SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20142017

or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-10409

InterContinental Hotels Group PLC

(Exact name of registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

Broadwater Park,

Denham, Buckinghamshire UB9 5HR

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares


Ordinary Shares of 19 17/21 pence each
 

New York Stock Exchange

Ordinary Shares of 15 265/329 pence each

New York Stock Exchange*

 

 

*Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

Ordinary Shares of 1519 26517/32921 pence each 236,117,256189,990,180

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  þ    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:    Yes  ¨    No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filerþ Accelerated filer  ¨  Non-acceleratedAccelerated filer¨ Smaller reporting company  ¨
Non-accelerated filer (Do not check if a smaller reporting company)  Emerging growth company

IndicateIf an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark which financial statement itemif the registrant has elected not to follow:

Item 17 ¨      Item 18 þ

If this is an annual report, indicate by check mark whetheruse the registrant is a shell company (as defined in Rule 12b-2extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act):

Yes            ¨                     No            þAct.  ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

US GAAP  ¨

  

International Reporting Standards as issued by

the International Standards Accounting Board  þ

  Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

 ☐ Item 17       ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes            ☐                     No            ☑

(Applicable only to Issuers involved in bankruptcy proceedings during the past five years).

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

  ☐    Yes      ☐No

 

 

 


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Throughout the world, in almost

100 countries, True Hospitality

is brought to life for everyone

across our brands, every day.

Holiday Inn Express London – Park Royal, UK


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ContentsContents

 

Strategic Report
2IHG at a glance
4Our preferred brands
6Chairman’s statement
86Chief Executive Officer’s review
108Industry overview
1210Our brands
12Our business model
14Our strategy for high-quality growth
16WinningOur Strategic Model in action
18Targeted PortfolioDoing business responsibly
20Our Winning Model and Targeted Portfolio in actionRisk management
22Disciplined ExecutionViability statement
2423Doing business responsiblyKey performance indicators (KPIs)
26Performance
26Risk management
30Key performance indicatorsmeasures (including Non-GAAP measures) used by management
3427PerformanceGroup
32Regional highlights
33Americas
35Europe
37Asia, Middle East and Africa (AMEA)
39Greater China
Governance
46Chairman’s overview
47Corporate Governance
47Our Board and Committee governance structure
48Our Board of Directors
50Our Executive Committee
52Board meetings
53Director induction, training and development
54Chairman’s overviewBoard effectiveness evaluation
55Corporate GovernanceEngagement with shareholders
5756

Who is on our Board of DirectorsAudit Committee Report

60

Who is on our Executive Committee

65

Audit Committee Report

68

Corporate Responsibility Committee Report

6961

Nomination Committee Report

7062

Statement of compliance with the UK Corporate Governance Code

7264Directors’ Report
76Directors’ Remuneration Report
Group Financial Statements
9480Statement of Directors’ Responsibilities
9987Independent Auditor’s US Report
10088Group Financial Statements
10795Accounting policies
114104Notes to the Group Financial Statements
Additional Information
162154Other financial information
160Directors’ Report
164Group information
171173Shareholder information
179181Useful informationExhibits
181182Exhibits
182Form 20-F cross-reference guide
184Glossary
186Useful information
188Forward-looking statements

StrategicReport

The Strategic Report on pages 2 to 5143 was

approved by the Board on 1619 February 20152018.

George Turner, Company Secretary

Dream

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‘Guest Journey’ – Step One

TheDream phase of the ‘Guest Journey’ is one of the most exciting parts of travel for many of our guests as they research, seek inspiration, and dream, about their future trip.

Front cover: EVEN Hotel, Rockville, Maryland, US


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IHG  |  Annual Report and Form 20-F 20142017
IHGataglance1


Strategic Report

 

Our strategy for high-quality growthIHG at a glance

We are one of the world’s leading hotel companies, committed to providing True Hospitality for everyone. This is a simple but powerful purpose, centred on creating great guest experiences and recognising, respecting and understanding people. It extends to our guests, owners, colleagues, partners, and communities all around the world.

Our portfolio of differentiated brands are well-known and loved by millions of people, and we make sure we have the right hotels for both our guests and owners, whatever their needs. We focus on strengthening our established brands and addressing gaps in our portfolio, of preferredon building and differentiated brands, building leveraging our

scale, in key markets, creating a long-lasting relationship with our guestsdeveloping lifetime guest relationships, and delivering revenue to our hotels through the lowest cost,lowest-cost, direct channels. OurAs a manager and franchisor of hotel brands, our proposition to third-party hotel owners is highly competitive and drives superiorhas a track record of delivering returns.

We execute our asset-light strategy in the most attractive, high-growth markets and industry segments. We take a disciplined approach to capital allocation, investing for the To drive future growth,

we focus on building brand preference in quality, high-potential industry segments and geographies. This approach is supported by disciplined processes and targeted allocation of our brands. This enablesresources, enabling us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.

 

Our strategy is detailed on pages 14 to 33.brands

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Financial highlights

Group revenue

$1,784m (+4.0%)

2016: $1,715m

Group operating profit

$763m (+12.5%)

2016: $678m

Group operating profit before exceptional items

$759m (+7.4%)

2016: $707m

Total gross revenue in IHG’s System

$25.7bn (+4.9%)

2016: $24.5bn

Total underlying operating profit growth

$59m (+8.4%)

2016: $61m

Revenue per available room (RevPAR) growth

+2.7%

2016: +1.8%

Underlying fee revenue growth

+5.0%

2016: +4.4%

Use of Non-GAAP measures

In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 154 and 155.Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.

 

2IHG  |  Annual Report and Form 20-F 2017


1. Holiday Inn Suzhou Taihu Lake, China

 

2. HUALUXE Xiamen Haicang, China

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Our business modelscale

 

We predominantly franchise our brands to, and manage hotels on behalf of, third-party hotel owners; our focus is therefore on building preferred brands and strong revenue delivery systems.

 

Franchised:

4,096Total hotels (514,984 rooms)*

2013: 3,977 hotels (502,187 rooms)

Managed:

735 hotels (192,121 rooms)*

2013: 711 hotels (180,724 rooms)

Owned and leased:

9 hotels (3,190 rooms)*

2013: 9 hotels (3,962 rooms)

Our business model is detailed on pages 12 and 13.

Our portfolio of brands is detailed on pages 4 and 5.

Our revenue delivery systems are detailed on pages 17 and 22.

Hotels(rooms) in the IHG System pay IHG:

5,348

• management and/or franchise fees; and(798,075)

• assessments and contributions which are collected for specific use within the System Fund (this does not result in profit or loss for IHG).

Information on the System Fund is detailed on page 49.

Group highlights*

2016: 5,174 (767,135)

 

+6%: $23bnFranchised hotels (rooms)

Total gross revenue in IHG’s System (2013: $21.6bn)4,433

Group Revenue down 2% to $1,858m (2013 : $1,903m§)(552,834)

2016: 4,321 (542,650)

 

-3%: $651mManaged hotels (rooms)

Total operating profit before exceptional items (2013: $668m§)907

(242,883)

2016: 845 (222,073)

 

+10%: 77¢ (48.6p)

2014 Full-year dividend (2013: 70.0¢ (43.2p))

+6.1%

Revenue per available room**(2013: +3.8%)

710,295 rooms (4,840 hotels) operating in the IHG System

+7%

Fee revenue††(2013: + 4%). Driven by 6.1% (2013: 3.8%) of RevPAR growth and 3.4% (2013: 1.6%) net IHG System size growth

Our global and regional performance is set out on pages 34 to 51.

*   Unless otherwise stated, all facts and figures as at 31 December 2014.

   This comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributed to IHG.

   Includes two liquidated damages receipts in 2014: $7m, both in The Americas.

§   Includes three liquidated damages receipts in 2013; $31m in The Americas, $9m in Europe and $6m in AMEA.

   Subject to shareholder approval of 2014 final dividend.

**   Total IHG System rooms revenue divided by the number of room nights available.

††  Group revenue excluding ownedOwned and leased hotels managed leases and significant liquidated damages. Growth stated at constant currency.(rooms)

8

(2,358)

2016: 8 (2,412)

Total hotels (rooms) in the pipeline

1,655

(244,146)

2016: 1,470 (230,076)

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2IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  IHG at a glance3


Strategic Report

Chairman’s statement

Our ability to deliver on our proven strategy,

focused on guests and owners, laid the foundation

for further high-quality growth in 2017, in what was

another year of shifting dynamics within the global

hospitality sector.

    

    

    

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WherePatrick Cescau

Chairman

Final dividend

71.0¢

to be paid on 11 May 2018

(2016: 64.0 ¢)

Consumer expectations continue to evolve, supported by ever-increasing choice and the integration of sophisticated technology into the guest journey, which has transformed how people choose, experience and share products and brands. When you combine this changing landscape with an evolving global economic, political and societal backdrop, it has never been more important for businesses to embrace change whilst protecting what is core to their purpose and ambition.

The global economy continued to improve in 2017, led by Europe and Asia, and we operatesaw encouraging signs of positive growth prospects for the year ahead, including the decision to cut corporate tax in the US towards the end of the year. On the other hand, in many markets political volatility and instability continued, and we saw the devastating impact of terror attacks and a series of natural disasters in certain parts of the world.

We operateAs a global business operating in nearly 100 countries, globally.we have considerable experience of managing our business through volatility. Whatever external challenges we

may face, our focus remains on delivering consistent, quality brands and experiences that meet guest needs and build loyalty. This commitment to quality extends to how we grow our business too, and we take a targeted approach, ensuring that we commit resources against the most attractive segments, and work with owners who share our values.

The Board has an important responsibility to ensure that we maintain our discipline and strategic direction, whilst at the same time remaining as agile and dynamic as possible. This approach and consistent execution of our strategy will continue to be central to maintaining IHG’s long track record of delivering high-quality, sustainable growth for our stakeholders.

CEO succession

In 2017, we said goodbye to Richard Solomons, following his decision to retire as Chief Executive Officer (CEO) in June, after 25 years with the business and six as CEO. I would like to thank Richard for his outstanding leadership, which helped IHG become the leading global organisation it is today, with a track record of creating exceptional shareholder value.

We place an ongoing high importance on succession planning and talent development, and the appointment of Keith Barr as CEO was the result of a rigorous evaluation. With significant industry experience and an excellent track record in the business, having already transformed our Greater China operations and more recently led our sales and marketing function, the Board was unanimous in its assessment that Keith was the best candidate for the job. Following a smooth transition into the role, Keith is instilling great energy and passion in the business, and has moved decisively to introduce changes designed to accelerate IHG’s growth, with the full support of the Board. The foundation for these changes has been laid over several years, successfully completing our major asset-disposal programme and subsequently focusing on building a powerful global enterprise for our fee-based business. As our industry becomes more competitive, ensuring that we are now best set-up to maximise the potential of our strategy is crucially important, and will allow us to deliver increased value and returns for our shareholders over the long term.

4IHG  |  Annual Report and Form 20-F 2017


1. InterContinental Los Angeles Downtown, California, US

2. IHG Academy programme at InterContinental Singapore

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Full-year dividend

Five-year progress (¢)

 

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Final dividend

71.0¢ to be paid on 11 May 2018

(2016: 64.0¢)

Supporting Keith with this work will be a key priority for the Board in 2018, alongside ensuring there is a continued strong focus on risk management and operational delivery.

Board composition and talent

Effectively challenging and supporting the business in its corporate decision making is a role the Board takes seriously, and we place high importance on making sure there is the right mix of expertise, skills and diversity that befits a global organisation. We focus on ensuring our actions and processes are effective, that we regularly review training for individual Board members and that we seek external consultation regarding areas for improvement. In 2017, we were proud to be recognised by the independent Hampton-Alexander Review as one of the top 10 FTSE 100-listed companies for female representation across our Board, as well as our Executive Committee and their direct reports.

Building a business and culture that is representative of the markets in which we operate is an important factor in ensuring that, both as an organisation and as individuals, the actions we take to serve multiple stakeholders meet IHG’s strong values.

At the end of 2017, the Board comprised seven Non-Executive Directors, myself as Chairman, and two Executive Directors. In addition to Keith’s appointment, we were delighted that, effective 1 January 2018, Elie Maalouf, IHG’s Chief Executive Officer for the Americas, joined the Board as an Executive Director. Elie is an excellent addition and offers substantial and highly relevant commercial and hotel development, branding, finance, real estate and operations experience across multiple industries.

Shareholder returns

I am pleased to announce that the Board is recommending a final dividend of 71.0 cents per ordinary share, an increase of 10.9% on the final dividend for 2016. This results in a full-year dividend of 104.0 cents per share, up 10.6% on 2016.

Doing business responsibly

I spent time in different parts of our business during the year, once again seeing first-hand the great work of colleagues in our hotels, visiting impressive new properties such as our InterContinental® and Hotel Indigo® hotels in downtown Los Angeles, and also meeting owners, representatives of the IHG Owners Association, and shareholders.

When visiting parts of our company, one element I am particularly proud of is our truly global commitment to being a responsible business. I have seen this through the everyday behaviours of our colleagues, through the work the IHG® Foundation does to support people and communities when they need it most, and through our corporate responsibility programmes. Thousands of people have gained valuable skills and employment experience in our industry through our IHG® Academy programme, while our IHG Green Engage™ system continues to help hotels effectively reduce things like carbon, water and energy use. In recognition of our actions, we were extremely proud to be ranked first in our industry on the S&P Dow Jones Sustainability World Index in 2017. We enter this year with new three-year responsible business targets, aligned to the areas where we can have the greatest positive impact.

I would like to sincerely thank all colleagues for their work in what has been another year of strong progress, and our owners for their continued confidence in IHG and our brands.

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Patrick Cescau

Chairman

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Chairman’s statement5


Strategic Report

Chief Executive Officer’s review

Having worked in the hospitality industry for almost three decades, including nearly 18 years at IHG, it was a great honour to become CEO in 2017. With the support of our owners and hugely talented colleagues, I have worked all around the world helping IHG and our brands grow.

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Keith Barr

Chief Executive Officer

Key highlights

Total room signings

83,000

The highest number since 2008

Launch of avid hotels

$20bn

Market opportunity

Total room openings

48,000

The highest number since 2009

As a company, we are extremely grateful to my predecessor, Richard Solomons, whose legacy is a strong business, with a proven strategy built to deliver long-term sustainable growth.

Since my appointment in July, I have been clear that the right foundations for success have been carefully put in place, and that we must now build on this and execute our strategy at a faster pace, in order to deliver industry-leading net rooms growth over the medium term. Important changes to our structure and how we operate are underway, and with greater focus and agility we will deliver more for our owners and guests.

In 2017, we delivered another year of consistent, high-quality growth and strong financial and operational performance. We continued to expand and invest in our brands, entering exciting markets and introducing our newest brand, avid™ hotels. We also further enhanced our IHG® Rewards Club loyalty programme with new partnerships and benefits, and made important progress

with our next generation Guest Reservation System (GRS). Following successful hotel pilots, GRS will roll out in 2018 as part of IHG Concerto™, our new cloud-based platform, which over time will seamlessly bring together all our hotels’ core systems.

Financial and operational highlights

We delivered strong underlying profit growth and opened our highest number of hotels since 2009, including the most ever in both AMEA and Greater China. We finished the year with 5,348 properties in our portfolio and, supported by positive industry trends such as low-cost travel and growing middle classes, demand for our brands remains healthy. We are focused on targeting segments and markets with the greatest opportunities, and we made great progress in the year, signing our highest number of hotels since 2008. Underlining our organic growth potential, we closed 2017 with a pipeline of 244,146 rooms, which represents a 13% share of the active industry pipeline and is three times our share of current supply.

Brands

In a world where consumers and our hotel owners have more choice, it has never been more important to focus on ensuring our brands are competitive and that we have a portfolio tailored to the highest growth markets and segments. IHG has a proud history of leading the way in service, design, technology and marketing, and we continue to ensure our actions are based on insights that deliver rich, relevant guest experiences and compelling propositions for our owners.

At the heart of our growth are our Holiday Inn® and Holiday Inn Express® brands, and working with our owners, we continued to introduce new services and vibrant designs that are increasing guest satisfaction scores and revenues. Holiday Inn Express has also been at the centre of our very successful Franchise Plus business model in Greater China, leading to the signing of 54 hotels in 2017. Due to its strong performance, we took the important step of extending our leading franchise offer to our Holiday Inn and Crowne Plaza® brands, which will help drive further growth in the region.

6IHG  |  Annual Report and Form 20-F 2017


1. Artist’s impression of avid brand hotel exterior

2. Holiday Inn Express Shanghai Puijang, China

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“The right foundations for success have been carefully put in place, and we must now build on this and execute our strategy at a faster pace.”

The launch of avid hotels was another significant milestone and represents a huge opportunity. Building on our long-standing successful track record in the Mainstream space, this brand will bring much-needed consistency and quality to a segment of 14 million people, worth an estimated $20 billion in industry revenues. Since launching in September, we’ve seen significant owner interest, closing the year with 44 properties signed and one already under construction. In the first six weeks of 2018, signings further increased to 75 hotels.

Equally exciting as launching new brands, is taking others into new markets, and we made important progress in 2017 with the introduction of Kimpton® Hotels & Restaurants in China and Asia, and EVEN® Hotels into China and Australasia.

Making sure we have the right brands in markets and segments with the highest potential will remain a key focus for us. As part of this, we will be launching an Upscale conversion brand in 2018, leveraging the power of our system to capture share of this significant premium-priced market.

Technology

The role of technology increases in importance every year, from how we use and manage data, to the systems in place to support our hotels, and our IHG App, which both enhances guest experiences and serves as a key revenue driver. Digital revenue in 2017 was $4.6 billion, including more than $2 billion of mobile revenues, which have more than doubled over three years.

Another important area of technology is the development of IHG Concerto, which puts IHG at the very forefront of our industry and provides a major competitive advantage (see page 17 for more details). Hotel colleagues will have everything at their fingertips to provide more personal touches and manage reservations and revenues, and over time, guests will benefit from an unrivalled tailored booking experience. This is a long-term programme, which will see increasingly sophisticated functionality added in phases.

Accelerating growth

I strongly believe that our strategy remains the right one for IHG and our stakeholders, but moving with speed and focus is important when operating in an industry with both increasing opportunity as well as competition. To accelerate our growth, we will sharpen our focus on scale and how we invest resources in the highest opportunity markets and segments. We will also strengthen our brand portfolio and loyalty offer, enhance our marketing, and prioritise digital and technological innovations that drive hotel performance and stronger owner returns.

Our plans rely on the support of our passionate colleagues, who shape and deliver outstanding guest experiences every day, and our owners, whose trust in IHG and our brands remains paramount to our success. Linking us all is a commitment to a shared purpose of providing True Hospitality for everyone – guests, owners, colleagues and partners. This is a simple but powerful culture centred on recognising, respecting and understanding people, and making everyone feel welcome and cared for, wherever they are in the world.

Testament to everyone’s efforts are the hundreds of awards once again received during the year. In particular, we were very proud to see IHG recognised as an Aon Global Best Employer, based on our excellent employee engagement scores.

I would like to thank everyone who helped make 2017 another great success for IHG and I look to 2018 with much optimism for another strong performance.

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Keith Barr

Chief Executive Officer

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Chief Executive Officer’s review7


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8                  IHG  |  Annual Report and Form 20-F 2017


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IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Industry overview                  9


Strategic Report

Our brands

IHG is a brands business built on a commitment to

providing True Hospitality for everyone. Through our family

of well-loved and distinctive brands, our talented colleagues

deliver memorable guest experiences all around the world,

every day, and we are trusted for rewarding loyalty.

Continuing to evolve with changing consumer trends, we strengthened our brands with enhanced services and new designs in 2017, and expanded further into both new and existing markets. It was also the year we launched our newest brand, avid™ hotels.

We plan to launch an Upscale conversion brand in 2018, which leverages the power of IHG’s system to capture share of this significant premium priced market. The brand will initially launch in our new EMEAA region and will subsequently be extended to our Americas and Greater China regions.

LOGOSee page 29 for a breakdown of IHG hotels open and in the pipeline.
LOGOFor more information on our brands visitwww.ihgplc.com/our-brands

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Live the InterContinental life

The world’s first, and largest, Luxury hotel brand, dedicated to those who appreciate and enjoy the InterContinental life. Offering the glamour and exhilaration of fascinating places, we provide our guests with a blend of international know-how and local cultural wisdom.

A different way to stay

Kimpton is a brand renowned for making travellers feel genuinely cared for through thoughtful perks, inventive meetings and events, bold and playful design, and sincerely personal service. Having brought boutique to the US, we are now taking Kimpton global.

Capturing the spirit of Chinese hospitality

The first Upscale international hotel brand designed for Chinese guests. Every detail of service and design is woven with Chinese culture and heritage, emphasising values of etiquette, rejuvenation in nature, recognition of status and enabling spaces.

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Making travel inspiring

Hotel Indigo serves the curious; people with a passion for new places. Making travel inspiring in the world’s most intriguing neighbourhoods, each hotel reflects the local area, combining thoughtful design and personal service to create authentic experiences.

Where wellness is built in

For travellers seeking a healthier and happier stay when away from home, EVEN Hotels and its wellness-savvy staff give guests a best-in-class fitness experience, nutritious food choices, and natural, relaxing spaces.

Making business travel work

Championing a better way of business travel, Crowne Plaza understands that today’s business travellers need to combine the flexibility to work, eat and connect with others, with the opportunity to simply relax whenever and wherever it suits.

10IHG  |  Annual Report and Form 20-F 2017


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Joy of travel for all

An iconic brand, Holiday Inn has championed enjoyable travel for millions of guests since 1952. Today we have more new and refreshed hotels than ever before, and our guests’ love for the brand continues to grow right across the globe.

Simple, smart travel

IHG’s largest brand has blazed a trail in defining a simple and smart travel experience, evolving guest room and public space designs to offer inviting, efficient hotels all over the world.

Feel at ease when you stay with us

At Staybridge Suites we offer a sense of community, comfort and convenience for guests, providing the best of home and hotel for business and leisure travellers alike.

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The joy of lifetime vacations

For families investing in a lifetime of memories, we offer exceptional villa accommodation in top leisure destinations, with easy access to world-class attractions such as mountain adventures, championship golf courses and serene beaches.

The joy of family holidays

We want families to experience the joy of great holidays. On the beach, or near theme parks and golf courses, we offer a variety of activities from kids’ clubs and swimming pools, to informal restaurants and fireside lounges.

Your home base

Offering a more casual kind of longer stay, guests always feel at home and at their best while on the road. With hotels in easily accessible locations, guests can book whenever and wherever it works for them.

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Where the rest is easy

Championing everyday travel at a fair price, Our avid hotels brand is designed for guests who don’t want to compromise on quality or pay more for things they don’t need. Delivering the essentials exceptionally well, avid experiences feel just right, every time.

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Creating relevant,

rewarding relationships

Relationships are important to us and we have more than 100 million enrolled IHG Rewards Club members worldwide. Offering industry-leading benefits across our brands, we ensure travel is experienced the way it should be: personal, simple and rewarding.

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For more information on our rewards club visitwww.ihgplc.com/our-brands under Rewards Club.

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our brands11


Strategic Report

Our business model

As an asset-light business, we are a manager and

franchisor of hotel brands. This means we can focus on

growing our fee revenues and fee margins, with limited

requirements for capital. It’s an approach that’s helped us

successfully grow our business and deliver high returns.

Whether we franchise to, or manage hotels on behalf of third-party hotel owners depends largely on market maturity, owner preference and, in certain cases, the particular brand.

Mature markets predominantly follow a franchise model:

In the Americas and Europe, over 90% of IHG hotels are franchised.

While a managed model is typically used in emerging markets:

In AMEA, about 80% of IHG hotels are managed by us.

In Greater China, that figure rises to more than 97%.

Our owned, leased and managed leased hotels have dramatically reduced from over 180 hotels 16 years ago, to just 12 hotels at 31 December 2017.

% of our operating profit before central overheads

LOGO

LOGODefinition: System Fund orFundAssessment fees and contributions collected from hotels within the IHG System which fund activities that drive revenue to our hotels including marketing, the IHG Rewards Club loyalty programme and our distribution channels.

IHG revenue and the System Fund

LOGO

12IHG  |  Annual Report and Form 20-F 2017


Disciplined approach to allocation of capital

Our business is highly cash generative (see page 43), and our focus on our brands and revenue systems is underpinned by a disciplined long-term approach to allocated capital and maintaining an asset-light business model. We have an efficient balance sheet and seek to maintain an investment grade credit rating. Our priorities for the use of free cash are consistent with previous years and comprise of:

 

LOGO

 

    

LOGO

 

    

LOGO

 

1.

 

Invest in

the business

 

  2.  

Maintain sustainable

growth in the ordinary dividend

 

  3.  

Return

surplus funds

 

         

Through strategic investments and our day-to-day capital expenditures we continue to drive growth – see table below, and page 105 for further details of our capital expenditure in 2017.We continue our focus on growing the ordinary dividend, which has seen compound annual growth of 11% since 2003.In May 2017 we returned a further $404 million to shareholders via a special dividend and share consolidation. Over the last 15 years we have returned $13.0 billion to shareholders.

IHG’s outlook on capital expenditure

Capital expenditure incurred by IHG can be summarised as follows.

Capital expenditure

Examples

Maintenance capital expenditure, key money and selective investment to access strategic growth

Deployment of key money and selective investment which is used to access strategic

opportunities, particularly in high-quality and sought-after locations when returns are financially and/or strategically attractive.

Corporate infrastructure maintenance – for example, in respect of our offices and systems.

Maintenance of our owned and leased hotels, which is now reducing as we have become

increasingly asset-light.

Recyclable investments to drive the

growth of our brands and our expansion

in priority markets

Through the acquisition of real estate, investment through joint ventures or via equity capital.

We aim to recycle this capital by selling these investments when the time is right and

to reinvest elsewhere in the business and across our portfolio, as we are currently doing

for our EVEN Hotels brand.

System-Funded capital investments

for strategic investment to drive growth

at hotel level

The development of tools and systems that hotels use to drive performance, such as our new, pioneering Guest Reservation System developed with Amadeus.

LOGO

See Chairman’s statement for progress

on dividends, page 5.

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our business model13


Strategic Report

Our strategy for high-quality growth

We have a clearly defined strategy which will continue

to drive superior shareholder returns. Our focus is on

delivering high-quality growth, which for us means

consistent, sustained growth in cash flows and profits

over the long term.

Overview of strategy

IHG has an established and successful strategy. Our focus is on unlocking ways to execute this strategy at a faster pace, and accelerate growth. Our Strategic Model sets out our approach and remains central to our commitment to delivering high-quality, sustainable growth in cash flows and profits over the long term.

Through our Strategic Model, we focus on value-creation by building preferred brands, delivering a superior owner proposition, leveraging scale and generating revenue through the lowest-cost, direct channels. We concentrate on a targeted portfolio that, together with disciplined execution of our strategy and a commitment to doing business responsibly, will drive superior shareholder returns.

In an increasingly competitive environment, IHG is well placed to accelerate the growth of our core business, as well as maximise returns on new initiatives. This includes our new brand, avid hotels, launched in 2017, which had 75 hotels in the pipeline as at 9 February 2018 – of which 44 hotels were signed at 31 December 2017 – see page 16 for more information.

LOGOWe measure our performance with a set of carefully selected key performance indicators (KPIs), which monitor our success in achieving our strategy, see pages 23-25 for more details.

LOGO

LOGO

For further information on our strategy, go to

www.ihgplc.com/about-us under Our strategy.

14IHG  |  Annual Report and Form 20-F 2017


Strategic Model

The individual components of IHG’s Strategic Model are

at the heart of our success, and continue to align our

organisation to focus on the most important strategic

initiatives and deliver our commitment to True Hospitality.

This approach helps us create value for our stakeholders

and deliver high-quality growth for our shareholders.

Build and leverage scaleLOGO

Scale provides significant advantages in the hospitality industry at both global and national level. IHG uses the breadth of its portfolio combined with our depth in attractive markets and focus on the highest opportunity segments, to drive significant efficiencies, leading to increased operating leverage and ultimately higher margins.

LOGO

To see how we build and leverage scale, go to:

  Expanding our Upscale and Luxury portfolio on page 32

Strengthen loyalty programmeLOGO

Having an attractive, differentiated loyalty offering tailored to our guests’ needs is critical to IHG’s continuing success. We are continually innovating IHG Rewards Club to build lifetime relationships with our guests. This creates a sustainable long-term revenue source and transforms previously unaffiliated travellers into powerful advocates for our brands.

LOGO

To see how we strengthen our loyalty programme, go to:

  Driving digital growth on page 17

Enhance revenue deliveryLOGO

By striving to drive business through our direct channels, IHG maximises returns for our owners as these channels are less costly than alternatives such as third-party intermediaries. Digital and technological innovation, alongside strong brands and compelling loyalty, is key in ensuring IHG continues to manage revenue delivery effectively.

LOGO

To see how we enhance revenue delivery, go to:

  IHG Concerto on page 17

  Driving digital growth on page 17

Evolve owner propositionLOGO

Within our asset-light business model, maintaining positive relationships with long-standing owners and constantly forging new owner relationships is vital for IHG. Our outstanding operational support, preferred brands, industry-leading franchise offer and continued investment in innovation delivers a compelling owner proposition and strong returns.

LOGO

To see how we evolve our owner proposition, go to:

  Franchise Plus in Greater China, on page 32

Optimise our preferred portfolio of brands for owners and guestsLOGOAs competition intensifies, distribution channels proliferate and consumers become more demanding, actively building a strong portfolio of distinctive, preferred brands for both our owners and guests, is fundamental to IHG’s success and future growth.LOGO

To see how we are optimising our portfolio of preferred brands, go to:

  avid hotels on page 16

  Crowne Plaza Accelerate programme on page 32

  Transforming Holiday Inn brand family on page 32

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our strategy for high-quality growth15


LOGO

16                  IHG  |  Annual Report and Form 20-F 2017


LOGO

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Our Strategic Model in action                  17


Strategic Report

Doing business responsibly

Our focus on responsible business is part of

everything we do at IHG, helping create a diverse

and inclusive culture that embodies our commitment

to provide True Hospitality for everyone.

In a fast-changing world, building trust with guests, colleagues and other stakeholders, living our core values and having a positive impact on society and the environment is more important than ever to IHG’s long-term success. Our people, policies and corporate responsibility programmes bear testimony to a culture of responsible business that is deep-rooted and embedded in our strategy, including:

Strong governance and leadership, which promotes a culture of responsible business attitudes and behaviours.

Ensuring our employees understand key legal and reputational issues and our Winning Ways.

Ensuring the safety and security of employees, guests and other visitors to our hotels and offices.

Operating effective risk management and internal controls.

Engaging in responsible procurement.

We have comprehensive Group-wide policies and approaches on key responsible business issues. These are set out in our Code of Conduct and include Human Rights and Modern Slavery, Bribery and Financial Crime, Environment, Community Activities and Diversity and Inclusion. We regularly review our policies to ensure we align with best practice.

IHG® Foundation

From skills in hospitality to helping communities prepare for disasters, the IHG Foundation, an independent charity, helps make our world a more hospitable place. In support, IHG colleagues participate in fundraising and volunteering activities every year.

LOGO

To find out more about

the IHG Foundation visit

www.ihgfoundation.org

Our targets

Following the conclusion of our five-year targets, in March 2018 we launch new three-year IHG Responsible Business targets in the four areas where we can have the greatest impact: Environmental sustainability; Community impact; Our people and Responsible procurement.

These targets and our approach to responsible business help us contribute to the objectives of the United Nations Sustainable Development Goals (SDGs).

LOGOSee page 60 for more information on our 2013-2017 performance, and how the Corporate Responsibility Committee have considered Environmental, Social, Community and Human Rights issues during 2017.

LOGO

See our IHG Responsible Business Report

for information about our new targets

www.ihgplc.com/responsible-business

Our Winning Ways

The set of behaviours that define how we interact with our guests and colleagues, are embedded in the way we work, and are a vital component of our culture.

LOGO

Diversity and inclusion

At IHG, diversity is embedded in our culture. We understand that differing backgrounds and perspectives create a more dynamic and inclusive environment. Our global diversity and inclusion strategy seeks to ensure diversity in our management teams and wider workforce, and recognises the importance of our business representing the communities in which we operate.

In 2017, the Hampton-Alexander Review listed IHG in the top 10 of FTSE 100-listed companies for female representation across our Board, the Executive Committee and its direct reports.

We have also achieved a perfect score on the Human Rights Campaign’s annual Corporate Equality Index in the US for four years in a row, making IHG a best place to work for lesbian, gay, bisexual and transgender (LGBTQ) workplace equality.

As at 31 December 2017   Male    Female    Total
Directors  6    4   10
Executive Committee  8    2   10

Executive Committee

Direct Reports

  37    26   63
Senior Managersa  100    38   138

All employees

(whose costs were borne by the Group or the Systems Fund)

  5,184    7,029   12,213

 

a  Including directors of subsidiaries.

LOGOFor more information on our Diversity and Inclusion Policy and strategy see pages 61 and 66.

Attracting talent

To attract and retain the best talent, we invest in our people and support them in developing their careers, rewarding and recognising their contribution, whilst ensuring diversity across the workforce.

In 2017, we introduced ‘Apply on the Go’, which simplifies the hiring process by enabling candidates to apply for roles using a mobile device.

Continuous learning

We know that great service can turn an ordinary stay into an extraordinary one. The IHG® True Hospitality Service Skills training ensures colleagues consistently meet our guests’ needs. So far more than 150,000 colleagues in 90 countries from more than 3,500 hotels have completed the programme.

In 2017, we completed the global rollout of our General Manager (GM) Learning Programme via our online platform, Fuse. Fuse brings our GMs together in an online community to share best practice, seek advice and complete professional development courses.

18IHG  |  Annual Report and Form 20-F 2017


Colleague engagement

We recognise great service during our annual Celebrate Service Week. The 2017 campaign saw over 1,300 inspiring stories of True Hospitality shared and over 1,200 social media posts using #IHGCelebrateService and #TrueHospitality.

Employee engagement is measured through our bi-annual survey, Colleague HeartBeat powered by Aon Hewitt. Corporate, managed hotel and customer reservations office employees take part. In 2017 a revised survey delivered record-breaking participation of 97%, earning IHG recognition from Aon Hewitt as a Best Employer, benchmarked against industry scores.

Human rights

Our training and awareness programme focuses on those areas of human rights that are most relevant to our business. Our human rights policy has been translated into more than 40 languages and, to ensure our values are consistently reflected, we require all IHG branded hotels to adopt and display a human rights policy. We also have in place an e-learning module on Human Rights and Modern Slavery, which has been completed by 40,000 colleagues to date.

Anti-corruption and anti-bribery

We are committed to operating with integrity and complying with all relevant laws, including all applicable anti-corruption legislation. IHG has a zero-tolerance approach to bribery and corruption; a position clearly set out in our Code of Conduct, Anti-Bribery and Gifts and Entertainment policies which apply to all

IHG employees and Directors, and our managed hotels. In 2017, all Board and Executive Committee members completed the latest anti-bribery e-learning module, along with more than 30,000 colleagues.

Responsible procurement and due diligence

In 2015, we launched an automated procurement system across many of our large corporate offices. This helps our central procurement team manage our supply chain, and we continue to increase corporate spend through the system. Onboarded suppliers are required to complete due diligence questionnaires covering responsible business and human rights. We have piloted a new supplier assessment and audit programme, using third-party risk assessment providers, which will be developed further in 2018.

We also carry out due diligence and compliance checks on all new parties we enter into hotel agreements with. A central committee considers and reviews any issues identified, including bribery and corruption and human rights.

Environmental sustainability

The IHG Green Engage™ system is our Group-wide, online sustainability programme. It supports our Environment policy and helps hotels manage their use of energy, carbon, water and waste. By creating more energy-efficient hotels, we can drive profitability for owners while minimising environmental impact.

We are a member of FTSE4Good and were ranked first in our industry on the 2017 S&P Dow Jones Sustainability World Index.

Community impact

Our Supporting Our Communities Policy aims to maximise the positive contribution we make by creating shared value in our communities and with our business partners. We support and develop people working in the hospitality industry, and have improved the employability of 47,962 IHG® Academy participants between 2013 and 2017.

We guide our hotels to enhance their disaster preparedness and provide extensive support to colleagues affected by disaster.

LOGOOur principal risk assessment process takes into account the risks related to, and the impact of, non-financial matters on the business (see page 21 for a further description of our principal risks and the measures taken to mitigate their impact). We also consider our impact on the wider communities in which we operate through our responsible business programmes (see our Responsible Business Report).

IHG Code of Conduct

The IHG Code of Conduct supports colleagues in making the right decisions. It sets out the principles we must all work by at IHG. It also provides guidance on where to go if colleagues are faced with a difficult issue and need further help.

LOGO

For further information on our Code of Conduct, including our Modern Slavery Statement see Policies under

www.ihgplc.com/responsible-business

Stakeholder engagement

Listening to and building strong, long-term relationships with our stakeholders helps focus our priorities and strategies and

creates loyalty, trust and credibility. We take into consideration the views of our stakeholders at all levels of decision making.

LOGOFor more information see Corporate Governance on pages 47 to 63.

LOGO

See our 2017 IHG Responsible Business Report for a full stakeholder list, which supports our responsible business strategy

www.ihgplc.com/responsible-business

Key stakeholder engagement

Forms of engagement include:

Outcomes and measures include:

LOGO

  Executive Committee and Senior Management led employee ‘Town Halls’.

  Annual Celebrate Service Week.

  Bi-annual Colleague HeartBeat survey.

  Company intranet and employee focused events.

  97% average participation in the 2017 Colleague HeartBeat survey.

LOGO

  IHG Rewards Club.

  HeartBeat surveys (guest satisfaction surveys).

  Dedicated Guest Relations teams.

  3.7 million completed HeartBeat surveys and 7 million text and social media guest comments captured and analysed in 2017.

  IHG True Hospitality Service Skills training delivered to more than 150,000 colleagues.

LOGO

  AGM.

  Presentations following results announcements.

  Annual investor perception survey.

  Programme of one-to-one meetings with major institutional shareholders.

  Average of 98% votes in favour across all resolutions at 2017 AGM.

LOGO

  Supplier registration form and onboarding process included in our IHG Vendor Code of Conduct.

  US supplier diversity data collection.

  Increased diverse supplier spend in the US to $66 million, up from $59 million in 2016.

LOGO

  Global and regional branches of the IHG Owners Association.

  Asian American Hotels Owner’s Association.

  Regional conferences.

  Owner HeartBeat surveys (owner satisfaction surveys).

  avid hotels launched following collaboration with an owner advisory board as part of the brand development (see page 16).

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Doing business responsibly19


Strategic Report

Risk management

Our risk management system continues to evolve; we have an

established process to manage the risks we face as a business.

Our Strategic Model strategy and risk

Our strategy and business model create a number of risks and opportunities for the business. The Board is ultimately accountable for the effectiveness of our risk management and internal control systems, and is supported by the Audit Committee, Executive Committee and delegated committees, who oversee our risk management system to ensure that risks are appropriately identified and managed within IHG’s risk appetite.

Risk appetite

IHG’s risk appetite is visible through the nature and extent of risk taken by the Board in pursuit of strategic and other business objectives. This risk appetite is cascaded through the goals we set, decisions we make and how we allocate resources. IHG’s appetite and tolerance for risk is further implemented through our governance committees, structures, policies and targets we select, as well as in development guidelines for new hotels. In 2017, the Board and Board Committees have reviewed many of these aspects directly through their meetings and discussions of principal risks.

Our risk management system

Our risk management system is fully integrated with the way we run the business through our culture, our processes and controls and our reporting, and is reflected in our strategy. The Global Risk Management function is responsible for the support, enhancement and monitoring of the effectiveness of this system and focuses on culture, process and control and monitoring and reporting.

LOGO

IHG’s principal risks, uncertainties and review process

The external risk environment remains dynamic. However, the Group’s asset-light business model, diverse brand portfolio and wide geographical spread contribute to IHG’s resilience to events that could affect specific segmental or geographical areas. Our Risk Working Group, chaired by the General Counsel and Company Secretary and comprising the Group Financial Controller and the heads of Global Risk Management, Global Strategy and Global Internal Audit, provides input on, and oversight of, the principal risk review process, which identifies and assesses risks for ongoing monitoring and review by senior management.

 

Throughout 2017 the Global Risk team have performed continuous assessments of the principal risks facing the Group, including those which would threaten its business model, future performance, solvency or liquidity. These risks are formally reviewed with the Group’s Directors on a bi-annual basis and considered in more detail through the activities of the Board and Committees. As part of our reviews we have consolidated a previously identified risk relating to our owner proposition into other factors listed.

As outlined on page 7, we are now focused on executing our strategy at a faster pace. This emphasises the importance of the steps we take to consider risk explicitly as part of decision making, for example in the reprioritisation of resources, as well as considering the effect of any operational or functional changes on our risk management system described above.

Our principal risks remain structurally similar to those reported in previous years. However, we have noted the potential impact of the initiatives we are putting in place to accelerate growth both as a specific risk and also with the inherent trends and measures we undertake to mitigate other risks to a residual level appropriate to our risk tolerance, given a more dynamic organisational context.

In addition, we continue to conclude that the potential impact of Brexit on IHG will have no material impact on our strategy or operations.

LOGOSee pages 52 and 57 for details of the assessment of our principal risks by the Board and the Audit Committee.

LOGOThese principal risks are supplemented by a broader description of risk factors set out on pages 164 to 167.

Risk trend and speed of impact

Through the principal risk process we assess whether the risk area is stable or dynamic (inherent risk trend), and the rate at which there could be a material impact on IHG (speed of potential impact). The trend and unmitigated speed of impact are summarised in the following diagram with further detail on the initiatives undertaken to manage each of these risks in the table on the next page.

LOGO

20IHG  |  Annual Report and Form 20-F 2017


 

    

    

    

LOGO

Principal risks descriptions

 

3


IHG  Annual Report and Form 20-F 2014

Our preferred brands

Each of the brands in our portfolio are complementary and differentiated to meet the changing, multifaceted needs of our guests and be commercially compelling to third-party hotel owners.

Supported by the IHG brand and IHG Rewards Club (our loyalty programme), our portfolio of hotel brands is aimed at meeting evolving guests’ needs.

Driving brand preference for our guestsInherent risk trend

Each of our brand strategies revolves around guest research and insight, allowing us to develop each brand to deliver unique guest experiences against specific needs, occasions and price points.

To drive brand preference, our brands must deliver a truly holistic experience for our guests, from the moment travel plans are conceived, across the planning and booking experience, throughout the hotel stay and thereafter – we call this the ‘Guest Journey’ (see pages 17 and 22).

In January 2015, we acquired Kimpton Hotels & Restaurants, the world’s largest independent boutique hotel operator. This, alongside Hotel Indigo and EVEN Hotels, strengthens our brand portfolio and creates a leading boutique and lifestyle hotel business in one of the fastest growing industry segments (see page 21).

Delivering preferred brands by our people

We recognise that our people deliver the brand experience for our guests and we therefore invest heavily in our talented people (see page 23).

Having preferred brands for owners

Given our asset-light business model, strong owner relationships are vital to building scale (see pages 16 and 17). Integral to this, is a portfolio comprising strong, clearly defined brands enabling third-party hotel owners to choose the right IHG brand for their hotel.

 Risk impact 

LOGO

180

Hotels open

61,235

Rooms open

50

Hotels in the pipeline

15,664

Rooms in the pipeline

InterContinental® Hotels & Resorts

Our international luxury brand is located in most of the world’s key cities and many resort destinations across more than 60 countries worldwide. The brand’s ethos is to provide insightful, meaningful experiences to our guests to make their world feel bigger.

LOGO

24

Hotels in the pipeline

7,551

Rooms in the pipeline

HUALUXE® Hotels and Resorts

Launched in March 2012, it was the first luxury international hotel brand where every element has been designed specifically to suit the tastes and sensibilities of the Chinese guest. It focuses on the unique aspects of Chinese etiquette, the importance of rejuvenation, status recognition, local customs and heritage.

LOGO
DynamicHow each principal risk links to our strategic priorities: 

LOGO

406

Hotels open

113,562

Rooms open

92

Hotels in the pipeline

25,336

Rooms in the pipeline

Crowne Plaza® Hotels & Resorts

With hotels in major business centres around the world, Crowne Plaza is our modern business hotel dedicated to business travel that is ever more flexible, more connected, and more mobile. We enable our guests to be their most productive by simply making business travel work.

LOGO

61

Hotels open

6,731

Rooms open

63

Hotels in the pipeline

9,096

Rooms in the pipeline

Hotel Indigo®

Hotel Indigo artfully combines the unique design and authentic local experiences of a boutique hotel, with the ease and peace of mind of a recognised brand name. Each hotel reflects the local culture, character and history of the surrounding area.

4


LOGO
StaticLOGOStrategic Model  LOGOTargeted Portfolio  LOGODisciplined Execution  LOGOResponsible Business
  

LOGO

1,212*

Hotels open

225,159*

Rooms open

269§

Hotels in the pipeline

52,713§

Rooms in the pipeline

Holiday Inn®

At Holiday Inn, we believe the joy of travel is for everyone. Warm and friendly, Holiday Inn has been opening its doors to guests since 1952, affordably blending the familiar with the new, and putting everyone at ease no matter the reason for their stay.

Holiday Inn Resort® properties offer great value, warm and friendly service and the peace of mind of a trusted brand name. The Holiday Inn Resort brand champions the family holiday.

Holiday Inn Club Vacations® is a vacation ownership club that opens the door to the joy of owning a vacation home. The portfolio is a collection of resorts in the US, offering spacious villa accommodation for families in great vacation destinations.

LOGO

2,365

Hotels open

229,110

Rooms open

522

Hotels in the pipeline

62,954

Rooms in the pipeline

 

Holiday Inn Express®

Holiday Inn Express champions smart and simple travel for everyone. We support guests without hassle, without complication, without extravagance – but always with a warm smile. Our mantra is ‘everything you need, nothing you don’t’.

*   Includes 12 Holiday Inn Club Vacations properties (4,027 rooms) and 42 Holiday Inn Resort properties (9,904 rooms).

§   Includes 18 Holiday Inn Resort properties (4,412 rooms).

Risk description

Trend

Impact

Initiatives to manage these risks

Inherent threats tocybersecurityand information governancecontinue to evolve at pace and, in 2017, created dynamic risks to multiple industries, evidenced by reported cyber incidents across the hospitality industry and by IHG (see page 139). This risk could impact our operations; lead to loss of sensitive data; undermine stakeholder trust; and result in fines and legal/regulatory action.LOGO

LOGO

LOGO

LOGO

We apply a risk-based methodology to identify, and consider the value and threats to, our key information assets. These include Payment Card Information (PCI), Personally Identifiable Information (PII), as well as sensitive financial and employee information. We monitor and update our information security policies and practices to respond to the risks we face, including those relating to evolving privacy requirements across IHG, including our increasingly third-party hosted infrastructure and systems.

Our approach to monitoring this dynamic risk combines IHG specialist teams in information security, technology and cyber enabled crime, supplemented by external insight and relationships to enhance our capability to analyse, prevent and detect potential threats.

During 2017, we continued our initiative to tokenise credit card data in key systems through implementation of our secure payment technology in more than 86% of our US franchised estate.

Despite our information security programme, we also recognise the need for rapid and appropriate response to data incidents. We have a clearly developed incident management capability which clarifies accountabilities and processes across the organisation, and works closely with our insurers. These also consider data reporting obligations, for example in relation to the EU General Data Protection Regulation (GDPR).

 

 

  

 

Failure to deliverpreferred brandsand loyaltycould impact our competitive positioning, our growth ambitions and our reputation with guests and owners. The rapid rate of recent consolidation activity; brand launches and loyalty programme developments across the hospitality industry creates both risk and opportunity.LOGO

LOGOLOGO

 

322LOGO

Hotels open In 2017 we continued our investment of $200m in the refresh of the Crowne Plaza estate in the Americas; extended the implementation of our Holiday Inn Open Lobby; and updated room design concepts in several brands. (See page 32 for further details.) We launched avid hotels to positive reactions from owners, signed deals to extend other brands in new territories and built brand recognition across the portfolio, (see pages 6-7, 10-11, 16 and 32 for further details). In January 2018 we also integrated our Kimpton Karma members into the IHG Rewards Club programme.

 

30,708 The creation of one Global Marketing function will enable us to focus on fully integrated brand, marketing and loyalty activities, strengthening our existing brands and adding new brands where we see greatest potential for growth. For further information on initiatives to manage the opportunities and risks in our brand strategy, see pages 16 and 17.

Rooms open

89

Hotels in the pipeline

7,717

Rooms in the pipeline

Candlewood Suites®

IHG’s extended-stay brand in North America aimed at providing guests with a relaxed, casual and home-like environment at a great value.

LOGO

205

Hotels open

22,409

Rooms open

99

Hotels in the pipeline

10,908

Rooms in the pipeline

Staybridge Suites®

IHG’s extended-stay brand for business and leisure travellers who are spending an extended time away from home and prefer a warm, home-like and community environment.

 

 

  

 

Leadership and talentrisk is inherent to all businesses and failure to effectively attract, develop and retain talent in key areas could impact our ability to achieve growth ambitions and execute effectively.LOGO

LOGOLOGO

 

2LOGO

LOGO

Hotels open In 2017, we have enhanced our ability to attract, retain and develop the best talent (see pages 18-19) within the hospitality sector, including GM and senior corporate positions.

 

296 Our focus on accelerating growth will increase opportunities for our people and our ambitions will place demands on key leadership and hotel talent. As we begin to redeploy and reprioritise resources, our human resources team are reviewing our performance management framework to promote interdependence and to incentivise team and individual performance. We have a global diversity and inclusion strategy (see pages 61 and 66), which will be led by a Diversity and Inclusion Board, with specific and targeted actions to address any inequalities in the workplace.

Failure to capitalise on innovation in booking technology and maintain and enhanceour channel management and technology platforms and to respond to changing guest and owner needs remains a dynamic risk to IHG’s revenues and growth ambitions, particularly with the emergence of both evolutionary and disruptive technologies.LOGO

LOGO

LOGO

Rooms open Technology innovation in the hotel industry continues to accelerate, with established and new competitors launching new solutions leveraging technology to enhance guest and owner experience. The speed of technological development and implementation in key markets such as China requires constant focus.

 

3

Hotels Our Commercial and Technology team continues to develop on and above property capabilities and functionality, including responsive website design and mobile check out, while undertaking controlled pilots in more complex areas such as mobile key solutions. In mid-2017 we began to pilot IHG Concerto (see page 17) which, as well as increased functionality, will increase the pipelineresilience of our revenue systems. We have also implemented our centrally controlled and high-performing IHG Connect solution to benefit owners and guests.

 

584 Changes to accelerate our growth will enable us to prioritise resources and streamline technology governance practices to drive efficiency and pace in our innovation and project delivery.

IHG’s focus toaccelerategrowthwill require significant reprioritisation of activities and refocusing of resources. Given the importance and scope of the multi-faceted initiatives that will be undertaken to accelerate growth there are inherent risks which will require appropriate planning, project management, governance and clearly defined success factors.LOGO

LOGO

LOGO

LOGO

LOGO

Rooms Our executive team, supported by our programme office, is providing direct leadership and steering a portfolio of activities to accelerate growth, engaging our wider senior leader team to clarify and align on objectives, key drivers and associated behaviours required in the pipeline

EVENTMHotels

Launched in February 2012,future; and to provide regular visibility to the brand was createdBoard to meetensure that the largescope and growing demand for a hotel brand to help wellness-minded travellers maintain their balance on the road.

LOGO

62

Hotels opentiming of delivery remains within our risk appetite framework.

 

11,300

Rooms open We are also supported by third -party expertise to enable us to reprioritise resources and sequence activities in the most impactful way across the organisation, whilst mitigating and assuring risk to an acceptable level.

 

16

Hotels Our focus on accelerating growth involves evolving our risk management system, governance and assurance arrangements to enable effective and agile decision making during the organisational change, in the pipeline

3,000

Rooms in the pipeline

Kimpton® Hotels & Restaurants

Acquired by IHG in January 2015, this is a leading collection of boutique hotels and award-winning destination restaurants in the US. The brand is renowned for its distinctive design and personal approach to guest service, using thoughtful perks and amenities and a sense of fun to make them feel truly at home.

   As at 31 December 2014.

   These were part of the acquisition which completed on 16 January 2015.

IHG System size of 4,840 hotels (710,295 rooms) includes 87 hotels (21,085 rooms) that are unbranded.

LOGO

5


IHG  Annual Report and Form 20-F 2014

Chairman’s statement

We have continued to execute our strategy to deliver high-quality growth. Our strong performance was underpinned by our successful Winning Model, which is our framework for delivering value for our shareholders and owners through our portfolio of preferred brands, talented people and leading revenue delivery systems.

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“We made excellent progress against our well-established strategy to deliver high-quality growth and returned over $1 billion to shareholders.”

Patrick Cescau

Chairman

Our highlights in 2014 included the opening of the first two hotels under the EVEN Hotels brand, and the progress made in both strengthening our digital offer and enhancing our loyalty programme, IHG Rewards Club, with the aim of building lifetime loyaltyalignment with our guestsappetite and enhancing their experience with our brands before, during, and after, their stay. We also continued our strong track record of delivering attractive returnstolerance for shareholders, with over $1 billion (including ordinary dividends) returned in the year.

We ended the year on a high, with the announcement that we had agreed to acquire Kimpton Hotels & Restaurants, making IHG the clear market leader in the boutique segment.

I have seen, first hand, this momentum in the business. I have visited many hotels in our established markets, as well as our growth markets, and I continue to be enormously impressed. Our continued success is testament to our strong relationship with our owners and the passion and commitment our 350,000 colleagues globally bring to the business on a daily basis.

   Views on the year as arisk.

   whole

With hotels in nearly 100 countries around the world, our scale position has been a key driver of our consistently strong performance. It allowed us to allocate resources in a focused way to grow in our attractive markets (described on page 18), whilst ensuring we maintain a strong presence in growth markets of the future.

One of IHG’s greatest strengths is our ability to adapt and evolve in a changing global landscape. We are a dynamic business. In 2014, we saw some of the world’s biggest economies return to growth and others faced uncertainty in the shape of natural, economic and political upheaval. In this context, our expertise and discipline was critical to us delivering consistently good results.

   Shareholder returns

We remain committed to delivering long-term shareholder value, returning surplus funds to our shareholders and thereby maintaining an efficient balance sheet with an investment grade credit rating. In the 11 years since IHG became a standalone business, we have consistently delivered superior and sustainable returns for our shareholders. In May 2014, we announced a $750 million special dividend with share consolidation which we paid on 14 July 2014. During the year, we also successfully completed our $500 million share buyback programme. In total, we have now returned $10.4 billion (including ordinary dividends) to shareholders since our 2003 demerger.

I am pleased to announce that the Board is recommending a final dividend of 52 cents (33.8 pence) per ordinary share, an increase of 11 per cent on the final dividend for 2013, resulting in a full-year dividend of 77 cents (48.6 pence) per share, up 10 per cent on 2013.

Total Shareholder Return was 32 per cent in the year; the 10th best performance in the FTSE 100.

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InterContinental Paris - Le Grand, France                                       Crowne Plaza Costa Mesa Orange County, California, US

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The Board and its areas of focus

IHG is an ambitious company with an impressive scale position and a proven strategy for high-quality growth. Ensuring we have the right balance of skills, style and expertise at both the Board level and across the business is an important factor in supporting our future growth (see pages 57 to 62).

In last year’s Annual Report, I said how impressed I was by the strength and diversity of the IHG Board. This continues to be the case. I also stressed the importance of evolving the composition of the Board to best support the business as it grows and develops.

In 2014, a key priority for me was to appoint a Non-Executive Director with a strong background in consumer-facing technology. On 1 September 2014, we were therefore delighted to welcome Jo Harlow to the Board and as a member of the Audit, Nomination and Remuneration Committees. Jo has a wealth of experience and knowledge, particularly on the role digital technology plays in driving consumer behaviour.

On 31 December 2014, Jonathan Linen retired from the Board and I would like to thank him for his tremendous contribution to IHG. In December 2014, we announced that Kirk Kinsell would step down from the Board and his role as President of our Americas business on 13 February 2015. Kirk was succeeded by Elie Maalouf as Chief Executive Officer, The Americas, who became a member of IHG’s Executive Committee. We are also pleased that, effective from 1 March 2015, Anne Busquet will be joining the Board as a Non-Executive Director and she will also sit on the Audit, Nomination and Corporate Responsibility Committees. Anne has an impressive breadth of experience in digital commerce, hospitality, finance and marketing.

During the year, the Board remained focused on IHG’s strategy and the execution of our Winning Model, as well as on maintaining our deep understanding of both the risks facing the business and the controls we have in place. These are further described on pages 14 to 33.

Governance

High standards of corporate governance are fundamental to the way IHG operates and reflect our values and commitment to being a truly responsible business. In last year’s Annual Report, we explained how we had commissioned a formal evaluation of the Board from an external independent consultant. This year we undertook an internal Board effectiveness evaluation and internal performance evaluations of each Director. The Board also considered the performance of each of its Committees. It was confirmed that the Board and its Committees were operating effectively, and that each Director continues to bring relevant knowledge, diversity of perspective, an ability and willingness to challenge and retains a strong commitment to the role. The progress against our 2013 evaluation, and details of our 2014 evaluation and action plan, can be found on pages 63 and 64.

Detailed information on our Board and governance processes, including the Directors’ Remuneration Report, can be found on pages 54 to 91.

In line with our commitment to responsible business practices (see pages 24 and 25), this year, we have decided to produce a broader Responsible Business Report in place of the Corporate Responsibility Report, which can be downloaded at www.ihgplc.com/responsiblebusiness.

Outlook

We continue to remain confident in the long-term growth prospects of the hotel industry. There are some major structural tailwinds and socio economic trends which mean that the hotel industry will experience significant growth into the future. Our proven strategy for high-quality growth means that we are well placed to continue to outperform.

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Patrick Cescau

Chairman

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IHG  Annual Report and Form 20-F 2014

Chief Executive Officer’sreview

2014 was an excellent year for IHG. We made significant progress in delivering our winning strategy for high-quality growth, and reported strong financial and operational performance. We also made good progress with our
asset-light strategy.

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“IHG is in a position of strength, a position which has been enhanced by another year of delivery against our strategic priorities.”

Richard Solomons

Chief Executive Officer

IHG is in a position of strength, a position which has been enhanced by another year of excellent delivery against our strategic priorities. We remained focused on building our compelling scale position in what is a growing global marketplace, as we continued to build, develop, and shape our business and our brands for the future. We achieved strong RevPAR performance, opened the highest number of hotels since 2009 and reported growth in net System size.

We also made good progress with our asset-light strategy with the sale of InterContinental Mark Hopkins San Francisco and the disposal of 80 per cent of our interest in InterContinental New York Barclay, as well as the acceptance of a binding offer for InterContinental Paris – Le Grand.

Our Winning Model

The Winning Model is our framework for delivering value for our shareholders and owners through our portfolio of preferred brands, talented people and leading revenue delivery systems. We are focused on delivering against all components of this model, combining it with a targeted approach to building our portfolio and disciplined execution, all underpinned by our commitment to being a responsible business. On pages 16 and 17, we have set out why each element of the model is so critical to our business and have provided more detail on the excellent progress we made during the course of 2014. This includes our superior owner proposition. On our website, www.ihgplc.com/ihgowners, you will find a message from Buggsi Patel, 2014 Chairman of the IHG Owners Association, on his highlights from the year.

Our acquisition of Kimpton Hotels & Restaurants (see page 21), which completed in January 2015, is an example of how each element of the model came into play and will help support our ambitions for the brand in the medium term.

Our Winning Model in action

Kimpton Hotels & Restaurants is a well-established and highly successful business that has grown to become the world’s leading boutique hotel business with a portfolio of world-class hotels and destination restaurants. This distinctive and innovative brand fits perfectly into our brand family, alongside our highly successful Hotel Indigo and EVEN Hotels brands, creating the world’s largest boutique hotel business. We will use our scale, network of owner relationships and powerful digital platforms to accelerate its growth both within the US and globally
(see page 21).

Our scale

With a five per cent share of the global industry supply of rooms and 13 per cent of the active industry pipeline, IHG enjoys significant scale advantages in what is a competitive industry. During 2014, we continued to build our scale, focusing on our priority markets such as the United States and Greater China (see page 18). This resulted in us achieving a series of milestones in the year, including our highest ever number of hotel openings in Greater China
(see pages 19 and 46 to 48).

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Epic Miami, A Kimpton Hotel, Florida, US               EVEN Hotel Rockville, Maryland, US              HUALUXE Hotels and Resorts, People’s Republic of China

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Our brands

Our award-winning preferred brands continued to go from strength to strength. InterContinental Hotels & Resorts is twice the size of any other luxury hotel brand and the Holiday Inn brand family is the largest global mainstream brand. We also opened the 400th Crowne Plaza hotel and 200th Staybridge Suites hotel during the year.

The number of awards our brands receive externally is remarkable, reflecting the work we have been doing to build awareness, recognition and guest satisfaction. In 2014 alone, our brands won over 300 global, regional and hotel level awards.

For the sixth consecutive year, InterContinental Hotels & Resorts was named ‘World’s Leading Hotel Brand’ at the 2014 World Travel Awards; and for the tenth consecutive year, IHG Rewards Club has been recognised as ‘Best Hotel Rewards Programme in the World’ by Global Traveler magazine. IHG as a company also had a successful year – we were listed as one of FORTUNE Magazine’s ‘World’s Most Admired Companies’, named as the ‘Best British Business’ in China and came third in The Sunday Times ‘25 Best Big Companies to Work For’ list.

Innovating for the future

We have continued to build on our long history of innovation to help us both navigate and evolve our business for success in what is a changing world. This is supported by our focus on delivering preferred brands, building lifetime relationships with our guests and developing our strong direct channels.

In 2014, we opened the first two EVEN Hotels (see page 20) to critical acclaim, and in February 2015, we opened the first hotel for the HUALUXE Hotels and Resorts brand. Both of these new brands address previously unmet guests’ needs.

We have also taken an innovative approach to evolving our loyalty and digital offer around the ‘Guest Journey’ with the launch of initiatives such as Mobile Check-in and Check-out and further improvements to our number one rated mobile app. Continuing to evolve and enhance our digital capabilities will be a key area of focus for us over the coming years.

Trust

In the context of this changing landscape, the theme of ‘Trust’ was more important than ever and was the main theme of our 2015 Trends Report (see page 10 for more details). The report argues that ‘Trust Capital’ is now the ‘4th C’ of organisational value – alongside Human, Financial and Intellectual Capital – and is a key factor for consumers in making brand choices. Our people play a critical role in building trust with our guests and owners. They are responsible for delivering a differentiated brand experience for our guests (see pages 16 and 23) and as such we work hard to build our ‘winning culture’ and our employer brand and maintain our high Employee Engagement survey scores
(see page 32).

Responsible Business

Operating as a Responsible Business underpins each of our strategic priorities and is a commitment everyone working at IHG is responsible for delivering (see page 24 and 25). We made excellent progress with each of our three corporate responsibility programmes during the course of the year. We announced the global roll-out of our environmental sustainability tool, IHG Green Engage, as a brand standard, which was a powerful demonstration of our commitment to protecting the environment. More recently, we announced the opening of our 600th IHG Academy. Launched in 2006, the programme provides local people with bespoke skills-development and employment opportunities. Finally,

our disaster relief programme, IHG Shelter in a Storm, responded to 18 disasters in nine countries.

Finally, I would like to take this opportunity to thank those who work across IHG and its brands globally for the energy and enthusiasm they bring to the business. With their support, and together with our owners, we can look forward to another excellent year ahead.

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Richard Solomons

Chief Executive Officer

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IHG  Annual Report and Form 20-F 2014

Industryoverview

Where the industry is now

The global hotel industry

The global hotel industry comprises approximately 15.5 million rooms and is broadly segmented into branded (multiple hotels under the same brand name) and independent (non-branded) hotels. Growth in demand is driven by economic growth and an increasing trend for domestic and global travel, resulting in part from favourable demographics and the globalisation of travel.

Over the long term, the lodging industry has grown broadly in line with Gross Domestic Product (GDP). In the US market (which is the largest market in terms of number of rooms), growth in consumer spend on lodging has exceeded GDP growth by two percentage points per annum over the last 50 years.

There are a number of industry metrics that are widely recognised and used to track performance and we actively monitor these. These include revenue per available room (RevPAR), average daily rate and rooms supply growth.

Global industry RevPAR growth (2014 v 2013)

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IHG’s Key performance indicators (KPIs) are set out on pages 30 to 33.

The branded hotel market

The branded hotel market is estimated to account for 53 per cent of the total hotel market. We benchmark our performance against the largest branded players that we consider to be our peer group, with a similar system size and pipeline to ours and who operate in similar market segments to us (as explained on page 18).

Five of the leading branded hotel companies (IHG, Accor, Hilton, Marriott and Starwood) account for approximately 30 per cent of the total branded hotel market in terms of open rooms, and 65 per cent of the development pipeline (hotels in planning and under construction but not yet open).

In the US, around 70 per cent of the industry supply is branded. In fast developing markets, such as China and India, penetration of international brands is, however, lower, at around 45 to 55 per cent. This level of international brand penetration is expected to increase significantly over the coming decades, as large global branded hotels gain traction due to the advantages of reliability, guest safety and security, consistency of standards and the ability to invest in customer experience and technology. IHG has measures in place for all of these – see Our Strategy and Managing Risks on pages 14 to 29.

Source: Smith Travel Research for all of the above industry facts.

The different business models within the hotel industry

The global hotel industry operates under a number of different business models, depending on whether a hotel is branded or independent. The four models typically seen are owned, leased, managed and franchised:

owned hotels are owned and operated by an owner who bears all the costs associated with the hotel but also benefits from all of the income;

a leased model is similar, except that the owner-operator of a hotel does not have outright ownership of the hotel but pays rental fees to the ultimate owner of the property;

under a managed model, the owner of a hotel uses a third-party manager to operate the hotel on its behalf and pays the manager management fees and, if the hotel is operated under a third-party brand name, brand licensing fees; and

a franchised hotel is owned and operated by an owner under a third-party brand name, and the owner pays a brand licensing fee to the brand owner.

Other models, such as pay-for-performance or commission-based, are sometimes used by independent hotels to benefit from a brand’s booking distribution system (for example, hotel collections).

Whilst an owner-operated hotel enables the owner to have full control over the hotel operation, it requires high capital investment. In contrast, for hotel brand owners, a managed or franchised model enables quicker rooms growth due to the lower capital investment, but this requires strong relationships with third-party hotel owners. As a franchisor and manager, we therefore recognise that our owner proposition is a key part of our strategy.

IHG’s business model, which is a predominantly managed and franchised model, is set out on pages 12 and 13.

IHG’s 2015 Trends Report: Building Trust Capital: The new business imperative in the Kinship Economy – released in January 2015

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The third in our series of Trends Reports focused on consumer insights impacting the hospitality industry and business in general.

Our 2015 Report identifies

the importance for companies to build brand and organisational trust. It demonstrates how to build Trust Capital with different demographics and across different geographies, unveiling a blueprint of seven principles for making it the core driver of an organisation.

 

Further details about all three Trends Reports can be found at www.ihgplc.com/trends_report

 

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Where the industry is heading

Short-term drivers and global trends

Short-term industry trends are shaped by differing economic, political or physical factors impacting local geographical markets. Since the economic crisis of 2008/09, GDP growth has returned to key economies, leading to an increase in disposable income and an increase in demand for hotel rooms. Typically, the industry would meet this demand through an increase in the supply of rooms.

In developed markets, recent industry revenue growth has been driven largely by an increase in the room rate as occupancy levels have returned to previous peak levels, but the growth in supply of rooms has been below the long-term average. In emerging markets, growth has been a result of both an increase in room rate and the supply of rooms. The industry is also impacted in the short term by local market economic or political factors.

Long-term drivers and global trends

In the long term, growth in the hotel industry is driven by a number of trends:

Economic

The travel and hotel industries have benefited substantially from long-term macroeconomic trends. Global GDP growth in the last 10 years of approximately 3.6 per cent per annum has contributed to increasing disposable income and a greater number of middle-class households, particularly in emerging markets such as Greater China, with a greater propensity to travel.

Improvements in physical infrastructure, particularly in emerging markets, have allowed hotels to meet the needs of guests more effectively and to open up new destinations for travel.

Our growth strategy focuses on 10 priority markets comprising both developed and emerging ones.

Demographic

Traveller demographics are continuously evolving. Many travellers travel for a variety of reasons and no longer for a singular purpose, such as only business or leisure. Across the globe, the types of traveller can range from single people to multi-generation families. The younger workforce is driving more diverse and informal working patterns, with an expectation that hotels can cater for flexible working arrangements. A growing ageing population with the desire, and means, to travel is also expected to significantly increase travel flows and lead to an overall increase in demand for travel services.

Having a portfolio of distinct and complementary brands enables IHG to meet a range of guests’ needs and occasions at differing price points.

Social

Other trends also provide new opportunities for increased travel. Growing competition and capacity amongst airlines, lower air fares and more relaxed travel restrictions in many regions have made international travel a viable option for an increasing number of people. Worldwide, international tourist travel is expected to increase by 3.3 per cent a year from 2010 to 2030 reaching 1.8 billion by 2030, according to the UNWTO.

Increasingly, travellers are concerned about the sustainability of hotels and their impact on the environment and local communities.

We are committed to responsible business practices from environmental sustainability to supporting our local communities.

Technology

Technology is playing an increasingly important role in both shaping the travel industry and in guests’ appreciation of their entire travel experience. The internet, increasingly accessed through mobile devices, has established itself as the preferred method to research, plan and book travel. In emerging markets, consumers are bypassing desktop PCs and going straight to mobile – there are twice as many smartphone users in China than internet users in the US.

The development of social networking has changed the way in which people think about travel, with the sharing of experiences, reviews and recommendations influencing research and decision-making. Travellers can make more informed decisions, and book their travel options with greater control and immediacy, leading to an increase in travel to a variety of destinations.

The ‘Internet of Things’ is an emerging trend that offers enormous potential. 75 billion devices are forecast to be internet-enabled by 2020 offering the potential to transform the in-hotel guest experience.

We focus on delivering across the entirety of the ‘Guest Journey’ and invest in developing strong technology platforms.

Competitors

These long-term drivers and global trends are changing the competitive landscape within the travel industry. Competitors are no longer simply branded or independent hotels, but also include companies offering alternative lodging solutions and search options, providing inspiration for travel ideas and aggregating a range of travel solutions. The consumer peer-to-peer rental market, which is largely unbranded, has also opened up a large supply of travel accommodation. However, many of these businesses are not subject to regulations such as fire and life safety, food safety and local industry regulations, which apply to traditional hotel operators.

For booking and distribution, hotel companies also compete with the increasingly sizeable travel intermediaries.

Our channel management strategic priority considers both direct and indirect booking and distribution channels.

 What is IHG doing in light of these trends?

 See Our Strategy on pages 14 to 33

 

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IHG  Annual Report and Form 20-F 2014

Our business model

We predominantly franchise our brands to, and manage hotels on behalf of, third-party owners. Our asset-light strategy enables us to grow our business whilst generating high returns on invested capital.

We franchise and/or manage hotels depending largely on market maturity, owner preference and, in certain cases, on the particular brand. For example, in the US, a mature market, we operate a largely franchised business, working together with our owners to deliver preferred brands. By contrast, in Greater China, an emerging market, we operate a predominantly managed business where we are responsible for operating the hotel on behalf of our owners. We adapt this business model by market as necessary, for example, we also have managed leases (properties structured for legal reasons as operating leases but with the same characteristics as management contracts), partnerships and joint ventures.

The key differences in our three main models are summarised below:

   Number % of our Hotel IHG capital Employees* Brand ownership,
   of hotels portfolio ownership intensity    marketing and distribution
Franchised 4,096 84.6% Third party Low Third party 
Managed 735 15.2% Third party Low IHG and third party �� IHG
Owned and leased   9 Less than 1% IHG High IHG  

*For information on who are our employees and how we invest in our talent, see page 23.
We are committed to delivering a compelling and preferred offer to our hotels owners through our owner proposition – see page 17.

In 2014, over 90 per cent of our operating profit was generated from our asset-light management and franchise contracts. In addition, approximately 85 per cent of our fee-based income was derived from hotel revenues, and 15 per cent was principally from management fees linked to hotel profits.

The asset-light approach, and franchised and managed business model:

is highly cash-generative, with a high return on capital employed; and

means IHG benefits from the reduced volatility of fee-based income streams and allows us to focus on growing our fee revenues and fee margins with limited requirements for IHG’s capital.

IHG Revenue and the System Fund

Third-party hotel owners pay: (i) fees to IHG in relation to licensing of our brands and/or our hotel management services; and (ii) assessments and contributions which are collected by IHG for specific use within the System Fund.

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Disciplined approach to allocation of capital

Our focus on an asset-light business model is supported by a disciplined, long-term approach to allocating capital and reducing the asset intensity of the business. We seek to maintain an efficient balance sheet with an investment grade credit rating.

Our business is highly cash-generative, and we have three primary uses of the cash we generate:

Invest in the business to drive growth: This includes acquisitions of businesses and our day-to-day capital expenditures (see below).

Maintain sustainable growth in the ordinary dividend: Our 2014 full-year dividend will be 77 cents (48.6 pence) per share (subject to shareholder approval of the 2014 final dividend) – up 10 per cent on 2013 (see page 50).

Return surplus funds to shareholders: During 2014, we announced a $750 million return to shareholders via special dividend with share consolidation, and completed our $500 million share buyback (see page 50).

In support of our asset-light strategy, during 2014 we:

Disposals

completed the disposal of 80 per cent of our interest in InterContinental New York Barclay for $274 million;

sold InterContinental Mark Hopkins San Francisco for $120 million; and

announced a binding offer in respect of InterContinental Paris – Le Grand for330 million ($406 million).

Acquisitions

announced the acquisition of Kimpton Hotels & Restaurants for $430 million – a fully asset-light business. This acquisition completed in January 2015.

IHG’s philosophy to capital expenditure

Capital expenditure incurred by IHG can be summarised as follows:

 

Capital expenditureExamples

Maintenance capital expenditure and key money to access strategic growth, particularly intohigh-quality and sought-after opportunities

•  Maintenance of our owned and leased hotels, which will reduce as we become increasingly asset-light.

•  Corporate infrastructure maintenance, for example, in respect of our offices and systems.

•  Deployment of key money, which is used to access strategic opportunities, particularly in high-quality and sought-after locations when returns are financially and/or strategically attractive.

Recyclable investments to drive the growth of our brands and our expansion in priority markets

•  Through the acquisition of real estate, investment through joint ventures or via an equity stake.

•  We aim to seek to recycle this capital by selling these assets when the time is right and to reinvest elsewhere in the business and across our portfolio – we are currently doing this for our EVEN Hotels brand, just as we previously did for the Staybridge Suites and Hotel Indigo brands.

System funded capital investments for strategic investment to drive growth at hotel level

•  The development of tools and systems that hotels use to drive performance.

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For definitions, please refer to the Glossary on pages 184 and 185.

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IHG  |  Annual Report and Form 20-F 2014

Our2017  |  Strategic Report  |  Risk managementstrategy forhigh-qualitygrowth

We focus on strengthening our portfolio of preferred and differentiated brands, building scale in key markets, creating a long-lasting relationship with our guests and delivering revenue to hotels through the lowest cost, direct channels. Our proposition to owners is highly competitive and drives superior returns.

We execute our asset-light strategy in the most attractive, high-growth markets and industry segments. We take a disciplined approach to capital allocation, investing for the future growth of our brands. This enables us to drive sustainable growth in our profitability and deliver superior shareholder returns over the long term.

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IHG  Annual Report and Form 20-F 2014

WinningModel

Our Winning Model is our framework for delivering value for our shareholders and owners through our portfolio of preferred brands, talented people and leading revenue delivery systems.

Key performance indicators (KPIs) and What we have done in 2014

See pages 30 to 33

How we manage principal risks

See pages 28 to 29

Our portfolio of preferred brands

See pages 4 and 5

Where we operate and detailed global and regional Performance

See pages 34 to 51

LOGO   Preferred brandsdelivered through our people

Why we think this is important

Having a strong portfolio of preferred brands is fundamental to our success. In a highly competitive industry, powerful well-defined, consistent and well-known brands assist both guests and owners in choosing an IHG brand over a competitor’s, as well as deciding which IHG brand meets their specific needs. Our people are critical in providing the guest experience, and our ‘winning culture’ encourages and empowers them to bring each of our differentiated brand experiences to life and provide high standards of guest service.

The value of building strong preferred brands results in increased RevPAR, as occupancy will be higher and guests will pay a higher rate to stay at their preferred brand, which, in turn, delivers better returns for our owners through an increase in total gross revenue.

What we are doing

We build brand preference by defining each of our brands so that they can provide a differentiated experience to meet both the targeted guest need and occasion and be consistent in the experience they deliver.

We have sharpened each of our brand strategies looking at a number of areas, from the brand ambition and position to the brand platform and strategic brand pillars, to ensure our portfolio meets the needs of the evolving guest and owner. We are also refreshing the brand standards for each of our brands to ensure they are up to date and relevant to drive consistency.

We invest in our talented people who are the face of our brands and help us build brand preference (see page 23).

How we measure it

KPIs – Guest HeartBeat, RevPAR, Employee engagement, Total gross revenue

LOGO   Build andleverage scale

Why we think this is important

Scale provides significant advantages in the hotel industry at the global, national and city level. The size of the IHG System, and our concentration on priority markets and key gateway cities, allows us to benefit from economies of scale, which lead to higher margins and operating leverage. With scale, we can invest in our brands and the technology required to support their continued growth, and deliver efficient sales and marketing and procurement practices, thereby increasing the advantages an IHG brand brings to owners. Scale also enables us to invest in, and grow, new brands and take them global, for example Hotel Indigo.

What we are doing

IHG already benefits from substantial scale advantages. With over 710,000 rooms open at the end of 2014, we delivered our strongest net IHG System size growth since 2009 of 3.4 per cent, opening over 41,000 rooms. Our brand portfolio also reached some significant milestones in 2014 – opening the 400th Crowne Plaza hotel, the 200th Staybridge Suites hotel and the 60th Hotel Indigo hotel in its 10th anniversary year. Our scale has also enabled us to commit $150 million of investment behind the EVEN Hotels brand, opening the first two properties in 2014. We focus on developing our scale in 10 priority markets, where we currently have 85 per cent of our open rooms (see page 18). Benefiting from the strong growth in these markets, Group fee margins were up 1.5 percentage points to 44.7 per cent in 2014 and total gross revenue was up 6 per cent to $23 billion.

For details on how we maximise the scale and efficiency of our operations, see page 22.

How we measure it

KPIs – Net rooms supply, Fee revenues, Total gross revenue, Fee margin

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LOGO   Strong brandportfolio and loyalty programme
LOGO   Effective channelmanagement
LOGO   Superior ownerproposition

Why we think this is important

A portfolio of strong, complementary brands allows us to offer solutions for each guest need, which increases cross-selling across different brands. Combined with a strong loyalty programme, it also increases awareness and recognition of the IHG brand, and of each of the individual hotel brands, helping us to drive business. Guests who have an increased loyalty to IHG and its portfolio have also proven to have a higher spend per stay. Both of these result in higher RevPAR premiums, thereby increasing total gross revenue and strengthening our owner proposition.

What we are doing

Our brands are complementary across the segments in which they operate (midscale, upscale and luxury), catering to different guest needs and occasions. One of our newest brands, EVEN Hotels, caters to an identified guest need for maintaining wellness while travelling and the acquisition of the Kimpton brand has a strong strategic fit with our Hotel Indigo and EVEN Hotels brands (see pages 20 and 21). Recognising the importance of a strong loyalty programme, we encourage guests to stay across the portfolio and build lifetime relationships through the IHG Rewards Club programme, which has 84 million members. We continue to evolve our loyalty programme to ensure that it is not just the largest in the market, but also the most preferred – refreshing and reviewing the rewards and benefits available to increase its attractiveness to our guests. We recognise our loyal guests and aim to personalise their experiences.

How we measure it

KPIs – Total gross revenue, RevPAR, System contribution to revenue, Guest HeartBeat

Why we think this is important

As a franchisor and manager of hotels, we aim to drive demand to our hotel brands and reduce distribution costs for our owners through strong brand awareness and effective yield-management practices, delivering better returns for our owners. Our direct channels (digital and voice) are less costly to owners than third-party intermediaries. Our strong brands are a significant driver of bookings through indirect channels (online travel intermediaries (OTIs) and business and leisure travel agents). We therefore aim to drive demand for our hotels through our direct channels and manage revenue per booking, thereby delivering the highest quality revenues to IHG hotels at the lowest possible cost, increasing RevPAR and owner returns.

What we are doing

Our direct and indirect channels delivered 71 per cent of total rooms revenue to our hotels in 2014. Our digital business has significant scale and is growing fast, accounting for $4 billion in revenue in 2014. We continue to invest in features that enhance the digital experience, with branded and personalised offerings to encourage guests to book via our direct channels.

We recognise the impact of OTIs as an indirect booking channel, mainly used by comparison-site shopping leisure travellers searching for a competitive deal. We have therefore leveraged our global footprint to secure better terms with the OTIs on behalf of our owners, whilst leveraging OTIs as a complementary distribution channel.

For details on our investment in developing strong technology platforms, see page 22.

How we measure it

KPIs – System contribution to revenue, RevPAR

Why we think this is important

We recognise that hotel owners have a choice of brand, if any, to choose for their property. A strong owner proposition, preferred brands and effective operational support, play a vital part in making us the brand choice for owners. Relationships with new and existing owners therefore have a significant impact on our ability to build scale. A strong owner proposition and relationships with our owners also enable us to deliver the brand promise for our guests and continue building preferred brands.

What we are doing

We are committed to delivering a compelling and preferred owner offer. We continually review and enhance our owner proposition in many ways, including:

ensuring a profitable return on investment for our owners, assisting them along the lifecycle of their investment, from identifying the right site to operating a profitable business;

providing a range of revenue-driving tools and services, including booking and distribution channels;

seeking to price our fees to reflect our services, tools and brand value;

having strong owner relationship management and working with the IHG Owners Association (which represents the interests of our hotel owners globally) to deliver joint initiatives – www.ihgplc.com/ihgowners;

recognising the importance of responsible business practices to all stakeholders, and developing tools which support both our commitment to doing business responsibly and delivering superior returns to our owners (see pages 24 and 25).

How we measure it

KPIs – All KPIs measure the strength of our owner proposition

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IHG  Annual Report and Form 20-F 2014

Targeted Portfolio

Our Targeted Portfolio means we operate in the most attractive markets for IHG and in the highest opportunity segments based on guests’ occasion needs, with an asset-light business model – franchising and managing hotels rather than owning them.

Key performance indicators (KPIs) and What we have done in 2014

See pages 30 to 33

How we manage principal risks

See pages 28 and 29

Where we operate and detailed global and regional Performance

See pages 34 to 51

Managed and franchised model (our asset-light business model)

See pages 12 and 13

*Source: Smith Travel Research.

Attractive markets

Why we think this is important

Achieving scale and driving growth requires us to focus on those markets that are most attractive and where there is the best fit with our strategy and business model. These markets have large inbound and domestic demand for branded hotels or show great potential to have this in the future.

What we are doing

Whilst we operate in nearly 100 countries and territories and continue to expand our presence globally, we primarily focus our efforts on 10 priority markets in which we either have a strong existing competitive position or have a compelling opportunity to build one. These include a number of key emerging and more developed markets – US, Middle East, Germany, UK, Canada, Greater China, India, Russia and the Commonwealth of Independent States, Mexico and Indonesia. These currently represent 85 per cent of the IHG System and 89 per cent of the pipeline. We focus our brand building efforts and prioritise the investment in infrastructure in these markets, for instance, by adapting our websites to the local language and deploying dedicated sales teams. Depending on the market, we will adapt our model and proposition to owners to take into account local market characteristics.

The Performance section provides details of how we have performed in each of our regions and priority markets.

How we measure it

KPIs – Net rooms supply, Total gross revenue

Highest opportunity segments

Why we think this is important

Typically, the traditional hotel industry is segmented according to price point, and IHG is focused on the three segments that generate over 66 per cent* of branded hotels revenue – namely, midscale, upscale and luxury. We believe these segments have the highest growth opportunity and strongest resilience to the industry/economic cycle. However, we also recognise that guests choose a hotel based on their needs and the occasion, resulting in the possibility of the same guest staying across multiple hotel segments.

What we are doing

Our portfolio of brands is targeted around differing occasion segments. We tailor each of our brands to meet guests’ needs, looking at the differing occasion they are travelling for and their need for travelling.

We used this segmentation analysis to develop the brand proposition for both the HUALUXE Hotels and Resorts and EVEN Hotels brands (see page 20). It was also a consideration in the acquisition of Kimpton Hotels & Restaurants (see page 21).

How we measure it

KPIs – Guest HeartBeat, RevPAR

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Holiday Inn Manhattan – Financial District, New York, US

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              HUALUXE Hotels and Resorts, People’s Republic of China

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              Crowne Plaza Beijing Lido, People’s Republic of China

Our Targeted Portfolio in action:

Greater China – a priority market

In 2014, IHG celebrated our 30th anniversary of operating in Greater China, one of our priority markets. We were the first international hotel company to enter the country in 1984, and we have developed a leading business in the region with 78,194 rooms open (241 hotels) and a further 54,338 rooms (189 hotels) in our development pipeline. In 2014, Greater China contributed 11 per cent of our Group operating profit before central overheads and exceptional items.

We originally developed our business in China’s tier 1 cities and along the eastern seaboard, and have more rooms today in tier 1 cities than our major international competitors. However, our more recent growth has focused on tier 2 and 3 cities, which are expected to generate significant long-term demand growth and, by 2022, nearly 80 per cent of the fast growing Chinese middle-class are expected to live in these cities. We achieved several key milestones for our Greater China business in 2014, for example, we:

 opened Crowne Plaza Beijing Lido with the same owner as our first hotel in the region (Holiday Inn Beijing Lido), demonstrating our established track record and the strength of our owner relationships in the region;

opened 10,648 rooms (34 hotels), our highest number of room openings since we started our business in the region, growing the IHG System size by 14 per cent;

signed 15,754 rooms (64 hotels), our best year for hotel signings since 2007; and

opened our 50th Holiday Inn Express hotel and signed our 50th pipeline hotel, making Holiday Inn Express the largest international limited-service brand in China.

In February 2015, we opened our first hotel for the HUALUXE Hotels and Resorts brand in Yangjiang, slightly later than expected. As at 31 December 2014, we had 24 hotels (7,551 rooms) in the pipeline for the brand, which we will continue to build.

In addition to driving growth in Greater China, we are focused on establishing hotels that cater for Chinese guests in other locations outside China. Our China-Ready programme ensures we will be able to cater for the growing number of Chinese guests around the world through cultural and food and beverage training for hotel teams. We currently have 84 hotels in AMEA, The Americas and Europe that have signed up for the programme.

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IHG  Annual Report and Form 20-F 2014

OurWinning Modeland

Targeted Portfolio in action

EVENTM Hotels

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“The EVEN Hotels brand allows owners to diversify their portfolio in a unique guest occasion segment.”

We announced the launch of a new hotel brand, EVEN Hotels, in February 2012. In June 2014, we opened our first hotels under the brand in Norwalk, Connecticut and in Rockville, Maryland.

Winning Model

LOGOPreferred brands delivered through our people

As part of having a portfolio of preferred brands, we continually review our portfolio of brands in light of the evolving needs and preferences of our guests. As part of this, EVEN Hotels was launched in 2012 as the first wellness lifestyle hotel brand. We developed the brand based on a large and growing traveller need for maintaining wellness routines while travelling. More than two years of research into consumer insights showed that there are 17 million wellness-minded travellers in the US alone who struggle to maintain healthy eating and exercise habits, get proper sleep and be productive when they are travelling away from home. Therefore, the brand was developed to meet a guest’s holistic wellness needs in the areas of exercise, food, work and rest. For example, an EVEN branded hotel offers nutritious menus and amenities, such as guest rooms designed for in-room workouts.

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Build and

leverage scale

IHG has committed up to $150 million of its own capital to the development of the EVEN brand over the next few years. In the future, we will look to recycle this capital, just as we did for both the Staybridge Suites and Hotel Indigo brands. As part of matching the brand to the right location, we are looking at core urban areas, dense office parks and suburban markets as well as considering the expansion of the brand beyond the US. As at 31 December 2014, we had three hotels (584 rooms) signed into our development pipeline and two hotels (296 rooms) open.

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Strong brand portfolio

and loyalty programme

We have been using our loyalty programme, IHG Rewards Club, to introduce our members to the EVEN Hotels brand, specifically targeting our communications at those guests who travel to, or have expressed an interest in, the locations of our first hotels, wellness or the brand itself.

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Effective channel

management

As with our other brands, we have leveraged our existing booking platforms to create a brand-specific webpage targeted via the app. We have specifically customised it to be brand specific to EVEN Hotels, focusing on wellness needs with relevant content and healthy lifestyle features such as fitness videos, ambient sounds, a diary of wellness-focused events organised by the hotel, and ‘wellness travel tips’.

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Superior owner

proposition

The EVEN Hotels brand allows owners to diversify their portfolio with a new IHG brand in a unique guest occasion segment. IHG, through its own capital investment, currently owns and manages the first two open EVEN hotels. Three additional hotels are currently in development. Owning and operating our first hotels enables us to showcase the brand to other potential owners.

Targeted Portfolio

Attractive markets

The US is one of our priority markets, and we opened the first EVEN hotels in cities where we have existing brand presence.

Highest opportunity segments

The EVEN Hotels brand has a strategic fit in our brand portfolio alongside Hotel Indigo, and now Kimpton, in the boutique and lifestyle segment. The brand is targeted at the unique segment of wellness and lifestyle.

Managed and franchised

We have used our own capital to develop the brand and will look to recycle this in the future. We will seek to accelerate growth for the brand through our managed and franchising model.

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EVEN Hotel Rockville, Maryland, US

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Acquisition of Kimpton® Hotels & Restaurants

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“We believe the Kimpton brand has enormous potential for growth.”

Our acquisition of Kimpton Hotels & Restaurants, the world’s largest independent boutique hotel operator, completed in January 2015. Kimpton is a highly successful business with a US-based portfolio comprising 62 managed hotels (11,300 rooms) and a further 16 hotels (3,000 rooms) in the pipeline (as at 16 January 2015). A sophisticated food and beverage operator, Kimpton also runs 71 hotel-based destination restaurants and bars.

Winning Model

LOGOPreferred brands delivered through our people

The Kimpton brand is renowned for having distinctive and innovative hotels located in attractive urban and resort locations. Each hotel aims to deliver a deeply personal, genuine and authentic service for guests and, whilst each hotel is unique, the brand has a number of common design and service principles and hallmarks. The Kimpton brand caters for a broad and varied range of guest needs.

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The Lumen, A Kimpton Hotel, Dallas, Texas, US

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Build and

leverage scale

The boutique segment, in which Kimpton operates, is the fastest growing in our industry over the last five years, and there is significant opportunity for future growth based on high levels of demand growth. We also believe the brand has enormous potential for growth outside the US and plan to capitalise on our scale, powerful distribution systems and owner networks to support its growth globally. We did this previously for our Hotel Indigo brand which started with a well-established base in the US and has now been expanded globally to 21 countries (including hotels in the pipeline).

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Strong brand portfolio

and loyalty programme

The Kimpton brand has a strong strategic fit within our existing brand portfolio at the upper upscale price point. It is also highly complementary with our Hotel Indigo and EVEN Hotels brands, creating a leading boutique and lifestyle hotel business, with over 200 open and pipeline hotels across 21 countries.

We plan to leverage Kimpton’s market-leading insight and strong track record in operational excellence, food and beverage, and design, to add value across our brand portfolio. Kimpton’s loyalty programme (Kimpton Karma) members account for 25 per cent of its room bookings.

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Effective channel

management

A large proportion of Kimpton’s business already comes through direct channels, driven by its most loyal guests. Each hotel has a dedicated website with engaging content, reflecting the boutique nature of the brand. We will leverage our digital platforms to accelerate Kimpton’s growth, whilst maintaining the uniqueness of Kimpton’s existing channels.

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Superior owner

proposition

The addition of Kimpton to IHG’s brand portfolio offers owners another attractive option in the boutique segment and access to a brand with a strong track record at the upper upscale price point. Its presence in the most attractive markets in the US has delivered excellent financial performance for both the business and its hotel owners. It also enables IHG to raise awareness of other IHG brands among owners of Kimpton branded hotels. Kimpton’s strong brand, combined with our scale and booking and distribution channels, will drive superior returns for owners.

Targeted Portfolio

Attractive markets

The US is one of our priority markets and Kimpton hotels currently have presence in the most attractive urban and resort locations, as well as the highest RevPAR markets such as San Francisco and New York.

Highest opportunity segments

The boutique hotel segment has been the fastest growing in our industry over the last five years, with demand, supply and RevPAR growth in boutique hotels in the US each significantly outperforming the overall industry.

Managed and franchised

Kimpton is a fully asset-light brand, operating hotels under management contracts.

More information on the acquisition of Kimpton Hotels & Restaurants can be found at www.ihgplc.com/kimpton

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IHG  Annual Report and Form 20-F 2014

DisciplinedExecutionStrategic Report

We recognise that successful delivery of our strategy for high-quality growth requires Disciplined Execution. We prioritise investment in our technology platforms and our people as well as delivering operational efficiencies.

 

Scale and efficiency

of operations

Investment in developing strong technology platforms

Why we think it is important

Driving efficient operational processes and managing our costs allows us to contribute to hotel performance through efficient practices, tools and systems. It also helps us strengthen our revenue delivery systems which means an increase in system contribution to hotel revenue, supporting our owner proposition and maximising our investment in building preferred brands. Careful costRisk management leveraging our scale and focusing on productivity improvements also allows us to drive continued improvement in our margin.

What we are doing

To maximise the scale and efficiency of our operations, we:

focus on spending in a way which enables further investment in our strategic priorities. Our procurement team has tools and processes which allow us to monitor and control spend and use our scale to deliver buying advantage. Our focus on cost efficiency and continuous improvement ensures we deploy our resources effectively, concentrating on the key priorities and activities that drive our business;

introduced a new human resources system to streamline and improve the automation of our human resources processes in 2014 – see page 32; and

continue to benefit from off-shoring our Business Service Centre in Gurgaon, India. This provides centralised accounting services for IHG corporate offices, and owned and managed hotels.

How we measure it

KPI – Fee margins

See page 32 for the KPI and
What we have done in 2014

Why we think it is important

As identified on page 11, technology, as used by travellers, is playing an increasingly important role in shaping the travel industry. The internet, which is now more than ever accessed through mobile devices, is used extensively to research, plan and book travel. In emerging markets, consumers are going straight to mobile devices, and there are now twice as many mobile internet users in China than internet users in the US. Guests are also seeking greater levels of personalisation, and are sharing their experiences instantly via social media.

We believe that keeping abreast of the evolving traveller trends and investing in technology systems will assist us in building brand preference, strengthen our loyalty programme and deliver compelling and engaging digital content across the ‘Guest Journey’ (which comprises five steps – Dream, Plan, Book, Stay and Share), thereby enabling us to build lifetime relationships with our guests.

What we are doing

To deliver the highest quality digital content for our guests, we are ensuring that we have the right technology foundations and infrastructure in place. In 2014, we:

standardised on property hardware for all IHG hotels in the US, providing a consistent platform that allows us to develop solutions such as Mobile Check-in and Check-out (now available in over 500 hotels);

piloted enhanced customer relationship management capability that allows us to utilise our IHG Rewards Club members’ profiles to drive personalisation and guest recognition in our hotels;

implemented new digital marketing capabilities that allow us to target potential guests more effectively through the internet; and

announced our strategic partnership with Amadeus, the leading provider of advanced technology solutions for the global travel industry, to explore technology solutions.

Improving our technology infrastructure gives us the foundation to transform the guest experience and make it more interactive through digital content. In 2014, we:

increased mobile bookings by 50 per cent to $900 million and downloads of the IHG app grew by 80 per cent;

made numerous improvements to our award-winning mobile app, including the launch of IHG translator, a learning tool which engages our guests and drives greater interaction; and

created benefits for our IHG Rewards Club members, including multi-brand campaigns that include over one million automatically tailored offers generated using specific insights from each guest’s profile and stay history – $360 million in revenue was generated by the 2014 ‘Big Win’ IHG Rewards Club promotion.

How we measure it

KPI – System contribution to delivery

See page 30 for the KPI and
What we have done in 2014

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        InterContinental Sydney Double Bay, Australia

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Risk description

Trend

Impact

Initiatives to manage these risks

Failure to maintain an effectiveInvestmentsafety and securitysystem and to respond appropriately in developing great talentthe event of an issue could result in an adverse impact to IHG; such as reputational and/or financial damage and undermining stakeholder confidence.LOGO

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Why we think it is important

Our people bring our brands The environment in which IHG develops and operates hotels continues to life on a daily basis, delivering on each individual brand promiseevolve, creating continued inherent challenges to enhance the guest experience. They are, therefore, a critical partsafety and security expectations of our success. Accordingly, we recognise the importance of attracting, retaining and developing the very best talent in the industry to service our guests and bringowners. Although we assess this risk to be stable overall, our brandsRisk team coordinates and monitors a management system designed to life.provide an appropriate level of control of safety and security in IHG branded hotels and IHG offices.

 

What we are doing

To achieve this, the four pillars of Our design & engineering, hotel opening and operations teams work together with our people strategy have consistently been:

1. To develop a BrandHearted culture

Each ofoperational safety and security experts to evaluate our brands delivers a differentiated guest experience dependent upon the brand’s strategy. This is delivered by our people who place brands at the centre of this helping to drive guest satisfactionstandards and brand preference, which we measure through Guest HeartBeat – a KPI.

2. To make IHG a great place to work

Building a strong employer brand assists us in attracting the best possible talent to meet our strategic objectives:

  we ask our people to live our Winning Ways (set out above)provide guidance and act in a responsible way – see pages 24 and 25 for how acting responsibly is part of our culture; and

  we offer our people our Room to be yourself commitment, which is brought to life by four promises:

–  Room to have a great start: This assists us in recruiting the right people for each brand and role. New recruits are offered a structured orientation programme to provide them with an understanding of IHG’s strategy and values.

–  Room to be involved: We communicate with employees on matters relating to the Group’s business and performance and share information on people, policies and news across IHG through various channels, including conferences, team meetings and our intranet site. We encourage employees to give regular feedback

to ensure IHG meets expectations and delivers on its commitments – this is formally done twice a year through the Employee Engagement survey, the results of which are a KPI.

–  Room to grow: Our people are given access to the required support, experience and training and provided with development opportunities.

–  Room for you: We recognise achievements and communicate these throughout our business.

3. To deliver world-class People Tools to our owners and hotelshotel colleagues. We also have internal and external threat intelligence expertise to monitor potential impacts on IHG from, for example, terrorism.

Whilst the hotel sector is not subject to stringent industry specific regulations, the global business regulatory environment is continuously evolving and failure to ensurelegal, regulatory andethical compliancewould impact IHG financially, operationally and reputationally.LOGO

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Our People Tools are industry-leading best practices tailored specifically for our brands,regulatory compliance specialists work to identify and assist hotel managementrespond to relevant regulatory and societal expectations. This is a particular imperative in relation to new privacy and cyber legislation, such as the EU GDPR and China’s new cybersecurity law, and continued scrutiny of the hospitality industry in relation to the environment and human resources teams to hire, train, involve and recognise our colleagues. By working to increase employee retention and performance, guest satisfaction and drive efficiencies, they help increase revenue for our owners (helping us with our owner proposition).

4. Building a strong leadership and performance culture

We have established a ‘winning culture’ at IHG, this starts with building a strong leadership from the top – see pages 57 to 69 for our Board and Executive Committee leadership.

For alignment of our performance culture with our strategic priorities and KPIs in our corporate offices for our senior executives, – see the Directors’ Remuneration Report on pages 76 to 91.

Having a predominantly managed and franchised estate means that not all of those people who work at our hotels are our employees. When the Group’s entire estate is taken into account (including those working in our franchised and managed hotels), over 350,000 people worked globally across IHG’s brands as at 31 December 2014.

IHG employed the following as at 31 December 2014:

  7,797 people worldwide (including those in our corporate offices, central reservations offices and owned hotels (excluding those in a category below)), whose costs were borne by the Group;rights.

 

4,975 people who worked directlyOur regulatory compliance programme focuses on behalfbribery, sanctions, data privacy and competition compliance, with expectations defined within our Code of the System FundConduct and whose costs were borne by the System Fund;related policies and training and awareness tools. Our development and legal teams work closely during owner due diligence procedures and escalate any identified ‘red flags’ for senior leadership review and decision. We also have in place a whistleblower hotline to report any concerns and defined controls which are routinely monitored. For example, we regularly review our gift and entertainment processes and registers to ensure these remain appropriate and are complied with.

 

602 General Managers who workFor details on our culture of responsible business and out approach to issues such as human rights, anti-bribery and environmental sustainability, please refer to pages 18-19).

A material breakdown in our managed hotelsfinancial management and whose costs were borne by those hotels;control systemswould lead to increased public scrutiny, regulatory investigation and litigation.LOGO

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This risk has not experienced any material change in 2017, however IHG continues to operate a strong set of processes across its financial, operational and compliance processes. See page 42 for details of our approach to taxation, page 56 for details of our approach to internal financial control and pages 126-129 for specific details on financial risk management policies. Our finance team has worked to understand and prepare for changes to revenue recognition reporting under IFRS 15.

 

11,848 other hotel workers who workWe continue to develop a scalable finance operating model, with increasing use of analytical capabilities, to enable us to adapt to future changes in the industry landscape and as we redeploy and refocus resources.

The inability to realise value from our managed hotels, who have contracts or lettersprogramme and projectdeliverymay result in failure to improve commercial performance, financial loss and undermining of service with IHG and whose costs were borne by those hotels.stakeholder confidence.LOGO

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See pages 120 IHG is currently delivering multiple high value and 152 for more information.complex business change programmes. Resource prioritisation across these initiatives is overseen by our executive team, and processes, education and support have been provided throughout 2017 to increase the quality and consistency of programme delivery. Our plans to accelerate our growth will build on these capabilities during 2018 to review end-to-end processes and manage delivery interdependencies across IHG.

 

  

 

How we measure it

KPIs – Employee engagement, Guest HeartBeat

See pages 31 and 32 for KPIs and What we have done in 2014

Diversity and inclusion

As a global organisation operating in nearly 100 countries around the world, we recognise the importance and benefit of ensuring our workforce fully represents the communities in which we operate and the guests who stay in our hotels. As at 31 December 2014:

  5 of the 13 Directors on the Board were female (38%);

  32 out of 127 of the senior managers employed by the Group (including directors of subsidiaries) were female (25%); and

  7,069 out of the 12,772 employed by the Group and whose costs were borne by the Group or the System Fund were female (55%).

See page 62 for further information on our approach to diversity (including our diversity policies) from the Board level and throughout the organisation.

 

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IHG  Annual Report and Form 20-F 2014

Doing business responsiblyViability statement

A commitmentThe Group’s annual planning process builds a robust three-year plan. The detailed three-year plan takes into consideration the principal risks, the Group’s strategy, and current market conditions. That plan then forms the basis for strategic actions taken across the business. The plan is reviewed annually by the Directors, and approved towards the end of the calendar year. Once approved, the plan is then cascaded to responsiblethe business practices underpinsand used to set performance metrics and objectives. Performance against those metrics and objectives is then regularly reviewed by the Directors. The key assumptions included in the three-year plan relate to RevPAR, System size and no change to our entirestated dividend policy. There are no significant debt maturities in the period under consideration and therefore no assumptions have been included in relation to refinancing.

In assessing the viability of the Group, the Directors have reviewed a number of scenarios, weighting downside risks that would threaten the business model, future

performance, solvency and liquidity of the Group more heavily than opportunities. The scenario testing focuses mostly, but not exclusively, on the impact of declining RevPAR on the viability of the Group, as most of the principal risks outlined on pages 21 and 22 will cause a deterioration in RevPAR.

The scenarios included a severe but plausible downturn like the financial crisis that occurred from 2008 to 2009 (when the Board maintained the ordinary dividend despite the severity of the downturn in trading), a widespread cybersecurity breach and a reverse stress test of the business starting from the presumption of the Group having insufficient liquidity to continue trading. In the severe scenarios, the Directors also considered actions that would be taken if such events became a reality. These actions include a reduction in capital expenditure, salary freezes and suspension of bonus plans and the ordinary dividend. The results confirmed that the Group would be able to withstand the impact of each scenario.

The Directors have determined that the three-year period to 31 December 2020 is an appropriate period to be covered by the viability statement. Although hospitality industry business cycles are on average longer than three years, the end of those cycles has only resulted in declining RevPAR when that has been caused by exogenous shocks, and the decline in RevPAR has only lasted two years. The Board has therefore determined that no additional insight can be gained from assessing these scenarios over a longer period.

The Directors have assessed the viability of the Group over a three-year period to 31 December 2020, taking account of the Group’s current position, the Group’s strategy and the way we work. We recognise the importance it has for all of our stakeholders in making IHG and its brands their preferred choice.

Why we think it is important

We believe that by ensuring our business is committed to responsible business practices we will enhance and protect the reputation of IHG and our brands. It provides us with the opportunity to protect the environment, create job opportunities, improve community resilience and make us more innovative. Doing the right thingprincipal risks documented in the right way enables usStrategic Report. Based on this assessment, the Directors have a reasonable expectation that the Group will be able to make an even greater contributioncontinue in operation and meet its liabilities as they fall due over the period to the locations where we operate. It also ensures we act in a manner that benefits all of our stakeholders, including employees, guests, corporate customers, owners and the local community, who are increasingly considering whether the businesses with which they interact share their values. This provides us with a competitive edge, assisting us to deliver profitable growth and create shared value for all stakeholders in the long term.31 December 2020.

 

How we measure it and

What we have done in 2014

KPIs – Employee engagement and all those KPIs set out on page 33

Our commitment to responsible business underpins our whole strategy and contributes to our success across all areas.

See pages 32 and 33 for progress against our KPIs.

Five-year corporate responsibility targets

These were released in September 2013, and are centred on measuring our impact on the environment and community (at both global and local level) and demonstrating our commitment to doing business responsibly and creating shared value for IHG and its stakeholders:

  some of these are KPIs; and

  the progress against others can be found in our Responsible Business Report.

Further information, including our Responsible Business Report, can be found at www.ihgplc.com/responsiblebusiness

What we are doing

Our commitment to responsible business is part of our culture. Our responsible business practices include:

Governance and leadership

Our Chairman, the Board and its Committees provide a strong leadership and governance structure. They promote responsible business behaviour by maintaining high standards of corporate governance, internal controls and risk management and compliance with relevant laws and regulations.

For information on our Board and governance processes, see pages 54 to 91.

Commitment to responsible business practices

We have a reputation for delivering a consistent and superior guest experience, we provide a safe and secure environment and we actively engage with our communities. Our brands are valuable assets and doing business responsibly enhances their reputation and builds trust and brand preference.

Responsible procurement

Our Vendor Code of Conduct sets out standards to which we require our supply chain partners to operate. We are committed to promoting diversity across our responsible procurement agenda and have set targets to ensure corporate responsibility criteria are integrated into the selection and evaluation process for preferred suppliers.

Health, safety and security

A safe and secure environment for our guests, employees and those working at or visiting our hotels and corporate offices is important. IHG has therefore established a set of policies, procedures and measures, and complies with relevant legislation. We ensure the protection and well-being of those working for IHG through suitable work-based strategies, minimise the risk of injury from work activity, ensure that sufficient information is provided and systems are in place to address health and safety concerns, and involve employees in the continuous improvement, reporting and review of health and safety matters.

Risk management

We have in place an effective system of internal controls and risk management to identify, assess, prioritise and mitigate risks to our business, guests and employees, which enables us to achieve our shared objectives. This is an essential part of being a responsible business.

For information on our risk management practices and systems of internal controls, see pages 26 to 29.

People

Being a responsible business cannot be achieved without the support and active engagement of our people. They are fundamental to ensuring we operate an ethical business. Our Winning Ways (see page 23) are a set of behaviours that we internally promote to assist with how we interact with our guests and colleagues.

As part of acting responsibly and putting in place a responsible business ethos, we have policies and training in place to ensure our people are kept aware of and understand the key legal and regulatory areas affecting them in their roles, such as competition, anti-bribery and data privacy laws and procedures, crisis management and brand safety standards. We do this through a range of programmes, policies and training, which we regularly keep under review and which are communicated via e-learning and face-to-face training modules.

Our Code of Conduct consolidates and clarifies expected standards of behaviour and communicates the ethical values of the Group. It is applicable to all Directors, officers and employees and is available at www.ihgplc.com/investors under corporate governance.

We also have a confidential disclosure channel to provide employees with a means to report any ethical concerns they may have.

For information on our investment in developing our talent and who are our employees, see page 23.

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IHG Academy - Holiday Inn Express Stoke On Trent, UK

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Human rights

We focus on those areas of human rights most relevant to our business, ensuring the rights of the local people where we operate are protected. We are working to raise further awareness of our human rights approach in our hotels through embedding it as a brand standard, and will continue to develop our training materials. We are a signatory to the UN Global Compact, aligning our operations and strategies with the 10 universal principles that include commitments to human rights and labour standards. We are part of the Business in the Community cross industry working group on human rights as well as the International Tourism Partnership’s Human Trafficking Working Group. We are also working with our internal procurement team to embed further our human rights approach into our contracts.

Corporate responsibility

Our global scale provides us with an opportunity to make a positive impact on the environment and communities in which we operate. Our five-year corporate responsibility targets, released in September 2013, focus on measuring this impact.

Each one of our hotels is a central part of its community, from creating jobs and stimulating local economic opportunities, to managing their environmental impact in a responsible way and providing shelter in times of need. We work to develop new and better ways to assist owners to build and operate IHG branded hotels, creating sustainable value for our brands, business and stakeholders, as well as addressing social and environmental challenges. Our three bespoke corporate responsibility programmes are a key part of this and we

work very closely with our owners and colleagues to maximise the positive impact of these initiatives:

22 IHG Green EngageTMsystem:Helps us minimise our impact on the environment by tracking and managing the use of energy, carbon and water and waste in our hotels. This assists us in delivering both more environmentally sustainable hotels and cost efficiencies for owners.

IHG® Academy:A collaboration between our hotels and local schools, colleges and community organisations to help people develop the skills they need to improve their employability and secure a job in the hotel industry.

IHG® Shelter in a Storm: Empowers our hotels to support guests, colleagues and local communities in times of disaster with financial support, vital supplies and accommodation.

 

IHG’s global greenhouse gas (GHG) emissions

 

By delivering more environmentally sustainable hotels, we can drive cost efficiencies for owners as well as meet the expectations of all our stakeholders. We recognise the importance of reducing our global greenhouse gas emissions for corporate offices and hotels – our target is to reduce our carbon footprint per occupied room by 12% across our entire estate by 2017 (against a 2012 baseline). See page 33 for progress.

 

    

 

Scope

We report Scope 1 and 2 emissions as defined by the GHG protocol as follows:

 

•  Scope 1 (Direct emissions): combustion of fuel and operation of facilities; and

 

•  Scope 2 (Indirect emissions): electricity, heat, steam and cooling purchased for own use.

 

Methodology

We have worked with external consultants to give us an up-to-date picture of IHG’s carbon footprint and assess the performance over the past few years. The external consultants use a sampling and extrapolation methodology to estimate our GHG emissions.

 

For 2014, in line with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 1,402 of our 4,840 hotels. As IHG System size is continually changing and the hotels reporting data to the IHG Green Engage system increases annually, we are restating the impacts for all years from the baseline year 2012 annually to enable comparisons to be made.

 

 

Reporting boundary

Measure

 

20141   

 

 

20131   

 

 

Global – corporate offices and managed, franchised, owned and leased hotels2 (a KPI and part of our five-year targets)

 

Scope 1 Direct emissions1,365,883  1,280,973  
Scope 2 Indirect emissions3,792,771  3,683,737  
Total GHG emissions (tCO2e)5,158,654  4,964,710  

 

IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room)

32.3  33.4  

Global – corporate offices and managed, owned and leased hotels2(as required under the Companies Act 2006)

 

Scope 1 Direct emissions496,316  486,086  
Scope 2 Indirect emissions1,921,077  1,847,304  
Total GHG emissions (tCO2e)2,417,393  2,333,390  

IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room)

 

59.2  62.2  

 

1   Reporting period commencing on 1 October and ending on 30 September – due to the delay in hotels receiving their energy bills it is not possible to report accurately GHG emissions from 1 January to 31 December.

2   Includes all of our branded hotels but does not include emissions from 88 hotels. We do not have sufficient data to estimate their emissions and believe them to be immaterial.

 
 
              

LOGO

25


IHG  |  Annual Report and Form 20-F 2014

Risk management

IHG believes that an essential part of being a responsible business is having in place robust and effective risk management and internal controls. This supports our business to be resilient, successful and trusted.

IHG’s approach to risk management

The Board is ultimately accountable for risk management across the organisation. It is supported by the Audit Committee, the Executive Committee and other delegated committees who collectively set the tone and appetite for risk management at IHG.

This is cascaded down to the day-to-day activities of IHG corporate offices and hotels through well-established and continuously improving policies, processes, systems and controls which set out clear accountability, and are supported by tools, training and communication to ensure risks are effectively managed.

Risks are further identified, assessed, mitigated and monitored by functional specialists and, where deemed necessary, periodically reviewed by internal and external auditors. These activities are typically grouped into ‘Three Lines of Defence’ as shown on the right. IHG’s Global Risk Management team provide subject matter expertise, leadership and support across all these activities.

Embedded risk management processes

IHG has in place a Major Risk Review process to:

enable the business to identify, assess, manage and monitor the principal risks and uncertainties affecting the Group (the Major Risks); and

support the Executive Committee, Audit Committee and the Board to monitor, review and reflect upon the progress of risk management activities across the portfolio of Major Risks on a biannual basis.

The Major Risks align closely with our strategy and business priorities, and also identify those issues which are most likely to significantly affect other operational, commercial or reputational matters and, as such, are regularly discussed at senior leadership team and committee meetings.

Our Risk Working Group (RWG) ensures there is sufficient focus and effective management of the Major Risks, and seeks to improve cross-functional working and effective risk management of the highest priority and emerging risks affecting IHG. The RWG is chaired by the General Counsel and Company Secretary and comprises the heads of Global Risk Management, Global Strategy, Programme Office and Global Internal Audit.

Underpinning the Group’s Major Risk Review process, each of the regions and functions have their own risk profiles that are updated quarterly in line with the activities of the strategic planning cycle. During the interim periods, continuous dialogue takes place between risk owners and risk subject-matter experts to develop, execute and monitor detailed risk assessments, risk mitigation strategies, controls and key risk indicators.

LOGO

262017


    

 

Holistic approach to risk assessmentKey performance indicators (KPIs)

IHG conducts risk assessmentsOur carefully selected set of KPIs allow us to identify, prioritise and inform decisions on risk mitigation. Risks are first assessed from an inherent or gross risk perspective (unmitigated risk). Then, internal controls and mitigation activities are identified and developed resulting

effectively monitor our performance by measuring

our success in a residual or net risk assessment (mitigated risk, net of controls). This is informed by the performance monitoring of internal key risk indicators, which provide objective evidence as to how effectively the risk is being managed. IHG and its Board think broadly and holistically about potential risks to the business, across the following categories:

  RiskWhat are these?

Who manages them?

  Strategic

Risks arising from IHG’s relationship with the external environment that can impact on IHG’s ambition and strategy over the long term.

Include major market and environmental changes or events that could impact our reputation across key stakeholder groups.

•  Leadership is provided by the Board, the Executive Committee, the Regional Operating Committees and functional leadership teams.

•  Expertise, co-ordination and oversight is provided by Global Strategy in conjunction with Global Risk Management to drive IHG’s leadership to make decisions around its portfolio of brands, key markets, business model and approach to ethics and other reputational matters.

  Tactical

Risks that could impact the delivery of IHG’s one to three-year commitments.

Include, but are not limited to, factors influencing IHG’s ability to sign and open new hotels, the performance of existing hotels and the delivery of projects that align with strategic planning processes.

•  Performance and delivery risks are managed by senior leaders and reported to the Regional Operating Committees and functional leadership teams.

•  Project risks are managed by project management teams with oversight provided by our internal Programme Office and supported by Global Risk Management.

  Operational

Risks which include a wide spectrum of day-to-day risks that frontline hotel colleagues and corporate teams face when dealing with guests or ensuring corporate systems and processes are running smoothly.

Include, but are not limited to, those managing the safety and security of our people and assets, the continuity of the business, third-party service providers and the wider supply chain.

•  Operational risks are managed by frontline hotel colleagues.

•  Oversight is provided, in the context of the managed and franchised business models, by specialist functional teams, with leadership provided by the Regional Operating Committees.

•  Due to the nature of operational risks, IHG typically mitigates these through policies, operational and business processes and other internal controls supported by systems, tools and training. Subject-matter expertise, leadership and co-ordination is provided by Global Risk Management and functional specialists.

LOGO

27


IHG  Annual Report and Form 20-F 2014

Risk managementcontinued

Managing risks in a changing environment

We continue to experience an increasingly risk aware and dynamic external risk environment with changes in political, economic, social, technological, legal and environmental risks. However, the Group’s asset-light business model, diversity of brand portfolio and wide geographical spread contribute to IHG’s resilience to events that could affect specific hotels or local areas.

The table below sets out the principal risks and uncertainties (the Major Risks) in the context of delivering against our strategy, for

and in driving high-quality growth (as described on pages 14 to 25). Whilst the external risk environment is increasingly volatile, uncertain and competitive, this is offset by our decision-making and strengthening risk culture, and efforts to continuously improve controls and mitigation actions (some of which is summarised below). These Major Risks align to our strategic priorities and are therefore proactively managed and monitored by senior management. They complement the wider comprehensive risk factors set out on pages 162 to 165.growth.

Risk description

Controls and mitigations

Preferred brands

Having a portfolio of brands with a clear, distinct brand proposition aimed at meeting increasingly personalised guest needs and the occasions they are travelling for, and delivering a consistent experience, is crucial to creating brand preference, loyalty and advocacy.

Failure to achieve this could impact on IHG’s competitive position and our reputation with guests, owners and investors.

LOGO  LOGO

•  Each of the brands in our portfolio of brands is designed to meet specific guest needs and occasions through distinct and complementary brand propositions (see pages 4, 5 and 18). Our recent acquisition of Kimpton Hotels & Restaurants adds to the strength of our portfolio and, together with EVEN and Hotel Indigo, enhances our boutique and lifestyle business (see pages 20 and 21).

•  We will continue to deliver on the growth of the Kimpton brand, running it as a standalone business to preserve its uniqueness.

•  We continually review ways to increase awareness and loyalty towards our brands through our loyalty programme, IHG Rewards Club, as well as a blend of global and local marketing promotions, sponsorships and brand initiatives to create synergies across the brand portfolio.

•  We manage brand consistency through the entire hotel life cycle supported by clear contractual terms, new hotel opening processes, brand standard requirements and compliance processes. This is supported by tools, training and guidance to assist those working at our hotels and owners to enable them to deliver brand consistency.

Leadership and talent

IHG must recruit and retain the right people and give them the tools, guidance and support to be successful in order to deliver a preferred brand promise. Recruiting and retaining people to work in its hotels, especially in rapidly growing emerging markets, is a particular challenge and ensuring we have the right leadership is crucial.

Failure to manage these could impact on IHG’s service delivery and IHG’s brands, result in increased cost of recruitment and have a broader impact on performance and delivery.

LOGO  LOGO  LOGO

•  We have in place a comprehensive global people strategy (see page 23) to ensure we are able to recruit, retain and develop talent at our hotels, corporate offices and central reservations offices. This includes our Room to be yourself commitment underpinned by a set of globally consistent policies, guidance, systems and tools, with localisation where appropriate.

•  Supplementing the global strategy, we have developed local people strategies for some of our priority markets to ensure we are best placed to be the employer of choice in these markets. These strategies make necessary adjustments to meet local languages, laws, customs and cultural nuances and to effectively leverage local recruitment channels.

•  IHG Academy assists us to fill our talent pipeline whilst supporting the local communities (see page 25).

•  Our leadership framework, support tools, and training and development programmes help our people grow their careers, thereby managing internal talent. We proactively manage and monitor succession planning at all levels. We consider the diversity (more broadly than gender) of our people and leadership, reviewing it in light of our guests and the local communities in which we operate (see page 62).

How each Major Risk links to our strategic priorities (described on pages 16 to 25)

LOGO Winning Model

LOGO Targeted Portfolio

LOGO Disciplined Execution

LOGO Responsible Business

28


Risk description

Controls and mitigations

Channel management and technology platforms

Booking and distribution channels and technological systems are a key part of delivering across the ‘Guest Journey’ and an important value driver for our owners. This is also an area where there is rapid change in terms of technology, guest expectations and relationships, with online travel intermediaries and travel agents impacting guests booking direct.

