred
shares)
Long Term
Incentive
Plan (LTIP)
Other
Minimum
shareholding
requirements
Malus and
clawback
Cash
Deferral
Performance
Deferral
98
IHG | Annual Report and Form 20-F 2019
Generally in line with the range applying to
the corporate population. Reviewed
annually and fixed for 12 months from
1 April.
Recognises the value of the role and the
individual’s skills, performance and
experience.
Relevant benefits are restricted to the
typical level for the role/location.
Competitive and consistent with role/
location; helps recruit and retain.
Defined Contribution. Employee
contributions with matching employer
contributions. Salary is the only part of
remuneration that is pensionable.
Competitive and consistent with role/
location; helps recruit and retain.
Proposed change
Rationale for change
Pension contributions and/or cash
allowance for new Executive Directors will
be aligned with the maximum employer
contribution rate available to all other
participants in the UK pension plan.
Incumbent UK Executive Directors have
agreed to a voluntary reduction in pension
provision by the end of 2022 such that the
value will align on the same basis with
effect from 1 January 2023.
Following a full market review of its UK
pension benefit, the Company will offer
all participants the same rate of pension
benefit. Whilst there were very good
reasons for having had a tiered
contribution structure in the past,
following significant change in the UK
pension environment since the benefit
was last reviewed, this is no longer
prevalent in the market. To remain
competitive in the UK workspace, a level
pension benefit structure will be
introduced. This will be kept under review
as market practice continues to evolve.
Maximum annual opportunity is 200% of
salary with 70% an operating profit measure
and 30% key strategic measures; 50% of
the award is deferred into shares for three
years. Awards are subject to a global
affordability gate. Full vesting after three
years. Malus and clawback apply.
For 2020, the KPIs that directly link
remuneration to our business strategy
include:
• Operating profit from reportable
segments – a fundamental measure
of our financial health and represents the
financial outcomes of the KPI goals; and
• Net System Size growth – a KPI and
measure of our strategy to build and
leverage scale.
Proposed change
Rationale for change
The maximum potential LTIP quantum is to
increase from 205% to 350% of salary for
the CEO and to 275% of salary for other
Executive Directors.
The net System Size growth (NSSG)
element will increase to 30% and will
measure performance relative to our
closest peers, balancing the growth
objectives with a Return on Capital
Employed (ROCE) underpin to this part of
the LTIP. The Total Shareholder Return (TSR)
element will reduce from 40% to 30%. The
remaining two measures of Cash Flow and
Total Gross Revenue will remain at 20%.
Formal adoption of the two-year post-vest
holding period which was introduced for
the 2019/21 cycle.
Malus and clawback will continue to apply.
To incentivise achieving our stretching
new growth ambitions; to compete more
effectively in the US talent pool and to
assist with recruitment and retention in
succession planning given pay
compression.
A focus on industry-leading NSSG is at
the heart of our new strategy,
underpinned by ROCE to reflect our
commitment to deliver quality growth
whilst maintaining returns.
Continued strong alignment between
Executive Director remuneration and
shareholder interests.
Proposed change
Rationale for change
The guideline shareholding requirements
will increase from 300% to 500% of salary
for the Chief Executive Officer and from
200% to 300% of salary for other Executive
Directors. The post-employment
shareholding requirement, introduced in
2018, will continue to apply.
To demonstrate a commitment to the
Company’s success and strengthen
alignment between the executives’ and
the shareholders’ interests.
Proposed change
Rationale for change
The range of potential triggers for the
recovery of awards made to Executive
Directors will be extended. See page 115
for details.
In line with guidance from the UK
Corporate Governance Code, this is
designed to protect shareholder value
and disincentivise unwanted behaviours
and actions.
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 2019
In 2019, we achieved close to target operating profit from reportable segments, met our
goal for savings to reinvest in the business to support future growth, and exceeded our
target net System Size growth for the year. Looking back over the three years to 2019, we
continued to deliver strong shareholder returns and have surpassed our expectations on the
challenging targets we set for growth in Total Gross Revenue, System Size and Cash Flow
over the period 2017 to 2019.
Measures used for APPa
Measures used for LTIPa
15%
15%
70%
Operating profit
from reportable
segments
Net Size System
growth
Savings for
reinvestment
Relative TSR
Net Size System
growth
Total Gross
Revenue
Cash Flow
40%
20%
20%
20%
Operating profit from
reportable segments: ($m)
Relative TSR (%)
Threshold
807.8
Target
868.6
Maximum
929.4
Threshold
39.9
Maximum
84.1
Actual
865.7
Actual
54.9
Net System Size growthb (k rooms)
Total Gross Revenuec ($bn)
Threshold
873.3
Target
877.5
Maximum
881.7
Threshold
2.60
Maximum
3.71
Actual
878.4
Actual
3.75
Savings for reinvestment ($m)
Net System Size growthb (k rooms)
Executive Director remuneration
2019 remuneration
The table below shows the 2019 potential
remuneration opportunity and actual
achievement compared to 2018 actual
achievement.
The relevant figures for each of the elements
that make up the single total figure of
remuneration, as shown below for the
Executive Directors, can be found in the table
on page 101.
Keith Barra,
Chief Executive Officer
Value (£000)
2019
potential
2019
actual
2018
actual
4,320
3,317
2,993
0
1,000 2,000 3,000 4,000
Paul Edgecliffe-Johnson,
Chief Financial Officer
Value (£000)
2019
potential
2019
actual
2018
actual
3,268
2,494
2,450
0
1,000
2,000 3,000 4,000
Elie Maalouf,
Chief Executive Officer, Americas
Value (£000)
Threshold
105.0
Target
115.0
Maximum
125.0
Threshold
75.1
Maximum
107.4
Actual
115.0
Cash Flow ($bn)
Threshold
1.29
Maximum
1.72
a Further details of APP and LTIP outcomes can be found
on pages 102 to 104.
b APP System Size target is based on closing year target;
LTIP target is based on three-year growth performance.
c The Total Gross Revenue target represents a target for
growth over the LTIP period.
2019
potential
2019
actual
2018
actual
Actual
116.4
3,229
2,482
2,350
0
1,000
2,000
3,000
4,000
Actual
1.85
Key for potential
Maximum = Fixed pay and maximum
award under APP and LTIP
Target = Fixed pay and on-target
award for APP (115%) and 50% of
maximum LTIP vesting
Minimum = Fixed pay
a The 2018 amount for Keith Barr
excludes the localisation payment
detailed on page 101.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
99
Governance
Directors’ Remuneration Report
Remuneration at IHG – the wider context
Remuneration for all employees
Across the last two years, we have made a number of changes to
how we manage reward, in particular strengthening how we use
differentiation in reward decisions based on employee performance
to drive a high-performing culture across the organisation.
• In 2018 and 2019 we introduced:
– a new performance management approach;
– a new bonus plan approach; and
– updated culture, values and behaviours to support growth.
• We continue to embed the structures to facilitate cultural change
in the organisation and the early signs are positive, for example the
use of differentiation in our merit and bonus process.
• Our Colleague Heartbeat results reflect a positive view of how we
reward employees across the business and continues to provide
a useful vehicle for workforce engagement.
• As we look to 2020, we are further developing the performance
culture across the organisation through:
– a streamlined performance management approach that further
supports differentiation;
– a combined merit and bonus process which allows managers
to take a more holistic view on reward; and
– the introduction of a colleague share plan which will encourage
shared ownership and alignment to our external stakeholders at
all levels of the organisation.
How our reward practices are aligned across all levels of
the organisation
Our reward packages are designed to attract, retain and motivate
top talent. We apply a consistent approach to reward across the
corporate business, ensuring we meet the needs of employees by
offering a market driven rewards package, which we regularly review
against our competitors for talent.
How our reward practices align across the organisation
Executive
Committee
Executive
Directors
Elements of Reward
Wider
Workforce
Notes
See below in respect of UK pensions.
For senior management (generally at Executive Committee level and their
direct reports) a proportion of bonus is deferred into shares for a three-year
period.
Senior/mid-management and certain specialist roles are eligible for a Long
Term Incentive Plan (LTIP). Performance-based LTIP largely applies at the level
of Executive Committee and their direct reports.
In line with typical market practice, particularly in the US, and due to
line-of-sight to performance measures, a gradually greater proportion of the
LTIP award is made as RSUs (which are not subject to performance conditions
but still align employee interests with those of shareholders) for eligible roles
from the Executive Committee down.
Available to employees below senior/mid-management levels only.
Available to employees below senior/mid-management levels only.
Shareholding requirements are applicable at the level of Executive
Committee and their direct reports.
UK Pension Provision
In 2019, we undertook a full market review of the UK pension benefit
(the IHG UK Defined Contribution Pension Plan) to ensure that it
remained an attractive part of our reward package. The UK pension
landscape has changed significantly since our arrangements were
last reviewed, following the phased introduction of minimum
automatic-enrolment contribution levels and changes to tax
allowances for high earners. From 1 April 2020, we will introduce
a single, simple matching-structure on the following basis:
Employee Grade
All
Employee
Contribution
3-6%
Matching
Contribution
Multiple
2
Maximum
Matching
Contribution
12%
Fixed
Salary
Benefits
Variable
Pension benefit
Annual Performance
Plan (APP)
Long Term Incentive
Plan (LTIP)
Restricted Stock
Units (RSUs)
Colleague Share Plan
(introduced in 2020)
Recognition Scheme
Other
Shareholding
requirements
How incentives align our workforce to our business strategy
and culture
We place great emphasis on aligning everyone to our business strategy,
which means shareholders and employees have a shared interest in the
performance of the Company. We achieve this through the design of
our incentive plans, which align individual performance and behaviour
with our company purpose, values and strategy.
Performance metrics used for reward
Elements of
Rewards Impacted
Performance
Metrics in 2020
Financial
Annual Performance
Plan (APP)
• Operating profit from
reportable segments
Long Term Incentive
Plan (LTIP)
• Net System Size Growth
• Relative Net System Size Growth
• Cash Flow
• Total Gross Revenue
• Total Shareholder Return
Individual
Salary
• Achievement of individual goals
Annual Performance
Plan (APP)
• Progress with personal
development
• Demonstration of value and
behaviours
100
IHG | Annual Report and Form 20-F 2019
Annual Report on Directors’ Remuneration
This Annual Report on Directors’ Remuneration explains how
the Directors’ Remuneration Policy (DR Policy) was implemented
in 2019 and the resulting payments each of the Executive
Directors received.
This report is subject to an advisory vote by shareholders at
the 2020 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 for each of
the Executive Directors.
AUDITED
Single total figure of remuneration – Executive Directors
Executive Directors
Keith Barr
Paul Edgecliffe-
Johnson
Elie Maaloufb
Salary
£000
Benefits
£000
Pension
benefit
£000
Fixed pay
Subtotal
£000
828
792
602
554
622
559
36
51
24
24
33
34
207
198
158
166
121
109
1,071
1,041
784
744
776
702
Year
2019
2018
2019
2018
2019
2018
Variable pay
LTIP
£000a
1,263
Subtotal
£000
2,246
609
987
764
963
701
1,952
1,710
1,706
1,706
1,648
APP
£000
983
1,343
723
942
743
947
Other
£000
–
150
–
–
–
–
Total
£000
3,317
3,143
2,494
2,450
2,482
2,350
a LTIP: Figures for 2018 relate to the value of shares for the 2016/18 LTIP cycle and have been restated using actual share price on date of vesting. Figures for 2019 relate to the
value of shares for the 2017/19 LTIP cycle.
b Elie Maalouf is paid in US dollars and the sterling equivalent is calculated using an exchange rate of $1 = £0.78 in 2019 and $1 = £0.75 in 2018 (page 150).
Notes to single figure table
Fixed pay
Salary: salary paid for the year.
Benefits: for Executive Directors, this includes, but is not limited
to, taxable benefits such as company car and healthcare.
Provision during 2019 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.
Keith Barr and Paul Edgecliffe-Johnson did not participate in any
IHG pension plan in 2019 and instead received cash allowances of
25% of base salary (reduced from 30% in 2019 for Paul). Life
assurance cover is provided for both Keith and Paul at four times
base salary.
Elie Maalouf participated in the US 401(k) Plan and the US
Deferred Compensation Plan. The US 401(k) Plan is a tax qualified
plan providing benefits on a defined contribution basis, with the
member and relevant company both contributing. The US
Deferred Compensation Plan is a non-tax qualified plan, providing
benefits on a defined contribution basis, with the member and the
relevant company both contributing.
Contributions made by, and in respect of, Elie Maalouf in these
plans for the year ended 31 December 2019 were:
Director’s contributions to US Deferred
Compensation Plan
Director’s contributions to US 401(k) Plan
Company contributions to US Deferred
Compensation Plan
Company contributions to US 401(k) Plan
Age of Director at 31 December 2019
£a
235,675
19,500
111,938
8,736
55
a Sterling values have been calculated using an exchange rate of $1 = £0.78.
Variable pay
APP (cash and deferred shares)
Operation
Award levels are determined based on salary as at 31 December
2019 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.
• Target is the target level of achievement and results in a target
award for that measure.
• Maximum is the level of achievement at which a maximum
award for that measure is received (capped at 200% of salary).
For 2019, the Remuneration Committee set a threshold award
level of 50% of target award (57.5% of salary).
The threshold award was subject to global affordability gates:
• If operating profit from reportable segments was less than 85%
of target, no award under net System Size growth and savings
for reinvestment would be made; and
• If operating profit from reportable segments was 85% or more,
but less than 93% of target, half of any award under net System
Size growth and savings for reinvestment would be made.
Net system size growth was also dependent on achieving at least
four out of 10 of the global metrics for 2019.
There was also Committee discretion to adjust awards to consider
factors such as IHG’s performance relative to competitors.
Other
Keith Barr received a lump sum of £150,000 in July 2018 to cover
the transitional and transactional costs of localising to the UK. This
was fully reported in the 2017 Annual Report, page 69.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
101
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration
AUDITED
APP Outcome for 2019
The performance measures for the 2019 APP were operating profit
from reportable segments (70%), net System Size growth (15%)
and savings for reinvestment (15%) and were determined in
accordance with the DR Policy. Target award was 115% of salary.
The table below shows threshold, target and maximum
opportunity, as well as weighting and actual 2019 achievement.
% of target award
Threshold
35
7.5
50
Target
Actual
70
69
15
15
100
18
15
102
Maximum
140
30
30
200
0
50
100
150
200
Operating profit from reportable segments
Net System Size growth
Savings for reinvestment
APP
Performance
Achievement
Weighting
Weighted
achievement
Operating profit from reportable segments: performance relative to target
Threshold
Actual
Target
Maximum
$807.8m
$865.7m
$868.6m
$929.4m
Net system size growth (k rooms)
Threshold
Target
Actual
Maximum
873.3
877.5
878.4
881.7
Savings for reinvestment
Threshold
$105.0m
Target
Actual
Maximum
$115.0m
$115.0m
$125.0m
50%
98%
100%
200%
50%
100%
121%
200%
50%
100%
100%
200%
70%
69%
15%
18%
15%
15%
Operating profit from reportable segments is a Non-GAAP
measure and excludes certain items from operating profit.
Additionally, in determining operating profit from reportable
segments for APP purposes, budgeted exchange rates for the year
are used and certain adjustments to reported 2019 operating
profit from reportable segments were agreed by the Committee in
order to ensure like-for-like comparison with the APP target set at
the start of the year:
Operating profit from reportable segments
(at actual exchange rates) (see page 150)
Difference due to exchange rates
Operating profit from reportable segments,
after adjustments (at 2019 budget exchange rates)
$864.7m
$1.0m
$865.7m
The total weighted achievement for Keith Barr, Paul Edgecliffe-
Johnson and Elie Maalouf is 102% of target bonus (58.7% of
capped maximum award). The APP award for 2019 was therefore
117.3% of salary for each.
Awards for 2019 are payable 50% in cash and 50% in deferred
shares, vesting three years after the date of grant, in February 2023.
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.
Executive Director
Keith Barr
Paul Edgecliffe-Johnson
Elie Maaloufb
Salary as at
31 December
2019
£000
838
616
634
Award
as %
of salary
Total value
of award
£000
117.3
117.3
117.3
983
723
743
b Elie Maalouf is paid in US dollars and the sterling equivalent is calculated using an
exchange rate of $0.78.
LTIP 2017/19 (shares)
Awards are made annually and eligible executives will receive
shares at the end of that cycle, subject to achievement of the
performance conditions. Conditions and weightings are
described on page 103.
TSR measures the return to shareholders by investing in IHG
relative to a comparator group containing the following major,
globally branded competitors: Accor S.A.; Choice Hotels
International Inc.; Hilton Worldwide Holdings Inc.; Hyatt Hotels
Corporation; Marriott International, Inc.; Melia Hotels International
S.A.; Millennium & Copthorne Hotels PLC; NH Hotel Group; and
Wyndham Hotels & Resorts Inc., as per data provided by our
corporate bankers sourced from Thomson Reuters Datastream. In
respect of Wyndham Worldwide’s split into two publicly traded
companies in May 2018, the performance of Wyndham Worldwide
was tracked up until the split, followed by the performance of
Wyndham Hotels & Resorts Inc. subsequent to the split.
Following the acquisition and delisting of Millennium & Copthorne
Hotels PLC by City Developments Limited, a Singapore-based real
estate company, it was removed from the comparator group for
all active LTIP cycles (2017/19, 2018/20 and 2019/21).
The share price in respect of the 2016/18 LTIP cycle has been
restated using the volume weighted average price of 4,565p on
the date of actual vesting on 20 February 2019. The corresponding
values shown in the 2018 report (prior to the actual vesting) were
an estimate calculated using an average share price over the final
quarter of 2018 of 4,193p.
Outcome for 2017/19 cycle
The performance measures for the 2017/19 three-year LTIP cycle
were in line with the 2017 DR Policy. The table below shows
threshold and maximum opportunity, as well as weighting and
actual achievement, for each performance measure.
% of maximum opportunity
Threshold
8
20
4
Actual
18.9
20
20
20
78.9
Maximum
0
40
20
20
20
20
100
40
60
80
100
TSR
Total Gross Revenue
NSSG
Cash flow
102
IHG | Annual Report and Form 20-F 2019
AUDITED
Performance measure and weighting
Target
% Vesting
Result
Performance Targets
Maximum
84.1%
Maximum
100%
Outcome
54.9%
Achievement
(% of maximum)
47.2%
Weighting
Weighted
achievement
40%
18.9%
Total Shareholder Return:
Three-year growth relative to average
of competitors
40%
Total Gross Revenue:
based on IHG’s performance against
an absolute total gross revenue
target
20%
Net System Size Growth:
based on IHG’s performance against
an absolute NSSG target
20%
Cash Flow:
based on IHG’s performance against
an absolute cash flow target
20%
Total achievement (% of maximum
opportunity vested)
Threshold
39.9%
Maximum
3.71bn
USD
Threshold
2.60bn
USD
Maximum
107.4k
rooms
Threshold
75.1k
rooms
Maximum
1.72bn
USD
Threshold
1.29bn
USD
Threshold
20%
Maximum
100%
Threshold
20%
Outcome
3.75bn USD
100%
20%
20%
Maximum
100%
Outcome
116.4k rooms
100%
20%
20%
Threshold
20%
Maximum
100%
Reported Outcome
1.6bn USD
Threshold
20%
Adjusted Outcome
1.85bn USD
100%
20%
20%
Adjustments to cash flow outcome
Over the performance period of the 2017-19 LTIP award, there
have been a number of accounting standard changes and events
that have impacted IHG’s cash flow that were unquantified or
unforeseen when the original targets were set. The Committee
carefully considered these and determined that it was appropriate
to adjust the cash flow outcome for the impact of the events
below in order to ensure that the outcomes are measured on a
consistent basis with targets. An explanation of each adjustment
is set out below and a reconciliation of the initial and adjusted
outcome is set out to the right.
Adjustments due to changes in accounting standards:
The new accounting standards implemented during the period
do not have an overall impact on Group cash flow, but do impact
the LTIP target because of the reclassification of cash flows to
different line items that are not included in the LTIP target:
• IFRS 15: The System Fund interest receipt was reclassified from
Cash Flow from Operations to the interest line.
• IFRS 16: Operating leases cash flow has been reclassified
from Cash Flow from Operations to interest and movements
in net debt.
Adjustments due to events unforeseen when the targets were set:
• Six Senses acquisition: the material acquisition cost of Six
Senses in 2019 has been removed. The Committee considered
it was appropriate to exclude the cash impact because it was not
incorporated into the original target and the cash flow benefits
of the acquisition will be long-term.
• Comprehensive efficiency programme: There was additional
Board approved expenditure as part of a three-year programme
of savings to reinvest in the business for future growth, which
was not budgeted for at the beginning of the 2017-19 plan when
78.9%
the targets were set. The benefits from this comprehensive
efficiency programme are long-term, beyond the timescale
of the plan period, so the Committee considered it appropriate
to exclude the cost. Stretching targets with regards to these
benefits will be reflected in future incentive plans.
• Where applicable, the adjustments above will also apply to the
cash flow outcomes of the 2018-20 and 2019-21 LTIP awards.
These will be disclosed in full along with any other adjustments
in the relevant year’s Directors’ Remuneration Report.
Cash flow definition for 2017-19 LTIP
Cash flow is defined as the cumulative annual cash generation
over a three-year performance period. Cash generation is cash
flow from Operations, excluding loyalty programmes and
material movements in cash associated with the System Fund,
and including net cash from investing activities.
Reconciliation
Reported cash flow from Operations
Net movement in loyalty programmes
Other movements relating to the System Fund
Net cash from investing activities
Reported outcome per definition
IFRS 15
IFRS 16
Six Senses acquisition
Comprehensive efficiency programme
Adjusted outcome
Cash flow
$bn
2.62
(0.14)
0.03
(0.91)
1.60
0.03
(0.17)
0.29
0.10
1.85
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
103
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration continued
AUDITED
LTIP
Achievement against target is measured by reference to the three years ending 31 December 2019. This cycle will vest on 19 February
2020 and the individual outcomes for this cycle are shown below.
The share price of 4,847p used to calculate the 2017/19 LTIP cycle value shown in the single-figure table is the average over the final
quarter of 2019.
Executive Director
Keith Barra
Paul Edgecliffe-Johnson
Elie Maaloufb
Award Cycle
LTIP 2017/19
RSU 2017/19
LTIP 2017/19
LTIP 2017/19
RSU 2017/19
Maximum
opportunity at grant
(number of shares)
30,303
2,160
25,811
21,822
2,645
% of
maximum
opportunity
vested
78.9%
100%
78.9%
78.9%
100%
Outcome
(number of shares
awarded at vest)
Total value
of award
£000
Value of award
attributable to share
price appreciation
23,908
2,160
20,364
17,217
2,645
1,159
105
987
835
128
135
13
120
102
16
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 4,257p per share.
b The award for Elie Maalouf was granted prior to his appointment to the Board. Elie was also granted 2,645 restricted stock units on 22 May 2017 with a market price of
4,257p per share.
AUDITED
Other outstanding awards
Scheme interests awarded during 2018 and 2019
During 2018 and 2019, awards were granted under the LTIP cycle and 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, as in the table below.
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.
The vesting date for the 2018/20 LTIP award is the day after the announcement of our annual 2020 preliminary results in February
2021. These awards will vest, and shares will be transferred to the award-holder, to the extent performance targets are met.
The vesting date for the 2019/21 LTIP award is the day after the announcement of our annual 2021 preliminary results in February 2022.
These awards will vest to the extent performance targets are met and will then be restricted for a further two years, transferring to the
award-holder in February 2024.
The performance measures are as agreed in the 2017 Remuneration Policy. Total shareholder return, total gross revenue, net System
Size growth and cash flow are measured by reference to the three years ending 31 December 2020 for the 2018/20 cycle and 31
December 2021 for the 2019/21 cycle. Minimum performance is equal to 20% of the maximum award.
Executive Director
2018/20 cycle
Keith Barr
Paul Edgecliffe-Johnson
Elie Maalouf
2019/21 cycle
Keith Barr
Paul Edgecliffe-Johnson
Elie Maalouf
AUDITED
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
8 May 2018
8 May 2018
8 May 2018
10 May 2019
10 May 2019
10 May 2019
35,381
24,830
24,426
34,693
25,509
25,802
46.25
46.25
46.25
49.53
49.53
49.53
1,636
1,148
1,130
1,718
1,263
1,278
7,076
4,966
4,885
6,938
5,101
5,160
Payments for loss of office
There were no payments for loss of office in 2019.
Pension entitlements
No Executive Director is entitled to any Defined Benefit pension or
related benefit from IHG.
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 £2,281 during the year.
104
IHG | Annual Report and Form 20-F 2019
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 individuals’ 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 Director 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. It also includes the net value of APP shares that are not
currently subject to ongoing performance conditions but are
subject to ongoing holding periods.
Percentages are calculated using the 31 December 2019 share
price of 5,208p.
Prior to the introduction of post-employment shareholding
requirements under the new Code, we introduced a condition
under our DR Policy for the full guideline minimum shareholding
requirement to continue for six months after cessation of
employment and 50% of the requirement to continue for an
additional six months.
Shares and awards held by Executive Directors
as at 31 December 2019: % of salary
Keith Barr
328
436
1,169
Paul Edgecliffe-Johnson
326
441
Elie Maalouf
1,186
359
506
1,241
0
200
400
600
800
1,000
1,200
1,400
Shares held outright
Guideline shareholding
Shares held outright and net value of shares
subject to holding/deferral perioda
Total number of shares and awards as a % of salary
a Percentages have been calculated using a combined tax and social security rate of
47% for Keith Barr and Paul Edgecliffe-Johnson and a rate of 45.1% for Elie Maalouf.
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 103.
Shares and awards held by Executive Directors as at 31 December 2019: 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
Paul Edgecliffe-Johnson
Elie Maaloufa
2019
52,832
38,562
43,652
2018
42,782
25,669
24,773
2019
32,697
25,637
32,591
2018
28,262
26,742
42,058
2019
102,537
76,150
74,695
2018
2019
2018
97,211
87,482
82,694
188,066
140,349
150,938
168,255
139,893
149,525
a Includes 35,961 shares granted prior to appointment to the Board
Other information relating to Directors’ remuneration
Consideration of use of discretion
As discussed on page 72, the 2019 Financial Statements include
impairments relating to Kimpton hotel management agreements
acquired in 2015 and the UK hotel portfolio acquired in 2018 and,
in this context, the Committee discussed whether the formulaic
outcomes in relation to the APP 2019 and LTIP 2017/19 cycle were
appropriate.
The Kimpton impairment does not relate to goodwill, which is
unaffected. Since the acquisition of Kimpton Hotels & Restaurants
in 2015, the intrinsic value of the brand has increased with over 40
new hotels signed into the pipeline and accelerated international
expansion. The Committee considered that these factors outweigh
the impact of the impairment.
Cash paid on acquisition of the UK portfolio was $9m, with the
goodwill recognised being attributable to the future trading
potential of the hotel operations. The impairment has been driven
by challenging trading conditions experienced across the UK hotel
industry. The Committee took into consideration the strategic
importance of the acquisition; three of the UK portfolio have been
converted to voco hotels, which has been a key driver of the 33
signings since launch of that brand, three of the portfolio have been
converted to Kimpton hotels, which has had a significant influence
on the international growth of that brand.
Having considered all these matters in the round, including the
solid performance of the Company over the relevant periods, the
Committee concluded that it was not necessary to exercise
discretion relating to 2019 outcomes.
Dividends paid to Executive Directors
A final dividend for 2018 of 60.4p per ordinary share (78.1¢ per ADR)
was paid on 14 May 2019 to shareholders on the Register of
members at the close of business on 29 March 2019.
A special dividend of 203.8p per ordinary shares (262.1¢ per ADR)
was paid on 29 January 2019 to shareholders on the Register at the
close of business on 11 January 2019.
An interim dividend of 32.0p per ordinary share (39.9¢ per ADR) was
paid on 3 October 2019 to shareholders on the Register of members
at the close of business on 30 August 2019.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
105
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration continued
Relative performance graph
InterContinental Hotels Group PLC is a member of the FTSE 100 share index, and the graph below shows the Company’s Total Shareholder
Return (TSR) performance from 31 December 2008 to 31 December 2019, assuming dividends are reinvested, compared with the TSR
performance achieved by the FTSE 100.
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
IHG PLC
FTSE 100 Index
Chief Executive Officer’s remuneration
The table below shows the Chief Executive Officer’s single figure of total remuneration for the 10 years to 31 December 2019.
2017
2,161a
2018
3,143
2019
3,317
Single figure
CEO
2010
2011
2012
2013
2014
2015
2016
Single figure
of remuneration
(£000)
Keith Barr
Richard Solomons
4,724
4,881
3,131
6,611b
3,197
3,662
2,207c
Andrew Cosslett
5,430
3,770
Annual incentive
received
(% of maximum)
Keith Barr
Richard Solomons
Andrew Cosslett
100.0
Shares received
under the LTIP
(% of maximum)
Keith Barr
Richard Solomons
Andrew Cosslett
73.8
83.0
43.3
73.9
61.6
68.0
74.0
74.0
75.0
63.9
100.0
59.0
56.1
50.0
49.4
69.7
66.8
46.1
46.1
84.1
58.7
45.4
78.9
a For Keith Barr, the 2018 figure includes a one-off cash payment for relocation costs in lieu of benefits received whilst on international assignment prior to CEO position, fully explained in the
2017 report.
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.
CEO Pay Ratio
As we noted in last year’s Annual Report, pay ratios will differ
significantly between companies, even within the same industry,
depending on demographics and business model. Since last year’s
report, we have acquired a number of UK hotel employing entities
under the terms of management agreements relating to the UK
Portfolio. Prior to this, under our largely franchised UK business
model, the majority of hotel employees were not directly employed
by IHG. The Group’s UK employee demographic, which previously
consisted of largely professional, management and senior corporate
roles, has therefore shifted significantly with the addition of a
number of hotel employing entities including a large proportion of
part-time and flexible-working support and service roles.
To illustrate the impact this has had on the pay ratio, the 2019 ratio is
shown adjacent for both the full population and excluding the hotel
employing entities. On a like-for-like population basis, the median
ratio has increased from 47:1 in 2018 to 48:1 in 2019.
Year
Financial year ending
31 December 2018
Financial year ending
31 December 2019
– Full population
Financial year ending
31 December 2019
– Excluding new hotel
employing entities
Method
Option
C
Option
C
Option
C
25th
percentile
pay ratio
Median pay
ratio
75th
percentile
pay ratio
71:1
47:1
29:1
177:1
119:1
58:1
70:1
48:1
31:1
What drives the difference in pay between our CEO and other
employees?
Pay ratios reflect how remuneration arrangements differ as
responsibility increases for more senior roles within the organisation,
for example:
• A greater proportion of performance-related variable pay and
share-based incentives applies for more senior executives,
including Executive Directors, who will have a greater degree of
influence over performance outcomes;
• Additional and enhanced benefit provision, such as company car
and healthcare benefits, apply as roles and responsibilities
increase throughout the organisation;
106
IHG | Annual Report and Form 20-F 2019
• 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
lease and managed hotels commonly include targets based on
gross operating profit, guest satisfaction and employee
engagement. The target and maximum amounts that can be
earned under these plans are typically a higher percentage of base
salary for more senior employees, which in turn affects the pay
ratio; and
• Incentive plans for other corporate employees are typically based
on a combination of individual performance and the Group’s
operating profit from reportable segments.
Calculation methodology and supporting information
Option C has been selected for the identification of the percentile
employees as, under this method, we are able to produce the most
accurate total remuneration figure for all UK employees on a basis
comparable with the statutory reporting for Executive Directors and
using the data available at the time of producing the Annual Report.
Specifically, this involves:
• Starting with the April 2019 Gender Pay Gap salary, bonus and
long-term incentive data for all UK employees;
• Adjusting the value of total bonus so that it reflects only the
amount earned in respect of FY 2018 and does not include the
value of any deferred shares from the 2015 bonus which vested
in 2019;
• Adding the employer pension contribution from pension plan data
as at April 2019; and
• Adding non-cash benefit data (e.g. company car, healthcare, etc.)
from the 2018/19 tax year P11D report.
Option C requires three UK employees to be identified as the
equivalent of the 25th, 50th and 75th percentile. Having identified
these employees, the 2019 total remuneration is calculated on the
same basis as the CEO single total figure of remuneration. The only
exception being that the bonus applicable to the relevant employees
is assumed to be their respective target value, as the actual value is
not known at the time of producing the Annual Report.
The 2019 salary and total pay for the individuals identified at the
lower, median and upper quartiles are set out below:
Year
Financial year ending
31 December 2018
Financial year ending
31 December 2019
– Full population
Financial year ending
31 December 2019
– Excluding new hotel
employing entities
25th
percentile
pay ratio
Median pay
ratio
75th
percentile
pay ratio
Salary £
38,437
53,639
75,151
Total
Remuneration £
43,679
65,614
107,464
Salary £
17,884
25,883
47,700
Total
Remuneration £
18,786
27,766
57,383
Salary £
40,989
59,088
77,030
Total
Remuneration £
47,645
69,464
106,545
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.
The table below shows the percentage change in the remuneration
of the Chief Executive Officer compared with UK employees
between 2018 and 2019. The salary figure for the UK employee
population has been calculated using the 2019 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 tax years ending 5 April 2018 and
2019. For the annual incentive, a group of executives, who report
directly to the CEO, is used as a comparator group as they are
subject to the same performance measures as the CEO.
Salary
Taxable benefits
Annual incentive
Chief Executive Officer
(% change)
UK employees
(% change)
5
15
-26.8
3
3
-22.5
As reported in the 2018 Annual Report, Keith Barr’s salary was set
below benchmark policy level on appointment as CEO and following
strong performance in his first year in the role, he received an
increase higher than that of the budget for the corporate UK
workforce in 2019. The greater increase in the CEO’s taxable benefit
is attributable to the increased cost of his healthcare benefit
compared to that of the average of the rest of the UK workforce.
Relative importance of spend on pay
The chart below sets out the actual expenditure of the Group in 2019
and 2018, showing the differences between those years. Further
information, including where 2018 figures have been restated, can
be found on the Group Financial Statements starting on page 132
and the accompanying notes. For 2019, the total distributions to
shareholders included a special dividend of 208.3p per share which
was paid in January 2019.
+4%
+262.3%
+0.7%
2,180
2,165
$m
2500
2000
1500
1000
865
832
721
500
0
199
2019
2018
2019
2018
2019
2018
Reportable segments
operating profit
Dividends paid
to shareholders
Staff costs
Implementation of Directors’ Remuneration Policy in 2020
This section explains how the DR Policy will be applied in 2020
subject to a binding vote by shareholders at the 2020 AGM.
Salary: Executive Directors
Directors’ salaries are agreed annually in line with the DR Policy.
The following salaries will apply from 1 April 2020.
Executive Director
Keith Barr
Paul Edgecliffe-
Johnson
Elie Maaloufa
Increase
%
2020
£
2020
$
2019
£
2019
$
2
2
2
855,000
838,200
628,700
616,300
828,500
812,200
a Elie Maalouf is paid in US dollars and his annual base salary for 2019 and 2020 is
shown in US dollars. The sterling equivalent values calculated using an exchange rate
of $1 = £0.78 are: 2019 – £633,516 and 2020 – £646,230.
The increases above are in line with the budget for the wider UK and
US corporate workforce.
LTIP and APP performance measures and targets
Full details of the measures and targets for the 2020 APP and
2020/22 LTIP cycle are contained in the separate DR Policy section
on pages 112 to 113 of this report.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
107
Governance
Directors’ Remuneration Report continued
Annual Report on Directors’ Remuneration continued
AUDITED
Single total figure of remuneration: Non-Executive Directors
Non-Executive Director
Committee
appointments
Date of
original
appointment
Patrick Cescau
Anne Busquet
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Dale Morrison
Malina Ngai
N
A C
A R
N R
A C N
A C N
A N R
C R
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 79 for Board and Committee
membership key and attendance.
Fees: Fees paid are in line with the DR Policy.
Fees
£000
2018
422
74
99
99
74
87
107
74
2019
435
77
102
102
77
90
110
77
Taxable benefits
£000
2019
14
5
2
2
2
2
11
8
2018
20
7
3
2
2
4
66
4
2019
449
82
104
104
79
92
121
85
Total
£000
2018
442
81
102
101
76
91
173
78
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 UK tax on travel expenses to/from the UK as long as they remain non-UK resident; this is reflected in the taxable benefits
for Anne Busquet, Malina Ngai and 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.
Shares held by Non-Executive Directors as at 31 December 2019:
The Non-Executive Directors who held shares are listed in the table below:
Non-Executive Director
Patrick Cescau
Jo Harlowa
Luke Mayhew
Dale Morrisona
2019b
3,605
950
1,305
2,960
2018
3,795
1,000
1,373
3,116
a Shares held in the form of American Depositary Receipts.
b 2019 shares were subject to a share consolidation on 14 January 2019 on the basis of 19 new ordinary shares for every 20 existing ordinary shares.
Fees: Non-Executive Directors
The fees for Non-Executive Directors are reviewed and agreed annually in line with the DR Policy. The fee levels for 2020 will be
as follows:
2020
£000
444
78
78
104
104
78
92
112
78
2019
£000
435
77
–
102
102
77
90
110
77
Non-Executive Director
Role
Patrick Cescau
Anne Busquet
Chair of the Board
Non-Executive Director
Arthur de Haast
Non-Executive Director
Ian Dyson
Jo Harlow
Luke Mayhew
Jill McDonald
Dale Morrison
Malina Ngai
Chair of Audit Committee
Chair of Remuneration Committee
Non-Executive Director
Chair of Corporate Responsibility Committee
Senior Independent Non-Executive Director
Non-Executive Director
Board Committee membership key
A Audit Committee member
R Remuneration Committee member
C Corporate Responsibility Committee member
Chair of a Board Committee
N Nomination Committee member
108
IHG | Annual Report and Form 20-F 2019
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.
Additionally, the Committee reviews wider workforce pay policies
and practice to ensure alignment with strategy, values and
behaviours and takes this into account when setting Executive
Director remuneration. 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 on IHG’s website at
www.ihgplc.com/investors under Corporate governance.
The Committee’s key focus areas during the year have been:
The Company’s approach to wider workforce engagement under the
Corporate Governance Code is set out on pages 32 to 33.
Effectiveness of the Committee
The effectiveness of the Committee is monitored and assessed
regularly by the Chair of the Committee and the Chair of the Board.
During 2019, the Committee was also reviewed as part of the
external Board evaluation process, where it was concluded that the
Committee remains effective (see page 86).
Other focus areas and activities
In addition to the DR Policy review and stakeholder consultation
process, the other focus areas and activities discussed by the
Committee during 2019 were:
• Reviewing and approving the 2018 annual and long-term incentive
results for the Executive Directors and other members of the
Executive Committee;
• Reviewing and approving 2019 measures and targets for annual
• Reviewing the Director’s Remuneration Policy and associated
and long-term incentive plans;
feedback from stakeholders as part of the consultation process on
potential Policy changes; and
• Evaluating potential measures and targets for 2020+ short and
long-term incentive plans.
Membership and attendance at meetings
Details of the Committee’s membership and attendance at the
meetings are set out on page 79.
During 2019, the Committee was supported internally by the Chair,
the Group’s CEO and CFO, and the heads of Human Resources 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.
Reporting to the Board
The Committee Chair 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.
Stakeholder engagement
As part of the DR Policy review undertaken in 2018 and 2019, the
Chair of the Remuneration Committee met with a number of our
largest shareholders, proxy voting agencies and industry bodies,
such as the Investment Association, to discuss our remuneration
policy design and its link to business strategy. In terms of employee
engagement, the Company’s twice-yearly global engagement
survey addresses employee satisfaction, covering a number of areas
including competitive pay and benefits; and, during the year, the
Committee reviewed key aspects of wider workforce remuneration
policy and practice and its alignment with executive pay. As
explained in the DR Policy on page 116 to 117, these stakeholder
engagement processes have informed our review of executive
director remuneration.
• Monitoring 2019 performance against agreed targets as well as in
the wider business context;
• Reviewing wider workforce remuneration policy and practice;
• Tender process for remuneration advisory services to the
Committee.
Remuneration advisers
PricewaterhouseCoopers LLP continued to act as independent
adviser to the Committee throughout 2019. However, as part of the
transition process for its role as IHG’s statutory auditor for the 2021
financial year, the Committee undertook a competitive tender
process and appointed Deloitte LLP as its adviser going forward.
In order to ensure a full and efficient transfer of responsibilities,
Deloitte were appointed and commenced work for the Committee
in October 2019 and PwC will formally step down in early 2020.
PwC and Deloitte are both members of the Remuneration
Consultants Group and, as such, operate under the code of conduct
in relation to executive remuneration consulting in the UK. The
Committee is satisfied that the advice received is objective and
independent. Fees of £136,549 were paid to PwC and £6,000 to
Deloitte in respect of advice provided to the Committee in 2019. 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 Deloitte are available
from the Company Secretary’s office upon request.
Voting at the Company’s AGMs
There was no binding vote in respect of the DR Policy at the 2019
AGM as it remained unchanged from 2017.
The outcome of the votes in respect of the DR Policy and Report for
2017 to 2019 are shown below:
AGM
2019
2018
2017
Directors’ Remuneration Policy (binding vote)
Directors’ Remuneration Report (advisory vote)
Votes for
Votes against
Abstentions
Votes for
Votes against
–
–
–
–
120,328,350
(95.76%)
5,332,320
(4.24%)
–
–
261,819
120,939,401
(83.95%)
118,770,985
(82.33%)
119,155,451
(96.42%)
23,116,948
(16.05%)
25,486,193
(17.67%)
4,426,549
(3.58%)
Abstentions
3,867,287
2,664,237
2,340,489
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Report
109
Governance
Directors’ Remuneration Policy
The Committee will consider the Remuneration Policy annually to ensure it remains aligned with strategic objectives. However, subject to approval
by shareholders at the 2020 AGM, it is intended that the policy set out below will apply for three years from 2020; if any amendments need to be
made to the policy within that timeframe, it will first be presented to be voted upon by shareholders. Where there have been changes to elements
from the last policy, these are set out for each element in the table below. The reasons for the changes are described in the Remuneration
Committee Chair’s statement on pages 96 to 98.
Future policy table
Salary
Link to strategy
100% cash
No change in policy
To attract and retain the key talent responsible for delivering our strategic objectives. Recognises the value of the role and the
individual’s skill, performance and experience.
Operation
Base salary is reviewed annually and fixed for 12 months from 1 April. In reviewing salaries, the Committee may consider:
• business performance;
• personal performance;
• the average salary increases for the wider IHG workforce; and
• current remuneration assessed against comparable opportunities for an individual to ensure competitiveness.
Maximum opportunity
Over the policy period, salaries for current Executive Directors will increase, subject to individual performance, in line with the range
of increases applying to the corporate UK and US employee population, except where there is a change in role or responsibility, or
another need arises to reassess the competitiveness of salary which warrants either a lesser or a more significant increase. Any such
change will be fully explained.
Newly promoted or recruited Executive Directors may, on occasion, have their salaries set below the conventional remuneration
level while they become established in role. In such cases, salary increases may be higher than the corporate UK and US employee
population until the target positioning is achieved.
Performance framework
The results of an individual’s annual performance appraisal are considered when reviewing salary levels.
Benefits
Link to strategy
To attract and retain the key talent responsible for delivering our strategic objectives with competitive benefits which are consistent
with an individual’s role and location.
No change in policy
Operation
IHG pays the cost of providing the benefits on a monthly basis or as required for one-off events.
Maximum opportunity
The value of benefits is dependent on location and market factors. Benefits may include the cost of independent financial advice,
car allowance/company car, private healthcare/medical assessments, life insurance, and other benefits provided from time to time.
Benefits would be restricted to the typical level for the role and location of an Executive Director. Benefits may also include
relocation and expatriate or international assignment costs where appropriate, including for example:
• cost of living allowance;
• travel costs;
• housing allowance;
• professional advice;
• education allowances;
• tax equalisation;
• medical expenses; and
• relocation allowance.
Relocation and expatriate or international assignment costs would be restricted to the typical level for the role and location of an
Executive Director.
Performance framework None.
Pension
Link to strategy
Operation
To attract and retain the key talent responsible for delivering our strategic objectives with appropriate contribution rates to provide
funding for retirement.
UK Executive Directors are eligible to join the IHG UK Defined Contribution Pension Plan (UK Plan). A cash allowance in lieu of
pension contributions is offered, for example, where pension contributions would be less efficient than cash.
Non-UK Executive Directors may be eligible for an alternative local company retirement plan, for example, a DC 401(k) Plan and a DC
Deferred Compensation Plan currently operating in the US.
Maximum opportunity
Salary is the only element of remuneration that is pensionable and the current maximum employer contribution level for executives
in the UK Plan is shown below. Other contribution rates may apply in alternative non-UK local retirement plans and the Committee
has the discretion to reduce or increase employer contribution rates for Executive Directors in exceptional circumstances where
conditions so warrant.
New for 2020 Policy:
• The maximum pension contributions and/or cash allowance for new UK Executive Directors will be aligned with the maximum
employer contribution rate available to all other participants in the UK Plan (from April 2020, this will be 12%).
• Incumbent UK Executive Directors have agreed to a voluntary reduction in pension provision by the end of 2022 such that the
value will align on the same basis as above with effect from 1 January 2023.
Performance framework None.
The policy will be available to view at
www.ihgplc.com/investors under Corporate governance.
110
IHG | Annual Report and Form 20-F 2019
Annual Performance
Plan (APP)
50% cash and 50% IHG PLC shares deferred for three years
No change in policy
Link to strategy
• Drives and rewards annual performance against both financial and non-financial metrics.
• Aligns individuals and teams with key strategic priorities.
• Aligns short-term annual performance with strategy to generate long-term returns to shareholders.
Operation
• Awards are made annually, 50% in cash after the end of the relevant financial year and 50% in the form of share awards which vest
after three years subject to leaver provisions.