Threats to information security, from payment card information and other information held in IT systems, paper format and other formats, is a growing concern which could impact our operations, result in fines and other incremental costs, and undermine stakeholder trust in our business.

Failure to effectively manage and keep under review our channels and information technology infrastructure to optimise performance and resilience could impact on IHG’s revenue delivery systems, guest experience, return for our owners and investors, and IHG’s future performance.

LOGO  LOGO  LOGO

•  We recognise that technological advances and changing guest expectations mean that we must continually invest in, and improve, our technological systems (see page 22) to deliver across the ‘Guest Journey’ to build lifetime relationships with our guests. Our focus is on encouraging guests to use direct booking channels. However, recognising that some travellers use online travel agencies and intermediaries, IHG seeks to secure better terms with them on behalf of our owners.

•  Our Global Technology function works collaboratively with specialist third-party technology partners to continuously monitor, manage and optimise our systems and channels, including their resilience through backup systems and business continuity practices, to enhance all aspects of the ‘Guest Journey’.

•  Operating in nearly 100 countries and territories, IHG takes information security very seriously and has applied risk-based methods to build capability and resilience into our systems and processes. We manage data security to contain the risk and reduce the Group’s exposure, tightly controlling sensitive data through limited and monitored access.

•  We continue to aim to be fully compliant with Payment Card Industry – Data Security Standards (PCI-DSS) using tools and services from a leading specialist third-party provider with respect to payment-card processing.

Owner proposition

As a result of IHG’s predominantly franchised and managed business model and the increasingly competitive market for deals, maintaining strong relationships with owners, having a compelling value proposition, and demonstrating attractive returns on investment for our existing, new and potential owners is critical to sustaining IHG’s growth.

Failure to manage the owner proposition may result in the poor retention of hotels, and impact on IHG’s System size and development pipeline.

LOGO  LOGO  LOGO  LOGO

•  IHG’s regional teams build relationships with owners through a variety of methods, including formal and informal communications and owner conferences. We continually review and update our central support tools and systems, to offer a compelling owner proposition (see page 17).

•  IHG works closely with the IHG Owners Association, to ensure we have an understanding and insight into owners’ perspectives, particularly with respect to new programmes and initiatives (see www.ihgplc.com/ihgowners for a message from the 2014 Chairman of the IHG Owners Association).

•  The System Fund (described on page 49) is managed by IHG for the benefit of all our hotels with the objective of driving revenue for them, and its use is reviewed annually in collaboration with the IHG Owners Association.

•  Long-term franchise and management contracts, owner due diligence, new hotel opening teams and processes, Hotel Solutions (our internal online portal which provides tools and guidance to hotels across a number of operational areas) and the wider corporate infrastructure are put in place to leverage scale, support our hotels and maintain relationships with owners throughout the life cycle of the hotel.

Reputation and brand protection

IHG recognises the importance of its brands and reputation as important assets for the business. Societal and legal changes are increasingly holding organisations accountable for activities associated with their extended enterprise. With digital technology, news and the media, including social media, heighten the need for IHG, all those working in our hotels and corporate offices, owners and business partners to behave responsibly. Reputation is a complex matter that involves all areas of business.

Failure to safeguard the reputation of IHG and our brands could have a severe impact on the Group’s future performance.

LOGO  LOGO

•  Our commitment to responsible business underpins our strategy and is embedded in our culture throughout the organisation (see pages 24 and 25).

•  We have in place a comprehensive set of internal policies, processes and other internal controls supported by tools, training, monitoring and reporting.

•  Leadership in this area is provided by IHG’s Business Reputation and Responsibility function comprising lawyers, brand standard compliance managers, chartered secretaries, corporate responsibility specialists, risk managers and internal auditors who work together with the rest of the business to champion and protect the trusted reputation of IHG and our brands.

•  Our proactive risk-based approach to safety and security, intellectual property, regulatory compliance, litigation, crisis management and human rights are examples of the activities in place to manage reputational risk.

LOGO

29


IHG  Annual Report and Form 20-F 2014

Keyperformanceindicators (KPIs)

We measure our performance through a set of carefully selected KPIs which monitor our success in achieving our strategy and the progress of our Group to deliver high-quality growth. The KPIs are organised around the framework of our strategy – our WinningStrategic Model and Targeted Portfolio,targeted portfolio – underpinned by Disciplined Executiondisciplined execution and Doing Business Responsibly.

Winning Model and Targeted Portfoliodoing business responsibly.

 

KPIs

  2014 progress

2017 status

  

2018 specific priorities

Strategic Model and targeted portfolio  2015 priorities

Net rooms supply1,2

LOGO

Net total number of IHG

rooms in the IHG System.

 

LOGO  LOGO

 

Growth in underlying fee revenues1,2b

LOGO

At constant currency

Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages.

LOGO

LOGO

4.0%

increase in

net system size

31%

pipeline as a %

of system size

83,481

rooms signings

Launch and scale our new mainstream brand, avid hotels (see page 16 for details).

Leverage the expansion of our franchise offer for Holiday Inn, Holiday Inn Resort® and Crowne Plaza in Greater China, alongside Holiday Inn Express Franchise Plus model (see page 32 for details).

Continue to build international scale for Kimpton, accelerating the growth of the brand outside the Americas.

Ensure that, whilst driving strong rooms supply growth, we maintain a high level of guest satisfaction across our entire portfolio with removals from the system.

 

  

 

In line with our 2014 priorities, in relation to:

•   growth, particularly in priority markets (as at 31 December 2014):

-   IHG System size – 710,295 rooms (4,840 hotels), reflecting 3.4% net IHG System size growth in 2014, the strongest since 2009;

-   610,274 rooms (4,351 hotels) of the IHG System are in our priority markets – 85%;

-   IHG’s pipeline – 193,772 rooms (1,221 hotels), with 2014 having the highest signings in six years; and

-   173,252 rooms (1,117 hotels) of our pipeline are in our priority markets – 89%.

•   supporting the growth of the HUALUXE Hotels and Resorts and EVEN Hotels brands, we:

-   opened our first 2 EVEN hotels in 2014 (see page 20) and, in February 2015, the first HUALUXE hotel (see page 19); and

-   had 3 EVEN hotels (one of which is owned) and 24 HUALUXE hotels in the pipeline (as at 31 December 2014).

  

 

¿ Continue to accelerate growth strategies in priority markets, and key locations in agreed scale markets, and continue to leverage scale.

¿ Continue to support the growth of the EVEN and HUALUXE brands.

LOGODrive growth of the Kimpton brand in the US and create the foundation to establish the brand globally.

 

Total gross revenue from hotels in IHG’s Systemb

LOGO

Actual $bn

Total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. ItOther than for owned and leased hotels, it is not revenue wholly attributable to IHG, as it is mainly derived from hotels owned by third parties. It is an indicator of the scale and reach of IHG’s brands.

 

LOGO

 

System contribution to revenue1,2

LOGO

The per centpercentage of room revenue deliveredbooked through IHG’s direct and indirect systems and channels.

 

 

 

In line with our 2014 priorities, in relation to:LOGO

 

•   continuing to drive loyalty to our portfolio of brands and driving awareness of IHG Rewards Club, we:LOGO

-   enrolled 7m new IHG Rewards Club members (up 9% on 2013), taking the total to 84m members;

-   continued to win awards including the ‘Best Hotel Rewards Programme in the World’ by Global Traveler magazine (see www.ihgplc.com/ourbrands);

-   extended free internet access for all IHG Rewards Club members across our hotels globally;

-   launched the first global promotion by IHG Rewards Club, ‘Big Win’, aimed at encouraging members to stay at more hotels within IHG’s portfolio; and

-   enhanced our ancillary programmes such as Business Rewards, Dining Rewards and co-branded credit cards to extend our relationship with guests.

•   continuing with investment in technology systems and platforms:

-   we launched Mobile Check-in and Check-out at more than 500 hotels; and

-   see page 22 for further initiatives undertaken in 2014.

•   continuing to strengthen our revenue delivery, we delivered 71% system contribution to revenue, including $4bn of digital revenues with 50% growth in mobile bookings to over $900m.

•   continuing to drive the adoption and impact of our performance tools, systems and processes amongst our owners – there was an increase of over 20% in the adoption of Revenue Management for Hire.

  

 

¿$4.6bn

digital revenues

delivered in 2017,

up by 9%c on 2016

22%

More hotels using

IHG’s revenue

management service

in 2017, vs 2016

Maintain our focus on increasing contribution from IHG Rewards Club members, and through direct bookings via our website or call centres.

Further grow our share of bookings through the IHG App, whilst also increasing engagement within the App.

Continue to drive adoption and impactexpand the language capabilities of our performance tools, systemsonline channels and processes amongst our owners.call centres across all regions.

 

LOGOContinue Drive greater food and beverage revenue and support brand preference by introducing new food and beverage concepts for our hotels to enhance the functionality and performance of our direct channels to make these the preferred way to book.adopt.

 

LOGODrive preference for IHG Rewards Club and leverage this to build deeper, lifetime relationships with our guests.

 

LOGOContinue with investment in technology systems and platforms and embed leading-edge digital technology and enhanced capabilities.

 

 

aIncluding the acquisition of Kimpton (11,325 rooms).

bUse of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 154 and 155. Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.

cBased on a restating of 2016 digital revenues at 2017 FX rates.

Link between KPIs and
Directors’ remuneration

As we continued our focus on delivering

high-quality growth, Directors’ Remuneration for 2017 was directly related to key aspects of our Strategic Model and targeted portfolio. The following indicates which KPIs have impacted Directors’ Remuneration:

LOGOThe Annual Performance PlanLOGOThe Long Term Incentive Plan

70% was linked to EBIT

30% was linked to non-financial measures, of which:

  20% was linked to improvements in Guest Love scores

  10% was linked to the delivery of other individual objectives; for Executive Directors, the majority of these objectives related to our KPIs

50% was linked to Total Shareholder Return

25% was linked to rooms growth

25% was linked to RevPAR growth

 

30IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Key performance indicators (KPIs)23


Strategic Report

Link between KPIs and Directors’ remuneration

KPIs which could have an impact on the performance measures for remuneration plans:

1 Annual incentive plan (Annual Performance Plan)

2 Long-term incentive plan (Long Term Incentive Plan)

 

For more information see Directors’ Remuneration Report pages 76 to 91.

Explanation as to how 2015 priorities have evolved from 2014 priorities:

¿ Same priority as 2014

LOGO Specific progress made in 2014 against 2014 priority, the priority has accordingly been updated for 2015

LOGO New priority for 2015 in line with changes to our business

Key performance indicators (KPIs) continued

    

    

KPIs

2014 progress

  

2017 status

2015

2018 specific priorities

Strategic Model and targeted portfolio continued

 

Global RevPAR growth1,2

LOGO

Comparable hotels, at constant currency

Revenue per available room: Roomsrooms revenue divided by the number of room nights that

are available (can be mathematically derived from occupancy rate multiplied by average daily rate).available.

LOGO

Guest Love

IHG’s guest satisfaction

measurement indicator.

LOGO

LOGO

LOGO

77%

of Europe

Holiday Inn hotels

have implemented

or committed to

Open Lobby

 

 

3.0ppt

growth in

Guest HeartBeat1Love over

the last three years

Drive 2018 rollout of IHG Concerto amongst our owners, across the entire estate (see page 17).

 

LOGO Continue to drive adoption of customer relationship management systems in our hotels to help build lifetime relationships with guests.

 

IHG’s guest satisfaction measurement tool to measure brand preference Progress the rollout of our enhanced internet connectivity and guest satisfaction.

In line withwifi offer, IHG Connect, across our 2014 priorities, in relation to:estate.

 

   strengthening Broaden consistency and quality across our Crowne Plaza portfolio in the quality and consistency ofUS through the brand experience, delivering guest journeys that are differentiated by brands, we:now established Crowne Plaza Accelerate programme (see page 32).

 

-   clarified each of the brand propositions (see pages 4, 5 and 16);

-   recorded improvements in guest satisfaction scores in every region for our brands, leading to a global Guest HeartBeat score of 83.83%; and

-   received external recognition for our brands and hotels through winning over 300 global, regional and hotel level awards – see www.ihgplc.com/ourbrands.

   continuing to progress with our standards refresh across the brands, we launched the Holiday Inn Express, Holiday Inn, EVEN, Crowne Plaza and InterContinental standards manuals online.

•   supporting the openings of the first EVEN and HUALUXE hotels (see pages 19 and 20).

•   continuing Continue to invest in building long-term brand preference across our brands in line with segmentation by guest needsinnovation, including room design and occasions:finding new ways to use public spaces such as Holiday Inn Open Lobby (see page 32).

 

-   for Support the Crowne Plaza Hotels & Resorts brand, we introduced a new, innovatively designed guest room focused on meeting the changing needsrecruitment and development of today’s modern business traveller;our high-performing General Managers.

 

-   for the InterContinental Hotel & Resorts brand, we rolled out the new signature InterContinental Planet Trekkers menu, created exclusively for children, across Drive adoption of our properties;

-   to deliver the Holiday Inn brand experience, we continued to roll out the ‘Open Lobby’ concept across the brand, having opened five in the UK;

-   we further delivered on meeting guests’ changing needs by introducing a new Holiday Inn Express prototype design, which was co-created with hotel owners and through guest insights; and

-   we acquired Kimpton Hotels & Restaurants in January 2015 (see page 21).

•   empowering our frontline teams with the tools and training to consistently deliver great guest experiences that build brand preference:

-   2,000 hotel General Managers globally have participated in our Journey to Brand Manager programme; and

-   we embeddedlearning solutions, such as the IHG General Manager Programme for new hotel General Managers, with nearly 1,200 hotel General Managers having participated.Frontline online training platform, and brand-orientated services training across all IHG hotels.

 

Disciplined execution

  

¿ Strengthen frontline training and capabilities to consistently deliver great guest experiences that build brand preference.

LOGOContinue to strengthen the quality and consistency of the brand experience, delivering guest journeys that are differentiated by brand and building long-term brand preference across our brands.

LOGOEmbed refreshed brand standards across our brands.

LOGOContinue to operate the Kimpton brand successfully as part of the IHG portfolio.

Our regional priorities and progress in each of the regions are set out on pages 37, 40, 43 and 46.

LOGO

31


IHG  Annual Report and Form 20-F 2014

Keyperformanceindicators (KPIs)continued

Disciplined Execution

KPIs2014 progress2015 priorities

Fee margins1b

LOGO

*   Restated for IAS19R ‘Employee Benefits’

Operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases and significant liquidated damages.

 

•   In line with our 2014 priority to continue to focus on sustainable fee margin progression over the medium term, we delivered Group fee margins of 44.7%, up 1.5 percentage points on 2013, benefiting from slightly higher than usual strong growth in our scale markets.

•   Through leveraging our scale and focusing on productivity improvements, we intend to continue growing fee margins over the medium term. However, we will balance this with investing behind critical business capabilities to maximise top-line growth as well.LOGO

 

 LOGO  

LOGO1.6ppt

growth in fee

margin in 2017

Leverage our increasing scale in operations and systems to drive economies of scale across our portfolio of brands.

Continue to focusstrengthen our delivery capabilities to ensure that critical in-hotel initiatives are embedded on sustainable fee margin progression overtime and on target.

Enhance our supplier management capabilities to drive further efficiencies throughout the medium term.business.

 

 

Employee Engagement

survey scores1

LOGO

Average of a twice-yearly employee engagementour revisedcbi-annual Colleague HeartBeat survey, completed by employeesour corporate and those who work in our managed hotelshotel colleagues (excluding our joint ventures).

LOGO

 

 

 

In line with our 2014 priorities, in relation to:LOGO

•   delivering our people strategy (see page 23), we increased our Employee Engagement survey score by 3 percentage points on 2013 and we continue to be recognised externally as an employer of choice – see page 9 and www.ihgplc.com/aboutus under our awards.

•   strengthening our approach to developing leaders and investing in tools and training that build leadership capabilities we:

-   launched new global leadership development programmes;

-   increased leadership succession through new appointments and internal promotions at senior levels and internal organisational changes in line with business priorities; and

-   improved our human resources systems and services through the introduction of a single system creating a streamlined, globally consistent approach to how we manage our people globally.

•   continuing to build a ‘winning culture’ (a high performing culture) through strong leadership and performance management, we:

-   introduced a new approach to performance management driving closer alignment of our global objectives, with stronger team collaboration and a simpler connection between achievement and reward;

-   rolled out a global metrics approach which requires each area of the business to align to their highest priorities; and

-   built a ‘winning culture’ champions network from our senior leadership population, to shape and deliver this approach globally.

•   improving the leadership capability of our frontline managers and supervisors, we launched a new frontline manager and a supervisor programme aimed at building critical skills to drive performance within our hotels.

Responsible business activities continue to drive high levels of pride in our employees with 92% of respondents of our Employee Engagement survey saying overall they felt more positive about IHG as a result of its responsible business initiatives and/or programmes.

  

 

LOGO97%

2017 Colleague

HeartBeat participation rate

Improve and simplify performance management processes, in order to focus on productive development conversations.

Drive adoption of improvements to our human resources systems, including online colleague training, to further our ability to develop and retain talent.

Free cash flowb,d

Cash flow from operating

activities (after interest and tax

paid), less purchase of shares

by employee share trusts

and maintenance capital

expenditure, including key

money paide.

LOGO

LOGO

7.3%

growth in EBITDA

in 2017

Continue to focus on developing our ‘winning culture’ through our leaders,deliver consistent, sustained growth in particular on how we build a higher level of feedbackprofits and coaching to drive performance.cash flow.

 

LOGO Review our learning practices across our corporate and hotel operations to shape the way we leverage learning over the next five yearsControl capital deployment in line with business priorities.

 

LOGO  Review how we develop Continue programme to recycle capital invested in minor equity positions and retain talent and use our new human resources system to deliver better talent analytics and insight.joint ventures, over time, when conditions are favourable.

 

 

aChanges to the method for calculating IHG’s guest satisfaction scores (previously Guest HeartBeat) were introduced in 2016. The comparative for 2015 has been restated.

bUse of Non-GAAP measures: In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional financial measures (described as Non-GAAP) are presented that are used internally by management as key measures to assess performance. Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures. Further explanation in relation to these measures can be found on page 26, and reconciliations to IFRS figures, where they have been adjusted, are on pages 154 and 155. Total underlying operating profit growth and underlying fee revenue growth are stated at constant currency.

cIn 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.

dCash 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.

eIn 2016, free cash flow excluded the $95m cash receipt from renegotiation of long-term partnership agreements.

 

2432IHG  |  Annual Report and Form 20-F 2017


 

    

Doing business responsibly

    

KPIs

  2014 progress

2017 status

  2015

2018 specific priorities

Doing business responsibly

Number of people participating

participating in IHG

®Academy programmes

 

LOGOLOGO

 LOGO

In line with our 2014 priorities to expand the IHG Academy:2,599

•   6,666 people benefited from our global IHG Academy programmes in 2014, taking the total to 13,057 people since 2013; and

•   we expanded our IHG Academy to 626 programmes (as at 31 December 2014), which includes participation by 409 hotels in 58across 74 countries – an increase of 325 programmes from 2013.

  

¿ ProvideContinue to provide skills and improved employability to a total of 20,000 people via thethrough IHG Academy over(see page 19), ensuring a five-year period (2013-2017).positive impact for local people, our owners and IHG.

 

¿ Continue to expanddrive quality growth in the IHG Academy throughoutprogramme, including by increasing engagement with our hotel estate and work to ensure the programmes deliver positive results for participants, IHG and our hotels.

 

Value of monetary

donations and in-kind

support to communities,

including through IHG

Shelter in a Storm

 

LOGO

In line with our 2014 priorities to contribute to communities, we:

•   contributed a total of $6.18m in 2014, taking the total to $8.10m since 2013, to communities through monetary donations and in-kind support, including through IHG Shelter in a Storm;

•   have raised $840,000 for the IHG Shelter Fund during 2014; and

•   responded to 18 disasters in 9 countries in 2014, including Mexico, China, Egypt and the UK, allocating funds to help with financial support, vital supplies and accommodation.

¿ Contribute a total of $10m over a five-year period (2013-2017) to communities through monetary donations and in-kind support, including through IHG Shelter in a Storm.

¿ Further increase awareness of, and engagement with, IHG Shelter in a Storm, ensuring our hotels are prepared for disaster and able to respond quickly and effectively to help colleagues, guests and local communities when needed.

Carbon footprint per

occupied room

 

LOGO

*  Restated

See page 25 for further information on scope and methodology.LOGO

 

In line with our 2014 priorities

LOGO

15%

reduction in carbon

footprint per occupied

room from 2013–2017

on a 2012 baseline

Continue to reduce our carbon footprint and drive the IHG Green EngageTMsystem, we:

•   reduced carbon footprint per occupied room to 32.3 kg CO2e (reduction of 3% on 2012 baseline) across our entire estate. Year-on-year, our carbon footprint increased by 0.6% per occupied room from 2012 to 2013 but reduced by 3.5% per occupied room from 2013 to 2014;

•   reported a Carbon Disclosure Project disclosure rating of 92B (this represents a significant increase on our score from the previous year (85B)); and

•   introduced a brand standard for all IHG hotels to be enrolled in the IHG Green Engage system.

¿ Reduce carbon footprint per occupied room by 12% across our entire estate (over a five-year period (2013-2017) using 2012 baseline).

 

¿ Continue to drive quality of use of the IHG Green Engage system across our entire estate.

Water use per occupied room

in water-stressed areas

LOGO

LOGO

5.3%

reduction in water use

per occupied room

in water-stressed areas  

from 2013–2017 on

a 2012 baseline

Continue to reduce impactwater use across our entire estate, with a particular focus on the environment, enable cost savings and drive revenue.hotels in water-stressed areas.

 

¿ Support allImplement two water projects to improve water stewardship and enable further reductions in water use.

aRestated.

LOGOPlease seewww.ihgplc.com/responsible-businessfor full disclosure of our hotels to meet the IHG Green Engage standard.carbon and water data,
as well as more information on our new set of Responsible Business targets for 2018-2020.

Final dividend

The Board has proposed a final dividend per ordinary share of 71.0¢. With the interim dividend per ordinary share of 33.0¢, the full-year dividend per ordinary share for 2017 will total 104.0¢.

 

Water use per occupiedDividend policy

roomThe Group’s business is highly cash-generative and the Group has three primary uses for its cash; investing to drive growth, maintaining sustainable growth in water-stressed

areasthe ordinary dividend and returning surplus funds to shareholders. These are kept under constant review by the Board.

 

LOGOIHG has a progressive dividend policy, which means growing dividend per ordinary share each year. The Group has an excellent track record of returning funds to shareholders through ordinary and special dividends and share buybacks,

 

* Restated

  

In line with our 2014 prioritiesthe ordinary dividend seeing 11% CAGR since 2003. This is in addition to reduce water use per occupied room in water-stressed areas, we:special returns of funds detailed on page 178.

 

•   reduced water use per occupied room by 0.03m3(reductionIn determining the dividend, the Group seeks to maintain an efficient balance sheet and investment grade credit rating and aims to maintain a net debt: EBITDA ratio of 4.2%2.0–2.5x. The ratio at 31 December 2017 was 2.1x. The Directors will also take into account, and ensure there are sufficient, distributable reserves. For more details on 2012 baseline) in water-stressed areas. Year-on-year, water use in water-stressed areas increased by 0.5% per occupied room from 2012 to 2013our dividend policy and decreased by 4.2% per occupied room from 2013 to 2014;approach, see pages 5 and

•   launched a water stewardship programme to understand our risks and impacts allowing us to develop strategies to assist hotels at a local level. 42.

  

¿ Reduce water use per occupied room by 12% in water-stressed areas across our estate (over a five-year period (2013-2017) using 2012 baseline).LOGO

 

¿ Launch phase two of the water stewardship programme.

¿ Improve a hotel’s understanding of water stress and pollution, and their relationship with local communities.

    

 

Our regional priorities and progress in each of the regions are set out on pages 37, 40, 43 and 46.

LOGO

33


IHG  |  Annual Report and Form 20-F 20142017  |  Strategic Report  |  Key performance indicators (KPIs)25


Strategic Report

Performance

Key performance measures (including Non-GAAP measures)

used by management.

As well as the performance measures found in the Group Financial

Statements, the following key performance measures are included

in the performance review (and IHG at a glance on pages 2–3).

With the exception of RevPAR, these are financial measures that are either not defined under IFRS or are adjusted IFRS figures and are therefore described as Non-GAAP measures.

Revenue per Available Room (RevPAR)

RevPAR is the primary metric used by management to track hotel performance across regions and brands. RevPAR is also a commonly used performance measure in the hotel industry.

RevPAR comprises IHG System rooms revenue divided by the number of room nights available and can be mathematically derived from occupancy rate multiplied by average daily rate (ADR). Occupancy rate is rooms occupied by hotel guests expressed as a percentage of rooms that are available. ADR is rooms revenue divided by the number of room nights sold.

References to RevPAR, occupancy and average daily rate are presented on a comparable basis comprising groupings of hotels that have traded in all months in both the current and prior year. The principal exclusions in deriving this measure are new hotels, hotels closed for major refurbishment and hotels sold in either of the two years.

RevPAR and ADR are quoted at a constant US dollar conversion rate, in order to allow a better understanding of the comparable year-on-year trading performance excluding distortions created by fluctuations in exchange rates.

Total gross revenuePerformance

An important measure of IHG System performance is the growth in total gross revenue which provides a measure of the overall strength of the Group’s brands.

Group

Group results

       12 months ended 31 December 
   2014
$m
  2013
$m
  

2014 vs
2013 %

change

  

20121

$m

  

2013 vs
2012 %

change

 
Revenue                    

Americas

  871    916    (4.9  837    9.4  

Europe

  374    400    (6.5  436    (8.3

AMEA

  242    230    5.2    218    5.5  

Greater China

  242    236    2.5    230    2.6  

Central

  129    121    6.6    114    6.1  
Total  1,858    1,903    (2.4  1,835    3.7  
Operating profit                    

Americas

  544    550    (1.1  486    13.2  

Europe

  89    105    (15.2  112    (6.3

AMEA

  84    86    (2.3  88    (2.3

Greater China

  89    82    8.5    81    1.2  

Central

  (155  (155      (162  4.3  
Operating profit before exceptional items  651    668    (2.5  605    10.4  
Exceptional operating items  29    5    480.0    (4  225.0  
   680    673    1.0    601    12.0  
Net financial expenses  (80  (73  (9.6  (54  (35.2
Profit before tax  600    600        547    9.7  
Earnings per ordinary share                    
Basic  158.3¢    140.9¢    12.3    187.1¢    (24.7
Adjusted  158.3¢    158.3¢        139.0¢    13.9  
Average US dollar to sterling exchange rate  

 

$1:

£0.61

  

  

  

 

$1:

£0.64

  

  

  (4.7  

 

$1:

£0.63

  

  

  1.6  

 

1

Total gross revenue comprises total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Other than

With effectowned and leased hotels, total gross revenue is not revenue attributable to IHG as it is derived mainly from 1 January 2013hotels owned by third parties. A reconciliation of total gross revenue to the owned and leased revenue included in the Group adopted IASI9 (Revised) ‘Employee Benefits’ resultingFinancial Statements is set out on page 28.
Underlying revenue Underlying operating profit growth Underlying fee revenue Fee margin growth
Underlying revenue and underlying operating profit both exclude the impact of owned asset disposals, managed leases, significant liquidated damages and current year acquisitions, all translated at constant currency using prior year exchange rates. Underlying operating profit growth also excludes the impact of exceptional items (see below). The presentation of these additional performance measures allows a better understanding of comparable

year-on-year trading and thereby allows an assessment of the underlying trends in an additional charge tothe Group’s financial performance. These measures also provide consistency with the Group’s internal management reporting.

Underlying fee revenue and fee margin further exclude the revenue and operating profit of the Group’s remaining owned and leased properties, thereby providing metrics which measure the underlying performance of the Group’s core fee-based business model.

Total operating profit before exceptional items and tax Adjusted earnings per ordinary share Underlying earnings per ordinary share

Total operating profit before exceptional items and tax enables a better understanding of $9mthe ongoing operational performance of the Group. For example, total operating profit including exceptional items can be significantly skewed by the profit on disposal of owned assets. In addition, taxes can be influenced by external factors such as legislative changes, and a before tax measure of operating profit is therefore considered more reflective of the Group’s success in executing against its strategy.

Adjusted earnings per ordinary share excludes exceptional items, and their related tax impacts, and is reconciled to basic earnings per ordinary share in note 9 on page 115 of the Group Financial Statements. Adjusted earnings per ordinary share provides a per share measure that is not skewed by exceptional items.

Underlying earnings per ordinary share is calculated by dividing underlying profit for the year ended 31 December 2012.period available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the period.

Underlying earnings per ordinary share provides a per share measure based on comparable year-on-year trading and reflects underlying trends in the Group’s financial performance.

An analysis of exceptional items for the periods covered by the performance review is included in note 5 on page 110 of the Group Financial Statements.

Exceptional items are identified by virtue of either their size or nature and are excluded from these measures so as to facilitate comparison with prior periods and to assess underlying trends in the financial performance of the Group and its regional operating segments. Exceptional items can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and restructuring costs.

Total operating profit both before and after exceptional items is shown on the face of the Group income statement on page 88, as permitted under IFRS.

Net debt
Net debt is used in the monitoring of the Group’s liquidity and capital structure, and is a number used to calculate the key ratios attached to the Group’s bank covenants.Net debt comprises loans and other borrowings less cash and cash equivalents, and is reconciled to the amounts included in the Group Financial Statements in note 21 on page 126.
Net capital expenditure
Net capital expenditure is defined as cash flow from investing activities, excluding tax paid on disposals and adjusted for System Fund depreciation and amortisation (recovery of previous System Fund capital expenditure). For internal management reporting, capital expenditure is reported as either maintenance, recyclable, or System Fund.The disaggregation of net capital expenditure provides useful information as it enables users to distinguish between System Fund capital investments and recyclable investments (such as investments in associates and joint ventures), which are intended to be recoverable in the medium term, compared with maintenance capital expenditure (including key money paid), which represents a permanent cash outflow.
Free cash flow
Free cash flow is defined as cash flow from operating activities (after interest and tax paid), less purchase of shares by employee share trusts and maintenance capital expenditure, including key money paid. In 2016, free cash flow excluded the $95m cash receipt from renegotiation of long-term partnership agreements.Free cash flow is a useful measure for investors, as it represents the cash available to invest back into the business to drive growth, pay the ordinary dividend, with any surplus being available for additional returns to shareholders.

These are Non-GAAP financial measures which should be viewed as complementary to, and not as a substitute for, the measures prescribed by GAAP.

LOGO

The performance review should be read in conjunction with the Non-GAAP

reconciliations on pages 154 and 155 and the glossary on pages 184 to 185.

 

26IHG  |  Annual Report and Form 20-F 2017


Group

Group results

     12 months ended 31 December 
      

                2017

$m

     

            2016

$m

     

    2017 vs 2016

% change

     

                2015 

$m 

     

    2016 vs 2015

% change

 
Revenue                              
Americas    1,025     993     3.2     955      4.0 
Europe    241     227     6.2     265      (14.3
AMEA    244     237     3.0     241      (1.7
Greater China    126     117     7.7     207      (43.5
Central    148     141     5.0     135      4.4 
Total    1,784     1,715     4.0     1,803      (4.9
Operating profit before exceptional items                              
Americas    644     633     1.7     597      6.0 
Europe    86     75     14.7     78      (3.8
AMEA    87     82     6.1     86      (4.7
Greater China    52     45     15.6     70      (35.7
Central    (110    (128    14.1     (151)     15.2 
     759     707     7.4     680      4.0 
Exceptional items    4     (29    113.8     819      (103.5
Operating profit    763     678     12.5     1,499      (54.8
Net financial expenses    (85    (87    2.3     (87)      
Profit before tax    678     591     14.7     1,412      (58.1
Earnings per ordinary share                              
Basic    306.7¢     195.3¢     57.0     520.0¢      (62.4
Adjusted    244.6¢     203.3¢     20.3     174.9¢      16.2 
Average US dollar to sterling exchange rate    

$1:

£0.78

 

 

    

$1:

£0.74

 

 

    5.4     

$1: 

£0.65 

 

 

    13.8 

Highlights for the year ended

31 December 2017

During the year ended 31 December 2017, revenue increased by $69m (4.0%) to $1,784m primarily resulting from 4.0% rooms growth and 2.7% comparable RevPAR growth. Operating profit and profit before tax increased by $85m (12.5%) and $87m (14.7%) respectively. Operating profit before exceptional items increased by $52m (7.4%) to $759m.

Underlyinga Group revenue and underlyinga Group operating profit increased by $80m (5.2%) and $59m (8.4%) respectively.

Comparable Group RevPAR increased by 2.7% (including an increase in average daily rate of 1.1%). IHG System size increased by 4.0% to 798,075 rooms, whilst Group fee revenueb increased by 4.1% (5.0% at constant currency).

The net central operating loss before exceptional items decreased by $18m (14.1%) to $110m and by $15m (11.7%) to $113m at constant currency due to an increase in central revenues and the impact of our strategic cost management programme.

Group fee margin was 50.4%, up 1.6 percentage points (up 1.4 percentage points at constant currency) on 2016, after adjusting for owned and leased hotels, managed leases, and significant liquidated damages. Group fee margin benefited from efficiency improvements and by leveraging our global scale.

Basic earnings per ordinary share increased by 57.0% to 306.7¢, whilst adjusted earnings per ordinary share increased by 20.3% to 244.6¢, reflecting the increase in operating profit before tax and the impact of the share capital reduction as a result of the share consolidation in May 2017.

aUnderlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.

bUnderlying fee revenue is defined as Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages (see pages 154 and 155).

Accounting principles

The Group results are prepared under International Financial Reporting Standards (IFRS). The application of IFRS requires management to make judgements, estimates and assumptions, and those considered critical to the preparation of the Group results are set out on pages 112 and 113page 100 of the Group Financial Statements.

The Group discloses certain financial information both including and excluding exceptional items. For comparability of the periods presented, some of the performance indicators in this Performanceperformance review are calculated after eliminating these exceptional items. Such indicators are prefixed with ‘adjusted’. An analysis of exceptional items is included in note 5 on page 121110 of the Group Financial Statements.

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance27


Strategic Report

Performance continued

Group continued

Highlights for the year ended

31 December 20142016

RevenueDuring the year ended 31 December 2016, revenue decreased by $45m (2.4%$88m (4.9%) to $1,858m$1,715m primarily as a result of the sale of InterContinental Paris – Le Grand and operatingInterContinental Hong Kong. Operating profit and profit before exceptional itemstax both decreased by $17m (2.5%)$821m to $651m$678m and $591m, primarily due to the gain on sale of InterContinental Paris – Le Grand and InterContinental Hong Kong during the year ended 31 December 2014, due in part2015. Operating profit before exceptional items increased by $27m (4.0%) to the disposal of owned hotels in line with the Group’s asset-light strategy.$707m.

On 27 March 2014, IHG completed the disposal of its freehold interest in InterContinental Mark Hopkins San Francisco for gross proceeds of $120m and Underlyinga long-term contract to manage the hotel. On 31 March 2014, IHG completed the disposal of 80% of its interest in InterContinental New York Barclay for gross proceeds of $274m and a 30-year management contract with two 10-year extension rights, retaining the remaining 20% in a joint venture set up to own and refurbish the hotel (see page 49).

On 7 August 2014, the Group received a binding offer to acquire InterContinental Paris – Le Grand for gross proceeds of330m and a 30-year management contract with three 10-year extension rights. The offer was subsequently accepted on 8 December 2014, with the transaction expected to complete by the end of the first half of 2015, subject to the satisfaction of certain standard conditions.

On an underlying1 basis,Group revenue and underlyinga Group operating profit increased by $94m (6.0%$69m (4.6%) and $57m (9.6%$61m (9.5%) respectively. The underlying results exclude InterContinental Mark Hopkins San Francisco and InterContinental New York Barclay whilst under IHG ownership, the results of managed lease hotels, and the benefit of $7m liquidated damages receipts in 2014 and $46m liquidated damages receipts in 2013.

Comparable Group RevPAR (see Glossary on pages 184 and 185) increased by 6.1%1.8% (including an increase in average daily rate of 2.7%1.2%), led by particularly strong growth of 7.4% in The Americas. Group. IHG System size increased by 3.4%3.1% to 710,295767,135 rooms, whilst underlying Group fee revenue2b increased by 6.7%2.3% (4.4% at constant currency).

At constant currency, the net central overheadsoperating loss before exceptional items decreased by $3m (1.9%$12m (7.9%) to $152m$139m compared to 20132015 (but at actual currency remained flat at $155m), helpeddecreased by continued cost control, as well as additional technology fee income.$23m (15.2%) to $128m).

Group fee margin was 44.7%48.8%, up 1.53.3 percentage points (up 2.5 percentage points at constant currency) on 2013,2015, after adjusting for owned and leased hotels, managed leases, and significant liquidated damages. Group fee margin benefited from strong growth in IHG’s scale markets.efficiency improvements and by leveraging our global scale.

Profit before tax of $600m was unchanged on 2013. Basic earnings per ordinary share increaseddecreased by 12.3%62.4% to 158.3¢195.3¢, whilst adjusted earnings per ordinary share remained flat at 158.3¢.

34


Highlights for the year ended 31 December 2013

Group revenue increased by $68m (3.7%)16.2% to $1,903m and203.3¢, reflecting the increase in operating profit before exceptional items increased by $63m (10.4%) to $668m.

On 1and the impact of the share consolidation in May 2013, IHG completed the disposal of its leasehold interest in InterContinental London Park Lane for gross proceeds of $469m and a 30-year management contract with three 10-year extension rights.2016.

On an underlying1 basis, defined as reported results, excluding those from the InterContinental London Park Lane whilst under IHG ownership, results from managed lease hotels, together with the benefit of $46m liquidated damages receipts in 2013 and a $3m liquidated damages receipt in 2012, revenue and operating profit increased by $68m (4.2%) and $44m (7.8%) respectively when translated at constant currency and applying 2012 exchange rates.

Fee revenue2 increased by 4.3%, with comparable Group RevPAR growth of 3.8% over the period (including an increase in average daily rate of 1.8%) and IHG System size growth of 1.6% to 686,873 rooms.

At constant currency, net central overheads decreased from $162m to $157m in 2013 ($155m at actual currency), helped by continued tight cost control, as well as additional technology fee income.

Group fee margin was 43.2%, up 1.3 percentage points on 2012, after adjusting for owned and leased hotels, managed leases and significant liquidated damages.

Profit before tax increased by $53m to $600m. Adjusted earnings per ordinary share increased by 13.9% to 158.3¢.

Group total gross revenue

 

     12 months ended 31 December 
      

                     2017

$bn

     

                     2016

$bn

             % change 
Analysed by brand                  
InterContinental    4.8     4.6     4.3 
Kimpton    1.1     1.1      
Crowne Plaza    4.3     4.1     4.9 
Hotel Indigo    0.4     0.4      
Holiday Inn    6.3     6.2     1.6 
Holiday Inn Express    6.7     6.3     6.3 
Staybridge Suites    0.9     0.8     12.5 
Candlewood Suites    0.8     0.7     14.3 
Other    0.4     0.3     33.3 
Total    25.7     24.5     4.9 
Analysed by ownership type                  
Franchised    14.9     14.3     4.2 
Managed    10.6     10.0     6.0 
Owned and leasedc    0.2     0.2      
Total    25.7     24.5     4.9 

Global total gross revenue

    12 months ended 31 December 
    2014
$bn
   2013
$bn
   % change 

InterContinental

   4.7     4.5     4.4  

Crowne Plaza

   4.2     4.0     5.0  

Hotel Indigo

   0.3     0.2     50.0  

Holiday Inn

   6.4     6.2     3.2  

Holiday Inn Express

   5.7     5.2     9.6  

Staybridge Suites

   0.7     0.6     16.7  

Candlewood Suites

   0.6     0.6       

Other

   0.2     0.3     (33.3
Total   22.8     21.6     5.6  

One measure of IHG System performance is the growth in total gross revenue, defined as total room revenue at franchised hotels and total hotel revenue at managed, owned and leased hotels. Total gross revenue is not revenue attributable to IHG, as it represents revenue generated mainly at hotels owned by third parties.a Non-GAAP financial measure, see page 26 for additional information.

Total gross revenue increased by 5.6% (7.4%4.9% (5.7% increase at constant currency) to $22.8bn, primarily$25.7bn, driven by strongIHG System size and comparable RevPAR growth across the Group of 6.1% compared to 2013, coupled with an increase in System size of 3.4%.

growth.

 

1a Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional itemsthe results from managed-lease hotels, translated at constant currency by applying prior yearprior-year exchange rates.rates (see pages 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.

 

2b FeeUnderlying fee revenue is defined as Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages.damages (see pages 154 and 155).

cSee note 2 of the Group Financial Statements on page 104.

 

 

LOGO

3528


 
IHG  |  Annual Report and Form 20-F 2014
Performancecontinued2017


    

    

    

GlobalGroup hotel and room count

         Hotels       Rooms 
At 31 December  2014   Change
over 2013
  2014   Change
over 2013
 
Analysed by brand                   

InterContinental

   180     2    61,235     1,132  

Crowne Plaza

   406     15    113,562     4,671  

Hotel Indigo

   61     6    6,731     532  

EVEN Hotels

   2     2    296     296  

Holiday Inn1

   1,212     (4  225,159     582  

Holiday Inn Express

   2,365     107    229,110     14,513  

Staybridge Suites

   205     9    22,409     891  

Candlewood Suites

   322     10    30,708     930  

Other

   87     (4  21,085     (125
Total   4,840     143    710,295     23,422  
Analysed by ownership type                   

Franchised

   4,096     119    514,984     12,797  

Managed

   735     24    192,121     11,397  

Owned and leased

   9         3,190     (772
Total   4,840     143    710,295     23,422  

             Hotels             Rooms 
At 31 December    2017     Change
over 2016
     2017     Change
over 2016
 
Analysed by brand                        
InterContinental    194     7     65,998     2,348 
Kimpton    66     5     12,516     1,278 
HUALUXE    7     3     2,089     993 
Crowne Plaza    414     6     114,800     997 
Hotel Indigo    85     10     10,645     1,740 
EVEN Hotels    8     2     1,238     228 
Holiday Inna    1,242     1     232,693     937 
Holiday Inn Express    2,600     103     262,398     15,389 
Staybridge Suites    255     19     27,745     2,135 
Candlewood Suites    376     14     35,424     1,232 
Other    101     4     32,529     3,663 
Total    5,348     174     798,075     30,940 
Analysed by ownership type                        
Franchised    4,433     112     552,834     10,184 
Managed    907     62     242,883     20,810 
Owned and leased    8          2,358     (54
Total            5,348                174         798,075             30,940 

 

1a Includes 4247 Holiday Inn Resort properties (9,904(11,954 rooms) and 1226 Holiday Inn Club Vacations (4,027properties (7,676 rooms) (2013: 38
(2016: 46 Holiday Inn Resort properties (8,818(11,652 rooms) and 1026 Holiday Inn Club Vacations (3,701properties (7,601 rooms)).

Group pipeline

             Hotels             Rooms 
At 31 December    2017     Change
over 2016
     2017     Change
over 2016
 
Analysed by brand                        
InterContinental    63     1     17,353     (127
Kimpton    18          2,796     (302
HUALUXE    21     (1    6,289     (667
Crowne Plaza    86     (4    23,047     (1,489
Hotel Indigo    82     7     11,301     708 
EVEN Hotels    12     6     2,110     1,330 
Holiday Innb    277     16     53,556     878 
Holiday Inn Express    766     90     93,360     9,478 
avid hotels    44     44     4,043     4,043 
Staybridge Suites    160     20     17,941     2,620 
Candlewood Suites    112     4     10,009     405 
Other    14     2     2,341     (2,807
Total    1,655     185     244,146     14,070 
Analysed by ownership type                        
Franchised    1,223     184     139,348     21,654 
Managed    432     1     104,798     (7,584
Total            1,655                185         244,146             14,070 

bIncludes 13 Holiday Inn Resort properties (3,620 rooms) (2016: 14 Holiday Inn Resort properties (3,531 rooms)).

Total number of hotels

5,348

Totalnumber of rooms

798,075

During 2014,2017, the global IHG System (the number of hotels and rooms which are franchised, managed, owned or leased by the Group) increased by 143174 hotels (23,422(30,940 rooms) to 4,8405,348 hotels (710,295 rooms).

The Group continued to expand its global footprint, opening hotels in nearly 30 different countries and territories and delivering its highest net System size growth since 2009. 40% of 2014 openings were in developing markets, as classified by The World Bank, with 22% of the closing rooms balance located in these markets representing an increase of one percentage point from 31 December 2013. 123 hotels (17,630 rooms) were removed in 2014, a decrease from the previous year (142 hotels, 24,576(798,075 rooms).

Openings of 266285 hotels (41,052(48,817 rooms) were 15.7%20.1% higher than in 2013. This2016. Openings in the Americas included 140 hotel openings (15,190124 hotels (12,949 rooms) in the Holiday Inn brand family in The Americas and fourfamily. 43 hotels (834 rooms) as part of the US government’s Privatisation of Army Lodgings (PAL) initiative, as well as the first two hotels (296 rooms) for the wellness-focused EVEN Hotels brand. 34 hotels (10,648(10,570 rooms) were opened in Greater China in 2014, up 38.8% from last year and the region’s highest on record,2017, with the Europe and AMEA regions contributing openings of 3526 hotels (5,353(4,917 rooms) and 1926 hotels (4,228(11,085 rooms) respectively. 111 hotels (17,247 rooms) left the IHG System in 2017, a decrease from the previous year (116 hotels, 17,367 rooms).

GlobalTotalnumber of hotels in the pipeline

1,655

Total number of rooms in the pipeline

         Hotels       Rooms 
At 31 December  2014   Change
over 2013
  2014   Change
over 2013
 
Analysed by brand                   

InterContinental

   50     (1  15,664     (1,196

HUALUXE

   24     3    7,551     747  

Crowne Plaza

   92     (2  25,336     (3,033

Hotel Indigo

   63     12    9,096     2,289  

EVEN Hotels

   3     (2  584     (296

Holiday Inn1

   269     5    52,713     2,472  

Holiday Inn Express

   522     49    62,954     8,210  

Staybridge Suites

   99     19    10,908     2,180  

Candlewood Suites

   89     9    7,717     803  

Other

   10     9    1,249     1,135  
Total   1,221     101    193,772     13,311  
Analysed by ownership type                   

Franchised

   843     65    94,730     7,945  

Managed

   377     38    98,838     5,662  

Owned and leased

   1     (2  204     (296
Total   1,221     101    193,772     13,311  
Global pipeline signings   463     19    69,696     4,235  

244,146

1Includes 18 Holiday Inn Resort properties (4,412 rooms) and nil Holiday Inn Club Vacations (2013: Includes 14 Holiday Inn Resort properties (3,163 rooms) and one Holiday Inn Club Vacations (120 rooms)).

At the end of 2014,2017, the global pipeline totalled 1,2211,655 hotels (193,772(244,146 rooms), an increase of 101185 hotels (13,311(14,070 rooms) on 31 December 2013.2016. The IHG pipeline represents hotels where a contract has been signed and the appropriate fees paid. 89% of the closing pipeline at 31 December 2014 was in IHG’s 10 priority markets.

The continued global demand for IHG brands is demonstrated by the Group signing hotels in 35 different countries and territories in 2014, 35% of which were in developing markets. 48% of the closing pipeline at 31 December 2014 was in developing markets, down by three percentage points compared to the previous year. 28% of the closing pipeline at 31 December 2014 was in Greater China.

Group signings increased from 444516 hotels (65,461 rooms) in 20132016 to 463605 hotels (69,696 rooms)and rooms increased from 75,812 to 83,481 in 2014, the strongest level in six years.2017. This included 307391 hotels (45,522(52,592 rooms) signed for the Holiday Inn brand family, up by 15.1% compared to 2013, nearly a quarter32.1% of which were contributed by Greater China (45(90 hotels, 10,860 rooms). The Greater China region signed a further 19 hotels (4,894 rooms) across other IHG brands. The pipeline for HUALUXE Hotels and Resorts increased by three hotels (747 rooms) to 24 hotels (7,55116,904 rooms).

Active management of the pipeline to remove deals that have become dormant or no longer viable reduced the pipeline by 96135 hotels (15,333(21,224 rooms), compared to 140118 hotels (18,563(19,518 rooms) in 2013.2016.

 

 

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance29


Strategic Report

Performance continued

Progress against our 2017 regional priorities

Group revenue 2017($1,784m)

            LOGO

Number of rooms(798,075)

            LOGO

Americas

Europe

Asia, Middle East and Africa (AMEA)

Greater China

Central

 

36


LOGO
 

See page 32 for our

Regional highlights.

The Americas

Maximise the performance and growth of our portfolio of preferred brands, focusing on our core upper midscale and upscale segments, mostly through franchise agreements, over the next three years.

 

LOGOAmericas

Strengthened our Upscale and Luxury portfolio by opening the iconic InterContinental Los Angeles Downtown, Hotel Indigo Los Angeles Downtown and Crowne Plaza HY36 Midtown. In 2017, we signed a total of 365 hotels in the Americas.

 

Industry performance

Drove brand preference through signifcant investment in 2014

In 2014, industry RevPAR in The Americas grew by 8.4% driven by a 4.2% increase in demand and a 5.0% increase in average daily rate. On the supply side, the number of rooms increased by 1.0%, the fourth year with growth of 1.0% or less. All segments experienced strong growth, with the upper midscale segment, where theCrowne Plaza, Holiday Inn and Holiday Inn Express. 78% of the Crowne Plaza estate participated in the Accelerate programme in 2017, and over 1,000 new design Holiday Inn Express brands operate, having a 7.5% growthhotels were open or in RevPAR.the pipeline as of year end.

Enhanced owner returns by expanding use of our revenue mangement service, Revenue Management for Hire, across the region. Currently 67% of the Americas estate uses the service, up from 57% in 2016.

The US lodging industry also saw strong growth as the economy continued to recover with GDP up 2.4%. In December, demand reached record highs

Greater China

Leveraged our Franchise Plus business model and grew significantly in tier 2 and 3 cities. Franchise Plus delivered 54 signings in 2017. More broadly, over 87% of openings for the 46th consecutive month, while supply growth of 0.9% remained well below the 1.9% per annum historic average. Average daily rate growth of 4.6% combined with strong demand drove US RevPAR up 8.3%region were outside tier 1 cities. We also expanded our franchise model to our Holiday Inn and Crowne Plaza brands.

Debut signings for: Kimpton Hotels & Restaurants (Taipei and Sanya); and EVEN Hotels (three properties). RevPARHUALUXE had 21 hotels in the US upper midscale segment was up 8.2%, withpipeline as of year-end.

Drove a consistent guest experience through the US upscale segment uprollout of True Hospitality Service training to 272 of our 328 hotels. Guest Love increased by 8.4%.1.2ppts in 2017.

Strengthened our talent acquisition and development through the GM Ready programme, to create immediate GM resource pool for new opening hotels. Continued building hotel commercial and revenue management capability through a Sales Transformation project.
 

 

Asia, Middle East and Africa (AMEA)

 

IHG’sSignings increased 20% year-on-year to 12,620, and included regional performance in 2014

IHG’s comparable RevPAR increased 7.4% with 3.7% rate growth. The region is predominantly representedfirsts for both Kimpton Hotels & Restaurants and EVEN Hotels. Our Upscale and Luxury presence was enhanced by the US, where comparable RevPARopening of Hotel Indigo Bali Seminyak – the world’s first Hotel Indigo in a resort location – as well as InterContinental properties in Perth, Singapore, Hanoi and Fujairah Resort.

Drove brand preference and our promise of True Hospitality through new service training, rolled out to 84% of AMEA hotels. Guest satisfaction in AMEA increased 7.5%. Our upper midscale brands in 2017, with Guest Love 0.8ppts higher than last year.

Enhanced our owner proposition through new ways of working for our hotel opening teams, establishing relationship directors who serve as an owner’s single point of contact post-deal signing, through to opening.

Europe

Grew system size in Europe’s most attractive markets and highest opportunity segments, with particular focus on the US performed broadlyUK and Germany. In 2017, over half of the region’s signings and openings were in line witheither the segment, with RevPAR for theUK or Germany.

Strengthened brand preference through continued rollout of Holiday Inn brand increasing 8.1% whilst that forOpen Lobby, which 77% of the estate has now installed or is commited to installing, driving a 7ppts Guest Love uplift. The Holiday Inn Express Generation 4 guestroom, which 87% of Generation 1 and 2 properties have now installed or are comitted to, has driven a 4ppt Guest Love uplift post-refurbishment. We also enhanced brand was at 7.2% due to higher absolute occupancies than the industry. Our US upscale brands (Crowne Plaza and Hotel Indigo) were also in line with the upscale segment with both brands increasing RevPAR by 8.3%. We strengthened our20-year relationship with Grupo Presidente to expand the footprint and diversityawareness of our brands in key cities and resort destinations.

We continued to demonstrate our commitment to quality with 12,230 rooms leaving the IHG System. Strong demand for IHG branded hotels continued with 38,108 rooms signed, with the pipeline increasing by 10,177 rooms over 2013.

Americas comparable RevPAR

movement on previous year

            

12 months ended

31 December 2014

 

Franchised

        

Managed

     

Crowne Plaza

   6.9%     

InterContinental

   6.9%  

Holiday Inn

   7.9%     

Crowne Plaza

   12.7%  

Holiday Inn Express

   7.0%     

Holiday Inn

   9.0%  

All brands

   7.2%     

Staybridge Suites

   9.7%  
     

Candlewood Suites

   11.7%  
     

All brands

   8.9%  
     

Owned and leased

     
     

All brands

   11.2%  

Progress against 2014 regional priorities

In line with our 2014 regional priorities, we:

continued to strengthen our preferred brands and provide best-in-class revenue delivery to hotels – the Holiday Inn brand rolled out revenue-driving food and beverage options to address guest needs, whilst the Holiday Inn Express brand introduced an innovative, cost effective design solution that resonated well with owners;

strengthened our Holiday Inn brand familyKimpton Hotels & Restaurants with the opening of 140 new hotels;

continued to execute our multi-year programme to strengthenAmsterdam De Witt, the Crowne Plaza brand by focusing on brand differentiation, performance initiatives and signing 10 hotels into the pipeline; and

opened our first two hotels for the EVEN Hotels brand which have consistently received excellent guest feedback.in the region.

IHG’s 2015 regional priorities

1.Continue to increase IHG System size growth through working with owners to accelerate openings, assisting low-performing hotels to improve, and continuing to support our high-performing hotels.

 

2.ContinueYourRate by IHG Rewards Club has now rolled out to deliverall our European markets except Israel and is having a positive impact on direct bookings. IHG Rewards Club enrolments increased by 16% this year, against our multi-year plan for the Crowne Plaza Hotels & Resorts brand by enhancing the guest experience and driving brand differentiation through innovations.2016.

 

3.Continue
30IHG  |  Annual Report and Form 20-F 2017


Industry performance in 2017IHG’s regional performance in 2017

Americas

Industry RevPAR in the Americas increased by 3.8%, driven by a 2.8% average daily rate growth and 0.6pts occupancy growth. Occupancy achieved its highest level ever recorded, topping the record set in 2015. Room demand was up 2.9%, its highest since 2014, led by increasing business and consumer confidence in the US. Demand was further propelled in the US by two hurricanes in the latter part of the year, while supply growth remained robust (1.9%) despite a fall from its seven year high in 2016.

US lodging industry room demand advanced 2.7% in 2017, its largest increase since 2014, whilst supply growth edged up to strengthen1.8%. US industry RevPAR increased by 3.0%, led by an average daily rate growth of 2.1%. RevPAR in the US Mainstream chain scale, where the Holiday Inn and Holiday Inn Express brands operate, increased by 2.2%.

In Canada, industry RevPAR increased by 7.7%, driven by a 5.2% increase in average daily rate, and in Mexico, RevPAR increased by 6.4% with average daily rate advancing 6.0%.

IHG’s comparable RevPAR in the Americas increased by 1.6%, driven by 1.2% average daily rate growth. The region is predominantly represented by the US, where comparable RevPAR increased by 1.2%, with 3.0% growth in the fourth quarter led by demand in hurricane impacted areas. In the US, we are most represented by our Mainstream brands Holiday Inn and Holiday Inn Express. RevPAR in our Mainstream brands increased slightly behind the segment, with RevPAR for the Holiday Inn brand family positionincreasing by 1.9% whilst that for the Holiday Inn Express brand increased by 1.7%.

Canada achieved strong growth of 6.1%, whilst Mexico grew 5.1%, led by rate growth.

EuropeStrong demand and solid average daily rate growth propelled European industry RevPAR in 2017 up 7.2%, its largest gain since 2000. Demand rebounded in Continental Europe as certain markets recovered from terror incidents in 2016 and inbound tourism increased. Regional room demand grew 4.4% with average daily rate advancing 3.6%. UK industry RevPAR was up 4.1%, led by a 3.6% rate increase. UK room demand increased by 2.3% in 2017. In Germany, industry RevPAR was up 3.0%, driven by a 2.0% growth in average daily rate and a 2.1% increase in demand. A number of countries in the region including Italy, Russia and Spain, saw industry RevPAR rise in 2017 through increasing demand and average daily rate.IHG’s regional comparable RevPAR in Europe increased by 6.3%, driven by both occupancy and average daily rate growth. The UK grew by 4.5%, ahead of the deliveryindustry, led by average daily rate driven growth in the provinces. In London, RevPAR increased by 4.3% driven by strong demand growth in the first half of innovationsthe year. Germany achieved growth of 2.1%, and consistencyRussia increased by 7.1%, both led by rate growth. Across the rest of Europe, RevPAR achieved strong growth of 7.6%, led by recovery in markets previously impacted by terror attacks.

Asia, Middle East and Africa (AMEA)

AMEA room demand growth increased by its fastest rate of the past five years resulting in rising occupancy across our hotels.most countries in the region. Average daily rate was also on the rise, driving up regional RevPAR growth to 3.0%; its highest for the past four years. RevPAR was up in several countries in the region, including Japan (3.0%), Australia (2.8%), India (3.8%) and Thailand (4.2%) with growth in both demand and average daily rate.

Egypt drove RevPAR growth in the Middle East (3.4%). Excluding Egypt, Middle East RevPAR fell 5.2% as Saudi Arabia, the United Arab Emirates, and others were impacted by weak oil prices and high supply growth. Room demand was up in all but two of the 11 Middle East countries excluding Egypt, as declining average daily rate was the principal driver of the weaker performance. Supply growth remained robust, up 5.4% in 2017, excluding Egypt, and it has been above 5% for the past decade.

Across this large region, IHG is widely represented both geographically and by brand, and comparisons across the industry are hard to make. Overall, IHG regional comparable RevPAR increased by 1.5%, driven by occupancy growth. Performance outside the Middle East was strong with 4.4% RevPAR growth overall, led by strong trading in the mature markets of Australia, where RevPAR increased by 4.5%, ahead of the industry, and in Japan where RevPAR increased by 2.7%. The Middle East RevPAR was down 4.1%, impacted by low oil prices and industry wide supply growth. Total RevPAR declined by 3.0% for the year impacted by the proportion of hotel openings in developing markets where RevPARs are significantly lower than developed markets.

Greater China

Lodging industry RevPAR in Greater China increased by 5.2% via strong demand gains and the first average daily rate increase of the past seven years. While RevPAR declined from 2010 to 2016, demand has been robust, but performance had been held back by falling average daily rate and increasing supply. Supply gains in 2017 (3.5%) were the smallest of the past 18 years.

The two largest sub-regions (North & East) saw RevPAR gains of greater than 5% each, whereas the South and Central, the next two largest sub-regions, reported growth of more than 8% each. RevPAR growth in all four of the sub-regions was driven primarily by demand increases with supporting average daily rate gains. While supply growth slowed in Greater China overall, certain areas continued to see strong increases, including Macau (9.6%), the West (6.2%) and Central China (5.1%). Demand was also strongest in those three sub-regions, up more than 10% each.

IHG’s regional comparable RevPAR in Greater China increased by 6.0% in 2017, slightly ahead of the industry. Our RevPAR was driven by better than the industry occupancy, which increased by 5.5%, whilst average daily rate grew by 0.4%. Mainland China RevPAR increased by 6.6%, led by growth of 6.9% in tier 1 cities due to strong transient, corporate and meeting demand. RevPAR grew in Hong Kong and Macau by 2.7% and 11.4%, respectively.

Source: Smith Travel Research for all of the above industry facts.

Comparable RevPAR movements on previous year(12 months ended 31 December 2017)

 

LOGO

Region    Franchised        Managed        Owned and leased    

 

   

 

 

   

 

 

   

 

 
Americas   Crowne Plaza   1.9%    InterContinental   (0.9)%    All brands   6.6% 
   

 

 

   

 

 

   

 

 
   Holiday Inn   1.9%    Kimpton   0.4%      
   

 

 

   

 

 

     
   Holiday Inn Express   1.7%    Crowne Plaza   1.2%      
   

 

 

   

 

 

     
   All brands   1.8%    Holiday Inn   0.0%      
   

 

 

   

 

 

     
        Staybridge Suites   (0.7)%      
        

 

 

     
        Candlewood Suites   0.4%      
        

 

 

     
        All brands   0.2%      

 

   

 

 

   

 

 

   

 

 
Europe   All brands   6.1%    All brands   7.2%      

 

   

 

 

   

 

 

   

 

 
AMEA   All brands   (1.6)%    All brands   2.1%      

 

   

 

 

   

 

 

   

 

 
Greater China        All brands   6.1%      

 

   

 

 

   

 

 

   

 

 

 

37


IHG  |  Annual Report and Form 20-F 20142017  |  Strategic Report  |  Performance31
Performancecontinued


LOGO

32                  IHG  |  Annual Report and Form 20-F 2017


Americas

    

    

 

Americas results

    12 months ended 31 December 
    2014
$m
  2013
$m
  2014 vs
2013 %
change
  2012
$m
  2013 vs
2012 %
change
 
Revenue                     

Franchised

   630    576    9.4    541    6.5  

Managed

   103    128    (19.5  97    32.0  

Owned and leased

   138    212    (34.9  199    6.5  
Total   871    916    (4.9  837    9.4  
Percentage of Group Revenue   46.9    48.1    (1.2  45.6    2.5  
Operating profit before exceptional items                     

Franchised

   544    499    9.0    466    7.1  

Managed

   47    74    (36.5  48    54.2  

Owned and leased

   18    30    (40.0  24    25.0  
    609    603    1.0    538    12.1  
Regional overheads   (65  (53  (22.6  (52  (1.9
Total   544    550    (1.1  486    13.2  
Percentage of Group Operating profit before central overheads and exceptional items   67.5    66.8    0.7    63.4    3.4  

    12 months ended 31 December
     

          2017

$m

    

          2016

$m

    2017 vs 2016
% change
    

          2015

$m

    

2016 vs 2015

% change

Revenue               
Franchised  703  685  2.6  661  3.6
Managed  172  172    166  3.6
Owned and leased  150  136  10.3  128  6.3
Total  1,025  993  3.2  955  4.0
Percentage of Group revenue  57.4  57.9  (0.5)  53.0  4.9
Operating profit before exceptional items               
Franchised  606  600  1.0  575  4.3
Managed  65  64  1.6  64  
Owned and leased  29  24  20.8  24  
Regional overheads  (56)  (55)  (1.8)  (66)  16.7
   644  633  1.7  597  6.0
Exceptional items  37  (29)  227.6  (41)  29.3
Operating profit  681  604  12.7  556  8.6
Percentage of Group operating profit before central overheads and exceptional items      74.1  75.8  (1.7)  71.9  3.9

Highlights for the year ended

31 December 20142017

With 3,6994,029 hotels (460,017(497,460 rooms), Thethe Americas represented 65%62% of the Group’s room count and 68%74% of the Group’s operating profit before central overheads and exceptional operating items for the year ended 31 December 2014.2017. The key profit producing regionmarket is the US, although the Group is also represented in Latin America, Canada, Mexico and the Caribbean. 91%88% of rooms in the region are operated under the franchise business model, primarily in the upper midscaleMainstream segment (Holiday(including the Holiday Inn brand family). In the upscaleUpscale segment, Crowne Plaza is predominantly franchised whereas, in the luxuryLuxury segment, InterContinental brandedInterContinental-branded hotels are operated under both franchise and management agreements. Eightagreements, whilst Kimpton is managed. 12 of the Group’s nine13 hotel brands are represented in The Americas, including the wellness-focused EVEN Hotels brand, which made its global debut in the region during the year, with two owned hotels (296 rooms) open at 31 December 2014.Americas.

Revenue and operating profit increased by $32m (3.2%) to $1,025m and by $77m (12.7%) to $681m respectively. Operating profit before exceptional items decreasedincreased by $45m (4.9%$11m (1.7%) to $871m and by $6m (1.1%) to $544m respectively.$644m. On an underlying1a basis, revenue increased by $71m (9.7%$37m (3.9%), while operating profit increased by $39m (7.8%$16m (2.5%), driven predominantly by strong RevPAR growth in the fee business and an increase in net rooms. Regional overheads increased by 22.6% to $65m following investment in IHG’s development and quality teams and unusually high healthcare costs. Revenue and operating profit were negatively impacted by the disposal of an 80% interest in InterContinental New York Barclay and the disposal of InterContinental Mark Hopkins San Francisco during the year, by a combined $95m and $21m respectively compared to 2013. Conversely,

Franchised revenue and operating profit were positively impactedincreased by the benefit of $7m liquidated damages receipts in 2014 in the franchised business relating$18m (2.6%) to two exited hotels, compared to $31m in the managed business in 2013.

$703m and by

Franchised$6m (1.0%) to $606m respectively. On a constant currency basis, revenue increased by $54m (9.4%$17m (2.5%to $630m includingand operating profit increased by $6m (1.0%) as incremental royaltiesb growth from RevPAR and net rooms growth were partly offset by a delay in the benefitrecognition of a payroll tax credit, the implementation of the $7m liquidated damages receipts (8.2% excluding these liquidated damages).previously disclosed Crowne Plaza Accelerate financial incentives, and the annualisation of our investment in the Americas development team. Royalties growth of 7.6%3.3% was driven by comparable RevPAR growth of 7.2%1.8%, including 7.9%1.9% for Holiday Inn and 7.0%1.7% for Holiday Inn Express, together with 1.5% rooms growth.

Managed revenue remained flat at $172m, whilst operating profit increased by $1m (1.6%) to $65m. Revenue and operating profit included $34m (2016: $34m) and $nil (2016: $nil) respectively from one managed-lease property. Excluding results from this managed-lease hotel and on a constant currency basis, revenue increased by $6m (4.3%) and operating profit increased by $7m (10.9%) respectively.

Owned and leased revenue increased by $14m (10.3%) to $150m, whilst operating profit increased by $5m (20.8%) to $29m due to North American inbound business to Holiday Inn Aruba and the ramp up of EVEN Hotels Brooklyn.

Highlights for the year ended

31 December 2016

Revenue and operating profit increased by $38m (4.0%) to $993m and by $48m (8.6%) to $604m respectively. Operating profit before exceptional items increased by $36m (6.0%) to $633m. Underlyinga revenue increased by $53m (5.8%), while underlyinga operating profit increased by $46m (7.7%), driven predominantly by RevPAR growth in the fee business and an increase in net rooms. The underlying results exclude the impact of owned asset disposals, managed leases, and the benefit of significant liquidated damages receipts (2016: $nil; 2015: $3m).

Franchised revenue and operating profit increased by $24m (3.6%) to $685m and by $25m (4.3%) to $600m respectively. Royaltiesb growth of 2.4% was driven by comparable RevPAR growth of 1.9%, including 2.6% for Holiday Inn and 1.7% for Holiday Inn Express, together with 2.0% rooms growth. Operating profit increased by $45m (9.0%) to $544m.

ManagedOn a constant currency basis, revenue decreased by $25m (19.5%) to $103m and operating profit decreased by $27m (36.5%) to $47m. Revenue and operating profit included $38m (2013 $34m) and $nil (2013 $nil) respectively from one managed lease property. Excluding results from this hotel, as well as the $31m liquidated damages in 2013 (2014 $nil), revenue increased by $3m (4.8%) and operating profit increased by $4m (9.3%) on a constant currency basis.

Owned and leased revenue decreased by $74m (34.9%$29m (4.4%) to $138m$690m and by $30m (5.2%) to $605m respectively.

Managed revenue increased by $6m (3.6%) to $172m, whilst operating profit decreased by $12m (40.0%)stayed flat at $64m due to $18m. The decrease in revenue and operating profit were driven by the disposal of an 80%costs relating to our 20% interest in InterContinental New York Barclay and the disposal of InterContinental Mark Hopkins San Francisco (combined negativeongoing impact of $95m and $21m respectively). Excluding these two hotels, owned and leased revenue and operating profit increased by $21m and $9m respectively reflecting strong trading at InterContinental Boston and post refurbishment performance at Holiday Inn Aruba.

Highlights for the year ended 31 December 2013

Revenue and operating profit before exceptional items increased by $79m (9.4%) to $916m and by $64m (13.2%) to $550m respectively. On an underlying1 basis, revenue and operating profit increased by $52m (6.5%) and $36m (7.5%) respectively. Revenue and operating profit were adversely impacted by $8m lower feesnew supply on the exit of eight Holiday Inn hotels owned by FelCor Lodging Trust but were positively impacted by the benefit of a $31m liquidated damages receipt in 2013 in the managed business, compared to $3m in 2012.

The franchise business drove most of theRevPAR growth in the region (excluding the liquidated damages in the managed estate). Franchised revenue increased by $35m (6.5%) to $576m. Royalties growth of 4.7% was driven by RevPAR growth of 3.2%, including 3.4% for Holiday Inn Express, together with a 0.7% increase in available rooms. Operating profit increased by $33m (7.1%) to $499m. Fees from initial franchising, relicensing and termination of hotels also increased by $6m compared to 2012.

Managed revenue increased by $31m (32.0%) to $128m and operating profit increased by $26m (54.2%) to $74m.New York. Revenue and operating profit included $34m (2012 $34m)(2015: $38m) and $nil (2012(2015: $nil) respectively from one managed leasemanaged-lease property. Excluding results from this managed-lease hotel, as well as the benefit of the $31msignificant liquidated damages in 2013receipts (2016: $nil; 2015: $3m) and the $3m in 2012,on a constant currency basis, revenue grewincreased by $4m (6.7%$16m (12.8%) and operating profit decreasedincreased by $2m (4.4%$5m (8.2%on a constant currency basis.respectively.

Owned and leased revenue increased by $13m (6.5%$8m (6.3%) to $212m and$136m, whilst operating profit grewstayed flat at $24m.

Regional overheads increased by $6m (25.0%$11m (16.7%) to $30m. The increase$55m due to a $10m year-on-year decrease in revenue was driven by RevPAR growth of 6.0%.US healthcare costs.

aUnderlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.

bRoyalties are fees, based on rooms revenue, that a franchisee pays to the brand owner for use of the brand name.
 

 

38IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance33


Strategic Report

 

Performance continued

Americas continued

    

Americas hotel and room count

       Hotels      Rooms    Hotels    Rooms 
At 31 December  2014   Change
over 2013
 2014   Change
over 2013
    2017    Change
over 2016
    2017    Change
over 2016
 
Analysed by brand                           

InterContinental

   50     (1  16,897     (556    50     2     17,578     1,170 
Kimpton    65     4     12,242     1,004 

Crowne Plaza

   181     5    48,366     1,309      156     (8    41,278     (2,838

Hotel Indigo

   39     2    4,551     207      51     5     6,828     896 

EVEN Hotels

   2     2    296     296      8     2     1,238     228 

Holiday Inn1

   770     (16  136,280     (2,550
Holiday Inna    773     (1    135,604     (1,140

Holiday Inn Express

   2,060     75    182,601     8,170      2,217     63     199,410     7,039 

Staybridge Suites

   197     9    21,200     891      244     18     26,156     1,971 

Candlewood Suites

   322     10    30,708     930      376     14     35,424     1,232 

Other

   78     (3  19,118     (104    89     5     21,702     (95
Total   3,699     83    460,017     8,593      4,029     104     497,460     9,467 
Analysed by ownership type                           

Franchised

   3,477     83    417,215     8,340      3,727     94     437,292     6,426 

Managed

   217         41,172     1,025      296     10     58,343     3,041 

Owned and leased

   5         1,630     (772    6          1,825      
Total   3,699     83    460,017     8,593              4,029                104         497,460             9,467 
Percentage of Group hotel and room count   76.4     (0.6  64.8     (0.9    75.3     (0.6    62.3     (1.3

 

1a Includes 2025 Holiday Inn Resort properties (4,864(6,787 rooms) and 1226 Holiday Inn Club Vacations (4,027properties (7,676 rooms) (2013: 18(2016: 25 Holiday Inn Resort properties (4,438(6,791 rooms) and 1026 Holiday Inn Club Vacations (3,701properties (7,601 rooms)).

The

Americas pipeline

     Hotels     Rooms 
At 31 December    2017     Change
over 2016
     2017     Change
over 2016
 
Analysed by brand                        
InterContinental    7          1,893     (639
Kimpton    14     (3    2,238     (711
Crowne Plaza    14     (3    2,719     (567
Hotel Indigo    33     1     4,026     61 
EVEN Hotels    8     2     1,114     334 
Holiday Innb    128          16,375     (929
Holiday Inn Express    524     36     49,607     2,811 
avid hotels    44     44     4,043     4,043 
Staybridge Suites    146     15     15,432     1,536 
Candlewood Suites    112     4     10,009     405 
Other    12     1     1,648     309 
Total            1,042     97     109,104     6,653 
Analysed by ownership type                        
Franchised    1,002                105         102,844             9,549 
Managed    40     (8    6,260     (2,896
Total    1,042     97     109,104     6,653 

bIncludes one Holiday Inn Resort property (165 rooms) (2016: three Holiday Inn Resort properties (455 rooms)).

Total number of hotels

4,029

Total number of rooms

497,460

Americas System size increased by 83104 hotels (8,593(9,467 rooms) to 3,6994,029 hotels (460,017(497,460 rooms) during 2014. 1782017. 190 hotels (20,823(21,615 rooms) opened in the year, compared to 173188 hotels (19,775(23,535 rooms) in 2013 and included four hotels (834 rooms) as part of the US government’s PAL initiative (33 hotels with 4,061 rooms in 2013).2016. Openings included 140124 hotels (15,190(12,949 rooms) in the Holiday Inn brand family, representing more than 70%59.9% of the region’s openings. 23

86 hotels (2,130 rooms) opened as Staybridge Suites hotels and Candlewood Suites hotels, IHG’s extended-stay brands. The first two hotels (296 rooms) were opened under the wellness-focused EVEN Hotels brand.

95 hotels (12,230(12,148 rooms) were removed from Thethe Americas System in 2014,2017, demonstrating IHG’sour continued commitment to quality, compared to 112103 hotels (17,968(15,117 rooms) in 2013. 45%2016. 26.3% of 20142017 room removals were Holiday Inn rooms in the US (34(17 hotels, 5,4993,189 rooms) compared to 61%37.3% in 2013 (532016 (30 hotels, 10,9335,638 rooms).

 

AmericasTotalnumber of hotels in the pipeline

1,042

Total number of rooms in the pipeline

         Hotels       Rooms 
At 31 December  2014   Change
over 2013
  2014   Change
over 2013
 
Analysed by brand                   

InterContinental

   7     1    2,337     900  

Crowne Plaza

   18     2    3,206     (22

Hotel Indigo

   31     8    4,259     1,141  

EVEN Hotels

   3     (2  584     (296

Holiday Inn1

   139         20,155     811  

Holiday Inn Express

   389     31    37,125     3,637  

Staybridge Suites

   90     19    9,594     2,099  

Candlewood Suites

   89     9    7,717     803  

Other

   10     9    1,218     1,104  
Total   776     77    86,195     10,177  
Analysed by ownership type                   

Franchised

   740     62    78,980     6,961  

Managed

   35     17    7,011     3,512  

Owned and leased

   1     (2  204     (296
Total   776     77    86,195     10,177  

1Includes nine Holiday Inn Resort properties (1,916 rooms) and nil Holiday Inn Club Vacations (2013: five Holiday Inn Resort properties (694 rooms) and one Holiday Inn Club Vacations (120 rooms)).109,104

At 31 December 2014, The2017, the Americas pipeline totalled 7761,042 hotels (86,195(109,104 rooms), representing an increase of 7797 hotels (10,177(6,653 rooms) over the prior year. Strong signings of 319365 hotels (38,108(37,419 rooms) were ahead of last year by 1433 hotels (4,224(381 rooms) and the highest for six years, demonstrating continued demand for IHG branded hotels. Signings included 14 hotels (2,012 rooms) signed as part of the US government’s PAL initiative.. The majority of 20142017 signings were within the Holiday Inn brand family (208(220 hotels, 24,03721,829 rooms), up by 17.0% compared to 2013, and included the 777-room Holiday Inn Nickelodeon Suites Orlando.our extended-stay brands, Staybridge Suites and Candlewood Suites together contributed(70 hotels, 6,977 rooms). Launched in the US in September 2017, avid hotels is making good progress towards becoming IHG’s next brand of scale with signings of 7344 hotels (7,091(4,043 rooms), up by 31.2% compared to 2013. Crowne Plaza Atlanta – Midtown, which was signed and opened in the year, is one of 10 signings for the brand. Other notable signings included the 900-room InterContinental Downtown Los Angeles, the largest for the brand in the US..

6478 hotels (7,108(9,151 rooms) were removed from the pipeline in 2014, significantly down2017 compared to 64 hotels (7,436 rooms) in terms of both hotels and rooms from 2013 (103 hotels, 10,664 rooms).2016.

1Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates.
 

 

LOGO

3934


 
IHG  |  Annual Report and Form 20-F 2014
Performancecontinued2017


    

 

Europe

Continue to grow in priority markets and across key cities, and improve underlying margin through operational excellence over the next three years.

LOGO

Industry performance in 2014

Europe is a diverse region and industry figures are driven by the larger markets, in particular the UK and Germany. RevPAR growth was 6.0%, average daily rate grew by 3.5% and demand grew by 3.5%.

RevPAR growth in the UK reached 7.9% due to a 10.5% increase in the UK provinces, which was driven by a 6.5% increase in average daily rate and 4.9% increase in demand. However, RevPAR growth in other European countries was more moderate, with RevPAR

increasing in Germany by 3.8%. In contrast, the RevPAR in Russia declined steeply by 14.8%, as growth was depressed by ongoing conflict between Russia and the Ukraine and the resulting geopolitical instability throughout this area. Although there was a 5.1% decline in demand, supply continued to grow by 8.9%.

IHG’s regional performance in 2014

IHG’s comparable RevPAR increased by 5.1% with the UK particularly strong at 8.9%. Germany was also strong at 4.1%. IHG’s hotels in Russia and the Commonwealth of Independent States (CIS) were, however, impacted by the geopolitical instability in the region but our hotels outperformed the industry with a RevPAR decline of 4.0%.

Europe comparable RevPAR

movement on previous year

12 months ended
31 December 2014
Franchised

All brands

5.3% 
Managed

All brands

5.4% 
Owned and leased

InterContinental

(4.7)%

    

    

    

Progress against 2014 regional priorities

In line with our 2014 regional priorities, we:

grew in our priority markets and key gateway cities with the signing of 48 hotels of which 17 were in the UK, 12 in Germany, and seven in Russia and the CIS;

continued to expand the Hotel Indigo brand across the region in key gateway cities, opening four new properties in Paris, Madrid, Rome and St Petersburg, and as at 31 December 2014, had 17 open hotels and a further 12 in the pipeline for the brand;

launched the Holiday Inn Express brand in Russia and the CIS (having localised the brand) with the opening of Holiday Inn Express Voronezh - Kirova, a debut for the brand in Russia;

continued to improve guest experience and increase satisfaction at our hotels in the region by creating a culture focused on quality, accelerating the rollout of innovation and building a suite of tools that enables hotels to deliver operational excellence (see progress against KPIs set out on pages 30 to 33); and

embedded our revenue and sales tools at our hotels, driving our commercial delivery and people platforms (see progress against KPIs set out on pages 30 to 33), helping us to deliver RevPAR outperformance in our three priority markets.

IHG’s 2015 regional priorities

1.Continue to build IHG System size through driving growth in our priority markets of UK, Russia and the CIS, and Germany, localising our brands as necessary.

2.Continue to improve guest experience and increase satisfaction by focusing on quality and driving innovation to ensure our brands are preferred.

3.Drive operational excellence and hotel outperformance by delivering a focused and targeted hotel support model, and best-in-class operational tools and training.

Source: Smith Travel Research for all of the above industry facts.

40


    

    

 

Europe results

    

12 months ended 31 December

 
    2014
$m
  2013
$m
  2014 vs
2013 %
change
  2012
$m
  2013 vs
2012 %
change
 
Revenue                     

Franchised

   104    104        91    14.3  

Managed

   159    156    1.9    147    6.1  

Owned and leased

   111    140    (20.7  198    (29.3
Total   374    400    (6.5  436    (8.3
Percentage of Group Revenue   20.1    21.0    (0.9  23.8    (2.8
Operating profit before exceptional items                     

Franchised

   78    79    (1.3  65    21.5  

Managed

   30    30        32    (6.3

Owned and leased

   14    30    (53.3  50    (40.0
    122    139    (12.2  147    (5.4
Regional overheads   (33  (34  2.9    (35  2.9  
Total   89    105    (15.2  112    (6.3
Percentage of Group Operating profit before central overheads and exceptional items   11.0    12.8    (1.8  14.6    (1.8

     12 months ended 31 December 
              2017
$m
             2016
$m
     2017 vs 2016
% change
             2015
$m
     2016 vs 2015
% change
 
Revenue                              
Franchised    109     102     6.9     104     (1.9
Managed    132     125     5.6     131     (4.6
Owned and leased                   30     (100.0
Total    241     227     6.2     265     (14.3
Percentage of Group revenue    13.5     13.3     0.2     14.7     (1.4
Operating profit before exceptional items                              
Franchised    85     78     9.0     77     1.3 
Managed    26     22     18.2     28     (21.4
Owned and leased                   1     (100.0
Regional overheads    (25    (25         (28    10.7 
     86     75     14.7     78     (3.8
Exceptional items    (2              175     (100.0
Operating profit    84     75     12.0     253     (70.4
Percentage of Group operating profit before central overheads and exceptional items    9.9     9.0     0.9     9.4     (0.4

Highlights for the year ended

31 December 20142017

Comprising 647692 hotels (104,208(113,415 rooms) at the end of 2014,2017, Europe represented 15%14% of the Group’s room count and 11%10% of the Group’s operating profit before central overheads and exceptional operating items for the year ended 31 December 2014.2017. Revenues are primarily generated from hotels in the UK and continental European gateway cities. The largest proportion of rooms in Europe are operated under the franchise business model primarily in the upper midscaleMainstream segment (Holiday Inn and Holiday Inn Express). Similarly, in the upscaleUpscale segment, Crowne Plaza is predominantly franchised, whereas, in the luxuryLuxury segment, the majority of InterContinental brandedInterContinental-branded hotels are operated under management agreements.

Revenue and operating profit increased by $14m (6.2%) to $241m and by $9.0m (12.0%) to $84m respectively. Operating profit before exceptional items decreasedincreased by $26m (6.5%$11m (14.7%) to $374m and by $16m (15.2%) to $89m respectively.$86m. On an underlying1a basis, revenue increased by $15m (10.0%) and operating profit increased by $12m (16.4%) driven by strong trading, 3.0% rooms growth

and effective cost control to maintain overheads in line with the prior year. Overall, comparable RevPAR in Europe increased by 6.3%, with the UK and Germany increasing by 4.5% and 2.1% respectively. Recovery in markets previously impacted by terror attacks led to RevPAR growth in the year of 7.1% in France and double digit growth in Belgium and Turkey.

Franchised revenue increased by $7m (6.9%) to $109m, whilst operating profit increased by $7m (9.0%) to $85m. On a constant currency basis, revenue and operating profit increased by $4m (1.4%$8m (7.8%) and $3m (3.5%$7m (9.0%respectively. Overall, comparable RevPAR in Europe increasedrespectively, positively impacted by 5.1%. Thestrong US inbound tourism to the UK achieved a particularly strong comparable RevPAR growth of 8.9%, with double-digit growth in the first and third quarters. Comparable RevPAR in Germany was also strong, increasinghalf of the year.

Managed revenue increased by 4.1%, driven by continued growth in domestic output and a rise in employment, whilst IHG hotels in the Commonwealth of Independent States (CIS) collectively experienced a comparable RevPAR decline of 4.0%, reflecting a challenging economic climate in the region during 2014.

Franchised revenue remained flat at $104m, whilst operating profit decreased by $1m (1.3%$7m (5.6%) to $78m. Excluding the benefit of a $9m liquidated damages receipt in 2013, revenue and operating profit increased by $8m (8.4%$4m (18.2%) and $8m (11.4%) respectively at constant currency. This underlying growth was mainly driven by an increase in royalties of 8.0%, reflecting comparable RevPAR growth of 5.3%, together with 5.7% rooms growth.

Managed revenue increased by $3m (1.9%) to $159m, whilst operating profit was flat with 2013 at $30m.. Revenue and operating profit included $90m (2013 $89m)$77m (2016: $77m) and $2m (2013$nil (2016: $2m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue increased by $3m (4.5%$7m (14.6%), whilst and operating profit was flat. Atincreased by $5m (25.0%).

Highlights for the end of 2014, IHG commenced a process to restructure the majority of its UK managed hotels to new franchised contracts.year ended

In the owned and leased estate, revenue31 December 2016

Revenue decreased by $29m (20.7%$38m (14.3%) to $111m$227m and operating profit decreased by $16m (53.3%$178m (70.4%) to $14m. At constant currency and excluding$75m, primarily due to the impactgain on sale of the disposal of InterContinental London Park Lane (which contributed revenue and operating profit of $22m and $8m respectively in 2013), owned and leased revenue and operating profit both decreased by $7m. These declines were driven by InterContinental Paris – Le Grand due to the refurbishment of the Salon Opera ballroom in the first half of 2014. The hotel delivered revenue and operating profit of $111m and $15m respectively, a decrease of 5.9% and 34.8% compared to 2013, whilst RevPAR decreased by 4.7%.

Highlights forduring the year ended 31 December 2013

Revenue and operating2015. Operating profit before exceptional items decreased by $36m (8.3%$3.0m (3.8%) to $400m$75m. Underlyinga revenue increased by $1m (0.6%) and underlyinga operating profit stayed flat at $76m. Overall, comparable RevPAR in Europe increased by $7m (6.3%1.7%, with the UK increasing by 2.6%, led by average daily rate growth in the provinces, Germany growing by 6.8% and Russia and CIS growing at 14.7%.

Franchised revenue decreased by $2m (1.9%) to $105m respectively.$102m, whilst operating profit increased by $1m (1.3%) to $78m. On an underlying1a constant currency basis, revenue and operating profit increased by $9m (3.4%$6m (5.8%) and $8m (10.4%$6m (7.8%) respectively. Overall, RevPAR in Europe increased by 1.7%. The UK achieved RevPAR growth of 3.0%, with particularly strong performance in the final quarter of 2013 with RevPAR increasing 7.3%. RevPAR in Germany increased by 0.8% despite a weaker year-on-year trade fair calendar, whilst IHG hotels in the CIS collectively achieved RevPAR growth of 2.7%.

Franchised revenue increased by $13m (14.3%) to $104m, whilst operating profit increased by $14m (21.5%) to $79m. Excluding the benefit of a $9m liquidated damages receipt in 2013, revenue and operating profit increased by $4m (4.4%) and $5m (7.7%) respectively. Growth was mainly driven by an increase in royalties of 7.0% (6.3% at constant currency) reflecting RevPAR growth of 1.5%, partly offset by a 0.2% decline in available rooms.

1Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates.

LOGO

41


IHG  Annual Report and Form 20-F 2014
Performancecontinued

Managed revenue increaseddecreased by $9m (6.1%$6m (4.6%) to $156m and operating profit decreased by $2m (6.3%$6m (21.4%) to $30m.. Revenue and operating profit included $89m (2012 $80m)$77m (2015: $75m) and $2m (2012 $2m)(2015: $1m) respectively from managed leases. Excluding properties operated under this arrangement, and on a constant currency basis, revenue was flatdecreased by $5m (8.9%) and operating profit decreased by $1m (3.3%$6m (22.2%). Performance was impacted by difficult trading conditions for our hotels in Paris, and a revenue reduction in relation to three managed hotels; two of which have exited the system and one of which is undergoing a major refurbishment.

InThe last remaining hotel in the owned and leased estate, InterContinental Paris – Le Grand, was sold in 2015. Following this, revenue decreased by $58m (29.3%) to $140m and operating profit decreased by $20m (40.0%) to $30m. At constant currency and excluding the impact of the disposal of InterContinental London Park Lane, the owned and leased estate delivered a revenue increase of $5m (4.6%) with RevPAR growth of 5.3%. Operating profit increased by $4m (23.5%), benefiting from a one-off $3m property tax recovery in the year.estate decreased to nil.

aUnderlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance35


Strategic Report

Performance continued

Europe continued

Europe hotel and room count

         Hotels       Rooms 
At 31 December  2014   Change
over 2013
  2014   Change
over 2013
 
Analysed by brand                   

InterContinental

   30     (1  9,372     (153

Crowne Plaza

   83         19,395     (127

Hotel Indigo

   17     4    1,568     325  

Holiday Inn1

   284     2    45,722     101  

Holiday Inn Express

   226     11    27,138     1,767  

Staybridge Suites

   5         784       

Other

   2     2    229     229  
Total   647     18    104,208     2,142  
Analysed by ownership type                   

Franchised

   565     37    84,016     4,499  

Managed

   81     (19  19,722     (2,357

Owned and leased

   1         470       
Total   647     18    104,208     2,142  
Percentage of Group hotel and room count   13.4         14.7     (0.2

     Hotels     Rooms 
At 31 December                    2017     Change
    over 2016
                     2017     Change
    over 2016
 
Analysed by brand                        
InterContinental    32     1     9,889     165 
Kimpton    1     1     274     274 
Crowne Plaza    97     5     22,477     1,590 
Hotel Indigo    24     3     2,182     272 
Holiday Inna    286     (5    46,928     (901
Holiday Inn Express    244     10     30,508     1,930 
Staybridge Suites    7          1,000      
Other    1          157     16 
Total    692     15     113,415     3,346 
Analysed by ownership type                        
Franchised    636     7     98,302     1,272 
Managed    56     8     15,113     2,074 
Total    692     15     113,415     3,346 
Percentage of Group hotel and room count    13.0     (0.1    14.2     (0.2

 

1a2014 and 2013 include 2Includes one Holiday Inn Resort properties (212property (88 rooms) (2016: one Holiday Inn Resort property (88 rooms)).

Europe pipeline

     Hotels     Rooms 
At 31 December                    2017     Change
    over 2016
                     2017     Change
    over 2016
 
Analysed by brand                        
InterContinental    5     (1    779     (34
Kimpton    1          149      
Crowne Plaza    16     2     3,199     14 
Hotel Indigo    20     2     2,353     89 
Holiday Inn    38     4     7,781     512 
Holiday Inn Express    67     9     10,410     1,015 
Staybridge Suites    7     2     921     284 
Other    1     1     396     396 
Total        155     19     25,988     2,276 
Analysed by ownership type                        
Franchised    135     24     20,774     2,866 
Managed    20     (5    5,214     (590
Total    155     19     25,988     2,276 

Total number of hotels

692

Total number of rooms

113,415

During 2014,2017, Europe System size increased by 1815 hotels (2,142(3,346 rooms) to 647692 hotels (104,208(113,415 rooms). The Group opened 3526 hotels (5,353(4,917 rooms) in Europe in 2014,2017, compared to 2124 hotels (3,528(4,188 rooms) in 2013. 2014 openings included two landmark InterContinental hotels; the 197-room InterContinental Dublin and the 331-room InterContinental Lisbon. Four further Hotel Indigo properties (3252016. In Germany, we opened a record 11 hotels (2,101 rooms) opened in 2014, in prime city locations of Paris, Madrid, Rome and St Petersburg. Additionally, the Group opened Holiday Inn Express Voronezh - Kirova during 2014, a debut for the brand in Russia..

1711 hotels (3,211(1,571 rooms) left the Europe System in the period, compared to 20seven hotels (3,489(830 rooms) in the previous year.

EuropeTotal number of hotels in the pipeline

         Hotels       Rooms 
At 31 December  2014   Change
over
2013
  2014   Change
over
2013
 
Analysed by brand                   

InterContinental

   3     1    845     192  

Crowne Plaza

   14     2    2,917     293  

Hotel Indigo

   12     (3  1,368     (208

Holiday Inn

   37     2    6,944     332  

Holiday Inn Express

   44     1    6,374     358  

Staybridge Suites

   4     1    414     116  

Other

            31     31  
Total   114     4    18,893     1,114  
Analysed by ownership type                   

Franchised

   95     (2  13,996     (123

Managed

   19     6    4,897     1,237  
Total   114     4    18,893     1,114  

155

Total number of rooms in the pipeline

25,988

The Europe pipeline totalled 114155 hotels (18,893(25,988 rooms) at 31 December 2014,2017, representing an increase of four19 hotels (1,114(2,276 rooms) over 31 December 2013. New signings2016. Signings of 4859 hotels (7,804(9,241 rooms), compared to 50a decrease of one hotel (313 rooms) from the prior year, included 19 hotels (7,542 rooms) in 2013, included 16 hotel signings in the UK (2,234 rooms). The Group also signed 12 hotels (2,323(3,690 rooms) in Germany, a record number of signings for the fourth year running, and seven new14 hotels (867(1,497 rooms) in countries in the CIS. Notable signings in Europe included the 162-room InterContinental Baku, the first for the brand in Azerbaijan.UK.

Nine14 hotels (1,337(2,048 rooms) were removed from the pipeline in 2014,2017, compared to 1012 hotels (1,419(1,944 rooms) in 2013.2016.

 

 

42


Asia, Middle East and Africa (AMEA)

Execute our strategic plans to strengthen our brands and increase our revenue share through operational excellence and outperformance over the next three years.

LOGO

Industry performance in 2014

AMEA is the largest region in geographic terms, and performance varies across the countries that comprise the region.

The strongest of the larger markets in AMEA, in which we operate, are Australia, Japan and the Middle East. Australia experienced RevPAR growth of 4.1% due to both occupancy, which increased by 2.1%, and daily rate growth, which increased by 2.0%. Despite its economic contraction in the third quarter of 2014, Japan’s RevPAR grew 9.4% as a result of an 8.2% increase in daily rate. Occupancy growth was 1.1%.

Performance in the smaller AMEA markets, in which we operate, was less consistent. RevPAR in Saudi Arabia experienced an overall increase of 6.0%. Indonesia saw RevPAR growth for the year of 4.3%, primarily driven by a 6.9% increase in daily rate, and RevPAR in India grew by 0.8%.

IHG’s regional performance in 2014

Across this large and diverse geographic region, IHG is widely represented both geographically and by brand, and as such comparisons across the industry are hard to make. Overall IHG RevPAR increased 3.8% driven predominantly through rate growth with performance led by the Middle East (5.6% RevPAR growth) and positive trading in our mature markets of Japan (6.7% RevPAR growth) and Australia (3.9% RevPAR growth). India and Southeast Asia exhibited steady growth, with the exception of Thailand, which was impacted by political instability in the first half of 2014. Indonesia saw RevPAR growth of 9.1%.

AMEA comparable RevPAR

movement on previous year

36 12 months ended
31 December 2014
Franchised

All brands

1.7%
Managed

All brands

4.4%

Progress against 2014 regional priorities

In line with our 2014 regional priorities, we:

strengthened our position in the region’s priority markets and key gateway cities, opening 19 hotels (9 in Indonesia and India), taking the region’s System size to a total of 253 hotels (as at 31 December 2014) with notable openings including InterContinental Sydney Double Bay, the second for the brand in Sydney;

accelerated the growth of our core brands across the region with the signing of 32 new hotels into the pipeline – including 21 hotels for the Holiday Inn brand family (9 hotels for the Holiday Inn Express brand) and 19 in the region’s emerging markets;

continued to deliver operational excellence to improve guest satisfaction and deliver high-quality revenues by embedding our revenue tools, system delivery platforms, responsible business practices and People Tools (see progress against KPIs set out on pages 30 to 33); and

accelerated a ‘winning culture’ with further alignment between operations and corporate teams and increased leadership capability to embed the systems, processes and competencies to deliver high performance.

IHG’s 2015 regional priorities

1.Continue to accelerate IHG System size growth across the region, focusing on any brand gaps in key cities and driving secondary city growth in our priority markets of the Middle East, India and Indonesia.

2.Focus on strong RevPAR growth through building preferred brands that deliver guest satisfaction.

3.Following the launch of the Hotel Indigo brand in the region, support the growth of the brand in AMEA.

Source: Smith Travel Research for all of the above industry facts.

LOGO

43


IHG  |  Annual Report and Form 20-F 2014
Performancecontinued2017


AMEA

    

    

 

AMEA results

    12 months ended 31 December 
    2014
$m
  2013
$m
  2014 vs
2013 %
change
  2012
$m
  2013 vs
2012 %
change
 
Revenue                     

Franchised

   16    16        18    (11.1

Managed

   187    170    10.0    152    11.8  

Owned and leased

   39    44    (11.4  48    (8.3
Total   242    230    5.2    218    5.5  
Percentage of Group Revenue   13.0    12.1    0.9    11.9    0.2  
Operating profit before exceptional items                     

Franchised

   12    12        12      

Managed

   88    92    (4.3  90    2.2  

Owned and leased

   3    4    (25.0  6    (33.3
    103    108    (4.6  108      
Regional overheads   (19  (22  13.6    (20  (10.0
Total   84    86    (2.3  88    (2.3
Percentage of Group Operating profit before central overheads and exceptional items   10.5    10.4    0.1    11.5    (1.1

                     12 months ended 31 December   
                2017
$m
               2016
$m
     2017 vs 2016
% change
               2015
$m
     2016 vs 2015
% change
   
Revenue                               
Franchised    17     16     6.3     16       
Managed    193     184     4.9     189     (2.6 
Owned and leased    34     37     (8.1    36     2.8  
Total    244     237     3.0     241     (1.7 
Percentage of Group revenue    13.7     13.8     (0.1    13.3     0.5  
Operating profit before exceptional items                               
Franchised    14     12     16.7     12       
Managed    91     89     2.2     90     (1.1 
Owned and leased    2     2          3     (33.3 
Regional overheads    (20    (21    4.8     (19    (10.5 
     87     82     6.1     86     (4.7 
Exceptional items    (2              (2    (100.0 
Operating profit    85     82     3.7     84     (2.4 
Percentage of Group operating profit before central overheads and exceptional items    10.0     9.8     0.2     10.4     (0.6 

Highlights for the year ended

31 December 20142017

Comprising 253299 hotels (67,876(85,661 rooms) at 31 December 2014,2017, AMEA represented 9%11% of the Group’s room count and contributed 10% of the Group’s operating profit before central overheads and exceptional operating items during the year. 82%The majority of rooms in AMEA are operated under the managed business model. The region’s hotels are

Revenue and operating profit increased by $7m (3.0%) to $244m and by $3m (3.7%) to $85m respectively. Operating profit before exceptional items increased by $5m (6.1%) to $87m. On an underlying basisa, revenue and operating profit increased by $9m (4.8%) and $9m (11.7%) respectively.

Comparable RevPAR increased 1.5% primarily due to an increase in occupancy. Performance was positive in Japan and Australia, which grew by 2.7% and 4.5% respectively, however the luxury, upscaleMiddle East decreased by 4.1%, impacted by low oil prices and upper midscale segments.industry wide oversupply.

Franchised revenue increased by $1m (6.3%) to $17m, whilst operating profit increased by $2m (16.7%) to $14m. On a constant currency basis, revenue stayed flat at $16m and operating profit increased by $2m (16.7%).

Managed revenue and operating profit increased by $9m (4.9%) to $193m and $2m (2.2%) to $91m respectively. Comparable RevPAR increased by 2.1%, with average daily rate declines offset by occupancy gains. Australasia benefitted from strong domestic travel, whilst growth in South East Asia was driven by international arrivals in Indonesia and Thailand. Revenue and operating profit included $52m (2016: $51m) and $4m (2016: $5m) respectively from one managed-lease property. Excluding results from this hotel and on a constant currency basis, revenue increased by $12m (5.2%(9.0%) to $242m$145m, whilst operating profit increased by $6m (7.1%) to $90m.

In the owned and leased estate, on an actual and constant currency basis, revenue decreased by $3m (8.1%) to $34m and operating profit stayed flat at $2m.

Highlights for the year ended

31 December 2016

Revenue and operating profit decreased by $4m (1.7%) to $237m and by $2m (2.4%) to $82m respectively. Operating profit before exceptional items decreased by $2m (2.3%$4m (4.7%) to $84m. On an$82m. Underlyinga revenue and underlying1a basis, revenue increasedoperating profit decreased by $5m (2.5%$8m (4.1%) and operating profit increased by $4m (5.1%$3m (3.7%). The results included a $6m benefit from liquidated damages received in 2013 (2014 $nil). AMEA is a geographically diverse region and performance was impacted by political and economic factors affecting different countries. respectively.

Comparable RevPAR increased 3.8% driven by 2.4% rate growth.decreased 0.2% primarily due to a fall in rate. Performance was ledpositive in India, which grew by 14.1%, and Japan exhibited growth of 3.6%, however the Middle East up 5.6%decreased by 7.0%, drivenimpacted by a solid performance in Saudi Arabiadeclining oil prices and a recovery in Egypt. This was supported by positive trading in the mature markets of Japan, which grew by 6.7%,oversupply.

On an actual and Australia, which grew by 3.9%. Elsewhere, both India and South East Asia exhibited steady growth, with the exception of Thailand which suffered from political instability in the first half of the year.

Franchisedconstant currency basis franchised revenue and operating profit remained flat at $16m and $12m respectively.

Managed revenue increased by $17m (10.0%) to $187m whilstand operating profit decreased by $4m (4.3%$5m (2.6%) to $88m.$184m and $1m (1.1%) to $89m respectively. Revenue and operating profit included $41m (2013 $21m)$51m (2015: $46m) and $4m (2013 $1m)$5m (2015: $5m) respectively from one managed leasemanaged-lease property. Excluding results from this hotel as well as the benefit of $6m liquidated damages in 2013 (2014 $nil), revenue increased by $7m (4.9%) whilst operating profit increased by $2m (2.4%)and on a constant currency basis. Comparable RevPAR increasedbasis, revenue decreased by 4.4%, with room count increasing$9m (6.3%) to $134m, whilst operating profit remained flat at $85m. Good underlying growth in our managed business was offset by 5.9%.a $7m revenue reduction in relation to four hotels; three long-standing contracts being renewed onto standard market terms and one equity stake disposal.

In the owned and leased estate, on an actual and constant currency basis, revenue increased by $1m (2.8%) to $37m and operating profit decreased by $5m (11.4%) to $39m and by $1m (25.0%) to $3m respectively, due to a 6.3% decrease in RevPAR.

Highlights for the year ended 31 December 2013

Revenue increased by $12m (5.5%) to $230m and operating profit decreased by $2m (2.3%) to $86m. On an underlying1 basis, revenue and operating profit decreased by $6m (2.8%) and $7m (8.0%) respectively. The results included a $6m benefit from liquidated damages in 2013 (2012 $nil). RevPAR increased by 6.1%, with 3.0% growth in average daily rate. AMEA is a geographically diverse region and performance is impacted by political and economic factors affecting different countries. The Middle East delivered RevPAR growth of 2.9%, driven by strength in the United Arab Emirates and Saudi Arabia, whilst continuing political uncertainty impacted some of our other markets in the region, particularly Egypt and Lebanon. Performance in Japan was strong, with RevPAR increasing by 9.6%, whilst Australia also achieved solid RevPAR growth of 2.8%. RevPAR growth in developing markets remained buoyant, led by 12.2% RevPAR growth in Indonesia. Revenue and operating profit growth were muted by a $6m negative year-on-year impact from the renewal of a small number of long-standing contracts onto current commercial terms. In addition, there was a $4m negative impact from similar contracts that were not renewed.

Franchised revenue decreased by $2m (11.1%) to $16m, whilst operating profit was flat at $12m.

Managed revenue and operating profit increased by $18m (11.8%) to $170m and by $2m (2.2%) to $92m respectively. During 2013, a new property opened under an operating lease structure, with the same characteristics as a management contract, contributing revenue of $21m and operating profit of $1m. Excluding this property together with the benefit of the $6m liquidated damages receipt in 2013, revenue and operating profit decreased by $4m (2.6%) and $4m (4.4%) respectively at constant currency. RevPAR increased by 5.6%, with AMEA System size up 2.6%.

In the owned and leased estate, revenue and operating profit decreased by $4m (8.3%) to $44m and by $2m (33.3%) to $4m respectively, driven by a 7.3% RevPAR decline.$2m.

aUnderlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.
 

 

44IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance37


Strategic Report

 

Performance continued

AMEA continued

    

AMEA hotel and room count

       Hotels      Rooms         Hotels         Rooms  
At 31 December  2014   Change
over 2013
 2014   Change
over 2013
                  2017    Change
  over 2016
                  2017    Change
  over 2016
  
Analysed by brand                            

InterContinental

   67        21,424     41      72     3     21,902     699  

Crowne Plaza

   69     2   19,688     610      79     6     22,097     1,348  

Holiday Inn1

   85     4   19,750     1,286  
Hotel Indigo    3     1     612     289  
Holiday Inna    97     4     23,502     2,190  

Holiday Inn Express

   24     8   5,295     1,795      38     4     8,667     1,084  

Staybridge Suites

   3        425     ��     4     1     589     164  

Other

   5     (5 1,294     (694    6          8,292     3,836  
Total   253     9   67,876     3,038      299     19     85,661     9,610  
Analysed by ownership type                            

Franchised

   50     (1 11,569     (42    59     4     13,476     906  

Managed

   201     10   55,720     3,080      238     15     71,652     8,758  

Owned and leased

   2        587           2          533     (54 
Total   253     9   67,876     3,038      299     19     85,661     9,610  
Percentage of Group hotel and room count   5.2        9.5     0.2      5.6     0.2     10.8     0.9  

 

1a Includes 15 Holiday Inn Resort properties (3,259 rooms) (2016: 14 Holiday Inn Resort properties (3,003(2,953 rooms) (2013: 14).

AMEA pipeline

             Hotels             Rooms   
At 31 December                  2017     Change
  over 2016
                   2017     Change
  over 2016
   
Analysed by brand                         
InterContinental    23     (4    5,701     (980 
Kimpton    1     1     50     50  
Crowne Plaza    20     (1    5,456     (98 
Hotel Indigo    14          2,387     (195 
EVEN Hotels    1     1     200     200  
Holiday Innb    57     8     14,284     1,020  
Holiday Inn Express    41     6     7,686     200  
Staybridge Suites    7     3     1,588     800  
Other              18     (3,512 
Total    164     14     37,370     (2,515 
Analysed by ownership type                         
Franchised    18     7     4,054     1,648  
Managed    146     7     33,316     (4,163 
Total    164     14     37,370     (2,515 

bIncludes five Holiday Inn Resort properties (2,965(1,075 rooms) (2016: five Holiday Inn Resort properties (1,256 rooms)).

Total number of hotels

299

Total number of rooms

85,661

The AMEA System size increased by nine19 hotels (3,038(9,610 rooms) to 253299 hotels (67,876(85,661 rooms) as at 31 December 2014. The level of openings decreased marginally2017. Openings increased by nine hotels (6,612 rooms) to 1926 hotels (4,228(11,085 rooms) in 2014 from 202017 including 3,512 rooms in Makkah, Saudi Arabia which relate to the remaining portion of the signing that was announced in 2015.

Seven hotels (4,495 rooms) in 2013. Openings in 2014 included two hotels (417 rooms) for the InterContinental brand, including the 140-room InterContinental Sydney Double Bay, the second for the brand in Sydney, and four hotels (1,039 rooms) in India.

10 hotels (1,190(1,475 rooms) were removed from the AMEA System in 2014,2017, compared to eightfour hotels (2,394(995 rooms) in 2013.2016.

AMEATotalnumber of hotels in the pipeline

         Hotels       Rooms 
At 31 December  2014   Change
over 2013
  2014   Change
over 2013
 
Analysed by brand                   

InterContinental

   22     1    5,804     426  

Crowne Plaza

   16     2    4,412     364  

Hotel Indigo

   10     2    1,823     431  

Holiday Inn1

   50     1    13,230     889  

Holiday Inn Express

   39     0    8,177     197  

Staybridge Suites

   5     (1  900     (35
Total   142     5    34,346     2,272  
Analysed by ownership type                   

Franchised

   8     5    1,754     1,107  

Managed

   134         32,592     1,165  
Total   142     5    34,346     2,272  

164

1Includes seven Holiday Inn Resort properties (1,729 rooms) (2013: six Holiday Inn Resort properties (1,579rooms)).

Totalnumber of rooms in the pipeline

37,370

At 31 December 2014,2017, the AMEA pipeline totalled 142164 hotels (34,346(37,370 rooms) compared to 137150 hotels (32,074(39,885 rooms) as at 31 December 2013. Signings2016. Hotel signings in AMEA of 32were the highest since 2007 with 63 hotels (8,030(12,620 rooms) were slightly below the level seen in 2013 (36 hotels, 8,687 rooms). Signings in 2014 included, an increase of 21 hotels (5,507(2,069 rooms) from 2016. The AMEA pipeline decreased by 2,515 rooms partly due to the opening of 3,512 rooms in Makkah, Saudi Arabia. The majority of 2017 signings were within the Holiday Inn brand family notably(42 hotels, 7,787 rooms) including the 1,000-roomrebranding of a portfolio of 14 properties in India to the Holiday Inn Newport City in Manila. FourExpress brand as well as three InterContinental hotels (999(730 rooms) were signed during 2014..

Eight23 hotels (1,530(4,050 rooms) were removed from the pipeline in 2014,2017, compared to 1123 hotels (2,475(4,651 rooms) in 2013.2016.

1Underlying excludes the impact of owned asset disposals, managed leases, significant liquidated damages and exceptional items translated at constant currency by applying prior year exchange rates.
 

 

LOGO

4538


 
IHG  |  Annual Report and Form 20-F 2014
Performancecontinued2017


    

Greater China

    

    

Greater China

Maximise scale and strength and establish multi-segment local operating expertise to drive margin and expand our strong portfolio of brands over the next three years.

LOGO

Industry performance in 2014

The Chinese economy achieved GDP growth of 7.4% in 2014, a slowdown against the average of 8.9% growth in the period from 2009 to 2013. This slowdown was attributable to several factors, including lessening domestic demand and manufacturing output, a correction in the real estate market and declining inflation. Growth is expected to reduce further in 2015 and 2016.

Hotel industry RevPAR in Greater China decreased by 0.9% in the year. Whilst overall occupancy increased by 1.9%, average daily

rates decreased by 2.8%. Much of this decrease in the region is due to changes in the industry structure due to growth in tier 2 and 3 cities as well as from growth of economy brands.

RevPAR in the People’s Republic of China (excluding Taiwan) decreased by 1.5%. Many major cities, such as Shanghai and Guangzhou, experienced an increase in RevPAR driven by strong occupancy gains. However, RevPAR in Beijing and surrounding North China, East China and South China saw a decrease in year-on-year RevPAR growth.

    

    

IHG’s regional performance in 2014

IHG’s comparable RevPAR increased 1.6% in 2014, significantly ahead of the overall industry. Trading was strongest in tier 1 cities, whilst tier 2 and 3 cities were softer, impacted by new supply as these markets develop. Our RevPAR growth was driven by occupancy which increased by 2.4%, whilst rate decreased by 2.3% – both ahead of the industry, reflecting our scale and management strength in the region.

Greater China comparable RevPAR

movement on previous year

12 months ended
31 December 2014
Managed

All brands

1.3% 
Owned and leased

InterContinental

(1.0)%

Progress against 2014 regional priorities

In line with our 2014 regional priorities, we:

grew distribution of our brands in the region with 34 hotel openings and 64 hotels signed into our pipeline;

opened 19 hotels during the year for the Holiday Inn brand family (Holiday Inn and Holiday Inn Express), including the opening of the 50th Holiday Inn Express hotel, and signed a further 45 hotels into the pipeline for the Holiday Inn brand family;

continued to make progress with the HUALUXE Hotels and Resorts brand, with 24 hotels in the pipeline as at 31 December 2014 – one of which we opened in February 2015 (see page 19);

continued to grow our talent (see page 23); and

continued to localise IHG brands, systems, tools, processes and responsible business practices to increase efficiency and margin performance (see progress against KPIs set out on pages 30 to 33).

IHG’s 2015 regional priorities

1.Further increase IHG System size, with deeper penetration in tier 2 and 3 cities and strengthen the distribution of the Holiday Inn and Holiday Inn Express brands to capture the growing midscale segment opportunity.

2.Build a strong pipeline for the HUALUXE Hotels and Resorts brand and support the subsequent hotel openings.

3.Continue to grow our talent and build a strong local talent pipeline, particularly in tier 2 and 3 cities.

Source: Smith Travel Research for all of the above industry facts.

46


    

    

 

Greater China results

    12 months ended 31 December 
    2014
$m
  2013
$m
  2014 vs
2013 %
change
  2012
$m
  2013 vs
2012 %
change
 
Revenue                     

Franchised

   4    3    33.3    3      

Managed

   99    92    7.6    89    3.4  

Owned and leased

   139    141    (1.4  138    2.2  
Total   242    236    2.5    230    2.6  
Percentage of Group Revenue   13.0    12.4    0.6    12.5    (0.1
Operating profit before exceptional items                     

Franchised

   5    5        4    25.0  

Managed

   63    51    23.5    51      

Owned and leased

   42    47    (10.6  45    4.4  
    110    103    6.8    100    3.0  
Regional overheads   (21  (21      (19  (10.5
Total   89    82    8.5    81    1.2  
Percentage of Group Operating profit before central overheads and exceptional items   11.0    10.0    1.0    10.6    (0.6

                     12 months ended 31 December   
              2017
$m
             2016
$m
     2017 vs 2016
% change
             2015
$m
     2016 vs 2015
% change
   
Revenue                               
Franchised    4     3     33.3     4     (25.0 
Managed    122     114     7.0     105     8.6  
Owned and leased                   98     (100.0 
Total    126     117     7.7     207     (43.5 
Percentage of Group revenue    7.1     6.8     0.3     11.5     (4.7 
Operating profit before exceptional items                               
Franchised    2     3     (33.3    5     (40.0 
Managed    73     64     14.1     59     8.5  
Owned and leased                   29     (100.0 
Regional overheads    (23    (22    (4.5    (23    4.3  
     52     45     15.6     70     (35.7 
Exceptional items                   698     (100.0 
Operating profit    52     45     15.6     768     (94.1 
Percentage of Group operating profit before central overheads and exceptional items    6.0     5.4     0.6     8.4     (3.0 

Highlights for the year ended

31 December 20142017

Comprising 241328 hotels (78,194(101,539 rooms) at 31 December 2014,2017, Greater China represented 11%approximately 13% of the Group’s room count and contributed 11%approximately 6% of the Group’s operating profit before central overheads and exceptional operating items for the year ended 31 December 2014. 97%2017. The majority of rooms in Greater China are operated under the managed business model. The region’s hotels are in the luxury, upscale and upper midscale segments.

Revenue and operating profit increased by $9m (7.7%) to $126m and by $7m (15.6%) to $52m respectively. On an underlyinga basis, revenue increased by $11m (9.4%) and operating profit increased by $7m (15.6%), driven by strong trading in mainland China and 9.2% rooms growth as well as robust cost control as we continue to leverage the scale of the operational platform we have built in Greater China.

On an actual and constant currency basis, franchised revenue increased by $1m (33.3%) to $4m, whereas operating profit decreased by $1m (33.3%) to $2m due to additional investment in growth initiatives.

Managed revenue and operating profit increased by $8m (7.0%) to $122m and by $9m (14.1%) to $73m respectively. Comparable RevPAR increased by 6.1%, whilst the Greater China System size grew by 7.6%. RevPAR in mainland tier 1 cities benefitted from strong transient, corporate and meetings demand. On a constant currency basis, revenue and operating profit increased by $10m (8.8%) to $124m and by $10m (15.6%) to $74m respectively.

Highlights for the year ended

31 December 2016

Revenue decreased by $90m (43.5%) to $117m and operating profit decreased by $723m (94.1%) to $45m, primarily due to the gain on sale of InterContinental Hong Kong in 2015. Operating profit before exceptional items decreased by $25m (35.7%) to $45m. Underlyinga revenue and underlyinga operating profit increased by $6m (2.5%$14m (12.8%) to $242m and by $7m (8.5%$6m (14.6%) to $89m respectively. Overall, the region achieved comparable RevPAR growth of 1.6%, slightly stronger than the 1.0% growth achieved2.2%. Trading in 2013. This performance was significantly ahead of the industry, reflecting IHG’s scale and management strength in the region, and was achieved in a challenging environment with slower macro-economic conditions, government austerity measures and protests in Hong Kong. Trading was strongest inmainland tier 1 cities especially Shanghaiwas particularly strong, whilst the rest of mainland China showed slower growth.

On an actual and Guangzhou, with good levels of transientconstant currency basis, franchised revenue and corporate business. Performance in tier 2 and 3 cities continues to be impacted by new supply as these markets develop. Total RevPAR in the regionoperating profit decreased by 3.4% as hotels opened in these lower RevPAR markets.

Franchised revenue increased$1m (25.0%) and by $1m (33.3%$2m (40.0%to $4m whilst operating profit was flat at $5m. Operating profit was higher than revenue in both 2014 and 2013 due to joint venture dividend income received from a hotel in Hong Kong.respectively.

Managed revenue increased by $7m (7.6%) to $99m, whilstand operating profit increased by $12m (23.5%$9m (8.6%) to $63m, reflecting improvements in operating margin, net rooms growth,$114m and a small number of one-off items that contributed approximatelyby $5m (8.5%) to the result.$64m respectively. Comparable RevPAR increased by 1.3%3.0%, whilst the Greater China System size grew by 14.7%9.0%, driving a 8.5%7.0% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 7.8%.

Owned6.8%, primarily due to increased food and leased revenue decreased by $2m (1.4%) to $139m, driven bybeverage revenue. On a RevPAR decrease of 1.0% at InterContinental Hong Kong. Operating profit decreased by $5m (10.6%) to $42m. The decrease in revenue and operating profit at the hotel was driven primarily by the ongoing development of the area adjacent to the hotel and protests in central Hong Kong.

Highlights for the year ended 31 December 2013

Revenue and operating profit before exceptional items increased by $6m (2.6%) to $236m and by $1m (1.2%) to $82m respectively. On an underlyingconstant currency basis, revenue and operating profit increased by $6m (2.6%$15m (14.3%to $120m and $2m (2.5%by $8m (13.6%respectively.to $67m respectively, with ongoing investment in growth initiatives more than offset by scale efficiencies and strategic cost management.

FranchisedThe last remaining hotel in the owned and leased estate, InterContinental Hong Kong, was sold in 2015. Following this, revenue was flat at $3m and operating profit increased by $1m (25.0%)in the estate decreased to $5m.nil.

Managed revenue increased by $3m (3.4%) to $92m and operating profit was flat at $51m. RevPAR increased by 0.6%, whilst the Greater China System size grew by 11.8%, driving a 9.2% increase in total gross revenue derived from rooms business. Total gross revenue derived from non-rooms business increased by 3.0%. Operating profit was partly offset by increased investment to drive future growth.

Owned and leased revenue at InterContinental Hong Kong increased by $3m (2.2%) to $141m, driven by a 4.5% increase in total gross revenue derived from non-rooms business, although this was partly offset by a RevPAR decline of 0.1%. Operating profit increased by $2m (4.4%) to $47m.

aUnderlying excludes the impact of owned asset disposals, significant liquidated damages and the results from managed-lease hotels, translated at constant currency by applying prior-year exchange rates (see pages 154 and 155). Underlying operating profit growth also excludes the impact of exceptional items.
 

 

LOGO

47


IHG  |  Annual Report and Form 20-F 2014
Pe2017  |  rfStrategic Reporto  |  rmPerformanceancecontinued39


Strategic Report

 

Performance continued

Greater China continued

    

Greater China hotel and room count

       Hotels        Rooms         Hotels         Rooms  
At 31 December  2014   Change
over 2013
   2014   Change
over 2013
                  2017    

Change

    over 2016

                  2017    Change
    over 2016
  
Analysed by brand                             

InterContinental

   33     4     13,542     1,800      40     1     16,629     314  
HUALUXE    7     3     2,089     993  

Crowne Plaza

   73     8     26,113     2,879      82     3     28,948     897  

Hotel Indigo

   5          612           7     1     1,023     283  

Holiday Inn1

   73     6     23,407     1,745  
Holiday Inna    86     3     26,659     788  

Holiday Inn Express

   55     13     14,076     2,781      101     26     23,813     5,336  

Other

   2     2     444     444      5     (1    2,378     (94 
Total   241     33     78,194     9,649      328     36     101,539     8,517  
Analysed by ownership type                             

Franchised

   4          2,184           11     7     3,764     1,580  

Managed

   236     33     75,507     9,649      317     29     97,775     6,937  

Owned and leased

   1          503       
Total   241     33     78,194     9,649      328     36     101,539     8,517  
Percentage of Group hotel and room count   5.0     0.6     11.0     1.0      6.1     0.5     12.7     0.6  

 

1aIncludes six Holiday Inn Resort properties (1,825(1,820 rooms) (2013: four(2016: six Holiday Inn Resort properties (1,203(1,820 rooms)).

Greater China pipeline

             Hotels             Rooms   
At 31 December                  2017     Change
    over 2016
                   2017     Change
    over 2016
   
Analysed by brand                         
InterContinental    28     6     8,980     1,526  
Kimpton    2     2     359     359  
HUALUXE    21     (1    6,289     (667 
Crowne Plaza    36     (2    11,673     (838 
Hotel Indigo    15     4     2,535     753  
EVEN Hotels    3     3     796     796  
Holiday Innb    54     4     15,116     275  
Holiday Inn Express    134     39     25,657     5,452  
Other    1          279       
Total    294     55     71,684     7,656  
Analysed by ownership type                         
Franchised    68     48     11,676     7,591  
Managed    226     7     60,008     65  
Total    294     55     71,684     7,656  

bIncludes seven Holiday Inn Resort properties (2,380 rooms) (2016: six Holiday Inn Resort properties (1,820 rooms)).

Total number of hotels

328

Total number of rooms

101,539

The Greater China System size increased by 3336 hotels (9,649(8,517 rooms) in the year to 241328 hotels (78,194(101,539 rooms). 3443 hotels (10,648(10,570 rooms) opened during 2014, 112017, 14 hotels and 2,9792,632 rooms higher than 2013 and a record year for the region.2016. Recent growth in the region has focused on tier 2 and 3 cities, which now represent approximately two-thirds65% of IHG’sour open rooms. The InterContinental brand System size increased by four hotels (1,800 rooms) to 33 hotels (13,542 rooms) during the year, including the addition of the 990-room InterContinental Chengdu Global Centre. 19 Holiday Inn brand family hotels (4,445(7,184 rooms) were also added in the year, including the 50thcompared to 17 hotels (3,773 rooms) in 2016 with Holiday Inn Express ninepassing a significant milestone, with more than 100 hotels (1,078 rooms) higher than in 2013. Nine Crowne Plazanow open.

Seven hotels (3,498(2,053 rooms) were also added during the year, including the 466-room Crowne Plaza Beijing Lido, increasing the Crowne Plaza System size to 73 hotels (26,113 rooms).

One hotel (999 rooms) was removed in 2014,2017 compared to two hotels (725(425 rooms) in 2013.2016.

Greater China pipeline

         Hotels       Rooms 
At 31 December  2014   Change
over 2013
  2014   Change
over 2013
 
Analysed by brand                   

InterContinental

   18     (4  6,678     (2,714

HUALUXE

   24     3    7,551     747  

Crowne Plaza

   44     (8  14,801     (3,668

Hotel Indigo

   10     5    1,646     925  

Holiday Inn1

   43     2    12,384     440  

Holiday Inn Express

   50     17    11,278     4,018  
Total   189     15    54,338     (252
Analysed by ownership type                   

Managed

   189     15    54,338     (252
Total   189     15    54,338     (252

 

1Includes two Holiday Inn Resort properties (767 rooms) (2013: three Holiday Inn Resort properties (890 rooms)).

Totalnumber of hotels in the pipeline

294

Totalnumber of rooms in the pipeline

71,684

At 31 December 2014,2017, the Greater China pipeline totalled 189294 hotels (54,338(71,684 rooms) compared to 174239 hotels (54,590(64,028 rooms) at 31 December 2013.2016. Signings of 64(118 hotels, (15,754 rooms) increased from 53 hotels (15,348 rooms) in 2013. Three InterContinental hotels (93024,201 rooms) were signed, together with five Crowne Plazathe highest ever in terms of hotel count since 2007 and highest in terms of rooms since 2008, representing an increase of 29.6% (5,532 rooms) from the prior year. 90 hotels (1,400 rooms), whilst the total pipeline for the HUALUXE Hotels and Resorts brand increased to 24 hotels (7,551 rooms). 45 hotels (10,860(16,904 rooms) were signed for the Holiday Inn brand family, with theincluding 54 franchised Holiday Inn Express brand pipeline increasing to 50 hotels.

1520 hotels (5,358(5,975 rooms) were removed from the pipeline in 2014,2017, compared to 1619 hotels (4,005(5,487 rooms) in 2013.2016.

 

 

40IHG  |  Annual Report and Form 20-F 2017

Central


 

Central results

    12 months ended 31 December 
    2014
$m
  2013
$m
  2014 vs
2013 %
change
  2012
$m
  2013 vs
2012 %
change
 
Revenue   129    121    6.6    114    6.1  
Gross central costs   (284  (276  (2.9  (276    
Net central costs   (155  (155      (162  4.3  

Central

 

               

 

Central results

 

                      12 months ended 31 December 
              2017
$m
             2016
$m
     2017 vs 2016
% change
             2015
$m
     2016 vs 2015
% change
 
Revenue    148     141     5.0     135     4.4 
Gross costs    (258    (269    4.1     (286    5.9 
     (110    (128    14.1     (151    15.2 
Exceptional items    (29              (11    100.0 
Operating loss    (139    (128    (8.6    (162    21.0 

Highlights for the year ended

31 December 20142017

The net operating loss increased by $11m (8.6%) compared to 2016. Central revenue, which mainly comprises technology fee income, increased by $8m (6.6%$7m (5.0%) to $129m,$148m (an increase of $8m (5.7%) at constant currency), driven by increases in both comparable RevPAR (6.1%(2.7%) and IHG System size (3.4%(4.0%) in 2014 compared to 2013.. At constant currency, gross central costs increaseddecreased by $4m (1.4%$7m (2.6%) compared to 20132016 (an $8m$11m or 2.9% increase4.1% decrease at actual currency) benefitting from the impact of our cost management programme. Net operating loss before exceptional items decreased by $18m (14.1%) to $110m (a $15m or 11.7% decrease at constant currency).

Highlights for the year ended

31 December 20132016

The net operating loss decreased by $34m (21.0%) compared to 2015. Central revenue, which mainly comprisingcomprises technology fee income, increased by $7m (6.1%$6m (4.4%) to $121m,$141m (an increase of $9m (6.7%) at constant currency), driven by increases toin both comparable RevPAR (1.8%) and IHG System size over 2012. Gross central(3.1%). At constant currency, gross costs were flatdecreased by $3m (1.0%) compared to 2015 (a $17m or 5.9% decrease at $276m in 2013, reflectingactual currency) driven by a continued tightfocus on strategic cost control.management. Net operating loss before exceptional items decreased by $23m (15.2%) to $128m (a $12m or 7.9% decrease to $139m at constant currency).

 

 

System Fund

 

48


 

System Fund assessments

 

                     12 months ended 31 December 
      

        2017

$m

     

      2016

$m

     2017 vs 2016
% change
     

      2015

$m

     2016 vs 2015
% change
 
Assessment fees and contributions
received from hotels
    1,562     1,439     8.5     1,351     6.5 

Proceeds from sale of

IHG Rewards Club points

    324     283     14.5     222     27.5 
Total    1,886     1,722     9.5     1,573     9.5 

 

System Fund

System Fund assessments

    12 months ended 31 December 
    2014
$m
   2013
$m
   2014 vs
2013 %
change
   2012
$m
   2013 vs
2012 %
change
 
Assessment fees and contributions received from hotels   1,271     1,154     10.1     1,106     4.3  
Proceeds from sale of IHG Rewards Club points   196     153     28.1     144     6.3  
Total   1,467     1,307     12.2     1,250     4.6  

In addition to managementfranchise or franchisemanagement fees, hotels within the IHG System pay assessments and contributions (other than for Kimpton and InterContinental) which are collected by IHG for specific use within the System Fund. The System Fund also receives proceeds from the sale of IHG Rewards Club points. The System Fund is managed for the benefit of hotels in the IHG System with the objective of driving revenues for the hotels.

The System Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the global reservation system.Guest Reservation System. The operation of the System Fund does not result in a profit or loss for the Group and consequently the revenues and expenses of the System Fund are not included in the Group Income Statement.income statement.

Highlights for the year ended

31 December 20142017

In the year to 31 December 2014,2017, System Fund income increased by 12.2%9.5% to $1,467m$1,886m primarily as a result of a 10.1%an 8.5% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, reflecting increases in RevPAR and IHG System size. Continued strong performance in co-branded credit card schemes drove the 28.1%14.5% increase in proceeds from the sale of IHG Rewards Club points.

Highlights for the year ended

31 December 20132016

In the year to 31 December 2013,2016, System Fund income increased by 4.6%9.5% to $1,307m$1,722m primarily as a result of growtha 6.5% increase in assessment fees and contributions from hotels resulting from increased hotel room revenues, due toreflecting increases in RevPAR and IHG System size. TheContinued strong performance in co-branded credit card schemes drove the 27.5% increase in proceeds from the sale of IHG Rewards Club points mainly reflects the continued strong performance of co-brand credit card schemes.points.

IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance41


Strategic Report

Performance continued

Other financial information

Exceptional operating items

Exceptional operatingPre-tax exceptional items totalled a net gain of $29m.$4m. (Exceptional tax items are described below). The exceptional gain of $130m related toincluded $73m from the sale of InterContinental Mark Hopkins San Francisco and the disposal of an 80%IHG’s 6.29% interest in InterContinental New York Barclay.Avendra, LLC, a North American hospitality procurement services provider, in December 2017. Exceptional charges included $14m foreign exchange losses resulting from recent changes to the Venezuelan exchange rate mechanisms and the adoption of the SICAD II exchange rate; $29m relating primarily to structural change programmes across the Global Human Resources and Global Technology functions; $6m arising from a partial cash-out of the UK unfunded pension arrangements; $45m$15m relating to the cost of securing a restructuringintegrating Kimpton into the operations of the UKGroup, which has now been completed, $36m relating to reorganisation costs (see below) and an $18m impairment charge relating to an associate investment in the Americas region resulting from the currently depressed trading outlook for the New York hotel portfolio; and $7m Kimpton Hotels & Restaurants acquisition transaction costs. See note 5 to the Group Financial Statements for further detail.market.

Exceptional operating items are treated as exceptional by reason of their size or nature and are excluded from the calculation of adjusted earnings per ordinary share in order to provide a more meaningful comparison of performance.performance (for more information see page 26).

Reorganisation costs

In September 2017, the Group launched a comprehensive efficiency programme which will fund a series of new strategic initiatives to drive an acceleration in IHG’s future growth. The programme is centred around strengthening the Group’s organisational structure to redeploy resources to leverage scale in the highest opportunity markets and segments. The organisational changes include combining Europe and Asia, Middle East and Africa into one business unit, and creating a new Global Marketing organisation and a new Commercial and Technology function. The strategic initiatives will involve strengthening our loyalty programme, continuing to prioritise digital and technological innovation, enhancing our industry-leading franchise proposition, strengthening our existing brands and also adding new brands where we see the greatest potential for growth.

The programme is expected to realise c.$125m in annual savings by 2020, of which c.$75m will benefit the System Fund. These savings, primarily in administrative expenses, are planned to be reinvested as they are realised to accelerate medium-term revenue growth. There will be an estimated $200m cost to achieve these savings, (of which $45m was incurred in 2017), including amounts charged to the System Fund. The exceptional cost charged to the Group income statement in 2017 of $36m includes consultancy fees of $24m and severance costs of $8m.

Net financial expenses

Net financial expenses increasedreduced by $7m$2m to $80m reflecting an increase$85m, due to the impact of a weaker pound on translation of sterling interest expense and a reduction in the average interest rate

payable on bond debt following the 2016 refinancing, offset by higher average net debt levels and the translation of interest on the two sterling bonds.in 2017.

Financing costs included $2m (2013 $2m)$7m (2016: $3m) of interest costs associated with IHG Rewards Club where interest is charged on the accumulated balance of cash received in advance of the redemption of points awarded. The increase in 2017 is due to US base rate increases in 2016 and 2017. Financing costs in 20142017 also included $19m (2013 $19m)$20m (2016: $20m) in respect of the InterContinental Boston finance lease.

Taxation

The effective rate of tax on operating profit excluding the impact of exceptional items was 31% (2013 29%30% (2016: 30%). Excluding the impact of prior yearprior-year items, the equivalent tax rate would be 35% (2013 32%31% (2016: 31%). This rate is higher than the average UK statutory rate of 21.5% (2013 23.25%19.25% (2016: 20%), due mainly to certain overseas profits (particularly in the US) being subject to statutory tax rates higher than the UK statutory rate, unrelieved foreign taxes and disallowable expenses.

Taxation within exceptional items totalled a credit of $116m (2016: credit of $12m). In 2017, this included a $108m credit, comprising a $140m deferred tax credit net of a $32m current tax charge, as a result of significant US tax reform that was enacted in December 2017, a current tax charge of $29m (2013 $51m). In 2014$28m arising on the sale of Avendra, a current tax credit of $13m on reorganisation costs, a $7m (2016: $6m) deferred tax credit in respect of the impairment charge comprised $56m relating to the disposal of an 80% interestInterContinental Barclay associate, a $10m deferred tax credit representing a reduction in InterContinental New York Barclay offset bythe Group’s unremitted earnings provision and a $6m (2016: $5m) deferred tax credit of $27m relating to a restructuring of the UK hotel portfolio and other reorganisationon Kimpton integration costs. In 2013 the charge comprised $6m relating to the exceptional operating items and $64m consequent upon the disposal of InterContinental London Park Lane, offset by a credit of $19m relating to an internal restructuring.

Net tax paid in 20142017 totalled $136m (2013 $97m) including $nil (2013 $5m) in respect of disposals.$172m (2016: $130m). Tax paid represents an effective rate of 23% (2013 16%25% (2016: 22%) on total profits (excluding exceptionals) and is lower than the effective income statement tax rate of 31%30% (2016: 30%), primarily due to the timing of US tax payments and the impact of deferred taxes (including the realisation of assets such as tax losses), the receipt of refunds in respect of prior years and provisions for tax for which no payment of tax has currently been made.

LOGO

49


IHG  Annual Report and Form 20-F 2014
Performancecontinued

taxes.

IHG pursues aan approach to tax strategy that is consistent with its business strategy and its overall business conduct principles. This strategyapproach seeks to ensure full compliance with all tax filing, payment and reporting obligations on the basis of communicative and transparent relationships with tax authorities. Policies and procedures related to tax risk management are subject to regular review and update and are approved by the Board.IHG Audit Committee.

LOGOThe Group’s Approach to Tax document
is available on IHG’s website atwww.ihgplc.com/responsible-business under Policies.

Tax liabilities or refunds may differ from those anticipated, in particular as a result of changes in tax law, changes in the interpretation of tax law, or clarification of uncertainties in the application of tax law. Procedures to minimise risk include the preparation of thorough tax risk assessments for all transactions carrying material tax risk and, where appropriate, material tax uncertainties are discussed and resolved with tax authorities in advance.

IHG’s contribution to the jurisdictions in which it operates includes a significant contribution in the form of taxes borne and collected, including taxes on its revenues and profits and in respect of the employment its business generates.

IHG earns approximately 70%80% of its revenues in the form of franchise, management or similar fees, with 85%almost 83% of IHG brandedIHG-branded hotels being franchised. In jurisdictions in which IHG does franchise business, the prevailing tax law will generally provide for IHG to be taxed in the form of local withholding taxes based on a percentage of fees rather than based on profits. Costs to support the franchise business are normally incurred regionally or globally, and therefore profits for an individual franchise jurisdiction cannot be separately determined.

Dividends

The Board has proposed a final dividend per ordinary share of 52¢ (33.8p)71.0¢. With the interim dividend per ordinary share of 25¢ (14.8p)33.0¢, the full-year dividend per ordinary share for 20142017 will total 77¢ (48.6p)104.0¢, an increase of 10.0%11% over 2013.2016.

On 2 May 2014,21 February 2017, the Group announced a $750m$0.4bn return of funds to shareholders by way of a special dividend and share consolidation. The special dividend (202.5¢ per ordinary share) was paid to shareholders on 14 July 2014.22 May 2017.

UnderIHG pays its dividends in pounds sterling and US dollars. The sterling amount of the $500m share buyback programmefinal dividend will be announced on 7 August 2012, which commenced on 12 November 2012 and completed on 29 May 2014, a total23 April 2018 using the average of 17.3m shares have been repurchasedthe daily exchange rates from 18 April 2018 to 20 April 2018 inclusive. See page 25 for total considerationdetails of $500m.IHG’s dividend policy.

Earnings per ordinary share

Basic earnings per ordinary share increased by 12.3%57.0% to 158.3¢306.7¢ from 140.9¢195.3¢ in 2013.2016. Adjusted earnings per ordinary share remained unchanged at 158.3¢.increased by 20.3% to 244.6¢ from 203.3¢ in 2016.

Share price and market capitalisation

The IHG share price closed at £25.95£47.19 on 31 December 2014,2017, up from £20.13£36.38 on 31 December 2013.2016. The market capitalisation of the Group at the year end was £6.4bn.£9.0bn.

42IHG  |  Annual Report and Form 20-F 2017


Liquidity and capital resources

Sources of liquidity

The Group is primarily financed by a $1.07bn syndicated bank facility which expires in November 2016 (the Syndicated Facility), £250m of public bonds, which are repayable on 9 December 2016 and £400m of public bonds which are repayable on 28 November 2022, £300m repayable on 14 August 2025 and £350m repayable on 24 August 2026. This is in addition to a $1.275bn revolving syndicated bank facility (the Syndicated Facility) and a $75m revolving bilateral facility (the Bilateral Facility) which mature in March 2022. $361m$264m was drawn under the $1.07bn Syndicated Facilityand Bilateral Facilities at the year end. The bonds are issued under the Group’s £750m Medium Term Notes programme. Short-term borrowing requirements are met from drawings under bilateral bank facilities. Additional funding is provided by the 99-year finance lease (of which 91 years remain) on InterContinental Boston and other uncommitted bank facilities (see note 21 to the Group Financial Statements). In the Group’s opinion, the available facilities are sufficient for the Group’s present liquidity requirements.

The Syndicated Facility containsand Bilateral Facilities contain the same terms and two financial covenants; interest covercover; and net debt divided by earnings before interest, tax, depreciation and amortisation.amortisation (EBITDA). The Group is in compliance with all of the financial covenants in its loan documents, none of which is expected to present a material restriction on funding in the near future.

Net debt of $1,533m (2013 $1,153m)Additional funding is analysedprovided by currency as follows:

    2014
$m
  20131
$m
 
Borrowings         

Sterling

   1,028    671  

US dollar

   557    709  

Euros

   103    11  

Other

   7    10  
Cash and cash equivalents         

Sterling

   (21  (87

US dollar

   (54  (40

Euros

   (25  (15

Canadian dollar

   (14  (25

Chinese renminbi

   (8  (15

Other

   (40  (66
Net debt2   1,533    1,153  
Average debt levels   1,322    985  

1Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
2Including the impact of currency derivatives.

the 99-year finance lease (of which 88 years remain) on InterContinental Boston and other uncommitted bank facilities (see note 20 to the Group Financial Statements). In the Group’s opinion, the available facilities are sufficient for the Group’s present liquidity requirements. Borrowings included bank overdrafts of $107m (2013 $114m)$110m (2016: $89m), which were matched by an equivalent amount of cash and cash equivalents under the Group’s cash pooling arrangements.

Net debt of $1,851m (2016: $1,506m) is analysed by currency as follows:

      2017 $m     2016 $m 
Borrowings            
Sterling    1,416     1,289 
US dollar    601     418 
Euros    2     2 
Other         3 
Cash and cash equivalents            
Sterling    (13    (27
US dollar    (75    (127
Euros    (13    (12
Canadian dollar    (13    (8
Chinese renminbi    (12    (7
Other    (42    (25
Net debt    1,851     1,506 
Average debt level        1,810         1,235 

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 positivecash-positive position, with the most significant balances in the US and Canada, and the matching overdrafts are held by the Group’s central treasury company in the UK.

50


Cash and cash equivalents include $4m (2013 $12m)$3m (2016: $3m) that is not available for use by the Group due to local exchange controls.

Information on the maturity profile and interest structure of borrowings is included in notes 20 and 2122 to the Group Financial Statements.

The Group had net liabilities of $717m$851m at 31 December 2014 reflecting that its brands are not recognised in the Group statement of financial position. At the end of 2014 the Group was trading significantly within its banking covenants and facilities.2017, ($759m at 31 December 2016).

Cash from operating activities

Net cash from operating activities totalled $543m$634m for the year ended 31 December 20142017, down $81m$118m on the previous year largely due to increased cash flows relating to exceptional operating items.received in 2016 on behalf of the System Fund of approximately $95m from renegotiation of long-term partnership agreements.

Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and normal dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets, and external finance expected to be available to it.

Cash from investing activities

Net cash inflows due tooutflows from investing activities totalled $123m, a decrease of $52m over 2013. Capital expenditure on property, plant and equipment decreased from $159m in 2013increased by $47m to $84m as the prior year included significant investment in hotel properties that were in the process of being converted to the Group’s EVEN Hotels brand. $394m of disposal proceeds primarily related to the disposal of InterContinental Mark Hopkins San Francisco and the disposal of an 80% interest in InterContinental New York Barclay.$263m.

The Group had committed contractual capital expenditure of $117m$104m at 31 December 2014 (2013 $83m)2017 (2016: $97m).

Cash used in financing activities

Net cash used in financing activities totalled $736m,$446m, which was $121m$1,010m lower than 2016, reflecting the difference between the $400m special dividend paid in May 2017 and the $1.5bn special dividend paid in May 2016. Net cash inflows from borrowings were $100m lower than in 2013. Returns to shareholders of $1,052m, comprising ordinary dividends, special dividends and share buybacks, were $236m higher than in 2013. $68m (2013 $44m) was spent on share purchases in order to fulfil share incentive awards.2016.

Overall net debt increased during the year by $380m$345m to $1,533m$1,851m as at 31 December 2014.2017.

Off-sheet balanceOff-balance sheet arrangements

At 31 December 2014,2017, the Group had no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Group’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is materialresources.

Contingent liabilities

Contingent liabilities include performance guarantees with possible cash outflows totalling $31m, guarantees over the debt of equity investments of $54m and outstanding letters of credit of $35m. The Group may also be exposed to investors.additional liabilities resulting from security incidents. See note 30 to the Group Financial Statements for further details.

Contractual obligations

The Group had the following contractual obligations outstanding as of

31 December 2014:2017. See table below.

 

    Total
amounts
committed
   Less
than
1 year
   1-3
years
   3-5
years
   After 5
years
 
    $m 
Long-term debt obligations1, 2   1,378     3     751          624  
Interest payable2   248     52     76     47     73  
Derivatives   2     2                 
Finance lease obligations3   3,364     16     32     32     3,284  
Operating lease obligations   349     40     62     47     200  
Agreed pension scheme contributions4   6     6                 
Capital contracts placed   117     117                 
Kimpton acquisition   430     430                 
Total   5,894     666     921     126     4,181  
     

Total amounts

committed

$m

    

  Less than

1 year

$m

    

1–3

        years

$m

    

3–5

        years

$m

    

After

        5 years
$m

 
Long-term debt obligationsa,b   1,683            805    878 
Interest payableb   306    47    92    91    76 
Finance lease obligationsc   3,317    16    32    35    3,234 
Operating lease obligations   534    56    91    90    297 
Agreed pension scheme contributions   9    9             
Capital contracts placed   104    104             
Total   5,953    232    215    1,021    4,485 

 

1a Repayment period classified according to the related facility maturity date.

2b Excluding bank overdrafts.

3c RepresentsMainly represents the minimum lease payments related to the 99-year lease (of which 9188 years remain) on InterContinental Boston. Payments under the lease step up at regular intervals over the lease term.
4Largely relates to US pension obligations.

As explained in note 33 to the Group Financial Statements, the Group completed the acquisition of Kimpton Hotel & Restaurant Group, LLC for $430m on 16 January 2015.

The acquisition was primarily financed by a $400m bilateral term loan with a term of six months plus two six-month extension periods. A variable rate of interest is payable on the loan which has identical covenants to the Syndicated Facility.

Contingent liabilities

Contingent liabilities include performance guarantees with possible cash outflows totalling $29m, guarantees over the debt of equity investments of $20m and outstanding letters of credit of $40m. See note 30 to the Group Financial Statements for further details.

 

LOGO

51


IHG  Annual Report and Form 20-F 2014

Governance

 

54IHG  |  Annual Report and Form 20-F 2017  |  Strategic Report  |  Performance43


LOGO

44IHG  |  Annual Report and Form 20-F 2017

Governance

Governance

46    Chairman’s overview
5547Corporate Governance
5547

Our Board and Committee governance structure

5648

2014 Board meetings

57

Who is on ourOur Board of Directors

6050

Who is on ourOur Executive Committee

6152

Board composition and diversitymeetings

6353

Director induction, training and development

6354

Board effectiveness evaluation

6455

Board engagementEngagement with shareholders

6556

Audit Committee Report

6860

Corporate Responsibility Committee Report

6961

Nomination Committee Report

7062

Statement of compliance with the

UK Corporate Governance Code

7264Directors’ Report
76Directors’ Remuneration Report
7664

Remuneration Committee Chairman’s Statementstatement

7765

GovernanceAt a glance

7966

StrategicRemuneration at IHG – the wider context

8068

Summary of our Directors’ Remuneration Policy summary

8270

Annual Report on Directors’ Remuneration

91

Implementation of Directors’ Remuneration Policy in 2015

 


LOGO

Plan

LOGO

‘Guest Journey’ – Step two

ThePlan phase of the ‘Guest Journey’ is where our guests narrow down their travel options.

They do this in different ways; by searching and learning more about our brands online and reading guest reviews; through IHG Rewards Club offerings; or via interaction with call centres, travel agents and corporate travel departments.

 

52


LOGO

LOGO

53


IHG  |  Annual Report and Form 20-F 20142017  |  Governance45


Governance

Chairman’s overviewChairman’s overview

 

LOGO

Good governance is integral to IHG’s

success and our ability to create a culture

built on strong ethics, values and diversity.

 

LOGO

Dear Shareholder

We are committed to maintaining the highest standards of corporate governance. Our governance framework led by the Board, supports IHG’sour culture, values and our commitment to conducting business responsibly, further explained on pages 24 and 25. We have in place strong and effective practices and conduct regular reviews to ensure we are compliant.responsibly.

Governance and strategy

Good corporate governance underpins a successful business. The Board is accountable foroversees the long-term success of the Group, as well as for setting the strategic priorities and objectivesaims of the Group and its risk appetite. We consideris responsible for the interests of all of our stakeholders at all times. Shaping and implementing IHG’s strategy is the most critical roleleadership of the Group and ensuring our actions are in keeping with the strong ethics and values that shape our culture, while also recognising the significance of serving our stakeholders.

Focus areas and activities

The Board has continued to focus on creating long-term sustainable value for our shareholders and thereforethe wider communities in which we operate. During the year, the Board dedicates ample timetook full responsibility for the CEO succession to discussingensure a smooth transition whilst continuing to deliver against our strategy. Further details on the Group’s strategy, not least as part of our annual strategy meeting. Further information on how the Board spent its time during 2014CEO succession can be found on page 56.61.

The Board has continued to develop strategy through the Annual Strategy Meeting. This involves the whole Board as well as senior executives and provides a valuable opportunity for detailed discussion on the long-term strategic aims of the Group. The Board regularly monitors progress against the agreed strategy. Further details can be found on page 52.

In order to deliver the strategy at pace, the Board has been focused on changes to the operating structure to accelerate growth and succession planning

A high-level structure of IHG’shas provided input and guidance throughout the year. The Board has considered how this agenda reflects our values and its Committees, along with biographies of current Boardpurpose, and Executive Committee members,the performance behaviours required to continue to deliver against our strategy, while ensuring that the Group’s risk appetite is continually taken into account. Further details can be found on pages 5552 and 5757.

Governance framework

The Board delegates certain responsibilities to 61.the Audit, Corporate Responsibility, Nomination and Remuneration Committees (the Principal Committees) to assist in ensuring that effective corporate governance permeates throughout the business.

As announced inThe Audit Committee has this year been focused on cybersecurity and new reporting standards, the Corporate Responsibility Committee has overseen the delivery of our 2013 Annual Report, David Kappler retiredfive-year Responsible Business targets and the setting of new measures, the Nomination Committee has been focused on 31 May 2014 after spending over nine yearsthe appointment of a new CEO, and the Remuneration Committee has continued to monitor the changing remuneration landscape as a Non-Executive Director at IHG. Hepriority area.

Board culture and composition

We regularly review the composition, diversity and size of the Board to ensure that we have the right talent to support our strategy. As we announced last year, Malina Ngai was succeeded by Dale Morrisonappointed as Senioran Independent Non-Executive Director on 31 May 2014. Ian Dyson took over David’s duties as Chairman of1 March 2017, bringing considerable experience in consumer-facing, branded operations and significant insight into the Audit Committee on 1 April 2014. We also said goodbyeAsian market. In July 2017, Keith Barr was appointed the new CEO following Richard Solomons’ decision to Jonathan Linen, who retired from the Board on 31 December 2014retire after spending nine25 years with the business.

In August 2014,business, including six as CEO. During the year, we also announced the appointment of Jo Harlow to the Board and Audit, Nomination and Remuneration Committees effective as of 1 September 2014. Jo’s appointment fulfils one of the objectives I highlighted last year, which was to enhance the Board’s capabilities and competencies by appointing a Non-Executive Director with specific consumer-facing technology experience given the significance of this area in our strategy.

Finally, in December 2014, we announced Kirk Kinsell would step down from the Board on 13 February 2015. Kirk was succeeded as Chief Executive Officer, The Americas by Elie Maalouf who sits on IHG’s Executive Committee. I would like to thank Kirk for his long-standing contribution to IHG, most recently as a Board member and President of The Americas region.

We are also pleased to welcome Anne Busquet to the Board as a Non-Executivean Executive Director effective as ofwith effect fromMarch 2015. Anne will sit on the Audit, Corporate Responsibility and Nomination Committees. Anne has an impressive breadth ofJanuary 2018, bringing considerable experience in digital commerce, hospitality, hotel development, branding,

finance, real estate and marketing.

Our Board Committees

We continually review the Board’s composition to ensure we have the right balance of skills to support the business both today and in the future. This includes a regular reviewoperations, across multiple industries. Details of the

size, experience, diversity and gender of our Board, which is conducted by ourNomination Committee (see page 69 induction process for its report). We value the benefits that diversity brings, having had at least 25 per cent female representation on our Board since 2012. Further details on our approach to diversity from Board level and throughout the organisation, including our policies in this area,new Directors can be found on pages 61page 53.

We recognise that diversity and 62.

TheAudit Committee playsinclusion is essential to our success. By ensuring that different genders, backgrounds, ages and nationalities are represented throughout the organisation, we ensure that decision making is informed by a substantial role in ensuring appropriate governancerange of skillsets, experience and challenge aroundcultural perspectives. Details of our riskapproach to succession planning and assurance processes. In line with our 2014 priorities, a major focus area has been the risks relating to information security and technology. More informationdiversity can be found inon page 61.

We are aware that effective meetings depend on the Audit Committee Report on pages 65dynamics of the Board, and our high-performance culture is driven by creating an engaging and inclusive environment where different perspectives are welcomed. Directors actively contribute to 67.

In 2014, theCorporate Responsibility Committee continueddiscussions, helping to drive engagement of our three corporate responsibility programmesdevelop proposals and deliver against our five-year corporate responsibility targets (seestrategy. Details of items discussed by the Board in 2017 can be found on page 68 for its report).52.

At our 2014 AGM, our Directors’ Remuneration Policy was approved withTraining, development and Board performance review

The training and development needs of each Director are regularly reviewed. During 2017, Directors received training on a 90.94 per cent vote in favour. We are not making any changes to this Policy this year, however, we have provided a summaryvariety of it in ourDirectors’ Remuneration Report,topics; further details of which can be found on pages 76 to 91. This includes information about the Committee, the Annual Report on Directors’ Remuneration and Implementation of our Directors’ Remuneration Policy in 2015.page 53.

Board effectiveness

For 2014, we conducted an internal evaluation on Board effectiveness. During 2014, we progressed the actions that were highlighted from the 2013Our external evaluation which enabled us to further inform enhancements to our Board processes. Details of both the 2013was carried out in early 2017. This proved a highly informative experience and 2014 evaluation, including the process and recommendations, can be found on pages 63 and 64.

Structure of the report

This year we have restructured our Corporate Governance Statement, setting out a review of our 2014 activities at the start, followed by each Board Committee’s report and finally details of how we have complied with the UK Corporate Governance Code published in September 2012 (the Code). We have aimed to provide greater transparency on compliance with the Code, making this easier to follow.

I am pleaseddelighted to report that during 2014, we complied fully with all principles and provisions of the Code, with the exception of the provision relating to audit tendering (see page 70), as we believe it would not be in the best interests of the Group to undertake an audit tender at this time (see pages 66 and 67).

Objectives for the year

My objectives forreview concluded the Board this yearis well-functioning and effective. Further details on these findings are to ensure that the focus and composition of the Board continues to evolve to support the execution of our strategy and the opportunities and challenges we face. Our 2015 Board agenda will allow time for continued focusset out on our technology strategy and in-depth reviews of our brands and our priority markets. This year, our annual strategy meeting will be held in Greater China.

LOGO

Patrick Cescaupage 54.

Non-Executive Chairman

16 February 2015

54


Compliance and our dual listing

As a dual listeddual-listed company with a premium listing on the London Stock Exchange and a secondary listing on the New York Stock Exchange, we are required to file both an Annual Report in the UK which complies with the Code, and an Annual Report ona Form 20-F in the US, which complies with the NYSE rules, US securities laws and the rules of the Securities and Exchange Commission (SEC).

For 2014, toUS. To ensure continued consistency of information provided to both UK and US investors, we have for the second time produced a combined Annual Report and Form 20-F.

Our statement of compliance with the 2016 UK Corporate Governance Code (the Code) is located on pages 62 and 63. I am pleased to report that, during 2017, we complied fully with all principles and provisions of the Code. As required by the SEC, a statement outlining the differences between the Group’s UK corporate governance practices and those followed by US companies can be found on pages 173page 176.

Looking forward

We recognise that good corporate governance facilitates effective management that can deliver the long-term success of our organisation. We are looking to the new governance reforms and 174.will ensure that our ways of working, structures of reporting, systems of control and commitment to conducting business responsibly comply with the revised governance regime and continue to deliver our strategy with integrity and transparency.

LOGO

Patrick Cescau

Chairman of the Board

19 February 2018

 

 

46IHG  |  Annual Report and Form 20-F 2017


 

CorporateGovernanceCorporate Governance

Our Board and Committee governance structure

The Group’s governance framework, which is directed by the Board and through the Group’s Board and Management Committees, supports our culture, values, and our commitment to conducting business responsibly.

The Board and its Committees

The Board is responsible for the long-term success of the Group and ensures that there are effective risk and internal management controls in place. It leads the strategic direction and long-term objectives and success of the Group through effective oversight and review, setting the Group’s strategic aims and monitoring the performance of the Group, and monitors its risk management controls.

A number of key decisions and matters are reserved for the Board’s approval and are not delegated to management, these include matters related to Group business and commercial strategy; significant investment proposals; maintaining an overview and control of the Group’s operating and financial performance; monitoring the Group’s overall system of internal controls and risk management and governance and compliance.

performance. The Board delegates certain responsibilities tois 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.functions, overseeing the delivery of the Group’s strategic objectives and driving sustainable shareholder value for the long term, whilst considering the interests and impacts on key stakeholders. See pages 52 to 53 for details on the Board and how it spent its time during 2017.

Management Committees

LOGO

The schedule of matters reserved exclusively to the Board was reviewed at the December 2017 Board meeting and is available on our website. Operational matters, routine business and information disclosure procedures are delegated by the Board to Management Committees.

The Executive Committee is chaired by the CEO and manages a range of day-to-day strategic and operational issues facing the Group, with clear oversight from the Board.

The General Purposes Committee attends to business of a routine nature and to the administration of matters, the principles of which have been agreed previously by the Board or an appropriate Committee.

LOGO

The Disclosure Committee ensures that proper procedures are in place for information disclosures required pursuant to UK and US accounting, statutory and listing requirements and reports to the CEO, the Chief Financial Officer and the Audit Committee.

 

55


LOGO

More information on our Board and Committees is available on our

website atwww.ihgplc.com/investors under Corporate governance.

Board and Committee membership and attendance in 2017

                  Meetings 
       

  Appointment

date

     

Committee

appointments

             Board     

Audit

      Committee

     

Corporate

  Responsibility

Committee

     

    Nomination

Committee

     

  Remuneration

Committee

 
Total meetings held                8     5     3     3     6 
Chairman                                          
Patrick Cescau    01/01/13     LOGO       8/8               3/3      
Chief Executive Officer                                          
Keith Barr    01/07/17           4/4                     
Richard Solomons    10/02/03           4/4                     
Executive Directors                                          
Paul Edgecliffe-Johnson    01/01/14           8/8                     
Senior Independent Non-Executive Director                                          
Dale Morrison    01/06/11     LOGOLOGOLOGO       8/8     5/5          3/3     6/6 
Non-Executive Directors                                          
Anne Busquet    01/03/15     LOGO       8/8     5/5     3/3     3/3      
Ian Dyson    01/09/13     LOGO       8/8a     5/5          2/3a     5/6a 
Jo Harlow    01/09/14     LOGO     8/8     3/3b          3/3     6/6 
Luke Mayhew    01/07/11     LOGO     8/8     2/2c     3/3     3/3     4/4c 
Jill McDonald    01/06/13     LOGO       8/8     5/5     3/3     3/3      
Malina Ngai    01/03/17     LOGO       7/7          2/2     3/3     5/5 

aIan Dyson was unable to attend one Nomination Committee meeting and one Remuneration Committee meeting due to a prior commitment.

bJo Harlow stepped down from the Audit Committee and became Chairman of the Remuneration Committee on 1 October 2017.

cLuke Mayhew stepped down from the Remuneration Committee and became a member of the Audit Committee on 1 October 2017.

Board Committee membership key

LOGO Audit Committee member

LOGO Corporate Responsibility Committee member

LOGO Nomination Committee member

LOGO Remuneration Committee member

LOGO Chairman of a Board Committee

IHG  |  Annual Report and Form 20-F 20142017  |    Governance   |  Corporate Governance47


CorporateGovernance continuedGovernance

2014 Board meetings

 

TheCorporate Governance continued

Our Board held eight scheduled meetings during 2014 and attendance by each Director is set out in the table below. Attendance at Committee meetings is indicated in each Committee report. Unless otherwise indicated, allof Directors held office throughout the year.

 

Board membership and attendance
DirectorAttendance
Patrick Cescau (Chairman)8/8
Richard Solomons (Chief Executive Officer)8/8
Executive Directors   
Paul Edgecliffe-Johnson18/8
Kirk Kinsell8/8
Tracy Robbins7/82
Non-Executive Directors
Ian Dyson8/8
Jo Harlow (appointed 1 September 2014)3/3
David Kappler (retired 31 May 2014)3/3
Jennifer Laing8/8
Jonathan Linen (retired 31 December 2014)7/82
Luke Mayhew8/8
Jill McDonald7/82

Dale Morrison

(Senior Independent Non-Executive Director)

8/8
Ying Yeh8/8
Total meetings held8

1Tom Singer resigned and Paul Edgecliffe-Johnson became Chief Financial Officer effective as of 1 January 2014.

2Tracy Robbins missed one Board meeting due to health reasons and Jonathan Linen and Jill McDonald missed one Board meeting due to a prior commitment known to the Board in advance.LOGO

 

What did the Board consider at its 2014 meetings

Strategy

The Board spends a substantial amount of time considering Group strategy. In addition to its annual strategy meeting, time was spent in 2014 discussing strategic areas and business updates, including:

IHG strategic updates and priorities;

industry and consumer updates;

brands, regional and functional updates;

implementation of our commercial strategy, which includes focusing on our preferred brands, our loyalty programme and our channel management and distribution strategy;

development of our technological platforms; and

consideration and approval of the acquisition of Kimpton Hotels & Restaurants, in line with our strategy.

Annual strategy meeting

We held our 2014 annual two-day strategy meeting in Singapore. This included:

a review of industry trends, competitors and consumer trends;

an in-depth discussion of our Group strategy and progress on its implementation;

an in-depth review of the performance, opportunities and challenges in our AMEA and Greater China regions;

meeting with AMEA Regional Operating Committee members, which comprises senior management in this region;

visiting our corporate office in Singapore; and

attending an informal evening event with the Singapore office and 30 members of the IHG I-Grad Future Leaders Programme.

A third day was added to give the Board the opportunity to visit hotels across our brand portfolio in Singapore and interact with general managers of our hotels and their teams.

Governance

Reviewed our internal controls and risk management processes including the Major Risk Review, a Risk Management Effectiveness Review and updates on our global insurance programme.

Discussed the composition and succession planning of the Board and its Committees and approved Dale Morrison becoming Senior Independent Non-Executive Director, Ian Dyson becoming Chairman of the Audit Committee and the appointment of Jo Harlow as a new Non-Executive Director.

Reviewed the externally conducted 2013 Board performance evaluation and agreed the action plan for 2014.

Considered the performance of each of the Board Committees, concluding each remained effective and reviewed each of their terms of reference, updating these as required.

Received updates on the deliberations of each of the Board Committees (see each of their reports on their key activities and priorities during 2014).

Updated on upcoming legislative and regulatory changes affecting our business and the Board and its Committees across areas including corporate reporting, governance guidelines, and institutional investor reports.

Investor relations

Reviewed and approved a $750 million return to shareholders.

Discussed reports on investor perceptions and shareholder relations, and considered analysts reports and media updates.

Regular agenda items

As part of general monitoring of the Group and its compliance with the governance framework, certain matters are regularly included on Board meeting agendas. These include an update on the business from the Chief Executive Officer, finance updates from the Chief Financial Officer (which includes a financial review of the Group), and deep dives on each region and function presented by Executive Committee members and other senior management.

Meetings without Executive Directors

During 2014, at the end of each Board meeting, our Non-Executive Directors met with the Chairman without the Executive Directors present. They also regularly met with the Chief Executive Officer without the other Executive Directors present.

56


Who is on our Board of Directors

LOGO

Patrick Cescau

Non-ExecutiveNon Executive Chairman LOGO

Appointed to the Board: 1 January 2013

 

Skills and experience: From 2005 to 2008, Patrick was Group Chief Executive of Unilever Group, having previously been Chairman of Unilever PLC, Vice Chairman of Unilever NV and Foods Director, following a progressive career with the company, which began in France in 1973. He was formerly a Senior Independent Director and Non-Executive Director of Pearson plc and Tesco PLC, and a Director at INSEAD.

Board contribution:Patrick has held board positions for nearly 15 years in leading global businesses and brings extensive international experience in strategy, brands, consumer

products, and finance. As Chairman, Patrick is responsible for leading the Board and ensuring it operates in an effective manner, and promoting constructive relations with shareholders. As Chairman of the Nomination Committee, he is responsible for reviewing and making recommendations on the Group’s leadership needs.

Other appointments:Currently a Senior Independent Non-Executive Director of International Airlines Group, Patrick is also a trustee of The Leverhulme Trust, Patron of the St Jude India Children’s Charity and Member of the TEMASEK European Advisory Panel.

Skills and experience:From 2005 to 2008, Patrick was Group Chief Executive of Unilever Group, having previously been Chairman of Unilever PLC, Vice-Chairman of Unilever NV and Foods Director, following a progressive career with the Company, which began in France in 1973. Prior to being appointed to the Board of Unilever PLC and Unilever NV in 1999, as Finance Director, he was Chairman of a number of the company’s major operating companies and divisions, including in the US, Indonesia and Portugal. He was formerly a Senior Independent Director and Non-Executive Director of Pearson plc and a Director at INSEAD.

Board contribution:Patrick has held board of director positions for nearly 15 years in leading global businesses and brings extensive international experience in brands, consumer products, as well as finance. As Chairman, Patrick is responsible for leading the Board and ensuring it operates in an effective manner and promoting constructive relations with shareholders. He is also Chairman of the Nomination Committee.

Other appointments: Currently a Non-Executive Director of International Consolidated Airlines Group S.A. and the Senior Independent Director of Tesco PLC. Patrick is also a trustee of The Leverhulme Trust.

LOGO

LOGO

Richard SolomonsKeith Barr

Chief Executive Officer LOGO

Appointed to the Board: 10 February 20031 July 2017

Skills and experience:Keith has spent more than 25 years working in the hospitality industry across a wide range of roles. He started his career in hotel operations and joined IHG in 2000. Since April 2011 he has been a member of IHG’s Executive Committee. Directly before being appointed Chief Executive Officer, Keith served as Chief Commercial Officer for four years. He led IHG’s global brand, loyalty, sales and marketing functions, and oversaw IHG’s loyalty programme, IHG® Rewards Club. Prior to this, Keith was CEO

of IHG’s Greater China business for four years, setting the foundations for growth in a key market.

Board contribution:Keith is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.

Other appointments:Member of Cornell University’s School of Hotel Administration Leland C. and Mary M. Pillsbury Institute for Hospitality Entrepreneurship Advisory Board.

 

Skills and experience: During his tenure as Chief Executive Officer, Richard has led the continued growth of IHG, including the launch of our two newest brands, HUALUXE Hotels and Resorts and EVEN Hotels and IHG’s acquisition of Kimpton Hotels & Restaurants. Before being appointed Chief Executive Officer, Richard served as Chief Financial Officer and Head of Commercial Development. Richard was integral in shaping and implementing IHG’s asset-light strategy, which has helped the business grow significantly since it was formed in 2003, as well as supporting the return of $10.4 billion to shareholders. In 2008, he served as Interim President of our Americas region. Richard is a member of the Executive Committee of the World Travel and Tourism Council, a member of the Industry Real Estate Financing Advisory Council and a Governor of the Aviation and Travel Industry Group of the World Economic Forum.

Board contribution:Richard is responsible for the executive management of the Group and ensuring the implementation of Board strategy and policy.

 

LOGO

LOGO

Paul Edgecliffe-Johnson

Chief Financial Officer

Appointed to the Board: 1 January 2014

 

Skills and experience: Paul is a chartered accountant and a fellow of the Institute of Chartered Accountants. He was previously Chief Financial Officer of IHG’s Europe and Asia, Middle East and Africa regions, a position he held since September 2011. He joined IHG in August 2004 and has held a number of senior level finance positions, including Head of Investor Relations, Head of Global Corporate Finance and Financial Planning & Tax and Head of Hotel Development, Europe. Paul also acted as Interim Chief Executive Officer of the Europe, Middle East and Africa regions.

Board contribution:Paul is responsible, together with the Board, for overseeing the financial operations of the Group and setting its financial strategy.

LOGO

Tracy RobbinsSkills and experience:Paul is a chartered accountant and a fellow of the Institute of Chartered Accountants. He was previously Chief Financial Officer of IHG’s Europe and Asia, Middle East and Africa regions, a position he held since September 2011. He joined IHG in August 2004 and has held a number of senior-level finance positions, including Head of Investor Relations, Head of Global Corporate Finance and Financial Planning & Tax, and Head of Hotel Development, Europe. Paul also acted as Interim Chief Executive

Executive Vice President,

Human ResourcesOfficer of the Europe, Middle East and

Group Operations Support

Appointed Africa region (prior to the Board: 9 August 2011reconfiguration of our operating regions).

 

Skills and experience:Tracy has nearly 30 years’ experience in human resources roles in service industries. She joined the Group in December 2005 from Compass Group PLC, a world-leading food service company, where she was Group Human Resources Leadership & Development Director. Previously, she acted as Group HR Director for Forte Group plc, a hotel company. Tracy also spent seven years at Tesco PLC as a Retail Human Resources Manager where she implemented a culture change and restructuring strategy across 150 stores.

Board contribution:Paul is responsible, together with the Board, for overseeing the financial operations of the Group and setting its financial strategy.

Other appointments:Currently a Non-Executive Director of Thomas Cook Group plc.

Board contribution:Tracy has many years of experience in human resources and is responsible for global talent management, leadership development, employee reward strategy and implementation, organisational capability and operations support.

 

 

Board Committee membership key

LOGOAudit Committee member
LOGOCorporate Responsibility Committee member
LOGONomination Committee member
LOGORemuneration Committee member

LOGOLOGO

 

Denotes Chairman of a Board Committee

LOGO

57


IHG  Annual Report and Form 20-F 2014

CorporateGovernance continued

Who is on our Board of Directorscontinued

LOGO

Dale MorrisonElie Maalouf

Senior Independent

Non-Executive Director LOGO  LOGO  LOGOChief Executive Officer, Americas

Appointed to the Board: 1 June 2011January 2018

 

Skills and experience:Dale is a founding partner of TriPointe Capital Partners, a private equity firm. Dale was previously President and Chief Executive Officer of McCain Foods Limited and President and Chief Executive Officer of Campbell Soup Company.

Board contribution: Dale has over 10 years’ experience in sales and marketing positions, and over 25 years’ experience in general management, having held senior positions in the branded foods sector. He was appointed as the Board’s Senior Independent Non-Executive Director on 31 May 2014.

Other appointments:Currently a Non-Executive Director of International Flavors & Fragrances Inc., a producer of flavours and fragrances, and Non-Executive Chairman of Findus Group, a frozen food company.

LOGO

Ian Dyson

Independent

Non-Executive Director LOGO  LOGO  LOGO

Appointed to the Board: 1 September 2013

Skills and experience:Ian has held a number of senior executive and finance roles including Group Finance & Operations Director for Marks and Spencer Group plc for five years from 2005 to 2010, where he oversaw significant changes in the business. In addition, Ian was Chief Executive Officer of Punch Taverns plc, a pub and bar operator, Finance Director for the Rank Group Plc, a leading European gaming business, and Group Financial Controller and Finance Director for the hotels division of Hilton Group Plc.

Board contribution:Ian has gained significant experience from working in various senior finance roles predominantly in the hospitality sector. Ian became Chairman of the Audit Committee on 1 April 2014 and as such is responsible for leading the Committee to ensure effective internal controls and risk management systems are in place.

Other appointments:Currently a Non-Executive Director of Punch Taverns plc, a Non-Executive Director and Chairman of the Audit Committee of SSP Group plc and Senior Independent Non-Executive Director and Chairman of the Audit Committee of ASOS Plc and Betfair Group plc.

LOGO

Jo Harlow

Independent

Non-Executive Director LOGO  LOGO  LOGO

Appointed to the Board: 1 September 2014

Skills and experience:Jo has held the position of Corporate Vice President of the Phones Business Unit at Microsoft Corporation since May 2014. She was previously Executive Vice President of Smart Devices at Nokia Corporation since February 2011, following a number of senior management roles at Nokia since 2003. Prior to that, she held marketing, sales and management roles at Reebok International Limited from 1992 to 2003 and at Procter & Gamble Company from 1984 to 1992.

Board Contribution:Jo has over 25 years’ experience working in various senior roles predominantly in the branded and technology sectors.

Other appointments:None.

LOGO

Jennifer Laing

Independent

Non-Executive Director LOGO  LOGO  LOGO

Appointed to the Board: 25 August 2005

Skills and experience:Jennifer was Associate Dean, External Relations at London Business School, until 2007. A fellow of the Marketing Society and of the Institute of Practitioners in Advertising, she has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi where she rose to Chairman of the London office and subsequently Chief Executive Officer and Chairman of Saatchi & Saatchi North America. Until May 2014, she was also a Non-Executive Director of Hudson Global, Inc.

Board contribution:Jennifer has over 30 years’ experience in marketing and advertising and is Chairman of the Corporate Responsibility Committee, responsible for the Corporate Responsibility objectives and strategy and approach to sustainable development.

Other appointments:Currently a Non-Executive Director of Premier Foods plc, a branded food producer.

58


LOGO

Luke Mayhew

Independent

Non-Executive Director LOGO  LOGO  LOGO

Appointed to the Board: 1 July 2011

Skills and experience:Luke served for 12 years on the Board of John Lewis Partnership plc, including as Managing Director of the Department Store division. Luke also spent five years at British Airways Plc and seven years at Thomas Cook Group plc in senior positions. He was also a Non-Executive Director of WHSmith PLC and Chairman of Pets at Home Group Plc.

Board contribution:Luke has over 30 years’ experience in senior roles in the branded sector and was Remuneration Committee Chairman at Brambles Limited from 2006 to 2014. As Chairman of the IHG Remuneration Committee he is responsible for setting the remuneration policy.

Other appointments:Currently a Non-Executive Director of DFS Furniture Holdings plc, and a trustee of BBC Children in Need.

LOGO

Jill McDonald

Independent

Non-Executive Director LOGO  LOGO

Appointed to the Board: 1 June 2013

Skills and experience:Jill started her career at Colgate-Palmolive Company, spent 16 years with British Airways Plc and held a number of senior marketing positions in the UK and overseas.

Board contribution: Jill has nearly 30 years’ experience working with high-profile international consumer-facing brands at both marketing and operational level.

Other appointments:Currently Chief Executive Officer UK and President for the North West Europe Division for McDonald’s. Prior to that Jill was Chief Executive Officer UK and President for the Northern Division (2010 to 2013) and previously Senior Vice President, Chief Marketing Officer UK and Northern Division (2006 to 2010).

LOGO

Ying Yeh

Independent

Non-Executive DirectorLOGO  LOGO  LOGO

Appointed to the Board: 1 December 2007

Skills and experience:Ying was formerly Vice President and Chairman, Greater China Region, Nalco Company, and Chairman and President, North Asia Region, President, Business Development, Asia Pacific Region and Vice President, Eastman Kodak Company. She was previously a Non-Executive Director of AB Volvo, a transportation related products and services company, and for 15 years, a diplomat with the US Foreign Service in Hong Kong and Beijing until 1997.

Board contribution:Ying has over 20 years’ experience gained from working in senior positions in global organisations across a broad range of sectors.

Other appointments:Currently a Non-Executive Director of ABB Ltd, a global leader in power and automation technologies, and Samsonite International S.A.

LOGO

The Board is supported by the Company Secretary:

George Turner

Executive Vice President, General Counsel and Company Secretary

Appointed to the Executive Committee:

January 2009 (Joined the Group: 2008)

Skills and experience:George is a solicitor and qualified to private practice in 1995. Prior to joining the Group, George spent over 10 years with Imperial Chemical Industries where he held a number of key positions including Deputy Company Secretary. He was appointed Executive Vice President, General Counsel and Company Secretary in January 2009.

Key responsibilities:These include corporate governance, risk management, insurance, regulatory, internal audit, legal, corporate responsibility, public affairs and standards.

Changes to the Board

  Tom Singer

  

 

Tom resignedSkills and experience:Elie was appointed Chief Executive Officer, Americas in February 2015, with nearly 15 years’ experience working in a major global franchise business. He joined the Group having spent six years as President and Chief FinancialExecutive Officer effectiveof HMSHost Corporation, a global travel and leisure company. Elie brings broad experience spanning hotel development, branding, finance, real estate and operations management as well as food and beverage expertise. Prior to joining IHG, Elie was Senior Advisor with McKinsey & Company from 2012 to 2014.

Board contribution:Elie is responsible for business development and performance of 1 January 2014.all hotel brands and properties in the Americas region and brings a deep understanding of the global hospitality sector to the Board.

Other appointments:Currently a member of the American Hotel & Lodging Association Executive Committee of the Board, the U. S. Travel Association CEO Roundtable, the Atlanta Committee for Progress and the Global Advisory Council at the University of Virginia Darden School of Business.

 

 

 

  Paul Edgecliffe-Johnson

Paul joined the Board as Chief Financial Officer effective as of 1 January 2014.

  David Kappler

David retired as Senior Independent Non-Executive Director effective as of 31 May 2014.

  Jo Harlow

Jo joined the Board as a Non-Executive Director effective as of 1 September 2014.

  Jonathan Linen

Jonathan retired as a Non-Executive Director effective as of 31 December 2014.

  Kirk Kinsell

Kirk resigned as President, The Americas effective as of 13 February 2015.

  Anne Busquet

Anne will be joining as a Non-Executive Director effective as of 1 March 2015.

LOGO

59


IHG  Annual Report and Form 20-F 2014

CorporateGovernance continued

Who is on our Executive Committee

In addition to the Executive Directors and the General Counsel and Company Secretary, the Executive Committee comprises:

LOGO

Keith Barr

Chief Commercial Officer

Appointed to the Executive Committee:

April 2011 (Joined the Group: 2000)

Skills and experience:Keith has over 20 years’ experience in the hospitality industry. He has held senior appointments at IHG including Vice President of Sales and Revenue Management, Vice President of Operations, Chief Operating Officer, Australia, New Zealand and South Pacific, and Managing Director, Greater China. He became an Executive Committee member in April 2011 and prior to becoming Chief Commercial Officer, was Chief Executive, Greater China until May 2013. Keith is currently a member of Leland C. and Mary M. Pillsbury Institute for Hospitality Entrepreneurship Advisory Board.

Key responsibilities: These include global sales, marketing and brand functions, to drive consistent brand strategies across all regions and leverage IHG’s scale and systems to deliver continued industry outperformance.

LOGO

Angela Brav

Chief Executive, Europe

Appointed to the Executive Committee:

August 2011 (Joined the Group: 1988)

Skills and experience:Angela has over 25 years’ experience in the hospitality industry, including hotel operations, franchise relations and technology solutions. She has held various senior roles in IHG’s North American and European regions prior to becoming Chief Operating Officer, North America. She was appointed Chief Executive, Europe in August 2011.

Key responsibilities:These include business development and performance of all the hotel brands and properties in Europe.

LOGO

Elie Maalouf

Chief Executive Officer,

The Americas

Appointed to the Executive Committee:

February 2015 (Joined the Group: 2015)

Skills and experience:Elie was appointed Chief Executive Officer, The Americas at IHG in February 2015, having had over 15 years’ experience working in a major global franchise business. He joined the Group having spent six years as President and Chief Executive Officer of HMSHost Corporation, a global travel and leisure company, where he was also a member of the Board of Directors. Elie brings broad experience to IHG spanning development, branding, finance, real estate and operations management, as well as highly relevant food and beverage expertise. He was most recently a Senior Advisor with McKinsey & Company.

Key responsibilities:These include business development and performance of all the hotel brands and properties in The Americas region.

LOGO

Kenneth Macpherson

Chief Executive, Greater China

Appointed to the Executive Committee:

April 2013 (Joined the Group: 2013)

Skills and experience:Kenneth joined IHG as Chief Executive, Greater China in April 2013. Prior to joining the Group, he worked for Diageo plc, for nearly 20 years and has held senior management positions, including serving as Executive Managing Director of Diageo Greater China. Kenneth has extensive management experience, with a background in sales, marketing strategy, business development and operations. Kenneth also brings substantial knowledge and expertise in Chinese and international business operations.

Key responsibilities:These include business development and performance of all the hotel brands and properties in the Greater China region.

There are no family relationships between any of the Board or Executive Committee members (set out on pages 57 to 61). There are no arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any of the Board or Executive Committee were selected as a Director or member of the Executive Committee.

60


LOGO

Eric Pearson

Executive Vice President

and Chief Information Officer

Appointed to the Executive Committee:

February 2012 (Joined the Group: 1997)

Skills and experience: Eric has a background in engineering and technology and started his career at IHG nearly 20 years ago. Since then he has held various senior positions in the field of emerging technologies and global e-commerce. Prior to being appointed Chief Information Officer, Eric most recently held the position of Chief Marketing Officer for The Americas region.

Key responsibilities: These include global technology, including IT systems and information management, throughout the Group.

LOGO

Jan Smits

Chief Executive,

Asia, Middle East and Africa

Appointed to the Executive Committee:

April 2011 (Joined the Group: 2002)

Skills and experience:Jan has 33 years’ experience in the hospitality industry. He held various senior positions in the Asia and Australasia region. He became Managing Director, Asia Australasia in June 2009. Following the amalgamation of our Middle East and Africa region with our Asia Australasia region, he became Chief Executive, Asia, Middle East and Africa in August 2011.

Key responsibilities: These include business development and performance of all the hotel brands and properties in Asia, Middle East and Africa.

Board composition and diversity

The Board believes that, in order to be most effective, objectively challenge management and encourage different perspectives for debate, it must have an appropriate mix of skills, experience, knowledge and diversity in line with our business. The Nomination Committee supports the Board in respect of reviewing Board composition and continuously monitors succession planning. See page 69 for the Nomination Committee Report.

Independence and tenure

The Board and Nomination Committee regularly review the independence of each Non-Executive Director. Jennifer Laing has served on the Board for over nine years and the Nomination Committee has specifically reviewed her independence and is satisfied that she continues to demonstrate independence in character and judgement and is independent as required under the Code. The Board has also considered this and reached the same conclusion. Excluding the Chairman, 70 per cent (as at 16 February 2015) and 67 per cent (as at 31 December 2014) of our Board comprise independent Non-Executive Directors.

As Ying Yeh has also been on the Board for over six years, both her and Jennifer’s continued appointments were the subject of particular review and scrutiny by the Nomination Committee and the Board. Our current Non-Executive Directors’ lengths of tenure as at 16 February 2015 are shown below:

LOGO

LOGO

61


IHG  Annual Report and Form 20-F 2014

Corporate Governancecontinued

Board composition and diversitycontinued

Board Diversity Policy (BDP) and Global Diversity and Inclusion Policy (GDIP)

With a presence in nearly 100 countries globally, we value the benefits of diversity, beyond gender, and strongly believe that our leadership should reflect the diversity of our employees, our guests and the local communities in which we operate. Therefore, the Board seeks diversity of skills, experience, geographical representation and gender both in its composition and throughout all levels of our business. In 2013, we introduced a Board Diversity Policy as well as a Global Diversity and Inclusion Policy to ensure that diversity in its broadest sense remains a key priority.

Progress against the objectives of each of these policies during 2014:

BDP objective: Whilst all appointments are made on merit, we seek to ensure that the Board maintains an appropriate balance through a diverse mix of experience, backgrounds, skills, knowledge and insight, to further strengthen the diversity of gender and experience already on the Board and improve it further

Our Board members bring multinational experience to IHG, having themselves worked across a number of countries. The diverse nationalities of our Board are reflected below:

LOGO
Collectively the Board also has a broad collection of industry skills and experience in line with IHG’s business and strategic focus, to enable it to discharge its duties and responsibilities effectively:

LOGO

BDP objective: We commit to having diverse and inclusive leadership which supports all colleagues in reaching their full potential, including the development of a pipeline of high-calibre candidates from within the business

GDIP objective: To strengthen female representation in our global senior leadership population, with a target of reaching 25% by the end of 2015

We have 52 people comprising our senior leadership population at our corporate offices and central reservations offices who are employed by the Group and are part of our senior leadership team, 14 of these people are females (27 per cent). This is in line with our 2015 target and is an increase from the 21 per cent in 2013. This reflects both external appointments and internal promotions of female talent during 2014. We have also worked with executive search firms to ensure we have better gender balance on shortlists for senior leadership appointments.

From 2015, each of our Executive Committee members will be mentoring our high-potential senior leaders.

BDP and GDIP objective: Maintain a level of at least 25% female directors on the Board over the short to medium term

We firmly believe in the importance of a diverse Board membership and fully support the Lord Davies Report on ‘Women on boards’. Jo Harlow joined our Board on 1 September 2014. Our Board currently comprises 11 Directors, five of whom are women. This continues our record since 2012 of having more than 25 per cent females on the Board:

LOGO

We remain committed to maintaining at least 25 per cent female representation on the Board over the short to medium term, but the Nomination Committee does recommend appointments based on merit, ensuring there is an appropriate mix on the Board (as set out above and in its report on page 69).

BDP objective: We will report annually against these objectives and other initiatives taking place in the Group which promote gender and other forms of diversity

GDIP objective: To sustain a healthy balance of gender in the whole employee organisation

We continue to take action to sustain a healthy gender balance and review diversity throughout our organisation. Out of the 12,772 people employed by the Group whose costs are borne by the Group or the System Fund (see pages 23, 120 and 152), 7,069 are female (55 per cent).

In 2014, initiatives promoting diversity (beyond gender) included:

•  establishing internal forums to increase support and mentoring for female colleagues and high-potential female employees;LOGO

 

•  actively participating in external diversity summits, conferences and events in all regions; and

•  continuing to review ways to increase local representation on the leadership and management teams in emerging markets. In Greater China, our Regional Operating Committee has three local leaders, thereby strengthening our local leadership talent.

62


Director induction, training and development

New Director induction

New Directors receive a full and formal induction programme tailored to meet their individual needs and in accordance with best practice. This induction, led by the Chairman, includes the following key areas:

familiarisation with the Group’s business, principal activities and strategy;

an understanding of the Group’s governance, including the structure of the Board and its Committees and our approach to internal controls and risk management;

meetings with senior executives and regional and central management from various functions across the Group, including Business Reputation and Responsibility, Human Resources, Corporate Affairs, Global Strategy, Global Internal Audit and Group Finance; and

visits to our global corporate offices and hotels to provide a greater insight into our business.

Jo Harlow’s induction

Jo’s induction centred on providing her with an understanding of IHG and our business to enable her to contribute her knowledge, skills and experience effectively to the Board. The key areas included:

information on the Group, including our history, brands, regional structure and operations; strategy and business model; KPIs; commercial strategy; the IHG Owners Association; and regulatory compliance;

information on the Board, its Committees and IHG’s governance processes with particular focus on the Audit, Nomination and Remuneration Committees in light of her appointment to these;

our approach to internal controls and risk management; and

meetings with members of the Board and the Executive Committee, senior management from functions across the Group and the external Auditor.

Since her appointment, Jo has had the opportunity to visit our UK and US corporate headquarters, meet and address the Group’s senior leaders at our Senior Leaders Meeting held in Seattle, and tour hotels across our brands in Greater China, the US and the UK.

Ongoing Director training and development

The updating of Directors’ skills and knowledge, ongoing training and development, and understanding of the Group’s business and operations is a progressive exercise:

Patrick Cescau regularly reviews and agrees training and development needs with each Director;

the Board is made aware of training opportunities and additional information, as necessary, to enable them to keep up to date and enhance their knowledge of the business;

Board and Committee meetings are used to formally keep Directors up to date on developments in the environment in which the business operates – for example, in 2014, in-depth presentations were given by senior management in the Group on key topical areas (see page 56);

the Company Secretary regularly updates the Board on regulatory and legal matters as part of meetings; and

Directors are encouraged to visit hotels across our brands both formally as part of meetings and informally. For example, in 2014, visits to our hotel were included as part of the annual Board strategy meeting (see page 56).

We also invite different Non-Executive Directors to attend our large annual conferences. In 2014, two Non-Executive Directors attended the IHG Americas Investors & Leadership Conference which took place in Las Vegas, US. This enables Directors to interact with current and potential owners and gain an insight first hand of the key areas of focus for the business.

Board effectiveness evaluation

IHG has always recognised the importance of evaluating the performance of the Board as a whole, its main Committees and its Directors, in line with the Code recommendations.

Progress against our 2013 evaluation

In 2013, we conducted an externally facilitated independent evaluation as detailed in our 2013 Annual Report.

Our progress in 2014 against the actions identified is set out below:

ObservationsAction taken during 2014

Increase the Board’s oversight of new technology

The Board was regularly updated on new technology developments. Technology was an agenda item at Board meetings and the Board also received an evening presentation from external consultants entitled ‘Winning with Technology’. The Audit Committee also discussed the Group approach to information security – see page 66.

Enhance the Board’s use of time and gain a deeper understanding of priorities and risks

Board meeting agendas had an increased focus on industry and consumer trends, including information on our competitors, as well as regular updates on our progress on major projects.

Consider future Board composition and succession

Five Nomination Committee meetings were held in 2014 reflecting our focus on Board and Executive Committee succession planning and Board composition in light of IHG’s current and future focus (see page 69). We prioritised the search for a Non-Executive Director with experience in consumer-facing technology, which led to the appointment of Jo Harlow in September 2014.

LOGO

63


IHG  Annual Report and Form 20-F 2014

CorporateGovernancecontinued

Our 2014 evaluation process

Our 2014 evaluation was conducted internally. Each member of the Board completed an effectiveness questionnaire, which centred around the progress against actions identified in our 2013 Board effectiveness evaluation. Key areas included the regularity of meetings, appropriateness of location (especially in enabling us to gain a better understanding of our business), the decision-making process, executive management succession planning, impact of internal and external technology developments, and risk management and assurance oversight. It also invited Directors to make other general or specific observations. The results were analysed and the report was presented for discussion at the Board’s February 2015 meeting.

The Board considered the performance of its Committees and internal performance evaluations of Directors were undertaken as follows:

Director being appraisedAppraiser
ChairmanNon-Executive Directors excluding the Chairman and facilitated by the Senior Independent Non-Executive Director

Chief Executive Officer

Chairman and all Non-Executive Directors

Executive Directors

Chief Executive Officer

Non-Executive Directors

Chairman

2014 Board effectiveness evaluation observations and action plan:

ObservationsAction to be taken
Increase the Board’s focus on brandsDeep dives into each brand strategy to be provided to the Board.
Enhance the Board’s understanding of competitors’ strategy and performancePresentations on competitors’ strategies and offerings. Competitive analysis to be included in both financial results and strategic reviews.
Increase the Board’s exposure to the Group’s US businessEnsure opportunities are secured for meeting with the newly appointed Chief Executive Officer for The Americas region. Increase the Board’s understanding of the Kimpton brand. Deep dives into the strategy for core brands in the US. Firmer understanding of the EVEN Hotels brand’s growth strategy.

It was confirmed that the Board and its Committees were operating effectively, and that each Director continues to bring relevant knowledge, diversity of perspective, an ability and willingness to challenge and retains a strong commitment to the role.

Board engagement with shareholders

The Board takes its responsibility to represent and promote the interests of its shareholders seriously and believes it is very important to engage with them fully. A formal external review of investor perceptions is presented to the Board on an annual basis and both the Executive Committee and the Board receive regular updates on shareholder relations.

Engagement during the year

The Board engaged with shareholders in a number of ways during 2014, which included:

meeting shareholders at the AGM;

half-year and full-year formal reporting and telephone conferences after the release of the first and third quarter interim management statements;

presentations by Richard Solomons and Paul Edgecliffe-Johnson to institutional investors, analysts and the media following results announcements;

a programme of meetings with major institutional shareholders;

an analyst presentation on Kimpton Hotels & Restaurants.

To enable as many shareholders as possible to access conferences and presentations, telephone dial-in facilities are made available in advance and live audio webcasts are made available after presentations, together with associated data and documentation. These can be found at www.ihgplc.com/investors under financial library.

Around 25 sell-side research analysts publish research on the Group; their details are available at www.ihgplc.com/investors under analysts’ details.

AGM

The AGM is an opportunity for shareholders to vote on certain aspects of Group business. The Board values this as it provides

a useful forum for one-to-one communication with private shareholders. At the AGM, shareholders receive presentations on the Company’s performance and may ask questions of the Board.

The 2015 AGM will be held at 11:00am on Friday, 8 May 2015. The notice convening this meeting has been sent to shareholders at the same time as publication of this Annual Report and Form 20-F, and is available at www.ihgplc.com/investors under financial library.

Meetings with major institutional shareholders

A programme of meetings throughout the year is arranged with major institutional shareholders. These meetings provide an opportunity to discuss, using publicly-available information, the progress of the business, its performance, plans and objectives. Patrick Cescau, Dale Morrison and other Non-Executive Directors are available to meet with major shareholders to understand their issues and concerns, and to discuss governance and strategy.

Facilitated, structured meetings are encouraged with shareholders, and any new Director is available for meetings with major shareholders as a matter of course.

Details of the Remuneration Committee’s engagement with shareholders is set out on page 76. During the year, Jennifer Laing also met with shareholders to discuss our corporate responsibility strategy.

Sharedealing programme

In 2014, we offered our small UK-resident retail shareholders a sharedealing service to buy or sell shares in IHG. As part of this, shareholders were given the option to donate the proceeds of any sale of their shares to IHG Shelter in a Storm (see page 179).

Re-engaging with ‘gone away’ shareholders

We continue to be supported by ProSearch to locate shareholders who haven’t kept their details up to date. To date, the programme has been very successful and many asset reunifications (both in terms of the shares themselves and unclaimed dividends) have been made. For further information, see page 179.

64


Audit Committee Report

LOGO

“Our priority is ensuring that standards of good governance are maintained across all areas of the business.”

Dear Shareholder

The Audit Committee continues to focus on the integrity of internal financial controls and risk management systems. As the new Chairman of the Committee, I have also sought to ensure that the Committee (i) has oversight of the Group’s risk management and assurance processes, looking at the processes and structures in place across the Group as a whole and how key projects are being delivered; and (ii) probes the significant risks, particularly in the area of technology, through a balance of presentations, papers and discussion.

Roles and responsibilities

The Committee’s responsibilities fall into five areas: (i) internal controls and risk management; (ii) financial reporting; (iii) internal audit; (iv) fraud and whistleblowing; and (v) external audit and compliance. While the Board has overall responsibility for the management of business risks, the Committee assists the Board in a number of ways.

Our main role and responsibilities are set out in our terms of reference (ToR), which are reviewed annually and no changes were made for 2015. The ToR are available on the Company’s website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request.

Governance

All members have the experience and expertise necessary to meet the Committee’s responsibilities and all members are independent Non-Executive Directors as required under the ToR. During the year, Jo Harlow joined the Committee, and I replaced David Kappler as the Chairman of the Committee on 1 April 2014.

The Board is satisfied that both David (during his time on the Committee) and I are independent. The Code requires the Committee has at least one member with recent and relevant financial experience and Sarbanes-Oxley Act 2002 (SOX) necessitates a designated financial expert. The Board is satisfied that both David and I meet these requirements – David is a qualified accountant and former Chief Financial Officer of Cadbury Schweppes plc and I am also a qualified accountant and was formerly Group Finance and Operations Director at Marks and Spencer Group plc.

As Chairman of the Committee, after each meeting, I report to the Board on any key matters arising.

Internal controls and risk management

The Committee supports the Board in reviewing the effectiveness of the Group’s internal control and risk management system, having oversight of the risk and control activities in operation across the Group. Processes have been established which test and monitor:

strategic plan achievement, through a comprehensive series of Group and regional strategic reviews;

financial performance, within a comprehensive financial planning and accounting framework;

capital investment performance, with detailed appraisal and authorisation processes; and

risk management processes relying upon a Major Risk Review and assurance mapping process (through reports from the Head of Global Risk Management, the Head of Global Internal Audit (GIA), and, as appropriate, from management) providing assurance that the significant risks faced by the Group are being identified, assessed, prioritised, evaluated and appropriately managed and mitigated, having regard to the balance of risk, cost and opportunity.

Our approach to risk management and key risk mitigating activities in respect of the Major Risks are set out on pages 26 to 29 and the wider set of risk factors are set out on pages 162 to 165.

Financial reporting

The key financial controls across our business have been identified and evaluated, in particular, to comply with our US obligations, arising from SOX. The Committee reviews the approach to SOX compliance each year, and, in 2014, it took into consideration changes in legislation, and the transition from the 1992 to the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Committee regularly reviews reports on the progress of the SOX programme and this has enabled appropriate representations regarding the effectiveness of internal financial controls to be made, concluding that no material weaknesses had been found in the internal control environment.

Internal Audit

The Committee is responsible for reviewing and monitoring the activities of the GIA department. In December each year, the Committee discusses the GIA Plan and approves its nature and scope for the forthcoming year. GIA also undertakes an agreed schedule of audits during which the Group’s internal controls are assessed and reported back to the Committee.

Fraud and whistleblowing

Fraud and whistleblowing reports are collated from information provided by the Group’s independent external provider, who facilitates the Group’s confidential disclosure process for employees with whistleblowing and fraud concerns, and fraud data from Global Risk Management, and are presented to the Committee biannually.

The Committee is advised, as appropriate, of any significant matters to ensure a proportionate and independent investigation is performed.

LOGO

65


IHG  Annual Report and Form 20-F 2014

Corporate Governancecontinued

Audit Committee Reportcontinued

Committee membership and attendance

Members1Attendance
Ian Dyson (Chairman from 1 April 2014)25/5
David Kappler (Chairman to 1 April 2014)21/23
Jo Harlow42/2
Jennifer Laing5/5
Jill McDonald4/53
Dale Morrison5/5
Total meetings held5

1For full biographies of current members see pages 58 and 59.
2David Kappler retired from, and Ian Dyson was appointed to, the role of Chairman of the Committee effective as of 1 April 2014.
3David Kappler and Jill McDonald missed one meeting each due to a prior commitment known to the Committee in advance.
4Jo Harlow joined the Committee with effect from 1 September 2014.

At the invitation of the Committee, the Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Head of Global Internal Audit (GIA), Group Financial Controller and external Auditor, EY, attend meetings. EY attended all meetings in 2014 and provided a report on progress of, and insights from, the annual audit. Other attendees are invited to meetings as appropriate, to provide a deeper insight into, and understanding of, key decisions.

At each meeting, GIA and EY meet without the presence of management.

What did the Committee consider in 2014

In addition to those areas referred to above and routine items of business, during 2014, the Committee:

Internal controls and risk management

Discussed and assessed IHG’s approach to risk management and assurance, looking in particular at the governance structure in place and how our ‘Three Lines of Defence’ operate in practice and the Major Risks affecting the Group in 2014 (the 2014 Major Risk Review) (summarised above and on pages 26 to 29).

Approved the Risk Working Group’s terms of reference and were provided with minutes from its previous meetings.

Reviewed the Group’s hotel safety and security procedures and received regular risk management incident and threat reports.

Received a presentation from the Group’s Chief Information Officer (Eric Pearson) on the structure of the Global Technology team and the major technology risks faced by the Group and assessed the steps being taken to mitigate these risks. At another meeting, Eric and the Head of Information Security discussed: (i) the approach to, and the activities planned to mitigate against, emerging information security risks; and (ii) information security trends in the hotel industry.

Was updated on material litigation at each meeting.

Considered and approved a revised Gifts and Entertainment Policy, Anti-Bribery Policy and Antitrust Policy. Provided with an overview of IHG’s regulatory compliance programme (covering Anti-Bribery, Antitrust/Competition Law, Data Privacy, Sanctions and Code of Conduct), including the key projects carried out during 2014 and the areas of focus for 2015.

Considered the findings from the 2014 post-project review of major capital projects, and agreed with management the actions that would be applied to future projects.

Received a presentation on the treasury control environment and the Group’s financing strategy from the Group Treasurer

and a presentation on the Group’s tax position from the Head of Group Tax.

Financial reporting, issues and decision making

Reviewed the Group’s Preliminary Results, quarterly interim management statements and Half-Year Results (see below for the areas of significance which received increased attention).

Considered the Group’s Annual Report andForm 20-F and ancillary documentation (see below).

Received an update on items discussed by the Disclosure Committee at each meeting.

Internal audit

Assessed the quarterly report from GIA to monitor progress against the GIA Plan and evaluate findings, and to ensure coverage of emerging risks.

Considered the 2014 GIA Effectiveness Review (which contains input from auditees, senior management and Non-Executive Directors and assessed GIA against the Institute of Internal Auditors Standards) and concluded that the Group’s systems of internal controls and risk management, including internal audit activities, were operating effectively.

Monitored progress against outstanding actions.

Invited the Group’s external technology co-assurance provider to a number of meetings to discuss and review the approach to technology assurance.

Fraud and whistleblowing

Received the biannual reports on significant incidents of fraud and whistleblowing, which in 2014 included an overview of the fraud management team and the process for escalation of reviewing serious fraud.

External audit and compliance

Reviewed the independence and objectivity of the external Auditor and the effectiveness of the external audit process.

Considered EY’s key findings of audit and accounting issues, analysing EY’s audit and non-audit fees at each meeting and noting that fees incurred to date were in accordance with IHG’s Audit and Non-Audit Services Pre-Approval Policy (see below).

Reviewed and approved the 2014 Group Audit Plan.

Evaluated and recommended the re-appointment of EY on the basis of performance and an assessment of EY’s independence and objectivity (see below).

External Auditor – Ernst & Young LLP (EY)

EY has been the Group’s Auditor since IHG listed in 2003. While an audit tender has not been carried out since EY’s initial appointment, the Committee considers the appointment of its Auditor annually, specifically assessing EY’s performance (including its independence and objectivity).

To ensure EY’s independence is safeguarded, lead audit partners rotate every five years. The current lead audit partner has been in place for four years.

The Committee reviews the independence and effectiveness of EY on an ongoing basis, including the effectiveness of the relationship between EY and the Group’s management, and receives reports from it on its independence annually. An evaluation of EY takes place annually where questionnaires on EY’s services are completed by more than 30 senior IHG employees that work with EY. As well as Group policies and procedures, which aim to

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safeguard EY’s independence and effectiveness, EY has its own protective policies and systems in place, which are explained in a Transparency Report issued by EY on an annual basis.

Following an in-depth review for the year ended 31 December 2014, the Committee was satisfied with the independence, objectivity and effectiveness of the relationship with EY as the external auditor, and with the external audit process as a whole.

Audit tender

During 2014, the Committee considered the requirements for audit tender in line with changes to legislation from the EU and the Competition and Markets Authority. Having reviewed legislative timescales and the effectiveness of the audit, we have concluded that no tender will be undertaken during 2015 but we will continue to monitor this.

Non-audit services

EY provide non-audit services to the Group, which are governed, so as to safeguard their objectivity and independence, by IHG’s Audit and Non-Audit Services Pre-Approval Policy:

The policy is re-approved by the Audit Committee annually and, for the 2014 financial year, the policy was updated and approved at the December 2013 Audit Committee meeting.

The policy requires that pre-approval is obtained from the Audit Committee for all services before any work can be commenced, in line with US SEC requirements. The Committee is prohibited from delegating non-audit services approval to management.

Compliance with the policy is actively managed and an analysis of audit and non-audit services is reviewed by the Committee at each meeting.

The Committee is aware of, and sensitive to, investor body guidelines on non-audit fees. During 2014, 29 per cent of services provided to the Group were non-audit services; these included areas such as advisory work and corporate tax compliance.

For fees paid to EY for non-audit work during 2014, see page 120.

Significant matters in the 2014 Financial Statements

The Committee discussed with management the key judgements applied in the Financial Statements, the exceptional items arising in the year and the impact of any accounting developments or legislative changes. The main items discussed were:

Accounting for the System Fund: the Committee reviewed the accounting approach adopted for the System Fund with management and EY, and concluded that the approach and the disclosures, including the key judgements noted on page 112, were appropriate.

The IHG Rewards Club points liability:given the materiality of the IHG Rewards Club points liability, the Committee considered the approach to the valuation of the liability, including the results of the actuarial assessment of ‘breakage’ (see page 113) as at December 2014 and the expected cost of redemption of each point. Management was questioned on the consistency and robustness of the approach and the results of EY’s audit procedures were also considered before reaching the conclusion on the adequacy of the liability recorded.

Impairment testing: the Committee reviewed a detailed management report supporting the conclusion that there were no impairment issues on hotel assets, goodwill or other

intangible assets. It challenged the key assumptions, including short and long-term growth rates, discount rates and underlying performance assumptions. The Committee also considered EY’s views on the work performed and concluded that the position taken was supportable.

Litigation: given the judgement required in assessing the approach to be taken to material litigation, the Committee considered at each meeting an update report on major litigation matters and any provisioning for these matters. The factors taken into account by the Committee are set out on page 113.

Deferred tax recognition:as noted on page 113, the recognition of deferred tax assets requires judgement and estimates primarily around the availability of future taxable profits. The Committee considered and approved the approach taken to the recognition of such profits, noting in particular EY’s reporting to the Committee in this area – deferred tax balances are analysed in note 7.

Exceptional items: given the importance of showing a true underlying performance and being consistent in the definition of this year-on-year, the Committee challenged the appropriateness of the items disclosed as exceptional, in particular, the calculation of the profit on disposal of 80 per cent of our interest in InterContinental New York Barclay – focusing on the accounting for the remaining interest. The Committee also discussed the disclosures in note 5.

Technology projects:as well as considering the process controls and overall governance of these projects, and based on discussions with management and EY’s audit findings and control observations on those matters, the Committee also assessed the appropriateness of the capitalisation of costs on the main projects and the need for any impairment on capitalised software assets.

Annual Report – Fair, balanced and understandable

At the request of the Board, a separate sub-committee meeting was held in February 2015 to consider whether the Annual Report and Form 20-F 2014 provided a fair, balanced and understandable view of the Group with the necessary information for shareholders to assess the Group’s performance, business model and strategy. Audit Committee members provided comments on the draft report that were then incorporated into the draft provided to the Audit Committee and Board for final comment and approval.

Effectiveness of the Committee

Effectiveness of the Committee is dependent on its overall efficiency as well as the efficacy of EY and GIA. The effectiveness of the Committee, EY and GIA is monitored and assessed annually through evaluation questionnaires and interviews.

Our priorities for 2015

During 2015, the Committee will specifically focus on: (i) the integrity of the internal financial controls and risk management systems; (ii) monitoring and continually assessing IHG’s information security arrangements; and (iii) overseeing the implementation of technology projects and the Global Finance function’s talent and succession plans.

Ian Dyson, Audit Committee Chairman

16 February 2015

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IHG  Annual Report and Form 20-F 2014

Corporate Governancecontinued

Corporate Responsibility Committee Report

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“Ensuring meaningful progress against our five-year targets will remain a key focus of the Committee.”

Dear Shareholder

Roles and responsibilities

The Committee advises the Board on the Group’s corporate responsibility objectives and strategy, its approach to sustainable development, and ensures that IHG’s responsible business priorities deliver against our core purpose, Great Hotels Guests Love.

Our role and responsibilities are set out in our terms of reference (ToR), which are reviewed annually and no changes were made for 2015. The ToR are available on the Company’s website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request.

Governance

All members have the experience and expertise necessary to meet the Committee’s responsibilities and a majority of the Committee members are Non-Executive Directors, as required under the ToR.

What did the Committee consider in 2014

During the year, the Committee’s key activities included:

Targets and core programmes

Continually monitoring progress against our five-year targets (2013-2017) – see page 33 and www.ihgplc.com/ responsiblebusiness for details.

Receiving progress updates on the key achievements in 2014 across the three core corporate responsibility programmes: IHG Green Engage, IHG Academy and IHG Shelter in a Storm, including an in-depth case study of an IHG Academy set up by a franchised hotel, Holiday Inn Stoke On Trent, and in-depth reports on IHG Shelter in a Storm.

Inviting external speakers to the meetings to explore key topics, including a presentation from CARE on its strategic relationship with IHG, and an overview of the landscape of responsible business by the Chief Executive of Business in the Community.

Discussing the Group’s performance against the 2014 delivery plan and setting 2015 priorities.

Reviewing proposals for implementing and applying a brand standard in respect of IHG Green Engage for all hotels in the IHG System (see page 33).

Committee membership and attendance

Members1Attendance
Jennifer Laing (Chairman)3/3
Luke Mayhew3/3
Dale Morrison3/3
Richard Solomons3/3
Ying Yeh3/3
Total meetings held3

1For full biographies see pages 57 to 59.

The Heads of Corporate Responsibility and the Chairman of the Board also attend the meetings.

Communication and awareness

Evaluating the Responsible Business Communication Plan for 2014 and the results of the Employee Engagement survey, which had included questions in respect of the awareness and impact of our core corporate responsibility programmes. Responsible business activities continue to drive very high levels of pride in our employees, with 92 per cent of respondents saying they felt more positive about IHG as a result of corporate responsibility programmes.

Considering methods to raise the levels of awareness and adoption of our corporate responsibility programmes in franchised hotels, such as our IHG Race Around the World event.

Considering our corporate responsibility initiatives in the context of our broader responsible business practices and endorsing plans to have a broader IHG Responsible Business Report for 2014 (published in 2015).

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The Committee, along with our Corporate Responsibility team and the rest of the Board, also took part in an IHG Race Around the World event in Hyde Park in London, a fundraising event in support of, and building awareness for, IHG Shelter in a Storm.

Our priorities for 2015

During 2015, our priorities will be to: (i) continue to support IHG to ensure meaningful progress on our five-year corporate responsibility targets; (ii) further embed responsible business in the IHG brand and help to deliver external communications to support this; and (iii) further extend the success of IHG Shelter in a Storm by increasing IHG’s disaster preparedness capabilities and developing links with humanitarian agencies to grow IHG’s disaster relief capabilities.

Jennifer Laing, Corporate Responsibility Committee Chairman

16 February 2015

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Nomination Committee Report

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“The Committee keeps under continuous review the talent pool within the business.”

Dear Shareholder

Roles and responsibilities

The Committee considers the structure, size and composition of the Board, advising on succession planning and making appropriate recommendations to ensure the Board retains an appropriate mix of skills, experience, knowledge and diversity. It is also responsible for reviewing the Group’s leadership needs.

Our role and responsibilities are set out in our terms of reference (ToR), which are reviewed annually and no changes were made for 2015. The ToR are available on the Company’s website at www.ihgplc.com/investors under corporate governance/committees or from the Company Secretary’s office on request.

Governance

All members have the experience and expertise necessary to meet the Committee’s responsibilities and are independent Non-Executive Directors (excluding myself), as required under the ToR. During 2014, David Kappler retired from, and Jo Harlow joined, the Committee. When the Committee is considering matters relating to my position, Dale Morrison, Senior Independent Non-Executive Director, acts as chairman of the Committee.

What did the Committee consider in 2014

During the year, the Committee’s key activities included:

Board appointments

Continually reviewing the tenure and qualifications of the Non-Executive Directors to ensure the Board has an appropriate and diverse mix of skills, experience, knowledge and diversity.

Recommending appointments to the Board in line with our strategic objectives. As identified in our 2013 Annual Report, our priority for 2014 was to strengthen the Board’s existing capabilities by looking to appoint a Non-Executive Director with experience in consumer-facing technology. Lygon Group, who have no connection to IHG, was engaged as an external search agent. The search was undertaken against a detailed job specification setting out the particular skills, knowledge and experience required for the particular position. The Committee nominated Jo Harlow, having considered her wealth of experience and knowledge, particularly in connection with the role digital technology plays in driving consumer behaviour. The Board approved Jo’s appointment with effect from 1 September 2014.

Succession planning

Focusing, on behalf of the Board, on Board succession planning:

In advance of David Kappler’s plans to retire on 31 May 2014, we recommended the appointment of Ian Dyson as Chairman

Committee membership and attendance

Members1Attendance
Patrick Cescau (Chairman)5/5
Ian Dyson5/5
Jo Harlow20/0
David Kappler32/2
Jennifer Laing5/5
Jonathan Linen45/5
Jill McDonald5/5
Luke Mayhew5/5
Dale Morrison5/5
Ying Yeh5/5

Total meetings held

5

1For full biographies of current members see pages 57 to 59.
2Jo Harlow joined the Committee effective as of 1 September 2014.
3David Kappler retired from the Committee effective as of 31 May 2014.
4Jonathan Linen retired from the Committee effective as of 31 December 2014.

The Chief Executive Officer also attends the meetings.

of the Audit Committee from 1 April 2014, and Dale Morrison as Senior Independent Non-Executive Director from 31 May 2014. As both Dale and Ian were already members of the Board, this allowed for a smooth transition of duties upon David’s retirement.

On 31 December 2014, Jonathan Linen retired from the Board after nine years’ service.

We announced on 2 December 2014 that Kirk Kinsell would step down from the Board and his role as President of IHG’s Americas business on 13 February 2015. An independent executive search agency, Egon Zehnder, was engaged to conduct a review of prospective candidates. Accordingly, Kirk was succeeded by Elie Maalouf as Chief Executive Officer, The Americas, who joined IHG in January 2015 to allow for a handover period with Kirk. While Elie does not sit on the Board, he is a member of IHG’s Executive Committee.

Keeping under continuous review the development, succession planning and talent pool for the Executive Committee and other senior executive roles to identify both talent strengths and talent gaps. New senior hires were made in both global and regional leadership positions, and a number of internal promotions to the senior leader level below Executive Committee took place, further strengthening our internal pipeline.

We have also considered Jennifer Laing and Ying Yeh’s continued appointments on the Board, as both have been on the Board for over six years, and specifically reviewed Jennifer’s independence having been on the Board for over nine years.

Board diversity

We recognise the value of diversity in its broadest sense and, whilst all appointments are made on merit, we seek to ensure the Board maintains an appropriate balance through a diverse mix of skills, experience, knowledge, gender and background – see page 62 for details of our Board Diversity Policy.

Our priorities in 2015

During 2015, we aim to continue to: (i) refresh the Board and Committees in line with our priorities; and (ii) ensure we have the right capabilities for the future.

Patrick Cescau, Nomination Committee Chairman

16 February 2015

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IHG  Annual Report and Form 20-F 2014

CorporateGovernancecontinued

Statement of compliance with the UK Corporate Governance Code

Our statement of compliance presents a summary of how the Group has implemented the principles and provisions laid down in the UK Corporate Governance Code as published in September 2012 (the Code). This should be read in conjunction with the Corporate Governance Statement (pages 54 to 72) and the Directors’ Remuneration Report as a whole. The Code is available to view in full on the Financial Reporting Council website (www.frc.org.uk).

The Board considers that the Group has complied in all material respects with the Code for the year ended 31 December 2014 with the exception of Code provision C.3.7, which requires external audit contracts to be put to tender at least every 10 years. The Group has not re-tendered within that period, but the Audit Committee monitors this in line with legislation (further details are provided on pages 66 and 67).

A. Leadership

A.1 The role of the Board

The Board leads IHG’s strategic direction and the long-term objectives and success of the Group. It approves strategic plans and capital and revenue budgets, and reviews significant investment proposals, maintaining an overview and control of IHG’s operating and financial performance. It monitors the Group’s overall system of internal controls and risk management, governance and compliance, considering regulatory changes and developments (where appropriate), while ensuring that the necessary financial and human resources are in place for the Group to meet its objectives. Decisions and matters reserved for the Board and not delegated to management are available on our website at www.ihgplc.com/investors under corporate governance.

The Board meets formally eight times each year, with additional meetings scheduled as necessary. One of the meetings includes a two-day strategy meeting, in which the Board considers the Group’s strategy and related issues. Details of 2014 Board meetings are set out on page 56. The attendance by Committee members at Committee meetings can be found in each of their respective reports.

All Directors are covered by the Group’s Directors’ & Officers’ Liability Insurance policy (see page 72).

A.2 Division of responsibilities

The roles of the Chairman and Chief Executive Officer are clearly established.

Chief Executive Officer

As Chief Executive Officer, Richard Solomons leads the development of the Company’s strategic direction and implementation of the agreed strategy. He oversees IHG’s business operations and manages its risks as well as building and leading an effective Executive Committee.

A.3 The Chairman

As Chairman of the Board, Patrick Cescau leads the operation and governance of the Board and its Committees as well as building and maintaining an effective Board. This includes ensuring that Directors receive timely, accurate and clear information on the Group’s business and that all Directors are fully informed of relevant matters. The Chairman oversees corporate governance matters, ensuring they are addressed, and leads the performance and effectiveness evaluations of the Board, its Committees and the Directors.

The Chairman was independent on appointment.

A.4 Non-Executive Directors

As a strong source of advice and judgement for IHG, our Non-Executive Directors constructively challenge and help develop proposals on strategy. They provide significant external commercial experience and a broad range of skills for the Board to draw on.

Senior Independent Non-Executive Director

AsAppointed to the Board: 1 June 2011

Skills and experience:Dale is a founding partner of TriPointe Capital Partners, a private equity firm. In 2016 he also founded Twin Ridge Capital, a private equity firm. Dale was previously President and Chief Executive Officer of McCain Foods Limited and President and Chief Executive Officer of Campbell Soup Company.

Board contribution:Dale has over 10 years’ experience in sales and marketing positions, and over 25 years’ experience in general management,

having held senior positions in the branded foods sector. Dale’s role as Senior Independent Non-Executive Director Dale Morrison is availablefundamental to liaise with shareholders who have concerns that they feel have not been addressed through the normal channelssuccessful operation of the Board.

Other appointments:Currently a Non-Executive Director of International Flavors & Fragrances Inc., and Non-Executive Chairman of Marlin 1 (holding company for Young’s Seafood International Holdings Ltd.).

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Anne Busquet

Independent Non-Executive Director

Appointed to the Board: 1 March 2015

Skills and experience:Anne began her career at Hilton International in Paris, before joining American Express in New York, where she held several executive positions and served for 23 years. Anne was also the Chief Executive Officer of Local and Media Services at InterActiveCorp, an internet commerce conglomerate.

Board contribution:Anne brings more than 20 years’ experience in senior positions in multinational companies, predominantly in the financial, branded and digital-commerce sectors.

Other appointments:Currently the President of AMB Advisors, an independent consulting firm, and Managing Director at Golden Seeds LLC, an angel investment company. Anne also serves on the boards of Pitney Bowes, MTBC, Elior Group and Provista Diagnostics, Inc. and on the advisory boards of JEGI and SheSpeaks.

48IHG  |  Annual Report and Form 20-F 2017


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Ian Dyson

Independent Non-Executive Director

Appointed to the Board: 1 September 2013

Skills and experience: Ian has held a number of senior executive and finance roles, including Group Finance & Operations Director for Marks and Spencer plc for five years from 2005 to 2010, where he oversaw significant changes in the business. In addition, Ian was Chief Executive Officer of Punch Taverns plc, Finance Director for the Rank Group Plc, a leading European gaming business, and Group Financial Controller and Finance Director for the hotels division of Hilton Group plc.

Board contribution: Ian has gained significant experience from working in various senior finance roles, predominantly in the retail, leisure and hospitality sectors. Ian became Chairman of the Audit Committee on 1 April 2014, and, as such, is responsible for leading the Committee to ensure effective internal controls and risk management systems are in place.

Other appointments:Currently a Non-Executive Director and Chairman of the Audit Committee of SSP Group plc, Senior Independent Non-Executive Director and Chairman of the Audit Committee of ASOS plc and Senior Independent Non-Executive Director of Paddy Power Betfair plc.

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Jo Harlow

Independent Non-Executive Director

Appointed to the Board: 1 September 2014

Skills and experience:Jo most recently held the position of Corporate Vice President of the Phones Business Unit at Microsoft Corporation. She was previously Executive Vice President of Smart Devices at Nokia Corporation, following a number of senior management roles at Nokia from 2003. Prior to that, she held marketing, sales and management roles at Reebok International Limited from 1992 to 2003 and at Procter & Gamble Company from 1984 to 1992.

Board contribution:Jo has over 25 years’ experience working in various senior roles, predominantly in the branded and technology sectors. Jo became Chairman of the Remuneration Committee on 1 October 2017, and as such she is responsible for setting the remuneration policy.

Other appointments:Currently a Non-Executive Director of Halma plc and J Sainsbury plc and a member of the Supervisory Board of Ceconomy AG.

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Luke Mayhew

Independent Non-Executive Director

Appointed to the Board: 1 July 2011

Skills and experience:Luke served for 12 years on the Board of John Lewis Partnership plc, including as Managing Director of the Department Store division. Luke also spent five years at British Airways Plc and seven years at Thomas Cook Group plc in senior positions. He was also a Non-Executive Director of WH Smith PLC and Chairman of Pets at Home Group Plc.

Board contribution:Luke has over 30 years’ experience in senior roles in the branded sector and was Remuneration Committee Chairman at Brambles Limited from 2006 to 2014 and at IHG from July 2011 to September 2017.

Other appointments:Currently a Senior Independent Director of DFS Furniture plc, a trustee of BBC Children in Need and a Governor of the Southbank Centre.

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Jill McDonald

Independent Non-Executive Director

Appointed to the Board: 1 June 2013

Skills and experience:Jill started her career at Colgate-Palmolive Company, spent 16 years with British Airways Plc and has held a number of senior marketing positions in the UK and overseas. Jill was Chief Executive Officer UK and President for the North West Europe division for McDonald’s, and held a number of other senior roles in the company from 2006. From May 2015 until September 2017, Jill served as Chief Executive Directors.Officer of the Halfords Group plc.

Board contribution:Jill has nearly 30 years’ experience working with high-profile international consumer-facing brands at both marketing and operational level. As Chairman of the Corporate Responsibility Committee, she is responsible for corporate responsibility objectives and strategy and approach to sustainable development.

Other appointments:Currently Managing Director, Clothing, Home and Beauty, at Marks and Spencer plc.

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Malina Ngai

Independent Non-Executive Director

Appointed to the Board: 1 March 2017

Skills and experience:Malina is Group Chief Operating Officer of A.S. Watson Group, which is part of Hong Kong-based conglomerate CK Hutchison Holdings Limited. A.S. Watson Group is the largest international health and beauty retailer in Asia and Europe with thirteen brands including Watsons, Superdrug, Savers, The Perfume Shop, Kruidvat, ICI Paris XL and ParknShop. In addition, Malina is Vice Chairman of the Hong Kong Retail Management Association and was previously a member of the Board of Directors of the Hong Kong Sports Institute Limited.

Board contribution:Malina has over 20 years’ experience gained from working in senior positions in global organisations across a broad range of sectors, with particular understanding of consumer-facing branded companies and the role that technology and digital commerce play in transforming the consumer experience.

Other appointments:Currently Group Chief Operating Officer of A.S.Watson Group and Vice Chairman of the Hong Kong Retail Management Association.

Changes to the Board

Keith Barr

Keith was appointed Chief Executive Officer on 1 July 2017.

Jo Harlow

Jo was appointed Chairman of the Remuneration Committee and stepped down as a member of the Audit Committee on 1 October 2017.

Elie Maalouf

Elie was appointed to the Board on 1 January 2018.

Luke Mayhew

Luke was appointed a member of the Audit Committee and stepped down as Chairman and member of the Remuneration Committee on 1 October 2017.

Malina Ngai

Malina was appointed to the Board on 1 March 2017.

Richard Solomons

Richard retired from the Board and his role as Chief Executive Officer on 30 June 2017.

IHG  |  Annual Report and Form 20-F 2017  |  Governance   |  Corporate Governance49


Governance

Corporate Governance continued

Our Executive Committee

In addition to Keith Barr, Paul Edgecliffe-Johnson and Elie Maalouf, the Executive Committee from 1 January 2018 comprises:

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Claire Bennett

Chief Marketing Officer

Appointed to the Executive Committee:

October 2017 (joined the Group: 2017)

Skills and experience:Claire previously spent 11 years at American Express in a range of senior leadership roles across marketing, consumer travel and loyalty. Most recently, Claire was General Manager (GM), Global Travel & Lifestyle, where she led a team responsible for delivering premium lifestyle services. Prior to this, Claire held roles as Executive Vice President for Consumer Loyalty, and Senior Vice President, Global Marketing and Brand Management, where she led worldwide advertising, media, sponsorship and marketing research teams.

Before joining American Express, Claire also held senior marketing roles at Dell and Quaker Oats/ Pepsico Company, building significant industry expertise across technology, consumer packaged goods, financial services, and travel and hospitality sectors.

Claire has been an Executive Board Member of the World Travel and Tourism Council (WTTC), served as a Board Member of Tumi Inc. and participated on multiple industry advisory boards.

Key responsibilities:These include all aspects of our brands, loyalty, partnerships, and marketing execution.

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Jolyon Bulley

Chief Executive Officer, Greater China

Appointed to the Executive Committee:

November 2017 (joined the Group: 2001)

Skills and experience:Jolyon has held a number of significant roles at IHG and was appointed CEO for Greater China in November 2017.

Prior to that he was Chief Operating Officer (COO) for the Americas, leading the region’s operations for franchised and managed hotels, in addition to cultivating franchisee relationships and enhancing hotel operating performance. Jolyon has also served as COO for Greater China for almost four years, with oversight of the region’s hotel portfolio and brand performance, food and beverage brand solutions, new hotel openings and owner relations.

Jolyon joined IHG in 2001, as Director of Operations, New South Wales in Australia, and then held roles of increasing responsibility across IHG’s Asia-Pacific region. He became Regional Director Sales & Marketing for Australia, New Zealand & South Pacific in 2003, relocated to Singapore in 2005 and held positions of Vice President Operations South East Asia & India, Vice President Resorts, and Vice President Operations, South East & South West Asia.

Key responsibilities:These include the management, growth and profitability of IHG’s fastest growing region, which includes mainland China, Hong Kong SAR, Macau SAR and Taiwan.

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Yasmin Diamond

Executive Vice President,Global Corporate Affairs

Appointed to the Executive Committee:

April 2016 (joined the Group: 2012)

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.

In 2011, Yasmin was awarded a Companion of the Order of the Bath (CB) in the New Year’s honours list in recognition of her career in government communications. In addition, Yasmin sits on the Board of Trustees for the British Council, the UK’s international organisation for cultural relations and educational opportunities.

Key responsibilities:These include all global communications activity, ensuring that it supports and enables IHG’s broader strategic priorities. This includes all external and internal activity, covering both corporate and brand communications, as well as leading IHG’s Corporate Responsibility strategy and key public affairs work.

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Kenneth Macpherson

Chief Executive Officer, EMEAA

Appointed to the Executive Committee:

April 2013 (joined the Group: 2013)

Skills and experience:Prior to taking up the position of CEO, EMEAA in January 2018, Kenneth was IHG’s Chief Executive Officer for Greater China for over four years.

Kenneth has extensive management experience, with a background in sales, marketing strategy, business development, and operations. He joined IHG from Diageo, where he worked for over 20 years in senior management positions, including Managing Director of Diageo Greater China. Prior to being based in China in 2005, Kenneth led the development of Diageo’s China strategy. He has also leadsserved as the annualCommercial

Director of Diageo Asia Venture in Singapore, where he was responsible for commercial and brand strategy, as well as sales and marketing, and new brand development.

In 2017, Kenneth received the Shanghai Magnolia Gold Award for expatriates for his outstanding contribution to the city’s social and economic development.

Key responsibilities:These include business development and performance of all the hotel brands and properties in the EMEAA region.

50IHG  |  Annual Report and Form 20-F 2017


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Eric Pearson

Chief Commercial and Technology Officer

Appointed to the Executive Committee:

February 2012 (joined the Group: 1997)

Skills and experience: Eric joined IHG in 1997, and has held roles of increasing responsibility throughout his tenure. As Chief Marketing Officer for IHG’s Americas region, Eric was accountable for all sales and marketing activities across brands, driving top-line revenue into more than 3,300 hotels. In addition to these responsibilities, Eric became interim Head of Global Brands in 2011 before being appointed IHG’s Chief Information Officer in 2012.

Eric has also served as Senior Vice President, Distribution Marketing, where he was responsible for overseeing digital marketing, reservation channels, and global revenue management.

Before joining IHG, Eric worked for The Walt Disney Company, IBM and NASA in different management and technical capacities.

Key responsibilities:These include global sales, distribution, revenue management, property systems, digital and voice, and technology.

LOGO

Ranjay Radhakrishnan

Chief Human Resources Officer

Appointed to the Executive Committee:

December 2016 (joined the Group: 2016)

Skills and experience:Ranjay joined IHG as Chief Human Resources Officer in December 2016. He previously spent 23 years at Unilever, in a range of senior leadership roles at global, regional and country levels. At Unilever, Ranjay was most recently Executive Vice President Global HR (Categories & Market Clusters), where he led HR for Unilever’s eight regions (Market Clusters) and four global Product Categories under a unified global HR leadership role.

Ranjay has worked in a number of specialist areas of HR such as Talent, Learning, Reward, Change and Organisational Effectiveness, complementing large generalist roles in both

mature and developing markets. His other roles at Unilever included Executive Vice President Human Resources in Europe; Vice President Talent, Learning and Organisation for Global Markets; Vice President Leadership Development & Reward for Asia, Africa and Central Eastern Europe; and Vice President HR for North Africa and The Middle East.

Key responsibilities:These include global talent management, learning and capability building, diversity, organisation development, reward and benefit programmes, employee relations, and all aspects of the people and organisation strategy for the Group.

LOGO

George Turner

Executive Vice President, General Counsel

and Company Secretary

Appointed to the Executive Committee:

January 2009 (joined the Group: 2008)

Skills and experience:George is a solicitor and qualified to private practice in 1995. Prior to joining the Group, George spent over 10 years with Imperial Chemical Industries PLC, where he held various key positions including Deputy Company Secretary and Senior Legal Counsel.

Key responsibilities:These include corporate governance, risk management, information security, insurance, regulatory compliance, internal audit, legal and hotel standards.

Changes to the Executive Committee

Claire Bennett

Claire was appointed to the Executive Committee on 1 October 2017.

Angela Brav

Angela stepped down from the Executive Committee and left IHG on 31 December 2017.

Jolyon Bulley

Jolyon was appointed to the Executive Committee on 1 November 2017.

Federico Lalatta Costerbosa

Federico stepped down from the Executive Committee and left IHG on 31 December 2017.

Kenneth Macpherson

Kenneth took up the new position of Chief Executive Officer, EMEAA on 1 January 2018.

Eric Pearson

Eric took up the new position of Chief Commercial and Technology Officer on 1 October 2017.

Jan Smits

Jan stepped down from the Executive Committee and left IHG on 31 December 2017.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance51


Governance

Corporate Governance continued

Board meetings

The Chairman and Company Secretary operate a rigorous process for Board agenda setting which includes collaboration with all Board members to ensure that the agendas strike the appropriate balance between short-term business and the longer term. In addition, the Chairman, CEO and Company Secretary meet in advance of Board and Committee meetings to finalise the agendas. The Company Secretary maintains an annual agenda schedule for Board meetings that sets out strategic and operational matters to be considered throughout the year. A set of Board papers is circulated at least one week in advance of each meeting, to ensure that Directors have sufficient time to fully prepare for effective, focused and relevant discussions. Meetings begin with an update from the Chairman and CEO, and the Chief Financial Officer provides a financial review of the Group. Executive Committee members and other members of senior management present ‘deep dives’ on key initiatives and developments throughout the year, facilitating a strong overall understanding of Group operations.

The Board also receives presentations in the less formal context of pre-dinner meetings, scheduled the day before certain Board meetings.

The Board held eight scheduled meetings during the year, and individual attendance is set out on page 47. All Directors are expected to attend all Board meetings and relevant Committee meetings unless prevented by prior commitments, illness or a conflict of interest. Directors unable to attend Board or Committee meetings are sent the relevant papers and asked to provide comments to the Chairman of the Board or Committee in advance.

Time continues to be set aside at the start and end of meetings for the CEO to meet with the Chairman and Non-Executive Directors, and for the Chairman to meet privately with the Senior Independent Non-Executive Director and Non-Executive Directors to discuss any matters arising. The Senior Independent Non-Executive Director is available to discuss concerns with shareholders, in addition to the normal channels of shareholder communication.

During 2017, the Board continued to focus on strategic and operational matters, corporate governance, investor relations and risk management, whilst considering relevant stakeholders. The key focus areas for the Board during 2017 are outlined below:

Area of discussionDiscussion topic

Strategic and operational

matters

Commercial DeliveryUpdates on IHG Connect (the Group’s wifi initiative), GRS, and our Distribution and Revenue Management strategy.

Changes to operating structure to accelerate growthReview, assess and endorse the Group’s operating structure. Refinement of the Group’s purpose, ambition, values and behaviours reflecting the growth agenda, taking into consideration risk appetite and assessing risk mitigation strategies.

Operating regionsOperating performance, competitive positioning and outlook in each region considered at each Board meeting and a deep-dive session on the Americas was presented.

BrandsBrand performance and initiatives for the InterContinental brand, the launch of avid hotels and initiatives for our master brand – the IHG brand.

Our PeopleChief Human Resources Officer review of the ChairmanGroup’s culture, behaviours and drivers of performance.

Competitive marketplace reviewMergers and acquisitions activity in the industry.

Corporate governanceUpdates from each of the Board CommitteesDetails of Committee activities during 2017 can be found on pages 56 to 61 and 64 to 77.

Quarterly corporate governance and regulatory updates, including reviews of regulatory developments and any upcoming legislative changes affecting the business, our Board and/or its CommitteesInternal quarterly updates are provided to the Board covering key regulatory and corporate governance developments and how the Group is responding. Further information can always be obtained from the Company Secretary in line with ongoing director training and development.

Annual Report and Form 20-FDetails of the other Non-Executive Directors,review process of the Annual Report and provides adviceForm 20-F can be found on page 57.

Board effectiveness evaluationDetails of the process and judgementoutputs of the external Board effectiveness review can be found on page 54.

Internal controls and risk management systems, our risk appetite and our global insurance programmeThe Board receives regular updates on internal controls, risk management systems, our risk appetite and our global insurance programme and reports on risk topics were delivered by the Chair of each Committee and considered by the Board.

Terms of Reference for each Board CommitteeMinor changes to the Terms of Reference of the Committees were approved during the year, in line with best practice. The Terms of Reference for all Committees and the Matters Reserved for the Chairman as necessary.

After each Board meeting, our Non-Executive Directors and the Chairman meet without Executive Directors being present.

During the year, if any Director has unresolved concerns about the running of IHG or a proposed action, these would be recorded in the minutes of the meeting.

Further information on each of these roles can be found on our website at www.ihgplc.com/investors under corporate governance.website.

B. Effectiveness

B.1

Investor relations and communicationsUpdates on investor perceptions and shareholder relations, consideration of analysts’ reports and media updatesThe compositionBoard receives a regular report outlining relative share price performance, share register movement and Investor Relations activity and engagement with shareholders.

Global communications updatesThe Board receives a regular report on the global communications landscape and communications activity across key regions, our brands and our people.

Review and approval of shareholder returns strategies for 2017During the year, the Board considered and approved the dividends and additional shareholder returns paid during 2017.

Preparations for the AGMDetails of the Board2018 AGM can be found on page 55.

52IHG  |  Annual Report and Form 20-F 2017


Director induction, training and development

New Director inductions

All new Directors, upon appointment, undergo a comprehensive and formal induction programme which is tailored to meet their individual needs. We believe this is crucial to ensure our Directors have an in-depth understanding of the Group’s business model, key stakeholders, our principal activities and our strategy, which is key to enabling all Directors to contribute to the Board effectively with their knowledge, skills, experience and expertise.

Malina Ngai was appointed as an Independent Non-Executive Director in March 2017. The key areas of Malina’s induction included:

Information regarding the Group’s structure, strategy, business model and KPIs, key regions and operations, a financial overview, details of the Group’s principal assets, liabilities and significant contracts, and an overview of our brands and their competition;

The Group’s risk management strategy and approach to corporate responsibility;

Recent Board and Committee updates including commercial strategy, global technology trends, the Group Internal Audit plan and various Investor Relations presentations;

Meetings with members of the Board, the Executive Committee and senior management;

Meetings with the external Auditor, brokers and capital advisers; and

Visits to various IHG hotels and corporate offices.

On 1 July 2017, Keith Barr was appointed CEO. While Keith had held numerous senior leadership positions within IHG since joining in 2000, he had not previously served on a board. As such, his induction was tailored to provide a thorough outline of his responsibilities and duties as a Director of a public limited company. This included:

A briefing pack and Board induction meetings with the Company Secretary, Deputy Company Secretary and the external Corporate Legal Adviser focusing on Director’s duties under the Companies Act, compliance with listing rules and relevant regulations;

The rules relating to inside information and restrictions in dealing in IHG shares, together with a briefing of the policies and procedures IHG has in place to ensure compliance with such rules;

Corporate governance standards followed by companies operating in the UK and US regulatory environment, including the UK Corporate Governance Code (the Code) and the current reform process covering remuneration, stakeholder engagement and the new Code;

Meeting the lead Audit Partner to discuss key financial considerations and responsibilities;

Meetings with all Committee Chairs, the Senior Independent Non-Executive Director and one to one meetings with all other Non-Executive Directors to understand and discuss key focus areas and priorities; and

Strategy meetings with the Chairman as well as regular meetings with the Company Secretary and Group Financial Controller scheduled ahead of each Board and Committee meeting after the release of the papers for the first 12 months.

On 1 October 2017, Luke Mayhew stepped down as Chairman of the Remuneration Committee and joined the Audit Committee. Given that Luke had routinely attended the Audit Committee as a guest, a formal induction was considered unnecessary. An induction programme was created for Jo Harlow to support her transition to Chair of the Remuneration Committee. The programme included:

A detailed handover, coaching and support from Luke Mayhew covering a variety of matters including agendas for Remuneration Committee meetings and determining the remuneration terms associated with Board resignations and appointments;

Introductory meetings with a number of shareholders during the development of the remuneration policy;

Induction meetings with PricewaterhouseCoopers, independent advisers to the Remuneration Committee, to provide commentary and advice on the executive remuneration landscape, investor sentiment and key pay trends;

Private meetings with other Remuneration Committee members, the Chairman and the CEO; and

Ongoing meetings with Remuneration Committee chairs of other UK-based multinational companies and attendance at various Remuneration Committee forums.

Elie Maalouf will receive a full induction programme during 2018.

Ongoing Director training and development

We believe that an ongoing and progressive training programme facilitates a better understanding of the Group’s business and operations for all Board members. The Chairman reviews the training and development needs with each Director on a regular basis and the Board is made aware of training opportunities.

Board and Committee meetings are regularly used to update Directors on developments in the environment in which the business operates and in-depth presentations are provided on key topical areas. The Company Secretary provides regular updates on regulatory, corporate governance and legal matters and individual meetings with senior management are arranged if necessary. Training focus areas in 2017 included technology and information security, General Data Protection Regulation, anti-bribery, IFRS 15 and financial reporting controls and regulatory developments.

Board meetings continue to be held at IHG hotels around the world to provide first-hand experience of the different brands we operate. We believe that this opportunity to meet an array of stakeholders across the business broadens the Board’s understanding of the markets in which we operate. In 2017, Board members attended Board and Committee meetings at InterContinental London Park Lane in the UK, Kimpton Palomar Hotel in Los Angeles and Ravinia Offices in Atlanta, in addition to meetings held at the Group’s head offices in Denham, UK. While in Atlanta, the Board also had dinner with a broad group of senior management as part of their continuing engagement with employees across the Group. Directors are also encouraged to visit hotels across our brands informally.

In addition, Directors are encouraged to attend external training events to update their skills and knowledge.

Annual Strategy Meeting – March 2017

The Board maintains overall responsibility for the establishment and review of the long-term strategic aims and objectives of the Group. Substantial time is spent considering Group strategy, performance and oversight during the regular Board meetings and, in addition, the Board holds an Annual Strategy Meeting, dedicated to reviewing and discussing our global strategy in detail.

The 2017 Annual Strategy Meeting was held in Los Angeles and the Board undertook a strategic assessment of the competitive landscape and the commercial strategy and priorities for the Group. Given its scale, the Board spent significant time focusing on our Americas region, and across the American market more generally. The Board took the opportunity to visit several of our hotels across all market segments whilst in Los Angeles,

updating their knowledge and familiarity with the Group’s brands. This included visits to our then soon to be opened InterContinental Los Angeles Downtown and our recently opened Hotel Indigo Los Angeles Downtown. In addition the Board took the opportunity to spend time at BCG Digital to gain an understanding of the latest developments in the digital arena and consumer-facing technology.

Each Board member received a full briefing in advance of the visit to Los Angeles to ensure a deeper understanding of the cities and hotels they were visiting and were provided details of recent developments in the American market.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance53


Governance

Corporate Governance continued

Board effectiveness evaluation

IHG recognises the benefits of the Board undertaking a rigorous evaluation of its own performance and that of its main Committees and individual Directors on an annual basis, in line with the UK Corporate Governance Code recommendations.

External Evaluation

As we reported last year, and in accordance with our three-year cycle, Dr Tracy Long of Boardroom Review Limited, an external facilitator with no connection to IHG, was engaged to lead our external evaluation in 2016. This process continued into 2017, resulting in a detailed report being presented to the Board in May 2017.

The evaluation consisted of a mix of confidential individual interviews, Board meeting observation and individual feedback sessions with all Directors. A detailed report was then presented and the Board discussed the outcome of the evaluation process, its proposed actions and progress with the actions of previous years.

The external evaluation concluded that good progress had been made on the 2014 external review and the Board is diverse, well-functioning and effective. Dr Long noted that the Board is value-adding and there is a high level of engagement and participation with good alignment between the Executive Directors and the Non-Executive Directors.

The review also noted a good level of interaction with shareholders and a strong understanding of the industry landscape and the Group’s wider stakeholders.

The review identified three interconnected challenges and areas of focus for the future, details of which can be found below.

ChallengesActions taken

The size and composition of the Board is regularly reviewed for the appropriate balance of skills, experience, independence and knowledgetransition to ensure it can carry out its duties and responsibilities effectively.