• The Committee has discretion to make awards wholly in cash rather than part-cash and part-shares, in exceptional circumstances.
• The share awards are made in the form of conditional awards or forfeitable shares, the latter having the right to receive dividends
and vote at general meetings.
• Malus and clawback apply to these awards. See page 115 for details.
• The Committee may exercise reasonable discretion to adjust an award made under the APP upwards or downwards after
application of the performance measures to take into account any relevant factors, including but not limited to, performance
relative to IHG’s competitors and extent of achievement across all measures, provided that in no case will an award exceed the
maximum opportunity stated.
Maximum opportunity
The maximum annual award is capped at 200% of salary.
Performance framework
• 70% is based on the achievement vs target of an operating profit measure.
• 30% is based on a mixture of strategic and/or personal measures which are reviewed annually and the weighting, measures and
targets are determined by the Committee and set in line with key strategic priorities.
• Target award is 115% of salary; threshold is up to 50% of target award for each measure.
New for 2020 Policy:
Malus and clawback has been extended. See page 115 for details.
Measures for 2020 will be operating profit from reportable segments (70%) and Net System Size Growth (30%) – see page 112
for further detail.
Long Term Incentive
Plan (LTIP)
100% IHG PLC shares
Link to strategy
Drives and rewards delivery of sustained long-term performance on measures that are aligned with the interests of shareholders.
Operation
• Annual grants of conditional awards of shares subject to a performance period of three years or such longer period as the
Committee determines, subject to the achievement of corporate performance targets.
• The Committee may also impose such post-vesting holding periods as it may, at its discretion, determine.
• The Committee also has discretion to make awards in cash rather than shares, in exceptional circumstances.
• Malus and clawback applies to awards. See page 115 for details.
Maximum opportunity
The maximum annual award is up to 350% of salary for the CEO and up to 275% of salary for other Executive Directors.
Performance framework
• The measures are reviewed and may be changed by the Committee annually to ensure alignment with strategic objectives.
• Minimum performance results in 20% vesting and all targets measured over a performance period of at least three years.
• The Committee may make adjustments to targets and/or measures if a significant one-off event occurs that makes one or more of
the existing targets and/or measures no longer appropriate. The Committee may also adjust awards if a significant one-off event
happens that makes the original performance measures no longer appropriate. Any such adjustments would be disclosed at the
first appropriate opportunity.
• The Committee will review the vesting outcomes under the LTIP measures at the end of each three-year cycle against an assessment
of Group earnings, the quality of financial performance and growth over the period, including relative growth against the market, and
the efficient use of capital. If the Committee determines that the vesting outcomes do not appropriately reflect the performance of
the Group, it will consider applying discretion to increase or reduce the number of shares that vest. The performance and vesting
outcomes and any use of discretion will be fully disclosed and explained in the relevant Directors’ Remuneration Report.
New for 2020 Policy:
The maximum opportunity has been increased from 205% to 350% of salary for the CEO and to 275% of salary for other Executive
Directors. See the Chair’s statement on pages 96 to 98 for rationale.
A post-vest holding period, typically of two years, may apply. See the Chair’s statement on pages 96 to 98 for rationale.
Malus and clawback have also been extended. See page 115 for details.
Measures for the 2020/22 cycle are Total Shareholder Return (30%); Relative Net System Size Growth (30%) subject to a Return on
Capital Employed underpin; Cash Flow (20%) and Total Gross Revenue (20%) – see page 113 for further details.
Shareholding
requirements
New for 2020 Policy:
• Subject to maximum LTIP quantum outlined above, the guideline shareholding requirement will increase to 500% for the CEO and
300% for other Executive Directors.
• This shareholding can include the net value of unvested shares that are not subject to any further performance conditions.
• Executive Directors are expected to hold all shares earned (net of any share sales required to meet personal tax liabilities), until the
previous guideline shareholding requirement is achieved (300% for the CEO and 200% for other Executive Directors) and 50% of
all subsequent shares earned (net of any share sales required to meet personal tax liabilities) until the new guideline shareholding
is met.
Post-Employment
Shareholding
• The full guideline shareholding requirement will continue for six months, and 50% of the requirement for a further six months,
post-cessation of employment.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Policy
111
Governance
Directors’ Remuneration Policy continued
Illustrative scenarios
Shown below are illustrations of the value that could be received by each Executive Director under the Directors’ Remuneration Policy in
respect of 2020, showing:
• minimum, which includes salary, benefits and employer pension contributions only (total fixed pay);
• on-target, which includes total fixed pay and assumes an on-target award for the APP (115% of salary) and 50% of maximum LTIP award
vesting; and
• maximum, which includes total fixed pay and a maximum award under the APP and LTIP.
• maximum plus share price growth, which includes total fixed pay, a maximum award under the APP and a 50% share price increment for LTIP.
The salaries included are those that will apply from 1 April 2020. The benefit values included are estimates.
Old Policy (£000)
Keith Barr
Minimum
1,105
Target
Maximum
Maximum plus
share growth
2,964
4,568
5,444
New Policy (£000)
Keith Barr
Minimum
1,105
Target
Maximum
Maximum plus
share growth
3,584
5,808
7,304
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Paul Edgecliffe-Johnson
Minimum
810
Target
Maximum
Maximum plus
share growth
2,177
3,356
4,000
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Paul Edgecliffe-Johnson
Minimum
810
Target
Maximum
Maximum plus
share growth
2,397
3,796
4,660
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Elie Maalouf
Minimum
821
Target
2,226
Maximum
Maximum plus
share growth
3,438
4,100
Elie Maalouf
Minimum
821
Target
Maximum
Maximum plus
share growth
2,452
3,890
4,778
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Notes to future policy table
In designing the new Remuneration Policy, the Committee followed a detailed decision-making process which included discussions on the
proposals at nine Remuneration Committee meetings. The Committee considered multiple approaches and their possible impact, and
sought input from management as well as advice from its independent advisors on market practice and shareholder expectations to inform
the discussions. An extensive shareholder consultation exercise was also undertaken. To avoid any conflict of interest, no Executive
Directors were present for Committee conversations relating to their own pay.
Measures for 2020 APP
Measure
Definition
A measure of IHG’s operating
profit from reportable segments
for the year
Increase in absolute number of
rooms
Operating
profit from
reportable
segments
Net
System
Size
growth
Weighting
(%)
Performance
objective
70
30
Achievement
against
target
Achievement
against
target
Why have we chosen these measures?
In line with the DR Policy, the 2020 APP measures will be 70% based
on a measure of operating profit and 30% based on other key
strategic measures that are reviewed annually and set in line with
business priorities. Operating profit from reportable segments 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. Having reviewed a number of potential strategic
measures, the Committee has determined that, for 2020, it is
particularly important to the Company’s strategic objectives to
incentivise and reward management for achieving a stretching
target for absolute net System Size growth over the next year. In a
potentially more muted RevPAR environment, this aligns with our
focus on growth to drive our continued success. While there is also
an NSSG element in the LTIP, it is of a different nature due to the
three-year timescale and relative measurement and reflects our
longer-term growth ambition.
The Committee retains the flexibility to change the measures and/or
weightings during the life of the policy and will consult with
shareholders as appropriate on any proposed changes.
How are performance targets set?
Targets may be set relative to budget and/or by reference to prior
results and may contain a performance range to incentivise
outperformance and minimum performance levels relative to
budget and/or prior experience to ensure that poor performance is
not rewarded. The 2020 targets are set by the Committee and senior
management, taking into account IHG’s growth ambitions, market
expectations and the circumstances and relative performance at the
time, with the aim of setting stretching achievement targets for
senior executives which will reflect successful outcomes for the
business based on its strategic objectives for the year. It is important
to note that for 2020, the targets and payment schedule for both
operating profit from reportable segments and NSSG are set in an
environment of greater uncertainty than in recent years.
112
IHG | Annual Report and Form 20-F 2019
Measures for 2020/22 LTIP cycle
Measure
Definition
Relative Total
Shareholder Return
(TSR)
IHG’s performance against a comparator group of
global hotel companies. TSR is the aggregate of share
price growth and dividends paid, assuming
reinvestment of dividends in the Company’s shares
during the three-year performance period.
Weighting
(%)
30
Performance objective
Threshold – median of comparator group (20% of TSR
element vests);
Maximum – upper quartile of comparator group (100%
of TSR element vests); and
Vesting will be on a straight-line basis in between the two
points above.
Relative Net System
Size Growth with ROCE
underpin
Absolute Cash Flow
IHG’s aggregated compound annual growth rate
(CAGR) against our six largest competitors with over
500k rooms: Marriott International, Inc., Hilton
Worldwide Holdings Inc., Accor S.A., Jin Jiang
International Holdings Company Limited, Wyndham
Hotels & Resorts Inc., Choice Hotels International Inc.
Targets will be set based on increased room count
that is consistent with the relevant company’s
business plan objectives and practice as at the start
of the LTIP cycle.
Cumulative annual cash generation over three-year
performance period.
30
Threshold – Fourth ranked competitor excluding IHG (20%
of NSSG element vests);
Maximum – First ranked competitor excluding IHG (100%
of NSSG element vests); and
Vesting will be on a straight-line basis in between
the two points above.
This measure is subject to the achievement of a Return on
Capital Employed underpin. See below for further details.
20
Threshold – US 1.91bn (20% of cash flow element vests);
Absolute Total Gross
Revenue (TGR)
Cumulative increase over three-year
performance period.
20
Maximum – US 2.54bn (100% of cash flow element vests); and
Vesting will be on a straight-line basis in between
the two points above.
The targets for this measure are, in the opinion of the
Directors, commercially sensitive, and will therefore be
disclosed in full retrospectively at the end of the LTIP cycle.
Disclosures 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.
Operation of Return on Capital Employed (ROCE) underpin
The Committee has the discretion to reduce the amount of the
award vesting under the net System Size growth measure by any
amount, including to zero, in the event that a Return on Capital
Employed (ROCE) falls below a predetermined level over the period
of an LTIP cycle. The extent of reduction would be determined taking
into consideration criteria including:
• the reason the ROCE underpin has not been met;
• the impact on other metrics, including cash flow and total gross
revenue; and
• the materiality of the circumstances under which the underpin
has not been met.
ROCE is defined as operating profit from reportable segments
divided by Capital Employed. For Capital Employed, we expect to
define this as Total Assets less Current Liabilities, adjusted for
deferred revenue and deferred tax assets/liabilities. At the end of
each cycle, the Committee will agree the appropriate capital base of
the Company taking into account any short-term impacts that are
not part of the long-term capital of the business.
For the 2020/22 LTIP cycle, the underpin has been set at an
appropriate level in order to protect shareholder interests without
disincentivising the pursuit of long-term strategically advantageous
return-enhancing opportunities, which could have a short-term
impact on ROCE. The underpin level will be disclosed in the 2020
AGM notice and performance and vesting outcomes and any use
of discretion will be fully disclosed and explained in the relevant
Directors’ Remuneration Report.
Why have we chosen these measures?
We believe that TSR continues to be a key measure of long-term
success and aligns the interests of Executive Directors with those of
shareholders. A net System Size growth (NSSG) measure will remain
but, reflecting our industry-leading growth ambition, this will have a
relative performance target measured against our closest
competitors and the weighting for this measure will increase
from 20% to 30%. To balance the delivery of strong growth whilst
maintaining high returns, the NSSG measure will be subject
to a Return on Capital Employed underpin, as described opposite.
There is no change to the 2020/22 cash flow measure to deliver
consistent, sustained growth in cash flows and profits over the long
term and the total gross revenue measure, which includes food and
beverage income from owned and managed hotels and reflects our
diverse income sources. Together, we believe these measures
represent the right balance of focus on growth and quality and
position our executive remuneration in line with both our long-term
strategic aims and the expectations of our shareholders.
How are performance targets set?
Targets may be set relative to the expected outcomes of IHG’s
long-range business plan and other long-term strategic objectives
and may contain a performance range to incentivise
outperformance and minimum performance levels to ensure that
poor performance is not rewarded. The targets for the 2020/22 LTIP
are set by the Committee, taking into account IHG’s long-range
business plan, market expectations and the circumstances and
relative performance at the time, with the aim of setting stretching
achievement targets for senior executives which will reflect
successful outcomes for the business based on its long-term
strategic objectives.
The comparator group of companies against which TSR outcomes are
measured for the 2020/22 cycle comprises of the following major,
globally branded competitors: Accor S.A.; Choice Hotels International
Inc.; Hilton Worldwide Holdings Inc; Hyatt Hotels Corporation; Marriott
International Inc.; Melia Hotels International S.A.; NH Hotel Group;
and Wyndham Hotels & Resorts Inc. The Committee reviews the
comparator group each year and may make changes for future
cycles if appropriate.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Policy
113
Governance
Directors’ Remuneration Policy continued
Alignment of remuneration policy with the 2018 Code
2018 Code provision:
How the Remuneration Committee applies the principle
Clarity
Remuneration arrangements should
be transparent and promote effective
engagement with shareholders and
the workforce.
Through the combination of short and long-term incentive plan measures, the DR Policy is structured to support
financial objectives and the strategic priorities of the business which deliver shareholder returns and long-term value
creation. Further alignment with shareholder interests is driven by the significant proportion of share-based incentives
and Executive Director shareholding requirements.
Simplicity
Remuneration structures should
avoid complexity and their rationale
and operation should be easy to
understand.
Risk
Remuneration arrangements should
ensure reputational and other risks
from excessive rewards, and
behavioural risks that can arise from
target-based incentive plans, are
identified and mitigated.
Predictability
The range of possible values of
rewards to individual directors and
any other limits or discretions should
be identified and explained at the
time of approving the policy.
Proportionality
The link between individual awards,
the delivery of strategy and the
long-term performance of the
Company should be clear and
outcomes should not reward poor
performance.
Alignment to culture
Incentive schemes should drive
behaviours consistent with the
Company purpose, values and
strategy.
As shown on page 100, our reward policies are aligned and include a proportion of performance-related reward
throughout the organisation, driving engagement for the whole of the workforce.
We always seek to report our DR Policy and performance-related remuneration measures, targets and outcomes in a clear,
transparent and balanced way, with relevant and timely communication with all of our stakeholders, including shareholders.
See pages 116 to 117 for further information on how we engage with stakeholders on remuneration matters.
Our remuneration structure comprises straightforward, conventional and well-understood components:
•
•
•
Fixed pay: base salary, pension and benefits that are consistent with role and location and are designed to attract
and retain talent.
Short-term incentive: annual performance-related bonus which incentivises and rewards the delivery of financial
and non-financial strategic objectives. For senior employees, a proportion of this bonus (50% for Executive
Directors) is paid in cash and the remainder deferred in shares for a period of three years.
Long-term incentive: a share-based award which incentivises performance over a three-year period, based on
measures which drive long-term sustainable growth and value creation.
Our DR Policy contains a number of elements to ensure that it drives the right behaviours to incentivise the Executive
Directors to deliver long-term sustainable growth and shareholder returns and to reward them appropriately:
•
•
•
•
The maximum short and long-term incentive awards are capped as a % of salary.
The Committee has clear discretion policies, linked to specific measures where necessary, to override formulaic
outcomes.
Executive Directors agree to clear and comprehensive malus and clawback provisions under which awards may
be reduced, rescinded or claimed back.
Significant shareholding requirements apply for Executive Directors, including the deferral of 50% of bonus in
shares; a post-vesting holding period for LTIP shares and minimum shareholding requirements for both during
and after employment.
The range of possible values of rewards for Executive Directors is clearly disclosed in graphical form both at the time
of approving the policy and in the annual implementation report:
•
•
See the charts on page 112 showing the potential future reward opportunity for the Executive Directors split
between fixed, target and maximum remuneration scenarios and the effect of future share price increases on the
LTIP assuming share price growth of 50% over the period.
See the charts on page 99 showing the minimum, target and maximum potential outcomes for the year.
As shown on pages 112 and 113, individual rewards are aligned to the delivery of strategic business objectives. The
Committee sets robust and stretching targets to ensure that there is a clear link between the performance of the
Group and the awards made to the Executive Directors and others; and that poor performance is not rewarded. The
powers of discretion set out in the DR Policy on page 111 further strengthen the Committee’s ability to ensure that
award outcomes reflect business performance and context in both absolute and relative terms.
As set out on pages 24 and 26, IHG has a clear purpose and well-established values and behaviours. Our Strategic
Model for high-quality growth explained on page 18 and the KPIs which underpin the delivery of our strategy are
shown on pages 42 to 45. Page 42 also sets out how our short and long-term incentive plans are aligned to these
strategic objectives. We show on page 100 how other elements of reward, such as salary reviews and, across the
wider workforce, the short-term incentive plan and our global recognition scheme reward employees for performance
and actions which demonstrate our values and behaviours.
114
IHG | Annual Report and Form 20-F 2019
Dilution of Company shares
Incentive plan rules provide that issuance of new shares or re-
issued treasury shares, when aggregated with all other share
schemes, must not exceed 10% of issued share capital in any
rolling 10-year period.
Policy on payment for loss of office
As per the DR Policy, Executive Directors have a notice period from
the Group of 12 months. However, neither notice nor a payment in
lieu of notice will be given in the event of gross misconduct. In the
event of an Executive Director terminating employment, any
compensation payable will be determined in accordance with the
terms of their service contract and the rules of any relevant incentive
plan. Where possible, the Group will seek to ensure that, if a leaver
mitigates their losses, for example, by finding new employment,
there will be a corresponding reduction in compensation payable for
loss of office. An Executive Director may have an entitlement to
compensation in respect of their statutory rights under employment
protection legislation in the UK or other relevant jurisdiction.
The following table sets out the basis on which payments for loss of
office may be made:
Remuneration component
Circumstances and approach taken (including but not limited to):
Salary and contractual
benefits, including
pension
APP award for year of
termination
Unvested APP deferred
share awards
Good leaver: paid up to date of termination or in lieu of notice, if applicable.
Other leaver: paid up to date of termination or in lieu of notice, if applicable.
Death: paid up to date of death.
Good leaver: pro-rated award for year up to date of termination, or later date in exceptional circumstances subject to Committee
discretion. No accelerated payment, other than in exceptional circumstances and where permitted under the plan rules subject to
Committee discretion. Award made 50% cash and 50% in shares deferred for three years from grant, other than in exceptional
circumstances and where permitted under the plan rules subject to Committee discretion.
Other leaver: no award for year of termination, other than in case of termination after end of performance period but before award
date (in which case cash portion only of award will be paid), and in exceptional circumstances subject to Committee discretion.
Death: pro-rated award for year up to date of death, paid fully in cash and accelerated, other than in exceptional circumstances
subject to Committee discretion.
Good leaver: vest on usual vesting date, other than in exceptional circumstances subject to Committee discretion.
Other leaver: forfeited, other than in exceptional circumstances subject to Committee discretion; and in the event of a termination
in connection with a takeover or reconstitution (in which case unvested APP deferred share awards will have accelerated vesting on
the date of termination, unless the Committee determines otherwise).
Death: accelerated vesting unless Committee decides otherwise.
Unvested LTIP awards
Good leaver: vest on usual vesting date to the extent that performance conditions are met, other than in exceptional circumstances
subject to Committee discretion. Number of shares vesting is pro-rated to date of termination, or other date subject to Committee
discretion.
Other leaver: forfeited, other than in exceptional circumstances subject to Committee discretion. No shares awarded or cash paid
under any circumstances in the event of termination due to gross misconduct.
Death: accelerated vesting: Committee has discretion to determine number of shares vesting, taking into account proportion of
performance period elapsed and extent to which performance conditions are satisfied.
Good leaver status will be applied in accordance with the rules of the APP and LTIP, where applicable, and will normally include retirement
with Company agreement, ill-health, the individual’s employing company or business ceasing to be part of the Group or redundancy. In the
case of the LTIP rules, the Committee has discretion to apply good leaver status and, in doing so, will consider factors such as personal
performance and conduct, overall Group performance and the specific circumstances of the Executive Director’s departure including, but
not restricted to, whether the Executive Director is leaving by mutual agreement. The Committee would only seek to exercise this and its
other discretions under the APP and LTIP plan rules in exceptional circumstances and the application of any such discretion would be
disclosed in full as required in the relevant announcement and Annual Report on Directors’ Remuneration.
Use of discretion by the Remuneration Committee
1. Malus and clawback in incentive plans
The APP and LTIP rules allow the Committee discretion to reduce the
level of unvested share awards if circumstances occur that, in the
reasonable opinion of the Committee, justify a reduction in one or
more awards granted to any one or more participants.
Malus provisions relate to unvested awards only. Clawback
provisions apply to Executive Directors in respect of the APP cash
awards and LTIP cycle awards from 2015/17 onwards. The provision
applies for three years from the date of payment (for the APP cash
award) and the date of vesting (for the LTIP award).
In respect of APP awards from 2020 onwards and LTIP awards from
2020/22 onwards, the circumstances in which the Committee may
consider it appropriate to exercise its discretion for malus and/or
clawback are extended to include the following:
• an event or series of events occurs which the Committee consider
to constitute corporate failure of the Company or the Group;
• there has been a material misstatement, error, or misrepresentation
in the financial statements of the Group, any member of the Group,
or any business unit or undertaking for which the Participant has
significant responsibility (other than as a result of a change in
accounting practice);
• an award was granted or vests on the basis of erroneous or
misleading information, assumptions or calculations;
• the action or conduct of a Participant, in the reasonable opinion
of the Committee, amounts to fraud or gross misconduct;
• the Participant leaves office or employment by reason of summary
dismissal by any member of the Group or where the Committee
subsequently determines that, prior to leaving, circumstances had
arisen which would have justified the Participant’s summary
dismissal;
• serious reputational damage or significant financial loss to the
Company, any member of the Group or a relevant business unit
arises as a result of the Participant’s conduct, misconduct or
otherwise; or
• any other triggers or circumstances occur which the Committee
determines justifies the application of malus and/or clawback. This
may include, where appropriate, negligence on the part of the
Executive Directors.
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Policy
115
Governance
Directors’ Remuneration Policy continued
These features help ensure alignment between executive reward
and shareholder interests and are in line with Corporate Governance
Code guidance. All Executive Directors are required to sign
(electronically in respect of LTIP awards) forms of acceptance at the
time of grant to indicate their acknowledgement and agreement that
awards are subject to malus and clawback.
2. Other uses of discretion
The Committee reserves certain discretions in relation to the
outcomes for Executive Directors under the Group’s incentive plans.
These operate in two main respects:
• enabling the Committee to ensure that outcomes under these
plans are consistent with the underlying performance of the
business and the experience of shareholders, at the same time
as providing a high degree of clarity for shareholders as to
remuneration structure and potential quantum; and
• enabling the Committee to treat leavers in a way that is fair and
equitable to individuals and shareholders under the incentive plans.
The discretions that can be applied in the case of leavers under the
APP and LTIP are set out in the section ‘Policy on payment for loss of
office’ on page 115.
The discretions that can be applied in respect of the APP and LTIP in
the event of corporate transactions, such as a takeover or merger,
include the ability to determine:
• the period for which awards may be pro-rated;
• whether awards are payable as cash or shares;
• the vesting date for awards and whether or not they may be
accelerated;
• if a transaction occurs prior to the end of a performance period,
the extent to which performance conditions have been met;
• in the event that a transaction involves the exchange of IHG PLC
shares for shares in another company, whether existing share
awards may be replaced by an appropriate proportion of shares
in a new company; and
• any such action as it may think appropriate if other events happen
which may have an effect on awards
Any exercises of discretion by the Committee will be fully disclosed
and explained in the relevant year’s Annual Report on Directors’
Remuneration.
Approach to recruitment remuneration
The remuneration of any new Executive Director will be determined
in accordance with the Directors’ Remuneration Policy on pages 110
to 111 and the elements that would be considered by the Group for
inclusion are:
• salary and benefits, including defined contribution pension
participation for a UK Executive Director;
• participation in the APP with 50% cash and 50% deferred share
elements:
– pro-rated for the year of recruitment to reflect the proportion of
the year remaining after the date of commencement of
employment; and
– if commencement date is after 1 October in the year, no award
would normally be made for that year
• participation in the LTIP:
– pro-rated awards would be made in relation to LTIP cycles
outstanding at the time of recruitment; but
– no pro-rated award would be made for an LTIP cycle that has less
than nine months to run at the date of commencement of
employment.
In addition, the Committee may, in its discretion, compensate a
newly recruited Executive Director for incentives foregone from
previous employment as a result of their resignation. The Committee
would seek validation of the value of any potential incentives
foregone. Awards made by way of compensation for incentives
foregone would be made on a comparable basis, taking account of
performance achieved (or likely to be achieved), the proportion of
the performance period remaining and the form of the award.
Compensation would, as far as possible, be in the form of LTIP or
deferred share awards in order to immediately align a new Executive
Director with IHG performance.
The maximum annual level of variable remuneration that may be
granted to a newly-recruited Executive Director would be in line with
that of the existing Executive Directors:
• APP award: 200% of salary, of which 50% of any award will be paid
in cash and 50% in the form of shares deferred for three years; and
• LTIP award: 350% of salary for a full LTIP cycle commencing after
appointment for a CEO and 275% of salary for a full LTIP cycle
commencing after appointment for other Executive Directors; plus
pro-rated awards in relation to LTIP cycles outstanding at the time
of recruitment (up to a further 350%/275% of salary).
This excludes any remuneration that constitutes compensation for
incentives foregone and providing any relocation and expatriate or
international assignment costs.
Consideration of shareholder views
In updating the DR Policy, as explained on page 109, we undertook a
comprehensive review of executive remuneration, taking into
consideration how it could support the Company’s strategy and
better align with shareholders’ interests. Engagement with our
largest shareholders has been key to this review and the Committee
chair has consulted with shareholders to develop the policy, starting
in late 2018 and continuing throughout 2019. This allowed the
Committee to hear and reflect on shareholder feedback while
developing the policy and helped shareholders better understand
our business, the competitive environment for talent and the
challenges we face. We have valued this engagement with
shareholders and the policy has been refined in direct response to
the feedback we received. We remain committed to continuing the
dialogue in the run-up to the 2020 AGM and beyond.
Consideration of employment conditions elsewhere in the Group
Whilst decisions on remuneration for employees outside the
Executive Committee remain the responsibility of Company
management, the Committee has historically reviewed pay and
employment conditions beyond those of the Executive Committee
and has taken this into consideration when establishing and
implementing policy for Executive Directors. In line with best
practice under the revised Corporate Governance Code, the
Committee has set out a schedule of rolling reviews of wider
workforce remuneration and related policies to ensure the alignment
of incentives and rewards with the Company’s strategy and culture;
and to take these into account when setting the policy for Executive
Director remuneration.
Over the past year, the Committee has looked at the Company’s
reward philosophy and alignment of pay with culture, values and
behaviours; and salary and incentives policies and practice,
including how reward practices are aligned across all levels of the
organisation. This has shown a consistent approach to reward and
has informed the Committee’s views on the structure and approach
to executive pay. For example, as set out on page 96, there are
concerns relating to pay compression at senior levels in the Group,
which is part of the reason for addressing Executive Director
quantum in the DR Policy; but it remains the Committee’s view that
Executive Director remuneration should be subject to robust and
stretching performance conditions supported by strong
shareholding and governance requirements.
116
IHG | Annual Report and Form 20-F 2019
Feedback from employee surveys provide views on a range of
employee matters including pay. Throughout the Group, base salary
and benefit levels are set in accordance with prevailing market
conditions, policies, practice and relevant regulations in the
countries in which employees are based. Differences between
Executive Director pay policy and that of other employees reflect the
position and responsibilities of the individuals, as well as corporate
governance practices in respect of Executive Director remuneration.
As set out on page 100, a key difference in policy for Executive
Directors and other senior management is that a greater proportion
of total remuneration is delivered as performance-based incentives.
The Company’s approach to wider workforce engagement under the
Corporate Governance Code is set out on page 32 and 33.
Service contracts and notice periods for Executive Directors
The Committee’s policy is for all Executive Directors to have rolling
service contracts with a notice period of 12 months. All new
appointments will have 12-month notice periods, unless, on an
exceptional basis to complete an external recruitment successfully,
a longer initial notice period reducing to 12 months is used. This is in
accordance with the UK Corporate Governance Code.
All Executive Directors’ appointments and subsequent re-
appointments are subject to election and annual re-election by
shareholders at the AGM.
Details of current Executive Directors’ contracts:
Executive Director
Date of original appointmenta
Keith Barr
1 July 2017
Paul Edgecliffe-Johnson
1 January 2014
Elie Maalouf
1 January 2018
a To the Board.
Notice
period
12 months
12 months
12 months
Non-executive directorships of other companies
The Group recognises that its Executive Directors may be invited to
become Non-Executive Directors of other companies and that such
duties can broaden their experience and knowledge and benefit the
Group. IHG therefore permits its Executive Directors to accept one
non-executive appointment (in addition to any positions where the
Director is appointed as the Group’s representative), subject to
Board approval and as long as this is not, in the reasonable opinion
of the Board, likely to lead to a conflict of interest. Any fees from
such appointments may be retained by the individual Executive
Director.
Remuneration Policy for Non-Executive Directors
The policy for Non-Executive Directors, set out below, will apply for
three years from the date of the 2020 AGM.
The policy for Non-Executive Directors is available to view at
www.ihgplc.com/investors under Corporate Governance
in the Committees’ section.
If any changes are made to the Policy within that time frame, it will
be presented to be voted upon by shareholders. Non-Executive
Directors are not eligible to participate in the APP, LTIP nor any IHG
pension plan.
Fees and benefits
100% cash
No change in policy
Link to strategy
Operation
• To attract Non-Executive Directors who have a
broad range of skills and experience that add
value to our business and help oversee and drive
our strategy.
• Recognises the value of the role and the
individual’s skill, performance and experience.
• Non-Executive Directors’ fees and benefits are
set by the Chairman of the Board and Executive
Directors; the Chairman’s fees are set by the
Committee.
• Fees are reviewed annually and fixed for
12 months from 1 January.
• Consideration is given to business performance,
current remuneration competitiveness and
average salary increases for the wider IHG
employee population.
• Benefits include travel and accommodation in
connection with attendance at Board and
Committee meetings.
• Non-Executive Directors are not eligible to
participate in IHG incentive or pension plans.
• A single fee is determined for each Non-
Executive Director role rather than different
elements being applied to directorship, or
additional services such as Committee and Chair
roles.
Maximum opportunity
• Fee increases will be in line with median FTSE
100 increases, taking into account the
circumstances of the business and increases in
remuneration across the Group, other than
where there is a change in role or responsibility
or another need arises to reassess the
competitiveness of fee level that warrants either
a lesser or a more significant increase. Any such
change will be fully explained.
• IHG pays the cost of providing benefits as
required.
Performance framework
• Non-Executive Directors are not eligible to
participate in any performance-related incentive
plans.
Details of letters of appointment and notice periods for Non-
Executive Directors
Non-Executive Directors have letters of appointment, which are
available upon request from the Company Secretary’s office.
Patrick Cescau, appointed Non-Executive Chairman on 1 January
2013, is subject to 12 months’ notice. Other Non-Executive Directors
are not subject to notice periods.
All Non-Executive Directors’ appointments and subsequent
re-appointments are subject to election and annual re-election by
shareholders at the AGM.
Details of Committee memberships and appointment dates are
shown on page 79.
Jo Harlow
Chair of the Remuneration Committee
17 February 2020
IHG | Annual Report and Form 20-F 2019 | Governance | Directors’ Remuneration Policy
117
Group Financial Statements
Holiday Inn Express Foshan Chancheng, China
118
IHG | Annual Report and Form 20-F 2019
Group Financial
Statements
Statement of Directors’ Responsibilities
Independent Auditor’s UK Report
Independent Auditor’s US Report
120
121
128
132 Group Financial Statements
132 Group income statement
133
134 Group statement of changes in equity
137 Group statement of financial position
138 Group statement of cash flows
139 Accounting policies
146 New accounting standards and other
Group statement of comprehensive income
presentational changes
150 Notes to the Group Financial Statements
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements
119
Group Financial Statements
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 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, IHG Directors are required to:
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.
• 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
Group and the Company, 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,
and give a true and fair view of the assets, liabilities, financial
position and profit or 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 position and
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.
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
2019 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 2019 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
2019, 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 131.
For and on behalf of the Board
Keith Barr
Chief Executive Officer
17 February 2020
Paul Edgecliffe-Johnson
Chief Financial Officer
17 February 2020
120
IHG | Annual Report and Form 20-F 2019
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 2019 and
of the Group’s profit for the year then ended;
• the Group Financial Statements have been properly prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company Financial Statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including FRS 101 ‘Reduced Disclosure
Framework’; and
• the Financial Statements have been prepared in accordance with
the requirements of the Companies Act 2006, and, as regards the
Group Financial Statements, Article 4 of the IAS Regulation.
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.
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:
What we have audited
InterContinental Hotels Group PLC’s (IHG’s, the Group’s) Financial
Statements for the year ended 31 December 2019 comprise:
• the disclosures in the annual report set out on pages 48 to 54
that describe the principal risks and explain how they are being
managed or mitigated;
Group
Company
Group income statement
Parent Company statement of
financial position
Group statement of comprehensive
income
Parent Company statement of
changes in equity
Group statement of changes in
equity
Related notes 1 to 12 to the Parent
Company Financial Statements
Group statement of financial position
Group statement of cash flows
Related notes 1 to 34 to the Group
Financial Statements and accounting
policies, new accounting standards
and presentational changes and
standards issued but not yet effective.
• the directors’ confirmation set out on page 95 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 95 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 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, including FRS 101 ‘Reduced
Disclosure Framework’ (United Kingdom Generally Accepted
Accounting Practice).
• the directors’ explanation set out on page 54 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 revenue related to the IHG Rewards Club (“IHGRC”) loyalty programme
• Allocation of revenues and expenses to the System Fund
• Impairment assessments of the Kimpton management contracts and the UK portfolio goodwill and right-of-use asset
• Accounting for the acquisition of Six Senses Hotels Resorts Spas (“Six Senses”)
Audit scope
• We performed a full scope audit of 18 components and specific audit procedures for a further 35 components.
• For 16 full scope components audit procedures were performed by a combination of the Primary Team and one or more of the three
component audit teams.
• The components where we performed full or specific audit procedures accounted for 91% of profit before tax adjusted for pre-tax
exceptional items and the System Fund and 92% of revenue.
Materiality
• Overall Group materiality of $36 million was applied which represents 5% of profit before tax adjusted for pre-tax exceptional items
and the System Fund. We considered it appropriate to maintain our planning materiality rather than increasing it to $37 million based
on the final reported results.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Independent Auditor’s UK Report
121
Group Financial Statements
Independent Auditor’s UK Report continued
Key audit matters
Key audit matters are those matters that, in our professional
judgement, 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.
Key observations
communicated to the
Audit Committee
The deferred
revenue balance and
the recognition of
revenue related to
the IHGRC loyalty
programme is within
an acceptable range.
The sensitivity
disclosure provided
in the critical
accounting policies
and use of
judgements,
estimates and
assumptions on
page 139 of the
Group Financial
Statements is
appropriate.
Risk
direction
Our response to the risk
We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls related to the Group’s process
for determining the ultimate consumption rate. For example, we
tested controls over management’s review and approval of the
external actuary’s report.
To test the deferred revenue balance and the recognition of
revenue associated with the IHGRC loyalty programme, our audit
procedures included, amongst others:
• testing the clerical accuracy and significant inputs into the
model used by management to determine the IHGRC loyalty
programme revenues;
• testing the data used by management’s external actuary in their
modelling to derive the ultimate consumption rate, notably by
reconciling the input data with the Group’s underlying systems
and records;
• considering the professional qualifications and objectivity of
management’s external actuary and inspecting their reports to
identify corroborating or contradictory evidence to the ultimate
consumption rate;
• involving actuarial specialists as part of our team to assist in
assessing the appropriateness of the methodology, data and
assumptions used to determine the ultimate consumption rate
applied by management and calculating an independent estimate
of an acceptable range of outcomes, which we compared to
management’s estimate; and
• performing sensitivity analysis on the ultimate consumption
rate to evaluate changes in the deferred revenue balance
and the recognition of revenue associated with the
IHGRC loyalty programme.
In addressing this key audit matter, audit procedures were
performed by the Primary Team.
Risk
Accounting for revenue related to the IHG Rewards
Club (“IHGRC”) loyalty programme
Refer to the Audit Committee Report (page 89);
critical accounting policies and the use of
judgements, estimates and assumptions (page 139);
and notes 3 and 33 of the Group Financial
Statements (pages 155 and 198).
As of 31 December 2019, the Group had deferred
revenue of $1,233 million (2018: $1,181 million) and
for the year ended 31 December 2019, recognised
$337 million (2018: $254 million) of revenue
associated with the IHGRC loyalty programme.
As more fully described in the accounting policies
to the Group Financial Statements, the Group
recognises deferred revenue in an amount that
reflects its unsatisfied performance obligations.
The Group has determined the related performance
obligation is satisfied, and therefore revenue is
recognised, in the period in which the IHGRC
member consumes the loyalty points either at a
participating hotel or by selecting a reward from
a third party. Deferred revenue and revenue
recognised in the period are valued at the estimated
standalone selling price of the future benefit to the
IHGRC members. Consideration for loyalty points
earned by IHGRC members, or sold under
co-branding arrangements, are received in the
period in which the points are issued. The Group
engages an external actuary to assist in estimating
the future consumption rate of points earned by the
members of the IHGRC loyalty programme (the
“ultimate consumption rate”), also referred to as
“breakage” being the estimation of the number
of points that will never be consumed.
Auditing the deferred revenue balance and
recognition of revenue associated with the IHGRC
loyalty programme was challenging due to:
• the complexity and high volume of input data in
the model used to determine the deferred
revenues;
• the judgement involved in estimating the ultimate
consumption rate, which is the key assumption in
determining the deferred revenue balance and the
recognition of revenue associated with the IHGRC
loyalty programme; and
• the sensitivity to changes in the ultimate
consumption rate to the deferred revenue balance
and the recognition of revenue associated with the
IHGRC loyalty programme. Significant estimation
uncertainty exists in projecting future IHGRC
members’ spending and consumption activity as
the estimate is forward looking.
122
IHG | Annual Report and Form 20-F 2019
Key observations
communicated to the
Audit Committee
The System Fund
revenues and
expenses have been
allocated in
accordance with the
principles agreed
with the IHG Owners
Association.
Risk
direction
Our response to the risk
We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls related to the Group’s process
for allocating revenues and expenses to the System Fund. For
example, we tested controls over management’s review and
approval of changes to the allocation methodology.
To test the allocation of revenues and expenses to the System Fund,
our audit procedures included, amongst others:
• assessing management’s allocation methodology, by testing
System Fund revenue and expense transactions to evaluate the
appropriate classification in accordance with the principles
agreed with the IHG Owners Association and forming an
independent assessment of the revenues and expenses related to
the System Fund;
• testing whether any changes made to the allocation methodology
were in accordance with the principles agreed with the IHG
Owners Association;
• performing analytical procedures over the System Fund revenues
and expenses to identify unusual trends in the classification of
revenues and expenses; and
• testing manual journal entries made to System Fund revenues and
expenses to evaluate the appropriateness in accordance with the
principles agreed with the IHG Owners Association.
In addressing this key audit matter, audit procedures were
performed by the component audit team in the United States under
our supervision.
We obtained an understanding, evaluated the design and tested
the operating effectiveness of controls related to management’s
assessments of impairment. For example, we tested controls over
management’s review of cash flow forecasts, valuation models and
approval of impairment assessments.
To test management’s impairment assessments, our audit
procedures included, amongst others:
• evaluating the appropriateness of the methodology, assumptions
and estimates used in the impairment assessments;
• involving valuation specialists as part of our team to assist in
testing the key valuation assumptions, including the discount
rates used with reference to external data and to calculate an
independent estimate of an acceptable range;
• assessing the reasonableness of the cash flow forecasts by
comparison to current industry, market and economic trends,
where applicable, and the Group’s historical data;
• assessing the accuracy of significant assumptions used by
management in previous periods by comparing forecasts with
actual results;
• specifically for the Kimpton management contracts, evaluating
the rate of assumed hotel exits applied to the cash flow forecasts;
• testing the clerical accuracy of the impairment models used by
management in their assessment; and
• evaluating the disclosures provided in note 13 of the Group
Financial Statements and the classification of the impairment
charge as an exceptional item.
In addressing this key audit matter, audit procedures were
performed by the Primary Team.
The net book value
of the Kimpton
management
contracts and the UK
portfolio goodwill
and right-of-use
asset are
supportable.
The impairment
charges recognised
as exceptional items
in the Group income
statement are in
accordance with the
Group’s disclosed
accounting policy
for exceptional items
and consistent with
the requirements of
IAS 1 – Presentation
of Financial
Statements.
The disclosures
provided in note 13
and the sensitivities
provided on pages
139 to 140 of the
Group Financial
Statements are in
accordance with IAS
36 – Impairment of
Assets.
Risk
Allocation of revenues and expenses
to the System Fund
Refer to the Strategic Report (page 11); the Audit
Committee Report (page 89); and the accounting
policies (page 144) and note 33 of the Group
Financial Statements (page 198).
For the year ended 31 December 2019, the Group
recognised $1,373 million (2018: $1,233 million) of
System Fund revenues and $1,422 million (2018:
$1,379 million) of System Fund expenses.
As more fully described in the accounting policies to
the Group Financial Statements, the Group operates
a System Fund which collects contributions from
hotel owners for the specific purpose of the use in
marketing, the guest reservation systems and the
loyalty programme in accordance with the principles
agreed with the IHG Owners Association.
Auditing the allocation of revenues and expenses to
the System Fund was complex due to:
• the considerations involved in evaluating that the
allocation of revenues and expenses to the System
Fund by management was in accordance with the
principles agreed with the IHG Owners
Association; and
• the System Fund revenues and expenses being
included within IHG’s income statement but
eliminated from IHG’s operating profit from
reportable segments which is a key performance
measure used by management.
Impairment assessments of the Kimpton
management contracts and the UK portfolio
goodwill and right-of-use asset
Refer to the Audit Committee Report (page 89);
critical accounting policies and the use of
judgements, estimates and assumptions
(pages 139 to 140); and note 13 of the
Group Financial Statements (page 170).
At 31 December 2019, the net book value of the
Kimpton management contracts was $10 million
(2018: $61 million) and the UK portfolio goodwill and
right-of-use asset was $nil and $24 million, respectively.
For the year ended 31 December 2019, impairment
charges of $50 million (2018: $nil), $49 million and
$32 million were recorded as exceptional items in
the Group income statement in relation to the
Kimpton management contracts, the UK portfolio
goodwill and right-of-use asset, respectively.
As more fully described in the accounting policies to
the Group Financial Statements and disclosed in
note 13, the Group tests intangible assets for
impairment, in accordance with IAS 36 – Impairment
of Assets, using valuation techniques involving
judgements, estimates and assumptions.
Auditing the impairment assessments performed by
management was challenging due to the judgement
involved in determining the recoverable amount of
the Kimpton management contracts (including key
money) and the UK portfolio goodwill and right-of-
use asset. The significant assumptions used to
estimate the recoverable amounts of the Kimpton
management contracts and the UK portfolio
goodwill included discount rates and certain
assumptions that form the basis of the cash flow
forecasts (e.g. revenue growth rates and gross
operating profit). These significant assumptions are
forward looking and could be affected by future
economic and market conditions.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Independent Auditor’s UK Report
123
Group Financial Statements
Independent Auditor’s UK Report continued
In addition to the risks identified as part of our audit planning, the Group undertook the following material non-routine transactions in the
year which affected the allocation of resources and the direction of our audit efforts and for which our audit response was as follows:
Risk
Accounting for the acquisition of Six Senses Hotels
Resorts Spas (“Six Senses”)
Refer to the Audit Committee Report (page 89); and
note 11 of the Group Financial Statements (page 165).
On 12 February 2019, the Group completed the
acquisition of Six Senses for total consideration of
$304 million, as disclosed in note 11 of the Group
Financial Statements. The transaction was
accounted for as a business combination.
Auditing the acquisition of Six Senses was
challenging due to the judgement involved in
determining the fair value of the acquired intangible
assets, being the brand and management contracts
of $189 million and $45 million, respectively. The
significant assumptions used to estimate the value
of the intangible assets included discount rates and
certain assumptions that form the basis of the cash
flow forecasts (e.g. royalty rate and the long-term
growth rate). These significant assumptions are
forward looking and could be affected by future
economic and market conditions.
Key observations
communicated to
the Audit Committee
The fair value of the
intangible assets
recognised in
relation to the Six
Senses acquisition
and the disclosures
provided in note 11
on page 165 of the
Group Financial
Statements are
appropriate and in
accordance with
IFRS 3 – Business
Combinations.
Risk
direction
Our response to the risk
We obtained an understanding, evaluated the design and tested the
operating effectiveness of controls related to the Group’s process
over the acquisition accounting and the valuation of intangible
assets acquired. For example, we tested controls over
management’s review and approval of the external valuation report
and the underlying assumptions used in the report.
To test the estimated fair value of the intangible assets, our audit
procedures included, amongst others:
• evaluating the Group’s use of the valuation methodology and
testing the significant assumptions used in the valuation,
including the completeness and accuracy of the underlying data;
• involving valuation specialists as part of our team to assist in our
evaluation of the valuation methodology and significant
assumptions, including the discount rates, royalty rate and
long-term growth rate used by management and to calculate an
independent estimate of an acceptable range of the Six Senses
brand and management contracts valuations. For example, we
compared the significant assumptions that form the basis of the
cash flow forecasts to current industry, market and economic
trends and to the assumptions used to value similar assets in
other acquisitions;
• testing the clerical accuracy of the calculation performed by
management in determining the fair value of intangible assets; and
• evaluating the disclosures provided in note 11 to the Group
Financial Statements.
In addressing this key audit matter, audit procedures were
performed by the Primary Team.