The Board’s current composition meets the requirement under the Code for at least half of the Board, excluding the Chairman, to be independent Non-Executive Directors (see page 61). Further details of the composition of the Board are available on pages 57 to 59.

Jennifer Laing has served on the Board for over nine yearsa new CEO and the Nomination Committee has specifically reviewed her independence and is satisfied that she continues to demonstrate independence in character and judgement and is independent as required under the Code. The Board has also considered this and reached the same conclusion.

B.2 Appointments

The Board has delegated a number of responsibilities to the Nomination Committee. The Nomination Committee leads the appointment of new Directors toimplications for the Board and senior executives in accordanceCompany culture

Company culture is a key area of focus. The Group’s purpose, ambition, values and behaviours have been refined reflecting the growth vision of the new Executive Committee, led by the CEO and with its terms of reference (available on our website at www.ihgplc.com/investors under corporate governance/ committees orfull engagement and support from the Company Secretary’s office on request)Board. Regular updates are planned during the year, led by the Chief Human Resources Officer.

A rapidly changing competitive landscape demanding even more agility and supportsspeedThe Board agenda for 2018 will reflect a new strategic approach with a shorter strategy day and several strategic updates and external contributors during the year. Deep dive areas have been identified and will be presented to the Board.

Continue to develop Board dynamicsPeer-to-peer evaluation of the Directors performance has taken place during the year to ensure a process of continuous improvement and that Board dynamics continue to develop. A collaborative process has been agreed for Chairman and CEO evaluations and there is a continuous dialogue between the Chairman and CEO. In addition, customised induction plans for new Directors have been devised and implemented.

Directors’ peer-to-peer reviews

Following the external evaluation the focus of the Board in 2017 was to address the challenges highlighted. As part of this the Chairman and Senior Independent Non-Executive Director facilitated a peer-to-peer review which comprised:

Interviews with each of the Directors to allow them to provide feedback regarding (i) the performance of fellow Board members, including their relative strengths and development areas (ii) progress following the recommendations made as part of the external evaluation (iii) Board engagement (iv) Director induction processes (v) diversity (vi) culture and (vii) the overall performance of the Board and its Committees;

Individual feedback sessions conducted by the Chairman as part of each Board member’s annual performance evaluation; and

Agreement on areas of focus for 2018.

The Chairman highlighted some of the general themes emerging from the peer-to-peer review during the February 2018 Board meeting, such as company culture, ethics and compliance, and risk appetite and agreed to continue to consider these, particularly in light of recent Corporate Governance developments.

Directors’ performance evaluation

During 2017, internal performance evaluations of Directors were undertaken with the Chairman appraising the Directors, the CEO appraising the Executive Directors, the Chairman and Non-Executive Directors appraising the CEO and the Non-Executive Directors, facilitated by the Senior Independent Non-Executive Director, appraising the Chairman.

The length of tenure of Non-Executive Directors forms part of the performance evaluation process. As a result of Luke Mayhew and Dale Morrison having served on the Board for more than six years, they had a particularly rigorous review of their continued Board membership. It was concluded that both Luke and Dale continue to constructively challenge management and help develop proposals on strategy and as such, contribute effectively to the Board.

Directors’ additional appointments and time commitments also form part of the internal performance evaluation process. Any additional appointments are thoroughly discussed with the Chairman before being accepted, with any time commitment required for each role carefully assessed. This year, particular attention was paid to Ian Dyson, Anne Busquet and Jo Harlow’s commitments, as well as Paul Edgecliffe-Johnson’s time commitment to his Non-Executive Director duties at Thomas Cook Group plc. Following a thorough review process, we determined that their additional appointments do not adversely impact their performance and that all Directors continue to perform their duties effectively.

54IHG  |  Annual Report and Form 20-F 2017


Engagement with shareholders

We are committed to maintaining an active dialogue with our shareholders and the Board takes its responsibility to promote the success of the Company for the benefit of our members seriously. We encourage strong engagement with investors and other stakeholders through our planned programme of investor relations activities, as well as responding to queries from shareholders and analysts. Our Registrar, Equiniti, and JP Morgan, as custodians of our American Depositary Receipts (ADR) programme, have teams equipped to deal with shareholder and ADR holder queries. A formal external review of investor perceptions is presented to the Board on an annual basis and both the Executive Committee and the Board receive regular updates on shareholder relations to ensure that the issues and concerns of major shareholders are understood.

Engagement during the year

The Board’s engagement with shareholders in 2017 included:

Meeting shareholders and responding to queries at the AGM.

Presentations by Richard Solomons, Keith Barr and Paul Edgecliffe-Johnson to institutional investors, analysts and the media following half-year and full-year results announcements.

Telephone conferences after the release of the first and third-quarter trading updates, including Q&A sessions with sell-side analysts.

Seeking feedback via an annual investor perception survey, facilitated by our capital markets advisers.

Attendance at key institutional investor conferences.

A programme of one-to-one meetings with major institutional shareholders, including Non-Executive Director meetings hosted by the Chairman.

The Senior Independent Non-Executive Director remains available to shareholders if they have concerns they wish to discuss.

In addition to the Board’s formal engagement with shareholders, Elie Maalouf attended an investor conference in the US and hosted an investor roundtable in London to discuss our business in the Americas region. Kenneth Macpherson hosted an investor roundtable meeting in Shanghai to discuss our Greater China business.

To enable as many shareholders as possible to access conferences and presentations, telephone dial-in facilities were made available in advance and live audio webcasts were made available after results presentations in 2017, together with associated data and documentation. These can be found atwww.ihgplc.com/investors under Results and presentations. Around 24 sell-side research analysts publish research on the Group; their details are available atwww.ihgplc.com/investors under Analyst details and consensus.

AGM

The AGM is an opportunity for shareholders to vote on certain aspects of Group business and to discuss matters with the Board. A summary presentation of the Group’s performance and financial results is given before the Chairman deals with the formal business of the meeting. All shareholders present can ask questions of the Board, during the meeting and more informally over lunch. The Board values the AGM as it provides an invaluable forum for communication with investors and we encourage participation at this meeting.

The 2018 AGM will be held at 11:00am on Friday 4 May 2018. The notice convening this meeting will be sent to shareholders and will be available atwww.ihgplc.com/investors under Shareholder centre in the AGMs and meetings section.

Shareholder services

During the fourth quarter of 2017, IHG ran its annual share-dealing programme for shareholders with shareholdings of up to 225 shares, giving them the option to sell or increase their shareholdings at a preferable set fee. Shareholders who sold their shares had the further option to donate their proceeds to the IHG Foundation, resulting in over £9,700 being donated.

LOGO

InterContinental Los Angeles Downtown, California, US. The Board visited the hotel shortly before its opening in 2017.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance55


Governance

Corporate Governance continued

Audit Committee Report

LOGO

We continue to play a vital role in maintaining IHG’s robust corporate governance framework, by supporting the Board in succession planning. Further details of the role of the Nomination Committeematters relating to internal control, risk management and what it did in 2014, including details of the appointment process of Directors,financial reporting.

Key duties and role of the Committee

Key objectives and summary of responsibilities

The Audit Committee is responsible for ensuring that IHG maintains a strong control environment. It provides effective governance over the Group’s financial reporting, including oversight and review of our systems of internal control and risk management, the performance of internal and external audit functions, as well as the behaviours expected of IHG’s employees through the Code of Conduct and related policies.

The Committee’s role and responsibilities are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board. The Committee’s key responsibilities and focus over the year have been:

Regular reviews of the Group’s information technology controls and information security risks.

Ongoing implementation of our Guest Reservation System (GRS) (part of IHG Concerto).

Reviewing, challenging and ensuring accurate financial and narrative reporting, including the Annual Report and Form 20-F.

Preparing for the implementation of new accounting standards, including IFRS 15 concerning revenue recognition.

Reviewing the Group’s approach to tax, including the implications of the US Tax Reform.

In-depth reviews of specific principal risk areas.

Ensuring the robustness of the Group’s internal control and risk management systems.

Overseeing the relationship with and appraisal of the Group’s external Auditor.

Monitoring and reviewing the role of Internal Audit.

Overseeing and ensuring the effectiveness of the Group’s regulatory compliance policies, procedures and controls.

LOGOThe ToR are available atwww.ihgplc.com/investors
under Corporate governance in the NominationCommittees section.

Membership and attendance at meetings

Details of the Committee’s membership and attendance at meetings are set out on page 47. The Chairman, Chief Executive Officer, Chief Financial Officer, Chairman of the Remuneration Committee, Head of Global Internal Audit (GIA), Group Financial Controller, Head of Global Risk Management and our external Auditor, Ernst & Young LLP (EY), attended all meetings in 2017. Other attendees are invited to meetings as appropriate and all Directors are expected to attend the Committee meetings that discuss principal risks and risk management systems and the approval of financial reporting. The Committee continues to hold private sessions with the Auditor and Head of GIA without the presence of management to ensure that a culture of transparency is maintained. The Committee Chairman continues to have recent and relevant financial experience and all members of the Committee are Independent Non-Executive Directors. In accordance with the Code, the Board also considers that the Committee as a whole possesses competence relevant to the Company’s sector, having a range of financial and commercial experience in the hospitality industry and the broader commercial environment in which we operate.

Reporting to the Board

Following each Committee meeting, the Board receives an update from the Committee Chairman on the key issues discussed. The papers and minutes for each meeting are circulated to all Board members, who are invited to request further information if required and to provide any challenge where necessary.

Effectiveness of the Committee

The effectiveness of the Committee is monitored and assessed regularly by the Chairman of the Committee and the Chairman. The Committee was also reviewed as part of the in-depth external evaluation process conducted by Boardroom Review Limited (see page 54). The external evaluation noted that the Audit Committee is professional and well run with a clearly defined role and it has completed detailed work on risk and control. The Committee also undertook a thorough and robust internal evaluation during the year and concluded that it remains effective.

Focus areas and activities

Internal controls and risk management

In accordance with the Code, the Board is responsible for determining the nature and extent of the principal risks it is willing to take to achieve its strategic objectives and ensuring that an appropriate culture has been embedded throughout the organisation. The Committee supports the Board by regularly reviewing the effectiveness of the Group’s internal control and risk management systems, the wider risk environment, and overseeing the risk and control activities in operation.

In order to effectively review the internal control and risk management systems, the Committee:

Reviews the process by which risks are identified and assessed, including regular reports and presentations from management on the Company’s overall risk management system and principal risks, mitigating actions and internal controls.

Receives regular reports from GIA and the external Auditor on the effectiveness of the systems for risk management and internal control.

Receives additional reports throughout the year relevant to internal control and risk management to ensure that current and emerging risks, both financial and non-financial, are identified, assessed and appropriately managed in day-to-day decision making (see pages 20 to 22 for more detail on our principal risks and our approach to managing them).

As part of the review of the internal control and risk management systems, key financial, operational and compliance controls across the business are monitored and tested throughout the year. The Committee assesses the approach to Sarbanes-Oxley Act 2002 (SOX) compliance in accordance with our US obligations and reviews reports on the progress of the SOX programme at each meeting. The Committee considers the Group’s treasury and tax strategy and policies annually and, during 2017 approved changes to the Group Treasury Policy and the Group’s “Approach to Tax”.

LOGOOur Approach to Tax document is available atwww.ihgplc.com/responsible-business under Policies.

56IHG  |  Annual Report on page 69. The overall process of appointment and removal of Directors is overseen by the Board as a whole.

As Ying Yeh and Jennifer Laing have been on the Board for over six years, their continued appointments were the subject of particular review and scrutiny by the NominationForm 20-F 2017


Having reviewed the internal control and risk management systems throughout the year, the Committee continues to conclude that the Group has an effective system of risk management and internal controls in place, and has concluded that there are no material weaknesses in the control environment and that there are no significant failings or weaknesses.

Principal risk areas

In addition to the regular risk management framework review and assessment of the principal risks, the Committee has a schedule for in-depth reviews into specific principal risk areas over the year. During 2017, the Committee met with senior risk and finance management, the Chief Commercial and Technology Officer and the Head of Information Security, considering, in particular:

Cybersecurity and information governance. During the year, the Committee considered the Group’s response to potential cybersecurity incidents.

Risk management controls and assurances in relation to the Group’s channels and technology platforms, and in particular the development of GRS (part of IHG Concerto).

Financial Management and Controls, including cyber fraud and fraud risk awareness, the Group’s Approach to Tax and the Treasury Policy, the key performance measures and methodology for determining breakage levels of the Loyalty Programme and the risk management controls and approach to determining IHG Rewards Club points liability.

Safety and security in hotels including the Group’s approach to incident handling in light of geopolitical factors and natural catastrophes experienced during 2017.

Risk appetite assessment and risk management measures in relation to the Group’s changes to accelerate growth.

Developments in data privacy regulation and the Group’s compliance programme.

Further details of our principal risks, uncertainties and review process can be found on pages 20 to 22.

Financial and narrative reporting

During the year, the Committee reviewed and recommended approval of the interim and annual Financial Statements (considering the relevant accounting and reporting matters such as impairment reviews, the going concern and viability statements) and the Group’s quarterly trading updates. All members of the Board are asked to attend these meetings.

As part of its review, the Committee interrogated the key judgements and accounting policies applied and considered the basis of the estimates and assumptions underlying the Financial Statements.

The Committee recognises the importance of understanding changes in accounting policies and practice, and receives an annual update from EY on key changes in this area. In 2017, the Committee continued their in-depth review of the impact on the Group of the implementation of IFRS 15 concerning revenue recognition, IFRS 9 concerning financial instruments and IFRS 16 concerning leases – see pages 101 to 103 for further details.

A letter from the Financial Reporting Council’s Corporate Reporting Review team (FRCCRRT) was received during the year, requesting further information regarding an investment disclosed in our 2016 Annual Report and Form 20-F. This was a limited review, based on our Annual Report and Form 20-F and did not benefit from detailed knowledge of our business or an understanding of the underlying transactions entered into. A thorough response was provided, which enabled the FRCCRRT to close their enquiries. We acknowledge and welcome the observations made on our 2016 Annual Report and Form 20-F and these have been duly considered in the preparation of this year’s Annual Report and Form 20-F.

The Committee continued to seek input and guidance from EY where appropriate to gain further assurance over the process of preparation of the Financial Statements. In addition, the Committee received regular reports from the Chairman of the Disclosure Committee and copies of all minutes of that Committee were duly circulated.

The Committee received early drafts of the Annual Report and Form 20-F 2017 (Annual Report), and when providing comments considered: (i) the process for preparing and verifying the Annual Report, which included review by members of the Executive Committee and input from senior colleagues in Operations, Strategy, HR, Finance, GIA, Risk and Legal; (ii) a report from the Chairman of the Disclosure Committee; and (iii) the checklist prepared by the Annual Report team confirming compliance with the relevant regulatory requirements.

The Committee (and a sub-committee specifically convened for this purpose) also considered management’s analysis of how the content benchmarked against the ‘fair, balanced and understandable’ communication principles, and whether it contained the necessary information for shareholders to assess the Group’s position and performance, business model and strategy. In order to reach this conclusion, a dedicated project team worked on the contents of the Annual Report and a detailed verification process to confirm the accuracy of the information contained within the Annual Report was undertaken by the Financial, Planning & Analysis department. The Committee then considered both the structure and content of the Annual Report to ensure that the key messages were effectively and consistently communicated and that meaningful links between the business model, strategy, KPIs, principal risks and remuneration were clearly identified throughout the Annual Report.

Following a review of the contents of the Annual Report alongside the aforementioned criteria, the Committee reported its recommendation to approve the Annual Report to the Board.

 

 

70


B.3 CommitmentIHG

The terms of appointment of our Non-Executive Directors outlines the time commitment expected to fulfil their role. On appointment, Directors are advised of, and requested to make, the necessary time commitment required to discharge their responsibilities effectively. IHG’s Executive Directors are not permitted to take on more than one external non-executive directorship or chairmanship in addition to their role. Biographical details of all current Directors, including their external commitments, can be found on pages 57 to 59.

Details of Directors’ service contracts and appointment terms are set out on page 81.

The Chairman annually reviews the time each Non-Executive Director has dedicated to IHG as part of the internal performance evaluations of each Director (see page 64) and is satisfied that their other duties and time commitments do not conflict with those as Directors of the Company.

B.4 Development

A full, formal and tailored induction is developed for IHG’s new Directors (see page 63).

The Chairman and Company Secretary ensure that Directors continually update their skills and have the requisite knowledge and familiarity with the Group to fulfil their roles on the Board and its Committees (see page 63). All Directors are encouraged to request further information as they consider necessary to fulfil their role.

B.5 Information and support

The Chairman and the Company Secretary together ensure a good flow of information to the Board and its Committees and between the Executive Committee and the Non-Executive Directors. The Company Secretary also ensures that all Directors and Board Committees have access to independent advice when requested, at the expense of the Group, where it is necessary to discharge their responsibilities as Directors.

The role of the Company Secretary

George Turner, as Company Secretary, ensures a good flow of information to the Board and its Committees and between the Executive Committee and the Non-Executive Directors. He facilitates all new Director inductions. He advises the Board on corporate governance matters and keeps the Board up to date on all relevant legal, regulatory and other developments. The appointment and removal of the Company Secretary is a matter for the Board as a whole.

B.6 Evaluation

The Board undertakes either an internal or external annual Board effectiveness evaluation to inform further enhancements to our Board processes. In 2013, this was carried out externally and in 2014, it was carried out internally. Performance evaluations of all Directors, including the Chairman, are also carried out and the Board considers the effectiveness of each of its Committees. See pages 63 and 64 for further information.

B.7 Re-election

The Company’s amended Articles of Association (the Articles) approved by our shareholders on 28 May 2010 (see page 72) provide that each Director is subject to election at the first Annual General Meeting (AGM) following their appointment and re-election at least every three years if they wish to continue serving in office.

However, in accordance with the recommendations of the Code, all of IHG’s Directors retire and seek election or re-election at each AGM. All of IHG’s current Directors (biographies as set out on pages 57 to 59) will retire and seek election or re-election at the 2015 AGM (as set out in the Notice of Meeting for the AGM (see page 64)).

C. Accountability

C.1 Financial and business reporting

Our Statement of Directors’ Responsibilities (including the Board’s statement confirming that it considers that the  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance57


Governance

Corporate Governance continued

Audit Committee Report continued

Significant matters in the 2017 Financial Statements

The Committee discussed with management and the Auditor the key judgements applied in the Financial Statements, the exceptional

items arising in the year and the impact of any accounting developments or legislative changes. The main items discussed are outlined below.

Area of focusIssue/Role of the CommitteeConclusions/Action taken

Accounting for the System Fund

Given the unique nature of the system fund, the Committee reviews the controls and judgements related to System Fund accounting.

In forming a conclusion on the appropriateness of the System Fund accounting, the Committee met with senior finance management to review and evaluate the progress made on strengthening the financial controls related to the IHG Rewards Programme. The Committee further reviewed the progress made on the Sarbanes-Oxley continuous improvement project and the results of control testing. The Committee concluded that good progress has been made in strengthening the financial oversight of the System Fund and that judgements in respect of the accounting treatment for the System Fund and related disclosures were appropriate.

IHG Rewards Club points liability

The IHG Rewards Club points liability represents a material liability for the Group and in determining the liability the Committee challenges judgements and estimations used to determine the liability.

The Committee reviewed the approach to the valuation of the liability and, in particular, the financial management of the overall programme. Senior finance management presented progress made in strengthening the financial management of the programme and was questioned on the valuation approach, the results of the external actuarial review and the increased judgement due to the expiration policy. The results of EY’s audit procedures were also considered in reaching the conclusion that the liability is appropriately stated.

Impairment testing

Impairment reviews require significant judgement and the Committee therefore scrutinises the methodologies applied and the inherent sensitivities in determining any potential asset impairment.

The Committee reviewed a management report outlining the approach taken on impairment testing and the key assumptions and sensitivities supporting the conclusion on the various asset categories. The Committee examined the assumptions related to assets previously impaired, management contract valuations resulting from asset sales, and the assets acquired as a whole, is fair, balanced and understandable and providespart of the information necessaryKimpton transaction. The impairment recorded in the year for shareholders to assess the Group’s performance, business model and strategy) is set outBarclay associate (note 14 on page 94.120) was discussed in detail. The Committee agreed with the conclusions reached on impairment.

Litigation

From time to time, the Group is subject to legal proceedings with the ultimate outcome of each being subject to many uncertainties. The Committee reviews and evaluates the need for any provisioning on a case by case basis.

At each meeting during the year, the Committee considered a report detailing all material litigation matters. The Committee discussed and agreed any provisioning requirements for these matters.

Exceptional items

The statusGroup exercises judgement in presenting exceptional items. The Committee reviews and challenges the classification of IHGitems as exceptional based on their materiality or nature.

The Committee considered the consistency of the treatment and nature of items classified as exceptional over the last five years and discussed the items disclosed as exceptional. The Committee reviewed and challenged the significance, timing and nature of the exceptional items disclosed in note 5 on page 110, including Kimpton integration costs, reorganisation costs, and the tax credit arising from the US tax reform. EY’s audit procedures were also taken into consideration in reaching the conclusion that the disclosures and the treatment of the items shown as exceptional were appropriate.

Capitalisation of software projects

The Group is making a going concernsignificant investment developing a strong technology platform. The Committee reviews the appropriateness of capitalising the investment and the strength of the control environment.

In forming a conclusion on the appropriateness of software capitalisation, the Committee considered the following: Global Internal Audit reporting on the project and programme management of GRS; a review of software assets from an impairment perspective; the conclusions from the SOX control testing in this area; and conclusions from EY’s audit procedures. The Committee concluded that capitalisation is adequately controlled and that the controls on impairment are appropriate.

Relationship with external auditor

A detailed audit plan was received from EY at the beginning of the audit cycle for the 2017 financial year, which gave an overview of the audit risk assessment, the approach to materiality and scoping of the audit, and the significant risk areas.

The Committee reviewed the significant audit risks and regularly assessed the progress of the audit throughout the year.

Non-audit services

The independence and objectivity of the non-audit services provided by EY to the Group are safeguarded by IHG’s Audit and Non-Audit Services Pre-Approval Policy. The policy is reviewed by the Audit Committee annually, and, for the 2017 financial year, the policy was updated and changes to reflect a de minimus threshold for certain prescribed services were approved.

Other than as reflected above, the policy requires that pre-approval is obtained from the Audit Committee for all services provided by the external Auditor before any work can commence, in line with US SEC requirements. During the year, the Committee analysed

the audit and non-audit fees incurred with EY on a quarterly basis and noted there had been no prohibited services (as defined by the Sarbanes-Oxley Act of 2002) provided to the Group in each period. The Committee is prohibited from delegating non-audit services approval to management and compliance with the policy is actively managed.

IHG is committed to maintaining non-audit fees at a low level and the Committee is sensitive to investor advisory bodies’ guidelines on non-audit fees. During 2017, 23% of services provided to the Group were non-audit services (2016: 31%); these included tax advisory work and corporate tax compliance. For fees paid to EY for non-audit work during 2017, and for statutory audit work during 2017, see page 109. The Committee is satisfied that the Company was compliant during the year with the FRC’s Ethical and Auditing Standards in respect of the scope and maximum permitted level of fees incurred for non-audit services provided by EY. Where non-audit work is performed by EY, both the Company and EY ensure adherence to robust processes to prevent the objectivity and independence of the external auditor from being compromised.

58IHG  |  Annual Report and Form 20-F 2017


Global Internal Audit (GIA)

The Committee discusses the GIA plan in December each year. The 2017 plan presented to the Committee considered the Group’s principal risks and key controls and included reviews over the following areas: cybersecurity, programme and project delivery (including assurance over the development of GRS), disaster recovery and business continuity, and technology-related processes and controls. Following discussion and consideration, the Committee confirmed its agreement to the key control themes identified by GIA. The Committee then actively monitors progress against the GIA plan, which is reported to the Committee on a quarterly basis. This includes reviewing the results of completed audits and the findings raised through these audits, as well as management action plans to address any issues raised.

An effectiveness review of GIA is undertaken each year and reported to the Committee. In 2017, GIA undertook an internal assessment following the external review conducted in 2016. The effectiveness of GIA was assessed according to five categories: Purpose and Remit; Position and Organisation; Process and Technology; People and Knowledge; and Performance and Communication. The review was conducted by assessing the functional activities of GIA, progress made against the recommendations from last year’s external review, the quality assurance process and obtaining feedback from a cross sector of business stakeholders. As a result of the internal review, it was concluded that GIA continues to be effective in providing independent assurance activities.

Governance and compliance

The Committee is responsible for reviewing the Group’s Code of Conduct (which is reviewed and approved annually) and related policies. In 2017, the Code of Conduct was updated to reflect management changes as well as updating the following areas in line with regulatory changes and best practice: bribery and corruption,

antitrust, competition law, and human rights. The e-learning module associated with the Code of Conduct was also updated and was launched on the new IHG learning platform, improving tracking and reporting capability. In addition, the Committee reviewed and considered the planning and implementation work related to the upcoming EU General Data Protection Regulation and China’s new cybersecurity legislation, as well as the launch of an updated Anti-Bribery e-learning module.

In 2017, IHG became a member of Transparency International UK’s Business Integrity Forum. Transparency International is the world’s leading anti-corruption NGO and the Business Integrity Forum is a network of major international companies, committed to high anti-corruption and ethical standards in business practices.

Whistleblowing and fraud

The Committee reviews the Group’s whistleblowing arrangements and its reporting and investigation process to ensure that arrangements are in place for proportionate and independent investigation of such matters. The Committee also reviews the number and potential impact of both substantiated and unsubstantiated cases and ensures that appropriate follow-up action is taken. Any significant claims are brought to the immediate attention of the Committee by the Head of GIA.

As well as monitoring incidents of fraud, the Group’s approach to cyber fraud and fraud risk awareness was reviewed in 2017.

As we head into 2018, the Committee will continue to focus on the integrity of the control and risk management environment and progress with the audit tender process.

Ian Dyson

Chairman of the Audit Committee

19 February 2018

External auditor – Appointment of Ernst & Young LLP (EY)

and audit tender

The Committee considered the appointment of its Auditor and, after assessing EY’s performance (including its independence, effectiveness and objectivity) and the requirements for putting the audit out to tender as set out in EU and Competition and Markets Authority legislation, the Committee recommended the re-appointment of EY as the Auditor of the Group. EY has been our Auditor since IHG’s listing in April 2003 and of the Group’s predecessor businesses dating back to 1988.

In determining EY’s independence we consider, among other things, its challenge to management and level of professional scepticism, the amount of time passed since a rotation of audit partner and the level of non-audit work that it undertakes, details of which can be found on page 58.

To ensure the external Auditor’s independence is safeguarded, lead audit partners are required to rotate every five years. Sarah Kokot, who was appointed lead audit partner in 2016, has continued her role during 2017. The US audit partner rotated during 2017.

As part of its review, the Committee considered the effectiveness of the relationship between EY and management. This included the completion of feedback questionnaires by 44 senior IHG employees and members of the Committee. Feedback was requested on a number of topics including independence, assignment management, quality and communication. The Committee also received reports from EY on its independence.

No significant issues were raised in the review of the auditor performance and effectiveness and as a result, the Committee concluded that EY

continues to provide an effective audit and maintain independence and objectivity. The Committee is satisfied with the external audit process as a whole and therefore recommended the reappointment of EY to the Board.

Pursuant to regulations mandating a tender for the 2021 financial year, the Group will complete the audit contract tender and transition any strictly prohibited services by 2020. The Committee has established a sub-committee to oversee the audit tender process and an overview of the proposed approach and timings for the audit tender process has been agreed by the Committee. The sub-committee will convene in 2018 to review and recommend a detailed plan, including the applicable supplier-selection criteria, for approval by the Committee. It will be the responsibility of the Committee to make overall decisions in relation to the selection process. The Committee considers this timeframe to be appropriate to ensure that a robust process is undertaken and all required criteria are duly considered. The Committee is committed to ensuring that the selection procedure is conducted in a fair manner and that auditor independence requirements are effectively managed throughout the process.

The Group confirms that it has complied with the requirements of The Competition and Markets Authority Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014, which relates to the frequency and governance of tenders for the appointment of the external auditor and the setting of a policy on the provision of non-audit services.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance59


Governance

Corporate Governance continued

Corporate Responsibility Committee Report

LOGO

We understand the vital role corporate responsibility plays in building meaningful relationships with our stakeholders, and in delivering our purpose of providing True Hospitality for everyone.

Key duties and role of the Committee

Key objectives and summary of responsibilities

The Committee reviews and advises the Board on the Group’s corporate responsibility objectives and strategy, including its approach to sustainable development, environmental sustainability, community impact, human rights issues, and stakeholder engagement. It ensures that IHG’s corporate responsibility priorities align with our core purpose – to provide True Hospitality for everyone.

The Committee’s role and responsibilities are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board.

LOGO

The ToR are available atwww.ihgplc.com/investors

under Corporate governance in the Directors’Committees section.

The Committee’s key responsibilities and focus areas over the year have been:

Monitoring delivery of the Group’s Responsible Business targets for 2013-2017, and establishing new targets for 2018–2020.

Reviewing Environmental, Social, Community and Human Rights issues including the Group’s Modern Slavery Statement and the Group’s approach to responsible procurement; and

Overseeing responsible business stakeholder engagement.

Membership and attendance at meetings

The Committee’s membership and attendance at meetings are set out on page 47. The Heads of Corporate Responsibility attended all meetings and the Chairman of the Board also attended two out of the three meetings held during the year.

Reporting to the Board

The Committee Chairman updates the Board on all key issues raised at Committee meetings. Papers and minutes for each meeting are also circulated to all Board members, who are invited to request further information where necessary.

Effectiveness of the Committee

The effectiveness of the Committee is monitored and assessed regularly by the Chairman of the Committee and the Chairman. The effectiveness of the Committee was also reviewed as part of the external evaluation process conducted by Boardroom Review Limited during 2016 and 2017 (see page 54 for further details). The external review concluded that the Committee has a clearly defined role and remit allowing it to add value. The Committee also undertook an assessment against its own ToR and the external environment and concluded that no changes were necessary.

Focus areas and activities

Responsible Business targets for 2018-2020

During 2017, the Committee assessed the progress made towards the achievement of IHG’s five-year external Responsible Business targets. The Committee also assessed the Group’s strategic approach to new targets for 2018-2020.

An in-depth competitor analysis was completed as part of this process, together with a review of the UN Sustainable Development Goals and IHG’s initiatives which support these.

The Committee also welcomed insight offered by the Chief Operating Officer of the Americas who shared how the region is delivering the Responsible Business targets and engaging with colleagues, guests and owners.

Environmental, social, community and human rights issues

Detailed progress updates on key achievements across the Group’s environmental, social and community programmes continued to be received during 2017 and community outreach activities were reviewed.

Recognising the continued importance of responsible procurement, the Committee undertook a deep dive into supply chain responsibility and the Group’s Modern Slavery Statement, evaluating the Group’s approach to these matters. The Committee also considered a number of the Group’s human rights initiatives during the year, including the approach to targeted training in high risk areas and embedding our suite of Human Rights and Modern Slavery awareness raising material.

Further information on our responsible business programmes and our approach to human rights can be found on pages 18 and 19.

Stakeholder engagement

The Committee assessed the effectiveness of the 2016 corporate responsibility communications and stakeholder engagement activity, and reviewed the 2017 communication plan, considering in particular, the engagement plan for key stakeholder groups, including guests, colleagues, owners and suppliers.

LOGO

Information on our responsible business commitments

can be found atwww.ihgplc.com/responsible-business

Other key issues reviewed by the Committee

The Committee continued to receive updates from the IHG Foundation, an independent charity providing vital support to communities, with a focus on hospitality skills and disaster relief. In support of IHG Foundation Week, our annual awareness and fundraising initiative, the Committee attended an event which illustrated the positive impact of the IHG Foundation on vulnerable communities worldwide. The Committee heard first hand about the collaboration between the IHG Foundation and The Passage, which runs London’s largest voluntary resource for the homeless – helping them regain confidence and transform their lives.

Recognising the importance of corporate responsibility, we were pleased to be listed on the S&P Dow Jones Sustainability Indices in September 2017, having achieved first place in RobecoSAM’s Consumer Services industry group (see page 19).

We have completed the 2013-2017 target cycle, achieving four out of our five external targets, and have gathered learnings and feedback to help inform our new targets for 2018-2020. In 2018 we start this new cycle and will work on further engaging with our hotel owners worldwide to embed our Corporate Responsibility programmes into day-to-day operations within our hotels. We recognise the continued and growing importance of environmental, social and governance considerations to all our stakeholders.

Jill McDonald

Chairman of the Corporate Responsibility Committee

19 February 2018

60IHG  |  Annual Report on page 75. An explanationand Form 20-F 2017


Nomination Committee Report

LOGO

We review the Board’s structure, size and composition; overseeing appointments to ensure diversity of experience, knowledge and background in our Board and senior management.

Key duties and role of the Committee

Key objectives and summary of responsibilities

The Committee reviews the composition of the Board and Principal Committees, considering skills, knowledge, experience and diversity requirements before making appropriate recommendations to the Board as to any changes. It also manages succession planning for Directors and other Senior Executives and is responsible for reviewing the Group’s senior leadership needs.

The Committee’s role and responsibilities are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board.

LOGOThe ToR are available atwww.ihgplc.com/investors under Corporate governance in the Committees section.

The Committee’s key focus areas during the year have been the CEO succession, leadership development, executive succession planning and Board and Committee composition.

Membership and attendance at meetings

Details of the Committee’s membership and attendance at meetings are set out on page 47. All members are Non-Executive Directors (myself excluded). When the Committee considers matters relating to my position, Dale Morrison, the Senior Independent Non-Executive Director, acts as Committee Chairman.

Reporting to the Board

The Committee makes recommendations to the Board for all Board appointments, and minutes are circulated to all Board members. As Chairman, I report back to the Board on the activities of the Committee at each Board meeting following a Committee meeting.

Effectiveness of the Committee

The effectiveness of the Committee is monitored and assessed regularly by myself, as Chairman of the Committee and Chairman of the Board. During 2017, the Committee was also reviewed as part of Boardroom Review Limited’s external evaluation (see page 54). Per the review’s recommendation, the Board met with high-potential leaders during their visit to Atlanta, as outlined on page 53.

Focus areas and activities

CEO succession

The Committee led the thorough process of finding Richard Solomons’ successor, supported by an independent external consultant, Korn Ferry. Building on our approach of developing talent, we assessed internal candidates against a success and readiness profile and opportunities were identified for further development. Having also benchmarked external talent, the Board was unanimous in its decision to appoint Keith Barr. To enable a smooth transition and provide relevant onboarding, a comprehensive induction plan was implemented, details of which can be found on page 53.

Leadership development and executive succession planning

Building on the 2016 assessment of senior leadership, the Committee continued to review the development plans for the Executive Committee. In addition, the Committee reviewed the executive pipeline and oversaw talent succession at senior levels within the organisation.

Board and Committee composition

During the year, the Committee discussed the current and future composition of the Board in light of the Company’s strategy and it was proposed that a new Executive Director should be appointed. Elie Maalouf was identified at the beginning of the search as a talented leader with substantial and highly relevant industry experience and his appointment was recommended to the Board.

In addition to reviewing the Board composition, the Committee also looks to ensure appropriate appointments are made to the Board’s Principal Committees, based on overall suitability.

To ensure that Committee membership is refreshed, Luke Mayhew stepped down as Remuneration Committee Chairman during the year. Jo Harlow was appointed his successor; her experience and prior involvement making her the ideal candidate to replace him. Details of Jo’s onboarding process can be found on page 53.

Diversity

With a presence in almost 100 countries globally, we recognise the value of diversity both in our Board composition and throughout all levels of our business. All appointments are based on merit, experience and performance and the Board actively seeks diversity of skills, culture, gender, race, age, nationality and background. The manner in which diversity is considered is non-exhaustive and subject to regular review to reflect the diversity of our employees, guests and communities in which we operate.

Our Global Diversity and Inclusion Policy (D&I Policy) applies to all people directly employed by an IHG group company and we encourage our franchised operations and those managed hotels where we do not directly employ people to follow the same principles. The objective of our D&I Policy is to celebrate difference, recognising that this underpins external, as well as internal, relationships. Operating around the globe, with a wide range of stakeholders, it is vital that we remain flexible in accommodating different cultures, lifestyles and preferences.

During the year, we have implemented the D&I Policy through the development of our diversity and inclusion strategy and have agreed to establish a Diversity and Inclusion Board. This Board will be responsible for continuously developing our diversity and inclusion strategy, including setting any targets and measures and reviewing initiatives to enhance the development of our inclusive culture.

We continue to deliver against our D&I Policy and maintain a minimum of at least 25% female Directors on the Board, per Lord Davies’ guidance. As of 31 December 2017, 40% of the Board were female. The appointment of Elie Maalouf brings this figure to 36%, still well above the specified minimum. In addition, two of our Board Committees are chaired by women. Further details on our diversity and inclusion strategy can be found on pages 18 and 66.

The Committee is satisfied that we have appropriate plans in place for orderly succession of appointments to the Board and to senior management, so that an appropriate balance of skills, experience, knowledge and diversity is maintained.

Patrick Cescau

Chairman of the Nomination Committee

19 February 2018

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance61


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 2016 UK Corporate Governance Code (available atwww.frc.org.uk/directors under UK Corporate Governance Code) as published in April 2016 (the Code).

This should be read in conjunction with the Corporate Governance statement on pages 47 to 61 and the Directors’ Remuneration Report as a whole.

The Board considers that the Group has complied in all material respects with the Code for the year ended 31 December 2017.

A. Leadership

A.1The role of the Board

The Board leads IHG’s strategic direction, long-term objectives and success of the Group. Further responsibilities of the Board are set out on page 47.

The Board met eight times this year and all directors continue to act in what they consider to be in the best interests of the Company, consistent with their statutory duties. Further details of 2017 Board meetings are set out on page 52, attendance information on page 47 and biographical information on pages 48 and 49.

All Directors are covered by the Group’s directors’ and officers’ liability insurance policy (see page 160).

A.2Divisions of responsibility

The separate roles of the Chairman and Chief Executive Officer are clearly established, set out in writing and are agreed by the Board.

Chief Executive Officer

Keith Barr leads the development of the Group’s strategic direction and implementation of the agreed strategy. As well as building and leading an effective Executive Committee, he oversees IHG’s business operations and manages its risks. See page 48 for more details.

A.3The Chairman

As well as building and maintaining an effective Board, Patrick Cescau leads the operation and governance of the Board and its Committees. The Chairman was independent on appointment. See page 48 for more details.

A.4Non-Executive Directors

Senior Independent Non-Executive Director

Dale Morrison was appointed as Senior Independent Non-Executive Director on 31 May 2014. He is available to liaise with shareholders who have concerns that they feel have not been addressed through the normal channels of the Chairman, Chief Executive Officer and other Executive Directors. He also leads the annual performance review of the Chairman with the other Non-Executive Directors (see page 54), and as necessary, provides advice and judgement to the Chairman, and serves as an intermediary for other Directors when necessary.

After each Board meeting, Non-Executive Directors and the Chairman meet without Executive Directors being present (see page 52). During the year, if any Director has unresolved concerns about the running of IHG or a proposed action, these would be recorded in the minutes of the meeting.

Further information on each of these roles can be found on our website atwww.ihgplc.com/investors under Corporate governance.

B. Effectiveness

B.1The composition of the Board

The size and composition of the Board and its Committees is kept under review by the Nomination Committee to ensure the appropriate balance of skills, experience, independence and knowledge.

Potential conflicts of interest are reviewed annually and powers of authorisation are exercised in accordance with the 2006 Act and the Company’s Articles of Association. At least half of the Board, excluding the Chairman, are Independent Non-Executive Directors (see page 47). Further details of the composition of the Board and Committees are available on pages 47 to 49.

B.2Appointments

The Nomination Committee leads the appointment of new Directors to the Board and senior executives in accordance with its Terms of Reference (available on our website atwww.ihgplc.com/investors under Corporate governance in the Committees section or from the Company Secretary’s office on request) and supports the Board in succession planning. Further details of the role of the Nomination Committee and what it did in 2017 are in the Nomination Committee Report on page 61. The overall process of appointment and removal of Directors is overseen by the Board as a whole. Two Non-Executive Directors have served for six years and were subject to a rigorous review during the year. All other Non-Executive Directors have served for less than six years – see pages 48 and 49.

B.3Commitment

Non-Executive Director terms of appointment outline IHG’s time commitment expectations required to fulfil their role. Executive Directors are not permitted to take on more than one external non-executive directorship or chairmanship in addition to their role. The commitments of each Director are included in the Directors’ biographical details on pages 48 and 49. Details of Directors’ service contracts and appointment terms are set out on pages 73, 76 and 168.

The Chairman annually reviews the time each Non-Executive Director dedicates to IHG as part of the internal performance evaluation of each Director (see page 54) and is satisfied that their other duties and time commitments do not conflict with those as Directors.

B.4Development

The Chairman and Company Secretary ensure that new Directors are fully inducted and that all Directors continually update their skills and have the requisite knowledge and familiarity with the Group to fulfil their role (see page 53).

B.5Information and support

The Chairman and Company Secretary ensure that the Board and its Committees receive timely and appropriate information, and a flow of information between the Executive Committee and Non-Executive Directors. The Board and Committees also have access to the Company Secretary, independent advice and necessary resources, at the Company’s expense. They receive administrative and logistical support of a full-time executive assistant. See page 52 for more details.

62IHG  |  Annual Report and Form 20-F 2017


B.6Evaluation

In 2016, we engaged Dr Tracy Long of Boardroom Review Limited, an external facilitator with no connection to IHG, to lead the Board effectiveness evaluation. This evaluation concluded during 2017. More information on the evaluation is on page 54.

B.7Re-election

All of the Directors retire and seek election or re-election at each AGM. Director’s biographies are set out on pages 48 and 49 and details of their performance evaluations are on page 54.

C. Accountability

C.1Financial and business model, strategy and the risks and uncertainties relating to IHG’s prospects is set out in the Strategic Report on pages 2 to 51.

The statement from our Auditor, Ernst & Young LLP, about its reporting responsibilities is set out on pages 95 to 99.

The Statement of Directors’ Responsibilities (including the Board’s statement confirming that it considers that the Annual Report and Form 20-F, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy) is set out on page 80.

The status of IHG as a going concern is set out in the Directors’ Report on page 163. An explanation of the Group’s performance, business model, strategy and the risks and uncertainties relating to IHG’s prospects, including the viability of the Group, is set out in the Strategic Report on pages 2 to 43.

The statement from our Auditor, Ernst & Young LLP, about its reporting responsibilities is set out on pages 81 to 86.

C.2Risk management and internal control

The Board has ultimate responsibility for determining the nature and extent of the significant risks it is willing to take in line with the strategy.

The Board and Audit Committee monitor the Group’s risk management and internal controls systems and conducts an annual review of the effectiveness of the Group’s system of internal controls and risk management, and reviews the Group’s risk appetite. This review covers all material controls, including financial, operational and compliance controls. Further details are set out in the Strategic Report on pages 26 to 29, and also in the Audit Committee Report on pages 65 to 67.

The Board determines the nature and extent of the risk the organisation is willing to take in achieving its strategic objectives.

A robust assessment of the principal risks facing the Group was carried out, including those risks that would threaten the Group’s business model, financial performance, solvency or liquidity (see pages 20 to 22 for further details of the principal risks). The Board and Audit Committee monitor the Group’s risk management and internal controls systems and conduct an annual review of their effectiveness. Throughout the year, the Board has directly, and through delegated authority to the Executive Committee and the Audit Committee, overseen and reviewed all material controls, including financial, operational and compliance controls. See pages 47, 52, and 56 to 59.

The Board confirms that, in respect of the Group’s risk management and internal control systems: (i) there is an ongoing process for identifying, evaluating and managing the principal risks faced by the Group; (ii) the systems have been in place for 2017 and up to 19 February 2018; (iii) they are regularly reviewed by the Board and Audit Committee; and (iv) the systems accord with FRC guidance on risk management, internal control and related financial and business reporting. Further details are set out in the Strategic Report on pages 2 to 43 and also in the Audit Committee Report on pages 56 to 59.

Details of the Directors’ assessment of the prospects of the Group are set out on page 22.

C.3Audit Committee and AuditorsAuditor

The Board has delegated a number of responsibilities to the Audit Committee. The Committee comprises entirely of independent Non-Executive Directors, with at least one member having recent and relevant financial experience. Further details, including its role, responsibilities and activities in 2014, are set out in the Audit Committee Report on pages 65 to 67. The Audit Committee’s terms of reference are available on our website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request.

Ernst & Young LLP has expressed its willingness to continue in office as Auditor of the Company and its reappointment will be put to shareholders at the AGM. Further details can be found in the Audit Committee Report on pages 65 to 67.

LOGO

The Audit Committee is comprised entirely of Independent Non-Executive Directors (see page 47 for membership details). Ian Dyson, the Chairman of the Committee has recent and relevant financial experience and the Committee has a whole has competence relevant to the sector in which we operate. Details of the Committee’s role, responsibilities and activities are set out on pages 56 to 59.

The Committee reviewed the effectiveness and independence of Ernst & Young LLP during 2017 and also concluded that it would complete the audit contract tender and transition any strictly prohibited services by 2020. A sub-committee of the Audit Committee to oversee the audit tender process has been established and further details can be found on page 59.

 

71


IHG  Annual Report and Form 20-F 2014

CorporateGovernancecontinued

Statement of compliance with the UK Corporate Governance Codecontinued

D. Remuneration

 

D. Remuneration

D.1The level and components of remuneration

The Remuneration Committee’s activities during 2017 are set out on page 64 and its membership details are on page 47. The Directors’ Remuneration Report is set out on pages 64 to 77. The annual report on remuneration for 2017 (pages 70 to 77) is subject to the annual advisory vote at the AGM in 2018.

The activities
D.2Procedure

The Remuneration Committee is responsible for developing policy on executive remuneration and fixing remuneration packages of Directors. Further details are set out on pages 64 to 77.

During 2017, no individual Director was present when his or her own remuneration was discussed.

E. Relations with shareholders

E.1Dialogue with shareholders

The Board engage actively with both institutional and retail shareholders to promote mutual understanding of objectives and ensure that their views are communicated to the Board as a whole. See page 55 for details of meetings with major institutional investors and other shareholders.

E.2Constructive use of the AGM

The AGM is a key opportunity for the Board to engage with Shareholders. The Notice of Meeting will be sent to shareholders and will be available atwww.ihgplc.com/investors under Shareholder centre in the AGMs and meetings section. The Board will be available to answer questions during the AGM and after the formal business has concluded. See page 55 for more details.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Corporate Governance63


Governance

Directors’ Remuneration Report

Remuneration Committee Chairman’s statement

LOGO

Our new Directors’ Remuneration Policy has played a key role in supporting both the change and transition that we have seen this year, as well as our continued focus on the delivery of strong, sustainable returns for our shareholders.

2017 results

2017 saw another good year of performance for IHG, as well as being a year of transition at the Board level with the retirement of Richard Solomons and appointment of Keith Barr as CEO. The business performed well, resulting in above target outcomes for Earnings Before Interest and Tax (EBIT) and the continued delivery of strong shareholder returns.

Our Guest Love result was just above threshold. The Committee recognised that progress against IHG’s long-term Guest Love targets has been faster than expected over recent years and that it would be challenging to keep up this rate of improvement, particularly given the pace of hotel renovations. Further detail on the approach taken for Guest Love targets and awards is shown on page 68.

As a result, awards for the Executive Directors under the 2017 Annual Performance Plan (APP) were 69.7% for both Keith Barr and Paul Edgecliffe-Johnson and 66.8% for Richard Solomons of their respective maximum potential payout. The 2015/17 Long Term Incentive Plan (LTIP), granted in 2015, vested at a level of 46.1% of the maximum potential award due to achievements in relative Total Shareholder Return and rooms growth. However, we narrowly missed the three-year threshold target for relative RevPAR. As noted last year, the 2017/19 LTIP cash flow target is disclosed in this report on page 75.

Changes to the Board

As detailed on pages 46, 49 and 53, there have been a number of changes to IHG’s Board during the year, including my own appointment as Chair of the Remuneration Committee after three years on both the Board and the Committee. I would like to thank the outgoing Chairman, Luke Mayhew, who has successfully overseen the Committee through periods of significant change and increasing focus on the Executive Remuneration landscape.

The remuneration arrangements for all Board changes are in line with our approved Directors’ Remuneration Policy (DR Policy) and full details of how the DR Policy was applied during the year are shown in a separate section of the report on pages 68 and 69.

Other areas of focus for the Remuneration Committee

During the year, the Committee reviewed the short-term incentive measures for 2018. Whilst there has been no need to change DR Policy in this area, the non-financial measures of Guest Love and Overall Performance Rating, which together make up 30% of the APP target, will be replaced by an annual System size growth target and a range of other key strategic initiatives. Full details of the 2018 APP measures for Executive Directors are shown on page 75. In addition, the Committee reviewed the structure and alignment of arrangements below Executive Director level.

The Committee has reviewed the Group’s global diversity and inclusion strategy and the related initiatives to build and foster a culture of inclusion. In respect of gender diversity, our UK Gender Pay Gap analysis will be published on the Government’s website in accordance with the regulations, as well as on the IHG PLC website.

We have contributed to the dialogue on executive remuneration and wider corporate governance. These issues continued to be a focus for the Government, shareholders and other stakeholders. In response to the Government’s consultation on corporate governance reform, the Financial Reporting Council launched a consultation on an updated UK Corporate Governance Code (the Code).

We recognise the importance given to factors such as CEO pay ratios and have included commentary on CEO pay in this and last year’s report. As a large multinational organisation with different operating models under which employees may be either employed directly by a Group company or by the hotel owner, there are a number of different approaches that could be taken to the calculation of a pay ratio. We will therefore adopt new reporting requirements on the pay ratio once a clear and consistent approach has been set out in legislation and guidance.

On the remuneration aspects of the proposed new Code, we strengthened the position of the Committee to adjust outcomes which do not truly reflect the performance of the Company; we explain in this report on page 67 how executive remuneration aligns with wider Company pay policy; and the Committee takes on a broader oversight than simply for Executive Directors. We continue to consider our approach in relation to all areas of new guidance and practice and our alignment with shareholder expectations, bearing in mind the unique nature of our organisation and the competitive environment in which we operate.

About this report

We strive to make this report as easy to read as possible, given regulation. This year, we have simplified the ‘At a glance’ section on page 65; updated the ‘Wider context’ section on pages 66 and 67; and included a separate section on pages 68 and 69 to highlight aspects of DR Policy applied during the year. The full DR Policy is available atwww.ihgplc.com/investors under Corporate governance and was approved at the Annual General Meeting (AGM) on 5 May 2017. The section of this report which is subject to a formal advisory shareholder vote at May 2018 AGM is the Annual Report on Directors’ Remuneration starting on page 70.

Jo Harlow

Chairman of the Remuneration Committee

19 February 2018

64IHG  |  Annual Report and Form 20-F 2017


At a glance

How to use this report

Within the Directors’ Remuneration Report on pages 76we have used colour coding to 91.denote different elements of remuneration. The colours used and the corresponding remuneration elements are:

D.2 Procedure

The Board has delegated a number of responsibilities to the Remuneration Committee including developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. Further information can be found in the Director’s Remuneration Report.

The terms of reference of the Remuneration Committee can be found on our website at www.ihgplc.com/investors under corporate governance/committees, or from the Company Secretary’s office on request.

During 2014, no individual Director was present when their own remuneration was discussed.

E. Relations with shareholders Salary

E.1 Dialogue 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 shareholders

The Board as a wholean ‘Audited’ tab indicates that all the information within the panel is responsibleaudited.

How we performed in 2017

The 2017 outcomes reflect the progress made as a result of our focus on high-quality growth and superior value-creation through our brands, our people and our systems. We exceeded our target for EBIT and achieved threshold performance for Guest Love (see page 71). We continued to deliver strong shareholder returns and met our threshold performance level for rooms but fell short of our three-year threshold target for RevPAR growth (see page 72). These financial and business measures make up 90% of our APP (with individual performance making up the final 10%) and 100% of our LTIP.

LOGO

Executive Director remuneration

2017 remuneration

The chart below shows the 2017 potential opportunity and actual achievement for Keith Barr and Richard Solomons, and the 2017 potential opportunity and actual achievement compared to 2016 actual achievement for Paul Edgecliffe-Johnson. The relevant figures for each of the elements shown are included in the single total figure of remuneration which can be found in the table on page 70.

LOGO

LOGO

LOGO

The potential and actual LTIP values for Richard Solomons are pro-rated for the 32 months of the 2015/17 cycle in which he was employed. The remaining potential and actual amounts for both Richard Solomons and Keith Barr are shown only for the respective six-month period in which each served as CEO during 2017; and hence no prior year comparison is shown for either. The 2017 amounts for Keith Barr exclude the localisation payment detailed on page 69.

Key for potential

LOGOMaximum = Fixed pay and maximum award under APP and LTIP
LOGOTarget = Fixed pay and on-target award for ensuring satisfactory dialogue with all shareholdersAPP (112%) and 50% of the Company to promote mutual understanding of objectives. Further details of the Board’s approach to relations with our shareholders is set out on page 64.maximum LTIP vesting
LOGOMinimum = Fixed pay

E.2 Constructive use of the AGMIHG

The next AGM of the Company will take place on Friday, 8 May 2015 and will provide an opportunity for shareholders to vote on certain aspects of Group business, as set out in the Notice of Meeting available at www.ihgplc.com/investors under financial library and which was sent out to shareholders at the same time as this  |  Annual Report and Form 20-F.20-F 2017  |  Governance  |  Directors’ Remuneration Report

65


Governance

Directors’ Remuneration Report continued

Remuneration at IHG – the wider context

We recognise that there is continued regulatory and shareholder focus on executive remuneration and particularly in relation to the justification of CEO pay in the context of business performance and the wider employee population. Our reward philosophy is to ensure reward arrangements are competitive, drive the creation of value for our stakeholders and make us think and act as one team. When considering remuneration matters, the Committee takes account a range of factors, for example:

The link to business strategy and performance

Our employees are rewarded in line with our strategic business objectives and principles:

StrategyReward

Our Strategic Model (see pages 14 and 15) has been established to maintain focus on the key areas of our strategy for high-quality growth.

  Performance conditions for annual and long-term incentive awards are aligned to the strategic priorities over the performance period.

The Board ensures where possible that  A range of strategic metrics is set each year for our senior management and hotel teams, which can reduce annual incentive payouts if minimum conditions are not met.

  Additional financial performance underpins, and Remuneration Committee discretions are in place, to ensure poor performance is not rewarded.

Our Winning Ways (see page 18) are designed to drive the right values and behaviours to deliver our strategy.

  Stretching and measurable targets for all Board members, particularlyperformance conditions only reward employees for the Chairmen of eachsuccessful delivery of the Board Committees, attendobjectives set by the AGMCommittee, including the delivery of superior shareholder returns and are availablevalue.

  Individual performance is measured by reference to answer questions from shareholders.the day-to-day application of the values and behaviours expected at each employee’s position in the organisation.

  Malus and clawback terms apply in respect of the annual and long-term incentive plans for Executive Directors.

Remuneration outcomes are linked to our strategic business objectives, which are focused on the delivery of further high-quality, sustainable growth and value-creation through preferred brands, delivering a superior owner proposition, leveraging scale and generating revenue through the lowest-cost direct channels:

Measures used for APPMeasures used for LTIP
Strategic Model componentsEBIT
(70%)
Guest
Love

(20%)
Overall
Performance
Rating (OPR)

(10%)
TSR
(40%)
Net System
size
growth

(20%)
Total gross
revenue

(20%)
Cash flow
(20%)
LOGOBuild and leverage scale∎ ∎ ∎ ∎ ∎ 
LOGOStrengthen loyalty programme∎ ∎ ∎ 
LOGOEnhance revenue delivery∎ ∎ ∎ ∎ ∎ 
LOGOEvolve owner proposition∎ ∎ ∎ ∎ 
LOGOOptimise our preferred portfolio of brands for owners and guests∎ ∎ 

LOGO

See pages 14 and 15 for further

information on our Strategic Model.

The business and its competitive landscape

IHG is a global business with much of its senior management based outside its UK base. We need to ensure that there is a globally coherent remuneration approach and a clear and attractive progression path to the senior roles in the business. We also need to ensure that we do not undermine our ability to recruit great talent globally. We take our lead from the UK market and shareholder expectations in setting Executive Director remuneration levels while being mindful, for instance, that our major competitors for talent are mainly based in the US, where regulation and market practice can be different, particularly in areas such as executive share plan structure and related vesting and holding periods.

Diversity and inclusion

We have a global diversity and inclusion strategy, to be led by a Global Diversity and Inclusion Board, with specific and targeted actions to address any inequalities in the workplace, including:

Addressing hotspots of under-representation in operational and senior leadership roles;

Targeted leadership programmes aimed at accelerating the development of diverse leadership and talent;

Maintaining a culture of inclusion through support networks, resource groups, awareness campaigns and training for our people; and

Active senior leader engagement as part of the Global Diversity and Inclusion Board.
 

 

66DiIHGre  |  Annual Report and Form 20-F 2017ctors’ Report


Remuneration for all employees

The quantum and composition of remuneration and annual incentives differs between employees throughout the Group in a number of ways, most notably based on their role and position in the organisation. An internal leadership framework outlines what is expected of employees at all levels, from leading yourself to leading the business. There is a strong alignment at all levels within this framework between remuneration and the delivery of outcomes that are key to the continued success of the business. As responsibility increases, so too does an employee’s potential total remuneration, with the most significant aspects of the remuneration in more senior roles being dependant on the successful delivery of these outcomes.

Internal leadership framework

LOGO

How remuneration plans evolve as responsibility increases

A greater proportion of performance-related variable pay and share-based incentives applies for more senior executives, including Executive Directors, who will have a greater degree of influence over performance outcomes.

Additional and enhanced benefit provision, such as company car, pension and healthcare benefits apply as roles and responsibilities increase throughout the organisation.

Role-specific specialist plans apply in certain areas such as corporate reservations, sales, and hotel development. Incentive plans for General Managers of IHG owned, leased and managed hotels commonly include targets based on gross operating profit, guest satisfaction and employee engagement.

Incentive plans for other corporate employees are typically based on a combination of individual performance and the Group’s EBIT.

The Chief Executive Officer’s pay

In last year’s report, we showed that the relative increases in the Company’s share price over the period from the first full year in which the then CEO was in office were significantly higher than those in respect of the CEO’s remuneration. 2017 saw Richard Solomons’ retirement and a transition to a new, internally-appointed CEO, Keith Barr. Keith’s salary and benefits from appointment are in line with the approved DR Policy and, as is common practice for a new appointment, have been set at an overall level below those of the outgoing CEO.

Minimum, target and maximum remuneration opportunity for the outgoing and new CEO as at the date of transition

Value (£000)

LOGO

Pension provision

Our global retirement benefit policy is to provide access to an appropriate defined contribution retirement savings plan where such a vehicle is typically offered, and with benefit levels in line with the local market.

The UK pension plan applies for UK-based Executive Directors and current contribution rates are shown below. In a similar way to other employee benefits, the pension plan provides for increased employer contribution rates at higher seniority levels. This structure is also prevalent in the wider market.

Following his appointment as CEO, Keith Barr became eligible for a maximum Company pension contribution of 25% of salary, lower than that in place for previous Executive Director appointments.

Employee grade    Employee
contribution
(%)
     Matching
contribution
multiple
     

Maximum

matching
contribution

(up to %)

 
Corporate band 1          30 
(Executive Directors)    3–7.5     4     (25 for new CEO
Corporate bands 2 and 3    3–5     4     20 
Corporate band 4    3–5     2.5     12.5 
Corporate band 5    3–5     2     10 
Corporate bands 6–8 and hotel employees    3–5     1.5     7.5 

Where employees would otherwise exceed relevant tax limits on pension contribution or accrual, a cash equivalent may be offered in lieu of pension at an equivalent value to the maximum Company matching contribution.

The use of discretion

The use of discretion enables the Committee to ensure that outcomes are consistent with business performance and the interests of shareholders. It also enables the Committee to treat Executive Directors who leave IHG in a fair and equitable manner. The areas of the DR Policy applied in 2017, and any associated use of discretion, are set out on pages 68 to 69.

 

Much of the information previously provided as part of the
IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Directors’ Remuneration Report is now required under Company Law to be presented as part of the Strategic Report. This Directors’ Report includes the information required to be given in line with the Companies Act or, where provided elsewhere, an appropriate cross reference is given. 67


Governance

Directors’ Remuneration Report continued

How we implemented our Directors’ Remuneration Policy in 2017

The table below summarises the key areas of the Directors’ Remuneration Policy (DR Policy) which were applied in 2017.

LOGOThe Corporate Governance Statementfull DR Policy, which was approved by shareholders at the Board2017 Annual General Meeting is provided on pages 54 to 72 and incorporated by reference herein.

Subsidiaries, joint ventures and associated undertakings

The Group has over 300 subsidiaries, joint ventures and associated undertakings.

Directors

During 2014 the following individuals served as Directors:

Patrick Cescau, Ian Dyson, Paul Edgecliffe-Johnson, Jo Harlow, David Kappler, Kirk Kinsell, Jennifer Laing, Jonathan Linen, Luke Mayhew, Jill McDonald, Dale Morrison, Tracy Robbins, Tom Singer, Richard Solomons and Ying Yeh.

Tom Singer resigned effective as of 1 January 2014, David Kappler retired effective as of 31 May 2014, Jo Harlow joined effective as of 1 September 2014, Jonathan Linen retired effective as of 31 December 2014 and Kirk Kinsell resigned effective as of 13 February 2015.

For biographies of the current Directors see pages 57 to 59.

Directors’ & Officers’ (D&O) Liability Insurance

The Company maintains the Group’s D&O Liability Insurance policy, which covers Directors and officers of the Company against defending civil proceedings brought against them in their capacity as a Director or officer of the Company (including those who served as Directors or officers during the year). There were no indemnity provisions relating to the UK pension plan for the benefit of the Directors during 2014.

Articles

The Company’s Articles may only be amended by special resolution and are available on the Company’s website at www.ihgplc.com/investors under corporateCorporate governance. A summary is provided on pages 167 to 168.

Shares

Share capital

The Company’s issued share capital at 31 December 2014 consisted of 247,655,712 ordinary shares of 15265/329pence each including 11,538,456 shares held in treasury, which constitutes 4.66 per cent of the total issued share capital (including treasury shares). There are no special control rights or restrictions on share transfers or limitations on the holding of any class of shares.

During 2014:

Annual Performance Plan

DR Policy area

Targets may be set relative to budget and/or by reference to prior results and may contain a performance range to incentivise out-performance and minimum performance levels to ensure that poor performance is not rewarded. The 2017 targets are set by the Committee, taking into account IHG’s growth ambitions, market expectations and the competitive environment at the time. The aim is to set stretching achievement targets for senior executives which will reflect successful outcomes for the business based on its strategic objectives for the year.

 

the Company’s issued share capital
Remuneration componentHow this was subject to a share consolidation effective as of 1 July 2014 (see page 73);implemented in 2017

 

60,370 new shares were issued under employee share plans; and

 

��the Company completed the share buyback programme (see page 73).

As far as is knownAnnual Performance Plan (APP)

Progress against IHG’s long-term Guest Love targets has been faster than expected over recent years. The Committee recognised that it would be challenging to management, IHG is not directly or indirectly owned or controlled by another company or by any governments.

The Board focuses on shareholder value creation. Whenkeep up the current improvement trajectory and that it decideswas appropriate to return capitalreduce the incremental improvements target compared to shareholders, it considers all the options, including share buybacks and special dividends.

72


Share issues and buybacks

On 29 May 2014, we completed our $500m share buyback programme which was announced on 7 August 2012 and commenced on 12 November 2012. The current share buyback authority remains in force until the 2015 AGM, and a resolution to renew the authority will be put to shareholders at that AGM.

The table below illustrates the transactions that took place during 2014 that affected the Company’s issued share capital:

EventOrdinary shares
12 for 13 share consolidation1with a special dividend of 174.9p per share (293¢ per ADR)n/a
Share plan exercises60,370

Share buyback2

695,885 shares were bought back and cancelled and 2,726,088 shares were bought back and held in treasury

3,421,973
Other cancelled shares314

1The share consolidation, effective as of 1 July 2014, was on the basis of 12 ordinary shares of 15265/329 pence each for 13 ordinary shares of 14194/329 pence each.
2Excludes 14 shares included in the ‘Other cancelled shares’ number below.
3This comprises 8 shares bought-back and cancelled and 6 treasury shares cancelled as a result of the above-mentioned share consolidation.

Dividends

In 2014, the Company announced a $750m return of funds to shareholders via special dividend and share consolidation on the basis of 12 ordinary shares of 15265/329 pence each for 13 ordinary shares of 14194/329 pence each (effective as of 1 July 2014).

DividendOrdinary sharesADR

Special dividend

Paid on 14 July 2014

174.9p293¢

Interim dividend

Paid 26 September 2014

14.8p25.0¢

Final dividend

Subject to shareholder approval, payable on 15 May 2015 to shareholders on the Register of Members at the close of business on 7 April 2015

33.8p52.0¢

For more information on IHG’s return of funds and dividends, see note 27 on page 149.

Major institutional shareholders

As at 16 February 2015, the Company had been notified of the following significant holdings in its ordinary sharesthose set under the UK Disclosure and Transparency Rules:

   As at 16 February 2015   As at 17 February 2014  As at 18 February 2013 
Shareholder  Ordinary
shares/ADSs
   %   Ordinary
shares/ADSs
  %  Ordinary
shares/ADSs
   % 
Cedar Rock Capital Limited   14,923,417     5.07     14,923,417    5.07    14,923,417     5.07  
BlackRock, Inc.   n/a     n/a     13,061,9651   5.011   14,505,612     5.02  
The Capital Group Companies, Inc   8,557,888     3.30     8,557,888    3.30    n/a     n/a  
Boron Investments NV   7,500,000     3.18     n/a    n/a    n/a     n/a  

1On 7 October 2013, BlackRock, Inc. notified the Company that its shareholding in the Company had increased to above 5% and this notification was announced by the Company on 8 October 2013. Subsequently, on 8 July 2014, BlackRock, Inc. notified the Company that its 7 October 2013 notification had been made in error and that, in fact, BlackRock, Inc. holds less than 5% in the Company. This error was announced by the Company on 8 July 2014.

APP last year. 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 resultCommittee decided in a change in its control.

For further details on shareholder profiles, see page 178.

2014 share awards and grantsthis transition year to employees

No awards or grants over shares were made during 2014 that would be dilutive of the Company’s ordinary share capital. Our current policy is to settle the majority of awards or grants under the Company’s share plans with shares purchased in the market, however, the Board continues to review its policy. Those options, which were previously granted up to 2005, have now all been exercised and therefore, as at 31 December 2014, no options were outstanding.

The Company has not utilised the authority given by shareholders at any of its AGMs to allot shares for cash without first offering such shares to existing shareholders.

Employee share ownership trust (ESOT)

IHG operates an ESOT for the benefit of employees and former employees. The ESOT purchases ordinary shares in the market and releases them to current and former employees in satisfaction of share awards. During the year, the ESOT released 163,130 shares and at 31 December 2014 it held 1,344,726 ordinary shares in the Company. The ESOT adopts a prudent approach to purchasing shares, using funds provided by the Group, based on expectations of future requirements.

LOGO

73


IHG  Annual Report and Form 20-F 2014

Directors’Reportcontinued

Director and Executive Committee shareholdings

As at 16 February 2015, Directors and Executive Committee members had the same number of beneficial interests in shares as at 31 December 2014, as set out in the table below. These shareholdings include all Directors’ beneficial interests and those held by their spouses and other connected persons. As at 16 February 2015, no Director or Executive Committee member held more than 0.2% of the total issued share capital.

None of the Directors have a beneficial interest in the shares of any subsidiary. The shareholdings set out below do not include Executive Directors’ or Executive Committee members’ share awards under IHG’s share plans. These are set out separately in the Directors’ Remuneration Report on page 88 for the Executive Directors and on page 166 for Executive Committee members.

Directors  As at
31 December 2014
ordinary shares
  As at
31 December 2013
ordinary shares
 
Patrick Cescau (Chairman)         
Richard Solomons (Chief Executive Officer)   382,533    371,198  

 

Senior Independent Non-Executive Director

  

David Kappler1   n/a    1,308  
Dale Morrison   3,9072   4,2332 

Executive Directors

  

Paul Edgecliffe-Johnson3   10,583    n/a  
Kirk Kinsell4   117,6405   127,4446 
Tracy Robbins   51,418    85,703  
Tom Singer3   n/a    54,386  

 

Non-Executive Directors

  

Ian Dyson         
Jo Harlow7       n/a  
Jennifer Laing   2,905    3,148  
Jonathan Linen8   6,3252   6,8532 
Luke Mayhew   1,722    1,866  
Jill McDonald         
Ying Yeh         

 

Executive Committee

  

Keith Barr   22,522    24,399  
Angela Brav   32,724    19,286  
Elie Maalouf9       n/a  
Kenneth Macpherson   7,472    1,797  
Eric Pearson   1,998    65,293  
Jan Smits   30,476    106,350  
George Turner       3,277  

1David Kappler retired as a Non-Executive Director effective as of 31 May 2014.
2Shares held in the form of American Depositary Receipts.
3Paul Edgecliffe-Johnson was appointed as Chief Financial Officer effective as of 1 January 2014 following the resignation of Tom Singer effective as of the same date.
4Kirk Kinsell resigned as Executive Director effective as of 13 February 2015.
5117,092 ordinary shares and 548 American Depositary Receipts.
6126,850 ordinary shares and 594 American Depositary Receipts.
7Jo Harlow was appointed as a Non-Executive Director effective as of 1 September 2014.
8Jonathan Linen retired as a Non-Executive Director effective as of 31 December 2014.
9Elie Maalouf was appointed to the Executive Committee effective as of 13 February 2015.

Future business developments of the Group

Further details on these are set out in the Strategic Report on pages 2 to 51.

Employees and Code of Conduct

Details of the average number of people IHG employed as at 31 December 2014 and the number of people working across the whole estate are set out on page 23.

We continue to focus on providing an inclusive environment, in which employees are valued for who they are and what they bring to the Group, and in which talented individuals are retained through all levels of the organisation – see page 62 for our Global Diversity and Inclusion Policy.

We also look to appoint the most appropriate person for the job and are committed to providing equality of opportunity to all employees without discrimination. Every effort is made to ensure that applications for employment from disabled employees are fully and fairly considered and that disabled employees have equal opportunities in training, career development and promotion.

The Code of Conduct applies to all Directors, officers and employees and complies with the NYSE rules as set out in section 406 of the US Sarbanes-Oxley Act 2002. Further details can be found on page 174.

For more information on the Group’s employment policies, including equal opportunities, employee communications and development, see pages 23 to 25.

Greenhouse gas emissions

The disclosures concerning greenhouse gas emissions required by law are included in the Strategic Report on page 25.

Finance

Political donations

The Group made no political donations under the Companies Act during the year and proposes to maintain this policy.

Financial risk management

The Group’s financial risk management objectives and policies, including its use of financial instruments, are set out in note 20 to the Group Financial Statements on pages 135 to 137.

Significant agreements and change of control provisions

The Group is a party to the following arrangements which could be terminated upon a change of control of the Company and which are considered significant in terms of their potential impact on the business of the Group as a whole:

the five-year $1.07bn syndicated loan facility agreement dated 7 November 2011, under which a change of control of the Company would entitle each lender to cancel its commitment and declare all amounts due to it payable;

the seven-year £250m bond issued by the Company on 9 December 2009, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have the option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued;

74


the 10-year £400m bond issued by the Company on 28 November 2012, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have the option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued; and

the six-month $400m term loan facility agreement dated 13 January 2015, under which a change of control of the Company would entitle the lender to declare all amounts due to it payable.

Further details on these are set out on pages 169 and 170.

Business relationships

During 2012, the Group entered into a five-year technology outsourcing agreement with International Business Machines Corporation (IBM), pursuant to which IBM operates and maintains the infrastructure of the Group’s reservations system. Otherwise, there are no specific individual contracts or arrangements considered to be essential to the business of the Group as a whole.

Existence of qualifying indemnity provisions

For details, see Directors’ and Officers’ Liability Insurance Policy on page 72.

Disclosure of information to the Auditor

For details, see page 94.

Events after the reporting period

On 13 January 2015, the Group raised a $400m bilateral term loan to help finance the acquisition of Kimpton Hotel & Restaurant Group, LLC; the term loan expires in July 2016.

On 16 January 2015, the Group completed the acquisition of Kimpton Hotel & Restaurant Group, LLC for $430m in cash (see page 153).

Listing Rules – compliance with LR 9.8.4C

SectionApplicable sub-paragraph
within LR 9.8.4C
Location
1Interest capitalised
Financial Statements,
note 6, page 122

2Publication of unaudited financial informationn/a
4Details of long-term incentive schemes


Directors’
Remuneration
Report, pages 79, 80
and 84 to 86



5Waiver of emoluments by a Directorn/a
6Waiver of future emoluments by a Director

Directors’
Remuneration
Report, page 91


7Non pre-emptive issues of equity for cashn/a
8Item (7) in relation to major subsidiary undertakingsn/a
9Parent participation in placing by a listed subsidiaryn/a
10Contracts of significancen/a
11Provision of services by a controlling shareholdern/a
12Shareholder waivers of dividendsn/a
13Shareholder waivers of future dividendsn/a
14Agreements with controlling shareholdersn/a

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 51 and in the Group Information on pages 162 to 170. Information on the Group’s treasury management policies can be found in note 20 to the Group Financial Statements on pages 135 to 137. The Group refinanced its bank debt in November 2011 and put in place a five-year $1.07bn facility. In December 2009, the Group issued a seven-year £250m sterling bond and, in November 2012, a 10-year £400m sterling bond. Subsequent to the year end the Group raised a $400m term loan to help finance the acquisition of Kimpton Hotel & Restaurant Group, LLC; the term loan expires in July 2016.

At the end of 2014, the Group was trading significantly within its banking covenants and debt facilities.

The Group’s fee-based model and wide geographic spread means that it is well placed to manage through uncertain times and our forecasts and sensitivity projections, based on a range of reasonably possible changes in trading performance, show that the Group should be able to operate withinreduce the level of its current facilities.

After making enquiries,award for achieving threshold and target Guest Love performance from 11.5% to 10%, and from 23% to 20% of salary respectively for Executive Directors. The remaining APP measures and their respective level of award remains as per 2016. This reduced the Directors have a reasonable expectation that the Company and the Group have adequate resourcesoverall APP target payout from 115% to continue in operational existence112% of salary. A proportionate reduction also applied for the foreseeable future and, accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.

By orderremainder of the Board

George Turner, Company Secretary

InterContinental Hotels Group PLC

Registered in England and Wales, Company number 5134420

16 February 2015

Executive Committee.

 

 

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IHG  Annual Report and Form 20-F 2014

Directors’RemunerationReport

Remuneration Committee Chairman’s Statement

Policy on payment for loss of office

DR Policy area

Good leaver status will be applied in accordance with the rules of incentive plans, where applicable, and may include retirement, ill-health, transfer of undertaking or redundancy. In the case of the LTIP rules, the Committee has discretion to apply good leaver status and, in doing so, will consider factors such as personal performance and conduct, overall Group performance and the specific circumstances of the Executive Director’s departure including, but not restricted to, whether the Executive Director is leaving by mutual agreement.

 

Remuneration componentHow this was implemented in 2017
LOGO

“Our Directors’ Remuneration Policy rewards the successful execution of the business strategy, as demonstrated by this year’s outcomes. So that it remains effective for the future, we will review it in 2015 and seek shareholders’ approval again in 2016.”

 

 

Dear Shareholder

2014 corporate performance and incentive outcomes

Executive Director remuneration has reflected another year of strong performance. Annual Performance Plan (APP) awards are comparable to last year, reflecting continued good growth of Earnings Before Interest and Tax (EBIT) as well as encouraging progress on guest satisfaction and Employee Engagement survey scores. Another three years of high Total Shareholder Return (TSR) was the main driver for the vesting under the 2012/14 Long Term Incentive Plan (LTIP) cycle, which is marginally below last year.

Corporate performance indicators  2014   2013  2012 
Operating profit before exceptional items   

 

-2.5%

$651m1

  

  

   

 

+10.4%

$668m

  

2 

  

 

+10.4%

$605m

  

3,4 

Full-year dividend per share (excluding any special dividends and capital returns)   

 

77.0¢

48.6p

  

  

   

 

70.0¢

43.2p

  

  

  

 

64.0¢

41.2p

  

  

Three-year total TSR (annualised)   +31.7%     +18.4%    +28.2%  

  1Includes two liquidated damages receipts in 2014: $7m, both in The Americas.
2Includes three liquidated damages receipts in 2013: $31m in The Americas, $9m in Europe and $6m in AMEA.
3Includes one significant liquidated damages receipt in 2012 of $3m in The Americas.
4With effect from 1 January 2013, the Group adopted IAS 19 (Revised) ‘Employee Benefits’ resulting in the following additional charges to operating profit: $5m for the six months ended 30 June 2012 and $9m for the 12 months ended 31 December 2012.

Directors’ Remuneration Policy

At the 2014 AGM, shareholders approved our Directors’ Remuneration Policy (DR Policy), as set out in our 2013 Annual Report, with 90.94 per cent support. I mentioned in the 2013 Directors’ Remuneration Report the issues we had discussed at some depth with shareholders prior to the vote at the AGM. The two we know prompted some shareholders to vote against the

DR Policy were the use of relative TSR as a measure in the LTIP, and the fact that the DR Policy did not require Executive Directors to hold shares beyond the three-year vesting date.

I explained then that the outcome of the 2011/13 LTIP cycle was in line with performance and reflected shareholder value creation. I also pointed out that our Executive Directors had very substantial shareholdings and formally requiring further holding periods seemed unnecessary. Shareholders voted 94.01 per cent in favour of the 2013 Directors’ Remuneration Report.

We are not making any changes to the DR Policy itself for 2015. There is, however, one substantive change to how we will implement the DR Policy. We have introduced a three-year clawback clause post-vesting or payment of awards, applying to awards made relating to 2015 and future financial years. This will apply in addition to the existing malus provision in the DR Policy, which allows for awards to be reduced prior to vesting. The details are set out on pages 81 and 91 of the Annual Report.

Remuneration and business strategy

We feel strongly that we should make changes to the DR Policy in a coherent way if it is to retain credibility with management and serve its purpose of motivating and rewarding outstanding performance. Reward arrangements for senior executives of a global business are inevitably quite complicated and need to be communicated as an intrinsic part of the business strategy. We are keen to avoid, if possible, the introduction of ad-hoc changes, especially where there is no link to the business strategy.

The current executive reward structure was introduced five years ago. It includes the key performance measures at the heart of the current business strategy; an annual plan to incentivise and reward the delivery of good financial results, as well as from 2013, improvements in guest satisfaction and employee engagement; and a long-term plan to reward the delivery of strong shareholder returns and better-than-market number of rooms and RevPAR growth. All these measures remain relevant to future business strategy. However, after five years, it is right to revisit whether other measures and remuneration approaches could even better support the strategic priorities for the coming five years, as well as consider further questions shareholders have raised. Therefore, during 2015, the Remuneration Committee will revisit all aspects of the APP and LTIP to ensure they remain fit for purpose. This will include consideration of the following:

the mix of short and long-term incentives and what is appropriate for different levels of senior executives;

the performance measures most aligned with business strategy and shareholder returns over the next five years;

executive shareholding requirements and post-vesting holding periods;

how best to communicate the overall policy to senior executives globally to ensure it helps drive performance; and

how to further improve communication on remuneration to shareholders, in particular the level of disclosure of targets and outcomes.

We will consult major shareholders and shareholder organisations during 2015 and put the new DR Policy to all shareholders at our 2016 AGM for approval.

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Pension arrangements

For a number of years, we have been working to de-risk the potential liabilities of the Group’s legacy UK pension arrangements. The defined benefit pension closed to new members in 2002 and to future accrual in 2013, after which benefits were secured with an insurer.

One of the last elements of de-risking we announced was our intention to change the long-established enhanced early retirement arrangements. These terms were inappropriate in the current wider pensions context. The conditions were changed during the year and this will be phased out over the coming years, as explained on pages 85 and 87.

The main exceptional payment in this Directors’ Remuneration Report relates to the decision announced last year to seek to cash out the closed senior executive pension scheme – InterContinental Hotels Executive Top-Up Scheme (ICETUS). This was the final stage of the de-risking plan. I am pleased that we had a positive response from those members of the scheme with the most potential value. Richard Solomons was one of those who agreed to cash out this part of the pension. The value of the pension was substantial, reflecting his 22 years with the business. As a result, there is a one-off additional element in his overall remuneration for 2014 only. This is explained in the single remuneration figure section on page 82.

No other changes are proposed and the Board believes that any remaining UK pensions risk is not significant.

Board change

Kirk Kinsell left the Board and his role as President, The AmericasChief Executive Officer effective as of 30 June 2017 and retired from the Company on 13 February 2015, aged 60, after a total of 19 years’ service30 August 2017. All payments made to Richard are consistent with the business.approved Directors’ Remuneration Policy on retirement.

Salary, benefits and pension

Mr Kinsell

Richard continued to receive his base salary, benefits and pension contributions as normal for the period up to 30 August 2017. In addition, healthcare cover continued to 31 December 2017.

Annual Performance Plan (APP)

Cash

Richard was succeeded by Elie Maalouf whoeligible to participate in the 2017 Annual Performance Plan and payment was pro-rated to 30 August 2017. There will be no accelerated payment of the 2017 APP. The award was subject to the normal performance conditions and payment will be made 50% in cash and 50% in shares deferred for three years from grant.

Clawback provisions apply for a period of three years after the date of payment of the APP cash award.

Annual Performance Plan (APP) Shares

Richard’s unvested APP deferred shares will vest on the usual vesting dates.

Based on the share price on 29 December 2017 of 4,719p and the number of deferred shares as at 30 June 2017, the value of these shares is £2,315,472 (49,067 shares as detailed on page 73). These awards have previously been disclosed in the single figure table in the relevant year.

Malus provisions will continue to apply for a period of three years after the grant of the APP share awards.

Long Term Incentive Plan (LTIP)

Richard was not eligible for an LTIP grant in 2017.

All outstanding LTIP awards will vest in line with the terms of the plan rules on the normal vesting date and only to the extent the performance conditions are fulfilled, and will be pro-rated for the time up to 30 August 2017. This is for 32 months under the 2015/17 LTIP cycle and 20 months for the 2016/18 LTIP cycle.

LTIP awards will remain subject to malus provisions under the terms of the plan until the end of the performance period. Clawback provisions will continue to apply for a period of three years after vesting of the awards.

68IHG  |  Annual Report and Form 20-F 2017


Approach to recruitment remuneration

DR Policy area

The remuneration of any new Executive Director will be determined in accordance with the Directors’ Remuneration Policy and the maximum annual level of variable remuneration that may be granted to a newly-recruited Executive Director will be in line with that of the existing Executive Directors, excluding any pro-rated awards in relation to LTIP cycles outstanding at the time of recruitment (up to a further 205% of salary) and any remuneration that constitutes compensation for incentives foregone and relocation, expatriate or international assignment costs.

Remuneration componentHow this was implemented in 2017

Keith Barr was appointed to the role ofBoard as Chief Executive Officer The Americas, effective as of 13 February 2015 and who also became a member of IHG’s Executive Committee.

TheInterContinental Hotels Group PLC on 1 July 2017. His remuneration consequences of Mr Kinsell’s departure were determinedis in line with the DR Policy and the rules of the relevant incentive plans. Details of Mr Kinsell’s remuneration arrangements on departure are included in the Directors’ Remuneration Report and have been disclosed on the Company’s website at www.ihgplc.com/investors

About this report

This statement aims to set out the more significant parts of the report for those who want to know the headlines, main issues considered in 2014 and the priorities for 2015. The Annual Report on Directors’ Remuneration contains more detailed disclosures, many of which are prescribed by legislation or regulation, but we have tried to make it easier to follow by also taking into account current thinking on best practice in remuneration reporting. We have included a summary of our approved DR Policy (see pages 80 and 81) for ease of reference only, as it provides investors with an understanding of the detail of the remuneration outcomes that follow. The full DR Policy is available at www.ihgplc.com/investors. We have also looked to simplify the graphs and tables wherever possible and ensure that the link between our strategy and remuneration is clear.

The 2012 Directors’ Remuneration Report won the PwC ‘Building Public Trust Award’ for Executive Remuneration Reporting in the FTSE 100 and the 2013 Annual Report on Directors’ Remuneration received ‘Highly Commended’.

Conclusion

This Directors’ Remuneration Report was approved by the Board on 16 February 2015. The Board recommends this Directors’ Remuneration Report to shareholders.

The Annual Report on Directors’ Remuneration and the Chairman’s Statement are subject to an advisory vote at the 2015 AGM.

Luke Mayhew, Remuneration Committee Chairman

16 February 2015

Policy.

 

Governance

Roles and responsibilities

The Remuneration Committee agrees, on behalf of the Board, all aspects of the remuneration of the Executive Directors and the Executive Committee, and agrees the strategy, direction and policy for the remuneration of other senior executives who have a significant influence over the Company’s ability to meet its strategic objectives.

The Committee’s role and responsibilities are set out in the Terms of Reference (ToR) which are available on the Company’s website at www.ihgplc.com/investors under corporate governance/ committees or from the Company Secretary’s office on request. The ToR are reviewed annually and there were no changes to them during 2014.

Governance

All members are independent Non-Executive Directors, as required under the ToR. During 2014, Jo Harlow joined the Committee and both David Kappler and Jonathan Linen retired. All members have the necessary experience and expertise to meet the Committee’s responsibilities.

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IHG  Annual Report and Form 20-F 2014

Directors’RemunerationReportcontinued

Governancecontinued

Committee approach to managing risk

Our approach to remuneration is to directly link it to IHG’s strategy. Risk management is a key part of IHG’s responsible business practices and the Committee considers risk mitigation as central to the way that incentive arrangements are structured, for example:

the APP and LTIP are structured so as to have a balance of measures that ensure senior executives are not incentivised to behave in a way that could adversely affect the sustainable growth of the Group and the long-term interests of its shareholders. For instance, in the 2014 and 2015 APP, the drive for short-term financial results is balanced by performance measures focused on guest satisfaction and employee engagement;

the Committee reserves the discretion to determine that payouts in the LTIP be adjusted if they are not consistent with the Committee’s assessment of the Group’s earnings and the quality of the financial performance over the relevant performance period; and

malus and post-vesting clawback provisions apply to certain awards made to Executive Directors under the APP and LTIP.

Remuneration Committee

Committee membership and attendance

Members1  Attendance
Luke Mayhew5/5
Ian Dyson5/5
Jo Harlow22/2
David Kappler31/1
Jonathan Linen45/5
Ying Yeh5/5
Total meetings held5

1For full biographies of current members see pages 57 to 59.
2Jo Harlow joined the Remuneration Committee as a Non-Executive Director on 1 September 2014.
3David Kappler retired as a Non-Executive Director on 31 May 2014.
4Jonathan Linen retired as a Non-Executive Director on 31 December 2014.

The Chairman of the Board, and Tracy Robbins (Executive Vice President, Human Resources and Group Operations Support) attended all meetings. The Chief Executive Officer attended four meetings.

Jean-Pierre Noël (Senior Vice President, Global Reward & HR Capability) provided advice to the Committee on remuneration issues as required.

What did the Committee consider in 2014

The Committee discussed the following key matters:

setting of targets for the 2014 APP and the 2014/16 LTIP cycle;

review of 2013 Executive Committee performance and 2014 remuneration review;

setting key performance objectives for Executive Committee members for 2014;
pensions review including Enhanced Early Retirement Facility (EERF) and ICETUS/Six Continents Executive Top Up Scheme (SCETUS) buy-out;

review of external market developments;

monitoring achievement against targets of the 2014 APP and ongoing LTIP cycles;

evaluation of incentive arrangements for levels of management below Executive Committee level and discussion of proposals for change; and

evaluation of achievement against targets for 2014 APP and the 2012/14 LTIP.

Remuneration advisers

The Committee continued to retain PricewaterhouseCoopers LLP (PwC) throughout 2014 as independent advisers. Fees of £60,300 were paid to PwC in respect of advice provided to the Committee on executive remuneration matters in 2014. This was in the form of an agreed fee for support in preparation of papers and attendance at meetings, with work on additional items charged at hourly rates. PwC also provided tax and other consulting services to the Group during the year.

The terms of engagement for PwC are available from the Company Secretary’s office on request.

PwC was appointed following a competitive tender process. The Committee is satisfied that the advice received from PwC was objective and independent as PwC is a member of the Remuneration Consultants Group. Members of this group adhere to a voluntary code of conduct that sets out the role of executive remuneration consultants in the UK and the professional standards they have committed to adhere to when advising remuneration committees.

Voting at IHG AGMs

At the 2014 AGM, under the new reporting regulations, the new binding vote in respect of the Directors’ Remuneration Policy was as follows:

AGM  Votes for   Votes against   Abstentions 
2014   

 

155,440,907

(90.94%)

  

  

   

 

15,483,775

(9.06%)

  

  

   906,025  
At IHG’s most recent AGMs, the annual advisory vote in respect of the Directors’ Remuneration Report was as follows:   
AGM  Votes for   Votes against   Abstentions 
2014   

 

158,131,479

(94.01%)

  

  

   

 

10,076,027

(5.99%)

  

  

   3,623,200  
2013   

 

160,795,577

(85.73%)

  

  

   

 

26,762,429

(14.27%)

  

  

   1,226,617  
2012   

 

203,110,989

(95.46%)

  

  

   

 

9,651,718

(4.54%)

  

  

   1,750,533  

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Strategic context

Key remuneration principles

IHG’s remuneration principles are designed to drive the delivery of its strategic objectives. To do this, we need to:

align rewards for senior executives with the achievement of business performance targets and strategy and with returns for our hotel owners and shareholders;

attract and retain high-quality executives in an environment where compensation for multinational employers is based on global market practice;

support equitable treatment between members of the same executive team; and

facilitate global mobility and relocations.

IHG’s remuneration structure for senior executives places a strong emphasis on performance-related reward. The Committee believes that it is important to reward senior management, including the Executive Directors, for targets achieved, provided those targets are stretching and drive results.

Link to strategy

Our strategy for delivering high-quality growth (detailed on pages 14 to 25) and the Key performance indicators (KPIs) (set out on pages 30 to 33) through which we monitor and measure our success are the key drivers for the performance-related elements of our reward structure, the APP and LTIP (see below):

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IHG  Annual Report and Form 20-F 2014

Directors’RemunerationReportcontinued

Summary of our Directors’ Remuneration Policy (DR Policy)

How to use this report

The 2014 Directors’ Remuneration Report uses colour coding throughout to denote different elements of remuneration, as follows:

LOGO Salary

LOGO  Benefits

LOGO  APP cash    

LOGO  APP deferred shares    

LOGO  LTIP

LOGO  Pension benefit

 

This is a brief summary of the DR Policy, whichSalary, benefits and pension

Upon appointment, Keith’s salary was approved at our 2014 AGM. The full DR Policy can be found at www.ihgplc.com/investors under corporate governance.

DR Policy table summary

Executive Directors

ElementFramework
FixedLOGO Salary

Salaries increase generally in line with the range applying to the corporate UK and US employee population. They are reviewed annually and are fixed for 12 months from 1 April.

Newly appointed or recruited Executive Directors may, on occasion, have their salaries set below the benchmark policy level while they become established in role. In such cases, salary increases may be higher than the corporate UK and US employee population until the target positioning is achieved.

LOGO Benefits

Benefits are restricted to the typical level in the relevant market for an Executive Director. They may include the cost of independent financial advice, car allowance/company car, private healthcare/medical assessments and relocation and expatriate or international assignment costs where appropriate.

Variable

LOGOLOGO APP

(50% cash and 50% IHG shares deferred for three years)

Maximum annual award is 200% of salary; target award is 115% of salary; threshold is 50% of target award for each measure.

This is reviewed annually with targets set in line with key strategic priorities:

•  70% EBIT

•  30% non-financial measures

They include regional or global measures or a combination of both.

The Committee may vary the relative weighting of EBIT and other metrics from year to year. Personal performance may also be taken into account in determining awards under the APP.

LOGO LTIP

(100% shares)

Maximum annual award is 205% of salary; 20% threshold vesting of net rooms and RevPAR if equal to average growth of comparator group; 20% threshold vesting of TSR if equal to global hotel index growth.

Measures and targets are reviewed and may be changed by the Committee annually to ensure alignment with strategic objectives:

•  25% relative net rooms growth

•  25% relative RevPAR growth

•  50% relative TSR

All targets are measured over a performance period of at least three years against an appropriate comparator group of companies, which the Committee determines annually.

PensionLOGO Pension benefit

Executive section of the UK Defined Contribution Plan, US 401(k) Plan and US Deferred Compensation Plan: employee contributions with matching Company contributions. A cash allowance in lieu of pension contributions is offered. Salary is the only part of remuneration that is pensionable.

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Non-Executive Directors

ElementFramework
FixedFees and benefits (cash)

Maximum increase in annual fee in line with median FTSE 100 increases. Set by the Chairman of the Board and Executive Directors. The Chairman’s fees are set by the Committee. They are fixed for 12 months from 1 January. Non-Executive Directors are not eligible to participate in any performance-related incentive plans. IHG pays the cost of providing benefits as required.

Notes on DR Policy table summary

Use of discretion

The Committee reserves certain discretions under the Company’s incentive plans. These operate in two main respects:

enabling the Committee to ensure that outcomes under these plans are consistent with the underlying performance of the business£775,000 per annum and the interests of shareholders; and

enabling the Committee to treat leavers in a way that is fair and equitable to individuals and shareholders under the incentive plans.

The Committee will also use its judgement as to what is appropriate within the terms of the DR Policy to make decisions that do not involve the exercise of discretion.

In all cases, the discretions are reserved as part of the DR Policy in order to allow the Committee flexibility to ensure that remuneration outcomes for Executive Directors are consistent with business performance, at the same time as providing a high degree of clarity for shareholders as to remuneration structure and potential quantum. Any exercises of discretion by the Committee will be fully disclosed and explained in the relevant year’s Implementation of Remuneration Policy Report.

In relation to the LTIP, the Committee will review the vesting outcomes under all of the LTIP measures at the end of each three- year cycle against an assessment of Group earnings and the quality of financial performance over the period, including sustainable growth and the efficient use of cash and capital. If the Committee determines that the vesting outcomes do not appropriately reflect the financial performance of the Group, it may reduce the number of shares that vest.

In relation to malus, for awards made from January 2012, the APP and LTIP rules allow the Committee discretion to reduce the level of unvested share awards if circumstances occur that, in the reasonable opinion of the Committee, justify a reduction in one or more awards granted to any one or more participants. The malus provisions relate to unvested awards only. The circumstances in which the Committee may consider it appropriate to exercise its discretion include the following:

misconduct that causes significant damage or potential damage to IHG’s prospects, finances or brand reputation; and/or

actions that lead to material misstatement or restatement of accounts.

This may include, where appropriate, negligence on the part of Executive Directors.

These features help ensure alignment between executive reward and shareholder returns.

Policy on payment for loss of office

All current Executive Directors have a rolling service contract with a notice period from the Company of 12 months. As an alternative, the Company may, at its discretion, pay in lieu of that notice. Neither notice nor a payment in lieu of notice will be given in the event of gross misconduct.

Payment in lieu of notice could potentially include up to 12 months’ salary and the cash equivalent of 12 months’ pension contributions, and other contractual benefits. Where possible, the Company will seek to ensure that, where a leaver mitigates their losses by, for example, finding new employment, there will accordingly be a corresponding reduction in compensation payable for loss of office.

Further details on the policy for determination of termination payments are included in the DR Policy.

Approach to recruitment remuneration

The remuneration of any new Executive Director will be determined in accordance with the DR Policy. In addition, the Committee may, at its discretion, compensate a newly recruited Executive Director for incentives from a previous employment foregone as a result of their resignation. The Committee would seek validation of the value of any potential incentives foregone. Awards made by way of compensation for incentives foregone would be made on a comparable basis, taking account of performance achieved, or likely to be achieved, the proportion of the performance period remaining and the form of the award. Compensation would, as far as possible, be in the form of IHG LTIP or deferred share awards, in order to immediately align a new Executive Director with IHG’s performance.

Details of letters of appointment and notice periods for Non-Executive Directors

Non-Executive Directors have letters of appointment, which are available upon request from the Company Secretary’s office.

Patrick Cescau, Non-Executive Chairman, is subject to 12 months’ notice. All other Non-Executive Directors are not subject to notice periods.

All Non-Executive Directors’ appointments and subsequent re-appointments are subject to election and annual re-election by shareholders at the 2015 AGM (see page 71).

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IHG  Annual Report and Form 20-F 2014

Directors’ RemunerationReportcontinued

Annual Report on Directors’ Remuneration

This Annual Report on Directors’ Remuneration explains how the Directors’ Remuneration Policy (DR Policy) was implemented in 2014 and the resulting payments each of the Directors received. The notes to the single figure table provide further detail, including measures and outcomes for 2014 where relevant, for each of the elements that make up the total single figure of remuneration in respect of each of the Executive Directors. This report is subject to an advisory vote by shareholders at the 2015 AGM.

Single total figure of remuneration – Executive Directors (audited information)

LOGO

    Fixed pay   Variable pay   Pension          
    

 

LOGO  Salary

   LOGO  Benefits   LOGO  LOGO  APP   LOGO  LTIP   LOGO  Pension benefit   LOGO  Total 
Executive Directors  2014
£000
   2013
£000
   2014
£000
   2013
£000
   2014
£000
   2013
£000
   2012/14
cycle (value
of shares)
£0001
   2011/13
cycle (value
of shares)
£0002
   2014
£000
  2013
£000
   2014
£000
  2013
£000
 

 

Richard

Solomons3

 

   759     735     30     34     1,128     1,098     1,425     1,018     
 

 

228
+2,958

3,186

  
3 

  

  246     
 

 

3,570
+2,958

6,528

  
3 

  

  3,131  

Paul Edgecliffe-

Johnson4

   420     n/a     28     n/a     619     n/a     403     n/a     126    n/a     1,596    n/a  
Kirk Kinsell5   479     492     27     85     365     532     941     850     111    114     1,923    2,073  
Tracy Robbins   434     421     20     21     644     631     814     644     130    126     2,042    1,843  
Tom Singer6   2     548     0     29     n/a     409     712     918     n/a    164     714    2,068  

1Share price of 2,449p is the average over the final quarter of 2014.
2Restated using the VWAP (Volume Weighted Average Price) of 1,977p on the date of actual vesting on 19 February 2014. The corresponding values shown in the 2013 report (prior to the actual vesting) were an estimate and calculated using a share price as at 31 December 2013 of 2,013p.
3Richard Solomons received a one-off cash payment in 2014 in lieu of any future entitlement to ICETUS benefits. The amount shown (£2.958m) is the gross cash payment (£9.405m) less amounts previously disclosed (£6.447m). It is included here but is not shown in the illustrative bar chart above as it was a one-off payment and was in respect of benefits already accrued.
4Paul Edgecliffe-Johnson was appointed to the Board as Chief Financial Officer effective as of 1 January 2014.
5Kirk Kinsell was paid in US dollars and the sterling equivalents were calculated using an exchange rate of $1 = £0.61. In accordance with the APP rules, Mr Kinsell will receive only the 50% cash portion of his 2014 APP award, as shown here.
6As a result of Tom Singer’s resignation from IHG with effect from 1 January 2014, he only received the 50% cash portion of the 2013 APP award and will not receive a 2014 APP award. Following Mr Singer’s resignation, the Remuneration Committee determined that the 2011/13 LTIP award would vest without pro-ration in line with the terms of the LTIP Plan rules, as the performance period for this award would be completed by his departure date. This award was released on the normal vesting date and only to the extent the performance conditions were met. Mr Singer’s salary for 2014 was in respect of one day, 1 January 2014, after which his resignation took effect.

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Notes to single total figure of remuneration – Executive Directors (audited information)

Kirk Kinsell – remuneration arrangements on departure

Kirk Kinsell left the Board and his role as President, The Americas effective as of 13 February 2015. The Remuneration Committee determined that Mr Kinsell would be treated as a Good Leaver for the purposes of the LTIP awards,benefits were provided in line with the DR PolicyPolicy. Company pension provision comprised a cash allowance in lieu of employer pension contributions of 25% of salary.

Prior to his appointment to the Board, Keith was on terminationinternational assignment from the US to the UK and therefore in receipt of employment. He therefore retained allcertain expatriate allowances and benefits under the terms of IHG’s international assignment programme, including items such as housing costs, school fees and tax equalisation between the UK and US whilst on assignment. From the date of appointment to the Board, Keith was localised to a UK remuneration package and so will no longer be entitled to future assignment benefits or tax equalisation. In order to cover the transitional and transactional costs of him and his family localising to the UK, Keith will receive two lump sum localisation payments of £500,000 paid on appointment and £150,000 in 2018. Any outstanding APP and LTIP share awards whichgranted to him whilst he was on assignment from the US and prior to his appointment to the Board will vest on the normal vesting dates,be subject to tax equalisation at the satisfactiontime of performance conditions,vesting in line with his legacy expatriate status at the time of grant. With the exception of these legacy awards, pro-ratedno further tax equalised payments or awards will be made to his leaving date. Mr Kinsell also receivedKeith.

Annual Performance Plan (APP)

Keith participates in the cash portion of his 2014 APP award and the deferred share portion of his 2011 APP on the normal vesting date. Outstanding deferred awards under the 2012 and 2013 APPs lapsed, and no APP award will be made in respect of 2015. The Remuneration Committee has reserved the right to determine that, prior to the vesting of shares under each outstanding LTIP cycle, Mr Kinsell’s entitlement to shares under the LTIP will be forfeited in full if Mr Kinsell commits a breach of his continuing post-termination contractual obligations. The relevant figures will be included in next year’s report.

Fixed pay

LOGO   Salary: salary paid for the year (for Kirk Kinsell, who was paid in US dollars, this shows actual salary paid converted into sterling).

LOGO   Benefits: this includes taxable benefits suchsame terms as company car, healthcare, life cover and other taxable benefits. Provision during 2014 was in line with previous years and the approved DR Policy, and no exceptional benefits were paid.

Variable Pay

LOGO  LOGO  2014 APP

The weighting, measures and targets relating to the APP are determined by the Committee, on an annual basis, in line with our strategic objectives. A combination of global and regional targets were used in 2014.existing Executive Directors with only global roles were subject to global measures. Kirk Kinsell was subject to partly regional measures, reflecting his regional role as President, The Americas.

The measures for 2014 were determined in accordance with the DR Policy and were as follows:

Guest satisfaction as measured by the Guest HeartBeat score: year-on-year improvement;

Employee Engagement survey score: year-on-year improvement; and

EBIT achievement against target (corporate and regional).

Why do we use these measures?

  Guest HeartBeat scoreEmployee Engagement survey scoreEBIT vs target

•  Guest HeartBeat is part of the guest satisfaction survey.

•  It is an overall guest satisfaction score relating to hotel visits.

•  It is a robust measure of the strength of our brands.

•  Inclusion in the APP provides executive focus on this key performance metric at global and regional level.

•  We measure employee engagement because our brands are, effectively, a promise by our people, as engaged colleagues, to deliver a great guest experience.

•  Engaged employees are key to our business.

•  Our Employee Engagement survey is a long-established tool in our business.

•  EBIT is a key measure of business performance for our shareholders.

•  It is a function of other critical measures: net rooms growth, RevPAR, operating profit and fee revenues.

Award levels relate to achievement against target under each of the measures. The link between our strategy and the performance measures of the APP is explained in more detail on page 79.

Threshold, target and maximum opportunity are shown on the graph on page 84, along with actual achievement on a global basis and further detail.

The actual award level was determined on a straight-line basis between threshold and target, and target and maximum, and relates to achievement vs target under each measure:

Thresholdis the minimum level that must be achieved for there to be an award in relation to that measure; for achievement below this, no award is made.

Targetis the target level of achievement and results in a target award for that measure (115% of salary).

Maximumis the level of achievement at which a maximum award for that measure is received (200% of salary).

Threshold award was subject to a global EBIT affordability gate such that:

if global EBIT was below 85% of target, no award would be made; and

if global EBIT was between 85% and 90% of target, half of any award relating to the Guest HeartBeat and/or Employee Engagement survey measures would be made.

LOGO

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IHG  Annual Report and Form 20-F 2014

Directors’ RemunerationReportcontinued

Annual Report on Directors’ Remunerationcontinued

LOGO

1The EBIT element of Kirk Kinsell’s award was based 50/50 on Group/The Americas results; the EBIT achievement for the Americas was 99.0% against target. The Guest HeartBeat element of Mr Kinsell’s award was based wholly on The Americas results; achievement was 29.4% of target. The total award as a % of salary for Mr Kinsell was 151.4% and in accordance with the APP Plan rules he will only receive the 50% cash portion.
2Maximum achievement under all three measures would result in an award of 230% of total salary. However, under the DR Policy, awards are capped at 200% of salary.

Outcome for 2014 (audited information)

Based on performance, the following table shows the level of 2014 awards for which 50% will be paid in cash and 50% in deferred IHG shares. These will vest after three years in February 2018. The deferred share awards are made in the form of forfeitable shares that receive dividends during the three-year vesting period and include the right to vote at shareholder meetings.

Executive Director

 

     Award as
% of salary
   

Total value of award

£0001

 
  Richard Solomons     147.4     1,128  
  Paul Edgecliffe-Johnson         147.4     619  
  Kirk Kinsell     75.7     3652 
  Tracy Robbins     147.4     644  

1As shown in the single figure of remuneration on page 82.
2In accordance with the rules of the APP, Kirk Kinsell will receive only the 50% cash portion of his 2014 APP award, as shown here.

In relation to the APP 2014 measures, we have disclosed percentage achievement against target for each measure in the graph at the top of this page. We have also shown outcome vs opportunity. For the Guest HeartBeat and Employee Engagement survey measures, the 2014 outcome scores are detailed on pages 31 and 32 of the Annual Report. Detail on the financial targets set is not disclosed at this stage as it is, in the opinion of the Directors, commercially sensitive. Disclosure would risk providing IHG’s major competitors with an unfair commercial advantage as these companies are either unlisted or listed on a stock exchange other than the London Stock Exchange and, therefore, not subject to the same regulations. During 2015, we will consider what further transparency we can provide to shareholders without disadvantaging the business.

LOGO  2012/14 LTIP

The performance measures for each three-year LTIP cycle are set by the Committee. Awards are made annually and eligible executives will receive shares at the end of that cycle, subject to achievement of the performance measures. The performance measures for the 2012/14 cycle were as follows and in line with the DR Policy:

relative growth in net rooms over three years;

relative like-for-like RevPAR growth over three years; and

IHG’s TSR relative toPolicy. His maximum incentive opportunity as a global hotels index (see page 89 for further details).

Growth in net rooms and RevPARpercentage of salary is measured on a relative basis againsttherefore 200% under the comparator group, comprising the following major, globally branded competitors: Accor, Choice Hotels, Hilton Worldwide, Hyatt, Marriott International Inc., Starwood Hotels and Wyndham Worldwide.

Why do we use these measures?

Net rooms growthRevPAR growthRelative TSR

This measures the net growth in the total number of IHG hotel rooms over the duration of the cycle relative to our major global competitors. Together with the RevPAR measure, it provides focus on ensuring a balance between the quality of IHG hotels and the speed at which IHG grows.

This measures success in growing our revenue per available room for the duration of the cycle relative to the RevPAR growth of our major global competitors.

This measures the return to shareholders by investing in IHG relative to our competitors in the appropriate comparator group of global hotels, as per data sourced from Thomson Datastream.

In order to generate higher returns for our shareholders, we need to increase revenue share, improve operating efficiency and grow margins through increasing the number of rooms we have available to sell, as well as increasing RevPAR for those rooms.

84


By focusing on both net rooms growth and RevPAR growth, we are rewarding the balanced approach to growth that will support the long-term increase in shareholder value.

These performance measures are also used for the 2013/15 and 2014/16 LTIP cycles, granted in 2013 and 2014 respectively. Threshold, target and maximum opportunity for the 2012/14 cycle is shown in the graph below, along with actual achievement for 2014.

LOGO

PerformanceAPP. His 2017 award was below the average of the comparator group on the relative net rooms growth measure and therefore this element will not vest.

Outcome for 2012/14 cycle (audited information)

This cycle will vest on 18 February 2015, as follows:

Executive Director 

Maximum opportunity at grant

(number of shares)

  

% of maximum opportunity

vested

  

Outcome (number of shares

awarded at vest)

  

Total value of award1

£000

 
  Richard Solomons  103,722    56.1    58,188    1,425  
  Paul Edgecliffe-Johnson      29,322    56.1    16,449    403  
  Kirk Kinsell2  68,463    56.1    38,407    941  
  Tracy Robbins  59,270    56.1    33,250    814  
  Tom Singer3  77,684    56.1    29,053    712  

1As shown in the single figure of remuneration. Share price used of 2,449p is the average over the final quarter of 2014.
2In line with the DR Policy, the Remuneration Committee determined that Kirk Kinsell would retain his 2012/14 LTIP award in accordance with and subject to the terms of the LTIP Plan rules, as the performance period for this award was completed when Kirk Kinsell resigned effective as of 13 February 2015.
3The Remuneration Committee determined that the 2012/14 LTIP award would vest in line with the terms of the LTIP Plan rules on a pro-rated basis for the proportion of the performance period in which Tom Singer remained in employment. This award will be released on the normal vesting date and only to the extent the performance conditions were fulfilled.

Net rooms and RevPAR growth were measured by reference to the three years ending 30 September 2014; TSR was measured by reference to the three years ending 31 December 2014.

Pensions

LOGO  Pension benefit:the value of Company contributions to pension plans and any cash allowances paid in lieu of pension contributions.

As published in the 2013 Annual Report, the Group commenced the phasing out of potential enhanced early retirement terms related to those defined benefit pensions in 2014 (see page 87 for further details). In addition, the planned cash out offer was made to the participants of the unfunded, unregistered, defined benefit top-up arrangement, ICETUS, which had previously provided the balance of any benefit accrual that was restricted in the tax-registered plan due to the annual or lifetime allowances. Payments associated with the cash out were made in the financial year and are therefore disclosed appropriately in this year’s Annual Report.

For 2014, the pension benefits for Richard Solomons include the payment of a cash out value in respect of his accrued, unfunded ICETUS benefit. Richard Solomons received a one-off gross cash payment of £9,405,362 in lieu of any future entitlement to ICETUS benefits. An amount of £6,447,000 in respect of his ICETUS benefit was includedterms before and after appointment as part of the disclosure of his total accrued benefitsan Executive Director.

Long Term Incentive Plan (LTIP)

Keith participates in the 2013 Directors’ Remuneration Report basedLTIP on the HM Revenue & Customs methodology of valuing pensions at 20 times their annual amounts, hence only the balance in excess of this (i.e. £2.958m) is shown in the single figure table. The actual payment was greater than 20 times the annual pension because the ICETUS benefit was valued using a more accurate actuarial calculation method,same terms as existing Executive Directors and in line with that used for valuing the total ICETUS liabilities for accounting purposes. Following the cash out, Richard Solomons has no future entitlement to any benefit from ICETUS.

LOGO

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IHG  Annual Report and Form 20-F 2014

Directors’Remuneration Reportcontinued

Annual Report on Directors’ Remunerationcontinued

Scheme interests awarded during 2014 (audited information)

During 2014, awards relating to shares were grantedDR Policy. His maximum incentive opportunity as a percentage of salary is therefore 205% under the 2014/16 LTIP. Awards were made to each Executive Director over sharesIn line with a value of 205%the recruitment policy, Keith has been pro-rated into the 2017/19 LTIP based on his salary on appointment.

Shareholding requirements

In line with the DR Policy, Keith’s shareholding requirement is 300% of salary using the closing mid-market share price on 7 April 2014. These are in the form of conditional awards over IHG shares and do not carry the righthe is required to dividends or dividend equivalents during the vesting period.

These awards will vest, and the shares will be transferred to the award holder, in February 2017 to the extent performance targets are met. See pages 84 and 85 for an explanation of the performance measures.

Executive Director  Award date   Maximum shares
awarded
   

Market price per
share at grant1

£

   Face value of
award at grant
£000
   Number of shares
received if minimum
performance achieved2
 

2014/16 cycle

                         

  Richard Solomons

   8 April 2014     82,193     19.08     1,568     16,439  

  Paul Edgecliffe-Johnson

   8 April 2014     45,125     19.08     861     9,025  

  Kirk Kinsell3

   8 April 2014     18,570     19.08     981     3,714  
  Tracy Robbins   8 April 2014     46,952     19.08     896     9,390  

1Share price was the closing mid-market share price on 7 April 2014.
2Minimum performance is equal to 20% of maximum award.
3Following Kirk Kinsell’s resignation with effect from 13 February 2015, his award will vest in line with the LTIP Plan rules. His initial maximum shares awarded of 51,426 have been reduced accordingly on a pro-rated basis for the proportion of the performance period in which he remained in employment, as determined by the Committee. The pro-rated award is shown in the table above. Vesting will not be accelerated.

The vesting date for these awards is the day after the announcement of our Annual 2016 Preliminary Results in February 2017. Net rooms growth and RevPAR growth will be measured by reference to the three years ending 30 September 2016; TSR will be measured by reference to the three years ending 31 December 2016.

Other outstanding awards

During 2013, awards relating to shares were granted under the 2013/15 LTIP (shown below) on the same basis as the 2014/16 LTIP cycle (shown above). These awards will vest in February 2016 to the extent performance targets are met. See pages 84 and 85 for an explanation of the performance measures.

Executive Director  Award date   Maximum shares
awarded
   

Market price per
share at grant1

£

   Face value of
award at grant
£000
   Number of shares
received if minimum
performance achieved2
 
2013/15 cycle                         

  Richard Solomons

   5 April 2013     76,319     19.85     1,515     15,263  

  Paul Edgecliffe-

  Johnson3

   24 February 2014     9,454     19.25     182     1,891  

  Kirk Kinsell4

   5 April 2013     36,839     19.85     1,053     7,367  

  Tracy Robbins

   5 April 2013     43,819     19.85     870     8,763  
  Tom Singer5   5 April 2013     56,883     19.85     1,129     0  

1Share price was the closing mid-market share price on 4 April 2013. For Paul Edgecliffe-Johnson,meet this was the closing mid-market share price on 21 February 2014.
2Minimum performance is equal to 20% of maximum award.
3Paul Edgecliffe-Johnson received an increased award, pro-rated from 1 January 2014, for the 2013/15 LTIP in accordance with the DR Policy as a result of his appointment to the Board. He was awarded 18,322 shares on 5 April 2013 with a market price per share at grant of £19.85 prior to his appointment to the Board.
4Following Kirk Kinsell’s resignation with effect from 13 February 2015, his award will vest in line with the LTIP Plan rules. His initial maximum shares awarded of 53,049 have been reduced accordingly on a pro-rated basis for the proportion of the performance period in which he remained in employment, as determined by the Committee. The pro-rated award is shown in the table above. Vesting will not be accelerated.
5Tom Singer’s award lapsed as a result of his resignation with effect from 1 January 2014.

The vesting date for these awards is the day after the announcement of our Annual 2015 Preliminary Results in February 2016. Net rooms growth and RevPAR growth will be measured by reference to the three years ending 30 September 2015; TSR will be measured by reference to the three years ending 31 December 2015.

Current position on outstanding awards

Details of the performance measures and potential vesting outcomes for outstanding awards as at 31 December 2014 are as follows:

Performance measure  Threshold
performance
   Maximum
performance
   Threshold/
maximum
vesting
   Weighting   Maximum
award
(% of salary)
   Potential vesting outcome 
                             2014/16 cycle   2013/15 cycle 

Net rooms growth

   
 
Average of the
comparator group
  
  
   
 
1st in the
comparator group
  
  
   20%/100%     25%     51.25%     
 
Below
threshold
  
  
   
 
Below
threshold
  
  

RevPAR growth

   
 
Average of the
comparator group
  
  
   
 
1st in the
comparator group
  
  
   20%/100%     25%     51.25%     
 
Above
average
  
  
   
 
Above
average
  
  

Relative TSR

   
 
 
Growth equal to
the global hotels
index
  
  
  
   
 
 
Growth exceeds
the index by 8%
per year or more
  
  
  
   20%/100%     50%     102.5%     
 
Maximum
performance
  
  
   
 
Maximum
performance
  
  

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Total pension entitlements (audited information)

The InterContinental Hotels UK Pension Plan (IC Plan) is a funded final salary occupational pension scheme with an additional defined contribution section.

Richard Solomons’ defined benefit pension accrual in both ICETUS and the IC Plan ceased on 30 June 2013 and the Trustee of the IC Plan subsequently entered into an insurance contract in August 2013 under which all defined benefit liabilities of the plan, plus the provision of increases to pensions which were previously only provided at the discretion of the Company, were fully insured (known as a ‘buy-in’). During 2014, arrangements were made to fully transfer the responsibility for the provision of benefits from the Trustee of the IC Plan to the insurance company, Rothesay Life. This process (known as a ’buy-out’) was completed on 31 October 2014.

Following the buy-out, Richard Solomons has no future benefit entitlement from the IC Plan and it is not considered necessary to make these disclosures in the future. In last year’s Annual Report, we published the Board’s plans to phase out the Company’s Enhanced Early Retirement Facility (EERF). However, during the period over which it is phased out, Richard Solomons remains eligible to benefit from the EERF, albeit at a reduced level. Under the EERF, executive participants of the defined benefit section of the IC Plan had an option, with the Company’s agreement, to retire without reduction to their pension if they are within five years of their normal retirement date and to retire on improved early retirement terms before this. As set out in the Remuneration Committee Chairman’s 2013 Statement, the phasing out of this facility commenced on 1 March 2014. As a result of the phasing out of the EERF, Mr Solomons could retire, with no reduction in his pension, from approximately age 58 and no earlier. Prior to the phasing out, Richard Solomons was eligible to retire without reduction from age 55. The terms of the EERF require an executive to obtain Company consent and would also require the payment by the Group of an additional insurance premium to secure the benefit entitlement for that executive.

Richard Solomons’ IC Plan pension, which formed part of the buy-out, was as follows:

£pa
Accrued annual pension at 1 January 2014, assuming retirement at normal pension age (9 October 2021)71,950
Accrued annual pension at 31 December 2014, assuming retirement at normal age (9 October 2021)73,680

The increase in accrued pension represents the standard inflation increase provided for deferred pensions in the IC Plan rules. It does not, therefore, constitute a pension input amount and thereappointment. He is no requirement to disclose the value of this increase in the single figure.

For 2014,Richard Solomons received a cash allowance in lieu of pension contributions. The breakdown of the pension element of the single figure for 2013 and 2014 for Mr Solomons is as follows:

    2014
£000
   2013
£000
 
Pension benefit under defined benefit section of IC Plan        135  
ICETUS cash-out   2,9581       
Cash allowance in lieu of pension contribution   228     111  
Total   3,186     246  

1Richard Solomons received a one-off cash payment in 2014 in lieu of any future entitlement to ICETUS benefits. See page 85.

Paul Edgecliffe-Johnsonparticipated in the defined contribution section of the IC Plan until March 2014, during which time he paid contributions of £7,875 and received Company contributions of £4,625 and a cash allowance in lieu of pension contributions of £26,875. For the period from April 2014, he did not participate in any IHG pension plan and instead received a cash allowance of £94,500.

Tracy Robbinsdid not participate in any IHG pension plan in 2014. Instead she received a cash allowance of £130,148.

Life assurance cover of four times pensionable salary was also provided forTracy Robbins andPaul Edgecliffe-Johnson and, in accordance with the terms of the closure of the IC Plan to future defined benefit accrual, life assurance cover of six times salary was provided forRichard Solomons.

Kirk Kinsellparticipated 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, Kirk Kinsell in these plans for the year ended 31 December 2014 were:

£1
Director’s contributions to US Deferred
Compensation Plan136,199
Director’s contributions to US 401(k) Plan14,030
Company contributions to US Deferred
Compensation Plan105,047
Company contributions to US 401(k) Plan6,280
Age at 31 December 201459

1Sterling values have been calculated using an exchange rate of $1=£0.61.

LOGO

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IHG  Annual Report and Form 20-F 2014

Directors’Remuneration Reportcontinued

Annual Report on Directors’ Remunerationcontinued

Statement of Directors’ shareholdings and share interests (audited information)

The Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individual’s personal interests and those of shareholders.

Guideline Executive Director shareholding requirement

Executive Directors are expected to hold all shares earned (net of any share sales required to meet personal tax liabilities), until the guideline shareholding requirement is achieved. As can be seen

Non-Executive Directors

Remuneration componentHow this was implemented in 2017

Malina Ngai was appointed as Non-Executive Director from 1 March 2017 and serves on the graph below, with the exception of Paul Edgecliffe-Johnson, the shareholdings for the other Executive Directors are substantialCorporate Responsibility, Nomination and the guideline requirement exceeded. Percentages are based on shareholding and a share price of 2,595p per shareRemuneration Committees. Jo Harlow was appointed as at 31 December 2014.

  Shares and awards held by Executive Directors as at 31 December 2014: % of salary

  LOGO

Shares held by Executive Directors as at 31 December 2014: number of shares (audited information)

Executive Director  Number of shares
held outright1
  

APP deferred

share awards2

   LTIP share awards
(unvested)3
   

Total number of

shares and awards held

 
    2014  2013  2014   2013   2014   2013   2014   2013 
Richard Solomons   382,533    371,198    81,240     90,068     262,234     267,275     726,007     728,541  
Paul Edgecliffe-Johnson4   10,583    n/a    12,860     n/a     102,223     n/a     125,666     n/a  
Kirk Kinsell   117,6405   127,4446   49,580     66,502     172,938     194,384     340,158     388,330  
Tracy Robbins   51,418    85,703    48,932     55,905     150,041     158,337     250,391     299,945  

1These shareholdings include all Directors’ beneficial interests and those held by their spouses and other connected persons.
2Awards not subject to performance conditions.
3Awards still subject to performance conditions as set out on pages 84 and 85.
4Paul Edgecliffe-Johnson was appointed to the Board on 1 January 2014.
5Comprised 117,092 ordinary shares and 548 American Depositary Receipts.
6Comprised 126,850 ordinary shares and 594 American Depositary Receipts.

Percentage change in remuneration of Chief Executive Officer

The table below shows the percentage change in the remunerationChairman of the Chief Executive Officer compared with UK employees between 2013Remuneration Committee and 2014:

Chief Executive OfficerUK employees
Salary+3.5%+3.0%1
Taxable benefits2-11.8%+4.5%
Annual incentive+2.7%+7.6%

1The percentage change for UK employees shown is the budget for the 2014 annual pay review and promotions/market adjustments during 2014.
2Based on P11D taxable benefits for tax year ending 5 April in relevant year.

We believe that an appropriate comparator group for salary and taxable benefits comparison is UK-based employees because the structure and composition of remuneration for that group most closely reflects that of the UK-based Chief Executive Officer. Therefore, the same UK market dynamics will apply to salary movements providing a like-for-like comparison.

For the annual incentive, the comparator group used is the grade of executives at and immediately below Executive Committee level, who are subject to the same performance measuresLuke Mayhew was appointed as the Chief Executive Officer, and with a “very good” individual performance rating.

88


Relative performance graph and table

Throughout 2014, IHG was a member of the FTSE 100 share indexAudit Committee, both with effect from 1 October 2017. All of their terms are in line with the policy for Non-Executive Directors.

Fees and benefits (cash)Malina and Luke’s new appointments were on a single fee of £74,400 per annum, in line with other Non-Executive Directors and Jo’s fee increased to £99,000 per annum, in line with the existing structure for Committee chairs. Travel and accommodation in connection with attendance at Board and Committee meetings is payable.

PensionMalina, Luke and Jo are not eligible to participate in the IHG pension plan.

APP and LTIP purposes used a TSR comparator groupMalina, Luke and Jo are not eligible to participate in the IHG Annual Performance Plan or Long Term Incentive Plan.

Letter of a global hotels index. This consistsappointment and notice periodMalina, Luke and Jo’s respective letters of appointment are available from the companies that made upCompany Secretary’s office and their reappointment is subject to election and annual re-election by shareholders at the Dow Jones Global Hotels index (DJGH). It continuesAGM.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Directors’ Remuneration Report69


Governance

Directors’ Remuneration Report continued

Annual Report on Directors’ Remuneration

This Annual Report on Directors’ remuneration explains how the

Directors’ Remuneration Policy (DR Policy) was implemented in 2017

and the resulting payments each of the Executive Directors received.

This report is subject to an advisory vote by shareholders at the 2018 AGM. The notes to the single-figure table provide further detail, where relevant, for each of the elements that make up the total single figure of remuneration in respect of each of the Executive Directors.

AUDITED

Single total figure of remuneration – Executive Directors

     Fixed pay     Variable pay      Other                
      LOGO Salary     LOGO  Benefits     LOGO  Pension benefit     LOGO  APP     LOGO  LTIP                    LOGO  Total 

Executive

Directors

    2017
£000
     2016
£000
     2017
£000
     2016
£000
     2017
£000
     2016
£000
     2017
£000
     2016
£000
     2015/17
cycle
(value of
shares)
£000
     2014/16
cycle
(value of
shares)
£000c
     2017
£000
     2016
£000
     2017
£000
     2016
£000
 
Keith Barra    388          17          97          545          580          500          2,127      
Richard Solomonsb    413     810     13     26     124     243     554     1,042     1,075     1,541               2,179     3,662 
Paul Edgecliffe-Johnson    530     500     27     24     159     150     747     640     702     846               2,165     2,160 

a2017 figures (excluding LTIP) for Keith Barr relate to comprise the same companies, following the cessation of the former Dow Jones Index in 2014, and is sourced directly from Thomson Datastream for IHG. Accordingly, the Committee has determined that these are the most appropriate market indices against which to test the Group’s performance. The graph below shows IHG’s TSR performance from 31 December 2008period 1 July to 31 December 2014, assuming dividends are reinvested, compared with2017.

b2017 figures (excluding LTIP) for Richard Solomons relate to the TSR performance achieved byperiod 1 January to 30 June 2017. Further information can be found on page 68.

cFigures for 2014/16 LTIP cycle have been restated using actual share price on date of vesting.

Notes to single figure table

Fixed pay

Salary:salary paid for the year. Keith Barr succeeded Richard Solomons as Chief Executive Officer on 1 July 2017, with an annual base salary of £775,000 effective from this date. The 2017 figure in the table above is for the period 1 July to 31 December 2017. There is no comparative data for 2016 as Keith did not serve as an Executive Director before this date.

Richard Solomons stepped down from the role of Chief Executive Officer and from the Board on 30 June 2017, and retired from the Company on 30 August 2017. Further information can be found on page 68. The 2017 figure in the table above is for the period 1 January to 30 June 2017.

Benefits:for Executive Directors, this includes, but is not limited to, taxable benefits such as company car, healthcare and life cover. Provision during 2017 was in line with previous years and the approved DR Policy.

Pension benefit:for current Executive Directors, in line with DR Policy, the value of IHG contributions to pension plans and any cash allowances, paid in lieu of pension contributions.

The Executive Directors did not participate in any IHG pension plan in 2017 and instead all received cash allowances and life assurance cover.

      Cash allowance     Life cover 
Executive Director    % of
    salary
         Amount
£000
     (multiple of
    base salary)
 
Keith Barr    25     97a     Four times 
Richard Solomons    30     124     Six times 
Paul Edgecliffe-Johnson    30     159     Four times 

aIn respect of the FTSE 100 and global hotels indices. All indices are shown in sterling.

TSR: InterContinental Hotels Group PLC vs FTSE 100 and global hotels index

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Chief Executive Officer’s remuneration

The table below shows the single figure of total remuneration for the incumbent Chief Executive Officer for the six yearsperiod 1 July to 31 December 2014:

     Financial year ended 31 December 
   Chief Executive Officer  2009     2010     20111     2012     2013     2014 

Single figure

£000

 Richard Solomons   n/a       n/a       4,724       4,881       3,149       6,5282 
 Andrew Cosslett   1,953       5,430       3,770       n/a       n/a       n/a  

Annual incentive received

(% of maximum)

 Richard Solomons   n/a       n/a       83.0       68.0       74.0       74.0  
 Andrew Cosslett   nil3      100.0       43.04      n/a       n/a       n/a  

Shares received under the LTIP

(% of maximum)

 Richard Solomons   n/a       n/a       73.9       100.0       59.0       56.1  
 Andrew Cosslett   46.0       73.8       61.6       n/a       n/a       n/a  

1Andrew Cosslett retired on 30 June 2011 and Richard Solomons was appointed Chief Executive Officer effective as of 1 July 2011, having previously held the position of Chief Financial Officer and Head of Commercial Development; the single figure value is the total remuneration received by each of them for that year.
2Includes a one-off cash payment in lieu of any future entitlement to ICETUS benefits. The amount included in respect of this (£2.958m) is the gross cash payment (£9.405m) less amounts previously disclosed (£6.447m).
3There was no annual incentive award paid in respect of financial year ended 31 December 2009.
4No deferred shares were awarded in respect of the 2011 Annual Bonus Plan (ABP). Andrew Cosslett received his award as 100% cash pro-rated to 30 June 2011.

Relative importance of spend on pay

The table below sets out the actual expenditure of the Group in 2012, 2013 and 2014 on corporate employee remuneration and distributions to shareholders and shows the difference in spend between those years:

Item  2014
$m
     % change     2013
$m
     % change     2012
$m
 
Remuneration paid to all corporate employees   657       0.2       656       5.0       6261 

Distributions:

                  
Final dividend (previous year)   122           115           113  
Ordinary (interim) dividend   57           63           61  
Special dividend   7632          3553          5054 
Repurchase of own shares   1105             2836             1077 
Total distributions   1,052       28.9       816       3.8       786  

1Restated for the adoption of IAS 19R ‘Employee Benefits’.
2A special dividend of $2.93 per share was paid to shareholders on 14 July 2014.
3A special dividend of $1.33 per share was paid to shareholders on 4 October 2013.
4A special dividend of $1.72 per share was paid to shareholders on 22 October 2012.
5Under the authority granted by shareholders at the AGMs held on 24 May 2013 and 8 May 2014, 3,421,973 shares were purchased in the period 1 January 2014 to 29 May 2014 (the date on which the share buyback programme was completed) for a total consideration of $110m.
6Under the authority granted by shareholders at the General Meeting held on 8 October 2012 and the AGM held on 24 May 2013, 9,773,912 shares were purchased in the period 1 January 2013 to 31 December 2013 for a total consideration of $283m.
7Under the authority granted by shareholders at the General Meeting held on 8 October 2012, 4,143,960 shares were purchased in the period 12 November 2012 (the date on which the share buyback programme commenced) to 31 December 2012 for a total consideration of $107m.2017.

 

bIn respect of the period 1 January to 30 June 2017.

Other:Keith received a lump sum of £500,000 in July 2017 to cover the transitional and transactional costs of localising to the UK. Further information can be found on page 69.

Variable pay

APP (cash and deferred shares)

Operation

Award levels are determined based on salary as at 31 December 2017 on a straight-line basis between threshold and target, and target and maximum, and are based on achievement vs target under each measure:

 

Threshold is the minimum level that must be achieved for there to be an award in relation to that measure; no award is made for achievement below threshold. For 2017, the Remuneration Committee set a threshold award level of 56% of salary.

Target is the target level of achievement and results in a target award for that measure. For 2017, the Remuneration Committee set a target award of 112% of salary. Further details can be found on page 68.

Maximum is the level of achievement at which a maximum award for that measure is received (capped at 200% of salary).

The threshold award was subject to a global EBIT affordability gate and Overall Performance Rating (OPR) such that:

If global EBIT was below 85% of target, no awards relating to the Guest Love and OPR would be made;

If global EBIT was between 85% and 90% of target, half of any award relating to the Guest Love and OPR would be made;

If OPR was 2, EBIT and Guest Love awards were reduced by 50%; and

If OPR was 2.5, EBIT and Guest Love awards were reduced by 25%.

70IHG  |  Annual Report and Form 20-F 2017


 

    

    

    

 

AUDITED

Outcome for 2017

The performance measures for the 2017 APP were EBIT (70%), Guest Love (20%) and OPR (10%) and were determined in accordance with the DR Policy. The table below shows threshold, target and maximum opportunity, as well as weighting and actual 2017 achievement for the EBIT and Guest Love performance measures:

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APP

Performance    Achievement    Weighting    Weighted
achievement
EBIT: performance relative to target
Threshold    $648.5m    50.0%      
Target    $720.5m    100.0%   70.0%   94.5%
                 
Actual    $746.0m    135.0%      
Maximum      $792.6m      200.0%        
Guest Love: improvement in guest survey score from prior year’s baseline score of 80.61%
Threshold    +0.17ppt    50.0%      
Actual    +0.25ppt    67.4%   20.0%   13.5%
Target    +0.40ppt    100.0%      
Maximum    +1.0ppt    200.0%        

EBIT is operating profit before exceptional items. However, in determining EBIT for APP purposes, budgeted exchange rates for the year are used and certain adjustments to reported 2017 operating profit were agreed by the Committee in order to ensure alike-for-like comparison with the APP EBIT target set at the start of the year:

Operating profit before exceptional items

(at actual exchange rates)

$758.7m
Net benefit of unbudgeted items($9.1m
Difference due to exchange rates($3.6m
Operating profit before exceptional items, after adjustments (at 2017 budget exchange rates)$746.0m

The remaining 10% weighting of the APP is based on a personal overall performance rating (OPR). OPR results are determined by reference to individual employee performance relating to the delivery of a range of measurable annual objectives aligned to our Strategic Model. The 2017 objectives for the Executive Directors included a range of financial and efficiency measures; key strategic growth initiatives; and targets for our Responsible Business agenda.

When combined with the EBIT and Guest Love results, the total weighted achievement was 123.0% for Keith Barr, 118.0% for Richard Solomons and 123.0% for Paul Edgecliffe-Johnson, of target bonus. The APP award for 2017,pro-rated for thesix-month period each served as CEO, was therefore 70.3% of salary for Keith Barr and 66.3% for Richard Solomons. The 2017 award for Paul Edgecliffe-Johnson was 139.4% of salary.

Awards for 2017 are payable 50% in cash and 50% in deferred shares, vesting three years after the date of grant, in February 2021. The deferred share awards are made in the form of forfeitable shares that receive dividends during the three-year vesting period and include the right to vote at shareholder meetings. They are not subject to any further performance conditions.

Executive Director    

Salary as at
31 December
2017

     

Award
as%

of salary

     Total value
of award
£000
 
Keith Barr    775     70.3a     545 
Richard Solomons    836b     66.3c     554 
Paul Edgecliffe-Johnson    536     139.4     747 

aIn respect of period 1 July to 31 December 2017.

bSalary as at 30 June 2017.

cIn respect of period 1 January to 30 June 2017.

2015/17 LTIP (shares)

Awards are made annually and eligible executives will receive shares at the end of that cycle, subject to achievement of the performance measures. Growth in net room openings and RevPAR is measured on a relative basis against the comparator group. This group comprises the following major, globally branded competitors: Accor Hotels; Choice Hotels International Inc.; Hilton Worldwide; Hyatt Hotels Corporation; Marriott International Inc.; Starwood Hotels and Resorts; and Wyndham Worldwide Corp. In respect of Marriott’s acquisition of Starwood in September 2016, Starwood was retained as a separate entity for the period up to its last independently published results. TSR measures the return to shareholders by investing in IHG relative to a broader set of appropriate hotel and lodging competitors, as per data provided by our corporate bankers sourced from Thomson Reuters Datastream.

The share price of 4,317p used to calculate the 2015/17 LTIP cycle value shown in the single-figure table is the average over the final quarter of 2017.

The share price in respect of the 2014/16 LTIP cycle has been restated using the volume weighted average price of 3,796p on the date of actual vesting on 22 February 2017. The corresponding values shown in the 2016 report (prior to the actual vesting) were an estimate calculated using an average share price over the final quarter of 2016 of 3,273p.

Outcome for 2015/17 cycle

The performance measures for the 2015/17 three-year LTIP cycle were in line with the 2014 DR Policy. The table below shows threshold and maximum opportunity, as well as weighting and actual achievement, for each performance measure.

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IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Directors’ Remuneration Report71


Governance

Directors’ Remuneration Report continued

Annual Report on Directors’ Remuneration continued

AUDITED

LTIP

Performance        Vesting achievement         Weighting             Weighted
    achievement
   
Total Shareholder Return: three-year growth relative to average of  
competitors                   
Threshold    20       
Actual    82.1    50    41.1 
Maximum    100             
Net rooms supply: three-year growth relative to average  
of competitors                   
Threshold    20       
Actual    20    25    5 
Maximum    100             
RevPAR: three-year growth relative to average  
of competitors                   
Actual    0       
Threshold    20    25    0 
Maximum    100             
Total achievement (% of maximum opportunity vested)   46.1 

Net rooms supply and RevPAR growth were measured by reference to the three years ending 30 September 2017; TSR was measured by reference to the three years ending 31 December 2017. This cycle will vest on 21 February 2018 and the individual outcomes for this cycle are shown below:

Executive

Director

    

Maximum
opportunity
at grant
(number

of shares)

     % of
maximum
opportunity
vested
     Outcome
(number
of shares
awarded
at vest)
     Total value
of award
£000
   
Keith Barra    29,157     46.1     13,441     580  
Richard             
Solomons    54,051b     46.1     24,917     1,075  
Paul Edgecliffe-             
Johnson    35,318     46.1     16,281     702  

aGranted prior to appointment as CEO.

bOriginally awarded 60,808 shares,pro-rated to 32 months. Further information can be found on page 68.

Other outstanding awards

During 2016, awards were granted under the 2016/18 LTIP cycle on the same basis as the 2015/17 LTIP cycle. Awards were made to each Executive Director over shares with a maximum value of 205% of salary using the closingmid-market share price of 2,854p on 4 April 2016. These are in the form of conditional awards over Company shares and do not carry the right to dividends or dividend equivalents during the vesting period.

Executive Director    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

   
2016/18 cycle                               
Keith Barra    
5 April
2016
 
 
    29,367     28.54     838     5,873  

Richard

Solomons

    
5 April
2016
 
 
    32,552b     28.54     929     6,510  

Paul

Edgecliffe-Johnson

    
5 April
2016
 
 
    36,841     28.54     1,051     7,368  

aGranted prior to appointment as CEO.

bOriginally awarded 58,595 shares,pro-rated to 20 months. Further information can be found on page 68.

The vesting date for these awards is the day after the announcement of our Annual 2018 Preliminary Results in February 2019. These awards will vest and shares will be transferred to the award-holder in February 2019, to the extent performance targets are met.

The performance measures are the same as for the 2015/17 cycle. Relative growth in net rooms supply and RevPAR will be measured by reference to the three years ending 30 September 2018; TSR will be measured by reference to the three years ending 31 December 2018. Minimum performance is equal to 20% of the maximum award.

AUDITED

Scheme interests awarded during 2017

During 2017, awards were granted under the 2017/19 LTIP cycle. Awards were made to each Executive Director over shares with a maximum value of 205% of salary using an average of the closingmid-market share price for the five days prior to grant. At the date of grant on 22 May 2017, this was 4,257p. These are in the form of conditional awards over Company shares and do not carry the right to dividends or dividend equivalents during the vesting period. No award was made to Richard Solomons.

Executive Director            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
   
2017/19 cycle                               
Keith Barra    9 August 2017     12,481     43.14     538     2,496  
Paul Edgecliffe-Johnson    22 May 2017     25,811     42.57     1,099     5,162  

aKeith Barr received an increased award,pro-rated from 1 July 2017, for the 2017/19 LTIP in accordance with the DR Policy as a result of his appointment to the Board. Prior to this, he was granted 17,822 shares and 2,160 restricted stock units on 22 May 2017 with a market price of £42.57 per share.

The vesting date for these awards is the day after the announcement of our Annual 2019 Preliminary Results in February 2020. These awards will vest and shares will be transferred to the award-holder in February 2020, to the extent performance targets are met.

The performance measures are as agreed in the 2017 Remuneration Policy. Total gross revenue, net System size growth, cash flow and Total Shareholder Return are measured by reference to the three years ending 31 December 2019. Minimum performance is equal to 20% of the maximum award.

72IHG  |  Annual Report and Form 20-F 2017


 

    

    

    

AUDITED

Statement of Directors’ shareholdings and share interests

The Committee believes that share ownership by Executive Directors and senior executives strengthens the link between the individual’s personal interests and those of shareholders.

Guideline Executive Director shareholding requirement

Executive Directors are required to hold shares equal to 300% of salary for the Chief Executive Officer and 200% for any other Executive Directors within five years of their appointment. The number of shares held outright includes all Directors’ beneficial interests and those held by their spouses and other connected persons.

From 2018, the full guideline shareholding requirements will continue for six months, and 50% of the requirements for a further six months, post- cessation of employment.

Percentages are calculated using the number of shares held outright and the 29 December 2017 share price of 4,719p.

Current Directors’ shareholdings

The APP deferred share awards are not subject to performance conditions. Details on the performance conditions to which the unvested LTIP awards are still subject can be found on page 75.

Shares and awards held by Executive Directors

as at 31 December 2017 % of salary

 

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aIn line with Policy, Keith Barr’s shareholding requirement will be 300% of salary, and he is required to meet this within five years of appointment. Keith is expected to hold all shares earned (net of any share sales required to meet tax liabilities), until the shareholding requirement is achieved.

 

Shares and awards held by Executive Directors as at 31 December 2017: number of shares

     

Number of shares held outright

  APP deferred share awards  LTIP share awards
(unvested)
  

Total number of

shares and awards held

    
      2017     2016     2017     2016     2017     2016     2017     2016    
Keith Barr    31,116          24,586          90,987          146,689        
Richard Solomonsa    614     211,594     49,067     59,032     119,403     201,596     169,084     472,222   
Paul Edgecliffe-Johnson    27,443     26,034     28,384     24,621     97,970     117,284     153,797     167,939   

aAs at 30 June 2017.    

AUDITED

 

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Payments for loss of office

The information on page 68 sets out the treatment in relation to Richard Solomons who stepped down from the role of Chief Executive Officer and from the Board on 30 June 2017 and retired from the Company on 30 August 2017. All payments made to Richard are consistent with the approved Directors’ Remuneration Policy on retirement.

Pension entitlements

No Executive Director is entitled to any Defined Benefit pension or related benefit from IHG.

 

89


IHG  Annual Report and Form 20-F 2014

Directors’Remuneration Reportcontinued

Annual Report on Directors’ Remunerationcontinued

Payments to past Directors – benefits

Sir Ian Prosser

Sir Ian Prosser, who retired as a Director on 31 December 2003, had an ongoing healthcare benefit of £2,011 during the year.

Richard Solomons

Richard had an ongoing healthcare benefit of £1,735 in respect of the period 1 July to 31 December 2017.

 

Other information relating to Directors’ remuneration

Non-executive directorships of other companies

Paul Edgecliffe-Johnson has served as aNon-Executive Director of Thomas Cook plc since 26 July 2017. Paul received fees of £25,952 during 2017 in respect of this appointment.

Richard Solomons, Chief Executive Officer continued to serve as aNon-Executive Director of Marks and Spencer plc and in 2017 received fees of £70,000 per annum.

These appointments are permitted under the DR Policy and the amounts are not included in the single figure table of remuneration table on page 70. No other current Executive Director holds anyNon-Executive Director appointments at any other company.

Service contracts and notice periods for Executive Directors

In accordance with the UK Corporate Governance Code, all Executive Directors have rolling service contracts with a notice period of 12 months and are subject to election and annualre-election by shareholders at the AGM.

Dividends paid to Executive Directors

An interimA final dividend for 2016 of 14.8p49.4p per ordinary share (25¢(64.0¢ per ADR) was paid on 26 September 201422 May 2017 to shareholders on the Register of members at the close of business on 22 August 2014.

5 May 2017. A special interim dividend of 174.9p156.4p per ordinary share (293¢(202.5¢ per ADR) was paid on 14 July 201422 May 2017 to shareholders on the Register of members at the close of business on 30 June 2014.5 May 2017.

The 20142017 special dividend was accompanied by a share consolidation to maintain comparability (as far as possible) of the share price before and after the payment of the special dividend. Neither LTIP award holders nor IHG Executive Share Option Plan holdersaward-holders were not entitled to receive the special dividend. Executive Directors holding forfeitable shares under previous years’ annual incentive awards received the special dividend, and their share awards were subject to the share consolidation.

Kirk Kinsell’s deferred sharesAn interim dividend of 24.4p per ordinary share (33.0¢ per ADR) was paid on 6 October 2017 to shareholders on the Register of members at the close of business on 1 September 2017.

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Directors’ Remuneration Report73


Governance

Directors’ Remuneration Report continued

Annual Report on Directors’ Remuneration continued

Relative performance graph

For LTIP purposes, a TSR comparator group of a global hotels index was used. InterContinental Hotels Group PLC is a member of the FTSE 100 share index, and the graph below shows the Company’s TSR performance from 31 December 2008 to 31 December 2017, assuming dividends are heldreinvested, compared with the TSR performance achieved by the FTSE 100 and global hotels indices.

All indices are shown in sterling. This data is sourced directly from Thomson Reuters Datastream by Bank of America Merrill Lynch for IHG.

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Chief Executive Officer’s remuneration

The table below shows the Chief Executive Officer’s single figure of total remuneration for the nine years to 31 December 2017.

Single figure    CEO    2009     2010     2011     2012     2013     2014     2015     2016     2017 

Single figure

of remuneration

£000

   Keith Barr                                                    2,127a 
   Richard Solomons                4,724     4,881     3,131     6,611b     3,197     3,662     2,179c 
   Andrew Cosslett    1,953     5,430     3,770                                     

Annual incentive

received

(% of maximum)

   Keith Barr                                                    69.7 
   Richard Solomons                83.0     68.0     74.0     74.0     75.0     63.9     66.8 
   Andrew Cosslett    0.0     100.0     43.3                                     

Shares received

under the LTIP

(% of maximum)

   Keith Barr                                                      
   Richard Solomons                73.9     100.0     59.0     56.1     50.0     49.4     46.1 
   Andrew Cosslett    46.0     73.8     61.6                                     

aFor Keith Barr, the 2017 figure, in respect of the period 1 July to 31 December 2017, includes aone-off cash payment for relocation costs in lieu of benefits received whilst on international assignment prior to CEO position, as detailed on page 69.

bFor Richard Solomons, the 2014 figure includes aone-off cash payment in respect of pension entitlements which was fully explained in the 2014 report.

cIn respect of period 1 January to 30 June 2017.

Percentage change in remuneration of Chief Executive Officer

We believe that a group comprised ofUK-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 theUK-based Chief Executive Officer.

The table below shows the percentage change in the formremuneration of conditional awards, which were not eligiblethe Chief Executive Officer compared with UK employees between 2016 and 2017 and therefore relates to receiveRichard Solomons. The salary figure for the special dividend, rather than forfeitable shares. To ensure equityUK employee population has been calculated using the 2017 budget for the annual pay review, taking into account any promotions/market adjustments made during the year. The taxable benefits figure is based on P11D taxable benefits for year ending 5 April 2017. For Richard, the only taxable benefit was healthcare.

For the annual incentive, a group of treatment with otherexecutives, who sit directly below Executive Committee members,level, is used as a dividend equivalent was paid in respect of these awards to Mr Kinsell, and his awards werecomparator group as they are subject to the share consolidation.

Payments for loss of office (audited information)

Tom Singer stepped down fromsame performance measures as the Board and his role as Group Chief Financial Officer on 1 January 2014. In line with his contractual agreement and the Remuneration Committee’s policy on termination of employment, Mr Singer was not paid any salary or benefits (or compensation in lieu) in respectExecutive Officer. To ensure consistency of the period after 1 January 2014, and did not receive any compensationcomparison, an annual incentive percentage change is also calculated for loss of office.

The footnotes to the single total figure table on page 82 set out the impact of Mr Singer’s resignation on his APP and LTIP awards.

Payments to past directors – benefits (audited information)

Sir Ian Prosser, who retired as a Director on 31 December 2003, had an ongoing healthcare benefit of £1,379 during the year.

Payments to past directors – ICETUS cash out (audited information)

In 2014, the Company looked to reduce the risks and volatility from the remaining unfunded ICETUS pension arrangement by offering members an opportunity to cash out the ICETUS element of their pension on a basis that is fair and reasonable, both to them and to shareholders. This is part of the process of redrawing IHG’s pension arrangements and minimising the future risks to the Company.

A number of past directors received one-off payments, following which they will have no future entitlement to any benefit from ICETUS:Richard.

 

Former DirectorValue in 2014
£
Andrew Cosslett1  No value to disclose
Richard Hartman2Chief Executive Officer
(% change)
  74,968

UK employees

(% change)

Richard North3Salary 3,386,296
Sir Ian Prosser  8,597+2.5 +2.7
Taxable benefits+11.0+7.2
Annual incentive+7.3+16.7

Relative importance of spend on pay

The table below sets out the actual expenditure of the Group in 2017 and 2016 on corporate employee remuneration and distributions to shareholders, and shows the difference in spend between those years.

For 2016, the total distributions to shareholders included a special dividend of 438.2p following the completion of the asset-light strategy in 2015.

 

1A gross cash payment of £5,114,920 was made in lieu of any future entitlement to ICETUS benefits, in respect of which £5,266,788 had been disclosed in the 2011 Annual Report on Directors’ Remuneration based on the Cash Equivalent Transfer Value methodology of valuing pensions applicable at the time.
2A gross cash payment of £497,987 in lieu of any future entitlement to ICETUS benefits, in respect of which £423,019 had been disclosed in the 2007 Annual Report on Directors’ Remuneration based on the Cash Equivalent Transfer Value methodology of valuing pensions applicable at the time.
3A gross cash payment of £6,444,041 was made in lieu of any future entitlement to ICETUS benefits, in respect of which £3,057,744 had been disclosed in the 2004 Annual Report on Directors’ Remuneration based on the Cash Equivalent Transfer Value methodology of valuing pensions applicable at the time.

Share options

In 2013, the gain before tax, made by Richard Solomons on the exercise of options was £4,663,884.LOGO

 

 

Single total figure of remuneration: Non-Executive Directors (audited information)

          Fees (£000)     Taxable benefits2
(£000)
     Total (£000) 
Non-Executive Director  Committee appointments1  Date of original appointment   2014     2013     2014     2013     2014     2013 
Patrick Cescau  LOGO   1 January 2013     412       400       15       14       427       414  
Ian Dyson3  LOGO  LOGO  LOGO   1 September 2013     88       23       2       1       90       24  
Jo Harlow4  LOGO  LOGO  LOGO   1 September 2014     23       n/a       0       n/a       23       n/a  
David Kappler5  LOGO  LOGO  LOGO   21 June 2004     47       109       1       2       48       111  
Jennifer Laing  LOGO  LOGO  LOGO   25 August 2005     83       80       3       2       86       82  
Jonathan Linen6  LOGO  LOGO   1 December 2005     71       69       81       90       152       159  
Jill McDonald7  LOGO  LOGO   1 June 2013     71       40       2       3       73       43  
Luke Mayhew  LOGO  LOGO  LOGO   1 July 2011     94       91       3       2       97       93  
Dale Morrison8  LOGO  LOGO  LOGO   1 June 2011     84       69       22       22       106       91  
Ying Yeh  LOGO  LOGO  LOGO   1 December 2007     71       69       72       72       143       141  

1See page 57 for Board Committee membership key.
2Benefits include taxable travel and accommodation expenses to attend Board meetings away from home location; under concessionary HM Revenue & Customs rules, non-UK based Non-Executive Directors are not subject to tax on travel expenses for the first five years. This is reflected in the taxable benefits figures for Jonathan Linen, Dale Morrison and Ying Yeh.
3Ian Dyson was appointed as a Non-Executive Director on 1 September 2013 and became Chairman of the Audit Committee on 1 April 2014. His fee increased accordingly from that date.
4Jo Harlow was appointed as a Non-Executive Director on 1 September 2014. Her fee was pro-rated accordingly from her start date.
5David Kappler retired as a Non-Executive Director on 31 May 2014.
6Jonathan Linen retired as a Non-Executive Director on 31 December 2014.
7Jill McDonald was appointed as a Non-Executive Director on 1 June 2013. Her fee was pro-rated accordingly from her start date.
8Dale Morrison became Senior Independent Non-Executive Director with effect from 31 May 2014 and his fee increased accordingly from that date.

7490IHG  |  Annual Report and Form 20-F 2017


Implementation of Directors’ Remuneration Policy in 20152018

This section explains how the DR Policy will be applied in 2015. It is subject to an advisory vote by shareholders at the 2015 AGM.2018.

Salary: Executive Directors

Directors’ salaries are agreed annually in line with the DR Policy. The following salaries will apply from 1 April 2015:2018.

 

Executive Director%
increase
 2015
£
 2015
$
 2014
£
 2014
$
 
Richard Solomons 3.5   792,000      765,000     
Paul Edgecliffe-Johnson1 9.5   460,000      420,000     
Kirk Kinsell2 n/a      n/a      793,500  
Tracy Robbins 2.5   448,000      437,000     
Executive Director    Increase
%
     

2018

£

     

2017

£

 
Keith Barr    3.0     798,250     775,000a 
Paul Edgecliffe-Johnson    4.5     560,200     536,000 

 

1aPaul Edgecliffe-Johnson was appointedPer annum salary on appointment to CEO on 1 July 2017.

In line with policy, increases for the Executive Directors are consistent with the range of increases applying to the Board and the role of Group Chief Financial Officer effective as of 1 January 2014. In line with the DR Policy for newly appointed or promoted Executive Directors, he was appointed on a salary set below benchmark policy level and, following strong performance in his first year in role, an increase higher than that of the corporate UK and US employee population has been agreed by the Remuneration Committee for 2015.

2Kirk Kinsell was paid in US dollars and his annual salary for 2014 is shown in US dollars above. The equivalent sterling value calculated using an exchange rate of $1=£0.61 is £484,035. Mr Kinsell left the Board and IHG on 13 February 2015.

The overall budget for salary increases for 2015 for UK and US corporate employeesemployee population, including for Paul Edgecliffe-Johnson where the increase reflects very strong individual performance during 2017.

Elie Maalouf was appointed to the Board with effect from 1 January 2018 as detailed on page 46. Elie’s remuneration on appointment is 3.0%in line with the DR Policy and 3.5% respectively.a salary of $752,000 will apply from 1 April 2018. Elie has share awards granted in respect of his role prior to becoming a Board director which are due to vest over the coming years.

APPLTIP and LTIPAPP performance measures and targets

LTIP

The measures for the 2018/20 LTIP cycle are as per the 2017/19 cycle and the Directors’ Remuneration Policy available on the Company website,www.ihgplc.com/investors under Corporate governance. The performance measures and targetsweightings, together with the full cash flow target disclosures for the 20152017/19 cycle as referenced in last year’s report, are shown below.

         Threshold       Maximum         2017/19 cycle         2018/20 cycle
         (%)/       award                
Performance        maximum   Weighting   (% of   Threshold   Maximum   Threshold   Maximum
measure    Definition   vesting (%)   (%)   salary)   performance   performance   performance   performance
Relative 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.  20/100  40  82  Median of comparator group  Upper quartile of comparator group  

Median of
comparator

group

  Upper quartile of comparator group
Cash flow   Cumulative annual cash generation over three-year performance period.  20/100  20  41  

USD

1.29 bn

   

USD

1.72 bn

   As a result of work to accelerate the Group’s growth, cash flow targets for the three years from 2018 are not available at the time of writing. These will be disclosed in next year’s report.
Total gross revenue   Cumulative increase over three-year performance period.  20/100  20  41  

The targets for these measures are, in the opinion of the Directors, commercially sensitive, and will therefore be disclosed in full retrospectively at the end of the LTIP cycle. Disclosure in advance

would give IHG’s major competitors an unfair commercial advantage, providing them with access to key financial and growth targets from IHG’s three-year plan. These competitors would not be subject to the same obligation to make such information available, as they are either unlisted or listed on a stock exchange other than the London Stock Exchange. Full disclosure of targets and performance will be provided retrospectively after the end of the performance period.

Net System size growth   Increase in number of IHG rooms over three-year performance period.  20/100  20  41  

APP

The 2018 APP measures are in line with the approved DR Policy and will be 70% based on EBIT achievement vs target, 15% based on net System size growth and 15% based on other key strategic measures that are reviewed annually and set in line with business priorities. EBIT is a focal measure of business performance for our shareholders and is a function of other critical measures, such as RevPAR, profit margin and fee revenues. The Committee has determined that it is particularly important to incentivise and reward management for achieving a stretching target for net System size growth over the 2015/17 LTIP cycle arenext year, so this will make up 15% of the same as2018 APP. The remaining 15% will be made up of other key objectives for the 2014 APPyear, based on strategic initiatives being implemented to support IHG’s future growth. Further detail and the 2014/16 LTIP cycle respectively.

The actual targets under the performance measures for the APP for 2015 are not disclosed at this stage, as they are, in the opinion of the Directors, commercially sensitive. Disclosure would risk providing IHG’s major competitors with an unfair advantage as these companies are either unlisted or listed on a stock exchange other than the London Stock Exchange and therefore not subject to the same obligation to disclose incentive plan targets. We will consider during 2015 what further transparency we can provide shareholders without disadvantaging the business.

A clawback provision will be introducedrationale in respect of the 2015 APP cash awardskey strategic objectives will be disclosed in the 2018 remuneration report.

The Committee has determined that the targets under the EBIT, net System size growth and 2015/17 LTIP cycle awards made to Executive Directors. The clawback provision will apply for three years fromother strategic measures are commercially sensitive at this time. However, the date of payment (for the APP cash award)targets set and the date of vesting (for the LTIP award). Clawback mayoutcomes against those targets will be operateddisclosed in full in the event2018 remuneration report and are in line with the DR Policy.

Measure

DefinitionWeighting (%)Performance objective

EBITEarnings Before Interest and Tax – a measure of IHG’s operating profit before exceptional items for the year70Achievement against target

Net System size growthIncrease in absolute number of rooms15Achievement against target

Strategic measuresKey strategic measures which are reviewed annually and set in line with strategic priorities15Achievement against target

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Directors’ Remuneration Report75


Governance

Directors’ Remuneration Report continued

Annual Report on Directors’ Remuneration continued

AUDITED

Single total figure of gross misconduct on the part of the employee and/or material misstatement in Company or Group financial statements.remuneration:Non-Executive Directors

     

Committee

appointments

    

Date of

original

appointment

                              
                    

Fees

£000

           

Taxable benefits

£000

           

Total

£000

Non- Executive Director            2017    2016    2017    2016    2017    2016
Patrick Cescau          LOGO        01/01/13  422  412  21  19  443  431
Anne Busquet     LOGO  LOGO LOGO  01/03/15  74  73  6  4  80  77
Ian Dyson     LOGO  LOGO LOGO  01/09/13  99  97  3  3  102  100
Jo Harlow     LOGO  LOGO LOGO  01/09/14  81  73  3  3  84  76
Luke Mayhew   LOGO LOGO  LOGO LOGO  01/07/11  93  97  2  3  95  100
Jill McDonald     LOGO  LOGO LOGO  01/06/13  87  81  5  3  92  84
Dale Morrison     LOGO  LOGO LOGO  01/06/11  107  97  55  31  162  128
Malina Ngai     LOGO  LOGO LOGO  01/03/17  62    7    69  

These new provisions apply in addition to the existing malus provisions on the LTIP and APP deferred awards that provide for unvested awards to be reduced at the discretion

LOGO

See page 47 for Board and Committee

membership key and attendance.

Fees: Luke Mayhew stepped down as Chairman of the Remuneration Committee on 30 September 2017 and was replaced by Jo Harlow. The fee for Malina Ngai reflects her appointment from 1 March 2017.

Benefits: ForNon-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 basedNon-Executive Directors are not subject to tax on travel expenses for the first five years; this is reflected in circumstances including:the taxable benefits for Anne Busquet and Malina Ngai, and for the period up to 31 May 2016 for Dale Morrison.

Incentive awards:Non-Executive Directors are not eligible for any incentive awards.

Pension benefit:Non-Executive Directors are not eligible for any pension contributions or benefit.

 

discovery
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Further details on changes to the

Board can be found on page 49.

Shares held byNon-Executive Directors as at 31 December 2017: number of a material misstatement or restatementshares

TheNon-Executive Directors who held shares are listed in the Company’s or any Group Company’s audited financial accounts (other than as a result of a change in accounting practice) for a period that was wholly or partly before the end of the performance period by reference to which the APP cash award was determined; and/or

table below:

 

action or conduct of a participant that, in the reasonable opinion of the Committee, amounts to fraud or gross misconduct that causes significant damage or potential damage to IHG’s prospects, finances or brand reputation.
Non-Executive Director    2017     2016 
Luke Mayhew    1,373b     1,435 
Dale Morrisona    3,116b             3,255 
Jo Harlowa            1,000      

aShares held in the form of American Depository Receipts.

bThe shares held in 2017 are lower due to the share consolidation on 8 May 2017.

Fees:Non-Executive Directors

The fees forNon-Executive Directors’ fees Directors are reviewed and agreed annually in line with the DR Policy.

Patrick Cescau All of theNon-Executive Directors waived any fee increase for 2015.2018. The following annual fee levels for 2018 will applytherefore remain unchanged from 1 January 2015:2017 as follows:

 

Non-Executive
Director
Role2015
£
 2014
£
 
Patrick CescauChairman of the Board 412,000   412,000  
Ian Dyson1Chairman of Audit Committee 96,550   93,750  
Jo Harlow2Non-Executive Director 72,600   68,500  
David Kappler1Senior Independent Non-Executive Director and Chairman of Audit Committee n/a   111,750  
Jennifer LaingChairman of Corporate Responsibility Committee 85,000   82,500  
Jonathan Linen3Non-Executive Director n/a   70,500  
Jill McDonaldNon-Executive Director 72,600   70,500  
Luke MayhewChairman of Remuneration Committee 96,550   93,750  
Dale Morrison1Senior Independent Non-Executive Director 96,550   93,750  
Ying YehNon-Executive Director 72,600   70,500  
Non-Executive Director         Role   

2018

£000

   

2017

£000

 
Patrick Cescau  Chairman of the Board            422             422 
Anne Busquet  Non-Executive Director  74   74 
Ian Dyson  Chairman of Audit Committee  99   99 
Jo Harlow  Chairman of Remuneration Committee  99   74a 
Luke Mayhew  Non-Executive Director  74   99b 
Jill McDonald  Chairman of Corporate Responsibility Committee  87   87 
Dale Morrison  Senior IndependentNon-Executive Director  107   107 
Malina Ngai  Non-Executive Director  74   62c 

 

1a David Kappler stepped downJo Harlow’s 2017 fee relates toNon-Executive Director position prior to new role of Chairman of Remuneration Committee.

bLuke Mayhew’s 2017 fee relates to his position as Chairman of the Audit Committee on 1 April 2014, succeeded by Ian Dyson, and retired as Senior Independent Non-Executive Director on 31 May 2014, succeeded by Dale Morrisson.Remuneration Committee.
2Jo Harlow was appointed as Non-Executive Director effective as of 1 September 2014. Her % salary increase for 2015 brings her remuneration in line with the other Non-Executive Directors with similar roles.
3Jonathan Linen retired as a Non-Executive Director on 31 December 2014.

Luke Mayhew, Remuneration Committee Chairman

16 February 2015

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c
91Malina Ngai’s annual fee for 2017 ispro-rated to her start date of 1 March 2017.


IHG  Annual Report and Form 20-F 2014
Non-Executive Directors’ letters of appointment and notice periods

GroNon-Executive Directors have letters of appointment, which are available upon request from the Company Secretary’s office.

upPatrick Cescau,Non-Executive Chairman, is subject to 12 months’ notice. No otherFinNon-Executive Directors are subject to notice periods. AllancNon-Executive Directors are subject to election and annualialre-electionStatements by shareholders at the AGM.

 

9476IHG  |  Annual Report and Form 20-F 2017


Remuneration Committee details

Key objectives and summary of responsibilities

The Remuneration Committee agrees, on behalf of the Board, all aspects of the remuneration of the Executive Directors and the Executive Committee, and agrees the strategy, direction and policy for the remuneration of the senior executives who have a significant influence over the Group’s ability to meet its strategic objectives. The Committee’s role and responsibilities are set out in its Terms of Reference (ToR), which are reviewed annually and approved by the Board.

LOGO

The ToR are available on IHG’s website at

www.ihgplc.com/investors under Corporate governance.

The Committee’s key focus area during the year was the implementation of the revised Remuneration Policy as the Group initiates plans to accelerate its growth.

Membership and attendance at meetings

The Committee met six times during 2017 and details of the Committee’s membership and attendance at the meetings are set out on page 47. During 2017 there were some changes to the Committee membership and this is detailed on pages 49 and 69.

During 2017 the Committee was supported internally by the Chairman, the Group’s CEO and CFO, and the heads of HR and Reward as necessary. All attend by invitation to provide further background information and context to assist the Committee in its duties. They are not present for any discussions that relate directly to their own remuneration or where their attendance would not be appropriate.

LOGO

Details of Committee attendance

can be found on page 47.

Reporting to the Board

The Committee Chairman updates the Board on all key issues raised at Committee meetings. Papers and minutes for each meeting are also circulated to all Board members for review and comment.

Shareholder engagement

The top 20 shareholders, as per the Share Register on

7 November 2017, were contacted regarding the change in Chairman of the Remuneration Committee and invited to discuss any matters pertaining to the Remuneration Policy.

Effectiveness of the Committee

All members are independentNon-Executive Directors, as required under the ToR. All members have the necessary experience and expertise to meet the Committee’s responsibilities. The effectiveness of the Committee is monitored and assessed annually through the Board’s evaluation questionnaires and interviews, and informally by the Committee’s advisers. The annual review included assessment of the effectiveness of the Committee using a guide prepared by PwC. This guide covers both the Committee’s behaviours and its processes.

Other focus areas and activities

The focus areas and activities discussed by the Committee during 2017 were: Review and approval of performance outcomes and set targets for 2017; Executive Committee changes and remuneration; diversity and inclusion including the UK gender pay disclosure; and consideration of external remuneration developments and best practice.

Remuneration advisers

The Committee continued to retain PricewaterhouseCoopers LLP (PwC) throughout 2017 as independent advisers. Fees of £85,835 were paid to PwC in respect of advice provided to the Committee on executive remuneration matters during the year. This was in the form of an agreed fee for support in preparation of papers and attendance at meetings, with work on additional items charged at hourly rates. The terms of engagement for PwC are available from Company Secretary’s office on request.

PwC also provided other consulting services to the Group during 2017. In respect of the services for the CEO succession, fees of £127,500 were paid to PwC in 2017. Much work had to be done confidentially which, in other roles and circumstances, would have been donein-house. The period of work commenced before the appointment of the Chief Human Resources Officer.

PwC is a member of the Remuneration Consultants Group and as such, voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK and the professional standards to which they have committed to adhere when advising remuneration committees. PwC was appointed following a competitive tender process and the Committee is satisfied that the advice received from PwC is objective and independent.

Voting at the Company’s AGMs

There is no binding vote in respect of the DR Policy at the 2018 AGM as it remains unchanged from 2017.

The outcome of the votes in respect of the DR Policy and Report for 2014 to 2017 are shown below:

     Directors’ Remuneration Policy (binding vote)    Directors’ Remuneration Report (advisory vote)
AGM   Votes for   Votes against   Abstentions   Votes for   Votes against   Abstentions
2017          

120,328,350

(95.76%)

  

5,332,320

(4.24%)

  

261,819

  

119,155,451

(96.42%)

  

4,426,549

(3.58%)

  

2,340,489

2016        

167,998,487

(98.58%)

  

2,427,740

(1.42%)

  5,056,017
2015        

149,415,662

(96.99%)

  

4,633,208

(3.01%)

  3,642,496
2014  

155,440,907

(90.94%)

  

15,483,775

(9.06%)

  906,025  

158,131,479

(94.01%)

  

10,076,027

(5.99%)

  3,623,200

Jo Harlow

Chairman of the Remuneration Committee

19 February 2018

IHG  |  Annual Report and Form 20-F 2017  |  Governance  |  Directors’ Remuneration Report77


LOGO

   Group Financial Statements

Group Financial

Statements

            Crowne Plaza London – Kings Cross, United Kingdom

 

Book

LOGO

‘Guest Journey’ – Step three

TheBook phase of the ‘Guest Journey’ involves guests actually making a reservation.

They can do this using a variety of methods; both direct (through digital and voice) and indirect (through online travel intermediaries, and business and leisure travel agents).

 

92


78
 

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93


IHG  |  Annual Report and Form 20-F 20142017


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IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements                  79


Group Financial Statements

StatementStatement ofDirectors’Responsibilities Directors’ Responsibilities

 

Financial Statements and accounting records

The Directors are required to prepare financial statements for the Company and the Group at the end of each financial year in accordance with all applicable laws and regulations. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:

 

selectSelect suitable accounting policies and apply them consistently;

 

makeMake judgements and accounting estimates that are reasonable;

 

stateState 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;

 

stateState for the Company Financial Statements whether applicable UK accounting standards have been followed; and

 

preparePrepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.

The Directors have responsibility for ensuring that the Group keeps proper accounting records which disclose with reasonable accuracy the financial position of the Group and the Company to enable them to ensure that the Financial Statements comply with the Companies Act 2006 and, as regards the Consolidated Financial Statements, Article 4 of the EU IAS Regulation. The Directors are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group, and taking reasonable steps to prevent and detect fraud and other irregularities.

Disclosure Guidance and Transparency Rules

The Board confirms that to the best of its knowledge:

 

theThe Financial Statements have been prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group taken as a whole; and

 

theThe 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 Form20-F, taken as a whole is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s performance, business model and strategy.

Disclosure of information to Auditor

The Directors who held office as at the date of approval of this report confirm that they have taken steps to make themselves aware of relevant audit information (as defined by Section 418(3) of the Companies Act 2006). None of the Directors are aware of any relevant audit information which has not been disclosed to the Company’s Auditor.

Management’s report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group, as defined in Rule 13a-15(f)13a–15(f) and 15d-15(f)15d–15(f) under the Securities Exchange Act of 1934 as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

The Group’s internal control over financial reporting includes policies and procedures that:

 

pertainPertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the Group’s transactions and dispositions of assets;

 

areAre designed to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the Financial Statements in accordance with IFRS as issued by the IASB and the IFRS 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

 

provideProvide 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 20142017 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 20142017 the Group’s internal control over financial reporting was effective.

During the period covered by this document the Group transitioned from the 1992 to the 2013 Internal Control-Integrated Framework criteria issued by COSO. Therethere were no other changes in the Group’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the effectiveness of the internal controls over financial reporting.

The Group’s internal control over financial reporting at 31 December 2014,2017, together with the Group’s Consolidated Financial Statements, were audited by Ernst & Young LLP, an independent registered public accounting firm. Their report on internal control over financial reporting can be found on page 99.87.

For and on behalf of the Board

 

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Keith Barr

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Richard Solomons

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Paul Edgecliffe-Johnson

Chief Executive OfficerChief Financial Officer
1619 February 201520181619 February 20152018

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IndependentAuditor’sIndependent Auditor’s US ReportReport

 

Report of independent registered public accounting firm on internal control over financial reporting

To the Board of Directors and Shareholders of InterContinental Hotels Group PLC.

Opinion on Internal Control over Financial Reporting

We have audited InterContinental Hotels Group PLC’s internal control over financial reporting as of 31 December 2014,2017, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework), (the COSO criteria). In our opinion, InterContinental Hotels Group PLC’sPLC (the Company) maintained, in all material respects, effective internal control over financial reporting as of 31 December 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying 2017 Consolidated Financial Statements of InterContinental Hotels Group PLC, and our report dated 19 February 2018 expressed an unqualified opinion thereon.

Basis for opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the Annual Report and Form 20-F 2014.accompanying Management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Group’sCompany’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 Public Company Accounting Oversight Board (United States).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 directorsDirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, InterContinental Hotels Group PLC maintained, in all material respects, effective internal control over financial reporting as of 31 December 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying Group statement of financial position of InterContinental Hotels Group PLC as of 31 December 2014 and 2013, and the related Group income statement, Group statement of comprehensive income, Group statement of changes in equity and Group statement of cash flows for each of the three years in

the period ended 31 December 2014, and our report dated 16 February 2015 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

London, England

1619 February 20152018

Report of independent registered public accounting firm

To the Board of Directors and Shareholders 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 Company) as of 31 December 20142017 and 2013,2016, and the related Group statements of income, statement, Group statement of comprehensive income, Group statement of changes in equity and Group statement of cash flows for each of the three years in the period ended 31 December 2014. These Financial Statements are2017, and the responsibility ofrelated notes (collectively referred to as the Group’s management. Our responsibility is to express an opinion on these Financial Statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)“Financial Statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the Financial Statements referred to abovefinancial statements present fairly, in all material respects, the consolidated financial position of InterContinental Hotels Group PLC at 31 December 20142017 and 2013,2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended 31 December 2014,2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), InterContinental Hotels Group PLC’sthe Company’s internal control over financial reporting as of 31 December 2014,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework), and our report dated 1619 February 20152018 expressed an unqualified opinion thereon.

Basis for Opinion

These Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s Financial Statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

ERNST & YOUNG LLP

We have served as auditors since IHG’s listing in April 2003

and of the Group’s predecessor businesses since 1988.

London, England

1619 February 20152018

Notes:

1.The maintenance and integrity of the InterContinental Hotels Group PLC website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

2.Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
 

 

LOGO

99


IHG  |  Annual Report and Form 20-F 20142017  |  Group Financial Statements  |  Group Financial Statements87


Group Financial Statements

GroupFinancial StatementsGroup Financial Statements

Group income statement

                   2017             2016             2015 

For the year ended

31 December 2017

    Note     

Before
exceptional
items

$m

  

Exceptional
items
(note 5)

$m

  

Total

$m

     

Before
exceptional
items

$m

  

Exceptional
items
(note 5)

$m

  Total
$m
     

Before
exceptional
items

$m

  

Exceptional
items

(note 5)

$m

  Total
$m
 
Revenue    2     1,784      1,784     1,715      1,715     1,803      1,803 
Cost of sales          (608     (608    (580     (580    (640     (640
Administrative expenses          (328  (51  (379    (339  (13  (352    (395  (25  (420
Share of gains/(losses) of associates and joint ventures    2     3      3     (2     (2    (3     (3
Other operating income and expenses          11   73   84     9      9     11   880   891 
           862   22   884     803   (13  790     776   855   1,631 
Depreciation and amortisation    2     (103     (103    (96     (96    (96     (96
Impairment charges    2        (18  (18       (16  (16       (36  (36
Operating profit    2     759   4   763     707   (29  678     680   819   1,499 
Financial income    6     4      4     6      6     5      5 
Financial expenses    6     (89     (89    (93     (93    (92     (92
Profit before tax          674   4   678     620   (29  591     593   819   1,412 
Tax    7     (201  116   (85    (186  12   (174    (180  (8  (188
Profit for the year from continuing operations          473   120   593     434   (17  417     413   811   1,224 
Attributable to:                                                

Equity holders of the parent

          472   120   592     431   (17  414     411   811   1,222 

Non-controlling interest

          1      1     3      3     2      2 
           473   120   593     434   (17  417     413   811   1,224 
Earnings per ordinary share    9                                           
Continuing and total operations:                                                

Basic

                  306.7¢             195.3¢             520.0¢ 

Diluted

                  305.2¢             193.5¢             513.4¢ 

LOGO

Notes on pages 95 to 143 form an integral

part of these Financial Statements.

88IHG | Annual Report and Form 20-F 2017


 

    

For the year ended 31 December 2014

    2014    2013    2012 
    

 

Before

  Exceptional       Before  Exceptional       Before  Exceptional    
    exceptional  items       exceptional  items       exceptional  items    
    items  (note 5)  Total    items ��(note 5)  Total    items  (note 5)  Total 
 Note  $m  $m  $m     $m  $m  $m     $m  $m  $m 
Revenue  2    1,858        1,858      1,903        1,903      1,835        1,835  
Cost of sales      (741      (741    (784      (784    (772      (772
Administrative expenses      (382  (101  (483    (374  (167  (541    (372  (16  (388
Share of (losses)/profits of associates and joint ventures  2    (4      (4    2    6    8      3        3  
Other operating income and expenses      16    130    146      6    166    172      5    (11  (6
       747    29    776      753    5    758      699    (27  672  
Depreciation and amortisation  2    (96      (96    (85      (85    (94      (94
Impairment reversal  2                                    23    23  
Operating profit  2    651    29    680      668    5    673      605    (4  601  
Financial income  6    3        3      5        5      3        3  
Financial expenses  6    (83      (83    (78      (78    (57      (57
Profit before tax      571    29    600      595    5    600      551    (4  547  
Tax  7    (179  (29  (208    (175  (51  (226    (151  142    (9
Profit for the year from continuing operations      392        392      420    (46  374      400    138    538  
Attributable to:                                            
Equity holders of the parent      391        391      418    (46  372      399    138    537  
Non-controlling interest      1        1      2        2      1        1  
       392        392      420    (46  374      400    138    538  
Earnings per ordinary share  9                                          
Continuing and total operations:                                            
Basic              158.3¢              140.9¢              187.1¢  
Diluted              156.4¢              139.3¢        ��     183.9¢  

Notes on pages 107 to 153 form an integral part of these Financial Statements.

100


Group statement of comprehensive income

 

                                    
For the year ended 31 December 2014  2014
$m
  2013
$m
  2012
$m
 
Profit for the year   392    374    538  
Other comprehensive income             
Items that may be subsequently reclassified to profit or loss:             

Gains on valuation of available-for-sale financial assets, net of related tax charge of $1m (2013 $nil, 2012 $nil)

   11    28    1  

Losses relating to cash flow hedges reclassified to financial expenses

           1  

Exchange gains/(losses) on retranslation of foreign operations, net of related tax credit of $1m (2013 $2m, 2012 $3m)

   42    (35  24  

Exchange losses reclassified to profit on hotel disposal

       46      
    53    39    26  
Items that will not be reclassified to profit or loss:             

Re-measurement (losses)/gains on defined benefit plans, net of related tax credit of $7m (2013 charge of $20m, 2012 credit of $5m)

   (18  20    (10

Tax related to pension contributions

   2        18  
    (16  20    8  
Total other comprehensive income for the year   37    59    34  
Total comprehensive income for the year   429    433    572  
Attributable to:             
Equity holders of the parent   428    433    571  
Non-controlling interest   1        1  
    429    433    572  

Notes on pages 107 to 153 form an integral part of these Financial Statements.

LOGO

For the year ended 31 December 2017    

2017
$m

     2016
$m
     2015
$m
 
Profit for the year    593     417     1,224 
Other comprehensive income                  
Items that may be subsequently reclassified to profit or loss:                  

Gains on valuation ofavailable-for-sale financial assets, net of related tax charge of $3m (2016: $nil, 2015: $nil)

    41     5     2 

Fair value gains reclassified to profit on disposal ofavailable-for-sale financial assets

    (73    (7     

Exchange (losses)/gains on retranslation of foreign operations, net of related tax credit of $1m (2016: charge of $3m, 2015: charge of $1m)

    (77    182     (2

Exchange losses reclassified to profit on hotel disposal

              2 
     (109    180     2 
Items that will not be reclassified to profit or loss:                  

Re-measurement (losses)/gains on defined benefit plans, including related tax credit of $nil

         

(2016: credit of $4m, 2015: charge of $4m)

    (4         9 

Deferred tax charge on defined benefit plans arising from significant US tax reform

    (11          

Tax related to pension contributions

              7 
     (15         16 
Total other comprehensive (loss)/income for the year    (124    180     18 
Total comprehensive income for the year    469     597     1,242 
Attributable to:                  

Equity holders of the parent

    467     594     1,240 

Non-controlling interest

    2     3     2 
     469     597     1,242 

 

101


LOGO

Notes on pages 95 to 143 form an integral

part of these Financial Statements.

IHG | Annual Report and Form 20-F 20142017 |  Group Financial Statements  |  Group Financial Statements89


GroGroup Financial StatementsupFinancial 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
 Unrealised
gains and
losses
reserve
$m
   

Currency

translation

reserve
$m

   

Retained
earnings

$m

 

IHG
share-

holders’

equity

$m

 

Non-

controlling

interest

$m

 

Total

equity

$m

      Equity
share
capital
$m
   

Capital
redemption
reserve

$m

   

Shares
held by
employee
share
trusts

$m

 Other
reserves
$m
 Unrealised
gains and
losses
reserve
$m
 Currency
translation
reserve
$m
 Retained
earnings
$m
 

IHG share-
holders’
equity

$m

 Non-
controlling
interest
$m
 Total
equity
$m
 
At 1 January 2014   189   12     (38 (2,906 100 ��   227     2,334   (82 8   (74
At 1 January 2017    141    9    (11 (2,860 111  451  1,392  (767 8  (759
Profit for the year                              391   391   1   392                         592  592  1  593 
Other comprehensive income:                        
Other comprehensive income                        
Items that may be subsequently reclassified to profit or loss:                                                

Gains on valuation of available-for-sale financial assets

                   11             11       11                   41        41     41 

Exchange differences on retranslation of foreign operations

                         42        42       42  

Fair value gain reclassified to profit on disposal ofavailable-for-sale financial asset

                 (73       (73    (73

Exchange losses on retranslation of foreign operations

                    (78    (78 1  (77
                   11     42        53       53                   (32 (78    (110 1  (109
Items that will not be reclassified to profit or loss:                                                

Re-measurement losses on defined benefit plans

                              (18 (18     (18                       (4 (4    (4

Tax related to pension contributions

                              2   2       2  

Deferred tax charge on defined benefit plans arising from significant US tax reform

                       (11 (11    (11
                              (16 (16     (16                       (15 (15    (15
Total other comprehensive income                   11     42     (16 37       37  
Total other comprehensive (loss)/income for the year                 (32 (78 (15 (125 1  (124
Total comprehensive income for the year                   11     42     375   428   1   429                   (32 (78 577  467  2  469 
Repurchase of shares                              (110 (110     (110
Transaction costs relating to shareholder returns                              (1 (1     (1
Transfer of treasury shares to employee share trusts            (20          20          
Purchase of own shares by employee share trusts            (58                   (58     (58            (3             (3    (3
Release of own shares by employee share trusts            60                  (60                        29           (29         
Equity-settled share-based cost                              28   28       28                         29  29     29 
Tax related to share schemes                              12   12       12                         9  9     9 
Equity dividends paid                              (942 (942 (1 (943                       (593 (593 (3 (596
Exchange adjustments   (11       1   10                                13    1      (14                  
At 31 December 2014   178   12     (35 (2,896 111     269     1,636   (725 8   (717
At 31 December 2017    154    10    (5 (2,874 79  373  1,405  (858 7  (851

All items above are shown net of tax.

Notes on pages 107 to 153 form an integral

LOGO

Notes on pages 95 to 143 form an integral

part of these Financial Statements.

90IHG  |  Annual Report and Form 20-F 2017


 

    

102


Group statement of changes in equitycontinued

    

    

    Equity
share
capital
$m
   

Capital
redemption
reserve

$m

   

Shares
held by
employee
share
trusts

$m

  Other
reserves
$m
  Unrealised
gains and
losses
reserve
$m
   

Currency

translation

reserve
$m

  

Retained
earnings

$m

  

IHG share-

holders’

equity

$m

  

Non-

controlling

interest

$m

  

Total

equity

$m

 
At 1 January 2013   179     11     (48  (2,901  72     214    2,781    308    9    317  
Profit for the year                              372    372    2    374  
Other comprehensive income:                                            
Items that may be subsequently reclassified to profit or loss:                                            

Gains on valuation of available-for-sale financial assets

��                    28             28        28  

Exchange differences on retranslation of foreign operations

                          (33      (33  (2  (35

Exchange losses reclassified to profit on hotel disposal

                          46        46        46  
                      28     13        41    (2  39  
Items that will not be reclassified to profit or loss:                                            

Re-measurement gains on defined benefit plans

                              20    20        20  
                               20    20        20  
Total other comprehensive income                     28     13    20    61    (2  59  
Total comprehensive income for the year                     28     13    392    433        433  
Issue of ordinary shares   5                               5        5  
Repurchase of shares                              (283  (283      (283
Purchase of own shares by employee share trusts             (53                   (53      (53
Release of own shares by employee share trusts             64                 (61  3        3  
Equity-settled share-based cost                              27    27        27  
Tax related to share schemes                              11    11        11  
Equity dividends paid                              (533  (533  (1  (534
Exchange adjustments   5     1     (1  (5                         
At 31 December 2013   189     12     (38  (2,906  100     227    2,334    (82  8    (74
      Equity
share
capital
$m
  

Capital
redemption
reserve

$m

  

Shares
held by
employee
share
trusts

$m

  Other
reserves
$m
  Unrealised
gains and
losses
reserve
$m
  Currency
translation
reserve
$m
   Retained
earnings
$m
  

IHG share-
holders’
equity

$m

  Non-
controlling
interest
$m
  Total
equity
$m
 
At 1 January 2016    169   11   (18  (2,888  113   269    2,653   309   10   319 
Profit for the year                       414   414   3   417 
Other comprehensive income                                           
Items that may be subsequently reclassified to profit or loss:                                           

Gains on valuation ofavailable-for-sale financial assets

                5          5      5 

Exchange gains on retranslation of foreign operations

                   182       182      182 

Fair value gain reclassified to profit on disposal ofavailable-for-sale financial asset

                (7         (7     (7
Total other comprehensive income for the year                (2  182       180      180 
Total comprehensive income for the year                (2  182    414   594   3   597 
Transfer of treasury shares to employee share trusts          (24            24          
Purchase of own shares by employee share trusts          (10               (10     (10
Release of own shares by employee share trusts          39             (39         
Equity-settled share-based cost                       23   23      23 
Tax related to share schemes                       11   11      11 
Equity dividends paid                       (1,693  (1,693  (5  (1,698
Transaction costs relating to shareholder returns                       (1  (1     (1
Exchange adjustments    (28  (2  2   28                    
At 31 December 2016    141   9   (11  (2,860  111   451    1,392   (767  8   (759

All items above are shown net of tax.

Notes on pages 107 to 153 form an integral part of these Financial Statements.

LOGO

LOGO

Notes on pages 95 to 143 form an integral

part of these Financial Statements.

 

103


IHG | Annual Report and Form 20-F 20142017  |  Group Financial Statements  |  Group Financial Statements91


GroupFinancial StatementscontinuedGroup Financial Statements

Group Financial Statements continued

Group statement of changes in equitycontinued

    

    Equity
share
capital
$m
  

Capital
redemption
reserve

$m

   

Shares
held by
employee
share
trusts

$m

  Other
reserves
$m
  Unrealised
gains and
losses
reserve
$m
  

Currency

translation

reserve
$m

   

Retained
earnings

$m

  

IHG share-

holders’

equity

$m

  

Non-

controlling

interest

$m

   

Total

equity

$m

 
At 1 January 2012   162    10     (27  (2,893  71    189     3,035    547    8     555  
Profit for the year                             537    537    1     538  
Other comprehensive income:                                            
Items that may be subsequently reclassified to profit or loss:                                            

Gains on valuation of available-for-sale financial assets

                    1             1         1  

Losses reclassified to financial expenses on cash flow hedges

                    1             1         1  

Exchange differences on retranslation of foreign operations

                    (1  25         24         24  
                     1    25         26         26  
Items that will not be reclassified to profit or loss:                                            

Re-measurement losses on defined benefit plans

                             (10  (10       (10

Tax related to pension contributions

                             18    18         18  
                              8    8         8  
Total other comprehensive income                    1    25     8    34         34  
Total comprehensive income for the year                    1    25     545    571    1     572  
Issue of ordinary shares   10                              10         10  
Repurchase of shares   (1                        (106  (107       (107
Transfer to capital redemption reserve       1                      (1             
Transaction costs relating to shareholder returns                             (2  (2       (2
Purchase of own shares by employee share trusts            (84                   (84       (84
Release of own shares by employee share trusts            63                 (63             
Equity-settled share-based cost                             27    27         27  
Tax related to share schemes                             20    20         20  
Equity dividends paid                             (679  (679       (679
Share of reserve in equity accounted investment                             5    5         5  
Exchange adjustments   8             (8                          
At 31 December 2012   179    11     (48  (2,901  72    214     2,781    308    9     317  
       Equity
share
capital
$m
  

Capital
redemption
reserve

$m

  

Shares
held by
employee
share
trusts

$m

  Other
reserves
$m
  Unrealised
gains and
losses
reserve
$m
   Currency
translation
reserve
$m
  Retained
earnings
$m
  

IHG share-
holders’
equity

$m

  Non-
controlling
interest
$m
   Total
equity
$m
 
At 1 January 2015    178   12   (35  (2,896  111    269   1,636   (725  8    (717
Profit for the year                       1,222   1,222   2    1,224 
Other comprehensive income                                            
Items that may be subsequently reclassified to profit or loss:                                            

Gains on valuation ofavailable-for-sale financial assets

                2          2       2 

Exchange losses on retranslation of foreign operations

                    (2     (2      (2

Exchange losses reclassified to profit on hotel disposal

                    2      2       2 
                 2          2       2 
Items that will not be reclassified to profit or loss:                                            

Re-measurement gains on defined benefit plans

                       9   9       9 

Tax related to pension contributions

                       7   7       7 
                        16   16       16 
Total other comprehensive income for the year                2       16   18       18 
Total comprehensive income for the year                2       1,238   1,240   2    1,242 
Purchase of own shares by employee share trusts          (47               (47      (47
Release of own shares by employee share trusts          62             (62          
Equity-settled share-based cost                       24   24       24 
Tax related to share schemes                       5   5       5 
Equity dividends paid                       (188  (188      (188
Exchange adjustments    (9  (1  2   8                     
At 31 December 2015    169   11   (18  (2,888  113    269   2,653   309   10    319 

All items above are shown net of tax.

Notes on pages 107 to 153 form an integral

LOGO

Notes on pages 95 to 143 form an integral

part of these Financial Statements.

92IHG  |  Annual Report and Form 20-F 2017


 

    

104


Group statement of financial position

 

31 December 2014  Note   

2014

$m

  2013
(restated1)
$m
  2012
(restated1)
$m
 
ASSETS                  
Property, plant and equipment   10     741    1,169    1,056  
Goodwill   12     74    80    93  
Intangible assets   13     569    438    354  
Investment in associates and joint ventures   14     116    85    84  
Trade and other receivables   16     3          
Retirement benefit assets   25     8    7    99  
Other financial assets   15     252    236    155  
Non-current tax receivable        34    16    24  
Deferred tax assets   7     87    108    204  
Total non-current assets        1,884    2,139    2,069  
Inventories        3    4    4  
Trade and other receivables   16     448    423    422  
Current tax receivable        4    12    31  
Derivative financial instruments   22     2    1    2  
Other financial assets   15     5    12    6  
Cash and cash equivalents   17     162    248    387  
Total current assets        624    700    852  
Assets classified as held for sale   11     310    228    534  
Total assets   2     2,818    3,067    3,455  
LIABILITIES                  
Loans and other borrowings   21     (126  (130  (208
Trade and other payables   18     (769  (748  (709
Provisions   19     (1  (3  (1
Current tax payable        (47  (47  (54
Total current liabilities        (943  (928  (972
Loans and other borrowings   21     (1,569  (1,269  (1,242
Derivative financial instruments   22         (11  (19
Retirement benefit obligations   25     (146  (184  (187
Trade and other payables   18     (627  (574  (563
Provisions   19     (9      (1
Deferred tax liabilities   7     (147  (175  (93
Total non-current liabilities        (2,498  (2,213  (2,105
Liabilities classified as held for sale   11     (94      (61
Total liabilities   2     (3,535  (3,141  (3,138
Net (liabilities)/assets        (717  (74  317  
EQUITY                  
Equity share capital   27     178    189    179  
Capital redemption reserve   27     12    12    11  
Shares held by employee share trusts   27     (35  (38  (48
Other reserves   27     (2,896  (2,906  (2,901
Unrealised gains and losses reserve   27     111    100    72  
Currency translation reserve   27     269    227    214  
Retained earnings        1,636    2,334    2,781  
IHG shareholders’ equity        (725  (82  308  
Non-controlling interest   27     8    8    9  
Total equity        (717  (74  317  

1Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
31 December 2017    Note     

2017

$m

     

2016

$m

 
ASSETS                  
Property, plant and equipment    12     425     419 
Goodwill and other intangible assets    13     1,467     1,292 
Investment in associates and joint ventures    14     141     111 
Trade and other receivables    16          8 
Retirement benefit assets    25     3      
Other financial assets    15     228     248 
Non-current tax receivable          16     23 
Deferred tax assets    7     56     48 
Totalnon-current assets          2,336     2,149 
Inventories          3     3 
Trade and other receivables    16     551     472 
Current tax receivable          101     77 
Other financial assets    15     16     20 
Cash and cash equivalents    17     168     206 
Total current assets          839     778 
Total assets    2     3,175     2,927 
LIABILITIES                  
Loans and other borrowings    20     (126    (106
Derivative financial instruments               (3
Loyalty programme liability    32     (343    (291
Trade and other payables    18     (768    (681
Provisions    19     (3    (3
Current tax payable          (64    (50
Total current liabilities          (1,304    (1,134
Loans and other borrowings    20     (1,893    (1,606
Retirement benefit obligations    25     (104    (96
Loyalty programme liability    32     (417    (394
Trade and other payables    18     (121    (200
Provisions    19     (5    (5
Non-current tax payable          (25     
Deferred tax liabilities    7     (157    (251
Totalnon-current liabilities          (2,722    (2,552
Total liabilities    2     (4,026    (3,686
Net liabilities          (851    (759
EQUITY                  
Equity share capital    27     154     141 
Capital redemption reserve    27     10     9 
Shares held by employee share trusts    27     (5    (11
Other reserves    27     (2,874    (2,860
Unrealised gains and losses reserve    27     79     111 
Currency translation reserve    27     373     451 
Retained earnings          1,405     1,392 
IHG shareholders’ equity          (858    (767
Non-controlling interest    27     7     8 
Total equity          (851    (759

Signed on behalf of the Board

Paul Edgecliffe-Johnson

1619 February 2015

Notes on pages 107 to 153 form an integral part of these Financial Statements.

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2018

 

105


LOGO

Notes on pages 95 to 143 form an integral

part of these Financial Statements.

IHG  |  Annual Report and Form 20-F 20142017  |  Group Financial Statements  |  Group Financial Statements93


GroupGroup Financial StatementsFinancial Statements

Group Financial Statements continued

Group statement of cash flows

 

                                        
For the year ended 31 December 2014  Note   2014
$m
  2013
$m
  2012
$m
 
Profit for the year        392    374    538  
Adjustments for:                  

Net financial expenses

        80    73    54  

Income tax charge

   7     208    226    9  

Depreciation and amortisation

        96    85    94  

Impairment reversal

   5             (23

Other exceptional operating items

        (29  (5  27  

Equity-settled share-based cost

   26     21    22    22  

Dividends from associates and joint ventures

   14     2    5    1  

Other items

        4    2    (3
Operating cash flow before movements in working capital        774    782    719  
Increase in trade and other receivables        (18  (9  (50
Net change in loyalty programme liability and System Fund surplus   32     58    61    57  
Increase in other trade and other payables        61    8    26  
Utilisation of provisions   19     (2  (3  (12
Retirement benefit contributions, net of costs        (6  (18  (95
Cash flows relating to exceptional operating items        (114  (33  (6
Cash flow from operations        753    788    639  
Interest paid        (76  (74  (50
Interest received        2    2    2  
Tax paid on operating activities   7     (136  (92  (119
Net cash from operating activities        543    624    472  
Cash flow from investing activities                  
Purchase of property, plant and equipment        (84  (159  (44
Purchase of intangible assets        (162  (86  (84
Investment in other financial assets        (5  (154  (2
Investment in associates and joint ventures        (15  (10  (3
Loan advances to associates and joint ventures        (3        
Capitalised interest paid        (2        
Disposal of hotel assets, net of costs   11     345    460    4  
Proceeds from other financial assets        49    109    4  
Distribution from associate on sale of hotel            17      
Proceeds from other associates and joint ventures            3      
Tax paid on disposals   7         (5  (3
Net cash from investing activities        123    175    (128
Cash flow from financing activities                  
Proceeds from the issue of share capital            5    10  
Purchase of own shares        (110  (283  (107
Purchase of own shares by employee share trusts        (68  (44  (84
Dividends paid to shareholders   8     (942  (533  (679
Dividend paid to non-controlling interests        (1  (1    
Transaction costs relating to shareholder returns        (1      (2
Issue of long-term bonds                632  
Increase/(decrease) in other borrowings        382    (1  (99
Close-out of currency swaps        4          
Net cash from financing activities        (736  (857  (329
Net movement in cash and cash equivalents in the year        (70  (58  15  
Cash and cash equivalents at beginning of the year   17     134    195    182  
Exchange rate effects        (9  (3  (2
Cash and cash equivalents at end of the year   17     55    134    195  

Notes on pages 107 to 153 form an integral part of these Financial Statements.

For the year ended 31 December 2017    Note     2017
$m
     2016
$m
     2015
$m
 
Profit for the year          593     417     1,224 
Adjustments reconciling profit for the year to cash flow from operations    24     263     536     (414
Cash flow from operations    24     856     953     810 
Interest paid          (76    (75    (75
Interest received          1     4     2 
Tax paid on operating activities    7     (147    (130    (109
Net cash from operating activities          634     752     628 
Cash flow from investing activities                        
Purchase of property, plant and equipment          (44    (32    (42
Purchase of intangible assets          (229    (175    (157
Investment in associates and joint ventures          (47    (14    (30
Loan advances to associates and joint ventures               (2    (25
Investment in other financial assets          (30    (13    (28
Acquisition of business, net of cash acquired    10               (438
Capitalised interest paid          (6    (5    (4
Landlord contributions to property, plant and equipment          14           
Disposal of hotel assets, net of costs and cash disposed               (5    1,277 
Repayments related to intangible assets               3      
Loan repayments by associates and joint ventures          9          22 
Proceeds from associates and joint ventures               2     9 
Repayments of other financial assets          20     25     6 
Disposal of equity securitiesavailable-for-sale    15     75           
Tax paid on disposals    7     (25         (1
Net cash from investing activities          (263    (216    589 
Cash flow from financing activities                        
Purchase of own shares by employee share trusts          (3    (10    (47
Dividends paid to shareholders    8     (593    (1,693    (188
Dividend paid tonon-controlling interest          (3    (5     
Transaction costs relating to shareholder returns               (1     
Issue of long-term bonds               459     458 
Other new borrowings                    400 
Long-term bonds repaid               (315     
New borrowings repaid                    (400
Increase/(decrease) in other borrowings    20     153     109     (355
Proceeds from foreign exchange swaps                    22 
Net cash from financing activities          (446    (1,456    (110
Net movement in cash and cash equivalents in the year          (75    (920    1,107 
Cash and cash equivalents at beginning of the year    17     117     1,098     55 
Exchange rate effects          16     (61    (64
Cash and cash equivalents at end of the year    17     58     117     1,098 

 

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Notes on pages 95 to 143 form an integral

part of these Financial Statements.

94106IHG  |  Annual Report and Form 20-F 2017


 

Accounting policiesAccounting policies

 

General information

This document constitutes the Annual Report and Financial Statements in accordance with UK Listing Rules requirements and the Annual Report on Form20-F in accordance with the US Securities Exchange Act of 1934. Prior to 2013 the Group issued separate documents.

The Consolidated Financial Statements of InterContinental Hotels Group PLC (the Group or IHG) for the year ended 31 December 20142017 were authorised for issue in accordance with a resolution of the Directors on 1619 February 2015.2018. InterContinental Hotels Group PLC (the Company) is incorporated and domiciled in Great Britain and registered in England and Wales.

Changes in accounting policies

With effect from 1 January 2014, the Group has adopted ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32). The amendments clarify that to offset financial assets and financial liabilities, the Group’s right of offset must be legally enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy of the Group and all of the counterparties. Following a detailed review of the Group’s cash pooling arrangements which have previously been presented net within cash and cash equivalents (see note 17), management have determined that the right of offset is not enforceable in all of the above circumstances. As a result, the overdrafts within the cash pools are now presented as current loans and other borrowings. The amendments to IAS 32 are applicable retrospectively, requiring the restatement of prior year comparatives and the presentation of a third statement of financial position as at 31 December 2012 as required by IAS 1 ‘Presentation of Financial Statements’. The adoption of the amendments to IAS 32 increases cash and cash equivalents and current loans and other borrowings by $107m in 2014 (2013 $114m, 2012 $192m) but has no impact on the net financial position of the Group nor the reporting of net debt. Cash and cash equivalents presented in the Group statement of cash flows continue to be presented net of overdrafts as permitted by IAS 7 ‘Statement of Cash Flows’.

In addition, with effect from 1 January 2014, the Group has adopted Amendment to IAS 36 ‘Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets’, Amendment to IAS 39 ‘Novation of Derivatives and Continuation of Hedge Accounting’ and IFRIC 21 ‘Levies’. The adoption of these amendments to standards and interpretations has had no material impact on the Group’s financial performance or position and there has been no requirement to restate prior year comparatives.

Summary of significantSignificant accounting policies

Basis of preparation

The Consolidated Financial Statements of IHG have been prepared on a going concern basis and under the historical cost convention, except foravailable-for-sale equity securities and derivatives which are measured at fair value. The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the IASB and in accordance with IFRS as adopted by the European Union (EU) and as applied in accordance with the provisions of the Companies Act 2006. IFRS as adopted by the EU differs in certain respects from IFRS as issued by the IASB. However, the differences have no impact on the Consolidated Financial Statements for the years presented.

With effect from 1 January 2017, the Group has adopted:

‘Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative’, which requires disclosure of changes in liabilities arising from financing activities, including both changes arising from cash flows andnon-cash changes, such as foreign exchange adjustments. This new disclosure is provided in note 20 to the Group Financial Statements.

‘Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses’. Application of these amendments has had no impact on the Group Financial Statements.

Amendments to existing standards arising from the Annual Improvements to IFRSs 2014-2016 cycle. These amendments have not impacted the Group Financial Statements.

Presentational currency

The Consolidated Financial Statements are presented in millions of US dollars following a management decision to change the reporting currency from sterling during 2008. The change was made to reflectreflecting the profile of the Group’s revenue and operating profit which are primarily generated in US dollars or US dollar-linked currencies.

The currency translation reserve was set to nil at 1 January 2004 on transition to IFRS and this reserve is presented onIn the basis that the Group has reported in US dollars since this date. EquityConsolidated 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 remainsParent Company is sterling since this is anon-trading holding company located in the United Kingdom that has sterling denominated share capital and whose primary activity is the payment and receipt of sterling dividends and of interest on sterling denominated external borrowings and inter-company balances.

Basis of consolidation

The Consolidated Financial Statements comprise the Financial Statements of the parent companyParent Company and entities controlled by the Group. Control exists when the Group has:

 

powerPower over an investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

 

exposure,Exposure, or rights, to variable returns from its involvement with the investee; and

 

theThe ability to use its power over the investee to affect its returns.

All intra-group balances and transactions are eliminated on consolidation.

The assets, liabilities and results of those businesses acquired or disposed of are consolidated for the period during which they were under the Group’s control.

The Group operates a deferred compensation plan in the US which allows certain employees to make additional provision for retirement, through the deferral of salary with matching company contributions. Employees can draw down on the plan in certain limited circumstances during employment. The assets of the plan are held in a company-owned trust which is not consolidated as the relevant activity of the trust, being the investment of the funds in the trust, is directed by the participating employees of the plan and the company has no exposure to the gains and losses resulting from those investment decisions. The assets of the trust are held solely for the benefit of the participating employees and to pay plan expenses, other than in the case of a company insolvency in which case they can be claimed by the general creditors of the company. At 31 December 2014,2017, the trust had assets with a fair value of $148m (2013 $135m)$197m (2016: $161m).

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IHG  Annual Report and Form 20-F 2014

Accounting policiescontinued

Foreign currencies

Transactions in foreign currencies are translated to functional currency at the exchange rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the relevant rates of exchange ruling on the last day of the period. Foreign exchange differences arising on translation are recognised in the income statement except on foreign currency borrowings that provide a hedge against a net investment in a foreign operation. These are taken directly to the currency translation reserve until the disposal of the net investment, at which time they are recycled against the gain or loss on disposal.

The assets and liabilities of foreign operations, including goodwill, are translated into US dollars at the relevant rates of exchange ruling on the last day of the period. The revenues and expenses of foreign operations are translated into US dollars at average rates of exchange for the period. The exchange differences arising on the retranslation are taken directly to the currency translation reserve. On disposal of a foreign operation, the cumulative amount recognised in the currency translation reserve relating to that particular foreign operation is recycled against the gain or loss on disposal.

IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Group Financial Statements95


Group Financial Statements

Accounting policies continued

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and any impairment.

Repairs and maintenance costs are expensed as incurred.

Land is not depreciated. All other property, plant and equipment are depreciated to a residual value over their estimated useful lives, namely:

 

buildingsBuildings – lesser of 50 years and unexpired term of lease; and

 

fixtures,Fixtures, fittings and equipment – three to 25 years.

All depreciation is charged on a straight-line basis. Residual value isre-assessed annually.

Property, plant and equipment are tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units. If carrying values exceed their estimated recoverable amount, the assets or cash-generating units are written down to the recoverable amount. Recoverable amount is the greater of fair value less costs of disposal and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses, and any subsequent reversals, are recognised in the income statement.

On adoption of IFRS, the Group retained previous revaluations of property, plant and equipment which are included at deemed cost as permitted by IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’.

GoodwillBusiness combinations and goodwill

Goodwill arisesOn the acquisition of a business, identifiable assets and liabilities acquired are measured at their fair value. Contingent liabilities assumed are measured at fair value unless this cannot be measured reliably, in which case they are not recognised but are disclosed in the same manner as other contingent liabilities. The measurement of deferred tax assets and liabilities arising on consolidation andacquisition is as described in the general principles detailed within the ‘Taxes’ accounting policy note on page 98 with the exception that no deferred tax is provided on taxable temporary differences in connection with the initial recognition of goodwill.

Goodwill is recorded at cost, being the excess of the cost of acquisition overdifference between the fair value at the date of acquisition of the Group’s shareconsideration and the fair value of identifiablenet assets liabilities and contingent liabilities. Transaction costs are expensed and are not included in the cost of acquisition.acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.losses and is not amortised.

Goodwill is tested for impairment at least annually by comparing carrying values of cash-generating units with their recoverable amounts. Impairment losses relating to goodwill cannot be subsequently reversed.

Transaction costs are expensed and are not included in the cost of acquisition.

Intangible assets

Brands

Externally acquired brands are initially recorded at cost if separately acquired or fair value if acquired as part of a business combination, provided the brands are controlled through contractual or other legal rights, or are separable from the rest of the business, and the fair value can be reliably measured. Brands are amortised over their estimated useful lives (and tested for impairment if there are indicators of impairment) or tested for impairment at least annually if determined to have indefinite lives.

The costs of developing internally generated brands are expensed as incurred.

Management contracts

Management contracts acquired as part of a business combination are initially recorded at the fair value attributed to those contracts on acquisition.

When hotel assets are sold and a purchaser enters into a franchise or management contract with the Group, the Group capitalises as part of the gain or loss on disposal an estimate of the fair value of the contract entered into.

The value of management contracts is amortised on a straight-line basis over the life of the contract including any extension periods at IHG’s option up to a maximum of 50 years.

Software

Acquired and internally developed software are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs are generally amortised over estimated useful lives of three to five years on a straight-line basis.

Internally generated development costs are expensed unless forecast revenues exceed attributable forecast development costs, in which case they are capitalised and amortised over the estimated useful life of the asset.

Management contracts

When assets are sold and a purchaser enters into a franchise or management contract with the Group, the Group capitalises as part of the gain or loss on disposal an estimate of the fair value of the contract entered into. The value of management contracts is amortised on a straight-line basis over the life of the contract including any extension periods at IHG’s option up to a maximum of 50 years.

Other intangible assets

Amounts paid to hotel owners to secure management contracts and franchise agreements are capitalised and amortised on a straight-line basis over their estimated useful lives, being the full contractual term, up to a maximum of 50 years. In prior years this has been determined to be the shorter of the contracted period and 10 years. Following a detailed review in early 2014 and based on the Group’s experience of the actual contractual periods secured by these payments, the estimate of useful life has been re-assessed to comprise the full contract term, which is also consistent with the stated policy of other companies in the hotel industry. This revision to the estimate of expected useful lives has been applied prospectively in accordance with IAS 38 and results in the following (decrease)/ increase in the original amortisation profile of assets capitalised at 1 January 2014: 2014 $(5)m, 2015 $(5)m, 2016 $(4)m, 2017 $(3)m, 2018 and after $17m in total.

Intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

 

 

96108IHG  |  Annual Report and Form 20-F 2017


    

    

Borrowing costs

Borrowing costs attributable to the acquisition or construction of property, plant and equipment or in respect of software projects that necessarily take a substantial period of time to prepare for their intended use, or sale, are capitalised as part of the asset cost. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. All borrowing costs relating to projects commencing before 1 January 2009 were expensed.

Associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control over those policies.

A joint venture exists when two or more parties have joint control over, and rights to the net assets of, the venture. Joint control is the contractually agreed sharing of control which only exists when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Associates and joint ventures are accounted for using the equity method unless the associate or joint venture is classified as held for sale. Under the equity method, the Group’s investment is recorded at cost adjusted by the Group’s share of post-acquisition profits and losses and other movements in the investee’s reserves. When the Group’s share of losses exceeds its interest in an associate or joint venture, the Group’s carrying amount is reduced to $nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate or joint venture.

If there is objective evidence that an associate or joint venture is impaired, an impairment charge is recognised if the carrying amount of the investment exceeds its recoverable amount.

Upon loss of significant influence over an associate or joint control of a joint venture, any retained investment is measured at fair value with any difference to carrying value recognised in the income statement.

Financial assets

The Group classifies its financial assets into one of the two following categories: loans and receivables oravailable-for-sale financial assets. Management determines the classification of financial assets on initial recognition and they are subsequently held at amortised cost (loans and receivables) or fair value (available-for-sale(available-for-sale financial assets). Interest on loans and receivables is calculated using the effective interest rate method and is recognised in the income statement as interest income. Changes in fair values ofavailable-for-sale financial assets are recorded directly in equity within the unrealised gains and losses reserve. On disposal, the accumulated fair value adjustments recognised in equity are recycled to the income statement. Dividends fromavailable-for-sale financial assets are recognised in the income statement as other operating income and expenses.

Financial assets are assessed for impairment at eachperiod-end date. In the case of an equity investment classified asavailable-for-sale, a significant or prolonged decline in fair value below cost is evidence that the asset is impaired. If anavailable-for-sale financial asset is impaired, the difference between original cost and fair value is transferred from equity to the income statement to the extent of any cumulative loss recorded in equity, with any excess charged directly to the income statement. Subsequent impairment reversals relating to previously impaired equity instruments are recorded in equity.

Trade receivables

Trade receivables are recorded at their original amount less provision for impairment. It is the Group’s policy to provide for 100% of the previous month’s aged receivables balances which are more than 180 days past due. Adjustments to the policy may be made due to specific or exceptional circumstances. The carrying amount of the receivable is reduced through the use of a provision account and movements in the provision are recognised in the income statement within cost of sales. When a previously provided trade receivable is uncollectable, it is written off against the provision.

Cash and cash equivalents

Cash comprises cash in hand and demand deposits.

Cash equivalents are short-term highly liquid investments with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

In the statement of cash flows, cash and cash equivalents are shown net of short-term overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

Assets held for sale

Assets and liabilities are classified as held for sale when their carrying amount will be recovered principally through a sale transaction rather than continuing use and a sale is highly probable and expected to complete within one year. For a sale to be highly probable, management need to be committed to a plan to sell the asset and the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value.

Assets designated as held for sale are held at the lower of carrying amount at designation and fair value less costs to sell.

Depreciation is not charged against property, plant and equipment classified as held for sale.

Financial liabilities

Financial liabilities are measured at amortised cost using the effective interest rate method. A financial liability is derecognised when the obligation under the liability expires, is discharged or is cancelled.

Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are offset and the net amount is reported in the Group statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. To meet thisthese criteria, the right ofset-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.

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IHG  Annual Report and Form 20-F 2014

Accounting policiescontinued

Trade payables

Trade payables are non-interest-bearing and are stated at their nominal value.

Bank and other borrowings

Bank and other borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. They are subsequently measured at amortised cost. Finance charges, including the transaction costs and any discount or premium on issue, are recognised in the income statement using the effective interest rate method.

Borrowings are classified asnon-current when the repayment date is more than 12 months from theperiod-end date or where they are drawn on a facility with more than 12 months to expiry.

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Group Financial Statements

Accounting policies continued

Derivative financial instruments and hedging

Derivatives are initially recognised and subsequentlyre-measured at fair value. The method of recognising there-measurement depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income and the unrealised gains and losses reserve to the extent that the hedges are effective. When the hedged item is recognised, the cumulative gains and losses on the related hedging instrument are reclassified to the income statement.

Changes in the fair value of derivatives designated as net investment hedges are recorded in other comprehensive income and the currency translation reserve to the extent that the hedges are effective. The cumulative gains and losses remain in equity until a foreign operation is sold, at which point they are reclassified to the income statement.

Changes in the fair value of derivatives which have either not been designated as hedging instruments or relate to the ineffective portion of hedges are recognised immediately in the income statement.

Documentation outlining the measurement and effectiveness of any hedging arrangementsarrangement is maintained throughout the life of the hedge relationship.

Interest arising from currency derivatives and interest rate swaps is recorded in either financial income or expenses over the term of the agreement, unless the accounting treatment for the hedging relationship requires the interest to be taken to reserves.

Self insurance

Liabilities in respect of self insured risks include projected settlements for known and incurred but not reported claims. Projected settlements are estimated based on historical trends and actuarial data.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that a payment will be made and a reliable estimate of the amount payable can be made. If the effect of the time value of money is material, the provision is discounted using a currentpre-tax discount rate that reflects the risks specific to the liability.

An onerous contract provision is recognised when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it.

In respect of litigation, provision is made when management consider it probable that payment may occur even though the defence of the related claim may still be ongoing through the court process.

Taxes

Current tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the tax authorities, including interest. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period.

Deferred tax

Deferred tax assets and liabilities are recognised in respect of temporary differences between the tax base and carrying value of assets and liabilities including accelerated capital allowances, unrelieved tax losses, unremitted profits from subsidiaries, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences.

Judgement is used when assessing the extent to which deferred tax assets, particularly in respect of tax losses, should be recognised. Deferred tax assets are therefore recognised to the extent that it is regarded as probable that there will be sufficient and suitable taxable profits (including the deductible temporary differencesfuture release of deferred tax liabilities) in the relevant legal entity or tax group against which such assets can be realised. The recoverabilityutilised in the future. For this purpose, forecasts of allfuture 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 is re-assessed at the end of each reporting period.might be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the periods in which the asset or liability will be settled, based on rates enacted or substantively enacted at the end of the reporting period.

Where deferred tax assets and liabilities arise in the same entity or group of entities and there would be a legal right to offset the assets and liabilities were they to reverse, the assets and liabilities are also offset on the Group statement of financial position. Similarly, if there is no legal right to offset assets against liabilities, the assets and liabilities are not offset.

Retirement benefits

Defined contribution plans

Payments to defined contribution schemes are charged to the income statement as they fall due.

Defined benefit plans

Plan assets including qualifying insurance policies, are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit method and discounting at an interest rate equivalent to the current rate of return on a high-quality corporate bond of equivalent currency and term to the plan liabilities. The difference between the value of plan assets and liabilities at theperiod-end date is the amount of surplus or deficit recorded in the statement of financial position as an asset or liability. An asset is recognised when the employer has an unconditional right to use the surplus at some point during the life of the plan or on itswind-up. If a refund would be subject to a tax other than income tax, as is the case in the UK, the asset is recorded at the amount net of the tax. A liability is also recorded for any such tax that would be payable in respect of funding commitments based on the accounting assumption that the related payments increase the asset.

110


The service cost of providing pension benefits to employees, together with the net interest expense or income for the year, is charged to the income statement within ‘administration‘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.

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Re-measurements comprise actuarial gains and losses, the return on plan assets (excluding amounts included in net interest) and changes in the amount of any asset restrictions. Actuarial gains and losses may result from: differences between the actuarial assumptions underlying the plan liabilities and actual experience during the year or changes in the actuarial assumptions used in the valuation of the plan liabilities.Re-measurement gains and losses, and taxation thereon, are recognised in other comprehensive income and are not reclassified to profit or loss in subsequent periods.

Actuarial valuations are normally carried out every three yearson a regular basis and are updated for material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period.

Revenue recognition

Revenue arises from the sale of goods and provision of services where these activities give rise to economic benefits received and receivable by the Group on its own account and result in increases in equity.

Revenue is derived from the following sources: franchise fees; management fees; owned and leased properties and other revenues which are ancillary to the Group’s operations, including technology fee income.

Revenue is recorded (excluding VAT and similar taxes) net of discounts.

The following is a description of the composition of revenues of the Group:Group.

Franchise fees – received

Received in connection with the licence of the Group’s brand names, usually under long-term contracts with the hotel owner. The Group charges franchise royalty fees as a percentage of hotel rooms revenue. Revenue is recognised whenrevenue and recognises the fee is earned in accordance withfees as the terms of the contract.hotel revenues occur.

Management fees – earned

Earned from hotels managed by the Group, usually under long-term contracts with the hotel owner. Management fees include a base fee, generally a percentage of hotel revenue, which is recognised when earned in accordance withas the terms of the contracthotel revenues occur and an incentive fee, generally based on the hotel’s annual profitability or cash flows, andwhich is recognised over time when it is considered probable that the related performance criteria are met under the terms of the contract.will be met.

Owned and leased– primarily

Primarily derived from hotel operations, including the rental of rooms and food and beverage sales from owned and leased hotels operated under the Group’s brand names. Revenue is recognised when rooms are occupied and food and beverages are sold.

Franchise fees and management fees include liquidated damages received from the early termination of contracts.

Other revenues are recognised when earned in accordance with the terms of the contract.

Government grants

Government grants are recognised in the period to which they relate when there is reasonable assurance that the grant will be received and that the Group will comply with the attached conditions. Government grants are recognised within other operating income and expenses in the Group income statement.

Share-based payments

The cost of equity-settled transactions with employees is measured by reference to fair value at the date at which the right to the shares is granted. Fair value is determined by an external valuer using option pricing models.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which any performance or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date).

The income statement charge for a period represents the movement in cumulative expense recognised at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market ornon-vesting condition, which are treated as vesting irrespective of whether or not the market ornon-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Leases

Operating lease rentals are charged to the income statement on a straight-line basis over the term of the lease.

Assets held under finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease, with a corresponding liability being recognised for the fair value of the leased asset or, if lower, the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement so as to achieve a constant rate of interest on the remaining balance of the liability. Assets held under finance leases are depreciated over the shorter of the estimated useful life of the asset and the lease term.

Disposal ofnon-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:

 

hasHas a continuing managerial involvement to the degree associated with asset ownership;

 

hasHas transferred the significant risks and rewards associated with asset ownership; and

 

canCan reliably measure and will actually receive the proceeds.
 

 

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AccGroup Financial Statementsounting policies

Accounting policies continued

    

Fair value measurement

The Group measuresavailable-for-sale equity securities and derivatives at fair value on a recurring basis and other assets when impaired by reference to fair value less costs of disposal. Additionally, the fair value of other financial assets and liabilities require disclosure.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is measured by reference to the principal market for the asset or liability assuming that market participants act in their economic best interests.

The fair value of anon-financial asset assumes the asset is used in its highest and best use, either through continuing ownership or by selling it.

The Group uses valuation techniques that maximise the use of relevant observable inputs using the following valuation hierarchy:

 

Level 1:quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2:other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3:techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Further disclosures on the particular valuation techniques used by the Group are provided in note 23.

For impairment testing purposes and where significant assets (such as property) are valued by reference to fair value less costs of disposal, an external valuation will normally be obtained using professional valuers who have appropriate market knowledge, reputation and independence.

Exceptional items

The Group discloses certain financial information both including and excluding exceptional items. The presentation of information excluding exceptional items allows a better understanding of the underlying trading performance of the Group and provides consistency with the Group’s internal management reporting. Exceptional items are identified by virtue of either their size or nature so as to facilitate comparison with prior periods and to assess underlying trends in the financial performance.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 and the release of tax provisions.

Treasury shares

Own shares repurchased by the Company and not cancelled (treasury shares) are recognised at cost and deducted from retained earnings. If reissued, any excess of consideration over carrying amount is recognised in the share premium reserve.costs.

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 ofamountsof assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statementsFinancial Statements, and the reported amounts of revenues and expenses during the reporting period. Management consider accounting for the System Fund to be a critical judgement and that critical estimates and assumptions are used in impairment testing and for measuring the loyalty programme liability, tax assets and liabilities, and litigation provisions, as discussed in further detail below. Estimates and assumptions are evaluated by management using historical experience and other factors believed to be reasonable based on current circumstances. Actual results could differ under different policies, judgements, estimates and assumptions or due to unforeseen circumstances.

System Fund – in addition to management or franchise fees, hotels within the IHG System (other than for Kimpton and InterContinental hotels) pay cash assessments and contributions which are collected by IHG for specific use within the System Fund (the Fund). The Fund also receives proceeds from the sale of IHG Rewards Club points. IHG exerts significant influence over the operation of the Fund, however the Fund is managed for the benefit of hotels in the System with the objective of driving revenues for the hotels. The Fund is used to pay for marketing, the IHG Rewards Club loyalty programme and the global reservation system.Guest Reservation System. The Fund is planned to operate at breakeven with any short-term timing surplus or deficit carried in the Group statement of financial position within working capital.

As all Fund income is designated for specific purposes and does not result in a profit or loss for the Group, the revenue recognition criteria as outlined in the accounting policy above are not met and therefore the income and expenses of the Fund are not included in the Group income statement.

The assets and liabilities relating to the Fund are included in the appropriate headings in the Group statement of financial position as the related legal, but not beneficial, rights and obligations rest with the Group. These assets and liabilities include the IHG Rewards Club liability, short-term timing surpluses and deficits and any receivables and payables related to the Fund.

The cash flows relating to the Fund are reported within ‘cash flow from operations’ in the Group statement of cash flows due to the close interrelationship between the Fund and the trading operations of the Group.

Further information on the Fund is included in note 32.

LOGOFurther information on the
Fund is included in note 32.
 

 

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Loyalty programme – the hotel loyalty programme, IHG Rewards Club, enables members to earn points, funded through hotel assessments, during each qualifying stay at an IHG branded hotel and redeem points at a later date for free accommodation or other benefits. The future redemption liability is calculated by multiplying the number of points expected to be redeemed before they expire by the redemption cost per point. On an annual basis the Group engages an external actuary who uses statistical formulasformulae to assist in the estimate of the number of points that will never be redeemed (‘breakage’).

Following the introduction of a points expiration policy in 2015, breakage has become more judgemental due to there being limited historical data on the impact of such a change. Actuarial gains and losses on the future redemption liability are borne by the System Fund and any resulting changes in the liability would correspondingly adjust the amount of short-term timing surpluses and deficits held in the Group statement of financial position. The

At 31 December 2017, the future redemption liability which is included in trade and other payables, was $725m at 31 December 2014.$760m (2016: $685m). Based on the conditions existing at the balance sheet date, a 1%one percentage point decrease in the breakage estimate would increase this liability by approximately $7m.$10m.

Impairment testing – intangible assets with definite useful lives, and property, plant and equipment are tested for impairment when events or circumstances indicate that their carrying value may not be recoverable. Goodwill isand intangible assets with indefinite useful lives are subject to an impairment test on an annual basis or more frequently if there are indicators of impairment. Assets that do not generate independent cash flows are combined into cash-generating units. Associates and joint ventures are tested for impairment when there is objective evidence that they might be impaired.

The impairment testing of individual assets or cash-generating units requires an assessment of the recoverable amount of the asset or cash-generating unit. If the carrying value of the asset or cash-generating unit exceeds its estimated recoverable amount, the asset or cash-generating unit is written down to its recoverable amount. Recoverable amount is the greater of fair value less costs of disposal and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using apre-tax discount rate that is based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the cash-generating unit or asset being tested. The outcome of such an assessment is subjective, and the result sensitive to the assumed future cash flows to be generated by the cash-generating units or assets and discount rates applied in calculating the value in use.

At 31 December 2014,2017, the Group had intangible assetsgoodwill of $569m$237m (2016: $232m) and brands of $193m (2016: $193m), both of which are subject to annual impairment testing. Information on the impairment tests performed is included in note 13.

At 31 December 2017, the Group also had property, plant and equipment, other intangible assets and investments in associates and joint ventures with a net book value of $741m, none of which were subject to$425m, $1,037m and $141m (2016: $419m, $867m and $111m) respectively. In 2017, an impairment charge during the year.of $18m (2016: $16m) was recognised in relation to an associate investment as described in detail in note 14. In respect of those other assets requiring an impairment test and depending on how recoverable amount was assessed, a 10% reduction in fair value or estimated future cash flows would have resulted in ana further impairment losscharge of $7m.

Information on impairment testing of goodwill, which had a net book value of $74m at 31 December 2014, is included in note 12.$13m.

Income taxes – deferred tax assets are recognised to the extent that it is regarded as probable that deductible temporary differences can be realised. The Group estimates deferred tax assets and liabilities based on current tax laws and rates, and in certain cases, business plans, including management’s expectations regarding the manner and timing of recovery of the related assets. Changes in these estimates may affect the amount of deferred tax liabilities or the valuation of deferred tax assets and therefore the tax charge in the income statement.

Provisions for tax liabilities require judgements on the interpretation of tax legislation, developments in case law and the potential outcomes of tax audits and appeals which may be subject to significant uncertainty. Therefore the actual results may vary from expectations resulting in adjustments to provisions, the valuation of deferred tax assets, cash tax settlements, and therefore the tax charge in the income statement.

Exceptional tax charges and credits arose in 2013 and 2012 as explained in note 7.

Litigation – from time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. A provision for litigation is made when it is considered probable that a payment will be made and the amount of the loss can be reasonably estimated. Significant judgement is made when evaluating, amongst other factors, the probability of unfavourable outcome and the ability to make a reasonable estimate of the amount of potential loss. Litigation provisions are reviewed at each accounting period and revisions made for changes in facts and circumstances.

New standards issued but not effective

The new and amended accounting standards discussed below are those which are expected to be relevant to the Group’s financial statements.Group Financial Statements.

From 1 January 2015, the Group will apply the amendments to existing standards arising from the 2010-2012 and 2011-2013 annual improvements cycles.

From 1 January 2016, the Group will apply Amendments to IAS 16 and IAS 38 ‘Clarification of Acceptable Methods of Depreciation and Amortisation’ and Amendments to IFRS 11 ‘Accounting for Acquisition of Interests in Joint Operations’.

The above amendments are not expected to have a material impact on the Group’s reported performance or financial position.

IFRS 15 ‘Revenue from Contracts with Customers’

IFRS 15 introduces a new five-step approach to measuring and recognising revenue from contracts with customers and is effective from 1 January 2017.

IFRS 9 ‘Financial Instruments’ was issued as a final standard in July 2014 and is effectivewill be adopted by the Group with effect from 1 January 2018. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. Management’s assessment of the impact of IFRS 15 is substantially complete and a summary of the main changes and impacts on IHG are as follows:

1. Employee cost reimbursements

Under IFRS 15, the provision of employees to managed hotels is not considered to be a service that is distinct from the general hotel management service. Reimbursements for the costs of IHG employees working in managed hotels will therefore be shown as revenue with an equal matching cost, with no profit impact. Under current accounting, no revenue or matching cost is recognised.

2. Initial franchise andre-licensing fees

Under current accounting, application andre-licensing fees are recognised as revenue when billed as the monies received are not refundable and IHG has no further obligations to satisfy. Under IFRS 15, there is a requirement to consider whether the payment of these fees transfers a good or service to the customer that is distinct from the promise to provide franchise services. As this is not the case, IFRS 15 requires initial franchise andre-licensing fees to be recognised as franchise services are provided, over the life of the related contract. The spreading of these fees will result in an initial reduction to revenue and operating profit, and the recognition of deferred revenue on the balance sheet, reflecting the profile of increased amounts received in recent years.

3. Contract acquisition costs

Contract acquisition costs related to securing management and franchise contracts are currently charged to the income statement as incurred. Under IFRS 15, certain costs qualify to be capitalised as the cost of obtaining a contract and are amortised over the initial term of the related contract. This change results in an increase to operating profit and the capitalisation of contract costs on the balance sheet.

4. Amounts paid to hotel owners to secure management contracts and franchise agreements (‘Key money’)

Under current accounting, key money payments are capitalised as intangible assets and amortised over the life of the related contracts. Under IFRS 15, these payments are treated as consideration payable to a customer and therefore recognised as a deduction to revenue over the contract term. This change will result in a reduction to revenue, no change to operating profit, and the reclassification of key money on the balance sheet from intangible assets to contract assets.

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Group Financial Statements

Accounting policies continued

5. Owned hotel disposals subject to a management contract

Under current accounting, when hotels are sold and the Group retains management of the hotel, the consideration recognised includes both the cash received and the fair value of the management contract which is capitalised as an intangible asset and subsequently amortised to the income statement. This accounting is governed by the ‘exchange of assets’ criteria included in IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’. IFRS 15 specifically includes property sales in its scope and results in the sales consideration being recorded at the fair value of the encumbered hotel, which generally will be equivalent to the cash received. This change will result in the derecognition of historic intangible asset balances and a lower amortisation charge in the income statement.

6. System Fund revenues and expenses

The Group operates a System Fund (the Fund) to collect and administer cash assessments from hotel owners for the specific purpose of use in marketing, the guest reservation systems and hotel loyalty programme. The Fund also receives proceeds from the sale of loyalty points under third-partyco-branding arrangements. The Fund is planned to break even and is managed for the benefit of hotels in the System with the objective of driving revenues for the hotels. Under current accounting, these receipts and expenses are not recorded in the Group income statement as set out on page 100.

Under IFRS 15, an entity is regarded as a principal if it controls a service prior to transfer to the customer. As marketing and reservations expenses primarily comprise payroll and marketing costs incurred under contracts entered into by the Group, management have determined that the Group controls these services. Fund revenues and expenses will therefore be recognised on a gross basis in the Group income statement. Assessment fees from hotel owners are generally levied as a percentage of hotel revenues and will be recognised as those hotel revenues occur.

In respect of the loyalty programme, the Group has determined that the related performance obligation is not satisfied in full until the member has redeemed the points at a participating hotel. Accordingly, revenue related to loyalty points earned by members or sold underco-branding arrangements will be deferred in an amount that reflects the stand-alone selling price of the future benefit to the member. As materially all of the points will be redeemed at IHG managed or franchised hotels owned by third parties, IHG is deemed to be acting as agent on redemption and will therefore recognise the related revenue net of the cost of reimbursing the hotel that is providing the hotel stay. The deferred revenue balance under IFRS 15 will be significantly higher than the points redemption cost liability that is recognised under current accounting resulting in an increase in the Group’s net liabilities.

Management has also determined that in addition to the performance obligation for the redemption of points,co-branding arrangements contain other performance obligations including marketing services and the right to access the loyalty programme. Revenue attributable to the stand-alone selling price of these additional services is recognised over the term of theco-branding arrangement.

Certain travel agency commission revenues within the Fund will continue to be recognised on a net basis, where it has been determined that IHG acts as agent under IFRS 15.

7. System Fund surplus or deficit

Under current accounting, the Fund surplus or deficit is carried forward on the Group statement of financial position as set out on page 100. Under IFRS 15, the Fund surplus or deficit will be recognised in the Group income statement. Both the current accounting treatment and the change on applying IFRS 15, and the equivalent US GAAP standard, are consistent with current and expected future practice across the hotel industry. The Fund surplus of $158m at 31 December 2017 will be derecognised resulting in a reduction in the Group’s net liabilities.

The changes detailed in 6 and 7 above will result in an increase in recorded revenue and reduction in operating profit in 2017.

8. Presentation and disclosure

The presentation and disclosure requirements of IFRS 15 represent a significant change from current practice and will increase the volume of disclosures required in the notes to the financial statements.

9. Quantification of impacts

The Group will apply the full retrospective approach when transitioning to the new standard which will result in restated comparatives on the basis that IFRS 15 had always applied.

The estimated impacts of adjustments 1. to 5. on the 2017 results are as follows:

Impact   Group
revenue
    $m
     

Group

operating

profit

    $m

     

Group net

liabilities

    $m

1. Employee cost reimbursements  1,103    –    – 
2. Initial franchise andre-licensing fees  (14)   (14)   (111)
3. Contract acquisition costs  –       43 
4. Key money  (17)   –    – 
5. Derecognition of management contracts  –       (192)
Other     –    
   1,074    (1)   (259)

The impact of deferring revenue in relation to the loyalty programme and recognising System Fund revenues and expenses in the Group income statement (items 6. and 7.) is expected to increase Group revenue by an additional $1.2bn. The impact on Group operating profit and Group net liabilities is still being assessed. The Group has an agreement with the IHG Owners Association to spend Fund income for the benefit of hotels in the IHG System such that the Group does not make a profit or loss from operating the Fund over the medium term.

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IFRS 9 ‘Financial Instruments’

IFRS 9, which will be adopted by the Group with effect from 1 January 2018, introduces new requirements for classification and measurement of financial assets and financial liabilities, impairment and hedge accounting. Management’s assessment of the impact of IFRS 9 is substantially complete and a summary of the changes and impacts on IHG are as follows:

1. Financial assets at fair value through other comprehensive income

The Group holds equity investments which it currently classifies asavailable-for-sale financial assets. Changes in fair value are accumulated in equity and on disposal are recycled through the income statement. Under IFRS 9, these assets will be recorded at fair value through other comprehensive income with no recycling to the income statement.

IFRS 9 will not be applied to assets derecognised prior to 1 January 2018 and therefore there will be no change to the gain of $73m recognised on disposal of anavailable-for-sale equity investment in 2017 (see note 5).

2. Trade receivables and loans issued to hotel owners to secure

management contracts and franchise agreements Trade receivables, trade deposits and loans issued to hotel owners to secure management contracts and franchise agreements are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. Management have therefore concluded that they continue to meet the criteria for amortised cost measurement under IFRS 9.

3. Impairment

The Group will apply the three-stage expected credit loss model introduced by IFRS 9 in respect of trade deposits and loans issued to hotel owners to secure management contracts and franchise agreements. The expected credit loss model is based on the concepts of’12-month expected credit losses’ or ‘lifetime expected credit losses’ depending on the performance of the underlying asset. Management’s current assessments do not indicate any material change in impairment provisions as a result of IFRS 9.

The Group will apply the simplified version of the expected credit loss model permitted by IFRS 9 in respect of trade receivables, which involves assessing lifetime expected credit losses on all balances. To estimate the required impairment provision, management has assessed historical collection rates by geographical region, incorporating adjustments for future expectations. No material impact on the financial statements is expected from application of the expected credit loss model to trade receivables.

4. Hedge accounting

Management have determined that all existing hedge relationships that are currently assessingdesignated effective hedging relationships will continue to qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the impactsgeneral principles of how an entity accounts for effective hedges, applying the hedging requirements of IFRS 159 will not impact the Group Financial Statements.

5. Financial liabilities

Management’s initial assessments indicate no impact on the Group’s accounting for financial liabilities as the rules on classification and measurement of financial liabilities remain largely unchanged compared with IAS 39.

Except for hedge accounting, retrospective application of IFRS 9 is required. The new rules for hedge accounting will be applied prospectively in line with the requirements of the new standard. The Group does not plan to restate prior periods as allowed by the transition provisions of IFRS 9.

IFRS 16 ‘Leases’

The Group will adopt IFRS 16 with effect from 1 January 2019. The standard eliminates the classification of leases as either operating or finance leases and introduces a single accounting model which is similar to the current accounting model for finance leases under IAS 17.

Lessees will be required to recognise on the balance sheet‘right-of-use’ assets which represent the right to use underlying assets during the lease term and a lease liability representing the minimum lease payment for all leases. Depreciation of‘right-of-use’ assets and interest on lease liabilities will be charged to the income statement, replacing the corresponding operating lease rentals.

The Group will take the elections available under IFRS 16 not to apply the lease accounting model to leases which are considered low value or which have a term of less than 12 months.

The Group currently plans to adopt both standardsapply the full retrospective method of application. Management are currently quantifying the impact of adopting IFRS 16 which is expected to result in an increase in lease liabilities of $350m–$400m at 31 December 2017, and an immaterial impact on profit after tax.

Other

From 1 January 2018, the Group will apply Amendments to IFRS 2 ‘Classification and Measurement of Share-Based Payment Transactions’. The amendments address the effects of vesting conditions on the required effective dates.measurement of cash-settled share-based payment transactions; the classification of a share-based payment transaction with net settlement features for withholding tax obligations and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash-settled to equity-settled. Adoption of this amendment is not expected to have a material impact on the financial statements.

From 1 January 2019, the Group will apply the amendments to:

IAS 28 ‘Investments in Associates and Joint Ventures’ relating to long-term interests to which the equity method is not applied;

IFRS 9 ‘Financial Instruments’ relating to prepayment features with negative compensation;

IFRIC 23 ‘Uncertainty over Income Tax Treatments’; and

Other existing standards arising from the Annual Improvements to IFRSs 2015–2017 cycle.

The amendments are not expected to have a material impact on the Group’s reported financial performance or position.

 

 

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Group Financial Statements

Notes to the 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=£0.61 (20130.78 (2016: $1=£0.64, 20120.74, 2015: $1=£0.63)0.65). In the case of the euro, the translation rate is $1=0.75 (20130.89 (2016: $1=0.75, 20120.90, 2015: $1=0.78)0.90).

Assets and liabilities have been translated into US dollars at the rates of exchange on the last day of the year. In the case of sterling, the translation rate is $1=£0.64 (20130.74 (2016: $1=£0.60, 20120.81, 2015: $1=£0.62)0.68). In the case of the euro, the translation rate is $1=0.82 (20130.83 (2016: $1=0.73, 20120.95, 2015: $1=0.76)0.92).

2. Segmental information

The management of the Group’s operations, excluding Central functions, is organised within four geographical regions:

 

Americas;

 

Europe;

 

Asia, Middle East and Africa (AMEA); and

 

Greater China.

These, together with Central functions, comprise the Group’s five reportable segments. No operating segments have been aggregated to form these reportable segments.

Central functions include costs of global functions including technology, sales and marketing, finance, human resources and corporate services; central revenue arises principally from technology fee income. Central liabilities include the loyalty programme liability and the cumulative short-term System Fund surplus.

Each of the geographical regions is led by its own Chief Executive Officer and derives its revenues from either franchising, managing or owning hotels and additional segmental disclosures are provided accordingly.

Management monitors the operating results of the geographical regions and Central functions separately for the purpose of making decisions about resource allocation and performance assessment. Segmental performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the Consolidated Financial Statements, excluding exceptional items. Group financing activities and income taxes are managed on a group basis and are not allocated to reportable segments.

 

Year ended 31 December 2014  Americas
$m
 Europe
$m
 AMEA
$m
 Greater
China
$m
 Central
$m
 Group
$m
 
Year ended 31 December 2017           Americas
$m
         Europe
$m
          AMEA
$m
 

        Greater

China

$m

          Central
$m
         Group  
$m  
Revenue                             
Franchised   630   104   16   4       754      703  109   17  4     833 
Managed   103   159   187   99       548      172  132   193  122     619 
Owned and leased   138   111   39   139       427      150     34       184 
Central                  129   129                148  148 
   871   374   242   242   129   1,858  
    1,025  241   244  126   148  1,784 
  Americas
$m
 Europe
$m
 AMEA
$m
 Greater
China
$m
 Central
$m
 Group
$m
     
        Americas
$m
 
 
         Europe $m   
        AMEA
$m
 
 
 

 

        Greater

China

$m

   
        Central
$m
 
 
         Group   $m  
Segmental result                             
Franchised   544   78   12   5       639      606  85   14       707 
Managed   47   30   88   63       228      65  26   91  73      255 
Owned and leased   18   14   3   42       77      29     2  –      31 
Regional and central   (65 (33 (19 (21 (155 (293    (56 (25)   (20 (23)   (110 (234)
Reportable segments’ operating profit   544   89   84   89   (155 651      644  86   87  52    (110 759 
Exceptional operating items (note 5)   110   (56         (25 29  
Exceptional items (note 5)    37  (2)   (2 –    (29 
Operating profit   654   33   84   89   (180 680      681  84   85  52    (139 763 
                 Group
$m
 
Reportable segments’ operating profit            651  
Exceptional operating items (note 5)            29  
Operating profit            680  
Net finance costs            (80
Profit before tax            600  
Tax            (208
Profit for the year            392  

        Group  
$m  
Reportable segments’ operating profit759 
Exceptional items (note 5)
Operating profit763 
Net finance costs(85)
Profit before tax678 
Tax(85)
Profit for the year593 

All items above relate to continuing operations.