“The carrying value of the Kimpton assets and the investment in the Barclay associate” was included last year as a key audit matter. The
likelihood and magnitude of a potential impairment of the investment in the Barclay associate is unlikely to be material and therefore the risk
is no longer considered to be at a higher level.
“Presentation of reorganisation costs in the Group income statement” was included last year as a key audit matter due to the allocation of
resources and our audit efforts in response to the material amount of reorganisation costs incurred in the year. The allocation of resources
and audit efforts has been less significant in 2019 as the amount of reorganisation costs incurred has reduced. We no longer consider the
reorganisation costs to be a key audit matter.
“Acquisition accounting for the Regent and UK portfolio transactions” was included last year as a key audit matter. As the acquisitions did
not occur in 2019 the transactions are no longer considered key audit matters.
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 and effectiveness
of group-wide controls, changes in the business environment and
other factors such as Global Internal Audit’s results 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 53 components which represent the principal business
units within the Group.
Of the 53 components selected, we performed an audit of the
complete financial information of 18 components (‘full scope
components’) which were selected based on their size or risk
characteristics. For 16 full scope components, procedures were
performed by a combination of the Primary Team and one or more
of the three component audit teams.
For the remaining 35 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.
124
IHG | Annual Report and Form 20-F 2019
The table below illustrates the coverage obtained from the work performed by our audit teams.
Full scope
Specific scope
Full and specific scope coverage
Remaining components
Total
See note
Number
% profit before tax adjusted
for pre-tax exceptional items
and the System Fund
%
revenue
% profit before tax adjusted
for pre-tax exceptional items
and the System Fund
Number
2019
18
35
53
1
2
3
78
13
91
9
61
31
92
8
22
28
50
79
15
94
6
2018
%
revenue
63
29
92
8
100
100
100
100
Notes
1 The Group audit risks included in the tables on pages 122 to 124 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 9% of the Group’s profit before tax adjusted for pre-tax exceptional items and the System Fund, and 8% of the Group’s revenue;
none are individually greater than 2% of the Group’s profit before tax adjusted for pre-tax exceptional items and the System Fund or greater than 1% of the Group’s revenue. We
performed specified procedures over System Fund revenue for two components (2018: two). For three (2018: two) components, including the component acquired in the year, we
performed review scope procedures. For the remaining components, 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 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 18 full scope components, audit procedures were
performed on two of these directly by the Primary Team and 16
by a combination of the Primary Team and one or more of the three
component audit teams. For the 35 specific scope components,
audit procedures were performed on six of these directly by the
Primary Team and 29 by the three 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 three component teams at key locations in the United
States, United Kingdom and India.
These visits involved discussing the audit approach with the
component team and any issues arising from their work, meeting
with local management, and reviewing key audit working papers on
the Group’s risk areas. The Primary Team interacted regularly with
the component teams, 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 $36 million (2018:
$35 million), which is 5% of profit before tax adjusted for pre-tax
exceptional items and the System Fund (2018: 5% of profit before tax
adjusted for pre-tax exceptional items and the System Fund). We
believe profit before tax adjusted for pre-tax exceptional items and
the System Fund is the most relevant performance measure to the
stakeholders of the entity, as IHG’s management and investors
monitor performance with this as a key metric. Detailed audit
procedures are performed on material exceptional items and the
System Fund.
Starting basis
• Profit before tax of $542 million
Adjustments
• Adjust for pre-tax exceptional items of $148
million and the System Fund result of $49
million to determine adjusted profit before tax
Materiality
• Totals $739 million (materiality basis)
• Materiality maintained at planning level at
$36 million (versus $37 million based on
5% of final reported results)
During the course of our audit, we reassessed initial materiality and
the actual profit before tax adjusted for pre-tax exceptional items
and the System Fund was higher than the Group’s initial estimates
used at planning. However, due to the status of our procedures we
did not change our materiality assessment to reflect this.
We determined materiality for the Parent Company to be £14 million
(2018: £19 million), which is 1% (2018: 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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Independent Auditor’s UK Report
125
Group Financial Statements
Independent Auditor’s UK Report continued
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% (2018: 75%) of our planning
materiality, namely $27 million (2018: $27 million). We have set
performance materiality at this percentage to ensure 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 $2 million to $27 million (2018: $2 million to
$27 million).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
• Audit Committee reporting set out on pages 88 to 91 – 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 pages 94 and 95 – 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:
We agreed with the Audit Committee that we would report to
them all uncorrected audit differences in excess of $1.8 million
(2018: $1.8 million), which is set at 5% of planning materiality, as well
as differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
• 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 120, 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.
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.
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 to 117 and
pages 212 to 252, other than the financial statements and our
auditor’s reports 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 Group 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.
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:
• Fair, balanced and understandable set out on page 120 – 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
126
IHG | Annual Report and Form 20-F 2019
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 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 Financial Statements to
material misstatement, including how fraud might occur, by
meeting with management from various parts of the business
to understand where management 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 the allocation of revenues and
expenses to the System Fund and 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 Group
Financial Statements is located on the Financial Reporting Council’s
website at https://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 2 May 2019 to audit the
Group Financial Statements for the year ending 31 December 2019
and subsequent financial periods.
• We have served as auditors since the Company’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 32 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.
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.
Sarah Kokot (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
17 February 2020
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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Independent Auditor’s UK Report
127
Group Financial Statements
Independent Auditor’s US Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of InterContinental
Hotels Group PLC.
Opinion on the Financial Statements
We have audited the accompanying Group statement of financial
position of InterContinental Hotels Group PLC (“the Group”) as of 31
December 2019 and 2018, 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 2019, and the
related notes (collectively referred to as the “Group Financial
Statements”). In our opinion, the Group Financial Statements
present fairly, in all material respects, the financial position of the
Group at 31 December 2019 and 2018, and the results of its
operations and its cash flows for each of the three years in the
period ended 31 December 2019, 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 Group’s internal control over financial reporting as of 31
December 2019, 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 17 February 2020 expressed an unqualified opinion
thereon.
Adoption of New Accounting Standard
As discussed in the new accounting standards and presentational
changes note to the Group Financial Statements, the Group
changed its method of accounting for leases due to the adoption
of IFRS 16 – Leases, effective 1 January 2019 under the full
retrospective method.
Basis for Opinion
These Group Financial Statements are the responsibility of the
Group’s management. Our responsibility is to express an opinion on
the Group’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 Group 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 Group 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 Group 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
Group 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
Group Financial Statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated are matters arising from
the current period audit of the Group Financial Statements that
were communicated or required to be communicated to the Audit
Committee and that: (1) relate to accounts or disclosures that are
material to the Group Financial Statements and (2) involved our
especially challenging, subjective or complex judgements. The
communication of critical audit matters does not alter in any way our
opinion on the Group Financial Statements, taken as a whole, and we
are not, by communicating the critical audit matters, providing
separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
128
IHG | Annual Report and Form 20-F 2019
Critical Audit Matter
Description of the Matter
How We Addressed the Matter in Our Audit
Accounting for
revenue related to the
IHG Rewards Club
(“IHGRC”) loyalty
programme
Allocation of revenues
and expenses to the
System Fund
As of 31 December 2019, the Group had deferred
revenue of $1,233 million and for the year ended
31 December 2019, recognised $337 million
of revenue associated with the IHGRC loyalty
programme. As more fully described in the
accounting policies (critical accounting policies
and the use of judgements, estimates and
assumptions) and notes 3 and 33 of the Group
Financial Statements, the Group recognises
deferred revenue in an amount that reflects its
unsatisfied performance obligations. The Group
has determined the related performance
obligation is satisfied, and therefore revenue is
recognised, in the period in which the IHGRC
member consumes the loyalty points either at
a participating hotel or by selecting a reward
from a third party. Deferred revenue and revenue
recognised in the period are valued at the
estimated standalone selling price of the future
benefit to the IHGRC members. Consideration for
loyalty points earned by IHGRC members, or sold
under co-branding arrangements, are received in
the period in which the points are issued. The
Group engages an external actuary who uses
statistical formulae to assist in estimating the
future consumption rate of points earned by the
members of the IHGRC loyalty programme (the
“ultimate consumption rate”), also referred to as
“breakage” being the estimation of the number
of points that will never be consumed.
Auditing the deferred revenue balance and
recognition of revenue associated with the IHGRC
loyalty programme was challenging due to: (i) the
complexity and high volume of input data in the
model used to determine the deferred revenues,
(ii) the judgement involved in estimating the
ultimate consumption rate, which is the key
assumption in determining the deferred revenue
balance and the recognition of revenue associated
with the IHGRC loyalty programme, and (iii) the
sensitivity to changes in the ultimate consumption
rate to the deferred revenue balance and the
recognition of revenue associated with the IHGRC
loyalty programme. Significant estimation
uncertainty exists in projecting future IHGRC
members’ spending and consumption activity
as the estimate is forward looking.
For the year ended 31 December 2019, the Group
recognised $1,373 million of System Fund
revenues and $1,422 million of System Fund
expenses. As more fully described in the
accounting policies (revenue recognition) and
note 33 of the Group Financial Statements, the
Group operates a System Fund which collects
contributions from hotel owners for the specific
purpose of the use in marketing, the guest
reservation systems and the loyalty programme
in accordance with the principles agreed with
the IHG Owners Association.
Auditing the allocation of revenues and expenses
to the System Fund was complex due to (i) the
considerations involved in evaluating that the
allocation of revenues and expenses to the System
Fund by management was in accordance with the
principles agreed with the IHG Owners Association
and (ii) the System Fund revenues and expenses
being included within IHG’s income statement but
eliminated from IHG’s operating profit from
reportable segments which is a key performance
measure used by management.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls related to the Group’s process for determining the
ultimate consumption rate. For example, we tested controls over
management’s review and approval of the external actuary’s report.
To test the deferred revenue balance and the recognition of revenue
associated with the IHGRC loyalty programme, our audit procedures
included, amongst others, testing the clerical accuracy and significant inputs
into the model used by management to determine the IHGRC loyalty
programme revenues. We tested the data used by management’s external
actuary in their modelling to derive the ultimate consumption rate, notably by
reconciling the input data with the Group’s underlying systems and records.
We considered the professional qualifications and objectivity of
management’s external actuary and inspected their reports to identify
corroborating or contradictory evidence to the ultimate consumption rate.
We involved actuarial specialists as part of our team to assist in assessing
the appropriateness of the methodology, data and assumptions used to
determine the ultimate consumption rate applied by management and to
calculate an independent estimate of an acceptable range of outcomes,
which we compared to management’s estimate. We performed sensitivity
analysis on the ultimate consumption rate to evaluate changes in the deferred
revenue balance and the recognition of revenue associated with the IHGRC
loyalty programme.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls related to the Group’s process for allocating
revenues and expenses to the System Fund. For example, we tested controls
over management’s review and approval of changes to the allocation
methodology.
To test the allocation of revenues and expenses to the System Fund, our audit
procedures included, amongst others, assessing management’s allocation
methodology, by testing System Fund revenue and expense transactions to
evaluate the appropriate classification in accordance with the principles
agreed with the IHG Owners Association and forming an independent
assessment of the revenues and expenses related to the System Fund. We
tested whether any changes made to the allocation methodology were in
accordance with the principles agreed with the IHG Owners Association.
We performed analytical procedures over the System Fund revenues and
expenses to identify unusual trends in the classification of revenues and
expenses. We tested manual journal entries made to System Fund revenues
and expenses to evaluate the appropriateness in accordance with the
principles agreed with the IHG Owners Association.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Independent Auditor’s US Report
129
Group Financial Statements
Independent Auditor’s US Report continued
Critical Audit Matter
Description of the Matter
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls related to management’s assessments of
impairment. For example, we tested controls over management’s review of
cash flow forecasts, valuation models and approval of impairment
assessments.
To test management’s impairment assessments, our audit procedures
included, amongst others, evaluating the appropriateness of the
methodology, assumptions and estimates used in the impairment
assessments. We involved valuation specialists as part of our team to assist in
testing the key valuation assumptions, including the discount rates used with
reference to external data and to calculate an independent estimate of an
acceptable range. We assessed the reasonableness of the cash flow forecasts
by comparison to current industry, market and economic trends, where
applicable, and the Group’s historical data. In addition, we assessed the
accuracy of significant assumptions used by management in previous periods
by comparing forecasts with actual results. Specifically, for the Kimpton
management contracts we evaluated the rate of assumed hotel exits applied
to the cash flow forecasts.
We tested the clerical accuracy of the impairment models used by
management in their assessment. In addition, we evaluated the disclosures
provided in note 13 of the Group Financial Statements and the classification of
the impairment charge as an exceptional item.
Impairment
assessments of the
Kimpton management
contracts and the UK
portfolio goodwill and
right-of-use asset
At 31 December 2019, the net book value of the
Kimpton management contracts was $10 million
and the UK portfolio goodwill and right-of-use
asset was $nil and $24 million, respectively. For the
year ended 31 December 2019, impairment
charges of $50 million, $49 million and $32 million
were recorded as exceptional items in the Group
income statement in relation to the Kimpton
management contracts, the UK portfolio goodwill
and right-of-use asset, respectively. As more fully
described in the accounting policies (critical
accounting policies and the use of judgements,
estimates and assumptions) and note 13 of the
Group Financial Statements, the Group tests
intangible assets for impairment, in accordance
with IAS 36 – Impairment of Assets, using valuation
techniques involving judgements, estimates
and assumptions.
Auditing the impairment assessments performed
by management was challenging due to the
judgement involved in determining the
recoverable amount of the Kimpton management
contracts (including key money) and the UK
portfolio goodwill and right-of-use asset. The
significant assumptions used to estimate the
recoverable amounts of the Kimpton management
contracts and the UK portfolio goodwill included
discount rates and certain assumptions that form
the basis of the cash flow forecasts (e.g. revenue
growth rates and gross operating profit). These
significant assumptions are forward looking and
could be affected by future economic and
market conditions.
Accounting for the
acquisition of Six
Senses Hotels Resorts
Spas (“Six Senses”)
On 12 February 2019, the Group completed the
acquisition of Six Senses for total consideration of
$304 million, as disclosed in note 11 to the Group
Financial Statements. The transaction was
accounted for as a business combination.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls related to the Group’s process over the acquisition
accounting and the valuation of intangible assets acquired. For example, we
tested controls over management’s review and approval of the external
valuation report and the underlying assumptions used in the report.
Auditing the acquisition of Six Senses was
challenging due to the judgement involved in
determining the fair value of the acquired
intangible assets, being the brand and
management contracts of $189 million and $45
million, respectively. The significant assumptions
used to estimate the value of the intangible assets
included discount rates and certain assumptions
that form the basis of the cash flow forecasts
(e.g. royalty rate and the long-term growth rate).
These significant assumptions are forward looking
and could be affected by future economic and
market conditions.
To test the estimated fair value of the intangible assets, our audit procedures
included, amongst others, evaluating the Group’s use of the valuation
methodology and testing the significant assumptions used in the valuation,
including the completeness and accuracy of the underlying data. We involved
valuation specialists as part of our team to assist in our evaluation of the
valuation methodology and significant assumptions, including the discount
rates, royalty rate and long-term growth rate used by management and to
calculate an independent estimate of an acceptable range of the Six Senses
brand and management contracts valuations. For example, we compared the
significant assumptions that form the basis of the cash flow forecasts to
current industry, market and economic trends and to the assumptions used to
value similar assets in other acquisitions.
We tested the clerical accuracy of the calculation performed by management
in determining the fair value of intangible assets. We evaluated the disclosures
provided in note 11 to the Group Financial Statements.
Ernst & Young LLP
We have served as auditors since the Group’s listing in April 2003 and of
the Group’s predecessor businesses since 1988.
London, England
17 February 2020
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.
130
IHG | Annual Report and Form 20-F 2019
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors 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 2019, 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 2019, 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
Group statement of financial position of the Company as of 31
December 2019 and 2018, 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 2019,
and the related notes, and our report dated 17 February 2020
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
17 February 2020
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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Independent Auditor’s US Report
131
Group Financial Statements
Group Financial Statements
Group income statement
For the year ended 31 December 2019
Revenue from fee business
Revenue from owned, leased and managed lease hotels
System Fund revenues
Reimbursement of costs
Total revenue
Cost of sales
System Fund expenses
Reimbursed costs
Administrative expenses
Share of (losses)/gains of associates and joint ventures
Other operating income
Depreciation and amortisation
Impairment charges
Operating profit
Operating profit analysed as:
Operating profit before System Fund and exceptional items
System Fund
Operating exceptional items
Financial income
Financial expenses
Fair value gains/(losses) on contingent purchase consideration
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
a Restated for the adoption of IFRS 16 (see pages 146 to 149) and presentational changes (see page 149).
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
Note
3
3
2
2
2
6
2
6
7
7
25
8
10
2019
$m
1,510
573
1,373
1,171
4,627
(790)
(1,422)
(1,171)
(385)
(3)
21
(116)
(131)
630
865
(49)
(186)
630
6
(121)
27
542
(156)
386
385
1
386
2018
Restateda
$m
2017
Restateda
$m
1,486
447
1,233
1,171
4,337
(688)
(1,379)
(1,171)
(415)
(1)
14
(115)
–
582
832
(146)
(104)
582
5
(101)
(4)
482
(132)
350
349
1
350
1,379
351
1,242
1,103
4,075
(554)
(1,276)
(1,103)
(355)
3
84
(112)
(18)
744
774
(34)
4
744
4
(95)
–
653
(118)
535
534
1
535
210.4¢
209.2¢
183.7¢
181.8¢
276.7¢
275.3¢
132
IHG | Annual Report and Form 20-F 2019
Group statement of comprehensive income
For the year ended 31 December 2019
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 assetsb, net of related tax charge of $3m in 2017
Fair value gains reclassified to profit on disposal of available-for-sale financial assetsb
(Losses)/gains on cash flow hedges, net of related tax credit of $nil (2018: including related tax credit of $1m)
Costs of hedging
Hedging losses/(gains) reclassified to financial expenses
Exchange (losses)/gains on retranslation of foreign operations, net of related tax credit of $3m
(2018: including related tax credit of $2m, 2017: net of related tax credit of $1m)
Items that will not be reclassified to profit or loss:
Gains/(losses) on equity instruments classified as fair value through other comprehensive incomeb, net of related tax
charge of $2m (2018: including related tax charge of $2m)
Re-measurement (losses)/gains on defined benefit plans, net of related tax credit of $1m
(2018: net of related tax charge of $4m, 2017: $nil)
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
Attributable to:
Equity holders of the parent
Non-controlling interest
a Restated for the adoption of IFRS 16 (see pages 146 to 149).
b IFRS 9 was applied from 1 January 2018. Under the transition method chosen, comparative information was not restated.
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
2019
$m
386
2018
Restateda
$m
350
2017
Restateda
$m
535
–
–
(34)
(6)
38
(39)
(41)
10
(6)
–
4
(37)
349
348
1
349
–
–
5
(1)
(8)
44
40
41
(73)
–
–
–
(90)
(122)
(14)
–
8
–
(6)
34
384
382
2
384
(4)
(11)
(15)
(137)
398
396
2
398
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Group Financial Statements
133
Group Financial Statements
Group Financial Statements continued
Group statement of changes in equity
Equity share
capital
$m
Capital
redemption
reserve
$m
Shares
held by
employee
share trusts
$m
Other
reserves
$m
Fair value
reserve
$m
Cash flow
hedging
reserve
$m
Currency
translation
reserve
$m
Retained
earnings
$m
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
Total equity
$m
146
–
10
–
(4)
–
(2,865)
–
47
–
(4)
–
420
–
1,111
385
(1,139)
385
8
1
(1,131)
386
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
151
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19)
(5)
23
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
–
–
–
–
–
10
–
10
10
10
–
–
–
–
–
–
–
–
(34)
(6)
38
–
(2)
–
–
–
(2)
(2)
–
–
–
–
–
–
–
–
–
–
–
(39)
(39)
–
–
–
–
–
–
–
–
(34)
(6)
38
(39)
(41)
–
10
(6)
(6)
(6)
4
(39)
(6)
(37)
(39)
379
348
19
–
(23)
41
4
–
(5)
–
41
4
–
–
–
–
–
–
–
–
10
(5)
(2,870)
57
(6)
381
809
(1,473)
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
(34)
(6)
38
(39)
(41)
10
(6)
4
(37)
349
–
(5)
–
41
4
(721)
(721)
(1)
(722)
(1)
–
(1)
–
–
–
8
(1)
–
(1,465)
At 1 January 2019
(restated for IFRS 16)
Profit for the year
Other comprehensive
income
Items that may be
subsequently
reclassified to profit
or loss:
Losses on cash flow
hedges
Costs of hedging
Hedging losses
reclassified to
financial expenses
Exchange losses
on retranslation of
foreign operations
Items that will not be
reclassified to profit
or loss:
Gains on equity
instruments classified
as fair value through
other comprehensive
income
Re-measurement
losses on defined
benefit plans
Total other
comprehensive income/
(loss) 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 2019
All items above are shown net of tax.
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
134
IHG | Annual Report and Form 20-F 2019
Equity share
capital
$m
Capital
redemption
reserve
$m
Shares
held by
employee
share trusts
$m
Other
reserves
$m
Fair value
reserve
$m
Cash flow
hedging
reserve
$m
Currency
translation
reserve
$m
Retained
earnings
$m
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
Total equity
$m
(5)
–
(5)
–
(2,874)
–
(2,874)
–
377
–
377
–
898
(1,361)
18
916
349
–
(1,361)
349
At 1 January 2018
(restated for IFRS 16)
Impact of adopting
IFRS 9a
At 1 January 2018
Profit for the year
Other comprehensive
income
Items that may be
subsequently
reclassified to profit
or loss:
Gains on cash flow
hedges
Costs of hedging
Hedging gains
reclassified to
financial expenses
Exchange gains
on retranslation of
foreign operations
Items that will not be
reclassified to profit
or loss:
Losses on equity
instruments classified
as fair value through
other comprehensive
income
Re-measurement
gains on defined
benefit plans
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 2018
154
–
154
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8)
146
10
–
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
79
(18)
61
–
–
–
–
–
–
(14)
–
(14)
(14)
(14)
–
–
–
–
–
–
–
–
–
–
–
5
(1)
(8)
–
(4)
–
–
–
(4)
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19)
(3)
24
–
–
–
(1)
(4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
–
–
–
43
43
–
–
–
43
43
–
–
–
–
–
–
–
–
–
–
–
–
–
8
8
8
5
(1)
(8)
43
39
(14)
8
(6)
33
357
382
–
(3)
–
39
3
19
–
(24)
39
3
(199)
–
1,111
7
–
7
1
–
–
–
1
1
–
–
–
1
2
–
–
–
–
–
(1,354)
–
(1,354)
350
5
(1)
(8)
44
40
(14)
8
(6)
34
384
–
(3)
–
39
3
(2,865)
47
(4)
420
(199)
–
(1,139)
(1)
–
8
(200)
–
(1,131)
a IFRS 9 was applied from 1 January 2018. Under the transition method chosen, comparative information was not restated.
All items above are shown net of tax.
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Group Financial Statements
135
Group Financial Statements
Group Financial Statements continued
Group statement of changes in equity continued
Equity share
capital
$m
Capital
redemption
reserve
$m
Shares
held by
employee
share trusts
$m
Other
reserves
$m
Fair value
reserve
$m
Currency
translation
reserve
$m
Retained
earnings
$m
IHG share-
holders’
equity
$m
Non-
controlling
interest
$m
Total equity
$m
At 1 January 2017
(as previously reported)
Impact of adopting
IFRS 16 (pages 146 to 149)
At 1 January 2017 (as restated)
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
141
–
141
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13
154
All items above are shown net of tax.
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
9
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
(11)
(2,860)
–
(11)
–
–
–
–
–
–
–
–
–
–
(20)
(3)
29
–
–
–
–
–
(2,860)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14)
111
–
111
–
41
(73)
–
(32)
–
–
–
(32)
(32)
–
–
–
–
–
–
–
466
990
(1,154)
2
468
–
(47)
943
534
(45)
(1,199)
534
–
–
–
–
41
(73)
(91)
(123)
(4)
(4)
(11)
(15)
(15)
(11)
(15)
(138)
519
396
20
–
(29)
29
9
–
(3)
–
29
9
–
–
(91)
(91)
–
–
–
(91)
(91)
–
–
–
–
–
–
–
8
–
8
1
–
–
1
1
–
–
–
1
2
–
–
–
–
–
(1,146)
(45)
(1,191)
535
41
(73)
(90)
(122)
(4)
(11)
(15)
(137)
398
–
(3)
–
29
9
10
(5)
(2,874)
79
377
(593)
(593)
–
898
–
(1,361)
(3)
–
7
(596)
–
(1,354)
136
IHG | Annual Report and Form 20-F 2019
Group statement of financial position
31 December 2019
ASSETS
Goodwill and other intangible assets
Property, plant and equipment
Right-of-use assets
Investment in associates and joint ventures
Retirement benefit assets
Other financial assets
Derivative financial instruments
Non-current tax receivable
Deferred tax assets
Contract costs
Contract assets
Total non-current assets
Inventories
Trade and other receivables
Current tax receivable
Other financial assets
Derivative financial instruments
Cash and cash equivalents
Contract costs
Contract assets
Total current assets
Assets classified as held for sale
Total assets
LIABILITIES
Loans and other borrowings
Lease liabilities
Trade and other payables
Deferred revenue
Provisions
Current tax payable
Total current liabilities
Loans and other borrowings
Lease liabilities
Derivative financial instruments
Retirement benefit obligations
Trade and other payables
Deferred revenue
Provisions
Non-current tax payable
Deferred tax liabilities
Total non-current liabilities
Liabilities classified as held for sale
Total liabilities
Net liabilities
EQUITY
IHG shareholders’ equity
Non-controlling interest
Total equity
a Restated for the adoption of IFRS 16 (see pages 146 to 149).
Signed on behalf of the Board,
Paul Edgecliffe-Johnson
17 February 2020
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
Note
2019
$m
2018
Restateda
$m
2017
Restateda
$m
13
14
15
16
27
17
24
8
3
3
18
17
24
19
3
3
12
2
22
15
20
3
21
22
15
24
27
20
3
21
8
12
2
1,376
1,143
309
490
110
–
284
–
28
66
67
311
3,041
6
666
16
4
1
195
5
23
916
19
3,976
(87)
(65)
(568)
(555)
(40)
(50)
(1,365)
(2,078)
(595)
(20)
(96)
(116)
(1,009)
(22)
–
(118)
273
513
104
–
260
7
31
63
55
270
2,719
5
610
27
1
1
704
5
20
1,373
–
4,092
(104)
(55)
(616)
(572)
(10)
(50)
(1,407)
(1,910)
(615)
–
(91)
(125)
(934)
(17)
–
(124)
967
250
486
141
3
228
–
16
78
51
241
2,461
3
549
101
16
–
168
7
17
861
–
3,322
(110)
(44)
(595)
(490)
(3)
(64)
(1,306)
(1,678)
(589)
–
(104)
(7)
(867)
(5)
(25)
(95)
(4,054)
(3,816)
(3,370)
(22)
(5,441)
(1,465)
–
(5,223)
(1,131)
–
(4,676)
(1,354)
(1,473)
(1,139)
(1,361)
8
8
7
(1,465)
(1,131)
(1,354)
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Group Financial Statements
137
2019
$m
386
582
968
(61)
907
(110)
3
(6)
(141)
653
(75)
(104)
(10)
(9)
(292)
(2)
(5)
–
–
4
–
–
(493)
(5)
(721)
(1)
(1)
–
(59)
127
–
(660)
(500)
600
8
108
2018
Restateda
$m
2017
Restateda
$m
350
564
914
(54)
860
(87)
2
–
(66)
709
(46)
(112)
(1)
(33)
(34)
(4)
(5)
–
32
8
–
(2)
(197)
(3)
(199)
(1)
–
554
(35)
(268)
3
51
563
58
(21)
600
535
371
906
(57)
849
(87)
1
–
(147)
616
(44)
(172)
(47)
(30)
–
–
(6)
9
–
20
75
(25)
(220)
(3)
(593)
(3)
–
–
(25)
153
–
(471)
(75)
117
16
58
Note
26
26
25
8
11
25
7
17
8
9
23
23
23
23
19
19
Group Financial Statements
Group Financial Statements continued
Group statement of cash flows
For the year ended 31 December 2019
Profit for the year
Adjustments reconciling profit for the year to cash flow from operations before contract acquisition costs
Cash flow from operations before contract acquisition costs
Contract acquisition costs, net of repayments
Cash flow from operations
Interest paid
Interest received
Contingent purchase consideration paid
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
Investment in other financial assets
Acquisition of businesses, net of cash acquired
Contingent purchase consideration paid
Capitalised interest paid
Loan repayments by associates and joint ventures
Distributions from associates and joint ventures
Repayments of other financial assets
Disposal of equity securities
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, including effect of currency swaps
Principal element of lease payments
Increase/(decrease) in other borrowings
Proceeds from currency swaps
Net cash from financing activities
Net movement in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
Exchange rate effects
Cash and cash equivalents at end of the year
a Restated for the adoption of IFRS 16 (see pages 146 to 149).
Notes on pages 139 to 201 form an integral
part of these Group Financial Statements.
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IHG | Annual Report and Form 20-F 2019
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 2019
were authorised for issue in accordance with a resolution of the
Directors on 17 February 2020. InterContinental Hotels Group PLC
(the Company) is incorporated and domiciled in Great Britain and
registered in England and Wales.
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 assets classified as fair value through profit
or loss, assets classified as fair value through other comprehensive
income and liabilities and derivative financial instruments measured
at fair value through profit or loss. 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.
The impact of adopting new accounting standards is disclosed
on pages 146 to 149.
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.
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 Consolidated Financial Statements, and the
reported amounts of revenues and expenses during the
reporting period.
Judgements
System Fund
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 System and
hotel loyalty programme. Assessments are generally levied as a
percentage of hotel revenues.
The Fund is not managed to generate a profit or loss for IHG over the
longer term, but is managed for the benefit of the IHG System with
the objective of driving revenues for the hotels in the System.
In relation to marketing and reservation services, the Group’s
performance obligation under IFRS 15 ‘Revenue from Contracts with
Customers’ is determined to be the continuous performance of
the services rather than the spending of the assessments received.
Accordingly, assessment fees are recognised as hotel revenues
occur, Fund expenses are charged to the Group income statement
as incurred and no constructive obligation is deemed to exist under
IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’.
Accordingly, no liability is recognised relating to the balance of
unspent funds.
No other critical judgements have been made in applying the
Group’s accounting policies.
Estimates
Management consider that critical estimates and assumptions are used
for measuring the deferred revenue relating to the loyalty programme
and in impairment testing, 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, however actual results could differ.
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 consume points at a
later date for free accommodation or other benefits. The Group
recognises deferred revenue in an amount that reflects IHG’s
unsatisfied performance obligations, valued at the stand-alone
selling price of the future benefit to the member. The amount of
revenue recognised and deferred is impacted by ‘breakage’. 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 consumed (‘breakage’). Significant
estimation uncertainty exists in projecting members’ future
consumption activity.
Actuarial gains and losses would correspondingly adjust the amount
of System Fund revenues recognised and deferred revenue in the
Group statement of financial position.
At 31 December 2019, deferred revenue relating to the loyalty
programme was $1,233m (2018: $1,181m). Based on the conditions
existing at the balance sheet date, a one percentage point decrease
in the breakage estimate relating to outstanding points would
increase this liability by approximately $16m.
Impairment testing
UK portfolio
In 2019, an impairment charge of $81m has been recognised in
relation to the UK leased portfolio, triggered by trading disruption
as a result of renovations and the re-branding of the hotels and
increasingly challenging trading conditions in 2019. Management
has reassessed its short and medium-term forecasts which assume
that some disruption continues into 2020, and that hotels see
progressive trading improvements when the renovation and
re-branding projects complete. As a result of the impairment,
goodwill of $49m recorded on acquisition of the portfolio has been
written off in full, with a further $32m recognised as an impairment
of the IFRS 16 right-of-use asset. Information on the impairment tests
performed is included in note 13.
Contingent purchase consideration in relation to the UK portfolio
comprises the above-market element of the expected lease
payments to the landlord and includes variable rentals which are
based on hotel performance. A fair value gain of $38m was recorded
in the year which included the impact of a reduction in expected
variable rentals payable. Information on the inputs to the fair value
calculation is included in note 25.
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139
Group Financial Statements
Accounting policies continued
Given the materiality of the items and the fact that the same
underlying cash flows have been used to test for the impairment and
to measure the fair value of contingent purchase consideration, they
have been classified as exceptional items with the net impact being
a $43m charge to the Group income statement and an equivalent
reduction in net assets, excluding related tax impacts.
The sensitivity to the key assumptions is as follows:
• a one percentage point decrease in hotel RevPAR growth over
the specific projection period would have resulted in further
impairment of $23m to the right-of-use asset and a $3m higher
contingent purchase consideration gain.
• a one percentage point increase in the discount rate used to
discount the projected cash flows would have resulted in further
impairment of $4m to the right-of-use asset and a $1m higher
contingent purchase consideration gain.
Kimpton
In 2019, an impairment charge of $50m has been recognised in
respect of the Kimpton management contract portfolio acquired in
2015. The impairment results from management’s revised
expectations regarding future trading which have been revised
downwards in line with industry growth forecasts, the rate of hotel
exits (‘attrition’) which has increased to reflect past experience, and
the cost of retaining hotels within the portfolio. Information on the
impairment test performed is included in note 13.
The sensitivity to the key assumptions is as follows:
• a 10% reduction in projected management fees would have
resulted in further impairment of $9m.
• a one percentage point increase in the discount rate used to
discount the projected management fees would have resulted
in further impairment of $7m.
• an increase in the assumed attrition rate for 2020 by one hotel
would have resulted in further impairment of $3m.
Significant accounting policies
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 2019, the trust had assets with a fair value of
$218m (2018: $193m).
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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
Group 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.
Business combinations and goodwill
On the acquisition of a business, identifiable assets acquired and
liabilities assumed 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 143 with the exception
that no deferred tax is provided on taxable temporary differences in
connection with the initial recognition of goodwill.
The cost of an acquisition is measured as the aggregate of the fair
value of the consideration transferred. Contingent purchase
consideration is measured at fair value on the date of acquisition, and
is re-measured at fair value at each reporting date with changes in fair
value recognised on the face of the Group income statement below
operating profit. Deferred purchase consideration is measured
at amortised cost and its unwind is recorded in financial expenses.
Payments of contingent purchase consideration reduce the balance
sheet liability. The portion of each payment relating to the original
estimate of the fair value of the contingent purchase consideration
on acquisition is reported within cash flow from investing activities
in the Group statement of cash flows and the portion of each
payment relating to the increase or decrease in the liability since the
acquisition date is reported within cash flow from operations.
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.
Lease contracts may contain both lease and non-lease components.
The Group allocates payments in the contract to the lease and
non-lease components based on their relative stand-alone prices
and applies the lease accounting model only to lease components.
The right-of-use asset recognised at lease commencement includes
the amount of lease liability recognised, initial direct costs incurred,
and lease payments made at or before the commencement date,
less any lease incentives received. Right-of-use assets are
depreciated to a residual value over the shorter of the asset’s
estimated useful life and the lease term. Right-of-use assets are also
adjusted for any re-measurement of lease liabilities and are subject
to impairment testing. Residual value is reassessed annually.
Management agreements
Management agreements acquired as part of a business
combination are initially recorded at the fair value attributed to
those contracts on acquisition.
The value of management agreements is amortised on a straight-line
basis over the contract lives, including any extension periods at
the Group’s option.
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.
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 – over a maximum of 50 years; and
• fixtures, fittings and equipment – three to 25 years.
All depreciation is charged on a straight-line basis. Residual value
is reassessed 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 Group income statement.
Leases
On inception of a contract, the Group assesses whether it contains
a lease. A contract contains a lease when it conveys the right to
control the use of an identified asset for a period of time in exchange
for consideration. The right to use the asset and the obligation under
the lease to make payments are recognised in the Group statement
of financial position as a right-of-use asset and a lease liability.
The lease liability is initially measured at the present value of the
lease payments to be made over the lease term. The lease payments
include fixed payments (including ‘in-substance fixed’ payments)
and variable lease payments that depend on an index or a rate, less
any lease incentives receivable. ‘In-substance fixed’ payments are
payments that may, in form, contain variability but that, in substance,
are unavoidable. In calculating the present value of lease payments,
the Group uses its incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not
readily determinable.
The lease term includes periods subject to extension options which
the Group is reasonably certain to exercise and excludes the effect
of early termination options where the Group is not reasonably
certain that it will exercise the option. Minimum lease payments
include the cost of a purchase option if the Group is reasonably
certain it will purchase the underlying asset after the lease term.
After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for lease
payments made. In addition, the carrying amount of lease liabilities
is re-measured if there is a modification, a change in the lease term,
a change in the ‘in-substance fixed’ lease payments or as a result of
a rent review or change in the relevant index or rate.
Variable lease payments that do not depend on an index or a rate
are recognised as an expense in the period over which the event or
condition that triggers the payment occurs. In respect of variable
leases which guarantee a minimum amount of rent over the lease
term, the guaranteed amount is considered to be an ‘in-substance
fixed’ lease payment and included in the initial calculation of the
lease liability. Payments which are ‘in-substance fixed’ are charged
against the lease liability.
The Group has opted not to apply the lease accounting model to
intangible assets, leases of low-value assets or leases which have
a term of less than 12 months. Costs associated with these leases
are recognised as an expense on a straight-line basis over the
lease term.
Sub-leases of the Group’s assets are generally classified as operating
leases as the risks and rewards of ownership are not substantially
transferred to the sub-lessee. Rental income arising is accounted
for on a straight-line basis in the Group income statement.
Lease payments are presented as follows in the Group statement
of cash flows:
• short-term lease payments, payments for leases of low-value
assets and variable lease payments that are not included in the
measurement of the lease liabilities are presented within cash
flows from operating activities;
• payments for the interest element of recognised lease liabilities are
included in ‘interest paid’ within cash flows from operating
activities; and
• payments for the principal element of recognised lease liabilities
are presented within cash flows from financing activities.
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141
Group Financial Statements
Accounting policies continued
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.
In determining the extent of power or significant influence,
consideration is given to other agreements between the Group,
the investee entity, and the investing partners, including any related
management or franchise agreements and the existence of any
performance guarantees.
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 Group
income statement.
Financial assets
On initial recognition, the Group classifies its financial assets
as being subsequently measured at amortised cost, fair value
through other comprehensive income (FVOCI), or fair value
through profit or loss (FVTPL).
Financial assets which are held to collect contractual cash flows
and give rise to cash flows that are solely payments of principal
and interest are subsequently measured at amortised cost. Interest
on these assets is calculated using the effective interest rate method
and is recognised in the Group income statement as financial
income. The Group recognises a provision for expected credit losses
for financial assets held at amortised cost. Where there has not been
a significant increase in credit risk since initial recognition, provision
is made for defaults that are possible within the next 12 months.
Where there has been a significant increase in credit risk since initial
recognition, provision is made for credit losses expected over the
remaining life of the asset.
The Group has elected to irrevocably designate equity investments
as FVOCI when they meet the definition of equity and are not held
for trading. Changes in the value of equity investments classified as
FVOCI are recorded directly in equity within the fair value reserve
and are never recycled to the Group income statement. Dividends
from equity investments classified as FVOCI are recognised in the
Group income statement as other operating income. Equity
instruments classified as FVOCI are not subject to impairment
assessment.
Financial assets measured at FVTPL include money market funds
and other financial assets which do not have a fixed date of
repayment.
Trade receivables
Trade receivables are recorded at their original amount less
provision for expected credit losses. The Group has elected to apply
the simplified version of the expected credit loss model permitted
by IFRS 9 ‘Financial Instruments’ in respect of trade receivables,
which involves assessing lifetime expected credit losses on all
balances. The Group has established a provision matrix that is based
on its historical credit loss experience by region and may be
adjusted for specific forward-looking factors. The carrying amount
of the receivable is reduced through the use of a provision account
and movements in the provision are recognised in the Group income
statement within cost of sales.
When a previously provided trade receivable is uncollectable, it is
written off against the provision. Balances which are more than 180
days past due are considered to be in default and are written off the
ledgers but continue to be actively pursued. Adjustments to this
policy may be made in specific circumstances.
At each reporting date, the Group assesses whether trade receivables
are credit-impaired, for example if the customer is in significant
financial difficulty.
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.
Cash and cash equivalents may include amounts which are subject
to regulatory or other contractual restrictions and not available for
general use by the Group.
Cash balances are classified as other financial assets when subject
to a specific charge or contractually ring-fenced for a specific
purpose, such that the Group does not control the circumstances or
timing of its release.
Money market funds
Money market funds are held at FVTPL, with distributions recognised
in financial income.
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 Group income statement
using the effective interest rate method.
Borrowings are classified as non-current when the repayment date
is more than 12 months from the period-end date or where they are
drawn on a facility with more than 12 months to expiry.
Derivative financial instruments and hedging
Derivatives are initially recognised and subsequently re-measured
at fair value. The method of recognising the re-measurement depends
on whether the derivative is designated as a hedging instrument, and
if so, the nature of the item being hedged (see below).
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 Group 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.
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Interest paid reported within the Group statement of cash flows
includes interest paid on the Group’s bonds, net of the effect
of the related derivative financial instruments.
Cash flow hedges
Financial instruments are classified as cash flow hedges when they
hedge exposure to variability in cash flows that are attributable
to either a highly probable forecast transaction or a particular risk
associated with a recognised asset or liability.
Changes in the fair value are recorded in other comprehensive
income and the cash flow hedging 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 Group income statement, within
financial expenses.
Net investment hedges
Financial instruments are classified as net investment hedges
when they hedge the Group’s net investment in foreign operations.
Changes in the fair value 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 Group income statement.
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.
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.
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 on property, plant and equipment,
intangible assets, application fees, contract costs, unrelieved tax
losses, unremitted profits from subsidiaries, gains rolled over into
replacement assets, 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. Otherwise, the
assets and liabilities are not offset.
Retirement benefits
Defined contribution plans
Payments to defined contribution schemes are charged to the
Group 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, discounted 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 Group 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 Group income statement within ‘administrative
expenses’. Net interest is calculated by applying the discount rate to
the net defined benefit asset or liability, after any asset restriction.
Past service costs and gains, which are the change in the present
value of the defined benefit obligation for employee service in prior
periods resulting from plan amendments, are recognised
immediately the plan amendment occurs. Settlement gains and
losses, being the difference between the settlement cost and the
present value of the defined benefit obligations being settled, are
recognised when the settlement occurs.
Re-measurements comprise actuarial gains and losses, the
return on plan assets (excluding amounts included in net interest)
and changes in the amount of any asset restrictions. Actuarial
gains and losses may result from: differences between the
actuarial assumptions underlying the plan liabilities and actual
experience during the year or changes in the actuarial assumptions
used in the valuation of the plan liabilities. Re-measurement
gains and losses, and taxation thereon, are recognised in other
comprehensive income and are not reclassified to profit or
loss in subsequent periods.
Actuarial valuations are carried out on a regular basis and are
updated for material transactions and other material changes in
circumstances (including changes in market prices and interest
rates) up to the end of the reporting period.
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.
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143
Group Financial Statements
Accounting policies continued
Assets designated as held for sale are held at the lower of carrying
amount at designation and fair value less costs to sell.
Depreciation and amortisation is not charged against assets
classified as held for sale.
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.
Revenue recognition
Revenue is recognised at an amount that reflects the consideration
to which the Group expects to be entitled in exchange for
transferring goods or services to a customer.
Fee business revenue
Under franchise agreements, the Group’s performance obligation
is to provide a licence to use IHG’s trademarks and other intellectual
property. Franchise royalty fees are typically charged as a
percentage of hotel gross rooms revenues and are treated as
variable consideration, recognised as the underlying hotel
revenues occur.
Under management agreements, the Group’s performance
obligation is to provide hotel management services and a licence
to use IHG’s trademarks and other intellectual property. Base and
incentive management fees are typically charged. Base management
fees are typically a percentage of total hotel revenues and incentive
management fees are generally based on the hotel’s profitability or
cash flows. Both are treated as variable consideration. Like franchise
fees, base management fees are recognised as the underlying hotel
revenues occur. Incentive management fees are recognised over time
when it is considered highly probable that the related performance
criteria will be met, provided there is no expectation of a subsequent
reversal of the revenue.
Application and re-licensing fees are not considered to be distinct
from the franchise performance obligation and are recognised over
the life of the related contract.
Franchise and management agreements also contain a promise to
provide technology support and network services to hotels. A
monthly technology fee, based on either gross rooms revenues or
the number of rooms in the hotel, is charged and recognised over
time as these services are delivered. Technology fee income is
included in Central revenue.
IHG’s global insurance programme provides coverage to managed
hotels for risks such as US workers’ compensation, employee and
general liability. Premiums are payable by the hotels to the third-
party insurance provider. As some of the risk is reinsured by the
Group’s captive insurance company (‘the Captive’), SCH Insurance
Company, premiums paid from the third-party insurance provider
to the Captive are recognised as revenue as premiums are earned.
Contract assets
Amounts paid to hotel owners to secure management and franchise
agreements (‘key money’) are treated as consideration payable to
a customer. A contract asset is recorded which is recognised as a
deduction to revenue over the initial term of the contract. Where
loans are provided to an owner the difference, if any, between the
face and market value of the loan is capitalised as a contract asset.
144
IHG | Annual Report and Form 20-F 2019
Performance guarantees
In limited cases, the Group may provide performance guarantees
to third-party hotel owners to secure management agreements.
The expected value of payments under performance guarantees
reduces the overall transaction price and is treated as a reduction
to revenue over the life of the contract.
Revenue from owned, leased and managed lease hotels
At its owned, leased and managed lease hotels, the Group’s
performance obligation is to provide accommodation and other
goods and services to guests. Revenue includes rooms revenue and
food and beverage sales, which is recognised when the rooms are
occupied and food and beverages are sold.