104IHG  |  Annual Report and Form 20-F 2017


2. Segmental informationcontinued

31 December 2017    

        Americas

$m

  

        Europe

$m

  

        AMEA

$m

  

        Greater

China

$m

  

        Central

$m

  

        Group

$m

 
Assets and liabilities                          
Segment assets    1,525   350   264   154   541   2,834 
Unallocated assets:                          

Non-current tax receivable

                        16 

Deferred tax assets

                        56 

Current tax receivable

                        101 

Cash and cash equivalents

                        168 
Total assets                        3,175 
                           
Segment liabilities    (470  (146  (86  (60  (999  (1,761
Unallocated liabilities:                          

Current tax payable

                        (64

Non-current tax payable

                        (25

Deferred tax liabilities

                        (157

Loans and other borrowings

                        (2,019
Total liabilities                        (4,026
Year ended 31 December 2017    

        Americas

$m

  

        Europe

$m

  

        AMEA

$m

  

 

        Greater

China

$m

  

        Central

$m

  

        Group

$m

 
Other segmental information                          
Capital expenditure (see below)    120   18   8   2   188   336 
Non-cash items:                          

Depreciation and amortisationa

    31   10   6   3   53   103 

Share-based payments cost

                21   21 

Share of losses/(gains) of associates and joint ventures

    1      (4        (3

Impairment charges

    18               18 

 

a  Included in the $103m of depreciation and amortisation is $53m relating to administrative expenses and $50m relating to cost of sales.

 

   

      

        Americas

$m

  

        Europe

$m

  

        AMEA

$m

  

        Greater

China

$m

  

        Central

$m

  

        Group

$m

 
Reconciliation of capital expenditure                          
Capital expenditure per management reporting    120   18   8   2   188   336 
Landlord contributions to property, plant and equipment                14   14 
Timing differences and other adjustments                (1  (1
Additions per the Financial Statements    120   18   8   2   201   349 
                           
Comprising additions to:                          

Property, plant and equipment

    10         2   32   44 

Intangible assets

    51   15   6      169   241 

Investment in associates and joint ventures

    47               47 

Other financial assets

    12   3   2         17 
     120   18   8   2   201   349 

IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes105


Group Financial Statements

Notes to the Group Financial Statements continued

2. Segmental informationcontinued

Year ended 31 December 2016    

Americas

$m

  

Europe

$m

  

AMEA

$m

  

Greater
China

$m

  

Central

$m

  

Group

$m

 
Revenue                          
Franchised    685   102   16   3      806 
Managed    172   125   184   114      595 
Owned and leased    136      37         173 
Central                141   141 
     993   227   237   117   141   1,715 
      

Americas

$m

  

Europe

$m

  

AMEA

$m

  

Greater
China

$m

  

Central

$m

  

Group

$m

 
Segmental result                          
Franchised    600   78   12   3      693 
Managed    64   22   89   64      239 
Owned and leased    24      2         26 
Regional and central    (55  (25  (21  (22  (128  (251
Reportable segments’ operating profit    633   75   82   45   (128  707 
Exceptional items (note 5)    (29              (29
Operating profit    604   75   82   45   (128  678 

Group

$m

Reportable segments’ operating profit707
Exceptional items (note 5)(29
Operating profit678
Net finance costs(87
Profit before tax591
Tax(174
Profit for the year417

All items above relate to continuing operations.

31 December 2016    

 Americas

$m

  

 Europe

$m

  

 AMEA

$m

  

 Greater
China

$m

  

 Central

$m

  

 Group

$m

 
Assets and liabilities                          
Segment assets    1,417   321   249   147   439   2,573 
Unallocated assets:                          

Non-current tax receivable

                        23 

Deferred tax assets

                        48 

Current tax receivable

                        77 

Cash and cash equivalents

                        206 
Total assets                        2,927 
                           
Segment liabilities    (438  (128  (68  (39  (997  (1,670
Unallocated liabilities:                          

Current tax payable

                        (50

Deferred tax liabilities

                        (251

Derivative financial instruments

                        (3

Loans and other borrowings

                        (1,712
Total liabilities                        (3,686

106IHG  |  Annual Report and Form 20-F 2017


2. Segmental informationcontinued

31 December 2016    

Americas

$m

  

Europe

$m

  

AMEA

$m

  

Greater

China

$m

  

Central

$m

  

Group

$m

 
Other segmental information                          
Capital expenditure (see below)    67   15   7   1   148   238 
Non-cash items:                          

Depreciation and amortisationa

    25   10   5   3   53   96 

Share-based payments cost

                17   17 

Share of losses/(gains) of associates and joint ventures

    7      (5        2 

Impairment charges

    16               16 

 

a  Included in the $96m of depreciation and amortisation is $54m relating to administrative expenses and $42m relating to cost of sales.

 

   

   
      

Americas

$m

  

Europe

$m

  

AMEA

$m

  

Greater

China

$m

  

Central

$m

  

Group

$m

 
Reconciliation of capital expenditure                          
Capital expenditure per management reporting    67   15   7   1   148   238 
Timing differences and other adjustments    1      (1  (1  (7  (8
Additions per the Financial Statements    68   15   6      141   230 
                           
Comprising additions to:                          

Property, plant and equipment

    13      2      14   29 

Intangible assets

    36   15   2      127   180 

Investment in associates and joint ventures

    14               14 

Other financial assets

    5      2         7 
     68   15   6      141   230 
Year ended 31 December 2015    

Americas

$m

  

Europe

$m

  

AMEA

$m

  

Greater
China

$m

  

Central

$m

  

Group

$m

 
Revenue                          
Franchised    661   104   16   4      785 
Managed    166   131   189   105      591 
Owned and leased    128   30   36   98      292 
Central                135   135 
     955   265   241   207   135   1,803 
      

Americas

$m

  

Europe

$m

  

AMEA

$m

  

Greater
China

$m

  

Central

$m

  

Group

$m

 
Segmental result                          
Franchised    575   77   12   5      669 
Managed    64   28   90   59      241 
Owned and leased    24   1   3   29      57 
Regional and central    (66  (28  (19  (23  (151  (287
Reportable segments’ operating profit    597   78   86   70   (151  680 
Exceptional items (note 5)    (41  175   (2  698   (11  819 
Operating profit    556   253   84   768   (162  1,499 

Group

$m

Reportable segments’ operating profit680
Exceptional items (note 5)819
Operating profit1,499
Net finance costs(87
Profit before tax1,412
Tax(188
Profit for the year1,224

All items above relate to continuing operations.

 

 

114


2. Segmental informationcontinued
31 December 2014  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Assets and liabilities                         
Segment assets   919    316    244    394    346    2,219  
Assets classified as held for sale       310                310  
    919    626    244    394    346    2,529  
Unallocated assets:                         

Non-current tax receivable

                       34  

Deferred tax assets

                       87  

Current tax receivable

                       4  

Derivative financial instruments

                       2  

Cash and cash equivalents

                       162  
Total assets                       2,818  
Segment liabilities   (430  (199  (61  (66  (796  (1,552
Liabilities classified as held for sale       (94              (94
    (430  (293  (61  (66  (796  (1,646
Unallocated liabilities:                         

Current tax payable

                       (47

Deferred tax liabilities

                       (147

Loans and other borrowings

                       (1,695
Total liabilities                       (3,535
Year ended 31 December 2014  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Other segmental information                         
Capital expenditure (see below)   75    37    11    6    123    252  
Non-cash items:                         

Depreciation and amortisation1

   22    18    8    15    33    96  

Share-based payments cost

                   21    21  

Share of losses/(profits) of associates and joint ventures

   6        (2          4  

 

1     Included in the $96m of depreciation and amortisation is $41m relating to administrative expenses and $55m relating to cost of sales.

        

    Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Reconciliation of capital expenditure                         
Capital expenditure per management reporting   75    37    11    6    123    252  
Management contracts acquired on disposal of hotels   50                    50  
Capital contributions to associates   15                    15  
Other financial assets relating to deferred consideration on disposals   27    25                52  
Timing differences               (1      (1
Additions per the Financial Statements   167    62    11    5    123    368  
Comprising additions to:                         

Property, plant and equipment

   45    12    2    5    15    79  

Assets classified as held for sale

   1    3                4  

Intangible assets

   78    22    5        108    213  

Investment in associates and joint ventures

   15                    15  

Other financial assets

   28    25    4            57  
    167    62    11    5    123    368  

LOGO

115


IHG  |  Annual Report and Form 20-F 2014

Note2017  |  s toGroup Financial Statements  the Gro|  up FinNotesancial Statementscontinued

2. Segmental informationcontinued

107
Year ended 31 December 2013  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Revenue                         
Franchised   576    104    16    3        699  
Managed   128    156    170    92        546  
Owned and leased   212    140    44    141        537  
Central                   121    121  
    916    400    230    236    121    1,903  
    Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Segmental result                         
Franchised   499    79    12    5        595  
Managed   74    30    92    51        247  
Owned and leased   30    30    4    47        111  
Regional and central   (53  (34  (22  (21  (155  (285
Reportable segments’ operating profit   550    105    86    82    (155  668  
Exceptional operating items (note 5)   6    19        (10  (10  5  
Operating profit   556    124    86    72    (165  673  
                        Group
$m
 
Reportable segments’ operating profit                       668  
Exceptional operating items (note 5)                       5  
Operating profit                       673  
Net finance costs                       (73
Profit before tax                       600  
Tax                       (226
Profit for the year                       374  

All items above relate


Group Financial Statements

Notes to continuing operations.the Group Financial Statements continued

    

    

2. Segmental informationcontinued

Year ended 31 December 2015        Americas
$m
       Europe
$m
       AMEA
$m
  

    Greater
China

$m

       Central
$m
       Group
$m
 
Other segmental information                              
Capital expenditure    87    45    8   4    118    262 
Non-cash items:                              

Depreciation and amortisationa

    23    10    6   8    49    96 

Share-based payments cost

                   19    19 

Share of losses/(gains) of associates and joint ventures

    5        (2          3 

Impairment charges

    27        9           36 

 

116a


2. Segmental informationcontinued
31 December 2013  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
(restated1)
$m
 
Assets and liabilities                         
Segment assets   851    654    253    392    304    2,454  
Assets classified as held for sale   228                    228  
    1,079    654    253    392    304    2,682  
Unallocated assets:                         

Non-current tax receivable

                       16  

Deferred tax assets

                       108  

Current tax receivable

                       12  

Derivative financial instruments

                       1  

Cash and cash equivalents

                       248  
Total assets                       3,067  
Segment liabilities   (364  (286  (56  (62  (741  (1,509
Unallocated liabilities:                         

Current tax payable

                       (47

Deferred tax liabilities

                       (175

Loans and other borrowings

                       (1,399

Derivative financial instruments

                       (11
Total liabilities                       (3,141

1     Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

        

Year ended 31 December 2013  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  

Group

$m

 
Other segmental information                         
Capital expenditure (see below)   116    37    17    8    91    269  
Non-cash items:                         

Depreciation and amortisation1

   19    18    10    15    23    85  

Share-based payments cost

                   22    22  

Share of profits of associates and joint ventures

   5        3            8  

 

1     Included in the $85m of depreciation and amortisation is $34m relating to administrative expenses and $51m relating to cost of sales.

        

    Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  

Group

$m

 
Reconciliation of capital expenditure                         
Capital expenditure per management reporting   116    37    17    8    91    269  
Management contract acquired on disposal of hotel       40                40  
Other financial assets relating to pensions       48            92    140  
Timing differences   8            (1  8    15  
Additions per the Financial Statements   124    125    17    7    191    464  
Comprising additions to:                         

Property, plant and equipment

   93    22    8    7    20    150  

Assets classified as held for sale

   5    3                8  

Intangible assets

   6    45    5        79    135  

Investment in associates and joint ventures

   6        4            10  

Other financial assets

   14    55            92    161  
    124    125    17    7    191    464  

LOGO

117


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

2. Segmental informationcontinued

Year ended 31 December 2012  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Revenue                         
Franchised   541    91    18    3        653  
Managed   97    147    152    89        485  
Owned and leased   199    198    48    138        583  
Central                   114    114  
    837    436    218    230    114    1,835  
    Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Segmental result                         
Franchised   466    65    12    4        547  
Managed   48    32    90    51        221  
Owned and leased   24    50    6    45        125  
Regional and central   (52  (35  (20  (19  (162  (288
Reportable segments’ operating profit   486    112    88    81    (162  605  
Exceptional operating items (note 5)   23    (4  (5      (18  (4
Operating profit   509    108    83    81    (180  601  
                        Group
$m
 
Reportable segments’ operating profit                       605  
Exceptional operating items (note 5)                       (4
Operating profit                       601  
Net finance costs                       (54
Profit before tax                       547  
Tax                       (9
Profit for the year                       538  
All items above relate to continuing operations.  
Year ended 31 December 2012  Americas
$m
  Europe
$m
  AMEA
$m
  Greater
China
$m
  Central
$m
  Group
$m
 
Other segmental information                         
Capital expenditure   25    19    6    7    76    133  
Non-cash items:                         

Depreciation and amortisation1

   20    23    14    15    22    94  

Reversal of previously recorded impairment

   (23                  (23

Write-off of software

                   18    18  

Demerger liability released

                   (9  (9

Share-based payments cost

                   22    22  

Share of profits of associates and joint ventures

           (3          (3

1Included in the $94m$96m of depreciation and amortisation is $31m$50m relating to administrative expenses and $63m$46m relating to cost of sales.

 

118


2. Segmental informationcontinued
Geographical information  

Year ended
31 December
2014

$m

   

Year ended
31 December
2013

$m

   

Year ended
31 December
2012

$m

    

Year ended
31
    December
2017

$m

       

Year ended
31
    December
2016

$m

       

Year ended
31
    December
2015

$m

 
Revenue                       
United Kingdom   75     90     152      68      66      67 
United States   786     843     769      948      923      876 
People’s Republic of China (including Hong Kong)   254     247     238  
China    141      133      223 
Rest of World   743     723     676      627      593      637 
   1,858     1,903     1,835      1,784      1,715      1,803 

For the purposes of the above table, hotel revenue is determined according to the location of the hotel and other revenue is attributed to the country of origin. In addition to the United Kingdom, revenue relating to an individual country is separately disclosed when it represents 10% or more of total revenue.

 

  

31 December
2014

$m

   

31 December
2013

$m

    

31
    December
2017

$m

    

31
    December
2016

$m

 
Non-current assets              
United Kingdom   136     131      108     105 
United States   811     705      1,511     1,343 
France        342  
People’s Republic of China (including Hong Kong)   318     326  
Rest of World   238     268      414     382 
   1,503     1,772      2,033     1,830 

For the purposes of the above table, non-current assets comprise property, plant and equipment, goodwill and other intangible assets, investments in associates and joint ventures and non-current trade and other receivables. In addition to the United Kingdom, non-current assets relating to an individual country are separately disclosed when they represent 10% or more of total non-current assets, as defined above.

 

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119108


 

IHG  |  Annual Report and Form 20-F 20142017


    

Notes to the Group Financial Statementscontinued

3. Staff costs and Directors’ emoluments

 

      2017
$m
     2016
$m
     2015
$m
 
Staffa                  
Costs:                  

Wages and salaries

    583     537     562 

Social security costs

    33     29     33 

Pension and other post-retirement benefits:

                  

Defined benefit plans (note 25)

    5     5     5 

Defined contribution plans

    24     23     28 
     645     594     628 
     2017     2016     2015 
Average number of employees, including part-time employees:                  

Americas

    2,149     2,121     2,082 

Europe

    813     782     1,041 

AMEA

    1,454     1,598     1,658 

Greater China

    294     299     865 

Central

    1,948     1,787     1,665 
     6,658     6,587     7,311 

 

    

2014

$m

   

2013

$m

   

2012

$m

 

Staff

               
Costs:               

Wages and salaries

   577     580     547  

Social security costs

   42     41     44  

Pension and other post-retirement benefits:

               

Defined benefit plans1(note 25)

   10     10     13  

Defined contribution plans

   28     25     22  
    657     656     626  

1  Before exceptional items.

 

      
    2014   2013   2012 
Average number of employees, including part-time employees:               

Americas

   2,191     2,548     2,552  

Europe

   1,557     1,602     1,866  

Asia, Middle East and Africa

   1,451     1,545     1,195  

Greater China

   1,092     1,083     1,051  

Central

   1,506     1,401     1,317  
    7,797     8,179     7,981  
aIncludes $13m (2016: $1m, 2015: $3m) classified as exceptional.

The costs of the above employees are borne by IHG. Of these, 92%91% were employed on a full-time basis and 8%9% were employed on a part-time basis.

In addition to the above, the Group has employees who work directly on behalf of the System Fund and whose costs are borne by the Fund as disclosed in note 32. In line with IHG’s business model, IHG also employs 602 (2013 578, 2012 587) General Managers and, in the US predominantly, other hotel workers who work in the managed hotels and whose total costs of $142m (2013 $135m, 2012 $132m) are borne by those hotels and, in the US predominantly, there are 11,848 (2013 10,834, 2012 11,053) other hotel workers in the managed hotels who have contracts or letters of service with IHG whoseIHG. The total number of these employees is 22,577 (2016: 22,002, 2015: 20,452) and their costs of $449m (2013 $383m, 2012 $437m)$1,056m (2016: $1,002m, 2015: $936m) are borne by those hotels.

 

    

2014

$m

   

2013

$m

   

2012

$m

 
Directors’ emoluments               
Base salaries, fees, performance payments and benefits¹   9.0          8.5     9.7  
Pension benefits under defined contribution plans        0.2     0.4          0.2  
      2017
$m
      2016
$m
      2015
$m
 
Directors’ emoluments                  
Base salaries, fees, performance payments and benefits    4.9     6.1     7.9 

¹ Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85).

More detailed information on the emoluments, pensions, option holdings
LOGO

More detailed information on the emoluments, pensions, share awards and shareholdings for each Director is shown in the Directors’ Remuneration Report on pages 76 to 91.

for each Director is shown in the Directors’ Remuneration Report on pages 64 to 77.

4. Auditor’s remuneration paid to Ernst & Young LLP

 

      2017
$m
       2016
$m
       2015
$m
 
Audit of the Financial Statementsa    3.0      2.4      2.5 
Audit of subsidiaries    2.2      2.2      2.1 
Audit-related assurance services    0.2      0.2      0.2 
Other assurance services    1.0      1.2      0.9 
Tax compliance    0.1      0.4      0.2 
Tax advisory          0.1      0.1 
Other non-audit services not covered by the above    0.2      0.1      0.4 
     6.7      6.6      6.4 

 

    

2014

$m

   

2013

$m

   

2012

$m

 
Audit of the Financial Statements   2.4     2.0     2.8  
Audit of subsidiaries   2.0     1.4     1.5  
Audit-related assurance services   0.2     0.5     1.0  
Other assurance services   0.9     1.2     1.4  
Tax compliance   0.2     0.2          0.3  
Tax advisory   0.3          0.4     0.2  
Other non-audit services not covered by the above        0.1     0.1       
    6.1     5.8     7.2  
aIncludes $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.

 

120IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes109


Group Financial Statements

Notes to the Group Financial Statements continued

5. Exceptional items

 

    Note   

2014

$m

   

2013

$m

   

2012

$m

 
Exceptional operating items                    
Administrative expenses:                    

Venezuelan currency loss

   a     (14          

Pension settlement cost

   b     (6   (147     

Reorganisation costs

   c     (29        (16

UK portfolio restructuring

   d     (45          

Kimpton acquisition costs

   e     (7          

Litigation

   f          (10     

Loyalty programme rebranding costs

   g          (10     
         (101   (167   (16
Share of profits of associates and joint ventures:                    

Share of gain on disposal of a hotel (note 14)

             6       
Other operating income and expenses:                    

Gain/(loss) on disposal of hotels (note 11)

        130     166     (2

Write-off of software

   h               (18

Demerger liability released

   i               9  
         130     166     (11
Reversals of previously recorded impairment:                    

Property, plant and equipment

   j               23  
                   23  
         29     5     (4
Tax                    
Tax on exceptional operating items   k     (29   (6   1  
Exceptional tax   l          (45   141  
         (29   (51   142  

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 112.

      2017
$m
      2016
$m
      2015
$m
 
Exceptional items before tax                  
Administrative expenses:                  

Kimpton integration costsa

    (15    (13    (10

Reorganisation costsb

    (36         (6

Venezuelan currency lossesc

              (4

Corporate development costsd

              (5
     (51    (13    (25
Other operating income and expenses:                  

Gain on disposal of equity securities available-for-sale (note 15)

    73           

Gain on disposal of hotels (note 11)

              871 

Gain on disposal of investment in associate (note 14)

              9 
     73          880 
Impairment charges:                  

Associates (note 14)

    (18    (16    (9

Property, plant and equipment (note 12)

              (27
     (18    (16    (36
     4     (29    819 
Tax                  
Tax on exceptiornal itemse    (2    12     (8
Exceptional taxf    118           
     116     12     (8

 

aRelates to the introductioncost of integrating Kimpton into the operations of the SICAD II exchange rate on 24 March 2014Group, which has now been completed.

bIn September 2017, the Group launched a comprehensive efficiency programme which will fund a series of new strategic initiatives to drive an acceleration in IHG’s future growth. The programme is centred around strengthening the Group’s organisational structure to redeploy resources to leverage scale in the highest opportunity markets and its adoption bysegments. The programme is expected to be completed in 2019. Included in the Group. Of$36m cost are consultancy fees of $24m and severance costs of $8m. An additional $9m has been charged to the threeSystem Fund.

cArose from changes to the Venezuelan exchange rate mechanisms that currently existand the adoption of the SIMADI exchange rate in Venezuela, SICAD II is2015, this being the most accessible exchange rate open to the Group for converting its bolivar earnings into US dollars. The exceptional loss arisesarose from the one-off re-measurement of the Group’s bolivar assets and liabilities fromto the ‘official’relevant exchange rate, ($1=6.3 VEF)being approximately $1=190VEF on adoption of SIMADI. Subsequent changes to the SICAD II exchange rate (approximately $1=50 VEF). The Group has used the SICAD II exchange rate for translating the results of its Venezuelan operations since 1 April 2014.mechanism have not resulted in material losses.

bdPrimarily legal costs related to development opportunities.

eIn 2014, results from2017, comprises a partial cash-out of the UK unfunded pension arrangements and, in 2013, resulted from a buy-in (and subsequent buy-out in 2014) of the Group’s UK funded defined benefit obligations with the insurer, Rothesay Life. See note 25 for further details.
cIn 2014, relates primarily to costs incurred in introducing a new HR operating model across the business to provide enhanced management information and more efficient processes, and to implement more efficient processes and procedures in the Group’s Global Technology infrastructure to help mitigate future cost increases. In 2012, arose from a reorganisation of the Group’s support functions together with a restructuring within the AMEA region.
dRelates to the costs of securing a restructuring of the UK hotel portfolio which will result in the transfer of 61 managed hotels to franchise contracts.
eRelates to acquisition transaction costs incurred in the period to 31 December 2014 on the acquisition of Kimpton, which completed on 16 January 2015 (see note 33).
fRelated to an agreed settlement$7m (2016: $6m) deferred tax credit in respect of an associate investment impairment, a lawsuit filed against the Group$6m (2016: $5m) deferred tax credit representing future tax relief on Kimpton integration costs, a $13m current tax credit in the Greater China region.
gRelated torespect of reorganisation costs incurred in support of the worldwide rebranding of IHG Rewards Club that was announced 1 July 2013.
hSoftware disposals in 2012 included an exceptional write-off of $18m resulting fromand a re-assessment of the ongoing value of elements of the technology infrastructure.
iResulted from a release of a liability no longer required which arose on the demerger of the Group from Six Continents PLC.
jIn 2012, a previously recorded impairment$28m current tax charge relating to the gain on disposal of Avendra (see note 15). In 2016, there was also a North American hotel was reversed$1m credit in full followingrespect of other items. In 2015, comprised a re-assessmentcharge of its recoverable amount, based on the market value of the hotel as determined by an independent professional property valuer.
kIn 2014, the charge comprises $56m relating to disposal of hotels, a credit of $21m in respect of the 2014 disposal of an 80.1% interest in the InterContinental New York Barclay offset by a creditreflecting the judgement that state tax law changes would now apply to the deferred gain, and credits of $27m for current and deferred tax relief on other operating exceptional items of current and prior periods.

fIncludes $108m relating to the impact of significant US tax reform that was enacted on 22 December 2017. This includes a restructuringcurrent tax charge of $32m, relating predominantly to the UK hotel portfolioGroup’s estimated ‘transition tax’ liability on previously undistributed earnings of foreign subsidiaries of US entities, and other reorganisation costs.
lIn 2013, comprised a deferred tax chargecredit of $63m consequent$140m, being principally the impact of the US federal tax rate reduction from 35% to 21% (effective 1 January 2018) on the disposal of the InterContinental London Park Lane hotel, together with charges and credits of $38m and $19m respectively from associated restructurings (including intra-group dividends) and refinancings, offset by the recognition of $37m of previously unrecognised tax credits. In 2012, represented the recognition of $104m ofGroup’s US deferred tax assets, principally relatingliabilities, as well as the release of liabilities related to pre-existing overseas tax losses, whose value had become more certainthe Group’s undistributed post-acquisition earnings of subsidiaries that are no longer required as a result of the US transition tax. In addition, a change in law anddeferred tax credit of $10m arises on the resolution of prior period tax matters, together with the associated release of $37ma contingency, previously charged as an exceptional item, which is no longer required due to statute of provisions.limitations expiry.

LOGO

All items above relate to continuing operations.

 

121


LOGO

The above items are treated as exceptional by reason

of their size or nature, as further described on page 100.

110

IHG  |  Annual Report and Form 20-F 20142017


    

Notes to the Group Financial Statementscontinued

6. Finance costs

 

  

2014

$m

   

2013

$m

   

2012

$m

    2017
$m
      2016
$m
      2015
$m
 
Financial income                     
Interest income on deposits   2     4     2      1     3     2 
Unwinding of discount on other financial assets   1     1     1  
Interest income on loans and receivables    3     3     3 
   3     5     3      4     6     5 
Financial expenses                     
Interest expense on borrowings   66     59     37      69     74     74 
Interest rate swaps fair value transferred from equity             1  
Finance charge payable under finance leases   19     19     19      20     20     20 
Capitalised interest   (2                   (1    (2
   83     78     57      89     93     92 

Interest income and expense relate to financial assets and liabilities held at amortised cost, calculated using the effective interest rate method.

Included within interest expense is $2m (2013 $2m, 2012$7m (2016: $3m, 2015: $2m) payable to the IHG Rewards Club loyalty programme relating to interest on the accumulated balance of cash received in advance of the redemption of points awarded.

The rate used for capitalisation of interest was 4.4%3.0% (2016: 3.8%, 2015: 3.4%).

7. Tax

Tax on profit

 

Tax on profit  Note   

2014

$m

   

2013

$m

   

2012

$m

 
   2017
$m
      2016
$m
      2015
$m
 
Income tax                        
UK corporation tax at 21.50% (2013 23.25%, 2012 24.50%):            
UK corporation tax at 19.25% (2016: 20.00%, 2015: 20.25%):            

Current period

      5     62     21      10     10     7 

Benefit of tax reliefs on which no deferred tax previously recognised

   a          (49              (7     

Adjustments in respect of prior periods

   b     2          (34    (2    (1    (17
      7     13     (13    8     2     (10
Foreign tax:   c               ��         

Current period

      156     184     170      210     151     196 

Benefit of tax reliefs on which no deferred tax previously recognised

      (2   (42   (31    (13         (1

Adjustments in respect of prior periods

   b     (26   (17   (27

Adjustments in respect of prior periodsa

    2     (97    (27
      128     125     112      199     54     168 
Total current tax      135     138     99      207     56     158 
Deferred tax:                        

Origination and reversal of temporary differences

      68     122     7      (10    55     60 

Changes in tax rates

      2     (1   (2

Adjustments to estimated recoverable deferred tax assets

      1     (39   (105

Adjustments in respect of prior periods

      2     6     10  

Changes in tax rates and tax lawsb

    (87    (2    (21

Adjustments to estimated recoverable deferred tax assetsc

    (9    (25    (13

Adjustments in respect of prior periodsa

    (16    90     4 
Total deferred tax      73     88     (90    (122    118     30 
Total income tax charge for the year      208     226     9      85     174     188 
Further analysed as tax relating to:                        

Profit before exceptional items

      179     175     151  

Profit before exceptional itemsd

    201     186     180 

Exceptional items:

                        

Exceptional operating items (note 5)

      29     6     (1

Tax on exceptional items (note 5)

    2     (12    8 

Exceptional tax (note 5)

           45     (141    (118          
      208     226     9      85     174     188 

aIn 2016, included $83m in respect of a change in tax treatment being approved by the US tax authority.

bIn 2017, predominantly reflects a change in US tax rates following significant US tax reforms. In 2015, predominantly reflected the judgement that state tax law changes applied to the deferred gain from the 2014 disposal of a controlling interest in InterContinental New York Barclay.

cRepresents a re-assessment of the recovery of recognised and off-balance sheet deferred tax assets in line with the Group’s profit forecasts.

dIncludes $156m (2016: $162m, 2015: $123m) in respect of US taxes.

All items above relate to continuing operations.

 

aIn 2013, included $45m in respect of the utilisation of unrecognised capital losses against the gain on disposal of the InterContinental London Park Lane hotel.
bIHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  NotesIn 2012, included $37m of exceptional credits included within exceptional tax (see note 5) together with other releases relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired.
cRepresents corporate income taxes on profit taxable in foreign jurisdictions, a significant proportion of which relates to the Group’s US subsidiaries.111


Group Financial Statements

Notes to the Group Financial Statements continued

7. Taxcontinued

                       Totala               Before exceptional itemsb 
      2017
%
      2016
%
      2015
%
      2017
%
      

2016

%

      

2015

%

 
Reconciliation of tax charge                                    
UK corporation tax at standard rate    19.3     20.0     20.3     19.3     20.0     20.3 
Tax credits    (0.5    (2.4    (0.2    (0.5    (2.2    (0.4
Differences in tax gains and accounting gains on asset disposals              (9.8               
Other permanent differences    0.8     3.8     1.1     0.6     3.6     2.0 
Non-recoverable withholding taxes    0.3     0.7     0.1     0.3     0.7     0.3 
Net effect of different rates of tax in overseas businessesc    14.1     13.7     7.1     14.1     13.9     15.3 
Effects of changes in tax rates resulting from significant US tax reform    (13.2                         
Release of provision for taxation on unremitted earnings following significant US tax reform    (7.6                         
Transition tax liability arising from significant US tax reform    4.7                          
Effect of other changes in tax rates and tax lawsd    0.3     0.4     (1.5    0.3     0.3     0.1 
Benefit of tax reliefs on which no deferred tax previously recognised    (1.9    (1.2    (0.1    (1.9    (1.1    (0.1
Effect of adjustments to estimated recoverable deferred tax assets    (1.3    (4.3    (0.9    (1.3    (4.1    (1.7
Adjustment to tax charge in respect of prior periods    (2.5    (1.3    (2.8    (1.1    (1.1    (5.4
Other              0.1                
     12.5     29.4     13.4     29.8     30.0     30.4 

 

122


7. Taxcontinued
   Total1   Before exceptional items2 
    2014
%
   

2013

%

   2012
%
   

2014

%

   

2013

%

   

2012

%

 
Reconciliation of tax charge, including gain on disposal of assets                              
UK corporation tax at standard rate   21.5     23.3     24.5     21.5     23.3     24.5  
Non-deductible expenditure and non-taxable income   4.9     16.6     2.0     1.0     1.9     1.0  
Non-recoverable withholding taxes   0.4     1.2     2.0     0.4     1.2     2.0  
Net effect of different rates of tax in overseas businesses   11.5     11.6     7.7     12.8     11.9     7.8  
Effect of changes in tax rates   0.3     (0.1   (0.3   0.1     (0.1   (0.1
Benefit of tax reliefs on which no deferred tax previously recognised   (0.4   (15.0   (5.6   (0.3   (1.1   (5.6
Effect of adjustments to estimated recoverable deferred tax assets   0.2     (6.4   (19.4   (0.2   (4.9   (0.2
Adjustment to tax charge in respect of prior periods   (3.7   (2.2   (9.8   (3.9   (2.1   (2.5
Deferred tax provision on unremitted earnings        10.5                      
Other        (1.8   0.4          (0.6   0.5  
    34.7     37.7     1.5     31.4     29.5     27.4  

1a Calculated in relation to total profits including exceptional items.

2b Calculated in relation to profits excluding exceptional items.

cBefore exceptional items includes 13.8%pt (2016: 12.6%pt, 2015: 13.5%pt) driven by the relatively high US federal tax rate.

dIn 2015, total of (1.5)% predominantly reflected the judgement that state tax law changes applied to the deferred gain from the 2014 disposal of a controlling interest in InterContinental New York Barclay.

Tax paid

Total net tax paid during the year of $136m (2013 $97m, 2012 $122m)$172m (2016: $130m, 2015: $110m) comprises $136m (2013 $92m, 2012 $119m)$147m (2016: $130m, 2015: $109m) paid in respect of operating activities and $25m (2016: $nil, (2013 $5m, 2012 $3m)2015: $1m) paid in respect of investing activities.

Tax A reconciliation of tax paid represents an effective rate of 23% (2013 16%, 2012 22%) onto the total profits and is lower thantax charge in the effective income statement follows:

      2017
$m
      2016
$m
      2015
$m
 
Current tax charge in the income statement    207     56     158 
Current tax credit in the statement of comprehensive income         (12    (2
Current tax credit taken directly to equity    (12    (8    (8
Total current tax charge    195     36     148 
Movements to tax contingencies within the income statementa    3     11     (7
Timing differences of cash tax paid and foreign exchange differencesb    (26    83     (31
Tax paid per cash flow    172     130     110 
Cash tax rate on total profitsc    25%     22%     8% 

aTax contingency movements are included within the current tax charge but do not impact cash tax paid in the year.

bThe timing difference in 2016 was predominantly in respect of the US where the payment regulations resulted in a large overpayment in the year.

cCalculated as total cash paid divided by total accounting profit before tax.

The cash tax rate of 31% (2013 29%, 2012 27%) primarily due8% for 2015 is low owing to the impact of exceptional accounting gains taxable on a deferred taxes (includingbasis, without which the realisation of assets such asrate would have been 20% and thus broadly consistent with the cash tax losses), the receipt of refundsrates for 2016 and 2017.

Current tax

Within current tax payable is $42m (2016: $39m) in respect of prior yearsuncertain tax positions and provisions foroffset against current tax for which no paymentreceivable is $nil (2016: $5m) in respect of uncertain tax has currently been made.positions.

CorporationThe calculation of the Group’s total tax liabilities did not arisecharge involves consideration of applicable tax laws and regulations in 2014many jurisdictions throughout the world. From time to time, the Group is subject to tax audits and uncertainties in the UKthese jurisdictions. The issues involved can be complex and are not expected to arise fordisputes may take a number of years thereafter due to expensesresolve.

Where the interpretation of local tax law is not clear, management relies on judgement and associatedaccounting estimates to ensure all uncertain tax losses attributable principally to employment matters, in particular additional shortfall contributions made to the UK pension planpositions are adequately provided for in the years 2007 to 2013.Group Financial Statements. This may involve consideration of some or all of the following factors:

Strength of technical argument, impact of case law and clarity of legislation;
Professional advice;
Experience of interactions, and precedents set, with the particular taxing authority; and
Agreements previously reached in other jurisdictions on comparable issues.

The largest single contingency item within the current tax payable balance does not exceed $8m (2016: $8m).

112IHG  |  Annual Report and Form 20-F 2017


7. Taxcontinued

Deferred tax

 

  

Property,

plant and

equipment

$m

 

Deferred

gains on

loan notes

$m

 

Deferred

gains on

investments

$m

   

Losses

$m

 

Employee

benefits

$m

 

Intangible

assets

$m

 

Undistributed

earnings of

subsidiaries

$m

 

Other

short-term

temporary

differences1

$m

 

Total

$m

    Property,
plant and
equipment
$m
 Deferred
gains on
loan notes
$m
 Deferred
gains on
investments
$m
 Losses
$m
 Employee
benefits
$m
 Intangible
assets
$m
 Undistributed
earnings of
subsidiaries
$m
 Other
short-term
temporary
differencesa
$m
 Total
$m
 
At 1 January 2013   236   114         (215 (63 33       (155 (50
At 1 January 2016    99   55   87   (67  (32  70   70   (196  86 
Income statement   1   (8       20   2   2   63   8   88      22   (3  (9  19   (3  (7     99   118 
Statement of comprehensive income                   24               24                  12         (1  11 
Statement of changes in equity                               4   4                           (3  (3
Exchange and other adjustments   3   1         9       (1 3   (14 1      (1        4   (4  (3  (11  6   (9
At 31 December 2013   240   107         (186 (37 34   66   (157 67  
Income statement   (55     108     17   3   22   (19 (3 73  
At 31 December 2016    120   52   78   (44  (27  60   59   (95  203 
Income statementb    (22 (18 (24 1  (4 (4 (61 10  (122
Statement of comprehensive income                   (8         1   (7               10     (1 4  13 
Statement of changes in equity                               (3 (3                        3  3 
Exchange and other adjustments   (11 (2       15   1   (4 (3     (4            3  1  2  3  (5 4 
At 31 December 2014   174   105   108     (154 (41 52   44   (162 126  

1 Primarily relates to provisions, accruals, amortisation and share-based payments.

      

                         

2014

$m

 

2013

$m

 
Analysed as:                    

Deferred tax assets

                 (87 (108

Deferred tax liabilities

                 147   175  

Liabilities held for sale

                 66      
                 126   67  
At 31 December 2017    98  34  54  (40 (20 58     (83 101 

Deferred gains on loan notes includes $55m (2013 $55m) which is expected to fall due for payment in 2016.

aPrimarily relates to provisions, accruals, amortisation and share-based payments.

The deferred tax asset recognised in respect of losses of $154m (2013 $186m) includes $50m (2013 $53m) in respect of capital losses available to be utilised against the realisation of capital gains which are recognised as a deferred tax liability and $104m (2013 $133m) in respect of revenue tax losses. Deferred tax assets of $20m (2013 $17m) are recognised in relation to legal entities which suffered a tax loss in the current or preceding period. These assets are recognised based upon future taxable profit forecasts for the entities concerned.

bMovements largely reflect the impact of significant US tax reform enacted on 22 December 2017.

Deferred gains on investments represent taxable gainstax which would crystallise upon a sale of a related joint venture, associate or other equity investment. The balance relates to the Barclay associate described in note 14.

LOGO

123


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

7. Taxcontinued

The Group has unrecognisedreleased its deferred tax assets as follows:

    2014
$m
   2013
$m
 
Revenue losses   126     127  
Capital losses   130     85  
Total losses1   256     212  
Employee benefits   5     16  
Other2   58     55  
Total   319     283  

1These may be carried forward indefinitely other than $11m which expires after two years, $1m which expires after six years, $8m which expires after seven years, $1m which expires after eight years and $2m which expires after nine years (2013 $12m which expires after three years and $1m which expires after seven years, $1m which expires after eight years and $9m which expires after nine years).
2Primarily relates to provisions, accruals, amortisation and share-based payments.

These assets have not been recognised as the Group does not currently anticipate being able to offset these against future profits or gains in order to realise any economic benefit in the foreseeable future. However, future benefits may arise as a result of resolving tax uncertainties, or as a consequence of case law and legislative developments which make the value of the assets more certain.

The Group has provided deferred taxprovision (2016: $59m) in relation to temporary differences associated with post-acquisition undistributed earnings of subsidiaries onlylargely as a result of the impact of the new US transition tax charge. Deferred gains on loan notes represent tax which is expected to fall due for payment in 2025 (2016: 2025). The deferred tax asset recognised in respect of losses of $40m (2016: $44m) is wholly in respect of revenue losses. A deferred tax asset of $2m (2016: $nil) is recognised in a legal entity which suffered a tax loss in the current or preceding period; this asset is recognised based on the profit forecast of the entity in question. Within deferred tax liabilities is $nil (2016: $10m) in respect of uncertain tax positions and offset against deferred tax assets is $5m (2016: $2m) in respect of uncertain tax positions.

The closing balance is further analysed by key territory as follows:

      Property,
plant and
equipment
$m
  Deferred
gains on
loan notes
$m
   

Deferred

gains on
investments

$m

   

Losses

$m

  Employee
benefits
$m
  Intangible
assets
$m
  Undistributed
earnings of
subsidiaries
$m
   Other
short-term
temporary
differences
$m
  Total
$m
 
UK    (5          (17  (5  (3      (19  (49
US    103   34    54    (15  (15  29       (60  130 
Other               (8     32       (4  20 
     98   34    54    (40  (20  58       (83  101 

The analysis of the deferred tax balance after considering the offset of assets and liabilities within entities where there is a legal right to do so is as follows:

      2017
$m
      2016
$m
 
Analysed as:            

Deferred tax assets

    (56    (48

Deferred tax liabilities

    157     251 
     101     203 

The Group does not recognise deferred tax assets if it cannot anticipate being able to offset them against future profits or gains. The total unrecognised deferred tax position is as follows:

               Gross       Unrecognised deferred tax 
      2017
$m
       2016
$m
       2017
$m
       2016
$m
 
Revenue losses    452      518      76      94 
Capital losses    515      475      99      83 
Total losses    967      993      175      177 
Othera    35      27      9      5 
Total    1,002      1,020      184      182 

aPrimarily relates to provisions, accruals and amortisation.

IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes113


Group Financial Statements

Notes to the extent that itGroup Financial Statements continued

7. Taxcontinued

There is either probable that it will reverseno expiry date to any of the above unrecognised assets other than for the losses as shown in the foreseeable future or wheretable below:

     

Gross

       Unrecognised deferred tax 
      

2017

$m

       

2016

$m

       

2017

$m

       

2016

$m

 
Expiry date:                           
2020          3            1 
2021    21      27      5      7 
2022    11      11      3      3 
2023    1      3            1 
2024    20      20      1      1 
After 2024    118      125      26      25 

No deferred tax liability has been recognised in respect of $0.5bn (2016: $0.9bn) of taxable temporary differences relating to subsidiaries (comprising undistributed earnings and net inherent gains) because the Group cannotis in a position to control the timing of the reversal. The remaining unprovided liability that would arise on the reversal of these temporary differences and it is probable that such differences will not expected to exceed $10m (2013 $10m).reverse in the foreseeable future.

Tax risks, policies and governance

LOGO

Information concerning the Group’s tax governance can be

found in the Taxation section of the Strategic Report on page 42.

Factors that may affect the future tax charge

Many factors will affect the Group’s future tax governance can be foundrate, the key ones being future legislative developments, future profitability of underlying subsidiaries and tax uncertainties.

There are many potential future changes to worldwide taxation systems as a result of the potential adoption by individual territories of recommendations of the OECD’s Base Erosion and Profit Shifting project, and other similar initiatives being driven by governments and tax authorities. The Group continues to monitor activity in this area.

Significant US tax reform was enacted on 22 December 2017, which notably included a reduction in the Taxation sectionUS federal tax rate from 35% to 21%, with effect from 1 January 2018 for IHG. Although most of the Strategic Reportnew provisions only take effect from 2018, some aspects have a direct impact on page 49.the Group’s 2017 position and are detailed in note 5. The Group continues to evaluate the impact of the provisions that will take effect during 2018, noting that new regulations and guidance on US state and federal tax are anticipated to be released during the year. At this stage, we are anticipating an overall Group tax rate reduction of mid to high single digit percentage points for 2018 onwards.

Rules restricting UK loss usage and interest deductibility were enacted in 2017. These rules will increase the amount of UK cash tax paid in the near future, although this is not expected to be significant in the context of the Group’s overall cash tax payable. The forthcoming reduction to the UK corporation tax rate (to 17%, effective 1 April 2020) is not expected to have a material effect on the Group.

8. Dividends and shareholder returns

 

  2014
cents per
share
   2013
cents per
share
   2012
cents per
share
   2014
$m
   2013
$m
   2012
$m
    2017
cents
per share
       2016
cents
per share
       2015
cents
per share
       2017
$m
       2016
$m
       2015
$m
 
Paid during the year:                                               

Final (declared for previous year)

   47.0     43.0     39.0     122     115     113      64.0      57.5      52.0      127      137      125 

Interim

   25.0     23.0     21.0     57     63     61      33.0      30.0      27.5      62      56      63 

Special (note 27)

   293.0     133.0     172.0     763     355     505      202.5      632.9            404      1,500       
   365.0     199.0     232.0     942     533     679      299.5      720.4      79.5      593      1,693      188 
Proposed (not recognised as a liability at 31 December):                                               

Final

   52.0     47.0     43.0     122     121     115      71.0      64.0      57.5      135      126      135 

The final dividend of 33.8p (52.0¢ converted at the closing exchange rate on 13 February 2015)71.0¢ per ordinary share is proposed for approval at the Annual General Meeting (AGM) on 84 May 20152018 and is payable on the shares in issue at 73 April 2015.

Under the $500m share repurchase programme announced 7 August 2012, in the year to 31 December 2014, 3.4m (2013 9.8m, 2012 4.1m) shares were repurchased for a consideration of $110m (2013 $283m, 2012 $107m), increasing the total amount repurchased to $500m. Of the 3.4m (2013 9.8m, 2012 4.1m) shares repurchased in 2014, 2.7m (2013 9.8m, 2012 nil) are held as treasury shares and 0.7m (2013 nil, 2012 4.1m) were cancelled. The cost of treasury shares has been deducted from retained earnings.

On 2 May 2014, the Company announced a $750m return to shareholders by way of a special dividend and share consolidation. On 30 June 2014, shareholders approved the share consolidation at a General Meeting of the Company on the basis of 12 new ordinary shares of 15 265329p per share for every 13 existing ordinary shares of 14 194329p each, which became effective on 1 July 2014. The special dividend of 293.0¢ per share was paid to shareholders on 14 July 2014.

2018.

 

114124IHG  |  Annual Report and Form 20-F 2017


9. Earnings per ordinary share

Basic earnings per ordinary share is calculated by dividing the profit for the year available for IHG equity holders by the weighted average number of ordinary shares, excluding investment in own shares, in issue during the year.

Diluted earnings per ordinary share is calculated by adjusting basic earnings per ordinary share to reflect the notional exercise of the weighted average number of dilutive ordinary share awards outstanding during the year.

Adjusted earnings per ordinary share is disclosed in order to show performance undistorted by exceptional items, to give a more meaningful comparison of the Group’s performance.

 

Continuing and total operations  2014   2013   2012 
Basic earnings per ordinary share               
Profit available for equity holders ($m)   391     372     537  
Basic weighted average number of ordinary shares (millions)   247     264     287  
Basic earnings per ordinary share (cents)   158.3     140.9     187.1  
Diluted earnings per ordinary share               
Profit available for equity holders ($m)   391     372     537  
Diluted weighted average number of ordinary shares (millions)   250     267     292  
Diluted earnings per ordinary share (cents)   156.4     139.3     183.9  
Adjusted earnings per ordinary share               
Profit available for equity holders ($m)   391     372     537  
Adjusting items (note 5):               

Exceptional operating items ($m)

   (29   (5   4  

Tax on exceptional operating items ($m)

   29     6     (1

Exceptional tax ($m)

    ��   45     (141
Adjusted earnings ($m)   391     418     399  
Basic weighted average number of ordinary shares (millions)   247     264     287  
Adjusted earnings per ordinary share (cents)   158.3     158.3     139.0  
Adjusted diluted earnings per ordinary share               
Adjusted earnings ($m)   391     418     399  
Diluted weighted average number of ordinary shares (millions)   250     267     292  
Adjusted diluted earnings per ordinary share (cents)   156.4     156.6     136.6  
    

2014

millions

   

2013

millions

   

2012

millions

 
Diluted weighted average number of ordinary shares is calculated as:               

Basic weighted average number of ordinary shares

   247     264     287  

Dilutive potential ordinary shares

   3     3     5  
    250     267     292  
LOGO

Information concerning non-GAAP measures

can be found in the Strategic Report on page 26.

 

Continuing and total operations    2017      2016      2015 
Basic earnings per ordinary share                  
Profit available for equity holders ($m)    592     414     1,222 
Basic weighted average number of ordinary shares (millions)    193     212     235 
Basic earnings per ordinary share (cents)    306.7     195.3     520.0 
Diluted earnings per ordinary share                  
Profit available for equity holders ($m)    592     414     1,222 
Diluted weighted average number of ordinary shares (millions)    194     214     238 
Diluted earnings per ordinary share (cents)    305.2     193.5     513.4 
Adjusted earnings per ordinary share                  
Profit available for equity holders ($m)    592     414     1,222 
Adjusting items (note 5):                  

Exceptional items before tax ($m)

    (4    29     (819

Tax on exceptional items ($m)

    2     (12    8 

Exceptional tax ($m)

    (118          
Adjusted earnings ($m)    472     431     411 
Basic weighted average number of ordinary shares (millions)    193     212     235 
Adjusted earnings per ordinary share (cents)    244.6     203.3     174.9 
Adjusted diluted earnings per ordinary share                  
Adjusted earnings ($m)    472     431     411 
Diluted weighted average number of ordinary shares (millions)    194     214     238 
Adjusted diluted earnings per ordinary share (cents)    243.3     201.4     172.7 
      2017
millions
      2016
millions
      2015
millions
 
Diluted weighted average number of ordinary shares is calculated as:                  

Basic weighted average number of ordinary shares

    193     212     235 

Dilutive potential ordinary shares

    1     2     3 
     194     214     238 

10. Acquisition of business

On 16 January 2015, the Group acquired a 100% interest in Kimpton Hotel & Restaurant Group, LLC (Kimpton), an unlisted company based in the US, for cash consideration of $438m, net of $3m cash acquired. The fair value of the net assets acquired was $441m, including goodwill of $167m, brands of $193m and management contracts of $71m. No subsequent adjustments were made to the initial acquisition date fair values of the net assets acquired.

LOGO11. Assets sold

The Group did not dispose of any hotels during either 2017 or 2016 but incurred $5m of costs relating to prior year disposals in 2016.

During the year ended 31 December 2015, the Group sold one hotel in the Europe region, InterContinental Paris – Le Grand on 20 May 2015 and one hotel in the Greater China region, InterContinental Hong Kong on 30 September 2015. On 30 November 2015, the Group disposed of its share of assets and liabilities in a joint operation in the AMEA region. Total consideration received in respect of these disposals amounted to $1,276m, net of costs paid and cash and cash equivalents disposed, and total gains of $871m were recognised during the year ended 31 December 2015.

 

125


IHG  |  Annual Report and Form 20-F 2014

Note2017  |  s toGroup Financial Statements  the Gro|  up FinNotesancial Statementscontinued

115


10.Group Financial Statements

Notes to the Group Financial Statements continued

12. Property, plant and equipment

  Land and
buildings
$m
 Fixtures,
fittings and
equipment
$m
 Total
$m
    Land and
buildings
$m
 Fixtures,
fittings
and
equipment
$m
 Total
$m
 
Cost               
At 1 January 2013   995   824   1,819  
At 1 January 2016    377   576   953 
Additions   96   54   150      2   27   29 
Capitalised interest    1      1 
Fully depreciated assets written off       (162  (162
Disposals   (2 (8 (10       (3  (3
Exchange and other adjustments   12   1   13      (2  (9  (11
At 31 December 2013   1,101   871   1,972  
At 31 December 2016    378   429   807 
Additions   27   52   79      9  35  44 
Transfers to non-current assets classified as held for sale   (276 (171 (447
Fully depreciated assets written off      (19 (19
Disposals   (144 (61 (205      (4 (4
Exchange and other adjustments   (8 (20 (28    1  8  9 
At 31 December 2014   700   671   1,371  
At 31 December 2017    388  449  837 
Depreciation and impairment               
At 1 January 2013   (146 (617 (763
At 1 January 2016    (74  (451  (525
Provided   (11 (35 (46    (5  (25  (30
System Fund expense      (4 (4       (5  (5
Fully depreciated assets written off       162   162 
Disposals   2   8   10         2   2 
Exchange and other adjustments   (1 1          1   7   8 
At 31 December 2013   (156 (647 (803
At 31 December 2016    (78  (310  (388
Provided   (11 (32 (43    (7 (28 (35
System Fund expense      (4 (4      (6 (6
Transfers to non-current assets classified as held for sale   8   107   115  
Fully depreciated assets written off      19  19 
Disposals   37   58   95        3  3 
Exchange and other adjustments      10   10      (1 (4 (5
At 31 December 2014   (122 (508 (630
At 31 December 2017    (86 (326 (412
Net book value               
At 31 December 2014   578   163   741  
At 31 December 2013   945   224   1,169  
At 1 January 2013   849   207   1,056  
At 31 December 2017    302  123  425 
At 31 December 2016    300   119   419 
At 1 January 2016    303   125   428 

The Group’s property, plant and equipment mainly comprises hotels, but also offices and computer hardware, throughout the world. In addition to the hotels included above, there was one hotel (2013 one hotel) classified as held for sale at 31 December 2014 (see note 11). Including the hotels classified as held for sale, 75% (2013 81%43% (2016: 44%) of the net book value relates to the three (2013 four) largest owned and leased hotels (in terms of net book value)hotel, of a total of 10eight open hotels (2013 12(2016: eight open hotels), nine of which are open (2013 nine open). At 31 December 2014,2017 and 31 December 2016, there was one hotel (2013 three hotels) with a net book value of $36m (2013 $70m) which iswere no hotels under construction, not yet in use and therefore not being depreciated.construction.

The carrying value of property, plant and equipment held under finance leases at 31 December 20142017 was $186m (2013 $187m)$181m (2016: $182m).

Including assets classified as held for sale, 40% (2013 55%26% (2016: 25%) of hotel properties by net book value were directly owned, with 22% (2013 39%57% (2016: 58%) held under leases having a term of 50 years or longer.

Due to localised adverse market conditions, an impairment charge of $27m was recognised during 2015 relating to two hotels in North America following a re-assessment of their recoverable amounts to $37m, based on value in use calculations. Estimated future cash flows were discounted at a pre-tax rate of 11.75%. All impairment charges and reversals are included within impairment‘impairment charges’ on the face of the Group income statement.

There are no charges over the Group’s property, plant and equipment.

The table below analyses the net book value of the Group’s property, plant and equipment by operating segment at 31 December 2014:2017:

    Americas
$m
   Europe
$m
   AMEA
$m
   Greater
China
$m
   Central
$m
   Total
$m
 
Land and buildings   302          7     254     15     578  
Fixtures, fittings and equipment   40          11     44     68     163  
    342          18     298     83     741  

      Americas
$m
   Europe
$m
   AMEA
$m
   Greater
China
$m
   Central
$m
   Total
$m
 
Land and buildings    289                13    302 
Fixtures, fittings and equipment    43    1    10        69    123 
     332    1    10        82    425 

 

126


116
11. Assets sold and held for sale

Assets sold

Principal disposals during the year ended 31 December 2014 were the sale of the InterContinental Mark Hopkins San Francisco on 27 March 2014 and the disposal of an 80.1% interest in the InterContinental New York Barclay on 31 March 2014. The Group’s 19.9% retained interest is accounted for as an associate as described in note 14. Both transactions took place in the Americas region.

During the year ended 31 December 2013, the Group sold one hotel in the Europe region, the InterContinental London Park Lane.

During the year ended 31 December 2012, the Group sold an interest in a hotel in the Europe region.

    2014
$m
   2013
$m
   2012
$m
 
Consideration               
Current year disposals:               

Cash consideration, net of costs paid

   345     460     4  

Other financial assets¹

   52            

Intangible assets – management contracts

   50     40       

Investment in associate

   22            
    469     500     4  
Net assets disposed:               

Property, plant and equipment

   (110        (6

Non-current assets held for sale

   (228   (294     

Other financial asset

   (5          

Net current liabilities

   4     6       
    (339   (288   (6
Exchange losses recycled from currency translation reserve        (46     
Gain/(loss) on disposal of hotels from continuing operations   130     166     (2
Net cash inflow               
Current year disposals:               

Cash consideration, net of costs paid

   345     460     4  

Distribution from associate on sale of hotel

        17       

Tax

        (5     
Prior year disposals:               

Tax

             (3
    345     472     1  

1Includes $27m deferred consideration subsequently received and included within Proceeds from other financial assets in the Group statement of cash flows.

Assets held for sale

One hotel, the InterContinental Paris – Le Grand, met the held for sale criteria of IFRS 5 at 31 December 2014. More information can be found in the performance section of the Strategic Report on page 34. One hotel, the InterContinental New York Barclay, was held for sale at 31 December 2013.

    2014
$m
   2013
$m
 
Assets and liabilities held for sale          
Assets classified as held for sale:          

Property, plant and equipment

   306     228  

Other assets

   4       
    310     228  
Liabilities classified as held for sale:          

Deferred tax (note 7)

   (66     

Other liabilities

   (28     
    (94     

LOGO

127


 
IHG  |  Annual Report and Form 20-F 20142017

Notes to the Group Financial Statementscontinued


12. Goodwill

 

    

    2014
$m
   2013
$m
 
Cost          
At 1 January   221     234  
Exchange adjustments   (6   (13
At 31 December   215     221  
Impairment          
At 1 January and 31 December   (141   (141
Net book value          
At 31 December   74     80  
At 1 January   80     93  

Goodwill arising on business combinations that occurred before 1 January 2005 was not restated on adoption of IFRS as permitted by IFRS 1.

All cumulative impairment losses relate to the Americas managed cash-generating unit (CGU).

Goodwill has been allocated to CGUs for impairment testing as follows:

    

        Cost               Net book value 
    2014
$m
   2013
$m
   2014
$m
   2013
$m
 
AMEA franchised and managed operations   74     80             74     80  
Americas managed operations   141     141            
    215     221     74     80  

Asia, Middle East13. Goodwill and Africa (AMEA)other intangible assets

      Goodwill
$m
  Brands
$m
   Software
$m
  Management
contracts
$m
  Other
intangibles
$m
  Total
$m
 
Cost                           
At 1 January 2016    371   193    498   465   263   1,790 
Additions           127      53   180 
Capitalised interest           4         4 
Disposals           (45     (7  (52
Exchange and other adjustments    (1      (1  (21  (13  (36
At 31 December 2016    370   193    583   444   296   1,886 
Additions           168      73   241 
Capitalised interest           6         6 
Disposals           (14     (3  (17
Exchange and other adjustments    7       2   22   10   41 
At 31 December 2017    377   193    745   466   376   2,157 
Amortisation and impairment                           
At 1 January 2016    (138      (202  (139  (85  (564
Provided           (41  (11  (14  (66
System Fund expense           (26        (26
Disposals           45      3   48 
Exchange and other adjustments           1   9   4   14 
At 31 December 2016    (138      (223  (141  (92  (594
Provided           (40  (10  (18  (68
System Fund expense           (30        (30
Disposals           14      2   16 
Exchange and other adjustments    (2      (2  (8  (2  (14
At 31 December 2017    (140      (281  (159  (110  (690
Net book value                           
At 31 December 2017    237   193    464   307   266   1,467 
At 31 December 2016    232   193    360   303   204   1,292 
At 1 January 2016    233   193    296   326   178   1,226 

Goodwill and brands

During 2015, the Group acquired Kimpton (see note 10) resulting in the recognition of goodwill of $167m and brands of $193m, together with management contracts of $71m.

The Kimpton brands are considered to have an indefinite life given their strong brand awareness and reputation in the upscale boutique hotel sector, and management’s commitment to continued investment in their growth. The brands are protected by trademarks and there are not believed to be any legal, regulatory or contractual provisions that limit the useful lives of the brands. In the hotel industry there are a number of brands that have existed for many years and IHG has brands that are over 60 years old.

The Group tests goodwill and indefinite life intangible assets for impairment annually, or more frequently if there are any indicationsindicators that an impairment may have arisen. The year-end carrying value of goodwill and indefinite life brands have been allocated to cash-generating units (CGUs) for impairment testing purposes as follows:

     2017       2016 
      

Goodwill

$m

   

Brands

$m

       

Goodwill

$m

   

Brands

$m

 
CGU                       
Americas Managed    63    193      63    193 
Americas Franchised    37          37     
Europe Managed    21          21     
Europe Franchised    10          10     
AMEA Managed and Franchised    106          101     
     237    193      232    193 

IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes117


Group Financial Statements

Notes to the Group Financial Statements continued

13. Goodwill and other intangible assetscontinued

The recoverable amounts of the CGUs are determined from value in use calculations. These calculations useinclude a three-year period using pre-tax cash flow forecasts derived from the most recent financial budgets and strategic plans approved by management, covering a five-year period usingincorporating growth rates based on management’s past experience and industry growth forecasts.

At 31 December 2014, The key assumptions that underpin the recoverable amount offinancial budgets are RevPAR growth and net System size growth. Cash flows beyond the CGU has been assessed based on the approved budget for 2015 and strategic plans covering a five-yearthree-year period a perpetualare extrapolated using terminal growth rate of 3.5% (2013 3.5%) and a discount rate of 13.7% (2013 15.5%). The perpetual growth rates that do not exceed the average long-term growth rates for the relevant markets. Pre-tax discountA 10% contingency factor is applied to reduce all cash flow projections before being discounted using pre-tax rates that are used to discount the cash flows based on the Group’s weighted average cost of capital adjusted to reflect the risks specific to the business model and territory of the CGU being tested.

The terminal growth rates and discount rates used, which are considered to be key assumptions, are as follows:

     Terminal growth rate       Discount rate 
      

2017

%

       

2016

%

       

2017

%

      

2016

%

 
Americas Managed    2.0      2.0      10.4      9.8 
Americas Franchised    2.0      2.0      9.4      8.8 
Europe Managed    2.0      2.0      10.8      9.3 
Europe Franchised    2.0      2.0      9.8      8.4 
AMEA Managed and Franchised    3.5      3.5      14.1      13.0 

Impairment was not required at either 31 December 20142017 or 31 December 20132016.

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 the carrying value of the CGUimpairment charges would only exceed its recoverable amount in the event of highly unlikelynot arise from reasonably possible changes in the key assumptions.

Software

Software includes $234m relating to the development of the next-generation Guest Reservation System with Amadeus. The asset was not amortised during the year as the roll-out to hotels is expected to commence in 2018.

128


13. Intangible assets
    Software
$m
  Management
contracts $m
  Other
intangibles
$m
  Total
$m
 
Cost                 
At 1 January 2013   325    235    151    711  
Additions   79    40    16    135  
Disposals   (8      (7  (15
Exchange and other adjustments   (1  2    (1    
At 31 December 2013   395    277    159    831  
Additions   108    50    55    213  
Disposals   (31      (5  (36
Exchange and other adjustments   (1  (17  (2  (20
At 31 December 2014   471    310    207    988  
Amortisation and impairment                 
At 1 January 2013   (163  (126  (68  (357
Provided   (21  (7  (11  (39
System Fund expense   (12          (12
Disposals   8        7    15  
Exchange and other adjustments   (1  2    (1    
At 31 December 2013   (189  (131  (73  (393
Provided   (33  (9  (11  (53
System Fund expense   (15          (15
Disposals   31        4    35  
Exchange and other adjustments   (1  6    2    7  
At 31 December 2014   (207  (134  (78  (419
Net book value                 
At 31 December 2014   264    176    129    569  
At 31 December 2013   206    146    86    438  
At 1 January 2013   162    109    83    354  

Substantially all software additions are internally developed.

AdditionsManagement contracts

In addition to the management contracts acquired with the Kimpton acquisition in 2015 (see note 10), management contracts relate to contract values recognised as part of the proceeds for hotels sold (see note 11).sold.

At 31 December 2017, the net book value and remaining amortisation period of the principal management contracts were as follows:

     2017       2016 
      Net book
value
$m
       Remaining
amortisation
period
Years
       Net book
value
$m
       Remaining
amortisation
period
Years
 
Hotel                           
InterContinental Hong Kong    61      35      62      36 
InterContinental New York Barclay    37      46      38      47 
InterContinental London Park Lane    31      45      29      46 
InterContinental Paris – Le Grand    34      47      31      48 

The weighted average remaining amortisation period for all management contracts is 30 years (2013 24(2016: 31 years).

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118
IHG  |  Annual Report and Form 20-F 20142017

Notes to the Group Financial Statementscontinued


14. Investment in associates and joint ventures

 

      Associates
$m
  Joint
ventures
$m
  Total
$m
 
Cost              
At 1 January 2016    121   27   148 
Additions    14      14 
Share of (losses)/profits    (3  1   (2
Capital return       (2  (2
Transfer of financial assets    (14     (14
Dividends    (5     (5
At 31 December 2016    113   26   139 
Additions    47      47 
Share of profits/(losses)    2   1   3 
Disposals    (9     (9
Dividends    (4     (4
Exchange and other adjustments    2      2 
At 31 December 2017    151   27   178 
Impairment              
At 1 January 2016    (12     (12
Charge for the year    (16     (16
At 31 December 2016    (28     (28
Charge for the year    (18     (18
Disposals    9      9 
At 31 December 2017    (37     (37
Net book value              
At 31 December 2017    114   27   141 
At 31 December 2016    85   26   111 
At 1 January 2016    109   27   136 

All associates and joint ventures are accounted for using the equity method.

During 2016, an investment for which the Group has a 30% interest was transferred to other financial assets following loss of significant influence over the operating and financial policy decisions of the entity.

The impairment charges of $18m and $16m in 2017 and 2016 respectively, relate to the Barclay associate (see following page) and result from the currently depressed trading outlook for the New York hotel market and the high costs of renovating the hotel. The recoverable amount of the investment has been measured at its fair value less costs of disposal, based on the Group’s share of the market value of the hotel less debt in the associate. The hotel was appraised by a professional external valuer using an income capitalisation approach which is a discounted cash flow technique that measures the present value of projected income flows (over a 10-year period) and the reversion of the property sale. Within the fair value hierarchy, this is categorised as a Level 3 fair value measurement. In addition to the projected income flows, the key assumptions used were a discount rate of 7.3% (2016: 7.3%) and a terminal capitalisation rate of 6.3% (2016: 6.0%).

Due to localised adverse market conditions, an impairment charge of $9m was recognised during 2015 relating to an associate investment in the AMEA region following a re-assessment of its recoverable amount to $nil, based on value in use calculations. Estimated future cash flows were discounted at a pre-tax rate of 13.2%. During 2017, the investment was disposed of for $nil proceeds.

On 20 November 2015, the Group disposed of an associate investment in the AMEA region realising a gain on disposal of $9m. At the time of disposal, the investment had a $nil net book value.

 

    Associates
$m
  Joint
ventures
$m
        Total
$m
 
Cost             
At 1 January 2013   59    28    87  
Additions   8    2    10  
Capital returns       (3  (3
Share of profits   2        2  
Dividends   (5      (5
Exchange and other adjustments   (3      (3
At 31 December 2013   61    27    88  
Initial retained interest in Barclay associate (note 11)   22        22  
Additions   15        15  
Share of (losses)/profits   (4      (4
Dividends   (2      (2
At 31 December 2014   92    27    119  
Impairment             
At 1 January 2013, 31 December 2013 and 31 December 2014   (3      (3
Net book value             
At 31 December 2014   89    27    116  
At 31 December 2013   58    27    85  
At 1 January 2013   56    28    84  
IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes119


Group Financial Statements

Notes to the Group Financial Statements continued

14. Investment in associates and joint venturescontinued

Barclay associate

The Group held one material associate investment at 31 December 2014,2017, a 19.9% interest in 111 East 48th Street Holdings, LLC (‘the(the Barclay associate’)associate) which owns the 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 asaccounted. Whilst the Group has the ability to exercise significant influence through its involvementcertain 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 redevelopmentBarclay associate in conjunction with a refinancing of the hotel and certain decision rights.hotel. The cash was used to repay a $43m supplemental bank loan for which the Group had previously provided an indemnity for 100% of the related obligations. As a consequence, the indemnity has been extinguished.

Summarised financial information in respect of the Barclay associate is set out below:

 

31 December

2014

$m

Non-current assets339
Net current assets2
Non-current liabilities(182
Equity159
Group carrying amount (19.9%)32

9 months to

31 December

2014

$m

Revenue24
Loss for the period(26
Group’s share of loss for the period (19.9%)(5

The Barclay associate classification was effective 31 March 2014.

      

31 December 2017

$m

     

31 December 2016

$m

 
Non-current assets    540     552 
Current assets    41     19 
Current liabilities    (19    (283
Non-current liabilities    (287    (39
Net assets    275     249 
Group share of reported net assets at 19.9%    55     50 
Adjustments to reflect capitalised costs, and additional rights and obligations
under the shareholder agreement
    10     (7
Carrying amount    65     43 
      

12 months to

31 December 2017

$m

     

12 months to

31 December 2016

$m

 
Revenue    90     45 
Loss for the period    (16    (34
Group’s share of loss for the period    (4    (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   Total 
            2014
$m
   2013
$m
   

2012

$m

           2014
$m
   2013
$m
   2012
$m
           2014
$m
   2013
$m
   2012
$m
 
Share of profit/(loss)                                             
Operating profit/(loss) before exceptional items   1     2     3           ��        1     2     3  
Exceptional items        6                              6       
    1     8     3                    1     8     3  

The exceptional profit in 2013 arose on the sale of a hotel owned by an associate investment that was classified as held for sale at 31 December 2012. Following completion of the sale, the Group received a $17m cash distribution from the associate, being the Group’s share of the net disposal proceeds.

      

Associates

     

Joint ventures

     

Total

 
      2017
$m
     2016
$m
     

2015

$m

     2017
$m
     2016
$m
     2015
$m
     2017
$m
     2016
$m
      2015
$m
 
Share of profits/(losses)                                                       
Operating profits/(losses)
before exceptional items
    6     5     3     1     1     (1    7     6      2 

 

120130IHG  |  Annual Report and Form 20-F 2017


15. Other financial assets
    2014
$m
     2013
$m
 
Equity securities available-for-sale:          

Quoted equity shares

   16     9  

Unquoted equity shares

   128     127  
    144     136  
Loans and receivables:          

Trade deposits and loans

   43     20  

Restricted funds

   21     40  

Bank accounts pledged as security

   49     52  
    113     112  
Total other financial assets   257     248  
Analysed as:          

Current

   5     12  

Non-current

   252     236  
    257     248  

15. Other financial assets

              2017
$m
             2016
$m
 
Equity securities available-for-sale            
Quoted equity shares    10     14 
Unquoted equity shares    117     142 
     127     156 
Loans and receivables            
Trade deposits and loans    43     43 
Restricted funds    32     31 
Bank accounts pledged as security    42     38 
     117     112 
Total other financial assets    244     268 
Analysed as:            

Current

    16     20 

Non-current

    228     248 
     244     268 

Equity securities available-for-sale are measured at fair value (see note 23) and loans and receivables are held at amortised cost.

Equity securities available-for-sale were denominated in the following currencies: US dollars $94m (2013 $84m)$93m (2016: $121m), Hong Kong dollars $34m (2013 $27m)$25m (2016: $24m) and other currencies $16m (2013 $25m)$9m (2016: $11m). Unlisted equity shares are mainly investments in entities that own hotels which the Group manages. Dividend income from available-for-sale equity securities of $10m (2013 $6m)(2016: $7m) is reported as other‘other operating income and expensesexpenses’ in the Group income statement.

On 13 December 2017, the sale of Avendra, LLC (Avendra) to Aramark Services, Inc., resulted in the Group receiving cash proceeds of $75m from its 6.29% interest in Avendra and the recording of a $73m exceptional gain in the Group income statement (see note 5). Prior to the sale, the Group’s investment in Avendra was included in unquoted equity securities available-for-sale. Avendra is a North American hospitality procurement services provider.

Trade deposits and loans include a depositdeposits of $37m$66m made in 2011 to a hotel owner in connection with the renegotiationa portfolio of a management contract.contracts. The deposit is deposits arenon-interest-bearing and repayable at the end of the management contract terms, and isare therefore held at itsa discounted value of $13m (2013 $12m)$28m (2016: $19m); the discount unwinds to the income statement within financial income‘financial income’ over the period to repayment.

Restricted funds includecomprise cash held in bank accounts which is pledged as collateralring-fenced to satisfy insurance companies for risks retained by the Group and other amounts held in escrow.claims.

The bank accounts pledged as security (£31m) are subject to a charge in favour of the members of the UK unfunded pension arrangement (see note 25).

The movement in the provision for impairment of other financial assets during the year is as follows:

 

  2014
$m
     2013
$m
                2017
$m
                2016
$m
 
At 1 January   (25   (26    (22    (28
Amounts written off        1  
Exchange and other adjustments   (3     
Disposals    4     6 
At 31 December   (28   (25    (18    (22

The provision is used to record impairment losses unless the Group is satisfied that no recovery of the amount is possible; at that point the amount considered irrecoverable is either written off directly to the income statement or, if previously provided, against the financial asset with no impact on the income statement.

 

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131


IHG  |  Annual Report and Form 20-F 20142017  |  Group Financial Statements  |  Notes

121


Group Financial Statements

Notes to the Group Financial Statements continued

    

Notes to the Group Financial Statementscontinued

16. Trade and other receivables

 

                    
  

2014

$m

   

2013

$m

    

            2017

$m

    

            2016

$m

 
Current              
Trade receivables   327     336      452     368 
Other receivables   47     20      23     25 
Prepayments   63     65      74     77 
Receivables from associates   11     2  
Loans to and receivables from associates    2     2 
   448     423      551     472 
Non-current              
Loans to associates   3                8 

Trade and other receivables are designated as loans and receivables and are held at amortised cost.

Trade receivables are non-interest-bearing and are generally on payment terms of up to 30 days. The fair value of trade and other receivables approximates their carrying value.

The maximum exposure to credit risk for trade and other receivables, excluding prepayments, at the end of the reporting period by geographic region is:

 

  2014
$m
      2013
$m
    

            2017

$m

    

            2016

$m

 
Americas   221     193      305     256 
Europe   76     78      51     43 
Asia, Middle East and Africa   53     53  
AMEA    71     61 
Greater China   38     34      50     43 
   388     358      477     403 

The ageing of trade and other receivables, excluding prepayments, at the end of the reporting period is:

 

  2014   

 

  2013    2017    2016 
  Gross
$m
   Provision
$m
     Net
$m
   Gross
$m
   Provision
$m
     Net
$m
    

        Gross

$m

 

        Provision

$m

  

                Net

$m

    

        Gross

$m

 

        Provision

$m

  

                Net

$m

 
Not past due   275            275        236            236      333  (1)   332     289  (1)   288 
Past due 1 to 30 days   57     (3     54        66     (4     62      68  (2)   66     58  (3)   55 
Past due 31 to 180 days   57     (3     54        57     (3     54      82  (7)   75     64  (7)   57 
Past due more than 180 days   46     (41     5        42     (36     6      71  (67)   4     61  (58)   3 
   435     (47     388        401     (43     358      554  (77)   477     472  (69)   403 

The credit risk relating to balances not past due is not deemed to be significant.

The movement in the provision for impairment of trade and other receivables during the year is as follows:

 

                              
    2014
$m
  2013
$m
  2012
$m
 
At 1 January   (43  (47  (46
Provided   (22  (18  (18
Amounts written back   9    14    10  
Amounts written off   9    8    7  
At 31 December   (47  (43  (47

                  2017
$m
                 2016
$m
                 2015
$m
 
At 1 January    (69    (56    (47
Provided    (15    (25    (28
Amounts written back    2     5     12 
Amounts written off    6     5     7 
Exchange adjustments    (1    2      
At 31 December    (77    (69    (56

 

122132IHG  |  Annual Report and Form 20-F 2017


17. Cash and cash equivalents

 

    

2014

$m

   

2013

(restated1)

$m

   2012
(restated1)
$m
 
Cash at bank and in hand   157     177     249  
Short-term deposits   5     71     138  
    162     248     387  

1Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
                  2017
$m
                 2016
$m
 
Cash at bank and in hand    164     131 
Short-term deposits    4     75 
     168     206 

Cash at bank and in hand includes bank balances of $108m (2013 $114m, 2012 $194m)$116m (2016: $91m) which are matched by bank overdrafts of $107m (2013 $114m, 2012 $192m)$110m (2016: $89m) under the Group’s cash pooling arrangements. Under these arrangements, each pool contains a number of bank accounts with the same financial institution and the Group pays interest on net overdraft balances within each pool. The cash pools are used for day-to-day cash management purposes and are managed as closely as possible to a zero balance on a net basis for each pool. Overseas subsidiaries are typically in a cash positivecash-positive position with the matching overdrafts held by the Group’s central treasury company in the UK.

For the purposes of the Group statement of cash flows, cash and cash equivalents comprise the following:

 

    2014
$m
  2013
(restated1)
$m
  2012
(restated1)
$m
 
Cash at bank and in hand   157    177    249  
Short-term deposits   5    71    138  
    162    248    387  
Bank overdrafts (note 21)   (107  (114  (192
    55    134    195  

1Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.
                  2017
$m
                 2016
$m
 
Cash at bank and in hand    164     131 
Short-term deposits    4     75 
     168     206 
Bank overdrafts (note 20)    (110    (89
     58     117 

Short-term deposits are highly liquid investments with an original maturity of three months or less.

Cash and cash equivalents includes $4m (2013 $12m, 2012 $7m) that is not available for use by the Group due to local exchange controls in Venezuela and Argentina.

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133


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

18. Trade and other payables

 

                  2017
$m
                 2016
$m
 
Current            
Trade payables    81     94 
Other tax and social security payable    48     38 
Deferred revenue    49     37 
Other payables    230     206 
Accruals    360     306 
     768     681 
Non-current            
Deferred revenue    85     78 
Other payables    36     122 
     121     200 

 

                        
    2014
$m
   2013
$m
 
Current          
Trade payables   88     97  
Other tax and social security payable   49     32  
Other payables   317     335  
Accruals   315     284  
    769     748  
           
Non-current          
Other payables   627     574  
IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes123

Trade payables are non-interest-bearing and are normally settled within an average of 45 days.


Group Financial Statements

Other payables include $725m (2013 $649m) relating

Notes to the future redemption liability of the Group’s loyalty programme, of which $132m (2013 $120m) is classified as current and $593m (2013 $529m) as non-current.Group Financial Statements continued

19. Provisions

 

      Security
        Incidents
$m
             Litigation
$m
                 Total
$m
 
At 1 January 2016         15        15 
Provided    5             5 
Utilised         (12       (12
At 31 December 2016 and 31 December 2017    5     3        8 
                     2017 $m                2016
$m
 
Analysed as:                  

Current

          3     3 

Non-current

          5     5 
           8     8 

 

    

Onerous
management
contracts

$m

  

Litigation

$m

  

Total

$m

 
At 1 January 2013   2        2  
Provided       4    4  
Utilised   (1  (2  (3
At 31 December 2013   1    2    3  
Provided       9    9  
Utilised   (1  (1  (2
At 31 December 2014       10    10  
        

2014

$m

  

2013

$m

 
Analysed as:             

Current

       1    3  

Non-current

       9      
        10    3  
LOGO

See note 30 for a description of and further

information on the Security Incidents provision.

The onerous management contracts provision relates toamount provided in 2016 in respect of the unavoidable net cash outflows that are expected to be incurred under performance guarantees associated with certain management contracts.Security Incidents was recognised within Central costs in the Group income statement.

Litigation during 2014largely relates to actions brought against the Group in the Americas region relating to System Fund activity and, during 2013, largely relatesregion. In relation to the Greater China region.$12m settled during 2016, an insurance recovery of $8m was also recorded by the System Fund.

20. Loans and other borrowings

 

     2017     2016 
              Current
$m
          Non-current
$m
          Total
$m
             Current
$m
          Non-current
$m
          Total
$m
 
Unsecured bank loans      262   262       107   107 
Finance lease obligations    16  215   231     17  210   227 
£400m 3.875% bonds 2022      538   538       489   489 
£300m 3.75% bonds 2025      406   406       370   370 
£350m 2.125% bonds 2026      472   472       430   430 
     16  1,893   1,909     17  1,606   1,623 
Bank overdrafts    110     110     89     89 
Total loans and other borrowings    126  1,893   2,019     106  1,606   1,712 
Denominated in the following currencies:                          
    Sterling      1,416   1,416       1,289   1,289 
    US dollars    124  477   601     101  317   418 
    Euros    2     2     2     2 
    Other              3     3 
     126  1,893   2,019     106  1,606   1,712 

Loans and other borrowings, excluding bank overdrafts, comprise the liabilities included in the financing activities section of the Group statement of cash flows and their movements are analysed as follows:

      

        At 1 January
2017

$m

          Cash flows
$m
  Exchange
        adjustments
$m
  Other
$m
  

        At 31 December
2017

$m

 
Unsecured bank loans    107  153   1  1   262 
Finance lease obligations    227       4   231 
£400m 3.875% bonds 2022    489     48  1   538 
£300m 3.75% bonds 2025    370     36     406 
£350m 2.125% bonds 2026    430     42     472 
     1,623  153   127  6   1,909 

124IHG  |  Annual Report and Form 20-F 2017


20. Loans and other borrowingscontinued

Unsecured bank loans

Unsecured bank loans are borrowings under the Group’s Syndicated and Bilateral Facilities. Amounts are classified as non-current when the facilities have more than 12 months to expiry.

The Syndicated Facility comprises a $1,275m five-year revolving credit facility maturing in March 2022.

The Bilateral Facility comprises a $75m revolving credit facility maturing in March 2022. The Bilateral Facility contains the same terms and covenants as the Syndicated Facility.

A variable rate of interest is payable on amounts drawn under both facilities, which was 2.15% at 31 December 2017.

Finance lease obligations

Finance lease obligations, which relate primarily to the 99-year lease (of which 88 years remain) on the InterContinental Boston hotel, are payable as follows:

     2017     2016 
      

Minimum

lease
            payments
$m

  

Present

value of

            payments
$m

     

            Minimum
lease

payments

$m

  

Present

value of
            payments
$m

 
Less than one year    16  16    17   17 
Between one and five years    67  49    64   48 
More than five years    3,234  166    3,252   162 
     3,317  231    3,333   227 
Less: amount representing finance charges    (3,086     (3,106   
     231  231    227   227 

The Group has the option to extend the term of the InterContinental Boston lease for two additional 20-year terms. Payments under the lease step up at regular intervals over the lease term. Interest is payable on the obligation at a fixed rate of 9.7%.

£400m 3.875% bonds 2022

The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable in full on 28 November 2022. Interest is payable annually on 28 November. The bonds were initially priced at 98.787% of face value and are unsecured.

£300m 3.75% bonds 2025

The 3.75% fixed interest sterling bonds were issued on 14 August 2015 and are repayable in full on 14 August 2025. Interest is payable annually on 14 August. The bonds were initially priced at 99.014% of face value and are unsecured.

£350m 2.125% bonds 2026

The 2.125% fixed interest sterling bonds were issued on 24 August 2016 and are repayable in full on 24 August 2026. Interest is payable annually on 24 August. The bonds were initially priced at 99.45% of face value and are unsecured.

Bank overdrafts

Bank overdrafts are matched by equivalent amounts of cash and cash equivalents under the Group’s cash pooling arrangements (see note 17).

Facilities provided by banks

     2017     2016 
      

            Utilised

$m

  

            Unutilised

$m

  

            Total

$m

     

            Utilised

$m

  

            Unutilised

$m

  

            Total

$m

 
Committed    264  1,086   1,350     110  1,240   1,350 
Uncommitted    1  69   70       70   70 
     265  1,155   1,420     110  1,310   1,420 

      

            2017

$m

     

            2016

$m

 
Unutilised facilities expire:            
Within one year    69     70 
After two but before five years    1,086     1,240 
     1,155     1,310 

Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.

 

134


20.IHG  |  Annual Report and Form 20-F 2017  |  Group Financial risk managementStatements  |  Notes125


Group Financial Statements

Notes to the Group Financial Statements continued

21. Net debt

      

            2017

$m

     

            2016

$m

 
Cash and cash equivalents    168     206 
Loans and other borrowings – current    (126    (106
                                               – non-current    (1,893    (1,606
Net debt    (1,851    (1,506
Movement in net debt            
Net decrease in cash and cash equivalents, net of overdrafts    (75    (920
Add back cash flows in respect of other components of net debt:            

Issue of long-term bonds

         (459

Long-term bonds repaid

         315 

Increase in other borrowings

    (153    (109
Increase in net debt arising from cash flows    (228    (1,173
Non-cash movements:            

Finance lease obligations

    (4    (4

Decrease/(increase) in accrued interest

    1     (6

Exchange and other adjustments

    (114    206 
Increase in net debt    (345    (977
Net debt at beginning of the year    (1,506    (529
Net debt at end of the year    (1,851    (1,506

LOGO

Information concerning non-GAAP measures

can be found in the Strategic Report on page 26.

22. Financial risk management

Overview

The Group’s treasury policyGroup is exposed to manage financial risks that arise in relation to underlying business needs. The activities of the treasury functionactivities. These risks include: foreign exchange risk, liquidity risk, interest rate risk, credit risk and capital risk. There are carried out in accordance with Board approved policies and are subjectin place to regular audit. The treasury function does not operate as a profit centre.

The treasury function seeksmanage these risks. Treasury activities to reduce the financialmanage these risks faced by the Group and manages liquidity to meet all foreseeable cash needs. Treasury activities may include money market investments, repurchase agreements, spot and forward foreign exchange instruments, currency swaps, interest rate swaps and forward rate agreements. One of the primary objectives of the Group’s treasury risk management policy is to mitigate the adverse impact of movements in interest rates and foreign exchange rates.

MarketForeign exchange risk exposure

The US dollar is the predominant currency of the Group’s revenue and cash flows. Movements in foreign exchange rates can affect the Group’s reported profit, net assetsliabilities and interest cover. To hedge translationThe most significant exposures of the Group are in currencies that are freely convertible. The Group’s reported debt has an exposure whereverto borrowings held in pounds sterling.

Foreign exchange hedging

From time to time, the Group hedges a portion of forecast foreign currency income by taking out forward exchange contracts. The designated risk is the spot foreign exchange risk. There were no such contracts in place at either 31 December 2017 or 31 December 2016.

The Group also uses short-dated foreign exchange swaps to manage sterling surplus cash and reduce US dollar borrowings whilst maintaining operational flexibility. At 31 December 2017, the Group held short-dated foreign exchange swaps with principals of $30m (2016: $120m).

The fair value of these derivative financial instruments at 31 December 2017 was $nil (2016: $3m liability).

Hedge of net investment in foreign operations

Wherever possible, the Group matches the currency of its debt (either directly or via derivatives) to the currency of its net assets, whilst maximising the amount of US dollars borrowed to reflect the predominant trading currency. However US dollars are only borrowed to the extent that hedge accounting can be achieved.

From time to time,The Group designates certain foreign currency bank borrowings and currency derivatives as net investment hedges of foreign operations. The designated risk is the spot foreign exchange transaction exposurerisk for loans and short-dated derivatives. The interest on these financial instruments is managed by the forward purchasetaken through financial income or saleexpense.

The maximum amount of foreign currencies. Most significant exposuresexchange derivatives held during the year as net investment hedges and measured at calendar quarter ends were short-dated foreign exchange swaps with principals of $160m (2016: $325m).

Hedge effectiveness is measured at calendar quarter ends. No ineffectiveness arose in respect of the Group are in currencies that are freely convertible.Group’s net investment hedges during the current or prior year.

A general strengthening of the US dollar (specifically a five cent fall in the sterling: US dollar rate) would increase the Group’s profit before tax by an estimated $4.5m (2013 $4.1m, 2012 $2.8m) and increase net assets by an estimated $29.1m (2013 $16.0m, 2012 $1.8m). Similarly, a five cent fall in the euro:US dollar rate would reduce the Group’s profit before tax by an estimated $2.2m (2013 $2.6m, 2012 $2.3m) and decrease net assets by an estimated $10.9m (2013 $14.8m, 2012 $16.1m).

126IHG  |  Annual Report and Form 20-F 2017


22. Financial risk managementcontinued

Interest rate exposurerisk

The Group is managed, usingexposed to interest rate risk in relation to its fixed and floating rate borrowings. The Group’s policy requires a minimum of 50% fixed rate debt over the next 12 months. With the exception of overdrafts, 86% of borrowings were fixed rate debt at 31 December 2017 (2016: 93%).

Interest rate hedging

If required, the Group uses interest rate swaps if appropriate, within set parameters depending onto manage the term of the debt, with a minimum fixed proportion of 25% of borrowings for each major currency.exposure. The Group designates interest rate swaps as cash flow hedges. No interest rate swaps were used during 20132017, 2016 or 2014. Based2015.

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.

                   2017
$m
             2016
$m
             2015
$m
 
Increase/(decrease) in profit before tax                     
Sterling: US dollar exchange rate 5¢ fall     4.0     5.2     4.8 
Euro: US dollar exchange rate 5¢ fall     (2.1    (2.2    (1.9
US dollar interest rates 1% increase     (2.9    (1.8    (0.9
Sterling interest rates 1% increase     0.3     1.3     7.9 
Decrease/(increase) in net liabilities                     
Sterling: US dollar exchange rate 5¢ fall     44.1     47.2     23.7 
Euro: US dollar exchange rate 5¢ fall     (4.1    (5.5    (7.6

The impact of a weakening in the US dollar or a fall in interest rates would be the reverse of the above values.

Interest rate sensitivities are calculated based on the year-end net debt position plus the $400m bilateral term loan drawn in 2015 to finance the Kimpton acquisition (see note 21), a one percentage point rise in US dollar interest rates would increase the annual net interest charge by $6.7m. A similar rise in euro interest rates would increase the annual net interest charge by approximately $0.9m, and a similar rise in sterling interest rates would reduce the annual net interest charge by approximately $0.7m. 100% of borrowings in major currencies were fixed rate debt at 31 December 2013.position.

Liquidity risk exposure

The treasury functionGroup policy ensures that the Group has accesssufficient liquidity is maintained to sufficientmeet all foreseeable medium-term cash requirements and provide headroom against unforeseen obligations.

Cash and cash equivalents is held in short-term deposits and cash funds towhich allow the implementationdaily withdrawals of cash. Most of the strategy set byGroup’s funds are held in the Board. UK or US, although $3m (2016: $3m) is held in countries where repatriation is restricted as a result of foreign exchange regulations.

Medium and long-term borrowing requirements are met through the $1.07bn Syndicated Facility which expirescommitted bank facilities and bonds as detailed in November 2016, through the £250m 6% bonds that are repayable on 9 December 2016 and through the £400m 3.875% bonds repayable on 28 November 2022. The bonds were issued under the Group’s £750m Medium Term Notes programme.note 20. Short-term borrowing requirements aremay be met from drawings under bilateral bankuncommitted overdrafts and facilities.

The Syndicated Facility containsand Bilateral Facilities contain two financial covenants: interest cover and net debt divided by earnings before interest, tax, depreciation and amortisation (EBITDA). The Group has been in compliance with all of the financial covenants in its loan documents throughout the year none of which is expectedand expects to present a material restriction on funding incontinue to have significant headroom for the nearforeseeable future.

At the year end, the Group had cash of $162m which is predominantly held in short-term deposits and cash funds which allow daily withdrawals of cash. The Group also had overdrafts of $107m as part of cash pooling arrangements (see note 17). Most of the Group’s funds are held in the UK or US, although $4m (2013 $12m) is held in countries where repatriation is restricted as a result of foreign exchange regulations.

The Group had net liabilities of $717m at 31 December 2014 reflecting that its brands, in accordance with accounting standards, are not recorded on the balance sheet.

LOGO

 

135


IHG  |  Annual Report and Form 20-F 2014

Note2017  |  s toGroup Financial Statements  the Gro|  up FinNotesancial Statementscontinued

20. Financial risk managementcontinued

127


Group Financial Statements

Notes to the Group Financial Statements continued

22. Financial risk managementcontinued

The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:

      

        Less than
1 year

$m

  

        Between
1 and 2
years

$m

  

        Between
2 and 5
years

$m

  

        More than
5 years

$m

  

        Total

$m

 
31 December 2017                    
Non-derivative financial liabilities:                    

Bank overdrafts

    110          110 

Unsecured bank loans

    264          264 

£400m 3.875% bonds 2022

    21  21   601     643 

£300m 3.75% bonds 2025

    15  15   46  445   521 

£350m 2.125% bonds 2026

    10  10   30  510   560 

Finance lease obligations

    16  16   51  3,234   3,317 

Trade and other payables, excluding deferred revenue

    719  138   189  176   1,222 

Provisions

    3  5        8 

      

        Less than
1 year

$m

  

        Between
1 and 2
years

$m

  

        Between
2 and 5
years

$m

  

        More than
5 years

$m

  

        Total

$m

 
31 December 2016                    
Non-derivative financial liabilities:                    

Bank overdrafts

    89          89 

Unsecured bank loans

    110          110 

£400m 3.875% bonds 2022

    19  19   57  510   605 

£300m 3.75% bonds 2025

    14  14   42  419   489 

£350m 2.125% bonds 2026

    9  9   28  473   519 

Finance lease obligations

    17  16   48  3,252   3,333 

Trade and other payables, excluding deferred revenue

    644  173   210  192   1,219 

Provisions

    3  5        8 
Derivative financial liabilities:                    

Forward foreign exchange contracts

    3          3 

Trade and other payables above includes the cash flows relating to the future redemption liability of the Group’s loyalty programme. The repayment profile has been determined by actuaries based on expected redemption profiles and could in reality be different from expectations.

Credit risk exposure

Credit risk on treasury transactions is minimised by operating a policy on the investment of surplus cash that generally restricts counterparties to those with an Aa 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, Tiertier 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.

        Note       2017
$m
       2016
$m
 
Cash and cash equivalents     17      168      206 
Equity securities available-for-sale     15      127      156 
Loans and receivables:                     

Other financial assets

     15      117      112 

Trade and other receivables, excluding prepayments

     16      477      403 
             889      877 

128IHG  |  Annual Report and Form 20-F 2017


22. Financial risk managementcontinued

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern. The capital structure consists of net debt, issued share capital and reserves totalling $808m$993m at 31 December 2014 (2013 $1,071m)2017 (2016: $739m). The structure is managed to maintain an investment grade credit rating, to provide ongoing returns to shareholders and to service debt obligations, whilst maintaining maximum operational flexibility. A key characteristic of IHG’s managed and franchised business model is that it is highly cash generative, with a high return on capital employed. Surplus cash is either reinvested in the business, used to repay debt or returned to shareholders. The Group’s debt is monitored on the basis of a cash flow leverage ratio, being net debt divided by EBITDA, with the objective of maintaining an investment grade credit rating.

Hedging

Interest rate risk

The Group hedges its interest rate risk by ensuring that interest flows are fixed on at least 25% of its borrowings in major currencies. If required, the Group uses interest rate swaps to manage the exposure although none were held during 2013 or 2014. The Group designates interest rate swaps as cash flow hedges.

Foreign currency risk

The Group is exposed to foreign currency risk on income streams denominated in foreign currencies. From time to time, the Group hedges a portion of forecast foreign currency income by taking out forward exchange contracts. The designated risk is the spot foreign exchange risk. There were no such contracts in place at either 31 December 2014 or 31 December 2013.

Hedge of net investment in foreign operations

The Group designates its foreign currency bank borrowings and currency derivatives as net investment hedges of foreign operations. The designated risk is the spot foreign exchange risk for loans and short dated derivatives. The interest on these financial instruments is taken through financial income or expense.

At 31 December 2014, the Group held no currency swaps (2013 $415m) and short dated foreign exchange swaps with principals of220m (201375m) and $31m (2013 $100m) (see note 22 for further details). The maximum amount of foreign exchange derivatives held during the year as net investment hedges and measured at calendar quarter ends were currency swaps with a principal of $415m (2013 $415m) and short dated foreign exchange swaps with principals of220m (201375m) and $165m (2013 $310m).

Hedge effectiveness is measured at calendar quarter ends. No ineffectiveness arose in respect of either the Group’s cash flow or net investment hedges during the current or prior year.

136


20. Financial risk managementcontinued

Liquidity risk

The following are the undiscounted contractual cash flows of financial liabilities, including interest payments:

   

Less than
1 year

$m

  

Between 1 and
2 years

$m

  

Between 2 and
5 years

$m

  

More than
5 years

$m

   

Total

$m

 

31 December 2014

    ��                
Non-derivative financial liabilities:                     

Bank overdrafts

  107                 107  

Unsecured bank loans

  361                 361  

Secured bank loans

  3                 3  

£250m 6% bonds 2016

  23    414             437  

£400m 3.875% bonds 2022

  24    24    73    697     818  

Finance lease obligations

  16    16    48    3,284     3,364  

Trade and other payables

  769    174    194    345     1,482  

Provisions

  1    9             10  
Derivative financial liabilities:                     

Forward foreign exchange contracts

  (2               (2
   

Less than
1 year

$m

  

Between 1 and
2 years

$m

  

Between 2 and
5 years

$m

  

More than
5 years

$m

   

Total

$m

 
31 December 2013 (restated1)                     
Non-derivative financial liabilities:                     

Bank overdrafts

  114                 114  

Secured bank loans

      4             4  

£250m 6% bonds 2016

  25    25    438         488  

£400m 3.875% bonds 2022

  26    26    77    764     893  

Finance lease obligations

  16    16    48    3,300     3,380  

Trade and other payables

  748    162    193    289     1,392  

Provisions

  3                 3  
Derivative financial liabilities:                     

Forward foreign exchange contracts

  (1               (1

Currency swaps – outflows

  26    26    441         493  

                           – inflows

  (25  (25  (438       (488

1   Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

Trade and other payables includes the cash flows relating to the future redemption liability of the Group’s loyalty programme. The repayment profile has been determined by actuaries based on expected redemption profiles and could in reality be different from expectations.

Credit risk

The carrying amount of financial assets represents the maximum exposure to credit risk.

                        
    

2014

$m

   

2013

(restated1)

$m

 
Cash and cash equivalents   162     248  
Equity securities available-for-sale   144     136  
Derivative financial instruments   2     1  
Loans and receivables:          

Other financial assets

   113     112  

Trade and other receivables, excluding prepayments

   388     358  
    809     855  

1  Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

LOGO

137


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

21. Loans and other borrowings

   

2014

      

2013

(restated1)

 
    

Current

$m

   

Non-current

$m

   

Total

$m

       

Current

$m

   

Non-current

$m

   

Total

$m

 
Bank overdrafts   107          107        114          114  
Unsecured bank loans        359     359                    
Secured bank loan   3          3             4     4  
Finance lease obligations   16     202     218        16     199     215  
£250m 6% bonds 2016        390     390             412     412  
£400m 3.875% bonds 2022        618     618             654     654  
Total borrowings   126     1,569     1,695        130     1,269     1,399  
                                  
Denominated in the following currencies:                                 
Sterling   20     1,008     1,028        17     1,066     1,083  
US dollars   87     470     557        96     199     295  
Euros   12     91     103        11          11  
Other   7          7        6     4     10  
    126     1,569     1,695        130     1,269     1,399  

1   Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

Bank overdrafts

Bank overdrafts are matched by equivalent amounts of cash and cash equivalents under the Group’s cash pooling arrangements (see note 17 for further details).

Unsecured bank loans

Unsecured bank loans are borrowings under the Group’s Syndicated Facility. Amounts are classified as non-current when the facilities have more than 12 months to expiry. A variable rate of interest is payable on amounts drawn under the facility, which was 1.2% at 31 December 2014.

Secured bank loan

The secured bank loan relates to a New Zealand dollar mortgage which is secured on the related hotel property. $3m is repayable by instalments (2013 $4m).

Finance lease obligations

Finance lease obligations, which relate to the 99-year lease (of which 91 years remain) on the InterContinental Boston, are payable as follows:

   2014      2013 
    

Minimum

lease

payments

$m

  

Present

value of

payments

$m

       

Minimum

lease

payments

$m

  

Present

value of

payments

$m

 
Less than one year   16    16        16    16  
Between one and five years   64    48        64    48  
More than five years   3,284    154        3,300    151  
    3,364    218        3,380    215  
Less: amount representing finance charges   (3,146          (3,165    
    218    218        215    215  

The Group has the option to extend the term of the lease for two additional 20-year terms. Payments under the lease step up at regular intervals over the lease term. Interest is payable on the obligation at a fixed rate of 9.7%.

£250m 6% bonds 2016

The 6% fixed interest sterling bonds were issued on 9 December 2009 and are repayable in full on 9 December 2016. Interest is payable annually on 9 December in each year commencing 9 December 2010 to the maturity date. The bonds were initially priced at 99.465% of face value and are unsecured. Currency swaps were transacted at the same time the bonds were issued in order to swap the proceeds and interest flows into US dollars and were subsequently closed out during 2014 (see note 22 for further details).

£400m 3.875% bonds 2022

The 3.875% fixed interest sterling bonds were issued on 28 November 2012 and are repayable on 28 November 2022. Interest is payable annually on 28 November in each year commencing 28 November 2013 to the maturity date. The bonds were initially priced at 98.787% of face value and are unsecured.

138


21. Loans and other borrowingscontinued

Facilities provided by banks

   2014      2013 
    

Utilised

$m

   

Unutilised

$m

   

Total

$m

       

Utilised

$m

   

Unutilised

$m

   

Total

$m

 
Committed   364     709     1,073        4     1,070     1,074  
Uncommitted   4     62     66             80     80  
    368     771     1,139        4     1,150     1,154  
                            

2014

$m

   

2013

$m

 
Unutilised facilities expire:                                 

Within one year

                          62     80  

After two but before five years

                          709     1,070  
                           771     1,150  

Utilised facilities are calculated based on actual drawings and may not agree to the carrying value of loans held at amortised cost.

Kimpton acquisition

Subsequent to the year end, a $400m bilateral term loan was drawn down to finance the acquisition of Kimpton (see note 33). The loan has a term of six months plus two six-month extension periods. A variable rate of interest is payable on the loan which has identical covenants to the Syndicated Facility.

22. Derivative financial instruments

                    
    

2014

$m

  

2013

$m

 
Currency swaps       11  
Forward foreign exchange contracts   (2  (1
    (2  10  
Analysed as:         

Current assets

   (2  (1

Non-current liabilities

       11  
    (2  10  

Derivatives are recorded at their fair values as set out in note 23.

Currency swaps

At 31 December 2014, the Group held no currency swaps. The currency swaps held at 31 December 2013 (with a principal of $415m) were transacted at the same time as the £250m 6% bonds were issued in December 2009 in order to swap the bonds’ proceeds and interest flows into US dollars. Under the terms of the swaps, $415m was borrowed and £250m deposited for seven years at a fixed exchange rate of £1=$1.66. The currency swaps were closed out in full during 2014 due to a reduction in the value of assets available for net investment hedging with $4m received as consideration on close of out the swaps. The interest expense and principal on the £250m 6% bonds are now subject to currency fluctuations. At 31 December 2013, the fair value of the currency swap comprised two components: $2m relating to the repayment of the underlying principal and $9m relating to interest payments. The element relating to the underlying principal was disclosed as a component of net debt in 2013 (see note 24). The currency swaps were designated as net investment hedges.

Forward foreign exchange contracts

At 31 December 2014, the Group held short dated foreign exchange swaps with total principal values of220m (201375m) and $31m (2013 $100m). The swaps are used to manage sterling surplus cash and reduce euro and US dollar borrowings whilst maintaining operational flexibility. The foreign exchange swaps have been designated as net investment hedges.

LOGO

139


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

23. Fair value measurement

Fair values

The following table compares carrying amounts and fair values of the Group’s financial assets and liabilities:

 

      2014    

2013

(restated¹)

        2017     2016 
  Note   

Carrying
value

$m

 

Fair
value

$m

   

Carrying
value

$m

 

Fair
value

$m

            Note    

        Carrying

value

$m

 

Fair

        value

$m

     

        Carrying

value

$m

 

Fair

        value

$m

 
Financial assets                              
Cash and cash equivalents   17     162   162       248    248      17     168  168    206   206 
Equity securities available-for-sale2   15     144   144       136    136  
Equity securities available-for-salea    15     127  127    156   156 
Loans and receivables:                              

Other financial assets

   15     113   113       112    112      15     117  117    112   112 

Trade and other financial receivables, excluding prepayments

   16     388   388       358    358  
Derivatives2   22     2   2       1    1  

Trade and other receivables, excluding prepayments

    16     477  477    403   403 
      809   809       855    855          889  889    877   877 
Financial liabilities                              
£250m 6% bonds 2016   21     (390 (423     (412  (461
£400m 3.875% bonds 2022   21     (618 (659     (654  (650    20     (538 (593   (489  (541
£300m 3.75% bonds 2025    20     (406 (441   (370  (408
£350m 2.125% bonds 2026    20     (472 (454   (430  (411
Finance lease obligations   21     (218 (277     (215  (233    20     (231 (318   (227  (297
Unsecured bank loans   21     (359 (359               20     (262 (262   (107  (107
Secured bank loan   21     (3 (3     (4  (4
Bank overdrafts   21     (107 (107     (114  (114    20     (110 (110   (89  (89
Loyalty programme liability    32     (760 (760   (685  (685
Trade and other payables   18     (1,396 (1,396     (1,322  (1,322    18     (889 (889   (881  (881
Derivatives2   22                (11  (11
Derivativesa               (3  (3
Provisions   19     (10 (10     (3  (3    19     (8 (8   (8  (8
      (3,101 (3,234     (2,735  (2,798        (3,676 (3,835   (3,289  (3,430

1   Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

2a Financial assets and liabilities which are measured at fair value.

There are no other assets or liabilities measured at fair value on a recurring or non-recurring basis, or for which fair value is disclosed.disclosed, other than as described in note 14.

The fair value of cash and cash equivalents and bank overdrafts approximates book value due to the short maturity of the investments and deposits, and the fair value of other financial assets approximates book value based on prevailing market rates. The fair value of the secured and unsecured bank loans approximates book value as interest rates reset to market rates on a frequent basis. The fair value of trade and other receivables, trade and other payables, and current provisions approximates to their carrying value, including the future redemption liability of the Group’s loyalty programme.programme and current provisions approximates to their carrying value.

IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes129


Group Financial Statements

Notes to the Group Financial Statements continued

23. Fair value measurementcontinued

Fair value hierarchy

The following table provides the fair value measurement hierarchy of the above assets and liabilities, other than those with carrying amounts which are reasonable approximations of their fair values:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 1:quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

 

Level 2:other techniques for which all inputs which have a significant effect on fair value are observable, either directly or indirectly.

Level 3:techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

    2014      2013    2017     2016 
    

Level 1

$m

   

Level 2

$m

   

Level 3

$m

     

Total

$m

       

Level 1

$m

   

Level 2

$m

   

Level 3

$m

     

Total

$m

    

        Level 1

$m

 

        Level 2

$m

  

        Level 3

$m

 

        Total

$m

             Level 1
$m
          Level 2
$m
 

        Level 3

$m

          Total
$m
 
Assets                                                         
Equity securities available-for-sale:                                                         

Quoted equity shares

     16                 16         9                 9      10  –      10    14         14 

Unquoted equity shares

               128       128                   127       127        –    117  117    –      142   142 
Derivatives          2            2              1            1  
Liabilities                                                         
£250m 6% bonds 2016     (423               (423       (461               (461
£400m 3.875% bonds 2022     (659               (659       (650               (650    (593 –      (593)   (541)        (541
£300m 3.75% bonds 2025    (441 –      (441)   (408)        (408
£350m 2.125% bonds 2026    (454 –      (454)   (411)        (411
Finance lease obligations          (277          (277            (233          (233      (318)     (318)   –    (297    (297
Derivatives                                    (11          (11      –      –    –    (3    (3

There were no transfers between Level 1 and Level 2 fair value measurements during the year and no transfers into and out of Level 3.

140


23. Fair value measurementcontinued

The fair value of quoted equity shares and the bonds is based on their quoted market price.

Derivatives are fair valued using discounted future cash flows, taking into consideration exchange rates prevailing on the last day of the reporting period and interest rates from observable swap curves. As the Group’s derivatives are not cash collaterised, a valuation adjustment is made for credit risk, being counterparty risks in respect of derivative assets and own credit risks in respect of derivative liabilities. At 31 December 2013, the interest rates used to fair value the currency swaps ranged from 1.4% to 2.5%, depending on the currency and the term of the derivative contract.

Finance lease obligations relate primarily to the lease of the InterContinental Boston, and arewhich is fair valued by discounting the future cash flows payable under the loan, which are fixed, at a risk adjusted long-term interest rate. The interest rate used to discount the cash flows at 31 December 20142017 was 7.4% (2013 8.4%6.9% (2016: 7.2%).

Unquoted equity shares are fair valued using the International Private Equity and Venture Capital Valuation Guidelines either by applying an average price-earnings (P/E) ratio for a competitor group to the earnings generated by the investment or by reference to share of net assets if the investment is currently loss-making or a recent property valuation is available. The average P/E ratio for the year was 24.030.7 (2016: 24.5) and a non-marketability factor of 30% (2016: 30%) is applied. A 10% increase in the average P/E ratio would result in a $3m$2m increase (2013 $5m)(2016: $2m) in the fair value of the investments and a 10% decrease in the average P/E ratio would result in a $3m$2m decrease (2013 $5m)(2016: $2m) in the fair value of the investments. A 10% increase in net assets would result in a $7m increase (2013 $5m)(2016: $7m) in the fair value of the investments and a 10% decrease in net assets would result in a $7m decrease (2013 $5m)(2016: $7m) in the fair value of the investments.

The following table reconciles the movements in the fair values of investments classified as Level 3 during the year:

 

    

2014

$m

  

2013

$m

 
At 1 January   127    94  
Additions   5    8  
Repaid   (8    
Valuation gains recognised in other comprehensive income   7    25  
Exchange and other adjustments   (3    
At 31 December   128    127  
24. Net debt         
    

2014

$m

  

2013

(restated1)

$m

 
Cash and cash equivalents   162    248  
Loans and other borrowings – current   (126  (130

                                          – non-current

   (1,569  (1,269
Derivatives hedging debt values (note 22)       (2
Net debt   (1,533  (1,153
Movement in net debt         
Net decrease in cash and cash equivalents, net of overdrafts   (70  (58
Add back cash flows in respect of other components of net debt:         

(Increase)/decrease in other borrowings

   (382  1  

Close-out of currency swaps

   (4    
Increase in net debt arising from cash flows   (456  (57
Non-cash movements:         

Finance lease obligations

   (3  (3

Exchange and other adjustments

   79    (19
Increase in net debt   (380  (79
Net debt at beginning of the year   (1,153  (1,074
Net debt at end of the year   (1,533  (1,153

1   Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

In 2013, net debt included the exchange element of the fair value of currency swaps that fixed the value of the Group’s £250m 6% bonds at $415m. An equal and opposite exchange adjustment on the retranslation of the £250m 6% bonds was included in non-current loans and other borrowings. The currency swaps were closed out in 2014 (see note 22).

LOGO

                2017
$m
              2016
$m
 
At 1 January     142     136 
Additions     2     2 
Disposals     (3    (15
Reclassification of associate (note 14)          14 
Valuation gains recognised in other comprehensive income     48     5 
Valuation gains reclassified to the income statement on disposal     (73     
Exchange and other adjustments     1      
At 31 December     117     142 

 

141


130

IHG  |  Annual Report and Form 20-F 20142017

Notes to the Group Financial Statementscontinued


24. Reconciliation of profit for the year to cash flow from operations

For the year ended 31 December 2017            Note             2017
$m
             2016
$m
     

        2015

$m

 
Profit for the year          593     417     1,224 
Adjustments for:                        

Net financial expenses

          85     87     87 

Income tax charge

    7     85     174     188 

Depreciation and amortisation

          103     96     96 

Impairment

    5     18     16     36 

Other exceptional items

    5     (22    13     (855

Equity-settled share-based cost

    26     21     17     19 

Dividends from associates and joint ventures

    14     4     5     5 

(Increase)/decrease in trade and other receivables

          (71    (24    3 

Net change in loyalty programme liability and System Fund surplus

          8     65     42 

System Fund depreciation and amortisation

          36     31     21 

Increase/(decrease) in other trade and other payables

          44     102     (13

Utilisation of provisions, net of insurance recovery

    19          (4     

Retirement benefit contributions, net of costs

          (1    (32    (4

Cash flows relating to exceptional items

          (44    (19    (45

Other items

          (3    9     6 
Total adjustments          263     536     (414
Cash flow from operations          856     953     810 

25. Retirement benefits

UK

HistoricallySince 6 August 2014, UK retirement and death in service benefits have beenare provided for eligible employees in the UK principally by the InterContinental Hotels UK Pension Plan, which has both defined benefit and defined contribution sections. The defined benefit section was subject to a buy-in transaction on 15 August 2013 whereby the assets of the plan were invested in a bulk purchase annuity policy with the insurer Rothesay Life under which the benefits payable to defined benefit members became fully insured. On 31 October 2014, the plan completed the move to a full buy-out of the defined benefit section, following which Rothesay Life has become fully and directly responsible for the pension obligations. On completion of the buy-out, the defined benefit assets (comprising the Rothesay Life insurance policy) and matching defined benefit liabilities were derecognised from the Group statement of financial position. The buy-out transaction also triggered the return to the Company of the £3m that remained in the IHG Funding Trust.

On 6 August 2014, members of the defined contribution section of the plan were transferred to a new mirror plan, the IHG UK Defined Contribution Pension Plan. Existing and new employees who are eligible for pension benefits in the UK,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.

Both plans are The plan is HM Revenue &and Customs registered and governed by a Trustee Board which comprises a combination ofan independent and company nominated trustees,trustee, assisted by professional advisers as and when required. The overall operation of the plansplan is subject to the oversight of The Pensions Regulator.

The Trustee Board is currently in the process of winding-upformer defined benefit plan, the InterContinental Hotels UK Pension Plan.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.

In addition to the above,Residual defined benefit obligations remain in respect of additional benefits are provided to members of an unfunded pension arrangement who were affected by lifetime or annual allowances under the former defined benefit arrangements. Accrual under this arrangement ceased with effect from 1 July 2013. In March2013 and a cash-out offer in 2014 resulted in the Company made an offer to each member to cash-out their pension entitlement by meansextinguishment of a one-off lump sum cash payment. Members had until 30 June 2014 to accept the offer with the Company reserving the right to revoke any acceptances up to the date of payment. In the event, cash payments totalling £27m were made to the accepting members on 28 July 2014 (with an additional £7m deferred for payment until 2015), thereby extinguishing approximately 70% of the unfunded pension obligations. The Company meets the benefit payment obligations of the remaining members as they fall due. A charge over certain ring-fenced bank accounts totalling £31m at 31 December 20142017 (see note 15) is currently held as security on behalf of the remaining members of the unfunded arrangement.members.

US and other

The Group also maintains the following US-based defined benefit plans;plans: the funded Inter-Continental Hotels Pension Plan (the Plan), unfunded Inter-Continental Hotels Non-qualified Pension Plans and unfunded Inter-Continental Hotels Corporation Postretirement Medical, Dental, Vision and Death Benefit Plan. All plans are closed to new members. In respect of the funded plan,Plan, an Investment Committee has responsibility for the oversight and management of the plan’sPlan’s assets, which are held in a separate trust. The Committee comprises senior companyCompany employees and is assisted by professional advisers as and when required. The company currently makes contributions that equal or exceed

During 2016, the minimumGroup made a funding amounts required bycontribution of $32m to the Employee Retirement Income and Security Act of 1974 (‘ERISA’). The investment objective isPlan which enabled it to achieve full funding over time by following a specified ‘glide path approach’ which results in a progressive switching from return seekingfunding. The assets to liability-matching assets as the funded status of the Plan were subsequently invested in liability-matching assets. In November 2017, the Company received approval from the Internal Revenue Service to proceed with a plan increases. During the year, the funded status reached 85% which triggered a further de-riskingtermination and distribution of the investment portfolio.assets from the Plan in 2018. This will involve certain members being offered lump-sum payments with remaining plan interests subject to the expected purchase of annuity contracts.

During 2015, the Group made a lump sum cash-out offer to the terminated vested members of the Inter-Continental Hotels Pension Plan. Members accepting the offer received lump sum cash payments totalling $11m on 1 November 2015.

Other

The Group also operates a number of smaller pension schemes outside the UK, the most significant of which is a defined contribution scheme in the US; there is no material difference between the pension costs of, and contributions to, these schemes.

IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes131


Group Financial Statements

Notes to the Group Financial Statements continued

25. Retirement benefitscontinued

In respect of the defined benefit plans, the amounts recognised in the Group income statement, in administrative expenses,‘administrative expenses’, are:

 

   Pension plans                               
   UK      US and other      

Post-employment

benefits

      Total 
    2014
$m
   2013
$m
   2012
$m
       2014
$m
   2013
$m
   2012
$m
       2014
$m
   2013
$m
   2012
$m
       2014
$m
   2013
$m
   2012
$m
 
Current service cost        2     5        1     1     1                          1     3     6  
Past service cost                          1                                    1       
Net interest expense   2          1        3     3     3        1     1     1        6     4     5  
Administration costs   3     1     1             1     1                          3     2     2  
Operating profit before exceptional items   5     3     7        4     6     5        1     1     1        10     10     13  
Exceptional items:                                                                     

Settlement cost

   6     147                                                 6     147       
    11     150     7        4     6     5        1     1     1        16     157     13  

142


25. Retirement benefitscontinued
     Pension plans                                     
     UK     US     US Post-employment benefits     Total 
              2017
$m
             2016
$m
             2015
$m
             2017
$m
             2016
$m
             2015
$m
             2017
$m
             2016
$m
              2015
$m
              2017
$m
              2016
$m
              2015
$m
 
Net interest expense    1     1     1     2     2     3     1     1      1      4      4      5 
Administration costs              1     1     1     1                      1      1      2 
Settlement gain                             (2                                 (2
Operating profit    1     1     2     3     3     2     1     1      1      5      5      5 

The settlement costgain in 2014 results2015 resulted from the partial cash-out of the UK unfunded pension arrangementsUS Inter-Continental Hotels Pension Plan and comprises transaction and related social security costs of $9m, offset bycomprised the $3m difference between the accounting value of the liabilities extinguished and the amount of the committed cash-outlump sum payments. In 2014, related cash payments of $53m are included in cash flows relating to exceptional operating items in the Group statement of cash flows.

The settlement cost in 2013 resulted from the buy-in transaction described on the previous page and comprised a past service cost of $5m relating to additional benefits secured by the transaction, the $137m difference between the cost of the insurance policy and the accounting value of the liabilities secured and transaction costs of $5m. As the policy was structured to enable the plan to move to a buy-out and the intention was to proceed on that basis, the buy-in transaction was accounted for as a settlement with the loss arising recorded in the income statement. The full buy-out was completed on 31 October 2014.

Re-measurement gains and losses recognised in the Group statement of comprehensive income are:

 

   2014  2013  2012 
    Plan
    assets
$m
  Plan
obligations
$m
  Total
$m
  Plan
    assets
$m
  Plan
obligations
$m
  Total
$m
  Plan
assets
$m
  Plan
obligations
$m
  Total
$m
 
Return on plan assets (excluding amounts included in interest)   88        88    2        2    22        22  
Actuarial gains and losses arising from changes in:                                     

Demographic assumptions

       (3  (3      12    12        (6  (6

Financial assumptions

       (113  (113      (57  (57      (25  (25

Experience adjustments

       4    4        (6  (6      17    17  
Change in asset restriction (excluding amounts included in interest)   (1      (1  89        89    (23      (23
Other comprehensive income   87    (112  (25  91    (51  40    (1  (14  (15
The assets and liabilities of the schemes and the amounts recognised in the Group statement of financial position are:  
      Pension plans             
      UK  US and other  Post-employment
benefits
  Total 
        

2014

$m

        2013
$m
        2014
$m
  

2013

$m

  

      2014

$m

  2013
$m
  

2014

$m

        2013
$m
 
Retirement benefit assets                                     
Fair value of plan assets       8    582    16    17            24    599  
Present value of benefit obligations           (577  (13  (13          (13  (590
Surplus in schemes       8    5    3    4            11    9  
Asset restriction       (3  (2                  (3  (2
Total retirement benefit assets       5    3    3    4            8    7  
Retirement benefit obligations                                     
Fair value of plan assets               151    142            151    142  
Present value of benefit obligations       (31  (82  (242  (220  (24  (24  (297  (326
Total retirement benefit obligations       (31  (82  (91  (78  (24  (24  (146  (184
                                      
Total fair value of plan assets       8    582    167    159            175    741  
Total present value of benefit obligations       (31  (659  (255  (233  (24  (24  (310  (916
     2017     2016     2015 
      Plan
        assets
$m
  Plan
        obligations
$m
          Total
$m
     Plan
        assets
$m
  Plan
        obligations
$m
          Total
$m
     Plan
        assets
$m
  Plan
        obligations
$m
          Total
$m
 
Return on plan assets (excluding amounts included in interest)    9      9                (7    (7
Actuarial gains and losses arising from changes in:                                         

Demographic assumptions

       1   1        6   6       5   5 

Financial assumptions

       (9  (9       (11  (11      10   10 

Experience adjustments

       (2  (2       1   1       2   2 
Change in asset restriction (excluding amounts included in interest)    (3     (3               3     3 
Other comprehensive income    6   (10  (4       (4  (4    (4 17   13 

The ‘USassets and other’ surplusliabilities of $3m (2013 $4m) relates to a defined benefit pension scheme in Hong Kong. Included within the ‘USschemes and other’ deficit is $1m (2013 $2m) relating to a defined benefit pension planthe amounts recognised in the Netherlands.Group statement of financial position are:

 

LOGO

     Pension plans                    
             UK             US     

US Post-employment

benefits

     Total 
              2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
 
Retirement benefit assets                                                
Fair value of plan assets              152                    152      
Present value of benefit obligations              (146                   (146     
Surplus in schemes              6                    6      
Asset restriction              (3                   (3     
Total retirement benefit assets              3                    3      
Retirement benefit obligations                                                
Fair value of plan assets                   148                    148 
Present value of benefit obligations    (29    (27    (51    (195    (24    (22    (104    (244
Total retirement benefit obligations    (29    (27    (51    (47    (24    (22    (104    (96
                                                 
Total fair value of plan assets              152     148               152     148 
Total present value of benefit obligations    (29    (27    (197    (195    (24    (22    (250    (244

 

143


132

IHG  |  Annual Report and Form 20-F 20142017


    

Notes to the Group Financial Statementscontinued

    

25. Retirement benefitscontinued

Assumptions

The principal financial assumptions used by the actuaries to determine the benefit obligations are:

 

  Pension plans               Pension plans             
  UK   US   

Post-employment

benefits

   UK   US      US Post-employment benefits
  

      2014

%

   

2013

%

   

2012

%

   

      2014

%

   

2013

%

   

2012

%

   

    2014

%

   

2013

%

   

2012

%

           2017
%
            2016
%
              2015
%
           2017
%
              2016
%
           2015
%
              2017
%
           2016
%
              2015
%
Wages and salaries increases             4.5                              4.0  
Pensions increases   3.3     3.6     3.0                                  3.2     3.3    3.2                         
Discount rate   3.7     4.6     4.5     3.6     4.5     3.5     3.7     4.6     3.5    2.6     2.7    4.0    3.3    3.7    3.9    3.3    3.8     3.9
Inflation rate   3.3     3.6     3.0                                  3.2     3.3    3.2                         
Healthcare cost trend rate assumed for next year:                                                               

Pre 65 (ultimate rate reached in 2021)

                     8.0     8.5     9.0  

Post 65 (ultimate rate reached in 2024)

                     12.5     17.5     11.8  

Pre-65 (ultimate rate reached in 2025)

                          7.7    7.0     7.5

Post-65 (ultimate rate reached in 2024)

                          8.7    8.3     9.0
Ultimate rate that the cost trend rate trends to                     5.0     5.2     5.0                            4.5    4.5     4.5

Mortality is the most significant demographic assumption. The current assumptions for the UK are based on the S1NAS2PA ‘light’ year of birth tables with long cohort projectionsprojected mortality improvements using the CMI_2016 model and a 1.25% per annum underpin to future mortality improvementslong-term trend with age rated down by three0.7 and 2.3 years for pensioners and non-pensioners.0.5 and 2.6 years for non-pensioners, male and female respectively. In the US, the current assumptions are based on the RP-2014 Employee/Healthy Annuitant Generationally Projected with Scale MP-2014MP-2017 mortality tables.