Cost reimbursements
In a managed property, the Group acts as employer of the general
manager and other employees at the hotel and is entitled to
reimbursement of these costs. The performance obligation is
satisfied over time as the employees perform their duties, consistent
with when reimbursement is received. Reimbursements for these
services are shown as revenue with an equal matching employee
cost, with no profit impact. Certain other costs relating to both
managed and franchised hotels are also contractually reimbursable
to IHG and, where IHG is deemed to be acting as principal in the
provision of the related services, the revenue and cost are shown
on a gross basis.
System Fund revenues
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 System and
hotel loyalty programme. The Fund also receives proceeds from the
sale of loyalty points under third-party co-branding arrangements.
The Fund is not managed to generate a profit or loss for IHG over the
longer term, but is managed for the benefit of the IHG System with
the objective of driving revenues for the hotels in the System.
Under both franchise and management agreements, the Group is
required to provide marketing and reservations services, as well as
other centrally managed programmes. These services are provided
by the Fund and are funded by assessment fees. Costs are incurred
and allocated to the Fund in accordance with the principles agreed
with the IHG Owners Association. The Group acts as principal in the
provision of the services as the related expenses primarily comprise
payroll and marketing expenses under contracts entered into by the
Group. The assessment fees from hotel owners are generally levied
as a percentage of hotel revenues and are recognised as those hotel
revenues occur.
Certain travel agency commission revenues within the Fund are
recognised on a net basis, where it has been determined that IHG
is acting as agent.
In respect of the loyalty programme (IHG Rewards Club), the related
performance obligation is to arrange for the provision of future
benefits to members on consumption of previously earned reward
points. Members have a choice of benefits: reward nights at an IHG
hotel or other goods or services provided by third parties. Under its
franchise and management agreements, IHG receives assessment
fees based on total qualifying hotel revenue from IHG Rewards Club
members’ hotel stays.
The Group’s performance obligation is not satisfied in full until
the member has consumed the points at a participating hotel
or selected a reward from a third party. Accordingly, loyalty
assessments are deferred in an amount that reflects the stand-alone
selling price of the future benefit to the member. Revenue is
impacted by a ‘breakage’ estimate of the number of points that will
never be consumed. On an annual basis, the Group engages an
external actuary who uses statistical formulae to assist in formulating
this estimate, which is adjusted to reflect actual experience up to the
reporting date.
Fair value measurement
The Group measures financial assets and liabilities at FVTPL,
financial assets measured at FVOCI, and derivative financial
instruments at fair value on a recurring basis and other assets when
impaired or re-measured on classification as held for sale by
reference to fair value less costs of disposal. Additionally, the fair
value of other financial assets and liabilities requires 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.
For assets and liabilities measured at fair value on a recurring basis,
the Group determines whether transfers have occurred between
levels in the hierarchy by reassessing categorisation (based on the
lowest level input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
Further disclosures on the particular valuation techniques used
by the Group are provided in note 25.
Where significant assets (such as property) are valued by reference
to fair value less costs of disposal, an external valuation will normally
be obtained using professional valuers who have appropriate market
knowledge, reputation and independence.
Exceptional items
The Group discloses certain financial information both including
and excluding exceptional items. The presentation of information
excluding exceptional items allows a better understanding of the
underlying trading performance of the Group and provides
consistency with the Group’s internal management reporting.
Exceptional items are identified by virtue of either their size or
nature so as to facilitate comparison with prior periods and to
assess underlying trends in the financial performance of the Group
and its regional operating segments. Exceptional items can include,
but are not restricted to, gains and losses on the disposal of assets,
impairment charges and reversals and restructuring costs.
As materially all of the points will be either consumed at IHG
managed or franchised hotels owned by third parties, or exchanged
for awards provided by third parties, IHG is deemed to be acting as
agent on consumption and therefore recognises the related revenue
net of the cost of reimbursing the hotel or third party that is
providing the benefit.
Performance obligations under the Group’s co-branding
arrangements comprise:
• arranging for the provision of future benefits to members who
have earned points or free night certificates;
• marketing services; and
• providing the co-brand partner with the right to access the
loyalty programme.
Fees from these agreements comprise fixed amounts normally
payable at the beginning of the contract, and variable amounts
paid on a monthly basis. Variable amounts are typically based on
the number of points and free night certificates issued to members
and the marketing services performed by the Group. Total fees are
allocated to the performance obligations based on their estimated
stand-alone selling prices. Revenue allocated to marketing and
licensing obligations is recognised on a monthly basis as the
obligation is satisfied. Revenue relating to points and free night
certificates is recognised when the member has consumed the
points or certificates at a participating hotel or has selected a reward
from a third party, net of the cost of reimbursing the hotel or third
party that is providing the benefit.
Judgement is required in estimating the stand-alone selling prices
which are based upon generally accepted valuation methodologies
regarding the value of the licence provided, and the number of
points and certificates expected to be issued. However, the value of
revenue recognised and the deferred revenue balance at the end of
the year is not materially sensitive to changes in these assumptions.
Contract costs
Certain costs incurred to secure management and franchise
agreements, typically developer commissions, are capitalised and
amortised over the initial term of the related contract. These costs
are presented as ‘Contract costs’ in the Group statement of
financial position.
Contract assets and contract costs are reviewed for impairment
when events or changes in circumstances indicate that the carrying
value may not be recoverable.
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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Accounting policies
145
Group Financial Statements
New accounting standards
and presentational changes
IFRS 16 ‘Leases’
IFRS 16, which supersedes IAS 17, sets out the principles for the
recognition, measurement, presentation and disclosure of leases
and requires lessees to account for most leases under a single
on-balance sheet model. The Group has a number of material
property and equipment leases.
The Group has adopted IFRS 16 using the full retrospective method
of adoption with the date of initial application being 1 January 2019.
The Group elected to use the transition practical expedient allowing
the standard to be applied only to contracts that were previously
identified as leases applying IAS 17 at the date of initial application.
The Group also elected to use the recognition exemptions for lease
contracts that, at the commencement date, have a lease term of
12 months or less and do not contain a purchase option (‘short-term
leases’), lease contracts for which the underlying asset is of low
value (‘low-value assets’), and leases of intangible assets.
Before the adoption of IFRS 16, the Group classified each of its
leases at the inception date as either a finance lease or an operating
lease. A lease was classified as a finance lease if it transferred
substantially all of the risks and rewards incidental to ownership
of the leased asset to the Group; otherwise it was classified as an
operating lease. Finance leases were capitalised at the
commencement of the lease at the inception date fair value of the
leased asset or, if lower, at the present value of the minimum lease
payments. Lease payments were apportioned between interest
(recognised as finance cost) and reduction of the lease liability. In an
operating lease, the leased asset was not capitalised, and the lease
payments were recognised as rent expense in the Group income
statement on a straight-line basis over the lease term. Any prepaid
rent and accrued rent were recognised within prepayments and
trade and other payables, respectively.
Under IFRS 16, the Group recognises right-of-use assets at the
commencement date of the lease (i.e. the date the underlying asset
is available for use). Right-of-use assets are measured at cost, less
any accumulated depreciation and impairment losses, and adjusted
for any re-measurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date, less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased assets
at the end of the lease term, recognised right-of-use assets are
depreciated to a residual value over the shorter of their estimated
useful life or lease term. Right-of-use assets are subject to
impairment testing.
At the commencement date of the lease, the Group recognises lease
liabilities measured at the present value of lease payments to be
made over the lease term. The lease payments include fixed
payments (including ‘in-substance fixed’ payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. Variable lease payments that do not depend on
an index or a rate are recognised as expense in the period over
which the event or condition that triggers the payment occurs.
The lease acquired with the UK portfolio acquisition (see note 11)
includes variable lease payments where rentals are linked to the
performance of the hotels by way of reductions in rentals in the
event that lower than target cash flows are generated by the hotels.
In the event that rent reductions are not applicable, the Group’s
exposure to this type of rental payment in excess of amounts
reflected in the measurement of lease liabilities is £46m per annum
over the remaining lease term of 24 years. Additional rentals, which
are uncapped, are also payable and are calculated as a percentage
of the profit earned by the hotels. Two German hotel leases operate
under a similar structure (see note 15).
In calculating the present value of lease payments, the Group uses
its incremental borrowing rate at the lease commencement date if
the interest rate implicit in the lease is not readily determinable. After
the commencement date, the amount of lease liabilities is increased
to reflect the accretion of interest and reduced for lease payments
made. In addition, the carrying amount of lease liabilities is re-
measured if there is a modification, a change in the lease term,
a change in the ‘in-substance fixed’ lease payment or a change in
the assessment regarding the purchase of the underlying asset.
The Group applies the short-term lease recognition exemption to its
short-term leases of equipment (i.e. those leases that have a lease
term of 12 months or less from the commencement date and do not
contain a purchase option). It also applies the lease of low-value
assets recognition exemption to leases that are considered of low
value. Lease payments on short-term leases and leases of low-value
assets are recognised as an expense on a straight-line basis over the
lease term.
Lessor accounting under IFRS 16 is substantially unchanged from
IAS 17. The Group is not party to any material leases where it acts
as a lessor.
In accordance with the full retrospective method of adoption, the
Group applied IFRS 16 at the date of initial application as if it had
always been effective at the commencement date of existing lease
contracts. Accordingly, the comparative information in these
Consolidated Financial Statements has been restated, as
summarised and set out below.
For the 12 months ended 31 December 2018:
• Depreciation expense increased by $35m relating to the
depreciation of new right-of-use assets recognised.
• Rent expense decreased by $51m relating to previous
operating leases.
• Financial expenses increased by $19m relating to the interest
expense on additional lease liabilities recognised.
• Income tax expenses decreased by $1m relating to the tax effect of
these changes.
• Net cash from operating activities increased by $43m and the
combination of cash from investing and financing activities
reduced by the same amount, representing repayments of
principal on the recognised lease liabilities.
At 31 December 2018:
• Right-of-use assets of $513m were recognised and presented
separately in the Group statement of financial position. This
includes $174m relating to leased assets previously recognised
under finance leases, included within property, plant and
equipment.
• Lease liabilities of $670m were recognised and presented
separately in the Group statement of financial position. Finance
lease liabilities of $235m previously included in loans and other
borrowings are now included in lease liabilities.
• Prepayments of $3m and trade and other payables of $35m related
to leases previously classified as operating leases were
derecognised.
• Net deferred tax liabilities decreased by $10m because of the
deferred tax impact of the changes in assets and liabilities.
• The net effect of these adjustments increased the Group’s net
liabilities by $54m.
146
IHG | Annual Report and Form 20-F 2019
Impact of IFRS 16 on the Group income statement
Revenue from fee business
Revenue from owned, leased and managed lease hotels
System Fund revenues
Reimbursement of costs
Total revenue
Cost of sales
System Fund expenses
Reimbursed costs
Administrative expenses
Share of (losses)/gains of associates and joint ventures
Other operating income
Depreciation and amortisation
Impairment charge
Operating profit
Financial income
Financial expenses
Fair value losses on contingent purchase consideration
Profit before tax
Tax
Profit for the year from continuing operations
Year ended 31 December 2018
Year ended 31 December 2017
As previously
reported
$m
IFRS 16
adoption
$m
As
restated
$m
As previously
reported
$m
IFRS 16
adoption
$m
As
restated
$m
1,486
447
1,233
1,171
4,337
(706)
(1,379)
(1,171)
(448)
(1)
14
(80)
–
566
5
(82)
(4)
485
(133)
352
–
–
–
–
–
18
–
–
33
–
–
(35)
–
16
–
(19)
–
(3)
1
(2)
1,486
447
1,233
1,171
4,337
(688)
(1,379)
(1,171)
(415)
(1)
14
(115)
–
582
5
(101)
(4)
482
(132)
350
1,379
351
1,242
1,103
4,075
(571)
(1,276)
(1,103)
(388)
3
84
(78)
(18)
728
4
(76)
–
656
(115)
541
–
–
–
–
–
17
–
–
33
–
–
(34)
–
16
–
(19)
–
(3)
(3)
(6)
1,379
351
1,242
1,103
4,075
(554)
(1,276)
(1,103)
(355)
3
84
(112)
(18)
744
4
(95)
–
653
(118)
535
Impact of IFRS 16 on the Group statement of comprehensive income
Profit for the year
Exchange gains/(losses) on retranslation of foreign operations,
including related tax credit of $2m (2017: net of related tax credit of $1m)
Other items
Total comprehensive income for the year
Year ended 31 December 2018
Year ended 31 December 2017
As previously
reported
$m
IFRS 16
adoption
$m
352
43
(10)
385
(2)
1
–
(1)
As
restated
$m
350
44
(10)
384
As previously
reported
$m
IFRS 16
adoption
$m
541
(88)
(47)
406
(6)
(2)
–
(8)
As
restated
$m
535
(90)
(47)
398
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | New accounting standards and presentational changes
147
Group Financial Statements
New accounting standards and presentational changes continued
Impact of IFRS 16 on the Group statement of financial position
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Other non-current assets
Total non-current assets
Trade and other receivables
Other current assets
Total current assets
Total assets
Loans and other borrowings
Lease liabilities
Trade and other payables
Other current liabilities
Total current liabilities
Loans and other borrowings
Lease liabilities
Trade and other payables
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Net liabilities
Currency translation reserve
Retained earnings
Other equity
IHG shareholders’ equity
Non-controlling interest
Total equity
31 December 2018
31 December 2017
As previously
reported
$m
IFRS 16
adoption
$m
As
restated
$m
As previously
reported
$m
IFRS 16
adoption
$m
As
restated
$m
447
–
60
1,870
2,377
613
763
1,376
3,753
(120)
–
(618)
(632)
(1,370)
(2,129)
–
(158)
(131)
(1,042)
(3,460)
(4,830)
(1,077)
419
1,166
(2,670)
(1,085)
8
(1,077)
(174)
513
3
–
342
(3)
–
(3)
339
16
(55)
2
–
(37)
219
(615)
33
7
–
(356)
(393)
(54)
1
(55)
–
(54)
–
(54)
273
513
63
1,870
2,719
610
763
1,373
4,092
(104)
(55)
(616)
(632)
(1,407)
(1,910)
(615)
(125)
(124)
(1,042)
(3,816)
(5,223)
(1,131)
420
1,111
(2,670)
(1,139)
8
(1,131)
425
–
75
1,647
2,147
551
312
863
3,010
(126)
–
(597)
(557)
(1,280)
(1,893)
–
(36)
(101)
(1,001)
(3,031)
(4,311)
(1,301)
377
951
(2,636)
(1,308)
7
(1,301)
(175)
486
3
–
314
(2)
–
(2)
312
16
(44)
2
–
(26)
215
(589)
29
6
–
(339)
(365)
(53)
–
(53)
–
(53)
–
(53)
250
486
78
1,647
2,461
549
312
861
3,322
(110)
(44)
(595)
(557)
(1,306)
(1,678)
(589)
(7)
(95)
(1,001)
(3,370)
(4,676)
(1,354)
377
898
(2,636)
(1,361)
7
(1,354)
148
IHG | Annual Report and Form 20-F 2019
Impact of IFRS 16 on the Group statement of cash flows
Profit for the year
Adjustments reconciling profit for the year to cash flow from operations
before contract acquisition costs
Cash flow from operations before contract acquisition costs
Contract acquisition costs, net of repayments
Cash flow from operations
Interest paid
Interest received
Tax paid on operating activities
Net cash from operating activities
Landlord contribution to property, plant and equipment
Other cash flows from investing activities
Net cash from investing activities
Principal element of lease payments
Other cash flows from financing activities
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
Year ended 31 December 2018
Year ended 31 December 2017
As previously
reported
$m
IFRS 16
adoption
$m
352
502
854
(54)
800
(70)
2
(66)
666
8
(197)
(189)
–
86
86
563
58
(21)
600
(2)
62
60
–
60
(17)
–
–
43
(8)
–
(8)
(35)
–
(35)
–
–
–
–
As
restated
$m
350
564
914
(54)
860
(87)
2
(66)
709
–
(197)
(197)
(35)
86
51
563
58
(21)
600
As previously
reported
$m
IFRS 16
adoption
$m
541
308
849
(57)
792
(69)
1
(147)
577
14
(220)
(206)
–
(446)
(446)
(75)
117
16
58
(6)
63
57
–
57
(18)
–
–
39
(14)
–
(14)
(25)
–
(25)
–
–
–
–
As
restated
$m
535
371
906
(57)
849
(87)
1
(147)
616
–
(220)
(220)
(25)
(446)
(471)
(75)
117
16
58
Impact of IFRS 16 on basic and diluted earnings per ordinary share
Basic earnings per ordinary share
Diluted earnings per ordinary share
Year ended 31 December 2018
Year ended 31 December 2017
As previously
reported
cents
IFRS 16
adoption
cents
As
restated
cents
As previously
reported
cents
IFRS 16
adoption
cents
184.7
182.8
(1.0)
(1.0)
183.7
181.8
279.8
278.4
(3.1)
(3.1)
As
restated
cents
276.7
275.3
Presentational changes
The presentation of the Group income statement has been amended to include exceptional items within the line item to which they relate,
with a separate analysis of operating profit before System Fund and exceptional items.
Fair value gains and losses on contingent purchase consideration reported within financial expenses in 2018 are now presented as a
separate line item on the face of the Group income statement.
Other standards adopted
From 1 January 2019, the Group has applied 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’;
• IAS 19 ‘Plan Amendment, Curtailment or Settlement’; and
• Other existing standards arising from the Annual Improvements to IFRSs 2015–2017 cycle.
None of these amendments have had a material impact on the Group’s reported financial performance or position.
New standards issued but not yet effective
In 2019, the IASB published ‘Interest Rate Benchmark Reform, Amendments to IFRS 9, IAS 39 and IFRS 7’. There is no anticipated material
impact from these amendments on the Group’s reported financial performance or position.
The effective date for IFRS 17 ‘Insurance Contracts’ is 1 January 2021. The Group has not yet determined the impact of this standard on the
Group’s reported financial performance or position.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | New accounting standards and presentational changes
149
Group Financial Statements
Notes to the Group Financial Statements
1. Exchange rates
The results of operations have been translated into US dollars at the average rates of exchange for the year. In the case of sterling, the
translation rate is $1=£0.78 (2018: $1=£0.75, 2017: $1=£0.78). In the case of the euro, the translation rate is $1=€0.89 (2018: $1=€0.85, 2017:
$1=€0.89).
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=£0.76 (2018: $1=£0.78, 2017: $1=£0.74). In the case of the euro, the translation rate is $1=€0.89 (2018: $1=€0.87, 2017:
$1=€0.83).
2. Segmental information
The Group has four reportable segments reflecting its geographical regions and its Central functions:
• Americas;
• EMEAA;
• Greater China; and
• Central.
Central functions include technology, sales and marketing, finance, human resources and corporate services; Central revenue arises
principally from technology fee income.
No operating segments have been aggregated to form these reportable segments.
Management monitors the operating results of these reportable segments for the purpose of making decisions about resource allocation
and performance assessment. Each of the geographical regions is led by its own Chief Executive Officer who reports to the Group Chief
Executive Officer.
The System Fund is not viewed as being part of the Group’s core operations as it is not managed to generate a profit or loss for IHG over the
longer term. As such, its results are not regularly reviewed by the Chief Operating Decision Maker (CODM) and it does not constitute an
operating segment under IFRS 8. Similarly, reimbursements of costs are not reported to the CODM and so are not included within the
reportable segments.
Segmental performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the
Group Financial Statements, excluding System Fund and exceptional items. Group financing activities, fair value gains/(losses) on
contingent purchase consideration and income taxes are managed on a Group basis and are not allocated to reportable segments.
Revenue
Year ended 31 December
Americas
EMEAA
Greater China
Central
Revenue from reportable segments
System Fund revenues
Reimbursement of costs
Total revenue
Profit
Year ended 31 December
Americas (see below)
EMEAA
Greater China
Central
Operating profit from reportable segments
System Fund
Operating exceptional items (note 6)
Operating profit
Net finance costs
Fair value gains/(losses) on contingent purchase consideration
Profit before tax
Tax
Profit for the year
All items above relate to continuing operations.
2019
$m
1,040
723
135
185
2,083
1,373
1,171
4,627
2019
$m
700
217
73
(125)
865
(49)
(186)
630
(115)
27
542
(156)
386
2018
$m
1,051
569
143
170
1,933
1,233
1,171
4,337
2017
$m
999
457
117
157
1,730
1,242
1,103
4,075
2018
Restated
$m
2017
Restated
$m
673
206
70
(117)
832
(146)
(104)
582
(96)
(4)
482
(132)
350
648
175
53
(102)
774
(34)
4
744
(91)
–
653
(118)
535
Operating profit from reportable segments includes business interruption insurance proceeds of $10m in 2019, relating to the Americas
region, which is included in ‘other operating income’ in the Group income statement.
150
IHG | Annual Report and Form 20-F 2019
2. Segmental information continued
Assets
31 December
Americas
EMEAAa
Greater China
Central
Segment assets
Unallocated assets:
Derivative financial instruments
Tax receivable
Deferred tax assets
Cash and cash equivalents
Total assets
a Includes assets classified as held for sale of $19m (2018: $nil).
Liabilities
31 December
Americas
EMEAAa
Greater China
Central
Segment liabilities
Unallocated liabilities:
Loyalty and co-brand deferred revenue and other payables
Loans and other borrowings
Derivative financial instruments
Tax payable
Deferred tax liabilities
Deferred and contingent purchase considerationb
Total liabilities
a Includes liabilities classified as held for sale of $22m (2018: $nil).
b Excludes UK portfolio which is included in EMEAA. 2018 has been restated accordingly.
2019
$m
1,784
978
136
772
2018
Restated
$m
1,656
738
110
755
3,670
3,259
1
44
66
195
3,976
8
58
63
704
4,092
2019
$m
(971)
(398)
(80)
(206)
2018
Restated
$m
(995)
(386)
(61)
(225)
(1,655)
(1,667)
(1,339)
(2,165)
(20)
(50)
(118)
(94)
(1,291)
(2,014)
–
(50)
(124)
(77)
(5,441)
(5,223)
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
151
Group Financial Statements
Notes to the Group Financial Statements continued
2. Segmental information continued
Other segmental information
Year ended 31 December 2019
Capital expenditure (page 153)
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(gains) of associates and joint ventures
Impairment charges
Year ended 31 December 2018
Capital expenditure (page 153)
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(gains) of associates and joint ventures
Year ended 31 December 2017
Capital expenditure
Non-cash items:
Depreciation and amortisationa
Share-based payments cost
Share of losses/(gains) of associates and joint ventures
Impairment charge
Americas
$m
57
44
9
9
50
Americas
Restated
$m
74
46
8
6
EMEAA
$m
71
25
4
(6)
81
EMEAA
Restated
$m
33
17
4
(5)
Americas
Restated
$m
120
EMEAA
Restated
$m
26
42
6
1
18
15
4
(4)
–
Greater
China
$m
–
5
2
–
–
Greater
China
Restated
$m
2
7
3
–
Greater
China
Restated
$m
2
5
3
–
–
Central
$m
137
Group
$m
265
42
13
–
–
Central
Restated
$m
142
45
12
–
116
28
3
131
Group
Restated
$m
251
115
27
1
Central
Restated
$m
202
Group
Restated
$m
350
50
8
–
–
112
21
(3)
18
a Included in the $116m (2018: $115m, 2017: $112m) of depreciation and amortisation is $82m (2018: $86m, 2017: $78m) relating to administrative expenses and $34m (2018: $29m,
2017: $34m) relating to cost of sales. A further $54m (2018: $49m, 2017: $41m) of depreciation and amortisation was recorded within System Fund expenses.
152
IHG | Annual Report and Form 20-F 2019
2. Segmental information continued
Reconciliation of capital expenditure
Year ended 31 December 2019
Capital expenditure per management reporting
Goodwill
Contract acquisition costs
Timing differences and other adjustments
Additions per the Group Financial Statements
Comprising additions to:
Goodwill and other intangible assets
Property, plant and equipment
Investment in associates and joint ventures
Other financial assets
Year ended 31 December 2018
Capital expenditure per management reporting
Contract acquisition costs
Timing differences and other adjustments
Additions per the Group Financial Statements
Comprising additions to:
Intangible assets
Property, plant and equipment
Investment in associates and joint ventures
Other financial assets
Geographical information
Year ended 31 December
Revenue
United Kingdom
United States
China
Rest of World
System Fund (note 33)
Americas
$m
EMEAA
$m
Greater
China
$m
57
–
(27)
4
34
–
19
14
1
34
71
4
(35)
1
41
4
29
–
8
41
–
–
–
–
–
–
–
–
–
–
Central
$m
137
–
–
(4)
133
104
29
–
–
133
Group
$m
265
4
(62)
1
208
108
77
14
9
208
Americas
Restated
$m
EMEAA
Restated
$m
Greater
China
Restated
$m
Central
Restated
$m
Group
Restated
$m
74
(32)
1
43
–
13
3
27
43
33
(26)
–
7
–
2
–
5
7
2
–
–
2
–
2
–
–
2
2019
$m
265
1,957
214
818
3,254
1,373
4,627
142
–
–
142
112
30
–
–
142
2018
$m
151
1,950
222
781
3,104
1,233
4,337
251
(58)
1
194
112
47
3
32
194
2017
$m
74
1,845
201
713
2,833
1,242
4,075
For the purposes of the above table, hotel and reimbursable revenues are 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. System Fund revenues are not included in the geographical analysis as the
Group does not monitor the Fund’s revenue by location of the hotel, or in the case of the loyalty programme, according to the location
where members consume their rewards.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
153
Group Financial Statements
Notes to the Group Financial Statements continued
2. Segmental information continued
31 December
Non-current assets
United Kingdom
United States
Rest of World
2019
$m
2018
Restated
$m
184
1,632
847
2,663
205
1,643
510
2,358
For the purposes of the above table, non-current assets comprise goodwill and other intangible assets, property, plant and equipment,
right-of-use assets, investments in associates and joint ventures, non-current contract costs and non-current contract assets. 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.
3. Revenue
Disaggregation of revenue
The following table presents Group revenue disaggregated by type of revenue stream and by reportable segment:
Americas
$m
EMEAA
$m
Greater
China
$m
Central
$m
840
13
–
853
187
1,040
247
90
–
337
386
723
87
48
–
135
–
135
–
–
185
185
–
185
Americas
$m
EMEAA
$m
Greater
China
$m
Central
$m
835
18
–
853
198
1,051
227
93
–
320
249
569
94
49
–
143
–
143
–
–
170
170
–
170
Americas
$m
EMEAA
$m
Greater
China
$m
Central
$m
795
16
–
811
188
999
204
90
–
294
163
457
73
44
–
117
–
117
–
–
157
157
–
157
Group
$m
1,174
151
185
1,510
573
2,083
1,373
1,171
4,627
Group
$m
1,156
160
170
1,486
447
1,933
1,233
1,171
4,337
Group
$m
1,072
150
157
1,379
351
1,730
1,242
1,103
4,075
Year ended 31 December 2019
Franchise and base management fees
Incentive management fees
Central revenue
Revenue from fee business
Revenue from owned, leased and managed lease hotels
System Fund revenues (note 33)
Reimbursement of costs
Total revenue
Year ended 31 December 2018
Franchise and base management fees
Incentive management fees
Central revenue
Revenue from fee business
Revenue from owned, leased and managed lease hotels
System Fund revenues (note 33)
Reimbursement of costs
Total revenue
Year ended 31 December 2017
Franchise and base management fees
Incentive management fees
Central revenue
Revenue from fee business
Revenue from owned, leased and managed lease hotels
System Fund revenues (note 33)
Reimbursement of costs
Total revenue
154
IHG | Annual Report and Form 20-F 2019
3. Revenue continued
Contract balances
Trade receivables (note 18)
Contract assets
Deferred revenue
2019
$m
514
334
2018
$m
474
290
(1,564)
(1,506)
A trade receivable is recorded when the Group has issued an invoice and has an unconditional right to receive payment. In respect of
franchise fees, base and incentive management fees, Central revenue and revenues from owned, leased and managed lease hotels, the
invoice is typically issued as the related performance obligations are satisfied, as described on page 144.
Contract assets (including performance guarantees)
Contract assets are recorded in respect of key money payments; the difference, if any, between the face and market value of loans made to
owners; and the value of payments under performance guarantees.
At 1 January
Costs paid
Recognised as a deduction to revenue
Repayments
Exchange and other adjustments
At 31 December
Analysed as:
Current
Non-current
2019
$m
290
64
(22)
(1)
3
334
23
311
334
2018
$m
258
58
(19)
(2)
(5)
290
20
270
290
At 31 December 2019, the amount of performance guarantees included within trade and other payables was $2m (2018: $3m) and the
maximum payout remaining under such guarantees was $85m (2018: $42m).
Deferred revenue
Deferred revenue is recognised when payment is received before the related performance obligation is satisfied. The main categories of
deferred revenue relate to the Loyalty programme, co-branding agreements, and franchise application and re-licensing fees.
At 1 January 2018
Acquisition of businesses
Increase in deferred revenue
Recognised as revenue
Exchange and other adjustments
At 31 December 2018
Acquisition of businesses
Increase in deferred revenue
Recognised as revenue
Exchange and other adjustments
At 31 December 2019
At 31 December 2019
Analysed as:
Current
Non-current
At 31 December 2018
Analysed as:
Current
Non-current
Loyalty
programme
$m
1,057
–
540
(416)
–
1,181
–
533
(481)
–
1,233
476
757
1,233
491
690
1,181
Other
co-brand
fees
$m
Application &
re-licensing
fees
$m
88
–
–
(11)
–
77
–
–
(11)
–
66
11
55
66
11
66
77
163
–
36
(23)
(1)
175
–
26
(25)
(4)
172
25
147
172
23
152
175
Other
$m
49
8
67
(47)
(4)
73
2
64
(49)
3
93
43
50
93
47
26
73
Total
$m
1,357
8
643
(497)
(5)
1,506
2
623
(566)
(1)
1,564
555
1,009
1,564
572
934
1,506
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
155
Group Financial Statements
Notes to the Group Financial Statements continued
3. Revenue continued
The table on the previous page does not include amounts which were received and recognised as revenue in the same year. Amounts
recognised as revenue were included in deferred revenue at the beginning of the year.
Loyalty programme revenues, shown gross in the table on the previous page, are presented net of the corresponding redemption cost in
the Group income statement.
Other deferred revenue includes guest deposits received by owned, leased and managed lease hotels.
Transaction price allocated to remaining performance obligations
The Group has applied the practical expedient in IFRS 15 not to disclose the aggregate amount of the transaction price allocated to the
performance obligations that are unsatisfied or partially unsatisfied as at the end of the reporting period for all amounts where the Group
has a right to consideration in an amount that corresponds directly with the value to the customer of the Group’s performance completed to
date (including franchise and management fees).
Amounts received and not yet recognised related to performance obligations that were unsatisfied at 31 December 2019 are as follows:
Expected to be recognised in:
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
More than five years
Loyalty and
co-brand
$m
Other
$m
487
292
176
115
79
150
68
34
30
27
27
79
2019
Total
$m
555
326
206
142
106
229
Loyalty and
co-brand
$m
Other
$m
502
257
158
106
75
160
70
31
26
22
20
79
2018
Total
$m
572
288
184
128
95
239
1,299
265
1,564
1,258
248
1,506
Contract costs
Movements in contract costs, typically developer commissions, are as follows:
At 1 January
Costs incurred
Amortisation
At 31 December
Analysed as:
Current
Non-current
2019
$m
60
19
(7)
72
5
67
72
2018
$m
58
9
(7)
60
5
55
60
156
IHG | Annual Report and Form 20-F 2019
4. Staff costs and Directors’ emoluments
Staff costs
Wages and salaries
Social security costs
Pension and other post-retirement benefits:
Defined benefit plans (note 27)
Defined contribution plans
Analysed as:
Costs borne by IHGa
Costs borne by the System Fundb
Costs reimbursed
2019
$m
1,982
131
3
64
2018
$m
1,956
127
19
63
2017
$m
1,868
106
5
61
2,180
2,165
2,040
735
313
1,132
2,180
708
347
1,110
2,165
645
339
1,056
2,040
a Includes $9m (2018: $21m, 2017: $13m) classified as exceptional relating to the comprehensive efficiency programme. In 2018, included $15m classified as exceptional relating to
termination of the US funded Inter-Continental Hotels Pension Plan.
b Includes $8m (2018: $21m, 2017: $9m) relating to the comprehensive efficiency programme.
Average number of employees, including part-time employees
Employees whose costs are borne by IHG:
Americas
EMEAA
Greater China
Central
Employees whose costs are borne by the System Fund
Employees whose costs are reimbursed
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 96 to 109.
5. 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
Other non-audit services not covered by the above
2019
2018
2017
2,170
5,227
339
1,900
9,636
4,800
2,225
3,255
324
1,794
7,598
5,214
2,149
2,267
294
1,948
6,658
5,555
22,207
22,518
22,577
36,643
35,330
34,790
2019
$m
2018
$m
2017
$m
6.4
7.1
4.9
2019
$m
3.0
3.2
0.2
1.3
–
0.1
7.8
2018
$m
3.3
2.9
0.2
1.3
–
0.1
7.8
2017
$m
3.0
2.2
0.2
1.0
0.1
0.2
6.7
a Includes $nil (2018: $0.4m, 2017: $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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
157
Group Financial Statements
Notes to the Group Financial Statements continued
6. Exceptional items
Operating exceptional items:
Administrative expenses:
Acquisition and integration costs
Litigation
Reorganisation costs
Pension settlement cost
Other operating income and expenses:
Gain on disposal of equity securities measured at fair value (note 17)
Impairment charges:
Goodwill (note 13)
Management agreements (note 13)
Right-of-use assets (note 15)
Associates (note 16)
Total operating exceptional items
Fair value gains on contingent purchase consideration (note 25)
Exceptional items before tax
Tax:
Tax on exceptional items
Exceptional tax
Total tax (note 8)
Operating exceptional items analysed as:
Americas
EMEAA
Greater China
Central
2019
$m
2018
$m
2017
Restated
$m
(7)
(28)
(20)
–
(55)
–
–
(49)
(50)
(32)
–
(131)
(186)
(15)
(18)
(56)
(15)
(104)
–
–
–
–
–
–
–
(104)
38
–
(148)
(104)
20
–
20
(62)
(109)
–
(15)
(186)
22
5
27
(36)
(12)
(1)
(55)
(104)
(15)
–
(36)
–
(51)
73
73
–
–
–
(18)
(18)
4
–
4
(2)
87
85
37
(4)
–
(29)
4
Acquisition and integration costs
Relates to the acquisitions of Six Senses, Regent and the UK portfolio (see note 11) and, in 2017, related to the cost of integrating Kimpton
which was acquired on 16 January 2015.
Litigation
In 2019, primarily represents management’s best estimate of a settlement in respect of a lawsuit filed against the Group in the Americas
region, together with the cost of an arbitration award made against the Group in the EMEAA region.
In 2018, primarily related to a material settlement agreed in respect of a lawsuit filed against the Group in the Americas region, together with
associated legal fees.
Reorganisation costs
In September 2017, the Group launched a comprehensive efficiency programme to 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 was completed in 2019. The cost includes
consultancy fees of $6m (2018: $25m, 2017: $24m) and severance costs of $8m (2018: $18m, 2017: $8m). An additional $28m (2018: $47m,
2017: $9m) has been charged to the System Fund.
158
IHG | Annual Report and Form 20-F 2019
6. Exceptional items continued
Pension settlement cost
Arose from the termination of the US funded Inter-Continental Hotels Pension Plan (see note 27).
Tax on exceptional items
In 2019, comprises a current tax credit of $4m on reorganisation costs (2018: $11m, 2017: $13m), a $6m deferred tax credit in respect of
litigation costs (2018: $5m current tax credit), a $1m deferred tax charge representing the net tax impact of the right-of-use asset impairment
and the fair value gain on contingent purchase consideration, a $13m deferred tax credit in relation to the management agreement
impairment and a $2m prior year deferred tax charge relating to a 2014 disposal. Additionally, in 2018 there was a $6m tax credit ($5m current
tax and $1m deferred tax) arising from the US pension settlement, a $2m current tax credit in respect of acquisition and integration costs
(2017: deferred tax credit $6m) and a $2m prior year current tax charge on the 2017 sale of a minority investment (2017: $28m). Additionally in
2017 there was a $7m deferred tax credit in respect of the impairment charge relating to the InterContinental Barclay associate.
Exceptional tax
In 2018, related to a $5m tax credit in regard to US tax reform impacts. 2017 has been restated to reflect the re-measurement arising from
the significant US tax reform on the deferred taxes created by IFRS 16. The 2017 restated amounts include $32m current tax charge and
$109m deferred tax credit as a result of the US tax reform and a $10m deferred tax credit representing a reduction in the Group’s
unremitted earnings provision.
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 145.
7. Finance costs
Financial income
Financial income on deposits and money market funds
Interest income on loans and other assets
Financial expenses
Interest expense on bonds and syndicated facility
Interest expense on lease liabilities
Capitalised interest
Unwind of discount on deferred purchase considerationa
Other chargesb
2019
$m
2018
Restated
$m
2017
Restated
$m
3
3
6
78
41
(5)
1
6
121
2
3
5
61
39
(5)
1
5
101
1
3
4
58
39
(6)
–
4
95
a Fair value gains/(losses) on contingent purchase consideration have been disclosed on the face of the Group income statement. The 2018 comparatives have been restated accordingly.
b Other charges comprise bank charges and non-bank interest expense.
During the year, $13m (2018: $14m, 2017: $7m) was payable to the IHG Rewards Club loyalty programme relating to interest on the
accumulated balance of cash received in advance of the consumption of points awarded. The expense and corresponding System Fund
interest income are eliminated within financial expenses.
Capitalised interest relates to the System Fund. The rate used for capitalisation of interest was 3.1% (2018: 3.0%, 2017: 3.0%).
The deferred purchase consideration relates to the Regent acquisition (see note 25).
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
159
Group Financial Statements
Notes to the Group Financial Statements continued
8. Tax
Tax on profit
Income tax
UK corporation tax at 19.00% (2018: 19.00%, 2017: 19.25%):
Current period
Adjustments in respect of prior periods
Foreign tax:
Current period
Benefit of tax reliefs on which no deferred tax previously recognised
Adjustments in respect of prior periods
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Changes in tax rates and tax lawsa
Adjustments to estimated recoverable deferred tax assetsb
Adjustments in respect of prior periods
Total deferred tax
Total income tax charge for the year
Further analysed as tax relating to:
Profit before exceptional itemsc
Exceptional items:
Tax on exceptional items (note 6)
Exceptional tax (note 6)
a In 2017, predominantly reflects a change in US tax rates following significant US tax reforms.
b Represents a reassessment of the recovery of recognised and off-balance sheet deferred tax assets in line with the Group’s profit forecasts.
c Includes $113m (2018: $93m, 2017: $157m) in respect of US taxes.
All items above relate to continuing operations.
2019
$m
2018
Restated
$m
2017
Restated
$m
5
13
18
154
(2)
(11)
141
159
11
2
(2)
(14)
(3)
156
10
4
14
95
(1)
(13)
81
95
39
1
(2)
(1)
37
132
10
(2)
8
210
(13)
2
199
207
(8)
(56)
(9)
(16)
(89)
118
176
159
203
(20)
–
156
(22)
(5)
132
2
(87)
118
160
IHG | Annual Report and Form 20-F 2019
8. Tax continued
Reconciliation of tax charge
UK corporation tax at standard rate
Tax credits
System Fundc
Impairment charges
Other permanent differences
Non-recoverable foreign taxesd
Net effect of different rates of tax in overseas businessese
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 laws
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
a Calculated in relation to total profits including exceptional items and System Fund.
b Calculated in relation to profits excluding exceptional items and System Fund earnings.
c The System Fund is, in general, not subject to taxation.
2018
Restated
%
Totala
2017
Restated
%
19.0
(0.5)
5.0
–
0.6
0.7
4.6
–
–
–
0.3
(0.4)
0.1
(2.0)
27.4
19.3
(0.5)
0.9
–
0.8
0.3
14.6
(8.7)
(7.8)
4.8
0.3
(1.9)
(1.4)
(2.6)
18.1
2019
%
19.0
(0.8)
1.1
1.7
1.3
3.2
6.7
–
–
–
(0.4)
(0.4)
(0.4)
(2.2)
28.8
Before exceptional items
and System Fundb
2018
Restated
%
2017
Restated
%
19.0
(0.3)
(0.5)
–
0.3
0.5
3.7
–
–
–
0.2
(0.3)
0.1
(1.0)
21.7
19.3
(0.5)
(0.4)
–
0.6
0.3
13.9
–
–
–
0.3
(1.8)
(1.3)
(1.1)
29.3
2019
%
19.0
(0.6)
(0.5)
–
0.8
2.4
5.5
–
–
–
(0.3)
(0.3)
(0.3)
(1.9)
23.8
d In 2018, IHG recognised a benefit in respect of foreign tax credits in the US that were carried back against 2017 tax. In 2019, this carry back benefit is not available which has led to an
increase in irrecoverable tax by 1.8 percentage points on the underlying rate before exceptional items and System Fund. These credits are disclosed within unrecognised deferred tax.
e Before exceptional items and System Fund includes 4.9 percentage points (2018: 4.2 percentage points, 2017: 13.3 percentage points) driven by the relatively high US federal tax rate.
A reconciliation between total tax rate and tax rate before exceptional items and System Fund is shown below:
Group income statement
Adjust for:
Exceptional items (note 6)
System Fund
Other
Profit
before tax
$m
542
148
49
–
739
Tax
$m
156
20
–
–
176
2019
Rate
%
28.8
Profit
before tax
$m
482
104
146
–
732
23.8
2018
Restated
Rate
%
27.4
Profit
before tax
$m
653
(4)
34
–
2017
Restated
Rate
%
18.1
Tax
$m
118
85
–
(3)
21.7
683
200
29.3
Tax
$m
132
27
–
–
159
Information concerning Non-GAAP measures
can be found in the Strategic Report on pages 55 to 59.
Tax paid
Total net tax paid during the year of $141m (2018: $68m, 2017: $172m) comprises $141m (2018: $66m, 2017: $147m) paid in respect of
operating activities and $nil (2018: $2m, 2017: $25m) paid in respect of investing activities. A reconciliation of tax paid to the total tax charge
in the Group income statement is as follows:
Current tax charge in the Group income statement
Current tax credit in the Group statement of comprehensive income
Current tax credit taken directly to equity
Total current tax charge
Movements to tax contingencies within the Group income statementa
Timing differences of cash tax paid and foreign exchange differences
Tax paid per cash flow
a Tax contingency movements are included within the current tax charge but do not impact cash tax paid in the year.
2019
$m
(159)
2
4
(153)
3
9
(141)
2018
$m
(95)
1
8
(86)
(4)
22
(68)
2017
$m
(207)
–
12
(195)
(3)
26
(172)
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
161
Group Financial Statements
Notes to the Group Financial Statements continued
8. Tax continued
Current tax
Within current tax payable is $33m (2018: $29m) 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 $9m (2018: $8m).
Deferred tax
Property,
plant,
equipment
and
software
$m
Other
intangible
assets and
contract
assets
Restated
$m
Application
fees and
contract
costs
$m
Deferred
gains on
loan notes
$m
Deferred
gains on
investments
$m
Losses
$m
Employee
benefits
$m
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differencesa
Restated
$m
Total
Restated
$m
At 1 January 2018
Group income statement
Assets of businesses acquired
Group statement of
comprehensive income
Group statement of
changes in equity
Exchange and other adjustments
(98)
(26)
4
–
–
–
(2)
(8)
(11)
–
–
–
At 31 December 2018
(120)
(21)
Group income statement
Assets of businesses acquired
Group statement of
comprehensive income
Exchange and other adjustments
–
–
–
1
1
–
–
1
25
4
–
–
–
–
29
(2)
–
–
–
(34)
(1)
–
–
–
–
(35)
1
–
–
–
(54)
(2)
–
–
–
–
(56)
(2)
–
–
–
40
(4)
–
–
–
(1)
35
(9)
–
–
1
20
–
–
(2)
–
–
18
–
–
1
1
At 31 December 2019
(119)
(19)
27
(34)
(58)
27
20
a Primarily relates to provisions, accruals, share-based payments, right-of-use assets, lease liabilities and contingent purchase consideration.
–
(2)
–
–
–
–
(2)
2
–
–
–
–
86
2
10
(2)
(5)
–
91
12
2
(1)
–
(17)
(37)
3
(4)
(5)
(1)
(61)
3
2
–
4
104
(52)
Deferred gains on investments represent tax which would crystallise upon a sale of a related joint venture, associate or other equity
investment. Deferred gains on loan notes represent tax which is expected to fall due for payment in 2025 (2018: 2025). The deferred tax
asset recognised in respect of losses of $27m (2018: $35m) is wholly in respect of revenue losses. A deferred tax asset of $4m (2018: $nil)
is recognised in a legal entity which suffered a tax loss in the current or preceding period. This deferred tax asset has been recognised on
the basis of the future expected performance of the entity in question. Offset against deferred tax assets is $nil (2018: $nil) in respect of
uncertain tax positions.
The closing balance is further analysed by key territory as follows:
UK
US
Other
Property,
plant,
equipment
and
software
$m
Other
intangible
assets and
contract
assets
$m
Application
fees and
contract
costs
$m
Deferred
gains on
loan notes
$m
Deferred
gains on
investments
$m
Losses
$m
Employee
benefits
$m
Undistributed
earnings of
subsidiaries
$m
Other
short-term
temporary
differences
$m
6
(125)
–
(119)
5
(18)
(6)
(19)
(1)
33
(5)
27
–
(34)
–
(34)
–
(58)
–
(58)
21
1
5
27
4
16
–
20
–
–
–
–
20
74
10
104
Total
$m
55
(111)
4
(52)
162
IHG | Annual Report and Form 20-F 2019
8. Tax continued
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
2019
$m
66
(118)
(52)
2018
Restated
$m
63
(124)
(61)
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
Foreign tax credits
Leases
Othera
Gross
Unrecognised deferred tax
2019
$m
413
541
954
13
25
2
2018
Restated
$m
448
516
964
–
25
24
994
1,013
2019
$m
65
95
160
13
7
1
181
2018
Restated
$m
67
90
157
–
7
7
171
a Primarily relates to costs incurred in prior years for which relief has not been obtained.
There is no expiry date to any of the above unrecognised assets other than for the losses and foreign tax credits as shown in the table below:
Expiry date:
2020
2021
2022
2023
2024
2025
After 2025
Gross
Unrecognised deferred tax
2019
$m
2018
$m
2019
$m
2018
$m
2
31
10
2
4
91
24
–
28
10
1
4
92
46
–
6
2
–
1
20
17
–
6
2
–
–
21
3
No deferred tax liability has been recognised in respect of $0.9bn (2018: $0.8bn) 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 73.
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 the OECD,
governments and tax authorities. The Group continues to monitor activity in this area.
At the current time, the exact detail of the United Kingdom’s exit from the European Union remains unknown. Based upon the Group’s
profile and areas that have been publicly discussed, the Group does not anticipate the exit to cause a material impact on its future
underlying effective tax rate.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
163
Group Financial Statements
Notes to the Group Financial Statements continued
9. Dividends
Paid during the year:
Final (declared for previous year)
Interim
Special (note 29)
2019
cents
per share
2018
cents
per share
2017
cents
per share
78.1
39.9
262.1
380.1
71.0
36.3
–
107.3
64.0
33.0
202.5
299.5
2019
$m
139
72
510
721
2018
$m
130
69
–
199
2017
$m
127
62
404
593
Proposed (not recognised as a liability at 31 December):
Final
85.9
78.1
71.0
156
141
135
The final dividend of 85.9¢ per ordinary share is proposed for approval at the Annual General Meeting (AGM) on 7 May 2020 and is payable
on the shares in issue at 3 April 2020.
10. 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 and changes in the fair
value of contingent purchase consideration, to give a more meaningful comparison of the Group’s performance.
Additionally, earnings attributable to the System Fund are excluded from the calculation of adjusted earnings per ordinary share, as IHG 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 gain or loss from operating the Fund over the longer term.
IHG also records an interest charge on the outstanding cash balance relating to the IHG Rewards Club programme. These interest payments
are recognised as interest income for the Fund and interest expense for IHG. The Fund also benefits from the capitalisation of interest
related to the development of the next-generation Guest Reservation System. As the Fund is included in the Group income statement, these
amounts are included in reported Group net financial expenses. Given that all results related to the Fund are excluded from the calculation
of adjusted earnings per ordinary share, these interest amounts are deducted from profit available for equity holders.
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:
System Fund revenues and expenses ($m)
Interest attributable to the System Fund ($m)
Tax attributable to the System Fund ($m)
Operating exceptional items ($m) (note 6)
Change in fair value of contingent purchase consideration ($m) (note 25)a
Tax on exceptional items ($m) (note 6)
Exceptional tax ($m) (note 6)
Adjusted earnings ($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)
a Adjusted earnings per ordinary share for 2018 has been restated to exclude the change in fair value of contingent purchase consideration.
164
IHG | Annual Report and Form 20-F 2019
2019
2018
Restated
2017
Restated
385
183
210.4
385
184
209.2
349
190
183.7
349
192
181.8
534
193
276.7
534
194
275.3
385
349
534
49
(18)
–
186
(27)
(20)
–
555
183
146
(19)
–
104
4
(22)
(5)
557
190
34
(13)
3
(4)
–
2
(87)
469
193
303.3
293.2
243.0
555
184
557
192
301.6
290.1
469
194
241.8
10. Earnings per ordinary share continued
Diluted weighted average number of ordinary shares is calculated as:
Basic weighted average number of ordinary shares
Dilutive potential ordinary shares
Information concerning Non-GAAP measures
can be found in the Strategic Report on pages 55 to 59.
11. Acquisition of businesses
2019
millions
2018
millions
2017
millions
183
1
184
190
2
192
193
1
194
Six Senses
On 12 February 2019, the Group acquired a 100% ownership interest in Six Senses Hotels Resorts Spas (Six Senses). Six Senses is a leading
operator of top-tier luxury hotels, resorts and spas with a world-renowned reputation for wellness and sustainability. Six Senses will sit at the
top of IHG’s luxury portfolio.
Six Senses contributed revenue of $38m and an operating loss of $7m for the period between the date of acquisition and the balance sheet
date. The results of Six Senses are included in the EMEAA and Greater China reportable segments. If the acquisition had taken place at
1 January 2019, there would have been no material difference to reported Group revenue and operating profit for the year ended
31 December 2019.
The fair values of the identifiable assets acquired and liabilities assumed, and the purchase consideration, have been finalised and reflect
facts and circumstances that existed at the date of acquisition:
Identifiable intangible assets:
Brands
Management agreements
Right-of-use assets
Other non-current assets
Trade and other receivables
Cash and cash equivalents
Other current assets
Trade and other payables
Lease liabilities
Other liabilities
Net identifiable assets acquired
Goodwill
Total purchase consideration
Comprising:
Cash paid on acquisition, including working capital settlement
Contingent purchase considerationa
$m
189
45
19
8
12
7
1
(14)
(19)
(2)
246
58
304
299
5
304
a Payable upon certain conditions being met relating to a pipeline property. The range of possible outcomes is $nil to $5m.
The goodwill is attributable to the global growth opportunities identified for the acquired business. The full amount of goodwill is expected
to be deductible for income tax purposes.
At the date of acquisition, the fair value of trade receivables was $8m, with a corresponding carrying value of $10m. The difference between
the fair value and the carrying amount reflects the expected credit loss.
No contingent liabilities were recognised as a result of the acquisition.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
165
Group Financial Statements
Notes to the Group Financial Statements continued
11. Acquisition of businesses continued
UK portfolio – acquisition of additional hotels
On 14 February 2019, following on from the UK portfolio deal completed in 2018 to operate 10 UK hotels under long-term leases from
Covivio (see below), the Group added a further two hotels to the portfolio bringing the total hotels in the UK portfolio to 12.
The total purchase consideration for the two hotels was $11m, comprising purchase consideration of $1m and contingent purchase
consideration of $10m. The contingent purchase consideration has been revalued as at 31 December 2019, (see note 25).
The two additional hotels contributed revenue of $15m and an operating profit of $1m for the period between the date of acquisition
and the balance sheet date. The results of the hotels are included in the EMEAA business segment. If the acquisition had taken place at
1 January 2019, there would have been no material difference to reported Group revenue and operating profit for the year ended
31 December 2019.
Assets acquired and liabilities assumed primarily comprise goodwill of $12m, of which $nil is expected to be deductible for income tax
purposes, and a right-of-use asset of $6m offset by an equal lease liability. The goodwill was attributable to the trading potential of the
acquired hotel operations and growth opportunities.
Acquisitions completed in 2018
Regent
On 1 July 2018, the Group completed the acquisition of a 51% controlling interest in an agreement with Formosa International Hotels
Corporation (FIH) to acquire the Regent Hotels and Resorts brand and associated management agreements (Regent). The Group acquired
51% of the issued share capital of Regent Hospitality Worldwide, Inc (RHW), 100% of the issued share capital of Regent International Hotels
Limited and 100% of the issued share capital of Regent Berlin GmbH.
Put and call options exist over the remaining 49% shareholding in RHW which are exercisable in a phased manner from 2026. As the
decision-making powers related to the remaining shares are not substantive in driving RHW’s returns and FIH do not share in any costs
associated with the future development of the Regent brand, it has been determined that the Group has a present ownership interest in the
remaining shares. As such, RHW has been accounted for as 100% owned with no non-controlling interest recognised.
The total purchase consideration was $88m, comprising $13m paid on acquisition, $22m of deferred purchase consideration and $53m of
contingent purchase consideration. The contingent purchase consideration has been revalued as at 31 December 2019, (see note 25).
The fair value of the net assets acquired was $53m, including brands of $57m and management agreements of $6m. Goodwill recognised
was $35m.
UK portfolio
On 25 July 2018, the Group completed a deal to operate nine hotels under long-term leases from Covivio (formerly Foncière des Régions)
which operated under the Principal and De Vere Hotels brands. An additional leased hotel was added to the portfolio on 13 November 2018
bringing the total to 10 at 31 December 2018.
The total purchase consideration was $62m, comprising $9m paid on acquisition, a working capital refund of $3m and $56m of contingent
purchase consideration. The contingent purchase consideration has been revalued as at 31 December 2019, (see note 25).
The fair value of the net assets acquired was $14m, including property, plant and equipment of $25m and a deferred tax asset of $14m, less
deferred revenue of $8m, a stamp duty liability of $14m and net working capital of $6m. Following adoption of IFRS 16, a right-of-use asset
of $51m was recognised, offset by an equal lease liability. Goodwill, initially recognised as $48m, was increased by $4m in the current year
due to the finalisation of the provisional fair values assigned to working capital balances. Goodwill and the right-of-use asset were
subsequently impaired during 2019, (see note 13).
Cash flows relating to acquisitions
Cash paid on acquisition, including working capital settlement
Settlement of stamp duty liability
Less: cash and cash equivalents acquired
Less: working capital settlement received in year following acquisition
Net cash outflow arising on acquisitions
2019
$m
299
3
(7)
(3)
292
2018
$m
22
14
(2)
–
34
166
IHG | Annual Report and Form 20-F 2019
12. Assets and liabilities classified as held for sale
One hotel, the Holiday Inn Melbourne Airport, which is included in the EMEAA business segment, is classified as held for sale at
31 December 2019. During the year, the Group entered into an agreement to sell its interest in the hotel for $2m. The sale and assignment of
the lease is expected to complete in early 2020.
On reclassification as held for sale there was no change to the carrying value.
Assets and liabilities classified as held for sale
Assets classified as held for sale:
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Liabilities classified as held for sale:
Trade and other payables
Lease liabilities
2019
$m
3
15
1
19
(2)
(20)
(22)
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
167
Group Financial Statements
Notes to the Group Financial Statements continued
13. Goodwill and other intangible assets
Goodwill
$m
Brands
$m
Software
$m
Management
agreements
$m
Other
intangibles
$m
Total
$m
Cost
At 1 January 2018
Acquisition of businesses (note 11)
Additions
Capitalised interest
Disposals
Exchange and other adjustments
At 31 December 2018
Acquisition of businesses (note 11)
Additions
Capitalised interest
Disposals
Exchange and other adjustments
At 31 December 2019
Amortisation and impairment
At 1 January 2018
Provided
System Fund expense
Disposals
Exchange and other adjustments
At 31 December 2018
Provided
System Fund expense
Impairment charges
Disposals
Exchange and other adjustments
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
At 1 January 2018
377
83
–
–
–
(5)
455
70
4
–
–
–
193
58
–
–
–
(1)
250
189
–
–
–
–
529
439
–
–
–
–
–
–
–
–
–
–
–
–
(140)
–
–
–
(2)
(142)
–
–
(49)
–
1
(190)
339
313
237
745
–
107
5
(72)
(4)
781
–
98
5
(22)
2
864
(281)
(36)
(37)
67
6
(281)
(35)
(46)
–
22
–
71
6
–
–
–
–
77
45
–
–
–
–
122
(7)
(3)
–
–
–
(10)
(3)
–
(50)
–
–
13
1,399
–
5
–
–
–
18
–
6
–
–
(1)
23
(4)
(1)
–
–
–
(5)
(2)
(1)
–
–
–
147
112
5
(72)
(10)
1,581
304
108
5
(22)
1
1,977
(432)
(40)
(37)
67
4
(438)
(40)
(47)
(99)
22
1
(340)
(63)
(8)
(601)
439
250
193
524
500
464
59
67
64
15
13
9
1,376
1,143
967
Goodwill and brands
Brands
Brands relate to the acquisitions of Kimpton ($193m), Regent ($57m) and Six Senses ($189m). They are each considered to have an indefinite
life given their strong brand awareness and reputation, 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.
168
IHG | Annual Report and Form 20-F 2019
13. Goodwill and other intangible assets continued
Allocation of goodwill and brands to CGUs
The Group’s cash-generating units (CGUs) reflect the Group’s geographical regions, differentiated where material between franchised and
managed operations, together with the UK portfolio.
The carrying value of goodwill and indefinite life brands were allocated to CGUs for year-end impairment testing purposes as follows:
CGU
Americas Managed
Americas Franchised
EMEAA – Europe Managed
EMEAA – Europe Franchised
EMEAA – rest of region
Greater China
UK portfolio
Allocated to CGUs
Unallocateda
Less: UK portfolio impairment
Net book value at 31 December
Goodwill
$m
2019
Brands
$m
Goodwill
$m
2018
Brands
$m
95
37
48
10
140
9
49
388
–
388
(49)
339
289
–
46
–
88
16
–
439
–
439
–
439
69
37
29
10
113
7
–
265
48
313
–
313
203
–
13
–
23
11
–
250
–
250
–
250
a The UK portfolio goodwill remained unallocated at 31 December 2018 pending completion of the portfolio acquisition in early 2019.
Impairment testing other than the UK portfolio
The recoverable amounts of the CGUs have been 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. RevPAR is based on market forecasts provided by Oxford Economics adjusted for historical
experience of how the Group has performed compared to these expectations. 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
EMEAA – Europe Managed
EMEAA – Europe Franchised
EMEAA – rest of region
Greater China
Terminal
growth
rate %
2019
Pre-tax
discount
rate %
Terminal
growth
rate %
2018
Pre-tax
discount
rate %
1.9
1.9
1.5
1.5
3.3
2.5
9.6
8.6
8.9
7.9
11.6
10.8
2.0
2.0
2.0
2.0
3.5
2.5
10.5
9.6
11.4
10.5
13.4
12.3
Impairment was not required at either 31 December 2019 or 31 December 2018.
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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
169
Group Financial Statements
Notes to the Group Financial Statements continued
13. Goodwill and other intangible assets continued
UK portfolio
For impairment testing of the UK portfolio, which is reported within the EMEAA reportable segment, each hotel is deemed to be a CGU.
The 12 individual hotels are treated as a group for impairment testing of goodwill and the IFRS 16 right-of-use asset, as neither of these
assets can be allocated to individual hotels other than on an arbitrary basis. The right-of-use asset cannot be allocated as there is one
framework lease which covers all of the hotels, and the ‘in-substance fixed’ payments recognised as a lease liability arise from the rent
guarantee which relates to the whole portfolio.
The UK portfolio has experienced trading disruption in the year as a result of renovations and re-branding of these hotels and increasingly
challenging trading conditions in 2019. Management has reassessed its short and medium-term forecasts which assume that some
disruption continues into 2020, and that hotels see progressive trading improvements when the renovation and re-branding projects
complete. The recoverable amount of the UK portfolio as at 31 December 2019 has been determined based on a value in use calculation
using cash flow projections for a five-year period. These cash flow projections use pre-tax cash flow forecasts derived from the most recent
financial budgets approved by management, incorporating growth rates from industry forecasts and management’s expectation of growth
in the hotels following completion of the renovation and re-branding projects. Cash flows from 2025 to the end of the lease term are
extrapolated using a 1.5% growth rate that is in line with the long-term average growth rate for the UK hotel industry. The pre-tax discount
rate applied to the cash flow projections is 9.7%. As a result of this analysis, management has recognised an impairment charge of $81m in
the current year; $49m against the carrying value of the goodwill, which is now written down to $nil, and $32m against the right-of-use
asset. The impairment charge is recorded as a separate line in the Group income statement. The sensitivity of the value in use calculation to
changes in key assumptions is disclosed on page 140. No impairment of the hotels’ property, plant and equipment was required, based on
the fair value less costs to sell of these assets. A replacement cost methodology was used to value these assets, which were either initially
recognised at fair value on acquisition or acquired during 2019.
The same underlying cash flows are used to measure the fair value of the contingent purchase consideration liability, which was reduced
by $38m in the year (see note 25) resulting in a corresponding gain in the Group income statement. The net impact before tax therefore
resulting from the reassessment of the hotel cash flows was a $43m charge to the Group income statement, being impairment of $81m less
the fair value gain of $38m, and an equivalent reduction in net assets.
The IFRS 16 lease accounting for the UK portfolio is set out in note 15.
Software
Software includes $288m relating to the development of the next-generation Guest Reservation System with Amadeus. Of this amount,
$135m relating to Phase 2 of the project is not yet being amortised as Phase 2 has not been completed and rolled out to hotels. Phase 1
is being amortised over 10 years, with nine years remaining at 31 December 2019, reflecting the Group’s experience of the long life of guest
reservation systems and the initial term over which the Group is party to a technology agreement with Amadeus.
Substantially all software additions are internally developed.
Management agreements
Management agreements relate to contracts recognised at fair value on acquisition.
The impairment charge of $50m relates to the Kimpton management contract portfolio acquired in 2015 and results from revised
expectations regarding future trading, the rate of hotel exits ('attrition') and the cost of retaining hotels in the portfolio. The net book value
tested for impairment includes related contract assets. The recoverable amount is based on value in use calculations using management
fee projections based on near-term industry projected growth rates for the US upper upscale sector and a long-term stabilised growth rate
of 2.0%. The projected income flows have been discounted at a rate of 8.0% (2018: 9.0%). The sensitivity of the value in use calculations to
changes in key assumptions is disclosed on page 140.
At 31 December 2019, the net book value and remaining amortisation period of the most significant acquired management
agreements were:
Kimpton
Six Senses (note 11)
Net book value
$m
10
44
Remaining
amortisation period
Years
20
30
The weighted average remaining amortisation period for all management agreements is 26 years (2018: 25 years).
170
IHG | Annual Report and Form 20-F 2019
14. Property, plant and equipment
Cost
At 1 January 2018
Acquisition of businesses (note 11)
Additions
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2018
Acquisition of businesses (note 11)
Additions
Transfers to assets classified as held for sale (note 12)
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2019
Depreciation and impairment
At 1 January 2018
Provided
System Fund expense
Fully depreciated assets written off
Disposals
Exchange and other adjustments
At 31 December 2018
Provided
System Fund expense
Transfers to assets classified as held for sale (note 12)
Fully depreciated assets written off
Disposals
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
At 1 January 2018
Land and
buildings
Restated
$m
Fixtures,
fittings
and
equipment
$m
Total
$m
654
26
47
(178)
(29)
(7)
513
2
77
(12)
(62)
(6)
2
514
449
26
39
(167)
(29)
(4)
314
1
68
(12)
(60)
(6)
2
307
(326)
(404)
(34)
(8)
167
25
8
(168)
(35)
(2)
9
60
4
(40)
(8)
178
25
9
(240)
(38)
(2)
9
62
4
205
–
8
(11)
–
(3)
199
1
9
–
(2)
–
–
207
(78)
(6)
–
11
–
1
(72)
(3)
–
–
2
–
(73)
(132)
(205)
134
127
127
175
146
123
309
273
250
The Group’s property, plant and equipment mainly comprises buildings and leasehold improvements on 26 open hotels (2018: 23 open
hotels), but also offices and computer hardware, throughout the world.
The table below analyses the net book value of the Group’s property, plant and equipment by operating segment at 31 December 2019:
Land and buildings
Fixtures, fittings and equipment
Americas
$m
EMEAA
$m
120
43
163
1
55
56
Greater
China
$m
–
–
–
Central
$m
13
77
90
Total
$m
134
175
309
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
171
Group Financial Statements
Notes to the Group Financial Statements continued
15. Leases
Right-of-use assets
Cost
At 1 January 2018
Additions and other re-measurements
Acquisition of businesses (note 11)
Terminations
Exchange and other adjustments
At 31 December 2018
Additions and other re-measurements
Acquisition of businesses (note 11)
Transfers to assets classified as held for sale (note 12)
Terminations
Exchange and other adjustments
At 31 December 2019
Depreciation and impairment
At 1 January 2018
Provided
System Fund expense
Terminations
Exchange and other adjustments
At 31 December 2018
Provided
System Fund expense
Impairment charge
Transfers to assets classified as held for sale (note 12)
Terminations
Exchange and other adjustments
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
At 1 January 2018
Property
$m
Other
$m
Total
$m
740
19
51
(8)
(10)
792
39
25
(23)
(15)
4
822
(257)
(34)
(4)
8
5
(282)
(37)
(5)
(32)
8
14
(1)
10
1
–
(6)
–
5
1
–
–
(1)
–
5
(7)
(1)
–
6
–
(2)
(1)
–
–
–
1
–
750
20
51
(14)
(10)
797
40
25
(23)
(16)
4
827
(264)
(35)
(4)
14
5
(284)
(38)
(5)
(32)
8
15
(1)
(335)
(2)
(337)
487
510
483
3
3
3
490
513
486
The Group’s leased assets mainly comprise hotels and offices. Leases contain a wide range of different terms and conditions. The term of
property leases ranges from 1-99 years. The weighted average lease term remaining on the Group’s top ten leases (which comprise 91% of
the right-of-use asset net book value) is 42 years.
Many of the Group’s property leases contain extension or early termination options, which are used for operational flexibility. Two of the
Group’s top ten leases contain material extension options which are not included in the calculation of the lease asset and liability as neither
of these extensions would take effect before 2031. The value of the undiscounted rental payments relating to these two leases and not
included in the value of the lease asset and liability is $525m.
172
IHG | Annual Report and Form 20-F 2019
15. Leases continued
Lease liabilities
Total lease liabilities are analysed as follows:
Denominated in the following currencies:
US dollars
Sterling
Euros
Other
Analysed as:
Current
Non-current
Amounts recognised in profit or loss
The following amounts were recognised as expense/(income) in the year:
Depreciation of right-of-use assets
System Fund depreciation of right-of-use assets
Expense relating to variable lease payments
Expense relating to short-term leases and low-value assets
Income from sub-leasing right-of-use assets
Impairment charge
Recognised in operating profit
Interest on lease liabilities
Total recognised in the Group income statement
2019
$m
514
52
43
51
660
65
595
660
2018
$m
35
4
48
3
(2)
–
88
39
127
2018
$m
528
61
29
52
670
55
615
670
2017
$m
34
5
30
2
(2)
–
69
39
108
2019
$m
38
5
58
3
(2)
32
134
41
175
Amounts recognised in the Group statement of cash flows
As restated for IFRS 16, total cash paid during the year relating to leases of $159m (2018: $132m, 2017: $87m) comprises $100m (2018: $97m,
2017: $62m) paid in respect of operating activities and $59m (2018: $35m, 2017: $25m) paid in respect of financing activities.
Variable lease payments
Variable lease payments are payable under certain of the Group’s hotel leases and arise where the Group is committed to making additional
lease payments that are contingent on the performance of the hotels.
The UK portfolio and two German hotel leases include variable lease payments where rentals are linked to the performance of the hotels by
way of reductions in rentals in the event that lower than target cash flows are generated by the hotels. In the event that rent reductions are
not applicable, the Group’s exposure to this type of rental payment in excess of amounts reflected in the measurement of lease liabilities is
as follows:
• UK portfolio: £46m per annum over the remaining lease term of 24 years,
• German hotels: €16m per annum over the next six years and €10m per annum for the next 24 years thereafter.
Additional rentals, which are uncapped, are also payable in respect of these hotels and are calculated as a percentage of the profit earned
by the hotels.
The UK and German leases also contain guarantees that the Group will fund any shortfalls in lease payments up to annual and cumulative
caps. There are a limited number of options for the Group to top up the guaranteed amount in the event the guarantee is utilised beyond a
certain level. Although there are scenarios in which rent reductions would apply such that no rent would be payable, management consider
the likelihood of these occurring to be remote. As such, the cumulative guaranteed amount is judged to be an ‘in-substance fixed’ lease
payment and therefore recognised as a right-of-use asset and corresponding lease liability. The right-of-use asset is depreciated over
the lease term and the lease liability is reduced by the amount of rental payments under the guarantee. During the year, total depreciation
of $3m (2018: $2m, 2017: $1m) was charged to the income statement and total lease payments of $26m (2018: $3m) were charged against
the lease liability.
The right-of-use asset relating to the UK portfolio was impaired by $32m during the year (see note 13) and rental payments of $17m (2018:
$3m) were charged against the lease liability in respect of this portfolio.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
173
Group Financial Statements
Notes to the Group Financial Statements continued
15. Leases continued
Exposure to future cash outflows
At 31 December 2019, the Group was committed to future cash outflows of $3m (2018: $1m) relating to leases that have not yet
commenced. These will be recorded as a lease liability when the leased assets are available for use by the Group.
The maturity analysis of lease liabilities is disclosed in note 24.
The undiscounted future cash flows receivable from sub-leased properties amount to $3m (2018: $3m, 2017: $4m).
16. Investment in associates and joint ventures
Cost
At 1 January 2018
Additions
Share of (losses)/gains
Dividends and distributions
Exchange
At 31 December 2018
Additions
Share of (losses)/gains
Dividends
Exchange
At 31 December 2019
Impairment
At 1 January 2018
Exchange
At 31 December 2018
Exchange
At 31 December 2019
Net book value
At 31 December 2019
At 31 December 2018
At 1 January 2018
Associates
$m
Joint
ventures
$m
Total
$m
151
3
(6)
(5)
(3)
140
14
(3)
(7)
1
145
(37)
1
(36)
1
(35)
110
104
114
27
–
5
(32)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27
178
3
(1)
(37)
(3)
140
14
(3)
(7)
1
145
(37)
1
(36)
1
(35)
110
104
141
Barclay associate
The Group held one material associate investment at 31 December 2019, 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 was extinguished.
Impairment charges of $18m in 2017, related to the Barclay associate, resulted from the depressed trading outlook for the New York hotel
market and the high costs of renovating the hotel. The recoverable amount of the investment was measured at its fair value less costs of
disposal, based on the Group’s share of the market value of the hotel less debt in the associate. The hotel was appraised by a professional
external valuer using an income capitalisation approach which is a discounted cash flow technique that measures the present value of
projected income flows (over a 10-year period) and the reversion of the property sale. Within the fair value hierarchy, this is categorised
as a Level 3 fair value measurement. In addition to the projected income flows, the key assumptions used were a discount rate of 7.3%
and a terminal capitalisation rate of 6.3%.
174
IHG | Annual Report and Form 20-F 2019
16. Investment in associates and joint ventures continued
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 from continuing operations and total comprehensive loss for the period
Group’s share of loss for the period, including the cost of funding owner returns
31 December
2019
$m
31 December
2018
$m
515
75
(22)
(323)
245
49
4
53
529
70
(17)
(319)
263
52
7
59
12 months to
31 December
2019
$m
108
(17)
(10)
12 months to
31 December
2018
$m
103
(13)
(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
2019
$m
2018
$m
2017
$m
2019
$m
2018
$m
2017
$m
2019
$m
2018
$m
Total
2017
$m
Share of gains/(losses)
Operating profits
before exceptional items
7
2
6
–
5
1
7
7
7
During 2018, the Group received a distribution of $32m from a joint venture following the sale of the hotel owned by the joint venture.
17. Other financial assets
Equity securities:
Quoted equity shares
Unquoted equity shares
Restricted funds:
Shortfall reserve deposit
Ring-fenced amounts to satisfy insurance claims:
Cash
Money market funds
Bank accounts pledged as security
Other
Trade deposits and loansa
Analysed as:
Current
Non-current
a Includes $3m (2018: $nil) measured at fair value through profit or loss.
2019
$m
8
125
133
25
11
16
41
5
98
57
2018
$m
8
108
116
25
12
16
40
2
95
50
288
261
4
284
288
1
260
261
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
175
Group Financial Statements
Notes to the Group Financial Statements continued
17. Other financial assets continued
Equity securities
Equity securities are measured at fair value through other comprehensive income and mainly comprise strategic investments in entities that
own hotels which the Group manages. The fair value of the most significant investments at 31 December 2019 together with the dividend
income received in 2019 is as follows:
Investment in entity which owns:
InterContinental The Willard Washington DC
InterContinental San Francisco
InterContinental Grand Stanford Hong Kong
a Reported within ‘other operating income’ in the Group income statement.
2019
Dividend
incomea
$m
Fair value
$m
36
31
23
1
2
1
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 6). Prior to the
sale, the Group’s investment in Avendra was included in unquoted equity shares. Avendra is a North American hospitality procurement
services provider.
Restricted funds
The shortfall reserve deposit is held for the specific purpose of funding shortfalls in owner returns relating to the Barclay associate. No
amounts required release from the deposit during the current or prior year. Any shortfalls funded are subject to potential clawback in future
years. The maximum length of time for which the restricted funds will be held is the life of the hotel management agreement.
Amounts ring-fenced to satisfy insurance claims are principally held in the Group’s Captive, which is a regulated entity. Further disclosures
are included in note 21.
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 27). The amounts pledged as security may change in future years subject to the trustees’ agreement and updated actuarial
valuations. The bank accounts will continue to be pledged as security until the date at which the UK unfunded pension liabilities have been
fully discharged, unless otherwise agreed with the trustees.
Trade deposits and loans
Trade deposits and loans include deposits of $66m (2018: $66m) made to a hotel owner in connection with a portfolio of management
agreements. The deposits are non-interest-bearing and repayable at the end of the management agreement terms, and are therefore held
at a discounted value of $32m (2018: $30m); the discount unwinds to the Group income statement within ‘financial income’ over the period
to repayment.
Credit risk
Restricted funds are held with bank counterparties which are rated at least A+ based on Standard and Poor’s ratings. Trade deposits and
loans are not past due.
The maximum exposure to credit risk of other financial assets at the end of the reporting period by geographic region is as follows:
Americas
EMEAA
Greater China
2019
$m
169
81
38
288
2018
$m
162
68
31
261
176
IHG | Annual Report and Form 20-F 2019
18. Trade and other receivables
Current
Trade receivables
Other receivables
Prepayments
Receivables from associates
2019
$m
514
37
114
1
666
2018
Restated
$m
474
27
108
1
610
Trade and other receivables 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.
Expected credit losses
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 90 days
Past due more than 90 days
Gross
$m
400
74
56
40
570
Credit loss
allowance
$m
(3)
(3)
(5)
(7)
(18)
2019
Net
$m
397
71
51
33
552
Gross
$m
356
71
52
34
513
Credit loss
allowance
$m
(1)
(1)
(2)
(7)
(11)
2018
Net
$m
355
70
50
27
502
Trade and other receivables over 180 days past due are written off, but continue to be actively pursued. The credit risk relating to balances
not past due is not deemed to be significant.
The movement in the allowance for expected lifetime credit losses of trade and other receivables during the year is as follows:
At 1 January
Adjustment arising on adoption of IFRS 9a
Provided
Amounts written back
Amounts written off
Exchange adjustments
At 31 December
2019
$m
(11)
–
(20)
–
14
(1)
(18)
2018
$m
(77)
67
(28)
–
26
1
(11)
a IFRS 9 was applied from 1 January 2018. Under the transition method chosen, comparative information was not restated.
Credit risk
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.
The maximum exposure to credit risk for trade and other receivables, excluding prepayments, at the end of the reporting period by
geographic region is as follows:
Americas
EMEAA
Greater China
2019
$m
359
141
52
552
2017
$m
(69)
–
(15)
2
6
(1)
(77)
2018
$m
325
125
52
502
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
177
Group Financial Statements
Notes to the Group Financial Statements continued
19. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Money market funds
Repurchase agreements
Cash and cash equivalents as recorded in the Group statement of financial position
Bank overdrafts (note 22)
Cash and cash equivalents as recorded in the Group statement of cash flows
2019
$m
160
–
35
–
195
(87)
108
2018
$m
202
158
76
268
704
(104)
600
Cash at bank and in hand includes bank balances of $95m (2018: $106m) which are matched by bank overdrafts of $87m (2018: $104m)
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.
Short-term deposits, money market funds and repurchase agreements are highly liquid investments with an original maturity of three
months or less.
At 31 December 2019, $6m (2018: $nil) is restricted for use on capital expenditure in the UK portfolio and therefore not available for wider
use by the Group. An additional $16m (2018: $2m) is held within countries from which funds are not currently able to be repatriated to the
Group’s central treasury company.
Details of the credit risk on cash and cash equivalents is included in note 24.
20. Trade and other payables
Current
Trade payables
Other tax and social security payable
Other payables
Contingent purchase consideration
Accruals
Non-current
Other payables
Deferred purchase consideration
Contingent purchase consideration
2019
$m
90
42
97
1
338
568
3
23
90
116
2018
Restated
$m
132
44
94
7
339
616
1
22
102
125
Deferred purchase consideration relates to the acquisition of Regent and contingent purchase consideration relates to the acquisitions
of Regent, the UK portfolio and Six Senses (see note 25).
178
IHG | Annual Report and Form 20-F 2019
21. Provisions
At 1 January 2018
Reclassification from other trade and other payables
(Released)/provided
Utilised
At 31 December 2018
Provided
Utilised
At 31 December 2019
Analysed as:
Current
Non-current
Security
incidents
$m
Litigation
$m
Insurance
reserves
$m
5
–
(2)
(3)
–
–
–
–
3
–
(1)
–
2
30
–
32
–
25
7
(7)
25
13
(8)
30
Total
$m
8
25
4
(10)
27
43
(8)
62
2019
$m
2018
$m
40
22
62
10
17
27
Litigation
The litigation provision, which mainly relates to amounts charged during the year as described in note 6, is expected to be utilised within
12 months.
There are certain indemnities and claims that the Group will be able to pursue in relation to these matters, although it is not practicable to
quantify the amounts at this point in time.
Insurance reserves
The Group self-insures certain risks relating to its corporate operations and owned and leased properties, and also acts as third-party
insurer for certain risks of its managed hotels. The insurance reserves held mainly relate to general liability, workers compensation, US
medical and employment practices liability insurances. The amounts are based on reserves held principally in the Group’s captive insurance
company, SCH Insurance Company (SCHIC), and are established using independent actuarial assessments wherever possible, or a
reasonable assessment based on past claims experience.
Over and above the actuarially determined reserves, the Group is potentially exposed to claims with individual caps which do not exceed
$4m for periods prior to 2011 and up to $25m in aggregate for periods since 2011, noting that actual claims did not differ significantly to
estimates in 2019 or 2018.
Amounts utilised within the reserves are paid to a third-party insurer for subsequent settlement with the claimant. In order to protect the
third-party insurer against the solvency risk of SCHIC, the Group has outstanding letters of credit (see note 31).
In respect of the managed hotels, the Group received insurance premiums of $19m (2018: $11m, 2017: $9m) and incurred claims expense of
$18m (2018: $10m, 2017: $9m). Insurance premiums earned are included in Central revenue.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
179
Group Financial Statements
Notes to the Group Financial Statements continued
22. Loans and other borrowings
Unsecured bank loans
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
Bank overdrafts
Total loans and other borrowings
Denominated in the following currencies:
Sterling
US dollars
Euros
Other
Current
$m
Non-current
$m
2019
Total
$m
125
528
399
462
564
2,078
87
2,165
125
528
399
462
564
2,078
–
2,078
1,389
1,391
125
564
–
207
565
2
2,078
2,165
Current
$m
Non-current
$m
–
–
–
–
–
–
104
104
–
94
8
2
104
–
509
385
447
569
1,910
–
1,910
1,341
–
569
–
1,910
2018
Restated
Total
$m
–
509
385
447
569
1,910
104
2,014
1,341
94
577
2
2,014
–
–
–
–
–
–
87
87
2
82
1
2
87
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 (see note 24).
A variable rate of interest is payable on amounts drawn under both facilities, which was 2.42% at 31 December 2019.
£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.
€500m 2.125% bonds 2027
The 2.125% fixed interest euro bonds were issued on 15 November 2018 and are repayable in full on 15 May 2027. Interest is payable annually
on 15 May. The bonds were initially priced at 99.53% of face value and are unsecured. Currency swaps were transacted at the same time the
bonds were issued in order to swap the proceeds and interest flows into sterling (see note 24).
Bank overdrafts
Bank overdrafts are matched by equivalent amounts of cash and cash equivalents under the Group’s cash pooling arrangements (see
note 19).
Facilities provided by banks
Committed
Uncommitted
Unutilised facilities expire:
Within one year
After two but before five years
Utilised
$m
Unutilised
$m
125
–
125
1,225
54
1,279
2019
Total
$m
1,350
54
1,404
Utilised
$m
Unutilised
$m
–
–
–
1,350
53
1,403
2019
$m
54
1,350
1,404
2018
Total
$m
1,350
53
1,403
2018
$m
53
1,350
1,403
Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.
180
IHG | Annual Report and Form 20-F 2019
23. Net debt
Cash and cash equivalents
Loans and other borrowings – current
Lease liabilities
– current
– non-current
– non-current
– classified as held for sale (note 12)
Derivative financial instruments hedging debt values (note 24)
Net debt
Movement in net debt
Net (decrease)/increase in cash and cash equivalents, net of overdrafts
Add back cash flows in respect of other components of net debt:
Principal element of lease payments
Issue of long-term bonds, including effect of currency swaps
(Increase)/decrease in other borrowings
(Increase)/decrease in net debt arising from cash flows
Non-cash movements:
Lease obligations
Increase in accrued interest
Acquisition of businesses (note 11)
Exchange and other adjustments
(Increase)/decrease in net debt
Net debt at beginning of the year
Net debt at end of the year
2019
$m
195
(87)
2018
Restated
$m
704
(104)
(2,078)
(1,910)
(65)
(595)
(20)
(15)
(55)
(615)
–
15
(2,665)
(1,965)
(500)
563
59
–
(127)
(568)
(43)
(7)
(25)
(57)
35
(554)
268
312
(27)
(3)
(51)
57
(700)
(1,965)
(2,665)
288
(2,253)
(1,965)
Information concerning Non-GAAP measures
can be found in the Strategic Report on pages 55 to 59.
Loans and other borrowings (excluding bank overdrafts), lease liabilities, and currency swaps 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
Lease liabilities
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
Currency swaps
At 1 January
2019
Restated
$m
Financing
cash flows
$m
Exchange
adjustments
$m
Acquisition
of businesses
$m
–
670
509
385
447
569
2,580
(7)
2,573
127
(59)
–
–
–
–
68
–
68
(2)
1
18
13
15
(12)
33
–
33
–
25
–
–
–
–
25
–
25
Other
$m
–
43
1
1
–
7
52
27
79
At 31 December
2019
$m
125
680
528
399
462
564
2,758
20
2,778
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
181
Group Financial Statements
Notes to the Group Financial Statements continued
23. Net debt continued
Unsecured bank loans
Lease liabilities
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
Currency swaps:
Exchange of principal
Initial fee received
At 1 January
2018
Restated
$m
Financing
cash flows
Restated
$m
Exchange
adjustments
Restated
$m
Acquisition
of businesses
Restated
$m
Other
Restated
$m
At 31 December
2018
Restated
$m
262
633
538
406
472
–
2,311
–
–
–
2,311
(268)
(35)
–
–
–
559
256
(5)
3
(2)
254
3
(6)
(30)
(23)
(26)
9
(73)
–
–
–
(73)
–
51
–
–
–
–
51
–
–
–
51
3
27
1
2
1
1
35
(2)
(3)
(5)
30
–
670
509
385
447
569
2,580
(7)
–
(7)
2,573
24. Financial risk management and derivative financial instruments
Overview
The Group is exposed to financial risks that arise in relation to underlying business activities. These risks include: market risk, liquidity 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.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk comprises: foreign exchange risk and interest rate risk. Financial instruments affected by market risk include loans and other
borrowings, cash and cash equivalents, debt and equity investments and derivatives.
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 its 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 sterling and euros. The Group holds its bond debt in sterling
which is the primary currency of shareholder returns and to minimise exchange risk in its holding companies. US dollars are also borrowed
to reflect the predominant trading currency and to act as a net investment hedge of US dollar denominated assets.
The Group transacted currency swaps in 2018 at the same time as the €500m 2.125% bonds were issued in November 2018 in order to swap
the bonds’ proceeds and interest flows into sterling (see page 183).
From time to time, the Group hedges a portion of forecast foreign currency income by taking out forward exchange contracts. There were
no such contracts in place at either 31 December 2019 or 31 December 2018.
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, 94% of borrowings were fixed rate debt at 31 December 2019
(2018: 100%).
If required, the Group uses interest rate swaps to manage interest rate risk. The Group designates interest rate swaps as cash flow hedges.
No interest rate swaps were used to manage interest rate exposure during 2019, 2018, or 2017.
Derivative financial instruments
Derivatives are recorded in the Group statement of financial position at fair value (see note 25) as follows:
Hedging instrument
Currency swaps
Hedged risk
Foreign exchange
Hedge classification
Cash flow hedge
Short-dated foreign exchange swaps
Foreign exchange
Net investment hedge
Analysed as:
Non-current assets
Current assets
Non-current liabilities
2019
$m
(20)
1
(19)
–
1
(20)
(19)
2018
$m
7
1
8
7
1
–
8
The carrying amount of currency swaps of $(20)m (2018: $7m) comprises $15m loss (2018: $15m gain) relating to exchange movements on
the underlying principal, included within net debt (see note 23), and $5m loss (2018: $8m loss) related to other fair value movements.
Details of the credit risk on derivative financial instruments are included on page 185.
182
IHG | Annual Report and Form 20-F 2019
24. Financial risk management and derivative financial instruments continued
Cash flow hedges
The currency swaps were transacted at the same time as the €500m 2.125% bonds were issued in November 2018. Under the terms of the
swaps, £436m was borrowed and €500m deposited for eight and a half years with a fixed interest rate of 3.5% payable on the sterling leg.
The currency swaps are designated as hedging instruments of the foreign exchange risk inherent in the bonds’ cash flows. Hedge
ineffectiveness arises where the cumulative changes in the fair value of the swaps exceed the change in the fair value of the bonds.
The change in the fair value of hedging instruments used to measure hedge ineffectiveness in the period mirrors that of the hypothetical
derivative (hedged item) and was $30m (2018: $9m).
Hedge ineffectiveness may occur due to any opening fair value of the hedging instrument, or a change in the credit risk of the Group or
counterparty. There was no ineffectiveness in 2019 or 2018.
Amounts recognised in the cash flow hedging reserve are analysed in note 29.
Net investment hedges
The Group designates the following as net investment hedges of its foreign operations, being the net assets of certain Group subsidiaries
with a US dollar functional currency:
• Borrowings under the Syndicated and Bilateral Facilities; and
• Short-dated foreign exchange swaps.
The designated risk is the spot foreign exchange risk and interest on these financial instruments is taken through financial income or expense.
Short-dated foreign exchange swaps are used to manage sterling surplus cash and reduce US dollar borrowings whilst maintaining
operational flexibility. The maximum amount held during the year as net investment hedges and tested for effectiveness at calendar quarter
ends were short-dated foreign exchange swaps with principals of $100m (2018: $100m).
There is an economic relationship between the hedged item and the hedging instrument as the net investment creates a translation risk that
will match the foreign exchange risk on the USD borrowing. The Group has established a hedge ratio of 1:1 as the underlying risk of the
hedging instrument is identical to the hedged risk component.
The change in value of hedging instruments recognised in the currency translation reserve through other comprehensive income was $2m
loss (2018: $21m loss). There was no ineffectiveness recognised in the Group income statement during the current or prior year.
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. The impact of the
strengthening in the euro against sterling on net liabilities is also shown, as this impacts the fair value of the currency swaps.
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
Sterling: euro exchange rate
5¢ fall
5¢ fall
5¢ fall
2019
$m
4.0
(2.6)
(1.6)
0.6
39.9
24.1
33.0
2018
Restated
$m
4.1
(2.4)
(0.9)
5.5
25.9
23.8
31.9
2017a
$m
4.0
(2.1)
(2.9)
0.3
44.1
(4.1)
–
a As the change in sensitivities due to adoption of IFRS 16 is insignificant, 2017 has not been restated.
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 include the impact of hedging and are calculated based on the year-end net debt position.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
183
Group Financial Statements
Notes to the Group Financial Statements continued
24. Financial risk management and derivative financial instruments continued
Liquidity risk
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 are held in short-term deposits, repurchase agreements, and cash funds which allow daily withdrawals of cash.
Most of the Group’s funds are held in the UK or US, although $16m (2018: $2m) is held in countries where repatriation is restricted
(see note 19).
Medium and long-term borrowing requirements are met through committed bank facilities and bonds as detailed in note 22. 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 operating profit before
exceptional items, depreciation and amortisation and System Fund revenues and expenses. Covenants are monitored on a ‘frozen GAAP’
basis excluding the impact of IFRS 16. 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.
The following are the undiscounted contractual cash flows of financial liabilities, including interest payments. The payment profile of
contingent purchase consideration has been based on management’s forecasts and could in reality be different from expectations.
Less than
1 year
$m
Between
1 and 2
years
$m
Between
2 and 5
years
$m
More than
5 years
$m
87
125
21
15
10
12
97
567
3
(1)
20
(12)
–
–
21
15
10
12
116
1
20
–
20
(12)
–
–
548
45
29
36
193
1
19
–
61
(36)
Total
$m
87
125
590
486
531
657
–
–
–
411
482
597
3,451
3,857
1
120
–
627
(597)
570
162
(1)
728
(657)
Less than
1 year
Restated
$m
Between
1 and 2
years
Restated
$m
Between
2 and 5
years
Restated
$m
More than
5 years
Restated
$m
Total
Restated
$m
104
20
14
10
6
93
609
7
(1)
20
(6)
–
20
14
10
12
93
–
8
–
20
(12)
–
550
43
28
37
226
1
37
–
58
(37)
–
–
412
475
621
3,479
–
262
–
625
(621)
104
590
483
523
676
3,891
610
314
(1)
723
(676)
31 December 2019
Non-derivative financial liabilities:
Bank overdrafts
Unsecured bank loans
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
Lease liabilities
Trade and other payables (excluding deferred and contingent purchase consideration)
Deferred and contingent purchase consideration
Derivative financial liabilities:
Forward foreign exchange contracts
Currency swaps hedging €500m 2.125% bonds 2027 outflows
Currency swaps hedging €500m 2.125% bonds 2027 inflows
31 December 2018
Non-derivative financial liabilities:
Bank overdrafts
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
Lease liabilities
Trade and other payables (excluding deferred and contingent purchase consideration)
Deferred and contingent purchase consideration
Derivative financial liabilities:
Forward foreign exchange contracts
Currency swaps hedging €500m 2.125% bonds 2027 outflows
Currency swaps hedging €500m 2.125% bonds 2027 inflows
184
IHG | Annual Report and Form 20-F 2019
24. Financial risk management and derivative financial instruments continued
Credit risk
Cash and cash equivalents and derivatives
Credit risk on cash and cash equivalents 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’s cash and cash equivalents held in money market funds was invested in funds with a AAA credit rating at 31 December 2019.