In both territories,the UK and US, the assumptions have been revised during the year to reflect increased life expectancy at retirement age as follows:

 

      Pension plans 
      UK   US 
        2014
      Years
   2013
Years
   2012
Years
   2014
    Years
   2013
Years
   2012
Years
 
Current pensioners at 651  – male   26     24     24     22     21     19  
   – female   29     27     27     24     23     21  
Future pensioners at 652  – male   28     27     27     23     22     21  
   – female   31     30     30     25     25     22  
     Pension plans 
     UK     US 
              2017
Years
             2016
Years
             2015
Years
             2017
Years
             2016
Years
             2015
Years
 
Current pensioners at 65a         – male    24     24     26     21     21     21 
                                                    – female    26     26     29     23     23     23 
Future pensioners at 65b           – male    25     25     28     22     22     23 
                                                   – female    28     28     31     24     24     25 

 

1a Relates to assumptions based on longevity (in years) following retirement at the end of the reporting period.

2b Relates to assumptions based on longevity (in years) relating to an employee retiring in 2034.2037.

The assumptions allow for expected increases in longevity.

Sensitivities

Changes in assumptions used for determining retirement benefit costs and obligations may have a material impact on the income statement and the statement of financial position. The key assumptions are the pension increases, discount rate, the rate of inflation and the assumed mortality rate. The sensitivity analysis below is based on extrapolating reasonable changes in these assumptions, using year-end conditions and assuming no interdependency between the assumptions.

 

     UK  US       UK     US 
  

Higher/

(lower)

    pension cost

$m

   

Increase/

(decrease)

in liabilities

$m

 

Higher/

(lower)

pension cost

$m

   

Increase/

(decrease)

in liabilities

$m

         

Higher/
(lower)
        pension
cost

$m

     Increase/
(decrease)
        in liabilities
$m
     

Higher/
(lower)
        pension
cost

$m

     Increase/
(decrease)
        in liabilities
$m
 
Pension increases  – 0.25% decrease        (1.1         
Pensions increases – 0.25% decrease   (0.1  (1.1        
  – 0.25% increase        1.2            – 0.25% increase       1.4         
Discount rate  – 0.25% decrease        1.6         7.4   – 0.25% decrease   (0.1  1.5   (0.1  2.9 
  – 0.25% increase        (1.6       (7.0 – 0.25% increase       (1.4      (2.7
Inflation rate  – 0.25% increase        1.2            – 0.25% increase       1.4         
  – 0.25% decrease        (1.1          – 0.25% decrease   (0.1  (1.1        
Mortality rate  – one year increase        0.6   0.3     9.4   – One year increase       0.8   0.2   9.7 

A one percentage point increase in assumed healthcare costs trend rate would increase the accumulated post-employment benefit obligations as at 31 December 20142017 by $2.4m (2013 $2.8m, 2012 $2.6m)$1.9m (2016: $1.9m, 2015: $2.0m) and a one percentage point decrease would decrease the obligations by $2.2m (2013 $2.3m, 2012 $2.3m)$1.8m (2016: $1.7m, 2015: $1.8m).

 

144


25. Retirement benefitscontinuedIHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes133
   Pension plans                 
   UK   US and other   Post-employment
benefits
   Total 
Movement in benefit obligation  2014
$m
   2013
$m
   

    2014

$m

   2013
$m
   

    2014

$m

   

2013

$m

   2014
$m
   2013
$m
 
Benefit obligation at 1 January   659     569     233     247     24     25     916     841  
Current service cost        2     1     1               1     3  
Past service cost        5          1                    6  
Interest expense   24     26     10     7     1     1     35     34  
Settlement gain before costs   (3                            (3     
Benefits paid   (18   (22   (14   (13   (1   (1   (33   (36
Committed cash-out payments   (57                          �� (57     
Re-measurement losses/(gains)   86     62     26     (10        (1   112     51  
Derecognised on buy-out   (640                            (640     
Exchange adjustments   (20   17     (1                  (21   17  
Benefit obligation at 31 December   31     659     255     233     24     24     310     916  
                                         
Comprising:                                        

Funded plans

        577     199     182               199     759  

Unfunded plans

   31     82     56     51     24     24     111     157  
    31     659     255     233     24     24     310     916  
   Pension plans                 
   UK   US and other   Post-employment
benefits
   Total 
Movement in plan assets        2014
$m
   2013
$m
   2014
$m
   2013
$m
   2014
$m
   2013
$m
   2014
$m
   2013
$m
 
Fair value of plan assets at 1 January   582     695     159     149               741     844  
Company contributions   3     20     11     10     1     1     15     31  
Benefits paid   (18   (22   (14   (13   (1   (1   (33   (36
Interest income   22     29     7     4               29     33  
Settlement loss        (137                            (137
Re-measurement gains/(losses)   83     (7   5     9               88     2  
Administration costs   (3   (1        (1             (3   (2
Derecognised on buy-out   (640                            (640     
Exchange adjustments   (21   5     (1   1               (22   6  
Fair value of plan assets at 31 December   8     582     167     159               175     741  


Group Financial Statements

Notes to the Group Financial Statements continued

25. Retirement benefitscontinued

Movement in benefit obligation

     Pension plans     US Post-employment             
     UK     US     benefits     Total 
              2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
 
Benefit obligation at 1 January    27     27     195     202     22     21     244     250 
Interest expense    1     1     7     7     1     1     9     9 
Benefits paid    (1         (13    (13    (1    (1    (15    (14
Re-measurement losses         4     8     (1    2     1     10     4 
Exchange adjustments    2     (5                        2     (5
Benefit obligation at 31 December    29     27     197     195     24     22     250     244 
Comprising:                                                

Funded plans

              146     145               146     145 

Unfunded plans

    29     27     51     50     24     22     104     99 
     29     27     197     195     24     22     250     244 

Movement in plan assets

     Pension plans             
     UK     US     

US Post-employment

benefits

     Total 
              2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
 
Fair value of plan assets at 1 January              148     121               148     121 
Company contributions    1          4     36     1     1     6     37 
Benefits paid    (1         (13    (13    (1    (1    (15    (14
Interest income              5     5               5     5 
Re-measurement gains              9                    9      
Administration costs              (1    (1              (1    (1
Fair value of plan assets at 31 December              152     148               152     148 

Company contributionspayments are expected to be $6m$9m in 2015.2018.

The plan assets are measured at fair value and comprise the following:

 

   UK   US and other 
          2014
$m
   2013
$m
   2014
$m
   2013
$m
 
Investments quoted in active markets                    
Investment funds:                    

Global equities

             21     33  

Corporate bonds

             131     107  

Property

             2     4  
Unquoted investments                    
Qualifying insurance policy        577     11     10  
Cash and other   8     5     2     5  
    8     582     167     159  

In accordance with accounting standards, the fair value of a qualifying insurance policy is deemed to be the present value of the pension obligations secured by that policy.

       US 
        

        2017

$m

       

        2016

$m

 
Investments quoted in active markets              
Investment funds: fixed income securities     150      146 
Unquoted investments              
Cash     2      2 
      152      148 

 

LOGO

     Pension plans             
     UK     US     

US Post-employment

benefits

     Total 
              2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
             2017
$m
             2016
$m
 
Movement in asset restriction                                                
Balance at 1 January                                        
Re-measurement losses              3                    3      
Balance at 31 December              3                    3      

 

145


134

IHG  |  Annual Report and Form 20-F 2014

Note2017s to the Group Financial Statementscontinued

25. Retirement benefitscontinued

   Pension plans                
   UK  US and other      Post-employment
benefits
   Total 
Movement in asset restriction        2014
$m
   2013
$m
            2014
$m
   2013
$m
  2014
$m
   2013
$m
         2014
$m
   2013
$m
 
Balance at 1 January   2     91                       2     91  
Interest expense        3                            3  
Re-measurement gains/(losses)   1     (89                     1     (89
Exchange adjustments        (3                          (3
Balance at 31 December   3     2                       3     2  
The asset restriction relates to tax that would be deducted at source in respect of a refund of a surplus taking into account amounts payable under funding commitments. As a result of the buy-in transaction, substantially all of the asset restriction was released through other comprehensive income during 2013.    
   Pension plans                
   UK  US and other  Post-employment
benefits
   Total 
Estimated future benefit payments        2014
$m
   2013
$m
  

2014

$m

   2013
$m
  2014
$m
   2013
$m
   2014
$m
   2013
$m
 
Within one year        19    15     14    1     1     16     34  
Between one and five years   2     84    58     57    5     5     65     146  
After five years   11     123    78     76    7     7     96     206  
    13     226    151     147    13     13     177     386  
Average duration of obligation (years)   22.0     21.6    11.9     11.8    11.9     11.3            


25. Retirement benefitscontinued

Estimated future benefit payments

      Pension plans      US Post-employment               
      UK      US      benefits      Total 
           2017
$m
          2016
$m
          2017
$m
          2016
$m
      2017
$m
      2016
$m
      2017
$m
      2016
$m
 
Within one year                 14      14      1      1      15      15 
Between one and five years     3      2      53      54      6      5      61      61 
After five years     17      13      62      63      7      7      82      83 
      20      15      129      131      14      13          158          159 
Average duration of obligation (years)     20.5      21.0      10.3      10.3      10.4      10.2         

The above table assumes a continuation of the US Inter-Continental Hotels Pension Plan.

26. Share-based payments

Annual Performance Plan

Under the IHG Annual Performance Plan (APP), formerly the Annual Bonus Plan (ABP), eligible employees (including Executive Directors) can receive all or part of their bonus in the form of deferred shares and/or receive one-off awards of shares. The deferredDeferred shares are released on the third anniversary of the award date. Under the terms of awards that are referred to in this note, a fixed percentage of the award is made in the form of shares with no voluntary deferral and no matching shares. Awards under the APP are conditional on the participants remaining in the employment of a participating company or leaving for a qualifying reason as per the plan rules. The award of deferred shares under the APP is at the discretion of the Remuneration Committee.

The number of shares is calculated by dividing a specific percentage of the participant’s annual performance-related award by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the APP during the year and conditional rights over 305,345 (2013 318,911, 2012 340,924)234,918 (2016: 335,775, 2015: 265,285) shares were awarded to participants. In 2017 this number included 79,471 (2016: 103,071, 2015: 58,338) shares awarded as part of recruitment terms or for one-off individual awards.

New plan rules for the APP were approved by shareholders at the Annual General MeetingAGM on 2 May 2014, and will apply to awards made in respect of the 2015 and subsequent and financial years. The new plan rules contain substantially the same terms as the existingsuperseded 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 a three-yearthe vesting period. More detailed information on performance measures is shown in the Directors’ Remuneration Report on pages 76

Restricted stock units: Awards to 91. 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 Executive Directors and four times salary in the case of other eligible employees. During the year, conditional rights over 2,171,390 (2013 2,227,293, 2012 2,698,714) shares were awarded to employees under the plan. The plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards. During the year, conditional rights over 805,045 (2016: 1,355,721, 2015: 1,803,308) shares were awarded to employees under the plan, comprising 280,458 (2016: 888,518, 2015: 1,803,308) performance-related awards and 524,587 (2016: 467,203, 2015: nil) restricted stock units.

New plan rules for the LTIP were approved by shareholders at the Annual General MeetingAGM on 2 May 2014, and will apply to awards made in respect of the 2015-17 and subsequent LTIP cycles. The new plan rules contain substantially the same terms as the existing rules; one minor change is to limit the maximum award to three times salary for all employees.

Executive Share Option Plan

Thesuperseded plan was not operated during 2014 and no options were granted in the year under the plan, neither will any further options be granted under the plan. All options have now been exercised.

rules.

 

146


LOGO

More detailed information on the performance measures for awards to

Executive Directors is shown in the Directors’ Remuneration Report on pages 64 to 77.

IHG  |  Annual Report and Form 20-F 2017  |  26. Share-based paymentsGroup Financial Statementscontinued  |  Notes135


Group Financial Statements

Notes to the Group Financial Statements continued

26. Share-based paymentscontinued

The Group recognised a cost of $21m (2013 $22m, 2012 $22m)(2016: $17m, 2015: $19m) in operating profit and $2m (2016: $nil, 2015: $nil) within exceptional administrative expenses related to equity-settled share-based payment transactions during the year, net of amounts borne by the System Fund.

TheNo aggregate consideration was received in respect of ordinary shares issued under option schemes during 2017, 2016 or 2015.

The Group uses separate option pricing models and assumptions depending on the year was $nil (2013 $5m, 2012 $10m).

plan. The following table sets forthout information about awards granted in 2017, 2016 and options granted during 2014:2015:

 

  APP   LTIP    APP    LTIP 
Number of shares awarded in 2014   305,345     2,171,390  
        Binomial valuation model         Monte Carlo Simulation and
Binomial valuation model
 
The Group uses separate option pricing models and assumptions depending on the plan. The following tables set out information about awards granted in 2014, 2013 and 2012:   
  APP   LTIP 
2014      
Valuation model  Binomial   Monte Carlo
Simulation and
Binomial
 
         2017    2016    2015    2017    2016    2015 
Weighted average share price   1,925.0p     1,916.0p      3,781.0p     2,725.0p     2,565.0p     4,300.0p     2,846.0p     2,634.0p 
Expected dividend yield   n/a     2.55%      n/a     n/a     n/a     2.05%     2.55%     2.34% 
Risk-free interest rate      1.29%                  0.10%     0.36%     0.59% 
Volatility1      28%  
Volatilitya                24%     24%     22% 
Term (years)   3.0     3.0      3.0     3.0     3.0     3.0     3.0     3.0 
  APP   LTIP 
2013      
Valuation model  Binomial   Monte Carlo
Simulation and
Binomial
 
      
Weighted average share price   1,928.0p     1,913.0p  
Expected dividend yield   2.63%     2.59%  
Risk-free interest rate      0.27%  
Volatility1      28%  
Term (years)   3.0     3.0  
  ABP   LTIP 
2012      
Valuation model  Binomial   Monte Carlo
Simulation and
Binomial
 
      
Weighted average share price   1,440.0p     1,440.0p  
Expected dividend yield   2.95%     2.99%  
Risk-free interest rate      0.59%  
Volatility1      31%  
Term (years)   3.0     3.0  

 

1a 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.

LOGO

147


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

26. Share-based paymentscontinued

Movements in the awards and options outstanding under the schemes are as follows:

 

    APP
Number of
shares
thousands
      LTIP
Number of
shares
thousands
 
Outstanding at 1 January 2012   950        9,030  
Granted   341        2,699  
Vested   (643      (2,621
Share capital consolidation   (18        
Lapsed or cancelled   (8      (1,948
Outstanding at 31 December 2012   622        7,160  
Granted   319        2,227  
Vested   (72      (2,206
Lapsed or cancelled   (29      (406
Outstanding at 31 December 2013   840        6,775  
Granted   305        2,171  
Vested   (310      (1,447
Share capital consolidation   (38        
Lapsed or cancelled   (29      (1,379
Outstanding at 31 December 2014   768        6,120  

Fair value of awards granted during the year

    
2014   3,134.6¢        1,202.1¢  
2013   2,873.4¢        1,127.9¢  
2012   2,199.8¢        792.5¢  

Weighted average remaining contract life (years)

    
At 31 December 2014   1.1        1.1  
At 31 December 2013   1.1        1.1  
At 31 December 2012   1.6        1.2  

The above awards do not vest until the performance and service conditions have been met.

  

    Number of
shares
thousands
  Range of
option prices
pence
  Weighted
average
option price
pence
 
Executive Share Option Plan             
Outstanding at 1 January 2012   2,170    308.5–619.8    497.0  
Exercised   (1,365  308.5–619.8    492.8  
Lapsed or cancelled   (107  434.2    434.2  
Outstanding at 31 December 2012   698    438.0–619.8    514.8  
Exercised   (638  438.0–619.8    512.3  
Outstanding at 31 December 2013   60    494.2–619.8    541.3  
Exercised   (60  494.2–619.8    541.3  
Outstanding at 31 December 2014       n/a      

Options exercisable

    
At 31 December 2014       n/a    n/a  
At 31 December 2013   60    494.2–619.8    541.3  
At 31 December 2012   698    438.0–619.8    514.8  
     APP             LTIP 
                Number of shares
thousands
     

           Performance-related
awards

Number of shares
thousands

      

Restricted

stock units

                Number of shares

thousands

 
Outstanding at 1 January 2015    768     6,120       
Granted    265     1,803       
Vested    (307    (1,278      
Lapsed or cancelled    (37    (1,370      
Outstanding at 31 December 2015    689     5,275       
Granted    336     889      467 
Vested    (229    (915      
Share capital consolidation    (104           
Lapsed or cancelled    (7    (1,048     (18
Outstanding at 31 December 2016    685     4,201      449 
Granted    235     280      525 
Vested    (263    (928      
Share capital consolidation    (21           
Lapsed or cancelled    (20    (1,160     (58
Outstanding at 31 December 2017    616     2,393      916 
Fair value of awards granted during the year (cents)                   
2017    4,959.3     4,133.2      5,251.0 
2016    3,671.9     1,768.0      3,624.5 
2015    3,874.5     1,734.5       
Weighted average remaining contract life (years)                   
At 31 December 2017    1.2     0.6      1.7 
At 31 December 2016    1.2     0.9      2.2 
At 31 December 2015    1.2     1.1       

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 optionsawards vested during the year was 1,966.5p.3,804.7p (2016: 2,511.1p). The closing share price on 31 December 20142017 was 2,595.0p4,719.0p and the range during the year was 1,866.0p3,655.4p to 2,710.0p4,719.0p per share.

 

136148IHG  |  Annual Report and Form 20-F 2017


27. Equity

Equity share capital

 

Equity share capital  Number of
shares
millions
  Nominal
value
$m
  Share
premium
$m
  Equity
share
capital
$m
 
Allotted, called up and fully paid                 
At 1 January 2012 (ordinary shares of 13 2947p each)   290    61    101    162  
Share capital consolidation   (19            
Issued on exercise of share options   1    1    9    10  
Repurchased and cancelled under repurchase programme   (4  (1      (1
Exchange adjustments       2    6    8  
At 31 December 2012 (ordinary shares of 14 194329p each)   268    63    116    179  
Issued on exercise of share options   1        5    5  
Exchange adjustments       2    3    5  
At 31 December 2013 (ordinary shares of 14 194329p each)   269    65    124    189  
Share capital consolidation   (20            
Repurchased and cancelled under repurchase programme   (1            
Exchange adjustments       (4  (7  (11
At 31 December 2014 (ordinary shares of 15 265329p each)   248    61    117    178  

The Company was incorporated and registered in England and Wales with registered number 5134420 on 21 May 2004 as a limited company under the Companies Act 1985 with the name Hackremco (No. 2154) Limited. On 24 March 2005 Hackremco (No. 2154) Limited changed its name to New InterContinental Hotels Group Limited. On 27 April 2005 New InterContinental Hotels Group Limited re-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC. On 27 June 2005 New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC.

On 7 August 2012, the Company announced a $1bn return of funds to shareholders comprising a $500m special dividend with share consolidation and a $500m share repurchase programme. The share consolidation was approved on 8 October 2012 at a General Meeting (GM) of the Company and became effective on 9 October 2012 on the basis of 14 new ordinary shares of 14 194329p each for every 15 existing ordinary shares of 13 2947p each. The special dividend of 172.0¢ per share was paid to shareholders on 22 October 2012 at a total cost of $505m. Under the authority granted by shareholders at the GM on 8 October 2012, the share repurchase programme commenced. In the year to 31 December 2014, 3.4m (2013 9.8m, 2012 4.1m) shares were repurchased for a consideration of $110m (2013 $283m, 2012 $107m), increasing the total amount repurchased to $500m and completing the programme. Of the 3.4m (2013 9.8m, 2012 4.1m) shares repurchased in 2014, 2.7m (2013 9.8m, 2012 nil) are held as treasury shares and 0.7m (2013 nil, 2012 4.1m) were cancelled. The cost of treasury shares has been deducted from retained earnings.

      

Number

        of shares

millions

   

        Nominal

value $m

   

Share

        premium

$m

   

Equity

share

        capital

$m

 
Allotted, called up and fully paid                     
At 1 January 2015 (ordinary shares of 15265/329p each)    248    61    117    178 
Exchange adjustments        (3   (6   (9
At 31 December 2015 (ordinary shares of 15265/329p each)    248    58    111    169 
Share capital consolidation    (42            
Exchange adjustments        (10   (18   (28
At 31 December 2016 (ordinary shares of 18318/329p each)    206    48    93    141 
Share capital consolidation    (9            
Exchange adjustments        5    8    13 
At 31 December 2017 (ordinary shares of 1917/21p each)    197 ��  53    101    154 

The authority given to the Company at the GMAGM held on 30 June 20145 May 2017 to purchase its own shares was still valid at 31 December 2014.2017. A resolution to renew the authority will be put to shareholders at the Annual General MeetingAGM on 84 May 2015.2018.

The Company no longer has an authorised share capital.

On 6 August 2013,23 February 2016, the CompanyGroup announced a special dividend$1.5bn return of 133.0¢ per share amounting to $355m which was paid to shareholders on 4 October 2013.

On 2 May 2014, the Company announced a $750m returnfunds to shareholders by way of a special dividend and share consolidation. On 30 June 2014,6 May 2016, shareholders approved the share consolidation at a GM of the Company on the basis of 125 new ordinary shares of 1518 265318/329p per share for every 136 existing ordinary shares of 1415 194265/329p, each, which became effective on 1 July 2014.9 May 2016. The special dividend of 293.0¢ per share was paid to shareholders on 14 July 2014, at a total cost of $763m.

As a result of the 201423 May 2016. The dividend and share consolidation had the numbersame economic effect as a share repurchase at fair value, therefore previously reported earnings per share has not been restated.

On 21 February 2017, the Group announced a $400m return of funds to shareholders by way of a special dividend and share consolidation. On 5 May 2017, shareholders approved the share consolidation on the basis of 45 new ordinary shares held in treasury reduced from 12.5mof 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 11.5m.shareholders on 22 May 2017. The dividend and share consolidation had the same economic effect as a share repurchase at fair value, therefore previously reported earnings per share has not been restated.

The balance classified as equity share capital includes the total net proceeds (both nominal value and share premium) on issue of the Company’s equity share capital, comprising 1519 26517/32921p shares. The share premium reserve represents the amount of proceeds received for shares in excess of their nominal value.

The Company no longer has an authorised share capital.

LOGO

149


IHG  Annual Report and Form 20-F 2014

Notes to the Group Financial Statementscontinued

27. Equitycontinued

The nature and purpose of the other reserves shown in the Group statement of changes in equity on pages 10290 to 10492 of the Financial Statements is as follows:

Capital redemption reserve

This reserve maintains the nominal value of the equity share capital of the Company when shares are repurchased or cancelled.

Shares held by employee share trusts

Comprises $34.5m (2013 $37.6m, 2012 $48.0m)$5.4m (2016: $10.5m, 2015: $18.3m) in respect of 0.9m (2013 1.2m, 2012 1.8m)0.2m (2016: 0.3m, 2015: 0.5m) InterContinental Hotels Group PLC ordinary shares held by employee share trusts, with a market value at 31 December 20142017 of $38.2m (2013 $39.8m, 2012 $50.1m)$12.1m (2016: $15.0m, 2015: $19.8m).

Other reserves

Comprises the merger and revaluation reserves previously recognised under UK GAAP, together with the reserve arising as a consequence of the Group’s capital reorganisation in June 2005. Following the change in presentational currency to the US dollar in 2008, (see page 107), this reserve also includes exchange differences arising on the retranslation to period-end exchange rates of equity share capital, the capital redemption reserve and shares held by employee share trusts.

Unrealised gains and losses reserve

This reserve records movements in the fair value of available-for-sale financial assets and the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred.

Currency translation reserve

This reserve records the movement in exchange differences arising from the translation of foreign operations and exchange differences on foreign currency borrowings and derivative instruments that provide a hedge against net investments in foreign operations. On adoption of IFRS, cumulative exchange differences were deemed to be $nil as permitted by IFRS 1.

The fair value of derivative instruments designated as hedges of net investments in foreign operations outstanding at 31 December 20142017 was a $2m net asset (2013 $10m$nil (2016: $3m net liability, 2012 $17m2015: $3m net liability).

The currency translation reserve includes a cumulative loss of $3m relating to assets classified as held for sale.

Treasury shares

During 2017, 0.9m (2016: 0.9m) treasury shares were transferred to the employee share trusts. As a result of the 2017 share consolidation, the number of shares held in treasury reduced by 0.4m (2016: reduced by 1.7m as a result of the 2016 share consolidation). At 31 December 2014, 11.5m2017, 7.6m shares (2013 9.8m, 2012 nil)(2016: 8.9m, 2015: 11.5m) with a nominal value of $2.8m (2013 $2.4m, 2012 $nil)$2.0m (2016: $2.1m, 2015: $2.7m) were held as treasury shares at cost and deducted from retained earnings.

Non-controlling interest

A non-controlling interest is equity in a subsidiary of the Group not attributable, directly or indirectly, to the Group. Non-controlling interests are not material to the Group.

 

150IHG  |  Annual Report and Form 20-F 2017  |  Group FinancialStatements|  Notes137


Group Financial Statements

Notes to the Group Financial Statements continued

28. Operating leases

During the year ended 31 December 2014, $72m (2013 $67m, 2012 $64m)2017, $86m (2016: $84m, 2015: $77m) was recognised as an expense in the Group income statement in respect of operating leases, net of amounts borne directly by the System Fund. The expense includes contingent rents of $27m (2013 $24m, 2012 $19m)$32m (2016: $32m, 2015: $29m). $4m (2013 $4m, 2012 $4m)$2m (2016: $2m, 2015: $3m) was recognised as income from sub-leases.

Future minimum lease payments under non-cancellable operating leases are as follows:

 

  2014
$m
   2013
$m
    

        2017

$m

    

        2016

$m

 
Due within one year   40     42      56     53 
One to two years   34     33      46     49 
Two to three years   28     29      45     43 
Three to four years   27     23      60     41 
Four to five years   20     23      30     58 
More than five years   200     202      297     346 
   349     352      534     590 

In addition, in certain circumstances the Group is committed to making additional lease payments that are contingent on the performance of the hotels that are being leased.

The average remaining term of these leases, which generally contain renewal options, is approximately 1715 years (2013 18(2016: 17 years). No material restrictions or guarantees exist in the Group’s lease obligations.

Total future minimum rentals expected to be received under non-cancellable sub-leases are $8m (2013 $10m)$4m (2016: $4m).

29. Capital and other commitments

 

  2014
$m
   2013
$m
    

        2017

$m

    

        2016

$m

 
Contracts placed for expenditure not provided for in the Group Financial Statements:      
Contracts placed for expenditure not provided for in the Financial Statements:        

Property, plant and equipment

   70     70      18     11 

Intangible assets

   47     13      86     86 
   117     83      104     97 

The Group has also committed to invest in a number of its associates, with an estimated outstanding commitment of $89m$33m at 31 December 2014 (2013 $20m)2017 (2016: $36m) based on current forecasts. A loan facility of $5m (2016: $nil) has also been made available to a hotel owner which was undrawn at 31 December 2017.

138IHG  |  Annual Report and Form 20-F 2017


30. Contingencies and guarantees

Security incidents

In 2016, the Group was notified of (a) a security incident at a number of Kimpton hotels that resulted in unauthorised access to guest payment card data (the Kimpton Security Incident), and (b) a security incident that involved malware being installed on servers that processed payment cards used at restaurants and bars of 12 IHG managed properties (the Americas Security Incident), together the Security Incidents. A provision of $5m was made at 31 December 2016, and remains in place at 31 December 2017 (see note 19), to cover the estimated cost of reimbursing the impacted card networks for counterfeit fraud losses and related expenses. At 31 December 2014,2017, this estimate relates to both the Kimpton and Americas Security Incidents whereas at 31 December 2016 it was Kimpton related only. The estimates continue to involve significant judgement based on currently available information and remain subject to change as actual claims are made and new information comes to light.

The Group may be exposed to investigations regarding compliance with applicable State and Federal data security standards, and legal action from individuals and organisations impacted by the Security Incidents. Due to the general nature of the regulatory enquiries received and class action filings to date, it is not practicable to make a reliable estimate of the possible financial effects of any such claims on the Group had noat this time. To date, four lawsuits have been filed against IHG entities relating to the Security Incidents, all of which are in the early stages of litigation.

In respect of the $5m provision, it is expected that a proportion will be recoverable under the Group’s insurance programmes although this, together with any potential recoveries in respect of the contingent liabilities (2013 $nil)detailed above, will be subject to specific agreement with the relevant insurance providers.

Tax

In November 2017, the European Commission (EC) gave formal notice of a preliminary view it had reached that the Group Financing Exemption, included in the UK’s Controlled Foreign Company rules, is in breach of the EU’s State Aid rules. The EC will conduct its detailed investigation during 2018, with a final decision expected later in the year, or even in 2019. Should the EC conclude that the State Aid rules are breached, the UK can appeal before the General Court (and possibly the Court of Justice thereafter). The Group and its advisors consider that it is unlikely that a finding of State Aid will ultimately be upheld.

Other

In limited cases, the Group may provide performance guarantees to third-party hotel owners to secure management contracts. At 31 December 2014,2017, the amount provided in the Financial Statements was $2m (2013 $6m)$6m (2016: $5m) and the maximum unprovided exposure under such guarantees was $29m (2013 $48m)$31m (2016: $14m).

At 31 December 2014,2017, the Group had outstanding letters of credit of $40m (2013 $41m)$35m (2016: $37m) mainly relating to self insurance programmes.

The Group may guarantee bank loans made to facilitate third-party ownership of hotels in which the Group has an equity interest.under IHG management or franchise contracts. At 31 December 2014,2017, there were guarantees of $20m$54m in place (2013 $20m)(2016: $33m).

From time to time, the Group is subject to legal proceedings the ultimate outcome of each being always subject to many uncertainties inherent in litigation. In particular, the Group is currently subject to a claim by Pan American Life Insurance Company, a Competition and Markets Authority enquiry in the UK and a class action lawsuit in the US (seeclaims listed under ‘Legal proceedings’ on page 170).172. The Group has also given warranties in respect of the disposal of certain of its former subsidiaries. It is the view of the Directors that, other than to the extent that liabilities have been provided for in these Financial Statements, it is not possible to quantify any loss to which these proceedings or claims under these warranties may give rise, however, as at the date of reporting, the Group does not believe that the outcome of these matters will have a material effect on the Group’s financial position.

LOGO

At 31 December 2017, the Group had no other contingent liabilities (2016: $nil).

 

151


IHG  |  Annual Report and Form 20-F 20142017  |  Group Financial Statements  |  Notes

139


Group Financial Statements

Notes to the Group Financial Statements continued

 

Notes to the Group Financial Statementscontinued

31. Related party disclosures

 

    2014
$m
   2013
$m
   2012
$m
 
Total compensation of key management personnel¹               
Short-term employment benefits   21.5     20.7     20.0  
Post-employment benefits   0.7     0.8     0.8  
Termination benefits             0.6  
Equity compensation benefits   7.9     8.1     8.6  
    30.1     29.6     30.0  

1Excludes ICETUS cash-out payment of £9.4m (see Directors’ Remuneration Report, page 85).
      

      2017

$m

     

      2016

$m

     

      2015

$m

 
Total compensation of key management personnel                  
Short-term employment benefits    21.3     19.2     19.5 
Contributions to defined contribution pension plans    0.6     0.8     0.7 
Equity compensation benefits    10.2     7.4     6.2 
Termination benefits    1.9           
     34.0     27.4     26.4 

There were no other transactions with key management personnel during the years ended 31 December 2014, 20132017, 2016 or 2012.2015.

Key management personnel comprises the Board and Executive Committee.

Related party disclosures for associates and joint ventures are as follows:

 

  Associates    Joint ventures    Total    Associates    Joint ventures    Total 
  2014
$m
   2013
$m
   2012
$m
   2014
$m
   2013
$m
   2012
$m
   2014
$m
   2013
$m
   2012
$m
          2017
$m
          2016
$m
          2015
$m
          2017
$m
          2016
$m
        2015
$m
            2017
$m
            2016
$m
            2015
$m
 
Revenue from associates and joint ventures   4     4     5                        4     4     5      8     5     3     1     1          9     6     3 
Loans to associates   3                                  3                     9     7                         9     7 
Other amounts owed by associates and joint ventures   11     2     2                        11     2     2      2     1     2                    2     1     2 

In addition, loans both to and from the Barclay associate of $237m (2016: $237m) are offset in accordance with the provisions of IAS 32 and presented net in the Group statement of financial position. Interest payable and receivable under the loans is equivalent (average interest rate of 1.8%2.0% in 2014)2017 (2016: 1.4%)) and presented net in the Group income statement.

During 2015, short-term advances of $22m were made to the Barclay associate which were repaid on 31 December 2015.

32. System Fund

The Group operates a System Fund (the Fund) to collect and administer assessments and contributions from hotel owners (other than for Kimpton and InterContinental hotels) for specific use in marketing, the IHG Rewards Club loyalty programme and the global reservation system.Guest Reservation System. The Fund and loyalty programme are accounted for in accordance with the accounting policies set out on page 112100 of the Financial Statements.

Following the announcement on 14 April 2015 of the introduction of an expiration policy for points earned under the loyalty programme, the Group released $156m from the programme’s future redemption liability in 2015. The amount released was based on the advice of an external actuary using statistical models to estimate the impact of the programme change on members’ behaviour. The liability release resulted in a corresponding increase in the System Fund surplus which was also recorded in the Group statement of financial position.

The following information is relevant to the operation of the Fund:

 

  2014
$m
   2013
$m
   2012
$m
   

      2017

$m

   

      2016

$m

   

      2015 

$m 

Income1:         
Incomea:         

Assessment fees and contributions received from hotels

   1,271     1,154     1,106    1,562    1,439   1,351 

Proceeds from sale of IHG Rewards Club points

   196     153     144    324    283   222 
Key elements of expenditure1:         
Key elements of expenditurea:         

Marketing

   267     245     250    321    335   308 

IHG Rewards Club

   296     219     250    452    360   345 

Payroll costs

   267     239     221    339    311   295 
Net (deficit)/surplus for the year1   (18   35     12  
Net (deficit)/surplus for the yeara  (69   41   118 
Interest payable to the Fund   2     2     2    7    3   

a Not included in the Group income statement in accordance with the Group’s accounting policies.

The payroll costs above relate to 5,555 (2016: 5,434, 2015: 5,416) employees whose costs are borne by the Fund.

The following liabilities relating to the Fund are included in the Group statement of financial position:

a Not included in the Group income statement in accordance with the Group’s accounting policies.

The payroll costs above relate to 5,555 (2016: 5,434, 2015: 5,416) employees whose costs are borne by the Fund.

The following liabilities relating to the Fund are included in the Group statement of financial position:

    2017
$m
     2016
$m
     2015 
$m 
System Fund surplusa  158    227   186 
Loyalty programme liabilityb  760    685   649 
  918    912   835 

 

1a NotThe System Fund surplus is included in the Group income statement in accordance with the Group’s accounting policies.Trade and other payables.

The payroll costs above relate to 4,975 (2013 4,615, 2012 4,431) employees whose costs are borne by the Fund.

The following liabilities relating to the Fund are included in the Group statement of financial position:

    2014
$m
   2013
$m
    2012
$m
 
Cumulative short-term net surplus   68     86     51  
Loyalty programme liability   725     649     623  
    793     735     674  
bComprising current liabilities of $343m and non-current liabilities of $417m.

The net change in the loyalty programme liability and Fund surplus contributed an inflow of $58m (2013 $61m, 2012 $57m)$8m (2016: $65m, 2015: $42m) to the Group’s cash flow from operations.

 

140IHG  |  Annual Report and Form 20-F 2017


33. Group companies

In accordance with Section 409 of the Companies Act 2006 a full list of entities in which the Group has an interest of greater than or equal to 20%, the registered office and effective percentage of equity owned as at 31 December 2017 are disclosed below. Unless otherwise stated the share capital disclosed comprises ordinary shares which are indirectly held by InterContinental Hotels Group PLC.

Fully owned subsidiaries

“IHG Management” d.o.o. Beograd (j)

24th Street Operator Sub, LLC (g) (k)

36th Street IHG Sub, LLC (g) (k)

426 Main Ave LLC (g) (k)

46 Nevins Street Associates, LLC (g) (k)

2250 Blake Street Hotel, LLC (g) (k)

Allegro Management LLC (g) (k)

Alpha Kimball Hotel LLC (g) (k)

American Commonwealth Assurance Co.

Ltd. (m)

Asia Pacific Holdings Limited (n)

Barclay Operating Corp. (k)

BHMC Canada Inc. (o)

BHR Holdings B.V. (p)

BHR Luxembourg SARL (q)

BHR Pacific Holdings, Inc. (k)

BHTC Canada Inc. (o)

BOC Barclay Sub LLC (g) (cj)

Bristol Oakbrook Tenant Company (k)

Café Biarritz (n)

Cambridge Lodging LLC (g) (k)

Capital Lodging LLC (g) (k)

Compañia Inter-Continental De Hoteles

El Salvador SA (n)

Crowne Plaza Amsterdam (Management)

B.V. (r)

Crowne Plaza LLC (g) (k)

Cumberland Akers Hotel LLC (g) (k)

Dunwoody Operations, Inc. (k)

Edinburgh IC Limited (s)

EVEN Real Estate Holding LLC (g) (k)

General Innkeeping Acceptance

Corporation (b) (l)

Guangzhou SC Hotels Services Ltd. (t)

H.I. (Ireland) Limited (u)

HI Sugarloaf, LLC (g) (ci)

Hale International Ltd. (v)

HC International Holdings, Inc. (w)

HH France Holdings SAS (x)

HH Hotels (EMEA) B.V. (p)

HH Hotels (Romania) SRL (y)

HIM (Aruba) NV (z)

Hoft Properties LLC (g) (k)

Holiday Hospitality Franchising, LLC (g) (k)

Holiday Inn Mexicana S.A. de C.V. (ab)

Holiday Inns (China) Ltd (ac)

Holiday Inns (Chongqing), Inc. (l)

Holiday Inns (Courtalin) Holdings SAS (x)

Holiday Inns (Courtalin) SAS (b) (x)

Holiday Inns (England) Ltd. (n)

Holiday Inns (Germany), LLC (g) (l)

Holiday Inns (Guangzhou), Inc. (l)

Holiday Inns (Jamaica) Inc. (l)

Holiday Inns (Malaysia) Ltd. (ac)

Holiday Inns (Middle East) Ltd. (ac)

Holiday Inns (Philippines), Inc. (l)

Holiday Inns (Saudi Arabia), Inc. (l)

Holiday Inns (South East Asia) Inc. (l)

Holiday Inns (Thailand) Ltd. (ac)

Holiday Inns (UK), Inc. (l)

Holiday Inns Crowne Plaza (Hong Kong),

Inc. (l)

Holiday Inns Holdings (Australia) Pty Ltd (aa)

Holiday Inns Inc. (k)

Holiday Inns Investment (Nepal) Ltd. (ac)

Holiday Inns of America (UK) Ltd. (n)

Holiday Inns of Belgium N.V. (ad)

Holiday Pacific Equity Corporation (k)

Holiday Pacific LLC (g) (k)

Holiday Pacific Partners, LP (k)

Hotel InterContinental London (Holdings)

Limited (n)

Hotel Inter-Continental London Limited (n)

Hoteles Y Turismo HIH SRL (n)

IC Hotelbetriebsfuhrungs GmbH (ae)

IC Hotels Management (Portugal) Unipessoal,

Lda (af)

IC International Hotels Limited Liability

Company (ag)

IHC (Thailand) Limited (ah)

IHC Buckhead, LLC (g) (ci)

IHC Edinburgh (Holdings) (n)

IHC Hopkins (Holdings) Corp. (k)

IHC Hotel Limited (n)

IHC Inter-Continental (Holdings) Corp. (k)

IHC London (Holdings) (n)

IHC May Fair (Holdings) Limited (n)

IHC May Fair Hotel Limited (n)

IHC M-H (Holdings) Corp.(k)

IHC Overseas (U.K.) Limited (n)

IHC UK (Holdings) Limited (n)

IHC United States (Holdings) Corp. (b) (k)

IHC Willard (Holdings) Corp. (k)

IHG (Australasia) Limited (d) (ai)

IHG (Marseille) SAS (x)

IHG (Thailand) Limited (aj)

IHG Bangkok Ltd (v)

IHG Brasil Administracao de Hoteis e Servicos

Ltda (ak)

IHG Commission Services SRL (co)

IHG Community Development, LLC (g) (ci)

IHG Cyprus Limited (bw)

IHG de Argentina SA (al)

IHG ECS (Barbados) SRL (co)

IHG Franchising Brasil Ltda (bd)

IHG Franchising DR Corporation (k)

IHG Franchising, LLC (g) (k)

IHG Hotels (New Zealand) Limited (an)

IHG Hotels Limited (n)

IHG Hotels Management (Australia) Pty

Limited (d) (aa)

IHG Hotels Nigeria Limited (ao)

IHG Hotels South Africa (Pty) Ltd (ap)

IHG International Partnership (n)

IHG Istanbul Otel Yönetim Limited Sirketi (bx)

IHG Japan (Management) LLC (ar)

IHG Japan (Osaka) LLC (ar)

IHG Management (Maryland) LLC (g) (as)

IHG Management (Netherlands) B.V. (p)

IHG Management MD Barclay Sub LLC (g) (cj)

IHG Management SL d.o.o (bo)

IHG Orchard Street Member, LLC (g) (k)

IHG PS Nominees Limited (n)

IHG Systems Pty Ltd (d) (aa)

IHG Szalloda Budapest Szolgaltato Kft. (at)

IND East Village SD Holdings, LLC (g) (k)

InterContinental Berlin Service Company

GmbH (au)

InterContinental (Branston) 1 Limited (c) (n)

InterContinental (PB) 1 (n)

InterContinental (PB) 2 (ay)

InterContinental (PB) 3 Limited (n)

InterContinental Brasil Administracao

de Hoteis Ltda (ak)

Inter-Continental D.C. Operating Corp. (k)

Inter-Continental Florida Investment Corp. (k)

Inter-Continental Florida Partner Corp. (k)

InterContinental Gestion Hotelera S.L. (by)

Inter-Continental Hospitality Corporation (k)

InterContinental Hotel Berlin GmbH (au)

InterContinental Hotel Düsseldorf GmbH

(Germany) (av)

Inter-Continental Hoteleira Limitada (aw)

Inter-Continental Hotels (Montreal) Operating

Corp. (ax)

Inter-Continental Hotels (Montreal) Owning

Corp. (ax)

InterContinental Hotels (Puerto Rico) Inc. (az)

Inter-Continental Hotels (Singapore) Pte.

Ltd. (ai)

Inter-Continental Hotels Corporation (k)

Inter-Continental Hotels Corporation de

Venezuela C.A. (ba)

Intercontinental Hotels Corporation

Limited (d) (m)

InterContinental Hotels Group (Asia Pacific)

Pte Ltd (ai)

InterContinental Hotels Group (Australia) Pty

Limited (aa)

InterContinental Hotels Group (Canada) Inc. (o)

InterContinental Hotels Group (España)

SA (by)

InterContinental Hotels Group (Greater China)

Limited (ac)

InterContinental Hotels Group (India) Pvt.

Ltd (aq)

InterContinental Hotels Group (Japan) Inc. (l)

InterContinental Hotels Group (New Zealand)

Limited (an)

InterContinental Hotels Group (Shanghai)

Ltd. (bb)

InterContinental Hotels Group Customer Services Ltd. (n)

InterContinental Hotels Group do Brasil

Limitada (bc)

InterContinental Hotels Group Healthcare Trustee Limited (n)

InterContinental Hotels Group Operating

Corp. (e) (k)

InterContinental Hotels Group Resources

Inc. (b) (k)

InterContinental Hotels Group Services

Company (n)

InterContinental Hotels Italia, S.r.L. (be)

InterContinental Hotels Limited (a) (n)

InterContinental Hotels Management

GmbH (bf)

InterContinental Hotels Nevada

Corporation (ck)

Inter-Continental Hotels of San Francisco

Inc. (k)

Inter-Continental IOHC (Mauritius) Limited (bg)

Inter-Continental Management (Australia) Pty

Limited (aa)

InterContinental Management AM LLC (cm)

InterContinental Management Bulgaria

EOOD (bp)

InterContinental Management France SAS (x)

InterContinental Management Poland sp.

z.o.o (cn)

InterContinental Overseas Holding

Corporation (k)

 

 

152IHG  |  Annual Report and Form 20-F 2017  |  Group Financial Statements  |  Notes141


33. Events after the reporting periodGroup Financial Statements

 

On 16 January 2015,Notes to the Group completed the acquisition of Financial Statements continued

33. Group companiescontinued

Fully owned subsidiariescontinued

KG Benefits LLC (g) (k)

KG Gift Card Inc. (bz)

KG Liability LLC (g) (k)

KG Technology, LLC (g) (k)

KHP Washington Operator LLC (g) (k)

KHRG 11th Avenue Hotel LLC (g) (k)

KHRG 851 LLC (g) (k)

KHRG Aertson LLC (g) (k)

KHRG Alexandria LLC (g) (k)

KHRG Alexis, LLC (g) (k)

KHRG Allegro, LLC (g) (k)

KHRG Argyle, LLC (g) (k)

KHRG Austin Beverage Company, LLC (g) (k)

KHRG Baltimore, LLC (g) (k)

KHRG Born LLC (g) (k)

KHRG Boston Hotel, LLC (g) (k)

KHRG Canary LLC (g) (k)

KHRG Cayman LLC (g) (k)

KHRG Cayman Employer Ltd. (k)

KHRG DC 1731 LLC (g) (k)

KHRG DC 2505 LLC (g) (k)

KHRG Donovan LLC (g) (k)

KHRG Employer, LLC (g) (k)

KHRG Goleta LLC (g) (k)

KHRG Gray LLC (g) (k)

KHRG Gray U2 LLC (g) (k)

KHRG Hillcrest, LLC (g) (k)

KHRG Huntington Beach LLC (g) (k)

KHRG King Street, LLC (g) (k)

KHRG La Peer LLC (g) (k)

KHRG Miami Beach LLC (g) (k)

KHRG Muse LLC (g) (k)

KHRG NPC LLC (g) (k)

KHRG Onyx LLC (g) (k)

KHRG Palladian LLC (g) (k)

KHRG Palomar Phoenix LLC (g) (k)

KHRG Philly Monaco LLC (g) (k)

KHRG Pittsburgh LLC (g) (k)

KHRG Reynolds LLC (g) (k)

KHRG Riverplace LLC (g) (k)

KHRG Sacramento LLC (g) (k)

KHRG Savannah LLC (g) (k)

KHRG Schofield LLC (g) (k)

KHRG Sedona LLC (g) (k)

KHRG SFD LLC (g) (k)

KHRG State Street LLC (g) (k)

KHRG Sutter LLC (g) (k)

KHRG Sutter Union LLC (g) (k)

KHRG Taconic LLC (g) (k)

KHRG Tariff LLC (g) (k)

KHRG Texas Hospitality, LLC (g) (k)

KHRG Texas Operations, LLC (g) (k)

KHRG Tryon LLC (g) (k)

KHRG Vero Beach, LLC (g) (k)

KHRG Vintage Park LLC (g) (k)

KHRG VZ Austin LLC (g) (k)

KHRG Wabash LLC (g) (k)

KHRG Westwood, LLC (g) (k)

KHRG Wilshire LLC (g) (k)

KHRG WPB LLC (g) (k)

KHRG Zamora LLC (g) (k)

Kimpton Hollywood Licenses LLC (g) (k)

Kimpton Hotel & Restaurant Group, LLC (‘Kimpton’), an unlisted company based in the US,(g) (k)

Kimpton Phoenix Licenses Holdings LLC (g) (k)

Kimpton Sedona Licenses LLC (g) (k)

Louisiana Acquisitions Corp. (k)

Mercer Fairview Holdings LLC (g) (k)

MH Lodging LLC (g) (k)

PML Services LLC (g) (as)

Pollstrong Limited (n)

Powell Pine, Inc. (k)

Priscilla Holiday of Texas, Inc. (cl)

PT SC Hotels & Resorts Indonesia (bh)

Resort Services International (Cayo Largo)

L.P. (ci)

RM Lodging LLC (g) (k)

SBS Maryland Beverage Company LLC (g) (as)

SC Cellars Limited (ay)

SC Hotels International Services, Inc. (k)

SC Leisure Group Limited (n)

SC NAS 2 Limited (n)

SC Quest Limited (n)

SC Reservations (Philippines) Inc. (l)

SCH Insurance Company (bi)

SCIH Branston 3 (n)

Semiramis for $430m paid in cash. Kimpton is the world’s largest independent boutique hotel operator which, together with IHG’straining of Hotel Indigo Personnel

and EVEN brands, creates a leading boutique and lifestyle hotel business.Hotel Management SAE (ch)

The assets and liabilities acquired largely comprise intangible assets, being the Kimpton brand and management contracts, deferred tax assets and goodwill. Due to the close proximity of the acquisition date to the date of these financial statements, the initial accounting for the business combination is incomplete and the Group is unable to provide a quantification of the fair values of these assets. The fair value exercise is ongoing and it is expected that the Group will include an acquisition balance sheet with its interim results for 2015.

SF MH Acquisition transaction costs of $7m were incurred in the year to 31 December 2014 (see note 5).

If the acquisition had taken place on 1 January 2014, it is estimated that Group revenue and Group EBITDA for the year ended 31 December 2014 would have been $37m and $20m higher respectively.

34. Principal operating subsidiary undertakings

InterContinental Hotels Group PLC was the beneficial owner of all of the equity share capital, indirectly through subsidiary undertakings, of the following companies during the year:LLC (g) (k)

Six Continents Limited1Corporate Services (ay)

IHGSix Continents Holdings Limited (n)

Six Continents Hotels de Colombia SA (bj)

Six Continents Hotels International Limited1 (n)

Six Continents Hotels, Inc.2 (k)

Six Continents International Holdings B.V. (p)

Six Continents Investments Limited (f) (n)

Six Continents Limited (n)

Six Continents Overseas Holdings Limited (n)

Six Continents Restaurants Limited (n)

SixCo North America, Inc. (w)

Solamar Lodging LLC (g) (k)

Southern Pacific Hotel Corporation (BVI) Ltd. (v)

Southern Pacific Hotels Properties Limited (v)

SPHC Group Pty Ltd. (aa)

SPHC Management Ltd. (bq)

Universal de Hoteles SA (bj)

White Shield Insurance Company Limited (bk)

Subsidiaries where the effective interest

is less than 100%

H.I. Soaltee Management Company Ltd (76.5%) (ac)

IHG ANA Hotels Group Japan LLC (74.66%) (ar)

IHG ANA Hotels Holdings Co., Ltd. (66%) (ar)

World Trade Centre Montreal Hotel Corporation

(74.11%) (bl)

Associates and joint ventures

111 East 48th Street Holdings LLC

(19.9%) (g) (h) (k)

Alkoer, S. de R.L. de C.V. (50%) (h) (cg)

BCRE IHG 180 Orchard Holdings LLC

(49%) (g) (cf)

Beijing Orient Express Hotel Co., Ltd.

(16.24%) (bm)

Blue Blood (Tianjin) Equity Investment

Management Co., Limited (30.05%) (bn)

Carr Clark SWW Subventure, LLC

(26.67%) (g) (ca)

Carr Waterfront Hotel, LLC (11.46%) (g) (h) (ca)

China Hotel Investment Limited(30.05%) (i) (am)

Desarrollo Alkoer Irapuato S. de R.L. de C.V.

(50%) (cg)

Desarrollo Alkoer Silao S. de R.L. de C.V.

(50%) (cg)

Gestion Hotelera Gestel, C.A. (50%) (c) (h) (ba)

H.I. Soaltee Hotel Company Private Ltd

(33.4%) (br)

Hotel JV Services LLC (16.67%) (c) (g) (cb)

Inter-Continental Hotels Corporation2Saudi Arabia Limited

InterContinental Hotels Group Resources, Inc.2(40%) (bs)

InterContinental Hong KongNF III Seattle, LLC (25%) (g) (cc)

Nuevas Fronteras S.A. (23.66%) (cd)

Panacon (33.33%) (ce)

President Hotel & Tower Co Ltd. (30%) (bu)

Tianjin ICBCI IHG Equity Investment Fund

Management Co., Limited3

Société Nouvelle du Grand Hotel SA4

The companies listed above include those which principally affect the amount of profit and assets of the Group.

1Incorporated in Great Britain and registered in England and Wales.
2Incorporated in the US.
3Incorporated in Hong Kong.
4Incorporated in France.

LOGO (21.04%) (bv)

 

 

153


142
IHG  |  Annual Report and Form 20-F 20142017

Parent CompanyFinancial Statements


 

    

33. Group companiescontinued

  Key

  (a)Directly owned by InterContinental Hotels Group PLC
  (b)Ordinary shares and preference shares
  (c)Ordinary A and ordinary B shares
  (d)Ordinary shares and redeemable preference shares
  (e)1/4 vote ordinary shares and ordinary shares
  (f)Ordinary shares, 5% cumulative preference shares and 7% cumulative preference shares
  (g)The entities do not have share capital and are governed by an operating agreement
  (h)    Accounted for as associates and joint ventures due to IHG’s decision-making rights contained in the partnership agreement
  (i)

Accounted for as an other financial asset due to IHG being unable to exercise significant influence over the financial and operating policy decisions of the entity

Registered addresses
(j)Beograd, Cincar, Jankova 3, Serbia
(k)1209 Orange Street, Wilmington, DE 19801, USA
(l)800 S. Gay Street, Suite 201, Knoxville, TN 37929, USA
(m)Clarendon House, Church Street West, Bermuda
(n)Broadwater Park, Denham, Buckinghamshire, UB9 5HR, UK
(o)199 Bay Street, Suite 2800, Commerce Court West, Toronto, ON M5L 1A9, Canada
(p)Kingsfordweg 151, 1043 GR Amsterdam, The Netherlands
(q)26 Blvd. Royal, L-2449, Luxembourg
(r)Nieuwezijds Voorburgwal 5, 1012 RC Amsterdam, The Netherlands
(s)Caledonian Exchange, 19a Canning Street, Edinburgh, EH3 8HE, UK
(t)Building 4, No. 13 Xiao Gang Zhong Ma Road, Zhuhai District, Guangzhou, Guangdong, P.R. China
(u)29 Earlsfort Terrace, Dublin 2, D02 AY28, Ireland
(v)Craigmuir Chambers, Road Town, Tortola VG1110, British Virgin Islands
(w)Wilmington Trust SP Services, Inc. 1105 North Market Street, Suite 1300, Wilmington, DE 19801, USA
(x)31–33 rue Mogador – 75009 Paris, France
(y)Bucharest, 1st District, 50–52 Buzesti St, 83 module, 11 floor, Romania
(z)230 J E Irausquin Boulevard, Palm Beach, Aruba
(aa)Level 11, 20 Bond Street, Sydney NSW 2000, Australia
(ab)Ontario # 1050, Col. Providencia. Guadalajara, Jalisco CP 44630, Mexico
(ac)Level 54, Hopewell Center, 183 Queen’s Road East, Hong Kong
(ad)Rond Punt Schumanplein 11, 1040 Brussels, Belgium

 

 

(ae)Johannesgasse 28, 1030 Wien, Am Heumarkt 4, 1030 Wien, Austria
(af)Avenida da Republica, no 52 – 9, 1069 – 211, Lisbon, Portugal
(ag)

Stay

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‘Guest Journey’ – Step four

•  TheStay phase of the ‘Guest Journey’ is where we welcome guests to our hotels24, Rusakovskaya Str., Moscow 107014, Russian Federation

(ah)967 Rama I Road, Patumwan, Bangkok, Thailand
(ai)230 Victoria Street, #13-00 Bugis Junction Towers, 188024, Singapore
(aj)973 President Tower, 7th Floor, Units 7A, 7B, 7C, 7D, 7I, 7F, 7G and deliver our brand promise through our talented people.

•  This step includes the arrival and departure of our guests, as well as the stay in the hotel room itself; its public areas; food and beverage; and guest services.

7H, Ploenchit Road, Khwaeng Lumpini, Khet Pathumwan, Bangkok Metropolis, 10330, Thailand
(ak)Alameda Jau 536 #3S-B, Sao Paulo, Brazil
(al)Avenida Cordoba 1547, piso 8, oficina A, Buenos Aires, Argentina
(am)The Phoenix Centre, George Street, Belleville St. Michael, Barbados
(an)Floor 9, 36 Kitchener Street, Auckland Central, Auckland 1010, New Zealand
(ao)1, Murtala Muhammed Drive, Ikoyi, Lagos, Nigeria
(ap)Central Office Park Unit 4, 257 Jean Avenue, Centurion 0157, South Africa
(aq)11th Floor, Building No. 10, Tower C, DLF Phase-II, DLF Cyber City, Gurgaon, Haryana-122002, India
(ar)20th Floor, Toranomon Kotohira Tower, 2–8, Toranomon 1-chome, Minato-ku, Tokyo, Japan
(as)HIQ Corporate Services Inc., 715 St. Paul Street, Baltimore, MD 21202, USA
(at)1052 Budapest, Apáczai Csere János u. 12–14, Hungary
(au)Budapester Str. 2, D-10787, Berlin, Germany
(av)Koenigsallee 59, D-40215, Dusseldorf, Germany
(aw)Av Das Americas 500, Bloco 3, Sala 316, Barra da Tijuca CEP 22640-100, Rio de Janeiro, Brazil
(ax)InterContinental Montreal, 360 St. Antoine Street West, Montreal, Quebec H2Y 3X4, Canada
(ay)BDO LLP, Two Snowhill, Birmingham, B4 6GA, UK
(az)361 San Francisco Street Penthouse, San Juan, PR 00901, Puerto Rico
(ba)Hotel Tamanaco Inter-Continental, Final Av. Ppal, Mercedes, Caracas, Venezuela
(bb)2nd Floor, Citigroup Tower, No. 33 Huayuanshiqiao Road, Pudong, Shanghai, P.R. China
(bc)Alameda Jau 536, Suite 3S-C, Sao Paulo, Brazil
(bd)Alameda Jau 536, Suite 3S-D, Sao Paulo, Brazil
(be)Bastioni di Porta Nuova 21, 20121 Milano, Italy
(bf)Am Hauptbahnhof, D-60329, Frankfurt, Germany
(bg)JurisTax Services Ltd, Level 12, NeXTeracom Tower II, Ebene, Mauritius
(bh)Menara Impreium 22nd Floor, Suite D, JI. HR. Rasuna Said Kav.1, Guntur Sub-district, Setiabudi District, South Jakarta 12980, Indonesia
(bi)150 South Champlain Street, Burlington, VT 05401, USA
(bj)Calle 16, No 28–51, Variante las Palmas, Colombia

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Page 155: Hotel Indigo Paris – Opera, France

 

154


(bk)Suite B, Ground Floor, Regal House, Queensway, Gibraltar
(bl)Suite 2500, 1000 De La Gauchetiere St. West, Montreal QC H3B 0A2, Canada
(bm)Room 311, Building 1, No 16 East Wen Hua Yuan Road, Beijing Economy and Technology Development Zone, Beijing, P.R. China
(bn)Room N306, 3rd Floor, Building 6, Binhai Financial Street, No. 52 West Xincheng Road, Tianjin Economy and Technology Development Zone, Tianjin, P.R. China
(bo)Cesta v Mestni log 1, 1000 Ljubljana, Slovenia
(bp)4fl. 51B Bulgaria Blvd., Triaditsa, Sofia, Bulgaria
(bq)C/o Holiday Inn & Suites, Cnr Waigani Drive & Wards Road, Port Moresby, National Capital District, Papua New Guinea
(br)Tahachal, Kathmandu, Nepal
(bs)Madinah Road, Jeddah, P.O Box 9456, Post Code 21413, Jeddah, Saudi Arabia
(bt)20th Floor Menara Haw Par, Jalan Sultan Ismail, Kuala Lumpur, Wilayah Persekutuan, 50250, Malaysia
(bu)971, 973 Ploenchit Road, Lumpini, Pathumwan, Bangkok 10330, Thailand
(bv)Room R316, 3rd Floor, Building 6, Binhai Financial Street, No. 52 West Xincheng Road, Tianjin Economy and Technology Development Zone, Tianjin, P.R. China
(bw)195 Arch. Markarios III Ave., Neocleous House, 3030 Limassol, Cyprus
(bx)Eski Büyükdere Cd. Park Plaza No:14 K:4 Maslak – Sarıyer, Istanbul, Turkey
(by)Paseo de la Castellana 49, 28046 Madrid, Spain
(bz)818 West 7th Street, Los Angeles, CA 90017, USA
(ca)Carr Hospitality, LLC, 1455 Pennsylvania Avenue, NW, Suite 100, Washington, DC 20004, USA
(cb)2711 Centerville Road, Suite 400, Wilmington, DE 19805, USA
(cc)2000 Monarch Tower, 3424 Peachtree Road, N.E., Atlanta, GA 30326, USA
(cd)Moreno 809 2 Piso, Buenos Aires, Argentina
(ce)Pan-American Life Insurance Company, 601 Poydras Street, New Orleans, LA 70130, USA
(cf)Brack Capital Real Estate Ltd., 885 Third Avenue, 24th Floor, New York, NY 10022, USA
(cg)Campos Elíseos 223, piso 7, Colonia Polanco, 11560, Mexico City, Mexico
(ch)Ground Floor, Al Kamel Law Building, Plot 52-b, Banks Area, Six of October City, Egypt
(ci)289 S. Culver Street, Lawrenceville, GA 30046, USA
(cj)111 Eighth Avenue, New York, NY 10011, USA
(ck)701 S. Carson Street, Suite 200, Carson City, NV 89701, USA
(cl)11003 Onion Creek Court, Austin, TX 78747, USA
(cm)10, V. Sargsyan Str, office 114, Yerevan 0010, Armenia
(cn)Al. Jerozolimskie 56C, 00-803 Warsaw, Poland
(co)Suite 1, Ground Floor, The Financial Services Centre, Bishops Court Hill, St. Michael, Barbados, BB14004

 

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Additional Information

Additional

Information

Hotel Indigo London – Kensington, UK

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Additional Information

Other financial information

Use ofNon-GAAP measures

In addition to performance measures directly observable in the Group Financial Statements (IFRS measures), additional measures (described asNon-GAAP) are presented that are used internally by management as key measures to assess performance.Non-GAAP measures are either not defined under IFRS or are adjusted IFRS figures.

Further explanation in relation to these measures can be found on page 26.

Underlying revenue and underlying operating profitNon-GAAP reconciliations

The tables on pages 154 and 155:

Show underlying revenue and underlying operating profit on both an actual and constant currency basisa;

Reconcile segmental underlying revenue and underlying operating profit to Group underlying revenue and operating profit;

Show underlying Group fee revenue and Group fee margin on both an actual and constant currency basisa; and

Reconcile Group underlying revenue and underlying operating profit to the GAAP measures included in the Group Financial Statements.

Highlights for the year ended 31 December 2017

     Revenue     Operating profit 
At actual exchange rates    

      2017

$m

     

      2016

$m

     

      Change

$m

     

      Change

%

     

      2017

$m

     

      2016

$m

           Change
$m
     

      Change

%

 
Per Group income statement    1,784     1,715     69     4.0     763     678     85     12.5 
Managed leases    (163    (162    (1    (0.6    (4    (7    3     42.9 
Exceptional items                        (4    29     (33    (113.8
Underlying at actual exchange rates    1,621     1,553     68     4.4     755     700     55     7.9 
     

At actual exchange rates

     

At constant currency

 
      

2017

$m

     

2016

$m

     

Change

$m

     

Change

%

     

2017

$m

     

2016

$m

     

Change

$m

     

Change

%

 
Underlying revenue                                                
Americas    991     959     32     3.3     996     959     37     3.9 
Europe    164     150     14     9.3     165     150     15     10.0 
AMEA    192     186     6     3.2     195     186     9     4.8 
Greater China    126     117     9     7.7     128     117     11     9.4 
Central    148     141     7     5.0     149     141     8     5.7 
Underlying Group revenue        1,621         1,553     68     4.4     1,633     1,553     80     5.2 
Owned and leased revenue included above    (184    (173    (11    (6.4    (184    (173    (11    (6.4
Underlying Group fee revenue    1,437     1,380     57     4.1         1,449         1,380     69     5.0 
Underlying operating profit                                                
Americas    644     633     11     1.7     649     633     16     2.5 
Europe    86     73     13     17.8     85     73     12     16.4 
AMEA    83     77     6     7.8     86     77     9     11.7 
Greater China    52     45     7     15.6     52     45     7     15.6 
Central    (110    (128    18     14.1     (113    (128    15     11.7 
Underlying Group operating profit    755     700     55     7.9     759     700     59     8.4 
Owned and leased profit included above    (31    (26    (5    (19.2    (31    (26    (5    (19.2
Underlying Group fee profit    724     674     50     7.4     728     674     54     8.0 
Group fee margin    50.4%     48.8%          1.6ppts     50.2%     48.8%          1.4ppts 

aIHG’s method for calculating the constant currency amounts of entities reporting in currencies other than US dollars is to translate the current period results into US dollars using the prior period’s exchange rate. For example, if a UK entity generated revenue of £100m in 2017 and 2016, the Group Financial Statements would report revenue of $128m in 2017 and $135m in 2016, using the respective average exchange rates for the year of $1=£0.78 and $1=£0.74. For constant currency reporting, 2017 revenue would be translated at $1=£0.74 giving a US dollar value of $135m, thereby showing that underlying revenue was flatyear-on-year.

 

154

Share

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‘Guest Journey’ – Step five

TheShare phase of the ‘Guest Journey’ is when our guests share feedback about their experience, for example via social networks and directly with IHG and our hotels.

Page 160: Cypress, A Kimpton Hotel, Cupertino, California, US

Page 161: Hotel Indigo New Orleans Garden District, Louisiana, US

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IHG  |  Annual Report and Form 20-F 20142017


Highlights for the year ended 31 December 2016

     Revenue     Operating profit 
At actual exchange rates    

        2016

$m

     

        2015

$m

     

   Change

$m

     

   Change

%

     

        2016

$m

     

        2015

$m

     

   Change

$m

     

   Change

%

 
Per Group income statement    1,715     1,803     (88    (4.9    678     1,499     (821    (54.8
Owned asset disposals         (128    128     100.0          (30    30     100.0 
Managed leases    (162    (159    (3    (1.9    (7    (6    (1    (16.7
Liquidated damages         (3    3     100.0          (3    3     100.0 
Exceptional items                        29     (819    848     103.5 
Underlying at actual exchange rates    1,553     1,513     40     2.6     700     641     59     9.2 
     At actual exchange rates     At constant currency 
      

2016

$m

     

2015

$m

     

Change

$m

     

Change

%

     

2016

$m

     

2015

$m

     

Change

$m

     

Change

%

 
Underlying revenue                                                
Americas    959     914     45     4.9     967     914     53     5.8 
Europe    150     160     (10    (6.3    161     160     1     0.6 
AMEA    186     195     (9    (4.6    187     195     (8    (4.1
Greater China    117     109     8     7.3     123     109     14     12.8 
Central    141     135     6     4.4     144     135     9     6.7 
Underlying Group revenue    1,553     1,513     40     2.6     1,582     1,513     69     4.6 
Owned and leased revenue included above    (173    (164    (9    (5.5    (173    (164    (9    (5.5
Underlying Group fee revenue (inc Kimpton)    1,380     1,349     31     2.3     1,409     1,349     60     4.4 
Underlying operating profit                                                
Americas    633     594     39     6.6     640     594     46     7.7 
Europe    73     76     (3    (3.9    76     76           
AMEA    77     81     (4    (4.9    78     81     (3    (3.7
Greater China    45     41     4     9.8     47     41     6     14.6 
Central    (128    (151    23     15.2     (139    (151    12     7.9 
Underlying Group operating profit    700     641     59     9.2     702     641     61     9.5 
Owned and leased profit included above    (26    (27    1     3.7     (26    (27    1     3.7 
Underlying Group fee profit (inc Kimpton)    674     614     60     9.8     676     614     62     10.1 

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Other financial information155


Additional Information

Other financial information continued

Underlying earnings per ordinary share reconciliation

The following table reconciles basic earnings per ordinary share to underlying earnings per ordinary share.

          12 months ended 
          31 December 
             

            2017

$m

     

            2016

$m

 
Basic earnings per ordinary share            
Profit available for equity holders    592     414 
Basic weighted average number of ordinary shares (millions)    193     212 
Basic earnings per ordinary share (cents)    306.7     195.3 
Underlying earnings per ordinary share            
Profit available for equity holders    592     414 
Adjusted for:            

Exceptional items before tax

    (4    29 

Tax on exceptional items

    2     (12

Exceptional tax credit

    (118     

Managed leases

    (4    (7

Tax on managed leases

    1     2 

Currency effect

    4      
Underlying profit available for equity holders    473     426 
Underlying earnings per ordinary share (cents)    245.1     200.9 

 

Net capital expenditure reconciliation

The following table reconciles net cash from investing activities to net capital expenditure as included in the Group Financial Statements.

 

 

 

     

12 months ended

31 December

 
      

2017

$m

     

2016

$m

 
Net cash from investing activities    (263    (216
Adjusted for:            

Tax paid on disposals

    25      

System Fund depreciation and amortisation

    36     31 
Net capital expenditure    (202    (185
Add back:            

Disposal receipts

    (104    (25

System Fund depreciation and amortisation

    (36    (31
Gross capital expenditure    (342    (241
Analysed as:            

Capital expenditure: maintenance and key money

    (115    (96

Capital expenditure: recyclable investments

    (85    (40

Capital expenditure: System Fund investments

    (142    (105
Gross capital expenditure    (342    (241

 

Free cash flow reconciliation

The following table reconciles net cash from operating activities to free cash flow.

 

 
     12 months ended 31 December 
      

            2017 

$m 

    

2016

$m

     

2015

$m

 
Net cash from operating activities   634     752     628 
Less:                

Purchase of shares by employee share trusts

   (3)     (10    (47

Capital expenditure: maintenance and key money

   (115)     (96    (115

Cash receipt from renegotiation of long-term partnership agreements

   –     (95     
Free cash flow   516     551     466 

156IHG  |  Annual Report and Form 20-F 2017


RevPAR, average daily rate and occupancy

RevPAR, a key performance measure used by management (see page 26 for further information) comprises IHG System rooms revenue divided by the number of room nights available and can be mathematically derived from occupancy multiplied by average daily rate. Occupancy is rooms occupied by hotel guests expressed as a percentage of rooms that are available. Average daily rate is rooms revenue divided by the number of room nights sold. RevPAR is a key indicator of performance as it measures period-over-period change in rooms revenue for comparable hotels.

The following tables present RevPAR statistics for the year ended 31 December 2017 and a comparison to 2016. Franchised, managed, owned and leased statistics are for comparable hotels, and include only those hotels in the Group’s system at 31 December 2017 and franchised, managed, owned or leased by the Group since 1 January 2016.

The comparison with 2016 is at constant US$ exchange rates.

     Franchised     Managed     Owned and leased 
                  2017     

Change vs

      2016

                 2017     

Change vs

      2016

                 2017     

Change vs

      2016

 
Americas                                    
InterContinental                                    
Occupancy    68.8%     1.6ppt     78.6%     0.4ppt     83.0%     1.4ppt 
Average daily rate    $138.68     (0.7)%     $233.31     (1.3)%     $324.33     1.7% 
RevPAR    $95.41     1.6%     $183.35     (0.9)%     $269.05     3.5% 
Kimpton                                    
Occupancy              81.9%     0.2ppt           
Average daily rate              $231.43     0.2%           
RevPAR              $189.46     0.4%           
Crowne Plaza                                    
Occupancy    67.8%     (0.2)ppt     79.0%     0.3ppt           
Average daily rate    $121.65     2.2%     $138.22     0.9%           
RevPAR    $82.42     1.9%     $109.20     1.2%           
Hotel Indigo                                    
Occupancy    70.5%     1.5ppt     83.7%     7.7ppt           
Average daily rate    $144.37     (0.8)%     $235.89     1.4%           
RevPAR    $101.75     1.3%     $197.33     11.6%           
EVEN Hotels                                    
Occupancy              91.0%     4.8ppt     66.4%     (3.1)ppt 
Average daily rate              $236.20     (5.0)%     $132.10     1.6% 
RevPAR              $215.03     0.4%     $87.74     (2.9)% 
Holiday Inn                                    
Occupancy    66.6%     0.2ppt     71.3%     0.3ppt     80.1%     6.9ppt 
Average daily rate    $111.58     1.5%     $129.74     (0.4)%     $160.26     2.7% 
RevPAR    $74.29     1.9%     $92.54     (0.0)%     $128.39     12.4% 
Holiday Inn Express                                    
Occupancy    68.7%     0.3ppt                     
Average daily rate    $112.64     1.3%                     
RevPAR    $77.43     1.7%                     
Staybridge Suites                                    
Occupancy    75.7%     0.1ppt     81.6%     (0.7)ppt           
Average daily rate    $114.40     1.5%     $138.75     0.1%           
RevPAR    $86.60     1.7%     $113.28     (0.7)%           
Candlewood Suites                                    
Occupancy    72.6%     1.0ppt     79.8%     (0.5)ppt           
Average daily rate    $84.31     2.2%     $82.63     1.1%           
RevPAR    $61.25     3.6%     $65.98     0.4%           

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Other financial information157


Additional Information

Other financial information continued

RevPAR, average daily rate and occupancycontinued

     Franchised     Managed     Owned and leased 
      2017     

Change vs

2016

     2017     

Change vs

2016

             2017     

Change vs

2016

 
Europe                                    
InterContinental                                    
Occupancy    73.3%     1.5ppt     70.6%     1.9ppt           
Average daily rate    $163.80     10.6%     $220.38     3.3%           
RevPAR    $120.00     12.9%     $155.60     6.2%           
Crowne Plaza                                    
Occupancy    73.5%     3.1ppt     74.1%     3.0ppt           
Average daily rate    $113.16     2.0%     $135.86     4.1%           
RevPAR    $83.20     6.6%     $100.72     8.5%           
Hotel Indigo                                    
Occupancy    79.0%     1.8ppt     78.2%     2.5ppt           
Average daily rate    $136.97     1.2%     $170.82     9.8%           
RevPAR    $108.26     3.6%     $133.52     13.4%           
Holiday Inn                                    
Occupancy    73.1%     2.0ppt     74.7%     4.7ppt           
Average daily rate    $95.04     2.8%     $82.81     4.7%           
RevPAR    $69.52     5.6%     $61.89     11.7%           
Holiday Inn Express                                    
Occupancy    78.1%     1.3ppt     68.0%     6.2ppt           
Average daily rate    $88.49     4.5%     $57.71     5.7%           
RevPAR    $69.09     6.3%     $39.26     16.2%           
Staybridge Suites                                    
Occupancy    81.1%     (1.6)ppt                     
Average daily rate    $120.21     4.4%                     
RevPAR    $97.53     2.3%                     
Asia, Middle East and Africa (AMEA)                                    
InterContinental                                    
Occupancy    78.4%     1.6ppt     72.2%     2.0ppt     47.4%     (5.9)ppt 
Average daily rate    $180.20     (1.9)%     $198.85     (0.1)%     $114.41     (3.7)% 
RevPAR    $141.31     0.1%     $143.57     2.8%     $54.26     (14.4)% 
Crowne Plaza                                    
Occupancy    75.4%     (0.1)ppt     72.7%     1.1ppt           
Average daily rate    $100.87     1.5%     $119.24     (1.5)%           
RevPAR    $76.00     1.4%     $86.68     0.1%           
Hotel Indigo                                    
Occupancy              73.8%     (2.9)ppt           
Average daily rate              $101.26     13.0%           
RevPAR              $74.78     8.7%           
Holiday Inn                                    
Occupancy    67.2%     0.9ppt     75.7%     2.1ppt     97.1%     1.6ppt 
Average daily rate    $107.44     (5.9)%     $94.03     (0.6)%     $125.25     8.2% 
RevPAR    $72.18     (4.7)%     $71.18     2.3%     $121.58     10.0% 
Holiday Inn Express                                    
Occupancy    71.1%     2.3ppt     72.3%     4.4ppt           
Average daily rate    $62.38     (6.2)%     $67.36     0.6%           
RevPAR    $44.36     (3.0)%     $48.66     7.1%           
Staybridge Suites                                    
Occupancy              73.8%     2.0ppt           
Average daily rate              $133.08     4.8%           
RevPAR              $98.18     7.7%           
Other                                    
Occupancy    83.6%     4.7ppt     88.6%     (0.3)ppt           
Average daily rate    $77.71     3.9%     $104.80     6.6%           
RevPAR    $64.98     10.1%     $92.87     6.2%           

158IHG  |  Annual Report and Form 20-F 2017


     Franchised     Managed     Owned and leased 
      2017     

Change vs

2016

     2017     

Change vs

2016

             2017     

Change vs

2016

 
Greater China                                    
InterContinental                                    
Occupancy    86.8%     3.3ppt     65.7%     3.2ppt           
Average daily rate    $212.78     3.0%     $125.25     (1.2)%           
RevPAR    $184.79     7.0%     $82.29     3.9%           
HUALUXE                                    
Occupancy              49.2%     8.3ppt           
Average daily rate              $51.61     0.8%           
RevPAR              $25.41     21.2%           
Crowne Plaza                                    
Occupancy              63.2%     4.7ppt           
Average daily rate              $79.03     0.4%           
RevPAR              $49.98     8.5%           
Hotel Indigo                                    
Occupancy              74.7%     3.2ppt           
Average daily rate              $175.48     (2.5)%           
RevPAR              $131.02     1.8%           
Holiday Inn                                    
Occupancy    83.4%     8.2ppt     68.2%     3.2ppt           
Average daily rate    $107.95     (3.3)%     $69.27     0.7%           
RevPAR    $90.01     7.3%     $47.21     5.7%           
Holiday Inn Express                                    
Occupancy    56.8%     (13.0)ppt     70.3%     2.0ppt           
Average daily rate    $29.46     8.0%     $49.53     2.7%           
RevPAR    $16.74     (12.1)%     $34.82     5.7%           

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Other financial information159


Additional Information

Directors’ Report

This Directors’ Report includes the information required to be given in line with the Companies Act or, where provided elsewhere, an appropriate cross reference is given. The Corporate Governance Statement approved by the Board is provided on pages 47 to 63 and incorporated by reference herein.

Subsidiaries, joint ventures and associated undertakings

The Group has over 300 subsidiaries, joint ventures and associated undertakings. A complete list of these entities is provided at note 33 of the Group Financial Statements on pages 141 to 143.

Directors

For biographies of the current Directors see pages 48 and 49.

Directors’ and officers’ (D&O) liability insurance and existence of qualifying indemnity provisions

The Company maintains the Group’s D&O liability insurance policy, which covers Directors and officers of the Company defending civil proceedings brought against them in their capacity as Directors or officers of the Company (including those who served as Directors or officers during the year). There were no indemnity provisions relating to the UK pension plan for the benefit of the Directors during 2017.

Articles of Association

The Company’s Articles of Association may only be amended by special resolution and are available on the Company’s website atwww.ihgplc.com/investors under Corporate governance. A summary is provided on pages 169 and 170.

Shares

Share capital

The Company’s issued share capital at 31 December 2017 consisted of 197,597,610 ordinary shares of 1917/21 pence each, including

7,607,430 shares held in treasury, which constitute 3.8% of the total issued share capital (including treasury shares). There are no special control rights or restrictions on share transfers or limitations on the holding of any class of shares.

During 2017:

916,835 shares were transferred from treasury to the employee share ownership trust; and

The Company’s issued share capital was subject to a 45 for 47 share consolidation effective as of 8 May 2017 (see page 151), seven treasury shares were cancelled and 338,108 treasury shares were consolidated.

As far as is known to management, IHG is not directly or indirectly owned or controlled by another company or by any government. The Board focuses on shareholder value-creation. When it decides to return capital to shareholders, it considers all of its options, including share buybacks and special dividends.

Share issues and buybacks

At the AGM held on 5 May 2017, shareholders authorised the Directors to issue new shares and the Company to buy back existing shares. During 2017 these routine authorities were not exercised.

 

Dividends

In 2017, the Company announced a $400 million return of funds to shareholders via special dividend and share consolidation on the basis of 45 ordinary shares of 19 17/21 pence per share for every 47 existing ordinary shares of 18 318/329 pence each (effective as of 8 May 2017).

DividendOrdinary shares                ADRs
Special dividend

A special dividend was paid on 22 May 2017 to shareholders on the register at the

close of business on 5 May 2017

156.4p202.5¢
Interim dividend

An interim dividend was paid on 6 October 2017 to shareholders on the register

at the close of business on 1 September 2017

24.4p33.0¢
Final dividend

Subject to shareholder approval, payable on 11 May 2018 to shareholders on the

register at the close of business on 3 April 2018

71.0¢a71.0¢

aThe sterling amount of the final dividend will be announced on 23 April 2018 using the average of the daily exchange rates from 18 April 2018 to 20 April 2018 inclusive.

Major institutional shareholders

As at 19 February 2018, the Company had been notified of the following significant holdings in its ordinary shares under the UK Disclosure Guidance and Transparency Rules (DTRs):

     As at 19 February 2018     As at 20 February 2017     As at 22 February 2016 
Shareholder    

Ordinary

shares/ADSs

 

a 

                        %a     

Ordinary

shares/ADSs

 

a 

                        %a     

Ordinary

shares/ADSs

 

a 

                        %a 
BlackRock, Inc.    11,280,241b     5.92     10,930,440     5.53     12,916,001     5.47 
Boron Investments BV    11,850,000     5.02     11,850,000     5.02     11,850,000     5.02 
Cedar Rock Capital Limited    14,923,417     5.07     14,923,417     5.07     14,923,417     5.07 
Fiera Capital Corporation    7,707,008     4.06     n/a     n/a     n/a     n/a 
Fundsmith LLP    10,222,246     5.18     10,222,246     5.18     n/a     n/a 
The Capital Group Companies, Inc.    9,670,450     5.09     9,864,894     4.99     n/a     n/a 

aThe number of shares and percentage of voting rights was determined at the time of the relevant disclosures made in accordance with Rule 5 of the DTRs and doesn’t reflect the impact of any share consolidation or any changes in shareholding subsequent to the date of notification that are not required to be notified to us under the DTRs.

bTotal shown includes 508,807 contracts for difference and 1,171,293 qualifying financial instruments to which voting rights are attached.

The Company’s major shareholders have the same voting rights as other shareholders. The Company does not know of any arrangements the operation of which may result in a change in its control.

For further details on shareholder profiles, see page 180.

160IHG  |  Annual Report and Form 20-F 2017


2017 share awards and grants to employees

Our current policy is to settle the majority of awards or grants under the Company’s share plans with shares purchased in the market or from shares held in treasury; however, the Board continues to review this policy. The Company’s share plans incorporate the current Investment Associations’ guidelines on dilution which provide that commitments to new shares orre-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 any10-year period. During the financial year ended 31 December 2017, the Company transferred 916,835 treasury shares (0.4% of issued share capital) to satisfy obligations under its share plans.

The estimated maximum dilution from awards made under the Company’s shareplans over the last 10 years is 2.2%.

As at 31 December 2017, no options were outstanding. The Company has not utilised the authority given by shareholders at any of its AGMs to allot shares for cash without first offering such shares to existing shareholders.

Employee share ownership trust (ESOT)

IHG operates an ESOT for the benefit of employees and former employees. The ESOT receives treasury shares from the Company and purchases ordinary shares in the market and releases them to current and former employees in satisfaction of share awards. During 2017, the ESOT released 1,249,660 shares and at 31 December 2017 it held 624,683 ordinary shares in the Company. The ESOT adopts a prudent approach to purchasing shares, using funds provided by the Group, based on expectations of future requirements.

Where shares held in the ESOT have been allocated to share plan participants on terms that entitle those participants to request or require the trustee of the ESOT to exercise the voting rights relating to those shares, the trustee shall exercise those votes in accordance with the directions of the participants. In respect of shares in the ESOT that have not been allocated to share plan participants, or have not been allocated on such terms, the trustee may vote or abstain from exercising their voting rights in relation to those shares, or accept or reject any offer relating to the shares, in any way it sees fit.

Unless otherwise requested by the Company, the trustee of the ESOT waives all ordinary dividends on the shares held in the ESOT, other than shares which have been allocated to participants on terms which entitle them to the benefit of dividends, except for such amount per share as shall, when multiplied by the number of shares held by it on the relevant date, equal one pence.

Future business developments of the Group

Further details on these are set out in the Strategic Report on pages 2 to 43.

Employees and Code of Conduct

Having a predominantly franchised and managed business model means that not all of those people who work at hotels operated under our brands are our employees. When the Group’s entire estate is taken into account (including those working in our franchised and managed hotels), over 375,000 people worked globally across IHG’s brands as at 31 December 2017.

IHG employed the following as at 31 December 2017:

6,658 people worldwide (including those in our corporate offices, central reservations offices and owned hotels (excluding those in a category below), whose costs were borne by the Group;

5,555 people who worked directly on behalf of the System Fund and whose costs were borne by the System Fund; and

22,577 General Managers and (in the US predominantly) other hotel workers, who work in managed hotels, who have contracts or letters of service with IHG and whose costs are borne by those hotels.

See notes 3 and 32 of the Group Financial Statements on pages 109 and 140 for more information.

We continue to focus on providing an inclusive environment, in which employees are valued for who they are and what they bring to the Group, and in which talented individuals are retained through all levels of the organisation – see pages 18 and 19.

We also look to appoint the most appropriate person for the job and are committed to providing equality of opportunity to all employees without discrimination. Every effort is made to ensure that applications for employment from disabled employees are fully and fairly considered and that disabled employees have equal opportunities to training, career development and promotion.

The Code of Conduct applies to all Directors, officers and employees and complies with the NYSE rules as set out in Section 406 of the US Sarbanes-Oxley Act 2002. Further details can be found on page 176.

For more information on the Group’s employment policies, including equal opportunities, employee communications and development, see pages 18 and 19.

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Director’s Report161


Additional Information

Directors’ Report continued

Greenhouse gas (GHG) emissions

By delivering more environmentally sustainable hotels, we can drive cost efficiencies for owners and meet the expectations of all our stakeholders. We recognise the importance of reducing our global GHG emissions for corporate offices and hotels – our target is to reduce our carbon footprint per occupied room by 15 per cent across our entire estate by 31 December 2017 (against a 2012 baseline). See page 25 for progress.

Reporting boundary   Measure    2017ª     2016a 

Global – corporate offices and franchised, managed,

owned and leased hotelsb(a KPI and part of our

five-year targets)

   Scope 1 Direct emissions (tCO2e)    1,199,544.40     1,212,547.84 
   Scope 2 Indirect emissions (tCO2e)    3,770,639.15     3,837,518.39 
   Total GHG emissions (tCO2e)    4,970,183.55     5,050,066.23 
   IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room)    27.39     29.48 

Global – corporate offices and managed, owned

and leased hotelsb(as required under the Companies

Act 2006)

   Scope 1 Direct emissions (tCO2e)    451,247.09     426,869.82 
   Scope 2 Indirect emissions (tCO2e)    1,898,679.62     1,914,276.33 
   Total GHG emissions (tCO2e)    2,349,926.71     2,341,146.15 
   IHG’s chosen intensity measurement GHG emissions per occupied room (kgCO2e per occupied room)    45.77     49.76 

aReporting 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.

bIncludes all of our branded hotels but does not include emissions from 90 hotels. We do not have sufficient data to estimate their emissions and believe them to be immaterial.

Scope

We report Scope 1 and Scope 2 emissions as defined by the GHG protocol as follows:

Scope 1 (Direct emissions): combustion of fuel and operation of facilities.

Scope 2 (Indirect emissions): electricity, heat, steam and cooling purchased for own use.

Methodology

We have worked with external consultants to give us anup-to-date picture of IHG’s carbon footprint and to assess our performance over the past few years. The external consultants use a sampling and extrapolation methodology to estimate our GHG emissions. For 2017, in line with the methodology set out in the GHG Protocol Corporate Standard, the sample covered 4,011 (78%) of our 5,137 hotels. As IHG’s System size is continually changing and the number of hotels reporting data to the IHG Green Engage system increases annually, we are restating the impacts for all years from the baseline year (2012) annually to enable comparisons to be made.

Finance

Political donations

The Group made no political donations under the Companies Act during the year and proposes to maintain this policy.

Financial risk management

The Group’s financial risk management objectives and policies, including its use of financial instruments, are set out in note 22 to the Group Financial Statements on pages 126 to 129.

Significant agreements and change of control provisions

The Group is a party to the following arrangements which could be terminated upon a change of control of the Company and which are considered significant in terms of their potential impact on the business of the Group as a whole:

The10-year £400 million bond issued by the Company on 28 November 2012, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have the option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued;

The $1.275 billion syndicated loan facility agreement dated 30 March 2015 and maturing in March 2021, under which a change of control of the Company would entitle each lender to cancel its commitment and declare all amounts due to it payable;

The10-year £300 million bond issued by the Company on 14 August 2015, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have the option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued; and
The10-year £350 million bond issued by the Company on 24 August 2016, under which, if the bond’s credit rating was downgraded in connection with a change of control, the bond holders would have the option to require the Company to redeem or, at the Company’s option, repurchase the outstanding notes together with interest accrued.

Further details on material contracts are set out on pages 171 to 172.

Business relationships

The Group is party to a technology outsourcing agreement with International Business Machines Corporation (IBM), pursuant to which IBM operates and maintains the infrastructure of the Group’s Guest Reservation System. Unless extended, this agreement is due to expire on 31 December 2018.

The Group is party to a technology agreement with Amadeus Hospitality Americas, Inc. (Amadeus), for the development and hosting of the Group’s next generation Guest Reservation System. The initial term of 10 years will expire in 2028, and the Group has the right to extend this agrement for two additional periods of up to 10 years each on the same terms, conditions and pricing. The financial and performance obligations in this agreement are guaranteed by Amadeus IT Group S.A., the parent company of Amadeus Hospitality Americas, Inc.

Otherwise, there are no specific individual contracts or arrangements considered to be essential to the business of the Group as a whole.

Disclosure of information to Auditor

For details, see page 80.

162IHG  |  Annual Report and Form 20-F 2017


Listing Rules – compliance with LR 9.8.4C

Section

Applicablesub-paragraph within LR 9.8.4CLocation
1Interest capitalisedGroup Financial Statements, note 6, page 111
4Details of long-term incentive schemesDirectors’ Remuneration Report, pages 64 to 77
6Waiver of future emoluments by a DirectorDirectors’ Remuneration Report, page 76

The above table sets out only those sections of LR 9.8.4C which are relevant. The remaining sections of LR 9.8.4 are not applicable.

Going concern

An overview of the business activities of IHG, including a review of the key business risks that the Group faces, is given in the Strategic Report on pages 2 to 43 and in the Group information on pages 164 to 172. Information on the Group’s treasury management policies can be found in note 22 to the Group Financial Statements on pages 126 to 129. In March 2017, the Group extended the maturity of its $1.275 billion facility to March 2022.

At the end of 2017, the Group was trading significantly within its banking covenants and debt facilities.

The Group’sfee-based model and wide geographic spread mean that it is well placed to manage through uncertain times, and our forecasts and sensitivity projections, based on a range of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and, accordingly, they continue to adopt the going concern basis in preparing the Consolidated Financial Statements.

Please see page 22 for the Directors’ assessment of the viability of the Group.

By order of the Board,

George Turner

Company Secretary

InterContinental Hotels Group PLC

Registered in England and Wales, Company number 5134420

19 February 2018

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Director’s Report163


Additional Information

Group informationGroup 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 Limitedre-registered as a public limited company and changed its name to New InterContinental Hotels Group PLC; and (iii) on 27 June 2005, New InterContinental Hotels Group PLC changed its name to InterContinental Hotels Group PLC and became the holding company of the Group.

The Group formerly known as Bass, and more recently,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 last several years, the Group has undergone a major transformation in its operations and organisation, as a resultremainder of the separation (as discussed below)Holiday Inn brand in 1990. The InterContinental brand was acquired by Bass in 1998 and a number of significant disposals during this period, which has narrowed the scope of its business.Candlewood Suites brand was acquired by Six Continents in 2003.

On 15 April 2003, following shareholder and regulatory approval, Six Continents PLC (as it then was) separated into two new listed groups, InterContinental Hotels Group PLC, (as it then was), comprising the hotels and soft drinks businesses, and Mitchells & ButlersButler plc, comprising the retail and standard commercial property developments business.

The Group disposed of its interests in the soft drinks business by way of an initial public offering of Britvic (Britannia Soft Drinks Limited for the period up to 18 November 2005, and thereafter, Britannia SD Holdings Limited (renamed Britvic plc on 21 November 2005), which became the holding company of the Britvic Group on 18 November 2005), a manufacturer and distributor of soft drinks in the UK in December 2005. The Group now continues as a standalone hotels business.

Following separation, the Group has undertaken an asset-disposal programme, realising, by the end of 2014, proceeds of $6.0 billion. This programme has significantly reduced the capital requirements of the Group whilst largely retaining the hotels in the IHG System.

A small number of hotels have been sold since the end of 2013, the most significant of which are set out below.

Recent acquisitions and divestitures

The Group disposed of InterContinental Mark Hopkins San Francisco on 27 March 2014 for $120 million;

the Group completed its disposal of 80 per cent of its interest in InterContinental New York Barclay on 31 March 2014 for $274 million (the Group continues to hold the remaining 20 per cent interest by way of a joint venture);

the Group agreed to sell its 100 per cent interest in InterContinental Paris – Le Grand on 7 December 2014 for330 million;million, and the transaction was completed on 20 May 2015.

 

theThe Group agreed to acquire Kimpton Hotels & Restaurants for $430 million on 15 December 2014, and the transaction was completed on 16 January 2015;2015 for $430 million (before working capital adjustments and cash acquired).

 

The Group agreed to sell InterContinental Hong Kong on 10 July 2015 for $938 million, and the transaction was completed on 30 September 2015.

The Group also divested a number of investments for total proceeds of $16$25 million in 2014.2016 and $95 million in 2017.

Capital expenditure

Capital expenditure in 20142017 totalled $271$342 million compared with $269$241 million in 20132016 and $133$264 million in 2012;2015.

 

atAt 31 December 2014,2017, capital committed being(being contracts placed for expenditure on property, plant and equipment, and intangible assets not provided for in the Group Financial Statements,Statements) totalled $117 million; and$104 million.

 

theThe Group has also committed to invest in a number of its associates, with an estimated outstanding commitment of $89$33 million, based on current forecasts.
 

 

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.

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 that the Group does not currently believe to be material could later turn out to be material.

The risk factors below are listed in accordance with the strategic, tactical and operational risk framework explained on page 27. Although the Group has classified each risk under a single aspect of the framework, some risks relate to multiple aspects and accordingly should be read in the context of the whole framework. The risk factors should also be considered in connection with any financial and forward-looking information in this Annual Report and Form20-F and the cautionary statements regarding forward-looking statements on page 188.

The Group is exposed to the risks of political and economic developments

The Group is exposed to political, economic and financial market developments such as recession, inflation and availability of credit and currency fluctuations that could lower revenues and reduce income. The outlook for 2018 may worsen due to continued uncertainty in Greater China and the Eurozone, the impact of fluctuating commodity prices (including oil) on economies dependent on such exports, and continued unrest in parts of the Middle East, Africa and Asia. The interconnected nature of economies suggests any of these, or other events, could trigger a recession that reduces leisure and business travel to and from affected countries and adversely affects room rates and/or occupancy levels and other income-generating activities. The owners or potential owners of hotels franchised or managed by the Group face similar risks that could adversely impact their solvency and the Group’s ability to secure and retain franchise or management agreements. Specifically, the Group is most exposed to the US market and, increasingly, to Greater China.

Accordingly, the Group is particularly susceptible to adverse changes in these economies as well as changes in their currencies. In addition to trading conditions, the economic outlook also affects the availability of capital to current and potential owners, which could impact existing operations and the health of the pipeline.

164IHG  |  Annual Report and Form 20-F and the cautionary statements regarding forward-looking statements on page 186.

Strategic risks2017

The Group is exposed to the risks of political and economic developments

The Group is exposed to political, economic and financial market developments such as recession, inflation and availability of credit and currency fluctuations that could lower revenues and reduce income. The outlook for 2015 may worsen due to uncertainty in the Eurozone, impact of declining commodity prices on economies dependent on such exports and continued unrest in Russia, Ukraine, and parts of the Middle East and Africa. The interconnected nature of economies suggests any of these or other events could trigger a recession that reduces leisure and business travel to and from affected countries and adversely affects room rates and/or occupancy levels and other income-generating activities. This may result in deterioration of results of operations and potentially reduce the value of properties in affected economies. The owners or potential owners of hotels franchised or managed by the Group face similar risks that could adversely impact their solvency and the Group’s ability


The Group is exposed to the risk of events that adversely impact domestic or international travel

The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, political or civil unrest, epidemics or threats thereof, travel-related accidents or industrial action, natural disasters, or other local factors impacting specific countries, cities or individual hotels, as well as increased transportation and fuel costs. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate planning, preparation, response or recovery in relation to a major incident or crisis may cause loss of life, prevent operational continuity, or result in financial loss, and consequently impact the value of our brands and/or the reputation of the Group.

The Group is exposed to the risks of the hotel industrysupply-and-demand cycle

The future operating results of the Group could be adversely affected by industry overcapacity (by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry, or other differences between planning assumptions and actual operating conditions. These conditions could result in reductions in room rates and occupancy levels, which would adversely impact the financial performance of the Group.

The Group is subject to a competitive and changing industry

The Group operates in a competitive industry and must compete effectively against traditional competitors such as other global hotel chains, local hotel companies and independent hotels to win the loyalty of guests, employees and owners. The competitive landscape also includes other types of businesses, such asweb-based booking channels (which include online travel agents and intermediaries), and alternative sources of accommodation such as short-term lets of private property. Failure to compete effectively in traditional and emerging areas of the business could impact the Group’s market share, System size, profitability and relationships with owners and guests.

The Group is exposed to risks related to executing and realising benefits from strategic transactions, including acquisitions

The Group may seek to make strategic transactions, including acquisitions, in the future. The Group may not be able to identify opportunities or complete transactions on commercially reasonable terms, or at all, and may not realise the anticipated benefits from such transactions. Strategic transactions come with inherent valuation, financial and commercial risks, and regulatory and insider information risks during the execution of the transactions. In addition, the Group may face unforeseen costs and liabilities, diversion of management attention, as well as longer-term integration and operational risks, which could result in a failure to realise benefits, financial losses, lower employee morale and loss of talent.

The Group is dependent upon a wide range of external stakeholders and business partners

The Group relies on the performance, behaviours and reputation of a wide range of business partners and external stakeholders, including, but not limited to, owners, contractors, lenders, suppliers, vendors, joint-venture partners, online travel agents, third-party intermediaries and other business partners which may have different ethical values, interests and priorities. Further, the number and complexity of interdependencies with stakeholders is evolving. Breakdowns in relationships, contractual disputes, poor vendor performance, insolvency, stakeholder behaviours or adverse reputations, which may be outside of the Group’s control, could adversely impact on the Group’s performance and competitiveness, delivery of projects, guest experiences or the reputation of the Group or its brands.

The Group is exposed to increasing competition from online travel agents and intermediaries

A proportion of the Group’s bookings originate from large multinational, regional and local online travel agents and intermediaries with which the Group has contractual arrangements and to which it pays commissions. These platforms offer a wide range of products, often across multiple brands, have growing booking and review capabilities, and may create the perception that they offer the lowest prices. Some of these online travel agents and intermediaries have strong marketing budgets and aim to create brand awareness and brand loyalty among consumers and may seek to commoditise hotel brands through price and attribute comparison. Further, if these companies continue to gain market share, they may impact the Group’s profitability, undermine the Group’s own booking channels and value to its hotel owners, and may be able to increase commission rates and negotiate other favourable contract terms.

The Group is exposed to a variety of risks related to identifying, securing and retaining franchise and management agreements

The Group’s growth strategy depends on its success in identifying, securing and retaining franchise and management agreements. This is an inherent risk for the hotel industry and the franchise business model. Competition with other hotel companies may generally reduce the number of suitable franchise, management and investment opportunities offered to the Group and increase the bargaining position of property owners seeking to become a franchisee or engage a manager. The terms of new franchise or management agreements may not be as favourable as current arrangements; the Group may not be able to renew existing arrangements on similarly favourable terms, or at all.

There can also be no assurance that the Group will be able to identify, retain or add franchisees to the IHG System or to secure management contracts. For example, the availability of suitable sites, market saturation, planning and other local regulations or the availability and affordability of finance may restrict the supply of suitable hotel development opportunities under franchise or management agreements. In connection with entering into franchise or management agreements, the Group may be required to make investments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group, including, for example, the unwillingness of franchisees to support brand improvement initiatives. This could result in franchisees prematurely terminating contracts which would adversely impact the overall IHG System size and the Group’s financial performance.

The Group is exposed to inherent risks in relation to changing technology and systems

As the use of the internet and mobile technology grows and customer needs evolve at pace, the Group may find that its evolving technology capability is not sufficient and may have to make substantial additional investments in new technologies or systems to remain competitive. Failure to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. In addition, the technologies or systems that the Group chooses to deploy may not be commercially successful or the technology or system strategy may not be sufficiently aligned with the needs of the business. Any such failure could adversely affect guest experiences, and the Group may lose customers, fail to attract new customers, incur substantial costs or face other losses. This could further impact the Group’s reputation in regards to innovation.

 

 

162IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Group information165


Additional Information

 

Group information continued

Risk factors continued

The Group is reliant on the reputation of its brands and is exposed to inherent reputation risks

Any event that materially damages the reputation of one or more of the Group’s brands and/or fails to sustain the appeal of the Group’s brands to its customers and owners may have an adverse impact on the value of that brand and subsequent revenues from that brand or business. In particular, if the Group is unable to create consistent, valued, and quality products and guest experiences across the owned, managed and franchised estates, or if the Group, its franchisees or business partners fail to act responsibly, this could result in an adverse impact on its brand reputation. In addition, the value of the Group’s brands could be influenced by a number of external factors outside the Group’s control, such as, but not limited to, changes in sentiments against global brands, changes in applicable regulations related to the hotel industry or to franchising, successful commoditisation of hotel brands by online travel agents and intermediaries, or changes in owners’ perceptions of the value of the Group.

The Group is exposed to risks associated with its intellectual property

Given the importance of brand recognition to the Group’s business, the protection of its intellectual property poses a risk due to the variability and changes in controls, laws and effectiveness of enforcement globally. Any widespread infringement, misappropriation or weakening of the control environment could materially harm the value of the Group’s brands and its ability to develop the business.

The Group is reliant upon the resilience of its reservation system and other key technology platforms and is exposed to risks that could cause the failure of these systems

The value of the Group is partly derived from the ability to drive reservations through its reservation system and technology platforms which are highly integrated with internal processes and linked to multiple sales channels, including the Group’s own websites, call centres, hotels, third-party intermediaries and travel agents.

Lack of resilience and operational availability of these systems provided by the Group or third-party technology providers could lead to prolonged service disruption and might result in significant business interruption, impact the guest booking experience and subsequently adversely impact Group revenues, reputation and relationships with hotel owners.

The Group is exposed to a variety of risks associated with safety, security and crisis management

There is a constant need to protect the safety and security of our guests, employees and assets against natural andman-made threats. These include, but are not limited to, exceptional events such as extreme weather, civil or political unrest, violence and terrorism, serious and organised crime, fraud, employee dishonesty, cyber crime, pandemics, fire, andday-to-day accidents, incidents and petty crime which impact the guest or employee experience, could cause loss of life, sickness or injury and result in compensation claims, fines from regulatory bodies, litigation, and impact reputation. Serious incidents or a combination of events could escalate into a crisis which, if managed poorly, could further expose the Group and its brands to significant reputational damage.

The Group requires the right people, skills and capability to manage growth and change

In order to remain competitive, the Group must employ the right people. This includes hiring and retaining highly skilled employees with particular expertise or leadership capability. The implementation of the Group’s strategic business plans could be undermined by failure to build a resilient corporate culture, failure to recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or failure to invest in the development of key skills.

Some of the markets in which the Group operates are experiencing economic growth, and the Group must compete against other companies inside and outside the hospitality industry for suitably qualified or experienced employees. Some emerging markets may not have the required local expertise to operate a hotel and may not be able to attract the right talent. Failure to attract and retain employees may threaten the success of the Group’s operations in these markets. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.

The Group is exposed to a variety of risks associated with its financial stability and ability to borrow and satisfy debt covenants

While the strategy of the Group is to extend the IHG System through activities that do not involve significant amounts of its own capital, the Group does require capital to fund some development opportunities, technological innovations and strategic acquisitions; and to maintain and improve owned hotels. The Group is reliant upon having financial strength and access to borrowing facilities to meet these expected capital requirements. The majority of the Group’s borrowing facilities are only available if the financial covenants in the facilities are complied with.Non-compliance with covenants could result in the Group’s lenders demanding repayment of the funds advanced. If the Group’s financial performance does not meet market expectations, it may not be able to refinance existing facilities on terms considered favourable.

The Group is exposed to the risk of litigation

Certain companies in the Group are the subject of various claims and proceedings. The ultimate outcome of these matters is subject to many uncertainties, including future events and uncertainties inherent in litigation. In addition, the Group could be at risk of litigation claims made by many parties, including but not limited to: guests, customers, joint-venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of the hotels it manages. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Unfavourable outcomes of claims or proceedings could have a material adverse impact on the Group’s results of operations, cash flow and/or financial position. Exposure to significant litigation or fines may also affect the reputation of the Group and its brands.

The Group is exposed to the risks related to information security and data privacy

The Group is increasingly dependent upon the availability, integrity and confidentiality of information, including, but not limited to: guest and employee credit card, financial and personal data, and business performance, financial reporting and commercial development. The information is sometimes held in different formats such as digital, paper, voice recordings and video and could be stored in many places, including facilities managed by third-party service providers. The threats towards the Group’s information are dynamic, and include cyber attacks, fraudulent use, loss or misuse by employees and breaches of our vendors’ security arrangements, amongst others.

The legal and regulatory environment around data privacy and requirements set out by the payment card industry surrounding information security across the many jurisdictions in which the Group operates are constantly evolving. If the Group fails to appropriately protect information and ensure relevant controls are in place to enable the appropriate use and release of information through the appropriate channels in a timely and accurate manner, IHG System performance, guest experience and the reputation of the Group may be adversely affected. This could lead to revenue losses, fines, penalties, litigation and other additional costs.

 

LOGO

For details of incidents relating to information security

and data privacy during 2017, see pages 139 and 172.

to retain and secure franchise or management agreements. Specifically, the Group is most exposed to the US market and, increasingly, to Greater China.

Accordingly, the Group is particularly susceptible to adverse changes in these economies as well as changes in their currencies. In addition to trading conditions, the economic outlook also affects the availability of capital to current and potential owners, which could impact existing operations and health of the pipeline.

The Group is exposed to the risk of events that adversely impact domestic or international travel

The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, political or civil unrest, epidemics or threats thereof, travel-related accidents, travel-related industrial action, increased transportation and fuel costs, and natural disasters, resulting in reduced worldwide travel or other local factors impacting specific countries, cities or individual hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate planning, preparation, response or recovery in relation to a major incident or crisis may cause loss of life, prevent operational continuity, or result in financial loss and consequently impact the value of the brands and/or the reputation of the Group.

The Group is exposed to the risks of the hotel industry supply and demand cycle

The future operating results of the Group could be adversely affected by industry overcapacity (by number of rooms) and weak demand due, in part, to the cyclical nature of the hotel industry, or other differences between planning assumptions and actual operating conditions. These conditions could result in reductions in room rates and occupancy levels, which would adversely impact the financial performance of the Group.

The Group is subject to a competitive and changing industry

The Group operates in a competitive industry and must compete effectively against traditional competitors such as other global hotel chains, local hotel companies and independent hotels to win the loyalty of guests, employees and owners. The competitive landscape also includes other types of businesses, such as web-based booking channels (which include online travel agents and intermediaries), and alternative sources of accommodation such as short-term lets of private property. In order to grow and maintain its competitiveness, the Group may consider undertaking strategic transactions, including acquisitions. Failure to compete effectively in traditional and emerging areas of the business could impact the Group’s market share, System size, profitability and relationships with owners and guests.

The Group is exposed to risks related to executing and realising benefits from strategic transactions, including acquisitions

The Group announced the acquisition of Kimpton Hotels & Restaurants in December 2014 and may seek to make other strategic transactions, including acquisitions, in the future. The Group may not be able to identify opportunities or complete transactions on commercially reasonable terms or at all and may not realise the anticipated benefits from such transactions.

166 

Strategic transactions come with inherent valuation, financial and commercial risks, and regulatory and insider information risks during the execution of the transactions. In addition, the Group may face unforeseen costs and liabilities, divergence of management attention, as well as longer-term integration and operational risks, which could result in failure to realise benefits, financial losses, fall in employee morale and loss of talent.

The Group is dependent upon a wide range of external stakeholders and business partners

The Group is dependent upon the performance, behaviours and reputation of a wide range of business partners and external stakeholders, including, but not limited to, owners, contractors, lenders, suppliers, vendors, joint venture partners, online travel agents, third-party intermediaries and other business partners which may have different ethical values, interests and priorities. Further, the number and complexity of interdependencies with stakeholders is evolving. Breakdowns in relationships, contractual disputes, poor vendor performance, insolvency, stakeholder behaviours or adverse reputations, which may be outside of the Group’s control, could adversely impact on the Group’s performance and competitiveness, delivery of projects, guest experiences or the reputation of the Group or its brands.

The Group is exposed to increasing competition from online travel agents and intermediaries

A proportion of the Group’s bookings originate from large multinational, regional and local online travel agents and intermediaries with which the Group has contractual arrangements and to which it pays commissions. These websites offer a wide breadth of products, often across multiple brands, have growing booking and review capabilities, and may create the perception that they offer the lowest prices. Some of these online travel agents and intermediaries have strong marketing budgets and aim to create brand awareness and brand loyalty among consumers and may seek to commoditise hotel brands through price and attribute comparison. Further, if these companies continue to gain market share, they will impact the Group’s profitability, undermine the Group’s own booking channels and value to its hotel owners and may be able to increase commission rates and negotiate other favourable contract terms.

Tactical risks

The Group is exposed to a variety of risks related to identifying, securing and retaining franchise and management agreements

The Group’s growth strategy depends on its success in identifying, securing and retaining franchise and management agreements. This is an inherent risk for the hotel industry and franchise business model. Competition with other hotel companies may generally reduce the number of suitable franchise, management and investment opportunities offered to the Group and increase the bargaining position of property owners seeking to become a franchisee or engage a manager. The terms of new franchise or management agreements may not be as favourable as current arrangements; the Group may not be able to renew existing arrangements on similarly favourable terms or at all.

LOGO

163


IHG  |  Annual Report and Form 20-F 20142017


The Group is required to comply with existing and changing regulations and societal expectations across numerous countries, territories and jurisdictions

Government regulations affect countless aspects of the Group’s business ranging from corporate governance, health and safety, the environment, bribery and corruption, employment law and diversity, disability access, data privacy and information protection, financial, accounting and tax. Regulatory changes may require significant changes in the way the business operates and may inhibit the Group’s strategy, including the markets the Group operates in, brand protection, and use or transmittal of personal data. If the Group fails to comply with existing or changing regulations, the Group may be subject to fines, prosecution, loss of licence to operate or reputational damage.

The reputation of the Group and the value of its brands are influenced by a wide variety of factors, including the perception of stakeholder groups such as guests, owners, suppliers and communities in which the Group operates. The social and environmental impacts of its business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to (or fails to influence its business partners to) undertake responsible practices and engage in ethical behaviour, or fails to comply with relevant regulatory requirements.

The Group may face difficulties insuring its business

Historically, the Group has maintained insurance at levels determined to be appropriate in light of the cost of cover and the risk profile of the business. However, forces beyond the Group’s control, including market forces, may limit the scope of coverage the Group can obtain and the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters, may be uninsurable or simply too expensive to insure. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties.

 

Directors’ and Executive Committee members’ shareholdings

GrAs at 19 February 2018: (i) Executive Directors had the number of beneficial interests in shares (including Directors’ share awards under IHG’s share plans) set out in the table on page 73; (ii)Non-Executive Directors had the number of beneficial interests in shares set out in the table on page 76; and (iii) Executive Committee members had the number of beneficial interests in shares (including members’ share awards under IHG’s share plans) set out in the table below. These shareholdings indicate all Directors’ or Executive Committee members’ beneficial interests and those held by their spouses and other connected persons. As at 19 February 2018, no Director or Executive Committee member held more than 1.0% of the total issued share capital. None of the Directors have a beneficial interest in the shares of any subsidiary.

Executive

Committee member

    Number of shares held outright     APP deferred share awards     LTIP share awards (unvested)     Total number of shares held 
    19 Feb
2018
     31 Dec
2017
     31 Dec
2016
     19 Feb
2018
     31 Dec
2017
     31 Dec
2016
     19 Feb
2018
     31 Dec
2017
     31 Dec
2016
     19 Feb
2018
     31 Dec
2017
     31 Dec
2016
 
Claire Bennett              n/a     13,105     13,105     n/a     13,019     13,019     n/a     26,124     26,124     n/a 
Angela Brav    n/aa     68,669     27,270     n/aa     22,303     23,996     n/aa     67,364     80,709     n/aa     158,336     131,975 
Jolyon Bulley    50,275     50,275     n/a     8,180     8,180     n/a     38,413     38,413     n/a     96,868     96,868     n/a 
Federico Lalatta Costerbosa    n/aa               n/aa     6,977     18,401     n/aa     54,570     59,202     n/aa     61,547     77,603 
Yasmin Diamond                   6,561     6,561     6,351     35,209     35,209     38,363     41,770     41,770     44,714 
Kenneth Macpherson              7,600     29,057     29,057     24,569     59,675     59,675     74,344     88,732     88,732     106,513 
Eric Pearson                   22,979     22,979     24,636     72,633     72,633     86,264     95,612     95,612     110,900 
Ranjay Radhakrishnan                   31,836     31,836     25,061     41,851     41,851     31,836     73,687     73,687     56,897 
Jan Smits    n/aa     9,772          n/aa     18,618     23,724     n/aa     55,045     71,755     n/aa     81,956     95,479 
George Turner    11,507     11,507     18,000     18,683     18,683     21,815     61,511     61,511     76,744     91,701     91,701     116,559 

aAngela Brav, Federico Lalatta Costerbosa and Jan Smits left the Company on 31 December 2017.    

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Group information167


ouAdditional Information

Group information continued

p iExecutive Directors’ benefits upon termination of officenformationcontinued

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.

 

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There can also be no assurance thatFurther details on the Group will be able to identify, retain or add franchisees to the IHG System or to secure management contracts. For example, the availabilitypolicy for determination of suitable sites, market saturation, planning and other local regulations or the availability and affordability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. In connection with entering into franchise or management agreements, the Group may be required to make investments in, or guarantee the obligations of, third parties or guarantee minimum income to third parties. Theretermination payments are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group including, for example, the unwillingness of franchisees to support brand improvement initiatives. This could result in franchisees prematurely terminating contracts which would adversely impact the overall IHG System size and the Group’s financial performance.

The Group is exposed to inherent risks in relation to changing technology and systems

As the use of internet and mobile technology grows and customer needs evolve at pace, the Group may find that its evolving technology capability is not sufficient and may have to make substantial additional investments in new technologies or systems to remain competitive. Failure to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. In addition, the technologies or systems that the Group chooses to deploy may not be commercially successful or the technology or system strategy may not be sufficiently aligned with the needs of the business. As a result, this could adversely affect guest experiences, and the Group may lose customers, fail to attract new customers, incur substantial costs or face other losses. This could further impact the Group’s reputation in regards to innovation.

The Group is exposed to a variety of risks associated with its financial stability and ability to borrow and satisfy debt covenants

While the strategy of the Group is to extend the hotel network through activities that do not involve significant amounts of its own capital, the Group does require capital to fund some development opportunities, strategic acquisitions and to maintain and improve owned hotels. The Group is reliant upon having financial strength and access to borrowing facilities to meet these expected capital requirements. The majority of the Group’s borrowing facilities are only available if the financial covenantsincluded in the facilities are complied with. Non-compliance with covenants could resultDirectors’ Remuneration Policy, which

is available on IHG’s website atwww.ihgplc.com/investorsunder Corporate governance in the Group’s lenders demanding repayment of the funds advanced. If the Group’s financial performance does not meet market expectations, it may not be able to refinance existing facilities on terms considered favourable.

The Group is exposed to the risk of litigationDirectors’ Remuneration Policy section.

Certain companies in the Group are the subject of various claims and proceedings. The ultimate outcome of these matters is subject to many uncertainties, including future events and uncertainties inherent in litigation. In addition, the Group could be at risk of litigation claims made by many parties, including but not limited to: guests, customers, joint-venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of the hotels it manages. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Unfavourable outcomes of claims

or proceedings could have a material adverse impact on the Group’s results of operations, cash flow and/or financial position. Exposure to significant litigation or fines may also affect the reputation of the Group and its brands.

Operational risks

The Group is reliant on the reputation of its brands and exposed to inherent reputation risks, including those associated with intellectual property

Any event that materially damages the reputation of one or more of the Group’s existing or new brands and/or fails to sustain the appeal of the Group’s existing or new brands to its customers and owners may have an adverse impact on the value of that brand and subsequent revenues from that brand or business. In particular, if the Group is unable to create consistent, valued, and quality products and guest experiences across the owned, managed and franchised estates, or if the Group, its franchisees or business partners fail to act responsibly, this could result in an adverse impact on its brand reputation. In addition, the value of the Group’s brands could be influenced by a number of external factors outside the Group’s control, such as, but not limited to, changes in sentiments against global brands, changes in applicable regulations related to the hotel industry or to franchising, successful commoditisation of hotel brands by online travel agents and intermediaries, or changes in owners’ perceptions of the value of the Group. Furthermore, given the importance of brand recognition to the Group’s business, the protection of its intellectual property poses a risk due to the variability and changes in controls, laws and effectiveness of enforcement globally. Any widespread infringement, misappropriation or weakening of the control environment could materially harm the value of the Group’s brands and its ability to develop the business.