Exposure to credit risk
The Group’s exposure to credit risk arises from default of the counterparty, with the maximum exposure equal to the carrying amount of
each financial asset, including derivative financial instruments.
Expected credit losses
Cash at bank and in hand, short-term deposits, trade and other receivables and those other financial assets which are classified and
measured at amortised cost are subject to the expected credit loss model requirements of IFRS 9. With the exception of trade and other
receivables (see note 18) the expected credit loss is considered to be immaterial.
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern. The capital structure consists of net debt, issued
share capital and reserves totalling $1,192m at 31 December 2019 (2018: $826m restated). 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.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
185
Group Financial Statements
Notes to the Group Financial Statements continued
25. Classification and measurement of financial instruments
Accounting classification
Financial assets
Financial assets measured at fair value through other comprehensive income:
Equity securities (note 17)
Financial assets measured at fair value through profit or loss:
Money market funds:
Cash and cash equivalents (note 19)
Other financial assets (note 17)
Other financial assets (note 17)
Derivative financial instruments (note 24)
Financial assets measured at amortised cost:
Cash and cash equivalents (note 19)
Other financial assets (note 17)
Trade and other receivables, excluding prepayments (note 18)
Financial liabilities
Financial liabilities measured at fair value through profit or loss:
Contingent purchase consideration (note 20)
Derivative financial instruments (note 24)
Financial liabilities measured at amortised cost:
Loans and other borrowings (note 22)
Trade and other payables, excluding deferred and contingent purchase consideration (note 20)
Deferred purchase consideration (note 20)
2019
$m
2018
Restated
$m
133
116
35
16
3
1
55
160
136
552
848
(91)
(20)
(111)
76
16
–
8
100
628
129
502
1,259
(109)
–
(109)
(2,165)
(2,014)
(570)
(23)
(610)
(22)
(2,758)
(2,646)
Right of offset
Other than in relation to cash pooling arrangements (see note 19), there are no financial instruments with a significant fair value subject to
enforceable master netting arrangements and other similar agreements that are not offset in the Group statement of financial position.
186
IHG | Annual Report and Form 20-F 2019
25. Classification and measurement of financial instruments continued
Fair values – hierarchy and valuation techniques
Fair value hierarchy
The following table provides the carrying value, fair value and position in the fair value measurement hierarchy of the Group’s financial
assets and liabilities. Financial assets and financial liabilities measured at amortised cost are only included if their carrying amount is not a
reasonable approximation of fair value.
Carrying
value
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
Carrying
value
Level 1
$m
Level 2
$m
Level 3
$m
2019
Fair value
Assets
Equity securities
Derivative financial
instruments
Money market funds
Trade deposits and loans
Liabilities
Derivative financial
instruments
Contingent purchase
consideration
Deferred purchase
consideration
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
133
1
51
3
(20)
(91)
(23)
(528)
(399)
(462)
(564)
8
–
51
–
–
–
(24)
(567)
(435)
(465)
(601)
–
1
–
–
(20)
–
–
–
–
–
–
125
133
116
8
92
–
1
51
3
(20)
–
(91)
(91)
(109)
–
–
3
–
8
–
92
–
–
–
–
–
–
–
–
(24)
(567)
(435)
(465)
(601)
(22)
(509)
(385)
(447)
(569)
(22)
(543)
(399)
(417)
(566)
–
8
–
–
–
–
–
–
–
–
–
2018
Restated
Fair value
Total
$m
116
8
92
–
–
108
–
–
–
–
(109)
(109)
–
–
–
–
–
(22)
(543)
(399)
(417)
(566)
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.
Valuation techniques
Quoted equity securities, money market funds and bonds
The fair value of quoted equity shares, money market funds and the bonds is based on their quoted market price.
Unquoted equity shares
Unquoted equity securities 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 23.2
(2018: 19.9) and a non-marketability factor of 30% (2018: 30%) was applied.
The significant unobservable inputs used to determine the fair value of the shares are the P/E ratio, non-marketability factor and share of
net assets. A 10% increase/(decrease) in the average P/E ratio would result in a $2m (2018: $2m) increase/(decrease) in the fair value of the
shares. A five percentage point increase/(decrease) in the non-marketability factor would result in a $2m (2018: $1m) increase/(decrease) in
the fair value of the shares. A 10% increase/(decrease) in share of net assets would result in a $9m (2018: $8m) increase/(decrease) in the fair
value of the shares.
Derivative financial instruments
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. Currency swaps are measured at the present value of future cash flows
estimated and discounted back based on quoted forward exchange rates and the applicable yield curves derived from quoted interest
rates. Adjustments for credit risk use observable credit default swap spreads.
Deferred purchase consideration
Deferred purchase consideration arose in respect of the acquisition of Regent, and comprises the present value of $13m payable in 2021
and $13m payable in 2024. The discount rate applied is based on observable US corporate bond rates of similar term to the expected
payment dates.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
187
Group Financial Statements
Notes to the Group Financial Statements continued
25. Classification and measurement of financial instruments continued
Contingent purchase consideration
Regent $66m (2018: $55m)
Comprises the present value of the expected amounts payable on exercise of the put and call options to acquire the remaining 49%
shareholding in Regent (see note 11). The amount payable on exercise of the options is based on the annual trailing revenue of RHW
(see page 136) in the year preceding exercise, with a floor applied. The options are exercisable in a phased manner from 2026 to 2033.
The value of the contingent purchase consideration is subject to periodic reassessment as interest rates and RHW revenue expectations
change. The range of possible outcomes remains unchanged from the date of acquisition at $81m to $261m (undiscounted).
At 31 December 2019, it is assumed that $39m will be paid in 2026 to acquire an additional 25% of RHW with the remaining 24% acquired
in 2028 for $42m. This assumes that the options will be exercised at the earliest permissible date which is consistent with the assumption
made on acquisition. The amount recognised in the financial statements is the discounted value of the total expected amount payable of
$81m. The discount rate applied is based on observable US corporate bond rates of similar term to the expected payment dates.
The significant unobservable inputs used to determine the fair value of the contingent purchase consideration are the projected trailing
revenues of RHW and the date of exercising the options. If the annual trailing revenue of RHW were to exceed the floor by 10%, the amount
of the contingent purchase consideration recognised in the Group Financial Statements would increase by $7m (2018: $5m). If the date for
exercising the options is assumed to be 2033, the amount of the undiscounted contingent purchase consideration would be $86m
(2018: $86m).
UK portfolio $20m (2018: $54m)
Comprises the present value of the above-market element of the expected lease payments to Covivio (see note 11). The above-market
assessment is determined by comparing the expected lease payments as a percentage of forecast hotel operating profit (before
depreciation and rent) with market metrics, on a hotel by hotel basis. There is no floor to the amount payable and no maximum amount.
Market rents were initially determined with assistance of professional third-party advisors. The fair value is subject to periodic reassessment
as interest rates and expected lease payments change.
A fair value adjustment of $38m was recognised in the year, resulting in a reduction to the value of the liability arising mainly from a
reduction in expected future rentals payable.
Forecast base rentals have been discounted at 9.25% based on the CBRE prime freehold regional yield benchmark, adjusted to reflect rental
growth, the leasehold nature of the assets and variable rental structure. Forecast profit share rentals have been discounted at 9.7% based
on the Group’s cost of capital, adjusted upwards to reflect the higher degree of variability inherent in the profit share rentals.
The significant unobservable inputs used to determine the fair value of the contingent purchase consideration are the projected lease
payments and the discount rates used. The impact of changes in these assumptions is detailed on page 140.
Six Senses $5m (2018: $nil)
It is expected that $5m will be payable upon certain conditions being met relating to a project to open a pipeline property, currently
expected to be paid in 2021. If the conditions are not met, no amounts will be paid. The impact of discounting is not material.
Level 3 reconciliation
The following table reconciles the movements in the fair values of financial instruments classified as Level 3 during the year:
Other financial
assets
$m
Contingent purchase
consideration
$m
At 1 January 2018
Additions
Acquisition of businesses (note 11)
Disposals
Valuation losses recognised in other comprehensive income
Contingent purchase consideration paid, included in net cash from investing activities
Change in fair value
Exchange and other adjustments
At 31 December 2018
Additions
Acquisition of businesses (note 11)
Disposals
Valuation gains recognised in other comprehensive income
Contingent purchase consideration paid:
Included in net cash from operating activities
Included in net cash from investing activities
Change in fair value (of which $38m is recorded within exceptional items)
Exchange and other adjustments
At 31 December 2019
188
IHG | Annual Report and Form 20-F 2019
117
4
–
(1)
(10)
–
–
(2)
108
8
1
(1)
12
–
–
–
–
128
–
–
(109)
–
–
4
(4)
–
(109)
–
(15)
–
–
6
2
27
(2)
(91)
26. Reconciliation of profit for the year to cash flow from operations before contract acquisition costs
Profit for the year
Adjustments for:
Net financial expenses
Fair value (gains)/losses on contingent purchase consideration
Income tax charge (note 8)
Depreciation and amortisation
System Fund depreciation and amortisation
Impairment charges (note 6)
Other operating exceptional items (including System Fund) (note 6)
Share-based payments cost
Dividends from associates and joint ventures (note 16)
Increase in trade and other receivables
Increase in contract costs
Increase in deferred revenue
(Decrease)/increase in trade and other payables
Utilisation of provisions, net of charge (note 21)
Retirement benefit contributions, net of costs
Cash flows relating to exceptional items
Contract assets deduction in revenue
Other items
Total adjustments
Cash flow from operations before contract acquisition costs
2019
$m
386
115
(27)
156
116
54
131
83
42
7
(50)
(11)
57
(63)
7
(3)
(55)
21
2
582
968
2018
Restated
$m
350
2017
Restated
$m
535
96
4
132
115
49
–
151
38
5
(43)
(3)
141
11
(6)
(12)
(137)
19
4
564
914
91
–
118
112
41
18
(13)
27
4
(71)
(5)
43
38
–
(1)
(44)
17
(4)
371
906
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
189
Group Financial Statements
Notes to the Group Financial Statements continued
27. 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
(UK plan) 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 $41m at 31 December 2019 (see note 17) is currently held as security on behalf of the
remaining members.
US
During 2018, the Group completed a termination of the US funded Inter-Continental Hotels Pension Plan (the Plan), which involved certain
qualifying members receiving lump-sum cash-out payments of $20m with the remaining pension obligations subject to a buy-out by
Banner Life Insurance Company (Banner), a subsidiary of Legal & General America, through the purchase of a group annuity contract for
$124m. Banner assumed responsibility for the payment of the Plan’s pension obligations on 12 June 2018. A further amount of $6m was
transferred to the Pension Benefit Guaranty Corporation in respect of members who it had not been possible to trace. The transactions
were funded using the assets of the Plan and a final Company contribution of $12m, $1.5m of which was subsequently returned to the
Company as a ‘mistake-in-fact’ contribution refund.
The Group continues to maintain the unfunded Inter-Continental Hotels Non-qualified Pension Plans (US plans) and unfunded
Inter-Continental Hotels Corporation Postretirement Medical, Dental, Vision and Death Benefit Plan (US post-retirement plan), both of which
are defined benefit plans. Both plans are closed to new members. A Retirement Committee, comprising senior Company employees and
assisted by professional advisors as and when required, has responsibility for oversight of the plans.
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.
190
IHG | Annual Report and Form 20-F 2019
27. Retirement benefits continued
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability/(asset)
At 1 January
Recognised in profit or loss
Interest expense/(income)
Administration costs
Exceptional item: settlement loss
Recognised in other
comprehensive income
Actuarial loss/(gain) arising from
changes in:
Demographic assumptions
Financial assumptions
Experience adjustments
Return on plan assets
Re-measurement loss/(gain)
Exchange adjustments
Other
Company contributions
Benefits paid
Settlement payments
At 31 December
Comprising:
UK unfunded plan
US unfunded plans
US funded plan
US unfunded post-retirement plans
2019
$m
91
3
–
–
3
(1)
9
(1)
–
7
1
8
–
(6)
–
(6)
96
26
48
–
22
96
2018
$m
250
6
–
14
20
–
(14)
(3)
–
(17)
(1)
(18)
–
(11)
(150)
(161)
91
24
45
–
22
91
2017
$m
244
9
–
–
9
(1)
9
2
–
10
2
12
–
(15)
–
(15)
250
29
51
146
24
250
2019
$m
–
–
–
–
–
–
–
–
–
–
–
–
(6)
6
–
–
–
–
–
–
–
–
2018
$m
(152)
(2)
–
1
(1)
–
–
–
8
8
–
8
(16)
11
150
145
–
–
–
–
–
–
2017
$m
(148)
2019
$m
91
(5)
1
–
(4)
–
–
–
(9)
(9)
–
(9)
(6)
15
–
9
(152)
–
–
(152)
–
(152)
3
–
–
3
(1)
9
(1)
–
7
1
8
(6)
–
–
(6)
96
26
48
–
22
96
2018
$m
98
4
–
15
19
–
(14)
(3)
8
(9)
(1)
(10)
(16)
–
–
(16)
91
24
45
–
22
91
2017
$m
96
4
1
–
5
(1)
9
2
(9)
1
2
3
(6)
–
–
(6)
98
29
51
(6)
24
98
Movement in asset restriction
At 1 January
Recognised in other
comprehensive income
At 31 December
Defined benefit obligation
Fair value of plan assets
Net defined benefit liability/(asset)
2019
$m
2018
$m
2017
$m
2019
$m
2018
$m
2017
$m
2019
$m
2018
$m
2017
$m
–
–
–
–
–
–
–
–
–
–
–
–
3
(3)
–
–
3
3
–
–
–
3
(3)
–
–
3
3
At 31 December 2017, there was a net defined benefit liability of $101m comprised of a net retirement benefit asset of $3m (after the asset
restriction of $3m) and a retirement benefit obligation of $104m.
For the years ended 31 December 2018 and 31 December 2017, the total amount of re-measurement gains and losses recorded in other
comprehensive income, including the movement in the asset restriction, were a gain of $12m and a loss of $4m respectively.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
191
Group Financial Statements
Notes to the Group Financial Statements continued
27. Retirement benefits continued
Assumptions
The principal financial assumptions used by the actuaries to determine the defined benefit obligations are:
UK plan only:
Pension increases
Inflation rate
Discount rate:
UK plan
US plans
US post-retirement plan
US Healthcare cost trend rate assumed for the next year:
Pre-65 (ultimate rate reached in 2028)
Post-65 (ultimate rate reached in 2028)
Ultimate rate that the cost rate trends to
2019
%
2018
%
2017
%
2.7
2.7
2.1
2.9
2.9
6.7
7.1
4.5
3.2
3.2
3.0
3.9
4.0
7.1
7.6
4.5
3.2
3.2
2.6
3.3
3.3
7.7
8.7
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_2018 model and a 1.25% per annum long-term trend and a smoothing
parameter (‘s-kappa’) 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 use rates from the Pri-2012 Mortality Study and Generationally Projected with Scale
MP-2019 mortality tables.
The assumptions used for life expectancy at retirement age are as follows:
Current pensioners at 65a
– male
Future pensioners at 65b
– male
– female
– female
2019
Years
2018
Years
24
26
25
28
24
26
25
28
UK
2017
Years
24
26
25
28
2019
Years
2018
Years
21
23
22
24
21
23
22
24
US
2017
Years
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
A one-year increase in mortality rates would increase the defined benefit obligation by $4.2m (2018: $3.9m, 2017: $10.5m).
A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit
obligations at 31 December 2019 by $1.7m (2018: $1.7m, 2017: $1.9m) and a one percentage point decrease would decrease the obligations
by $1.6m (2018: $1.6m, 2017: $1.8m)
Future payments
Company payments are expected to be $6m in 2020.
The estimated future benefit payments are:
Within one year
Between one and five years
More than five years
Average duration
The average duration of the pensions obligations is:
UK plan
US plans
US post-retirement plan
192
IHG | Annual Report and Form 20-F 2019
2019
$m
6
22
36
64
2019
Years
18.0
9.3
9.8
2018
$m
5
23
38
66
2018
Years
19.5
9.2
9.6
28. 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 217,122 (2018: 175,944, 2017: 234,918) shares were awarded to participants. In 2019
this number included 86,126 (2018: 48,771, 2017: 79,471) shares awarded as part of recruitment terms or for one-off individual awards.
The 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 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 826,313 (2018: 784,119, 2017: 805,045) shares were awarded to employees under the plan, comprising
286,746 (2018: 257,240, 2017: 280,458) performance-related awards and 539,567 (2018: 526,879, 2017: 524,587) restricted stock units.
The 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 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 96 to 109.
The Group recognised a cost of $28m (2018: $27m, 2017: $21m) in operating profit and $1m (2018: $1m, 2017: $2m) within exceptional
administrative expenses related to equity-settled share-based payment transactions during the year, net of $12m (2018: $11m, 2017: $6m)
borne by the System Fund. The Group also recognised a cost of $2m (2018: $nil, 2017: $nil) in operating profit related to cash-settled
share-based payment transactions.
No consideration was received in respect of ordinary shares issued under option schemes during 2019, 2018 or 2017.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
193
Group Financial Statements
Notes to the Group Financial Statements continued
28. Share-based payments continued
The Group uses separate option pricing models and assumptions depending on the plan. The following table sets out information about
awards granted in 2019, 2018 and 2017:
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
2019
2018
2017
2019
2018
2017
4,597.0p
4,645.0p
3,781.0p
4,850.0p
4,774.0p
4,300.0p
n/a
n/a
n/a
3.0
3.0
3.0
2.16%
0.72%
19%
3.0
2.27%
0.84%
25%
3.0
2.05%
0.10%
24%
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 2017
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2017
Granted
Vested
Lapsed or cancelled
Outstanding at 31 December 2018
Granted
Vested
Share capital consolidation
Lapsed or cancelled
Outstanding at 31 December 2019
Fair value of awards granted during the year (cents)
2019
2018
2017
Weighted average remaining contract life (years)
At 31 December 2019
At 31 December 2018
At 31 December 2017
685
235
(263)
(21)
(20)
616
176
(199)
(2)
591
217
(276)
(21)
(15)
496
5,888.7
6,066.2
4,959.3
1.1
1.0
1.2
4,201
280
(928)
–
(1,160)
2,393
257
(702)
(860)
1,088
287
(293)
–
(387)
695
4,985.6
4,748.7
4,133.2
1.3
0.8
0.6
449
525
–
–
(58)
916
527
–
(142)
1,301
540
(422)
–
(144)
1,275
5,862.1
5,966.0
5,251.0
1.2
1.2
1.7
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 4,584.8p (2018: 4,583.8p). The closing
share price on 31 December 2019 was 5,208.0p and the range during the year was 4,092.0p to 5,738.0p.
194
IHG | Annual Report and Form 20-F 2019
29. Equity
Equity share capital
Allotted, called up and fully paid
At 1 January 2017 (ordinary shares of 18318⁄329p each)
Share capital consolidation
Exchange adjustments
At 31 December 2017 (ordinary shares of 1917⁄21p each)
Exchange adjustments
At 31 December 2018 (ordinary shares of 1917⁄21p each)
Share capital consolidation
Exchange adjustments
At 31 December 2019 (ordinary shares of 20340⁄399p each)
Number
of shares
millions
Nominal
value
$m
Share
premium
$m
206
(9)
–
197
–
197
(10)
–
187
48
–
5
53
(3)
50
–
2
52
93
–
8
101
(5)
96
–
3
99
Equity
share
capital
$m
141
–
13
154
(8)
146
–
5
151
The authority given to the Company at the AGM held on 3 May 2019 to purchase its own shares was still valid at 31 December 2019.
A resolution to renew the authority will be put to shareholders at the AGM on 7 May 2020.
The Company no longer has an authorised share capital.
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 1917⁄21p per share for every
47 existing ordinary shares of 18318⁄329p, 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 had not been restated.
In October 2018, the Group announced a $500m return of funds to shareholders by way of a special dividend and share consolidation.
On 11 January 2019, shareholders approved the share consolidation on the basis of 19 new ordinary shares of 20340⁄399p per share for every
20 existing ordinary shares of 1917⁄21p, which became effective on 14 January 2019 and resulted in the consolidation of 10m shares. The
special dividend was paid on 29 January 2019 at a cost of $510m. 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.
At 31 December 2019, 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 20340⁄399p 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 134 to 136 of the Group 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 $4.9m (2018: $3.6m, 2017: $5.4m) in respect of 0.1m (2018: 0.2m, 2017: 0.2m) InterContinental Hotels Group PLC ordinary
shares held by employee share trusts, with a market value at 31 December 2019 of $9.6m (2018: $8.3m, 2017: $12.1m).
Other reserves
Comprises the merger and revaluation reserves previously recognised under UK GAAP, together with the reserve arising as a consequence
of the Group’s capital reorganisation in June 2005. The revaluation reserve relates to the previous revaluations of property, plant and
equipment which were included at deemed cost on adoption of IFRS. 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.
Fair value reserve
This reserve records movements in the value of financial assets measured at fair value through other comprehensive income.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
195
Group Financial Statements
Notes to the Group Financial Statements continued
29. Equity continued
Cash flow hedging reserve
The cash flow hedging reserve is analysed as follows:
At 1 January 2018
Costs of hedging deferred and recognised in other comprehensive income
Change in fair value of currency swaps recognised in other comprehensive income
Reclassified from other comprehensive income to profit or loss – included in financial expenses
Deferred tax
At 31 December 2018
Costs of hedging deferred and recognised in other comprehensive income
Change in fair value of currency swaps recognised in other comprehensive income
Reclassified from other comprehensive income to profit or loss – included in financial expenses
At 31 December 2019
Cash flow hedging reserve
Value of
currency
swaps
$m
Costs of
hedging
$m
–
–
4
(8)
1
(3)
–
(34)
38
1
–
(1)
–
–
–
(1)
(6)
–
–
(7)
Total
$m
–
(1)
4
(8)
1
(4)
(6)
(34)
38
(6)
Value of currency swaps comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash
flow hedges pending subsequent recognition in profit or loss.
Costs of hedging reflects the gain or loss which is excluded from the designated hedging instrument relating to the foreign currency basis
spread of currency swaps. It is initially recognised in other comprehensive income and accounted for similarly to changes in value
of currency swaps.
Amounts reclassified from other comprehensive income to financial expenses comprise $8m (2018: $1m) net interest payable on the
currency swaps and an exchange loss of $30m (2018: $9m gain) which offsets a corresponding gain/loss on the €500m 2.125% bonds.
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 financial 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 financial instruments designated as hedges of net investments in foreign operations outstanding at 31 December 2019
was $1m asset (2018: $1m asset, 2017: $nil).
Treasury shares
During 2019, 0.8m (2018: 0.8m, 2017: 0.9m) treasury shares were transferred to the employee share trusts. As a result of the 2019 share
consolidation, the number of shares held in treasury reduced by 0.3m during 2019 (2017: reduced by 0.4m). At 31 December 2019, 5.7m
shares (2018: 6.8m, 2017: 7.6m) with a nominal value of $1.6m (2018: $1.7m, 2017: $2.0m) 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.
30. Capital and other commitments
Contracts placed for expenditure not provided for in the Group Financial Statements:
Property, plant and equipmenta
Intangible assets
Key money
2019
$m
2018
$m
52
7
135
194
46
7
83
136
a 2018 included a commitment to spend $33m on the acquired UK portfolio (see note 11) within two and a half years of the acquisition date.
A loan facility of $5m (2018: $5m) has also been made available to a hotel owner; this was undrawn at 31 December 2019.
The Group has also committed to invest a further $6m (2018: $nil) in one of its associates.
196
IHG | Annual Report and Form 20-F 2019
31. 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, and (b) security incidents at a number of IHG branded hotels including the installation of malware on servers that
processed payment cards used at restaurants and bars of 12 IHG managed properties, together the Security Incidents. The Group has now
reached agreement with the impacted card networks on the amount of assessments payable and the total amount of $3m has now been
settled under the Group’s insurance programmes.
The Group may also 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 inquiries
received and class action filings to date, other than described below, it is not practicable to make a reliable estimate of the possible
financial effects of any such claims on the Group at this time. These contingent liabilities are potentially recoverable under the Group’s
insurance programmes, although specific agreement will need to be reached with the relevant insurance providers at the time any claim is
made.
To date, four lawsuits have been filed against IHG entities relating to the Security Incidents. One of these has been withdrawn and a
settlement has been agreed in respect of another with an expected total payment of less than $2m, all of which is expected to be paid
under the Group’s insurance programmes.
Litigation
From time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties
inherent in litigation. In particular, the Group is currently subject to the claims listed under ‘Legal proceedings’ on page 236. 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 Group Financial Statements (see note 21), 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.
Other
At 31 December 2019, the Group had outstanding letters of credit of $33m (2018: $29m) mainly relating to the Group’s Captive. The letters
of credit do not have set expiry dates, but are reviewed and amended as required.
In limited cases, the Group may guarantee bank loans made to facilitate third-party ownership of hotels under IHG management or
franchise agreements. These contracts are treated as insurance contracts as IHG is insuring the bank against default by the hotel,
with a liability only being recognised in the event that a payout becomes probable (see note 21). At 31 December 2019, there were
guarantees of $55m in place (2018: $43m).
At 31 December 2019, the Group had no other contingent liabilities (2018: $nil).
32. Related party disclosures
Total compensation of key management personnel
Short-term employment benefits
Contributions to defined contribution pension plans
Equity compensation benefits
Termination benefits
2019
$m
15.8
0.5
12.1
–
28.4
2018
$m
18.2
0.5
13.0
–
31.7
2017
$m
21.3
0.6
10.2
1.9
34.0
There were no other transactions with key management personnel during the years ended 31 December 2019, 2018 or 2017.
Key management personnel comprises the Board and Executive Committee.
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
197
Group Financial Statements
Notes to the Group Financial Statements continued
32. Related party disclosures continued
Related party disclosures for associates and joint ventures are as follows:
Revenue from associates
and joint ventures
Other amounts owed by
associates and joint ventures
Amounts owed to associates and
joint ventures
Associates
Joint ventures
2019
$m
2018
$m
2017
$m
2019
$m
2018
$m
2017
$m
2019
$m
2018
$m
10
3
(4)
9
1
(2)
8
2
–
–
–
–
1
–
–
1
–
–
10
3
(4)
10
1
(2)
Total
2017
$m
9
2
–
In addition, loans both to and from the Barclay associate of $237m (2018: $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 2.1% in 2019 (2018: 2.7%)) and presented net in the Group income statement.
33. System Fund
System Fund revenues comprise:
Assessment fees and contributions received from hotels
Loyalty programme revenuesa
a Loyalty programme revenue is shown net of the cost of point redemptions.
System Fund expenses include:
Marketing
Payroll costs (note 4)
Depreciation and amortisation
2019
$m
1,036
337
1,373
2018
$m
979
254
2017
$m
934
308
1,233
1,242
2019
$m
461
313
54
2018
Restated
$m
2017
Restated
$m
427
347
49
405
339
41
198
IHG | Annual Report and Form 20-F 2019
34. 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 2019 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. (cj)
BHMC Canada Inc. (o)
BHR Holdings B.V. (p)
BHR Pacific Holdings, Inc. (k)
BHTC Canada Inc. (o)
Blythswood Square Glasgow Hotel OpCo Ltd (n)
BOC Barclay Sub LLC (g) (cj)
Bristol Oakbrook Tenant Company (k)
Café Biarritz (n)
Cambridge Lodging LLC (g) (k)
Capital Lodging LLC (g) (k)
CF Irving Owner, LLC (g) (k)
CF McKinney Owner, LLC (g) (k)
CF Waco Owner, LLC (g) (k)
Compañia Inter-Continental De Hoteles
El Salvador SA (n)
Crowne Plaza LLC (g) (k)
Cumberland Akers Hotel LLC (g) (k)
Dunwoody Operations, Inc. (k)
Edinburgh George Street Hotel OpCo Ltd (n)
Edinburgh IC Limited (s)
EVEN Real Estate Holding LLC (g) (k)
General Innkeeping Acceptance Corporation (b) (l)
Grand Central Glasgow Hotel OpCo Limited (n)
Guangzhou SC Hotels Services Ltd. (t)
H.I. (Ireland) Limited (u)
H.I. Soaltee Management Company Ltd (ac)
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 (x)
Holiday Inns (England) Limited (n)
Holiday Inns (Germany), LLC (g) (l)
Holiday Inns (Guangzhou), Inc. (l)
Holiday Inns (Jamaica) Inc. (l)
Holiday Inns (Middle East) Limited (ac)
Holiday Inns (Philippines), Inc. (l)
Holiday Inns (Saudi Arabia), 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) Limited (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 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 (Marseille) SAS (x)
IHG (Myanmar) Ltd (ah)
IHG (Thailand) Limited (aj)
IHG Bangkok Ltd (v)
IHG Brasil Administracao de Hoteis e Servicos
Ltda (ak)
IHG Civ Holding Co-Investment Fund, LLC (g) (k)
IHG Civ Holding Main Fund, LLC (g) (k)
IHG Commission Services SRL (co)
IHG Community Development, LLC (g) (ci)
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 (b) (aa)
IHG Hotels Nigeria Limited (ao)
IHG Hotels South Africa (Pty) Limited (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 Mexico Operaciones SA de CV (ab)
IHG Orchard Street Member, LLC (g) (k)
IHG Peru SRL (dd)
IHG PS Nominees Limited (n)
IHG Sermex SA de CV (ab)
IHG Systems Pty Ltd (b) (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) 3 Limited (n)
InterContinental Brasil Administracao
de Hoteis Ltda (q)
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 (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 (b) (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
Limited (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, LLC (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)
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 Holdings, LLC (k)
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 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)
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
199
Group Financial Statements
Notes to the Group Financial Statements continued
34. Group companies continued
Fully owned subsidiaries continued
KHRG Boston Hotel, LLC (g) (k)
KHRG Bozeman LLC (g) (k)
KHRG Canary LLC (g) (k)
KHRG Cayman LLC (g) (k)
KHRG Cayman Employer Ltd. (k)
KHRG Dallas LLC (g) (k)
KHRG Dallas Beverage Company LLC (k)
KHRG DC 1731 LLC (g) (k)
KHRG DC 2505 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 Huntington Beach LLC (g) (k)
KHRG Key West 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 New Orleans LLC (g) (k)
KHRG NPC 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 Porsche Drive 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 SFD LLC (g) (k)
KHRG SF Wharf LLC (g) (k)
KHRG SF Wharf U2 LLC (g) (k)
KHRG South Beach 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)
Kimpton Hollywood Licenses LLC (g) (k)
Kimpton Hotel & Restaurant Group, LLC (g) (k)
Kimpton Phoenix Licenses Holdings LLC (g) (k)
Louisiana Acquisitions Corp. (k)
Luxury Resorts and Spas (France) SAS (dc)
Manchester Oxford Street Hotel OpCo Limited (n)
Mercer Fairview Holdings LLC (g) (k)
Met Leeds Hotel OpCo Limited (n)
MH Lodging LLC (g) (k)
Oxford Spires Hotel OpCo Limited (n)
Oxford Thames Hotel OpCo Limited (n)
PML Services LLC (g) (as)
Pollstrong Limited (n)
Powell Pine, Inc. (k)
Priscilla Holiday of Texas, Inc. (cl)
PT Regent Indonesia (bh)
PT SC Hotels & Resorts Indonesia (bh)
Raison d’Etre Holdings (BVI) Limited (ct)
Raison d’Etre Services (BVI) Limited (ct)
Raison d’Etre Spas Sweden AB (db)
Regent Asia Pacific Hotel Management Ltd (bw)
Regent Asia Pacific Management Ltd (cp)
Regent Berlin GmbH (cq)
Regent International Hotels Ltd (bw)
Resort Services International (Cayo Largo) L.P. (ci)
Roxburghe Hotel Edinburgh OpCo Limited (n)
Russell London Hotel OpCo Limited (n)
SBS Maryland Beverage Company LLC (g) (as)
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 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)
Six Senses America IP LLC (k)
Six Senses Capital Pte. Ltd (cr)
Six Senses North America Management LLC (k)
SLC Sustainable Luxury Cyprus Limited (cs)
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)
St David’s Cardiff Hotel OpCo Limited (n)
Sustainable Luxury Holdings (BVI) Limited (ct)
Sustainable Luxury Hospitality (Thailand) Limited (cu)
Sustainable Luxury Lanka Pvt. Ltd (cv)
Sustainable Luxury Maldives Private Limited (cw)
Sustainable Luxury Management (Thailand) Limited (cu)
Sustainable Luxury Mauritius Limited (cx)
Sustainable Luxury Operations (Thailand) Ltd (cu)
Sustainable Luxury Services (BVI) Limited (ct)
Sustainable Luxury Singapore Private. Limited (cr)
Sustainable Luxury UK Limited (cy)
Sustainable Luxury USA Limited (cz)
Sustainable Luxury Vietnam Company Limited (da)
The Grand Central Hotel Glasgow Limited (n)
The Met Hotel Leeds Limited (n)
The Principal Edinburgh George Street Limited (n)
The Principal London Limited (n)
The Principal Manchester Limited (n)
The Principal York Limited (n)
The Roxburghe Hotel Edinburgh Limited (s)
Universal de Hoteles SA (bj)
White Shield Insurance Company Limited (bk)
Wotton House Hotel OpCo Limited (n)
York Station Road Hotel OpCo Limited (n)
200
IHG | Annual Report and Form 20-F 2019
Subsidiaries where the effective interest
is less than 100%
IHG ANA Hotels Group Japan LLC (74.66%) (ar)
IHG ANA Hotels Holdings Co., Ltd. (66%) (ar)
Regent Hospitality Worldwide, Inc. (51%) (bt)
Sustainable Luxury Holdings (Thailand) Limited
(49%) (cu)
World Trade Centre Montreal Hotel Corporation
(74.11%) (bl)
Associates, joint ventures and other
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 Saltillo S. de R.L. de C.V.
(50%) (cg)
Desarrollo Alkoer Silao S. de R.L. de C.V. (50%) (cg)
EDG Alpharetta EH LLC (0%) (d) (h) (r)
Gestion Hotelera Gestel, C.A. (50%) (c) (h) (ba)
Groups360 LLC (13.15%) (h)
H.I. Soaltee Hotel Company Private Ltd (33.4%) (br)
Hotel JV Services LLC (17.8%) (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)
Sustainable Luxury Gravity Global Private Limited
(51%) (h) (de)
SURF-Samui Pte. Ltd (49%) (ay)
Tianjin ICBCI IHG Equity Investment Fund
Management Co., Limited (21.04%) (bv)
Key
(a)
Directly owned by InterContinental
Hotels Group PLC
(f)
(g)
(b) Ordinary shares and preference shares
(c) Ordinary A and ordinary B shares
8% cumulative preference shares
(d)
1/4 vote ordinary shares and ordinary
(e)
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)
Krunska 73, Beograd, 11000, Serbia
251 Little Falls Drive, Wilmington, DE 19808,
USA
2908 Poston Avenue, Nashville, TN 37203,
USA
Clarendon House, 2 Church Street, Hamilton
HM11, 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
Alameda Jau 536, Suite 3s-A, 01420-000
Sao Paulo, Brazil
20200 W Dixie Highway, Suite #908, Miami,
FL 33180, USA
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
QBC 4 – Am Belvedere 4, 1100, Vienna,
Austria
Avenida da Republica, no 52 – 9, 1069 – 211,
Lisbon, Portugal
24, Rusakovskaya Str., Moscow 107014,
Russian Federation
10 Bo Yar Zar Street, Kyaukkone Yankin
Township, Yangon, Myanmar
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, Suite 3S-B, 01420-000
Sao Paulo, Brazil
Avenida Cordoba 1547, piso 8, oficina A,
Buenos Aires, Argentina
The Phoenix Centre, George Street, Belleville
St. Michael, Barbados
Level 10, Commerce Street, Auckland
Central, Auckland 1000, 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
(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)
(at)
(ar)
(as)
(az)
(ay)
(ax)
(ba)
(bc)
(bb)
(aw)
(bd)
(au)
(av)
(be)
(bf)
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, 10787 Berlin, Germany
Koenigsallee 59, D-40215, Dusseldorf,
Germany
Alameda Jau 536, Suite 3S-E, 01420-000
São Paulo, Brazil
InterContinental Montreal, 360 St. Antoine
Street West, Montreal, Quebec H2Y 3X4,
Canada
168 Robinson Road, #12-01, Capital Tower,
068912, Singapore
361 San Francisco Street Penthouse,
San Juan, PR 00901, Puerto Rico
Hotel Tamanaco Inter-Continental, Final Av.
Ppal, Mercedes, Caracas, Venezuela
22nd Floor, Citigroup Tower, No. 33
Huayuanshiqiao Road, Pudong, Shanghai,
P.R. China
Alameda Jau 536, Suite 3S-C, 01420-000
São Paulo, Brazil
Alameda Jau 536, Suite 3S-D, 01420-000
São Paulo, Brazil
Viale Monte Nero n.84, 20135 Milano, Italy
Thurn-und-Taxis-Platz 6 – 60313 Frankfurt
am Main, 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 49, Sur 45 A 300 Of 1102
Envigado Antioquia, Colombia
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 6 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
37A Professor Fridtjof Nansen Street, 5th
Floor, District Sredets, Sofia, 1142, Bulgaria
C/o Holiday Inn & Suites, Cnr Waigani Drive
& Wards Road, Port Moresby, National
Capital District, Papua New Guinea
(bq)
(bg)
(bp)
(bo)
(bh)
(bn)
(bk)
(bl)
(bj)
(bi)
(br) Tahachal, Kathmandu, Nepal
(bs)
Madinah Road, Jeddah, P.O Box 9456,
Post Code 21413, Jeddah, Saudi Arabia
Maples Corporate Services Ltd. – PO Box
309, Ugland House, Grand Cayman –
KY-1104, Cayman Islands
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
14th Floor, South China Building, 1-3
Wyndham Street, Hong Kong
(bt)
(bu)
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(bw)
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(by)
(bz)
(ca)
(cb)
(cc)
(cd)
(ce)
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(ch)
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(cj)
(ck)
(cl)
(cm)
(cn)
(co)
(cp)
(cq)
(cr)
(cs)
(ct)
(cu)
(cv)
(cw)
(cx)
(cy)
(cz)
(da)
(db)
(dc)
(dd)
(de)
Eski Büyükdere Cd. Park Plaza No:14 K:4
Maslak – Sarıyer, Istanbul, Turkey
Paseo de la Castellana 49, 28046 Madrid,
Spain
2710 Gateway Oaks Drive, Suite 150N,
Sacramento, CA 95833-3505, 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
Avenida Ejercito Nacional Mexicano No. 769,
Torre B Piso 8, Granada, Miguel Hidalgo,
Ciudad de México, CP 11520, Mexico
Ground Floor, Al Kamel Law Building, Plot
52-b, Banks Area, Six of October City, Egypt
40 Technology Pkwy South, #300 Norcross
GA 30092, USA
80 State Street, Albany NY 12207-2543, USA
2215-B Renaissance Drive, Las Vegas,
NV 89119, USA
11003 Onion Creek Court, Austin, TX 78747,
USA
23/6 D. Anhaght Str., Yerevan, 0069,
Armenia
Generation Park Z – ul. Towarowa 28, 00-839
Warsaw, Poland
Suite 1, Ground Floor, The Financial Services
Centre, Bishops Court Hill, St. Michael,
Barbados, BB14004
Brumby Centre, Lot 42, Jalan Muhibbah,
87000 Labuan F.T., Malaysia
Charlottenstrasse 49, Berlin, 10117, Germany
Trident Corporate Services (Singapore)
Pte. Limited, 96 Robinson Road, #16-01 SIF
Building, 068899, Singapore
ATS Services Limited, Capital Center,
9th Floor, 2-4 Arch. Makarios III Ave.,
1065 Nicosia, Cyprus
Conyers Corporate Services (BVI) Ltd,
Commerce House, Wickhams Cay 1,
PO Box 3140, Road Town, Tortola, VG1110,
British Virgin Islands
57, 9th Floor, Park Ventures Ecoplex, Unit
902-904, Wireless Road, Limpini, Pathum Wan
Bangkok 10330, Thailand
No. 9/5 Thambiah Ave, Colombo 7, Sri Lanka
Premier Chambers, M.Lux Lodge, 1st Floor,
Orchid Magu, Male, Republic of Maldives
Venture Corporate Services (Mauritius) Ltd,
Level 3, Tower 1, Nexteracom Towers,
Cybercity, Ebene, Mauritius
Berg Kaprow Lewis LLP, 35 Ballards Lane,
DX 57284 Finchley 2, London, N3 1XW, UK
Corporation Service Company, 1180 Ave.
Of the Americas, New York 10036, USA
PDD Building, 162 Pasteur Street, Ben Nghe
Ward, District 1, Ho Chi Minh City, Vietnam
Grevgatan 13, 11453 Stockholm, Sweden
95 Blvd. Berthier, 75017 Paris, France
Bernardo Montengudo 201, 15076, Lima,
Peru
B-11515 Bhikaj Cama Place, New Delhi, South
Delhi, India, 110066
IHG | Annual Report and Form 20-F 2019 | Group Financial Statements | Notes
201
Parent Company Financial Statements
Parent Company
Financial Statements
204 Parent Company Financial Statements
204
Parent Company statement of financial position
205 Parent Company statement of changes in equity
206
Notes to the Parent Company Financial Statements
Six Senses Loire Valley, France
202
IHG | Annual Report and Form 20-F 2019
IHG | Annual Report and Form 20-F 2019 | Parent Company Financial Statements
203
Parent Company Financial Statements
Parent Company Financial Statements
Parent Company statement of financial position
31 December 2019
Fixed assets
Investments
Current assets
Debtors: due after more than one year
Debtors: due within one year
Creditors: amounts falling due within one year
Net current (liabilities)/assets
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
Cash flow hedging reserve
Profit and loss account
Total equity
Signed on behalf of the Board,
Paul Edgecliffe-Johnson
17 February 2020
The (loss)/profit after taxation amounts to £42m loss (2018: £964m profit).
Registered number 05134420
Note
2019
£m
2018
£m
3
4
4
7
8
10
6
3,106
3,072
–
25
(253)
(228)
2,878
(1,495)
1,383
39
75
7
339
(5)
928
1,383
7
369
(1)
375
3,447
(1,496)
1,951
39
75
7
305
(2)
1,527
1,951
204
IHG | Annual Report and Form 20-F 2019
Parent Company statement of changes in equity
Called up
share
capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
At 1 January 2018
Profit for the year
Other comprehensive income items that may be subsequently
reclassified to profit or loss:
Gains on cash flow hedges
Costs of hedging
Hedging gains reclassified to financial expenses
Total other comprehensive loss for the year
Total comprehensive income for the year
Share-based payments capital contribution
Equity dividends paid
At 31 December 2018
Loss for the year
Other comprehensive income items that may be subsequently
reclassified to profit or loss:
Losses on cash flow hedges, net of related tax credit of £1m
Costs of hedging
Hedging losses reclassified to financial expenses
Total other comprehensive loss for the year
Total comprehensive loss for the year
Share-based payments capital contribution
Equity dividends paid
Transaction costs relating to shareholder returns
39
–
–
–
–
–
–
–
–
39
–
–
–
–
–
–
–
–
–
75
–
–
–
–
–
–
–
–
75
–
–
–
–
–
–
–
–
–
At 31 December 2019
39
75
Notes on pages 206 to 211 form an integral
part of these Financial Statements.
7
–
–
–
–
–
–
–
–
7
–
–
–
–
–
–
–
–
–
7
Share-
based
payment
reserve
£m
275
–
–
–
–
–
–
30
–
305
–
–
–
–
–
–
34
–
–
339
Cash flow
hedging
reserve
£m
–
–
5
(1)
(6)
(2)
(2)
–
–
(2)
–
(29)
(4)
30
(3)
(3)
–
–
–
(5)
Profit
and loss
account
£m
712
964
–
–
–
–
964
–
(149)
1,527
(42)
–
–
–
–
(42)
–
(556)
(1)
928
Total
equity
£m
1,108
964
5
(1)
(6)
(2)
962
30
(149)
1,951
(42)
(29)
(4)
30
(3)
(45)
34
(556)
(1)
1,383
IHG | Annual Report and Form 20-F 2019 | Parent Company Financial Statements | Notes
205
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 2019
were authorised for issue by the Board of Directors on 17 February
2020 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 224 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.
These Financial Statements have been prepared in accordance
with Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’ (FRS 101).
No income statement is presented for the Company as permitted
by Section 408 of the Companies Act 2006.
The audit fee of £0.02m (2018: £0.02m) was borne by a subsidiary
undertaking in both years.
Basis of preparation
The Parent Company Financial Statements have been prepared
in accordance with FRS 101, as applied in accordance with the
provisions of the Companies Act 2006. FRS 101 sets out a reduced
disclosure framework for a ‘qualifying entity’ as defined in the
standard which addresses the financial reporting requirements
and disclosure exemptions in the individual financial statements
of qualifying entities that otherwise apply the recognition,
measurement and disclosure requirements of IFRS as adopted
by the EU.
FRS 101 sets out amendments to IFRS as adopted by the EU that
are necessary to achieve compliance with the Companies Act
and related Regulations.
The following disclosures have not been provided as permitted
by FRS 101:
• A cash flow statement and related notes as required by IAS 7
‘Statement of Cash Flows’;
• A comparative period reconciliation for share capital as required
by IAS 1 ‘Presentation of Financial Statements’;
• Disclosures in respect of transactions with wholly owned
subsidiaries as required by IAS 24 ‘Related Party Disclosures’;
• Disclosures in respect of capital management as required by
paragraphs 134 to 136 of IAS 1 ‘Presentation of Financial Statements’;
• The effects of new but not yet effective IFRSs as required by
paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes
in Accounting Estimates and Errors’; and
• Disclosures in respect of the compensation of key management
personnel as required by paragraph 17 of IAS 24 ‘Related
Party Disclosures’.
Where 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.
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 11 to the
Financial Statements details the exchange rates which will be used
to calculate the sterling dividend payable.
206
IHG | Annual Report and Form 20-F 2019
1. Accounting policies continued
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 other borrowings.
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.
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, including a comparison to the market
capitalisation of the company (£9.5bn) on 31 December 2019, 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 Group undertakings are recorded at their original
amount less provision for expected credit losses. The Company has
elected to apply the simplified version of the expected credit loss
model permitted by IFRS 9 in respect of amounts due from Group
undertakings, which involves assessing lifetime expected credit
losses on all balances. 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
administrative expenses.
Amounts due to Group undertakings are recognised initially at fair
value and subsequently measured at amortised cost using the
effective interest rate method.
Loans and other borrowings
Loans 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 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.
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 expense over the term of the
agreement, unless the accounting treatment for the hedging
relationship requires the interest to be taken to reserves.
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.
IHG | Annual Report and Form 20-F 2019 | Parent Company Financial Statements | Notes
207
Parent Company Financial Statements
Notes to the Parent Company Financial Statements continued
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 96 to 109.
The number of Directors in respect of whose qualifying services shares were received or receivable
under long-term incentive schemes
3. Investments
Cost and net book value
At 1 January 2019
Share-based payments capital contribution
At 31 December 2019
Number of Directors
2019
2018
8
3
11
8
3
11
2019
£m
2018
£m
5.0
5.3
Number of Directors
2019
2018
3
3
£m
3,072
34
3,106
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 34 of the Group Financial Statements on pages 199 to 201.
4. Debtors
Due after more than one year
Derivative financial assets (note 6)
Due within one year
Amounts due from Group undertakings
Corporate taxation
Deferred taxation (note 5)
2019
£m
2018
£m
–
11
13
1
25
7
358
11
–
369
208
IHG | Annual Report and Form 20-F 2019
5. Deferred taxation
At 1 January 2019
Other comprehensive income
At 31 December 2019
Currency
swap
£m
–
1
1
6. Derivative financial instruments and hedging
At 31 December 2019, the Company held a currency swap with a principal of £436m. This swap was transacted at the same time as the
€500m 2.125% bonds were issued in November 2018. Under the terms of the swap, £436m was borrowed and €500m deposited for
eight and a half years with a fixed interest rate of 3.5% payable on the sterling leg. The fair value of this derivative was £16m liability at
31 December 2019 (2018: £7m asset). The currency swaps are designated as hedging instruments of the foreign exchange risk inherent in
the bonds’ cash flows. Hedge ineffectiveness arises where the cumulative changes in the fair value of the swaps exceeds the change in the
fair value of the bonds. The change in value of the hedged item used as the basis for recognising hedge ineffectiveness for the period was
£24m (2018: £7m).
The cash flow hedging reserve is analysed as follows:
At 1 January 2018
Costs of hedging deferred and recognised in other comprehensive income
Change in fair value of currency swap recognised in other comprehensive income
Reclassified from other comprehensive income to profit or loss – included in financial expenses
At 31 December 2018
Costs of hedging deferred and recognised in other comprehensive income
Change in fair value of currency swap recognised in other comprehensive income
Reclassified from other comprehensive income to profit or loss – included in financial expenses
Deferred taxation
At 31 December 2019
Cash flow hedging reserve
Value of
currency
swap
£m
Costs of
hedging
£m
–
–
5
(6)
(1)
–
(30)
30
1
–
–
(1)
–
–
(1)
(4)
–
–
–
(5)
Total
£m
–
(1)
5
(6)
(2)
(4)
(30)
30
1
(5)
IHG | Annual Report and Form 20-F 2019 | Parent Company Financial Statements | Notes
209
Parent Company Financial Statements
Notes to the Parent Company Financial Statements continued
7. Creditors: amounts falling due within one year
Amounts due to Group undertakings
8. Creditors: amounts falling due after more than one year
Derivative financial liabilities (note 6)
Loans and other borrowings
£400m 3.875% bonds 2022
£300m 3.75% bonds 2025
£350m 2.125% bonds 2026
€500m 2.125% bonds 2027
2019
£m
253
2019
£m
16
400
302
350
427
2018
£m
1
2018
£m
–
399
301
350
446
1,495
1,496
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.
The 2.125% fixed interest euro bonds were issued on 15 November 2018 and are repayable in full on 15 May 2027. Interest is payable annually
on 15 May. The bonds were initially priced at 99.53% of face value and are unsecured. A currency swap was transacted at the same time the
bonds were issued in order to swap the proceeds and interest flows into sterling.
9. 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 28
of the Group Financial Statements on pages 193 and 194.
The weighted average share price at the date of exercise for share awards vested during the year was 4,584.8p (2018: 4,583.8p).
The share awards outstanding at the year end have a weighted average contractual life of 1.1 years (2018: 1.0 years) for the Annual
Performance Plan, 1.3 years (2018: 0.8 years) for performance-related awards and 1.2 years (2018: 1.2 years) for restricted stock units.
10. Capital and reserves
Allotted, called up and fully paid
At 1 January 2018 and 31 December 2018 (ordinary shares of 1917/21p each)
Share capital consolidation
At 31 December 2019 (ordinary shares of 20340/399p each)
Number
of shares
millions
197
(10)
187
Equity
share
capital
£m
39
–
39
The authority given to the Company at the Annual General Meeting (AGM) held on 3 May 2019 to purchase its own shares was still valid
at 31 December 2019. A resolution to renew the authority will be put to shareholders at the AGM on 7 May 2020.
The Company no longer has an authorised share capital.
At 31 December 2019, 5,684,427 (2018: 6,827,020) shares with a nominal value of £1,185,324 (2018: £1,352,400) were held as treasury
shares at cost.
The share premium account represents the amount of proceeds received for shares in excess of their nominal value.
210
IHG | Annual Report and Form 20-F 2019
11. Dividends and shareholder returns
Paid during the year:
Final (declared for previous year)
Interim
Special
2019
pence per
share
2018
pence per
share
60.4
32.0
203.8
296.2
50.2
27.7
–
77.9
2019
£m
110
58
388
556
2018
£m
96
53
–
149
In October 2018, the Group announced a $500m return of funds to shareholders by way of a special dividend and share consolidation.
On 11 January 2019, shareholders approved the share consolidation on the basis of 19 new ordinary shares of 20 340/399p per share for every
20 existing ordinary shares of 19 17/21p, which became effective on 14 January 2019 and resulted in the consolidation of 10m shares. The
special dividend was paid on 29 January 2019 at a cost of $510m. The dividend and share consolidation had the same economic effect as
a share repurchase at fair value, therefore reported earnings per share has not been restated.
The final dividend of 85.9¢ per ordinary share (amounting to $156m) is proposed for approval at the AGM on 7 May 2020 and is payable
on shares in issue at 3 April 2020. The final dividend will be paid at a rate per share calculated using the average of the daily exchange rates
for the three working days commencing 21 April 2020, and will be announced on 24 April 2020.
12. Contingencies
Contingent liabilities of £95m (2018: £nil) 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 2019 | Parent Company Financial Statements | Notes
211
Additional Information
Additional
Information
214 Other financial information
221 Directors’ Report
225 Group information
225 History and developments
226 Risk factors
231 Directors’ and Executive Committee
members’ shareholdings
231 Executive Directors’ benefits
upon termination of office
232 Description of securities other
than equity securities
233 Articles of Association
234 Working Time Regulations 1998
235 Material contracts
236 Legal proceedings
236 Exchange controls and restrictions
on payment of dividends
237 Shareholder information
237 Taxation
239 Disclosure controls and procedures
240 Summary of significant corporate
governance differences from
NYSE listing standards
241 Selected five-year consolidated
financial information
242 Return of funds
243 Purchases of equity securities
by the Company and affiliated
purchasers
243 Dividend history
244 Shareholder profiles
245 Exhibits
246 Form 20-F cross-reference guide
248 Glossary
250 Useful information
250 Investor information
251 Financial calendars
251 Contacts
252 Forward-looking statements
Hotel Indigo Milan – Corse Monforte, Italy
212
IHG | Annual Report and Form 20-F 2019
IHG | Annual Report and Form 20-F 2019 | Additional Information
213
Additional Information
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 and their definitions can be found on pages 55 to 59. Prior year comparables have been restated as
explained on page 59.
Underlying revenue and underlying operating profit Non-GAAP reconciliations
Highlights for the year ended 31 December 2019
Reportable segments
Per Group income statement
System Fund
Reimbursement of costs
Operating exceptional items
Reportable segments
Reportable segments analysed as:
Fee business
Owned, leased and managed lease
Revenue
Operating profit
2019
$m
4,627
(1,373)
(1,171)
–
2018
$m
4,337
(1,233)
(1,171)
–
2,083
1,933
1,510
573
2,083
1,486
447
1,933
Change
$m
Change
%
290
(140)
–
–
150
24
126
150
6.7
11.4
–
–
7.8
1.6
28.2
7.8
2019
$m
630
49
–
186
865
813
52
865
2018
Restated
$m
Change
$m
Change
%
582
146
–
104
832
793
39
832
48
(97)
–
82
33
20
13
33
8.2
(66.4)
–
78.8
4.0
2.5
33.3
4.0
Underlying revenue and underlying operating profit
Revenue
Operating profit
Reportable segments (see above)
Significant liquidated damages
Current year acquisitionsa
Currency impactb
Underlying revenue and underlying
operating profit
2019
$m
2,083
(11)
(53)
–
2018
Restated
$m
1,933
(13)
–
(24)
2,019
1,896
Change
$m
Change
%
7.8
(15.4)
–
–
150
2
(53)
24
123
2019
$m
865
(11)
6
–
2018
Restated
$m
Change
$m
Change
%
832
(13)
–
(6)
813
33
2
6
6
47
4.0
(15.4)
–
–
5.8
6.5
860
a The results of acquired businesses (Six Senses and two UK portfolio hotels) are removed only in the year of acquisition when determining underlying growth compared to the prior
year, see note 11 to the Group Financial Statements.
b Excludes $1m of adverse currency impact to both revenue and operating profit related to significant liquidated damages in the Greater China region.
Underlying fee revenue
Reportable segments fee business (see above)
Significant liquidated damages
Current year acquisitions
Currency impacta
Underlying fee revenue
2019
$m
1,510
(11)
(14)
–
2018
Restated
$m
1,486
(13)
–
(17)
1,485
1,456
Revenue
Change
$m
Change
%
24
2
(14)
17
29
1.6
(15.4)
–
–
2.0b
a Excludes $1m of adverse currency impact to both revenue and operating profit related to significant liquidated damages in the Greater China region.
b Reported as a KPI on page 43.
214
IHG | Annual Report and Form 20-F 2019
Highlights by region for the year ended 31 December 2019 (continued)
Americas
Revenue
Operating profitb
2018
Restated
$m
1,051
Change
$m
Change
%
(11)
(1.0)
2018
Restated
$m
673
Change
$m
27
Change
%
4.0
Per Group financial statements, note 2
Reportable segments analysed asª:
Fee business
Owned, leased and managed lease
Reportable segments (see above)
Currency impact
Underlying revenue and underlying
operating profit
a Revenues as included in the Group Financial Statements, note 3.
b Before exceptional items.
EMEAA
Per Group financial statements, note 2
Reportable segments analysed asª:
Fee business
Owned, leased and managed lease
Reportable segments (see above)
Significant liquidated damages
Current year acquisitions
Currency impact
Underlying revenue and underlying
operating profit
a Revenues as included in the Group Financial Statements, note 3.
b Before exceptional items.
Greater China
Per Group financial statements, note 2
Reportable segments analysed asª:
Fee business
Reportable segments (see above)
Significant liquidated damages
Currency impactc
Underlying revenue and underlying
operating profit
2019
$m
1,040
853
187
1,040
1,040
–
853
198
1,051
1,051
(2)
–
(11)
(11)
(11)
2
(9)
–
(5.6)
(1.0)
(1.0)
–
(0.9)
1,040
1,049
2018
Restated
$m
569
Change
$m
154
Revenue
Change
%
27.1
320
249
569
569
(7)
–
(15)
17
137
154
154
(4)
(53)
15
5.3
55.0
27.1
27.1
57.1
–
–
2019
$m
723
337
386
723
723
(11)
(53)
–
2019
$m
700
663
37
700
700
–
700
2019
$m
217
202
15
217
217
(11)
6
–
638
35
673
673
(2)
671
2018
Restated
$m
206
202
4
206
206
(7)
–
(6)
25
2
27
27
2
29
3.9
5.7
4.0
4.0
–
4.3
Operating profitb
Change
$m
11
–
11
11
11
(4)
6
6
19
Change
%
5.3
–
275.0
5.3
5.3
57.1
–
–
9.8
659
547
112
20.5
212
193
Revenue
Operating profitb
2019
$m
135
135
135
–
–
135
2018
Restated
$m
143
Change
$m
Change
%
(8)
(5.6)
2019
$m
73
2018
Restated
$m
70
143
143
(6)
(5)
132
(8)
(8)
6
5
3
(5.6)
(5.6)
–
–
2.3
73
73
–
–
73
70
70
(6)
(1)
63
Change
$m
3
3
3
6
1
Change
%
4.3
4.3
4.3
–
–
10
15.9
a Revenues as included in the Group Financial Statements, note 3.
b Before exceptional items.
c Excludes $1m of adverse currency impact to both revenue and operating profit related to significant liquidated damages.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Other financial information
215
Additional Information
Other financial information continued
Highlights for the year ended 31 December 2018
Reportable segments
Revenue
Operating profit
Per Group income statement
System Fund
Reimbursement of costs
Operating exceptional items
Reportable segments
Reportable segments analysed as:
Fee business
Owned, leased and managed lease
Underlying fee revenue
Reportable segments fee business (see above)
Significant liquidated damages
Current year acquisitionsa
Currency impact
Underlying fee revenue
2018
$m
4,337
(1,233)
(1,171)
–
1,933
1,486
447
1,933
2017
$m
4,075
(1,242)
(1,103)
–
1,730
1,379
351
1,730
Change
$m
Change
%
2018
Restated
$m
2017
Restated
$m
262
9
(68)
–
203
107
96
203
6.4
(0.7)
6.2
–
11.7
7.8
27.4
11.7
582
146
–
104
832
793
39
832
744
34
–
(4)
774
731
43
774
2018
$m
1,486
(13)
(1)
–
2017
Restated
$m
1,379
–
–
4
1,472
1,383
Change
$m
(162)
112
–
108
58
62
(4)
58
Change
$m
107
(13)
(1)
(4)
89
Change
%
(21.8)
329.4
–
(2,700.0)
7.5
8.5
(9.3)
7.5
Revenue
Change
%
7.8
–
–
–
6.4b
a The results of acquired businesses (Regent and the UK portfolio) are removed only in the year of acquisition when determining underlying growth compared to the prior year.
2019
$m
2018
Restated
$m
2017
Restated
$m
1,510
1,486
1,379
(11)
(19)
(13)
(11)
–
(9)
1,480
1,462
1,370
813
(11)
(1)
801
793
(13)
(1)
779
731
–
–
731
54.1%
53.3%
53.4%
b Reported as a KPI on page 43.
Fee margin reconciliation
Revenue
Reportable segments analysed as fee business (page 154)
Significant liquidated damages
Captive insurance company (note 21)
Operating profit
Reportable segments analysed as fee business (page 214 and above)
Significant liquidated damages
Captive insurance company (note 21)
Fee margina
a Reported as a KPI on page 44.
216
IHG | Annual Report and Form 20-F 2019
Gross and net capital expenditure reconciliation
$m
Net cash from investing activities
Adjusted for:
Contract acquisition costs net of repayments
Tax paid on disposals
System Fund depreciation and amortisationa
Acquisition of businesses, net of cash acquired
Payment of contingent purchase consideration
Net capital expenditure
Add back:
Disposal receipts
Repayments of contract acquisition costs
Distributions from associates and joint ventures
System Fund depreciation and amortisationa
Gross capital expenditure
Analysed as:
Capital expenditure: maintenance (including gross contract acquisition costs of $62m (2018: $56m))
Capital expenditure: recyclable investments
Capital expenditure: System Fund investments
Gross capital expenditure
a Excludes depreciation on right-of-use assets.
Free cash flow reconciliation
12 months ended
31 December
2019
$m
(493)
(61)
–
49
292
2
(211)
(4)
(1)
–
(49)
(265)
(148)
(19)
(98)
(265)
2018
Restated
$m
(197)
(54)
2
45
34
4
(166)
(8)
(2)
(32)
(45)
(253)
(116)
(38)
(99)
(253)
Net cash from operating activities
Less:
Payment of contingent purchase consideration
Principal element of lease payments
Purchase of shares by employee share trusts
Capital expenditure: maintenance (excluding contract acquisition costs)
Cash receipt from renegotiation of long-term partnership agreement
Free cash flowb
a Not restated for the impact of IFRS 15 or IFRS 16.
b Reported as a KPI on page 44.
12 months ended 31 December
2019
$m
653
6
(59)
(5)
(86)
–
509
2018
Restated
$m
709
2017
Restated
$m
616
–
(35)
(3)
(60)
–
611
–
(25)
(3)
(72)
–
516
2016ª
$m
710
–
–
(10)
(54)
(95)
551
2015ª
$m
569
–
–
(47)
(56)
–
466
IHG | Annual Report and Form 20-F 2019 | Additional Information | Other financial information
217
Additional Information
Other financial information continued
Adjusted interest reconciliation
Net financial expenses
Financial income
Financial expenses
Adjusted for:
Interest payable on balances with the System Fund
Capitalised interest relating to System Fund assets
Adjusted interest
12 months ended
31 December
2019
$m
6
(121)
(115)
(13)
(5)
(18)
(133)
2018
Restated
$m
5
(101)
(96)
(14)
(5)
(19)
(115)
218
IHG | Annual Report and Form 20-F 2019
Revenue per available room (RevPAR), average daily rate and occupancy
RevPAR is the primary metric used by management to track hotel performance across regions and brands. RevPAR is also a commonly used
performance measure in the hotel industry. RevPAR comprises IHG System rooms revenue divided by the number of room nights available
and can be mathematically derived from occupancy rate multiplied by average daily rate (ADR). Occupancy rate is rooms occupied by hotel
guests expressed as a percentage of rooms that are available. ADR is rooms revenue divided by the number of room nights sold.
References to RevPAR, occupancy and average daily rate are presented on a comparable basis comprising groupings of hotels that have
traded in all months in both the current and prior year. The principal exclusions in deriving this measure are new hotels, hotels closed for
major refurbishment and hotels sold in either of the two years. RevPAR and ADR are quoted at a constant US$ 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.
The following tables present RevPAR statistics for the year ended 31 December 2019 and a comparison to 2018. Fee business and owned,
leased and managed lease statistics are for comparable hotels and include only those hotels in the Group’s System at 31 December 2019
and franchised, managed, owned, leased or managed lease by the Group since 1 January 2018. The comparison with 2018 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
Fee business
2019
Change vs
2018
Owned, leased and
managed lease
2019
Change vs
2018
72.4%
(1.7)ppt
84.4%
1.5ppt
$212.82
$154.00
3.0%
0.7%
$334.81
$282.72
1.1%
3.0%
79.8%
$243.92
$ 194.62
1.1ppt
0.7%
2.2%
66.6%
(1.3)ppt
$129.08
$86.00
0.3%
(1.6%)
74.7%
0.7ppt
$164.99
$123.20
(0.7%)
0.2%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
81.7%
2.6ppt
81.9%
6.0ppt
$174.86
$142.91
(8.3%)
$158.03
(5.3%)
$129.50
(6.5%)
0.9%
66.5%
(0.5)ppt
83.3%
0.9ppt
$113.65
$75.54
0.1%
$182.50
(0.7%)
$152.10
5.0%
6.2%
69.3%
0.2ppt
$114.01
$79.00
(0.2%)
0.1%
76.5%
0.1ppt
$119.50
$91.47
(0.1%)
0.1%
73.5%
(0.5)ppt
$86.04
$63.22
(0.4%)
(1.1%)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
IHG | Annual Report and Form 20-F 2019 | Additional Information | Other financial information
219
Additional Information
RevPAR, average daily rate and occupancy continued
EMEAA
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
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
220
IHG | Annual Report and Form 20-F 2019
Fee business
2019
Change vs
2018
Owned, leased and
managed lease
2019
Change vs
2018
73.5%
0.9ppt
66.0%
(1.2)ppt
$202.75
$149.06
0.2%
1.5%
$215.99
$142.51
3.4%
1.5%
74.2%
0.5ppt
$118.81
$88.13
(1.2%)
(0.6%)
81.0%
$143.62
$116.40
1.2ppt
0.0%
1.5%
–
–
–
–
–
–
–
–
–
–
–
–
73.5%
0.3ppt
94.1%
(1.2)ppt
$98.11
$72.14
(1.0%)
$138.36
(0.5%)
$130.22
3.9%
2.6%
79.0%
$88.66
$70.04
1.6ppt
(0.9%)
1.2%
74.7%
(1.1)ppt
$122.47
$91.48
(2.5%)
(3.9%)
66.9%
$123.39
$82.52
1.1ppt
(6.1%)
(4.6%)
51.7%
3.3ppt
$66.53
$34.39
(0.3%)
6.6%
61.2%
(0.3)ppt
$76.04
$46.52
(4.5%)
(4.9%)
66.6%
0.0ppt
$140.06
$93.23
(8.0%)
(8.1%)
65.8%
(0.1)ppt
$66.16
$43.52
(3.8%)
(4.0%)
62.8%
0.1ppt
$47.20
$29.66
(4.9%)
(4.7%)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
Report approved by the Board is provided on pages 79 to 95 and
incorporated by reference herein.
Subsidiaries, joint ventures and associated undertakings
The Group has over 400 subsidiaries, joint ventures and associated
undertakings. A complete list of these entities is provided at note 34
of the Group Financial Statements on pages 199 to 201.
Directors
For biographies of the current Directors see pages 80 and 81.
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 2019.
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 233 and 234.
Shares
Share capital
The Company’s issued share capital at 31 December 2019 consisted
of 187,717,720 ordinary shares of 20 340/399 pence each, including
5,684,427 shares held in treasury, which constituted 3.0% 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 2019, 801,242 shares were transferred from treasury to the
employee share ownership trust.
In January 2019, the Company’s issued share capital was subject
to a 19 for 20 share consolidation effective as of 14 January 2019
(see page 211) as part of which 6,827,020 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
In 2019, the Company did not issue any new shares, nor did it buy
back any existing shares.
Dividends
Dividend
Special dividend
A special dividend was paid on 29 January 2019 to shareholders on the register
at the close of business on 11 January 2019
Interim dividend
An interim dividend was paid on 3 October 2019 to shareholders on the register
at the close of business on 30 August 2019
Final dividend
Subject to shareholder approval, payable on 14 May 2020 to shareholders on the register
at the close of business on 3 April 2020
Ordinary shares
ADRs
203.8p
262.1¢
32.0p
39.9¢
N/Aa
85.9¢
a The sterling amount of the final dividend will be announced on 24 April 2020 using the average of the daily exchange rates from 21 April 2020 to 23 April 2020 inclusive.
Major institutional shareholders
As at 17 February 2020, 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 B.V.
Cedar Rock Capital Limited
Fiera Capital Corporation
Fundsmith LLP
As at 17 February 2020
As at 18 February 2019
As at 19 February 2018
Ordinary
shares/ADSsa
9,939,317b
11,450,000
14,923,417
11,037,891
10,222,246
%a
5.46
6.01
5.07
6.06
5.18
Ordinary
shares/ADSsa
10,165,234
11,450,000
14,923,417
9,662,767
10,222,246
%a
5.60
6.01
5.07
5.07
5.18
Ordinary
shares/ADSsa
11,280,241
11,850,000
14,923,417
7,707,008
10,222,246
%a
5.92
5.02
5.07
4.06
5.18
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 necessarily
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 772,402 qualifying financial instruments to which voting rights are attached.
In addition to the above notifications, the Company had been notified of the following holdings in its ordinary shares:
The Capital Group Companies, Inc. notified the Company on 6 September 2019 that it held less than 5% of voting rights.
FMR LLC notified the Company on 22 January 2020 that it held less than 5% of voting rights.
As at 17 February 2020, the Company had not received any further notifications in relation to the holdings referred to above.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Directors’ report
221
Future business developments of the Group
Further details on these are set out in the Strategic Report on
pages 2 to 75.
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 400,000 people worked globally across
IHG’s brands as at 31 December 2019.
IHG employed the following as at 31 December 2019:
• 9,636 people worldwide (including those in our corporate offices,
central reservations offices and owned hotels (excluding those in a
category below), whose costs were borne by the Group;
• 4,800 people who worked directly on behalf of the System Fund
and whose costs were borne by the System Fund; and
• 22,207 General Managers and (in the US predominantly) other
hotel workers, who work in managed hotels, who have contracts
or are directly employed by IHG and whose costs are borne by
those hotels.
See note 4 of the Group Financial Statements on page 157 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 28 to 33.
We also look to appoint the most appropriate person for the job and
are committed to providing equality of opportunity to all employees
without discrimination. Every effort is made to ensure that
applications for employment from disabled employees are fully and
fairly considered and that disabled employees have equal
opportunities to training, career development and promotion.
The Code of Conduct applies to all Directors, officers and employees
and complies with the NYSE rules as set out in Section 406 of the US
Sarbanes-Oxley Act 2002. Further details can be found on page 240.
For more information on the Group’s employment policies,
including equal opportunities, employee communications
and development, see pages 28 to 33, and our website
www.ihgplc.com/responsible-business
Additional Information
Directors’ Report continued
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 244.
2019 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 Company 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 2019, the Company transferred 801,242 treasury
shares (0.43% of issued share capital) to satisfy obligations under
its share plans.
The estimated maximum dilution from awards made under the
Company’s share plans over the last 10 years is 3.1%.
As at 31 December 2019, 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
2019, the ESOT released 868,857 shares and at 31 December 2019 it
held 160,313 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 or less.
Colleague Share Plan
The Company’s Colleague Share Plan rules were approved by
shareholders at the Company’s 2019 AGM. A summary of the rules
is set out in the appendix to the notice of the Company’s 2019 AGM,
which is available at www.ihgplc.com/investors under Shareholder
centre in the AGMs and meetings section. The share plan was
subsequently launched at the end of 2019.
222
IHG | Annual Report and Form 20-F 2019
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 6-7% across our entire estate by 31 December 2020 (against a 2017 baseline).
See page 45 for progress.
Reporting boundary
Measure
Global – corporate offices and
franchised, managed, owned,
leased and managed lease
hotelsb (a KPI and part of our
five-year targets)
Scope 1 Direct emissions (tCO2e)
Scope 2 Indirect emissions (tCO2e)
Scope 3 Indirect (tCO2e)
Total GHG emissions (tCO2e)
Global – corporate offices and
managed, owned, leased and
managed lease hotelsb (as
required under the Companies
Act 2006)
IHG’s chosen intensity measurement GHG emissions
per occupied room (kgCO2e per occupied room)
Scope 1 Direct emissions (tCO2e)
Scope 2 Indirect emissions (tCO2e)
Total GHG emissions (tCO2e)
2019ª
2018a
Restated
2017a
Restated
529,092.83
508,617.42
479,280.40
2,008,036.70
1,949,693.52
1,863,265.75
2,758,518.28
2,734,979.92
2,729,418.21
5,295,647.82
5,193,290.86
5,071,964.36
26.80
27.80
28.50
529,092.83
508,617.42
479,280.40
2,008,036.70
1,949,693.52
1,863,265.75
2,537,129.54
2,458,310.94
2,342,546.15
IHG’s chosen intensity measurement GHG emissions
per occupied room (kgCO2e per occupied room)
44.70
46.10
45.50
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 440 hotels. We do not have sufficient data to estimate their emissions and believe them to be immaterial.
Scope
We report Scope 1, Scope 2 and Scope 3 emissions as defined by the GHG protocol as follows:
• Scope 1 emissions are direct emissions produced by the burning of fuels of the emitter.
• Scope 2 emissions are indirect emissions (generated by the electricity consumed and purchased by the emitter).
• Scope 3 emissions are indirect emissions produced by the emitter activity, but owned and controlled by a different emitter from the one
who reports on the emissions (e.g. our franchise estate).
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 2019, in line
with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 5,193 (92%) of our 5,663 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 have
restated 2017 and 2018 data.
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 24
to the Group Financial Statements on pages 182 to 185.
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 2022, 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;
• 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; and
• The 8.5-year €500 million bond issued by the Company on
15 November 2018, under which, if the bond’s credit rating was
downgraded in connection with a change of control, the bond
holders would have option to require the Company to redeem or,
at the Company’s option, repurchase the outstanding notes
together with interest accrued.
Further details on material contracts are set out on page 235.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Directors’ report
223
Additional Information
Directors’ Report continued
Business relationships
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 agreement 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.
The Companies (Miscellaneous Reporting) Regulations 2018
An overview of how the Directors have had regard to the matters set
forth in section 172(1)(a) to (f) of the Companies Act 2006 is provided
in the Culture, responsible business, and stakeholder section of the
Strategic Report, on pages 24 to 40, and in the Corporate
Governance section, pages 79 to 95. Specifically, a description
of the actions taken by the Directors during the year to provide
employees with information on matters concerning them, engage
with employees to make better informed decisions, encourage
employee involvement in the Company’s employee share scheme
and increase employee awareness of the financial and economic
factors affecting the performance of the Company, is set out on
pages 24 to 33.
Disclosure of information to Auditor
For details, see page 120.
A summary of how the Directors engaged with employees and have
had regard to their interests on the principal decisions taken by the
Company during 2019 is also set out on such pages.
A summary of how the Directors have had regard to the need to
foster and maintain the Company’s business relationships with
suppliers, customers and others and the effect of that regard,
including on any principal decisions taken by the Company in 2019,
is set out on pages 24 to 40, and pages 79 to 95.
Listing Rules – compliance with LR 9.8.4C
Section
Applicable sub-paragraph within LR 9.8.4C
Location
1
4
Interest capitalised
Group Financial Statements, note 7, page 159
Details of long-term incentive schemes
Directors’ Remuneration Report, pages 96 to 109
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 75 and in the Group information on pages 225
to 236. Information on the Group’s treasury management policies
can be found in note 24 to the Group Financial Statements on pages
182 to 185.
At the end of 2019, the Group was trading significantly within its
banking covenants and debt facilities.
The Group’s fee-based model and wide geographic spread mean
that it is well placed to manage through uncertain times, and our
forecasts and sensitivity projections, based on a range of reasonably
possible changes in trading performance, show that the Group
should be able to operate within the level of its current facilities.
After making enquiries, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future and,
accordingly, they continue to adopt the going concern basis in
preparing the Consolidated Financial Statements.
Please see page 54 for the Directors’ assessment of the viability of
the Group.
By order of the Board,
Nicolette Henfrey
Company Secretary
InterContinental Hotels Group PLC
Registered in England and Wales, Company number 5134420
17 February 2020
224
IHG | Annual Report and Form 20-F 2019
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 stand-alone
hotels business.
Recent acquisitions and divestitures
The net cash outflow, including the payment of contingent purchase
consideration, relating to the acquisition of businesses in 2019 was
$300 million (2018: $38 million, 2017: $nil), and relates to the
acquisition of Six Senses Hotels Resorts Spas and its management
business (‘Six Senses’) in February 2019, the agreement to rebrand
and operate under long-term ‘managed leases’ a portfolio of hotels
in the UK (UK portfolio) in 2018 and 2019, and the acquisition of
Regent Hotels and Resorts (‘Regent’) in July 2018, as follows:
• Six Senses: $292 million in 2019;
• UK portfolio: $8 million in 2019 and $25 million in 2018; and
• Regent: $13 million in 2018.
Further information is included in note 11 to the Group Financial
Statements.
The Group had no material divestitures in 2019 or 2018.
Capital expenditure
• Capital expenditure in 2019 totalled $265 million compared with
$253 million (restated) in 2018 and $356 million (restated) in 2017
(see page 217). The expenditure in 2019 was partly attributable to
property, plant and equipment refurbishment works involved in
re-branding the UK Portfolio hotels and investments in the Group’s
associates and joint ventures.
• At 31 December 2019, capital committed (being contracts placed
for expenditure on property, plant and equipment, intangible
assets and key money not provided for in the Group Financial
Statements) totalled $197 million (including $3 million in respect
of leases).
IHG | Annual Report and Form 20-F 2019 | Additional Information | Group information
225
Additional Information
Group information continued
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 principal risks are on pages 46 to 54, the cautionary statements
regarding forward-looking statements are on page 252 and financial
and forward-looking information including note 8 on pages
160 to 163, and note 24 on pages 182 to 185.
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 2020 may worsen due to continued
uncertainty in relation to Brexit (see page 47 for a statement
on the materiality of this risk to the Company); the Eurozone; the
evolving disruption from the outbreak of Covid-19 on travel patterns
in Greater China and elsewhere; potential disruptions in the US
economy; the impact of fluctuating commodity prices (including oil)
on economies dependent on such exports; continued unrest in parts
of the Middle East, Africa and Asia; and barriers to global trade,
including unforeseeable changes in regulations, imposition of
tariffs or embargoes, and other trade restrictions or controls. 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. Specifically, the Group is most exposed to the US market
and, increasingly, to Greater China. 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.
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.
The Group is exposed to the risk of events or stakeholder
expectations that adversely impact domestic or international
travel, including climate change
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 or man-made disasters, or other local
factors impacting specific countries, cities or individual hotels, as
well as increased transportation and fuel costs. Additionally, the
Group may be adversely impacted by increasing stakeholder and
societal expectations and attitudes in relation to factors contributing
to climate change including overtravel and overtourism, and those
linked directly to hotels including waste, water, energy, or impact on
local communities. A decrease in the demand for business and/or
leisure hotel rooms as a result of such events or attitudinal/demand
shifts may have an adverse impact on the Group’s operations or
growth prospects 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, both global and specific to
certain markets, 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 hospitality industry has experienced recent consolidation and
is likely to see this trend continue as companies seek to maintain
or increase competitive advantage. Further consolidation by
competitors may result in such competitors having access to
increased resources, capabilities or capacity and provide
advantages from scale of revenues, marketing funds and/or
cost structures.
The Group is exposed to risks related to executing and realising
benefits from strategic transactions, including acquisitions and
restructuring
The Group may seek to make strategic transactions, including
acquisitions, divestments or investments 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. The Group may also continue to make organisational
adjustments to support delivery of our growth ambitions, including
the integration of acquisitions into the Group’s operating processes
and systems. This creates inherent risks of complexity and that any
changes made could be unsustainable or that we are unable to
achieve the return envisaged through reinvestment. 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,
outsourced providers, 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,
deterioration of the financial health of our partners, 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.
226
IHG | Annual Report and Form 20-F 2019
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 franchising business
and management 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, to secure
management contracts or open hotels in our development pipeline.
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 and mean that not every hotel in our development
pipeline may develop into a new hotel that enters our system.
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 or system
improvement initiatives. This could result in franchisees prematurely
terminating contracts which could lead to disputes, litigation,
damages and other expenses and 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, artificial intelligence, mobile and data
technology grows, and new and disruptive technology solutions are
developed, 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, and also with regulatory,
risk and ethical considerations of how these developments are used,
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. (See also “The Group is exposed
to the risks related to cybersecurity and data privacy”).
The Group is reliant on the reputation of its existing 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, leased and managed lease, 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, particularly in jurisdictions which may not
have developed levels of protection for corporate assets such as
intellectual property, trade secret, know-how and customer
information, and records. 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 and compete currently or in the future.
Third party claims that we infringe their intellectual property could
lead to disputes, litigation, damages and other expenses. (See
also “The Group is exposed to the risks related to cybersecurity
and data privacy”).
The Group is reliant upon the resilience of its reservation system
and other key technology platforms and is exposed to risks that
could disrupt their operation and/or integrity
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 other processes and
systems and linked to multiple sales channels, including the Group’s
own websites, in-house and third-party managed call centres,
hotels, third-party intermediaries and travel agents.
The scope and complexity of our technology infrastructure,
including increasing reliance on third-party suppliers to support and
protect our systems and information, as well as the rapidly evolving
cyber threats, means that we are inherently vulnerable to physical
damage, failures, disruptions, denial of service, phishing or other
malware attacks, cyber terrorism and fraud, as well as human error,
negligence and wilful misuse. Our franchisees and suppliers are also
inherently vulnerable to the same risks.
Lack of resilience and operational availability of these systems
provided by the Group or third-party technology providers and
inability or difficulty in updating existing or implementing new
functionality could lead to prolonged service disruption. This might
result in significant business interruption, impact the guest booking
experience, lead to loss of or theft of data, and subsequently
adversely impact Group revenues, incur financial costs to remediate
or investigate, lead to regulatory and/or contractual enforcement
actions or lawsuits, or damage the Group’s reputation and
relationships with hotel owners.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Group information
227
Additional Information
Group information continued
Risk factors continued
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 or contagious diseases, 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 and sustain a resilient corporate culture, failure to
recruit or retain key personnel, unexpected loss of key senior
employees, failures in the Group’s succession planning and
incentive plans, or failure to invest in the development of key skills.
Some of the markets in which the Group operates are experiencing
economic growth and/or low levels of unemployment, attractive
roles and competitive rewards available elsewhere, and the Group
must compete against other companies inside and outside the
hospitality industry for suitably qualified or experienced employees,
up to and including Executive Directors. 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 and increasing labour costs may threaten the ability to
operate hotels and our corporate support functions, achieve
business growth targets or impact the profitability of our operations.
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.
Collective bargaining activity could disrupt operations, increase
our labour costs or interfere with the ability of our management to
focus on executing our business strategies.
A significant number of colleagues at our managed, owned, leased
and managed lease hotels (approximately 22% in the US, Canada,
Mexico, Grand Cayman and Dutch Antilles) are covered by collective
bargaining agreements and similar agreements. If relationships with
those colleagues or the unions that represent them become
adverse, the properties we own, lease or manage could experience
labour disruptions such as strikes, lockouts, boycotts and public
demonstrations. Collective bargaining agreements representing half
of our organised colleagues in the US expired during 2018. These
agreements were successfully renegotiated during 2019. Hotel
sector union member participation continues to increase in key
markets within the Americas region, which may require IHG to enter
into new labour agreements as more employees become unionised
in the future. Labour disputes, which are generally more likely when
collective bargaining agreements are being renegotiated, could
harm our relationship with our colleagues, result in increased
regulatory inquiries and enforcement by governmental authorities
and deter guests. Further, adverse publicity related to a labour
dispute could harm our reputation and reduce customer demand
for our services.
Labour regulation and the negotiation of new or existing collective
bargaining agreements could lead to higher wage and benefit costs,
changes in work rules that raise operating expenses, legal costs and
limitations on our ability or the ability of our third-party property
228
IHG | Annual Report and Form 20-F 2019
owners to take cost saving measures during economic downturns.
We do not have the ability to control the negotiations of collective
bargaining agreements covering unionised labour employed by our
third-party property owners and franchisees. Increased unionisation
of our workforce, new labour legislation or changes in regulations
could disrupt our operations, reduce our profitability or interfere
with the ability of our management to focus on executing our
business strategies.
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 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. (See also legal proceedings on page 236.)
The Group is exposed to the risks related to cybersecurity and
data privacy
The Group is increasingly dependent upon the collection, usage,
retention, availability, integrity and confidentiality of information,
including, but not limited to: guest, employee and owner credit card,
financial and personal data, business performance, financial
reporting and commercial development. The information is
sometimes held in different formats such as digital, paper, voice
recordings and video and could be stored in many places, including
facilities managed by third-party service providers, in our Company
managed hotels, and by our franchisees, who are subject to the
same or similar risks.
Cyber breaches increasingly appear to be an unfortunate reality for
most firms and we therefore invest in trying to avoid them where
reasonable and practical to do so – in recognition of the possible
impact of cybersecurity breaches beyond data loss on operational
performance and regulatory actions/ fines, as well as the potential
impact on our reputation. The threats towards the hospitality
industry and 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 Group experienced cybersecurity incidents including; (a) at a
number of Kimpton hotels that resulted in unauthorised access to
guest payment card data (the Kimpton Security Incident); and (b) an
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), that the Group
become aware of in 2016. These incidents resulted in the Group
reimbursing the impacted card networks for counterfeit fraud losses
and related expenses and becoming subject to investigations
regarding compliance with applicable State and Federal data
security standards, and legal action from individuals and
organisations impacted by the Security Incidents. To date, four
lawsuits have been filed against IHG entities relating to the Security
Incidents.
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 (such as the EU GDPR, China
cybersecurity law, and California privacy law). If the Group fails to
protect information and ensure relevant controls are in place to
enable the acceptable 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.
We are also required to comply with marketing and advertising laws
relating to our direct marketing practices, including email marketing,
online advertising, and postal mailings. Further restrictions to the
content or interpretations of these laws could adversely impact our
current and planned activities and the effectiveness or viability of
our marketing strategies to maintain, extend and acquire
relationships with customers, and impact the amount and timing
of our sales of certain products.
For information of incidents relating to cybersecurity and data
privacy during 2019, see pages 197 and 236.
The Group is required to comply with existing and changing
regulations and act in accordance with societal expectations
across numerous countries, territories and jurisdictions
Government regulations affect countless aspects of the Group’s
business ranging from corporate governance, health and safety, the
environment, bribery and corruption, employment law and diversity,
disability access, data privacy and information protection, financial,
accounting and tax. Regulatory changes may require significant
changes in the way the business operates and may inhibit the
Group’s strategy, including the markets the Group operates in, brand
protection, and use or transmittal of personal data. If the Group fails
to comply with existing or changing regulations, the Group may be
subject to fines, prosecution, loss of licence to operate or
reputational damage.
The reputation of the Group and the value of its brands are
influenced by a wide variety of factors, including the perception
of stakeholder groups such as guests, owners, suppliers and
communities in which the Group operates. The social and
environmental impacts of its business are under increasing scrutiny,
and the Group is exposed to the risk of damage to its reputation if
it fails to (or fails to influence its business partners to) undertake
responsible practices and engage in ethical behaviour, or fails to
comply with relevant regulatory requirements.
The Group may face difficulties insuring its business
Historically, the Group has maintained insurance at levels
determined to be appropriate in light of the cost of cover and the
risk profile of the business. However, forces beyond the Group’s
control, including market forces, may limit the scope of coverage
the Group can obtain and the Group’s ability to obtain coverage at
reasonable rates. Other forces beyond the Group’s control, such as
terrorist attacks or natural disasters, may be uninsurable or simply
too expensive to insure. Inadequate or insufficient insurance carried
by the Group, our owners or other partners for damage, other
potential losses or liabilities to third parties involving properties that
we own, manage or franchise could expose the Group to large
claims or could result in the loss of capital invested in properties.
The Group is exposed to inherent uncertainties associated with
brand development and expansion
The Group has recently launched or acquired a number of new
brands, such as EVEN Hotels, HUALUXE, avid Hotels, voco, Kimpton
Hotels & Restaurants, Regent Hotels, Six Senses Hotels resorts and
spas, and entered into co-branded credit card relationships to
support the IHG Rewards Club programme and an exclusive loyalty
partnership with Mr & Mrs Smith. As the roll out, integration and
growth of these brands (including associated loyalty programmes) is
dependent on market conditions, guest preference and owner
investment, and also continued cooperation with third parties, there
are inherent risks that we will be unable to recover costs incurred in
developing or acquiring the brands or any new programmes or
products, or those brands, programmes, or products will not
succeed as we intend. The Group’s ongoing agenda to accelerate
growth and strategic initiatives creates risks relating to the transition
of systems, operating models and processes, and may result in
failures to improve commercial performance, leading to financial
loss and undermining stakeholder confidence.
The Group is exposed to an impairment of the carrying value of our
brands, goodwill or other tangible and intangible assets negatively
affecting our consolidated operating results
We hold significant amounts of goodwill, intangible assets, right-of-
use assets, property and equipment, and investments. We review
the value of our goodwill and indefinite-lived intangible assets
for impairment annually (or whenever events or circumstances
indicate impairment may have occurred). Changes to estimated
fair values could result from shifts in the business climate, the
competitive environment, the perceived reputation of our brands (by
guests or owners), or changes in interest rates, operating cash flows,
market capitalisation, or developments in the legal or regulatory
environment. Because of the significance of our goodwill and other
intangible assets, we have incurred and may incur future impairment
charges for goodwill, other intangible assets and right-of-use assets,
which may require material non-cash charges to our results of
operations, which could have an adverse effect on our financial results.
The Group is exposed to fluctuations in exchange rates, currency
devaluations or restructurings and to interest rate risk in relation to
its borrowings
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. Conducting business in
currencies other than US dollars exposes us to fluctuations in
exchange rates, currency devaluations, or restructurings. This could
potentially lower our reported revenues, increase our costs, reduce
our profits or disrupt our operations. Our exposure to these factors
is linked to the pace of our growth in territories outside the US and,
if the proportion of our revenues grows, this may increase the
potential sensitivity to currency movements having an adverse
impact on our results.
From time to time, the Group hedges a portion of forecast foreign
currency income by taking out forward exchange contracts and also
uses short-dated foreign exchange swaps to manage sterling surplus
cash and reduce US dollar borrowings whilst maintaining
operational flexibility. However, these arrangements may not
eliminate foreign exchange risk exposures entirely, and involve
inherent risks of their own, including management time, expertise
and external costs.