The Group is reliant upon the resilience of its reservations system and other key technology platforms and is exposed to risks that could cause the failure of these systems

The value of the Group is partly derived from the ability to drive reservations through its reservations system and technology platforms which are highly integrated with internal processes and linked to multiple sales channels, including the Group’s own websites, call centres, hotels, third-party intermediaries and travel agents.

Lack of resilience and operational availability of these systems provided by the Group or third-party technology providers could lead to prolonged service disruption and might result in significant business interruption, impact the guest booking experience and subsequently adversely impact Group revenues.

The Group is exposed to the risks related to information security and data privacy

The Group is increasingly dependent upon the availability, integrity and confidentiality of information, including, but not limited to, guest and employee credit card, financial and personal data; and business performance, financial reporting and commercial development. The information is sometimes held in different formats such as digital, paper, voice recordings and video and could be stored in many places, including facilities managed by third-party service providers. The threats towards the Group’s information are dynamic, and include

164


cyber attacks, fraudulent use, loss or misuse by employees and breaches of our vendors’ security arrangements amongst others. The legal and regulatory environment around data privacy and requirements set out by the payment card industry surrounding information security across the many jurisdictions in which the Group operates are constantly evolving. If the Group fails to appropriately protect information and ensure relevant controls are in place to enable the appropriate use and release of information through the appropriate channels in a timely and accurate manner, IHG System performance, guest experience and the reputation of the Group may be adversely affected. This can lead to revenue losses, fines, penalties, legal fees and other additional costs.

The Group is exposed to a variety of risks associated with safety, security and crisis management

There is a constant need to protect the safety and security of our guests, employees and assets against natural and man-made threats. These include, but are not limited to, exceptional events such as extreme weather, civil or political unrest, violence and terrorism, serious and organised crime, fraud, employee dishonesty, cyber crime, pandemics, fire and day-to-day accidents, incidents and petty crime which impact the guest or employee experience, could cause loss of life, sickness or injury and result in compensation claims, fines from regulatory bodies, litigation and impact reputation. Serious incidents or a combination of events could escalate into a crisis which, if managed poorly, could further expose the Group and its brands to significant reputational damage.

The Group requires the right people, skills and capability to manage growth and change

In order to remain competitive, the Group must employ the right people. This includes hiring and retaining highly skilled employees with particular expertise or leadership capability. The implementation of the Group’s strategic business plans could be undermined by failure to build a resilient corporate culture, failure to recruit or retain key personnel, unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or a failure to invest in the development of key skills.

Some of the markets in which the Group operates are experiencing economic growth, and the Group must compete against other companies inside and outside the hospitality industry for suitably qualified or experienced employees. Some emerging markets may not have the required local expertise to operate a hotel and may not be able to attract the right talent. Failure to attract and retain employees may threaten the success of the Group’s operations in these markets. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.

The Group is required to comply with existing and changing regulations across numerous countries, territories and jurisdictions

Government regulations affect countless aspects of the Group’s business ranging from corporate governance, health and safety, the environment, bribery and corruption, employment law and diversity, disability access, data privacy and information protection, financial, accounting and tax. Regulatory changes may require significant changes in the way the business operates and may inhibit the Group’s strategy, including the markets the

Group operates in, brand protection, and use or transmittal of customer data. If the Group fails to comply with existing or changing regulations, the Group may be subject to fines, prosecution, loss of licence to operate or reputational damage.

The Group is exposed to risks related to ethics and responsible business practices

The reputation of the Group and the value of its brands are influenced by a wide variety of factors, including the perception of stakeholder groups such as guests, owners, suppliers and communities in which the Group operates. The social and environmental impacts of its business are under increasing scrutiny, and the Group is exposed to the risk of damage to its reputation if it fails to (or fails to influence its business partners to) undertake responsible practices and engage in ethical behaviour, or fails to comply with relevant regulatory requirements.

The Group may face difficulties insuring its business

Historically, the Group has maintained insurance at levels determined to be appropriate in light of the cost of cover and the risk profile of the business. However, forces beyond the Group’s control, including market forces, may limit the scope of coverage the Group can obtain and the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters, may be uninsurable or simply too expensive to insure. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties, as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to such properties.

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IHG  Annual Report and Form 20-F 2014

Group informationcontinued

Executive Committee members’ shareholdings

Shares held by Executive Committee members (excluding the Executive Directors) as at 31 December

Executive                                

Committee

member

  Number of shares held outright   APP deferred share awards   LTIP share awards (unvested)   Total number of shares held 
    2014   2013   2014   2013   2014   2013   2014   2013 
Keith Barr   22,522     24,399     29,829     27,695     106,630     111,079     158,981     163,173  
Angela Brav   32,724     19,286     24,473     22,501     97,462     99,650     154,659     141,437  

Kenneth

Macpherson

   7,472     1,797     8,330     8,421     64,713     41,654     80,515     51,872  
Eric Pearson   1,998     65,293     25,021     22,356     102,940     103,553     129,959     191,202  
Jan Smits   30,476     106,350     32,037     28,738     104,445     116,234     166,958     251,322  
George Turner   0     3,277     30,896     35,893     95,399     106,100     126,295     145,270  

Details of the shares held by the Executive Directors can be found on page 74. These shareholdings include all beneficial interests and those held by Executive Committee members’ spouses and other connected persons.

For further details on the APP deferred share award and for the LTIP share award, see pages 80 and 82 to 85.

Description of securities other than equity securities

Fees and charges payable to a depositary

 

Category (as

(as defined by SEC)

 

Depositary actions

  

Depositary actions

Associated fee

(a) Depositing or substituting the underlying shares

  

Each person to whom ADRs are issued against deposits of shares, including deposits and issuances in respect of:

 

   share  Share distributions, stock split,splits, rights, merger; andmergers.

 

   exchange  Exchange of securities or any other transactions or event or other distribution affecting the ADSs or the deposited securitiessecurities.

  $5 for each 100 ADSs (or portion thereof)

(b) Receiving or

distributing dividends

 

Distribution of stock dividends

Distribution of cash

 

$5 for each 100 ADSs (or portion thereof)

Distribution of cash$0.02 or less per ADS (or portion thereof)

(c)  Selling or exercising rights

 

Distribution or sale of securities, the fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities

 

$5 for each 100 ADSs (or portion thereof)

(d) Withdrawing an underlying security

 

Acceptance of ADRs surrendered for withdrawal of deposited securities

 

$5 for each 100 ADSs (or portion thereof)

(e) Transferring, splitting or grouping receipts

 

Transfers, combining or grouping of depositary receipts

 

$1.50 per ADS

(f)   General depositary services, particularly those charged on an annual basis

 

Other services performed by the depositary in administering the ADRs

 

$0.02 per ADS (or portion thereof)1 not more than once each calendar year and payable at the sole discretion of the ADR Depositary by billing ADR holders or by deducting such charge from one or more cash dividends or other cash distributions

a

(g) Expenses of the depositary

 

Expenses incurred on behalf of ADR holders in connection with:

 

   compliance  Compliance with foreign exchange control regulations or any law or regulation relating to foreign investment;investment.

 

   the  The ADR Depositary’s or its custodian’s compliance with applicable law, rulelaws, rules or regulation;regulations.

 

   stock  Stock transfer or other taxes and other governmental charges;charges.

 

   cable,  Cable, telex, facsimile transmission/delivery;delivery.

 

   transfer  Transfer or registration fees in connection with the deposit and withdrawal of deposited securities;securities.

 

   expenses  Expenses of the ADR Depositary in connection with the conversion of foreign currency into US dollars (which are paid out of such foreign currency); and.

 

   any  Any other charge payable by the ADR Depositary or its agentsagents.

 

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

1 These fees are not currently being charged by the ADR Depositary.

 

a
166These fees are not currently being charged by the ADR Depositary.


 

Fees and charges payable by a depositary

Direct payments

JPMorgan Chase Bank N.A. (JPMorgan or the ADR Depositary) is the depositary for IHG’s ADR Programme.programme. The ADR Depositary’s principal executive office is at: J.P. Morgan Depositary Receipts, 4 New York Plaza, 12th Floor, New York, NY 10004, United States of America.US. The ADR Depositary has agreed to reimburse certain reasonable Company expenses related to the Company’s ADR Programmeprogramme and incurred

by the Company in connection with the ADR Programme.programme. During the year ended 31 December 2014,2017, the Company received $490,478.87$437,724 from the ADR Depositary in respect of legal, accounting and other fees incurred in connection with the preparation of the Annual Report and Form20-F, ongoing SEC compliance and listing requirements, investor relations programmes, and advertising and public relations expenditure.

168IHG  |  Annual Report and Form 20-F 2017


Indirect payments

As part of its service to the Company, the ADR Depositary has agreed to waive fees for the standard costs associated with the administration of the ADR Programme, associated operating expenses and investor relations advice. In the year ended 31 December 2014, the ADR Depositary agreed to waive fees and expenses amounting to $20,000.

Articles of Association

The Company’s articlesArticles of associationAssociation (the Articles) were adopted at the AGM held on 28 May 2010 and are available on the Company’s website atwww.ihgplc.com/investors under corporateCorporate governance. The following summarises material rights of holders of the Company’s ordinary shares under the material provisions of the Articles and English law. This summary is qualified in its entirety by reference to the Companies Act and the Articles.

The Company’s shares may be held in certificated or uncertificated form. No holder of the Company’s shares will be required to make additional contributions of capital in respect of the Company’s shares in the future.

In the following description, a ‘shareholder’ is the person registered in the Company’s register of members as the holder of the relevant share.

Principal objects

The Company is incorporated under the name InterContinental Hotels Group PLC and is registered in England and Wales with registered number 5134420. The Articles do not restrict its objects or purposes.

Directors

Under the Articles, a Director may have an interest in certain matters (Permitted Interest) without the prior approval of the Board, provided he hasthey 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, includingArticles. In particular, this includes the requirement that a Director may not vote on a resolution to authorise a matter in which he isthey are interested, nor may hethey count in the quorum of the meeting at which such business is transacted.

Further, a Director may not vote in respect of any proposal in which he,they, or any person connected with him,them, has any material interest other than by virtue of histheir interests in securities of, or otherwise in or through, the Company, nor may hethey 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 himthem 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 hethey 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 isare met). While an agreement to award remuneration to a Director is an arrangement with the Company that comprises a Permitted Interest (and therefore does not require authorisation by the Board in that respect), it is nevertheless a matter that would be expected to give rise to a conflict of interest between the Director concerned and the Company, and such conflict must be authorised by a resolution of the Board. The Director that is interested in such a matter may neither vote on the resolution to authorise such conflict, nor count in the quorum of the meeting at which it was passed. Furthermore, as noted above, the interested Director is not permitted to vote in

respect of any proposal in which he hasthey have any material interest (except in respect of the limited exceptions outlined above) nor may hethey count in the quorum of the meeting at which such business is transacted.

As such, a Director has no power, in the absence of an independent quorum, to vote on compensation to himself,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 him.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 noage-limit requirements relating to a person’s qualification to hold office as a Director of the Company.

Directors are not required to hold any shares of the Company by way of qualification.

Rights attaching to shares

Dividend rights and rights to share in the Company’s profits

Under English law, dividends are payable on the Company’s ordinary shares only out of profits available for distribution, as determined in accordance with accounting principles generally accepted in the UK and by the Companies Act. No dividend will bear interest as against the Company.

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167


IHG  Annual Report and Form 20-F 2014

Group informationcontinued

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 ofpaid-up shares or debentures of any other company).

Any dividend unclaimed by a member (or by a person entitled by virtue of transmission on death or bankruptcy or otherwise by operation of law) after six years from the date the dividend was declared, or became due for payment, will be forfeited and will revert to the Company.

Voting rights

The holders of ordinary shares are entitled, in respect of their holdings of such shares, to receive notice of general meetings and to attend, speak and vote at such meetings in accordance with the Articles.

Voting at any general meeting of shareholders is by a show of hands unless a poll, which is a written vote, is duly demanded. On a show of hands, every shareholder who is present in person or by proxy at a general meeting has one vote regardless of the number of shares held.

On a poll, every shareholder who is present in person or by proxy has one vote for every share held by that shareholder. A poll may be demanded by any of the following:

 

theThe chairman of the meeting;meeting.

 

atAt least five shareholders present in person or by proxy and entitled to vote at the meeting;meeting.

 

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Group information169


Additional Information

Group information continued

Articles of Association continued

any
Any shareholder or shareholders present in person or by proxy representing in the aggregate not less thanone-tenth of the total voting rights of all shareholders entitled to vote at the meeting; or

 

anyAny 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 toone-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:

 

anAn 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,Auditor, the increase of authorised share capital or the grant of authority to allot shares; andshares.

 

aA special resolution, which includes resolutions amending the Articles, disapplying statutorypre-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. Subject to law, otherOther meetings must be convened upon advance written notice of 14 days. The days of delivery or receipt of the notice are not included. The notice must specify the nature of the business to be transacted. The Board of Directors may, if they choose, make arrangements for shareholders who are unable to attend the place of the meeting to participate at other places.

The Articles specify that each Director shall retire every three years at the AGM and, unless otherwise decided by the Directors, shall be eligible forre-election. However, the Code recommends that all directors of FTSE 350 companies submit themselves for election orre-election (as appropriate) by shareholders every year. Therefore, all Directors will retire and offer themselves for election orre-election at the 20152017 AGM.

Variation of rights

If, at any time, the Company’s share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the Companies Act, with the consent in writing of holders of three-quarters in nominal value of the issued shares of that class or upon the adoption of a special resolution passed at a separate meeting of the holders of the shares of that class. At every such separate meeting, all of the provisions of the Articles relating to proceedings at a general meeting apply, except that the quorum is to be the number of persons (which must be two or more) who hold or represent by proxy not less thanone-third in nominal value of the issued shares of that class.

Rights in awinding-up

Except as the Company’s shareholders have agreed or may otherwise agree, upon the Company’s winding up, the balance of assets available for distribution:

after the payment of all creditors including certain preferential creditors, whether statutorily preferred creditors or normal creditors; and

subject to any special rights attaching to any class of shares,distribution is to be distributed among the holders of ordinary shares according to the amounts paid up on the shares held by them. them:

After the payment of all creditors including certain preferential creditors, whether statutorily preferred creditors or normal creditors.

Subject to any special rights attaching to any class of shares.

This distribution is generally to be made in cash. A liquidator may, however, upon the adoption of a special resolution of the shareholders, divide among the shareholders the whole or any part of the Company’s assets in kind.

Limitations on voting and shareholding

There are no limitations imposed by English law or the Articles on the right ofnon-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.

 

 

168


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.Act 1998, as amended. At 31 December 2014,2017, the minimum wage for individuals betweenaged 18 and under the age ofto 20 was £5.60 per hour, aged 21 to 24 was £5.13£7.05 per hour and £6.50for those aged 25 or over was £7.50 per hour for individuals age 21 and above (inin each case, excluding apprentices aged

under 19 years or, otherwise, in the first year of their apprenticeships). Thisapprenticeships.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.Government.

Less than five per centNone 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.

170IHG  |  Annual Report and Form 20-F 2017


Material contracts

The following contracts have been entered into otherwise than in the course of ordinary business by members of the Group: (i) in the two years immediately preceding the date of this document in the case of contracts which are or may be material; or (ii) that contain provisions under which any Group member has any obligation or entitlement that is material to the Group as at the date of this document. To the extent that these agreements include representations, warranties and indemnities, such provisions are considered standard in an agreement of that nature, save to the extent identified below.

Disposal of 80 per cent interest in InterContinental New York Barclay

On 19 December 2013, Constellation Barclay Holding US, LLC, which is an affiliate of Constellation Hotels Holding Limited, agreed to acquire, pursuant to a contribution agreement, an 80 per cent interest in a joint venture with IHG’s affiliates to own and refurbish the InterContinental New York Barclay hotel. The 80 per cent interest was acquired for gross cash proceeds of $274 million. IHG’s affiliates hold the remaining 20 per cent interest. The disposal was completed on 31 March 2014.

IHG’s management affiliate has also secured a 30-year management contract on the hotel, which commenced in 2014, with two 10-year extension rights at IHG’s discretion, giving an expected contract length of 50 years.

Constellation Barclay Holding US, LLC and IHG’s affiliates have agreed to invest through the joint venture in a significant refurbishment, repositioning and extension of the hotel. This commenced in 2014 and will take place over a period of approximately 18 months.

Under the contribution agreement, IHG’s affiliates gave certain customary warranties and indemnities to Constellation Barclay Holding US, LLC.

Disposal of interest in InterContinental Paris – Le Grand

On 7 December 2014, a share sale and purchase agreement was entered into between BHR Holdings BV (part of IHG) and Constellation Hotels France Grand SA. Under the agreement, BHR Holdings BV agreed to sell its 100 per cent interest in Société Des Hotels InterContinental France, the owner of InterContinental Paris – Le Grand, to Constellation Hotels France Grand SA. The gross sale proceeds agreed are330 million in cash.

In connection with the sale, IHG secured a 30-year management contract on the hotel, with three 10-year extension rights at IHG’s discretion, giving an expected contract length of 60 years.

Under the agreement, BHR Holdings BV gave certain customary warranties and indemnities to Constellation Hotels France Grand SA.

Acquisition of the Kimpton Hotels & Restaurants business

On 15 December 2014, a share sale and purchase agreement was entered into between Kimpton Group Holding LLC and Dunwoody Operations, Inc., an affiliate of IHG. Under the agreement, Dunwoody Operations, Inc. agreed to buy a 100 per cent interest in Kimpton Hotel & Restaurant Group, LLC, the principal trading company of the Kimpton group, from Kimpton Group Holding LLC. The purchase completed on 16 January 2015.

Under the agreement, Dunwoody Operations, Inc. gave certain customary warranties and indemnities to the seller.

The purchase price payable by Dunwoody Operations, Inc. in respect of the acquisition was $430 million paid in cash.

£750 Million Euro Medium Term Note Programme

In 2012, the Group updated its Euro Medium Term Note programme (Programme) and issued a tranche of £400 million 3.875% notes due 28 November 2022.

On 9 November 2012, an amended and restated trust deed (Trust Deed) was executed by InterContinental Hotels Group PLC as issuer (Issuer), Six Continents Limited and InterContinental Hotels Limited as guarantors (Guarantors) and HSBC Corporate Trustee Company (UK) Limited as trustee (Trustee), pursuant to which the trust deed dated 29 November 2009, as supplemented by the first supplemental trust deed dated 7 July 2011 between the same parties relating to the Programme, was amended and restated. Under the Trust Deed, the Issuer may issue notes (Notes) unconditionally and irrevocably guaranteed by the Guarantors, up to a maximum nominal amount from time to time outstanding of £750 million (or its equivalent in other currencies). Notes are to be issued in series (each a Series) in bearer form. Each Series may comprise one or more tranches (each a Tranche) issued on different issue dates. Each Tranche of Notes will be issued on the terms and conditions set out in the updated base prospectus dated 9 November 2012 (Base Prospectus) as amended and/or supplemented by a document setting out the final terms (Final Terms) of such Tranche or in a separate prospectus specific to such Tranche.

Under the Trust Deed, each of the Issuer and the Guarantors has given certain customary covenants in favour of the Trustee.

Final Terms were issued (pursuant to the previous base prospectus dated 27 November 2009) on 9 December 2009 in respect of the issue of a Tranche of £250 million 6% Notes due 9 December 2016 (2009 Issuance). Final Terms were issued pursuant to the Base Prospectus on 26 November 2012 in respect of the issue of a

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Tranche of £400 million 3.875% Notes due 28 November 2022 (2012 Issuance).

The Final Terms issued under each of the 2009 Issuance and the 2012 Issuance provide that the holders of the Notes have the right to repayment if the Notes: (a) become non-investment grade within the period commencing on the date of announcement of a change of control and ending 90 days after the change of control (Change of Control Period) and are not subsequently, within the Change of Control Period, reinstated to investment grade; (b) are downgraded from a non-investment grade and are not reinstated to its earlier credit rating or better within the Change of Control Period; or (c) are not credit rated and do not become investment-grade credit rated by the end of the Change of Control Period.

Further details of the Programme and the Notes are set out in the Base Prospectus, a copy of which is available (as is a copy of each of the Final Terms dated 7 December 2009 relating to the 2009 Issuance and the Final Terms dated 26 November 2012 relating to the 2012 Issuance) on the Company’s website at www.ihgplc.com/ investors under financial library for 2009. The Notes issued pursuant to the 2009 Issuance and the Notes issued pursuant to the 2012 Issuance are referred to as ‘£250 million 6% bonds’ and the ‘£400 million 3.875% bonds’ respectively in the Group Financial Statements.

On 27 November 2009, the Issuer and the Guarantors entered into an agency agreement (Agency Agreement) with HSBC Bank plc as principal paying agent and the Trustee, pursuant to which the Issuer and the Guarantors appointed paying agents and calculation agents in connection with the Programme and the Notes.

Under the Agency Agreement, each of the Issuer and the Guarantors has given a customary indemnity in favour of the paying agents and the calculation agents. There was no change to the Agency Agreement in 2011 or 2012.

On 9 November 2012, the Issuer and the Guarantors entered into a dealer agreement (Dealer Agreement) with HSBC Bank plc as arranger and Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc, Merrill Lynch International, Mitsubishi UFJ Securities International plc and The Royal Bank of Scotland plc as dealers (Dealers), pursuant to which the Dealers were appointed in connection with the Programme and the Notes.

Under the Dealer Agreement, each of the Issuer and the Guarantors has given customary warranties and indemnities in favour of the Dealers.

Syndicated Facility

On 7 November 2011,30 March 2015, the Company signed a five-year $1.07$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, NB International Finance B.V., Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plcall acting as joint bookrunners and The Bank of Tokyo-Mitsubishi UFJ, Ltd., all acting as mandated lead arrangers and Banc of America Securities LimitedLtd as facility agent (Syndicated 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 + 0.90%0.40% and LIBOR + 1.70%1.00% depending on the level of the ratio. AtThe Syndicated Facility was drawn as to $240 million as at 31 December 2014,2017.

£2 billion Euro Medium Term Note programme

In 2016, the Group updated its Euro Medium Term Note programme (Programme) and issued a tranche of £350 million 2.125% notes due 24 August 2026 (2016 Issuance).

On 11 August 2016, an amended and restated trust deed (Trust Deed) was executed by InterContinental Hotels Group PLC as issuer (Issuer), Six Continents Limited and InterContinental Hotels Limited as guarantors (Guarantors) and HSBC Corporate Trustee Company (UK) Limited as trustee (Trustee), pursuant to which the trust deed dated 27 November 2009, as supplemented by three supplemental trust deeds dated 7 July 2011, 9 November 2012 and 16 June 2015 between the same parties relating to the Programme, were amended and restated. Under the Trust Deed, the Issuer may issue notes (Notes) unconditionally and irrevocably guaranteed by the Guarantors, up to a maximum nominal amount from time to time outstanding of £2 billion (or its equivalent in other currencies). Notes are to be issued in series (each a Series) in bearer form. Each Series may comprise one or more tranches (each a Tranche) issued on different issue dates. A Tranche of Notes may be issued on the terms and conditions set out in a base prospectus as amended and/or supplemented by a document setting out the sumsfinal terms (Final Terms) of US$270msuch Tranche or in a separate prospectus specific to such Tranche.

Under the Trust Deed, each of the Issuer and75m had been drawn down the Guarantors has given certain customary covenants in favour of the Trustee.

Final Terms were issued (pursuant to a base prospectus dated 9 November 2012) on 26 November 2012, in respect of the issue of a Tranche of £400 million 3.875% Notes due 28 November 2022 (2012 Issuance). Final Terms were issued (pursuant to a base prospectus dated 16 June 2015) on 12 August 2015 in respect of the issue of a Tranche of £300 million 3.75% Notes due 14 August 2025 (2015 Issuance). Final Terms were issued (pursuant to the base prospectus dated 11 August 2016) on 22 August 2016 in respect of the 2016 Issuance.

The Final Terms issued under each of the Syndicated Facility.2012 Issuance, the 2015 Issuance and 2016 Issuance provide that the holders of the Notes have the right to repayment if the Notes (a) become non-investment grade within the period commencing on the date of announcement of a change of control and ending 90 days after the change of control (Change of Control Period) and are not subsequently, within

 

the Change of Control Period, reinstated to investment grade; (b) are downgraded from a non-investment grade and are not reinstated to its earlier credit rating or better within the Change of Control Period; or (c) are not credit rated and do not become investment grade credit rated by the end of the Change of Control Period.

$Further details of the Programme and the Notes are set out in the base prospectus, a copy of which is available (as is a copy of each of the Final Terms dated 26 November 2012 relating to the 2012 Issuance, the Final Terms dated 12 August 2015 relating to the 2015 Issuance and the Final Terms dated 22 August 2016 relating to the 2016 Issuance) on the Company’s website atwww.ihgplc.com. The Notes issued pursuant to the 2012 Issuance, the Notes issued pursuant to the 2015 Issuance and the Notes issued pursuant to the 2016 Issuance are referred to as ‘£400 Million Term Loan Facilitymillion 3.875% bonds’, ‘£300 million 3.750% bonds’ and ‘£350 million 2.125% bonds’ respectively in the Group Financial Statements.

On 13 January 2015,11 August 2016, the Company signedIssuer 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 six-month $400 million term loan facilitycustomary indemnity in favour of the paying agents and the calculation agents.

On 11 August 2016, the Issuer and the Guarantors entered into a dealer agreement (Dealer Agreement) with HSBC Bank of Americaplc as arranger and Barclays Bank PLC, HSBC Bank plc, SunTrust Robinson Humphrey, Inc., Merrill Lynch International, LimitedMUFG Securities EMEA plc and The Royal Bank of Scotland plc as arranger, facility agentdealers (Dealers), pursuant to which the Dealers were appointed in connection with the Programme and lender.the Notes.

Under the Dealer Agreement, each of the Issuer and the Guarantors has given customary warranties and indemnities in favour of the Dealers.

Disposal of InterContinental Paris – Le Grand

On 7 December 2014, a share sale and purchase agreement was entered into between BHR Holdings B.V. (part of IHG) and Constellation Hotels France Grand SA. Under the agreement, BHR Holdings B.V. agreed to sell Société Des Hotels InterContinental France, the owner of InterContinental Paris – Le Grand, to Constellation Hotels France Grand SA. The Company may electgross sale proceeds agreed were330 million in cash. The disposal was completed on 20 May 2015.

In connection with the sale, IHG secured a 30-year management contract on the hotel, with three 10-year extension rights at IHG’s discretion, giving an expected contract length of 60 years.

Under the agreement, BHR Holdings B.V. gave certain customary warranties and indemnities to extendConstellation Hotels France Grand SA.

Acquisition of the repayment date by upKimpton Hotels & Restaurants business

On 15 December 2014, a share sale and purchase agreement was entered into between Kimpton Group Holding LLC and Dunwoody Operations, Inc., an affiliate of IHG. Under the agreement, Dunwoody Operations, Inc. agreed to two further periodsbuy Kimpton Hotel & Restaurant Group, LLC, the principal trading company of six months.the Kimpton Group, from Kimpton Group Holding LLC. The purchase completed on 16 January 2015.

The interest marginpurchase price payable by Dunwoody Operations, Inc. in respect of the acquisition was $430 million paid in cash.

Under the agreement, Dunwoody Operations, Inc. gave certain customary warranties and indemnities to the seller.

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Additional Information

Group information continued

Material contracts continued

Disposal of InterContinental Hong Kong

On 10 July 2015, a share sale and purchase agreement was entered into between Hotel InterContinental London (Holdings) Limited (a Group company) and Supreme Key Limited. Under the agreement, Hotel InterContinental London (Holdings) Limited agreed to sell Trifaith Investments Limited, the owner of InterContinental Hong Kong Limited, which in turn is the owner of InterContinental Hong Kong, to Supreme Key Limited. The gross sale proceeds agreed were $938 million in cash. The disposal completed on borrowings is LIBOR + 0.6%, increasing30 September 2015.

In connection with the sale, IHG secured a 37-year management contract on the hotel, with three 10-year extension rights at IHG’s discretion, giving an expected contract length of 67 years.

Under the agreement, Hotel InterContinental London (Holdings) Limited gave certain customary warranties and indemnities to LIBOR + 0.8% and LIBOR +1.0% for the first and second six-month extension periods respectively. The facility was fully drawn at 16 February 2015.Supreme Key Limited.

Legal proceedings

Group companies have extensive operations in the UK, as well as internationally, and are involved in a number of legal claims and proceedings incidental to those operations. It is the Company’s view that such proceedings, either individually or in the aggregate, have not in the recent past and are not likely to have a significant effect on the Group’s financial position or profitability. Notwithstanding the above, the Company notes the matters set out below. Litigation is inherently unpredictable and, as at 16of 19 February 2015,2018, the outcome of these matters cannot be reasonably determined.

A claim was filed on 9 July 2013 by Pan-American Life Insurance Company against Louisiana Acquisitions Corp. and InterContinentalInter-Continental Hotels Corporation (IHC).Corporation. The claimant originally identified eight causes of action: breach of contract; breach of partnership, fiduciary duties and good faith obligations; fraud; civil conspiracy; conversion; unfair trade practices; unjust enrichment; and alter ego. As at 16 February 2015, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimate the amount of any loss.

On 31 July 2012, the UK’s Office of Fair Trading (OFT) issued a Statement of Objections alleging that the Company (togetheraction with Booking.com B.V. and Expedia, Inc.) had infringed competition law in relationrespect to the online supply of room-only hotel accommodation by online travel agents.

The Company has co-operated fully with the investigation. On 31 January 2014, the OFT announced its decision to accept a series of commitmentsmanagement and to conclude its investigation without any finding of infringement or wrongdoing, or the imposition of any fine. On 26 September 2014, the Competition Appeal Tribunal allowed an appeal brought by Skyscanner Limited and quashed the decision to accept the commitments. The Competition and Markets Authority (the OFT’s successor) has decided not to appeal the judgmentsale of the Competition Appeal Tribunal.InterContinental New Orleans. On 21 August 2017, the Court granted summary judgment to defendants on all of claimant’s remaining claims. Claimant appealed the ruling. As at 16of 19 February 2015,2018, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimate the amount of any loss.

A class-action claim was filed on 35 July 20122016 by two claimants allegingCPTS Hotel Lessee, LLC against Holiday Hospitality Franchising, LLC (HHF). The claimant alleges breach of the license agreement and seeks a declaratory judgment from the court that InterContinental Hotels of San Francisco, Inc.it has the right to terminate its license with HHF. HHF and InterContinental Hotels Group Resources, Inc. violated California Penal Code 632.7, basedfiled a claim against CPTS Hotel Lessee, LLC also seeking a declaratory judgment and alleging breach of contract and fraud. As of 19 February 2018, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is probable or to estimate the amount of any loss.

A claim was filed on 20 September 2016 against Kimpton Hotel and Restaurant Group, LLC, seeking class action status and alleging breach of implied contract, negligence, and deceptive business practices related to an alleged data breach. As of 19 February 2018,

the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is likely or to make a reliable estimate of the possible financial effect of any claims.

A claim was filed on 5 May 2017 against InterContinental Hotels Group, PLC, Inter-Continental Hotels Corporation, and InterContinental Hotels Group Resources, Inc. seeking class action status and alleging breach of implied contract, negligence, and unjust enrichment regarding an alleged data breach. As of 19 February 2018, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is likely or to make a reliable estimate of the possible financial effect of any claims.

A claim was filed on 26 June 2017 against Inter-Continental Hotels Corporation, InterContinental Hotels Group Resources, Inc., and InterContinental Hotels Group (Canada), Inc. seeking class action status and alleging breach of fiduciary duty, negligence, breach of confidence, intrusion upon seclusion, breach of contract, breach of privacy legislation, and unjust enrichment regarding an alleged data breach. As of 19 February 2018, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to determine whether any loss is likely or to make a reliable estimate of the possible financial effect of any claims.

A claim was filed on 26 January 2018 against InterContinental Hotels Group, PLC, Inter-Continental Hotels Corporation, and InterContinental Hotels Group Resources, Inc. alleging negligence and seeking class action status, declaratory judgment, injunctive relief and unspecified damages regarding an alleged improper recordingdata breach. As of cellular phone calls originating from California19 February 2018, the likelihood of a favourable or unfavourable result cannot be reasonably determined and it is not possible to IHG customer care and reservations centres. The claimants subsequently amendeddetermine whether any loss is likely or to make a reliable estimate of the claim to include Six Continents Hotels, Inc. We are currently involved in settlement discussions with respect to this claim.possible financial effect of any claims.

 

 

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Shareholder information

Exchange controls and restrictions on payment of dividends

There are no restrictions on dividend payments to US citizens.

Although there are currently no UK foreign exchange control restrictions on the export or import of the capital or the payment of dividends on the ordinary shares or the ADSs, economic sanctions which may be in force in the UK from time to time impose restrictions on the payment of dividends to persons resident (or treated as so resident) in or governments of (or persons exercising public functions in) certain countries.

Other than economic sanctions which may be in force in the UK from time to time, there are no restrictions under the Articles or under English law that limit the right of non-resident or foreign owners to hold or vote the ordinary shares or the ADSs. In addition, the Articles contain certain limitations on the voting and other rights of any holder of ordinary shares whose holding may, in the opinion of the Directors, result in the loss or failure to secure the reinstatement of any licence or franchise from any US governmental agency held by Six Continents Hotels, Inc. or any subsidiary thereof.

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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:

 

certainCertain financial institutions;institutions.

 

insurance companies;Insurance companies.

 

dealersDealers and traders in securities who use a mark-to-market method of tax accounting;accounting.

 

personsPersons 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;ADSs.

 

personsPersons whose functional currency for US federal income tax purposes is not the US dollar;dollar.

 

partnershipsPartnerships or other entities classified as partnerships for US federal income tax purposes;purposes.

 

personsPersons liable for the alternative minimum tax;tax.

 

tax-exempt organisations;Tax-exempt organisations.

 

personsPersons who acquired the Company’s ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise in connection with employment; oremployment.

 

personsPersons who, directly or indirectly, own 10 per centordinary shares or ADSs representing 10% or more of the Company’s voting stock.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 any political subdivision thereof;the District of Columbia; (iii) an estate whose income is subject to US federal income tax regardless of its source; or (iv) a trust, if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust.

This section is based on the IR Code, its legislative history, existing and proposed regulations, published rulings and court decisions, and on UK tax laws and the published practice of HM Revenue and Customs (HMRC), all as of the date hereof. These laws, and that practice, are subject to change, possibly on a retroactive basis.

This section is further based in part upon the representations of the ADR Depositary and assumes that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. For US federal income tax purposes, an owner of ADRs evidencing ADSs will generally be treated as the owner of the underlying shares represented by those ADSs. For UK tax purposes, in practice, HMRC will also regard holders of ADSs as the beneficial owners of the ordinary shares represented by those ADSs (although case law has cast some doubt on this). The discussion below assumes that HMRC’s position is followed.

Generally, exchanges of ordinary shares for ADSs, and ADSs for ordinary shares, will not be subject to US federal income tax or UK taxation on capital gains, although UK stamp duty reserve tax (SDRT) may arise as described below.

The US Treasury has expressed concerns that parties to whom ADRsADSs are pre-released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders and the issuer of the securities underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by US holders of ADSs. Such actions would also be inconsistent with the claiming of the preferential rates of tax, described below, for qualified dividend income. Accordingly, the availability of the preferential rates of tax for qualified dividend income described below could be affected by actions taken by parties to whom the ADRsADSs are pre-released.

The following discussion assumes that the Company is not, and will not become, a passive foreign investment company (PFIC), as described below.

Investors should consult their own tax advisorsadvisers regarding the US federal, state and local, the UK and other tax consequences of owning and disposing of ordinary shares or ADSs in their particular circumstances.

The following disclosures assumes that the Company is not, and will not become, a positive foreign investment company (PFIC), as described below.

Taxation of dividends

UK taxation

Under current UK tax law, the Company will not be required to withhold tax at source from dividend payments it makes.

A US holder who is not resident for UK tax purposes in the UK and who is not trading in the UK will generally not be liable for UK taxation on dividends received in respect of the ADSs or ordinary shares.

US federal income taxation

A US holder is generally subject to US federal income taxation on the gross amount of any dividend paid by the Company out of its current or accumulated earnings and profits (as determined for US federal income tax purposes). Distributions in excess of the Company’s current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a return of

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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‘qualified dividend income”income’. The Company expects that dividends paid by the Company with respect to the ADSs will constitute qualified dividend income. US holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at these preferential rates.

Dividends must be included in income when the US holder, in the case of shares, or the ADR Depositary, in the case of ADSs, actually or constructively receives the dividend, and will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. For foreign tax credit limitation purposes, dividends will generally be income from sources outside the US.

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Additional Information

Shareholder information continued

Taxation continued

The amount of any dividend paid in pounds sterling will be the US dollar value of the sterling payments made, determined at the spot sterling/US dollar rate on the date the dividend distribution is includible in income, regardless of whether the payment is in fact converted into US dollars. If the dividend is converted into US dollars on that date, a US holder should not be required to recognise foreign currency gain or loss in respect of the dividend income. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date the payment is converted into US dollars will be treated as ordinary income or loss from sources within the US.

Taxation of capital gains

UK taxation

A US holder who is not resident for UK tax purposes in the UK and who is not trading in the UK will not generally be liable for UK taxation on capital gains, or eligible for relief for allowable losses, realised or accrued on the sale or other disposal of ADSs or ordinary shares. A US holder of ADSs or ordinary shares who is an individual and who, broadly, has temporarily ceased to be resident in the UK or has become temporarily treated as non-resident for UK tax purposes for a period of not more than five years (or, for departures before 6 April 2013, ceases to be resident or ordinarily resident or becomes treated as non-resident for less than five years of assessment) and who disposes of ordinary shares or ADSs during that period may, for the year of assessment when that individual becomes resident again in the UK, be liable to UK tax on capital gains (subject to any available exemption or relief), notwithstanding the fact that such US holder was not treated as resident in the UK at the time of the sale or other disposal.

US federal income taxation

A US holder who sells or otherwise disposes of ordinary shares or ADSs will recognise a capital gain or loss for US federal income tax purposes equal to the difference between the amount realised and its tax basis in the ordinary shares or ADSs, each determined in US dollars. Such capital gain or loss will be long-term capital gain or loss where the US holder has a holding period greater than one year. Losses may also be treated as long-term capital losses to the extent of certain “extraordinary dividends”‘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

TheBased 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 20142017 taxable year. However, this conclusion is an annual factual determination and thus may be subject to change. If the Company were to be treated as a PFIC 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 exchangedisposition 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”‘excess distribution’ received on the ordinary shares or ADSs (generally, the excess of any distribution received on the ordinary shares or ADSs during the taxable year over 125 per cent125% of the average amount of distributions received during a specified prior period), and the. The preferential rates for qualified dividend income received by certain non-corporate US holdersdescribed above would not apply.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 to be treated as a PFIC infor any taxable year in which a US holder held ordinary shares or ADSs, a US holder willwould generally be required to file IRS Form 8621 with their annual US federal income tax returns, subject to certain exceptions.

Additional tax considerations

UK inheritance tax

An individual who is neither domiciled nor deemed domiciled in the UK (under certain existing UK rules relating to previous domicile or long residence)residence, or under expanded UK rules taking effect from 6 April 2017) is only chargeable to UK inheritance tax to the extent the individual owns assets situated in the UK. As a matter of UK law, it is not clear whether the situs of an ADS for UK inheritance tax purposes is determined by the place where the depositary is established and records the entitlements of the deposit holders, or by the situs of the underlying share which the ADS represents, but the UK tax authorities may take the view that the ADSs, as well as the ordinary shares, are or represent UK situsUK-situs assets.

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However, an individual who is domiciled in the US (for the purposes of the Estate and Gift Tax Convention (Convention)(the Convention), and is not a UK national as defined in the Convention, will not be subject to UK inheritance tax (to the extent UK inheritance tax applies) in respect of the ordinary shares or ADSs on the individual’s death or on a transfer of the ordinary shares or ADSs during their lifetime, provided that any applicable US federal gift or estate tax is paid, unless the ordinary shares or ADSs are part of the business property of a UK permanent establishment or pertain to a UK fixed base of an individual used for the performance of independent personal services. Where the ordinary shares or ADSs have been placed in trust by a settlor, they may be subject to UK inheritance tax unless, when the trust was created, the settlor was domiciled in the US and was not a UK national. If no relief is given under the Convention, inheritance tax may be charged on death and also on the amount by which the value of an individual’s estate is reduced as a result of any transfer made by way of gift or other undervalue transfer, broadly within seven years of death, and in certain other circumstances. Where the ordinary shares or ADSs are subject to both UK inheritance tax and to US federal gift or estate tax, the Convention generally provides for either a credit against US federal tax liabilities for UK inheritance tax paid or for a credit against UK inheritance tax liabilities for US federal tax paid, as the case may be.

UK stamp duty and SDRT

Neither stamp duty nor SDRT will generally be payable in the UK on the purchase or transfer of an ADS, provided that the ADS and any separate instrument or written agreement of transfer are executed and remain at all times outside the UK. UK legislation does however provide for stamp duty (in the case of transfers) or SDRT to be payable at the rate of 1.5 per cent1.5% 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.

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Following litigation on the subject, HMRC has accepted that it will no longer seek to apply the 1.5 per cent1.5% SDRT charge when new shares are issued to a clearance service or depositary receipt system on the basis that the charge is not compatible with EU law. The 2017 Autumn Budget included a statement that the Government will not reintroduce the 1.5% charge on the issue of shares (and transfers integral to the raising of capital) into clearance service or depositary receipt systems following the UK’s exit from the EU. In HMRC’s view, the 1.5 per cent1.5% 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. This view is currently being challenged in further litigation. Accordingly, specificSpecific professional advice should be sought before paying the 1.5 per cent1.5% 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 per cent0.5% of the amount of value of the consideration (rounded up to the next multiple of £5 in the case of stamp duty). A transfer of ordinary shares from a nominee to its beneficial owner, including the transfer of underlying ordinary shares from the depositary to an ADS holder, under which no beneficial interest passes, will not be subject to stamp duty or SDRT.

US backup withholding and information reporting

Payments of dividends and othersales 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)13a–15(e) and 15d-15(e)15d–15(e) of the Securities Exchange Act 1934).

These are defined as those controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act 1934 is recorded, processed, summarised and reported within the specified periods. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Group’s disclosure controls and procedures were effective.

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Shareholder information175


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 April 2016 by the Financial Reporting Council in the UK in 2012 (the Code) is set out on pages 70 to 72.62 and 63.

IHG has also adopted the corporate governance requirements of the US Sarbanes-Oxley Act and related rules and of the NYSE, to the extent that they are applicable to it as a foreign private issuer. As a foreign private issuer, IHG is required to disclose any significant ways in which its corporate governance practices differ from those followed by US companies. These are as follows:

Basis of regulation

The Code contains a series of principles and provisions. It is not, however, mandatory for companies to follow these principles. Instead, companies must disclose how they have applied them and disclose, if applicable, any areas of non-compliance along with an explanation for the non-compliance.

In contrast, US companies listed on the NYSE are required to adopt and disclose corporate governance guidelines adopted by the NYSE.

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IHG  Annual Report and Form 20-F 2014

Shareholder informationcontinued

Independent Directors

The Code’s principles recommend that at least half the Board, excluding the Chairman, should consist of independentIndependent Non-Executive Directors. As at 1619 February 2015,2018, the Board consisted of the Chairman, independent at the time of his appointment, three Executive Directors and seven independentIndependent Non-Executive Directors. NYSE listing rules applicable to US companies state that companies must have a majority of independent directors. The NYSE set out five bright line tests for director independence. The Board’s judgement is that all of its Non-Executive Directors are independent. However, it did not explicitly take into consideration the NYSE’s tests in reaching this determination.

Chairman and Chief Executive Officer

The Code recommends that the Chairman and Chief Executive Officer should not be the same individual to ensure that there is a clear division of responsibility for the running of the Company’s business. There is no corresponding requirement for US companies. The roles of Chairman and Chief Executive Officer were, as at 1619 February 20152018 and throughout 2014,2017, fulfilled by separate individuals.

Committees

The Company has a number of Board Committees which are similar in purpose and constitution to those required for domestic companies under NYSE rules. The NYSE requires US companies to have bothaudit, remuneration and nominating/corporate governance committees composed entirely of independent directors, as defined under the NYSE rules. The Company’s Nomination Committee consists only of Non-Executive Directors and the Company’s Audit and Remuneration Committees consists entirely of Non-Executive Directors who are independent under the standards of the Code, which may not necessarily be the same as the NYSE independence standards. The nominating/governance committee is responsible for identifying individuals qualified to become Board members and to recommend

to the Board a set of corporate governance principles. As the Company is subject to the Code, the Company’s Nomination Committee is only responsible for nominating, for approval ofby the Board, candidates for appointment to the Board, thoughalthough it also assists in developing the role of the Senior Independent Non-Executive Director. The Company’s Nomination Committee consists of the Chairman of the Company and all the independentIndependent Non-Executive Directors.

The Chairman of the Company is not a member of either of the Remuneration or the Audit Committees.Committee. As set out on page 65,56, the Audit Committee is chaired by an independentIndependent Non-Executive Director who, in the Board’s view, has the experience and qualifications to satisfy the criteriacriterion under US rules for an “audit‘audit committee financial expert”expert’.

Non-Executive Director meetings

Non-managementNYSE rules require that non-management directors of US companies must meet on a regular basis without management present, and independent directors must meet separately at least once per year. The Code requires: (i) the Board Chairman to hold meetings with the Non-Executive Directors without the Executive Directors present; and (ii) the Non-Executive Directors to meet at least annually without the Chairman present to appraise the Chairman’s performance. The Company’s Non-Executive Directors have met frequently without Executive Directors being present, and intend to continue this practice, after every Board meeting if possible.

Shareholder approval of equity compensation plans

The NYSE rules require that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to those plans. The Company complies with UK requirements which are similar to the NYSE rules. The Board does not, however, explicitly take into consideration the NYSE’s detailed definition of “material revisions”‘material revisions’.

Code of Conduct

The NYSE requires companies to adopt a code of business conduct and ethics, applicable to directors, officers and employees. Any waivers granted to directors or officers under such a code must be promptly disclosed. As set out on page 74,161, IHG’s Code of Conduct is applicable to all Directors, officers and employees, and further information on the Code of Conduct is available on the Company’s website atwww.ihgplc.com/investors under corporateCorporate governance. No waivers have been granted under the Code of Conduct.

Compliance certification

Each Chief Executivechief 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.

 

 

176IHG  |  Annual Report and Form 20-F 2017


 

Selected five-year consolidated financial information

The selected consolidated financial data set forth in the table on the next pagebelow for the years ended 31 December 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2014 has2017 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, which have been audited by its independent registered public accounting firm, Ernst & Young LLP.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 on the next pagebelow should be read in conjunction with, and is qualified in its entirety by reference to, the Group Financial Statements and Notesnotes thereto included elsewhere in this Annual Report andForm 20-F.

Group income statement data

 

     $m, except earnings per ordinary share 
For the year ended 31 December            2017             2016             2015             2014             2013 
Revenue    1,784     1,715     1,803     1,858     1,903 
Total operating profit before exceptional items    759     707     680     651     668 
Exceptional items    4     (29    819     29     5 
Total operating profit    763     678     1,499     680     673 
Financial income    4     6     5     3     5 
Financial expenses    (89    (93    (92    (83    (78
Profit before tax    678     591     1,412     600     600 
Tax:                              

On profit before exceptional items

    (201    (186    (180    (179    (175

On exceptional items

    116     12     (8    (29    (6

Exceptional tax

                        (45
     (85    (174    (188    (208    (226
Profit for the year from continuing operations:    593     417     1,224     392     374 

Attributable to:

                              

Equity holders of the parent

    592     414     1,222     391     372 

Non-controlling interest

    1     3     2     1     2 
Earnings per ordinary share (continuing and total operations):                              

Basic

    306.7¢     195.3¢     520.0¢     158.3¢     140.9¢ 

Diluted

    305.2¢     193.5¢     513.4¢     156.4¢     139.3¢ 

 

Group statement of financial position data

 

 

      
     $m, except number of shares 
For the year ended 31 December    2017     2016     2015     2014     2013 
Goodwill and other intangible assets    1,467     1,292     1,226     643     518 
Property, plant and equipment    425     419     428     741     1,169 
Investments and other financial assets    369     359     420     368     321 
Non-current trade and other receivables         8     3     3      
Retirement benefit assets    3               8     7 
Non-current tax receivable    16     23     37     34     16 
Deferred tax assets    56     48     49     87     108 
Current assets    839     778     1,606     624     700 
Assets classified as held for sale                   310     228 
Total assets    3,175     2,927     3,769     2,818     3,067 
Current liabilities    1,304     1,134     1,369     943     928 
Long-term debt    1,893     1,606     1,239     1,569     1,269 
Net (liabilities)/assets    (851    (759    319     (717    (74
Equity share capital    154     141     169     178     189 
IHG shareholders’ equity    (858    (767    309     (725    (82
Number of shares in issue at end of the year (millions)    197     206     248     248     269 

 

174


Group income statement data
For the year ended 31 December  2014   2013   2012   2011   2010 
    

 

($m, except earnings per ordinary share)

 
Revenue1   1,858     1,903     1,835     1,768         1,628  
Total operating profit before exceptional operating items   651     668     605     548     438  
Exceptional operating items1   29     5     (4   57     (7
Total operating profit1   680     673     601     605     431  
Financial income   3     5     3     2     2  
Financial expenses   (83   (78   (57   (64   (64
Profit before tax   600     600     547     543     369  
Tax:                         
On profit before exceptional items   (179   (175   (151   (117   (96
On exceptional operating items   (29   (6   1     (4   1  
Exceptional tax        (45   141     43       
    (208   (226   (9   (78   (95
Profit after tax:   392     374     538     465     274  
Gain on disposal of discontinued operations, net of tax                       2  
Profit for the year   392     374     538     465     276  
                          
Attributable to:                         

Equity holders of the parent

   391     372     537     465     276  

Non-controlling interest

   1     2     1            
Profit for the year   392     374     538     465     276  
Earnings per ordinary share:                         
Continuing operations:                         

Basic

   158.3¢         140.9¢         187.1¢         160.9¢     95.1¢  

Diluted

   156.4¢     139.3¢     183.9¢     157.1¢     92.6¢  
Total operations:                         

Basic

   158.3¢     140.9¢     187.1¢     160.9¢     95.8¢  

Diluted

   156.4¢     139.3¢     183.9¢     157.1¢     93.2¢  

 

1Relates to continuing operations.

 

Group statement of financial position data

 

  

  

31 December  2014   2013
(restated1)
   2012
(restated1)
   2011
(restated1)
   2010
(restated1)
 
    

 

($m, except number of shares)

 
Goodwill and intangible assets   643     518     447     400     358  
Property, plant and equipment   741     1,169     1,056     1,362     1,690  
Investments and other financial assets   368     321     239     243     178  
Non-current trade and other receivables   3                      
Retirement benefit assets   8     7     99     21     5  
Non-current tax receivable   34     16     24     41       
Deferred tax assets   87     108     204     106     88  
Current assets   624     700     852     784     659  
Assets classified as held for sale   310     228     534     217       
Total assets   2,818     3,067     3,455     3,174     2,978  
Current liabilities   943     928     972     1,066     1,136  
Long-term debt   1,569     1,269     1,242     670     776  
Net (liabilities) / assets   (717   (74   317     555     278  
Equity share capital   178     189     179     162     155  
IHG shareholders’ equity   (725   (82   308     547     271  
Number of shares in issue at end of the year (millions)   248     269     268     290     289  

1Restated for the adoption of ‘Offsetting Financial Assets and Financial Liabilities’ (Amendments to IAS 32), see page 107.

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IHG  |  Annual Report and Form 20-F 20142017  |  Additional Information  |  Shareholderinformation

177


Additional Information

 

Shareholder information continued

Shareholder informationcontinued

Return of funds

Since March 2004, the Group has returned over £4.8bn£6.2 billion of funds to shareholders by way of special dividends, capital returns and share repurchase programmes.

On 2 May 2014,21 February 2017, the Company announced a $750m$400 million return of funds to shareholders via special dividend with share consolidation. The special dividend was paid on 14 July 2014.22 May 2017.

 

Return of funds programme Timing  Total returnTiming                     Total  returnReturned to date
£501m special dividend1a Paid in December 2004 £501m £501m
£250m share buyback Completed in 2004 £250m £250m
£996m capital return1a Paid in July 2005 £996m £996m
£250m share buyback Completed in 2006 £250m £250m
£497m special dividend1a Paid in June 2006 £497m £497m
£250m share buyback Completed in 2007 £250m £250m
£709m special dividend1a Paid in June 2007 £709m £709m
£150m share buyback n/a2b £150m £120m
$500m special dividend1,3a,c Paid in October 2012 £315m4($500m)  £315m ($505m)5d£315me
($500m($505m
$500m share buyback Completed in 2014 £315m4($500m)d £315m ($500m)
($500m6($500m)f
$350m special dividend Paid in October 2013 £229m7($350m)g £228m ($355m)8
($350m($355m)h
$750m special dividend1a Paid in July 2014 £447m9($750m)i £446m ($763m)10
Total    ($750m($763m)j
$1,500m special dividendaPaid in May 2016£4,909m1,038mk £4,877m1,038m
($1,500m($1,500m
$400m special dividendaPaid in May 2017£309ml£309m
($400m($400m
Total£6,256m£6,224m

 

1a Accompanied by a share consolidation.

2b This programme was superseded by the share buyback programme announced on 7 August 2012.

3c 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.

4d 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.

5e Sterling dividend translated at $1=£0.624.

6f 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).

7g 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.

8h Sterling dividend translated at $1=£0.644.

9i The dividend was first determined in US dollars and converted to sterling immediately before announcement at the rate translated at $1=£0.597.

10j Sterling dividend translated at $1=£0.5845.

 

kThe dividend was first determined in US dollars and converted to sterling at the rate of $1 = £0.6923, as announced on 12 May 2016.

 

lThe dividend was first determined in US dollars and converted to sterling at the rate of $1 = £0.7724, as announced on 11 May 2017.

Purchases of equity securities by the Company and affiliated purchasers

The Group’s $500m share repurchase programme was announced on 7 August 2012 and completed on 29 May 2014. As atDuring the financial year ended 31 December 2014, 17,339,8452017, no ordinary shares had been repurchased at an average price of 1,811.7674 pence perwere purchased by the Company and the Company’s employee share (approximately £314m).ownership trust.

Period of financial year (a) Total number of shares
(or units) purchased
  (b) Average price paid
per share (or unit)
  (c) Total number of shares
(or units) purchased as
part of publicly
announced plans or
programmes
  (d) Maximum number
(or approximate dollar value)
of shares (or units) that may yet
be purchased under the plans
or programmes
 
Month 1  350,249    2,007.8500    nil    18,855,0081  
Month 2  1,617,551    1,950.2062    770,412    18,084,5961  
Month 3  2,354,577    1,914.9212    2,354,577    15,730,0191  
Month 4 (no purchases this month)  nil    nil    nil    15,730,0191  
Month 5  296,984    2,259.9608    296,984    25,620,0462  
Month 6  8    2,311.0000    nil    23,611,7253  
Month 7 (no purchases this month)  nil    nil    nil    23,611,7253  
Month 8 (no purchases this month)  nil    nil    nil    23,611,7253  
Month 9 (no purchases this month)  nil    nil    nil    23,611,7253  
Month 10 (no purchases this month)  nil    nil    nil    23,611,7253  
Month 11 (no purchases this month)  nil    nil    nil    23,611,7253  
Month 12  461,815    2,580.3724    nil    23,611,7253  

 

    Total number of shares 

(or units) purchased 

          Average price paid 

per share (or unit) 

Total number of shares 

(or units) purchased as part 

of publicly announced 

plans or programmes 

Maximum number 

of shares (or units) that 
may be purchased under 
the plans or programmes 

Month 1 (no purchases this month)nil nil nil 19,751,7381a 
Month 2 (no purchases this month)nil nil nil 19,751,738a
Month 3 (no purchases this month)nil nil nil 19,751,738a
Month 4 (no purchases this month)nil nil nil 19,751,738a
Month 5 (no purchases this month)nil nil nil 18,999,018b
Month 6 (no purchases this month)nil nil nil 18,999,018b
Month 7 (no purchases this month)nil nil nil 18,999,018b
Month 8 (no purchases this month)nil nil nil 18,999,018b
Month 9 (no purchases this month)nil nil nil 18,999,018b
Month 10 (no purchases this month)nil nil nil 18,999,018b
Month 11 (no purchases this month)nil nil nil 18,999,018b
Month 12 (no purchases this month)nil nil nil 18,999,018b

aReflects the resolution passed at the Company’s AGM held on 246 May 2013.2016.

2b Reflects the resolution passed at the Company’s AGM held on 25 May 2014.2017.
3Reflects the resolution passed at the Company’s General Meeting held on 30 June 2014.

During the financial year ended 31 December 2014, 1,659,203 ordinary shares were purchased by the Company’s Employee Share Ownership Trust, at prices ranging from 1,928 pence to 2,633 pence per share, for the purpose of satisfying future share awards to employees.

 

178176IHG  |  Annual Report and Form 20-F 2017


Share price information

Share price information

The principal trading market for the Company’s ordinary shares is the London Stock Exchange (LSE). The ordinary shares are also listed on the NYSE, trading in the form of ADSs evidenced by ADRs. Each ADS represents one ordinary share. The Company has a sponsored ADR facility with JPMorgan as ADR Depositary. The following table shows, for the financial periods indicated, the reported high and low middle market quotations (which represent an average of closing bid and ask prices) for the ordinary shares on the LSE, as derived from the Official List of the UK Listing Authority, and the highest and lowest sales prices of the ADSs as reported on the NYSE composite tape.

 

                                                                
  £ per ordinary share   $ per ADS1    £ per ordinary share    $ per ADSa 
Year ended 31 December  high   low   high   low    high    low    high    low 
2010   12.66     8.87     20.04     13.84  
2011   14.35     9.55     23.28     15.27  
2012   17.25     11.57     27.82     17.99  
2013   20.39     17.07     33.54     26.90          20.39     17.37     33.54     26.90 
2014   27.10     18.66     42.51     30.88      27.10     18.66     42.51     30.88 
2015    28.80     22.09     43.55     33.52 
2016    36.38     21.84     44.67     32.11 
2017    47.19     36.66     63.51     44.96 
Quarters in the year ended 31 December                            
2013            
2016                
First quarter   20.22     17.07     30.64     27.82      28.71     21.84     41.27     32.11 
Second quarter   20.39     17.37     30.61     26.90      29.28     25.25     41.86     35.14 
Third quarter   20.30     17.88     31.08     27.77      33.65     27.59     44.67     36.81 
Fourth quarter   20.25     17.63     33.54     28.27      36.38     30.21     44.33     38.16 
2014            
2017                
First quarter   20.47     18.66     34.08     30.88      39.37     36.66     49.06     44.96 
Second quarter   24.21     19.04     41.51     31.60      44.68     38.42     57.66     48.29 
Third quarter   24.75     21.99     42.51     36.84      44.11     36.68     57.06     49.14 
Fourth quarter   27.10     21.20     42.38     34.03      47.19     39.87     63.51         52.84 
2015            
First quarter (to 16 February 2015)   27.56     25.33     41.57     38.32  
2018                
First quarter (to 19 February)    49.28         44.98         68.90     62.17 
Month ended                            
August 2014   23.75     21.99     40.02     37.15  
September 2014   24.45     22.85     39.85     36.84  
October 2014   23.69     21.20     38.01     34.03  
November 2014   27.10     24.03     42.38     38.25  
December 2014   26.39     24.17     41.30     37.63  
January 2015   27.56     25.33     41.57     38.32  
February 2015 (to 16 February 2015)   26.76     25.88     41.37     39.24  
August 2017    44.11     38.12     57.04     49.43 
September 2017    39.48     36.68     52.95     49.14 
October 2017    41.83     39.87     55.59     52.84 
November 2017    44.06     42.10     58.76     55.73 
December 2017    47.19     43.67     63.51     58.99 
January 2018    49.28     46.85     68.90     63.27 
February 2018 (to 19 February)    47.20     44.98     67.34     62.17 

 

1a Fluctuations in the exchange rates between sterling and the US dollar will affect the dollar equivalent of the sterling price of the ordinary shares on the LSE and, as a result, are likely to affect the market price of ADSs.

Dividend history

The table below sets forth the amounts of ordinary dividends on each ordinary share and special dividends, in respect of each financial year indicated.

 

                                                                                                                                                                
  Interim dividend   Final dividend   Total dividend   Special dividend    Interim dividend    Final dividend    Total dividend    Special dividend 
  pence   cents   pence   cents   pence   cents   pence cents          pence          cents        pence        cents          pence          cents          pence          cents 
2017    24.4     33.0     N/Aa     71.0     N/Aa     104.0     156.4b     202.5b 
2016    22.6     30.0     49.4     64.0     72.0     94.0     438.2b     632.9b 
2015    17.7     27.5     40.3     57.5     58.0     85.0           
2014   14.8     25.0     33.8     52.0     48.6     77.0     174.91   293.01     14.8     25.0     33.8     52.0     48.6     77.0     174.9b     293.0b 
2013   15.1     23.0     28.1     47.0     43.2     70.0     87.1   133.0      15.1     23.0     28.1     47.0     43.2     70.0     87.1     133.0 
2012   13.5     21.0     27.7     43.0��    41.2     64.0     108.41   172.01     13.5     21.0     27.7     43.0     41.2     64.0     108.4b     172.0b 
2011   9.8     16.0     24.7     39.0     34.5     55.0               9.8     16.0     24.7     39.0     34.5     55.0           
2010   8.0     12.8     22.0     35.2     30.0     48.0               8.0     12.8     22.0     35.2     30.0     48.0           
2009   7.3     12.2     18.7     29.2     26.0     41.4               7.3     12.2     18.7     29.2     26.0     41.4           
20082   6.4     12.2     20.2     29.2     26.6     41.4           
2008c    6.4     12.2     20.2     29.2     26.6     41.4           
2007   5.7     11.5     14.9     29.2     20.6     40.7     2001         5.7     11.5     14.9     29.2     20.6     40.7     200b      
2006   5.1     9.6     13.3     25.9     18.4     35.5     1181         5.1     9.6     13.3     25.9     18.4     35.5     118b      
2005   4.6     8.1     10.7     18.7     15.3     26.8               4.6     8.1     10.7     18.7     15.3     26.8           
2004   4.3     7.7     10.0     19.1     14.3     26.8     72.01     
2003   4.05     6.8     9.45     17.4     13.5     24.2           

 

1a The sterling amount of the final dividend will be announced on 23 April 2018 using the average of the daily exchange rates from 18 April 2018 to 20 April 2018 inclusive.

bAccompanied by a share consolidation.

2c IHG changed the reporting currency of its Consolidated Financial Statements from sterling to US dollars effective from the Half-Year Results as at 30 June 2008. Starting with the interim dividend for 2008, all dividends have first been determined in US dollars and converted into sterling immediately before announcement.prior to payment.

LOGO

 

177


IHG  |  Annual Report and Form 20-F 20142017  |  Additional Information  |  Shareholder information

179


Additional Information

 

Shareholder information continued

Shareholder informationcontinued

Shareholder profiles

Shareholder profile by type as at 31 December 20142017

Category of

shareholdings

  Number of
shareholders
      Percentage total of
shareholders
      Number of ordinary
shares
            Percentage
of issued
share capital
See chart g
 
¢ Private individuals   41,572    92.77    13,885,472    5.88  
¢ Nominee companies   1,428    3.18    194,775,369    82.49  
¢ Limited and public limited
    companies
   1,647    3.68    12,813,041    5.43  
¢ Other corporate bodies   159    0.35    14,004,127    5.93  

¢ Pension funds, insurance

    companies and banks

   7    0.02    639,247    0.27  
Total   44,813    100    236,117,256    100  

Shareholder profile by size as at 31 December 2014

 

  

 

Range of

shareholdings

  Number of
shareholders
  Percentage total of
shareholders
  Number of ordinary
shares
  Percentage
of issued
share capital
See chart g
 
¢ 1 – 199   28,412    63.40    1,801,918    0.76  
¢ 200 – 499   8,696    19.41    2,774,193    1.17  
¢ 500 – 999   4,029    8.99    2,820,987    1.19  
¢ 1,000 – 4,999   2,808    6.27    5,309,076    2.25  
¢ 5,000 – 9,999   237    0.53    1,666,106    0.71  
¢ 10,000 – 49,999   306    0.68    7,239,768    3.07  
¢ 50,000 – 99,999   95    0.21    6,746,779    2.86  
¢ 100,000 – 499,999   146    0.33    31,810,194    13.47  
¢ 500,000 – 999,999   42    0.09    30,898,339    13.09  
¢ 1,000,000 and above   42    0.09    145,049,896    61.43  
Total   44,813    100    236,117,256    100  

Shareholder profile by geographical location as at 31 December 2014

 

  

 

Country/

Jurisdiction

              Percentage 
of issued 
share capital1
See chart g 
 
¢ UK               50.3  
¢ Rest of Europe               12.1  
¢ US (including ADRs)               33.6  
¢ Rest of World               4.0  
Total               100  
Category of shareholder    

Number of

                     shareholders

     

Percentage of

            total shareholders

     

Number of

                ordinary  shares

     Percentage of
          issued share capital
 
Private individuals    34,948     93.53     9,468,586     4.79 
Nominee companies    1,451     3.88     162,026,026     82.00 
Limited and public limited companies    812     2.17     15,560,735     7.87 
Other corporate bodies    147     0.39     10,431,329     5.28 
Pension funds, insurance companies and banks    10     0.03     110,934     0.06 
Total    37,368     100     197,597,610     100 
Shareholder profile by size as at 31 December 2017            
Range of shareholdings    Number of
shareholders
     

Percentage of

total shareholders

     

Number of

ordinary shares

     

Percentage of

issued share capital

 
1–199    25,075     67.10     1,514,320     0.77 
200–499    6,775     18.13     2,123,354     1.07 
500–999    2,831     7.58     1,968,555     1.00 
1,000–4,999    1,883     5.04     3,630,490     1.84 
5,000–9,999    221     0.59     1,560,634     0.79 
10,000–49,999    323   �� 0.86     6,957,954     3.52 
50,000–99,999    93     0.25     6,746,735     3.41 
100,000–499,999    119     0.32     27,636,466     13.99 
500,000–999,999    22     0.06     15,829,002     8.01 
1,000,000 and above    26     0.07     129,630,100     65.60 
Total    37,368     100     197,597,610     100 
Shareholder profile by geographical location as at 31 December 2017    
Country/Jurisdiction     

Percentage of

issued share capital

 

a 

UK     48.1 
Rest of Europe     17.5 
US (including ADRs)     32.1 
Rest of world     2.3 
Total     100 

 

1a The geographical profile presented is based on an analysis of shareholders (by manager) of 40,000 shares or above where geographical ownership is known. This analysis only captures 88.8%90.4% of total issued share capital. Therefore, the known percentage distributions have been multiplied by 100/88.8 (1.126)90.4 (1.106) to achieve the figures shown in the table above.

As of 1319 February 2015, 15,835,6372018, 13,494,031 ADSs equivalent to 15,835,63713,494,031 ordinary shares, or approximately 6.7 per cent7.10% of the total issued share capital, were outstanding and were held by 685512 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 1319 February 2015,2018, there were a total of 44,627 record37,199 recorded holders of ordinary shares, of whom 249269 had registered addresses in the US and held a total of 670,170410,801 ordinary shares (0.27 per cent(0.21% of the total issued share capital).

 

180IHG  |  Annual Report and Form 20-F 2017


 

LOGOExhibits

The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC.

Exhibit 1aArticles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)

Exhibit 4(a)(i)aAmended and restated trust deed dated 11 August 2016 relating to a £2 billion Euro Medium Term Note Programme, among InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company (UK) Limited (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1 – 10409) date 2 March 2017)

Exhibit 4(a)(ii)aFive-year $1.275 billion bank facility agreement dated 30 March 2015, among InterContinental Hotels Group PLC and certain of its subsidiaries, and Bank of America Merrill Lynch International Limited, Barclays Bank PLC, Citibank, N.A. London Branch, Commerzbank Aktiengesellschaft, London Branch, DBS Bank Ltd., London Branch, HSBC Bank plc, SunTrust Bank, The Bank of Tokyo-Mitsubishi UFJ, Ltd., The Royal Bank Of Scotland plc, U.S. Bank National Association and Wells Fargo Bank N.A., London Branch (incorporated by reference to Exhibit 4a(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1 – 10409) dated 3 March 2016)

Exhibit 4(a)(iii)a$400 million bank facility agreement dated 13 January 2015, among InterContinental Hotels Group PLC and certain of its subsidiaries, and Bank of America Merrill Lynch International Limited (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)

Exhibit 4(a)(iv)aShare sale and purchase agreement relating to InterContinental Paris – Le Grand, between BHR Holdings BV and Constellation Hotels France Grand SA dated 7 December 2014 (incorporated by reference to Exhibit 4(a)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)

Exhibit 4(a)(v)aShare sale and purchase agreement between Kimpton Group Holding LLC and Dunwoody Operations, Inc. dated 15 December 2014 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)

Exhibit 4(a)(vi)aShare sale and purchase agreement relating to InterContinental Hong Kong, between Hotel InterContinental London (Holdings) Limited and Supreme Key Limited dated 10 July 2015 (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 3 March 2016)

Exhibit 4(c)(i)aPaul 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)

Exhibit 4(c)(ii)aRichard Solomons’ service contract dated 16 March 2011, commencing on 1 July 2011 (incorporated by reference to Exhibit 4(c)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)

Exhibit 4(c)(iii)aRules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 2 May 2014 (incorporated by reference to Exhibit 4(c)(ix) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)

Exhibit 4(c)(iv)aRules of the InterContinental Hotels Group Annual Performance Plan as amended on 2 May 2014 (incorporated by reference to Exhibit 4(c)(x) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2015)

Exhibit 4(c)(v)Keith Barr’s service contract dated 5 May 2017, commencing on 1 July 2017

Exhibit 4(c)(vi)Elie Maalouf’s service contract dated 19 October 2017, commencing on 1 January 2018

Exhibit 8List of subsidiaries as at 31 December 2017 (can be found on pages 141 to 143)

Exhibit 12(a)Certification of Keith Barr filed pursuant to 17 CFR 240.13a–14(a)

Exhibit 12(b)Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a–14(a)

Exhibit 13(a)Certification of Keith Barr and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a–14(b) and 18 U.S.C.1350

Exhibit 15(a)Consent of independent registered public accounting firm, Ernst & Young LLP

Exhibit 101*XBRL Instance Document and related items

a  Incorporated by reference.

*  As permitted by Rule 405(a)(2)(ii) of Regulation S-T, the registrant’s XBRL (eXtensible Business Reporting Language) information will be furnished in an amendment to this Form 20-F that will be filed no more than 30 days after the date hereof. In accordance with Rule 406T(b)(2) of Regulation S-T, such XBRL information will be furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, will be deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise will not be subject to liability under those sections.

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Exhibits181


Additional Information

Form 20-F cross-reference guide

Item  Form 20-F caption  Location in this document  Page

 

  

 

  

 

  

 

1  Identity of directors, senior management and advisers  Not applicable  

 

  

 

  

 

  

 

2  Offer statistics and expected timetable  Not applicable  

 

  

 

  

 

  

 

3  Key information    
  

 

  

 

  

 

  3A – Selected financial data  Shareholder information: Selected five-year consolidated financial information  177
    

 

  

 

    Shareholder information: Dividend history  179
  

 

  

 

  

 

  3B – Capitalisation and indebtedness  Not applicable  
  

 

  

 

  

 

  3C – Reason for the offer and use of proceeds  Not applicable  
  

 

  

 

  

 

  3D – Risk factors  Group information: Risk factors  164–167     

 

  

 

  

 

  

 

4  Information on the Company    
  

 

  

 

  

 

  4A – History and development of the Company  Group information: History and developments  164
    

 

  

 

    Shareholder information: Return of funds  178
    

 

  

 

    Useful information: Contacts  187
  

 

  

 

  

 

  4B – Business overview  Strategic Report  2–43
    

 

  

 

    Group information: Working Time Regulations 1998  170
    

 

  

 

    Group Information: Risk factors  164–167
  

 

  

 

  

 

  4C – Organisational structure  Group Financial Statements: Note 33 – Group companies  141–143
  

 

  

 

  

 

  4D – Property, plants and equipment  Strategic Report: Key performance indicators  23-25
    

 

  

 

    Directors’ Report: Greenhouse gas (GHG) emissions  162
    

 

  

 

    Group Financial Statements: Note 12 – Property, plant and equipment  116

 

  

 

  

 

  

 

4A  Unresolved staff comments  None  

 

  

 

  

 

  

 

5  Operating and financial review and prospects    
  

 

  

 

  

 

  5A – Operating results  Strategic Report: Performance  26–43
    

 

  

 

    Group Financial Statements: Accounting policies  95–103
    

 

  

 

    Viability statement  22
  

 

  

 

  

 

  5B – Liquidity and capital resources  Strategic Report: Performance – Liquidity and capital resources  43
    

 

  

 

    Group Financial Statements: Note 17 – Cash and cash equivalents  123
    

 

  

 

    Group Financial Statements: Note 20 – Loans and other borrowings  124–125
    

 

  

 

    Group Financial Statements: Note 22 – Financial risk management  126–129
    

 

  

 

    Group Financial Statements: Note 23 – Fair value measurement  129–130
    

 

  

 

    Group Financial Statements: Note 24 – Reconciliation of profit for the year  131
    to cash flow from operations  
  

 

  

 

  

 

  5C – Research and development; intellectual property  Not applicable  
  

 

  

 

  

 

  5D – Trend information  Strategic Report: Performance  26–43
  

 

  

 

  

 

  5E – Off-balance sheet arrangements  Strategic Report: Performance – Liquidity and capital resources  43
    – Off-balance sheet arrangements  
  

 

  

 

  

 

  5F – Tabular disclosure of contractual obligations  Strategic Report: Performance – Liquidity and capital resources  43
  

 

  

 

  

 

  5G – Safe harbour  Additional Information: Forward-looking statements  188
  

 

  

 

  

 

  5H – Non-GAAP financial measures  Strategic Report: Performance  26
    

 

  

 

    Other financial information  154–156
    

 

  

 

    Group Financial Statements: Note 9 – Earnings per ordinary share  115
    

 

  

 

    Group Financial Statements: Note 21 – Net debt  126

 

  

 

  

 

  

 

6  Directors, senior management and employees    
  

 

  

 

  

 

  6A – Directors and senior management  Corporate Governance: Our Board of Directors and Our Executive Committee  48–51
  

 

  

 

  

 

  6B – Compensation  Directors’ Remuneration Report  64–77
    

 

  

 

    Group Financial Statements: Note 25 – Retirement benefits  131–135
    

 

  

 

    Group Financial Statements: Note 31 – Related party disclosures  140
    

 

  

 

    Group Financial Statements: Note 26 – Share-based payments  135–136
  

 

  

 

  

 

  6C – Board practices  Corporate Governance  47–63
  

 

  

 

  

 

  6D – Employees  Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments  109
    

 

  

 

    Group information: Working Time Regulations 1998  170
    

 

  

 

    Directors’ Report: Employees and Code of Conduct  161
  

 

  

 

  

 

  6E – Share ownership  Directors’ Remuneration Report: Annual Report on Directors’ Remuneration  72
    – Scheme interests awarded during 2017  
    

 

  

 

    Directors’ Remuneration Report: Annual Report on Directors’ Remuneration  73,76
    – Statement of Directors’ shareholdings and share interests  
    

 

  

 

    Group Financial Statements: Note 26 – Share-based payments  135–136
    

 

  

 

    Group information: Directors and Executive Committee members’ shareholdings  167

 

  

 

  

 

  

 

7  Major shareholders and related party transactions    
  

 

  

 

  

 

  7A – Major shareholders  Directors’ Report: Major institutional shareholders  160
    

 

  

 

    Shareholder information: Shareholder profiles  180
  

 

  

 

  

 

  7B – Related party transactions  Group Financial Statements: Note 14 – Investment in associates and joint ventures  119–120
    

 

  

 

    Group Financial Statements: Note 31 – Related party disclosures  140
  

 

  

 

  

 

  7C – Interests of experts and counsel  Not applicable  

 

  

 

  

 

  

 

182IHG  |  Annual Report and Form 20-F 2017


 

    

LOGO

Item  Form 20-F caption  Location in this document  Page

 

  

 

  

 

  

 

8  Financial Information    
  

 

  

 

  

 

  8A – Consolidated statements and  Directors’ Report: Dividends  160
    

 

  

 

  

 other financial information

  Group Financial Statements  78–143
    

 

  

 

    Group Information: Legal proceedings  172
    

 

  

 

    Strategic Report: Performance – Other financial information  42
  

 

  

 

  

 

  8B – Significant changes  None  

 

  

 

  

 

  

 

9  The offer and listing    
  

 

  

 

  

 

  9A – Offer and listing details  Shareholder information: Share price information  179
  

 

  

 

  

 

  9B – Plan of distribution  Not applicable  
  

 

  

 

  

 

  9C – Markets  Shareholder information: Share price information  179
  

 

  

 

  

 

  9D – Selling shareholders  Not applicable  
  

 

  

 

  

 

  9E – Dilution  Not applicable  
  

 

  

 

  

 

  9F – Expenses of the issue  Not applicable  

 

  

 

  

 

  

 

10  Additional information    
  

 

  

 

  

 

  10A – Share capital  Not applicable  
  

 

  

 

  

 

  10B – Memorandum and articles of association  Group information: Articles of Association  169–170
    

 

  

 

    Group information: Rights attaching to shares  169
  

 

  

 

  

 

  10C – Material contracts  Group information: Material contracts  171–172
  

 

  

 

  

 

  10D – Exchange controls  Shareholder information: Exchange controls and restrictions on payment of dividends  172
  

 

  

 

  

 

  10E – Taxation  Shareholder information: Taxation  173–175
  

 

  

 

  

 

  10F – Dividends and paying agents  Not applicable  
  

 

  

 

  

 

  10G – Statement by experts  Not applicable  
  

 

  

 

  

 

  10H – Documents on display  Useful information: Investor information – Documents on display  186
  

 

  

 

  

 

  10I – Subsidiary information  Not applicable  

 

  

 

  

 

  

 

11  

Quantitative and qualitative disclosures

about market risk

  Group Financial Statements: Note 22 – Financial risk management  126–129

 

  

 

  

 

  

 

12  Description of securities other than equity securities    
  

 

  

 

  

 

  12A – Debt securities  Not applicable  
  

 

  

 

  

 

  12B – Warrants and rights  Not applicable  
  

 

  

 

  

 

  12C – Other securities  Not applicable  
  

 

  

 

  

 

  12D – American depositary shares  Group information: Description of securities other than equity securities  168

 

  

 

  

 

  

 

13  Defaults, dividend arrearages and delinquencies  Not applicable  

 

  

 

  

 

  

 

14  Material modifications to the rights of security holders and use of proceeds  Not applicable  

 

  

 

  

 

  

 

15  Controls and Procedures  Shareholder information: Disclosure controls and procedures  175
    

 

  

 

    

Group Financial Statements: Statement of Directors’ Responsibilities

– Management’s report on internal control over financial reporting

  80
    

 

  

 

    Group Financial Statements: Independent Auditor’s US Report  87

 

  

 

  

 

  

 

16  16A – Audit committee financial expert  Corporate Governance: Audit Committee Report  56
    

 

  

 

    Shareholder information: Summary of significant corporate governance  176
    differences from NYSE listing standards – Committees  
  

 

  

 

  

 

  16B – Code of ethics  Directors’ Report: Employees and Code of Conduct  161
    

 

  

 

    Strategic Report: Doing business responsibly  18–19
    

 

  

 

    Shareholder information: Summary of significant corporate governance  176
    differences from NYSE listing standards  
  

 

  

 

  

 

  16C – Principal accountant fees and services  Corporate Governance: Audit Committee Report – External auditor  59
    

 

  

 

    Corporate Governance: Audit Committee Report – Non-audit services  58
    

 

  

 

    Group Financial Statements: Note 4 – Auditor’s remuneration paid to Ernst & Young LLP  109
  

 

  

 

  

 

  16D – Exemptions from the listing standards  Not applicable  
             for audit committees    
  

 

  

 

  

 

  

16E – Purchase of equity securities by the issuer

          and affiliated purchasers

  Shareholder information: Purchases of equity securities by the Company and affiliated purchasers  178
  

 

  

 

  

 

  16F – Change in registrant’s certifying accountant  Not applicable  
  

 

  

 

  

 

  16G – Corporate Governance  Shareholder information: Summary of significant corporate governance  176
    differences from NYSE listing standards  
  

 

  

 

  

 

  16H – Mine safety disclosure  Not applicable  

 

  

 

  

 

  

 

17  Financial statements  Not applicable  

 

  

 

  

 

  

 

18  Financial statements  Group Financial Statements  78–143

 

  

 

  

 

  

 

19  Exhibits  Additional Information: Exhibits  181

 

  

 

  

 

  

 

IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Form 20-F cross-reference guide183


Additional Information

Glossary

adjusted

excluding the effect of exceptional items and any relevant tax.

ADR

an American Depositary Receipt, being a receipt evidencing title to an ADS.

ADR Depositary (JPMorgan)

JPMorgan Chase Bank N.A.

ADS

an American Depositary Share as evidenced by an ADR, being a registered negotiable security, listed on the New York Stock Exchange, representing one ordinary share of 18 318/329pence each of the Company.

AGM

Annual General Meeting of InterContinental Hotels Group PLC.

AMEA

Asia, Middle East and Africa.

Annual Report

The Annual Report and Form 20-F in relation to the years ending 31 December 2016 or 2017 as relevant.

APP

Annual Performance Plan.

Articles

the Articles of Association of the Company for the time being in force.

average daily rate

rooms revenue divided by the number of room nights sold.

basic earnings per ordinary share

profit available for IHG equity holders divided by the weighted average number of ordinary shares in issue during the year.

Board

The Board of Directors of InterContinental Hotels Group PLC.

capital expenditure

purchases of property, plant and equipment, intangible assets, associate and joint venture investments, and other financial assets.

cash-generating units (CGUs)

the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Code

UK Corporate Governance Code issued in September 2014 by the Financial Reporting Council in the UK.

Companies Act

the Companies Act 2006, as amended from time to time.

Companyor 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 current-year value translated using the previous year’s exchange rates.

contingencies

liabilities that are contingent upon the occurrence of one or more uncertain future events.

continuing operations

operations not classified as discontinued.

currency swap

an exchange of a deposit and a borrowing, each denominated in a different currency, for an agreed period of time.

Deferred Compensation Plan

the Defined Contribution Deferred Compensation Plan.

derivatives

financial instruments used to reduce risk, the price of which is derived from an underlying asset, index or rate.

direct channels

methods of booking hotel rooms (both digital and voice) not involving third-party intermediaries.

Director

a director of InterContinental Hotels Group PLC.

DR Policy

Directors’ Remuneration Policy. The revised DR Policy is not included in this year’s report, but can be found on our website. A summary can be found in the Remuneration Report.

EBIT

earnings before interest and tax.

EBITDA

earning before interest, tax, depreciation and amortisation.

Employee Engagement survey

we ask our employees and those who work in our managed hotels (excluding our joint venture hotels) to participate in a survey to measure employee engagement.

EU

the European Union.

euroor

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 marginor fee-based margin

operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases, Kimpton in 2015 only, and significant liquidated damages.

franchisee

an owner who uses a brand under licence from IHG.

goodwill

the difference between the consideration given for a business and the total of the fair values of the separable assets and liabilities comprising that business.

Group or IHG

the Company and its subsidiaries.

Guest Love

IHG’s guest satisfaction measurement tool used to measure brand preference and guest satisfaction.

Guest Reservation Systemor GRS

our global electronic guest reservation system, currently HOLIDEX, IHG’s proprietary system.

hedging

the reduction of risk, normally in relation to foreign currency or interest rate movements, by making offsetting commitments.

hotel revenue

revenue from all revenue-generating activity undertaken by managed and owned and leased hotels, including room nights, food and beverage sales.

IASB

International Accounting Standards Board.

ICETUS

InterContinental Executive Top-Up Scheme.

IC Plan

InterContinental Hotels UK Pension Plan.

IFRS

International Financial Reporting Standards as adopted by the EU and issued by the IASB.

184IHG  |  Annual Report and Form 20-F 2017


 

    

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IHG PLC

InterContinental Hotels Group PLC.

indirect channels

online travel intermediaries and business and leisure travel agents.

interest rate swap

an agreement to exchange fixed for floating interest rate streams (or vice versa) on a notional principal.

liquidated damages

payments received in respect of the early termination of franchise and management contracts.

LTIP

Long Term Incentive Plan.

managed leases

properties structured as operating leases but with the same characteristics as management contracts.

management contract

a contract to operate a hotel on behalf of the hotel owner.

market capitalisation

the value attributed to a listed company by multiplying its share price by the number of shares in issue.

net debt

borrowings less cash and cash equivalents, including the exchange element of the fair value of currency swaps hedging the borrowings.

net rooms supply

net total number of IHG system hotel rooms.

NYSE

New York Stock Exchange.

occupancy rate

rooms occupied by hotel guests, expressed as a percentage of rooms that are available.

ordinary share

from 9 October 2012 until 30 June 2014, the ordinary shares of 14 194/329 pence each in the Company; from 1 July 2014, the ordinary shares of 15265/329 pence each in the Company; and from 9 May 2016 the ordinary shares of 18 318/329 pence each in the Company; and from 8 May 2017 the ordinary shares of 19 17/21 pence each in the Company.

owner

the ultimate owner of a hotel property.

pipeline

hotels/rooms that will enter the IHG System at a future date. A new hotel only enters the pipeline once a contract has been signed and the appropriate fees paid. In rare circumstances, a hotel will not open for reasons such as the financing being withdrawn.

ppt

a percentage point is the unit for the arithmetic difference of two percentages.

revenue management

the employment of pricing and segment strategies to optimise the revenue generated from the sale of room nights.

revenue per available roomor RevPAR

rooms revenue divided by the number of room nights that are available (can be mathematically derived from occupancy rate multiplied by average daily rate).

room count

number of rooms franchised, managed, owned or leased by IHG.

rooms revenue

revenue generated from the sale of room nights.

royalties

fees, based on rooms revenue, that a franchisee pays to the Group.

SEC

US Securities and Exchange Commission.

sterlingorpounds sterling, £, penceorp

the pound sterling, the currency of the United Kingdom.

subsidiary

a company over which the Group exercises control.

System

hotels/rooms operating under franchise and management agreements together with IHG owned and leased hotels/rooms, globally (the IHG System) or on a regional basis, as the context requires.

System contribution to revenue

percentage of rooms revenue delivered through IHG’s direct and indirect systems and channels.

System FundorFund

assessment fees and contributions collected from hotels within the IHG System which fund activities that drive revenue to our hotels including marketing, the IHG Rewards Club loyalty programme and our distribution channels.

technology fee income

income received from hotels under franchise and management agreements for the use of IHG’s Guest Reservation System.

total gross revenue

total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. Other than owned and leased hotels, it is not revenue wholly attributable to IHG, as it is mainly derived from hotels owned by third parties.

Total Shareholder Return or TSR

the theoretical growth in value of a shareholding over a period, by reference to the beginning and ending share price, and assuming that dividends, including special dividends, are reinvested to purchase additional units of the equity.

UK

the United Kingdom.

UK GAAP

United Kingdom Generally Accepted Accounting Practice.

underlying fee revenue

Group revenue excluding revenue from owned and leased hotels, managed leases, and significant liquidated damages.

US

the United States of America.

US 401(k) Plan

the Defined Contribution 401(k) plan.

US dollars, US$, $or ¢

the currency of the United States of America.

working capital

the sum of inventories, receivables and payables of a trading nature, excluding financing and taxation items.

 

 

178IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Glossary185


Additional Information

 

UsefulinformationUseful 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 Form20-F 2014 2017 has been made available to shareholders through our website atwww.ihgplc.com/investors under financial library.Annual Report.

Shareholders may electronically appoint a proxy to vote on their behalf at the 20152018 AGM. Shareholders who hold their shares through CREST may appoint proxies through the CREST electronic proxy appointment service, by using the procedures described in the CREST Manual.

Shareholder hotel discount

IHG offers discounted hotel stays (subject to availability) for registered shareholders only, through a controlled accesscontrolled-access website. This is not available to shareholders who hold shares through nominee companies, ISAs or ADRs. For further details please contact the Company Secretariat departmentSecretary’s office (see page 180)187).

Responsible Business Report

In line with our commitment to responsible business practices, this year we have decided to produceproduced a broader Responsible Business Report showcasing our approach to responsible business and progress against our corporate responsibility targets. This can be viewed at www.ihgplc.com/responsiblebusiness

LOGO

Visitwww.ihgplc.com/responsible-business

for details.

The IHG® Shelter in a StormFoundation

Launched in 2016, the IHG Shelter in a Storm enables IHG to support our hotelsFoundation is an independent charity that sets the foundations for stronger, healthier and localmore prosperous communities employees and guests when a disaster occurs, by providing immediate and vital assistance.around the world.

To make a donation to the programme, visit the secure payment page at www.ihgshelterinastorm.com

LOGO

Visitwww.ihgfoundation.com

to learn more.

Registrar

For information on a range of shareholder services, including enquiries concerning individual shareholdings, notification of a shareholder’s change of address and amalgamation of shareholder accounts (in order to avoid duplicate mailing of shareholder communications), shareholders should contact the Company’s Registrar, Equiniti, on 08710371 384 21321,2a (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 08710371 384 22681,2a. A DRIP application form and information booklet are available at www.shareview.co.uk/products/pages/applyforadrip.aspx

LOGO

Seewww.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 account,accounts, to ensure efficient payment and clearance of funds on the payment date. For further information, please contact our Registrar (see page 180)187).

Overseas payment service

It is also possible for shareholders to have their dividends paid directdirectly to their bank accountaccounts in a local currency. Charges are payable for this service. Further information is available at www.shareview.co.uk/shareholders/pages/

overseaspayments.aspx

LOGO

Go towww.shareview.co.uk/info/ops

for further information.

Out-of-date/unclaimed dividends

If you think that you have out-of-date dividend cheques or unclaimed dividend payments, please contact our Registrar (see page 180)187).

Individual Savings Account (ISA)

Equiniti offers a Stocks and Shares ISA that can invest in IHG shares. For further information, please contact Equiniti on 08710371 384 22441,2a.

Share dealing services

Equiniti offers the following share dealing facilities:share-dealing facilities.

Postal dealing

For more information, call 08710371 384 22481,2a.

Telephone dealing

For more information, call 08450345 603 70371,3b.

Internet dealing

ForVisitwww.shareview.co.uk for more information, visit www.shareview.co.ukinformation.

Changes to the base cost of IHG shares

Details of all the changes to the base cost of IHG shares held from April 2003 to December 2014,2017, for UK Capital Gains Tax purposes, may be found on our website atwww.ihgplc.com/investors under shareholder centre/tax information.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. For further details, pleasePlease contact ProSearch on 01732 741 411+44 (0) 800 612 8671 or email info@prosearchassets.com for further details.

Shareholder security

Many companies have become aware that their shareholders have received unsolicited telephone calls or correspondence concerning investment matters. These are typically from ‘brokers’ who target UK shareholders, offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. These operations are commonly known as ‘boiler rooms’. More detailed information on this or similar activity can be found atwww.fca.org.uk/consumerson the Financial Conduct Authority website at www.fca.org.uk/consumers/scams. website.

Details of any share dealing facilities that the Company endorses will be included in Company mailings.

American Depositary Receipts (ADRs)

The Company’s shares are listed on the NYSE in the form of American Depositary Shares, evidenced by ADRs and traded under the symbol ‘IHG’. Each ADR represents one ordinary share. All enquiries regarding ADR holder accounts and payment of dividends should be directed to JPMorgan Chase Bank, N.A., our ADR Depositary bank (contact details shown on page 180)187).

Documents on display

Documents referred to in this Annual Report andForm 20-F that are filed with the SEC can be found at the SEC’s public reference room located at 100 F Street, NE Washington, D.C. 20549, forDC 20549. For further information and copy charges please call the SEC at 1-800-SEC-0330. The Company’s SEC filings since 22 May 2002 are also publicly available through the SEC’s website at www.sec.gov.www.sec.gov Copies of the Company’s Articles can be obtained via the website atwww.ihgplc.com/investors under corporateCorporate governance or from the Company’s registered office on request.

 

1a Calls cost 8p per minute plus network extras.
2Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK public holidays.

3b Lines are open from 8.00am to 4.30pm Monday to Friday, excluding UK public holidays.
 

 

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179186


 

IHG  |  Annual Report and Form 20-F 2014

2017

Usefulinformationcontinued


Financial calendarcalendars

Dividends    Other dates  
     2017                                 2017                        
2017 Special dividend of 156.4p per ordinary share    Financial year end  31 December
(202.5¢ per ADR)       

Record date

  5 May     2018

Ex-dividend date

  8 May  Announcement of Preliminary Results for 2017  20 February

Payment date

  22 May  Announcement of 2018 First Quarter Interim  4 May
2017 Interim dividend of 24.4p per share    Management Statement   
(33.0¢ per ADR)     Annual General Meeting  4 May

Payment date

  6 October  Announcement of Half-Year Results for 2018  7 August
   

 

2018

  

Announcement of 2018 Third Quarter Interim

Management Statement

  19 October
2017 Final dividend of 71.0¢ per ordinary sharea     Financial year end  31 December
Ex-dividend date  29 March    
Record date  3 April     2019
Payment date  11 May  Announcement of Preliminary Results for 2018  February

 

a
2014 
SpecialThe sterling amount of the final dividend will be announced on 23 April 2018 using the average of 174.9p per share (293¢ per ADR):Payment date14 July 
Interim dividend of 14.8p per share (25.0¢ per ADR):Payment date26 September 
Financial year end31 December 
2015 
Announcement of Preliminary Results for 201417 February 
2014 Final dividend of 33.8p per share (52.0¢ per ADR):Ex-dividend date2the daily exchange rates from 18, 19, 20 April
Record date7 April 
Announcement of 2015 First Quarter Interim Management Statement8 May 
Annual General Meeting8 May 
2014 Final dividend of 33.8p per share (52.0¢ per ADR):Payment date15 May 
Announcement of Half-Year Results for 201530 July 
2015 Interim dividend:Payment dateOctober 
Announcement of 2015 Third Quarter Interim Management Statement20 October 
Financial year end31 December 
2016 
Announcement of Preliminary Results for 2015February 2018 inclusive.

Contacts

 

Registered office

Broadwater Park, Denham,

Buckinghamshire, UB9 5HR, UK

Telephone:

+44 (0) 1895 512 000

Fax :

+44 (0) 1895 512 101

www.ihgplc.com

For general information about the Group’s business, please contact the Corporate Affairs department at the above address. For all other enquiries, please contact the Company Secretariat department at the above address.

Registrar

Equiniti, Aspect House, Spencer Road,

Lancing, West Sussex, BN99 6DA, UK

Telephone:

0871 384 21321,2 (UK calls)

+44 (0) 121 415 7034 (non-UK calls)

www.shareview.co.uk

ADR Depositary

JPMorgan Chase Bank N.A.

PO Box 64504, St. Paul

MN 55120-0854, USA

Telephone:

+1 800 990 1135 (US calls) (toll-free)

+1 651 453 2128 (non-US calls)

Email: jpmorgan.adr@wellsfargo.com

www.adr.com

Broadwater Park, Denham, Buckinghamshire, UB9 5HR,

United Kingdom

Telephone:

+44 (0) 1895 512 000

Fax:

+44 (0) 1895 512 101

www.ihgplc.com

For general information about the Group’s business, please contact the Corporate Affairs department at the above address. For all other enquiries, please contact the Company Secretary’s office at the above address.

Registrar

Equiniti, Aspect House, Spencer Road, Lancing,

West Sussex, BN99 6DA,

United Kingdom

Telephone:

0371 384 2132 (UK calls)

+44 (0) 121 415 7034 (non-UK calls)

For those with hearing difficulties a text phone is available on 0371 384 2255 for UK callers with compatible equipment.

www.shareview.co.uk

ADR Depositary

JPMorgan Chase Bank N.A., PO Box 64504,

St. Paul, MN 55164-0504,

United States of America

Telephone:

+1 800 990 1135 (US calls) (toll-free)

+1 651 453 2128 (non-US calls)

Email: jpmorgan.adr@wellsfargo.com

www.adr.com

Auditor

Ernst & Young LLP

Investment bankers

Bank of America Merrill Lynch

Goldman Sachs

Solicitors

Freshfields Bruckhaus Deringer LLP

Stockbrokers

Bank of America Merrill Lynch

Goldman Sachs

IHG® Rewards Club

If you wish to enquire about,

or join, IHG Rewards Club, visit

www.ihg.com/rewardsclub or telephone:

0871 226 11113a (Europe)(UK)

+44 20 3349 9033b (Europe and Africa)

+1 888 211 98744c (US and Canada)

+1 800 272 92734c (Mexico)

+1 801 975 30635 (English) (Central and South America)

+1 801 975 30135d (Spanish) (Central and South America)

+971 4 429 05305d (Middle East and Africa)East)

+0261 2 9935 83625d (Australia)

+86 21 2033 48485d (Mandarin and Cantonese) (China and Hong Kong)(China)

+81 3 5767 93255d (Japan)

+63 2 857 87785d (Korea)

+63 2 857 87885d (all other countries in Asia Pacific)

 

1For those with hearing difficulties a text phone is available on 0871 384 22552for UK callers with compatible equipment.
2Calls cost 8p per minute plus network extras. Lines are open from 8.30am to 5.30pm Monday to Friday, excluding UK public holidays.
3Telephone calls to this number are charged at 10p
aTelephone calls to this number are charged at 13p per minute. Standard network rates apply. Calls from mobiles will be higher.
4Toll free.
5Toll charges

bInternational calling rates apply.

 

180
cToll-free.


Exhibits

The following exhibits are filed as part of this Annual Report on Form 20-F with the SEC:

Exhibit 11Articles of Association of the Company (incorporated by reference to Exhibit 1 of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)
Exhibit 4(a)(i)$400 million bank facility agreement dated 13 January 2015, among InterContinental Hotels Group PLC and certain of its subsidiaries, and Bank of America Merrill Lynch International Limited
Exhibit 4(a)(ii)Share sale and purchase agreement between Kimpton Group Holding LLC and Dunwoody Operations, Inc. dated 15 December 2014
Exhibit 4(a)(iii)Share sale and purchase agreement relating to InterContinental Paris – Le Grand, between BHR Holdings BV and Constellation Hotels France Grand SA dated 7 December 2014
Exhibit 4(a)(iv)1Contribution agreement relating to InterContinental New York Barclay, between Barclay Operating Corp., InterContinental Hotels Group Resources, Inc., Constellation Barclay Holding US, LLC, and 111 East 48th Street Holdings, LLC dated 19 December 2013 (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2014)
Exhibit 4(a)(v)1Asset sale and purchase agreement relating to Intercontinental Hotel, Park Lane, London, between Hotel Inter-Continental London Limited, Constellation Hotel (Opco) UK S.A., and Six Continents Limited dated 27 March 2013 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 February 2014)
Exhibit 4(a)(vi)1Five-year $1,070 million bank facility agreement dated 7 November 2011, among The Royal Bank of Scotland plc, NB International Finance B.V., Citigroup Global Markets Limited, HSBC Bank plc, Lloyds TSB Bank plc and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 4(a)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Exhibit 4(a)(vii)1First supplemental trust deed dated 7 July 2011 modifying and restating the Euro Medium Term Note programme governed by a trust deed dated 29 November 2009 (incorporated by reference to Exhibit 4(a)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Exhibit 4(a)(viii)1Amended and restated trust deed dated 9 November 2012 relating to a £750 million Euro Medium Term Note Programme, among InterContinental Hotels Group PLC, Six Continents Limited, InterContinental Hotels Limited and HSBC Corporate Trustee Company (UK) Limited (incorporated by reference to Exhibit 4(a)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)
Exhibit 4(c)(i)1Paul 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)
Exhibit 4(c)(ii)1Tracy Robbins’ service contract dated 9 August 2011 (incorporated by reference to Exhibit 4(c)(i) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Exhibit 4(c)(iii)1Tom Singer’s service contract dated 26 July 2011 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 29 March 2012)
Exhibit 4(c)(iv)1Kirk Kinsell’s service contract commencing on 1 August 2010, as amended by a letter dated 5 July 2010 (incorporated by reference to Exhibit 4(c)(ii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)
Exhibit 4(c)(v)1Richard Solomons’ service contract dated 16 March 2011, commencing on 1 July 2011 (incorporated by reference to Exhibit 4(c)(iii) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 11 April 2011)
Exhibit 4(c)(vi)1Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 26 September 2012 (incorporated by reference to Exhibit 4(c)(v) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)
Exhibit 4(c)(vii)1Rules of the InterContinental Hotels Group Annual Bonus Plan as amended on 26 September 2012 (incorporated by reference to Exhibit 4(c)(vi) of the InterContinental Hotels Group PLC Annual Report on Form 20-F (File No. 1-10409) dated 26 March 2013)
Exhibit 4(c)(ix)Rules of the InterContinental Hotels Group Long Term Incentive Plan as amended on 2 May 2014
Exhibit 4(c)(x)Rules of the InterContinental Hotels Group Annual Performance Plan as amended on 2 May 2014
Exhibit 8List of subsidiaries as at 31 December 2014
Exhibit 12(a)Certification of Richard Solomons filed pursuant to 17 CFR 240.13a-14(a)
Exhibit 12(b)Certification of Paul Edgecliffe-Johnson filed pursuant to 17 CFR 240.13a-14(a)
Exhibit 13(a)Certification of Richard Solomons and Paul Edgecliffe-Johnson furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350
Exhibit 15(a)Consent of independent registered public accounting firm, Ernst & Young LLP

1Incorporated by reference.

 

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IHG  |  Annual Report and Form 20-F 2017  |  Additional Information  |  Useful information187


Additional Information

 

181


IHG  Annual Report and Form 20-F 2014

Form 20-F cross-reference guide

Item  Form 20-F caption  Location in this document  Page
1  Identity of directors, senior management and advisers  Not applicable  
2  Offer statistics and expected timetable  Not applicable  
3  Key information:      
  3A – Selected financial data  Shareholder information: Selected five-year consolidated financial information  174-175
      Shareholder information: Dividend history  177
   3B – Capitalisation and indebtedness  Not applicable  
   3C – Reason for the offer and use of proceeds  Not applicable  
   3D – Risk factors  Group information: Risk factors  162-165
4  Information on the Company      
  4A – History and development of the Company  Group information: History and developments  162
    Shareholder information: Return of funds  176
      Useful information: Contact details  180
  4B – Business overview  Strategic Report  2-51
      Group information: Working Time Regulations 1998  169
   4C – Organisational structure  Group Financial Statements: Note 34 – Principal operating subsidiary undertakings  153
  4D – Property, plants and equipment  Strategic Report: Doing business responsibly – IHG’s global greenhouse gas (GHG) emissions  25
      Group Financial Statements: Note 10 – Property, plant and equipment  126
4A  Unresolved staff comments  None  
5  Operating and financial review and prospects      
  5A – Operating results  Strategic Report: Performance  34-51
      Group Financial Statements: Accounting policies  107-113
  5B – Liquidity and capital resources  Strategic Report: Performance – Liquidity and capital resources  50-51
    Group Financial Statements: Note 17 – Cash and cash equivalents  133
    Group Financial Statements: Note 20 – Financial risk management  135-137
    Group Financial Statements: Note 21 – Loans and other borrowings  138-139
    Group Financial Statements: Note 22 – Derivative financial instruments  139
      Group Financial Statements: Note 23 – Fair value measurement  140-141
   

5C – Research and development; intellectual

         property

  Not applicable  
   5D – Trend information  Strategic Report: Performance  34-51
   5E – Off-balance sheet arrangements  Strategic Report: Performance – Liquidity and capital resources  50-51
   5F – Tabular disclosure of contractual obligations  Strategic Report: Performance – Liquidity and capital resources  50-51
   5G – Safe harbour  Additional Information: Forward-looking statements  186
6  Directors, senior management and employees      
   6A – Directors and senior management  Corporate Governance: Who is on our Board of Directors and Who is on our Executive Committee  57-61
  6B – Compensation  Directors’ Remuneration Report  76-91
    Group Financial Statements: Note 25 – Retirement benefits  142-146
      Group Financial Statements: Note 26 – Share-based payments  146-148
   6C – Board practices  Corporate Governance  54-72
  6D – Employees  Strategic Report: Disciplined Execution – Investment in developing great talent  23
    Group Financial Statements: Note 3 – Staff costs and Directors’ emoluments  120
      Group information: Working Time Regulations 1998  169
  6E – Share ownership  Directors’ Report: Director and Executive Committee shareholdings  74
    Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Scheme interests awarded during 2014  86
    Directors’ Remuneration Report: Annual Report on Directors’ Remuneration – Statement of Directors’ shareholdings and share interests  88
    Group Financial Statements: Note 26 – Share-based payments  146-148
      Group information: Executive Committee members’ shareholdings  166
7  Major shareholders and related party transactions      
  7A – Major shareholders  Directors’ Report: Major institutional shareholders  73
      Shareholder information: Shareholder profiles  178
  7B – Related party transactions  Group Financial Statements: Note 14 – Investment in associates and joint ventures  130
      Group Financial Statements: Note 31 – Related party disclosures  152
   7C – Interests of experts and counsel  Not applicable  
8  Financial Information      
  8A – Consolidated statements and other  Directors’ Report: Dividends  73
           financial information  Group Financial Statements  92-153
      Group information: Rights attaching to shares  167-168
   8B – Significant changes  None  

182


Item  Form 20-F caption  Location in this document  Page
9  The offer and listing      
   9A – Offer and listing details  Shareholder information: Share price information  177
   9B – Plan of distribution  Not applicable  
   9C – Markets  Shareholder information: Share price information  177
   9D – Selling shareholders  Not applicable  
   9E – Dilution  Not applicable  
   9F – Expenses of the issue  Not applicable  
10  Additional information      
   10A – Share capital  Not applicable  
   10B – Memorandum and articles of association  Group information: Articles of Association  167-168
   10C – Material contracts  Group information: Material contracts  169-170
   10D – Exchange controls  Shareholder information: Exchange controls and restrictions on payment of dividends  171
   10E – Taxation  Shareholder information: Taxation  171-173
   10F – Dividends and paying agents  Not applicable  
   10G – Statement by experts  Not applicable  
   10H– Documents on display  Useful information: Investor information – Documents on display  179
   10I – Subsidiary information  Not applicable  
11  Quantitative and qualitative disclosures about market risk  Group Financial Statements: Note 20 – Financial risk management  135-137
12  Description of securities other than equity securities      
   12A – Debt securities  Not applicable  
   12B – Warrants and rights  Not applicable  
   12C – Other securities  Not applicable  
   12D – American depositary shares  Group information: Description of securities other than equity securities  166-167
13  Defaults, dividend arrearages and delinquencies  Not applicable  
14  Material modifications to the rights of security holders and use of proceeds  Not applicable  
15  Controls and Procedures      
   15A – Controls and Procedures  Shareholder information: Disclosure controls and procedures  173
   

15B – Management’s annual report on internal control over financial reporting

  Group Financial Statements: Statement of Directors’ Responsibilities – Management’s report on internal control over financial reporting  94
   

15C – Attestation report

  Group Financial Statements: Independent Auditor’s US Report  99
   

15D – Changes in internal controls over financial reporting

  Group Financial Statements: Statement of Directors’ Responsibilities: Management’s report on internal control over financial reporting  94
16  16A – Audit committee financial expert  

Corporate Governance: Audit Committee Report

Shareholder information: Summary of significant corporate governance differences from NYSE listing standards – Committees

  

65

174

   16B – Code of ethics  Strategic Report: Doing business responsibly  24-25, 74
  16C – Principal accountant fees and services  Corporate Governance: Audit Committee Report – External Auditor  66-67
    Corporate Governance: Audit Committee Report – Non-audit services  67
      Group Financial Statements: Note 4 – Auditor’s remuneration paid to Ernst & Young LLP  120
   

16D – Exemptions from the listing standards for audit committees

  Not applicable  
   

16E – Purchase of equity securities by the issuer and affiliated purchasers

  Shareholder information: Purchases of equity securities by the Company and affiliated purchasers  176
   

16F – Change in registrant’s certifying accountant

  Not applicable  
   16G – Corporate governance  Shareholder information: Summary of significant corporate governance differences from NYSE listing standards  173-174
   16H – Mine safety disclosure  Not applicable  
17  Financial statements  Not applicable  
18  Financial statements  Group Financial Statements  92-153
19  Exhibits  Additional information: Exhibits  181

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183


IHG  Annual Report and Form 20-F 2014

GlossaryForward-looking statements

    

adjusted

excluding the effect of exceptional items and any relevant tax.

    

ADR

an American Depositary Receipt, being a receipt evidencing title to an ADS.

ADR Depositary (JPMorgan)

JPMorgan Chase Bank N.A.

ADS

an American Depositary Share as evidenced by an ADR, being a registered negotiable security, listed on the New York Stock Exchange, representing one ordinary share of 15 265329 pence each of the Company.

AGM

Annual General Meeting.

AMEA

Asia, Middle East and Africa.

Annual Report

The Annual Report and Form 20-F 2017 contains certain forward-looking statements as defined under US legislation (Section 21E of the Securities Exchange Act of 1934) with respect to the financial condition, results of operations and business of InterContinental Hotels Group and certain plans and objectives of the Board of Directors of InterContinental Hotels Group PLC with respect thereto. Such statements include, but are not limited to, statements made in the Chairman’s statement and in the Chief Executive Officer’s review. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements, including, but not limited to: the risks of political and economic developments; the risk of events that adversely impact domestic or international travel; the risks of the hotel industry supply-and-demand cycle; the Group being subject to a competitive

and changing industry; the Group’s exposure to risks related to executing and realising benefits from strategic transactions, including acquisitions; the Group’s dependence upon a wide range of external stakeholders and business partners; the Group’s exposure to increasing competition from online travel agents and intermediaries; the risks related to identifying, securing and retaining franchise and management agreements; the risks in relation to changing technology and systems; the years ending 31 December 2013 or 2014, as relevant.Group’s reliance on the reputation of its brands and is exposed to inherent reputation risks; the Group’s exposure to risks associated with its intellectual property; the risks involved in the Group’s reliance upon its reservation system and other key technology platforms, and the risks that could cause the failure of these systems; the risks associated with safety, security and crisis management; the ability to acquire and retain the right people, skills and capability to manage growth and change; the risks associated with the Group’s financial stability and its ability to borrow and satisfy debt covenants; the risk of litigation; the risks related to information security and data privacy; compliance with existing and changing regulations and societal expectations across numerous countries, territories and jurisdictions; and the risks associated with insuring its business.

APP

Annual Performance Plan.

Articles

The main factors that could affect the Articles of Associationbusiness and financial results are described in the Strategic Report of the Company for the time being in force.

average daily rate or average room rate

rooms revenue divided by the number of room nights sold.

basic earnings per ordinary share

profit available for IHG equity holders divided by the weighted average number of ordinary shares in issue during the year.

capital expenditure

purchases of property, plant and equipment, intangible assets, associate and joint venture investments, and other financial assets.

cash-generating units (CGUs)

the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Code

UK Corporate Governance Code issued in September 2012 by the Financial Reporting Council in the UK.

Companies Act

the Companies Act 2006, as amended from time to time.

Company

InterContinental Hotels Group PLC.

comparable RevPAR

a comparison for a grouping of hotels that have traded in all months in both financial years being compared. Principally excludes new hotels, hotels closed for major refurbishment and hotels sold in either of the two years.

constant currency

a current year value translated using the previous year’s exchange rates.

contingencies

liabilities that are contingent upon the occurrence of one or more uncertain future events.

continuing operations

operations not classified as discontinued.

currency swap

an exchange of a deposit and a borrowing, each denominated in a different currency, for an agreed period of time.

derivatives

a financial instrument used to reduce risk, the price of which is derived from an underlying asset, index or rate.

direct channels

digital and voice.

discontinued operations

hotels or operations sold or those classified as held for sale when the results relate to a separate line of business, geographical area of operations, or where there is a co-ordinated plan to dispose of a separate line of business or geographical area of operations.

Employee Engagement survey

twice a year, we ask our employees and those who work in our managed hotels (excluding our joint venture hotels) to participate in an Employee Engagement survey, to measure employee engagement.

EU

the European Union.

euroor

the currency of the European Economic and Monetary Union.

exceptional items

items that are disclosed separately because of their size or nature.

extended-stay

hotels designed for guests staying for periods of time longer than a few nights and tending to have a higher proportion of suites than normal hotels (Staybridge Suites and Candlewood Suites).

fee margin

operating profit as a percentage of revenue, excluding revenue and operating profit from owned and leased hotels, managed leases and significant liquidated damages.

fee revenue

Group revenue excluding revenue from owned and leased hotels, managed leases and significant liquidated damages.

franchisee

an operator who uses a brand under licence from the brand owner, IHG.

franchisor

the brand owner, IHG, who licenses brands for use by operators.

goodwill

the difference between the consideration given for a business and the total of the fair values of the separable assets and liabilities comprising that business.

Groupor IHG

the Company and its subsidiaries.

Guest Heartbeat

IHG’s guest satisfaction measurement tool to measure brand preference and guest satisfaction.

hedging

the reduction of risk, normally in relation to foreign currency or interest rate movements, by making offsetting commitments.

IASB

International Accounting Standards Board.

ICETUS

InterContinental Executive Top-Up Scheme.

IC Plan

InterContinental Hotels UK Pension Plan.

IFRS

International Financial Reporting Standards as adopted by the EU and issued by the IASB.

IHG System

Hotels operating under franchise and management agreements together with IHG owned and leased hotels.

184


IHG System size

the number of hotels/rooms franchised, managed, owned and leased by IHG.

indirect channels

online travel intermediaries and business and leisure travel agents.

interest rate swap

an agreement to exchange fixed for floating interest rate streams (or vice versa) on a notional principal.

liquidated damages

payments received in respect of the

early termination of management and franchise contracts, where applicable.

LTIP

Long Term Incentive Plan.

managed leases

properties structured for legal reasons as operating leases but with the same characteristics as management contracts.

management contract

a contract to operate a hotel on behalf of the hotel owner.

market capitalisation

the value attributed to a listed company by multiplying its share price by the number of shares in issue.

net debt

borrowings less cash and cash equivalents, including the exchange element of the fair value of currency swaps hedging the borrowings.

net rooms supply

net total number of IHG hotel rooms.

NYSE

New York Stock Exchange.

occupancy rate

rooms occupied by hotel guests, expressed as a percentage of rooms that are available.

ordinary share

from 9 October 2012 until 30 June 2014, the ordinary shares of 14 194329 pence each in the Company; and from 1 July 2014, the ordinary shares of 15 265329 pence each in the Company.

owner

the ultimate owner of a hotel property.

pipeline

hotels/rooms that will enter the IHG System at a future date. A new hotel only enters the pipeline once a contract has been signed and the appropriate fees paid. In rare circumstances, a hotel will not open for reasons such as the financing being withdrawn.

RevPAR or revenue per available room

rooms revenue divided by the number of room nights that are available (can be mathematically derived from occupancy rate multiplied by average daily rate).

room count

number of rooms franchised, managed, owned or leased by IHG.

rooms revenue

revenue generated from the sale of room nights.

royalty revenues

rooms revenue that a franchisee pays to the brand owner for use of the brand name.

SCETUS

Six Continents Executive Top-Up Scheme.

SEC

US Securities and Exchange Commission.

Six Continents

Six Continents Limited; previously Six Continents PLC and re-registered as a private limited company on 6 June 2005.

sterlingor pounds sterling, £, penceor p

the pound sterling, the currency of the United Kingdom.

subsidiary undertaking

a company over which the Group exercises control.

system contribution to revenue

per cent of rooms revenue delivered through IHG’s direct and indirect systems and channels.

System Fundor Fund

assessment fees and contributions collected from hotels within the IHG System for the specific use of marketing, the IHG Rewards Club loyalty programme and the global reservations system.

technology income

income received from hotels under franchise and management agreements for the use of IHG’s proprietary reservations system.

total gross revenue

total rooms revenue from franchised hotels and total hotel revenue from managed, owned and leased hotels. It is not revenue attributable to IHG, as it is derived from hotels owned by third parties.

TSRor Total Shareholder Return

the theoretical growth in value of a shareholding over a period, by reference to the beginning and ending share price, and assuming that dividends, including special dividends, are reinvested to purchase additional units of the equity.

UK

the United Kingdom.

UK DB Plan

the Defined Benefit section of the IC Plan.

UK DC Plan

the Defined Contribution section of the IC Plan.

UK GAAP

United Kingdom Generally Accepted Accounting Practice.

US

the United States of America.

US 401(k) Plan

the Defined Contribution 401(k) plan.

US Deferred Compensation Plan

the Defined Contribution Deferred Compensation Plan.

US dollars, US$, $or ¢

the currency of the United States of America.

working capital

the sum of inventories, receivables and payables of a trading nature, excluding financing and taxation items.

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185


IHG Annual Report and Form 20-F 2014
2017.

 

Forward-looking statements

The Annual Report and Form 20-F 2014 contain certain forward-looking statements as defined under US legislation (section 21E of the Securities Exchange Act of 1934) with respect to the financial condition, results of operations and business of InterContinental Hotels Group and certain plans and objectives of the Board of Directors of InterContinental Hotels Group PLC with respect thereto. Such statements include, but are not limited to, statements made in the Chairman’s Statement and in the Chief Executive Officer’s Review. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, or other words of similar meaning. These statements are based on assumptions and assessments made by InterContinental Hotels Group’s management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors, they believe to be appropriate.

By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed in, or implied by, such forward-looking statements, including, but not limited to: the risks of the effect of political and economic developments; the risk of events that adversely impact domestic or international travel; the risks of the hotel industry supply and demand cycle; the Group being subject to a competitive and changing industry; the Group’s exposure to risks related to executing and realising benefits from strategic transactions, including acquisitions; the Group’s dependence upon a wide range of external stakeholders and business partners; the Group’s exposure to increasing competition from online travel agents and intermediaries; the risks related to identifying, securing and retaining franchise and management agreements; the risks in relation to changing technology and systems; the risks associated with the Group’s financial stability and its ability to borrow and satisfy debt covenants; the risk of litigation; the Group’s reliance on the reputation of its brands and exposure to inherent reputation risks, including those associated with intellectual property; the risks involved in the Group’s reliance upon its reservations system and other key technology platforms, and the risks that could cause the failure of these systems; the risks related to information security and data privacy; the risks associated with safety, security and crisis management; the ability to acquire and retain the right people, skills and capability to manage growth and change; compliance with existing and changing regulations across numerous countries, territories and jurisdictions; the risks related to ethics and responsible business practices; and the risks associated with insuring its business.

The main factors that could affect the business and financial results are described in the Strategic Report of the Annual Report and Form 20-F 2014.

Designed and produced

byAddison Group

www.addison-group.net

Managed byRR Donnelley

This Report is printed on Satimatt Green
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188IHG  |  Annual Report and Form 20-F 2017


 

 

186


InterContinental Hotels Group PLC

Broadwater Park, Denham,

Buckinghamshire UB9 5HR

United Kingdom

Tel +44 (0) 1895 512 000

Fax +44 (0) 1895 512 101

Web www.ihgplc.com

Make a booking at www.ihg.com


SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

 

Designed and produced bySuperunion

(formerly Addison Group), London.

www.superunion.com

Managed by Donnelley Financial Solutions

InterContinental Hotels Group PLC’s commitment to environmental issues is reflected in this Annual Report.

This report has been printed on Symbol Matt Plus. Environmental friendly ECF (Elemental Chlorine Free Guaranteed) paper, certified by the FSC® (Forest Stewardship Council). Containing a high content of selected recycled materials (minimum 25% guaranteed).

The FSC® (Forest Stewardship Council) is a worldwide label which identifies products obtained from sustainable and responsible forest management.

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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.

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InterContinental Hotels Group PLC

Broadwater Park, Denham

Buckinghamshire UB9 5HR

United Kingdom

Tel +44 (0) 1895 512 000

Fax +44 (0) 1895 512 101

Webwww.ihgplc.com

Make a booking atwww.ihg.com

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Crowne Plaza Harbin Songbei, China

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

INTERCONTINENTAL HOTELS GROUP PLC
(Registrant)
By:/s/ Paul Edgecliffe-Johnson

Name: Paul Edgecliffe-Johnson
Title:  Chief Financial Officer

INTERCONTINENTAL HOTELS GROUP PLC

(Registrant)

By:

/s/    Paul Edgecliffe-Johnson

Name:Paul Edgecliffe-Johnson
Title:Chief Financial Officer

Date: February 26, 2015Date: 1 March 2018