The Group transacted currency swaps in 2018 at the same time as
the €500 million 2.125% bonds were issued in order to swap the
bonds’ proceeds and interest flows into sterling
The Group is also exposed to interest rate risk in relation to its fixed
and floating rate borrowings and may use interest rate swaps to
manage the exposure.
The Group’s operations are dependent on maintaining sufficient
liquidity to meet all foreseeable medium-term 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 $16 million (2018: $2 million)
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.
Short-term borrowing requirements may be met from drawings
under uncommitted overdrafts and facilities.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Group information
229
Additional Information
Group information continued
Risk factors continued
The Group could be affected by credit risk on treasury transactions
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.
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 grow 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’s financial performance may be affected by changes in
tax laws
The Group’s financial performance may be affected by changes in
taxes. 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 the OECD,
governments and tax authorities. The Group continues to monitor
activity in this area.
Tax liabilities or refunds may also 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.
Foreign or U.S. environmental laws and regulations may cause us
to incur substantial costs or subject us to potential liabilities.
The Group is exposed to certain compliance costs and potential
liabilities under various foreign and U.S. federal, state and local
environmental, health and safety laws and regulations. These laws
and regulations govern actions including air emissions, the use,
storage and disposal of hazardous and toxic substances, and
wastewater disposal. The Group’s failure to comply with such laws,
including any required permits or licenses, could result in substantial
fines or possible revocation of our authority to conduct some of our
operations. We could also be liable under such laws for the costs
of investigation, removal or remediation of hazardous or toxic
substances at our currently or formerly owned, leased or operated
real property (including managed and franchised properties)
or at third-party locations in connection with our waste disposal
operations, regardless of whether or not we knew of, or caused,
the presence or release of such substances. The Group may also be
required to remediate such substances or remove, abate or manage
asbestos, mould, radon gas, lead or other hazardous conditions at our
properties. The presence or release of such toxic or hazardous
substances could result in third-party claims for personal injury,
property or natural resource damages, business interruption or other
losses. Such claims and the need to investigate, remediate
or otherwise address hazardous, toxic or unsafe conditions could
adversely affect the Group’s operations, the value of any affected real
property, or our ability to sell, lease or assign our rights in any such
property, or could otherwise harm our business or reputation.
Environmental, health and safety requirements have also become
increasingly stringent, and our costs may increase as a result. New or
revised laws and regulations or new interpretations of existing laws
and regulations, such as those related to climate change, could affect
the operation of our properties or result in significant additional
expense and restrictions on the Group’s business operations.
230
IHG | Annual Report and Form 20-F 2019
Directors’ and Executive Committee members’ shareholdings
As at 17 February 2020: (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 105; (ii) Non-Executive Directors had the number of beneficial interests in shares set out in the
table on page 108; 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 17 February 2020, 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
Keith Barr
Paul Edgecliffe-
Johnson
Number of shares held outright
APP deferred share awards
LTIP share awards (unvested)
Total number of shares held
17 Feb
2020
31 Dec
2019
31 Dec
2018
17 Feb
2020
31 Dec
2019
31 Dec
2018
17 Feb
2020
31 Dec
2019
31 Dec
2018
17 Feb
2020
31 Dec
2019
31 Dec
2018
52,832
52,832
42,782
32,697
32,697
28,262
102,537
102,537
97,211
188,066
188,066
168,255
38,562
38,562
25,669
25,637
25,637
26,742
76,150
76,150
87,482
140,349
140,349
139,893
Elie Maalouf
43,652
43,652
24,773
32,591
32,591
42,058
74,695
74,695
82,694
150,938
150,938
149,525
Claire Bennett
9,152
9,152
–
8,494
8,494
14,406
44,675
44,675
28,788
62,321
62,321
43,194
Jolyon Bulley
52,164
52,164
54,910
Yasmin Diamond
2,354
2,354
1,423
7,891
9,491
7,891
9,491
6,341
38,216
38,216
38,087
98,271
98,271
99,338
7,239
30,331
30,331
33,521
42,176
42,176
42,183
Nicolette
Henfrey
Kenneth
Macpherson
Ranjay
Radhakrishnan
1,528
1,528
–
5,077
5,077
–
21,239
21,239
–
27,844
27,844
–
14,145
14,145
7,681
31,186
31,186
33,468
46,670
46,670
53,121
92,001
92,001
92,270
22,128
22,128
8,318
16,874
16,874
25,258
48,498
48,498
49,101
87,500
87,500
82,677
George Turner
17,983
17,983
19,806
17,288
17,288
17,768
46,691
46,691
54,341
81,962
81,962
91,915
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.
.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Group information
231
Additional Information
Group information continued
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
Associated fee
$5 for each 100 ADSs (or portion thereof)
Receiving or
distributing dividends
Selling or exercising
rights
Withdrawing an
underlying security
Transferring, splitting or
grouping receipts
General depositary
services, particularly
those charged on an
annual basis
Expenses of the
depositary
Distribution of stock dividends
Distribution of cash
Distribution or sale of securities, the fee being in an amount equal to the fee
for the execution and delivery of ADSs which would have been charged as a
result of the deposit of such securities
$5 for each 100 ADSs (or portion thereof)
$0.02 or less per ADS (or portion thereof)
$5 for each 100 ADSs (or portion thereof)
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
J.P. Morgan Chase Bank N.A. (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, 383 Madison Avenue,
Floor 11, New York, NY 10179. 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 2019, the Company received $387,593.36 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.
Change in certifying accountant
A description of the audit tender process completed by the
Company is included on page 91.
The reports of Ernst & Young LLP (EY) with respect to the Company’s
financial statements prepared in accordance with IFRS for the past
two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified with respect to
uncertainty, audit scope or accounting principles.
In connection with the audits of IHG’s financial statements for each
of the two fiscal years ended 31 December 2019 (i) there were no
disagreements with EY, as that term is used in Item 16F(a)(1)(iv) of
Form 20-F, over any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures,
which if not resolved to EY’s satisfaction would have caused EY to
make reference to the matter in their report and (ii) there were no
‘reportable events’ as that term is described in Item 16F(a)(1)(v)
of Form 20-F.
IHG has provided EY with a copy of the foregoing disclosure and has
requested that they furnish IHG with a letter addressed to the SEC
stating whether or not they agree with the above statements. A copy
of such letter, dated 26 February 2020, in which EY state that they
agree with such disclosure, is filed as Exhibit 15(a)(ii) to this 2019
Annual Report and Form 20-F.
232
IHG | Annual Report and Form 20-F 2019
Articles of Association
The Company’s Articles of Association (the Articles) were first
adopted with effect from 27 June 2005 and were most recently
amended at the AGM held on 4 May 2018 and are available on the
Company’s website at www.ihgplc.com/investors under Corporate
Governance. The following summarises material rights of holders of
the Company’s ordinary shares under the material provisions of the
Articles and English law. This summary is qualified in its entirety by
reference to the Companies Act and the Articles.
The Company’s shares may be held in certificated or uncertificated
form. No holder of the Company’s shares will be required to make
additional contributions of capital in respect of the Company’s
shares in the future.
In the following description, a ‘shareholder’ is the person registered in
the Company’s register of members as the holder of the relevant share.
Principal objects
The Company is incorporated under the name InterContinental
Hotels Group PLC and is registered in England and Wales with
registered number 5134420. The Articles do not restrict its objects
or purposes.
Directors
Under the Articles, a Director may have an interest in certain matters
(Permitted Interest) without the prior approval of the Board, provided
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
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.
The Articles require annual retirement and re-election of all Directors
at the AGM.
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.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Group information
233
Additional Information
Group information continued
Articles of Association continued
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 Chair of the meeting;
• At least five shareholders present in person or by proxy and
entitled to vote at the meeting;
• Any shareholder or shareholders present in person or by proxy
representing in the aggregate not less than one-tenth of the total
voting rights of all shareholders entitled to vote at the meeting; or
• Any shareholder or shareholders present in person or by proxy
holding shares conferring a right to vote at the meeting and on
which there have been paid up sums in the aggregate at least
equal to one-tenth of the total sum paid up on all the shares
conferring that right.
A proxy form will be treated as giving the proxy the authority to
demand a poll, or to join others in demanding one.
The necessary quorum for a general meeting is three persons
carrying a right to vote upon the business to be transacted, whether
present in person or by proxy.
Matters are transacted at general meetings of the Company by the
proposing and passing of resolutions, of which there are two kinds:
• An ordinary resolution, which includes resolutions for the election
of Directors, the approval of financial statements, the cumulative
annual payment of dividends, the appointment of the Auditor, the
increase of 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.
Variation of rights
If, at any time, the Company’s share capital is divided into different
classes of shares, the rights attached to any class may be varied,
subject to the provisions of the Companies Act, with the consent in
writing of holders of three-quarters in nominal value of the issued
shares of that class or upon the adoption of a special resolution
passed at a separate meeting of the holders of the shares of that
class. At every such separate meeting, all of the provisions of the
Articles relating to proceedings at a general meeting apply, except
that the quorum is to be the number of persons (which must be two
or more) who hold or represent by proxy not less than one-third in
nominal value of the issued shares of that class.
Rights in a winding-up
Except as the Company’s shareholders have agreed or may
otherwise agree, upon the Company’s winding up, the balance
of assets available for distribution is to be distributed among the
holders of ordinary shares according to the amounts paid up on
the shares held by them:
• After the payment of all creditors including certain preferential
creditors, whether statutorily preferred creditors or normal
creditors; and
• Subject to any special rights attaching to any class of shares.
This distribution is generally to be made in cash. A liquidator may,
however, upon the adoption of a special resolution of the
shareholders, divide among the shareholders the whole or any part
of the Company’s assets in kind.
Limitations on voting and shareholding
There are no limitations imposed by English law or the Articles on
the right of non-residents or foreign persons to hold or vote the
Company’s ordinary shares or ADSs, other than the limitations that
would generally apply to all of the Company’s shareholders.
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
2019, the minimum wage for individuals aged 18 to 20 was £6.15 per
hour, aged 21 to 24 was £7.70 per hour and for those aged 25 or over
was £8.21 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.
234
IHG | Annual Report and Form 20-F 2019
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 $110 million as at 31 December 2019.
£2 billion Euro Medium Term Note programme
In 2018, the Group updated its Euro Medium Term Note programme
(Programme) and issued a tranche of €500 million 2.125% notes due
15 May 2027 (2018 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 issue of a
Tranche of £350 million 2.125% Notes due 24 August 2026 (2016
Issuance). Final Terms were issued (pursuant to the base prospectus
dated 13 August 2018) on 13 November 2018 in respect of the
2018 Issuance.
The Final Terms issued under each of the 2012 Issuance, the 2015
Issuance, the 2016 Issuance and 2018 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, dated 13 August 2018, 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, the Final Terms dated 22 August 2016
relating to the 2016 Issuance and the Final Terms dated 13 November
2018 relating to the 2018 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, the Notes issued
pursuant to the 2016 Issuance and the Notes issued pursuant to the
2018 Issuance are referred to as ‘£400 million 3.875% bonds 2022’,
‘£300 million 3.75% bonds 2025’, ‘£350 million 2.125% bonds 2026’,
and ‘€500 million 2.125% bonds 2027’ 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 13 August 2018, the Issuer and the Guarantors entered into an
amended and restated dealer agreement (Dealer Agreement) with
HSBC Bank plc as arranger and Barclays Bank PLC, Commerzbank
Aktiengesellschaft, HSBC Bank plc, Merrill Lynch International,
MUFG Securities EMEA plc, SunTrust Robinson Humphrey, Inc. and
Wells Fargo Securities International Limited 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.
Acquisition of Six Senses Hotels Resorts Spas
On 12 February 2019, a share purchase agreement (SPA) was entered
into between Sustainable Luxury (BVI) Limited Partnership (acting
through Sustainable Luxury (BVI) Limited as its general partner),
Sustainable Luxury Holdings (BVI) Limited, and Inter-Continental
Hotels Corporation. Under the SPA, Inter-Continental Hotels
Corporation agreed to buy the entire issued share capital of
Sustainable Luxury Holdings (BVI) Limited, the principal trading
company of the Six Senses group, from Sustainable Luxury (BVI)
Limited Partnership. The purchase completed on 12 February 2019.
Under the SPA, Inter-Continental Hotels Corporation gave certain
customary warranties and indemnities to the seller.
The consideration paid in respect of the acquisition was
$300 million in cash, before adjustments.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Group information
235
Additional Information
Group information continued
Legal proceedings
Group companies have extensive operations in the UK, as well as
internationally, and are involved in a number of legal claims and
proceedings incidental to those operations. These legal claims and
proceedings are in various stages and include disputes related to
specific hotels where the potential materiality is not yet known. 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 17 February
2020, unless stated otherwise, the outcome of these matters cannot
be reasonably determined.
A claim was filed on 5 July 2016 by CPTS Hotel Lessee, LLC (CPTS)
against Holiday Hospitality Franchising, LLC (HHF). The claimant
alleges breach of the licence agreement and seeks a declaratory
judgement from the court that it has the right to terminate its licence
with HHF. HHF and InterContinental Hotels Group Resources, Inc.
filed a claim against CPTS Hotel Lessee, LLC also seeking a
declaratory judgement and alleging breach of contract and fraud.
On 1 May 2018, the court granted IHG’s motion for preliminary
injunction and ruled that the license agreement at issue is not
terminable at will by CPTS. As of 17 February 2020, 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
estimate the amount of any loss.
A claim was filed on 20 September 2016 against Kimpton Hotel and
Restaurant Group, LLC (“Kimpton”), seeking class action status and
alleging breach of implied contract, negligence, and deceptive
business practices related to an alleged data breach. The claimant
alleged that Kimpton failed to secure and safeguard its customers’
payment card data and personally identifiable information. The
parties reached agreement on a resolution of this matter and on 11
July 2019, the Court granted final approval of the agreement. The
claim was dismissed, and the parties are complying with the terms
of the agreement.
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. The claimant
alleges that IHG failed to secure and safeguard customers’ personal
financial data. As of 17 February 2020, 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 estimate the
amount of any loss.
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. The claim was amended in March 2018 to name Six
Continents Hotels, Inc. as the sole defendant. The claimant alleges
that security failures allowed customers’ financial information to be
compromised. As of 17 February 2020, 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 estimate the
amount of any loss.
Two claims were filed on 19 March 2018 and 6 December 2018
against Six Continents Hotels, Inc. and other hotel companies,
alleging violations of anti-trust regulations. One of the matters is a
class action, and both suits allege that the defendant hotel
companies conspired to eliminate competitive branded keyword
search advertising in the hotel industry, which raised prices for hotel
rooms in violation of applicable law. As of 17 February 2020, 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 estimate the amount of any loss.
A claim was filed on 5 April 2019 and amended on 16 December
2019 against Kimpton seeking class action status and alleging harm
related to the compromise of personal information due to a data
security breach. The allegations relate to a breach of the reservation
system previously used by Kimpton. As of 17 February 2020 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 estimate the amount of any loss.
An arbitration was held in April 2019 related to a claim alleging that
IHG Hotels Limited wrongfully terminated a franchise agreement.
The claimant sought monetary damages and sought a declaratory
judgement that IHG Hotels Limited anticipatorily breached the
agreement. On 6 February 2020 the arbitrator issued an award
against IHG Hotels Limited, which has been provided for in the
Group’s operating exceptional items.
A union pension plan filed an action against InterContinental Hotels
Group Resources, Inc. (“IHGR”) on 28 August 2019 in the Southern
District of New York alleging that IHGR failed to pay a pension fund
liability associated with its alleged withdrawal from the fund based
on the termination of IHGR’s management of three formerly
IHG-branded hotels. Should IHGR be required to make any
payments in respect of this action, IHGR intends to seek recovery for
the entire amount under existing indemnity arrangements.
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.
236
IHG | Annual Report and Form 20-F 2019
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 or stamp duty
reserve tax (SDRT) may arise as described below.
The US Treasury has expressed concerns that parties to whom
American Depositary Shares 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 American Depositary Shares, may be taking actions
that are inconsistent with the claiming of foreign tax credits by US
holders of American Depositary Shares. 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 American Depositary Shares 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 passive 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.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Shareholder information
237
Additional Information
Shareholder information continued
Taxation continued
Dividends must be included in income when the US holder, in the
case of shares, or the ADR Depositary, in the case of ADSs, actually
or constructively receives the dividend, and will not be eligible for
the dividends-received deduction generally allowed to US
corporations in respect of dividends received from other US
corporations. For foreign tax credit limitation purposes, dividends
will generally be income from sources outside the US.
The amount of any dividend paid in pounds sterling will be the US
dollar value of the sterling payments made, determined at the spot
sterling/US dollar rate on the date the dividend distribution is
includible in income, regardless of whether the payment is in fact
converted into US dollars. If the dividend is converted into US dollars
on that date, a US holder should not be required to recognise foreign
currency gain or loss in respect of the dividend income. Generally,
any gain or loss resulting from currency exchange fluctuations
during the period from the date the dividend payment is includible in
income to the date the payment is converted into US dollars will be
treated as ordinary income or loss from sources within the US.
Taxation of capital gains
UK taxation
A US holder who is not resident for UK tax purposes in the UK and
who is not trading in the UK will not generally be liable for UK
taxation on capital gains, or eligible for relief for allowable losses,
realised or accrued on the sale or other disposal of ADSs or ordinary
shares. A US holder of ADSs or ordinary shares who is an individual
and who, broadly, has temporarily ceased to be resident in the UK or
has become temporarily treated as non-resident for UK tax purposes
for a period of not more than five years 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 2019 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.
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 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
HMRC may take the view that the ADSs, as well as the ordinary
shares, are or represent UK-situs assets.
238
IHG | Annual Report and Form 20-F 2019
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.
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 Government
has confirmed that it 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 or
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 2019 | Additional Information | Shareholder information
239
Additional Information
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
July 2018 by the Financial Reporting Council (the Code) is set out on
pages 94 and 95.
The Chair of the Company is not a member of either the
Remuneration or the Audit Committee. As set out on page 88, 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 recommends: (i) the Board Chair 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 Chair present to appraise the Chair’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 222, IHG’s Code of Conduct
is applicable to all Directors, officers and employees, and 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.
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 Chair, should consist of Independent Non-Executive
Directors. As at 17 Febuary 2020, the Board consisted of the Chair,
independent at the time of his appointment, three Executive
Directors and eight Independent Non-Executive Directors. NYSE
listing rules applicable to US companies state that companies must
have a majority of independent Directors. The NYSE has set out six
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.
Chair and Chief Executive Officer
The Code recommends that the Chair 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 Chair and Chief Executive Officer were, as at 17 February 2020
and throughout 2019, 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, Audit and
Remuneration Committees consist 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 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
Chair and Independent Non-Executive Directors.
240
IHG | Annual Report and Form 20-F 2019
Selected five-year consolidated financial information
The selected consolidated financial data set forth in the table below
for the years ended 31 December 2015, 2016, 2017, 2018 and 2019
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
Total revenue
Operating profit before System Fund and exceptional items
System Fund
Operating exceptional items
Operating profit
Financial income
Financial expenses
Fair value gains/(losses) on contingent purchase consideration
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 and right-of-use assets
Investments and other financial assets
Non-current trade and other receivables
Retirement benefit assets
Non-current derivative financial instruments
Non-current tax receivable
Deferred tax assets
Non-current contract costs
Non-current contract assets
Current assets
Assets classified as held for sale
Total assets
Current liabilities
Long-term debt including lease liabilities
Liabilities classified as held for sale
Net (liabilities)/assets
Equity share capital
IHG shareholders’ equity
Number of shares in issue at end of the year (millions)
$m, except earnings per ordinary share
2019
4,627
2018
Restateda
2017
Restateda
4,337
4,075
832
(146)
(104)
582
5
(101)
(4)
482
774
(34)
4
744
4
(95)
–
653
2016
3,912
706
35
(29)
712
6
(86)
–
632
2015
1,803
680
–
819
1,499
5
(92)
–
1,412
(159)
(203)
(185)
(180)
22
5
(132)
350
349
1
(2)
87
(118)
535
534
1
12
–
(173)
459
456
3
(8)
–
(188)
1,224
1,222
2
210.4¢
209.2¢
183.7¢
181.8¢
276.7¢
275.3¢
215.1¢
213.1¢
520.0¢
513.4¢
$m, except number of shares
2018
Restateda
2017
Restateda
1,143
786
364
–
–
7
31
63
55
270
1,373
–
4,092
1,407
2,525
–
(1,131)
146
(1,139)
197
967
736
369
–
3
–
16
78
51
241
861
–
3,322
1,306
2,267
–
2016
858
419
359
8
–
–
23
69
45
185
796
–
2,762
1,150
1,606
–
(1,354)
(1,146)
154
(1,361)
197
141
(1,154)
206
2015
1,226
428
420
3
–
–
37
49
–
–
1,606
–
3,769
1,369
1,239
–
319
169
309
248
865
(49)
(186)
630
6
(121)
27
542
(176)
20
–
(156)
386
385
1
2019
1,376
799
394
–
–
–
28
66
67
311
916
19
3,976
1,365
2,673
22
(1,465)
151
(1,473)
187
a Restated for the adoption of IFRS 16 and other presentational changes (see pages 146 to 149 of the Group Financial Statements for further details)
IHG | Annual Report and Form 20-F 2019 | Additional Information | Shareholder information
241
Additional Information
Shareholder information continued
Return of funds
Since March 2003, the Group has returned over £6.6 billion of funds to shareholders by way of special dividends, capital returns and share
repurchase programmes. On 19 October 2018, the Company announced a $500 million return of funds to shareholders via special dividend
with share consolidation. The special dividend was paid in January 2019.
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
$500m special dividenda
Total
a Accompanied by a share consolidation.
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
Paid in January 2019
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£150m
£315md
($500m)
£315md
($500m)
£229mg
($350m)
£447mi
($750m)
£1,038mk
($1,500m)
£309ml
($400m)
£389mm
($500m)
£6,645m
£501m
£250m
£996m
£250m
£497m
£250m
£709m
£120m
£315me
($505m)
£315m
($500m)f
£228m
($355m)h
£446m
($763m)j
£1,038m
($1,500m)
£310m
($404m)
£388m
($510m)
£6,613m
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.
m The dividend was first determined in US dollars and converted to sterling at the rate of £1 = $1.2860, as announced on 17 January 2019.
242
IHG | Annual Report and Form 20-F 2019
Purchases of equity securities by the Company and affiliated purchasers
During the financial year ended 31 December 2019, no ordinary shares were purchased by the Company. 35,000 ordinary shares were
purchased by the Company’s employee share ownership trust at an average price of £50.76 per share, for the purpose of satisfying future
awards to employees.
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
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
35,000
50.76
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
18,999,018a
18,999,018a
18,999,018a
18,999,018a
18,123,205b
18,123,205b
18,123,205b
18,123,205b
18,123,205b
18,123,205b
18,123,205b
18,123,205b
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
a Reflects the resolution passed at the Company’s AGM held on 4 May 2018.
b Reflects the resolution passed at the Company’s AGM held on 3 May 2019.
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.
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008c
2007
2006
Interim dividend
Final dividend
Total dividend
Special dividend
pence
32.0
27.7
24.4
22.6
17.7
14.8
15.1
13.5
9.8
8.0
7.3
6.4
5.7
5.1
cents
39.9
36.3
33.0
30.0
27.5
25.0
23.0
21.0
16.0
12.8
12.2
12.2
11.5
9.6
pence
N/Aa
60.4
50.2
49.4
40.3
33.8
28.1
27.7
24.7
22.0
18.7
20.2
14.9
13.3
cents
85.9
78.1
71.0
64.0
57.5
52.0
47.0
43.0
39.0
35.2
29.2
29.2
29.2
25.9
pence
N/Aa
88.1
74.6
72.0
58.0
48.6
43.2
41.2
34.5
30.0
26.0
26.6
20.6
18.4
cents
125.8
114.4
104.0
94.0
85.0
77.0
70.0
64.0
55.0
48.0
41.4
41.4
40.7
35.5
pence
–
cents
–
203.8bd
262.1bd
156.4b
438.2b
–
174.9b
87.1
108.4b
–
–
–
–
200b
118b
202.5b
632.9b
–
293.0b
133.0
172.0b
–
–
–
–
–
–
a The sterling amount of the final dividend will be announced on 24 April 2020 using the average of the daily exchange rates from 21 April 2020 to 23 April 2020 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.
d This special dividend was announced on 19 October 2018 and paid on 29 January 2019
IHG | Annual Report and Form 20-F 2019 | Additional Information | Shareholder information
243
Additional Information
Shareholder information continued
Shareholder profiles
Shareholder profile by type as at 31 December 2019
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 2019
Range of shareholdings
1–199
200–499
500–999
1,000–4,999
5,000–9,999
10,000–49,999
50, 000–99,999
100,000–499,999
500,000–999,999
1,000,000 and above
Total
Number of
shareholders
Percentage of
total shareholders
Number of
ordinary shares
Percentage of
issued share capital
31,569
1,236
742
91
10
33,648
93.82
3.67
2.21
0.27
0.03
100
8,392,633
154,234,251
13,902,927
11,135,732
52,177
187,717,720
4.47
82.16
7.41
5.93
0.03
100
Number of
shareholders
Percentage of
total shareholders
Number of
ordinary shares
Percentage of
issued share capital
22,839
5,992
2,447
1,654
190
296
63
119
18
30
33,648
67.88
17.81
7.27
4.92
0.56
0.88
0.19
0.35
0.05
0.09
100
1,383,881
1,879,223
1,701,155
3,230,695
1,350,400
6,790,906
4,620,167
27,107,353
12,295,613
127,358,327
187,717,720
Shareholder profile by geographical location as at 31 December 2019
Country/Jurisdiction
UK
Rest of Europe
US (including ADRs)
Rest of world
Total
The geographical profile presented is based on an analysis of shareholders (by manager) of 38,000 shares or above where geographical
ownership is known. This analysis only captures 90.9% of total issued share capital. Therefore, the known percentage distributions have
been multiplied by 100⁄90.9 (1.100) to achieve the figures shown in the table above.
As of 17 February 2020, 13,203,660 ADSs equivalent to 13,203,660 ordinary shares, or approximately 7.25% of the total issued share capital,
were outstanding and were held by 419 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 17 February 2020, there were a total of 33,523 recorded holders of ordinary shares, of whom 258 had registered addresses in the US
and held a total of 387,285 ordinary shares (0.21% of the total issued share capital).
244
IHG | Annual Report and Form 20-F 2019
0.74
1.00
0.91
1.72
0.72
3.62
2.46
14.44
6.55
67.84
100
Percentage of
issued share capital
47.3
19.8
31.1
1.8
100
Exhibits
The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC, and are publicly available through the SEC’s website
at www.sec.gov, search InterContinental Hotels Group, under Company Filings.
Exhibit 1a
Exhibit 2(d)
Exhibit 4(a)(i)a
Exhibit 4(a)(ii)a
Exhibit 4(a)(iii)a
Exhibit 4(c)(i)a
Exhibit 4(c)(ii)
Exhibit 4(c)(iii)a
Exhibit 4(c)(iv)a
Exhibit 4(c)(v)a
Exhibit 8
Exhibit 12(a)
Exhibit 12(b)
Exhibit 13(a)
Exhibit 15(a)(i)
Exhibit 15(a)(ii)
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 28 February 2019)
Description of Securities Registered Under Section 12 of the Exchange Act
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) dated 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 4(a)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F
(File No. 1 – 10409) dated 3 March 2016)
Share purchase agreement between Sustainable Luxury (BVI) Limited Partnership (acting by its General Partner, Sustainable Luxury
(BVI) Limited), Sustainable Luxury Holdings (BVI) Limited and Inter-Continental Hotels Corporation (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 28 February 2019)
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)
Rules of the InterContinental Hotels Group Long Term Incentive Plan as approved by shareholders on 2 May 2014 and as amended
on 14 February 2019 and 4 December 2019
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 (incorporated by reference to Exhibit 4(c)(v) of the
InterContinental Hotels Group Annual Report on Form 20-F (File No.1-10409) dated 1 March 2018)
Elie Maalouf’s service contract dated 19 October 2017, commencing on 1 January 2018 (incorporated by reference to Exhibit 4(c)(vi)
of the InterContinental Hotels Group Annual Report on Form 20-F (File No.1-10409) dated 1 March 2018)
List of subsidiaries as at 31 December 2019 (can be found on pages 199 to 201)
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
Letter from Ernst & Young LLP to the SEC
XBRL Instance Document and related items
IHG | Annual Report and Form 20-F 2019 | Additional Information | Exhibits
245
Additional Information
Form 20-F cross-reference guide
Item Form 20-F caption
1
2
3
Identity of Directors, senior management and advisers
Offer statistics and expected timetable
Key information
3A – Selected financial data
3B – Capitalisation and indebtedness
3C – Reason for the offer and use of proceeds
3D – Risk factors
Information on the Company
4A – History and development of the Company
4
4B – Business overview
4C – Organisational structure
4D – Property, plants and equipment
4A
5
Unresolved staff comments
Operating and financial review and prospects
5A – Operating results
5B – Liquidity and capital resources
5C – Research and development; intellectual property
5D – Trend information
5E – Off-balance sheet arrangements
5F – Tabular disclosure of contractual obligations
5G – Safe harbour
5H – Non-GAAP financial measures
6
Directors, senior management and employees
6A – Directors and senior management
6B – Compensation
6C – Board practices
6D – Employees
6E – Share ownership
Location in this document
Not applicable
Not applicable
Shareholder information: Selected five-year consolidated financial information
Shareholder information: Dividend history
Not applicable
Not applicable
Group information: Risk factors
Group information: History and developments
Shareholder information: Return of funds
Useful information: Contacts
Strategic Report
Group information: Working Time Regulations 1998
Group Information: Risk factors
Group Financial Statements: Note 34 – Group companies
Group Information: History and developments
Strategic Report: Key performance indicators
Directors’ Report: Greenhouse gas (GHG) emissions
Group Financial Statements: Note 14 – Property, plant and equipment
None
Strategic Report: Key performance indicators
Strategic Report: Performance
Group Financial Statements: Accounting policies
Group Financial Statements: New accounting standards and
presentational changes
Viability statement
Strategic Report: Performance – Liquidity and capital resources
Group Financial Statements: Note 19 – Cash and cash equivalents
Group Financial Statements: Note 22 – Loans and other borrowings
Group Financial Statements: Note 24 – Financial risk management and derivative
financial instruments
Group Financial Statements: Note 25 – Classification and measurement of
financial instruments
Group Financial Statements: Note 26 – Reconciliation of profit for the year to
cash flow from operations before contract acquisition costs
Not applicable
Strategic Report: Performance
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 6 – Exceptional items
Group Financial Statements: Note 10 – Earnings per ordinary share
Group Financial Statements: Note 23 – Net debt
Corporate Governance: Our Board of Directors and Our Executive Committee
Directors’ Remuneration Report
Group Financial Statements: Note 27 – Retirement benefits
Group Financial Statements: Note 32 – Related party disclosures
Group Financial Statements: Note 28 – Share-based payments
Corporate Governance
Service contracts and notice periods
Group Financial Statements: Note 4 – 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 2018 and 2019
Page
–
–
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243
–
–
226-230
225
242
251
2-75
234
226-230
199-201
225
42-45
223
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–
42-45
55-75
139-145
146-149
54
74-75
178
180
182-185
186-188
189
–
55-75
75
74-75
252
55-75
214-220
158-159
164-165
181-182
80-83
96-109
190-192
197-198
193-194
79-95
231
157
234
222
104
Directors’ Remuneration Report: Annual Report on Directors’ Remuneration
– Statement of Directors’ shareholdings and share interests
Group Financial Statements: Note 28 – Share-based payments
Group information: Directors and Executive Committee members’ shareholdings
105, 108
193-194
231
246
IHG | Annual Report and Form 20-F 2019
Item Form 20-F caption
7
Major shareholders and related party transactions
7A – Major shareholders
7B – Related party transactions
7C – Interests of experts and counsel
Financial Information
8A – Consolidated statements and
other financial information
8B – Significant changes
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
Additional information
10A – Share capital
10B – Memorandum and articles of association
10C – Material contracts
10D – Exchange controls
10E – Taxation
10F – Dividends and paying agents
10G – Statement by experts
10H – Documents on display
10I – Subsidiary information
Quantitative and qualitative disclosures
about market risk
Description of securities other than equity securities
12A – Debt securities
12B – Warrants and rights
12C – Other securities
12D – American depositary shares
Defaults, dividend arrearages and delinquencies
Material modifications to the rights of security
holders and use of proceeds
Controls and Procedures
8
9
10
11
12
13
14
15
16
16A – Audit committee financial expert
16B – Code of ethics
16C – Principal accountant fees and services
16D – Exemptions from the listing standards
for audit committees
16E – Purchase of equity securities by the issuer
and affiliated purchasers
16F – Change in registrant’s certifying accountant
16G – Corporate Governance
16H – Mine safety disclosure
Financial statements
Financial statements
Exhibits
17
18
19
Location in this document
Directors’ Report: Major institutional shareholders
Shareholder information: Shareholder profiles
Group Financial Statements: Note 16 – Investment in associates and joint ventures
Group Financial Statements: Note 32 – Related party disclosures
Not applicable
Directors’ Report: Dividends
Group Financial Statements
Group Information: Legal proceedings
Strategic Report: Performance – Other financial information
None
Useful information: Trading markets
Not applicable
Useful information: Trading markets
Not applicable
Not applicable
Not applicable
Not applicable
Group information: Articles of Association
Group information: Rights attaching to shares
Group information: Material contracts
Group 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 24 – Financial risk management
and derivative financial instruments
Not applicable
Not applicable
Not applicable
Group information: Description of securities other than equity securities
Not applicable
Not applicable
Shareholder information: Disclosure controls and procedures
Statement of Directors’ Responsibilities:
Management’s report on internal control over financial reporting
Independent Auditor’s US Report
Corporate Governance: Audit Committee Report
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards – Committees
Directors’ Report: Employees and Code of Conduct
Strategic Report: Our culture, responsible business and stakeholders
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 5 – Auditor’s remuneration paid
to Ernst & Young LLP
Not applicable
Shareholder information: Purchases of equity securities by the Company and
affiliated purchasers
Additional information: Change in certifying accountant
Shareholder information: Summary of significant corporate governance
differences from NYSE listing standards
Not applicable
Not applicable
Group Financial Statements
Additional Information: Exhibits
Page
221
244
174-175
197-198
–
221
132-201
236
72-73
–
250
–
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–
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233-234
235
236
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–
–
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–
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–
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–
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120
128-131
88-91
240
222
24-27
240
91
90
157
–
243
232
240
–
–
132-201
245
IHG | Annual Report and Form 20-F 2019 | Additional Information | Form 20-F cross-reference guide
247
Additional Information
Glossary
ADR
an American Depositary Receipt, being a
receipt evidencing title to an ADS.
ADR Depositary
J.P. Morgan 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 20 340⁄299 pence each of the Company.
AGM
Annual General Meeting of InterContinental
Hotels Group PLC.
Annual Report
the Annual Report and Form 20-F in relation
to the years ending 31 December 2018 or
2019 as relevant.
APP
Annual Performance Plan.
Articles
the Articles of Association of the Company
for the time being in force.
average daily rate
rooms revenue divided by the number of
room nights sold.
basic earnings per ordinary share
profit available for IHG equity holders
divided by the weighted average number of
ordinary shares in issue during the year.
Board
the Board of Directors of InterContinental
Hotels Group PLC.
capital expenditure
purchases of property, plant and equipment,
intangible assets, associate and joint venture
investments, and other financial assets.
Captive
the Group’s captive insurance company,
SCH Insurance Company.
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
2018 by the Financial Reporting Council in
the UK.
Colleague
individuals who work at IHG corporate
offices, reservation centres, managed,
owned, leased, managed lease and
franchised hotels collectively.
Companies Act
the Companies Act 2006, as amended from
time to time.
Company or Parent Company
InterContinental Hotels Group PLC.
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.
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 prior-year value translated using the
current year’s average exchange rates.
contingencies
liabilities that are contingent upon the
occurrence of one or more uncertain future
events.
continuing operations
operations not classified as discontinued.
currency swap
an exchange of a deposit and a borrowing,
each denominated in a different currency,
for an agreed period of time.
Deferred Compensation Plan
the Defined Contribution Deferred
Compensation Plan.
derivatives
financial instruments used to reduce risk, the
price of which is derived from an underlying
asset, index or rate.
direct channels
methods of booking hotel rooms (both
digital and voice) not involving third-party
intermediaries.
Director
a Director of InterContinental Hotels Group
PLC.
DR Policy
Directors’ Remuneration Policy.
EBITDA
earnings excluding exceptional items and
the impact of the System Fund, before
interest, tax, depreciation and amortisation.
EMEAA
Europe, Middle East, Asia and Africa.
Employee
individuals directly employed at IHG
corporate offices, reservation centres
and managed, owned, leased, managed
lease hotels.
Employee Engagement survey
our bi-annual survey, known as Colleague
HeartBeat, completed by IHG employees
only.
ERG
employee resource group.
EU
the European Union.
euro or €
the currency of the European Economic and
Monetary Union.
exceptional items
items that are disclosed separately because
of their size or nature.
extended-stay
hotels designed for guests staying for
periods of time longer than a few nights and
tending to have a higher proportion of suites
than normal hotels (Staybridge Suites and
Candlewood Suites).
fee business
IHG’s franchise and managed businesses
combined.
fee margin or fee-based margin
fee margin is calculated by dividing ‘fee
operating profit’ by ‘fee revenue’. Fee
revenue and fee operating profits are
calculated from revenue from reportable
segments and operating profit from
reportable segments, adjusted to exclude
the revenue and operating profit from the
Groups owned, leased and managed lease
hotels and significant liquidated damages. In
addition, revenue and expenses related to
certain other Group programs which are run
to no profit or loss over the long-term are
excluded. Fee margin is presented at actual
exchange rates.
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.
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, leased
and managed lease hotels, including room
nights, food and beverage sales.
IASB
International Accounting Standards Board.
248
IHG | Annual Report and Form 20-F 2019
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, leased and managed lease hotels.
Other than owned, leased and managed
lease hotels, it is not revenue wholly
attributable to IHG, as it is mainly derived
from hotels owned by third parties.
Total Shareholder Return or TSR
the theoretical growth in value of a
shareholding over a period, by reference to
the beginning and ending share price, and
assuming that dividends, including special
dividends, are reinvested to purchase
additional units of the equity.
UK
the United Kingdom.
UK GAAP
United Kingdom Generally Accepted
Accounting Practice.
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.
workforce
IHG employees.
working capital
the sum of inventories, receivables and
payables of a trading nature, excluding
financing and taxation items.
IFRS
International Financial Reporting Standards
as adopted by the EU and issued by the
IASB.
IHG PLC
InterContinental Hotels Group PLC.
indirect channels
online travel intermediaries and business
and leisure travel agents.
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.
loyalty rooms contribution
the average percentage of total occupied
rooms attributable to IHG Rewards Club
members who either pay for guest rooms
and are awarded IHG Reward Club points for
their stay, or redeemed IHG Rewards Club
points to pay for their stay.
LTIP
Long Term Incentive Plan.
managed leases
properties which are held through a lease
but with the same characteristics as
management contracts.
management contract or management
agreement
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
loans and other borrowings, lease liabilities,
the exchange element of the fair value of
derivatives hedging debt values, less cash
and cash equivalents.
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 14194⁄329 pence each in the
Company; from 1 July 2014, the ordinary
shares of 15265⁄329 pence each in the
Company; from 9 May 2016 the ordinary
shares of 18318⁄329 pence each in the
Company; from 8 May 2017 the ordinary
shares of 1917⁄21 pence each in the Company;
and from 14 January 2019 the ordinary shares
of 20340⁄399 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.
reimbursable revenues
reimbursements from managed and
franchised hotels for costs incurred by IHG,
for example the cost of IHG employees
working in managed hotels. The related
revenues and costs are presented gross in
the Group income statement and there is no
impact to profit.
revenue management
the employment of pricing and segment
strategies to optimise the revenue generated
from the sale of room nights.
revenue per available room or RevPAR
rooms revenue divided by the number of
room nights that are available (can be
mathematically derived from occupancy rate
multiplied by average daily rate).
room count
number of rooms franchised, managed,
owned, leased or managed lease 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, leased and managed lease 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.
IHG | Annual Report and Form 20-F 2019 | Additional Information | Glossary
249
Additional Information
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 2019 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 2020 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.
Share dealing services
Equiniti offers the following share-dealing facilities.
Postal dealing
0371 384 2132 from the UK
+44 121 415 7034 from overseasa
Telephone dealing
For more information, call 0345 603 7037b
+44 121 415 7560 from overseas
Internet dealing
Visit www.shareview.co.uk for more information.
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 the opposite page).
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
Responsible Business Targets.
Changes to the base cost of IHG shares
Details of all the changes to the base cost of IHG shares held from
April 2004 to January 2019, for UK Capital Gains Tax purposes, may
be found on our website at www.ihgplc.com/investors under
Shareholder centre in the Tax information section.
‘Gone away’ shareholders
Working with ProSearch (an asset reunification company), we
continue to look for shareholders who have not kept their contact
details up to date. We have funds waiting to be claimed and are
committed to doing what we can to pay these to their rightful
owners. Please contact ProSearch on +44 (0) 800 612 8671 or email
info@prosearchassets.com for further details.
Visit www.ihgplc.com/responsible-business
for details.
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 2132.
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 opposite).
Overseas payment service
It is also possible for shareholders to have their dividends paid
directly to their bank accounts in a local currency. Charges are
payable for this service.
Go to www.shareview.co.uk/info/ops
for further information.
Out-of-date/unclaimed dividends
If you think that you have out-of-date dividend cheques or
unclaimed dividend payments, please contact our Registrar
(see the opposite page).
Individual Savings Account (ISA)
Equiniti offers a Stocks and Shares ISA that can invest in IHG shares.
For further information, please contact Equiniti on 0345 300 0430a.
250
IHG | Annual Report and Form 20-F 2019
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.
Trading markets
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 J.P. Morgan Chase Bank, N.A., as ADR Depositary.
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 J.P. Morgan Chase Bank, N.A., our ADR
Depositary bank (contact details shown on the opposite page).
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 SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically and 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 08:30 to 17:30 Monday to Friday, excluding UK public holidays.
b Lines are open from 08:00 to 16:30 Monday to Friday, excluding UK public holidays.
Financial calendars
Dividends
2019 Interim dividend of 32.0p per share
(39.9¢ per ADR)
Payment date
3 October
2019
Other dates
Financial year end
2019
31 December
2020
2019 Final dividend of 85.9¢ per ordinary share
Ex-dividend date
Record date
Payment date
2020
2 April
3 April
14 May
Announcement of Preliminary Results for 2019
18 February
Announcement of 2020 First Quarter Interim
Management Statement
Annual General Meeting
7 May
7 May
Announcement of Half-Year Results for 2020
11 August
Announcement of 2020 Third Quarter Interim
Management Statement
Financial year end
23 October
31 December
2021
Announcement of Preliminary Results for 2020
February
a The sterling amount of the final dividend will be announced on 24 April 2020 using the average of the daily exchange rates from 21 April 2020 to 23 April 2020 inclusive.
Contacts
Registered office
Broadwater Park, Denham, Buckinghamshire, UB9 5HR,
United Kingdom
Telephone:
+44 (0) 1895 512 000
www.ihgplc.com
Auditor
Ernst & Young LLP
Investment bankers
BofA Securities
Goldman Sachs
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.
Solicitors
Freshfields Bruckhaus Deringer LLP
Stockbrokers
BofA Securities
Registrar
Equiniti, Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA, United Kingdom
Telephone:
0371 384 2132 (UK calls)
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visit www.ihg.com/rewardsclub or telephone:
+44 (0) 2033 499 033ª (UK and other countries inside Europe and
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0371 384 2255 for UK callers with compatible equipment.
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IHG | Annual Report and Form 20-F 2019 | Additional Information | Useful information
251
Additional Information
Forward-looking statements
The Annual Report and Form 20-F 2019 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 the
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
Chair’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 the 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 or stakeholder
expectations that adversely impact domestic or international travel,
including climate change; the risks of the hotel industry supply-and-
demand cycle; the Group being subject to a competitive and
changing industry; the risks related to executing and realising
benefits from strategic transactions, including acquisitions and
restructuring; 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 existing brands and exposure to inherent reputation
risks; the Group’s exposure to risks associated with its intellectual
property; the Group’s reliance upon its reservation system and other
key technology platforms, and the risks that could disrupt the
operation and/or integrity of these systems; the risks associated with
safety, security and crisis management; the Group’s requirement of
the right people, skills and capability to manage growth and change;
the risks associated with collective bargaining activity which could
disrupt operations, increase labour costs or interfere with the ability
of management to focus on executing business strategies; the risk of
litigation; the risks related to cybersecurity and data privacy; the
requirement to comply with existing and changing regulations and
societal expectations across numerous countries, territories and
jurisdictions; the risks associated with insuring the Group’s business;
the risks of uncertainties associated with brand development and
expansion; the Group’s exposure to an impairment of the carrying
value of its brands, goodwill or other tangible and intangible assets
negatively affecting its consolidated operating results; the Group’s
exposure to fluctuations in exchange rates, currency devaluations or
restructuring and to interest rate risk in relation to its borrowings; the
Group’s operations being dependent on maintaining sufficient
liquidity to meet all foreseeable medium-term requirements and
provide headroom against unforeseen obligations; the risks
associated with credit risk on treasury transactions; the risk
associated with foreign or U.S. environmental laws and regulations
that may cause us to incur substantial costs or subject us to potential
liabilities; the risks associated with the Group’s financial stability and
its ability to borrow and satisfy debt covenants and the risks that the
Group’s financial performance may be affected by changes in
tax laws.
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 2019.
252
IHG | Annual Report and Form 20-F 2019
Designed and produced by Superunion, 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
Web www.ihgplc.com
Make a booking at www.ihg.com
IHG is proud of its brand-loyal guests and pleased to give
credit to the number of guests who have shared photos with
us, which are proudly featured (with permission) on the
cover and throughout this Annual Report and Form 20-F.
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